Aganga reshapes Nigeria’s public finances
Nigeria’s finance minister, Olusegun Aganga, says he has nothing to hide about the pre-election depletion of the country’s Excess Crude Account. But, as he explains to Dominic O’Neill, with a new sovereign wealth fund the government will save more, protecting the economy from shocks and encouraging private and foreign investment in key infrastructure projects.
Nigeria’s currency is dangerously exposed in the run-up to a presidential election in April that might prompt destabilizing inter-communal violence. With oil prices rising way above those projected in the government’s budget, money should have accrued over the past year into an Excess Crude Account (ECA) – if the fund had been used as intended when it was set up in 2004.
The ECA could have given the nation’s budget a cash buffer to protect against a dip in the price of Nigerian oil, now over $100 a barrel. But from a peak of $20 billion three years ago, the account fell to just over $300 million at the end of last year, according to Standard Chartered. Total foreign currency reserves at the central bank, including the ECA, were barely above $34 billion as Euromoney went to press, down from $42 billion in February 2010.
In the oil industry – the source of almost 80% of government revenue – leaving aside price increases, production was higher than in previous years in 2010 thanks to an amnesty with Niger Delta militants. Nigerian domestic government borrowing also went up 40% in 2010.
At the same time, a monetary policy rate of less than 7% in a year of 14% inflation forced the central bank to sell reserves to support the naira at the preferred rate of 150 to the dollar.