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.
