By Omoh Gabriel, Business Editor
The Nigeria economy is facing financial haemorrhage as Nigerians, corporate bodies are moving funds massively out of the country as well as from naira to dollar. In the last eight weeks a total of $13.894billion went out of the country. While about $757million went out in the week of ending 9th September, the amount of foreign exchange flowing out of the country rose to $1.359billion for the week ending 19th September. It however dropped to $452million on the 3rd of October and moved astronomically to $3.290billion on 17th October. The foreign exchange outflow went further up to $3.356billion on the 31st of October and decline a little to $2.397billion on the 14th of November and $2.02billion and $1.262billion for the weeks ending 21st of November and 28th respectively. This has resulted in the crash of the naira exchange rate which had remain stable in the last two years. But the CBN has attributed the collapse of the naira at the interbank to currency speculators who buy and hold currency for them to sell at a future date to make some gain. The movement of funds out of the country comes by way of Nigeria residents buying up dollars with their naira and moving it off shore.
The trend became noticeable in October where in fact in a matter of weeks several billion of dollars were purchased through the banks, bureau de change. The movement of funds is also in travels- business travel allowance, personal travel allowance, direct remittances etc. According to data obtained from CBN in the eight weeks the total amount of foreign exchange that went out through travels amounted to $72.067million, Debt service/payment $799.194million, Whole sale at the Dutch Auction market $6.276billion, Direct remittance $851.809million, letters of credit $3.205billion and cash sales to banks and bureau de change $3.170billion
Market operators are also seeing it from the perspective that the reduction of credit line to Nigeria banks by their foreign counterparts as a result of the global financial melt down is partly responsible for the high volume of funds leaving the country as the usual 90 days trade credit line has dried up in some banks who have had to meet the needs of their customers through direct sales. The CBN said Wednesday that it will intervened in the matter on Thursday. The central bank said it sold $180 million on the interbank foreign exchange market on Thursday in a bid to stabilise the naira after it fell sharply against the U.S. dollar. According to a CBN source “We went to the market and we sold about $180 million on a two-way quote,” At the open market on Thursday however the naira exchanged for 126 at the official market, 135 interbank market and 145 at the open market to the dollar.
Nigeria expects its budget deficit to widen to 6.1 percent of GDP this year, more than double the level set under a fiscal responsibility act three years ago, as government spending rises ahead of elections next April.
Revenue shortfalls from the oil and gas sector, unexpected wage increases, and election costs will contribute to the widening deficit, Finance Minister Olusegun Aganga said in an annual briefing on sub-Saharan Africa’s second biggest economy.
Government revenue is projected at 3.18 trillion naira ($20 billion) with expenditure expected to be 5.16 trillion, Aganga said in the review, released on Monday.
Analysts have expressed concern about the state of public finances in Africa’s most populous nation as presidential, parliamentary and state governorship elections approach.
Recurring expenditure accounts for more than half of the country’s overall spending, meaning it is paying more to keep government running than it is investing in badly-needed infrastructure and other capital projects.
Government borrowing has risen sharply, increasing by more than 50 percent since the start of the year, compared to private sector credit growth of just three percent over the same period.
The government has said it will also issue bonds to pay workers at former state telecoms company Nitel and to fund part of the electoral commission’s budget, further increasing domestic debt.
Still, the head of the debt management office has pointed to a debt-to-GDP ratio of 16 percent that is expected to remain stable next year, depending on the rate of economic growth, suggesting Nigeria could easily raise more debt if needed.
But authorities have also spent billions of dollars of oil savings since the start of the year alone, and seen foreign exchange reserves fall 20 percent year on year by mid-November to $34 billion.
Ratings agency Fitch last month cited those factors when it cut its sovereign credit outlook for Nigeria to negative from stable.
The excess crude account (ECA), into which Nigeria saves revenues above a benchmark oil price, has dwindled from $20 billion at the start of late President Umaru Yar’Adua’s term in 2007, to around $4.4 billion when President Goodluck Jonathan took over in May, and less than $1 billion now.
The government says the ECA has served its purpose as an account to be used to protect Nigeria against a fall in commodities prices or a global downturn.
But analysts say the reduction is alarmingly sharp during a period of relatively high oil prices — Thursday’s price of $85 a barrel is a 40 percent premium on the $60 assumption in the 2010 budget — and a recovery in Nigerian oil production. Aganga said last week Nigeria’s foreign reserves were well below where they ought to be and that a plan was in place to restore them.
He has also said spending for next year will be capped at 4.56 trillion naira ($30 billion) as the government seeks to rein in expenditure over the next three years. Parliament approved spending of more than 4.8 trillion naira for 2010, up more than 50 percent on the previous year.