ABUJA — MINISTER of Finance, Dr Ngozi Okonjo-Iweala, who takes office this week, yesterday, vowed to tighten fiscal policy amid falling oil prices and turbulent global financial markets.
Prices for oil, which account for 80 per cent of fiscal revenue, have slumped 14 per cent in New York since July 26, reaching as low as $75.71 a barrel on Aug. 9. At the same time, economic growth in the U.S., which sources a fifth of its crude imports from Nigeria, is slowing.
Okonjo-Iweala said in a telephone interview from Washington on August 12, her last day as a managing director of the World Bank. “We need to tighten fiscal policy. We need to get on a better fiscal path.”
The nation boosted spending this year as the continent’s most populous nation held elections and increased wages. The National Assembly on May 25 approved an amended budget for 2011 that raised President Goodluck Jonathan’s spending estimates by 17 per cent to N4.5 trillion ($29 billion).
“She’s going to have a lot of challenges as oil prices fall,” said Sebastian Spio-Garbrah, managing director of New York-based DaMina Advisors LLP, a frontier-market risk adviser, said in a telephone interview. “The government won’t be able to make the investments they want to without the money.”
Okonjo-Iweala, 57, was finance minister between 2003 and 2006, spearheading talks that led the Paris Club group of creditors to write off $18 billion in debt. She resigned from the Cabinet in August 2006 after then-president Olusegun Obasanjo moved her to the Foreign Ministry post and dropped her as head of his economic team.
“Fiscal policy has been extremely loose over the last two years and it’s just not a sustainable path,” Samir Gadio, an emerging-markets strategist at Standard Bank Group Ltd., said in a phone interview. “This has to be addressed.” The naira has dropped 1.3 percent against the dollar this year and was trading at 153.95 as of 10:20 a.m. in Lagos.
Jonathan asked Okonjo-Iweala to return to government after winning the presidential vote, expanding her mandate to include the coordination of economic policy. Her priority will be to find ways to meet Jonathan’s goals of increasing investment in power plants, roads and agriculture to help diversify the economy and create jobs, she said. Jonathan’s People’s Democratic Party won 205 of the 364 seats in the National Assembly in this year’s election, cutting its majority to 56 percent from 74 percent in 2007.
“She will be operating in a more constrained political environment than before,” Spio-Garbrah said. Nigeria is Africa’s biggest oil producer. The federal government’s domestic debt rose to 5.21 trillion naira at the end of June, from 4.87 trillion naira as of March, according to statements on the website of the Abuja-based Debt Management Office.
Nigeria has an overall debt-to-GDP ratio of around 23 percent, according to Razia Khan, the London-based head of African economic research at Standard Chartered Bank Ltd. The euro zone’s average debt as a percentage of GDP was 85.1 percent by the end of 2010, according to Eurostat.