By Omoh Gabriel, Business Editor

The global economic recovery is advancing, albeit at an uneven pace, Finance Minister and Central Bank Governors of the 20 group of emerging economies have said.

Finance Minister Olusegun Aganga

According to their verdict after a meeting with the International Monetary Fund February 17-18, the “global GDP increased at a stronger-than-expected annualised rate of over 3½ per cent in third quarter of 2010. This implies that with major economies of the world recovering, demand for oil will rise just as the price of the commodity has risen to $120 per barrel. Expectations are that prices of crude will rise further to pre-2008 level and the Nigerian economy will benefit from the recovery.

Already, Finance Minister Olusegun Aganga has disclosed that the Federal Government has resumed savings in its excess crude account, after almost emptying the fund by September, and pledged to be more open about foreign currency reserves. The excess account swelled to $2.2 billion in December after dropping to as little as $500 million in September from $4.6 billion in April, Aganga said in an interview in Abuja.

The fund had reached as much as $20 billion in 2007. Nigeria, the fifth-largest supplier of U.S. crude imports relies on oil for 95 per cent of its export income, according to the Finance Ministry. Fitch Ratings lowered Nigeria outlook to BB- rating to “negative” from “stable” on Oct. 22, concerned about withdrawals from the excess crude account and a drop in foreign currency reserves.

“We’ve not been as transparent as we should be, but it’s not because we’re trying to hide anything,” said Aganga. “It’s just because we’ve not captured our data in the way we should and have not made them available as other countries have made them available.”

The decline in foreign currency reserves increased the risk to the economy from any renewed drop in oil prices, Fitch said. Foreign currency reserves, including the excess crude account, slid to $32 billion in December from $42 billion in January 2010 because of the government’s expansionary policy, Aganga had said adding that some of the money was also used to stabilize the exchange rate.

The government is meant to save money when oil prices exceed the estimate in its annual budget. That forecast was set at $65 a barrel for 2011, compared with the $104 oil is currently trading in New York. Aganga said, noting that reserves are now rising again, reaching $34 billion on Feb. 16, he said.

Nigeria, sold $500 million of Eurobonds last month, attracting buyers from 18 countries in Europe, the U.S., Asia and Africa.

Nigeria has seen oil production stabilize at 2.16 million barrels a day as a result of the relative calm in the Niger River delta, the hub of the country’s oil industry, Information Minister, Labaran Maku said on Feb. 2. Crude for April delivery rose as much as $2.65 to $120 a barrel in electronic trading on the New York Mercantile Exchange Friday.

According to the verdict of the G-20 ministers of Finance and Central Bank Governors: “In the G-20 advanced economies, activity has moderated less than expected, but growth remains subdued and insufficient to significantly reduce still-high unemployment.

But “in G-20 emerging economies, growth remains robust, buoyed by strong domestic demand and the recovery of global trade, still-accommodative policy stances, and resurgent capital flows. However, inflationary pressures are building, and there are emerging signs of overheating in some economies”.

The ministers and Central Bank Governors in their discussions observed that “While financial turbulence has receded in recent weeks, underlying stresses in peripheral euro area economies remain unresolved and are linked to the core through financial exposures. Markets are looking for more capacity and flexibility of the current crisis management facilities and clarification about the permanent European Stability Mechanism (ESM). ECB intervention and strengthening of national policy actions in countries under pressure have led to some recent positive market developments, including the successful bond issuance by the European Financial Stability Facility (EFSF). Nonetheless, banks face continued funding strains and many remain reliant on ECB liquidity support, while banking and sovereign risks remain closely intertwined”.

In line with the two-speed recovery, downside risks remain elevated in advanced economies, while overheating risks are growing in emerging economies. Intensification and broadening of financial sector strains resulting from sovereign and banking sector risks in the euro area periphery is a significant risk to the recovery in the region and possibly beyond. Overheating and building inflationary pressures in some emerging economies, exacerbated by large capital flows and rising commodity prices (with adverse consequences for lower income countries), and a potentially steep correction of property prices in China have emerged as pertinent risks to the recovery. Another downside risk stems from insufficient progress in developing medium-term fiscal consolidation plans, especially in the United States and Japan.

Cooperative and well-timed policy initiatives across the G-20 are critical to sustain the global recovery, while reducing global imbalances. In G-20 advanced economies, the most urgent requirements are for comprehensive and rapid actions to overcome sovereign and financial stresses in the euro area and accelerate progress in developing medium-term fiscal consolidation plans. Rapid progress in the repair and reform of financial systems—critical to the normalisation of credit conditions—would help reduce the burden on monetary and fiscal policy to support the recovery, and potentially help stem volatile capital flows to emerging economies. In G-20 emerging economies, the key policy challenge is to keep overheating pressures in check and respond appropriately to capital inflows. In key surplus economies, overheating pressures can be alleviated by permitting currency appreciation, facilitating a healthy rebalancing from external to internal demand.