Nigeria is seeking to build a $60 billion war chest to fight off a possible downturn arising from a gathering global economic storm.
Finance minister and co-coordinating minister for the economy, Ngozi Okonjo-Iweala, who announced this in Lagos on Tuesday, acknowledged growing worry over collapsing oil prices, rising inflation and a fall in investment flows into Nigeria.
“We acknowledge that there is concern about the direction of the global economy, and we are doing something about this by seeking to build a buffer for the Nigerian economy like we did in the past,” she told her guests in Lagos.
The plan is to grow the Excess Crude Account (ECA) from the current $4.9 billion to $10 billion and raise the level of the nation’s foreign reserves to $50 billion within one year. According to the minister, the expected $10 billion ECA fund should cover the nation’s imports over a three-month period.
The game-plan is to scare away or discourage international currency speculators from having a go at the naira in time of an economic storm. “If they (speculators) see that our buffer is thin, they may be tempted to attack our currency and that will be very harmful to our economy,” the minister said.
The minister revealed that her focus remains to cut Nigeria’s dependence on oil, contain fiscal deficit and ensure continuing stability of the local currency.
She also listed other areas of attention to include port reforms, power privatisation and the need to provide more guarantees to prospective private producers of power.
Okonjo-Iweala confirmed the plan of the Federal Government to establish a sinking fund to retire some of the maturing FG bonds, cut the level of government borrowing and open up the credit space for the private sector to thrive.
The naira has been hit by a fall in the price of oil, Nigeria’s main export (which is down nearly 27 percent since mid-March), and global risk aversion and has weakened by almost 3 percent against the dollar since April.
Nigeria’s benchmark bonny light crude traded at $105.4 per barrel at 11.36 Eastern Time yesterday. It had traded as high as $128 per barrel in March.
The ECA, which held $20 billion prior to the 2007 global economic crisis, helping to cushion Nigeria against slowing growth, has been mostly depleted despite record high oil prices in recent years.