Ayodele Aminu and Constance Ikokwu
15 October 2008
Washington D.C. — To successfully weather the consequences of the global financial crisis, falling oil prices and recession in the developed world, Nigeria will have to tighten its belt in the area of spending, former Minister of Finance and Managing Director of the World Bank, Dr. Ngozi Okonjo-Iweala, has said.
Okonjo-Iweala offered this piece of advice yesterday during an interaction with journalists attending the World Bank and International Monetary Fund (IMF) annual meetings in Washington D.C.
The former finance minister noted that the country's decisions in various sectors of the economy at this critical period should be technically sound.
Nigeria's financial decisions should take into account the current realities around the world, she added.
"It means you have to be very prudent with your budget. As you know in Nigeria, we have the fiscal rule where we budget at an oil price below the prevailing price in the market," she said. "But the oil price I think being used is about $62. If oil is coming down and it's about $82, you can make your own deduction. I will be very prudent because if oil price goes much lower, then you are going to have constraints."
Following the falling oil prices, however, the Federal Government is reworking the 2009 budget to set a new oil benchmark which official sources said would be lower than the $62.5 already proposed.
Okonjo-Iweala said commodity prices were expected to fall by 20/25 per cent in 2009. This does not include oil. But the volatility in the oil market would affect Nigeria, she explained.
The World Bank MD noted that demand for oil could fall if most of the developed world go into recession. Other possible effects are decreased capacity flows, drying up in liquidity and diminished aid delivery.
Already, some oil-producing countries are witnessing a shortfall in remittances, capital flight, decrease in portfolio flow and Foreign Direct Investment (FDI), she explained.
The former finance minister encouraged Nigeria to diversify its economy, taking into consideration the efforts of other countries to develop alternative sources of energy.
She gave an example of Brazil which invested in ethanol during the oil shock of the 90s and has made the business fairly competitive.
On Nigeria's foreign reserves, she said: "We have very healthy reserves. As a result of that fiscal rule, we were able to save so much. Nigeria's reserves are at about $64 billion - unprecedented. I think we have a healthy situation but we should not be complacent. I wouldn't say that the rainy day has come so we pull out all the money and start using it. Not yet. I still think that the money we are getting in the budget now should be used in a much broader and efficient fashion."
She, however, pointed out that many African countries are not in a terrible shape because of the growth witnessed in the last couple of years. The reforms carried out by these countries put them in a good shape to weather the storm, she argued.
The World Bank is ready to assist developing countries with what she described as the four Fs - food, fuel, fertilizer and financial crises. Out of the $1.2 billion committed to African countries, $54 billion has been disbursed, she said.
The bank also plans to increase agriculture assistance from $450 million to $800 million within the next year, she said.
The South-south Initiative launched during the annual meetings by the bank would help developing countries share their experiences with one another, she said. The initiative would provide a database of models that have worked in different countries and give others an opportunity to learn and adopt them to their environments, she added.
Copyright © 2008 This Day. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
Read comments. Write your own.
