Nigeria plans to spend $2 billion from its oil windfall fund to clear government contractors’ debts and boost local spending in a move analysts said risked undermining reforms designed to wring better returns from oil earnings in sub-Saharan Africa’s biggest energy producer.

The country’s top-level economic policy body will on Wednesday consider $2 billion “extra budgetary spending” in the form of a “fiscal stimulus – to ease the credit crunch and boost consumer demand”, Tanimu Yakubu, Economic Advisor to Umaru Yar’Adua, President of Nigeria.

The money, equivalent to about 1% of gross domestic product, will come from savings known as the excess crude account. The account was created in 2004 with the aim of shielding the economy from the volatility of crude prices. However, under Nigeria’s federal constitution, the country’s 36 states successfully challenged the central government’s right to hoard oil earnings above a crude-price benchmark against a rainy day, leading to increased spending.

Some senior officials and analysts fear that tapping the oil savings again now will leave the country vulnerable if the global economic recovery falters or if planned reforms and an amnesty for the Niger Delta’s militant groups fail to restore the energy sector to health. Read the rest of this entry »

Tags: Central Bank of Nigeriam CBN, Excess Crude Account, IMF, International Monetary Fund, Michael Hugman, Niger Delta, Nigeria, Oil and Gas, Onno Ruhl, Standard Bank, Tanimu Yakubu, Umaru Yar'Adua, World Bank