Sanusi warns against depletion of oil savings

… Says successor's main challenge will be independence

Agency Report

Central Bank of Nigeria Governor Lamido Sanusi on Thursday raised the alarm that Nigeria's oil savings were rapidly running out, and that his successor’s main challenge will be to maintain the independence of the institution as any undermining of that may hurt the economy.

According to him, Nigeria's oil savings in the Excess Crude Account (ECA) had now fallen to just $2.5 billion, compared with $11.5 billion a year ago, and that until they were replenished, there would be little room for a policy rate cut below the current 12 percent benchmark.

"We should continue to seek a stable exchange rate for as long as the reserves and monetary conditions can support this,’ Sanusi said.

On the independence of the apex regulatory institution, the banking guru stated that:

“If anyone tampered with it the markets would punish the economy. It’s extremely important from the fiscal side, it’s extremely important from the governance side, that the governor of the central bank is able to speak independently of political authority and raise an alarm and concerns and give constructive criticism and advice,” Sanusi told journalists in an interview with   at the World Economic Forum in Davos.

He ruled out a devaluation of the naira because it would "not affect the current account balance, given the highly inelastic nature of our imports and the dominance of oil".

The governor said he has “no fears” of tightening monetary policy further to keep inflation down and to stabilize the currency. The bank can increase its key interest rate from 12 percent and the cash reserve requirement on public sector funds to 100 percent if needed, he said.

“I don’t think we are at the end of possible tightening cycles, but I do think that the scope for further tightening is getting narrower and narrower,” he said. “We do need to rely more on other instruments.

"My strong view is that a stable currency is absolutely critical for price stability and financial stability in general," he said.

Central bank lifted the cash reserve requirement on public sector deposits held by banks on Tuesday, seeking to stabilise the naira and reflecting its concern about loose fiscal policy ahead of elections next year.

Nigeria's fiscal position always slips around election time, when spending on patronage to secure seats surges, but this one is expected to be the most closely fought since the end of military rule in 1999.

Foreign exchange reserves were $43.26 billion as of Jan. 20, down 4.4 percent from 45.26 billion a year ago, despite continued high oil prices. Sanusi has repeatedly urged the government to do more to rein in spending.

Earlier, Nigeria’s Finance Minister Ngozi Okonjo-Iweala expressed similar concern on  declining oil savings which she said have increased risk in the Nigerian economy, echoing concerns from the central bank Governor.

“We’re a little more vulnerable now than we were in the past,” Okonjo-Iweala, said in an interview from the same World Economic Forum in Davos.

The Excess Crude Account, used to cushion the economy against volatility, has been “spent down” to about $2.5 billion and needs to be increased this year, she said.

The Excess Crude Account, which holds the savings the nation makes when the oil price is above the benchmark price estimated in the budget, has been depleted just as Nigeria’s foreign-currency reserves have dropped 11 percent from last year’s peak of $48.85 billion in May.