Nigerian election rivals lock horns over economy

LAGOS Thu Jan 6, 2011 2:05pm EST

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LAGOS (Reuters) - The two main rivals in Nigeria's ruling party have locked horns over the country's dwindling oil savings and the state of its public finances, putting the economy back in the spotlight a week ahead of the primaries.

President Goodluck Jonathan's administration had spent the past few weeks defending itself against accusations that it has not done enough to guarantee national security, after bomb blasts in the capital Abuja and the central city of Jos.

But an 11-page letter from his main rival, former Vice President Atiku Abubakar, lambasting him for being too loose with the nation's purse strings when Nigeria should be reaping the benefits of rising oil prices, has refocused the debate.

"At a time of unprecedented oil boom, you have presented Nigeria with a budget of consumption for consumption, a budget of debt accumulation to imperil the future," Abubakar said in the letter, published on his Website this week. (www.atiku.org)

Jonathan presented a 4.2 trillion naira ($28 billion) 2011 budget proposal to parliament in December, saying it represented a sharp drop in approved spending over 2010 and dubbing it a "budget of fiscal consolidation."

But almost 2.5 trillion naira was earmarked for recurrent expenditure -- the cost of running government -- while another 196 billion is for paying institutions such as the judiciary and 542 billion is for debt servicing. That leaves just over 1 trillion for badly needed capital spending.

"I almost wept for Nigeria after reading your 2011 budget," Abubakar said, pledging he would cut the cost of government and spend more on infrastructure, power, health and education.

Nigerian Finance Minister Olusegun Aganga, a quietly spoken former Goldman Sachs banker, was fielded by Jonathan to defend the budget against Atiku's broadside.

"This letter is a desperate attempt ... to mislead the electorate and the Nigerian public through the deliberate misrepresentation of the facts," Aganga said, reading a 14-page retort to reporters in the presidential villa.

"This administration recognizes that as a country, we need a continuous policy effort to live within our means."

He said the 2011 spending plans foresaw net borrowing of 865 billion naira, down 38 percent from last year, and that the deficit would narrow to 3.6 percent.

SO WHO IS RIGHT?

Analysts have grown increasingly concerned about the state of the public finances in Africa's top oil exporter and its third biggest economy, particularly as the April elections approach and costly campaigns get underway.

Recurrent expenditure already accounts for more than half of the country's overall spending, meaning it is paying more to keep government running than it is investing in badly-needed infrastructure and other capital projects.

Legislators' salaries are not made public, but they are thought to be among the best paid in the world, and yet parliament has passed just 16 bills in the past two and half years, according to Nigeria's Policy and Legal Advocacy Center.

Despite higher oil prices and output, Nigeria's foreign reserves of $33 billion were down almost a quarter on a year earlier by the start of December and the 2010 budget deficit is expected to have topped 6 percent.

But perhaps most eye-watering of all is the depletion of its excess crude account, into which Africa's most populous nation is supposed to save oil revenues above a benchmark price to save for a rainy day.

The account held $20 billion when late President Umaru Yar'Adua began the current presidential term four years ago. It now holds $300 million after the latest $1 billion disbursal to the three tiers of government in December.

There is debate over the legal basis for the excess crude account, making it harder for the federal government to defend the savings from cash-hungry state governors who rely on their share of the national purse to fund their own governments.

Jonathan has made much of his plans for a sovereign wealth fund, backed by a stronger legal framework, to replace the account and allow Nigeria to save for future generations.

But only the outcome of his battle with Atiku at next week's primaries and of the general election on April 9 will decide whether he will still be in office to oversee it.

(Writing by Nick Tattersall; Editing by Ron Askew)

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