UPDATE 2-Nigeria economic prospects strong, IMF says
(Adds quotes from conference call throughout)
WASHINGTON, Feb 15 (Reuters) - Nigeria's economic prospects are "very strong" as long as the country's oil revenues and savings are well managed, an International Monetary Fund official said on Friday.
"We think the authorities have the objectives clearly in mind and understand the issues associated with management of oil revenues and savings," David Nellor, a senior advisor in the IMF's African Department, told a conference call following the release of the fund's 2007 review of Nigeria's economy.
"We see the principles of reform remaining," he added of Nigeria's home-grown, IMF-backed economic reform program.
The fund forecast Nigeria's economy would expand by 9 percent in 2008, slowing to 8.3 percent in 2009 and 7 percent after that through 2011.
Nellor said it would be helpful to Nigeria's inflation outlook if oil savings issued to the federal and state governments were paid in foreign currency, but he cautioned that the authorities would need to closely monitor the exchange rate.
Nigeria's presidency is arguing that the plan to release $4 billion of the country's oil savings to federal and state governments between now and June is unconstitutional and payment must be made in local currency.
The central bank and finance ministry argue the payment should be in U.S. dollars rather than naira to help manage liquidity and limit the inflationary impact.
"On balance, allocation could be done in various ways but the allocation through foreign exchange is probably helpful in terms of the inflation outlook. But then you do need to watch how much pressure is placed on the exchange rate because it does impact private-sector activity," Nellor added.
Since 2003 Nigeria has saved oil revenues in excess of the benchmark price set in the federal budget -- one of the pillars of its reform program introduced by the previous government. The issue, however, has been a source of tension because under the constitution oil revenues belong to all three tiers of governments.
As the economy has grown, development needs have also increased, especially the need for electricity and roads. Meanwhile, poverty remains high despite solid economic growth.
Nellor said spending from the oil savings could occur as long as it did not destabilize the economy by creating excess liquidity in the market or triggering higher inflation.
"We see that there is some scope to spend from the savings but it has to be managed carefully to avoid pushing the deficit to a level which would really trigger inflation and require action by the central bank to tighten policy which would squeeze the private sector," he said.
Nellor said the economic impact from spending would depend on a few factors, particularly if the savings were spent on major infrastructure projects which would require importing most of the equipment. "Then the effect on macrostability is not a problem because the funds are going offshore," he added.
Still, authorities would need to consider the impact on private sector activity, especially if the exchange rate were to be pushed higher, he added. (Reporting by Lesley Wroughton; editing by Andrea Ricci)
