Minister of Finance and Coordinating Minister for the Economy, Dr. Ngozi Okonjo-Iweala, told the Financial Times that "Nigeria has two to three months of rainy day savings to cushion it while contingencies are put in place, should world oil prices continue to fall."
She expressed fears that in a situation where global oil price falls below $78, the country would have to draw down on the Excess Crude Account (ECA).
Hear the Minister, "Our intention is not to run in there and raid it, but even if prices continue to go down we can survive sufficiently for two to three months. That is the time needed to get other measures in place. What you don't want is a hard
landing."
Acknowledging that "our buffers are slimmer this time," Okonjo-Iweala added that there is about
$4bn in the ECA at present, $2bn short of what the International Monetary Fund had recommended.
She further submitted that the country needs to ramp its non oil revenues on the fiscal side, even as she revealed that global consulting firm, McKinsey, has been engaged to carry out an extensive review
of revenue services in order to identify potential gains.
The Co-ordinating Minister for the economy added that she was encouraged by an exhaustive data
review, which saw Nigeria's economy overtake South Africa's as the continent's largest, showing that the economy had diversified to a much greater extent than previously thought.
Her words, "In an oil country you can never feel at ease exactly. But I feel we can master this situation
because we have a diverse base.
"We will have to look very hard at recurrent expenditure, and identify overlapping agencies.
When the price is heading down everyone sees the necessity but that doesn't stop them from hating
you."
She admitted that lower oil prices would provide a stronger incentive to government to rein in oil theft, which has cost billions of dollars a year, and help to drive through stalled oil sector legislation to stimulate production.
"That would enable us to pick up quantity to help us cushion on the price side," she said.
Nigerian Government, which basically depends on oil for as much as 80 per cent of revenues, is projecting an oil price of $78 per barrel for its 2015 budget, up from $77.5 per barrel in 2013 and precariously close to recent world prices.
Nigeria was in a much stronger position last time the world price of oil tumbled, with about $22bn reserved in the ECA then. Those funds helped the country weather the 2008 global financial crisis with economic output relatively unscathed.
But with recent years of oil boom, the government has consistently used the ECA, sharing the proceeds among the 36 states in the federation, which are constitutionally entitled to their share.
Nigeria also holds foreign reserves equivalent to $39billion. These have come under recent pressure as the central bank has stepped in to prop up the naira, but can still cover up to nine months of imports.
McKinsey helped South Africa broaden its tax base to the tune of about $3bn and Okonjo-Iweala
believed similar gains were possible over the longer term in Nigeria. At the moment, Nigeria's ratio of non-oil tax revenues to GDP stands at 4.5 per cent placing it among the lowest on the continent.
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