Speaking on the eve of the budget for 1999, the head of state, General Abdulsalami Abubakar, blamed the situation on the fall in oil revenue which is Nigeria's principal source of foreign exchange.

He said the unrest in the Niger Delta - the source of most of Nigeria's oil - had exacerbated the situation, and hinted at a tougher policy towards controlling the unrest, saying that his government would "restore normalcy and security in the area".

"While respecting human rights, we will not allow people to take order into their hands," General Abubakar said.

General Abubakar: 'Government will restore normalcy and security'

The country's budget for 1998 was drawn up on the premise that a barrel of oil, of which about two million are produced every day, would sell for US$17. The budget for the coming year is being calculated on an oil price of barely US$9.

The BBC Correspondent in Lagos, Barnaby Phillips, says this has meant that some very tough economic decisions have had to be made. Already the government has indicated it will have to climb down from an increase in civil servant's wages that was announced in September, and it has de-regulated the fuel market causing petrol prices to double.

The fall in oil prices also means the government will be unable to pay the minimum wage it announced recently, and may have to impose a lower rate.

Our correspondent says General Abubakar's government has won plaudits around the world for the manner in which it has transformed the political situation in Nigeria.

The government's concern is that the problems surrounding oil production and oil prices should not threaten Nigeria's stability, with state elections due in January and parliamentary and presidential elections in February.

Barnaby Phillips: the difficulties caused by falling oil prices

The unrest in the oil producing area of Nigeria stems from a desire to have more of the oil-related money invested in local communities, expressed in better amenities and more jobs.