Thursday, February 18, 1999 Published at 11:00 GMT
Problems loom for Nigerian economy
Nigeria's economic prospects head downhill as oil revenues fall
By James Walker
No matter the disposition of Nigeria's government, one inescapable fact determines economic prospects in this giant West African state.
Bailout package unlikely
As a result, real GDP growth, bravely predicted at 3% by the government, is likely to be negative in 1999 - massively so in the oil sector - and little improved in 2000, resulting in a major economic crisis for the new administration.
This realisation has led the Abubakar government to push ahead on reaching agreement with the IMF and creditor governments in an attempt to partially cover the gap with an extended structural adjustment facility (ESAF).
The government, although by no means monolithic in its view, has agreed an IMF-monitored programme, the first steps of which were the abolition of the controversial dual-exchange rate and a renewed commitment to the privatisation process in the 1999 budget.
Despite laudatory efforts to date in lobbying sympathetic governments, Nigeria's notorious payments record and complicated debt structure will delay any deal on debt: as an example, debt repayments have been capped again this year at a fraction of their commitments.
A Brazilian-style bailout package does not seem likely, despite strong support for Nigeria's position from the UK. A wait-and-see attitude from international creditors will leave Nigeria's new government, whoever the president is, with some difficult economic choices to make.
It seems that only partial privatisation of the Nigerian state interest in the joint-venture oil sector may be enough to meet the financing gap for this year. Politically unpopular, and technically difficult, this will be a momentous first decision to make for the new government, despite its democratic credentials.
The major worry for the incoming government and for Western creditors is that Nigeria's financing crunch may lead to an upsurge in the demand for foreign exchange, and inevitably, to a run on the newly liberalised currency, the naira.
The temptation to increase money supply and fuel inflationary pressures in this environment may be too difficult to resist for a civilian administration eager to avoid making political enemies early in its remit.
The results may be disastrous for Nigeria's citizens, increasingly pressed by higher prices and low employment prospects. As the economy will really only begin to recover from 2001, in line with increasing oil prices and production improvements, the next two years will be crucial.
Nigeria's 100-plus million people, along with its international friends, will be hoping that the familiar litany of past economic mistakes will not be repeated.
James Walker is Africa editor at the Economist Intelligence Unit.