Sanusi Bracing for Shocks to Nigeria’s Fiscal Spending, Dashes Hope of Lower Rates

Sanusi Lamido Sanusi, Central Bank of Nigeria (CBN)’s governor said he is bracing for public spending “shocks” as the country prepares to vote in 2015, reducing the chance of lower interest rates.
“Toward the elections there will be a supplementary budget,” Sanusi said in an interview on Bloomberg TV’s African Business Weekly program, due to be broadcast tomorrow at 5 p.m. local time in Abuja, the capital. “I don’t think I have seen an election cycle in any country in which the government has not spent money.”
Sanusi held the bank’s key interest rate at a record high of 12 percent on Nov. 19 and said policy makers may raise borrowing costs if government spending surges in a pre-election year. While President Goodluck Jonathan has pledged to keep the budget deficit under control, oil revenue has slumped this year and lawmakers are pushing to boost expenditure, adding to pressure on inflation.
“We are bracing ourselves for the possibility of shocks from the fiscal side, and we will have to respond on monetary side,” Sanusi said in the interview, which was conducted in the capital, Abuja. “We have always made it very clear that if we have to tighten then we will tighten.”
Jonathan, 56, who sought medical attention yesterday during a trip to London, postponed his 2014 budget speech twice this month, delaying it on Nov. 19 after lawmakers failed to agree on the benchmark oil price in the spending plan. Oil accounts for about 80 percent of government revenue in Nigeria, Africa’s biggest crude producer.
Sanusi, who is due to leave his position when his term ends in June, raised concerns about high recurrent spending in the budget, such as salaries.
“There’s a lot of money in there that’s recurrent expenditure and overheads, and when you go down and start looking at the fine lines and the numbers, they’re quite frightening,” Sanusi said. “And there’s a significant reduction in capital spending, which is a problem.”
The Central Bank of Nigeria has kept its benchmark rate unchanged since October 2011 to help stabilize the naira and keep inflation under control. Consumer prices rose at the slowest pace in more than five years in October, gaining 7.8 percent from a year ago, while the naira has gained 1.1 percent against the dollar since the beginning of September to trade at 158.65 as of 2:08 p.m. in Lagos, the commercial capital.
The 2015 election will be the stiffest test yet for Jonathan’s ruling People’s Democratic Party, which has been in power since military rule ended in Nigeria in 1999. Four main opposition parties joined forces this year to fight Jonathan, who has not yet said whether he will stand for re-election. The PDP has also been hit by an internal crisis amid defections by party members, including former Vice President Atiku Abubakar.

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