(The Punch) The Governor of the Central Bank of Nigeria, Mr. Lamido Sanusi, has warned that a fall in oil price will cause a lot of problems for the country. Sanusi said in New York on Friday, "There will be a very bad day and a lot of gnashing of teeth if the oil price crashes and we haven't saved a thing. Oil production accounts for about 80 per cent of government revenues in Nigeria. The CBN boss added, "Our major concern is that a major decline in the price of oil or (domestic) output would lead to a massive depreciation of the currency, a collapse in reserves and a huge growth in deficits and some of the states outside of the oil-producing region might actually find themselves in a situation where they are not able to pay salaries. "I am trained to think in terms of 'what if' and that's the mindset I bring to my job. What happens if oil prices go to $50 a barrel? It's happened before."

Sanusi pointed out that the government should spend no more than the N880bn earmarked in the budget signed by President Goodluck Jonathan on Friday for subsidies this year. "I would simply like to see that the government does not pay a penny more than that, no matter what happens," he added. Speaking further, Sanusi said a decline to around $85 or $90 a barrel from around $120 now could lead to a shortfall in projected revenues and higher budget deficits, if Nigeria's oil output did not increase. He added that the apex bank was comfortable with its monetary policy stance, having hiked interest rates sharply last year, but that could change if the government broke its new 2012 budget. "We front-loaded most of the tightening. We met seven times last year and tightened six times out of seven. We've done most of the work ahead of the fuel subsidy removal. Now it's about waiting to see that tightening moving through the system, which is what we're seeing," he said. The CBN implemented a string of rate hikes in 2011 that pushed the benchmark borrowing rate to 12 per cent.