Lagos - A sharp drop in global oil prices has raised the twin spectres of a potential currency devaluation and budget shortfalls in Nigeria just as Africa's biggest economy gears up for a closely fought and costly presidential election in February.
Nigeria, the continent's top producer, relies on oil for only 14% of its gross domestic product (GDP) but crude makes up 95% of foreign exchange and about 80% of government revenues, both of which have shrunk rapidly as Brent crude lost more than a quarter of its value since June.
Foreign portfolio investors fearing heavy losses on the currency have pulled out - the main share index hit a 16-month low and the yield on government bonds rose 10 basis points on Wednesday.
The naira has lost around 4% this year, prompting the central bank to hold frequent additional dollar sales and lower the limit on banks' foreign currency borrowing in efforts to prop it up. At around 167 to the dollar, it is well outside the central bank's target band of 3% plus or minus 155 to the dollar. The last time it was in the target range was in late January.
Foreign reserves fell rapidly from a peak of $48.9bn in May 2013 to just $36bn in June. They have since rebounded slightly and are currently around $38.3bn.
Despite these losses, analysts say that a devaluation before the elections, when President Goodluck Jonathan will seek a second term, would be so unpopular that it's unlikely unless oil prices, now at $82 a barrel, tumble further and force the bank's hand.
"It will take some time of relatively low prices ... before you see foreign reserves really being gobbled up," Matthew Searle, senior African analyst at Business Monitor International, said.
"If oil prices fall further to the $60s or $70s a barrel, then the central bank will become the main source of dollars," and will have to decide for how long it can keep up the fight.
At what point it throws in the towel is hard to tell.
Alan Cameron, London-based economist at Nigeria's First City Monument Bank, thinks reserves would likely have to slide to close to $30bn before a "last resort" devaluation would be considered.
The last time the bank lowered its target range for the currency was in late 2011 after the naira came under speculative attack and tight monetary policy failed to defend it.
In addition to a weak currency, Nigeria faces an increasing squeeze on its government finances.
Finance Minister Ngozi Okonko-Iweala told journalists last week that "Nigeria is not broke” and analysts agree the country is a long way from struggling to meet its commitments.
Yet a squeeze on funding is being felt. A source at the national assembly said money for projects is not being dispersed as easily as before oil prices fell. An official at a construction company, who declined to be named, said payments for a number of projects are in arrears.
Oil analysts do not anticipate Brent recovering to over $100/bl with an average of $93.70/bl expected in 2015. A production cut by the Organisation of the Petroleum Exporting Countries (Opec) seems unlikely.
Oil producers have become accustomed to high oil prices, which have held largely above $100/bl since the Arab Spring in 2011, and all have to adjust to the new climate, but Nigeria, with a population of 170 million people, was spending too buoyantly when times were good.
"There was significant fiscal expansion since 2010 as they were used to much higher oil prices, which makes the current price really problematic," Samir Gadio, Head of Africa Strategy at Standard Chartered Bank in London, said.
"You really wonder how they will cope if prices stay at $85-90 a barrel and sustain the existing position," he said, adding that even with prices at $100 a barrel it would struggle.
In theory Nigeria saves money over the benchmark price in the Excess Crude Account (ECA), which builds up a buffer when times are good that can be run down during commodity shocks.
Yet despite high oil prices the ECA fell to $4bn by September this year, according to the latest finance ministry figures, from a central bank estimate of $11.5bn two years ago.
In January this year, it was as low as $2.5bn, before efforts by the finance minister to build it back up.
Nigeria's budget tends to assume a conservative oil price but that is usually coupled with an overoptimistic production figure, particularly as a large volume of oil is stolen.
Nigeria's 2015 draft budget framework assumes an average oil price of $78 a barrel, up by $77.5 in the last budget, with an expected output of 2.27 million barrels per day. That is lower than the 2014 expectation but still above average reported levels this year of 2 million-2.2 million bpd.
A report by Chatham House last year said at least 100 000 barrels per day was stolen in the first quarter of 2013, and a lot of output is deferred during shutdowns to fix pipelines.
Such outages coupled with lower oil prices caused government revenues to fall 16.5% in September. A report by a national conference convened by President Jonathan in March, said the country was losing an estimated $35mn a day to oil theft.
And because a degree of oil theft is widely assumed to be linked to political funding needs, analysts assume it can only worsen as elections draw near.
The break-even level, the oil price needed to balance the budget, is significantly higher, well over $100/bl, analysts say, with Renaissance Capital pegging it at $111/bl for 2014.
However, some economists say Nigeria is still a way from being in trouble.
"(Nigeria) still has a pretty big degree of control over how the deficit changes. Spending plans will not necessarily be curtailed ... From here until the election, I don't think they have to cut (spending)," Cameron said.
Even with the oil savings account diminishing, Nigeria has substantial commercial deposits that could also cover any near-term shortfalls, he added.
In a global context in which many major economies are struggling with debt, Nigeria is still doing pretty well.
Debt is below 2% of GDP or around $9bn, Gadio at Standard Chartered said. "It's the lowest of the frontier oil exporting countries after most was written off in 2005-2006," he said.
"In terms of sustainability, Nigeria's external debt is very low so there is very little risk of a default."