President Goodluck Jonathan is due to present the spending plans to Parliament on Wednesday, although final adjustments were still being made, the source said, asking not to be named.

Three quarters of the planned spending — around 3.2 trillion naira — will be earmarked for recurrent expenditure, leaving sub-Saharan Africa's second biggest economy with relatively little to fund badly-needed infrastructure projects.

"The federal government intends to commence a cut in the recurrent expenditure beginning from the 2012 financial year," the source said.

Analysts have grown increasingly concerned about the state of Nigeria's public finances in the run-up to presidential, parliamentary and state governorship elections next April.

Despite higher oil prices and output, its foreign reserves of $33 billion were down almost a quarter on a year ago at the start of December, its budget deficit is expected to widen to 6.1 percent this year, and it has spent billion of dollars of its windfall oil savings.

In October, ratings agency Fitch lowered Nigeria's sovereign credit outlook to negative from stable, citing the depletion of its reserves as a contributing factor.

The state of the public finances are set to become a political hot potato in the run-up to the April elections.

Central Bank Gov. Lamido Sanusi and Finance Minister Olusegun Aganga were summoned by Parliament two weeks ago to explain comments attributed to them in local newspapers that too much government revenue is spent on lawmakers.

Meanwhile, Nigeria's state asset management company (AMCON) is on track to buy all bad bank loans by the end of December and recapitalize nine lenders rescued last year by the second quarter of 2011, its chief executive told Reuters in an exclusive interview.

Mustapha Chike-Obi said late on Monday that AMCON would register to issue up to 3 trillion naira ($20 billion) in tradable bonds, although it expected to use only 2.4-2.6 trillion naira in the recapitalization process.

The "bad bank" was set up to help recapitalize the banks rescued in a $4 billion central bank bailout last year and to restore lending in sub-Saharan Africa's second biggest economy.

It will issue bonds to fund the purchase of non-performing loans across the banking sector and to enable it to bring the nine rescued banks' negative shareholders funds back to zero.

"We are going to be filing a registration ... (which) allows us to issue up to 3 trillion naira. We will issue bonds in tranches as needed," Chike-Obi said in his office in the commercial capital Lagos.

"The first tranche will be something in the area of maybe 500 billion naira. As we do deals and we need to recapitalize the banks one at a time, we will issue bonds specifically to meet any needs we have," the former Goldman Sachs banker said.