Nigeria's economy is expected to grow around 7 percent this year, down from 8.5 percent in 2010, with growth moderating gradually in subsequent years, the International Monetary Fund (IMF) said on Thursday.

Sub-Saharan Africa's second biggest economy was expected to succeed in bringing inflation, running at 12.1 percent year-on-year in January, down to single digits by the end of the year, the IMF said after its latest consultations with Nigeria.

The economic outlook remains positive and risks are generally balanced, the Fund said in a statement.

It welcomed efforts in a draft 2011 budget to curb rising public spending but cautioned that parliament could pass a more expansionary version of the bill, undermining the central bank's ability to rein in inflation.

It also noted that foreign reserves in Africa's biggest oil and gas producer had been falling and that speculation against the local naira currency could become intense if the reserve depletion continued.

Despite world oil prices well in excess of the budget benchmark price, the government spent all current oil revenues and drew on savings in the excess crude account, at a time when stabilization called for a rebuilding of buffers, it said.

The IMF welcomed the planned establishment of a sovereign wealth fund, meant to better manage Nigeria's oil savings, which it said would help shield the budget from oil revenue volatility.

It viewed the central bank's increase in the benchmark interest rate to 6.5 percent last month as appropriate and said further monetary tightening may be required if inflationary pressures continue.