A 78 percent decline in savings from oil sales created to stabilise the Nigerian economy in case of a shock is the latest crack in the country’s line of defence amid rising global uncertainties.
The Excess Crude Account (ECA) declined by $254.98m to a record low of $70m between January and February, latest data from the accountant-general of the federation show.
The ECA is the proceeds from oil sales in excess of budgeted benchmark price kept aside to supply funds for the country whenever oil price downturn leads to shortfall in government revenue.
Considering Nigeria’s reliance on the oil and gas industry, one would expect that the Federal Government would do everything to ensure better productivity in the sector. However, the reverse has been the case, with the situation getting worse with each passing year.
Experts blamed it on profound revenue challenges and lack of rules governing deposits and withdrawals from the special account.
“Save for the [Olusegun] Obasanjo administration, the abuse of the ECA has become serial. It is deeply disturbing that the [Muhammadu] Buhari government has not demonstrated a better way of handling Nigeria’s ECA,” Charles Akinbobola, a financial analyst at Creditville Limited, told BusinessDay.
Others stakeholders also said Nigeria’s inability to judiciously manage its ECA is one of the reasons it currently has the indices of a poor nation.
“The main focus now would be on the foreign reserves, not the ECA which has been declining for a while now,” said Oluwatosin Ayanfalu, analyst at Lagos-based Zedcrest Capital.
Since a little accretion in January, Nigeria’s gross reserves have declined to $36.93bn, prompting debates about possible devaluation, although the Central Bank of Nigeria (CBN) said it was not inclined to devalue unless the reserves dip under $30bn and oil price falls below $45.
Godwin Emefiele, CBN governor, reiterated the need to save at the just-concluded Monetary Policy Committee (MPC) meeting of the CBN.
Emefiele underscored risks associated with not building buffers with oil receipts.
His advice came on the heels of what the economy is facing vis-à-vis spending spree pattern of the three tiers of government.
According to the International Monetary Fund (IMF) in 2019, Nigeria’s ECA is the world’s second least-governed fund.
The buffer grew from $5.1 billion to over $20 billion between 2005 and 2009, but today is less than 1 percent of its 2009 balance.
Combined with Nigeria’s Sovereign Wealth Fund, the country’s oil savings is not more than $2bn, meanwhile oil-rich countries like United Arab Emirates, Qatar, Kuwait, Iran and Libya have at least 20 times more.
In its Nigeria Economic Update (NEU) report released in Abuja, the World Bank warned that a ‘moderate’ decline in oil price could trigger another recession, noting that the exhaustion of the ECA had made the country more vulnerable.
The bank said fiscal buffers in the Excess Crude Account have been exhausted, rendering Nigeria more vulnerable to shocks.
No thanks to the Coronavirus outbreak which has dampened global oil outlook, the IMF on Monday lowered Nigeria’s growth outlook to 2 percent from 2.5 percent, citing increasing vulnerabilities, among other things.
Poor levels of transparency exhibited by various agencies and officials of government charged with managing the funds over the years have compounded the problems faced by this fund even further, Akinbobola said.
Established in 2004, the ECA demonstrates how to normalise an aberration. Without constitutional backing, the ECA was created to protect Nigeria’s planned budgets against shortfalls caused by the volatility of crude oil prices. In this way, it would insulate the economy from external shocks.
Unfortunately, Nigeria has failed to transform decades of oil earnings into sustainable development, despite being the largest producer and exporter of petroleum in Africa and one of the 10 largest producers in the world.
While Nigeria seems to be nonchalant about saving for the rainy day, other countries seem to be preparing earnestly for it. Norges Bank Investment Management oversees Norway’s $1 trillion sovereign wealth fund while United Arab Emirates has nearly $1 trillion capital pool in two SWFs, Abu Dhabi Investment Authority (ADIA) and Mubadala, funded by excess oil and gas income.
United States’ Alaska Permanent Fund has one of the savviest SWFs in the world. The $65.3 billion fund is financed by oil and gas revenue for the benefit of future generations of Alaskans.
Singapore has two accounts called Singapore Investment Corporation (GIC) and Temasek splitting over $800 billion between them. Each has its own goals and ways of operating, but both invest in the future with an expectation of paying out in the near term.
DIPO OLADEHINDE & SEGUN ADAMS
