16 February 2011

Nigeria: 2011 - FG Eyes $14 Billion in SWF

The Federal Government may save about $14 billion in the proposed Sovereign Wealth Fund (SWF) this year, if the bill is eventually passed into law by the National Assembly.

But the forecast is dependent on the fact that lawmakers retain the benchmark oil price of $65 per barrel, as insisted by the Minister of Finance, Olusegun Aganga. The other expectation is that oil price continues to soar at the international market and oil production target of 2.3 million barrels per day is achieved.

The SWF, as intended by the National Economic Council (NEC), which includes the 36 State Governors and the Federal Executive Council (FEC), is designed to ensure a part of Nigeria 's oil wealth is saved and that it can't be deployed on a regular basis to finance the running costs of bureaucracy. Already, the government has pledged an initial sum of $1 billion for the Fund.

The sum of $14 billion forecast as likely savings in the SWF this year, is about 41 per cent of the nation's external reserves of about $34 billion as at last Monday.

Financial analysts arrived at the possible SWF savings after reading the oil market outlook for the year.

Reviewing the development in its "Economic and Financial Market Review and Outlook for 2011" made available to THISDAY, FSDH Research stated that, "if average oil price in 2011 stands at $88/b, we estimate a total of about $13.75 billion to be saved in the SWF given the production of 2.3million barrels per day and the budget oil price of $65/b in 2011.

However, oil dropped marginally to $85.34 per barrel last Monday, but some industry observers said it is still healthy, when compared to the $65 per barrel benchmark contained in the 2011 appropriation.

It is proposed that the SWF will be funded primarily through a portion of the positive difference between the revenue generated by the price of oil per barrel and the actual revenue received in that year. But the portion of funding that would be allocated to the SWF is yet to be determined.

An important proposed characteristic of the SWF that differentiates it from the Excess Crude Account (ECA) is that it is intended to function independently of political pressures, with more rigorous measures for withdrawals and transparency regarding use of the funds.

The SWF is meant to address some of the complexity and constitutional challenge facing the country with respect to the Excess Crude Account (ECA). It is planned that the SWF will be made up of three separate funds: an intergenerational savings fund, an infrastructure development fund and a stabilization fund, which will serve as a secondary source of funding supporting the ECA in periods of budgetary deficit.

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