29 July 2011

Nigeria: As the Excess Crude Account Bubbles Again

editorial

Information from the last Federation Accounts Allocation Committee (FAAC) meeting indicates that Nigeria's Excess Crude Account (ECA) is once more building up. We were told by the Director of Funds in the Office of the Account General of the Federation, Alhaji Babayo Shehu, who attended that meeting that funds in the ECA now stand at $6.9billion.

In spite of this, we see nothing to cheer with his disclosure given that the same account, which had accumulated up to $20billion early in 2007, was drawn down to a paltry $300million by the end of 2010. Even the nation's foreign reserve suffered the same fate as it was depleted from a whopping $40.7billion in 2010 to $33.2billion by the end of March this year. We also wish to place on record that all of these happened in the life of the present administration giving the impression that the administration has a penchant for financial recklessness and lack of fiscal discipline.

The Excess Crude Account was in fact created in 2003 essentially to ensure macroeconomic stability by controlling money supply, mopping up excess liquidity as well as building protective mechanisms against inflation and fluctuations in oil prices. The idea was to set up an account, which would act as buffer against the effects of the boom-bust cycle of crude oil revenue as the difference between budgeted benchmark price for oil and actual market price will be saved. Although many then raised issues and in fact still do about its constitutionality but given the level of profligacy that had hitherto accompanied public governance in the country not a few were indeed ready to give it a chance even if for an interim period. In spite of this, many still argued that such interim measures frequently gave rise to abuse as has been witnessed with the Excess Crude Account, considering that they lacked the legal and regulatory frameworks to check the excesses of political office holders. It is against this background that we reiterate our full support for the establishment of a constitutionally backed Sovereign Wealth Fund (SWF), which in our opinion enables the country to rationally conserve its oil resources on a long term basis to guarantee sustainable development.

Our argument is hinged on the fact that given the country's already burgeoning recurrent expenditure profile especially as we have just been told by the Secretary to Government of the Federation that with the new minimum wage, the federal government's wage bill will rise to N1trillion per annum, such a fund will ensure that we do not spend everything we have merely on running costs. Moreover, it will be foolhardy to think that anybody can effectively stop our public officers from tampering with such careless funds as the Excess Crude Account portend. Rather, we prefer that a larger chunk of the country's revenue should be spent on capital projects, which is the only thing will touch the lives of majority of the population.

At the same time, we also worry on the justification for excessive saving in the face of Nigeria's rising developmental needs. Does it make economic sense for a country in dire need of infrastructure and hungry to create jobs for its teeming population to embark on extensive saving for an uncertain future? Again, how do we effectively attain our goal of economic diversification, if we do not invest what we have to develop other sectors of the economy? As a matter of fact, excessive revenue will always give a false impression that all is well on the surface, while beneath the economy is encumbered by the yoke of inflation, unemployment and poverty. Let us put our oil revenue into productive use for the greater benefit of Nigerians and for long term economic benefits. We particularly decry the present situation whereby the Excess Crude Account has been turned into a political weapon by State Governors to exert undue influence on the Presidency all in a bid to get it to advance them additional revenues to squander. We are convinced that Nigeria's economy will indeed grow at thrice projected figures if only we are able to address our infrastructural and other developmental challenges.

In any case, all of these have happened because of the inadequacies of the Central Bank of Nigeria (CBN) and its managers especially in terms of their failure to deliver on the bank's core mandate of monetary policy management. This is why we have found ourselves in this mess. Rather than ensuring the implementation of sound monetary management policies and practices, the CBN prefers to continually flood the domestic economy with excess cash in the local currency even after it has earned its revenue in foreign currencies. This gives the false impression of a buoyant economy even as high inflation and interest rates, which have come to characterise our economy ensures that the real sector is permanently put at risk.

We are convinced that what will save Nigeria is the enthronement of a culture of financial integrity at all levels. This will enable us to become more productive even as we now depend more on what we produce.

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