Nigerians generally believe that large foreign reserves are useful for defending the exchange rate of the naira. However, our total foreign reserves actually comprise of two primary income streams; the first is the Excess Crude Account (ECA), which consists of all crude oil revenue in excess of budget estimates.
In the recent past, over $10bn accrued annually into the ECA. Surprisingly, however, government always managed to consume the proceeds in this account in addition to the hundreds of billions of naira, borrowed by government, at costs usually above 12%, to fund earlier projected ghost deficits, which were induced by the misguided conservative price and output benchmarks adopted in annual budgets.
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