By Jeph Ajobaju, Chief Copy Editor
Balance in the Excess Crude Account (ECA) has dipped to $60.8 million from $72.4 million in May, according to Nasarawa State Governor, Abdullahi Sule.
He broke the news to journalists in Aso Rock on Thursday after a virtual meeting of the National Economic Council (NEC) chaired by Vice President Yemi Osinbajo.
ECA explained
The Olusegun Obasanjo administration created the ECA in 2004 to save revenue in excess of oil price benchmarked in the federal budget.
According to investopedia.com, the ECA is intended to stabilise the economy and smooth out the impact of price volatility in oil exports.
The ECA is funded by the difference between the market price of crude oil and its budgeted price contained in the Appropriation Bill.
The primary objective of the ECA is to protect planned budgets against shortfalls caused by the volatility of crude oil prices.
By detaching expenditure from oil revenue, the ECA insulates the economy from external economic shocks and protects public expenditure from being patterned on the boom-and-bust cycle of the international oil market.
Despite its good intentions, investopedia.com adds, the ECA has been riddled with controversy, allegations of corruption, and uncertain performance.
The ECA has transitioned since 2011 to a Sovereign Wealth Fund (SWF), which has had better results to date.
Earlier this year, the Nigeria Sovereign Investment Authority (NSIA) – created in 2011 to manage the SWF – announced N160.06 billion in comprehensive income in 2020, a 343 per cent growth compared to N36.15 billion in 2019.
It also achieved a 33 per cent growth in Net Assets amounting to N772.75 billion against N579.54 billion in 2019.
The SWF was created primarily to ameliorate the controversies surrounding the legality of the ECA. The SWF comprises three sub-funds with the following objectives:
Stabilisation Fund – to support the budget in times of economic stress, including to hedge against volatile crude oil prices.
Future Generations Fund – to save for future generations of Nigerians.
Nigeria Infrastructure Fund – to invest in domestic infrastructure.
Essentially, according to investopedia.com, the objectives of the SWF are the same as those of the original ECA.
The main difference is that the SWF is structured to ensure more productivity and transparency, and it was established by statute; so, unlike the ECA, it does not carry the burden of alleged illegality.
Update from the NEC
Sule disclosed that “at today’s NEC meeting, the Minister of Finance, Budget and National Planning [Zainab Ahmed] made a presentation and gave us an update on the federation accounts as follows:
“The Excess Account balance as of July 13 is $60.8 million; Stabilisation Account stands at N26.3 billion, Natural Resources Account balance stands at N23.5 billion.
“On the budget support facility that was taken by the states, in view of the current economic challenges facing the states, the CBN [Central Bank of Nigeria] actually has gone into some kind of agreement to provide a bridge financing facility to the states so that deduction can commence in this July.”
Sule said the aim of deductions is to keep the accounts current and ensure that commercial banks which have given loans can keep their books.
ECA depletes by $11.6m in 2 months
The ECA depleted by $11.6 million between May and July.
Balance in the account was $72.4 million as of May 18, according to Lagos State Governor Babajide Sanwo-Olu, who made the disclosure based on update from Ahmed at a NEC meeting in Abuja chaired Osinbajo.
“At today’s NEC meeting … I have the briefing that was presented by the Minister of Finance, Budget and National Planning,” Sanwo-Olu recounted.
“So, they gave us a balance on the Excess Crude Account (ECA) and the balance as at May 18 stood at $72.4 million and on the Stabilisation Account, it is N24.7 billion as at May 18.
“Finally, on the Development of Natural Resources, the balance as at May 20 stands at N23.7 billion.
“Those are the figures that the Minister of Finance, Budget and National Planning gave at the council today.”