Reeling from sharp declines in revenues, it was hardly surprising that ex-President Goodluck Jonathan government’s last days in office were marred by a bitter spat with state governors over the Excess Crude Account. Though designed strictly as a fiscal buffer, the fund had been reduced to an insignificant $2.1 billion by May and the three tiers of government are trading blame for the cash crunch. There is plenty of muck to go round, but we hold the Federal Government most culpable for the long-running abuse and squandering of the savings fund.
Nigeria must grow up or face certain ruin if it continues on the path of fiscal delinquency as the consequences of our governments’ folly have come upon us. At the last count, no fewer than 24 states owed staff salaries, some for six months, while debts are mounting. When they gathered in Abuja recently for the monthly dole from the Federation Account, treasurers of the federal and state governments were confronted with a 50 per cent shortfall in expected revenues, the result of sharp declines in oil and gas revenues occasioned by falling oil prices.
Now, the rub: Having plundered it for so long, now that oil prices have been falling for several months, there is simply no savings to block the fiscal hole when we need it most. The ECA was established by the Olusegun Obasanjo administration as a bulwark against volatile oil prices. Proceeds from oil sales above the budget benchmark were paid into it and kept in reserve. Under the Fiscal Responsibility Act 2007, ECA funds are only to be accessed when oil prices fall below the budget benchmark consistently for three months.
But the scale of the waste is staggering. According to the Fiscal Responsibility Commission, in 2013, the Federal Government drew down N395 billion to fund the fraud-ridden petrol subsidy. Defending herself against allegations of abuse and unilateral withdrawals made by state governors, notably Adams Oshiomhole (Edo) and ex-governor Rotimi Amaechi (Rivers), immediate past Finance Minister, Okonjo-Iweala, said $61.7 billion (about N12.3 trillion) accrued as excess crude money between 2011 and April 2015. In defiance of the law, the government spent $13.57 billion in 2011, $9.5 billion in 2012, $12.91 billion in 2013 and N4.95 billion in 2014. Between December 2014 and May, the fund has further reduced from $4.1 billion to a mere $2.1 billion.
When a government becomes lawless, it authorises the reign of impunity. It is reckless and irresponsible for the government to use a savings scheme for its fraudulent petroleum subsidy. The fund was never set up for such purpose; nor did the draw downs of $3 billion and $8.7 billion in 2011 meet the strict criteria set out in the FRA.
The government of Muhammadu Buhari should first, resolve to break with the fiscal recklessness and impunity of the past and manage the ECA and other buffers with utmost prudence and regard for the law. The government should never again have to blame state governors, like Okonjo-Iweala repeatedly did as her defence for the joint plunder. In any case, by her own figures, while the states received N2.92 trillion from the N6.21 trillion taken from the ECA in the four years to 2014, the Federal Government got N3.29 trillion. Why didn’t the central government save its lion’s share? The illegality of using the ECA to fund subsidy and the Petroleum Equalisation Fund, which the FRC describes as “not justified by law,” is compounded by its persistent illegal use to fund shortfalls in revenues arising from oil theft or production disruptions.
The illegality continues with the reality that the draw downs are spent by the three tiers of government without recourse to their respective legislatures in defiance of the constitutional provisions prescribing spending only what the parliaments authorise by appropriation laws.
The Buhari government should undertake a radical overhaul of fiscal expenditure and restore discipline and sanity to public finances. The Obasanjo government initiated and built up the ECA when oil prices were low with average price at $38 per barrel, according to Charles Soludo, a former Central Bank of Nigeria Governor, only for successor governments to squander it even when oil prices remained consistently much higher, averaging $100pb in 2011-2014, and failing to build robust reserves and savings.
As the new government navigates its way out of the mess left by Jonathan, it should determine to build up strong buffers and exercise an iron will to stay the course. Norway’s Sovereign Wealth Fund, the world’s largest, with $890 billion in assets, was started in 1990 deliberately to cushion against oil price volatility. Kuwait had blazed the trail in 1953 even before attaining flag independence and boasts $548 billion today, while Algeria has $50 billion. Unlike his predecessor, Buhari should never regard our pathetic $1.4 billion SWF as an achievement when Angola, a new entrant to the major oil producers’ club, now has $5 billion and Libya, which is virtually a failed state, has $66 billion and Kazakhstan $2 billion.
We must begin to leverage our strength as an oil-producing nation in a proactive way to promote economic diversification and pursue greater global competitiveness. More crucially, Buhari should forbid any further draw down outside the law or unilateral withdrawal of funds belonging to the three tiers of government by the centre. He should demand a full accounting of the ECA in the last six years and impose the necessary legal sanctions on whoever is found to have broken the law.
