SAVING NIGERIA’S OIL REVENUES FOR THE RAINY DAY

All over the world, resource-rich countries like Nigeria that depend on revenues from natural resources to finance annual budgets plan early to insulate themselves from  price volatility in the international market and eventual depletion of the resources. Many of these countries do so by setting up stabilization funds to save for the rainy day and for the future of the next generation.  This essentially requires a deliberate policy to set aside money earned from natural resources especially during periods of high prices to smoothen expenditure when prices fall.

The stabilization funds also protect these countries against total dependence on natural resources revenue. The essence of saving for the rainy day is that it also helps resource-rich nations to effectively address the resource curse syndrome and the moral burden of generational equity.

In Nigeria, the idea of saving a portion of oil and gas revenues for the rainy day and for the future generation began in 1989 when the Stabilisation Fund was set up.  The objective was to set aside 0.5% of revenues going into the Federation Account to support "any state of the Federation that suffers absolute decline in its revenues as a result of circumstances beyond its control.

 

However, investigations reveal that management of the Stabilization Fund over the years was anything but prudent. For instance, the Fiscal Allocation and Statutory Disbursement Audit Report by Nigeria Extractive Industries Transparency Initiative (NEITI), released in 2013 showed that while N109.7 billion was transferred into the account for the period between 2007 and 2011, the sum of N152.4 billion was withdrawn from the Fund for purposes other than its original intent. 

The result was that the opening balance which stood at N41 billion in January 2007 was further depleted to N36.1 billion by December 2011. A recent Occasional Paper released by NEITI disclosed that as at May 31, 2017, only N29.02 billion was left in this Fund.

In 2004,the Government again set up another fund known as the Excess Crude Account (ECA),most probably to address the failure noticed in the management of the Stabilisation Fund. This time the government adopted what it called an “Oil Price-based Fiscal Rule policy” in the management of the account. Under the arrangement, revenues in excess of a pre-determined commodity price were saved in a Consolidated Revenue Fund under the custody and management of the Central Bank of Nigeria. The law that set up the Excess Crude Account also provided clear stringent conditions under which spending from the account could be permitted.

However, findings by a recent publication by NEITI revealed that the conditions for withdrawal from the account were seriously abused and violated.. 

The Occasional Paper by NEITI which focused on “the case for a robust oil savings fund for Nigeria” revealed that the total credit balance in the Excess Crude Account as at May, 2017 was a meagre $2.3 billion for a country with a huge population like Nigeria.

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