EXPERTS on Wednesday expressed concern following a report that the Excess Crude Account(ECA) was depleted from $325 million to $70 million within a month.
The experts blamed it on profound revenue challenges and lack of rules governing deposits and withdrawals from the special account.
They argued that the depletion would not have been so massive if state governors had not insisted on sharing of monies in the ECA, a special account for keeping extra oil revenue above budgeted oil benchmark.
The implication of the drop, according to them, is a likely crash of the exchange rate, which invariably would result in devaluation of the naira. A statement from the Federation Account Allocation Committee (FAAC) yesterday said the strategic reserve account now has $71.814 million down from the $324.968 million recorded on January 15.
Details of the huge depletion was not provided by the FAAC team that issued the statement.
Last month, the Central Bank of Nigeria (CBN) warned the fiscal authorities to build up buffers against revenue shocks by saving for the rainy day. The CBN urged the Federal and state governments to build buffers against the tradition of spending all earnings in the Federation’s purse.
Speaking on the ECA depletion, the Director- General of Lagos Chamber of Commerce and Industry (LCCI), Dr. Muda Yusuf, said, the reality is that there are profound revenue challenges at all levels of government.
He said it was difficult to sustain the ECA in the face of such pressures. “There is a strong temptation to draw down on the savings, which the excess crude account represents.
“One key factor is the weak oil prices. This naturally affects the fiscal stability of the various tiers and levels of government. These shocks would remain as long as we remain critically dependent on crude oil both for revenue and foreign exchange earnings,”
A former Executive Director, Keystone Bank, Richard Obire, recalled that it was during former President Olusegun Obasanjo Administration that the ECA was instituted and savings were accrued.
He added that it was during the Goodluck Jonathan administration that governors insisted that it was unconstitutional to keep ECA savings when they needed money, insisting that the funds should be shared.
Obire said Nigeria has been under a heavy borrowing streak, as earnings dropped and ECA was relied on to cover revenue shortfalls.
He added: “The governors are used to sharing money. Today, the foreign reserves are also dropping, and the government is looking for support, including a plan to borrow about N2 trillion from the pension funds.”
Obire said the implication of the depletion in ECA savings is that exchange rate could crash, leading to devaluation of the naira. He said: “We are still holding the exchange rate through the CBN’s weekly dollar interventions in the foreign exchange market.
“Today, with the level of buffer available to the economy, naira devaluation will be staring us in the face. Remember we are not selling petrol at market prices due to subsidies enjoyed by the product and that has also put pressure on the fiscal side of the economy.”
He explained that much of the savings in the ECA had been disbursed with serious impact on exchange rate stability.
The World Bank had warned that Nigeria’s economy is more vulnerable to shocks as a result of the depletion of the ECA. In its latest Nigeria Economic Update, the bank warned that a ‘moderate’ decline in oil price could trigger another recession, noting that the exhaustion of the ECA had made the country more vulnerable.
The International Monetary Fund also said ECA in Nigeria required greater transparency on the rules governing deposits, withdrawals, and investments.
The statement by Henshaw Ogubike, a deputy director(Press and Public Relations) in the office of the Accountant-General,” announced that as of February 19, 2020, the balance in the Excess Crude Account (ECA) was $ 71.814 million.”.
It added that N647.353 billion comprising Statutory Revenue, Value Added Tax (VAT), Exchange Gain, Non-Oil Revenue and Excess Bank Charges recovered was shared by the three tiers of government-federal , states and local governments- for the month of January.
The gross statutory revenue for the month was N525.253 billion. This was lower than the N600.314 billion received in the previous month by N75.061 billion. For the same month of January, the gross revenue available from VAT was N104.758 billion as against N114.805 billion in the previous month, resulting in a decrease of N10.047 billion.
Exchange Gain yielded a total revenue of N1.044 billion, while the Non-Oil revenue was N16.298 billion.
The communique issued by FAAC indicated that from the total revenue of N647.353 billion, the Federal Government received N267.389 billion; states, N176.923 billion and the local governments, N132.944 billion. Oil producing states received N46.197 billion as 13 per cent derivation revenue while the revenue generating agencies got N23.900 billion.
From VAT revenue of N104.758, the Federal Government received N14.614 billion; states, N48.713 billion and local governments, N34.099 billion. Revenue Generating Agencies received N7.333 billion. From the Exchange Gain revenue of N1.044 billion, the Federal Government received N0.485 billion; states, N0.246 billion; local governments, N 0.190 billion and oil producing states, N0.123 billion as 13 per cent derivation revenue.
From the non-oil revenue of N16.298 billion, the Federal Government got N8.586 billion; states, N4.355 billion and local government, N3.357 billion.