04 December 2012, Sweetcrude, Abuja – Cost-cutting has helped restore Nigeria’s Excess Crude Account, ECA, to about $9 billion in oil savings, or more than double what it was a year ago, Finance Minister Ngozi Okonjo-Iweala said on Monday.
Okonjo-Iweala was addressing delegates in Abuja at the annual Nigerian Economic Summit, whose themes include reducing the high cost of governance in Africa’s top oil producer.
Nigeria is Africa’s second biggest economy and its sovereign debt is closely watched by foreign investors, especially since JP Morgan included it in its emerging market index in October. Flush with oil cash, the country has been seen as a relatively safe destination for frontier debt investors, but poor fiscal management has dogged it for decades – something Okonjo-Iweala has made her top priority to fix.
“Before you can even look at the centres of the economy and try to change them and create jobs, you must have macro-economic stability. We have introduced a measure of fiscal discipline, Okonjo-Iweala said.”
“The fact that (forex) reserves are climbing now is not a miracle. It happened because of proper fiscal management. We have about $9 billion in the excess crude account. Last year it was $4 billion, so it’s more than doubled,” she added. The figure is still lower than the $20 billion it had in it in 2007, but this was reduced to $3 billion when Jonathan took office in early 2011, despite a year of record high oil prices.
Some of it would have to be used to pay for the latest round of Nigeria’s costly fuel import subsidies, she said. Economists have cautiously welcomed Nigeria’s improved savings level, but caution that there is nothing in place to stop it being reversed, as in the past.
Accumulation of fiscal savings
“There’s been some modest accumulation of fiscal savings, but put it in context: even $9.6 billion, as we estimate it, is only 3.7 percent of GDP,” said Standard Bank’s Samir Gadio.
The Sovereign Wealth Fund (SWF) launched this year would in theory help Nigeria better manage its oft squandered oil funds, by putting them out of the reach of its political elites, but powerful state governors who want more money to spend are blocking attempts to transfer the ECA into the fund. “Without the SWF there’s no sustainable basis for savings. The risk is that as we approach elections in 2015, the ECA could be depleted quite rapidly,” said Gadio.
The Finance Minister also faces a showdown in parliament over the government’s latest budget, with some lawmakers saying too much money is being set aside as oil savings when the country needs more spending on things like infrastructure. President Goodluck Jonathan’s 4.93 trillion naira ($31.35 billion) budget plan for 2013 assumes oil prices at $75 a barrel oil prices, but many legislators want this inflated – especially with prices now hovering around $112 a barrel.