From Uche Usim, Abuja
Hopes of fattening the nation’s Excess Crude Account (ECA) amid the rising crude oil prices are slim as experts insist that the N5.2 trillion 2021 budget deficit will mop up whatever gains Nigeria is to derive from petroleum export currently selling for $67/barrel at the international market.
To them, savings for the ECA can only be guaranteed if crude oil prices rise up to $200/barrel, a development that is not commercially feasible as energy transition from fossil fuels to electricity has made crude oil lose its lustre and demand.
Joseph Nwakwue, an Economic analyst and immediate past Chairman, Society of Petroleum Engineers (SPE), Nigeria Council, told Daily Sun that “there is no prospect for savings as the budget deficit is much higher than whatever we would earn at these prices”.
“I expect we would need oil prices in excess of $200 to balance our budget before we can start talking of savings. At current prices, one can only hope for a reduction in deficit financing (borrowing and asset sale).”
However, another economic analyst and professor of capital markets, Prof Uche Uwaleke, sees the rise in crude oil prices as highly significant in growing the ECA.
“Since the 2021 budget is based on $40 per barrel, it is expected that the ECA will grow by the differential in crude oil price. “So, it is a good opportunity for the country to build fiscal buffers including investing some of the excess oil revenue in the Sovereign Wealth Fund (SWF) with the consent of state governments.
“Nevertheless, given the country’s recent experience, the challenge will likely come from crude oil output since oil revenue is a function of both oil price and output.
“In Q4 2020, for example, the oil sector real GDP deteriorated by over 19 per cent, according to the National Bureau of Statistics (NBS), despite relatively strong crude oil price on account of crude oil output that fell to about 1.56 million barrels per day on the average in Q4 2020 from over 2 million barrels per day in Q1 2020.
“The 2021 budget is based on 1.86 million barrels per day and unless this target is substantially met, increases in oil price which is offset by decline in crude oil output may not translate into excess oil revenue. So, the challenge for the government is to ensure that oil theft and vandalism are curbed to enable the country to produce up to the required OPEC quota”, he stated.
But another expert who craved anonymity, it would be difficult to save money into the ECA when the country has a huge budget deficit.
The balance in the ECA as at February 18, 2021 stands at $72.412 million according to the Federal Accounts Allocation Committee (FAAC).
The ECA, a fiscal account that was created in 2004 to save revenues in excess of the budgetary benchmark price that was generated from the sale of oil, has been hammered by allegations of corruption.
In August 2015, during the early days of the Buhari administration, the ECA stood at $2.2 billion. It was $3.6 billion in February 2014, one of the highest balances on record.
According to the Central Bank of Nigeria’s annual report for 2018, Nigeria’s excess crude account fell from $2.45 billion in 2017 to $480 million as of December 2018.
In 2019, the ECA dropped to $480 million, after a controversial $1 billion for military support was withdrawn from the account.
In July 2020, available records show that the ECA had fallen by about 98% within the last five years to $72 million.
However, the rising price of crude is set to hike petrol pump price, especially as the three government refineries with combined capacity to process 445,000 barrels of oil per day (bpd) are currently in comatose.
Pressure is now on Nigeria’s economic managers to adequately diversify the country’s export earnings particularly exploring opportunities in mining and agriculture. Analysts have also called for investments and business regulations to accelerate local industrialisation which would foster local production of many imported products would significantly help to reduce dependence on imported products and thus conserve scarce foreign exchange.