Oil savings double in one year; hit $9 billion – Okonjo-Iweala

Channels Television  
Updated December 3, 2012

The Coordinating Minister of the economy and Minister of Finance, Ngozi Okonjo-Iweala on Monday said that the cost-cutting of the Goodluck Jonathan’s administration has helped restore Nigeria’s Excess Crude Account (ECA) to some $9 billion in oil savings, or more than double what it was a year ago.

Mrs Okonjo-Iweala was addressing delegates in Abuja at the annual Nigerian Economic Summit, whose themes include reducing the high cost of governance in the country.

“Before you can even look at the centres of the economy and trying to change them and create jobs, you must have macro-economic stability,” the Minister said. “We have introduced a measure of fiscal discipline.”

“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 Mr Jonathan took office in early 2011, despite a year of record high oil prices.

And 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.

“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.

“Compared it with UAE (Emirates) or Saudi Arabia, where it’s 65 percent. It may be improving but its well behind the curve.”

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 Mr Gadio.

Disputed budget

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 Jonathan’s N4.93 trillion 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.

Oil earnings over the benchmark price get deposited into the ECA, which is used to save for future generations.

Critics say running Nigeria’s government still saps too much of the budget – Mrs Okonjo-Iweala said the share of such recurrent expenditure had been reduced to 68.8 percent in next year’s budget, from its current 71.47 percent in this year’s.

Investors and rating agencies have welcomed Mrs Okonjo-Iweala’s austerity drive, with Standard & Poor’s the latest to upgrade Nigeria’s debt to BB-, with a stable outlook.

One major fiscal headache remains the motor fuel subsidy.

President Jonathan attempted to scrap it in January, but a week of strikes and protests forced him to partially reinstate it.

Since then, a parliamentary inquiry has uncovered multi-billion dollar fraud in the subsidy’s administration, and the government has exposed subsidy claims to stronger checks.

Mrs Okonjo-Iweala said that N232.2 billion of claims had been rejected so far. There is speculation President Jonathan will try to remove the subsidy – which many Nigerians see as the only benefit they get from living in an oil-rich state – next year.

Speaking at a panel in the economic summit, Vice President Namidi Sambo said it would depend on what Nigerians thought.

“We’re a democracy. Our economic policies, however well designed, have to be accepted by the public,” he said. “I believe Nigerians will come to see that deregulation is right.”