The Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala, has accused the state governor’s demand for distribution of the nation’s resources and opposition to the establishment of the Sovereign Wealth Fund, as the reasons for the depletion of the Excess Crude Account (ECA).
She noted that the withdrawal and sharing of the monthly allocation has depleted the excess crude account to just about $3.6 billion as against over $20 billion, saved in the reserve account in 2006.
The Minister warned that if the price of crude oil drops, the nation has no cushion for the economy because $3.6 billion is not enough to take the economy to any length of time.
Dr Okonjo-Iweala made these revelations at the first civil society forum organised by the Ministry of Finance on Thursday in Abuja.
According to the Minister, “the ECA and the Sovereign Wealth Fund (SWF) are very important, but we have the state governors saying no, we will only allow $1billion. In fact, we managed to get that, and now, they said it is illegal; and so, the country is not able to save in the ECA and we have left today in that account only about $3.6bn.”
“Every month, because they (the governors) say it is illegal, we have been dipping hands into it (ECA). Instead of moving that money into the sovereign wealth account, it is being shared until it is almost at the bottom” she said, adding that “the argument about the legality or illegality is a moot point because we have spent almost all the money.”
She further explained that “what that means is that should the price of oil drop today, we have no cushion because $3.6bn for this economy is not enough to take us to any length of time, and that was what I told them at the governors’ forum during the National Economic Council meeting the last time.” The governor’s forum is currently challenging the constitutionality of the Sovereign Wealth Fund in the court.
She also allayed fears that $1billion SWF would be mismanaged by the Federal Government, pointing out that the Sovereign Wealth Act which establishes the Fund adequately provides for accountability in its management.
Noting that fiscal federalism has created problems for the management of the Nigerian economy, Dr Okonjo-Iweala declared that “Nigeria, because of fiscal federalism cannot save.”
“The constitution says the President should manage the economy for the benefit of everybody. The decision to save is also part of the management of the economy for the benefit of the people of Nigeria. Every state can save but the Federal Government can save for all Nigerians. The governors can insist on accountability in the management of the SWF as a guarantee against their apprehension” she opined.
Emphasising the need for more savings, she noted that the crisis in Europe and the United States where about 60 per cent of the country’s crude oil is sold has made it difficult for the government to depend solely on oil revenue.
“This country depends on a product that is sold internationally and whatever happens there affects us. That is why we need to have savings. Sixty per cent of our oil is sold to the US and Europe, and these countries are facing big economic problems. For instance, the US has an unemployment rate of eight per cent; Spain, 24 per cent; and India, 9.9 per cent.
“So, if 60 per cent of our oil is sold to them, then we have a problem and any country that has great volatility such as ours will always have problem, and this will lead to crisis in the economy.”
Removal of fuel subsidy
The Minister also gave an indication that subsidy on petroleum products might be completely removed next year, noting that since the policy had failed in other major oil producing countries, its stoppage would enable the government to develop other key sectors of the economy..
Arguing that the complete withdrawal of fuel subsidy may be the answer to the protests by the governors over the current deductions from states monthly allocations, she stated that “on the basis of the fiscal responsibility and corruption, we found out that this subsidy cannot be sustained by the country, even Ghana that has just found oil has phased out the payment of subsidy because it found out that it could not sustain it. So, we must find other ways of solving this problem and cushioning this economy because we are still paying that subsidy, only that it is now partial.”
She added, “I subscribe to the subsidy phase out and I will tell you why. Nigerians have refused to acknowledge the fact that we are subsidising neighbouring countries like Niger and Chad, and we are allowing money to get to some corrupt people; but of course, there are genuine importers.
The Federal Government had on January 1, 2012 removed subsidy on petrol, leading to an increase in price from N65 per litre to N141. The removal led to social unrest and protests, which forced the government to reduce the price from N141 to N97 a litre.