Editorial: Time to scrap excess crude account
The needless controversy and familiar disagreements between the executive and legislative arms of government over budget oil price benchmark that has delayed the 2014 budget presentation is needless, if not contrived. More fundamental, however, is that at the base of the current impasse is the Excess Crude Account (ECA) described as an illegal creation that has always been abused by the ruling party. As Nigerians bemoan the level of corruption in governments' finances, it is pertinent to admit that the country does not need an ECA because it is a pool of corruption to which only a few people have access. It is more of an impediment to progress. Without the ECA, the benchmark would have posed no problems on budgeting. A reliance on ECA means institutionalizing corruption and freeloading money to generate discord in the economy. The ECA should be abrogated immediately, in the national interest.
Following the inability of the FG and States to amicably resolve the dispute arising from the ECA and the creation of the Sovereign Wealth Fund (SWF), the Supreme Court fixed March 24, 2014 for hearing of the suit filed by the States against the FG. The states went to court in 2008 seeking the interpretation of Section 162 of the 1999 Constitution as it affects the diversion of funds, which ought to accrue to the Federation Account (FA) for sharing among the three tiers of government. The case aims at resolving the dispute over the retention of the ECA and the transfer of $1 billion to the SWF. The state governments approached the court seeking an order compelling the Government of the Federation to pay into the FA, the sum of N5.51 trillion being the balance of the money that accrued to the central purse between 2004 and 2007 from crude oil sale proceeds, petroleum profits tax and oil royalties. The FG classified such earnings as 'excess crude proceeds' and 'excess PPT and royalties' which were paid into an account termed the 'Excess Crude Account'. The governors also want the Supreme Court to order the FG to transfer to the FA all sums standing to the credit of the ECA.
Needless to say the current system of funding government is unsustainable for development and unacceptable. A situation whereby the FG assumes an all-powerful position, by arrogating a substantial part of the country's resources to itself, and leaving little more than crumbs for the states and local governments, cannot be said to be in the public interest. For a country like Nigeria, a genuine federal system preserves its 'unity in diversity', and allows, in accordance with the principle of subsidiarity, a reasonable level of autonomy to the federating units. Central to federalism, is the fiscal component because, States and local governments saddled with more responsibilities but denied commensurate funding cannot meet their political and social commitments to their citizens.
Beyond this, however, the issue of revenue allocation has remained arguably the most consistently contentious in the history of Nigeria. Between 1946 when the Phillipson Commission on revenue allocation was set up, and 1988 when Gen. T. Y. Danjuma headed the National Revenue Mobilization, Allocation, and Fiscal Commission, there have been over nine such bodies set up by just about every government to advise on how the Nigerian 'national cake' should be shared among the tiers of government on one hand, and among the federating states on the other. Indeed, between 1977-1979, two commissions were instituted namely the Prof. Ojetunji Aboyade Commission and the Dr. Pius Okigbo Commission by the Gen. Olusegun Obasanjo and Shehu Shagari administrations respectively. Curiously, successive governments have never created commissions to advise on how 'the cake' can be enlarged and baked better.
Quite clearly, the schemed under-funding of successive budgets below prevailing oil prices; the surplus of which is put into the ECA has been crowned with programmed superficial decelerating inflation. The FG has adopted this obnoxious fiscal consolidation policy despite the longstanding high unemployment rate and poverty incidence of over 70%. The ECA creates a cesspit of corruption, at the same time the national domestic debt soars and multilateral loans are contracted to legitimize continued foreign interference. All these insult a nation's intelligence. If the ECA is discarded, FA accruals will be promptly shared in full to enable beneficiaries to execute additional sorely needed projects; and even the SWF will be wholly owned and liberally funded by the FG from external reserves. Besides, the excess liquidity-induced borrowings from the banking system that form the bulk of national domestic debt and which is not invested despite its high service cost (it is actually a subsidy to banks) will cease as available resources from the ECA will be tapped to accelerate national development.
The Federal Ministry of Finance, FMF pretends not to understand the need to change self-destructive fiscal and monetary policies in order to actualize goals which are glowingly promised in annual budgets. With sound management, available ECA resources could be transformed into independent generated revenue, which could boost State budget expenditure levels that would energize the economy. Instead, the Federation Account Allocation Committee (FAAC) in conjunction with the Accountant-General of the Federation has foisted on the economy unlegislated excessive fiscal deficits that cut across the three tiers of government thereby making national economy failure inevitable. To wit, FAAC directs the CBN to substitute and distribute misconstrued naira equivalents of Federation Account oil earnings to beneficiaries, which is tantamount to CBN proportionate deficit financing of their budget spending.
Nigeria's so-called external reserves, for instance, peaked at $62.08 billion in September 2008. The exchange rate then was artificially fixed at N117.73/$1. By September 2013, the external reserves had declined by $16.81 billion to $45.27 billion while the exchange rate, again artificial, was N157.32/$1. In effect, in five years, the CBN wasted the $16.81 billion plus all FA oil earnings on futilely defending the value of the naira (which nevertheless lost 25.17% of its value) and funding imports to the advantage of foreign economies while Nigeria's infrastructure, manufacturing, productive and other social sectors continued to decay. Such economic performance profile will not eradicate poverty.
Fiscal matters have both political and social implications which explain why it is as much economics as it is politics. A fair and equitable mobilization and allocation of national revenue is fundamental to a just society and national stability. If an organ of state is given a direct constitutional responsibility, it should receive directly too,the necessary wherewithal to discharge it. There are many functions better left by the government at the center to the lower tiers of government and for which they should be adequately empowered. Therefore, the revenue allocation formula should be skewed in their favour. At present (after deducting the 13% derivation allocation), the formula grants the FG 52.68%. The 36 states and the 774 local governments that are closest to the people share a combined total of 47.32%. Besides, the FG also keeps 35% of the Value Added Tax (VAT) generated from the other tiers; in addition to the billions that accrue to the excess crude account. This is not justifiable; and certainly not in the national interest.
Few would argue that the ECA was an idea designed to save Nigeria for the rainy day. But as with all things, however, good or bad, it can only be for a time and season. To date, the leitmotif of the ECA violates the letter and spirit of federalism as it is known and practiced in other parts of the world. Worse even, and typical of Nigeria, the ECA is now riddled with corruption. The unacceptable anomaly has become endemic and points to a democracy that is not working. In the circumstance, funds in the ECA should be shared to the states and the ECA itself scrapped for the take-off of a new system of true federalism which every discerning Nigerian knows to be the sensible way forward.