Falling Oil Prices: The Raining Day is Here!
From Qatar to Kuwait all the way to Venezuela, and even in Nigeria, one sound rings clear on the balance sheets of these countries: revenue from oil is declining. The drastic fall of oil prices is making many of the oil producing nations tighten their belts and make adjustments in the national budget. These fall in revenue will surely necessitate a reduction in spending by oil producing nations across the world.
Nigeria, which is presently battling lots of challenges, will also have her own share of cuts on spending. However, as price of oil goes on a freefall, Nigeria is being shielded by the Excess Crude Account which Dr. Ngozi Okonjo-Iweala vigorously enriched for such a time as this!
As a reminder, the Excess Crude Account (ECA) came to reality through the foresight of Dr. Okonjo-Iweala during the Obasanjo era. ECA was envisaged to warehouse proceeds from oil revenue that shoots above the annual budget projections. The idea behind the establishment of the ECA then was that if oil price, like we're having now, or output unexpectedly falls, Nigeria will be under no pressure to forcibly borrow at high cost in order to fund revenue shortfalls.
Seeing things in different light, the National Assembly, especially the House of Representatives, have been up in arms battling the Minister for this noble idea. It is amazing that the reps don't take into consideration that numerous OPEC countries adopt comparatively much lower crude oil budget benchmarks than Nigeria.
Members of the House Committee on Finance have been most vicarious from this reality. They fail to understand the gains inherent in ECA. They fail to understand that the establishment of the ECA is actually empowered through Section 162(1) of the Nigerian Constitution, which provides that the federation shall maintain a special account into which shall be paid all revenue collected by the federal government.
Likewise, Section 35(1) of the 2007 Fiscal Responsibility Act stipulates that “Where a reference commodity price rises above the predetermined level, the resulting excess proceeds shall be saved”. In further justification of the rationale for the establishment of the ECA, the Minister cited Section 16(1a) of the 1999 Constitution, which stipulates that “…the State shall harness the resources of the nation, and promote national prosperity and an efficient, dynamic and self-reliant economy”.
In spite of this constitutional justification for the ECA, the House of Reps didn't fail every year to invoke Sections 59, 81 and 82 of the 1999 Constitution, as amended, which empower them to juggle the national budget's estimate by constantly increasing the benchmark of the budget. They believe that the raining days is here and we must spend all that we earn at a go!
In 2013, the benchmark was increased from $75 per barrel that the executive proposed to $80, while the Senate took a middle position and pegged its own benchmark for $78. In arriving at this decision, the House of Representatives posit that increasing the benchmark will reduce the budget deficit and domestic debts by as much as 66%. While opposing the position of the national assembly, Dr. Okonjo-Iweala warns that jerking the oil benchmark to $80 will affect Nigeria's credit rating; make borrowing more expensive; lower the Foreign Direct Investment; impact negatively on macroeconomic stability, and the country will lose $20 instead of gaining $5.
It is obvious that the Minister of Finance has made the right decision by establishing the ECA and ensuring that the account is constantly being enriched despite opposition from the National Assembly.
Pray, what would have happened to the Nigerian economy in this season of economic uncertainty as the price of oil goes on downward path? The ECA is coming handy this season guiding against our nation going broke.
The Minister of Finance should be commended for this feat. For ensuring that things are done the right way, we must applaud her for her foresight, the hallmark of all great leaders.