Wednesday, October 15, 2008

According to Chukwuma Soludo, the Central Bank Governor, Nigeria's excess crude account is now depleted.

"NIGERIA'S enormous savings from the oil windfall have been depleted and what is left may not tide the country over any financial turn down should oil price fall below the budget benchmark of $62 per barrel..."

The excess crude fund is used to hold excess monies raised from the sale of Nigeria's oil and petrol products. As crude oil has sold at extremely high prices over the years, excess crude fund has been used by the Nigerian government to 'fund' various programs and it is typically shared between the federal government and state governments.

Considering the current state of the global financial crisis, and the fact that the Central Bank recently intervened in the financial economy with over N1trillion, this revelation is troubling. What happens if the global economy continue to take a nose dive? The depletion of Nigeria's excess crude fund implies that there is no more money available to save the domestic financial sector if that becomes necessary. And, as the price of oil continues to fall, it stands to reason that the country will not be able to quickly replenish the excess crude fund. That will not only affect the possibility of any necessary financial recovery, but it will in turn complicate Nigeria's development which will depend to some extent on the excess crude fund, particularly the power sector.

I am curious to know what Nigeria's Plan B is in the event that the nation needs additional liquidity, because as of right now, the coffers are running on empty.

Hattip to Saheed

1. Nigeria: 'Country Loses N4 Trillion to Financial Crisis'
2. Nigeria: FG to Adjust Oil Benchmark

Further Reading:
- Nigeria's Sovereign Wealth Fund
- No Longer King of Crude
- Nigeria's Oil Expiration Date Draws Near
- Did Yar'Adua Flip Flop?
- Can Yar'Adua Accomplish His 'Mission'?

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Anonymous said...

Why are they telling us now? When they were using the fund for frivolous things instead of using it to revive the poor social infrastructures nobody bothered to call our attention.

May God deliver us from bad leadership! :-(

bumight said...

I'm really not surprised, actually I lie. I'm more surprised that the money lasted this long.

they act like they are not aware of what's happening in the world around them. I mean did they really think that oil was going to keep selling at over $100 a barrel?

this makes you wonder what would really happen to Nigeria when alternate fuels are used widespread!

Anonymous said...

This story knocked me off my ..., well it didnt come as a surprise. There is no Plan B, we usually dont have one. There will be prayers though. 'Men and Women' of God will start praying for the the price of oil to rise again. Its madness....can anyone tell me what this money was used for?

Dojaa said...

What has Nigeria spent all the excess money on?

N.I.M.M.O said...

Oritshe, you mean say we don finish all that money jus now, jus now?


Come on guys, don't tell me you weren't expecting this. Like Bumight I'm actually surprised it lasted this long.

@Ababoy: Of course we have a Plan B. As you rightly observed when all else fails ...

.... Nigeria Prays.

N.I.M.M.O said...

Seriously though, this may not be as dire as it's being seen. Please note that the Excess Crude Fund is not the same as Nigeria's External/foreign Reserve.

The Excess Crude Fund was conceived and nurtured by the then Economic Intelligence Team of the OBJ government and which Soludo was a member. It is not a statutory fund under law but basically just saves the extra earnings over and above the budgeted amount for crude oil.

However, as the fund grew over time, people began to 'poke eye' into it particularly the new state and local governments. Lagos state rightly observed -in my opinion - that leaving such an amount lying around unutilized - when there was so much to be done in the areas of infrastructural development, education, health etc - would be inviting corruption as was seen in the case of the Ministry of Health N 300m saga involving the minister Dr. Grange.

States like Lagos, Rivers and Cross Rivers asked for their own share of the money so as to be able to fulfill their campaign obligations to their states. The other states asked too - for whatever.

Anyway, basically the money went. It now depends how each state and Federal Governments spent their own share.

Under law, the Central Bank does not call on the Excess Crude Fund for sustenance or anything but the Fund was a store of value and could have been a buffer in times of crisis.

But then, na Naija we dey. It was not wise leaving it there lying like that. What if we get there and somebody had cleared the account?

No shaking. Nothing dey happen.

Parakeet said...

Should I laugh or cry? If I laugh it will seem like am not my brother's keeper rejoicing at the impending downfall of the so-called democratic govt of Nigeria. If I cry I will be wasting my time as it does not solve anything. The writer is curious to know if Nigeria has a plan B, look around you, do you see anything that looks remotely like that say in Agriculture, education or financial services?

If there's any good news that's coming from the piece of bad news it will be that the leaders still have a bit of time to put things right. But hey, do they really wanna do it?

Jennifer A. said...

Na wa o...

What kind of wahala is this one now?

Nigerians 4 change said...

It's ridiculous how the Nigerian Government felt a false sense of security, enough to decide to use the excess crude fund (which was supposed to be saved for a time of emergency) to fund "unnecessary" programs. And I say "unnecessary" because I know that if we go back and look into the books, to check what the monies were spent on, the citizens would be utterly disappointed. Our Government needs to employ a method of accountability, so that citizens are able to know what the Government spends money on.

Anonymous said...

They stole all the money...
Plan B Ke? They are not thinkin about that, every one is lookin out for self... I am surprised that most of the commenters are surprised this is happening... The money has probably been gone for a while, they are just now announcing it...
I will continue to pray for Nigeria.

durano lawayan a.k.a. brad spit said...

Hi Solomonsydelle,

I'm sorry to hear that Nigeria under Yar'Adua is suffering the fate of a nation under the pervasive and heavy burden of corruption.

The projects that were undertaken were made precisely so that the fund could be withdrawn and pocketed.This is a standard pattern among countries that are lacking in transparency and checks and balances; and where the powerful rule behind the leaders they can manipulate or cause to run around in circles with. Such a situation is an invitation for graft and corruption; or is an "open season" to do just about what they want with impunity.
An investigation into said projects would reveal ghost accomplishments or highly overpriced ones.

If the fund is not established by law, it is therefore inadequate in controls and specifications for use or withdrawal. This must have been going on for sometime as such an amount cannot disappear overnight.

Oil is not an inexhaustible resource and the world price of oil is controlled by traders and speculators. Nigeria could therefore be depleting it's major source of hope for a better future if the wealth produced is not being invested in the country's well being.

This is indeed very sad. I'm sorry to know it has come to such a state after hopes were raised with Yar'Adua's assumption into office.
:-( --Durano, done!

Marin said...

OH my. How did I miss this??? Is this not a Mccain like blunder - as in a few months ago these same people say there is nothing to worry about - now the fund is depleted. Maybe we need this in order to get real selfless politicians at the top. As in since there isn't much to steal, politics will become unattractive (yeah right! not when there is still a guarantee of political immunity, right?)

Saheed said...

Nigeria....If this sweet crude should finish hein? if it should finish? what do we have? agriculture? Our service sector is weak and will not sustain us oh? not even the financial sector... These leaders better tighten up oh.... this is teh very reason why SWFs are necessary, instead of blowing the money on unsustainable so-called programs...what happens to those useless programs that theyve blown 15billi on now? that money could be working for us somewhere...na wa oh. I give up for now.

Anonymous said...

Hmmm forgive me but I didnt read this in any Nigerian paper. Pray how did this money grow wings? I cannot seeeeeeeee what it was spent on!

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