Nigeria’s Excess Crude Account (ECA), the largest oil economy in Africa, has now fallen by about 98% in half a decade, amounting to $72 million. Nigeria has continued to adopt a coping mechanism that’ll at least protect it from the hit of the unprecedented revenue crisis not seen in the last three decades.
The Minister of Finance, Zainab Ahmed made the revelation in a National Economic Council Meeting during the week. The ECA is a savings account retained by the Federal Government and funded by the difference between the market price of crude oil and the budgeted price of crude oil as contained in the appropriation bill.
Recall, that earlier this year the price of Brent Crude dipped to an all-time low, because of the COVID-19 pandemic. However, the oil market has been a little bullish and has risen back to just over $40/barrel in recent weeks.
Furthermore, the current level of the $72 million Excess Crude Account (ECA) validates the fact that it is in a low territory, which is indicative of the effect of the fall in crude oil prices this year. This is against the backdrop of the $324.5 million ECA balance in November, which was one of the lowest balances at that time. However, this will definitely have a ripple effect on the Nigerian economy knowing fully well that the price of Brent crude is a huge fall from the benchmark in the appropriation bill.
Excess Crude Account (ECA) In Retrospect
According to Central Bank of Nigeria’s annual report for 2018, Nigeria’s Excess Crude Account dropped from $2.45 billion in 2017 to $480 million as of December 2018, owing to the $1 billion military spendings which were withdrawn. As of August 2015, Nigeria’s crude excess account was at $2.2 billion and has since been dropping because of the recession bedeviling the economy. One of the highest balances on record was $3.6 billion in February 2014.
The Excess Crude Account (ECA) and the Nigeria Sovereign Investment Authority (NSIA) are the two Sovereign Wealth Funds in Nigeria. They are both funded by the savings earned when oil prices are at a peak and perhaps surpassed the benchmark. In a nutshell, the Sovereign Wealth Fund is usually expected to generate revenue to meet budget shortfalls in the future.
Also, it provides dedicated funding for the development of infrastructure and savings for future generations. This sovereign wealth fund was established to address the controversies surrounding the Excess Crude Account, especially when economical push comes to shove.
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