Despite earning a whopping $1.09 trillion from oil exports in 35 years, Nigeria still lacks the capacity to fund its annual expenditure programme, according to the Nigeria Extractive Industries Transparency Initiative (NEITI).
NEITI, in its second occasional paper series entitled “The Case for Robust Oil Savings for Nigeria”, said from 1980 to 2015, Nigeria exported crude oil worth about $1.09 trillion, but as at June 2017, there was barely $3.9 billion dollars in all of the country’s oil revenue funds, which is only enough to finance 16% of the current (2017) budget of N7.44 trillion.
The paper released to the public July 18, indicated that the current efforts to pull Nigeria out of recession must be supported by a robust savings programme from oil revenues, that the economy remains vulnerable to one of the conditions that created the problem in the first place – lack of adequate and prudently managed savings in a period of plenty.
“Nigeria did not save enough oil revenues to sustain economic activities when oil prices began to tank in June 2014. Also problematic is the level of consumption relative to non-oil exports. Nigeria typically responds to high oil prices with equally high, but manifestly unsustainable, level of consumption,” it noted.
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It highlighted that the absence of sufficient savings left Nigeria severely exposed when the price of oil, Nigeria’s main source of government revenues and foreign exchange, started to plunge in 2014, adding that “it was a sad turn, but not totally unpredicted.”
Besides savings and price volatility, Nigeria also faces the prospect of depleting oil reserves, NEITI said, adding that in the last forty years of production at even less than current levels, Nigeria extracted about 31 billion barrels of its oil reserves, which at current level of production, are projected to last for 40 years, counting from two years ago.
Nigeria’s proven oil reserves as at 2015 were 37 billion barrels.
NEITI equally stressed that countries that depend on revenues from natural resources to finance their budgets are characteristically prone to the boom-and-bust cycl and that one major way in which resource-rich countries have sought to insulate themselves from such volatility is by establishing stabilisation funds.
“The objective is to set aside money, especially during periods of high prices, which would be used to ‘smoothen’ expenditure when prices fall. This insulates the economy from the effects of price volatility, ensuring the country would not necessarily go bust when price falls,” it further stated, adding that stabilisation funds alsoprotect these countries against the Dutch Disease, which itself is a consequence of how countries choose to spend natural resource revenue.
Nigeria indeed established the Excess Crude Account (ECA) in 2004 based on a fiscal rule where crude oil earnings in excess of a budgeted price and production volume are transferred into the account.
However, very little savings was accumulated during a period of consistently high prices, as the basic fiscal rules were not observed.
When oil prices began to tumble from June 2014, Nigeria had just $2 billion in the ECA, despite having remitted over $200 billion in excess crude proceeds into the account between 2004 and 2014.