Why the Excess Crude Account Failed – Kingsley Moghalu

Nigeria’s excess crude account has fallen to $376,655 from highs of $20 billion because Nigeria’s ruling politicians raided it every time they were short of cash.

This was revealed by Kingsley Moghalu, former deputy governor of the Central Bank of Nigeria and presidential candidate on Wednesday morning.

Moghalu compared the economic policies of Nigeria and Chile, explaining how Chile used its profits from natural resources to grow its economy in areas where Nigeria failed.

chili did better: Revealed that in the 1980s, Chile created a Stabilization Fund to bridge the gap in a price boom for copper exports.

  • “Chile, which supplies a third of the world’s copper, establishes a Fiscal Rule in the mid-1980s.
  • “Under this rule, as long as the global price of copper brought strong income, the difference between an established budget reference value and the actual price was transferred to a Stabilization Fund.
  • “On the contrary, every time the world price of copper fell, the authorities transferred funds from the Stabilization Fund to the country’s budget. Thus, the country enjoyed fiscal stability at all times.

the nigerian plan: Moghalu noted that the success of the stabilization fund inspired Nigerian President Olusegun Obasanjo when his government established the Excess Crude Oil Account.

  • “This was what President Olusegun Obasanjo had in mind when his government established the Excess Crude Oil account in the early 2000s. Unfortunately, the arrangement was not governed by a strong legal or constitutional framework..

raided by the government: Added that Nigeria’s ECA was raided and out of cash, citing challenges by governors to share ECA funds and also complete depletion under President Buhari’s administration.

  • “This meant that subsequent administrations simply saw the ECA as a fund that Nigeria’s ruling politicians could raid whenever they were low on cash. State governors challenged the ECA in a lawsuit they filed with the Supreme Court in 2008, arguing that the money should be shared among federal and state governments based on certain provisions of the 1999 Constitution.
  • “The case was finally settled out of court at the behest of President Umaru Yar A’dua. President Obasanjo left an ECA balance of $20 billion when he left office in 2007.
  • “When Goodluck Jonathan took office in mid-2010 after Yar’Adua’s death, the ECA’s balance had been reduced to $6.5 billion. In May 2015, when the current government of President Buhari was sworn in after winning the 2015 elections, there was $2.07 billion in the ECA pot.
  • “Today, all that is what’s left in the ECA is $376,655, the median cost of buying a two-bedroom apartment in most US cities.

He also noted that Nigeria was slow to establish a sovereign wealth fund, as we financed our own in an era of lower oil revenues. He said:

“In 2011, Nigeria established a formal sovereign wealth fund through an Act of the National Assembly. During the planning meetings between CBN and the Ministry of Finance where I was the assigned Deputy Governor of the central bank, I suggested that the formal name of the fund should be the Nigerian Sovereign Investment Authority, and this was agreed.”

He added that NSIA (Sovereign Wealth Fund) today has $2.5 billion under management. We arrived very late as a country to the sovereign wealth party when oil was already in decline.

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