TheCable

Ngozi Okonjo-Iweala, coordinating minister for the economy and minister of finance, says a significant portion of the billions of dollars drained from the oil savings account over the past two years was distributed to states instead of being saved for the rainy day.

Nigeria, Africa’s biggest oil producer, is grappling with financial difficulties owing to a 30 per cent fall in the price of oil since June, which has added pressure on the government’s already depleted fiscal buffers.

The central bank devalued the naira by eight per cent on Tuesday because it was running out of forex reserves with which to defend the currency.

The Excess Crude Account (ECA) had around $9 billion in December 2012, but it has since fallen to around $4 billion, Okonjo-Iweala noted in a speech to capital market committee in Abuja.

Most of the falls occurred during a period of record high oil prices, when oil savings are supposed to accrue.

Okonjo-Iweala told Reuters that some of the money had been needed to cover revenue lost due to outages caused by oil theft and pipeline vandalism, thought to drain hundreds of thousands of barrels a day.

“Some of it (the ECA) was then legitimately used to offset revenue shortfalls arising from quantity shocks and to narrow the fiscal deficit,” she said. “But against our advice, significant portions were also used to augment monthly allocations,” to local and state authorities.

“States argued that rainy days were already at hand and in fact (the rain) was already pouring, so the money needed to be used right away,” Okonjo-Iweala said.

Nigeria’s oil revenues are the source of around 80 per cent of government spending and are distributed each month to the three tiers of government: federal, state and local.

Money from oil sold over and above the finance ministry’s benchmark price is in theory deposited into the ECA, which can later be used to protect against oil price shocks or to plug the deficit.

However, there are disputes about who should control this money, and state governors often argue the central government is hoarding the money and should distribute more to them.

The president, being the country’s most powerful person, can usually have the de facto last say on how ECA funds will be distributed.

President Goodluck Jonathan approved two dispersals of $1 billion last year to state governments.

State governors are some of the country’s most powerful people and their support is crucial for winning presidential elections — President Goodluck Jonathan faces re-election in February 2015.

State governors requested $2 billion from the ECA this month to complete projects and provide security ahead of the February elections.

The request has not yet been approved.

Demands from local governments for more funds are likely to intensify in the lead up to the election, but the falling oil price means government finances are likely to be squeezed further.

The government has already revised down its assumed oil price for next year’s budget to $73 a barrel, from $78 a barrel. But OPEC’s decision on Thursday not to cut output has put further pressure on the oil price, potentially worsening Nigeria’s problems.

Okonjo-Iweala said on Thursday that government plans to review tax incentives and waivers and plug customs loopholes while also increasing surcharges on luxury goods, should raise N480 billion over the next three years.