Okonjo-lweala clarifies the state of Nigeria’s economy, excess crude account & related issues

By Dr. Ngozi Okonjo-lweala

Ngozi Okonjo-Iweala

Ngozi Okonjo-Iweala

• In recent times, a number of comments and articles have appeared in the media, which have tended to talk down the performance of the Nigerian economy and question the accuracy and transparency of the Excess Crude Account and the External Reserves of the country. It is essential that Nigerians understand the exact position of the economy, and the integrity of these important government accounts. This note aims to provide some facts for Nigerians on these issues, to clarify the exact position, and finally to put these concerns to rest.

• The specific issues that have been raised in recent times include the health and prospects of the Nigerian economy, the composition of the external reserves, and purported discrepancies in account balances reported by the Ministry of Finance and the Central Bank of Nigeria (CBN).

• First, the Nigerian economy is strong. Our economic performance is robust when viewed against a whole range of objective factors. Inflation is now down to single-digit at 9.0% in January 2013, compared with 12.6% in January 2012. The exchange rate has been relatively stable, and the fiscal deficit at just under 2% of GDP is on a downward trajectory, and below our threshold of 3% of GDP. Our national debt is at a sustainable level at about 19.4% of GDP. Overall, GDP growth for 2012 was 6.5%, and projected at 6.75% for 2013, compared with the projected global growth of 3.5%. The above facts have been independently noted and validated by international ratings agencies (such as Fitch, Standard & Poor’s and Moody’s) who have upgraded the country’s economic outlook, even as other countries are being downgraded. In addition, Nigeria’s bonds have recently been included in the Barclays and JP Morgan Emerging Market indices.

• Of course, we recognize the socio-economic challenges which we face as a nation. We know we still have a long way to go but let us keep working to correct what is wrong and stop focusing on the denigration of what is being done right. In this regard, we need to create more jobs for our youth to curb unemployment. Poverty needs to decrease at a faster pace, as we do not want excessive inequality to be a feature of our economic growth. For example, the recent poverty statistics released by National Bureau of Statistics show a slight decline in poverty levels of about 2% between 2003 and 2010. This needs to be further accelerated. The cost of governance also needs to be reduced, and the government is taking steps in this direction. We have reduced the share of recurrent expenditures in the budget from 74% in 2011 to 71% in 2012, and to 68% in 2013. We aim to push for a 60% recurrent and 40% capital budget ratio in the medium term.

• As part of the Transformation Agenda, President Goodluck Jonathan has emphasized the diversification of the economy to promote inclusive growth and create jobs. This is being achieved through investments in agriculture, housing and construction, manufacturing, aviation, power, roads, rail, solid minerals and the information and communication technology (ICT) sectors by both government and the private sector. These sectors are gradually transforming the economy, and creating jobs in the process. The economy is moving in the right direction.

• As noted earlier by the Federal Government, Nigeria’s reported level of external reserves is comprised of three parts: the CBN’s external reserves, the Excess Crude Account, and the Federal Government’s funds belonging to agencies such as the Nigerian National Petroleum Corporation for joint venture cash calls and so on. This is simply a matter of definition, and follows international best practices and reporting guidelines. It is thus unnecessary to continue to dwell further on this issue.

• There have also been claims of inconsistency of account balances provided by the Ministry of Finance and the CBN. It is worth noting that the Ministry of Finance typically reports its balances following Federal Accounts Allocation Committee (FAAC) Meetings, which often take place at the middle of the month, whereas CBN data are reported at the end of each month. There is thus a time lag between the reports from the two institutions. As a result, there are usually some differences due to ‘transit items’ which are yet to be reconciled in both accounts. In addition, for quite a while, the CBN excess crude reports have included the $1 billion allocated to the Sovereign Wealth Fund as this is still domiciled with the CBN, whereas the Ministry of Finance does not regard it as part of the distributable Excess Crude Account.

• As an example, in Table 1 below, we provide the monthly balances of the Excess Crude account reported by the Ministry of Finance and the CBN for the period June 2012 to January 2013. As can be clearly seen, after accounting for the $1 billion allocated to the SWF, the differences are minor and are the result of time lags in the reporting mentioned earlier. Nigerians should closely examine the table and judge for themselves the reasons for the discrepancy and whether Ministry of Finance and CBN are so muddled in their accounting as some would like to suggest.

(PLEASE FIND THE TABLE BELOW)

• There have also been issues raised regarding the rate of growth of the foreign reserves and the Excess Crude Account. It is worth recalling that the Excess Crude Account was established partly to provide a cushion for the Nigerian economy in times of a global downturn. In this regard, all three tiers of Government, relied on savings in the Excess Crude Account to plug the shortfall in their revenues following the collapse of oil prices in 2008. Moreover, there have been withdrawals from the ECA to pay for petroleum subsidy claims which increased sharply in recent years from N291 billion in 2007 to about N2188 billion in 2011. Finally, there has been the increased loss of oil revenues due to an upsurge in the incidence of illegal crude oil bunkering and oil theft.

• In conclusion, the Federal Ministry of Finance wishes to stress that the outlook for the Nigerian economy remains good, despite the current global economic uncertainty. We accept that government should be accountable to their citizens, and transparent to its people in terms of information, particularly regarding public finances. In this regard, we have made efforts to publish revenues allocated to all tiers of government, we have published the Federal Government’s budgets down to the last details, and we have published the subsidy reinvestments (SURE-P) payments to all tiers of government. We have also published subsidy payments to oil marketers and further published the names of companies that defrauded the government in the oil subsidy regime. We will continue to make every effort to respond to demands for greater transparency because we believe this lies at the heart of good governance.

SIGNED.

Dr. Ngozi Okonjo-lweala
Coordinating Minister for the Economy and Hon Minister of Finance
Okonjo-lweala's document

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