Excess Crude Account: Babalola Warns Against Profligacy

PHOTO: NIGERIA'S MINISTER OF STATE, FINANCE, MR. REMI BABALOLA.

ABUJA, May 14, (THEWILL) Minister of State for Finance, Mr. Remi Babalola, on Friday warned against any form of profligacy by all tiers of government to enable them address the various fiscal challenges likely to be faced in the near future.

He gave this advice in a speech titled "Between Profligacy and Performance" presented at the Federation Account Allocation Committee (FAAC) meeting in Abuja.

The meeting presided over by the minister was attended by the Accountant General of the Federation, Alhaji Ibrahim Dankwambo; Director of Home Finance in the Federal Ministry of Finance, Alhaji Gidado Mohammed; commissioners for finance and accountants-general from the 36 States, and the representatives of the Central Bank of Nigeria, Revenue Mobilisation, Allocation and Fiscal Commission, Debt Management Office, National Planning Commission, and revenue collection agencies, among others.

Babalola asserted that the growth of discretionary spending by all tiers of government has outpaced the annual growth rate of the overall economy over the past 10 years, with deficits being the expected consequence.

He said, "The production and price assumptions in the 2010 budget leave minimal headroom for adjustment and expose the economy to higher risks of exogenous shocks. It reduces the accretion to our honey pot of Excess Crude account which is already below comfortable cushion.

"If we embark on any form of fiscal profligacy today it will certainly hinder our ability to address the various fiscal challenges we are likely to face in the near future."

He explained that current developments in nations like Portugal, Italy, Spain and Greece had shown that while it appears urgent to use massive public spending to stimulate an economy under stress, an economy wouldn’t be able to sustain long-term growth under the weight of significant fiscal burdens.

"At some point, what is considered a temporary economic prosthesis becomes a hindrance to the workings of the larger economy," he added.

The minister, also at the FAAC meeting, presented details and breakdown of the revenue distributions from the Federation Account and the Excess Crude Account (ECA) in the first four months of Fiscal 2010.

According to him, the total distributable revenue to all the tiers of government amounted to N1.495 trillion for the period January to March 2010.

He, however, noted that the sum of N758.06 billion was distributed due to the use of the parameters of 2009 Appropriation since the 2010 Budget was yet to be passed by the National Assembly and assented to.

The shortfall in the revenue distributed to the three tiers of government necessitated the augmentation of N736.985 billion from the Excess Crude Account.

Babalola further disclosed that the balance in the Foreign Excess Crude Account at the end of April 2010 FAAC meeting was US$4.393 billion after setting aside the commitment to the Nigeria Integrated Power Projects whilst Domestic Excess Crude Account was N212.559 billion.

"With augmentation for the months of January to March 2010 amounting to N736.985 billion, the Domestic Excess Crude Account of N212.559 billion will not be able to accommodate such figure hence a recourse to sourcing from the Foreign Excess Crude Account.

"The implication of the foregoing is that with subsidy to Oil Marketers averaging N34.73 billion monthly and monthly receipts of N431.747 billion, the projected monthly distribution may not be realizable.

"We may thus be constrained to amongst others consider amending the revenue profile of the 2010 budget or re-negotiate with all relevant stakeholders the monthly distributable amount pending improvements in the budgeted revenue profile," he stated.

The minister was upbeat about the nation’s economic outlook for 2010.

He revealed that the real Gross Domestic Product (GDP) grew 6.68 per cent in the first quarter of 2010 despite the challenge of illiquidity facing the domestic economy.

He also noted that consumer prices trended downwards during same period while the country’s external reserves stood at US$ 40.68 at the end of March 2010.