The Nigerian Economic Summit Group (NESG) has revealed how state governors spent the country’s $50 billion Excess Crude Account (ECA) in 2010, which could have served as a fiscal buffer to address current financial concerns, such as subsidies.
Speaking during a courtesy visit to PUNCH Nigeria Limited’s headquarters on Wednesday, NESG Chief Executive Officer, Dr. Tayo Aduloju, explained that Nigeria once had a robust financial reserve in the ECA, which helped shield the nation from external economic shocks during the global financial crisis of 2007-2008. However, this fiscal cushion was eroded when state governors successfully lobbied the Supreme Court to declare the ECA illegal, leading to the distribution of the $50 billion fund to the 36 states between the deaths of former President Umaru Musa Yar’Adua and the tenure of his successor, former President Goodluck Jonathan.
Aduloju highlighted that this decision marked a shift in Nigeria’s fuel subsidy funding model from one based on savings to a revenue-based approach. This shift forced the Federal Government to fund the subsidy through crude oil sales rather than drawing from savings in the ECA.
“Between 1999 and 2010, we operated a savings-based subsidy system. We were paying for the subsidy from savings, not borrowing,” Aduloju said. He noted that by the time former President Olusegun Obasanjo left office, the ECA had over $60 billion. However, with the depletion of this fiscal buffer, the Nigerian government found itself borrowing to fund subsidies during Jonathan’s administration and beyond.
Aduloju further explained that the mismanagement of the ECA left Nigeria vulnerable during oil price shocks, such as when U.S. shale oil pushed crude prices below $22 per barrel, a figure lower than the cost of production. By 2015, Nigeria entered deficit financing in oil production, as there were no savings left to cushion the economy. In contrast, Saudi Arabia defended its economy with $45 billion during the same period.
The NESG CEO lamented that successive administrations had compounded the country’s financial woes through poor fiscal management, stating, “The subsidy removal that Tinubu inherited is not the same as what Buhari or Jonathan faced.” He emphasized that the main issue with subsidy removal under President Bola Tinubu’s administration is the lack of transparency in government finances.
Aduloju stressed that before making significant policy choices, such as subsidy removal, the government should first provide clear answers about the state of the country’s finances. “What are we looking at? What is the size of the fiscal deficit? How much do we owe? How deep is the hole? Without answering these questions, policy choices become a facade,” he said.
The CEO also pointed out that the primary issue isn’t the subsidy itself but the lack of transparency that fuels mistrust between the government and the public. He argued that Nigerians largely agree that the fuel subsidy is fraudulent but are unsure if they will receive commensurate value once it is removed.
Aduloju mentioned that these and other pressing economic challenges will be addressed at the upcoming NESG at 30 Summit, scheduled to take place from October 14 to 16, 2024, in Abuja.
The PUNCH’s Acting Editor, Oyetunji Abioye, assured the NESG team of the company’s support for the summit, which kicks off with a press conference on Friday. NESG’s visiting delegation also included Media and Publicity Subcommittee Chairman, Mr. Udeme Ufot, Senior Communications Specialist, Francis Jakpor, NESG Associate, Oluwatobi Abodunrin, and Executive Assistant to the CEO, Biodun Shittu.