Nigeria’s excess crude oil account (ECA), the only buffer for the country against oil revenue volatility, fell seventy-six percent to just above $600 million in three weeks is causing consternation across the land but it could be a taste of what to expect next year as oil price continues to collapse unstoppably.
Oil prices plunged another four per cent Thursday taking prices below the level all but one OPEC country needs to square their 2019 budgets and avoid the risk of economic dislocation and social unrest.
“2019 will be very challenging no doubt,” Omotola Abimbola research analyst at Ecobank told BusinessDay. “It’s a major cause for concern for Nigeria’s economy.”
For the first time since September 2017 Brent price hit $55 a barrel on Thursday, only uber-wealthy and sparsely populated Kuwait will be able to make ends meets next year, according to IMF estimates. OPEC heavily oil dependent countries like Nigeria along with giants Saudi Arabia, Iraq and Iran need much higher prices.
Qatar, which is leaving the cartel on January 1, would be able to break-even at just $44 a barrel. Libya and Algeria need prices around $100 a barrel.
Saudi Arabia, which announced its 2019 budget this week, is betting on higher oil revenues to finance a third consecutive year of fiscal loosening. Jason Tuvey, analyst at Capital Economics, a London-based consultancy, said the Saudi budget “appears to be premised on prices averaging $80 a barrel.”
Analysts say the ECA depletion is a shocking revelation for a country that has struggled to grow its economy beyond 3 percent and needs all the buffers it can get to maintain macroeconomic stability.
“At our own estimation at Ecobank; Nigeria will record a current account deficit at $55 while the breakeven point to record a current account surplus is around $57 to $59,” Abimbola explained. “It’s a harsh reality for the economy.”
Abimbola noted that 2019 will be challenging for Nigeria financial markets and economy and most especially for the capital markets because of the rising political risk premium as a result of coming elections.
“Most of the economic reforms we ought to have done in the period of favourable oil prices were not done which will make lower oil prices a bit tougher for Nigeria,” Abimbola explained.
Adetola Adelu financial analyst at Fides Capital Partners said there is optimism oil prices might increase in 2019 but based on current trends “if the price of oil should fall again with slow growth in other sectors of the economy we might again experience what happened in 2015 which is recession.”
“The so called stability in FX has always being oil induced not real growth, so we should prepare for worse times,” Adelu told BusinessDay.
Controversy trailed Wednesday’s revelation by the Federation Accounts Allocation Committee (FAAC) that the excess crude revenue account savings has been depleted to only $631 million within three weeks; although withdrawal from the account is subject to the approval of the three tiers of government and the Executive Council of the Federation (FEC).
Excess Crude Account is a special account established to warehouse excess revenues from the prevailing crude oil price at the international market. Income generated above the approved crude oil benchmark price in the annual budget is saved in the account.
Nigeria’s president Muhammadu Buhari presented the draft 2019 appropriation before parliament Wednesday and its details are now being digested. The budget is based on assumptions of $60 per barrel of oil benchmark at 2.3 million barrels per day, a GDP growth rate of 3.01 percent and inflation rate of 9.98 percent while exchange rate was based on N305/$.
The budget is less than a third that of peer country South Africa and just over half that of Angola, both with smaller populations relative to Nigeria who recorded a GDP growth rate of 1.81 in Q3 2018 while Ghana recorded a GDP growth rate of 7.4 percent in the same period.
Bloomberg reported Thursday that as oil revenues fall, OPEC governments could soon face social unrest due to slower economic growth and higher unemployment.
They’ll also have far less money to invest in the petroleum sector to keep output up.
Meanwhile the opposition People’s Democratic Party (PDP) has reacted to the Federal Government’s withdrawal of $1.68 billion from the Excess Crude Account (ECA) in one month, leaving a balance of $631 million.
The main opposition party accused the ruling All Progressives Congress (APC) and President Muhammadu Buhari of fraud.
In a statement on Thursday signed by PDP National Publicity Secretary, Kola Ologbondiyan, the party said the development shows that President Buhari is presiding “over a corrupt government that is bent on draining our treasury and foisting more suffering on our people”.
The party also accused President Buhari of superintending over the surreptitious withdrawals from the ECA, without recourse to the statutory appropriation of the National Assembly, adding that “funds are being frittered from the account to private purses of the cabal at his Presidency and corrupt All Progressives Congress (APC) leaders.”
The statement reads: “The PDP wonders why the President is presiding over such impunity, if he is not drawing personal benefits from the obvious racket for which our ECA has been turned into APC’s Automated Teller Machine (ATM).
“Apparently realizing that they have been rejected by Nigerians ahead of the 2019 general elections, the APC and the Buhari Presidency now want to drain our treasury and as usual, blame it on past administration.
“Nigerians can recall that the PDP, which established the ECA as a buffer account to cushion the effect of any economic down turn, left $2.07 billion in the account only for the Buhari administration to drain it down to $631 million.
“The PDP condemns this manifest impunity by the Buhari Presidency and demands that no more withdrawals must be made from the account by this corrupt and inept administration.”
DIPO OLADEHINDE, Lagos and OWEDE AGBAJILEKE, Abuja
