- ECA Drops to $71.8m in One Month
Excess Crude Account (ECA) declined from $324.96 million to $71.81 million in one single month just as foreign reserves head south from $45 billion in June 2019 to $37.37 billion in February 2020.
A breakdown of the recent figures from the Federation Account Allocation Committee (FAAC) shows the ECA stood at $324.96 million as at the end of FAAC meeting on January 16, however, by February 19 the total amount in the ECA was put at $71.8 million. Indicating that $253.1 million has been depleted.
The Federal Government continues to struggle as weak revenue generation amid global uncertainty weighs on capital importation, especially with the ongoing coronavirus outbreak.
Brent crude oil, against which Nigerian crude oil is priced, declined from over $77 a barrel last year to $59 per barrel this month as the world’s largest importer of the commodity, China, battles a new type of coronavirus.
In an effort to sustain governance amid falling revenue, the government has started exhausting ECA account as oil revenue remains the powerhouse of the Nigerian economy despite billions spent on diversification program.
The Central Bank of Nigeria led Monetary Policy Committee (MPC) had warned that depletion of the ECA will leave the economy without fiscal buffers to cushion volatility during emergence.
In the last MPC meeting in January, Godwin Emefiele, Governor, CBN, said: “The MPC cautioned that public debt was rising faster than both domestic and external revenue, noting the need to tread cautiously in interpreting the debt to GDP ratio.
“The committee also noted the rising burden of debt services and urged the fiscal authorities to strongly consider building buffers by not sharing all the proceeds from the Federation Account at the monthly FAAC meetings to avert a macroeconomic downturn, in the event of an oil price shock.
“It urged government to gradually reduce reliance on oil receipts and focus on revenue diversification through reforms of the tax system.
“The committee also called on government to rationalise fiscal expenditure towards reducing the current excessively high cost of governance.”
However, with falling revenue, low capital importation and weak oil production, the Federal Government was forced to access the ECA as usual in order to sustain operations.
The International Monetary Fund (IMF) lowered Nigeria’s growth projection from 2.5 percent previously predicted to 2 percent, saying weak wage growth, slow recovery process and falling oil prices are some of the factors expected to hurt the nation in 2020.
The inflation rate rose to a 21-month high in January as border closure and lack of policy clarity bites. The MPC warned that the Open Market Operations policy of the apex bank could push consumer prices above the 12 percent if not checked, therefore, Cash Reserve Ratio was increased to curtail inflation.
Still, inflation rose from 11.98 percent in December to 12.13 percent in January, the highest in almost two years.