This Policy brief is focused on a review of the disputations about the legality and propriety of maintaining a stabilisation fund in the Excess Crude Account (ECA) and the Nigerian Sovereign Wealth Fund. It seeks to interrogate and proffer answers to the following posers:
• Should the ECA or any other Stabilisation Account be scrapped or should its management be modified?
• What is the legality of Stabilisation Accounts when pitched against the supremacy of the Constitution of the Federal Republic of Nigeria 1999?
• Is it possible to run a modern fiscal regime without Stabilisation or saving for the rainy day account?
• Can we reconcile constitutionalism and legality with practical economic and fiscal reality?
The Policy Brief is crafted with the following objectives:
• Review the arguments for and against the continuity of the ECA or any other Stabilisation Fund.
• Review the constitutionality and legality of ECA.
• Chart a way forward for fiscal stabilisation in Nigeria.
It recalls the unsustainable management of Nigeria’s resources leading to huge expenditure in times of oil boom and inability to maintain basic services when the price of oil declines. The boom burst commodity price cycle has led to serious economic and development challenges across the three tiers of government. The Fiscal Responsibility Act (FRA) in introducing the ECA sought to cure the mischief in existing law and policy by introducing compulsory savings once the price of oil exceeds the benchmark price used in the budget. But the provisions of the FRA and the stabilization provisions of the Nigerian Sovereign Investment Authority (Establishment) Act seem to be in conflict with the distributable pool account provisions of section 162 of the 1999 Constitution. This has led to State Governments filing suits against the Federal Government challenging the legality and constitutionality of ECA at the Supreme Court.
Available evidence shows that the three tiers of government were sharing the revenue in ECA in times of high oil prices when there was no need for augmenting their revenue as required by the FRA. Nigeria was also a late starter in establishing the Sovereign Wealth Fund with about $1.4bn saved in the fund. The challenges against the ECA seem to arise from the belief by State Governments that the Federal Government had not been transparent in its management of the fund. It is not necessarily a challenge against the idea of savings and a stabilisation fund.
Answering the posers raised at the beginning of this Policy Brief; the ECA or any other stabilisation account should not be scrapped but its management and administration modified for more transparency, accountability and participation in decision making by all the owners. There is the veneer of illegality on extant stabilisation accounts which can be remedied by an amendment of the Constitution. It is not possible to run a modern fiscal regime without stabilisation or saving for the rainy day account and on the basis of this, we need to reconcile legality with practical economic reality to solve Nigeria’s existential fiscal challenges.
Against the background of the foregoing, the Policy Brief ends with the following recommendations with a view to ensure the fiscal stabilisation of the economy during periods of economic downturn.
(1) Section 162 of the 1999 Constitution should be amended to accommodate stabilisation funds which should be centrally managed for the whole federation.
(2) The Constitution should be amended to provide for the position of Accountant General of the Federation who will be in charge of the Federation Account, stabilisation and any other funds jointly owned by the three tiers of government whilst the Accountant-General of the Federal Government takes charge of Federal Government accounts.
(3) In the interim, the management of stabilisation funds should be done in a more transparent and accountable manner which gives monthly, quarterly, half yearly and yearly reports of accruals and withdrawals not just to the three tiers of government alone, but the entire Nigerian public. The management structure should include representatives of all the owners of the funds.
(4) NASS should rationalise the stabilisation provisions for ECA in the FRA and the stabilisation fund in the NSIA Act. One stabilisation fund will be enough.
(5) Funding for stabilisation should no longer be limited to proceeds from commodity prices but it should be based on targets and limits including revenues from other sources including taxation.
(6) There is the need for amendments and review of the Acts establishing the stabilisation funds either in the FRA or NSIA to impose sanctions for managers and operators of the fund when they violate its basic principles.
(7) In reviewing the FRA or the NSIA, a clear management and decision making structure should be established in the new Stabilization Act detailing a decision making process that involves all owners of the funds. No major decision should be left to the discretion of any appointed or elected official.
(8) States are encouraged to enact and implement sub-national Fiscal Responsibility Laws to promote prudent management of their resources. To encourage States, FGN should set up a challenge fund in the nature of grants to states that meet certain benchmarks in fiscal responsibility.
(9) There is need for the urgent diversification of the economy, especially into manufacturing and value added agriculture across its value chains.
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