IMPLEMENTATION OF THE SUBNATIONAL FISCAL SUSTAINABILITY PLAN

INTRODUCTION

(i) Background
Nigeria‟s federal, state and local governments, to a large extent, depend on receipts from crude oil for the bulk of their revenue. The oil and gas sector also accounts for over 90% of foreign exchange receipts and as such, pays for imports of raw materials, machinery and other imported goods and services. This development links oil revenue to receipts from import duties. The sector is also linked with Value Added Tax receipts as it accounts for about 30% of Value Added Tax.
The unpredictable and volatile nature of the price of crude oil which moves in a boom and burst cycle led to the establishment of the Excess Crude Account to stabilize the fiscal system and to save for the rainy day during times of boom. Thus the Fiscal Responsibility Act requires that when the price of crude oil rises above the reference commodity price, the resulting excess is to be saved in an account to be maintained at the Central Bank of Nigeria. It further states that no government in the federation shall have access to the saved funds unless the price of crude oil falls below the benchmark price for a period of three consecutive months. Withdrawals from the fund will be to augment the revenue of governments to the level contained in budget estimates1. Table 1 tells the story of the average price of crude oil, benchmark price, inflows and outflows from ECA for the period 2011-2015.

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