Excess Crude Account (ECA)

What Is the Excess Crude Account (ECA)?

The Excess Crude Account (ECA) is the name of a Nigerian government fiscal account that was made to save revenues — in excess of the budgetary benchmark price — that were produced from the sale of oil.

Grasping the Excess Crude Account

Laid out in 2004, the ECA's primary objective was to safeguard Nigeria's planned budgets against setbacks brought about by the volatility of crude oil prices. By disconnecting government expenditures from oil revenues, the Excess Crude Account expected to protect the Nigerian economy from outer economic shocks. It tried to safeguard public expenditure from being designed on the [boom-and-bust cycle](/win and-fail cycle) of the international oil market.

A Legacy of Controversy

The Excess Crude account is noted among sovereign wealth funds as especially opaque and lacking in enemy of corruption controls. The Account's shortfall of rules overseeing deposits, withdrawals, and investments prompted the Natural Resource Governance Institute positioning Nigeria as the second-most ineffectively represented fund among 34 resource-rich nations in a 2017 report. As at present comprised, the Excess Crude Account may constantly be respected internally with doubt given its lack of legal backing, appropriate structures, and critical withdrawals. There exist no records of money-in-money-out — the typical tracking of a fund's operations. Throughout the long term, authorities have communicated concern because the ECA's balances appear to change at will with no comparing evidence of withdrawals or endorsements of such withdrawals.

With these underlying issues, the Account has seen wide swings in its value over the long run. The Excess Crude Account increased just about four-overlay from $5.1 billion its beginning in 2005 to more than $20 billion in November 2008 — which at that point, accounted for more than one-third of Nigeria's outside reserves. By June 2010, the account had fallen to under $4 billion in light of budget deficits at all levels of the Nigerian government, a lofty drop in oil prices, and the Great Recession of 2008-2009. By April 2018, the ECA's balance remained at $1.8 billion. Starting around 2020, the ECA's balance remains at just $72 million as the country keeps on wrestling with a phenomenal revenue crisis unheard of since the mid eighties.

No more interesting to conflict, the Excess Crude Account has experienced deep question since its beginning because of a public accounting system that was perceived as wildly corrupt, opaque, and subject to discretion and abuse. Throughout the long term, the ECA has reliably borne claims of fumble, alongside a blast of lawsuits that have tested its defendability and legality. Besides, the Excess Crude Account has been blamed for going about as a slush fund for high-moving government executives to steal when they were bankrupt, ill, or required a liberal vacation.

New Sovereign Wealth Fund to Replace ECA

In 2011, Nigeria's National Economic Council approved a plan to supplant the Excess Crude Account with a national sovereign wealth fund (SWF), principally to enhance the debates encompassing the ECA's legality. This SWF is contained three sub-funds with obviously stated objectives:

1. The Stabilization Fund: to support the budget in times of economic stress, including to hedge against unpredictable crude oil prices
2. The Future Generations Fund: to put something aside for people in the future of Nigerians
3. The Nigeria Infrastructure Fund: to invest in domestic infrastructure

Basically, the SWF's objectives are equivalent to those of the original Excess Crude Account. The principal difference is that the sovereign wealth fund is structured to guarantee greater productivity and transparency; and essentially it was laid out by statute, so dissimilar to the Excess Crude Account, it doesn't carry the burden of supposed illegality.

Guess for Excess Crude Account

Until now, the sovereign wealth fund has yielded great outcomes. Also, — as it appears to be repetitive for Nigeria to oversee the two accounts simultaneously — with the sovereign wealth fund's legal backing, organized structure, and more extensive scope, the Excess Crude Account could be helpfully subsumed into the SWF. So why has this not occurred? Likewise with whatever else encompassing the Excess Crude Account, there is no simple response.

It boils down to an internal political battle. Some government authorities accept that the Excess Crude Account ought to be crushed. Others accept that the ECA ought to be legalized. In attempting to give the ECA legal backing; be that as it may, legislators first need to work out various different areas of conflict.

One, for instance, is the right of states and neighborhood governments to conclude whether they are OK with the federal government dealing with their share of the money by any means. Regardless, as of this composition, these two all around expected instruments of fiscal policy — the Excess Crude Account and the sovereign wealth fund — still coincide in Nigeria.

Features

• The Excess Crude Account (ECA) is a fund laid out in 2004 by the national government of Nigeria planned to balance out the country's economy and smooth out the impact of price volatility in oil exports.
• The ECA is funded by the difference between the market price of crude oil and the budgeted price of crude oil as contained in the government's appropriation bill.
• The ECA has transitioned beginning around 2011 to another sovereign wealth fund, which has had better outcomes to date.
• Notwithstanding its well meaning goals, the ECA has been filled with contention, claims of corruption, and dubious performance.