IMF To Nigeria: Merger Excess Crude Account, Sovereign Fund

The International Monetary Fund (IMF) has said that Nigeria’s Excess Crude Account (ECA) should be merged to its Sovereign Wealth Fund (SWF) as part of measures to improve the country’s management of its oil funds.

This is even as the Fund has advised the Central Bank of Nigeria (CBN) to minimise its interventions in the real sector in order to ensure clarity of monetary policy signalling.

In its country report on Nigeria released Friday, the IMF pointed out that with falling oil prices, it had become necessary for the country to revise its current fiscal framework and introduce new policy that should focus on better and effective management of its oil wealth.

According to the IMF: “International experiences suggest that oil funds should be integrated with the budget to enhance fiscal policy coordination and public spending efficiency. In Nigeria, there are concerns, however, with the transparency of the framework and the potential for undermining the budget as a tool to set priorities.

“The recent rapid drawdown of the ECA suggests that the country has not been able to contain the mounting spending pressures. In order to improve oil revenue management, the ECA should be merged to the SWF. Because of its stronger legal basis in terms on drawdown principle and transparency in the management of the fuel subsidy, a full transition to the SWF would provide a framework to appropriately ring fence oil revenue savings.”

The IMF noted that despite a diversified economy, Nigeria’s fiscal policy is heavily dependent on the oil sector, adding that the country should adopt an optimal fiscal rule that, “aims at both preserving oil wealth for future generations and coping with commodity price fluctuations.”

The Fund stated that under the current fiscal framework, expenditure is disconnected from the saving rule.

“At end May, the ECA balance stood at only $2 billion, well below the required precautionary level. Furthermore, the SWF is not large (only funded for $1 billion) and is excluded from the fiscal framework. Excess oil revenue accumulations are still directed toward the ECA,” the IMF stated.

Commenting on monetary policy transmission, the IMF stated that while the authorities have made major strides in increasing banking penetration and facilitating other channels for savings to move from the informal to informal sectors, in order to ensure clarity of monetary policy signalling, the CBN interventions in the real sector should be scaled down.

“Overall, these schemes should be reviewed to determine whether they have proved cost effective and to determine whether there is a continued need for them If the authorities deem it necessary to continue with some targeted schemes, these should be transferred to other agencies,” the Fund said.