A Dwindling ECA in the Time of COVID-19

Nigeria’s finance minister announced last Monday that the country will cut the size of its 10.6 trillion naira ($34.6 billion) budget for 2020 because of the sharp decline in the price of crude. Since then the country’s CBN has also moved to weaken the official exchange rate to 370 naira per dollar from 307 naira while tat of portfolio investors was altered, to 380 naira per dollar from 366 naira.

Why Crude Prices is a Big Deal – Crude oil sales account for up to 90% of foreign exchange earnings in Nigeria and since demand in oil has been down globally due to the face-off between Saudi Arabia and Russia in the wake of the COVID-19 pandemic, there is pressure on the lower cadre of oil-dependent nations like Nigeria to cut down their prices as well, leading to shortfalls. In simple terms, we have less money to make from oil and fewer buyers. The current global oil price is $25 / barrel, 56.14% lesser than the oil price prediction for Nigeria’s 2020 budget. The implication of this is that some features of the 2020 budget are now out of reach. 

We Are Supposed to Have Money
With an economy highly vulnerable to drop in oil prices, The Excess Crude Account was established in 2004 for a time like this – to protect planned budgets against shortfalls due to drastic change in crude oil prices. By delinking government expenditures from oil revenues, the Excess Crude Account is meant to insulate the Nigerian economy from external shocks. This special account was established to hold savings from excess revenues released from the export of Nigeria’s crude oil at a price above the approved benchmark in the federal budget. The current balance on the ECA account as of March 2, 2020, is $71.8 million a 78% drop from the balance in November 2019 ($324.96 million). With little explanations for how the funds have depleted, it appears Nigeria has no safehouse to run to as the balance on the ECA is not buoyant enough to stabilize the economy. 

Surging Numbers Will Expose Us
It will be instructive to note that coronavirus’s ability to slow down businesses and inhibit consumer action is the way in which the pandemic will slow down the economy. Globally, countries that are battling the coronavirus have taken big moves towards stabilizing their economy and the purchasing power of their residents as the majority of the countries are adopting a lockdown of their cities and towns and cash transfers to citizens. Nigeria is faced with combating the coronavirus spread within its borders, which has gradually risen from one confirmed case on February 27th 2020  to thirty-six confirmed cases as of 10:58 am March 23rd 2020.  

What the Government Has Done
In response to this, the Federal Government of Nigeria has placed a travel ban for all travellers from 13 countries with more than 1,000 cases from March 20, 2020. The Ministry of Health has also advised that Nigerians should practice social distancing and self-isolation. If in the coming days, Nigeria experiences a severe outbreak, residents of Nigeria will have to make major changes to their lifestyles which could include total isolation and ultimately lead to a total drop in local and international travel, local market purchase, retail, and hospitality and this will mean a big economical hit. But with a population of over 200 million and citizens depending on daily takeouts to feed, a total lock down may be devastating or impossible. By implication, this will lead to a significant increase in the pressure on our health facilities which according to this report by the World Bank, isn’t sufficient enough to meet the needs of an outbreak.