Nigeria is an “oil” economy, earning 80% of her Foreign Exchange earnings from one commodity, crude oil, with a significant budget deficit of over 2 trillion.
However, unlike fellow oil exporter Saudi Araba, which is financing a huge part of her deficit from her SAMA Foreign Reserves Holding, Nigeria is funding her budget deficit by record borrowings. Nigeria’s debt service is projected at N6.7 billion a day!
Nigeria has not saved her oil wealth, as the foreign reserves of Nigeria are not savings. They are not even owned by the Nigerian Federation but by the Central Bank of Nigeria, almost 70% of it is. The fx reserves represent, amongst other things, the import claims on Nigeria. Nigeria cannot fund the deficit from the fx reserves, as they are mostly already spoken for. The CBN can spend the fx reserves to defend the Naira without approval or appropriation from the Executive or the National Assembly, and they have.
So why does Nigeria not have significantly higher savings? She sells crude oil, makes billions of dollars in USD earnings; why just $2 billion savings? Well, the constitution of Nigeria is very clear: all revenues shall be paid into the Consolidated Revenue Fund then shared horizontally and vertically accruing to a formula specified by the Revenue Mobilization and Fiscal Commission. The Governors of the 36 States all said in 2012 that the Nigerian Sovereign Investment Authority (NSIA), which managed the Sovereign Wealth Fund (SWF) of Nigeria, was illegal and unconstitutional.
The first attempt made to save money in Nigeria was the Excess Crude Account (ECA), which is simply a “spill over” savings account that accumulates the excess of the benchmark and the actual price of crude oil. Thus, if the benchmark price in the annual budget is $50 per barrel and crude oil is sold for $70 during the year, $20 flows to the ECA. However, no Federal law set up the ECA.