NIGERIA: EXCESS CRUDE ACCOUNT BEING DRAWN DOWN TO CUSHION

UNCLAS ABUJA 000939 SIPDIS DEPT PASS TO USTR-AGAMA TREASURY FOR PETERS AND IERONIMO DOC FOR 3317/ITA/OA/KBURRESS AND 3130/USFC/OIO/ANESA/DHARRIS DOE FOR GPERSON BAGHDAD FOR MCCULLOUGH E.O. 12958: N/A TAGS: EFIN ECON EINV ENRG PGOV NI SUBJECT: NIGERIA: EXCESS CRUDE ACCOUNT BEING DRAWN DOWN TO CUSHION THE EFFECT OF THE GLOBAL CRISIS REF: A. ABUJA 455 ¶B. 08 ABUJA 2437 ¶C. 08 ABUJA 1191 ¶D. 08 ABUJA 2387 ¶E. 08 LAGOS 520 ¶F. 08 LAGOS 426 ¶1. (U) During a May 26 interactive session with the House of Representatives Committee on Legislative Compliance, Minister of Finance Mansur Muhtar stated that the Excess Crude Account (ECA) could be depleted by the end of 2010 if the three tiers of government continue to fall back on the ECA to augment dwindling revenue due to the global economic crisis. Commodity prices, especially oil, have fallen drastically from their July 2008 highs, and have resulted in a sharp decrease in revenues in an economy where oil accounts for over ninety percent of foreign exchange revenues. (Comment: Press reports put the ECA at about $15 billion. End Comment) IMF, World Bank Appear Sanguine -------------- ¶2. (U) Muhtar's statement corroborates statements released earlier by the World Bank and the International Monetary Fund (IMF) on the impact of the global crisis on Nigeria at the end of the recent World Bank - IMF Spring Meetings held in April in Washington, D.C. Both institutions stated that Nigeria has been able to withstand the negative impact of falling commodity prices resulting from the global crisis because of economic reforms implemented from 2003 to 2007 which resulted in an increase in foreign reserves and the savings in the ECA. Both institutions asserted that ECA funds provide an opportunity for Nigeria to augment dwindling revenues until the end of 2010. This assertion was also made by the David Nellor, IMF Resident Representative for Nigeria, during a meeting with the donor community in early March. Comment -------------- ¶3. (U) The ECA was established during the administration of former President Olusegun Obasanjo as savings for the rainy day, with specific emphasis to help flattening out revenue streams from the boom and burst cycle associated with volatile oil prices. The rainy day is already here and the ECA is being used. However, the critical issue is that the funds be used for strategic investment in infrastructure rather than consumption. Although the Government of Nigeria said repeatedly that the funds would be used for needed infrastructure in electricity and roads, that does not appear to be happening as the funds appear to be going to support consumption and agricultural inputs such as fertilizers. End Comment. ¶4. This report was coordinated with Consulate Lagos. SANDERS