IMF Tasks Nigeria, Others to Save Against Oil Price Swings

By Adedapo Adesanya

The International Monetary Fund (IMF) has called on oil exporters in sub-Saharan Africa, including Nigeria, to target buffers of around 5 to 10 per cent of gross domestic product (GDP) to manage large oil price swings.

In its Country Focus for Sub-Suharan Africa, it warned that savings from oil revenues could help manage price swings. This, for many countries, means they will need to maintain annual fiscal surpluses of up to 1 per cent per annum over a 10-year period.

As noted in its latest Regional Economic Outlook, oil prices have fluctuated from lows of $23 per barrel to a peak of $120 over the last two years, resulting in highly uncertain revenues in oil-dependent economies.

This is occasioned by the fact that oil exporters spend more when oil prices are higher. For instance, in Nigeria’s case, on fuel subsidies.

However, IMF said that most oil exporters in the region hadn’t accumulated enough savings to insure against unpredictable oil price changes.

“In fact, sovereign wealth funds in sub-Saharan Africa hold assets of just 1.8 per cent of gross domestic product—compared to 72 per cent in the Middle East and North Africa—forcing countries to borrow or draw down financial assets when oil prices fall.”

As a result, in the decade through 2020, the region’s oil producers have grown over two percentage points slower per year than in non-resource-intensive countries.

The Washington-based lender warned that debt service costs have also been almost twice as high as in other sub-Saharan African countries.

It also warned that as countries transition to low-carbon energy sources, oil revenues could sharply decline. By 2030, oil revenues in the region could fall by as much as a quarter and, by 2050, by half.

The IMF then tasked oil exporters in the region to build buffers to help them cushion the effect a cleaner adaptation would have on the oil industry.

“Building buffers now would help the region’s oil exporters navigate the transition toward clean energy while managing oil price fluctuations,” it noted.