Determining Optimal Crude Oil Price Benchmark in Nigeria: An Empirical Approach
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Date
2015
Authors
Saibu, Olufemi Muibi
Journal Title
Journal ISSN
Volume Title
Publisher
The Romanian Economic Journal
Abstract
This paper contributes to the ongoing empirical search for an appropriate crude oil
price benchmark that ensures greater financial stability and efficient fiscal
management in Nigeria. It adopted the seasonally adjusted ARIMA forecasting
models using monthly data series from 2000m01 to 2012m12 to predict future
movement in Nigeria crude oil prices. The paper derived a more robust and
dynamic framework that accommodates fluctuation in crude oil price and also in
government spending. The result shows that if the incessant withdrawal from the
ECA fund and the increasing debt profile of government in recent times are
factored into the benchmark, the real crude oil numerical fiscal rule is (US$82.3)
for 2013 which is higher than the official benchmark of $75 used for 2013 and
2014 budget proposal. The paper argues that the current long-run price rule based
on 5-10 year moving average approach adopted by the government is rigid and
inflexible as a rule for managing Nigerian oil funds. The unrealistic assumption of
the extant benchmark accounted for excessive depletion and lack of accountability
of the excess crude oil account. The paper concludes that except the federal
government can curtail its spending profligacy and adopts a more stringent fiscal
discipline rule, the current benchmark is unrealistic and unsuitable for the fiscal
management of oil revenue in the context of the Nigerian economic spending profile.
Description
Keywords
Oil Revenue Spending, Fiscal institutions, Fiscal rules, Resource-rich Economies
Citation
Saibu M.O (2015) “Determining Optimal Crude Oil Price Benchmark in Nigeria: An Empirical Approach” The Romanian Economic Journal Vol 58(XVIII) Pp 51-80