Fiscal Policy in Nigeria: Any Role for Rules?

IMF Working Papers, July 1, 2003

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Fiscal policy in oil-producing countries can be profoundly affected by oil revenue uncertainty and volatility.
Policy formulation should factor in the exhaustibility of the natural resources and aim at reducing oil revenue volatility passed on to the economy.
Past fiscal policy in Nigeria has not been successful in this regard, since both revenue and expenditure have been highly volatile, to a large extent reflecting oil price developments.
The paper discusses the role an appropriately designed fiscal rule, nested within the long-run sustainable use of oil revenue, could have in providing a more stable framework for fiscal policy formulation.
The paper also highlights practical implementation and transitional issues.

Oil revenue uncertainty and volatility are central drivers of fiscal instability in oil-producing countries, including Nigeria.
Both revenue and expenditure in Nigeria have been highly volatile, largely reflecting oil price developments.
Sustainable fiscal policy should incorporate the exhaustibility of natural resources and aim to reduce the transmission of oil revenue volatility to the broader economy.

An appropriately designed fiscal rule, aligned with long-run sustainable use of oil revenue, can provide a more stable framework for fiscal policy formulation.
The rule should be designed to address oil revenue volatility and the nonrenewable nature of oil resources.

The paper highlights practical implementation issues that need to be addressed when introducing a fiscal rule in Nigeria.
Transitional issues are emphasized as important considerations in moving from past policies to a rule-based framework.

Fiscal Policy in Nigeria: Any Role for Rules? - WP/03/155
- Fiscal Policy in Nigeria: Any Role for Rules? - WP/03/155 (Markdown version)
- Fiscal Policy in Nigeria: Any Role for Rules? - WP/03/155 (PDF)