December 21, 2022

IMF to African Oil exporters: Create fiscal buffers now

Nigerian banks closed 234 branches, 649 ATMs, IMF report

Emma Ujah, Abuja Bureau Chief

The International Monetary Fund, (IMF) has advised oil exporting countries in Africa to, as a matter of urgency, create fiscal buffers, against possible future oil price falls.

According to the organization’s statement yesterday, African oil exporters have not made significant savings from the current high oil prices in the last two years.

Nigeria represents an embarrassing irony, as the Federation Account has not received any oil revenue for many months, on the excuse that the entire monthly oil revenue was being spent on the subsidy of imported petrol.

IMF said. “Oil exporters in sub-Saharan Africa should target buffers of around 5 to 10 percent of gross domestic product to manage large swings in oil prices.

“For many countries, this means they will need to maintain annual fiscal surpluses up to 1 percent per annum over a 10-year period.

“As noted in our 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.

“However, most oil exporters in the region haven’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 percent of gross domestic product—compared to 72 percent 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 2 percentage points slower per year than non-resource intensive countries. Debt service costs have also been almost twice as high than in other sub-Saharan African countries.”

The organization warned that as countries move away from oil to clean energy, African countries that current depend on oil revenue as their economic mainstay could run into serious financial problems as oil revenue declines.

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