The World Bank has advised the federal government against treating rising oil revenues as a basis for increased spending or funding subsidies.
While higher global oil prices are expected to boost government revenues in the short term, the World Bank warned that such gains should be treated as temporary.
However, World Bank said from the onset, the Middle East conflict has triggered some capital outflows and renewed pressure on the naira, highlighting the vulnerability of the economy to global shocks.
“Preserving recent stabilization gains will require a disciplined and well-calibrated policy response to manage the effects of the Middle East conflict,” World Bank said.
“Fiscal policy should treat higher oil revenues as a temporary windfall, prioritizing the rebuilding of buffers over permanent spending increases, particularly in the run-up to elections.
“If inflationary pressures intensify, part of the revenue gains could be used to support vulnerable households through targeted, time-bound cash transfers, while avoiding inefficient price controls or generalized subsidies
“Monetary policy needs to remain tight to contain inflation, and exchange rate flexibility should be maintained to absorb external shocks, with interventions limited to smoothing excessive volatility.”
The institution advised that any additional revenue should be used cautiously, particularly in the run-up to elections, to avoid undermining macroeconomic stability.
It recommended that part of the windfall could be channelled into targeted, time-bound support for vulnerable households, rather than broad subsidies or price controls.
The World Bank also stressed the need for continued tight monetary policy to contain inflation and maintain exchange rate flexibility to absorb external shocks.
The federal government had projected crude oil benchmark of $64.85 per barrel for 2026, however, oil price has increased as high as $117 per barrel, but currently trades at $91.78.
SOURCE: TheCable
