Following the steady rise in crude oil price at the end of 2016 second quarter, the sustenance of the increase calls for saving of excess revenue above the budget benchmark. This position is based on the report by the National Bureau of Statistics ( NBS) which identified high oil price as a major factor that helped Nigeria to exit economic recession last year.It was also identified as a factor that helped to stabilize Nigeria’s exchange rate which at the period of $30 per barrel had dropped to N500 per Dollar.
It would be recalled that Nigerian economy went into recession following the drop oil revenue which led to the withdrawal from external reserves as a result of the need to finance fuel importation. Hence, the external reserves which was above $40 billion by 2015 dropped below $23 billion by December 2016. As a result of the drastic decline, the capital market also suffered major setback because several foreign investors left the market. Other consequences of the low oil revenue includes inflation rate which peaked at 18.23 per cent, unemployment rate which hit 23.6 per cent and rise in production cost .
The expenditure profile on importation shows that fuel gulped over 50 per cent while rice- and other luxury commodities accounted for the balance. To firm up Naira, the Central Bank of Nigeria ( CBN) had iniatiated various policies such as the exclusion of 41 items from the forex window. Other monetary policies were introduced and to save important sectors, the CBN acting as end of last resort, approved and released intervention fund for the power and aviation sectors among others.
At the same time,the arm of the government expected to utilise fiscal policies in stabilizing the economy remains more or less dormant.
Hence, the rise in crude oil price above $60 per barrel is another opportunity for Nigeria to learn from the mistakes of the past by saving for the raining day when price shock will affect expenditure plans for the year negatively. The recent rise in oil output of the United States above 10 million barrels following the rise in shale oil is already a warning signal for Nigeria and other oil producing nations that the celebration over the high price may not last.
It is therefore necessary for the federal government and the National Assembly to collaborate and ensure that the dividend of the high oil price is not mismanaged and diverted to execution of elephant projects. This is necessary as a result of the pressure on the national ruling party -All Progressives Congress ( APC) to spend money this year so as to impress the electorate before 2019 general elections. If money must be spent, this must be done transparently. For Nigeria not to witness another recession, such fund must be invested in projects that will yield positive result needed to stabilize the economy at a time of oil price downturn in future.
Unnecessary jamboree trips abroad by both the executive and the National Assembly officials must be avoided. The pressure by state governors on the Presidency to share excess revenue must be avoided. The urge by governors for external loans must be controlled by both the National Assembly and the Debt Management Office ( DMO).
Failure to save excess oil revenue now will spell doom for Nigeria in future. The best approach is for the government to make prudent investment on capital projects that will make Nigeria to become a nation adding value to its products before export.