HEEDING THE WORLD BANK COUNSEL

The windfall from the Gulf crisis must be prudently spent

The war between the United States/Israel and Iran has had mixed effects on the global economy. Oil prices have risen in the last six weeks just as domestic gasoline prices are hitting the roof in many countries. With shipping constraints in the Strait of Hormuz disrupting energy supply chains, many countries have had to put up with rising prices of goods and products that fuel inflation. Meanwhile, oil producing and exporting countries are reaping revenue surpluses as a result of higher oil prices. As a member of the Organisation of Petroleum Exporting Countries (OPEC), Nigeria has had an unplanned income bulge in recent weeks.

The 2026 budget of the federal government was pegged at $69 per barrel, while oil prices have risen as high as $110 per barrel and still fluctuating at higher levels. With an average production of about 1.6 million barrels per day, the additional revenue being accumulated is getting considerably impressive. Already, the Nigerian Economic Summit Group (NESG) has projected that Nigeria could earn between N2.3 trillion and N30 trillion in oil revenues, depending on how long the conflict persists. While the Minister of Finance, Olawale Edun, has confirmed that the government plans to “maximise revenue gains from higher crude oil prices”, he has not told Nigerians how that extra gains would be expended.

For as long as the disputed Strait of Hormuz remains compromised, international oil prices are likely to remain at levels above those in Nigeria’s current budget. This indicates an unplanned income that should be properly managed. The World Bank has advocated saving the excess earnings from this war. Regrettably, rather than heed that wise counsel, what we have witnessed in recent weeks is a new spate of borrowings by the federal government. The National Assembly recently rushed a $6 billion budget support loan requested by the executive with hardly any questions or scrutiny. And as yet, we are unaware of any dedicated savings scheme from the Iran war oil revenues. Instead, the federal government seems to be spending in anticipation. Neither the Central Bank of Nigeria (CBN) nor the Ministry of Finance has issued any savings-related statement on the matter as yet.

Indeed, there are serious concerns at the rate these debts are being piled up. Multilateral lenders have continued to advise against increased borrowing and mounting debt, with warnings that the federal government should not hide under the nebulous debt-to-gross domestic product (GDP) ratio since there is no record that any country has borrowed its way into prosperity. Aside from the fact that the funds are not being deployed into projects that generate income, borrowing should not be done in such a way to mortgage the future of the country. 

No matter the gloss being put on the situation by the current administration, the debts have become huge liabilities, unsustainable and inimical to economic growth and development.  We are aware of previous schemes like the Excess Crude Account and the Sovereign Wealth Fund initiated by previous administrations which ought to come in handy at moments like this. As international efforts to resolve the Iran war gather steam, we suggest that strict accountability on the excess oil revenues from the crisis be observed and Nigerians duly informed of savings made therefrom. The World Bank caution is indeed very apt and timely.

While we must deal with fiscal rascality at all levels, it is also important to understand that the solution to our challenges can be found inwards. We therefore hope that the federal government will consider the counsel of critical stakeholders on the need to build fiscal buffers with the windfall from the current war while also ending the borrowing binge.