The agency recommended that Section 162 (1) of the 1999 Constitution be amended to mandatorily allow for part of the oil earnings to be saved, while the balances in the 0.5percent stabilisation fund and the ECA accounts be transferred to the Nigerian Sovereign Investment Authority (NSIA).
NEITI explained that the Oil Price-based Fiscal Rule (OPFR) where revenue in excess of oil price benchmark is saved, is no longer sustainable and therefore, should be abolished and replaced with mandatory savings of a percentage of daily oil production.
This according to NEITI will remove the constitutional constraints and difficulty in achieving centralised savings in a regime of fiscal federalism. “This will remove the constant political jousting about oil benchmark price and quantity”, NEITI stated.
The agency made the call in its latest policy brief, titled: “Insulating Nigeria from Perennial Oil Price Volatility”, in which it urged government to adopt sustainable strategies for robust fiscal cover for the Nigerian economy during periods of cyclical oil price shocks.
“Price volatility is a constant feature of the oil market, exposing oil-dependent countries like Nigeria to regular economic crises when oil prices tumble. Though, price slumps have always been accompanied by severe pains that linger beyond the price crash, the virus will eventually be tamed. Oil prices will go up again. So the pain of the moment shall pass. But the next slump in oil prices is not a matter of if but when,” NEITI stated.
Listing important pathways that will insulate Nigeria from the predictable but perennial challenge, the agency emphasized the need for the country to maintain a robust ‘rainy day’ fund, the size of which should reflect not only the volume of revenues from mineral resources, but also the size of the national economy
“This savings fund is supposed to help Nigeria smoothen spending, form a hedge against the cyclical volatility of oil prices and keep part of the accrued benefits for the future generation among other reasons,” it said, noting that Nigeria’s existing oil savings fund is too small to serve its intended purposes.
NEITI also recommended that proceeds from the percentage of daily oil production should be transferred to the NSIA and the funds invested in convertible instruments while the NSIA’s stabilisation fund should be increased from 20percent to 40percent and dividends from its earnings shared every year.
According to the brief, increasing NSIA’s stabilisation fund and sharing the dividends from investments will give comfort to the states and Local Governments to support constitutional amendment and the scrapping of ECA.
The policy brief further harped on the need for Nigeria to do more to wean itself off its dependence on oil revenue. Increasing revenues from taxes and tariffs and boosting raw and processed agricultural and solid minerals exports are some of the strategies put forward that could help Nigeria diversify its earnings from exports.
NEITI also pointed out that the present efforts by the Nigerian government to correct the distortions to the economic structure should be intensified, adding that macro-economic stability should be maintained, ease of doing business improved with incentives and reforms put in place to further attract foreign and local investors in areas where Nigeria has comparative advantage, while investments in physical and human infrastructure should be increased to reduce the cost of doing business.
Other recommendations put forward are for government to adopt strategies to block revenue leakages and maximize opportunities in the sector. This according to NEITI can be achieved through the elimination of crude oil and refined product theft, full downstream deregulation, and boosting gas production and utilisation.
Fast tracking the passage of the Petroleum Industry Bill (PIB), institutionalised transparency in the oil and gas sector as well as systematic and proactive disclosures in areas of contracts, productions, revenues, commodity trading, beneficial ownership, bid rounds and production costs, among others, are other strategies recommended.