Oil price crash: World Bank urges Nigeria, others to rebuild fiscal buffers



Nigeria and members of the Organisation of Petroleum Exporting Countries (OPEC) battling weaker export prospects, an impending rise in global interest rates, and fragile financial market sentiment have been urged to rebuild their fiscal buffers to support economic activity in case of a sustained growth slowdown.

The World Bank Group in its latest edition of Global Economic Prospects released on Tuesday, advised developing economies facing lower oil prices that the development offers them a timely opportunity to rebuild their buffers.
It acknowledged that countries with elevated domestic debt or inflation and monetary policy options to deal with a potential slowdown are constrained, stressing that in the foreseeable future, such countries may need to employ fiscal stimulus measures to support growth.

But many developing countries have less fiscal space now than they did prior to 2008, having used fiscal stimulus then even as private debt levels have risen substantially in some developing countries.

A key finding from the analysis in the report, the bank said, was that in countries where debt and deficits have widened from pre-crisis levels, each fiscal dollar spent will support activities that contribute to consumption and boost national income by roughly a third less than in the run-up to the global financial crisis. Because the so-called fiscal multiplier effect is weaker now for many developing countries, they need to rebuild budgets in the medium-term at a pace determined to country-specific conditions. For a number of oil-importing countries, lower oil prices offer a chance to improve fiscal positions more quickly than might have been possible before mid-2014.

Meanwhile, the bank explained that the gains from low oil prices can be substantial for developing-country importers if supported by stronger global growth.The decline in oil prices reflects a confluence of factors, including several years of upward surprises in oil supply and downward surprises in demand, receding geopolitical risks in some areas of the world, a significant change in policy objectives of OPEC, and appreciation of the US dollar.

Although the relative strength of the forces driving the recent plunge in prices remains uncertain, supply-related factors appear to have played a dominant role.

Source : SunOnline

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