MANAGING VOLATILITY IN NIGERIA

Abstract

In recent times, Nigeria has faced headwinds that have posed serious fiscal and macroeconomic risks. Subdued oil prices since mid-2014 was the latest of the recurring episodes of boom and bust cycles, similar to the oil collapse of 1980 – 1986, and the sharp decline recorded in 2009 when oil price fell from over US$100 to US$60 within a year. Between 2014 and 2016, the cost of crude fell to levels not seen in the last decade; and it became the third largest in the last 30 years, when oil began trading in the futures exchange.

Five years after, macroeconomic disruptions have remained larger than fundamentals alone would have suggested, with the impact reflecting poor government policy choices before and after the shock.

Volatility is rising, with latent fragility in economic, fiscal and social stability. The phenomenon has continued to diminish the government's capacity to manage macroeconomic, exchange rate and fiscal policies, necessitating the need for consensus on pooled governance reforms, including specific mechanisms to dampen the volatility, reforms to realign the social contract between the government and the citizens, and a new deal on fiscal federalism.