Designing a Fiscal Policy Framework for Managing Natural Resource Revenue Volatility in Nigeria

Natural resource revenue volatility creates macroeconomic instability in Nigeria, and designing a professional fiscal policy framework for managing this volatility provides guidance for sovereign wealth management and fiscal stabilisation. This study designed a fiscal policy framework for managing natural resource revenue volatility in Nigeria, drawing on revenue stabilisation experiences from Norway, Botswana, Chile, and comparable African oil producers. A professional framework design methodology was applied, incorporating consultations with 20 Federal Ministry of Finance officials, CBN economists, and fiscal policy specialists, and modelling of Nigeria's oil revenue volatility under alternative fiscal rules. The framework designed specifies a three-pillar architecture: an enhanced Excess Crude Account management rule, a long-term stabilisation fund with constitutional ring-fencing, and a fiscal anchor linking non-oil fiscal deficits to GDP. Countercyclical expenditure provisions are included. Expert review by 12 fiscal policy and natural resource economics specialists confirmed the framework's design quality. Recommendations include the Federal Executive Council adopting the framework as the basis for a new Sovereign Wealth Fund management legislation, establishing an independent Fiscal Council to monitor compliance, and amending the Fiscal Responsibility Act to incorporate the fiscal anchor mechanism. Civil society participation in annual fiscal rule compliance reporting is also recommended as an accountability mechanism.

Keywords: fiscal policy, natural resource revenue, oil volatility, sovereign wealth fund, fiscal rule