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The International Monetary Fund (IMF) has advised Nigeria and other crude oil exporting countries to ensure that funds obtained from price increases resulting from the United States-Israel-Iran conflict are put to good use to protect against similar economic shocks in the future.
The IMF explained that with rising debt in many countries, fiscal policy must be responded to carefully, providing support where needed without making public finances worse off.
Speaking at the Managing Director’s Briefing on the Global Policy Agenda, IMF Managing Director, Kristalina Georgieva, said that the IMF is not only seeing an increase in energy prices, but also an increase in fertilizer prices, an increase in shipping costs, and all are expected to reduce output, production and consumption.
Georgieva spoke at the ongoing World Bank/IMF Spring Meetings in Washington DC.
Nigeria is one of the world’s largest oil exporting countries, earning more than 70 percent of its foreign exchange from crude oil exports. With oil prices remaining above $92 per barrel, Nigeria’s foreign exchange earnings from crude oil sales are bound to increase.
Georgieva noted that rising oil prices would result in windfall profits for Nigeria and other oil exporting countries.
He said with delays in oil deliveries to their destinations due to the crisis, oil price volatility and supply gaps could worsen this month.
Georgieva advises governments to help companies and communities affected by exogenous supply shocks.
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He said that for Nigeria and other oil exporting countries, oil prices would generate windfall profits.
He said: “The fiscal costs for countries that still apply oil subsidies will be very large. However, for many countries, there is still a need to build buffers. And in many countries, revenue mobilization is a priority, given that interest rates on income are still quite high, around 15 percent in many low-income countries.”
Head of Division, Fiscal Affairs Department, IMF, Davide Furceri, speaking in a Fiscal Monitor press release, said this conflict forces governments to choose between protecting their people from price spikes or preserving fiscal space.
“The fiscal impact is highly asymmetric. Energy importing countries, particularly low-income developing countries, face the greatest losses, while the pool of beneficiaries is narrower than in past energy shocks, as key Gulf exporters are also directly affected by the conflict,” Furceri said.
He noted that conflict in the Middle East could further strain government finances through rising food and fuel prices, tighter financial conditions, lower activity, and increased defense spending; in a prolonged conflict scenario, global debt risks could increase by an additional four percentage points.
He explained that for low-income countries, declining levels of foreign aid make domestic revenue mobilization important, and evidence shows that well-implemented tax administration reform can provide meaningful benefits.
He said: “Higher energy and food prices, tighter financial conditions and greater uncertainty are once again driving calls for fiscal support. In shaping their response to these shocks, countries need to carefully consider the balance between protecting the most vulnerable and safeguarding market price signals.”
