How Much Is Enough? Monte Carlo Simulations of an Oil Stabilization Fund for Nigeria

June 1, 2006

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Format: Chicago

Ulrich Bartsch. How Much Is Enough? Monte Carlo Simulations of an Oil Stabilization Fund for Nigeria, (USA: International Monetary Fund, 2006) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In oil-dependent countries, a major issue is how to stabilize fiscal spending when government revenue fluctuates along with the international price of oil. A stabilization fund would allow the government to pull through an oil price trough and absorb windfall revenue when prices are high. This paper focuses on two key issues. First, the paper proposes to base government spending on moving averages of past oil prices that are shown to behave nearly as a random walk. Second, it uses Monte Carlo simulations of a fiscal policy model to look at the probability that a given level of assets in the stabilization fund is exhausted over a certain number of years. The simulations show that with a fiscal policy based on moving averages over three to five years, a stabilization fund of about 75 percent of 2004 oil revenue would be adequate, which, in Nigeria, would equate to US$16-18 billion.

Subject: Budget planning and preparation, Expenditure, Fiscal policy, Oil prices, Oil, gas and mining taxes

Keywords: Oil price, Price, Revenue, WP

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2006/142
Stock No:

WPIEA2006142
ISBN:

9781451864021
ISSN:

1018-5941

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