Oil exporters in sub-Saharan Africa (SSA) have been urged to target buffers of around 5 to 10% of gross domestic product to manage large swings in oil prices.
Building buffers now would help the region’s oil exporters navigate the transition toward clean energy while managing oil price fluctuations, the International Monetary Fund (IMF) has said.
In its latest IMF Country Focus released yesterday, it noted that for many countries, this means they will need to maintain annual fiscal surpluses up to one per cent per annum over a 10-year period.
Moreover, it added, “as countries transition to low-carbon energy sources, oil revenues could sharply decline. By 2030, oil revenues in the region could fall by as much as a quarter and by 2050, by half.”
The advice comes against the Fund’s latest Regional Economic Outlook, in which it observed that “oil prices have fluctuated from lows of $23 per barrel to a peak of $120 over the last two years, resulting in highly uncertain revenues in oil-dependent economies.”
Despite the high oil prices, it however decried that “most oil exporters in the region haven’t accumulated enough savings to insure against unpredictable oil price changes.
“In fact, sovereign wealth funds in sub-Saharan Africa hold assets of just 1.8% of gross domestic product—compared to 72% in the Middle East and North Africa—forcing countries to borrow or draw down financial assets when oil prices fall.”
As a result, it added, “in the decade through 2020, the region’s oil producers have grown over two percentage points slower per year than non-resource intensive countries. Debt service costs have also been almost twice as high as in other sub-Saharan African countries.”
Moreover, as countries transition to low-carbon energy sources, oil revenues could sharply decline. By 2030, oil revenues in the region could fall by as much as a quarter and by 2050, by half.
