Oil Price Recommendation for MTEF/DSP 2026-2028

Maryam Aminu

An Abuja-based economist, Chris Uwadoka, has called on the Federal Government to adopt a more robust, model-based approach to oil price forecasting in preparing the Medium-Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) for 2026–2028.

Uwadoka, in an analysis of Nigeria’s budget benchmarks and actual oil prices between 2011 and 2024, noted that the country’s projections have consistently underestimated global crude oil prices, exposing the economy to fiscal imbalances.

According to him, Nigeria’s oil price benchmarks were set conservatively in 12 out of 14 years reviewed, with actual prices exceeding projections by an average of $19.7 per barrel, or 34 percent. He added that while this conservatism created buffers, it also led to distortions in revenue planning.

“Overestimation in years of sharp downturns, such as 2015 and 2020, triggered deficits and borrowing, while underestimation in boom years resulted in sudden surpluses that disrupted fiscal discipline,” he explained.

Uwadoka stressed that Nigeria’s reliance on simple historical averaging and consultations with agencies such as NNPC and international bodies was no longer sufficient to manage volatility in the global oil market.

He recommended that the Federal Government adopt a forecast combination approach similar to that used by the European Central Bank, blending futures prices, risk-adjusted futures, Bayesian Vector Autoregression (BVAR), and Dynamic Stochastic General Equilibrium (DSGE) models.

“This method reduces forecast errors by up to 30 percent, minimizes bias, and provides greater stability for medium-term planning,” he said, adding that local factors such as insecurity in the Niger Delta and oil theft should also be integrated into the models.

Using time series data, Uwadoka projected that the Federal Government may set conservative benchmarks of $70–75 per barrel for 2025, $68–73 for 2026, and $65–70 for 2027, aligning with its historical caution. However, he maintained that a model-based system could push forecasts closer to $75 and above, improving revenue accuracy.

Nigeria’s economy relies on crude oil for over 80 percent of export earnings and a large share of government revenue. The oil price benchmark remains a critical factor in the nation’s budgeting process, as enshrined in the Fiscal Responsibility Act.