Searching for Appropriate Crude Oil Price Benchmarking Method in the Nigerian Budgeting Process

Abstract

One of the fundamental challenges facing policymakers in Nigeria is the benchmarking of crude oil price in the budgeting process. Appropriate projection of future behavior of crude oil price is imperative in setting and achieving macroeconomic objectives of the government. This paper surveyed the various forecasting models and examined the current Moving Average benchmarking method to determine the best forecasting model for Nigeria. Using quarterly data from 2005Q1 to2012Q4 on oil price benchmark, the study finds that ARIMA model is the best forecasting model for projecting Nigeria’s crude oil price benchmark. Based on this scenario, it was also found that $80 could be the appropriate crude oil price benchmark for 2013 fiscal year. The study suggests that benchmarking of crude oil should be based on the crude oil price fundamental to enhance predictability of policy and promote macroeconomic stability.

Key words: Budget Process, Forecasting Models, Predictability and Macroeconomic Stability