Oil Fund, Institutional Framework and the Quest for Sustainability in Nigeria

The literature shows that Nigeria's major challenge was managing resource income volatility in order to isolate expenditure from resource income. The often-cited justification is the existence of a very poor institutional environment and that this situation has resulted in a disastrous macroeconomic performance. The question borders on how to make a sovereign fund a substitute for a broader institutional development necessary to guarantee sustainability and macroeconomic stability. This study examines the relationship between a measure of sustainability and the components of the Country Policy and Institutional Assessment (CPIA) characteristics since the introduction in 2004 of an oil fund in Nigeria. The expectation is that a positive relationship exists between the quality of institutions and weak sustainability. The specific approach is to examine the association between each component of CPIA and adjusted (genuine) savings using Spearman rank order correlation analysis. The results show that genuine savings is not positively correlated with any of the components of CPIA. Therefore, the establishment of oil funds in Nigeria has not yielded positive results in terms of sustainability due to the weakness in institutional framework.