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Question

Difficulty: EasyProblems and Challenges of Economic Planning in Nigeria

Which factor explains why fluctuations in international crude oil prices frequently destabilize national development plans in Nigeria?

  1. The high reliance on petroleum revenues to finance planned capital expenditureAnswer
  2. B
    The assumption that real national income expansion automatically guarantees economic development
  3. C
    The misclassification of foreign direct investment transactions into the balance of payments current account
  4. D
    The requirement that commercialization policies must transfer public enterprise ownership to private investors

Answer

The high reliance on petroleum revenues to finance planned capital expenditure
A major financial challenge in Nigerian economic planning is over-reliance on crude oil export revenues. Because development plans rely on oil proceeds to fund major capital projects, sudden drops in global oil prices create severe revenue shortfalls, leading to plan distortions and abandoned infrastructure projects.

Step-by-Step Solution

1
Identify the primary source of government revenue in Nigeria's economic planning framework
Crude oil exports provide the majority of government revenue and foreign exchange earnings.
Understanding revenue composition is essential for evaluating budget stability during plan implementation.
2
Analyze how external price shocks impact designated capital projects
When international oil prices drop below benchmark projections, budget deficits emerge and funding for planned projects is curtailed.
Price volatility directly disrupts the revenue inflows required to fulfill planned targets.

Key Concept

Financial and Resource Constraints in Nigerian Economic Planning
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Topics

Problems and Challenges of Economic Planning in Nigeria