The World Bank Monday called on the federal government to delink its expenditures from oil price to ensure that its spending plan was not hampered by fluctuations in crude oil prices.

It suggested that the annual haggling over the appropriate benchmark price could be replaced favourably by a longer-term commitment.

The Bretton Woods institution noted in its new Nigeria Economic Report (NER), which was released yesterday in Abuja that delinking expenditure from oil price could "prevent overheating during times of high oil prices, while providing a reserve to protect the country in the event of a sharp oil price decline.

"It also cautioned that the country's economic growth had not automatically translated into better economic and social welfare for Nigerians largely because "poverty reduction and job creation have not kept pace with population growth, implying social distress for an increasing number of Nigerians."

Speaking to journalists at a briefing, World Bank lead economist and lead author of the report, John Litwack, said though it was impractical to severe government spending from oil, it had become necessary to at least, delink such expenditures from the price of oil in order to allow the system still function smoothly in the event of volatility in global oil index.

Various projects had been left uncompleted, often times as a result of disappointments in revenue expectation hinged upon the price of oil.

He said: "We are not saying government expenditure should be delinked from oil, given that 75 per cent of consolidated revenue in Nigeria comes from oil; there's really no possibility of delinking expenditure from oil. But we are saying it should be delinked from oil prices- meaning when oil prices go up and down expenditures should remain smooth."

Litwack said: "For effective macroeconomic management, the key task is to establish an institutional framework that can effectively separate and buffer government expenditures from oil prices. International experience demonstrates that countercyclical fiscal policy is essential to conquer the 'oil curse' of boom-bust cycles and slow economic development.

Conditional or matching grants are widely used in many countries for the coordination of fiscal policies and implementation of national standards."

The NER urged the country to build up its fiscal reserve to shield it from oil price volatility- and increase internally generated revenue to compensate for what would likely be declining oil revenues relative to the size of the economy.

It said given that the Nigerian Gross Domestic Product (GDP) was growing much faster than oil output, as well as experiencing significant inflation at a stable exchange rate, the size of government oil revenues relative to GDP should decline even in the event that oil prices increase.

"This was already the case in 2012, as government oil revenues fell from an estimated 23.6 per cent to 19.7 per cent of GDP. This decline may increase budgetary pressures and justify a prudent fiscal stance," it said.

It also called for better coordination of federal and state policies to promote rapid diversified growth and job creation.

The report, however, stated that Nigeria's short term macroeconomic outlook, which had remained generally strong, with the likelihood of higher growth, lower inflation and reserve accumulation could provide the government with an opportunity to make progress in key reforms and public investments associated with the transformation agenda for job creation, diversification, and more effective governance.

World Bank Country Director to Nigeria, Marie Francoise Marie-Nelly, said: "The expansion of federal programmes involving co-financing or conditional/matching grants for states around priority infrastructure and the implementation of national standards could help solidify needed trust and cooperation between different levels of government and bring the best of Nigeria.

"To be successful, these programmes should build on state autonomy to promote constructive competition among them. International experience suggests that the conditionality of these grants should focus on outcomes rather than processes, i.e. the resources should be managed entirely by sub-national governments under the condition that certain objectives be reached."