World Bank: Increase In Petrol Prices Could Reverse Effects of Fuel Subsidy

Increasing the price of Premium Motor Spirit (PMS), also known as petrol, may reverse the already diminishing effects of fuel subsidy removal in Nigeria, according to the World Bank.

The Bretton Wood institution made this warning in the October edition of its Africa’s Pulse report.

Recall that President Bola Tinubu as of May 2023, officially pronounced an end to petrol subsidies in Nigeria, jerking PMS prices from N175 per litre to over N1000 across the country. Although the full implementation of the policy was doubted, it led to rises in the prices of petrol.

The report said; “While the inflationary effects of a weakened Naira in the first months of this year and the removal of the gasoline subsidy in the second half of 2023 appeared to be gradually subsiding, a further increase in gasoline prices by 40-45 per cent in September may reverse the disinflationary trend.”

The World Bank also said economic growth in Nigeria is projected at 3.3 per cent in 2024 and 3.6 per cent in 2025–26 as macroeconomic and fiscal reforms gradually start yielding results.

“Inflation peaked in June 2024 (at 34.2 per cent year-on-year) and decelerated to 33.4 per cent in July and further to 32.2 per cent in August,” it said, adding that the consolidation of macroeconomic reforms should support higher growth in the country in 2025.

Yesterday, the National Bureau of Statistics (NBS) indicated that Nigeria’s inflation rose 32.70 per cent in September 2024 for the first time after slowing in July and August.

The report also said the Naira has been listed among the worst-performing currencies in Sub-Saharan Africa in 2024. As of the end of August 2024, the naira had depreciated by approximately 43 per cent year-to-date, making it one of the region’s weakest currencies alongside the Ethiopian birr and South Sudanese pound.

The depreciation of the naira is attributed to several factors, including surging demand for United States dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by Nigeria’s central bank.

The World Bank’s report further highlighted that demand for dollars, driven by financial institutions, non-financial end-users, and money managers, has worsened the pressure on the Naira.

It noted, “By August 2024, the Ethiopian birr, Nigerian Naira, and South Sudanese pound were among the worst performers in the region. The Nigerian Naira continued losing value, with a year-to-date depreciation of about 43 per cent as of August.

“Surges in demand for US dollars in the parallel market, driven by financial institutions, money managers, and non-financial end-users, combined with limited dollar inflows and slow foreign exchange disbursements to currency exchange bureaus by the central bank explain the weakening of the Naira.”