By John Ikani
The adverse effects of fuel subsidy removal are projected to cause Nigeria’s inflation rate to reach 25 percent in the near future, according to the World Bank’s June 2023 edition of the Nigeria Development Update.
The Washington-based institution raised concerns about the inflationary impact following the recent increase in petrol prices, which skyrocketed from N197 per litre to over N500 per litre after the removal of subsidies in June.
Currently, the National Bureau of Statistics (NBS) reports that Nigeria’s inflation stands at 21.41 percent. However, the World Bank predicts a further increase to 25 percent by 2023.
Nevertheless, the bank anticipates a decline in headline inflation during the first quarter of 2024.
“Headline inflation is expected to rise from 18.8 percent in 2022 to 25 percent in 2023. However, by Q1 of 2024, the subsidy removal will start to have a disinflationary effect, alleviating inflationary pressures despite higher petrol prices,” stated the World Bank.
The bank highlighted that the removal of subsidies would create additional fiscal space and reduce reliance on financing from the Central Bank of Nigeria (CBN), which in turn would help control the growth of the money supply.
This is expected to contribute to the stabilization of inflation rates.
In light of these projections, the World Bank has advised the Nigerian government to implement macro-fiscal policy measures that promote price stability.
In addition, the bank recommends providing palliative measures to mitigate the impact of fuel subsidy removal.
“To limit the risk of so-called second-round effects, where one-off price increases trigger more generalized inflation, including through wage-price spirals, it will be important to adopt macro-fiscal policy settings conducive to price stability,” emphasized the World Bank.
By adopting such policies and ensuring the provision of support to affected sectors, the Nigerian government aims to minimize the potential inflationary pressures arising from the removal of fuel subsidies.
