The World Bank has warned that a further increase in the price of Premium Motor Spirit (PMS), commonly known as petrol, could negate the benefits of recent subsidy removals in Nigeria. This warning is detailed in the October edition of its Africa’s Pulse report.
In May 2023, President Bola Tinubu officially announced the end of petrol subsidies, which led to a dramatic rise in PMS prices from N175 per litre to over N1000 nationwide.
The report notes that while the inflationary impacts of a weakened naira and the subsidy removal initially contributed to rising prices, the situation appeared to be stabilizing. However, a potential hike in petrol prices by 40-45 percent in September could reverse this trend.
The report states: “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 percent in September may reverse the disinflationary trend.”
Economic growth in Nigeria is projected to reach 3.3 percent in 2024 and 3.6 percent in 2025–26 as macroeconomic and fiscal reforms begin to yield results.
Inflation peaked in June 2024 at 34.2 percent year-on-year but subsequently declined to 33.4 percent in July and further to 32.2 percent in August.
However, the National Bureau of Statistics (NBS) reported an inflation rise to 32.70 percent in September 2024, marking the first increase after previous declines.
The report also highlighted the naira’s struggles, noting it has been classified among the worst-performing currencies in Sub-Saharan Africa for 2024.
As of August 2024, the naira depreciated by approximately 43 percent year-to-date, positioning it alongside the Ethiopian birr and South Sudanese pound as one of the region’s weakest currencies.
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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 end-August.
The naira’s depreciation is attributed to several factors, including a surge in demand for U.S. dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by Nigeria’s central bank.
The World Bank’s report elaborates, stating, “Surges in demand for U.S. 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.”
The report underscores the urgent need for continued macroeconomic reforms to support stability and growth in Nigeria’s economy, as rising petrol prices could hinder progress made following the subsidy removal.
