Fakoyejo OlalekanThe World Bank has disclosed that the money supply in Nigeria will drop due to President Bola Tinubu’s decision to remove fuel subsidy.
This was disclosed in the international financial institution’s June 2023 edition of the Nigeria Development Update.
Recall that Tinubu, during his inaugural speech in May, said his administration will stop subsidising the Premium Motor Spirit (PMS), also known as petrol.
World Bank said the money supply will decrease as the Federal Government will no longer have to depend on credits from the Central Bank of Nigeria (CBN), which encourages the apex bank to print more money to meet FG’s financial needs.
“This is because the subsidy removal creates additional fiscal space and reduces reliance on financing from the CBN, curbing growth of the money supply.
“To limit the risk of so-called secondround 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 that are conducive to price stability,” the World Bank said.
The World Bank also stated that the increase in inflation rate due to the removal of subsidy on fuel will last till the end of 2023, but prices are expected to drop in the first quarter of 2024.
According to the World Bank, the inflation rate will end this year at 25 per cent, up from 18.8 per cent reported in 2022.
It was learnt that the increase in the inflation rate is temporary, as the removal of fuel subsidy will also contribute to the decline of the inflation rate.
“The removal of the petrol subsidy is anticipated to cause a temporary increase in inflation in the upcoming months before contributing to disinflation in the medium term.
“The price increases resulting from the subsidy removal will have a one-time impact on prices, primarily affecting petrol purchases for transportation, power generation, and certain services.
“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, meaning that it will alleviate inflationary pressures despite higher petrol prices,” World Bank said.
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