Nigeria Inflation will accelerate to an average of 25 percent this year, compared with 18.8 percent in 2022, says the World Bank. Nigeria may need to increase interest rates by at least 700 basis points before the end of the year to curb inflation that’s poised to accelerate after fuel caps were scrapped and the nation’s currency weakened, according to Bank of America sub-Saharan Af- rica economist Tatonga Rusike.
Inflation may quicken to 30 percent by the end of the year from 22.4 percent in May, Rusike said in an interview. That’s after gasoline prices more than doubled and the naira weakened by about 40 percent in June after President Bola Tinubu eliminated gasoline subsidies and eased currency restrictions. Meanwhile, the World Bank also said that Nigeria’s debt service as a proportion of Federal Government revenue will drop to 76 percent by 2025 from 121 percent this year.
This is even as it noted that the country would save more than N21 trillion ($28 billion) in two years as a result of the removal of the petrol subsidies devaluation of the naira, the Bank has said. The savings will help President Bola Tinubu’s government cut its record fiscal deficit and a debt-service burden that surpassed revenue in 2022, the Washington- based lender said in a report. The budget shortfall will narrow to 3.9 percent of gross domestic product by 2025 from 5.1 percent this year, according to the report.
Scrapping the fuel cap will enable Nigeria National Petroleum Company Limited (NNPCL) to export crude instead of setting it aside to pay for the subsidies. Easing foreign-exchange controls will help the government convert overseas earnings at market prices rather than at “overvalued” rates, the bank said. It forecast Africa’s biggest economy will expand 4 percent from 2024 should it implement urgently required reforms.
The continent’s most populous nation has for years resisted calls by the World Bank to do away with its costly fuel subsidies and myriad exchange rates that have stymied growth. Africa’s largest crude producer should take further steps to in- crease non-oil revenue, lower inflation and expand the social safety net to protect the poor and most vulnerable, the World Bank said. “The government could pro- pose a compact with Nigerian citizens that directly links the phased-out subsidy to compensatory cash transfers,” it said.
