Money Supply Neutrality Trips GDP Growth as Daily Petrol Consumption Takes a Dive

Money Supply Rises as GDP Growth Falters

Based on the Money and Credit Statistics Data published by the Central Bank of Nigeria (CBN), the narrow money supply (M2) rose by N8.8trn (15.9%) between May and June 2023. This rise in money supply was primarily driven by a N6.7 trn increase in Net Foreign Assets. The devaluation of the Naira from N450/$ to N760/$ impacted the banks’ balance sheets, resulting in increased liquidity. The data also revealed a 185% surge in currency outside the banking system since January, while public sector borrowing rose to N31.23 trn. The increase in money supply is likely to exert additional pressure on prices. In June, the National Bureau of Statistics reported an inflation rate of 22.79%. While some analysts question the credibility of the data, it partially reflects the rising cost of living in the country. Experts warn that the previously announced cash handouts by the President could further contribute to inflation. 

Responding to public outcry, especially following the recent increase in the pump price of PMS across the country, President Bola Tinubu has ordered an immediate review of the proposed N8,000 conditional cash transfer to Nigerians to mitigate the impact of petrol subsidy removal. Proshare, in an analyst’s note published on Monday, highlighted that the plan, which provides a modest $10 to 12 million households, also suffers from a lack of transparency and sustainability. Analysts suggest implementing a Mass Transit Bus scheme that offers affordable intra-city transportation and haulage alongside the $800 million IMF loan to alleviate the hardships caused by the subsidy removal. Additionally, they recommend implementing PAYE Tax Rebates as a non-inflationary approach to address the rising cost of living. To reduce the impact of subsidy removal and Naira devaluation without exacerbating inflation through Money illusion, analysts propose funding massive food imports by reducing the cost of governance, particularly that of the National Assembly.

Subsidy Removal Bridges Daily PMS Gap

Our expectation regarding the post-subsidy regime was a significant reduction in the daily volume of petrol (PMS) consumption. This forecast has been substantiated by the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) which recently disclosed that the average daily petrol consumption is now at 46.34 million litres, a significant decline since the elimination of the subsidy. Before the subsidy removal in May, daily consumption stood at 66.6 million litres. It then dropped to 49.5 million litres in June, marking the fourth straight month of decreasing petrol consumption. Notably, the rate of decrease amplified post-subsidy removal. 

This trend nudges Nigeria’s daily petrol consumption towards its effective consumption level of approximately 40 million litres. The drop in petrol consumption could be largely credited to the rising price of petrol, which has reduced smuggling and pushed households and businesses to seek energy alternatives. In addition, there is a growing trend towards remote or hybrid work arrangements by larger companies. Analysts expect the most recent surge in petrol prices to cause even further declines in consumption. However, the downstream regulator and the Federal Competition and Consumer Protection Commission (FCCPC) need to introduce a publicly publicized pricing framework for petrol to prevent price-setting abuse by marketers.

Join our newsletter

Subscribe to our newsletter and receive our periodic market insights and reports.


    The information provided on this website is for general informational purposes only and does not constitute financial or investment advice. The content as this website should not be considered as a recommendation or offer to buy or sell any securities or financial instruments. Investing in securities involves risks, and past performance is not indicative of future results. The value of an investment may fall as well as rise. You may get back less than the amount invested. Any reliance you place on such information is strictly at your own risk. The commentary provided should not be taken as financial advice as it does not take your financial circumstances into consideration and does not provide an objective view with your requirements in mind. The views are our opinions at the time of writing and may change based on incoming information. The data shared may be incorrect or out-dated at the time of reading. Our opinion is subject to change based on incoming information. The data shared may be incorrect or out-dated at the time of reading. Our opinions are subject to change without notice and we are not under any obligation to update or keep this information current. The views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. The information contained on this page has been prepared using all reasonable care. However, it is not guaranteed as to its accuracy, and it is published solely for information purposes.