Don’t increase electricity tariff, may worsen inflation in 2022- World Bank advises FG

Spring Meetings 2019

Yinka Oladele

The World Bank has advised the Nigerian government and other emerging economies not raise electricity tariffs, warning that such move would push up inflation in 2022.

In its latest Commodity Markets Outlook forecast, Ayhan Kose, Chief Economist and Director, World Bank’s Prospects Group stated that prices of electricity, which heightened to 80 percent this year compared to 2020, has strong potential to remain high next year.

He however, averred that, prices will gradually go down in the second half of the year as supply constraints ease off.

The bank says global inflationary pressures and a shift in economic growth to energy-exporting countries from energy-importing ones will be a defining feature of New Year.

Kose stated that the explosive increase in energy prices is a significant near-term risksl to global inflation and, if sustained, could also weigh on growth in energy-importing countries.

The bank says the bounce back in commodity prices is making out to be more visible than previously thought . Recent volatility in prices may complicate policy choices as countries recover from last year’s global recession, it added.

In its view, non-energy prices, including agriculture and metals, may likely plummet in 2022, following strong gains this year.

In the outgoing year, some commodity prices rose to (or exceeded) levels not seen since the spike of 2011.

The bank says natural gas and coal prices reached record highs amid supply constraints and rebounding demand for electricity, although they are expected to decline in 2022 as demand eases and supply improves.

However, additional price spikes may occur in the near-term amid very low inventories and persistent supply bottlenecks.

The bank has projected the price of a barrel of crude oil at $74 in 2022 as oil demand strengthens and reaches pre-pandemic levels.

The use of crude oil as a substitute for natural gas presents a major upside risk to the demand outlook, although higher energy prices may start to weigh on global growth.

From an energy transition perspective, the bank raised concerns about the intermittent nature of renewable energy highlight the need for reliable baseload and backup electricity generation.

The bank said: “These will increasingly need to be from low-carbon sources, such as hydropower or nuclear power, or from new methods of storing renewable power.

“At the same time, the surge in natural gas and coal prices has made solar and wind power even more competitive as an alternative energy source. Countries can benefit from accelerating the installation of renewable energy and reducing their dependency on fossil fuels.”

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