A report released by the World Bank has shed light on a concerning surge in poverty levels in Nigeria, attributed to recent economic and fiscal reforms. These reforms, notably the removal of the petrol subsidy and restructuring of foreign exchange market rates, have drawn both commendation and concern from the international financial institution.
Acknowledging the Federal Government’s ‘bold reforms’ as necessary steps to rescue Nigeria from a fiscal cliff, the World Bank also highlighted the adverse effects of these policies.
“The petrol subsidy and FX management reforms are critical steps in the right direction towards improving Nigeria’s economic outlook. Now is the time to truly turn the corner by ensuring coordinated fiscal and monetary policy actions in the short to medium term,” Shubham Chaudhuri, World Bank Country Director for Nigeria, said.
However, the report revealed that these reforms had precipitated intense pressures on the cost of living, resulting in a distressing upsurge in poverty.
‘‘Inflation remains at record high levels for Nigeria, 27.3 percent Year-on-Year, YoY, in October 2023, partly driven by the one-off price impacts of the removal of the gasoline subsidy.
‘‘The impact of this is especially hard on poor and vulnerable citizens. The FX market has remained volatile and in a period of continuing adjustment to the new policy approach, with significant fluctuations in the exchange rate in both the official and the parallel markets,” the report said.
Against this backdrop, the number of Nigerians living below the poverty line surged to an alarming 104 million, escalating from 95 million in 2021 and 100 million in 2022. Data from the Nigerian Bureau of Statistics corroborated this trend, showcasing an increase from 82.9 million in 2019 to 85.2 million in 2020.
Addressing the economic challenges, the World Bank’s Nigeria Development Update titled ‘Turning the Corner: Time to Move From Reforms to Results’ emphasized the need for continued reform momentum and urged clarity on oil revenues, particularly highlighting the financial gains of the Nigeria National Petroleum Corporation Limited (NNPCL) from the subsidy removal.
The report pinpointed that the removal of the subsidy had resulted in an expected fiscal saving of approximately N2 trillion in 2023, equivalent to 0.9% of the GDP. It projected significant gains exceeding N11 trillion between 2023 and 2025, contrasting scenarios where the subsidy remained intact.
Amidst the reforms, there has been a noticeable impact on various sectors, notably on companies operating within Nigeria. The closure of businesses due to increased operational costs and economic uncertainties has further compounded the challenges faced by the populace.
Echoing this sentiment, industry experts highlighted the closure of multiple companies, primarily small and medium-sized enterprises (SMEs), unable to sustain operations amidst rising costs and market volatility. These closures have not only led to job losses but have also disrupted supply chains and consumer accessibility, exacerbating the economic challenges faced by ordinary citizens.
The World Bank’s recommendations encompass controlling inflation, stabilizing the FX market, achieving fiscal consolidation, and addressing structural barriers to growth.
“The petrol subsidy and FX management reforms are critical steps in the right direction towards improving Nigeria’s economic outlook. Now is the time to truly turn the corner by ensuring coordinated fiscal and monetary policy actions in the short to medium term,” Chaudhuri stated.
“Continued reform implementation can ensure that Nigeria benefits from the difficult adjustments underway. This includes ensuring that improved oil revenues following the sharply increased PMS price accrue to the Federation.”
The report projects an anticipated average annual growth rate of 3.5% for Nigeria’s economy in 2023-2026, a 0.5% increase compared to scenarios without the implemented reforms.
“Between 2023 and 2025, the expected gains are over N11 trillion, against a scenario in which the subsidy had continued,” the report said.
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