According to the World Bank’s ‘Macro Poverty Outlook for Nigeria: April 2024’, rising inflation coupled with weak earnings resulted in 10 million Nigerians slipping into poverty in 2023.
The report paints a grim picture of an economy where nominal earnings have failed to keep pace with soaring inflation rates, leading to a decline in living standards across the country.
“Nominal earnings have not kept up with inflation, pushing another 10 million Nigerians into poverty in 2023,” it said.
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The report reveals alarming statistics regarding poverty rates in Nigeria across various economic thresholds. Notably, 30.9% of the population falls below the international poverty rate of $2.15 per day. Even more concerning is the fact that 63.5% live in poverty according to the lower middle-income threshold of $3.65 per day, while a staggering 90.8% fall below the upper middle-income poverty line of $6.85 per day.
Root Causes of Economic Strain
The dire economic situation is attributed to a combination of weak macroeconomic fundamentals and deep-seated structural constraints. The overreliance on the oil sector is identified as a significant factor, with its deteriorating performance contributing to macroeconomic instability. Low state revenues, driven by factors such as an expensive petrol subsidy and ineffective tax rates, further exacerbate the challenges faced by the government in providing essential public services.
Additionally, high levels of inflation, fueled by loose monetary policies and depreciating exchange rates, continue to erode purchasing power and hinder economic growth. Structural issues such as inadequate infrastructure, high trade costs, insecurity, weak institutions, and low levels of human capital development further compound Nigeria’s economic woes.
“Nigeria’s economic growth has been insufficient to raise living standards, weighed down by weak macroeconomic fundamentals and several structural constraints. Overreliance on the oil sector for fiscal revenues, exports, and FX inflows led macro stability to erode with the sector’s deteriorating performance in recent years,” the report noted.
“Low revenues—including due to a costly petrol subsidy, low tax rates, and weak tax administration—have limited state capacity and public service delivery.
“Inflation has remained high and escalating on the back of a relatively loose monetary policy and exchange rate depreciation. Structural factors holding back the country’s growth potential include lack of adequate energy and transport infrastructure, high domestic trade costs and foreign trade protectionism, widespread insecurity, weak institutions, and low levels of human capital development.”
Outlook and Projections
The World Bank noted the urgent need for ambitious reforms centered around macroeconomic stabilization to address these challenges. Economic forecasts predict an average growth rate of 3.5% between 2024 and 2026, slightly outpacing the population growth rate. However, poverty rates are expected to continue rising in 2024 and 2025 before stabilizing in 2026, driven by ongoing reforms and persistently high inflation.
Since 2015, Nigeria’s inflation rate has been on an upward trend, reaching 33.2% in March 2024. Food inflation has surged to 40.01% year-on-year, driven by rising prices of essential items such as garri, millet, and yam.
Moreover, the cost of Housing, Water, Electricity, Gas, and Other Fuels has soared by 27.64% over the past year, further burdening Nigerian households amidst escalating inflation and declining incomes.
Against this backdrop, more Nigerians are finding it difficult to cope, as the cost of goods and services outweighs their earning power. This suggests a likelihood of more Nigerians falling into abject poverty in the next two years.
Efforts to stabilize the economy are expected to gradually moderate inflation to 15.1% by 2026, supported by tightened monetary policies and exchange rate stabilization initiatives.
The report highlights the urgent need for comprehensive reforms to address Nigeria’s economic challenges and alleviate the growing burden of poverty on its population.