The World Bank has revealed that the removal of fuel subsidy in Nigeria has resulted in the impoverishment of over four million people in the country during the first half of 2023.
If targeted measures are not implemented promptly, an additional 7.1 million Nigerians are projected to fall into poverty by the end of the year. The Washington-based institution emphasised the importance of compensating transfers to protect vulnerable households from the initial price shocks caused by the subsidy reform.
During the launch of the Nigeria Development Update in Abuja, the World Bank highlighted that the removal of petrol subsidies and the implementation of foreign exchange (FX) reforms are crucial steps towards addressing longstanding macroeconomic imbalances. These reforms have the potential to establish a solid foundation for sustainable and inclusive growth.
According to the World Bank’s Lead Economist for Nigeria, Alex Sienaert, the first half of 2023 saw an increase of four million Nigerians living in poverty. Sienaert stressed the urgency of a new social compact to safeguard the poor and vulnerable in the aftermath of the fuel subsidy removal. If proper incentives are not provided to assist those in need, an estimated 7.1 million more Nigerians will slip into poverty by the end of the year.
The report also highlighted the adverse consequences of the FX reforms, including rising inflation and a debt-to-GDP ratio of approximately 46%. However, it acknowledged that these reforms, along with the removal of petrol subsidies, are critical for rebuilding fiscal space and restoring macroeconomic stability. The World Bank predicts Nigeria’s economy to grow at 3.3% in 2023, 3.7% in 2024, and 4.1% in 2025, with the potential for lower inflation in the subsequent years.
The World Bank report titled “Seizing the Opportunity” recognised the significant reforms initiated by the new administration under President Bola Ahmed Tinubu, emphasising the need to build on these reforms and make further choices to unlock Nigeria’s full potential.
The report suggested measures such as increasing non-oil revenue, reducing inflation through coordinated trade, monetary, and fiscal policies, completing the FX reform, expanding social protection, and redirecting resources to address urgent development challenges.
During a panel discussion, various stakeholders provided different perspectives on sustaining the reforms and mitigating the impact on the poor and vulnerable. The Governor of Abia State, Alex Otti, and his Oyo State counterpart, Seyi Makinde, stressed the need for collective efforts to cushion the negative effects on the poorest members of society. The World Bank Country Director in Nigeria, D. Chaudhuri Shubham, recommended implementing a robust cash transfer program to provide quick relief to the most affected households.
To address the inflationary effect of the subsidy removal, the government is exploring intervention measures such as cost reduction in governance, the use of compressed natural gas (CNG) as a cheaper fuel alternative, mass transit, and investments in social sectors like housing and education.