impact of fuel subsidy removal in Nigeria

If subsidies are removed, the number of poor Nigerians will reach 101 million.


According to the World Bank, Nigeria has one of the highest inflation rates, which between January and May 2023, is expected to cause four million people to fall into poverty.


This information was made public on Tuesday in Abuja during the Nigeria Development Update’s publication launch for June 2023.

The Washington-based lender also said that after the withdrawal of the fuel subsidy, around 7.1 million impoverished Nigerians would fall into poverty if the Federal Government did not offer them compensation or relief.

Data from the World Bank show that 89.8 million Nigerians were living in poverty at the start of this year. The lender highlighted that between January and May of this year, an additional four million Nigerians fell into poverty, bringing the total to 93.8 million.

According to recent estimates, if the government doesn’t compensate vulnerable residents for the loss of fuel subsidies, the number of poor Nigerians will increase to 100.9 million.

According to the World Bank’s Nigeria Development Update report, a combination of reasons, including CBN support of the budget deficit, prior multiple exchange rates, devaluation, and trade restrictions, have contributed to Nigeria’s inflation reaching a 17-year high.

Part of the report’s summary stated that “consumer price inflation has soared and is currently one of the highest levels internationally, which is tied to Nigeria’s fiscal imbalance and emphasizes the importance of reform efforts.

Nigeria has experienced structurally-driven high inflation for many years, but 2022 reached new heights, with consumer prices rising at their quickest rate in 17 years.


“From May 2023 through, the consumer price index increased to 22.4 percent y-o-y. High inflation has been caused by the CBN’s monetization of the fiscal deficit, multiple exchange rates, parallel market exchange rate depreciation, and tightened trade restrictions, which have been made worse by the rise in world food and energy costs.

“The CBN implemented efforts to curb growing inflation, such as increasing the monetary policy rate by 700 basis points, but these measures proved ineffectual, and overall economic policy remained lax in the first half of the year.

A projected 4 million Nigerians will fall into poverty between January and May 2023 due to the loss of purchasing power brought on by excessive inflation.

According to new data from the National Bureau of Statistics, the country’s inflation rate increased to 22.41 percent in May, the highest level in over 19 years.

According to the NBS’s National Multidimensional Poverty Index report, one hundred thirty-three million Nigerians are multidimensionally poor.


According to the NBS, 63% of Nigerians live in poverty due to limited access to security, employment, living conditions, education, and employment opportunities.


The Multidimensional Poverty Index provided a multivariate method of assessing poverty by recognizing deprivations in various areas, including health, education, living conditions, employment, and shocks.

The Washington-based bank stated in its most recent study that the decline in purchasing power resulted in an extra 4 million individuals, or an estimated two percentage points, living in poverty.


This could indicate that 137 million poor people are living in the nation as a whole.


According to the World Bank, the number of poor people increased by 4% in rural regions and 11% in urban areas.


The Brenton Woods Institute also warned that approximately 7.1 million individuals could become impoverished due to the withdrawal of fuel subsidies if no government compensation is offered.

According to the report, the withdrawal of the gasoline subsidy immediately increased costs, negatively impacting Nigerian households that were struggling financially. Following the termination of subsidies, gasoline prices seem to have roughly tripled.


“The price increase hurts impoverished and financially unstable households, including those directly buying and using gasoline and indirectly consuming it. Thirty-eight percent of those living in poverty and unstable financial situations own a motorcycle, and 23 percent have a gasoline-powered generator. More people utilize vehicles that depend on gasoline.


“The poor and economically precarious households will have an equal monthly income loss of N5,700, and 7.1 million more people will fall into poverty if no compensation is provided.

The World Bank issued a warning, predicting that many newly disadvantaged and financially unstable households would likely turn to counterproductive coping techniques like “not sending children to school, not going to the health facilities to seek preventative healthcare, or cutting back on nutritious dietary choices.”


To protect Nigerian households from the early price implications of the subsidy change, the bank emphasized the necessity for proper compensation and noted that compensating transfers would be crucial.


The lending institution also praised the elimination of the subsidy and the FX management changes, which are essential steps to reclaim fiscal space and reestablish macroeconomic stability.


It emphasized that the chance should be taken to implement other important actions for policy reform.

The report’s conclusion said that “following a bold start with the recent PMS subsidy reforms and FX reforms, the urgency remains for Nigeria to seize the opportunity to chart a new course with ambitious and comprehensive reforms to raise long-term growth prospects.”

According to Oyo State Governor Seyi Makinde, the changes in the new administration are a step in the right direction.

However, he stressed the importance of putting social safety nets in place because Nigeria is also affected by global headwinds in addition to local disruptions.


In order to achieve long-term goals, social protection initiatives “must be taken with a systemic approach,” he stated.

Alex Otti, the governor of Abia State, emphasized the necessity of deregulating the oil industry to continue the reforms made there.

“What is important is not that the subsidy is removed, but the ability to sustain that removal, and the only way to do so is moving from regulation to deregulation,” he claimed.

He also emphasized the necessity for other programs that are well-targeted to the impoverished people affected by the reforms in the nation, including a sustained cash transfer program.


According to Ari Aisen, the International Monetary Fund’s resident representative for Nigeria, the current reforms of the new administration are anticipated to have unintended consequences.

According to him, there had been so many distortions in the past that it was only reasonable for current measures to have some unintended consequences. Everyone should anticipate that.


Aisen emphasized the necessity for efforts to control inflation and noted that it is likely that inflation would continue to rise.


“In this case, inflation is the fundamental problem present. Before the implementation of these programs, inflation was already high. It is conceivable that inflation will rise even more. We believe that to minimize inflation; macroeconomic measures must be specifically tailored.


The IMF representative added that additional monetary rate tightening is required because they are too loose.

The IMF intends to maintain its long-standing engagement with Nigeria, assisting it with funding, policy advice, and capacity building.


Although the government can borrow money from the Central Bank of Nigeria through the Ways and Means Advances, it’s crucial to stay within the limit, according to Ms. Patience Oniha, director general of the Debt Management Office.


She also emphasized the urgent need for multilateral organizations to assist in resolving the difficult situation Nigerians face.

“These are difficult times because all of the policies have just been introduced,” Oniha stated. How can we obtain genuine support? We are grateful for the multilateral organizations’ generous financing concessions. What options do we have for getting such help now?

In addition to the $800 million loan from the World Bank, Wale Edun, the Special Adviser to President Bola Tinubu on Monetary Policies, suggested that more funding may be required to ensure the sustainability of the ambitious changes under the administration.

He added that we have some financial sources identified but are also pursuing many more.

Shubham Chaudhuri, the World Bank’s country director for Nigeria, also revealed that the country had received more than $10.5 billion in concessional financing from the World Bank since February 2020, making it the largest recipient.

In a presentation at the occasion, the World Bank’s head economist for Nigeria, Alex Sienaert, stated that after the removal of fuel subsidies and reforms to its foreign exchange market, Nigeria is expected to save up to $5.1 billion (N3.9 trillion) in 2023 alone.

Additionally, Sienaert stated that between 2023 and 2025, these initiatives are anticipated to generate gains of over N21tn.

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