The World Bank has stated that Nigeria has one of the highest inflation rates, which pushed an estimated four million people into poverty between January and May 2023.
This was disclosed during the launch of the June 2023 edition of the Nigeria Development Update on Tuesday in Abuja.
The Washington-based lender also said about 7.1 million poor Nigerians would become poor if the Federal Government failed to compensate or provide palliatives for them, following the removal of fuel subsidy.
According to World Bank data, 89.8 million Nigerian were poor as of the beginning of this year. The lender noted that additional four million Nigerians became poor between January and May this year, raising the figure to 93.8million.
Latest projection means the number of poor Nigerians will rise to 100.9 million if the government fails to compensate vulnerable citizens for fuel subsidy removal.
The World Bank Nigeria Development Update report noted that Nigeria’s inflation has risen to a 17-year high, and has been driven by a number of factors, such as CBN funding of budget deficit, previous multiple exchange rates, devaluation, and trade restrictions.
The report read, in part, “Consumer price inflation has surged and is currently one of the highest globally, which is related to Nigeria’s fiscal imbalance and points to the urgency of reform efforts. Inflation in Nigeria has been high for many years due to structural factors, but it escalated in 2022, to the point where consumer prices increased at their fastest pace for 17 years.
“The consumer price index further accelerated in 2023 through May, up to 22.4 percent y-o-y. High inflation has been driven by the monetization of the fiscal deficit by the CBN, multiple exchange rates and exchange rate depreciation in the parallel market, and intensified trade restrictions, exacerbated by the spike in global food and energy prices.
“The CBN implemented measures to control rising inflation, including raising the monetary policy rate by 700 basis points, but these proved ineffective and monetary policy remained loose overall in the first half of the year. The loss of purchasing power from high inflation has increased poverty in the short-term, pushing an estimated 4 million Nigerians into poverty between January and May 2023.”
The National Bureau of Statistics recently disclosed that inflation in the country rose to 22.41 per cent in May, which is the highest in about 19 years.
Also, the NBS, in its National Multidimensional Poverty Index report, disclosed that 133 million Nigerians are multi-dimensionally poor.
The NBS said 63 per cent of Nigerians were poor due to a lack of access to health, education, living standards, employment, and security.
The Multidimensional Poverty Index offered a multivariate form of poverty assessment, identifying deprivations across health, education, living standards, work, and shocks.
In its new report, the Washington-based bank noted that the loss of purchasing power increased the poverty headcount rate by an estimated 2 percentage points or 4 million people.
This may mean that the total number of poor people in the country has risen to 137 million this year.
The World Bank added that the number of poor people in rural areas increased by an estimated 4 percent, while in urban settings, there was an estimated increase of 11 per cent.
The Brenton Woods institution further noted that with the removal of fuel subsidy, about 7.1 million people are at risk of becoming poor if no form of compensation is provided by the government.
The report read, “In the immediate term, the removal of the petrol subsidy has caused an increase in prices, adversely affect ting poor and economically insecure Nigerian households. Petrol prices appear to have almost tripled following the subsidy removal.
“The poor and economically insecure households, who directly purchase and use petrol as well as those that indirectly consume petrol, are adversely affected by the price increase. Among the poor and economically insecure, 38 percent own a motorcycle and 23 percent own a generator that depends on petrol. Many more use petrol dependent transportation.
“The poor and economically insecure households will face an equivalent income loss of N5,700 per month, and without compensation, an additional 7.1 million people will be pushed into poverty.
The World Bank warned that many newly poor and economically insecure households will likely resort to consequential coping mechanisms, such as “not sending children to school, or not going to the health facilities to seek preventative healthcare or cutting back on nutritious dietary choices.”
The bank stressed the need for adequate compensation, noting that compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the subsidy reform.
The lending institution further applauded the removal of the subsidy and FX management reforms, which are crucial measures to begin to rebuild fiscal space and restore macroeconomic stability.
It stressed that the opportunity should be seized to take further necessary policy reform steps.
The report added, “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.”
In his remarks, the governor of Oyo state, Seyi Makinde, said the reforms of the new administration are a step in the right direction.
However, he said there is a need to ensure that social safety nets are put in place because other than the local disruptions, there are also global headwinds that affect Nigeria as well.
“Social protection programs must be taken with a systemic approach towards long-term objectives,” he said.
Abia State Governor Alex Otti stressed the need for deregulation in the oil sector in order to maintain the reforms in this sector.
“What is important is not that the subsidy is removed, but the ability to sustain that removal, and the only way to do is moving from regulation to deregulation,” he said.
He further stressed the need for a sustainable cash transfer programme and other programmes that are well-targeted to the poor affected by the reforms in the country.
The Resident Representative for Nigeria of the International Monetary Fund, Ari Aisen, noted that the current reforms of the new administration are expected to have side effects.
He said, “There were so many distortions accumulated in the past, it is naturally that when these policies are implemented, you have some side effects. We should all expect that.”
Aisen added that inflation will likely keep rising, and stressed the need for policies that would curb inflation.
“Here, inflation is the main culprit in the room. We have seen inflation already high before the implementation of these policies. Inflation is likely to increase further. In our view, it is going to be critical to tailor macroeconomic policies to reduce inflation,” he said.
The IMF Representative further said that there is a need for further tightening of the monetary rates, which he said, remain loose.
He added that the IMF hopes to continue its long-term relationship with Nigeria, supporting the country with capacity building, policy advisory, and financing.
The Director General, Debt Management Office, Ms Patience Oniha, noted that although the government can borrow from the Central Bank of Nigeria through the Ways and Means Advances, it is important to stick to the limit.
She further stressed the need for urgent support from multilateral organisations in addressing the tough time Nigerians are going through.
Oniha said, “These are tough times because the policies have all been introduced now. In what ways can we get real support? We do appreciate all the concessional funding that we get from the multilaterals. In this short time, in what way can we get that assistance?”
The Special Adviser to the President, Bola Tinubu, on Monetary Policies, Wale Edun, said that other than the $800m loan from the World Bank, there may need for additional financing to ensure the sustainability of the bold reforms under the administrations.
“We have identified some sources of funding, but we are going after many more,” he said
The World Bank Country Director for Nigeria, Shubham Chaudhuri, further disclosed that Nigeria is the biggest beneficiary of concessional financing from the World Bank, with over $10.5bn since February 2020.
The World Bank lead economist for Nigeria, Alex Sienaert, during a presentation at the event, said that Nigeria is projected to save up to $5.1bn (N3.9tn) in 2023 alone after the removal of fuel subsidy and reforms of its foreign exchange market.