- In five months, inflation has pushed four million Nigerians into poverty.
- Connect rising inflation to border closures and ineffective monetary measures.
- Failure to reach an agreement on future CBN overdrafts poses a risk to debt payment costs.
- FG charged that more extensive economic changes be implemented.
According to the World Bank, removing the premium motor spirit (PMS) subsidy could push up to 7.1 million Nigerians into poverty unless enough palliatives are provided to the poor and most vulnerable people.
Even if cash transfers to the most vulnerable Nigerians were implemented, the bank estimates that the choice would result in a net increase of 5.4 million severely poor people.
President Bola Tinubu suspended PMS subsidy payments at his inauguration on the grounds that the 2023 budget does not include funding for the expenditure, resulting in a 300 percent price increase.
Poor and economically insecure households will also face a N5,700 monthly income loss, according to the Bank’s Nigeria Development Update (NDU) presented yesterday in Abuja.
The anticipated N5,000 monthly palliative, according to the research, can only raise 1.7 million people out of the 7.1 million people who might be made poorer if the social system is removed, assuming it is expanded to only 10 million people.
According to the research, the original 10 million vulnerable persons should be expanded because the “cash transfer will need to reach a substantial number of households for the aggregate impact to be significant.”
“By reaching 20 million beneficiary households, four million people will be lifted out of poverty.” By reaching 20 million recipient households, 56% of them will be lifted out of poverty. However, just reducing the poverty headcount rate will be a misguided goal in this context because it does not account for the wellbeing of the already poor people who are driven deeper into poverty as a result of the gasoline price increase,” the bank argues.
It also anticipates that an increase in gasoline prices will increase poverty by 1.4 percentage points.
However, NDU claims that not many poor Nigerians benefited directly from the subsidy payment. According to the bank’s research, the bottom 40% of Nigerians received less than 3% of the subsidy directly, “while those at the top 60% received more than 23%.”
“The majority—roughly three-quarters—of the subsidy went to firms, transportation operators, and ministries, departments, and agencies, but also to smugglers who sell the fuel in neighboring countries at a much higher price,” the report claims.
The importance of early implementation of the cash transfer is emphasized in the report, which states that it “can significantly reduce the burden of the price increase among the poor and economically insecure.” The amount, it says, represents for 6% of the poor and economically insecure’s expenditures, and is slightly more than the 4% comparable income loss they face as a result of the subsidy payment cancellation.
“However, due to financial and logistical constraints, it may not be possible to provide immediate assistance to everyone.” “In such cases, it would be prudent to direct more resources toward the poor and economically vulnerable, who struggle more to cope with the adverse effects of petrol price increases,” the World Bank rationalizes, adding that effective targeting of compensatory transfers could ensure that the poor and economically vulnerable receive a large share of cash transfers.
It continues, “In the Nigerian context, a simple approach of geographically targeting poorer wards first and screening out the very wealthy (say, the top 20%) can be effective.” Such an approach would ensure that, even if only a small number of people can be reached, more resources are directed toward the impoverished and economically vulnerable.
“For example, if only 10 million households are reached, this strategy would direct 88% of resources to poor and economically insecure households.” The use of registries as a gateway for compensatory transfers and a comparable targeting approach can be even more effective in assisting the poor and economically vulnerable.”
According to the paper, removing the gasoline subsidy and implementing foreign exchange management reforms are crucial steps in addressing long-standing macroeconomic imbalances and have the ability to lay a solid foundation for sustained and equitable growth.
“Nigeria can take advantage of this window of opportunity to implement a comprehensive reform package that includes a variety of complementary fiscal, monetary, trade, and structural policy measures to maximize the collective impact on growth, job creation, and poverty reduction.”
“To protect the poor and most vulnerable from rising living costs, temporary and targeted cash transfers should be considered as part of a new social compact to sustainably redirect resources toward addressing Nigeria’s most pressing development priorities,” according to a press release accompanying the report’s release.
The report is also concerned about the adverse effects of inflation on Nigerians and companies. According to the report, diminishing buying power as a result of high inflation has worsened poverty in the near term, pushing an estimated four million Nigerians into poverty from January to May this year alone.
While the Central Bank of Nigeria (CBN) has been aggressive in monetary tightening, hiking the benchmark interest rate to 18.5% since May 2022, the monetary framework remains relatively slack, according to the Bank.
Furthermore, while it calls the CBN’s money supply management mechanism ineffective, it claims that the country’s inflation is structurally high and has “escalated in recent years, to the point where consumer prices are now increasing at their fastest rate in 17 years.”
“Since then, the most recent pattern of chronically high and rising inflation has prevailed.”
“In October 2019, Nigeria’s land borders were closed,” it claims.
The research evaluates the convergence of foreign exchange rates highly, stating that the previous gradual currency depreciation was not insufficient in the objective to increase liquidity.
“Currency market distortions aided lackluster growth, a precarious fiscal position, and excessive inflation… The official rate fell by 11% from January 2022 to May 2023, but the parallel market rate fell by 30%, with the parallel market rate premium increasing from 37% in January 2022 to 63% in May 2023, according to the research.
The World Bank is also looking for “a comprehensive reform package that includes a variety of complementary fiscal, monetary, trade, and structural policy measures designed to maximize the collective impact on growth, job creation, and poverty reduction.”
The report also expresses concern about the country’s fiscal status and the rising debt servicing to revenue ratio. While the Federal Government has agreed to a N22.72 trillion restructure of the existing Ways and Means (W&M) facility, it observes that the inability to reach an agreement on future accumulation poses a high risk for loan service costs. It is estimated that the cost will exceed 100% of the government’s revenue in the medium term.