The World Bank has disclosed that no fewer than four million Nigerians were pushed into the poverty trap in the first six months of this year, with another 7.1 million more expected to join the conundrum if properly targeted measures are not taken to manage the impact of fuel subsidy removal.
According to the Washington-based institution, “compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the petrol subsidy reform.”
The multilateral development institution which made the disclosure in Abuja, On Tuesday, during the launch of the Nigeria Development Update (NDU), also stated that the recent removal of petrol subsidy and the foreign exchange (FX) reforms were critical steps towards addressing long-standing macroeconomic imbalances.
The reforms, it noted, have the potential to establish a solid foundation for sustainable and inclusive growth.
Dissecting the NDU, the World Bank Lead Economist for Nigeria and co-author of the report, Alex Sienaert, said four million more Nigerians were pushed into poverty in the first half of 2023.
Sienaert, who stressed the need for a new social compact to protect poor and most vulnerable Nigerians in the aftermath of fuel subsidy removal, noted that about 7.1 million more Nigerians would further slip into the poverty quagmire at the end of the year if the right incentives were not properly channeled to help poor and vulnerable Nigerians.
Commenting on the headwinds of the forex reforms, he observed a number of adverse consequences, including rising inflation and the increase of debt-to-GDP to about 46 per cent.
The June 2023 edition of the World NDU titled, ‘Seizing the Opportunity,’ acknowledged the recent major reforms initiated by the new administration under President Bola Ahmed Tinubu, such as the elimination of the petrol subsidy and reforms in the FX market.
The report observed that the reforms were crucial to begin to rebuild fiscal space and restore macroeconomic stability, adding that they would lift Nigeria’s growth potential, with the economy expected to grow at 3.3 per cent in 2023, 3.7 per cent in 2024, and 4.1 per cent in 2025.
“While inflation will be higher in 2023, it will be lower in 2024 and 2025 if the right policy mix is sustained. Compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the subsidy reform.
“Without compensation, many households could be pushed into poverty by higher petrol prices and forced to resort to coping mechanisms with long-term adverse consequences, such as not sending children to school, or not going to health facilities to seek preventative healthcare.
“To build on the immediate, major reforms, and seize the opportunity to rise to its potential, Nigeria still has other urgent choices to make,” the report said.
It stated: “In the first part of 2023, Nigeria’s economic growth weakened, and real gross domestic product (GDP) growth fell from 3.3 per cent in 2022 to 2.4 per cent year-on-year (y-o-y) in Q1 2023.
“The challenging global economic context has put pressure on Nigeria’s economy. However, domestic policies play the major role in determining Nigeria’s economic performance and resilience to further external shocks.
“The previous mix of fiscal, monetary, and exchange rate policies, including the naira redesign program, did not deliver the desired improvements in growth, inflation and economic resilience.
“The new government has recognised the need to chart a new course and has already made a start on critical reforms, such as the elimination of the petrol subsidy and reforms in the FX market.
“With the petrol subsidy removal, the government is projected to achieve fiscal savings of approximately N2 trillion in 2023, equivalent to 0.9 per cent of GDP.
“These savings are expected to reach over N11 trillion by the end of 2025. However, compensating transfers will be essential to help shield the most vulnerable Nigerian households from the initial price impacts of the subsidy reform, as without compensation, many households could be pushed into poverty by higher petrol prices and have to resort to coping mechanisms with long-term adverse consequences.”
It added: “Similarly, the move to harmonise the FX windows will help to improve the efficiency of the FX market, unlock private investment, and reduce inflationary pressures, but it is crucial to complete this important reform by removing FX restrictions, clearly communicating how the new FX regime will operate, and implementing supportive monetary and fiscal policies.
“The current move by the government to implement long-anticipated reforms such as the removal of costly and opaque petrol subsidy, and efforts to harmonise the multiple FX windows, are timely and crucial to set Nigeria on the path of economic growth.”
“Persistently high inflation and low fiscal revenues continue to hinder economic growth. It remains imperative to change course, as sluggish economic growth risks becoming deeply entrenched through low investment due to weak macroeconomic conditions, escalating poverty, and fragility.
“The removal of the petrol subsidy and the FX reforms have opened a window of opportunity that, if effectively seized by sustaining and building on these reforms, could have a transformative impact on the lives of millions of Nigerians and establish a solid foundation for sustained growth,” the World Bank report stated.
The report recommended specific, critical measures to build on the government’s ‘bold start’ in implementing critical reforms, to ensure that Nigeria rises to its full potential.
These included restoring macroeconomic stability by increasing non-oil revenue, reducing inflation through a sequenced and coordinated mix of trade, monetary and fiscal policies, and completing the FX reform.
Others are expanding social protection to protect the poor and most vulnerable, and developing and communicating how, as fiscal space recovers, resources will be redirected over time to meet urgent development challenges.
The World Bank report observed that Nigeria could seize this window of opportunity to further implement a comprehensive reform package that encompasses a range of complementary fiscal, monetary, trade, and structural policy measures to maximise the collective impact on growth, job creation, and poverty reduction.
To shield the poor and most vulnerable from increases in living costs, temporary and targeted cash transfers should be considered, as part of a new social compact to sustainably redirect resources towards addressing Nigeria’s most urgent development priorities, it stated
In a panel discussion on the report, the Governor of Abia State, Dr. Alex Otti; his Oyo State counterpart, Seyi Makinde; Special Adviser to the President on Monetary Policy, Mr. Wale Edu; the World Bank Country Director in Nigeria, D. Chaudhuri Shubham and the Chairman of Coronation Capital, Mr. Aigboje Aig-Imoukhuede provided different perspectives on how to sustain the reforms and cushion the impact on poor and vulnerable Nigerians.
For Shubham, the reforms should be accompanied by compensatory actions to mitigate the short-term impact on the poor, adding that, “Nigeria should now seize the opportunity to implement a robust, large-scale cash transfer programme to provide quick relief to the poor, near-poor, as well as low-income households which are most directly affected by higher petrol prices, as part of a broader compact to redirect scarce fiscal resources towards development priorities.”
On his part, Otti observed that, “the reforms should have happened yesterday,” lamenting that a situation where the country used over 100 per cent of its revenue to service debt was intolerable.
The Abia State Governor who applauded the FX reforms as well as the subsidy removal, said they would come with pains.
Otti called for a collective effort from governors, leaders at all levels and other stakeholders to work assiduously to mitigate the negative impact of the reforms on the poorest of the poor.
“What do we do with multidimensional poor? That’s where policy makers, the governors should focus on to ensure that the poorest of the poor benefit by making sustainable policies,” he said.
However, he warned that care must be taken to ensure that fuel subsidy does not resurface in the near or distant future, adding that it was time to actually transit form regulation to real deregulation.
Also speaking at the panel discussion, Edun disclosed that there was an ongoing discussion on how to cushion the impact of subsidy removal between the Chief of Staff to the President Hon. Femi Gbajabiamila and relevant stakeholders.
Noting that the $800 million secured from the World Bank was already handy, he disclosed several other windows of palliatives were being considered.
He said: “On the interventions, government is planning on the inflationary effect on the removal of subsidy,
“The subsidy removal decision actually caught many by surprise and I think that is the leadership of President Bola Ahmed Tinubu.
“If you think back, in his action plan, he had committed to removing the fuel subsidy in order to correct the fiscal imbalances and improve the environmental investment which in his ultimate aim is to grow the economy, to give way to private investment as a means of creating jobs and reducing poverty which is his ultimate goal.
“When the subsidy was removed, clearly, there was a need for communication and with all stakeholders and currently under the Chief of Staff to the President, there is a gathering of stakeholders including the unions, which is discussing the intervention measures that will ameliorate and help particularly the poor and the most vulnerable to get through what we all believe and we are all sure that with the right measures, will be a temporary spike in inflation.
“So therefore, there’s a discussion on the cost of governance, and there’s are discussion on using CNG to have a cheaper fuel that can be used. There’s one group that is looking at mass transit, they’re looking at housing, and ultimately, there’s a group looking at the social sectors, housing and education; all within the context of discussing the response to the fact that fuel subsidy has been removed,” Edun said.
Acknowledging the spike in inflation, he also noted that there was also fiscal dividend derivable from the reform.
Responding to a question on whether Tinubu would violate Section 38 of the CBN Act on the Ways & Means window of the apex bank to lend to the government, Edun explained that as far as there was a threshold, Tinubu would not violate the limit.
“As far as Ways and Means is concerned, there is a law. He (Tinubu) intends to stick to it. He will stick to the spirit and letters of the CBN regulations,” the presidential aide said
Meanwhile, the World Bank Group (WBG) has approved an additional $500 million loan for Nigeria to help improve the livelihood of women in Nigeria.
Announcing the latest loan in a statement, the World Bank stated: “The World Bank has approved $500 million for Nigeria for Women Program Scale Up (NFWP-SU). The scale-up financing will further support the government of Nigeria to invest in improving the livelihoods of women in Nigeria.
“The NFWP-SU will help to ensure better economic opportunities for women which is essential for addressing gender inequality; guaranteeing better education, health, and nutrition outcomes for families; and building women’s and communities’ resilience to climate change.”
The World Bank noted that women’s empowerment was vital to their ability to build resilience to climate change, and by extension their households and communities.
According to the bank, by building assets, women could better respond to family needs and mitigate risks and the effects of climate and other shocks on livelihoods, adding that gender disparities in earnings hold back the Nigerian economy.
The statement quoted Chaudhuri, as saying: “We have seen promising outcomes from the parent NFWP which has helped to create economic opportunities for thousands of rural women through the Women Affinity Groups. NFWP’s model is helping to improve livelihood opportunities for women and enhancing their capacity to adapt to climate change and participating in local administrations for policymaking related to community empowerment.
“Closing the gender gap in key economic sectors could yield gains of between $9.3 billion and $22.9 billion, we are optimistic that this scale-up will help Nigeria to move closer to bridging this gap.”
Task Team Leader for Nigeria for Women Project, Michael Ilesanmi commented: “The programme aims to mobilise poor and vulnerable women into different institutions and, using these institutional platforms, link them to markets as well as financial and non-financial services.
“Through participation in Women Affinity Groups, project beneficiaries build social capital that can then be leveraged to access financial, political, and economic capital–thus leading to both social and economic empowerment.”