June 30, 2023/CSL Research
According to the World Bank, Nigeria has one of the highest inflation rates, which has pushed an estimated four million people into poverty between January and May 2023. The Washington-based lender also warned that 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 subsidies. 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 93.8 million. The latest projection means the number of poor Nigerians will rise to 100.9 million if the government fails to provide palliatives for vulnerable citizens to cushion the impact of the fuel subsidy removal.
The country’s Inflation has been surging and is currently one of the highest globally, rising to a 19-year high in April 2023. The inflation rate was 22.41% in May 2023. Drivers of the rising inflation rate include food shortages due to the insecurity in the North and floods, multiple exchange rates devaluation, and trade restrictions such as the border closure. The CBN, in an attempt to control the country’s rising inflation, has increased the monetary policy rate (MPR) by a cumulative 700 basis points, but the inflation numbers continue to rise as supply-side factors remain the primary drivers of inflation. 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 as reported by the world bank.
The National Bureau of Statistics (NBS), in its National Multidimensional Poverty Index report
released in November 2022 revealed that 133 million Nigerians were multi-dimensionally poor, with no access to health, education, employment, and security. The Multidimensional Poverty Index (MPI) measures acute poverty using a range of indicators such as education, nutrition, child mortality, etc. The NBS said 63% of Nigerians were poor due to a lack of access to health, education, employment, and security.
The economic recession witnessed in 2015-17 had a major impact on Nigerian households, eroding their purchasing power and driving joblessness nationwide. Although the exit from the recession in Q2 2017 was expected to translate into improved consumer spending, a sluggish pace of recovery amid the faster population growth left consumers still financially stifled. The pressure on disposable income was further exacerbated by a second recession, the onset of the covid-19 pandemic and rising inflation in the country which has spiked the prices of petrol, electricity, and food, leading to an astronomical increase in the cost of living in the face of muted growth in disposable income.
We believe that the removal of the fuel subsidy will have a significant impact on inflation. We had estimated that inflation in June may rise to as high as 25.8% due to the direct and indirect effects of the removal of fuel subsidies on price growth. Though we agree that present economic realities compel the removal of fuel subsidies, doing so without proper palliatives to cushion the impact on vulnerable Nigerians will force more people below the poverty line and worsen the living conditions of the poor.
