The World Bank said an additional 7.1 million Nigerians would be pushed into poverty should the federal government fail to compensate for the negative impact of subsidy removal on the populace.
The Bretton Woods institution disclosed this during the launch of the June 2023 edition of the Nigeria Development Update (NDU) yesterday in Abuja.
In the report entitled ‘Seizing the opportunity’, the bank stated that Nigeria has one of the highest inflation rates, which pushed about four million people into poverty between January and May 2023.
It called on the federal government to reallocate part of the savings from fuel subsidy removal to reduce the suffering of Nigerians worsened by the negative impact of the policy.
According to World Bank data, 89.8 million Nigerian were poor as of the beginning of this year, noting that an additional four million Nigerians became poor between January and May this year, raising the figure to 93.8million.
Specifically, the organisation said the president should seize the window of opportunity for a transformative impact on the lives of millions of Nigerians and establish a solid foundation for sustainable and inclusive growth.
“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 per cent own a motorcycle and 23 per cent 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.
“Many current, as well as newly, poor and economically insecure households, will likely resort to coping mechanisms that will have long-term adverse consequences, 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 report stated.
The World Bank said it is critical to implement a comprehensive reform package encompassing a range of complementary measures, including a new social compact, to protect the poor and most vulnerable, to maximize the collective impact on growth, job creation, and poverty reduction.
“The challenging global economic context has put pressure on Nigeria’s economy. However, domestic policies play a 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 programme, did not deliver the desired improvements in growth, inflation, and economic resilience.
“The new government has recognized the need to chart a new course and has already made a start on critical reforms, such as the elimination of 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% of GDP. These savings are expected to reach over N11 trillion by the end of 2025.
“In the immediate term, the removal of the petrol subsidy has caused an increase in prices, adversely affecting poor and economically insecure Nigerian households,” it said.
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To reduce the negative impact of the subsidy removal on Nigerians, the World said compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the subsidy reform.
“In addition to providing immediate cash compensation, the government could also elaborate on the use of the freed-up resources in a new compact with the Nigerian people, outlining support in the immediate as well as medium and long term, at the federal, state, and local government levels.
“The recent proposal to implement a set of measures to alleviate the impact of the subsidy removal, led by the National Economic Council, NEC, should clearly identify priority areas for government investment and effectively communicate these to the public to garner support.
“A public commitment to identifying development (including infrastructure) spending priorities, pro-poor service delivery, and a role for social protection programs to help households cope with shocks could guide such a compact.
“The compact should also be anchored in a clear commitment to fiscal realism, as a large expansion in spending could have fiscal implications, potentially leading to increased fiscal deficits over the medium-term,” it added.
