• Says one of the highest globally, most scaring in 17 years
• Amidst subsidy removal, without palliatives it may hit 101 million Nigerians
• As DG DMO admits Nigeria in tough times, seeks support
By Agency report
Nigeria has one of the highest inflation rates, which pushed an estimated four million people into poverty between January and May 2023, the World Bank says.
It made the disclosure during the launch of the June 2023 edition of the 'Nigeria Development Update' on Tuesday, 27 June, 2023, in Abuja.
The Washington-based lender also said about 7.1 million Nigerians would become poor if the Federal Government fail 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 at 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 Nigeria Bureau of Statistics (NBS), in its National Multidimensional Poverty Index report, disclosed that 133 million Nigerians are multi-dimensionally poor.
The NBS said 63 percent of Nigerians were poor due to 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.
“In the immediate term, the removal of the petrol subsidy has caused an increase in prices, adversely affectting 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 however applauded removal of the subsidy and FX management reforms, which it noted 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.
“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 the same vein, Resident Representative for Nigeria, International Monetary Fund, Ari Aisen, noted that the current reforms of the new administration are expected to have side effects.
“There were so many distortions accumulated in the past, it is natural 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 help curb the trend.
“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.
Continuing, the IMF Representative further said that there is a need for further tightening of the monetary rates, which he noted, remain loose.
He however assured that the IMF hopes to continue its long-term relationship with Nigeria, supporting the country with capacity building, policy advisory, and financing.
Also speaking, the director general, Debt Management Office, Ms Patience Oniha, pointed out 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.
Oniha consequently stressed the need for urgent support from multilateral organisations in addressing the tough time Nigerians are going through.
“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?”
Meanwhile, the Special Adviser to the President, Bola Tinubu on Monetary Policies, Wale Edun stated that other than the $800m loan from the World Bank, there may be need for additional financing to ensure the sustainability of the bold reforms under this administration.
“We have identified some sources of funding, but we are going after many more,” he said.
This is as the World Bank Country Director for Nigeria, Shubham Chaudhuri, disclosed that the country is the biggest beneficiary of concessional financing from the World Bank, with over $10.5bn since February 2020.
But the World Bank lead economist for Nigeria, Alex Sienaert, gave a ray of hope during a presentation at the event.
According to him, 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.
Sienaert further forecasted that the gains from these policies are expected to reach over N21tn between 2023 and 2025.
NAN
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