The World Bank says no fewer than four million Nigerians were pushed into the poverty trap in the first six months of 2023.
The World Bank says another 7.1 million Nigerians would join the riddle if properly targeted measures are not taken to manage the impact of the removal of subsidy on Premium Motor Spirit, otherwise known as petrol.
The multilateral development institution made this known during the launch of the Nigeria Development Update (NDU) in Abuja on Tuesday, June 27.
It noted that “compensating transfers will be essential in helping to shield Nigerian households from the initial price impacts of the petrol subsidy reform.”
The World Bank 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.
The June 2023 edition of the World NDU titled, ‘Seizing the Opportunity,’ stated that the recent major reforms initiated by the new administration under President Bola Tinubu, such as the elimination of the petrol subsidy and reforms in the FX market.
The report noteed 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.
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The World Bank report said: “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.
“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 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.
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