A new report has revealed that Nigeria’s poverty rate rose sharply to about 63 per cent following the removal of petrol subsidy, underscoring the severe short-term impact of the government’s economic reforms on household welfare.
The findings were presented on Thursday during a stakeholders’ dialogue organised by Agora Policy in Abuja, where policymakers, economists, civil society leaders and private sector representatives gathered to examine the effects of the country’s ongoing economic reform programme.
The study, presented by Dr Mohammed Shuaibu, a Senior Lecturer in the Department of Economics at the University of Abuja, assessed the economic and social implications of major policy changes introduced by the Federal Government, including the removal of petrol subsidy and the adjustment of electricity tariffs.
According to the research, Nigeria’s national poverty headcount increased from a baseline of about 49.8 per cent to roughly 63 per cent after the subsidy removal, reflecting the sharp rise in living costs that followed the policy shift.
“After the subsidy removal, poverty increased from about 50 per cent to 63 per cent,” Shuaibu said while presenting the study.
He explained that although social protection initiatives such as cash transfers helped cushion the effect of the reform, they were not sufficient to fully reverse the worsening welfare conditions experienced by many households.
“When social protection measures were introduced, the poverty rate moderated to around 56.2 per cent,” he added.
President Bola Tinubu had announced the removal of petrol subsidy during his inaugural address on May 29, 2023, describing the decision as necessary to address Nigeria’s fiscal challenges and eliminate longstanding economic distortions.
However, the study indicated that the policy triggered widespread price increases across the economy, particularly in transportation and energy costs, which significantly affected household purchasing power.
The report showed that the impact of the reforms was more severe for low-income households, while wealthier households were largely able to absorb the economic shocks.
Among low-income groups, poverty rose from about 50 per cent before the subsidy removal to around 63 per cent afterwards.
The study also found that the national poverty gap - which measures how far the poor are from the poverty line - widened significantly after the policy change.
According to the analysis, the poverty gap increased from 31.6 per cent to more than 45 per cent, indicating deeper levels of deprivation among vulnerable households.
Although government social transfer programmes helped narrow the gap slightly, the study noted that their impact was limited due to delays in implementation and the relatively small scale of assistance provided.
Beyond poverty levels, the research also examined how the reforms affected household consumption patterns across the country.
It found that consumption declined across most income groups following the removal of petrol subsidy and the adjustment of electricity tariffs.
Rising energy and transport costs, the report said, significantly reduced the spending capacity of many households, particularly those in rural areas and among urban low-income communities.
“Across the board, household consumption declined after both the subsidy removal and electricity tariff adjustments,” Shuaibu said, noting that social transfers provided some relief to poorer households.
The study also explored the broader macroeconomic effects of electricity tariff reforms.
It found that electricity tariff adjustments resulted in a modest increase in consumer prices, raising inflation by about 0.26 per cent initially and later to roughly 0.52 per cent when social protection measures were incorporated into the analysis.
Despite the slight inflationary pressure, the electricity reforms also produced a modest positive impact on economic output.
According to the report, real Gross Domestic Product increased by about 0.42 per cent under the reform scenario, although this figure moderated to around 0.21 per cent after accounting for the cost of social protection programmes.
The research further showed that firm-level investment recorded slight improvements following electricity tariff adjustments, although these gains were partly offset by the cost of implementing welfare programmes.
In contrast, the removal of petrol subsidy had a contractionary effect on economic activity, as rising fuel prices and transport costs triggered inflationary pressures that weighed on businesses and investment.
To complement the economic modelling, the researchers also conducted focus group discussions across Nigeria’s six geopolitical zones.
Participants acknowledged that reforms were necessary given the country’s fiscal and economic challenges, but many criticised the speed at which the policies were introduced.
According to the report, households responded to the economic shocks by cutting back on spending, reducing transport use, rationing electricity and borrowing money to meet basic needs.
“Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.
Businesses reported similar challenges, citing rising fuel and electricity costs as major factors increasing operating expenses.
Some firms said they had been forced to raise prices, reduce their workforce or scale down operations, while others resorted to alternative energy sources to manage rising electricity costs.
However, many business owners said government support programmes had either not reached them or were insufficient to offset the impact of rising costs.
Despite the difficulties, economic policymakers at the dialogue maintained that the reforms were necessary to correct structural imbalances in Nigeria’s economy.
The Deputy Governor of the Central Bank of Nigeria for Economic Policy, Dr Muhammad Abdullahi, said the country had faced severe macroeconomic distortions before the reforms were introduced.
According to him, Nigeria’s oil revenue declined sharply from about $92bn in 2012 to less than $2bn in 2023, creating significant fiscal pressures.
He also noted that multiple exchange rate systems previously operating in the foreign exchange market had created opportunities for arbitrage and weakened economic efficiency.
Abdullahi said the petrol subsidy regime and foreign exchange distortions were estimated to have cost Nigeria about six per cent of its Gross Domestic Product.
He also disclosed that the CBN inherited a backlog of about $7bn in foreign exchange obligations owed to businesses and investors, adding that about $4.5bn had already been cleared.
While acknowledging the hardship experienced by Nigerians, Abdullahi said some macroeconomic indicators were beginning to improve, including declining inflation and stronger foreign reserves.
Also speaking, the Director-General of the Lagos Chamber of Commerce and Industry, Dr Chinyere Almona, said the reforms had corrected several distortions in the economy but had placed heavy pressure on businesses.
She noted that the removal of petrol subsidy could save the government about $7.5bn annually and urged authorities to channel the savings into infrastructure and human capital development.
However, Almona said many Nigerians had yet to feel the benefits of the reforms.
“The economy may be improving at the macro level, but the benefits have not yet reached the average Nigerian or small businesses,” she said.
World Bank economist Dr Samer Matta also called for stronger social protection systems, urging the government to expand its National Social Register to ensure that assistance reaches vulnerable households more quickly.
He said stronger safety nets and sustained dialogue would be essential to maintaining public support for Nigeria’s economic reforms and ensuring more inclusive economic growth.
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