About 63 per cent of Nigerians fell below the poverty line after the removal of petrol subsidy, according to a new study that examined the welfare impact of the country’s recent economic reforms.
The research, presented at a stakeholders’ dialogue organised by Agora Policy in Abuja on Thursday, showed that the national poverty headcount rose sharply from a baseline of about 49.8 per cent to roughly 63 per cent following the subsidy removal before moderating slightly after the introduction of social protection measures.
The dialogue, themed “Sustaining and Deepening Economic Reforms in Nigeria,” brought together policymakers, economists, civil society leaders, and private sector representatives to examine the effects of the Federal Government’s reform agenda.
Among those present were the Deputy Governor for Economic Policy at the Central Bank of Nigeria, Dr Muhammad Abdullahi; the Special Adviser to the President on Finance and Economy, Ms Sanyade Okoli; the World Bank Senior Economist for Nigeria, Dr Samer Matta; the Country Director of CARE International, Dr Hussaini Abdu; and the Executive Director of Agora Policy, Waziri Adio, among others.
The study, presented by a Senior Lecturer at the Department of Economics, University of Abuja, Dr Mohammed Shuaibu, analysed the economic and social consequences of key reforms introduced by the Federal Government, including the removal of petrol subsidy and adjustments in electricity tariffs.
President Bola Tinubu had announced the end of petrol subsidy during his inaugural address on May 29, 2023. According to the study, the policy triggered broad price increases across the economy and significantly affected household welfare. “After the subsidy removal, poverty increased from a baseline of about 50 per cent to 63 per cent,” Shuaibu said.
He added that the introduction of social protection measures helped moderate the impact but did not fully reverse the deterioration in welfare conditions. “However, when social protection measures such as cash transfers were introduced, the poverty rate moderated to around 56.2 per cent,” he said.
The findings indicated that the immediate effects of the reform were unevenly distributed across different income groups. While high-income households remained largely insulated from the shocks, low-income households experienced the most severe erosion of purchasing power.
Data from the study showed that poverty among low-income households rose sharply from about 50 per cent before subsidy removal to roughly 63 per cent afterwards, while the national poverty gap widened significantly.
The poverty gap at the national level increased from 31.6 per cent to more than 45 per cent following the policy change, indicating a deeper level of deprivation among poor households.
Although social transfers slightly reduced the gap, the improvement remained limited due to delays in the rollout of intervention programmes and the relatively small scale of support provided.
The study also assessed how the reforms affected household consumption patterns. According to the findings, consumption levels declined across income groups following the removal of the subsidy and the adjustment of electricity tariffs.
“Across the board, household consumption declined following both the subsidy removal and electricity tariff adjustments. However, social transfers helped cushion the impact, especially for low-income households,” Shuaibu said.
The analysis showed that the effect on consumption was particularly pronounced among rural and low-income households, where rising energy and transport costs significantly reduced spending capacity.
Households in urban low-income groups also experienced declines in consumption, although the impact was somewhat moderated where social transfers were introduced.
Beyond household welfare, the research also examined the broader macroeconomic consequences of electricity tariff reforms.
The study found that electricity tariff adjustments resulted in a modest increase in consumer prices, initially raising prices by about 0.26 per cent, which later rose to roughly 0.52 per cent after the inclusion of social protection measures.
However, the electricity reform produced a small positive impact on economic output. According to the analysis, real Gross Domestic Product increased by about 0.42 per cent under the reform scenario before moderating to around 0.21 per cent when social protection programmes were factored into the model.
Firm-level investment also recorded slight gains following electricity tariff adjustments, although these improvements were partly offset by the cost of implementing social protection measures.
In contrast, the removal of the petrol subsidy had a contractionary effect on economic activity. The study showed that rising fuel prices and transport costs triggered inflationary pressures that weighed on business activity and investment.
Beyond the quantitative modelling, the research incorporated insights from focus group discussions conducted across Nigeria’s six geopolitical zones. These discussions involved households and businesses and provided qualitative evidence on how Nigerians were coping with the economic changes.
Participants generally acknowledged the need for reforms given the country’s fiscal and macroeconomic challenges, but many criticised the speed at which the policies were introduced.
Households reported that the reforms rapidly eroded purchasing power and forced many families to adopt survival strategies. “Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.
According to the study, many households responded by cutting consumption, reducing transport use, rationing electricity, and borrowing money to meet basic needs. Several respondents also said they had received little or no assistance from government support programmes designed to mitigate the effects of the reforms.
Businesses reported similar difficulties, noting that rising fuel and electricity costs significantly increased operating expenses. Some firms said they had been forced to raise prices, reduce staff strength, or shut down operations entirely.
Others reported switching to alternative energy sources to cope with rising electricity tariffs and fuel costs. However, many business owners said that promised government support programmes had either not reached them or were insufficient to offset rising costs.
The study concluded that while the reforms were necessary to correct structural distortions in the Nigerian economy, their implementation created severe short-term shocks.
Providing a monetary policy perspective at the dialogue, the Deputy Governor of the CBN for Economic Policy, Muhammad Abdullahi, said the reforms became unavoidable because the Nigerian economy had been weakened by deep structural distortions.
“Nigeria faced severe macroeconomic imbalances, economic distortions, and collapsing revenues before major reforms began,” he said.
According to Abdullahi, the country had suffered a dramatic decline in oil revenue over the past decade.
He disclosed that earnings from crude oil fell from about $92bn in 2012 to less than $2bn in 2023, representing a decline of nearly 98 per cent in expected revenue during the period.
The situation, he said, contributed to severe fiscal pressure and made policy reforms unavoidable. The CBN official also noted that Nigeria inherited major distortions in the foreign exchange market, including multiple exchange rate windows that encouraged arbitrage.
According to him, the subsidy regime and exchange rate distortions together were estimated to have cost the Nigerian economy about six per cent of its Gross Domestic Product.
Abdullahi also disclosed that the CBN inherited a backlog of about $7bn in foreign exchange obligations owed to businesses and investors. He said the apex bank had already cleared about $4.5bn of the backlog in an effort to restore confidence in the financial system.
He added that restoring confidence in the foreign exchange market and improving oil sector performance were critical to stabilising the economy. Abdullahi also said Nigeria’s foreign reserve position was weaker than it appeared before the reforms.
Although official reserves were reported to be about $32bn, he explained that much of the funds consisted of borrowed resources and swaps, leaving the country with net reserves of only about $800m.
Despite the difficult transition, he said the reforms were beginning to produce early results. According to him, inflation has been declining steadily for about 19 months, while food inflation is currently at its lowest level in about 13 years.
He added that Nigeria was gradually moving towards single-digit inflation, something the country has not achieved in more than a decade. Abdullahi further stated that net foreign reserves had improved significantly, rising from about $800m to roughly $32bn, a development he said had strengthened international investor confidence.
He also pointed to rising non-oil exports, which reached about $6bn last year, with the government targeting $12bn in the near future.
Also speaking at the dialogue, the Director-General of the Lagos Chamber of Commerce and Industry, Dr Chinyere Almona, said the reforms had corrected several long-standing distortions but had also placed heavy pressure on businesses.
Almona noted that the removal of petrol subsidy alone could save the government about $7.5bn annually, which should be invested in infrastructure and human capital development. “For the private sector, what we want to see is that the savings from the fuel subsidy removal are actually being used to fund infrastructure,” she said.
She explained that rising fuel prices had significantly increased electricity generation costs for businesses. Almona added that while macroeconomic indicators such as reserves and the balance of payments had improved, many Nigerians had yet to experience the benefits.
“The economy is improving at the macro level, but that improvement has not trickled down to the common man and many small businesses,” she said.
She therefore urged the government to introduce complementary policies that would support businesses, including improved access to credit and targeted assistance for small and medium-sized enterprises.
The Chair of Agora Policy, Ojobo Ode Atuluku, said the dialogue was organised to promote evidence-based discussion on Nigeria’s reform agenda. He explained that the initiative was supported by the Nigeria Economic Stability and Transformation programme and the United Kingdom’s Foreign, Commonwealth and Development Office.
World Bank economist Samer Matta urged the government to expand social protection programmes and strengthen the National Social Register to ensure that assistance reaches vulnerable populations quickly.
He added that sustained dialogue and stronger safety nets would be critical to maintaining public support for Nigeria’s economic reforms and ensuring that growth becomes more inclusive.
PUNCH.
