…Reform Pains Persist Without Strong Social Protection
…Stakeholders Urge Govt To Expand Safety Nets For Vulnerable
A new study has revealed that the removal of petrol subsidy in Nigeria significantly worsened poverty levels, pushing the national poverty headcount to about 63 per cent before moderating slightly following the introduction of social protection measures.
The findings were presented at a Stakeholders’ Dialogue organised by Agora Policy in Abuja, where policymakers, economists, civil society actors and private sector representatives gathered to deliberate on the theme: “Sustaining and Deepening Economic Reforms in Nigeria.”
Presented at the event are the Deputy Governor, Economic Policy, Central Bank of Nigeria, Dr Muhammad Abdullahi; Special Adviser to the President on Financeand Economy, Mrs Sanyade Okoli; Senior Economist at the World Bank,Nigeria Dr Samer Matta; Country Director,CARE International Dr Hussaini Abdu; and Executive Director,Agora Policy Waziri Adio among others.
The research, presented by Dr. Mohammed Shuaibu of the University of Abuja, examined the economic and social impact of key reforms introduced by the federal government, including the removal of fuel subsidy and electricity tariff adjustments.
President Bola Tinubu had during his inaugural speech as Nigeria’s President on May 29, 2023 had stopped the payment of subsidy on petrol.
According to Shuaibu, the removal of the petrol subsidy triggered a surge in prices across the economy, worsening poverty indicators and eroding household purchasing power.
“After the subsidy removal, poverty increased from a baseline of about 50 per cent to 63 per cent,” he said. “However, when social protection measures such as cash transfers were introduced, the poverty rate moderated to around 56.2 per cent.”
Despite the improvement, the study noted that the relief provided by social protection programmes was limited due to delays in deployment and the relatively small scale of the interventions.
Shuaibu explained that while the reforms were aimed at correcting long-standing economic distortions, their short-term impact had been severe, particularly for vulnerable households.
The analysis showed that high-income households were largely insulated from the immediate effects of the reforms, while low-income households bore the brunt of rising prices and declining consumption levels.
“Across the board, household consumption declined following both the subsidy removal and electricity tariff adjustments,” he said. “However, social transfers helped cushion the impact, especially for low-income households.”
The study also examined the macroeconomic impact of the electricity tariff reform, which showed a modest increase in consumer prices of about 0.26 per cent initially, rising to 0.52 per cent after the introduction of social protection measures.
In terms of economic growth, the electricity tariff reform had a modest positive effect, with real Gross Domestic Product (GDP) increasing by about 0.42 per cent under the reform scenario before moderating to 0.21 per cent.
Firm-level investments also recorded positive outcomes under the electricity tariff reform, although the gains were slightly reduced when social protection programmes were introduced.
However, the fuel subsidy removal had a contractionary effect on economic activity and firm investments, reflecting the broader inflationary pressures triggered by the policy change.
Beyond the quantitative analysis, the study incorporated qualitative findings derived from focus group discussions conducted across Nigeria’s six geopolitical zones.
The discussions involved households and businesses, providing insights into how Nigerians have experienced and adapted to the reforms.
Participants broadly acknowledged that the reforms were necessary given Nigeria’s economic realities, but many criticised the sudden manner in which they were implemented.
Households reported that the immediate effect of the reforms was a sharp erosion of purchasing power, forcing many families to adopt drastic coping strategies.
According to the study, many households resorted to reducing their consumption levels, walking instead of using public transport, rationing electricity use, and borrowing money to survive.
“Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.
The findings also showed that the impact of the reforms was disproportionately felt by vulnerable groups, including women, children, retirees and residents of rural communities.
Many respondents said they had received little or no meaningful support from government programmes designed to cushion the impact of the reforms.
Businesses expressed similar concerns, noting that the reforms had significantly increased operational costs and forced many firms to downsize, relocate or shut down.
Some businesses reported raising prices to cope with rising costs, while others switched to alternative energy sources to reduce dependence on expensive electricity and fuel.
However, several business owners complained that government support measures promised to ease the transition had either not materialised or were insufficient.
“Businesses acknowledged the need for reforms, but many argued that the implementation should have been more gradual,” the study noted.
“They believe the sudden nature of the reforms created severe shocks that businesses and households were not adequately prepared to absorb.”
Providing the monetary policy perspective at the dialogue, the Deputy Governor of the Central Bank of Nigeria (CBN) for Economic Policy, Dr. Muhammad Abdullahi, said the reforms were necessary to address severe economic distortions that had threatened Nigeria’s fiscal and macroeconomic stability.
According to him, prior to the reforms, the country faced significant imbalances including foreign exchange distortions, declining investment inflows and rising inflation.
He explained that multiple exchange rate windows had created opportunities for arbitrage and rent-seeking behaviour that discouraged productive investment and reduced foreign capital inflows into the economy.
“At some point, you could access foreign exchange at one rate from the Central Bank and immediately flip it in the market for profit. These distortions cost the country significant economic output over the years,” Abdullahi said.
He added that fuel subsidy and foreign exchange distortions together were estimated to have cost the Nigerian economy about six per cent of its Gross Domestic Product.
According to him, the situation had become unsustainable before the current administration took office.
“We were approaching a point where revenues would not have been sufficient to cover government obligations, including salaries,” he said.
Abdullahi also disclosed that the CBN inherited a backlog of foreign exchange obligations estimated at about $7bn owed to businesses and investors.
He said settling the backlog became a key priority to restore confidence in Nigeria’s financial system and attract investment back into the economy.
“We committed to paying every legitimate claim. So far, we have cleared about $4.5bn and are working through the remaining obligations,” he said.
He emphasised that restoring confidence in the foreign exchange market and improving oil sector performance were critical to stabilising the economy and supporting the reform agenda.
Meanwhile, the Chair of Agora Policy, Ojobo Ode Atuluku, said the dialogue was organised to provide a platform for stakeholders to reflect on the progress of the reforms and identify ways to strengthen them.
He stressed that economic reforms must be continuously reviewed and refined to ensure that their benefits are broadly shared across society.
“Economic policy must never be a one-off event. It should be a continuous conversation between those who design reforms, those who implement them, and those who are affected by them,” Atuluku said.
He explained that the initiative, supported by the Nigeria Economic Stability and Transformation (NEST) programme and the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO), was designed to promote evidence-based policy dialogue.
The dialogue also featured contributions from representatives of the organised private sector, civil society organisations and multilateral institutions, including the Nigerian Economic Summit Group (NESG), the Lagos Chamber of Commerce and Industry (LCCI) and the World Bank.
Participants emphasised the need for stronger social protection systems, better sequencing of reforms and improved communication between government and citizens.
They also called for targeted support to key sectors such as food production, logistics and transportation to help stabilise prices and reduce the burden on households.
The study recommended that future economic reforms should be implemented gradually rather than simultaneously in order to reduce social and economic shocks.
Matta in his comments urged the government to expand social protection programmes, strengthen the National Social Register and ensure timely deployment of assistance to vulnerable populations.
He added that while the reforms were necessary to correct structural weaknesses in the Nigerian economy, sustained dialogue and stronger safety nets would be essential to maintaining public support for the reform agenda.
He stressed that achieving inclusive economic growth would depend not only on the implementation of reforms but also on the ability of government institutions to protect vulnerable citizens during periods of economic transition.
SOURCE: TheWhistler
