Economic Reforms Bite Hard As Report Links Subsidy Removal To Poverty Surge

Study Links Fuel Subsidy Removal to Rising Poverty

A new research report has linked Nigeria’s worsening poverty levels to the removal of petrol subsidy by the federal government, warning that the economic shock triggered by the policy has had far-reaching consequences for low-income households.

The findings were presented by Mohammed Shuaibu of the University of Abuja during a stakeholders’ dialogue organised by Agora Policy in Abuja.

According to the study, poverty levels in Nigeria rose significantly following the announcement by Bola Ahmed Tinubu on 29 May 2023, ending the long-standing petrol subsidy regime.

“After the subsidy removal, poverty increased from a baseline of about 50 per cent to 63 per cent,” Shuaibu said during the presentation.

Limited Relief from Social Protection

The study noted that the introduction of social protection measures, particularly cash transfer programmes, helped moderate the impact of the reforms, but the scale and speed of implementation were insufficient.

With these interventions, the poverty rate declined slightly to about 56.2 per cent, although the relief was limited due to delays and the relatively small number of beneficiaries.

Researchers found that low-income households bore the heaviest burden of the policy change as fuel price increases triggered higher costs of transportation, food, and electricity.

How Households Are Coping

Focus group discussions conducted across Nigeria’s six geopolitical zones revealed the extent to which families have been forced to adjust to rising living costs.

Many households reported cutting back on food consumption, walking long distances instead of using public transport, rationing electricity usage, and borrowing money to meet basic needs.

“Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.

The study also highlighted that vulnerable populations — including women, children, retirees, and rural dwellers — experienced the most severe effects of the economic reforms.

Impact on Businesses

Businesses have also faced mounting operational costs since the subsidy removal.

According to the report, several companies responded by increasing product prices, downsizing their workforce, relocating operations, or shutting down entirely.

Some firms have attempted to adapt by switching to alternative energy sources to reduce dependence on petrol and diesel.

However, participants at the dialogue noted that government support intended to ease the transition has often been slow or insufficient.

Monetary Policy Perspective

Providing a monetary policy perspective at the event, Muhammad Sani Abdullahi of the Central Bank of Nigeria argued that the economic reforms were necessary to correct long-standing distortions in Nigeria’s financial system.

He said the country previously operated multiple foreign exchange rates that allowed arbitrage opportunities in the market.

“At some point, you could access foreign exchange at one rate from the Central Bank and immediately flip it in the market for profit,” Abdullahi said.

According to him, distortions from fuel subsidy and exchange rate policies had cost Nigeria roughly six per cent of its Gross Domestic Product.

He added that the central bank inherited about $7 billion in foreign exchange obligations, of which $4.5 billion has been cleared to restore investor confidence.

Electricity Tariff Reforms and Economic Effects

The research also examined electricity tariff adjustments implemented alongside the fuel subsidy removal.

The reforms initially increased consumer prices by 0.26 per cent and later by 0.52 per cent after social protection measures were introduced.

Despite the cost increases, the policy had a modest positive impact on economic growth, with real GDP rising by 0.42 per cent before moderating to 0.21 per cent.

Firm-level investment improved slightly, though the expansion was tempered by ongoing economic uncertainties.

Calls for Stronger Social Safety Nets

Speakers at the event stressed the need for stronger social protection programmes to cushion the impact of economic reforms.

Hussaini Abdu warned that vulnerable groups, particularly women and rural communities, were facing the harshest consequences.

“Social protection must reach those most at risk,” he said.

Similarly, Samer Matta of the World Bank urged the Nigerian government to expand social safety nets and strengthen the National Social Register to ensure timely support for vulnerable households.

Participants also recommended gradual implementation of economic reforms, targeted assistance for sectors such as food production and transportation, and better communication between policymakers and citizens.

The dialogue brought together government officials, economists, development partners, and private sector leaders to assess the impact of Nigeria’s economic reforms and discuss strategies for mitigating their social consequences.