A new study has revealed that about 63 per cent of Nigerians fell below the póverty line following the removal of petrol subsidy, highlighting the welfare impact of the country’s recent economic reforms.
The research, presented on Thursday at a stakeholders’ dialogue organised by the Agora Policy in Abuja, showed that the national póverty headcount rose sharply from a baseline of about 49.8 per cent to roughly 63 per cent after the subsidy removal. The rate later moderated slightly following 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.
Participants included the Deputy Governor for Economic Policy at the Central Bank of Nigeria, Muhammad Abdullahi; the Special Adviser to the President on Finance and Economy, Sanyade Okoli; the World Bank Senior Economist for Nigeria, Samer Matta; the Country Director of CARE International, Hussaini Abdu; and the Executive Director of Agora Policy, Waziri Adio.
The study was presented by a Senior Lecturer in the Department of Economics at the University of Abuja, Mohammed Shuaibu. It analysed the economic and social consequences of major reforms introduced by the Federal Government, including the removal of petrol subsidy and adjustments in electricity tariffs.
President Bola Ahmed Tinubu had announced the removal of the petrol subsidy during his inauguration on May 29, 2023. According to the study, the policy triggered widespread 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 noted that social protection initiatives helped reduce the severity of the impact but did not fully reverse the decline 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 added.
The findings showed that the effects of the reform were uneven across income groups. While high-income households were largely shielded from the shocks, low-income households experienced the greatest decline in purchasing power.
According to the data, poverty among low-income households rose sharply from about 50 per cent before the subsidy removal to around 63 per cent afterwards. At the same time, the national poverty gap widened significantly.
The poverty gap increased from 31.6 per cent to over 45 per cent, indicating deeper deprivation among poor households. Although social transfers slightly reduced the gap, the improvement remained limited due to delays in implementing intervention programmes and the relatively small scale of support provided.
The study also examined how the reforms affected household consumption patterns. Findings showed that consumption declined across all 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 explained.
The decline in consumption was particularly pronounced among rural and low-income households, where rising energy and transport costs significantly reduced spending capacity.
Urban low-income households also experienced reduced consumption, though the effect was slightly moderated where social transfers were available.
Beyond household welfare, the research assessed the broader macroeconomic impact of electricity tariff reforms. The study found that tariff adjustments caused a modest rise in consumer prices, initially increasing prices by about 0.26 per cent and later to roughly 0.52 per cent after social protection measures were included.
However, the electricity reform also had a small positive impact on economic output. 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 the tariff adjustments, though part of the improvement was offset by the cost of implementing social protection measures.
In contrast, the removal of the petrol subsidy had a contractionary effect on economic activity. Rising fuel prices and transport costs triggered inflationary pressures that affected business operations and investment.
The research also incorporated insights from focus group discussions conducted across Nigeria’s six geopolitical zones. Participants generally acknowledged that reforms were necessary given the country’s fiscal and macroeconomic challenges, but many criticised the speed of their implementation.
According to the study, many households responded to the economic shocks by cutting consumption, reducing transport use, rationing electricity, and borrowing to meet basic needs.
“Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.
Businesses reported similar challenges, stating 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.
Others said they switched to alternative energy sources to cope with rising electricity tariffs and fuel costs, although many complained that government support programmes had either not reached them or were insufficient.
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, CBN Deputy Governor 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.
He explained that Nigeria’s crude oil earnings had declined sharply over the past decade, dropping from about $92bn in 2012 to less than $2bn in 2023, representing a nearly 98 per cent decline in expected revenue during that period.
According to him, the situation placed enormous fiscal pressure on the country and made economic reforms unavoidable.
Abdullahi also said the CBN inherited distortions in the foreign exchange market, including multiple exchange rate windows that encouraged arbitrage.
He added that 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.
The CBN official further disclosed that the apex bank inherited a backlog of about $7bn in foreign exchange obligations owed to businesses and investors. He said about $4.5bn of the backlog had already been cleared in a bid to restore confidence in the financial system.
He emphasised that rebuilding confidence in the foreign exchange market and improving the performance of the oil sector were critical to stabilising the economy.
Abdullahi also revealed that Nigeria’s foreign reserves were weaker than previously believed. Although official reserves stood at about $32bn, he said much of the funds were borrowed resources and swaps, leaving the country with net reserves of only about $800m before the reforms.
Despite the difficult transition, he said the reforms were beginning to show early results.
According to him, inflation has been declining for about 19 months, while food inflation is currently at its lowest level in about 13 years. He added that Nigeria is gradually moving towards single-digit inflation for the first time in more than a decade.
Abdullahi also said net foreign reserves had improved significantly, rising from about $800m to roughly $32bn, which he said had strengthened investor confidence.
He also highlighted the growth of 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, Chinyere Almona, said the reforms had corrected several long-standing distortions but had placed significant pressure on businesses.
Almona noted that removing the petrol subsidy alone could save the government about $7.5bn annually, funds she said 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 added that rising fuel prices had significantly increased electricity generation costs for businesses. According to her, while macroeconomic indicators such as foreign reserves and the balance of payments have improved, many Nigerians are yet to feel the benefits.
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