About 63 per cent of Nigerians slipped below the poverty line following the removal of the petrol subsidy, a new study has revealed, highlighting the welfare consequences of recent economic reforms across the country.

The research, which PulseNets learnt was presented on Thursday during a stakeholders’ dialogue organised by the Agora Policy in Abuja, indicated that Nigeria’s national poverty headcount rose sharply from a baseline of about 49.8 per cent to nearly 63 per cent after the subsidy was scrapped. The rate later eased slightly following the introduction of social protection programmes.

The policy dialogue, themed “Sustaining and Deepening Economic Reforms in Nigeria,” gathered policymakers, economists, civil society leaders and private sector representatives to assess the implications of the Federal Government’s reform agenda.

Participants at the forum 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.

PulseNets reported that the study was delivered by a Senior Lecturer in the Department of Economics at the University of Abuja, Mohammed Shuaibu. The research examined the economic and social consequences of key reforms introduced by the Federal Government, including the removal of petrol subsidy and electricity tariff adjustments.

Nigeria’s President, Bola Ahmed Tinubu, announced the removal of petrol subsidy during his inauguration on May 29, 2023. PulseNets obtained details of the study indicating that the policy immediately triggered widespread price increases across the economy, significantly affecting household welfare.

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

He explained that social protection programmes helped soften the severity of the shock but did not fully reverse the welfare losses experienced by households.

“However, when social protection measures such as cash transfers were introduced, the poverty rate moderated to around 56.2 per cent,” he added.

Uneven Impact Across Income Groups

The findings further revealed that the economic shock affected households differently across income levels.

High-income households were largely insulated from the immediate effects, while low-income households experienced the most severe decline in purchasing power.

PulseNets learnt that poverty among low-income households surged from about 50 per cent before the subsidy removal to roughly 63 per cent afterwards. At the same time, the national poverty gap widened significantly.

The poverty gap climbed from 31.6 per cent to more than 45 per cent, signalling deeper deprivation among poorer households. Although social transfers slightly reduced the gap, the impact remained limited due to delays in implementing intervention programmes and the relatively small scale of support.

Decline in Household Consumption

The research also assessed how the reforms reshaped household consumption behaviour.

According to the study obtained by PulseNets, consumption levels declined across all income groups following the subsidy removal and adjustments to 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 was most severe among rural communities and low-income households, where rising transport and energy costs significantly reduced spending capacity.

Urban low-income households also experienced reduced consumption levels, though the effect was slightly moderated in areas where social protection transfers were available.

Electricity Tariff Reforms and Macroeconomic Effects

Beyond household welfare, the study also evaluated the broader macroeconomic implications of electricity tariff reforms.

The findings showed that tariff adjustments triggered a modest increase in consumer prices. Inflation initially rose by about 0.26 per cent before increasing to approximately 0.52 per cent after social protection measures were incorporated into the analysis.

However, the reform produced a slight positive effect on economic output. Real Gross Domestic Product rose 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 marginal gains after the tariff adjustments, although part of the improvement was offset by the fiscal cost of implementing social protection interventions.

In contrast, the removal of petrol subsidy produced a contractionary effect on economic activity. Higher fuel prices and transport costs generated inflationary pressure that affected business operations and investment decisions.

Nigerians Forced to Adjust Through Sacrifice

The study also incorporated findings from focus group discussions conducted across Nigeria’s six geopolitical zones.

Participants generally acknowledged that economic reforms were necessary given the country’s fiscal challenges. However, many criticised the speed and sequencing of their implementation.

PulseNets learnt that several households responded to the 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, noting that rising fuel and electricity costs sharply increased operating expenses. Some firms disclosed that they had been forced to increase prices, reduce staff strength or shut down operations entirely.

Other businesses said they switched to alternative energy sources to cope with higher electricity tariffs and fuel costs, though many complained that government support programmes had not reached them or remained insufficient.

CBN Explains Why Reforms Became Unavoidable

Providing a monetary policy perspective, CBN Deputy Governor Abdullahi told participants that the reforms became unavoidable due to deep structural distortions in the Nigerian economy.

“Nigeria faced severe macroeconomic imbalances, economic distortions, and collapsing revenues before major reforms began,” he said.

Abdullahi explained that Nigeria’s crude oil revenue had declined sharply over the past decade, falling from about $92bn in 2012 to less than $2bn in 2023. The development, he said, represented a nearly 98 per cent collapse in expected revenue during that period.

He noted that the situation placed enormous fiscal pressure on the country, making structural economic reforms inevitable.

The CBN official further explained that the apex bank inherited distortions in the foreign exchange market, including multiple exchange rate windows that encouraged arbitrage.

According to him, the subsidy regime and foreign exchange distortions together were estimated to have cost Nigeria roughly six per cent of its Gross Domestic Product.

Abdullahi also disclosed that the apex bank inherited a backlog of about $7bn in foreign exchange obligations owed to businesses and investors. PulseNets learnt that approximately $4.5bn of the backlog has already been cleared in an effort to restore confidence in the financial system.

He emphasised that rebuilding investor confidence in the foreign exchange market and improving the performance of the oil sector remain crucial for economic stability.

The CBN official further revealed that Nigeria’s foreign reserves were weaker than previously believed. Although official reserves stood at about $32bn, he said much of the funds consisted of borrowed resources and swaps, leaving the country with net reserves of only about $800m before the reforms.

Despite the difficult transition, Abdullahi noted that the reforms were beginning to produce early results.

According to him, inflation has been declining for about 19 months, while food inflation has dropped to its lowest level in roughly 13 years. He added that Nigeria is gradually moving toward single-digit inflation for the first time in more than a decade.

He also disclosed that net foreign reserves have improved significantly, rising from about $800m to roughly $32bn, strengthening investor confidence in the Nigerian economy.

Abdullahi further highlighted the growth of non-oil exports, which reached approximately $6bn last year, with the government targeting $12bn in the near future.

Businesses Still Feeling the Pressure

Also speaking during 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 substantial pressure on businesses.

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Almona noted that eliminating the petrol subsidy alone could save the government about $7.5bn annually, funds she said should be invested in infrastructure development and human capital.

“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 higher fuel prices had significantly increased electricity generation costs for businesses.

While macroeconomic indicators such as foreign reserves and the balance of payments have shown signs of improvement, she noted that many Nigerians are yet to experience the benefits in their daily lives.