The World Bank has projected that the removal of subsidy on Premium Motor Spirit (PMS, better known as fuel or petrol) could push as many as 7.1 million Nigerians into poverty unless adequate palliatives are extended to poor and most vulnerable individuals.
Even with the implementation of cash transfers to 10 million most vulnerable Nigerians, the bank said that the country would still suffer a net increase of 5.4 million extremely poor people as a result of the decision.
Poor and economically-insecure households also face an equivalent monthly income loss of N5,700, the bank also projects in its Nigeria Development Update (NDU) released on Tuesday in Abuja.
During his inauguration, President Bola Tinubu pulled the plug on PMS subsidy payment on the ground that the 2023 budget does not make provision for the expenditure, leading to about a 300 per cent price hike.
The planned N5,000 monthly palliative, the World Bank report argues, can only lift 1.7 million out of the 7.1 million individuals that could be rendered poorer by the removal of the social scheme, if extended to only 10 million people.
The report makes a case for expansion of the original 10 million vulnerable individuals, saying the “cash transfer will need to reach a substantial number of households for the aggregate impact to be significant”.
“Reaching 20 million beneficiary households will lift four million people out of poverty. Reaching 20 million beneficiary households will lift 56 per cent of them out of poverty. However, just aiming to reduce the poverty headcount rate will be a misplaced objective in this context, as this does not account for the welfare of the already poor people who are pushed deeper into poverty due to the petrol price increase”, the bank stated.
It also estimated that petrol price hike would deepen poverty by 1.4 percentage points. NDU argued that not many poor Nigerians benefited directly from the subsidy payment, though. According to the bank’s study, the bottom 40 per cent of the Nigerian people received less than three per cent of the subsidy directly, “whereas those at the top 60 per cent received over 23 per cent”.
“The majority – about three-quarters – of the subsidy went towards firms, transport operators and ministries, departments, and agencies, but also smugglers who sell the fuel in neighboring countries at a much higher price”, it declared.
The report underpinned the importance of immediate implementation of the cash transfer noting that it “can substantially lower the burden of the price increase among the poor and economically insecure”. The amount, it stated, accounted for six per cent of the expenditures of the poor and economically insecure and is slightly higher than the four per cent equivalent income loss they face owing to the subsidy payment cancellation.
“However, it may not be possible to provide immediate assistance to everyone due to financial as well as logistical constraints. In such cases, it would be prudent to direct more resources towards the poor and economically insecure who struggle more to cope with the adverse impacts of the petrol price increases”, World Bank rationalised, adding that effective targeting of the compensatory transfers could ensure that the poor and economically vulnerable receive a large share of the cash transfers.
It added: “A simple approach of geographically targeting poorer wards first and screening out the very wealthy (say, the top 20 per cent) can be effective in the Nigerian context. Such an approach would ensure that, in case only a limited number of people can be reached, more resources go to the poor and economically insecure.
“For example, if only 10 million households can be reached, this approach would direct 88 per cent of the resources toward the poor and economically insecure households. The use of the registries as a gateway for the compensatory transfers and following a similar targeting approach can be even more effective to help the poor and economically insecure”.
The report insisted that removal of the petrol subsidy and the foreign exchange management reforms are critical steps to address long-standing macroeconomic imbalances and have the potential to establish a solid foundation for sustainable and inclusive growth.
“Nigeria can seize this window of opportunity to further implement a comprehensive reform package that encompasses a range of complementary fiscal, monetary, trade, and structural policy measures to maximize the collective impact on growth, job creation, and poverty reduction.
“To shield the poor and most vulnerable from increases in living costs, temporary and targeted cash transfers should be considered, as part of a new social compact to sustainably redirect resources towards addressing Nigeria’s most urgent development priorities”, a press statement accompanying the report unveiling stated.
The report is also particularly concerned about the negative impacts of inflation on Nigerians and businesses. It estimated that falling purchasing power caused by elevated inflation has increased poverty in the short term and pushed an estimated four million Nigerians into poverty from January to May this year alone.
While the Central Bank of Nigeria (CBN) has been aggressive in monetary tightening, raising the benchmark interest rate to 18.5 per cent since May 2022, the World Bank said that the monetary framework remains relatively loose.
Also, while it described CBN’s money supply control measure as inefficient, the report argued that the country’s inflation is high on a structural basis and “escalated in recent years, to the point where consumer prices are now increasing at their fastest pace in 17 years”.
“The most recent pattern of chronically high and increasing inflation has been in place since. October 2019, when Nigeria’s land borders were closed”, it argued.
Credit: The Guardian
