Poverty Rate in Nigeria Rose to 63% After Fuel Subsidy Removal, Study Shows
- A study presented at an Agora Policy dialogue found that Nigeria’s poverty rate rose after petrol subsidy removal
- Electricity tariff reforms slightly increased consumer prices but also produced a modest boost in economic output
- Economists and business leaders called for stronger social safety nets and policies to support small businesses
Oluwatobi Odeyinka is a business editor at Legit.ng, covering energy, the money market, technology and macroeconomic trends in Nigeria.
A new study has found that about 63% of Nigerians fell below the poverty line following the removal of petrol subsidy, highlighting the welfare impact of recent economic reforms in the country, PUNCH reported.
The research was presented during a policy dialogue organised by Agora Policy in Abuja on Thursday. According to the findings, Nigeria’s poverty rate rose sharply from about 49.8% to nearly 63% after the subsidy removal before easing slightly following the introduction of social protection measures.
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The event, themed “Sustaining and Deepening Economic Reforms in Nigeria,” brought together policymakers, economists, civil society organisations, and private sector leaders to review the effects of the Federal Government’s economic reform programme.
Participants included the Deputy Governor for Economic Policy at the Central Bank of Nigeria, Muhammad Abdullahi; Special Adviser to the President on Finance and Economy, Sanyade Okoli; World Bank Senior Economist for Nigeria, Samer Matta; Country Director of CARE International, Hussaini Abdu; and the Executive Director of Agora Policy, Waziri Adio.
Study presented at UNIABUJA
The study was presented by Mohammed Shuaibu, a senior lecturer in the Department of Economics at the University of Abuja. It examined the economic and social effects of key policies introduced by the federal government, including the removal of petrol subsidy and electricity tariff adjustments.
President Bola Tinubu had announced the removal of petrol subsidy during his inauguration on May 29, 2023. According to the study, the policy triggered widespread price increases and significantly affected household welfare.
Poverty rate increased to 62 per cent
Shuaibu explained that the poverty rate increased from about 50% to 63% shortly after the subsidy removal. However, the introduction of social protection programmes such as cash transfers helped reduce the rate to around 56.2%.
The research showed that the effects of the reforms were not evenly distributed. Low-income households were hit the hardest, while wealthier households were largely able to absorb the economic shock.
Data from the study indicated that poverty among low-income households rose significantly after the subsidy removal, while the national poverty gap widened from 31.6% to over 45%, suggesting deeper hardship among poorer families.
Government intervention limited
Although social intervention programmes helped narrow the gap slightly, the improvement remained limited due to delays in the rollout of assistance and the relatively small scale of support.
The study also examined how the reforms affected household consumption patterns. Findings showed that consumption declined across different income groups after the subsidy removal and electricity tariff adjustments.
According to Shuaibu, social protection measures helped cushion the impact, particularly for low-income households, but consumption levels still fell overall.
Rural households and low-income families were the most affected, as rising transport and energy costs significantly reduced their purchasing power. Urban low-income households also experienced reduced spending capacity, although the impact was somewhat moderated when social transfers were received.
Effects of electricity tariff reforms
Beyond household welfare, the research also analysed the macroeconomic effects of electricity tariff reforms.
The study found that electricity tariff adjustments caused a modest rise in consumer prices, initially increasing prices by about 0.26%, which later rose to roughly 0.52% when social protection measures were included.
However, the reform also produced a small boost in economic output. Real Gross Domestic Product increased by about 0.42% under the reform scenario before moderating to around 0.21% when social protection costs were factored in.
Investment at the firm level also recorded slight improvements after electricity tariff adjustments, although some of the gains were offset by the cost of implementing social protection programmes.
In contrast, the removal of petrol subsidy had a contractionary effect on economic activity, as higher fuel and transport costs contributed to inflationary pressures that affected businesses and investment.
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Families cut spendings
According to the findings, many families coped by cutting spending, reducing transport use, rationing electricity, and borrowing money to meet basic needs. Some respondents said they had not received support from government intervention programmes.
Businesses reported similar challenges, stating that rising fuel and electricity costs had significantly increased operating expenses.
Some companies said they had raised prices, reduced staff, or shut down operations entirely, while others switched to alternative energy sources to cope with rising costs. Many business owners also complained that government support programmes had either not reached them or were insufficient.
The study concluded that although the reforms were necessary to address structural problems in Nigeria’s economy, their implementation triggered significant short-term economic shocks.
Experts justify reform
Providing a monetary policy perspective at the event, Abdullahi of the Central Bank said the reforms were unavoidable due to deep structural distortions in the Nigerian economy.
According to him, Nigeria had faced severe macroeconomic imbalances and declining revenue before the reforms began.
He disclosed that crude oil earnings dropped sharply from about $92bn in 2012 to less than $2bn in 2023, worsening fiscal pressure on the country.
Abdullahi also explained that Nigeria inherited distortions in the foreign exchange market, including multiple exchange rate windows that encouraged arbitrage.
He said the subsidy regime and exchange rate distortions together were estimated to have cost Nigeria about 6% of its Gross Domestic Product.
PwC projects 141m Nigerians will live in poverty in 2026
Legit.ng earlier reported that the PwC’s Nigeria Economic Outlook 2026 projected that at least 141 million Nigerians would be living in poverty by 2026
The report explained that the growth in the poverty rate would be due to weak income growth and high living costs.
Meanwhile, the federal government responded to the report and dismissed some of the projections.
Source: Legit.ng
