Rising inflation and weak earnings have pushed 10 million Nigerians into poverty in 2023, according to the World Bank in its Macro Poverty Outlook for Nigeria: April 2024.
Presenting a grim reality where nominal earnings have drastically lagged behind the surging inflation rates, rendering the economic growth of the country insufficient to improve living standards, the report noted:
- “Nominal earnings have not kept up with inflation, pushing another 10 million Nigerians into poverty in 2023.”
Persistent Poverty Levels
- According to the World Bank’s statistics, poverty rates in Nigeria have escalated to concerning levels across various economic thresholds. The international poverty rate, which is pegged at $2.15 per day, stands at 30.9%.
- More distressingly, the lower middle-income poverty threshold of $3.65 per day shows that 63.5% of the population lives in poverty, while a staggering 90.8% fall below the upper middle-income poverty line of $6.85 per day.
Nigeria struggles with weak macroeconomic fundamentals
The report attributes this dire situation to a combination of weak macroeconomic fundamentals and deep-seated structural constraints.
A significant overreliance on the oil sector has been identified as a major factor. With the deteriorating performance of this sector, there has been a consequent erosion in macroeconomic stability.
The challenges are compounded by low state revenues exacerbated by an expensive petrol subsidy, ineffective tax rates, and inadequate tax administration, which collectively hamper the government’s capacity to provide essential public services.
Further exacerbating the economic strain are the high levels of inflation, which have persisted and escalated due to loose monetary policies and depreciating exchange rates.
Nigeria also faces substantial hurdles such as inadequate energy and transport infrastructure, high costs of domestic and foreign trade, widespread insecurity, weak institutional frameworks, and low levels of human capital development.
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The report noted:
- “Nigeria’s economic growth has been insufficient to raise living standards, weighed down by weak macroeconomic fundamentals and several structural constraints. Overreliance on the oil sector for fiscal revenues, exports, and FX inflows led macro stability to erode with the sector’s deteriorating performance in recent years. Low revenues—including due to a costly petrol subsidy, low tax rates, and weak tax administration—have limited state capacity and public service delivery.
- “Inflation has remained high and escalating on the back of a relatively loose monetary policy and exchange rate depreciation. Structural factors holding back the country’s growth potential include lack of adequate energy and transport infrastructure, high domestic trade costs and foreign trade protectionism, widespread insecurity, weak institutions, and low levels of human capital development.”
More poverty in 2024
The World Bank emphasizes the critical need for continued ambitious reforms centered around macroeconomic stabilization. The economic forecast projects an average growth of 3.5% between 2024 and 2026, which marginally outpaces the population growth rate by 0.9 percentage points. This growth is expected to be driven by the stabilization of macroeconomic conditions and a gradual recovery in the non-oil sectors, even as the oil sector might see some stabilization and recovery in production levels.
Despite these projections, the report noted that “poverty rates are expected to increase in 2024 and 2025 before stabilizing in 2026” due to the initial impact of ongoing reforms and the prevailing high inflation rate, estimated to average 24.8% in 2024.
Inflation is anticipated to gradually moderate to 15.1% by 2026 due to tightened monetary policies and efforts to stabilize the exchange rate.
More Insights
- Nigeria’s inflation rate increased to 33.2% for March 2024. This represents 1.5%-points increase from the 31.7% recorded in February 2024. The increase in the inflation rate in March was slower compared to the 1.80% increase recorded in February 2024. Inflation in March was driven by increase in food and beverages coupled with energy and housing costs.
- Also, the food inflation rate reached 40.01% year-on-year, marking an increase of 15.56%-points from 24.45% in March 2023. This surge in food inflation can be attributed to rising prices for items such as garri, millet, and “akpu” (uncooked fermented cassava, as well as yam tuber, water yam, and others.
- The average cost for Housing, Water, Electricity, Gas, and Other Fuels surged by 27.64% over the past year, reflecting a significant increase as Nigerians grapple with escalating inflation rates and declining incomes.
