By Bassey Udo
The removal of the subsidy from the pricing template for petroleum products by the present administration in May 2023 worsened the country’s poverty levels, findings from the research by a University of Abuja don, Dr. Mohammed Shuaibu, has revealed.
Also, the research revealed that the reforms embarked upon by the government in the wake of the decision to stabilise the economy without strong social security buffers appears to have exacerbated the socio-economic pain experienced by the people.
The findings of the research, which examined the socio-economic impact of key reforms introduced by the federal government, including the removal of fuel subsidy and electricity tariff adjustments, were presented on Thursday in Abuja a stakeholders’ dialogue on the theme: “Sustaining And Deepening Economic Reforms in Nigeria” organised by Agora Policy, a non-governmental think tank on socio-economic issues.
The dialogue held in collaboration with the Nigerian Economic Summit Group (NESG) and supported by the Nigeria Economic Stability and Transformation (NEST) and the UK International Development (UKID) was attended by policymakers, economists, civil society groups and private sector representatives, including the Lagos Chamber of Commerce and Industry (LCCI.
Participants at the event included the Deputy Governor in charge of Economic Policy at the Central Bank of Nigeria (CBN), Dr Muhammad Abdullahi; Special Adviser to the President on Finance and Economy, Mrs Sanyade Okoli; Senior Economist at the World Bank, Nigeria, Dr Samer Matta; Head of Growth, Trade and Investment Group, British High Commission, Abuja, Mahesh Mishra; Country Director, CARE International, Dr Hussaini Abdu, and the Founder, Agora Policy, Waziri Adio, among others.
Highlights of the study on the impact of the ongoing Macroeconomic reforms A new study has revealed that the removal of petrol subsidy in Nigeria showed that three key reform initiatives by the Bola Tinubu administration to promote fiscal sustainability and economic growth, namely removal of subsidy in petrol, pricing, electricity tariff adjustment, and floating of the Naira triggered significant distortions in the economy, resulting in the country’s poverty level rising to about 63 percent.
Although the introduction of social security measures by the government to cushion the impact of these reform initiatives, the report said the situation merely moderated slightly.
Specifically, the report said the pronouncement by President Bola Tinubu in his inauguration speech that fuel subsidy was gone instantly triggered a surge in the retail price of the commodity across the economy, resulting in spiralling inflation and other poverty indicators that eroded the average household purchasing power.
Between January 2016 and May 2023 average retail price for was ₦161 per litre. And after the removal of fuel subsidy, the price increased steadily to ₦1,261 per litre by March 2025.
In June 2023, the report said when the government unified the foreign exchange market and floated the Naira, the exchange rate for the Naira depreciated from ₦462 per dollar in May 2023 to ₦1,670 to the dollar by November 2024.
Similarly, when the Nigerian Electricity Regulatory Commission (NERC) on 3 April 2024, approved a 209.5 percent increase in the Band A electricity tariff from ₦68/kWh to ₦225/kWh, effective April 1, 2024, the report said the poverty situation worsened.
“Following the subsidy removal, poverty level increased from a baseline of about 50 percent to 63 percent,” the researcher said, adding, however, that following the introduction of some social security measures such as conditional cash transfers, the situation moderated slightly to about 56.2 percent.
Shuaibu noted that the relief by social security programmes was grossly inadequate due to delays in their deployment and the relatively small scale of the interventions, adding that while the reforms were aimed at correcting long-standing economic distortions, their short-term impact was severe, particularly for vulnerable households.
To reduce the impact of future reforms, the report advised the government to introduce major policy changes gradually and ensure support measures are ready before the policies take effect.
It also recommended improving the national social register so that assistance can reach vulnerable Nigerians quickly, while suggesting tax relief for the transport and agriculture sectors to help lower the cost of food and travel.
The study further called on the government to communicate more clearly with citizens about the reasons for economic changes while showing greater understanding of the difficulties many Nigerians are facing.
Beyond the quantitative analysis, the study incorporated qualitative findings derived from focus group discussions conducted across Nigeria’s six geopolitical zones.
The discussions, which involved households and businesses, provided insights into how Nigerians experienced and adapted to the reforms.
Participants at the dialogue acknowledged the benefits of the reforms, which they noted were necessary given Nigeria’s economic realities, although many criticised their implementation without adequate plans on how to cushion their negative impacts.
Although the study revealed that many households adjusted to the shocks not through recovery, but through sacrifice, by resorting to reducing their consumption levels, trekking instead of using public transport, rationing electricity use, and borrowing money to survive.
The findings also showed that the impact of the reforms was disproportionately felt by vulnerable groups, including women, children, retirees and residents of rural communities.
Many respondents quoted in the report criticised the government for providing little or no meaningful support through programmes initiated to cushion the impact of the reforms, adding most businesses expressed similar concerns that the reforms had significantly increased operational costs and forced many to downsize, relocate or shut down.
While some businesses raising prices of their goods and services to cope with rising costs of operation, the report said others switched to alternative energy sources to reduce dependence on expensive electricity and fuel.
The report said several business owners complained about government promise to introduce support measures to ease the transition, which either not materialised or were insufficient to go round.
During the panel discussion session, the CBN Deputy Governor in charge of Economic Policy, Dr. Muhammad Abdullahi, who provided the monetary policy perspective at the dialogue, described the reforms as necessary to address severe distortions in the economy that also threatened Nigeria’s fiscal and macroeconomic stability.
Abdullahi said the introduction of sweeping economic reforms became necessary following a loss of about $90 billion in oil revenues over the last 11 years.
He said Nigeria’s oil revenue fell sharply from $92 billion in 2012 to less than $2 billion in 2023, representing a decline of about 98 percent in expected earnings within the period.
The development, he noted, was one of the major factors that pushed the government to act quickly to stabilise the economy.
“Nigeria faced severe macroeconomic imbalances, economic distortions, and collapsing revenues before major reforms began,” he said.
The economic challenges the country was facing, he pointed out, were not limited to the oil sector alone, adding that foreign direct investment also declined significantly for about a decade as a result of the uncertainty among investors in the exchange rate system.
The uncertainty, he said, resulted in a sharp drop in foreign portfolio investments, as many investors expressed fears about their ability to repatriate their profits out of the country as they wished.
Besides, he said the non-oil export sector also weakened significantly during the period, with cocoa exports, which once earned the country about $2 billion, falling to less than $300 million within a few years.
Abdullahi further revealed that Nigeria’s true foreign reserve position was extremely weak before the reforms began, saying while the country’s official reserves stood at about $32 billion, most of that consisted of borrowed funds and financial swaps, leaving the country with net reserves of only about $800 million.
“The difficult economic situation forced the government and the CBN to introduce a series of reforms aimed at correcting long-standing distortions in the economy,” he said.
Part of the measures, he said, included allowing the naira exchange rate to adjust naturally by market forces so as to absorb the economic shocks, instead of maintaining artificial controls that had discouraged investment.
Abdullahi explained that the reforms had to be implemented quickly because the country was facing a crisis that did not allow for slow or gradual adjustments.
Despite the hardship associated with the reforms, the CBN deputy governor said the policies were beginning to produce positive results, with inflation declining steadily for about 19 months, while food inflation is currently at its lowest level in about 13 years.
He said the country was gradually moving toward single-digit inflation rate, a feat the country has not achieved in about 12 years.
From about $800 million in 2023, he said the country’s net foreign reserves have grown to roughly $32 billion, with gross reserves at over $50billion, a development that has resulted in improved international confidence in the Nigerian economy.
“Investors are beginning to see Nigeria as a more attractive destination. The country is now being ranked among the top emerging markets for investment.
Capital inflows into the country have continued even during periods of global tension, because investors believe the economy is becoming more stable and interest rates remain attractive,” he said.
The government, Abdullahi added, is also working to revive the oil sector and unlock previously unused assets to increase production and revenue.
The Nigerian economy, he said, is gradually moving away from the severe imbalances it faced in the past and is on a path toward recovery, although important social challenges still remain.
Prior to the introduction of the reforms, Abdullahi said the country faced significant imbalances, in terms of foreign exchange distortions, declining investment inflows and rising inflation.
He explained that multiple exchange rate windows created opportunities for arbitrage and rent-seeking behaviours that discouraged productive investment and reduced foreign capital inflows into the economy.
“At some point, one could access foreign exchange at one rate from the CBN and immediately flip it in the market for profit. These distortions cost the country significant economic output over the years,” Abdullahi said.
He identified the distortions caused by fuel subsidy removal and foreign exchange to have cost the Nigerian economy about six percent loss of its Gross Domestic Product, adding that the situation became unsustainable prior to the coming into office of the current administration.
“We were approaching a point where revenues would not have been sufficient to cover government obligations, including salaries,” he said.
Abdullahi also disclosed that the CBN inherited a backlog of foreign exchange obligations estimated at about $7bn owed to businesses and investors, adding that settling the backlog became a key priority to restore confidence in Nigeria’s financial system and attract investment back into the economy.
“The CBN committed to paying every legitimate claim. So far, we have cleared about $4.5bn and are working to settle the remaining obligations,” he said.
He emphasised the need to restore confidence in the foreign exchange market and improve oil sector performance to stabilise the economy and support the reform agenda.
In her opening remarks, the Chair of Agora Policy, Ms Ojobo Ode Atuluku, said the dialogue was organised to provide a platform for stakeholders to reflect on the progress of the reforms and identify ways to strengthen them.
She stressed the need for the economic reforms to be reviewed continuously and refined to ensure their benefits were broadly shared across society.
“Economic policies must never be a one-off event. It should be a continuous conversation between those who design reforms, those who implement them, and those who are affected by them,” Atuluku said.
She explained that the dialogue was designed to promote evidence-based policy dialogue, while targeted support should be guaranteed to key sectors such as food production, logistics and transportation to help stabilise prices and reduce the burden on households.
The Senior Economist at the World Bank, Nigeria, Dr Samer Matta, in his comments urged the government to expand the social security programmes, strengthen the National Social Register and ensure timely deployment of assistance to vulnerable populations.
Matta said while the reforms were necessary to correct structural weaknesses in the Nigerian economy, sustained dialogue and stronger safety nets would be essential to maintaining public support for the reform agenda.
He stressed that achieving inclusive economic growth would depend not only on the implementation of reforms, but also on the ability of government institutions to protect vulnerable citizens during periods of economic transition.
Also speaking at the event, the Director-General of the Lagos Chamber of Commerce and Industry, Chinyere Almona, said although the reforms have corrected many long-standing distortions in the economy, they were placing significant pressures on businesses.
“I believe that when you put together the impact of the removal of petrol subsidy, the exchange rate liberalisation, monetary policy tightening, and electricity tariff adjustments, these have put a lot of pressures on the private sector,” she said.
The removal of petrol subsidy alone, Almona said, could free up about $7.5 billion for the government every year, which should ideally 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 development,” she said.
Many businesses, she said, have been struggling as a result of the high cost of generating electricity, which has risen sharply following the increase in fuel prices.
“Almost between 40 and 50 per cent of a business’ cost will be power,” she said, noting that many companies rely on generators exclusively to run their operations.
While macroeconomic indicators, such as the balance of payments and foreign reserves have improved, Almona said many ordinary Nigerians and small businesses are yet to feel the benefits.
“The economy is improving at the macro level, but that improvement has not trickled down to the common man and many small businesses,” she said.
She therefore called for complementary policies that would support the private sector, including better access to credit and targeted support for small and medium-sized enterprises.
