Nigeria's Poverty Rate Skyrockets to 63% Following Fuel Subsidy Removal, Study Finds
A recent study presented at a policy dialogue in Abuja has revealed that Nigeria's poverty rate increased dramatically to approximately 63% after the removal of petrol subsidies, underscoring the severe welfare impacts of recent economic reforms in the country.
The research, conducted by Mohammed Shuaibu, a senior lecturer in the Department of Economics at the University of Abuja, was shared during an event organized by Agora Policy. It examined the effects of key government policies, including subsidy removal and electricity tariff adjustments.
Sharp Increase in Poverty Levels
According to the study, the poverty rate in Nigeria rose sharply from about 49.8% to nearly 63% shortly after the subsidy was eliminated. This spike was primarily driven by widespread price increases in fuel and transport, which disproportionately affected low-income and rural households.
Shuaibu explained that while social protection programmes, such as cash transfers, helped reduce the rate to around 56.2%, the improvement was limited due to delays in rollout and the small scale of support. The national poverty gap widened from 31.6% to over 45%, indicating deeper hardship among poorer families.
Uneven Distribution of Economic Shocks
The findings highlighted that the effects of the reforms were not evenly distributed across society. Low-income households bore the brunt of the economic shock, with many forced to cut spending, reduce transport use, and borrow money to meet basic needs. In contrast, wealthier households were largely able to absorb the increased costs.
Data from the study showed that consumption declined across all income groups after the subsidy removal and electricity tariff adjustments. Social protection measures provided some cushioning, particularly for vulnerable groups, but overall consumption levels still fell significantly.
Macroeconomic Effects of Electricity Tariff Reforms
Beyond household welfare, the research also analyzed the macroeconomic impacts of electricity tariff reforms. It found that these adjustments caused a modest rise in consumer prices, initially increasing by about 0.26% and later rising to roughly 0.52% when social protection costs were included.
However, the reform also produced a small boost in economic output. Real Gross Domestic Product increased by approximately 0.42% under the reform scenario, moderating to around 0.21% when social protection expenses were factored in. Investment at the firm level saw slight improvements, though some gains were offset by implementation costs.
Expert Perspectives and Justifications
At the policy dialogue, experts including Muhammad Abdullahi, Deputy Governor for Economic Policy at the Central Bank of Nigeria, justified the reforms as necessary to address deep structural distortions in the economy. Abdullahi noted that Nigeria faced severe macroeconomic imbalances, with crude oil earnings dropping from about $92 billion in 2012 to less than $2 billion in 2023.
He emphasized that the subsidy regime and exchange rate distortions were estimated to have cost Nigeria about 6% of its GDP, making reforms unavoidable despite the short-term economic shocks.
Business and Household Coping Strategies
The study reported that many businesses struggled with rising fuel and electricity costs, leading some to raise prices, reduce staff, or shut down operations entirely. Others switched to alternative energy sources to cope. Business owners often complained that government support programmes were either insufficient or had not reached them.
Households, particularly in rural areas, faced reduced purchasing power due to higher transport and energy expenses. Urban low-income families also experienced spending cuts, though social transfers provided some relief.
Future Projections and Government Response
Earlier reports, such as the PwC's Nigeria Economic Outlook 2026, projected that at least 141 million Nigerians could be living in poverty by 2026, citing weak income growth and high living costs. The federal government has responded to such projections by dismissing some of the estimates, while continuing to advocate for the long-term benefits of the reforms.
The study concluded that while the reforms are essential for addressing structural issues in Nigeria's economy, their implementation has triggered significant short-term hardships, highlighting the need for stronger social safety nets and policies to support small businesses and vulnerable populations.
