Subsidy removal raised cost of living, poverty by 63% — Report

A new report has revealed that the removal of petrol subsidy raised cost of living and poverty levels to about 63 per cent before providing any buffers for citizens. The findings were presented at a Stakeholders’ Dialogue organised by Agora Policy in Abuja with the theme: “Sustaining and Deepening Economic Reforms in Nigeria.” The research […]

A new report has revealed that the removal of petrol subsidy raised cost of living and poverty levels to about 63 per cent before providing any buffers for citizens.

The findings were presented at a Stakeholders’ Dialogue organised by Agora Policy in Abuja with the theme: “Sustaining and Deepening Economic Reforms in Nigeria.”

The research presented by Dr. Mohammed Shuaibu of the University of Abuja, examined the economic and social impact of key reforms introduced by the federal government, including the removal of fuel subsidy and electricity tariff adjustments.

According to Shuaibu, the removal of the petrol subsidy triggered a surge in prices across the economy, worsening poverty indicators and eroding household purchasing power.

“After the subsidy removal, poverty increased from a baseline of about 50 per cent to 63 per cent,” he said, adding, “However, when social protection measures such as cash transfers were introduced, the poverty rate moderated to around 56.2 per cent.”

Despite the improvement, the study noted that the relief provided by social protection programmes was limited due to delays in deployment and the relatively small scale of the interventions.

Shuaibu explained that while the reforms were aimed at correcting long-standing economic distortions, their short-term impact had been severe, particularly for vulnerable households.

The analysis showed that high-income households were largely insulated from the immediate effects of the reforms, while low-income households bore the brunt of rising prices and declining consumption levels.

“Across the board, household consumption declined following both the subsidy removal and electricity tariff adjustments,” he said, adding, “However, social transfers helped cushion the impact, especially for low-income households.”

The study also examined the macroeconomic impact of the electricity tariff reform, which showed a modest increase in consumer prices of about 0.26 per cent initially, rising to 0.52 per cent after the introduction of social protection measures.

In terms of economic growth, the electricity tariff reform had a modest positive effect, with real Gross Domestic Product (GDP) increasing by about 0.42 per cent under the reform scenario before moderating to 0.21 per cent.

Firm-level investments also recorded positive outcomes under the electricity tariff reform, although the gains were slightly reduced when social protection programmes were introduced.

However, the fuel subsidy removal had a contractionary effect on economic activity and firm investments, reflecting the broader inflationary pressures triggered by the policy change.

Furthermore, according to the study, many households resorted to reducing their consumption levels, walking instead of using public transport, rationing electricity use, and borrowing money to survive.

“Households adjusted to the shocks not through recovery but through sacrifice,” Shuaibu said.

Contributing as a panelist, the Deputy Governor of the Central Bank of Nigeria (CBN) for Economic Policy, Dr. Muhammad Abdullahi, said the reforms were necessary to address severe economic distortions that had threatened Nigeria’s fiscal and macroeconomic stability.

According to him, prior to the reforms, the country faced significant imbalances including foreign exchange distortions, declining investment inflows and rising inflation.

He explained that multiple exchange rate windows had created opportunities for arbitrage and rent-seeking behaviour that discouraged productive investment and reduced foreign capital inflows into the economy.

“At some point, you could access foreign exchange at one rate from the Central Bank and immediately flip it in the market for profit. These distortions cost the country significant economic output over the years,” Abdullahi said.

He added that fuel subsidy and foreign exchange distortions together were estimated to have cost the Nigerian economy about six per cent of its Gross Domestic Product.

According to him, the situation had become unsustainable before the current administration took office.

“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.

He said settling the backlog became a key priority to restore confidence in Nigeria’s financial system and attract investment back into the economy.

“We committed to paying every legitimate claim. So far, we have cleared about $4.5bn and are working through the remaining obligations,” he said.

He emphasised that restoring confidence in the foreign exchange market and improving oil sector performance were critical to stabilising the economy and supporting the reform agenda.

Also speaking, the Director General of the Lagos Chamber of Commerce and Industry, Dr. Chinyere Almona, noted that since subsidy removal, about 40 to 50 per cent of business cost goes to power.

“The private sector wants to see that that the macroeconomic policies are actually elevating some of the pressure on the private sector. So, at the macro level, we’ve talked about the balance of payment improving.

 “We’ve talked about the foreign reserve improving and the fact that there’s a lot of confidence now in Nigerian economy. I agree. So, the economy is great, but that hasn’t trickled down to the common man. That hasn’t trickled down sufficiently to the businesses. Particularly, the small businesses because their operating margin has, over the years, been compressed,” she added

Earlier in her opening remarks, the Chair of Agora Policy, 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.

He stressed that economic reforms must be continuously reviewed and refined to ensure that their benefits are broadly shared across society.

“Economic policy 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 initiative, supported by the Nigeria Economic Stability and Transformation (NEST) programme and the United Kingdom’s Foreign, Commonwealth and Development Office (FCDO), was designed to promote evidence-based policy dialogue.