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High inflation helped push an additional 4mn Nigerians into poverty in the first five months of the year, with growth forecast to be too low to lift incomes in Africa’s largest economy, according to World Bank estimates.
Annual inflation in Nigeria has been in double digits since 2016 and climbed to an almost two-decade high of 22.4 per cent last month on the back of soaring food and non-alcoholic beverage prices and elevated energy costs, according to the National Bureau of Statistics. Nigeria has one of the highest rates of inflation in Africa.
Some 63 per cent of Nigerians, or about 133mn people, were already classed last November as being “multidimensionally poor” by the statistics agency, meaning they lack adequate access to food, healthcare and sanitation, in addition to suffering financial hardships.
Alex Sienaert, lead economist for the World Bank in Nigeria, told the Financial Times the slowing pace of inflation in many countries, as monetary policymakers raised rates, had not been visible in Nigeria.
“There is an entrenched structural inflation that has taken hold that cannot be explained by some of the global supply chain issues or the energy crisis,” Sienaert said, as the bank launched its latest development update on the country.
However, the bank said the policies adopted by the new government of president Bola Tinubu, who took office last month, offered an opportunity to boost growth.
Nigeria’s central bank has raised the key interest rate by 700 basis points since May 2022 and mopped up liquidity at commercial lenders with a cash reserve ratio that has been raised by 500bp in the same period as it seeks to tame inflation.
The World Bank said those measures were “undermined by monetisation of the budget deficit and other inconsistent policies”. It was referring to the so-called ways and means advances, a scheme where the central bank loaned more than $50bn to the federal government under former president Muhammadu Buhari.
Sienaert said other trade and industrial policies — such as directed credit to businesses, the closure of land borders since 2019, use of multiple exchange rates and bans on certain industries accessing foreign exchange from the central bank — had also fuelled inflationary pressures in Nigeria.
“All of these things have increased the cost structure in the economy. It’s quite difficult to pinpoint the single silver-bullet factor. But it seems quite clear that the previous mix of domestic policies have been the driver of what is clearly the higher structural rate of inflation in Nigeria than elsewhere in the region on average.”
The Washington-based lender maintained its forecast for Nigerian gross domestic product to grow by 3.3 per cent this year, a level which was “not enough to meaningfully lift incomes per person and help to reduce poverty”.
The economy was dealt a further blow earlier this year when the central bank’s redesign of the country’s highest denomination currency notes led to a scarcity of cash. Low oil production also contributed to a contraction in the first quarter of the year to 2.4 per cent this year from 3.3 per cent in the same period last year.
Tinubu’s new government has eliminated most of Nigeria’s costly $10bn-a-year petrol subsidies and suspended central bank governor Godwin Emefiele, who artificially propped up the value of the local Naira currency against the dollar.
Since Emefiele’s removal earlier this month, the bank has abandoned the currency peg and allowed the Naira to reflect close to its real value against the greenback. The value of the currency has plummeted more than 60 per cent, while petrol and transport costs have risen sharply.
Shubham Chaudhuri, the bank’s country director in Nigeria, told the FT that Tinubu’s government was making “bold steps” with the reforms and urged the administration to provide “robust” support — such as targeted cash transfers to cope with rising costs — to stop more Nigerians falling into poverty.
