The latest World Bank Nigeria Development Update reveals rising inflation has pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.
According to the report, the rise in inflationary pressure has been driven primarily by surging food prices, as Nigeria’s rate of inflation rose steadily throughout 2020 and reached a four-year high in March 2021.
Nigeria’s headline inflation rate rose from 11.98% as of December 2019 to 15.75% at the end of 2020, and currently stands at 18.12% as of April 2021, while food inflation stood at 22.72%.
The report titled “Resilience through Reforms” however, noted that the Nigerian economy experienced a shallower contraction of 1.8% than the projected contraction of 3.2% at the beginning of the pandemic.
Notably, food prices accounted for over 60% of the total increase in inflation, as stated in the report. Despite the recovery in the economy from the recession witnessed in 2020, prices are increasing rapidly and this is impacting Nigerian households.
What they are saying
According to the World Bank Country Director for Nigeria, Shubham Chaudhuri, “Nigeria faces interlinked challenges in relation to inflation, limited job opportunities, and insecurity.”
While the government has made efforts to reduce the effect of these by advancing long-delayed policy reforms, it is clear that these reforms will have to be sustained and deepened for Nigeria to realize its development potential.”
Also, Marco Hernandez, the World Bank Lead Economist for Nigeria added that “Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedited reform implementation on exchange-rate management, monetary policy, trade policy, fiscal policy, and social protection would help save lives, protect livelihoods, and ensure a faster and sustained recovery.”
The report, however, acknowledged notable policy reforms by the government aimed at mitigating the impact of the crisis and supporting the recovery; including steps taken towards reducing gasoline subsidies and adjusting electricity tariffs towards more cost-reflective levels, both aimed at expanding the fiscal space for pro-poor spending.
In addition, the report highlights that both the Federal and State governments cut nonessential spending and redirected resources towards the COVID-19 response. At the same time, public-sector transparency has improved, in particular around the operations of the oil and gas sector.
Reforms needed to reduce inflation
The report proposed three priority objectives that would help to reduce inflation and boost economic recovery.
- Reduce inflation by implementing policies that support macroeconomic stability, inclusive growth, and job creation;
- Protect poor households from the impacts of inflation;
- Facilitate access to financing for small and medium enterprises in key sectors to mitigate the effects of inflation and accelerate the recovery.