Nigeria's Economic Surge Overshadowed by Soaring Inflation and Widening Poverty
Nigeria's economy expanded by 4.6% year-on-year in the fourth quarter of 2024, marking its fastest growth in a decade, according to the World Bank. This surge was propelled by fiscal reforms and a rebound in the oil and services sectors. However, the growth coincided with a sharp rise in inflation and a significant increase in poverty levels, underscoring the complex challenges facing Africa's largest economy.
The World Bank's latest Nigeria Development Update attributes the economic acceleration to President Bola Tinubu's administration's policy measures, including the removal of petrol subsidies, currency devaluation, and enhanced tax administration. These reforms contributed to a reduction in the fiscal deficit from 5.4% of GDP in 2023 to 3% in 2024 and bolstered foreign exchange reserves to over $37 billion.
Despite these macroeconomic improvements, the country's inflation rate escalated to 34.2% in June 2024, driven by higher fuel prices and a depreciating naira. The inflation rate slightly eased to 32.7% by September but remained among the highest globally. The World Bank projects that inflation will average 31.7% in 2024, with a gradual decline expected in subsequent years.
The economic reforms have had a profound impact on the population, with the World Bank reporting that 129 million Nigerians, or 56% of the population, are now living in poverty. This represents a significant increase from 40.1% in 2018. The rise in poverty is attributed to the erosion of purchasing power due to inflation and the limited effectiveness of social safety nets.
Urban areas, traditionally more economically resilient, have also been affected. The proportion of urban dwellers living in poverty rose from 18% in 2018 to 31.3% in 2024. The World Bank notes that employment alone is no longer sufficient to escape poverty, as many jobs do not provide adequate income to meet basic needs.
The removal of fuel subsidies, while improving fiscal health, has led to increased transportation and production costs, further exacerbating inflationary pressures. The naira's depreciation, by 43% year-to-date by the end of August 2024, has made imported goods more expensive, compounding the cost-of-living crisis.
In response to the economic challenges, the Central Bank of Nigeria has tightened monetary policy to curb inflation. However, the effectiveness of these measures is limited by structural issues, including a narrow tax base and reliance on oil revenues.
The World Bank emphasizes the need for continued fiscal discipline and targeted social interventions to mitigate the adverse effects of the reforms. Expanding cash transfer programs and strengthening social safety nets are recommended to support vulnerable populations during the transition.
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