Barely three days after President Muhammadu Buhari claimed that his administration has lifted 10 million people out of poverty, the World Bank said the rising prices of goods in the country have pushed seven million people into poverty.
The declarations by the president and the World Bank came at a time the National Bureau of Statistics (NBS) said inflation dropped by 0.19 percent in the month of May 2021, while there is an increased outcry among Nigerians on the high cost of basic needs of life like food, drugs and others.
Experts said the verdict of the World Bank was not unexpected considering that even the NBS, which is Nigeria’s most credible statistics collection and analysis outfit had in the past months showed how inflation was pushing the cost of commodities higher.
In a statement in Abuja on Tuesday, the World Bank said: “Food prices accounted for over 60% of the total increase in inflation. Rising prices have pushed an estimated 7 million Nigerians below the poverty line in 2020 alone.”
The statement signed by the bank’s spokesman, Mansir Nasir, cited the latest World Bank Nigeria Development Update (NDU), titled: ‘Resilience through Reforms”.
It said while the government took measures to protect the economy against a much deeper recession, it would be essential to set policy foundations for a strong recovery.
The figure which was based on data for last year indicated that the Nigerian economy experienced a shallower contraction of -1.8 per cent than had been projected at the beginning of the COVID-19 pandemic (-3.2%) in 2020.
“Although the economy started to grow again, prices are increasing rapidly, severely impacting Nigerian households,” it stated.
The global lender advised the Nigerian government not to fail in sustaining and deepening reforms to cushion the economic downturn given the “more favourable external environment, with recovering oil prices and growth in advanced economies.”
According to the World Bank: “A failure to sustain and deepen reforms would threaten both macroeconomic sustainability and policy credibility, thereby limiting the government’s ability to address gaps in human and physical capital which is needed to attract private investment.”
Commenting, the World Bank Country Director for Nigeria, Shubham Chaudhuri, said, “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 realise its development potential.”
On his part, the World Bank Lead Economist for Nigeria and co-author of the NDU Report, Marco Hernandez, said: “Given the urgency to reduce inflation amidst the pandemic, a policy consensus and expedite 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 World Bank in the NDU report also faulted the Central Bank of Nigeria (CBN) on its management of the foreign exchange (forex) regime saying it was the reason for the current crisis.
Through the CBN management of the economy, the US dollar exchanged for around N509 at the parallel market on Monday.
“The way the exchange rate was managed limited access to FX and thus adversely affected investor confidence and investment appetite,” it stated.
The disparity between the official I&E Foreign Exchange Window (IEFX) and the parallel market has widened to as high as N90 in recent weeks due to a combination of speculation, demand and fear of future devaluation of the currency.
According to the World Bank, “Significant spreads between the official, the IEFX, and the parallel exchange rate persisted throughout 2020 and as of April 2021, the spread between the official and the IEFX rate was estimated at 8% and between the IEFX and the parallel rate, reached 18% (the spread between the official and the parallel rate was 27%).”
CBN recently made its biggest move yet in unifying the exchange rate after it dumped its long-held official rate for the IEFX rate published by the FMDQOTC.
The apex bank also extended the Cash4Dollar scheme introduced back in March hoping in a bid to drive more diaspora inflows into the banking system.
“In May 2021, the CBN formally took concrete steps towards rate unification between the official and IEFX rates. However, there remains a 20 per cent premium between this unified rate and the parallel market rate.
“While this may indeed encourage the use of the formal channels, it is not clear that incentive payments will increase remittances to the country,” the World Bank remarked on the CBN’s Cash4Dollar scheme.
The World Bank recommended that the Central Bank should allow the IEFX market to function as it should by allowing a more market-friendly approach for exchange rate transactions. Rather than allow an unreliable way of reporting exchange rate prices.
The World Bank believes a return to a flexible exchange rate regime (post-2015 and pre-2020) will allow for limited interventions by the CBN.
“Until oil companies are allowed to sell FX receipts to IEFX bank participants, CBN would still have an important role to play as a supplier of FX,” it said.
What Buhari said on poverty in Nigeria
When contacted on phone to comment on what the World Bank said, the Special Adviser to the President on Media and Publicity, Femi Adesina, simply said: “It’s a question of who would you rather believe between the president and the foreign institution?”
Buhari had last week reiterated his vision of lifting 100 million people out of poverty in 10 years.
The president, who stated this in his Democracy Day address on June 12, 2021, said: “In the last two years, we lifted 10.5 million people out of poverty – farmers, small-scale traders, artisans, market women and the like.
“I am very convinced that this 100 million target can be met and this informed the development of a national poverty reduction with growth strategy. The specific details of this accelerated strategy will be unveiled shortly.”
But the president was quick to admit that more needed to be done, just as the World Bank report stated.
On inflation, the NBS said inflation has eased in May by 0.19 per cent to 17.93 percent from 18.12 per cent recorded in April 2021 on a monthly basis, the NBS has said.
According to the latest “Consumer Price Index (CPI), May 2021” report, the NBS said, “The Consumer Price Index (CPI), which measures inflation increased by 17.95 per cent (year-on-year) in May 2021. This is 0.19 per cent lower than the rate recorded in April 2021 (18.12 per cent).”
It also stated that the CPI rose by 17.93 per cent last month on the basis of yearly estimation.
“On a month-on-month basis, the headline index increased by 1.01% in May, this is 0.04 percentage points higher than the rate recorded in April 2021 (0.97%).”
The urban inflation rate rose by 18.51 per cent in May from 18.68 per cent in April while the rural inflation rate rose by 17.36 per cent in May from 17.57 per cent.
The composite food index rose by 22.28 per cent in May compared to 22.72 per cent the previous month; that is a 0.44 per cent decrease.
However, the report showed increases in the prices of bread, cereals, milk, cheese, eggs, fish, soft drinks, coffee, tea and cocoa, fruits, meat, oils and fats and vegetables.
The food sub-index increased by 1.05 per cent in May, up by 0.06 per cent from 0.99 per cent recorded in April.
“The highest increases were recorded in prices of pharmaceutical products, garments, shoes and other footwear, hairdressing salons and personal grooming establishments,” it stated.
The increases were also observed in the NBS survey in vehicles, hospital services, fuels and lubricants for personal transport equipment, cleaning, repair and hire of clothing, furniture and furnishing, carpet and other floor covering.
On a monthly basis, the overall inflation including food prices was highest in Kogi (2.22%), Ogun (2.17%) and Cross River (2.07%) while Ekiti (0.02%) recorded the slowest rise in the inflation rate.
Meanwhile, the Lagos Chamber of Commerce and Industry (LCCI) welcomed the deceleration of headline inflation from 18.12 per cent in April to 17.93 per cent in May.
According to the Director General of the Chamber, Dr. Muda Yusuf, it represents a marginal decline of 0.1% as a marginal drop was noted in the Food Inflation sub-index from 22.72 per cent in April to 22.28 per cent in May 2021.
However, the core inflation sub-index accelerated to 13.15per cent in May from 12.74per cent in April 2021.
Yusuf posited that from a month-on-month perspective, inflation accelerated across all parameters, which underscored the fact that inflation remained a major challenge to investors and citizens.
“It weakens real income, erodes purchasing power, puts pressure on operating costs aggravates production costs, reduces sales and negatively impacts profit margins across sectors.
“Inflation is perhaps the biggest poverty accelerator because of the weakening of purchasing power. This is particularly so with food inflation, which has consistently been a significant component of headline inflation,” he said.
According to him, the drivers of inflation had remained largely the same including the security situation, cost of transportation and logistics, energy costs, exchange rate depreciation, illiquidity in the forex market, among others.
Tackling inflation therefore would require fixing these supply-side challenges reining in fiscal deficit monetisation, he noted.
