The World Bank has reported a grim economic outlook for Nigeria, projecting an additional 2.8 million individuals to fall into poverty by the end of the year. The country's poverty incidence is expected to increase to 37.5%, exacerbated by persistent inflation and sluggish economic growth. In July, inflation reached a 17-year high of 24.1%, driven largely by soaring food prices and the aftermath of fuel subsidy removals.
Despite aggressive monetary policy actions, including a cumulative rate hike of 725 basis points since May last year, inflationary pressures remain largely unchecked due to obstructed transmission channels and continuous fiscal deficit monetization. Nigeria experienced a considerable federal fiscal deficit jump of 63% from January through May compared to the previous year, driven by higher interest payments, pre-election capital spending increases, and persistent fuel subsidy costs. These factors are contributing to an expected public debt escalation to 45% of GDP, with debt service surpassing total revenue in this period.
Although there was a modest current account balance surplus, recorded at 2.2% of GDP in Q1, it did little to enhance foreign reserves due in part to reduced oil export foreign exchange flows caused by direct crude sale-direct fuel purchase agreements.
Nigeria, Africa's largest economy, faces significant external sector financial challenges and is projected to experience an average growth rate of 3.4% between 2023-2025, contingent upon sustained macro-fiscal reforms. Inflation is anticipated to ease by next year, providing some respite from the current economic woes.
In response to the heightened poverty risks among vulnerable populations and the potential for intergenerational poverty traps, the World Bank recommends cash transfers as an immediate relief measure while longer-term solutions are pursued.
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