The Central Bank of Nigeria (CBN) was advised by the World Bank to reduce subsidised lending to medium and large firms and government borrowing from the CBN, known as Ways and Means, in order to ease the hardship caused by the removal of the subsidy on Premium Motor Spirit (PMS). President Bola Tinubu had initially proposed the N8,000 monthly intervention fund as a palliative to ease the suffering caused by the removal of the subsidy on PMS.
In order to lessen the effect of fuel subsidies on the costs of products and services as well as living expenses, President Tinubu had pledged to stop subsidising PMS and proposed to provide N8,000 per month to needy households.
Many Nigerians criticised the decision, claiming that the amount was insufficient to cover the basic requirements of the country’s underprivileged households.
However, Alex Sienaert, the lead economist for the World Bank in Nigeria, claimed in reports published on Friday that the money is important for some households to care for their families and maintained that between N5,000 and N8,000 is a sizeable sum for the country’s poor.
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According to Sienaert, the sum is essential for guaranteeing that the impoverished can continue to eat, visit the hospital, and keep their kids in school.
“The whole agenda of tackling inflation is obviously a huge one,” Sienaert said in reference to the recommendations he made for the government to replace foreign exchange restrictions on international trade with tariffs and lessen reliance on CBN loans. Some suggestions include decreasing government borrowing from the CBN and discounted CBN lending to medium and large businesses.
“The other thing we often hear is that N5,000 or N8,000 is a trivial amount of money. I think people will be shocked to know that for a huge number of Nigerian households, it is a very significant amount of money.
“I believe the statistics are that about 50 percent of Nigerian households are on less than N60,000 a month. So, if you are giving them N5,000 or N8,000 extra for six months to help tie them over, you are increasing their earnings and available incomes on the order of 10 percent. For many households, it would be meaningful,” Sienaert stated during an economic review session at the Lagos Business School on Thursday.
“I know what has been in the news is the idea of a N5,000 or N8,000 cash transfer to needy households for about six months. If you look at the cost of that it would be equivalent to just about one month worth of spending on the subsidy that was happening before it was cancelled under the old exchange rates, still less than two months’ worth under the new one.
“So, it is not actually an enormous amount of resources relative to what is being freed up and it might just help many poor and vulnerable households get through this without having to do things that harm their prospects like pull a pupil out of school, or not go to the hospital, or skip a meal, whatever the case might be,” Sienaert noted.
“All of these things increase the money supply and reducing that will be helpful to reduce inflation and then replacing imports with FX restrictions with tariffs,” the chief economist said.
