The World Bank’s latest Finance and Prosperity 2024 report has revealed that Nigeria will
require an estimated $2.4 billion, equivalent to about 0.6 per cent of its Gross Domestic
Product (GDP), to shield its households from falling into poverty after experiencing a climate
shock.
This projection shows the severe financial impact that climate-related events, such as
droughts or floods, could have on vulnerable Nigerian households.
The World Bank report reveals that climate shocks are increasingly contributing to poverty in
emerging markets and developing economies (EMDEs), with Nigeria highlighted as one of
the most affected countries.
It further emphasises the importance of matching weather data with survey responses from
households to better understand their income and welfare needs during climate shocks.
This approach, the bank said, would help policymakers determine the level of financial
assistance necessary to prevent poverty escalation, “Understanding the impact of climate
shocks on household poverty is crucial for determining the extra financial assistance
required to prevent households from falling into poverty after a shock. This can be done by
matching weather data with survey responses from households on their income and welfare
needs.
“For example, households in Malawi are estimated to need $600 million (2 per cent of GDP)
to stay out of poverty following a drought year compared to a good agricultural season. In
Nigeria, this amount is estimated at $2.4 billion or around 0.6 per cent of GDP.”
In addition to direct financial aid, the World Bank suggests that countries like Nigeria adopt a
comprehensive financial resilience strategy that includes savings, credit, and insurance,
noting that such a strategy can help households build wealth, manage income fluctuations,
and access necessary funds during times of crisis.
There is a way out though, as asked the government to subsidise insurance premiums initially, giving
households time to accumulate savings and reduce their vulnerability to future climate shocks.
It further said, “While channelling emergency funds through (adaptive) social
protection systems can be useful for the most vulnerable people, broader financial inclusion is key to building resilience more broadly.
“Financial services for resilience can be distributed as a comprehensive, risk-layered
protection package across savings, credit, and insurance. Savings accounts enable
households to build wealth to smooth income and manage moderate shocks, which can be
complemented by contingent credit. Insurance can then provide larger amounts of funds in
the event of a more severe shock.
“Insurance not only swiftly provides funds after a shock but also encourages households to
make productive decisions by reducing risk. This, in turn, can enhance their appeal to credit
providers concerned about loan repayment capabilities.”