Fuel Subsidy Removal and Macroeconomic Performance in Nigeria

Abstract

The government of Nigeria removed fuel subsidy on the premise that fuel subsidy is a drain on government finances, causes macroeconomic instability, and generates adverse social welfare in the country. The objective of this paper is to examine the effect of fuel subsidy removal on macroeconomic performance in Nigeria. The paper adopts a desk review method and obtains secondary data from the documents of reputable organizations such as the Central Bank of Nigeria, the National Bureau of Statistics, and the Nigerian National Petroleum Company Ltd. Descriptive statistics was employed for the analysis of data. The study found out that the removal of fuel subsidy resulted in the increase of premium motor spirit price across the country generating inflationary trend. It improved revenue generation for government expenditure, curtailed cross border smuggling and corruption inherent in the downstream sector of the petroleum sector. It was based on these findings that the paper recommends a proper coordination of the fiscal policies and the Central Bank of Nigeria to effectively manage the macroeconomic effect of the subsidy removal. It is also important for the government to develop an effective communication strategy to engage stakeholders on the necessity for the subsidy removal and put in place an effective palliative measure to alleviate the attendant adverse conditions that it generated.