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Towards sustainable fuel subsidy reform in Nigeria

Briefing/policy papers

Written by Nick Simpson, Shandelle Steadman, Theo Tindall, Elizabeth Tan, Chukwuemeka Emenekwe, Chukwumerije Okereke, Robert Onyeneke

Image credit:Bolarzeal

Following a political consensus that Nigeria's petrol fuel subsidy was incurring unsustainable costs, newly inaugurated President Bola Tinubu opted to remove it. Petrol pump prices increased more than 200%, leading to high welfare losses, particularly for lower-income and rural households.

Fossil fuel subsidies are a drain on public finances. They widen fiscal deficits, contribute to climate change, air pollution and congestion, discourage the adoption of cleaner renewable energies, reduce the money available for investment in other areas and disproportionately benefit wealthier citizens who consume more fuel.

Yet removing subsidies is fraught with political and social sensitivities and they often end up reinstated due to public backlash, as was the case with Nigeria.

Successful subsidy reform relies on public acceptance and faith in the government’s commitment and ability to deliver social protection and compensation measures, as well as redistribute and repurpose the savings from the subsidy.

This report provides an evidence-based analysis of the controversies around Nigeria's fuel subsidy removal, including the rationale for subsidy removal, the distributional impact, and the determinants of the sustainability of the subsidy removal. The purpose of this report is to explore how savings from fuel subsidy removal can be used to foster sustainable economic development and address climate change targets and socio-economic development.