Fuel Subsidy Removal and Fiscal Reallocation in Nigeria (2023–2025): Implications for Economic Growth

Abstract

This study examines the fiscal and macroeconomic effects of fuel subsidy removal in Nigeria during the postsubsidy period (2023–2025), focusing on fiscal reallocation and economic growth. Using annual time-series data for 2023–2025 and an Autoregressive Distributed Lag (ARDL) approach, the study investigates whether fiscal savings from subsidy elimination are redirected to productive sectors and how these allocations affect economic growth.
Empirical findings indicate that subsidy removal significantly improves fiscal savings and partially enhances fiscal reallocation to capital and social sector spending. Fiscal reallocation positively influences economic growth, although short-term inflationary pressures and exchange rate depreciation moderate the benefits. The study concludes that fuel subsidy removal can promote sustainable growth if accompanied by effective fiscal reallocation, macroeconomic stability, and social protection policies.