Nigeria’s Debt Crisis: Harnessing fuel subsidy savings for sustainable development in critical sectors

President Bola Tinubu’s recent decision to remove the fuel subsidy finally addressed a contentious issue that had plagued Nigeria for years. However, the swift market adjustment following the subsidy removal has disproportionately impacted vulnerable Nigerians, leading to severe hardships – inflation, rising costs of living, transportation challenges, and food price hikes, among others. The federal and state governments must look beyond the usual short-term palliative measures and ensure that savings from the subsidy policy are invested in vital sectors that directly benefit poor Nigerians with tangible results to show.

Ending the subsidy regime was inevitable due to its evolution from a goodwill social contract into a burdensome monster.

Originally intended to ease the rising fuel crisis, the subsidy system became problematic with corruption, overinflated subsidy claims, fuel smuggling, fake importation and documentation, round-tripping, and abuse of subsidy allocations.

Moreover, Nigeria’s current debt crisis worsened the situation, rendering the fuel subsidy an unsustainable burden on the nation’s budget. A recent debt sustainability report by the ONE Campaign indicates that Nigeria’s fuel subsidy contributed significantly to a widened fiscal deficit, reaching N6.4 trillion in 2021—an 8% increase from the previous year.

The subsidy cost soared to an alarming 38% of oil revenues in the same year, surpassing combined education, health, and social protection expenditures.

The subsidy savings have opened up substantial resources for developmental initiatives. In his recent nationwide address, President Tinubu stated that over the past two months, the federal government had saved over one trillion naira following the removal of petrol subsidies. While this is a positive step forward, it offers little comfort to the 133 million Nigerians living in multidimensional poverty who continue to bear the brunt of this policy shift. They anxiously anticipate the government’s plan for alleviating the burden of subsidy removal and how the savings from this decision will be utilised. These critical questions serve as subtle calls for immediate action and cannot be ignored.

To begin with, the federal and state governments must implement a comprehensive and well-thought-out social safety net program targeted at vulnerable groups. The proposal to approve a monthly palliative of N8,000 for 12 million vulnerable households raises questions of credibility about the country’s social register. The Tinubu-led administration must work with state governments to ensure transparency in fund disbursements and that the program effectively reaches those in need. The transfers must be linked to conditional education and health outcomes, as Indonesia did. In 2005, Indonesia launched a Quarterly Cash Transfer programme, targeting households with pregnant women and children. The money was released on the condition that the pregnant women registered at the primary health care centres and all the children who were out of school in these households got enrolled in school. The program was found to be effective in terms of greatly improving the welfare of beneficiary households. In adopting this approach, Nigeria has a chance to improve its development indicators and gain the trust and support of Nigerians for its vision.

Next, the President and State Governors should prioritise directing the savings from the subsidy removal towards remarkable investments in five critical sectors to improve human capacity outcomes for Nigerians. One key area is healthcare.

Nigeria now has a rare opportunity to renew its commitment to the 2001 Abuja Declaration by increasing the allocation for healthcare services to reduce the burden of out-of-pocket expenditure. The education sector also requires improved investments.

In addition to the traditional education system, the government must expand vocational training programs to enhance the employability and entrepreneurial spirit of young Nigerians.

Addressing the infrastructure deficit, which hampers productivity and economic progress, is also important. Investing in road, rail, and transportation infrastructure is crucial to reducing transportation costs, enhancing connectivity, and stimulating economic growth. Investments in agriculture will promote food security, diversify the economy, and reduce food importation.

Nigeria has ample opportunities to advance green energy investments and enhance energy efficiency. Implementing policies that strengthen building codes, upgrade appliances, improve manufacturing practices, and promote sustainable agriculture can significantly contribute to the country’s commitment to mitigating climate change. Nigeria has an abundance of hydro and solar potential, and investing in these energy sources will diversify the energy sector, leading to a more sustainable and affordable energy future.

On a broader scale, improving the ease of doing business and encouraging entrepreneurship can support the government’s efforts to open up the economy and promote innovation, especially in labour-intensive sectors such as services, manufacturing, and agriculture.

With increased resources at hand, the President bears a crucial responsibility to break free from enduring, costly mistakes that have hindered progress, including corrupted palliative measures, reckless spending, and high costs of governance.

While the immediate impact of subsidy removal on the lives of Nigerians is undeniable, it also holds an equal seed of opportunity for progress if the leaders make the right choices. Swift and decisive action is necessary to alleviate the burden and ensure the transparent allocation of funds into strategic sectors that will foster long-term development and prosperity for all Nigerians. This path will pave the way for positive and inclusive development across the nation.

Chinwe Abuwa is a Policy and Advocacy Officer at The ONE Campaign and writes from Abuja