Achieving Sustainable Growth in Nigeria: Does the Fuel Subsidy Removal Matter?

Abstract

Discourse on the issue of fuel subsidy removal has become a pressing issue amongst concerned stakeholders and scholars with divergent views on the subject. This present study therefore explores the contributing role of the fuel subsidy removal on sustainable growth in Nigeria spanning 2010–2022. This was achieved by investigating the impact of the fuel subsidy removal on sustainable growth. Different econometric strategies, including the autoregressive distributed lag (ARDL), along with fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) techniques, were employed and further validated the robustness of the outcomes. The results revealed that the removal of the subsidy would have a long-term positive impact on the Nigerian economy. This was substantiated by the estimated coefficients of fuel subsidy as a proxy of subsidy removal, energy consumption and fuel export, which consolidate these discoveries. These findings were further consolidated by the coefficients of fuel imports, fuel price, exchange rates and inflation, which are negatively and significantly related to economic growth but positively significant for poverty, except for exchange rate, which was insignificant. The empirical outcomes indicate that taking away fuel subsidies in Nigeria reduces the excessive fiscal spending and borrowing needed to support oil importation in the economy, which results in increased foreign reserves and enhances national infrastructural development, foreign direct investment and currency appreciation, thus leading to more sustainable growth. This study offers new insights for policymakers, investors and other stakeholders on the importance of formulating efficient fuel subsidy policies and sustainable development goals (SDGs) for Nigeria.