An Assessment of Fuel Subsidy Removal and Its Effects on Inflation, Fiscal Capacity, and Household Welfare in Nigeria (2023–2025)
Abstract
The removal of fuel subsidies in Nigeria in May 2023 marked a major fiscal and economic policy shift under President Bola Ahmed Tinubu's administration, generating widespread debate over its implications for inflation, fiscal sustainability, and household welfare. Although the reform was introduced to reduce government expenditure and improve the allocation of public revenue, concerns emerged about its socio-economic consequences, particularly for vulnerable populations. This research examines the effects of the removal of fuel subsidies on inflation, fiscal capacity, household welfare, and public perception in Nigeria between 2023 and 2025. The research adopts a conceptual and analytical research design, integrating secondary data obtained from the National Bureau of Statistics (NBS), the Federation Account Allocation Committee (FAAC), academic literature, policy reports, and media publications. The findings reveal that removing fuel subsidies significantly increased government fiscal capacity through higher FAAC allocations and expanded public revenue. However, the reform simultaneously intensified inflationary pressures, particularly in transportation, food, and energy sectors, leading to severe increases in the cost of living. The research further found that low-income households, informal workers, women, and rural populations experienced the greatest welfare losses due to declining purchasing power and inadequate social protection measures. Additionally, public dissatisfaction was heightened by the abrupt implementation of policies and ineffective palliative interventions. The research concludes that while removing fuel subsidies may enhance long-term fiscal sustainability, its success depends on effective social protection, transparent governance, and inclusive implementation strategies. The research contributes to existing literature by integrating macroeconomic analysis with household-level experiences, thereby providing a more comprehensive understanding of subsidy reform in developing economies.
References
Abdul, K., Pius-Ajibade, F. I., & Moses, I. K. (2025). Effect of Fuel Subsidy Removal on Nigeria's Economy. International Journal of Research and Innovation in Social Science, 9(3), 3604–3615.
Akoji, S. J., Rintep, F. C., & Anya, S. I. (2025). Socioeconomic Uncertainties and Food Crisis in Nigeria: Current Obstacles and Future Opportunities. African Journal of Management and Business Research, 19(1), 275-290.
Asiegbu, T. E., & Udem, M. C. (2026). Fuel Subsidy Removal and The Nigerian Economy—Multidisciplinary Journal of Management and Social Sciences, 3(1).
Badeeb, R. A., Lean, H. H., & Clark, J. (2017). The evolution of the natural resource curse thesis: A critical literature survey. Resources Policy, 51, 123–134.
Buchanan, J. M., & Tullock, G. (1965). The calculus of consent: Logical foundations of constitutional democracy (Vol. 100). University of Michigan Press.
Fasina, S. O., Akanmu, A. A., & Obafemi, U. (2020). Optimising Rural Transport Services for Socio-Economic Integration in Nigeria. Transport & Logistics, 20(48), 34-50
Gerelmaa, L., & Kotani, K. (2016). Further investigation of natural resources and economic growth: Do natural resources depress economic growth?. Resources Policy, 50, 312–321.
Goodwin, N., Harris, J., Nelson, J., Roach, B., & Torras, M. (2019). Principles of economics in context. Routledge.
Maina, Y. B., & Yusuf, A. B. (2023). Analysis of Elasticities of Household Fuel Types in The Northeastern Region of Nigeria. Malaysian Journal of Business and Economics (MJBE), 10(2), 1–8.
National Bureau of Statistics (NBS). (2022). Consumer price index (CPI) report. National Bureau of Statistics. https://www.nigerianstat.gov.ng/elibrary/read/1241157
Obi, C. I. (2010). Oil extraction, dispossession, resistance, and conflict in Nigeria's oil-rich Niger Delta. Canadian Journal of Development Studies, 30(1-2), 219–236.
Ogwuche, D. D., Adejor, G. A., Dabish, N. D., Garba, R. I., & Dole, F. (2024). Assessing the impact of fuel subsidy removal on economic growth in Nigeria: A VECM approach. Lapai Journal of Economics, 8(1), 1–13.
Olatunde, S. O., Tokshik, G. M., Adofu, I., & Gimba, O. (2026). Do Fiscal Transfers Cushion the Poor? Assessing State FAAC Allocations and Post-Subsidy Poverty Trends in Nigeria. Nigerian Journal of Sustainability Research, 4(1), 27–50.
Percy, N. A., & Gloria, A. O. (2024). Fiscal policy and alternatives to subsidy removal in Nigeria. FULafia International Journal of Business and Allied Studies, 2(4), 164–187.
Ross, M. L. (2013). The oil curse: How petroleum wealth shapes the development of nations. Princeton University Press.
Sienaert, A., Joseph-Raji, G. A., & Saldarriaga Noel, M. A. (2023). Nigeria development update: Seizing the opportunity. Washington, DC: World Bank Group.
The Guardian Nigeria. (2023). Impact of fuel subsidy removal on Nigeria’s economy. https://guardian.ng/opinion/impact-of-fuel-subsidy-removal-on-nigerias-economy/
Thisdaylive. (2023). Subsidy Removal Has Brought Us Pains, Frustration, Hardship, Pensioners Lament. https://www.thisdaylive.com/2023/11/29/subsidy-removal-has-brought-us-pains-frustration-hardship-pensioners-lament/
Udenigwe, O., Okonofua, F. E., Ntoimo, L. F., Imongan, W., Igboin, B., & Yaya, S. (2021). Perspectives of policymakers and health providers on barriers and facilitators to skilled pregnancy care: findings from a qualitative study in rural Nigeria. BMC Pregnancy and Childbirth, 21(1), 20.
Uwak, U., Ekpenyong, E., & Ebong, E. (2024). Politics of Fuel Subsidy Regime in Nigeria and Its Implications: An Assessment of President Bola Ahmed Tinubu’s Administration. Journal of Policy and Development Studies, 17(1), 54–80.
Yakubu, A. (2025). Policy Inconsistencies and the Economic Challenges in Nigeria: An Examination of Fuel Price Increase in the Tinubu Era. International Journal of Sustainability, Disaster and Environmental Management, 1(1), 12–25.
