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Fuel Subsidy Reforms and Macroeconomic Stability in Nigeria
Subject area: Science,Engineering and Technology · Area of research: Industrial
Abstract
This study examined the effects of fuel subsidy reforms on macroeconomic stability in Nigeria, with particular attention to the June 2023 petrol subsidy removal. It examined the short- and long-run effects of the reforms on inflation, economic growth, fiscal balance, exchange-rate stability and external reserves, and compared selected macroeconomic indicators between the pre-subsidy regime (January 2010–May 2023) and post-subsidy regime (June 2023–June 2026). The study was guided by five research questions and four null hypotheses. A quantitative ex-post facto research design was adopted using 198 monthly observations from January 2010 to June 2026. A census sampling technique was employed, covering all relevant observations. Data on the study variables were obtained from the Central Bank of Nigeria, National Bureau of Statistics, International Monetary Fund, World Bank and other recognised official sources. A researcher-designed data-extraction template was used for data collection and reviewed by three experts for face and content validity. Reliability was enhanced through cross-verification and consistency checks. Data were analysed using descriptive statistics, Augmented Dickey-Fuller unit-root tests, Autoregressive Distributed Lag (ARDL) estimation, short- and long-run analysis, and pre- and post-subsidy comparative analysis. Hypotheses were tested at the 0.05 significance level. The findings revealed that subsidy reforms significantly increased inflation and reduced economic growth in both the short and long run. Significant effects were also found on fiscal balance, exchange-rate stability and external reserves, while selected macroeconomic indicators differed significantly between the two regimes. The study concluded that fuel subsidy reform produced substantial and multidimensional macroeconomic effects. It recommends strengthened inflation management, improved fiscal transparency, support for productive sectors, coordinated exchange-rate management, and increased domestic refining and energy diversification.
Keywords
fuel subsidy reform; macroeconomic stability; inflation; economic growth; exchange rate
References
[1] African Development Bank (AfDB) (2024). African economic outlook 2024. African Development Bank Group.
[2] Central Bank of Nigeria (CBN) (2023). Annual report and financial statements for the year ended 31 December 2023. Central Bank of Nigeria.
[3] Central Bank of Nigeria (CBN) (2024). Statistical bulletin. Central Bank of Nigeria.
[4] Debt Management Office (DMO) (2024). Annual public debt statistics report. Debt Management Office.
[5] International Energy Agency (IEA) (2022). Energy subsidies and sustainability report. International Energy Agency.
[6] International Monetary Fund (IMF) (2023). Fiscal monitor: On the path to policy normalisation. International Monetary Fund.
[7] International Monetary Fund (IMF) (2024a). Nigeria: 2024 Article IV consultation—Press release; staff report; and statement by the Executive Director for Nigeria. IMF Staff Country Reports.
[8] International Monetary Fund (IMF) (2024b). Nigeria: 2024 Article IV consultation—Press release; staff report; and statement by the Executive Director for Nigeria. IMF Staff Country Reports.
[9] International Monetary Fund (IMF) (2025). Nigeria: 2025 Article IV consultation—Press release; staff report; and statement by the Executive Director for Nigeria. IMF Staff Country Reports.
[10] International Monetary Fund (IMF) (2026). Nigeria: 2026 Article IV consultation—Press release; staff report; and statement by the Executive Director for Nigeria. IMF Staff Country Reports, 2026/125.
[11] National Bureau of Statistics (NBS) (2024). Consumer price index and inflation report. National Bureau of Statistics.
[12] Organisation for Economic Co-operation and Development (OECD) (2023). OECD economic outlook 2023. OECD Publishing.
[13] U.S. Energy Information Administration (EIA) (2023). Nigeria energy outlook report. U.S. Energy Information Administration.
[14] World Bank (2023). Nigeria development update: Seizing the opportunity. World Bank.
[15] World Bank (2024). Nigeria development update: Staying the course—Progress amidst pressing challenges. World Bank.
How to cite this paper
@article{1724347,
author = {Arowolo, Kazeem Oluwaseyi, Prof. Aleruchi, Boniface Orji, Oneoyekan, Julius Eyitayo},
title = {Fuel Subsidy Reforms and Macroeconomic Stability in Nigeria},
journal = {Iconic Research And Engineering Journals},
year = {2026},
volume = {10},
number = {4},
pages = {3908-3920},
issn = {2456-8880},
url = {https://www.irejournals.com/formatedpaper/1724347.pdf},
abstract = {This study examined the effects of fuel subsidy reforms on macroeconomic stability in Nigeria, with particular attention to the June 2023 petrol subsidy removal. It examined the short- and long-run effects of the reforms on inflation, economic growth, fiscal balance, exchange-rate stability and external reserves, and compared selected macroeconomic indicators between the pre-subsidy regime (January 2010–May 2023) and post-subsidy regime (June 2023–June 2026). The study was guided by five research questions and four null hypotheses. A quantitative ex-post facto research design was adopted using 198 monthly observations from January 2010 to June 2026. A census sampling technique was employed, covering all relevant observations. Data on the study variables were obtained from the Central Bank of Nigeria, National Bureau of Statistics, International Monetary Fund, World Bank and other recognised official sources. A researcher-designed data-extraction template was used for data collection and reviewed by three experts for face and content validity. Reliability was enhanced through cross-verification and consistency checks. Data were analysed using descriptive statistics, Augmented Dickey-Fuller unit-root tests, Autoregressive Distributed Lag (ARDL) estimation, short- and long-run analysis, and pre- and post-subsidy comparative analysis. Hypotheses were tested at the 0.05 significance level. The findings revealed that subsidy reforms significantly increased inflation and reduced economic growth in both the short and long run. Significant effects were also found on fiscal balance, exchange-rate stability and external reserves, while selected macroeconomic indicators differed significantly between the two regimes. The study concluded that fuel subsidy reform produced substantial and multidimensional macroeconomic effects. It recommends strengthened inflation management, improved fiscal transparency, support for productive sectors, coordinated exchange-rate management, and increased domestic refining and energy diversification.},
keywords = {fuel subsidy reform; macroeconomic stability; inflation; economic growth; exchange rate},
month = {October},
}