Post-fuel subsidy removal in a high inflation environment: Lessons for monetary-fiscal policy mix coordination in Nigeria

Abstract

This study examined the effect of the May 2023 fuel subsidy removal in Nigeria, culminating in a high rate of inflation in the country. The removal of Nigeria's fuel subsidy marked a pivotal shift in the country's macroeconomic policy landscape, aimed at addressing fiscal unsustainability but unleashing inflationary pressures that have profoundly altered living standards. While the reform, which is an avenue to free up resources for infrastructure, social safety nets, and productive investments, could not have surfaced at a better time in the country, the abrupt implementation without prior mitigation strategies in anticipation of the effects on the masses pushed the economy to the brink of chaos. This necessitates a critical look into the monetary-fiscal policy mix coordination in the country. The country’s reliance on oil wealth, import dependence, fuel subsidy administration corruption, and structural vulnerabilities amplified the reform shocks. Despite the reform recording appreciable success, an additional 4 million Nigerians have been found to be impoverished. In less than two years, poverty levels in the country increased from 129 million to about 133 million Nigerians. Practical policy recommendations emphasize targeted interventions and phased reforms to harness long-term benefits.