Where did Nigeria’s fuel subsidy savings go? FG reveals how funds were spent

Where did Nigeria’s fuel subsidy savings go? FG reveals how funds were spent

The Federal Government has said savings generated from the removal of the fuel subsidy and reforms in the foreign exchange market have largely been used to meet rising debt-servicing obligations, fund higher workers’ wages, support the student loan scheme and cover other critical public expenditures.

The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, disclosed this at the 7th African Emerging Markets Forum in Abuja, where he also promised that the government would soon publish a detailed breakdown of how the savings from the reforms have been utilised.

Oyedele acknowledged growing public concern over the fate of the funds, describing questions about the use of the subsidy savings as legitimate.

He said the government had a responsibility to provide Nigerians with a clear explanation of how the resources generated by the reforms had been deployed.

According to the minister, the combined cost of the former petrol subsidy and what he described as an implicit subsidy in the foreign exchange system was equivalent to about five per cent of Nigeria’s Gross Domestic Product (GDP) before the reforms were introduced.

However, he explained that the money freed by the reforms was not left unused because the government faced higher financial obligations, including increased debt-servicing costs and rising public expenditure.

Oyedele said part of the savings was used to address the government’s Ways and Means obligations and finance spending that had previously been supported through monetary financing.

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He explained that before the reforms, the government relied partly on money creation to fund expenditure, but ending the practice meant that the government had to secure alternative financing to meet existing obligations.

According to him, the reforms contributed to higher inflation and interest rates, increasing the cost of government borrowing and debt servicing.

He said borrowing costs that were previously around eight per cent had risen to as much as 24 per cent, placing additional pressure on public finances.

“When you need to service debts, you do not debate whether you need to pay. You pay, and you pay on time,” Oyedele said.

The minister also said the increase in the national minimum wage from ₦30,000 to ₦70,000 had significantly raised the Federal Government’s wage bill.

He explained that the higher wage structure had nearly doubled the government’s personnel costs, making it one of the major areas where public spending had increased following the reforms.

Oyedele added that the government had expanded funding for the Nigerian Education Loan Fund (NELFUND), which provides tuition support and monthly upkeep allowances to eligible students.

According to him, the student loan programme has grown to cover more than 1.5 million students, increasing government expenditure on education and youth support.

He stressed that the primary objective of removing fuel and foreign exchange subsidies was not only to generate savings but also to eliminate economic distortions, reduce inefficiencies and address opportunities for abuse within the previous systems.

The Federal Government has maintained that the reforms were necessary to improve fiscal sustainability, reduce pressure on public finances and create a more transparent economic framework.

However, the reforms have also contributed to higher fuel, transportation and living costs, with many households and businesses continuing to experience pressure from inflation and reduced purchasing power.

The government’s planned publication of a detailed account is expected to provide greater clarity on the amount generated from the reforms, how the funds were allocated and the extent to which the resources were used for debt payments, wages, education and other public obligations.

The disclosure is also expected to address public concerns over whether the fiscal gains from the removal of the fuel subsidy have translated into improved public services, infrastructure, social protection and better living conditions.

An earlier assessment by the International Monetary Fund (IMF) noted that Nigeria’s economic reforms had helped improve macroeconomic stability, strengthen investor confidence and reduce some fiscal and monetary pressures. The IMF, however, also said poverty and food insecurity remained significant concerns, highlighting the need for stronger social protection and inclusive economic growth. (IMF)

Oyedele said the government would not measure the success of its economic reforms solely through headline GDP growth.

Instead, he said the government would focus on reducing multidimensional poverty, increasing real income per capita and narrowing income inequality.

He maintained that the long-term goal of the reforms was to build a more stable and sustainable economy while ensuring that economic growth leads to improved living standards for a broader section of the population.

The minister assured Nigerians that the detailed report on the use of the subsidy savings would be released in the coming days as part of the government’s commitment to transparency and public accountability. (reuters.com)

Where did Nigeria’s fuel subsidy savings go? FG reveals how funds were spent