The Federal Government has clarified that the removal of petrol subsidy did not suddenly create a large pool of cash available for government spending, but instead reduced a major fiscal burden and the amount of additional borrowing Nigeria would otherwise have required.
The explanation was contained in a Federal Ministry of Finance publication titled, “Nigeria’s Economic Reforms — By the Numbers,” which outlined the government’s justification for some of its major economic policies, including the removal of petrol subsidy and the decision to allow the naira to trade more freely.
According to the government, subsidy removal should primarily be understood as a measure that reduced pressure on public finances rather than as a direct cash windfall to the Federal Government.
It said the benefits also extended beyond the Federal Government, with states and local governments receiving substantially higher allocations from the Federation Account following the reforms.
The ministry said the additional allocations were being used by subnational governments for salaries, pensions, infrastructure and other public services, adding that states effectively received the largest share of the increased distributable revenue.
The government also addressed questions surrounding the ₦7.13 trillion energy-security expenditure recorded by the Nigerian National Petroleum Company Limited in its 2024 audited financial statements released in November 2025.
NNPCL did not specify the exact purpose of the expenditure, although some experts have linked it to subsidy-related obligations or the protection of gas pipelines and other energy infrastructure.
The Federal Government said that notwithstanding increased revenues arising from its reforms, borrowing had continued because the country’s additional spending requirements remained higher than the new resources available.
“Subsidy removal, therefore, cut the borrowing that would otherwise have been needed. All borrowing remains subject to National Assembly approval,” the government stated.
It disclosed that about ₦6.47 trillion in additional expenditure had been directed towards major infrastructure projects, including the Lagos-Calabar Coastal Highway, Sokoto-Badagry Superhighway and Trans-Sahara Superhighway.
According to the government, the projects are intended to address critical infrastructure bottlenecks, improve connectivity and create conditions capable of supporting investment and economic growth.
The publication said Nigeria’s fiscal position had become increasingly difficult by early 2023.
A full year of petrol subsidy was projected to cost about ₦6.7 trillion, an amount the government said was equivalent to roughly 70 per cent of federal revenue.
It noted that the 2023 budget provided funding for petrol subsidy for only the first six months of the year, which, according to the government, indicated that subsidy removal had already been contemplated before the present administration formally announced the policy.
The Federal Government also argued that the subsidy regime disproportionately benefited wealthier Nigerians and cross-border smugglers rather than poorer households.
While acknowledging that a phased removal would ordinarily have been preferable, the government said Nigeria no longer had sufficient fiscal space to sustain a gradual approach.
It said a number of measures were subsequently introduced to cushion the economic impact of the policy, including temporary wage awards, palliatives to states, cash-transfer programmes, loans through the Nigerian Education Loan Fund and the Compressed Natural Gas transportation initiative.
According to the government, savings arising from the subsidy reform now flow through the Federation Account, thereby increasing resources available for distribution among the Federal Government, states and local governments.
The publication also explained the rationale for the decision to float the naira, saying the previous multiple-exchange-rate system had become vulnerable to arbitrage and patronage.
The government said maintaining different official and market exchange rates created opportunities for individuals and businesses with privileged access to foreign exchange to profit from the gap between the rates.
It further stated that Nigeria’s net foreign reserves had fallen to critically low levels while unmet foreign exchange obligations exceeded $7 billion.
According to the ministry, those conditions made continued defence of the former official exchange rate increasingly unsustainable, prompting the government to move towards a more market-determined foreign exchange system.
The Federal Government maintained that both subsidy removal and the exchange-rate reforms were undertaken to address longstanding fiscal and structural weaknesses, rather than to generate an immediate financial windfall.
It argued that subsidy removal reduced the scale of borrowing that would otherwise have been required, while the foreign exchange reforms were intended to eliminate distortions associated with multiple exchange rates and restore greater transparency to the currency market.
