ANALYZING THE IMPACT OF FUEL SUBSIDY ON PUBLIC FINANCIAL GOVERNANCE IN NIGERIA

Abstract

This study examined the effect of fuel subsidy on public sector finance management in Nigeria. The objective was to study the effect of fuel subsidy on public sector finance indicators. Time series data was sourced from Central Bank of Nigeria Statistical Bulletin from 2000-2022. Government revenue, infrastructural finance, exchange rate variation, fiscal deficit and public debt were modeled as the function of amount paid for fuel subsidy and average price of fuel. Ordinary Least Square (OLS), R-square, adjusted R-square, regression coefficient, Durbin Watson, F-statistic and f-probability were used to analyse the effect of fuel subsidy on public sector finance management. The study conclude that fuel subsidy payment have negative but no significant effect on government revenue while average price of fuel have positive but no significant effect on government revenue, that fuel subsidy payment have positive but no significant effect on infrastructural financing while average price of fuel have negative but no significant effect on infrastructural financing, that fuel subsidy payment have positive but no significant effect on naira exchange rate variation while average price of fuel have positive but no significant effect on naira exchange rate variation, that fuel subsidy payment have negative and significant effect on Nigeria fiscal deficit while average price of fuel have positive and significant effect on Nigeria fiscal deficit, that fuel subsidy payment have positive and significant effect on Nigeria public debt while average price of fuel have positive and significant effect on Nigeria public debt over the periods covered in this study. the study recommend that Nigerian government should build more refineries through PPP while effort should also be made to ensure proper maintenance, the strengthening of the fight against corruption and the establishment of a regulatory framework to protect citizens as necessary measures to increased capacity utilization on the existing refineries to stem the tide of petroleum products importation to improve the poor state of Nigeria’s economy and society. This will increase revenue through tax and other sources of revenues. Government should create an enabling environment to engender private investor’s for the purpose of improving the local refining capacity to meet the ever increasing local demand of petroleum products and indeed for exportation purpose. There is need to use the oil windfall proceeds and the savings realized by the federal government and from the withdrawal of subsidy to be channeled towards fixing the refineries, building new ones or upgrading and developing of infrastructure within the polity in areas such as water ways, rail and mass transit system, thus providing cheaper alternative transportation methods.