This study examines the role of fuel subsidy removal in expanding fiscal space and promoting public infrastructure development in Nigeria. Fuel subsidies have long constituted a significant fiscal burden, diverting critical resources away from essential public investments. By analyzing government budget data, fiscal policy frameworks, and infrastructure spending trends, the research investigates whether reallocating funds previously spent on subsidies can enhance fiscal capacity and accelerate infrastructure projects. Employing an econometric approach, the study evaluates the relationship between subsidy removal, fiscal space expansion, and infrastructure growth over the past decade. Findings indicate that subsidy removal significantly improves government fiscal balance by reducing recurrent expenditure and freeing resources for capital investments. The reallocation of funds has been associated with increased budgetary allocations to infrastructure sectors such as transportation, power, and social amenities. This fiscal re-prioritization has the potential to stimulate economic growth by addressing critical infrastructure deficits that hinder productivity and private sector development. However, the study also highlights the necessity of complementary policy measures, including transparency in fund management, effective monitoring, and social protection programs to mitigate the short-term adverse effects of subsidy removal on vulnerable populations. The results underscore that fuel subsidy reforms, when properly managed, serve as a powerful fiscal policy tool that not only enhances government budget flexibility but also supports sustainable infrastructure development. Consequently, policymakers are encouraged to adopt a comprehensive framework that balances fiscal consolidation with inclusive growth objectives to maximize the socio-economic benefits of subsidy removal. This research contributes to the growing literature on fiscal policy reforms in resource-dependent economies and provides evidence-based recommendations for optimizing the use of savings from subsidy reforms in advancing national development goals.
Udo et al. (Fri,) studied this question.