Nigeria: Finding Social Purpose with Its New Fiscal Space
John Onyeukwu
Nigeria: Finding Social Purpose with Its New Fiscal Space
Fuel subsidy removal and tax reform have expanded Nigeria’s revenue room, but without disciplined social investment, the reform moment risks losing legitimacy.
By John Onyeukwu | Policy & Reform Column | Business a.m.| Published January 26, 2026 | Pull out attached.
Nigeria’s removal of fuel subsidies and its renewed push on tax reform are often described as painful but necessary steps. That is true, but it is only half the story.
The deeper question is not whether fiscal space has expanded, but who it will ultimately serve. Fiscal reform is not an accounting exercise; it is a moral and political act. It reveals, more clearly than campaign speeches ever can, the real priorities of the state.
History warns us that revenue gains do not automatically translate into social progress. Nigeria has earned more before, borrowed more before, and still underinvested in the fundamentals that make societies stable: health, education, social protection, and productive livelihoods. The presence of money is not the same as the presence of purpose.
Fiscal space is not money in abstract terms. It is room, legal room, political room, and ethical room, to decide whether the state exists primarily to service itself or to invest in its people. As Amartya Sen famously observed, “Development consists of the removal of various types of unfreedoms that leave people with little choice and little opportunity of exercising their reasoned agency” (Development as Freedom).
For over a decade, Nigeria’s fuel subsidy regime functioned as a massive fiscal leak. In 2022 alone, petrol subsidies cost over ₦4.4 trillion, exceeding the federal government’s combined capital spending on education, health, works, and housing. By mid-2023, annualized subsidy costs were projected to exceed ₦6 trillion, driven by exchange rate pressures and rising consumption.
Subsidy removal therefore unlocked significant fiscal headroom, not because Nigeria suddenly became richer, but because it stopped spending scarce public resources on a system that was deeply regressive, persistently opaque, and economically distortionary. Multiple studies showed that the richest income quintiles captured a disproportionate share of subsidy benefits, while poorer households bore the inflationary consequences without commensurate gains.
Parallel to subsidy reform, tax reform has emerged as a second pillar of fiscal adjustment. Nigeria’s tax-to-GDP ratio, estimated at between 10 and 11 percent, remains among the lowest in sub-Saharan Africa, compared with Kenya at roughly 16 percent, South Africa above 25 percent, and OECD economies averaging over 30 percent. The policy logic is clear: broaden the base, reduce informality, strengthen administration, and rely less on volatile oil revenues.
Taken together, subsidy savings and improved tax performance could conservatively create ₦8 - 10 trillion in additional fiscal space annually over the medium term. By any reasonable standard, this is not marginal. Whether this newly created fiscal space reduces Nigeria’s dependence on high-cost domestic borrowing or is merely absorbed by rising interest obligations will determine whether reform strengthens the state’s balance sheet or simply postpones its vulnerabilities. Yet Nigeria’s own history urges caution. The country has accessed fiscal windfalls before, during oil booms, debt relief episodes, and borrowing cycles, without securing lasting social transformation.
From a legal perspective, Nigeria’s Constitution is explicit about the social purpose of public finance. Section 16 of the 1999 Constitution commits the state to promoting welfare, securing adequate livelihood, and ensuring equitable distribution of resources. Section 17 emphasizes social justice, equality of opportunity, and humane conditions of work.
The difficulty lies not in constitutional aspiration but in design. These socio-economic commitments remain largely non-justiciable under Chapter II, rendering them politically persuasive but legally weak. Fiscal policy therefore operates with wide discretion but limited obligation. Budgets may satisfy procedural legality while undermining substantive constitutional values.
Subsidy removal and tax reform expose this structural gap. There is no binding legal requirement that fiscal gains be translated into social investment. Without statutory ring-fencing, minimum spending thresholds, or outcome-linked appropriations, new revenues are easily absorbed by recurrent expenditure growth, escalating debt servicing, which already consumes over 60 percent of federal revenues, or discretionary reallocations that escape meaningful scrutiny. Law, in this sense, does not merely authorize reform; it must discipline it.
Nigeria’s core challenge is not revenue scarcity alone but conversion failure, the persistent inability to translate spending into outcomes. Despite rising nominal budgets, social indicators remain deeply troubling. Maternal mortality exceeds 500 deaths per 100,000 live births. More than 10 million Nigerian children remain out of school, the highest number globally. Public health spending continues to fall well below the 15 percent Abuja Declaration target, averaging closer to 5 or 6 percent of total expenditure.
These outcomes are not the result of policy ignorance. They reflect governance systems that reward compliance with budgetary inputs rather than delivery of social results. Funds are released, projects are recorded, but outcomes remain weak. Subsidy removal intensifies this risk. Without governance reform, new fiscal space will be managed by the same institutions, incentives, and political logics that failed previously. Money will move, but lives may not. Where citizens experience the costs of reform without seeing tangible social dividends, the risk is not just public discontent but reform reversal, a pattern Nigeria has repeated whenever adjustment outpaces trust.
Policy coherence remains Nigeria’s missing bridge. Subsidy removal is a fiscal adjustment tool, not a development strategy. Tax reform improves revenue mobilization, not human capital by default. For fiscal space to become socially meaningful, policy must deliberately reframe reform objectives from macroeconomic stabilization to social investment transformation.
Countries that escaped poverty did not do so by cutting subsidies alone. They invested deliberately in human capital. Vietnam redirected fiscal savings from energy reforms into universal primary education and basic healthcare, contributing to sharp poverty reduction and improved productivity. Indonesia paired fuel subsidy removal with expanded cash transfers, school assistance, and healthcare subsidies, cushioning social shocks while strengthening long-term outcomes.
Nigeria’s own social protection architecture remains fragmented and under-scaled. Conditional cash transfers, health insurance expansion, nutrition programs, and basic education financing must move from episodic interventions to institutionalized commitments, backed by data integrity and delivery discipline. Equally important is capital spending that incorporates maintenance and lifecycle costing, rather than politically attractive projects that decay within electoral cycles.
Any serious conversation about fiscal space in Nigeria that remains confined to the federal government is incomplete. States and local governments are the decisive arena for social impact, where clinics are staffed or abandoned, schools function or fail, and basic infrastructure either reaches citizens or stops at budget lines. This challenge is most acute at the local government level, where constitutional responsibilities for primary education and basic healthcare are often undermined by weak fiscal autonomy, limited administrative capacity, and state-level control over allocations. Nigeria’s federal structure grants sub-nationals substantial responsibility over health, education, agriculture, and social services, yet fiscal behavior at these levels often mirrors the worst habits of the Centre: bloated recurrent spending, weak capital discipline, and limited transparency.
Subsidy removal and tax reform place a new burden on governors and state assemblies. Federal transfers are adjusting, and fiscal autonomy is unavoidable. Sub-nationals can no longer rely on Abuja to absorb political costs while they enjoy discretion without accountability. Fiscal space at the Centre will only translate into social outcomes if states align budgets with service delivery, strengthen monitoring, and treat social spending as investment rather than patronage.
Brazil offers a relevant lesson. Following fiscal consolidation and decentralization reforms in the mid-1990s, Brazilian states and municipalities were constitutionally and statutorily obliged to allocate fixed shares of revenues to health and education. Citizens could track and litigate non-compliance, resulting in measurable improvements in school enrollment, healthcare access, and social equity. Nigeria’s sub-nationals have the potential to replicate this model, provided legal enforcement and civic monitoring are taken seriously.
Civil society also has a decisive role. Budget analysis, public expenditure tracking, community scorecards, and strategic litigation are not oppositional acts; they are democratic functions. Vigilant civic engagement ensures that reform translates into tangible social dividends rather than elite capture. Citizens, too, must demand reciprocity. Fiscal reform implicitly asks more of them; higher prices, broader tax compliance, and reduced tolerance for informal exemptions. Visible and verifiable social returns build tax morale and reinforce legitimacy. Passive resignation, by contrast, allows reform gains to be quietly appropriated.
In this sense, fiscal space is not only a test of government capacity but of civic maturity. States must govern better, civil society must watch more closely, and citizens must demand more intelligently. Without this triangulation, fiscal reform will remain centralized in rhetoric and hollow in lived experience.
A PPE lens sharpens what technocratic analysis often obscures. Philosophically, fiscal reform tests the ethical character of the state. A just society does not merely remove inefficient subsidies; it ensures that the burden of adjustment is matched by credible social returns. Revenue extraction without social reciprocity erodes moral legitimacy.
Politically, fiscal space is contested terrain. Reform dividends are often captured by elites, while citizens bear the costs. Without visible social dividends, legitimacy collapses into cynicism and resistance, threatening stability. Economically, underinvestment in human capital is self-defeating. Social spending is not charity; it is productivity strategy. As Joseph Stiglitz argues, inequality and weak social investment ultimately undermine growth itself (The Price of Inequality).
Oil-producing countries that navigated subsidy reform successfully shared a common approach: they made the social dividend visible. Indonesia’s cash transfers and education grants, Iran’s early direct household payments, and Ghana’s targeted mitigation measures all linked sacrifice to benefit in ways citizens could understand and verify.
Nigeria now stands at a similar crossroads. If subsidy savings and tax revenues dissolve into recurrent spending, debt servicing without restructuring, or opaque interventions without metrics, this reform moment will collapse under public disillusionment. That outcome would be worse than policy failure; it would be a breach of trust.
Nigeria has found fiscal space. The remaining question is whether it will find social purpose. Fiscal reform without social impact is not reform, it is postponement. And in a country as young and unequal as Nigeria, postponement carries costs the state can no longer afford.
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