Where did Nigeria get the money to pay fuel subsidy?

By Abdullahi Abubakar

The Federal Ministry of Finance has estimated total subsidy savings at about N15.8 trillion, with approximately N5.43 trillion attributed to the Federal Government, N6.52 trillion to states and N3.88 trillion to local governments. These figures should not be interpreted as N15.8 trillion sitting untouched in a government bank account; they represent resources that would otherwise have been consumed by the subsidy burden.

One question Nigerians should understand clearly is this: before the removal of fuel subsidy, where did the money used to pay the subsidy come from, and now that subsidy has been removed, is the government simply keeping that money somewhere?

The answer is no. Nigeria did not have a special account containing a fixed amount of money called “subsidy money.”

Before subsidy removal, the government kept petrol prices artificially low by absorbing the difference between the actual cost of supplying the product and the regulated price paid by consumers. This burden was largely carried through the petroleum revenue system, particularly NNPC, and it reduced the amount of revenue available to the Federation Account.

For example, if the real cost of supplying a litre of petrol was N500 but Nigerians paid N200, somebody had to absorb the N300 difference. That difference was effectively the subsidy.

Therefore, when Nigeria earned oil revenue, part of the resources that could otherwise have gone to government or been shared among the Federal Government, states and local governments was used to absorb the subsidy burden.

And when available revenue was insufficient, the burden could result in accumulated arrears and additional financing pressures.

This is why it is misleading to say that Nigeria simply had trillions of naira sitting in an account every year and then “spent” that money on subsidy. The reality was that subsidy was consuming a significant portion of the country’s available resources. So what changed after subsidy removal?

The government did not suddenly receive a cheque for the amount previously spent on subsidy. Instead, the financial obligation itself was removed.

Consider a simple example: if government revenue was N1 trillion and subsidy consumed N400 billion, only N600 billion was effectively available for other purposes. After subsidy removal, that N400 billion is no longer required for subsidy. Government therefore has greater fiscal space and may have less need to borrow or accumulate subsidy-related obligations. That is what “subsidy savings” means.

The Federal Ministry of Finance has estimated total subsidy savings at about N15.8 trillion, with approximately N5.43 trillion attributed to the Federal Government, N6.52 trillion to states and N3.88 trillion to local governments. These figures should not be interpreted as N15.8 trillion sitting untouched in a government bank account; they represent resources that would otherwise have been consumed by the subsidy burden.

The distinction is important. Subsidy removal did not create money out of nowhere. It stopped a major drain on money Nigeria was already generating.

The real question for Nigerians, therefore, is no longer simply “Where is the subsidy money?” The more important question is: how is the fiscal space created by subsidy removal being used?

Is it reducing borrowing? Funding infrastructure? Supporting education and healthcare? Increasing allocations to states and local governments? Financing social interventions?

Those are legitimate questions that government must continue to answer.

But economically, the basic fact remains: before subsidy removal, Nigeria was using substantial public and oil-sector resources to keep petrol artificially cheap; after removal, those resources are no longer required to finance that recurring burden. That is the real meaning of subsidy savings.

Abdullahi Abubakar is a Public Affairs Analyst.