Omanghana
An economics scholar at Obafemi Awolowo University, Ile-Ife, has warned that restoring Nigeria’s discontinued petrol subsidy could trigger a severe financial crisis for at least 15 northern states.
The warning comes amid growing public pressure and political demands for the Federal Government to subsidize Premium Motor Spirit again as Nigerians struggle with persistent inflation, rising transportation costs and a worsening cost-of-living crisis.
According to the economist, financing a renewed subsidy program would require the Federal Government to deduct substantial amounts from national oil revenue before the remaining funds are distributed through the Federation Account Allocation Committee.
Such deductions would significantly reduce the monthly allocations received by state and local governments.
The scholar explained that most northern states remain heavily dependent on FAAC disbursements to pay public-sector salaries and pensions, service debts and finance routine administrative expenses.
Unlike states such as Lagos, Ogun and Rivers, which generate relatively strong internally generated revenue, many northern states have limited tax bases and weak formal private sectors.
A sharp reduction in federal allocations could therefore leave up to 15 state governments unable to meet their basic financial obligations. The situation could result in prolonged salary arrears, delayed pension payments and the suspension of infrastructure and other capital projects.
Although restoring subsidies could offer immediate relief at filling stations, the economist argued that the policy would create more damaging economic consequences over time.
Fuel subsidies, the scholar noted, tend to benefit wealthier urban residents and private vehicle owners more than poorer households. The policy could simultaneously deprive rural and low-income communities of funding required for healthcare, education, agriculture, roads and other essential services.
Transferring the subsidy burden to the Nigerian National Petroleum Company Limited or the Federal Government’s budget could also increase deficit financing, worsen foreign exchange shortages and intensify inflation in the medium to long term.
The economist said revenue saved following the removal of the subsidy should instead be directed towards development priorities in northern Nigeria, including agricultural mechanization, solar-powered irrigation systems, rural roads and security logistics.
Rather than returning to broad fuel subsidies, the scholar recommended expanding affordable mass transportation and accelerating the conversion of commercial vehicles to compressed natural gas.
A wider deployment of CNG-powered buses and trucks, the economist argued, could provide a more sustainable reduction in passenger fares and the cost of transporting goods.
State governments were also encouraged to invest additional FAAC revenue in targeted agricultural support, including subsidized fertilizers, improved seeds and other production inputs. Increasing food production across northern supply corridors could help moderate food inflation nationwide.
The scholar further urged state administrations to reduce their dependence on oil revenue by digitizing tax collection, expanding formal land registration and developing local agricultural and solid-mineral value chains.
According to the economist, these reforms would provide more durable economic relief than reinstating a costly subsidy system that could weaken federal revenue and threaten the financial survival of vulnerable states.
Source: Omanghana
