The world spends almost 10% of global economic output on keeping fossil fuel costs artificially low for consumers, according to the International Monetary Fund. Economists have warned for decades that these energy subsidies do far more harm than good. Yet governments are reluctant to drop them – and it’s not hard to see why. Last year, 148 countries saw more than 12,500 street protests over rising costs of living.
That is why Nigeria’s latest budget, proposed this week, bears scrutiny by world leaders trying to solve the braided crises of debt, poverty, and climate change. The fiscal blueprint rests on a bold stroke earlier this year in a country where soaring inflation coincides with habitual corruption and chronically low citizen trust in public institutions. In his inaugural address in May, President Bola Tinubu announced an immediate end to all subsidies for fossil fuels.
Ordinary Nigerians felt the pinch overnight. Yet five months later Africa’s most populous nation remains calm. One reason may be in the trade-offs. For years, Nigeria spent more to keep pump prices among the lowest in the world than it did on social services. Now those funds – equal to nearly a third of the total budget – are earmarked for public goods such as education and health care.
But Nigeria’s restoration of public confidence may rest as well on a deeper impulse toward honesty. “To improve the effectiveness of our budget performance,” Mr. Tinubu told parliament on Wednesday, “government will focus on ensuring value for money, greater transparency, and accountability.”
Nigeria’s cold-turkey approach is more aggressive than most advocates recommend. While economists draw a causal link between fuel subsidies and an index of miseries – poverty, corruption, cross-border smuggling, and even violent extremism – they warn that lifting the subsidies too quickly may deepen instability.
But such reforms are gaining global currency. Indonesia, Jordan, and Morocco have managed to reduce subsidies gradually without sparking unrest. A World Bank study published Monday found that 80% of 37,000 people surveyed in 12 countries stretching from Bolivia to Kazakhstan supported trading fuel subsidies for better schools, health care, and infrastructure.
Ending such subsides is also key to mitigating climate change. In October, Uzbekistan became the first country to sign a credit deal with the World Bank specifically designed to boost climate policy reforms, including ending fossil fuel subsidies. The International Institute for Sustainable Development has estimated that just eliminating such subsidies would reduce global greenhouse emissions by up to 10% by 2030.
If “we could see emissions reductions at 2%, or 3%, that ... [would likely be] the starting point of an unstoppable trajectory, which would only go faster and faster,” Johan Rockstrom, director of the Potsdam Institute for Climate Impact Research, told Reuters.
A critical byproduct of that shift, he and others note, may be a renewal of public trust. “Nigeria’s experience suggests that scrapping subsidies while avoiding public outcry requires exposing their many flaws,” the International Food Policy Research Institute observed this week in a blog post. In “countries where trust in government remains low, direct experience of the subsidies’ negative effects could go a long way toward bringing citizens on board.”
By exposing its citizens to the true cost of the energy they consume, Nigeria has embarked something more than an economic transformation. It is democratizing solutions to larger problems like climate change through transparency.
Mark Sappenfield
