Public Debt in Nigeria; Subsidy Withdrawal: Are Public Sector Enterprises Better Off?

This study investigates the relationship between public debt in Nigeria, the withdrawal of fuel subsidies, and the performance of public sector enterprise in Nigeria, focusing on the interplay between these fiscal dynamics and economic variables such as inflation and government expenditures. In 2023, the Nigerian government initiated the removal of fuel subsidies, prompting concerns about its impact on public sector enterprises (PSEs) and broader economic stability. This research examines whether this policy shift has led to improved operational efficiency, financial health, and profitability within PSEs. Employing a fixed-effects regression model, the analysis reveals that public debt has a significant positive influence on PSE performance, while inflation and external debt exhibit negative but statistically insignificant effects. Additionally, subsidy withdrawal was found to negatively impact PSEs due to its role in exacerbating inflationary pressures, although government expenditure demonstrated a positive relationship with enterprise performance. The findings underscore the importance of effective public debt utilization, inflation control, and strategic reinvestment of subsidy savings into critical sectors to mitigate adverse impacts and foster economic growth. Recommendations are proposed for policymakers to optimize fiscal strategies, efficient public debt utilization, emphasizing targeted social safety nets, enhanced fiscal transparency, and sustainable economic reforms to improve the performance and resilience of public sector enterprises in Nigeria.