Fuel Subsidy Could Have Cost Nigeria N53trn, Weakened Naira — NRS Chair

Nigeria could have faced a petrol subsidy bill of about N53 trillion under current market conditions if the policy had remained in place, the Chairman of the Nigeria Revenue Service (NRS), Zacch Adedeji, has said.

Adedeji made the disclosure during an interview with Channels Television, while explaining the possible fiscal and foreign exchange consequences of retaining the subsidy regime.

According to him, changes in global economic conditions, including developments in the international oil market, could have pushed the cost of subsidising petrol to levels that would have placed enormous pressure on government finances.

He also projected that continued payment of the subsidy could have pushed the naira to around N3,500 per dollar due to increased pressure on the foreign exchange market.

The NRS chairman said the N53 trillion figure represented a hypothetical estimate of what the government might have spent if President Bola Tinubu had not removed the petrol subsidy in May 2023.

Tinubu announced the end of the subsidy shortly after taking office, bringing an end to a system in which the government paid part of the cost of petrol to keep pump prices below market-related levels.

The removal led to a sharp increase in petrol prices as consumers began bearing a larger share of the cost, while the government sought to reduce its financial obligations.

Adedeji argued that maintaining the subsidy would have continued to create pressure on government finances because the government would have needed to fund the difference between the actual cost of petrol and the price paid by consumers.

He rejected the argument that the government should have first built up sufficient financial reserves before ending the subsidy, saying the subsidy itself had become an obligation that could be funded through borrowing.

He further linked the subsidy policy to pressure on the foreign exchange market, noting that petroleum imports require foreign currency. According to him, continuing to subsidise imported petrol would have increased demand for foreign exchange and placed additional pressure on the naira.

Adedeji also defended the government’s broader economic reforms, including changes to the foreign exchange system. He said the previous exchange-rate arrangement did not properly reflect market conditions and had discouraged investment.

According to him, the reforms have helped create conditions that could encourage greater investment in local refining, reducing the country’s dependence on imported petroleum products.

However, the N53 trillion figure and the projected N3,500-to-dollar exchange rate are estimates of what could have happened if the subsidy had remained in place. They are not actual amounts spent on the subsidy or an exchange rate that was recorded under the policy.

Adedeji did not disclose the specific assumptions or calculations used to arrive at the N53 trillion estimate or the projected exchange rate.

The potential cost of maintaining the subsidy would depend on factors such as international crude oil prices, domestic petrol consumption, exchange-rate movements, local refining capacity and the amount of subsidy paid on each litre of petrol.

The comments come as the Federal Government continues to defend the removal of the petrol subsidy and other economic reforms as necessary measures to reduce fiscal pressure and improve the country’s financial position.