Nigeria’s petrol subsidy could have cost the Federal Government as much as N53 trillion under current market conditions and driven the naira to about N3,500 per dollar, Chairman of the Nigeria Revenue Service (NRS), Zacch Adedeji, has said.
Adedeji made the projection during an interview with Channels Television, arguing that retaining the subsidy would have placed severe pressure on the country’s finances and foreign exchange market.
According to him, the estimated N53 trillion represents what the government could have spent on subsidising petrol if President Bola Tinubu had not removed the subsidy in May 2023, particularly amid recent developments in the global economy.
“The subsidy today would have been N53 trillion if Mr President had not removed it, given what is happening in Iran, given what is happening globally,” Adedeji said.
He further warned that maintaining the subsidy regime could have intensified pressure on the foreign exchange market, potentially pushing the naira to as low as N3,500 against the dollar.
The NRS chairman said such an expenditure would have placed an unsustainable burden on government finances, describing the potential subsidy bill as a major fiscal obligation.
President Tinubu announced the removal of the petrol subsidy shortly after assuming office in May 2023, ending a system in which the government absorbed the difference between the market-related cost of petrol and the regulated pump price paid by consumers.
The policy triggered a significant increase in petrol prices, shifting a larger share of fuel costs from government finances to consumers.
Responding to arguments that the government should have built a fiscal buffer before removing the subsidy, Adedeji maintained that the subsidy itself was effectively being funded through borrowed money.
“Subsidy is not an income. It is like you are borrowing money to buy a product and that product is N10, and you are selling it at N3,” he said.
He argued that maintaining the policy would have continued to weaken government finances while increasing demand for foreign exchange required to finance petroleum imports.
The NRS chairman also linked the subsidy reform to the government’s foreign exchange reforms, arguing that the previous exchange-rate regime did not adequately reflect the naira’s market value and had discouraged investment.
He said the reforms had contributed to improved foreign exchange conditions and helped create stronger incentives for investment in domestic refining capacity.
The comments come as Nigeria continues to adjust to the economic consequences of the subsidy removal, including higher petrol prices, exchange-rate reforms and efforts to expand domestic refining.
However, the N53 trillion subsidy estimate and N3,500-to-the-dollar projection represent hypothetical estimates of what could have occurred under a different policy scenario rather than actual costs incurred by the government.
Adedeji did not provide details of the assumptions or methodology used to calculate the N53 trillion estimate or establish the projected exchange rate.
The potential cost of maintaining the subsidy would depend on several factors, including international crude oil prices, domestic petrol consumption, exchange-rate movements, domestic refining output and the size of the subsidy per litre.
The projections nonetheless underscore the fiscal and foreign exchange implications that policymakers associated with retaining the petrol subsidy regime, as the government continues to defend the reforms as necessary for long-term fiscal sustainability.