Petrol subsidy could have cost Nigeria N53tn, pushed Naira to N3,500/$ — NRS Chairman

Nigeria’s petrol subsidy could have cost the Federal Government as much as N53 trillion under current market conditions and pushed the naira to about N3,500 per dollar, the 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 government finances and the foreign exchange market.

According to him, the projected N53 trillion subsidy bill reflects what Nigeria could have faced if President Bola Tinubu had not removed the petrol subsidy in May 2023, particularly amid changes in global economic conditions.

“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 also projected that continued payment of the subsidy could have driven the exchange rate to as high as N3,500/$, owing to increased demand for foreign exchange to finance petroleum imports.

‘Subsidy Was Being Financed Through Borrowing’

The NRS chairman argued that maintaining the subsidy would have created an unsustainable burden on government finances.

He rejected arguments that the government should have first built a fiscal buffer before removing the subsidy, saying the subsidy itself was effectively being financed through borrowed funds.

“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.

Adedeji said the subsidy regime had also contributed to pressure on the foreign exchange market because of the need to finance petroleum imports.

He linked the removal of the subsidy to the government’s broader foreign exchange reforms, arguing that the previous exchange-rate system did not adequately reflect the market value of the naira and had discouraged investment.

According to him, the reforms have helped improve foreign exchange conditions and created stronger incentives for investment in domestic refining.

Subsidy Removal Continues to Impact Nigerians

President Tinubu announced the removal of the petrol subsidy shortly after assuming office in May 2023.

The decision resulted in a sharp increase in petrol prices and shifted a larger portion of fuel costs from government finances to consumers.

Nigeria has since continued to grapple with the economic consequences of the policy, alongside exchange-rate reforms and efforts to increase domestic refining capacity.

However, the N53 trillion figure and the projected N3,500/$ exchange rate are hypothetical estimates of what could have happened if the subsidy had remained in place. They are not actual subsidy costs or exchange rates recorded under the current administration.

Adedeji did not provide details of the assumptions or methodology used to arrive at the N53 trillion estimate or the projected exchange rate.

The potential cost of maintaining the subsidy would depend on factors including global crude oil prices, domestic petrol consumption, exchange-rate movements, domestic refining output and the subsidy amount per litre.

Nevertheless, the projections highlight the fiscal and foreign exchange pressures that government officials associate with retaining the petrol subsidy regime..

Follow Very Nigerian WhatsApp Channel
For Verified Breaking News, Exclusive Reports, Trending Stories, And Real-time Updates.
CLICk HERE TO JOIN!