Nigeria’s petrol subsidy could have cost the Federal Government as much as N53 trillion under current market conditions and weakened the naira to about N3,500 per dollar, the Chairman of the Nigeria Revenue Service, Zacch Adedeji, has said.
Adedeji disclosed this during an interview with Channels Television, where he defended the removal of the petrol subsidy by President Bola Tinubu in May 2023.
According to him, retaining the subsidy would have placed enormous pressure on the government’s finances and the foreign exchange market, 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 government support for petrol prices could have pushed the exchange rate to about N3,500 per dollar.
Adedeji argued that the subsidy was financially unsustainable because the government was effectively borrowing to maintain a regulated petrol price below its market-related cost.
“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.
Tinubu announced the removal of the petrol subsidy shortly after assuming office in May 2023. The decision led to a significant increase in petrol prices and shifted a larger share of fuel costs from government finances to consumers.
The NRS chairman also linked the subsidy removal to the government’s broader foreign exchange reforms, arguing that the previous exchange-rate system failed to adequately reflect the naira’s market value and discouraged investment.
He said the reforms had contributed to improved conditions in the foreign exchange market and strengthened incentives for investment in domestic refining.
However, the N53 trillion figure and the projected N3,500 to the dollar exchange rate are hypothetical estimates of what could have happened if the subsidy had remained in place, rather than actual costs incurred by the government.
Adedeji did not disclose the assumptions or methodology used to arrive at the estimates.
The potential cost of maintaining the subsidy would depend on factors including global crude oil prices, petrol consumption, exchange rate movements, domestic refining capacity and the level of subsidy per litre.
The projections come amid continued debate over the economic impact of subsidy removal, with the government maintaining that the reform was necessary to improve fiscal sustainability and reduce pressure on public finances.
