Nigeria’s petrol subsidy could have cost the government as much as N53 trillion under current market conditions and pushed the naira to around N3,500 per dollar, Zacch Adedeji, chairman of the Nigeria Revenue Service (NRS), has said.
Adedeji said the projected cost reflects the fiscal and foreign exchange pressures Nigeria would have faced if the government had retained the subsidy and failed to reform the exchange-rate system.
‘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 during an interview on Channels Television.
‘And I tell you the ripple effect of that. The exchange rate today would have been at N3,500 if that had not been done,’ he added.
The NRS chairman said the potential subsidy bill would have represented a significant share of Nigeria’s budget, arguing that maintaining the policy would have left the government with an unsustainable fiscal obligation.
Adedeji’s comments come more than three years after President Bola Tinubu announced the removal of petrol subsidy in May 2023, a decision that immediately shifted a large part of the cost of petrol consumption from government finances to consumers.
Before its removal, the subsidy kept petrol prices below market-related levels by requiring the government to absorb the difference between the cost of the product and the price paid by consumers.
Adedeji rejected arguments that the government should have built a fiscal buffer before removing the subsidy, saying the subsidy itself was being financed through borrowed resources.
‘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 continuing the subsidy would have worsened pressure on government finances while also increasing demand for foreign exchange to fund petroleum imports.
The NRS chairman also linked the subsidy decision to the government’s foreign exchange reforms, saying the previous exchange-rate regime failed to reflect the naira’s market value and discouraged investment.
He said the reforms had helped attract investment and improve foreign exchange conditions, while also creating incentives for private investment in domestic refining.
However, the N53 trillion and N3,500 projections represent estimates of what could have happened under an alternative policy scenario rather than actual costs incurred by the government.
Adedeji did not, in the interview, provide details of the assumptions used to arrive at the N53 trillion estimate or explain the methodology linking continued fuel subsidy payments to an exchange rate of N3,500 per dollar.
The estimates would depend on several factors, including international crude oil prices, petrol consumption, exchange-rate movements, domestic refining output and the size of the subsidy per litre.
The claims therefore raise questions about how much Nigeria would actually have spent on subsidy under current market conditions and how the estimated fiscal burden would have translated into additional pressure on the naira.
Since the subsidy was removed, petrol prices have risen sharply, increasing transportation and other household costs, while the government has argued that the policy has reduced fiscal pressure and encouraged investment in the downstream oil sector.
Adedeji said the reforms were necessary despite the immediate pain they caused, arguing that the government had to first correct structural weaknesses in the economy before their benefits could fully reach households.
The NRS chairman described the removal of subsidy as ‘the best thing that has happened to this country’ and said critics of the reform should explain what alternative policy they would have pursued.
The debate now centres on whether the fiscal and foreign exchange gains from the reforms have been large enough to justify the short-term cost borne by households and whether the alternative scenario presented by the NRS chairman can be supported by available economic data.