The Federal Government has cautioned that reinstating petrol subsidy could trigger fresh economic pressures, pushing the naira to about N3,000 per dollar and petrol prices to at least N2,000 per litre within months.
Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, gave the warning on Thursday in Abuja during a press briefing on the debate over petrol prices and renewed demands for the return of subsidy.
Oyedele said bringing back the policy would significantly reduce government revenue and could expose Nigeria to a sovereign credit rating downgrade, higher borrowing costs, capital flight and declining foreign exchange reserves.
He explained that these developments could weaken the naira and jeopardise recent progress in reducing inflation, which has created room for the Central Bank of Nigeria to begin lowering interest rates.
“Borrowing becomes costlier, capital leaves, reserves fall, naira weakens. The progress on inflation, which has allowed the central bank to begin lowering interest rates, will be put at risk.
“Our estimate is that the exchange rate could approach ₦3,000 per dollar within months. And the so-called subsidised petrol will cost at least ₦2,000 per litre. This is well above what Nigerians pay today,” the minister said.
He maintained that petrol subsidy did not eliminate the underlying cost of fuel but merely shifted the burden to government finances, with the consequences eventually reflected in other areas of the economy.
According to him, Nigerians had previously borne the cost of subsidy through fuel scarcity, inflation and currency depreciation.
“A subsidy does not lower the cost of oil. It only changes how it is paid and when. Nigerians have paid that bill before in scarcity, in inflation, and in a collapsing currency,” he said.
Oyedele further warned that financing a new subsidy regime could force the government to make difficult fiscal choices, including delaying salary and pension payments, raising taxes or resorting to printing money.
He recalled that more than N30 trillion was printed before the current administration, arguing that the consequences of such monetary expansion were among the factors contributing to inflationary pressures.
“However, it is described, a subsidy must be financed through salaries and pensions not paid on time, through higher taxes, or through the printing of money, like we saw before this current administration. Over 30 trillion naira was printed. That's inflation we're dealing with. It wasn't even just about the reform. Each of these has done great harm before,” he said.
The minister acknowledged that restoring subsidy might offer immediate relief to consumers but argued that such benefits would come at the expense of long-term economic stability.
“Short-term relief, but with long-term fragility, is the most expensive money a government can spend,” he said.
The debate over petrol subsidy has intensified more than three years after President Bola Tinubu announced its removal in May 2023, with rising fuel prices and transportation costs continuing to put pressure on households and businesses.
Amid calls for the government to reconsider the policy, Oyedele said the administration was prepared to examine alternative proposals, provided their costs and funding arrangements were clearly established.
He said any proposal for managing petrol prices must demonstrate its financial implications, explain how the intervention would be sustainably funded and indicate the pump price it would deliver.
“We remain open to ideas, but any credible proposal should answer three questions. Number one, what will it cost? Number two, how will it be funded sustainably? Number three, what pump price will it deliver? We will engage in good faith with any proposer that shows its arithmetic,” he said.
Rather than reinstate the subsidy, the government is considering targeted measures to ease the impact of high fuel prices on consumers.
Oyedele disclosed that the Nigerian National Petroleum Company Limited was implementing a 30-day petrol discount initiative, with public transport operators given priority.
He also said the government was negotiating a ceiling of N1,350 per litre for petrol at the ex-gantry or landing-cost level.
Other proposed interventions include expanding cash transfers to vulnerable Nigerians, providing subsidised credit, accelerating the deployment of compressed natural gas-powered vehicles and establishing a national strategic fuel reserve.
The government believes these measures could provide relief to consumers while avoiding the fiscal and foreign exchange risks it associates with a return to a general petrol subsidy regime.
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