NRS Chairman: Fuel subsidy could have pushed naira to N3,500/$

The Chairman of the Nigeria Revenue Service (NRS), Zacch Adedeji, has said Nigeria’s fuel subsidy bill could have risen to about N53 trillion and the naira, potentially pushing the exchange rate N3,500 to the dollar, if President Bola Tinubu had not removed the subsidy in 2023.

He made the remarks during an interview on Channels Television on Sunday night, while defending the decision to remove the petrol subsidy and rejecting suggestions that the government should have created fiscal buffers before taking the decision.

Adedeji’s appearance on TV followed a trending video of the NRS Chairman assuring President Bola Tinubu that that economic has faired better, arguing that critics of the government could not have done any better.

What the NRS Chairman is saying

According to him, the subsidy was not a sustainable government expenditure but amounted to borrowing money to purchase petrol at a higher price and selling it to consumers at a lower price.

• “Subsidy is not an income. It is like you are using your borrowing money to buy a product and that product is 10 naira, and you are selling it at 3 naira,” Adedeji said.

He argued that creating a buffer before removing the subsidy would not have addressed the underlying fiscal problem because the government was already financing the subsidy through borrowed resources.

Adedeji said the scale of the potential subsidy burden would have become significantly larger amid developments in global oil markets and geopolitical tensions.

• “The subsidy today would have been N53 trillion if Mr President has not removed it, given what is happening in Iran, given what is happening globally,” he said.
• “With the ripple effects of that, the exchange rate today would have been around N3,500 if that had not been done,” he added.

The NRS chairman compared the potential subsidy cost with Nigeria’s current budget, noting that the figure would represent a substantial share of government spending.

He said retaining the subsidy would therefore have left the government with an unsustainable fiscal obligation and limited resources available for other areas of the economy.

Adedeji therefore described Tinubu’s decision to remove the subsidy as a necessary intervention rather than a policy error.

• “It is not a mistake. It is the best thing that has happened to the economy,” he said.

The NRS chairman also defended the timing of the subsidy removal, saying the President prioritised the long-term sustainability of the Nigerian economy over short term political considerations.

He said Tinubu should be commended for taking the decision despite its potential political consequences.

• “We should commend Mr President for not being a politician or being preoccupied and forgetting whether I want to have an election or not, but focusing on having a solid foundation for this economy,” Adedeji said.

Get up to speed

The fuel subsidy was removed by Tinubu on May 29, 2023, shortly after his inauguration, ending a system under which the government absorbed part of the cost of petrol to keep pump prices below market-related levels.

• The policy change triggered a sharp increase in petrol prices and contributed to a rise in transportation and living costs, while the government has maintained that subsidy removal was necessary to reduce fiscal pressures and redirect resources towards productive sectors of the economy.
• Adedeji’s comments adds to the several defensive statements of the Tinubu’s administration, justifying the removal of the subsidy.
• Earlier this year, President Bola Tinubu said the removal of fuel subsidy by his administration saved Nigeria from imminent bankruptcy and helped lay the foundation for the country’s economic recovery.

Before that, a lawmaker from the ruling party, Senator Solomon Adeola, had said Nigeria was saving over N10 trillion every year following the removal of fuel subsidy by President Bola Tinubu.

What you should know

Meanwhile, an advisory firm, CFG Advisory has warned that the fiscal gains from Nigeria’s fuel subsidy removal have been fully absorbed by debt servicing, leaving the Federal Government with little capacity to fund development projects or deliver meaningful social interventions.

The firm said this reality weakens the reform narrative around subsidy removal and raises concerns about the sustainability of the government’s current fiscal strategy.

According to the firm, the redirection of subsidy savings to debt servicing has effectively neutralised the intended fiscal relief.