Finance Minister Taiwo Oyedele says reviving subsidy could trigger capital flight, deplete foreign reserves and reverse recent gains in inflation control, while government explores alternative relief measures…..
The Federal Government has warned that a return to petrol subsidy could drive the pump price of petrol to at least N2,000 per litre and push the naira towards N3,000 to the dollar within months.
The Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, gave the warning on Thursday during a press briefing in Abuja, where he outlined the potential economic consequences of restoring the subsidy regime removed in 2023.
According to the minister, reintroducing the policy could place additional pressure on government revenue, undermine investor confidence and increase the cost of borrowing, with further consequences for the country’s foreign exchange market.
He said the resulting uncertainty could trigger capital flight, reduce foreign exchange reserves and weaken the naira, threatening the progress made in bringing inflation down and creating room for lower 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,” Oyedele said.
“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’s warning comes amid renewed calls for the Federal Government to reconsider the removal of petrol subsidy, as higher fuel prices continue to raise transportation costs and put pressure on household budgets.
Oyedele argued that subsidising petrol does not reduce the underlying cost of the product but transfers part of the burden to government finances.
He said the policy could offer consumers temporary relief at filling stations while creating wider economic problems if the government struggled to sustain the expenditure.
“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.
The minister also warned that funding a renewed subsidy could force the government to make difficult choices over public spending, revenue generation and other financing options.
He said the consequences could include delayed payment of salaries and pensions, higher taxes or increased money creation, depending on how the government chose to finance the programme.
“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,” Oyedele said.
He maintained that restoring the policy could create an imbalance between immediate consumer relief and the government’s ability to maintain economic stability over the longer term.
“Short-term relief, but with long-term fragility, is the most expensive money a government can spend,” he added.
Government Open To Alternative Proposals
Despite its opposition to a return to subsidy, Oyedele said the government remained willing to consider alternative proposals for reducing petrol prices, provided their financial implications and funding arrangements were clearly established.
He challenged proponents of subsidy to demonstrate how much the policy would cost, identify a sustainable source of funding and explain the pump price Nigerians could expect to pay under the arrangement.
“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.
The minister’s position comes as the administration faces mounting pressure to ease the cost-of-living burden following the removal of petrol subsidy by President Bola Tinubu in May 2023.
Since the policy change, petrol prices have become more exposed to movements in international crude oil prices, exchange rates, refining costs and distribution expenses.
While the government has maintained that subsidy removal was necessary to reduce fiscal pressure and improve public finances, the resulting increase in fuel costs has continued to affect transport fares, food prices and business operating expenses.
As part of efforts to ease the pressure on consumers, Oyedele said the government was pursuing several measures aimed at reducing the impact of rising petrol prices without reinstating the former subsidy system.
These include a 30-day petrol discount at Nigerian National Petroleum Company Limited retail outlets, with priority for public transport operators.
The government is also negotiating a proposed ceiling of N1,350 per litre on petrol’s ex-gantry or landing cost, while considering expanded cash transfers, subsidised credit and the accelerated deployment of compressed natural gas-powered vehicles.
Oyedele also identified a national strategic fuel reserve among the measures under consideration to strengthen the country’s ability to respond to disruptions in petroleum supply and global market volatility.
The proposed interventions are intended to provide relief to households and businesses while limiting the fiscal risks associated with direct government payments to reduce pump prices.
However, the minister’s projections underscore the government’s concern that a return to subsidy could expose the economy to renewed pressure on public finances, the exchange rate and inflation.
For the government, the challenge remains finding ways to ease the burden of high fuel prices without reversing the reforms it says are necessary to sustain economic stability.
