Nigeria's costly petrol subsidy: An unsustainable fiscal burden

Nigeria's petrol subsidy regime, a policy dating back to 1973, has been identified as a significant fiscal burden, with an estimated annual cost of ₦53 trillion before its recent removal. Zacch Adedeji, chairman of the National Revenue Service, highlighted this figure in a recent interview, stating that President Bola Tinubu's decision to remove the scheme averted this massive yearly expenditure.

The subsidy was initially introduced by the General Yakubu Gowon military regime to cushion the effects of rising inflation and equalize fuel prices nationwide. It was later institutionalized in 1977 by the General Olusegun Obasanjo military regime through the Petroleum Price Control Act, which unified retail prices for petroleum products and other essential commodities. The government absorbed the difference between local pump prices and production or import costs, a populist policy that, unlike its intended temporary nature, became permanent.

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We would have been spending about ₦53 trillion yearly on petrol subsidy if President Bola Tinubu had not removed the scheme.

Over the decades, Nigeria's development brought competing needs, making the subsidy increasingly unsustainable. Despite its economic strain, successive administrations found removing it politically challenging. Former President Muhammadu Buhari himself questioned the subsidy's authenticity, calling it a "scam" and a "heavy burden on the national treasury."

Concerns over the subsidy's fiscal impact have been voiced by various figures. Former finance minister and World Trade Organisation Director-General Ngozi Okonjo-Iweala has previously spoken about the unsustainability of funding consumption through borrowing. Similarly, the Emir of Kano, Sanusi Lamido Sanusi, stated in 2021 that the "country cannot continue to borrow to fund consumption," directly referencing the subsidy payments.

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the country cannot continue to borrow to fund consumption