Fuel Subsidy Debate: Nigeria’s GDP To Lose N20M Annually to Restoration of Fuel Subsidy Regime, CPPE Warns
Taiwo Ademola Hassan
In the wake of ongoing debate about restoring back fuel subsidy regime amid the Presidential Candidate of African Democratic Congress (ADC), Alhaji Atiku
Abubakar’s comment recently, the Centre for the Promotion of Private Enterprise (CPPE), has warned that it could cost the country’s Gross Domestic Product (GDP) about N20 trillion annually in spending alone on Premium Motor Spirit (PMS), otherwise known as petrol without factoring infrastructure, education, healthcare, security, agriculture and social protection expenditure expenses.
In fact, the CPPE maintained that the current petrol-price escalation presents a serious cost-of-living, inflation and competitiveness challenge requiring urgent intervention.
It however added that restoring the pre-reform universal subsidy regime is neither fiscally sustainable nor economically prudent.
The Founder and Chief Executive Officer (CEO), CPPE, Dr. Muda Yusuf stated this in a press release titled: “Policy Brief on Fuel Subsidy. Petrol Subsidy: Preserving Reform Gains While Protecting Citizens,” in Lagos yesterday.
According to him, the subsidy debate should not be viewed solely through the lens of pump prices, saying that it has wider implications for fiscal sustainability, foreign-exchange stability, investment, domestic refining, industrialisation, employment and energy security.
In his graphically illustration, Dr. Yusuf said:
“Using an estimated PMS consumption benchmark of 50 million litres per day and an indicative subsidy requirement of ₦1,050 per litre, the potential fiscal exposure would be approximately:
₦52.5 billion daily
₦1.575 trillion monthly
₦19.16 trillion annually — approximately ₦20 trillion
“Although actual costs would vary with consumption, crude-oil prices, exchange rates, refinery or landing costs and the regulated pump price. Consumption could also increase under a subsidy regime as price differentials recreate incentives for cross-border diversion.
“An annual subsidy bill approaching ₦20 trillion would impose an enormous opportunity cost. It would compete with spending on infrastructure, education, healthcare, security, agriculture and social protection, while potentially widening the fiscal deficit and increasing borrowing and debt-service pressures.
“Higher government borrowing could also crowd out private-sector credit, sustain high interest rates and weaken investment, productivity, job creation and economic growth.
“Nigeria would therefore risk replacing an energy-price problem with a much larger fiscal, debt, foreign-exchange and investment problem.”
He stated that CPPE acknowledges the severe pressures arising from the current escalation in petrol prices. Higher fuel costs have increased transportation, logistics and production costs, weakened purchasing power and aggravated the competitiveness challenges facing businesses, especially MSMEs. These pressures require urgent policy intervention. However, the subsidy debate should not be viewed solely through the lens of pump prices. It has wider implications for fiscal sustainability, foreign-exchange stability, investment, domestic refining, industrialisation, employment and energy security.”
Dr. Yusuf added, “The central policy question is therefore not whether Nigeria should return to the old subsidy regime, but how to preserve the gains of the reform while reducing its social costs and translating the resulting fiscal space into tangible improvements in citizens’ welfare.”
Speaking further, the renowned economist explained that the appropriate policy direction is to preserve the downstream petroleum reforms while aggressively mitigating their social and economic costs.
He noted that”Government should prioritise affordable transportation, reliable electricity, food production, targeted social protection, healthcare, education and support for productive enterprises. “Equally important, the fiscal gains from subsidy removal must become more visible in infrastructure, public services and productive investment.
“There must also be greater transparency and accountability in the utilisation of the additional resources accruing to federal, state and local governments.
The subsidy debate should therefore move beyond the binary question of whether petrol subsidy should be restored. The more consequential issue is how Nigeria can convert the gains of the reform into lower structural costs, stronger domestic production, improved competitiveness, greater energy security and measurable improvements in citizens’ welfare.
“That is the pathway to making the reform economically sustainable and socially defensible.”
