Centre for the Promotion of Private Enterprise warns against return of fuel subsidy

By Dr Muda Yusuf 

 

The Centre for the Promotion of Private Enterprise [CPPE] says returning petrol subsidy will cost Nigeria approximately ₦20 trillion yearly.

It could also plunge the country into a deeper fiscal, debt and foreign exchange crisis, CPPE CEO Dr. Muda Yusuf, said in a policy position obtained on Sunday.

According to him,  using an estimated fuel 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.

The actual figures would fluctuate with crude oil prices, exchange rates, landing costs and consumption levels, he said.

He stated that 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.

He said: “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. 

He said increased government borrowing could also crowd out private-sector credit, sustain high interest rates and weaken investment, productivity, job creation and economic growth, adding that the country would  risk replacing an energy-price problem with a much larger fiscal, debt, foreign-exchange and investment problem.

He said that subsidy reinstatement would reverse the gains of deregulation and bring back market distortions.

“However, restoring a universal petrol subsidy would recreate many of the problems the reform sought to address, including fiscal leakage, foreign-exchange pressure, arbitrage, smuggling, pricing distortions and investment uncertainty,” Yusuf stated.

He emphasized that subsidy removal, though painful, was a structural reform needed to free up resources and attract investment into domestic refining.

He added: “Domestic refining also conserves foreign exchange through import substitution, creates export opportunities and retains refining, engineering, logistics and technical jobs within the Nigerian economy.

“Nigeria’s strategic objective should therefore be to transition from dependence on imported petroleum products to becoming a competitive regional refining and petrochemical hub.”

He stressed the need for targeted relief to reduce the cost of living without destabilizing public finances.

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