Naira risks weakening to N4,000/$ if fuel subsidy returns — Oyedele

The Nigerian naira could weaken to N4,000 per dollar if the Federal Government considers restoring petrol subsidies, Taiwo Oyedele, minister of finance and coordinating minister of the economy, has warned.

Oyedele said the prospect of reversing the government’s economic reforms could undermine investor confidence, trigger capital flight and increase demand for foreign exchange, putting further pressure on the local currency.

Speaking at a press briefing following the International Monetary Fund and World Bank annual meetings in Bangkok, Thailand, on Monday, the minister said even an indication that the government was considering reinstating the subsidy could prompt an immediate reaction from financial markets.

“If, for any reason, the President were to say we are merely considering the return of fuel subsidy, capital would react immediately,” he said.

The naira could weaken towards N3,000, N3,500 or even N4,000 per dollar, he warned, adding that the depreciation could make petrol more expensive in naira terms, undermining the relief the subsidy is intended to provide.

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The warning comes amid continued pressure on households and businesses from elevated petrol and transportation costs following the removal of fuel subsidies in May 2023.

Oyedele said a return to the policy could prompt foreign investors to withdraw capital while encouraging domestic investors, business owners and high-net-worth individuals to move their savings into dollars to protect their wealth against currency depreciation.

Such a shift would increase demand for foreign exchange and potentially intensify pressure on the naira, while higher import costs could feed into domestic prices and worsen the cost-of-living crisis.

The minister also rejected suggestions that temporary petrol price discounts offered by the Nigerian National Petroleum Company Limited amounted to a return to subsidies.

He argued that reducing retail margins to attract customers was a commercial decision rather than a government-funded intervention.

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The government has defended the removal of petrol subsidies and the liberalisation of the foreign exchange market as necessary reforms to improve public finances and strengthen economic stability.

However, the higher cost of fuel has continued to fuel calls for renewed government intervention to cushion households and businesses against the impact of rising living and operating expenses.

Oyedele maintained that reversing the reforms could jeopardise investor confidence and undermine the progress made towards stabilising the economy.

His projection represents a potential downside scenario rather than a certainty that the naira will depreciate to N4,000 per dollar.