‘Interbank rate for fuel long overdue’ 

Source: ‘Interbank rate for fuel long overdue’ | The Herald May 22, 2019

‘Interbank rate for fuel long overdue’Persistence Gwanyanya

Prince Chinzvondo Business Reporter
The upward review of fuel prices by the Zimbabwe Energy Regulatory Authority (ZERA) with immediate effect, has elicited mixed reactions, but economists agree that while the move was inflationary, the decision was long overdue.

ZERA reviewed fuel prices in line with the new foreign currency procurement by Oil Marketing Companies (OMCs) for fuel imports, which is now done through the interbank market at the ruling exchange rate.

The new prices, reflecting average increases of between 46 percent and 49 percent, depending on the price in different locations across the country, sees a litre of petrol selling at $4,97 while that of diesel will sell at $4,89.

This comes after the Reserve Bank of Zimbabwe said on Monday OMCs will now procure foreign exchange on the interbank market effective yesterday, as it sought to promote efficient use of forex and plug arbitrage in the economy.

In a bid to stem out arbitrage, Government in January reviewed upward the price of fuel by about 150 percent amid worsening shortages as trucks from the region took advantage of astronomical black market rates to convert into local currency and refuel in Zimbabwe while speculators exported the fuel into the region where the commodity fetched higher prices in hard currency.

The RBZ had been under pressure to remove the fuel subsidy, as recommended by the International Monetary Fund (IMF), as some fuel companies were accessing cheap foreign currency and selling it on the black market instead of importing fuel.

The prices are applicable from May 21 to 26 pending review and operators will sell at maximum gazetted prices or below depending on trading advantages.

But to minimise the impact of the fuel price increase on production costs and prices, Government swiftly moved to cut excise duty fuel, whittling duty on petrol to $1,15 from $2,31 per litre and diesel to $0,90 from $2,05 per litre.

Commenting on the issue Harare economist Persistence Gwanyanya, said the decision was long overdue, as Government was subsiding fuel at the expense of production.

“The only sustainable way to deal with the fuel situation is to have its market determined.

“Fuel was being sold at 1 to 1 rate, but the money was being obtained at 1 to 3 on the interbank. The Government was subsiding fuel consumption at the expense of production.”

“Government’s duty is to never subsidise fuel for the private sector but to provide an efficient public transport system. The previous setup was benefiting the importers; it was promoting consumption at the expense of production because that foreign currency was bearing a lot on the Government.

“This has relieved pressure on the tax payer and the generators of foreign currency and promotes them or incentivises them to generate more. We want a properly functioning interbank market to improve liquidity on the market.

“The market will be the allocator of foreign currency in the economy and that is the thrust of every country.”

“As that happens, going forward, it will support a low pricing regime in the economy and the economy will function normally,” Mr Gwanyanya said.

Harare-based economist John Robertson told the local media that; “On one end, it is good that the fuel price now reflects the official exchange rate but the downside is that it will impact every cost in the country and put pressure on wages.”

Munyaradzi Hwengwere of Buy Zimbabwe, an advocacy for local product consumption, was cautious saying the increase may spark yet another round of price hikes on basic goods due to potential effects on the cost of production.

“Everything is dependent on currency. Without a solid currency to run the economy, very little will work. We need to be inclined towards inward sustainability and enhancement of production.”

Another economist Langton Mabhanga, concurred with Mr Hwengwere, stressing the need for Zimbabwe to be inclined towards measures that increase production and productivity, which can lead to economic stability.

“Fuel prices going higher may result in inflation. We should be looking at the need for a minister for internal policies that will boost inward production. With these fuel prices, disposable incomes will go down and will not support this economy.”

“We call upon strategic intervention for forward movement. Imagine how farmers will be able to match up with these fuel prices with regard to production. They have been receiving their money as RTGS dollars and it consistently keeps losing value.”