Zimbabwe has hinted it may further reduce fuel levies to stymie a sustained spike in the domestic price of petroleum products after global prices soared on market uncertainty due to the conflict between Ukraine and Russia.
Countries the world over have announced fuel subsidies to cushion consumers from the impact of rising energy prices after oil skyrocketed last week to 14-year highs.
When fuel prices increase, a larger share of households’ budgets is likely to be spent on it, which leaves less to spend on other goods and services.
The same goes for businesses whose goods must be shipped from place to place given transportation and logistics use fuel as a major input, such as airlines, road and rail and ship cargo transport.
Higher oil prices tend to make production more expensive for businesses, just as they make it more expensive for households to do the things they normally do.
Finance and Economic Development Minister Mthuli Ncube said he started reducing levies on fuel late last year to hold local prices steady, although this was not made public.
He said this commenting on the impact of rising global fuel prices on Zimbabwe when he was in Dubai, United Arab Emirates, where Minister Ncube was part of a Presidential entourage at Zimbabwe’s National Day at Expo 2020 Dubai.
But a fuel subsidy has become even more necessary amid the uncertainty in the global markets, which has seen western countries take steps to shun Russian fuel imports following its special military operation in Ukraine.
Russia is the largest oil and products exporter in the world, and many parts of the globe depend on the nation for supplies.
In January 2022, total Russia oil production stood at 11,3 million barrels per day of which around 8 million bpd was exported.
Minister Ncube said the Government would not review growth and inflation figures, despite the global headwinds, but would continue to watch and act appropriately, including thorough changing levies on fuel price.
“Therefore, we will continue to watch the situation and make appropriate communication in due course.
“But we have done our calculations and strategies on the fuel subsidy and we have actually been running this subsidy for the last five months and we had not publicly announced it, but we have been doing it,” he revealed.
Minister Ncube said the Treasury had reduced the fuel levy from 12,7 US cents per litre to 11,4 US cents to ensure the Government lowers pressure on traders to increase fuel prices.
“If you notice since about October last year, the fuel price has been largely stable and we will keep it going for as long as we can afford it, but it is necessary to cushion consumers,” he said.
The Zimbabwe Regulatory Authority (Zera) hiked fuel prices recently saying the decision was necessary due to the unprecedented hike in the price of Brent crude oil as a result of the Russia-Ukraine conflict.
In Zimbabwe dollars, diesel now costs $218,01 per litre from $216,78, while blend will go for $195,72 from $195,72, whilst the United States dollar price has been pegged at US$1,68 per litre from US$1,51 for diesel and US$1,67 from US$1,51 for petrol.
The latest increase comes six days after the regulatory authority had increased fuel price, as they said “Government has had to subsidise the final price to cushion the economy.”
The regulatory authority also adjusted liquefied petroleum gas (LPG) prices on Tuesday as it increased the retail price to US$2,07 up from US$2,03 and $268,11 up from $234,15 per kilogramme in local currency.
“Operators are advised to display the prices at their retail outlets at a prominent place in clearly legible letters. Please note that it is permissible to sell LPG at prices below the prescribed prices depending on one’s trading advantages,” reads Zera’s recent statement.
There is increased pressure for the Government to subsidise fuel and wheat so as to keep local inflation under a leash, resulting in increased Government spending,” research firm IH Securities said recently.
Economist Dr Prosper Chitambara said, “This is just the beginning of the crisis to follow as fuel affects all sectors of the economy, because it is an input for almost every product we produce in this country.”
Chitambara also acknowledged that the issue of fuel increase is a problem we cannot solve locally as it is being caused by geopolitical factors.
“This will definitely reverse the gains done on inflation in the past as well as reduce disposable incomes when prices are adjusted resulting in reduced aggregate demand in the economy,” Chitambara added.
Confederation of Zimbabwe Industries president Kurai Matsheza said, “The fuel price hike is worrisome as it causes the cost of production to rise immensely, leading to goods being more expensive.”
Mr Matsheza said the country needs to be cushioned from these harsh conditions in order to protect the consumer and keep prices stable.
“Responsible authorities need to cut on some of the levies which are levied on the final price of fuel so that industry does not feel the pinch caused by rising inputs,” he concluded.
Government taxes and levies make up close to 30 percent of the final fuel pump price and among some of the taxes and levies on fuel, while Zimbabwe National Road Authority collects US$0,02 per litre on petrol and diesel.
Last year, fuel excise accounted for 83,1 percent of total excise collections, according to data in the 2022 National Budget Statement.