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After the demonstrations ED will not put the fuel prices down

14 Jan 2019 at 15:30hrs | Views
The hike in fuel prices, especially diesel, is likely to have a spiralling effect on the surging inflation over the medium-term horizon. The government's step to hike fuel prices would further aggravate the inflationary pressures driven by surge in the transportations costs of the goods. Although hike in fuel prices has little to do with Reserve Bank policy initiatives, but the expectations that the surge in fuel prices would further stoke inflationary pressures, could as well prompt RBZ to upwardly tinker with the interest rates in its forthcoming monetary policy review.

Borrowers may have to brace for one more hike in interest rates of their loans induced by RBZ move.

Political rivals along with a section of economists are up to get goat of ED blaming him for putting the prices of petrol and diesel high to make up for the revenue deficit and 'looting' people at large. On the contrary, this is an unpopular decision, but full credit needs to be given to the regime for sticking to this decision and believing in the economic benefits. It is good economics to keep the prices of petrol and diesel higher, especially when country is reforming the energy usage pattern and is dependent on the imports of oil to suffice demand.

But it is obviously bad politics, as it is creating unrest among urban voters, who are paying through their nose to buy these fuels. But is this good economics to keep oil prices high via taxes, in days of subdued crude oil prices globally. The answer is yes. Most of the economists, believe that it is much wiser to pay tax upfront than let inflation and other means squeeze this money from our pockets. Consumers of petrol and diesel are facing heavy taxation, but they also reaped the benefits when the prices were controlled. But there is a weight in high taxation, at least at a bigger picture. The biggest argument that backs ED's decision of fuel hike is, despite the artificially higher petrol and diesel prices the demand for these products is growing.  More purchase of crude oil obviously will impact the current account deficit, especially when the exports from are down. This could have snowballed into higher inflation economy. In an era of slower growth, higher rate of inflation would have created more problems.
Along with this, hike is allowing government some extra money to push infrastructure spending.

Zimbabwe has already moved towards daily correction of prices for both petrol and diesel. This practice is globally accepted practice. The US market is much more liberal, and allows the retailers to decide the price, unlike Zimbabwe where oil marketing companies decide price based on international prices of petroleum products.

Petroleum products, along with sales of alcohol, real estate and electricity are not foreign currency earners. Instead they spend foreign currency and mostly they earn bond. This explains why the fuel dealers are finding it hard to continue buying the products. If the taxes come down, especially, when the government is finding it difficult to match the expenditures for the social development programmes, it would be nightmare for the centre to achieve structural changes in the economy.

The second argument, which supports high prices on petrol and diesel, is that it allows controlling the demand for these products. Zimbabwe must move towards use of renewable energy and to replace petrol & diesel with electricity as transportation fuel. The oil prices are here to stay. Most of the global oil analysts feel, maximum oil could touch is $60 a barrel. It should be argued that nearly a dozen countries have petrol and diesel prices higher than Zimbabwe. Raising fuel prices was in the air for a long time. The Zimbabwean government has been all along subsidising the fuel and it was bound to be bankrupt. It was simply buying fuel with hard currency and sale it for bond paper.

The higher price of diesel and cheaper electricity makes the case for Zimbabwe to re-introduce railways to ease the public transport. Zimbabwe consume half of diesel for transportation, nearly all petrol consumption goes in cars and bikes.

In every country were fuels prices go up the country experiences violent demonstration. It is not surprising that Zimbabwe will have few days of demonstrations. It must be clearly noted that people are angry out there and the situation is volatile. It simply needs a match stick to be lit and the eruption will be shocking.

Every change in a system is accompanied by a sharp change, there is one thing which is certain, it is change but change is not easily accepted. Human by nature is conservative; they do not wish to change. So if the change borders on the lines of their pockets surely there will be war unstoppable.

 Sporadic demonstrations will be witnessed but the failure of these demonstrations is found in the violence and looting. Once a demonstration turns violent the government is given an excuse to meet violence with violence. This will be a chance to silence the rude rowdy groups masquerading as demonstrators.

It should be noted that this is a positive reformist movement to start by any political party. Since, our political system comes with the package of entangled democracy; there will always be political protests to such bold moves effecting poor public.
But, it is equally important to call quits from such economy-straining measures of high subsidy and fiscal deficit. Market linked fuel prices would also ensure that the consumers start valuing the natural resources and use it more optimally once they are made to pay market-driven price for the same product.

This is a good first step with partial decontrol of fuel prices and can be keenly followed for complete decontrol of fuel prices one by one, so as to ensure a gradual process of shifting burden on the public in general. The demonstrations while they are democratic they become a problem once they turn violent.

People who demonstrate and loot shops forget that they will need those shops after the demonstration. It is very wrong to burn infrastructure burn people's properties in the process of a lawful demonstration. Those thugs who cause mayhem are not doing it for the good of the people. They just love to cause anarchy.

Despite all the demonstrations ED will not reduce the fuel prices, if he does it will be suicide. It will mean that nothing he says will stand people will always demonstrate. The government must show that demonstrations change nothing.

Shipping vehicles from UK to Zimbabwe for less
Source - Dr Masimba Mavaza
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