Government in quandary as fuel price hike looms.

The government of Zimbabwe finds itself in quandary over the fuel subsidies it has been providing. After the increase of fuel prices that were followed by widespread protest, the price has effectively been eroded by exchange rate movements. This and the ever-tightening fuel shortages have to lead to the belief that a fuel price hike is looming.

According to Business Times, the government has been providing foreign currency for the importation of fuel to fuel players at the abolished 1:1 rate between the RTGS dollar and US dollar. In spite of this, fuel shortages have resurfaced evidenced by the occurrence of long fuel queues once again. This has lead commentators to cite once again the abuse of the facility and rampant corruption in the country as they are clearly not utilizing the funds availed to them for fuel. Add to that the Minister of Transport Joram Gumbos claim that the government had released 20 million litres from a so-called strategic fuel reserve during the month of April which failed to alleviate the problem.

Economist Eddie Cross who has thus far spoken positively about many of the governments’ policies criticized the move and joined the call for a truly free exchange rate and market. Meanwhile, the Herald reported that Reserve Bank Governor John Mangudya announced that Letters of Credit, through which the central bank provides foreign currency for importers, were made available to guarantee an adequate supply of fuel going forward. All this we have heard before.

Given that the government’s recent budget surpluses were based heavily on fuel excise duty and the 2% tax, the revelation of the provision of US dollars at 1:1 simply means the government was in large putting money into its own pockets. As the situation develops the murmurs of a fuel price increase are gathering momentum. If the government were to stop availing the foreign currency at 1:1 because of the abuse of the system a price would become absolutely necessary. No love would be lost here as the system in its present configuration simply isn’t working.

The government continues to battle with foreign currency, exchange rate and inflation situations with little success. Solutions have thus far either become bigger problems or birthed their own set of problems as is the case here.