‘Economy to Grow As Fuel Demand Normalises’

THE normalisation of fuel demand across the country leaves Government in good stead to boost economic growth, taking advantage of funds being served per month from reduced imports of petrol and diesel.

Government reviewed fuel prices upwards on January 12, 2019, to curb rampant speculation that caused fuel shortages and endless queues. Petrol prices were increased to $3,31 per litre while diesel is now going for $3,11 per litre.

This has eliminated the snaking queues that had almost become a permanent fixture at service stations across the country.

A report compiled Zimnat Asset Management that analyses the impact of the fuel price review, says some of the positive impacts of raising the prices include taming the demand for fuel, reallocation of scarce foreign currency from fuel to the productive sectors and mopping up excess liquidity in the country.

“The immediate impact of the price of fuel increase will likely be a reduction in demand for fuel by both business and households,” reads the report.

“Households may likely have the largest decline in demand, as incomes have been under pressure since the price hikes of October 2018.

“. . . the likely fall in demand for fuel may translate to foreign currency savings for Government, which could be reallocated to other productive sectors of the economy.”

Zimnat Asset Management said the diversion of an additional $50 million per month of foreign currency to diesel and petrol imports over the last 6 to 8 months had a “destabilising effect” on the country’s non-exporter productive sectors, as they were unable to source crucial imported raw materials.

“The normalisation of demand in the fuel sectors is therefore likely to improve the availability of foreign currency in other key sectors of the economy,” reads the report.

Zimnat further said the upward adjustment of the fuel price, pushes up Government’s excise duties on fuel from 45c per litre to $2,31 per litre for petrol whilst excise duty for diesel and paraffin rose from 40c per litre to 2,05 per litre, which allow for more revenue to be generated

The Ministry of Energy and Power Development says the normal consumption of diesel is 2,5 million litres per day whilst the normal consumption of petrol is 1,5 million litres per day.

Said Zimnat: “Against this background, the excise duty on petrol (excluding rebates) is likely to increase from $20 million per month to $100 million per month, whilst the excise duty on diesel (excluding rebates) is likely to increase from $30 million per month to around $150 million per month.

“On an annual basis, assuming normal fuel consumption levels remain unchanged, Government stands to collect in excise duties, at least $1,2 billion from petrol and $1,8 billion from diesel, excluding tax rebates.

“Excise duties on fuel will therefore be projected to surpass the 2 percent intermediated tax collection projections for 2019, as the largest source of Government tax revenue.”

Source : The Herald

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