The Nut Cracker: We’re all Martyrs with the fuel prices increase!
March 3 every year is the day we remember those who sacrificed for the nation. Some sacrificed through their lives and others by other means. I believe that is what the Malawi Energy Regulatory Authority (Mera) had in mind when they announced the fuel price adjustments on March 4, 2016. We must all sacrifice for the economy of Malawi. I know it is the fault of APM! Yes I do not mean Arthur Peter Mutharika, I mean the Automatic Fuel Pricing Mechanism.
But what will be the impact of the new fuel prices on the economy as a whole? My view is that it will make things worse and it might actually be counterproductive to the economic stabilisation measures that Hon. Goodall Gondwe and Mr Charles Chuka keep preaching. Both of these officials have said that inflation is the “lion in the room”. They have vowed to fight inflation with every weapon they can lay their hands on.
Unfortunately, this fuel increase will not help in the battle to reduce inflation. It is a known fact in Malawi that every time fuel prices go up, everything else goes up as well. So whether we like it or not prices of goods will increase. We consume imported goods more than domestically produced goods. This year it is even worse, because we are even importing maize, the only commodity that we produce in abundance.
Transport costs make up the bulk of our import bill, in fact, it is estimated that 90 percent of all variable costs in haulage from the ports of Durban, Beira and Dar-es-Salam to Malawi are made up of fuel and tyres. It is therefore expected that this increase will automatically increase prices. The other statistic is that 85 percent of the total costs of haulage are made up of variables costs. Unless the country finds another way of transporting goods from the ports to Malawi, any fuel increase will continue to derail efforts to reduce inflation. I am still surprised that up to now we still transport over 90 percent through roads and not rail.
The second issue for me is how these adjustments will affect the mid-term review going on at present in Parliament. The Minister of Finance laid down plans that are supposed to bring the economy back to stability in his statement to Parliament on 26 February. One of those measures is that “in order to reduce the amount of ORT, the Cabinet has decided that the Treasury and the OPC should review the various perks including travel, vehicle and fuel entitlements that could be scaled down”.
I think this review should be done immediately, you see government officials who are allocated fuel allowances in quantity and not value do not care about fuel prices. This fuel price increase has just wiped out the savings that the government was supposed to make on recurrent expenditure and as is always the case, in times of shortages, it is not entitlements that suffer but service delivery. This may look abstract but let us put some figures for illustration. Government officials are allocated 1,000 litres of fuel every month (we can argue about the rationale behind the amount, which I think is too much but for now let us agree it is the right amount).
Before the increase, assuming the official cars are run on petrol, each official was allocated K711,900.00 per month. Due to the adjustments this has now increased to K743,400.00 per month. If the total number of officials on this package is for arguments sake 200, this is an increase per month of K6.3 million and K75.6 million a year of our taxes! Reconcile this with the fact that according to the Minister of Finance, the domestic revenues that were targeted at K312.4 billion fell short of this amount by K12.7 billion down to K299.7 billion.
In fact, even the ongoing process of revenue leakages blocking, which, if conducted thoroughly, will prove to be an effective funds saving measure, can’t provide enough funds for the government to cope with the severe economic consequences of the dwindling domestic and foreign revenues in the long run. And this fuel increase has just made a bad situation worse!
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