Monday, February 14, 2011
By By Gift Chanda
Sun 13 Feb. 2011, 04:01 CAT
THE fuel price hike is likely to affect the country's economic projections this year, says economic consultant Professor Oliver Saasa. And energy consultant Andrew Kamanga said the increase in fuel prices was inevitable considering the rise in oil prices on the international markets.
The Energy Regulation Board (ERB) on Friday announced an increase of almost K1,000 in the fuel pump price. A litre of petrol was adjusted from K7,639 to K8,647 while diesel was increased from K6,999 to K7,958 per litre. The price of kerosene has now been pegged at K5,641 from K5,008 per litre.
ERB attributed the increase to the rise in prices of crude oil which have surpassed US$100 per barrel on international markets and the depreciation of the kwacha. It stated that the latest cargo of crude was procured last December at US$81 million compared to the May 2010 consignment procured at US$68.6 million when the last price review was done.
In an interview, Prof Saasa said the country’s growth projections were not likely to be met this year if fuel price hikes were not stabilised quickly.
He said this also threatened to reverse the recent economic gains.
Prof Saasa said the country was likely to experience an increase in inflation while gross domestic products faces a reduction from what was being projected because costs of inputs in the production line may go up if fuel prices were not stabilised.
¨The long-term effect of this is actually transferring the effect to the consumers and also to production which will have a disturbing effect on prices,” he said.
¨Fuel is one of the inputs in production and with these increases, one hopes that the effect is not too significant to seriously affect the economic fundamentals because if it does, it may affect our growth projections.”
He said despite ERB increasing fuel by a minimal K866, transport costs were likely to go up.
¨You find that the increases in transportation costs are not proportionate to the actual increase of the cost of fuel so the consumer bears the brute. So one hopes that they will be some level of restraint on those in the transportation sector,” said Prof Saasa.
But Kamanga said the increase was unavoidable.
¨The question is that will we be able to absorb it in the economy without affecting the key parameters such as the projected inflation and economic growth? If we are able to manage or cushion the impact then that will be good,¨ he said. ¨But in a practical scenario any increase in fuel especially diesel, which is used in production, is that almost automatically we start seeing the prices of commodities going up, transport is one of them.¨
Kamanga said the transportation costs would threaten maize prices.
¨We are going closer to the end of the rainy season into harvest period. We hope that this will not lead to an increase in price of maize, which obviously the farmers will be happy with,¨ he said.
He said in the short term, the fuel price increase may have an impact on the economic growth the country achieved last year.
¨We are just in February and our budget cycle starts in January so the impact may not be that much. But we have to see how sustainable these prices are going to hold. If they are going to hold for the next one quarter, then we can safely say the negative impact will be manageable, if it exceeds that then definitely inflation is going to go up," said Kamanga.