The real price of high fuel costs

Most people simply think that high fuel costs are only paid at pump stations when vehicles and motorcycles line-up for refueling. But a Rwf27 increment on a litre of diesel and petrol on Friday will soon hit you when you book an air ticket, buy food from the market place or restaurant. This increment is also paid through commercial trucks operators and public transporters since fuel coasts always have a positive correlation with transport charges. The rise in the cost of fuel increases energy inputs for producing firms of the economy, putting pressure on their profit margins and consequently leading to high commodity price as experienced throughout last year when Rwanda’s inflation reached a record high of 23 percent in December. Oil prices on the international market have climbed back by 17 percent to $80(Rwf45,200) from $68 (Rwf38,420) a barrel. Such an upward tendency leads to a transfer of income from oil importers to oil producers, lowering demand in countries like Rwanda that are net importers of this product. Throughout this year, local fuel pump prices as have consistently fluctuated, oscillating between Rwf756 and Rwf887 to an extent as a result of external factors. And yet this has an impact on food prices and general inflation levels, its magnitude on the very poor would depend on the extent to which consumers seek to offset the decline in their real incomes by demanding for higher wages. The upward drift in food and inflation lowers household real incomes, pushing more people into biting poverty. In order to align with other EAC countries, Rwanda cut its tax subsidies on fuel and has also shifted from ad valorem tax (which focuses on the value of the product being taxed) to specific taxation method that is charged independent of the value. Experts have misgivings abut this new tax regime on fuel, saying it’s not favoured because of its unfairness to the poor who can only afford lower cost items. Therefore, at this time when some major employing institutions including ministries and the Private Sector Federation (PSF) are announcing layoffs, it’s important that government keeps a firm grip on policies that are aimed at keeping fuel prices low. The writer is a Journalist gahamanyi1@gmail.com