Fuel price hike will push up cost of living – CUTS

Diggers News, July 11, 2019

The Consumer Unity Trust Society (CUTS) has warned that the looming upward adjustment in petroleum products is going to increase the cost of living for Zambians who are already stressed with the battered economy.

On Tuesday, Energy Minister Mathew Nkhuwa announced in Parliament that government would this year pilot a currency hedging programme to relieve citizens from future fuel price change shocks.

He also disclosed that with the deteriorating fuel pricing fundamentals, such as the depreciating kwacha, fuel prices were certain to increase.

But commenting on this development in an interview, Wednesday, CUTS centre coordinator Chenai Mukumba noted that the imminent fuel price hike would worsen the already huge cost of living for ordinary Zambians.

“The price of fuel is going to have a significant negative effect on consumers. Already, we have seen that inflation has gone above what was supposed to be targeted in the Medium-Term Expenditure Framework, which is between six and eight. This already speaks to the fact that there is a general rise in the increase of prices. So, fuel (price) increasing will mean that our cost of transportation increase both those with private cars as well as those who use public cars. But also, we are likely to see an increase in the general price of goods and services for many industries and providers of goods and services. So, an increase in the price of fuel will likely also result in the increase of obviously the cost of production and, therefore, the cost of actual goods and services. Consumers are the ones who always have to bear the brunt when an increase in prices are passed over to those who are buying goods and services,” Mukumba said.

“So, in terms of how it is going to affect us, it will basically make much more difficult the quality of challenges that Zambians are facing at the moment. I have spoken to inflation, but other issues, such as the depreciation of the kwacha, has had a direct implication on the cost of living, much of the products that we make us of both through direct consumption as well as products that are used as intermediate are imported into the country. But because of depreciation of the kwacha, we, therefore, have to spend more kwacha to attain foreign currency to buy these goods and again these goods speak to an increase in the cost of production and, unfortunately, again, it will be consumers who because of the nature of being at the tail-end of this production chain will be the ones that bear the cost. So, it will be quite difficult for consumers in the near future.”

And she observed that the proposed currency hedging programme that government intended to introduce as a way of relieving citizens from fuel price shocks was unlikely to succeed due to insufficient foreign currency in the country.

“That is something which the Ministry of Energy can look into, but I think we need to keep in mind that it wasn’t too long ago that the Ministry indicated that they would be using this cost (plus) model and again one of the issues that we had raised as key stakeholders in this conversation is that there needs to be policy consistency. The Ministry should have, when they were putting together the former model of energy, that this is something they were going to have to face. And so for me, when we put across the cost (plus) model essentially shows that the country will not have to significantly subsidize fuel, the reason for that is that our fiscal position as a country currently is quite precarious. A hedging, therefore, could have implications on the issues that we are trying to avoid. But also in order to do this, you require substantial or sufficient foreign currency, which at the moment, we don’t have at present,” said Mukumba.

“The last time I checked, we had import cover about 1.4 months (of import cover). Therefore, I don’t know about whether we have resources to be doing such a scheme. I think even in, for example hedging, this could be for me a temporary solution. We need to spend more time on what are the actual reasons for why we are essentially having a currency that’s depreciating to this extent and stick to addressing these problems. The depreciation of the kwacha is due to a number of reasons, it’s due to, for example, concerns on the part of investors because of our external debt situation; it’s due to the situation we are seeing with our colleagues at KCM (Konkola Copper Mines); it’s also due to some external factors that we don’t have control over, but, of course, those that we have control over are the ones we should be focusing on.”

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