Duty refunds unlikely to curb inflation: Economists

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ANALYSTS have said government’s proposed rebate of excise duty on fuel consumed by registered businesses will not contain inflation.
In a statement on Sunday, Finance minister Mthuli Ncube called on businesses to hold prices at levels before Sunday when President Emmerson Mnangagwa announced a review of fuel pump prices to $3,11 and $3,31 per litre of diesel and petrol, respectively.
He said any price adjustments following the announcement on Saturday were unjustified because “government had already put in place a price adjustment compensatory framework” through its refund of excise duty on fuel consumed by registered businesses in manufacturing, mining, agriculture and transport.
Persistence Gwanyanya, a local economist, told The Financial Gazette yesterday that the rebates would not contain inflationary pressures emanating from the fuel price adjustment.
“I don’t think the rebate system is going to do much in the way of containing inflationary pressures which are going to come from the recent fuel price because the economy is highly informalised.
“Government admitted that the economy is highly informal when it introduced the two percent tax which they said was meant to extend the tax bracket to the informal sector,” he said.
He said the rebate system is an impractical “half measure”.
“It is dangerous for government to keep implementing half measures. Government should have come up with a more practical solution,” he said.
Government has claimed that the price adjustment is meant to address dynamics in the regional fuel market where arbitrage opportunities are said to have existed.
“Even if this is true, the adjustments were also inexplicably linked to the parallel market exchange rate which is the source of the problem. Government should address the currency system dysfunctions,” he added.
Kipson Gundani, another economist concurred with Gwanyanya, saying prices in Zimbabwe are not only a function of costs.
“What has been driving prices more during recent times has been expectations and sentiment. This is what needs to be addressed. Government should implement policies that are clear and inspire confidence,” Gundani said.
“Up to this point the policies have not been consistent at all and this does not help confidence on the administration,” he added.
Gundani said the recent fuel price adjustments will also not guarantee fuel availability because the bulk of the increase is excise duty.
Masimba Manyanya, an economist, said the rebate system is a “partial intervention” which will not contain inflation.
“The real problem is the monetary policy, particularly the relationship between local bank balances and bond notes with the US dollar,” he said.
He said the recent fuel price adjustments were ill advised because of the impact this will have on incomes.
“We should consider the purchasing power of wages, this is why we have had unrest this week. Even if the fuel price is relatively low in the region, we have to consider the impact on wages. The excise duty refunds will not contain kombi fare and prices of most basic goods and this is why the rebates are a partial solution,” he said.
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