- At least P1.50 increase needed to get to cost recovery
- We can’t protect everybody from loss in real income – policy advisor
- ‘It is about shielding the most vulnerable who don’t own cars’
- Calls for efficiency of social safety net
Government is excepted to announce another fuel price increase tonight. ULP 93 will increase by P1.48, ULP 95 by P1.54 while diesel will be hiked by P2.74.
While benchmark oil prices have sort of cooled, government senior policy advisor Dr. Keith Jefferis said there was potential for at least one more fuel price increase to get to cost recovery. “If you look at the information that BERA (Botswana Energy Regulatory Authority) makes available every month about recovery on slate, the last increase still left us with under-recovery of between P1.50 and P2.00 per litre,” Jefferis said in response to a question from this publication during a Q & A session at an economic forum. “Even with the last fuel price increase, it did not take us anywhere closer to cost recovery,” Jefferis added.
In other words, this means the petrol prices would have to be increased by at least P1.50, diesel by over P2.00 per litre. However, industry players say this will still not be enough to cover P1.2 billion owed to petroleum companies, given that oil still trades over $100/barrel. To address this, the government would need to adjust fuel prices on a monthly basis, which is the case in South Africa.
The main cause of rising inflation in Botswana has been fuel prices, with global fuel prices jumping massively. According to Jefferis, the component jumped about 35 percent year-on-year. The reason this has impact is that transport has a huge weight in the CPI basket, he explained, noting a sub-category called ‘operation of personal transport’ which is mostly fuel that has a weight of about 12 percent.
Compared to South Africa, Jefferis said the weight is less than 6 percent, meaning Botswana has double the weight. “Essentially petrol and diesel have doubled the weight in our CPI basket as compared to SA,” he noted. “I am reasonably confident that is an accurate measurement, but it reflects the fact that we drive a hell of a lot in this country. We drive far, we drive often and we spent a lot of money on fuel, and when the price of fuel skyrockets it has a massive impact on our inflation rate. That the biggest drive.”
The World Bank expects energy and food prices to stay elevated for five years, a classic ingredient for stagflation. The IMF has also supported this in its outlook, arguing that this “will hurt consumers’ purchasing power – particularly among low-income households – and weigh on domestic demand”.
Quizzed by Absa economist Naledi Madala about how to protect the consumers, Jefferis said an important to recognise that as an economy “we are worse off than we were”. “We can’t protect everybody from loss in real income because we do spend a lot on food and energy,” he explained. “Prices have gone up.”
In Namibia, cabinet has approved recommendation of a temporary reduction of levies imposed on fuel on all products for a period of three months (May to July) by 50 percent. According to a statement by the Ministry of Mines and Energy, approved reduction in the levies amount to 135.375 cents per litre on each of the two products and is based on a monthly fuel consumption of about 89 million litres. According to the ministry, the reduction of levies amount to about N$120.4 million per month in savings to the fuel consumers at the macroeconomic level.
However, it is important to note that Namibia experienced over-recoveries and under-recoveries. The forthcoming reduction of the levies also entails that an over-recovery on petrol of 31 cents per litre and an under-recovery on diesel of 92 cents per litre are each supported by an extra surplus of 135.375 cents per litre on each product, the ministry said in a statement.
Meanwhile, Jefferis argues that there is nothing that fiscal policy can do to shield everybody; it is about shielding the most vulnerable. The majority of the people who drive vehicles, “are not going to be shielded from high fuel prices and it would be wrong”, he argued. “On what basis should people be shielded from high fuel prices when the global fuel price has gone up partly because economics work,” Jefferis queried, adding that the majority of vehicle owners are not going to be protected and should not be.
The renowned economist opined that it is mostly about those towards the bottom end who do not own vehicles but spend on food. In his view, one of things that Botswana needs to do to see changes is the efficiency of the social safety net and the social welfare system. He argued that Botswana spends a lot on social welfare as a share of GDP but it is not as efficient as it should be. “We spend a lot but it does not reach the poor,” Jefferis said. “There are lot of households to be covered. Many of the beneficiaries are not amongst the deserving. The target needs to be improved.”