Cut on fuel prices offers glimmer of hope

While government announced price cuts on fuel, figures released by the National Institute of Statistics of Rwanda (NISR), show that inflation is still on the rise.

The drop in fuel prices also comes as a glimmer of hope, a week after the International Monetary Fund (IMF) warned the country’s inflation could rise higher if structural reforms are not stepped up.

Despite many Rwandan farmers enjoying a bumper harvest last year thanks to structural reforms and large investments in agriculture, consumers were still paying high prices because of slightly higher transportation costs as revealed in NISR’s Consumer Price Index (CPI).

This prompted government last week to seal the price of petrol in Kigali not exceed Rwf940 per litre, down from Rwf1000, with the price of diesel reducing too.

According to the CPI released recently, food, transport and energy prices went up in different towns in Rwanda by end of year pushing the year-on-year urban inflation to 8.34 percent from 7.39 percent in November.

“Food and non-alcoholic beverage prices, which have a 35.38 percent, weighing on the urban index, were up 11.22 percent over the same month a year before, and down by 0.53 percent from November,” the NISR said.

The index has also shown that housing, water, electricity, gas and other fuels index was up 6.81 percent year-on-year, while the transport index rose 9.12 percent.

Despite the rise in figures, Rwanda has had a better run than other countries in East Africa, including Kenya, Uganda and Tanzania, where inflation is in double-digits. However, the IMF has warned that despite the economy being poised for high growth in 2011, inflation could rise, with elevated risks in 2012.

“While strong agricultural output and exports are driving high real gross domestic product (GDP) growth, aggregate demand pressures are also building up and have already pushed up core inflation,” Naoyuki Shinohara, IMF’s Deputy Managing Director said recently in the statement.

“The (Rwandan) authorities have begun to tighten monetary policy in late 2011 to contain inflation. However, further tightening may be needed in 2012 to prevent the erosion of recent gains in macroeconomic stability.Growth is expected to slow in 2012, although risks from an uncertain global economy and further price shocks could bring lower growth and higher inflation. Structural reforms efforts will have to be stepped up to boost growth prospects,” he added.

As a move to curb inflationary pressures, government last week announced cuts on fuel prices honouring the 2011-12 budget pledge to cut taxes on fuel this fiscal year, to help ease inflationary pressures.

A statement from the Ministry of Trade and Industry released last week said starting 16th January, pump prices would be slashed by Rwf60 per litre. According to the ministry, the price of petrol in Kigali must not exceed Rwf940 per litre, down from Rwf1,000, with the price of diesel reducing by the same fraction, also down to Rwf940.

“The reduction was made possible mainly due to the government’s decision to, once again, reduce taxes on fuel products with effect from January 16, 2012,” the statement said.

Though some skeptics believe the price cut will have some marginal effect on the economy, others are optimistic it is good for consumer sentiment. Experts believe the fuel cuts are a good signal for any market economy where reduction in global crude oil prices should be followed by a corresponding reduction in prices of fuel in the domestic market.

Ministry officials have explained to The Chronicles that with a relatively strong franc and lower prices of international crude oil in future, revellers, consumers and transporters could benefit from further fuel cuts.

The Rwanda Utilities Regulatory Agency boss Regis Gatarayiha was quoted in the press saying that following the fuel price cuts, the regulatory body was set to review transport fares.

“We are reviewing the fares along with transport companies and we are doing (this) very fast as we expect to announce the findings very soon.”

Lower fuel prices and a controlled inflation could boost Rwanda’s economy which central bank had projected late last month that it could expand to 7.6 percent by the end of 2012 after a registered growth of 8.8 percent in 2011.

Governor Claver Gatete also said that the country’s inflation if all economic trends remained constant is likely to come to 7.5 percent in 2012 after benefiting from single-digit inflation and a more stable currency than most of the struggling East African neighbors.

These projections though NBR cautioned would depend on a number of factors, some of which include the prevailing euro zone debt crisis, higher oil prices and a weaker dollar IMF said would only be achieved if appropriate structural reforms are put in place.

“In light of significant risks in the global economic environment that could adversely impact Rwanda’s exports and international reserves, the central bank should avoid any further encumbering of the central bank’s foreign assets as collateral for loans to finance the government’s strategic investments,” IMF said.

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