Thursday, March 22, 2012

IMF recommends immediate fuel price increment for Gambia

Cost of transport and electricity-related services in The Gambia may skyrocket as pump price of fuel in the country is billed for further increase very soon, if the advice of the International Monetary Fund (IMF) is anything to go by. 

In its latest report on The Gambia, the IMF has advised the government for an “immediate adjustment in fuel prices” in order to remedy the steady decline of the country’s revenue performance coupled with unanticipated expenditure overruns, higher-than-budgeted spending, which could threaten the country’s macroeconomic stability. 
The Gambia government revenue performance has signaled a downward trend over the years while expenditure has continued to increase giving rise to budget deficit that continues to swell year on year.

With the fuel price increment, the IMF says, the government is expected to collect the full value of excise tax on fuel, although it noted that this adjustment might only provide a modest of the much needed revenue boost.

Analyst said the fuel price increment, if heeded to, will contribute to reversing the current decline in revenue and reduce the deficit to the target that will allow sustainable growth in the economy.

Two years ago, precisely in 2010, the government did announce it will no longer continue to be subsidizing petroleum products and so it has developed a new petroleum pricing formula that was to be effected in 2011. 

However, the IMF has observed that this formula has not been fully implemented. The Fund has therefore advised that adhering to the fuel price formula going forward would have strong impact and could recoup much of the revenues that were lost in 2011. 

Initially the petroleum pricing formula was designed in such a way that adverse movements in the international prices of petroleum products and exchange rates are absorbed by government in the form of subsidised retail prices.

The IMF states that lost revenues from fuel taxes, mainly because of only partial implementation of the new fuel pricing formula, accounted for much, about three-fourths, of the revenue shortfalls.  By allowing greater pass-through of international fuel prices to the administered domestic retail prices, the formula would have maintained fuel excise taxes and eliminated unbudgeted subsidies.

In the last official fuel price adjustment,  pump price for diesel was increased from D32 to D35 but as of now many less publicised increments have taken place over the months that have caused the pump price for diesel to be increased to D44 and petrol to D43.15.

As of now, it’s not known to what level the next change of pump price will get but it is a fact that an increase in fuel price will definitely result in an increase in many consumables and services in the country, since its direct effect on transportation cost will lead to many other additional cost of production, goods delivery and distribution, as well as income and revenue and salary and wages.

The recommended fuel prices increment have sparked fear and worries for some people in the country.

“I have not seen the IMF recommendation you are talking about but I know that any increment on the fuel prices will have a trickle-down effects on people in the country as prices of all electricity-related goods and services will be increased.  It could also lead to fare increment and other things,” an economics student at the University of the Gambia has said.

“In a nutshell, I think the resulting effect of the increment will be difficult to fathom as its consequences will affect cost of production and inflate prices of essential commodities and services, which leads to a high cost of living for the country’s populace,” the student said, adding: “This will make life difficult for average the Gambian.”


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