Dr Yusif Sulemana, an Energy Expert and Senior Oil Production Operations Specialist with Petroleum Development Oman, has urged the government to stabilize pump prices to stimulate economic growth and reactivate consumer spending.
While recovery from the pandemic lies within expectations, countries across the globe have not been spared from the lingering economic effects of the pandemic, as supply shortfalls of crude have spiked crude prices leading to an energy crunch.
Countries have since responded to this crisis situation, taking bold steps to cushion consumers against the economic effects of the rising petrol prices including social interventions such as; cutting taxes or imposing subsidies on petrol prices, or providing windfall or payouts to low-income consumers.
For example, in France, lower-income households are being handed an ‘inflation payout’ of 100 euros from the government to help mitigate the impact of rising energy prices, particularly those at the petrol pump. This entitlement is only for citizens earning less than 2,000 euros net per month.
Remove Special Petroleum Tax to Cushion Consumers
After several agitations by the public and CSOs, the government announced the zeroing of the price stabilization and Recovery levy (PSRL) on petrol, diesel and LPG which is expected to take effect this month; however, has still not yielded the expected results.
Concerned about the effectiveness of this approach, some CSOs have called on the government to apply the PSRL levy so as to serve its intended purpose. With this approach, consumers would have benefited from roughly GHS948 million as balance of the PSRL account, but calls to this end have not materalised.
With fuel prices soaring to unprecedented levels, currently around GHS6.90 at the pump with further increment in sight given seasonal factors, this continues to pose huge challenges to consumers, especially in terms of rising living conditions.
Average prices of goods and services continue to rise, with recent inflation rate at 11% and there are fears without adequate measures outlined by the government, this may soar up further.
Speaking to the Vaultz News, Dr Sulemana noted that entering into 2022, the budget should reflect reduced taxes as a means of cooling down the market, while ensuring that fuel prices are stabilized.
“I expect the government to cool down the market… relook some of the taxes/levies and the credible candidate among the taxes/levies is the special petroleum tax (SPT)… [aside] the PSRL which has been knocked off. Even if it is not knocked off, it should be reduced to the barest minimum to the extent that it is able to cool down the market.”
Dr Sulemana, Energy expert
The Special Petroleum Taxes were imposed at a time when “we had a collapse in crude oil prices around 2014-16. So we needed to use the downstream to support the upstream by introducing this tax.”
However, the complete opposite is what is playing out currently. “The downstream is burning out, and the upstream is raking in a lot of benefits. Let the upstream support the downstream this time. So that some of the gains that we are making in the upstream at the moment because we are having crude oil prices above $80 per barrel, [could help cool down the market].”
Policies geared towards economic growth
If the government follows through with these suggestions, it would yield two benefits: “to stimulate economic growth and will also reactivate consumer spending.”
Immediately, in the energy sector, “policies should be geared towards stimulating economic growth, job creation” and these would help improve government revenue mobilization. By stabilizing pump prices, this would act as a panacea to stimulate economic growth and consumer spending, he said.
Given current market conditions, the government can only do little to stabilize exchange rate volatilities, as these volatilities heighten when approaching the festive season every year and which also remains a factor in determining fuel prices at the pump.
That notwithstanding, he suggested that, in the medium-to-long term, the government should link the downstream and upstream sectors while also ensuring that the Tema Oil Refinery (TOR) is made to run to full capacity in order to reduce the excessive reliance on imported petroleum products.
It is clear that governments elsewhere have strategized to support consumers and are thus not facing outrageous prices at the pump. The government can learn from such countries to proffer lasting solutions tailored to the country’s structure.
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