Time for 'Plan B' On Rising Fuel Prices

allafrica.com The Monitor (Kampala) EDITORIAL March 14, 2003 Posted to the web March 17, 2003

Kampala

Pump prices are rising every minute. That is no exaggeration. There is no other way to describe the triple upward surge in fuel prices in the space of one month.

Unfortunately, the spiraling prices are riding on the crest of a depreciating shilling, a slump in volume and value of exports and the jitters of northern Uganda/DR Congo war-weary investors. Government military expenditure has gone through the roof.

The plummeting of the shilling to an all time low, at slightly more than Shs 2,000 to the dollar, is an early warning of future volatility.

Considering this all out blow to the economy, it is odd that central bank officials continue to say the fundamentals are right.

By pointing at projected increases in the value of exports and private transfer inflows, and an almost on-the-mark fiscal policy, the central bank may be looking at the tail of a fish which is rotting from the head.

Government must devise "Plan B" to counter the dire ramifications of price instability because fuel imports make up more than 30 percent of the value of our imports. Local dealers must constantly reposition in view of the oil workers' strike in Venezuela and the likely American attack on Iraq.

The point is that unless the government devises a mechanism, within the limits of market dictates, to re-assure the public of high but steady fuel prices, there is a likelihood of speculation-spurred hoarding of oil products and the accompanying hazard of disastrous fires.

Everybody recognises that the fuel sector can only get more volatile. In fact, some sector watchers claim that now is the time for government to encourage fuel rationing and increased use of shared transport.

Before we get there, however, the government could start by explaining the danger of daily price hikes on the economy. The oil dealers must make projections and raise prices in a more systematic fashion. Government's "Plan B" can also shore up further confidence by explaining to the public the level of fuel reserves it holds.