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Fuel Prices: Neighbours Will Consult Us on 'No-Subsidy Policy' Ggoobi Says

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Ggoobi claims that some countries are consulting Uganda on how it has managed to handle the situation as they seek to follow suit. Secretary to Treasury Ramathan Ggoobi claims that some countries are benchmarking with Uganda on how it has managed to handle the situation as they seek to follow suit.
Finance Minister Matia Kasaija

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Uganda has remained an ‘island’ in the region, rejecting proposals for any kind of intervention aimed at taming the rising fuel prices, with the hope of the situation stabilizing soon. Many countries have made varying interventions, especially introducing or strengthening subsidies, though some seem to be reversing these decisions. 

Following the apparent stability of the crude oil prices between 104 and 108 dollars, for close to a month, there is hope among economists that fuel prices will start easing soon, leading to lower pump prices in the end. However, for many third-world countries like Uganda, it takes a significant fall in the prices, and a significant time lag for the effects of the price drop to be realized in the country, unlike an increase, which usually makes an almost immediate effect.    

Uganda’s refusal to make any kind of intervention, at least directly, has ensured the country has the highest pump prices in the region, and one of the highest in Africa, with the litre of petrol retiling at Shillings 6300 while diesel goes for Shillings 6,100 at the major oil marketers in Kampala. 

The reasons for the government's opposition to subsidies and tax cuts are that they are costly to the government and the citizens. Ramathan Ggoobi, the Permanent Secretary at the Ministry of Finance, Planning and Economic Development told Ugandans to be patient and only ‘listen to economics’, not reason. 

Ggoobi claims that some countries are consulting Uganda on how it has managed to handle the situation as they seek to follow suit. 

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Ggoobi’s statements at a recent forum on oil and gas have come as the Kenyan government is slowly reversing its subsidization policy, which it now sees as untenable. The government has decided to cut the fuel subsidy by 84 percent, has so far spent 48 billion Kenya shillings (1.5 trillion Ugandan shillings) since October 2021. 

According to the 2022/23 national budget, the government will this year provide only 5 billion Kenya shillings, which analysts say will be wiped out in the first quarter. “It is projected that the crude oil prices are unlikely to reduce due to the ongoing Ukraine-Russia conflict, the department may end up exhausting the Shs. 5 billion provided for the fuel subsidization program in the first quarter,” the country’s Budget Committee said ahead of the start of the new fiscal year. 

The minister for finance, CS Ukur Yatani said he does not see the global fuel prices reduce soon because there seems to be no end soon to the war between Russia and Ukraine, which makes subsidies too costly. “The cost of the fuel subsidy could eventually surpass its allocation in the National Budget, thus potentially escalating public debts to unsustainable levels and disrupting the government’s plans to reduce the rate of debt accumulation.”   

Ggoobi’s ‘economics’ also reflects the sentiments of the World Bank and the International Monetary Fund (IMF) about subsidies and tax cuts. The World Bank County Manager for Uganda instead advised the government of Uganda to seek interventions that will protect the poor and other vulnerable groups from the effects of the rising cost of living. 

“Whereas the government is not planning to distort markets in responding to the rising commodity prices, targeted interventions are required to arrest the increase in poverty and food insecurity, especially in vulnerable population groups. As shocks are becoming more frequent and more intense, building shock responsive social protection systems at the national level has become a critical priority,” Mukami Kariuki. 

In their third review of the 38 month-assistance programs for Kenya, the IMF staff told the government that it would be better to leave the prices determined by market forces, which the government team rejected.  And the World Bank’s concern is the effect of the subsidies on the budget, while tax waivers affect the domestic revenue mobilization strategies of the country. 

"The limited pass-through of higher international oil prices to consumers is generating fiscal costs, with the total monthly cost of subsidizing fuel estimated to be approximately 66 million dollars. 

Fuel subsidies are hindering the fiscal performance, which benefitted from strong economic recovery aided by the improved service sector and increased revenue," said a World Bank statement. Ggoobi said instead, that the government will focus its resources on the production of Uganda’s own oil in 2025, as a permanent solution even if it may seem too far away. 

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The government has stated that Uganda’s oil will be sold to Ugandans at the prevailing international prices, less the cost of logistics which would have been incurred over the international supply chain. 

On whether Uganda’s oil will lead to fair costs for locals, Wasswa Balunya, the Makerere University Business School Principal says it will depend on how the political leadership at that time will handle it. He says that based on what happens in bigger producers like Nigeria, it is not a guarantee that the expectations of Ugandans will be met. 

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A liter of petrol officially costs 159.12 Kenya shillings (5,059.02 Ugandan Shilling) meaning the value of a lire of petrol without a subsidy costs 6,012 Shillings. Some people have called on Uganda to at least consider either subsidizing or cutting taxes on diesel, which is the main component in the costs of cargo and public transportation. This, according to Executive Director, Moureen Wagubi, would have a multiplier effect on inflation. 

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In the region, Rwanda, which also introduced subsidies on fuel from June to the end of this month, has the second-highest cost of fuel after Uganda, at 5,350 Uganda shillings per liter of petrol, while diesel goes Shillings 5,507. 

Government subsidies in Tanzania also announced subsidies in May, reducing the price of petrol to 4,811.75 Uganda shillings, while diesel goes for 5,024 Shillings. In countries where governments have introduced subsidies, the authorities have price control powers, unlike where the prices have been left to depend on the market forces, like in Uganda.  

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