Zimbabwe on Monday reduced duty on fuel but this did not have any impact because of the weakening Zimbabwe dollar. Instead prices of fuel went up, sparking fears that this could have a spiral effect on prices of other commodities which had began to decline.
Duty on leaded petrol was reduced from 40 percent to 5 percent, that on diesel from 20 percent to 5 percent and unleaded petrol dropped from 45 percent to 5 percent. Duty on paraffin was abolished. There is no duty on jet A1.
Though the government reduced duty on fuel, the duty is now based on the auction rate instead of the official exchange rate of Z$824 to the greenback.
The pump price of fuel therefore went up to $2900 with some service stations charging $3 000.
The price of fuel which was around $5 000 a litre before the introduction of the foreign currency auction system on January 12, had gone down to as low as $2 300 in Harare and $2 5000 in Bulawayo.
The Zimbabwe dollar was trading at around Z$6 000 to the greenback before the introduction of the auction.
It firmed to Z$4 196.58 to the greenback on the first day of the auction. Though there was US$5 million on offer, only US$477 557.91 was taken up because of skepticism about the system from exporters most of whom had been cashing in on the black market.
The Zimbabwean dollar, however, continued to firm reaching a peak of Z$3 518.19 on January 29. Business had gained confidence in the system, with bids totalling US$10.4 million while only US$8 million was on offer.
It has been on a slide since, and was down toZ$3 973.43 to the greenback on February 16. Bids totalled US$11.2 million but only US$8 million was on offer. Last Thursday, bids totaled $13.6 million. Only $8 million was in the basket.
The decline in the Zimbabwe dollar could fuel inflation which shot up to 622.8 percent in January. Inflation, the country’s worst enemy, could reach 700 percent by the end of the first quarter.
Reserve Bank governor Gideon Gono plans to reduce it to less than 200 percent by year-end.