Fuel shock hurls Zim into policy scramble

LIVINGSTONE MARUFU / CLOUDINE MATOLA

Government has been pushed into an abrupt policy crisis after a violent upswing in global oil prices, driven by escalating conflict in the Middle East, triggered a sharp spike in fuel costs that is now cascading through the economy and threatening to derail more than a year of macroeconomic stability, Business Times can report.

In response, authorities have activated an emergency, high-level inter-ministerial taskforce chaired by Chief Secretary to the President and Cabinet, Dr Martin Rushwaya, as government scrambles to contain a fast-building inflation shock and avert a broader economic relapse.

The speed and severity of the transmission have rattled policymakers.

Within days, fuel price increases have filtered into transport fares, food costs and retail pricing, exposing the economy’s deep structural vulnerability to external energy shocks and its reliance on imported fuel.

Stability is now under threat.

The Reserve Bank of Zimbabwe’s Monetary Policy Committee (MPC) has warned that the oil price shock will feed directly into inflation in the short term, projecting a rise in month-on-month inflation between March and May this year before a gradual return to stability from June.

However, the central bank cautioned that the shock will leave a lasting imprint, triggering a “level shift” in annual ZiG inflation, a signal that prices may settle at a structurally higher base even after immediate pressures subside.

“I can’t really tell you much about the recommendations as yet, but what I can say is that we are working hard to come up with concrete measures on the issue, and we have made significant progress,” Dr Rushwaya told Business Times.

“We are fully seized with the matter and are engaging all stakeholders to deliver practical solutions to the fuel price pressures.”

The urgency reflects growing alarm within government as fuel price increases, driven by global supply disruptions linked to escalating tensions in the Middle East, begin to cascade across the economy.

In a matter of days, pump prices surged sharply. Blended petrol (E5) jumped to US$2.17 per litre from US$1.71, while diesel rose to US$2.05 from US$1.77, triggering immediate fare hikes in the transport sector and pushing up the cost of basic goods.

The shock has laid bare Zimbabwe’s deep vulnerability to external energy shocks, given its near-total reliance on imported fuel.

Behind closed doors, senior government officials have been engaged in intensive negotiations to finalise a package of measures designed to cushion consumers and restore price stability.

The tax component alone has become a focal point of debate. Industry experts estimate that levies account for approximately US$0.42 per litre of diesel and as much as US$0.85 per litre of blended petrol, amplifying the impact of global price shocks on local consumers.

Economists and business leaders have urged the government to act decisively.

This week, Cabinet approved the review of selected, time-bound fuel taxes as part of broader efforts to contain inflation and protect consumer welfare.

“While price increases have been observed, particularly in the transport sector, Cabinet approved the review of selected and time-bound fuel taxes to contain inflationary pressures and safeguard consumers,” Information Minister, Dr Zhemu Soda said on Tuesday.

“Further refinements are underway, and the necessary fuel price adjustments will be communicated in due course.”

Authorities are also considering increasing ethanol blending from the current E5 to E20, a move expected to reduce reliance on imported fuel and moderate pump prices.

The developments come as the government acknowledges mounting price pressures across key sectors.

Zimbabwe’s recent stability, achieved through tight monetary controls and fiscal discipline, now faces a critical external stress test. Without swift and effective intervention, analysts warn that the fuel shock could unravel gains made in stabilising prices and restoring confidence in the economy.