The benefit of a rare windfall in fuel prices must be wisely used

Ibrahim Athif Shakoor

This article is part of Covid 19: Stimuli and Beyond edition of the Journal of the Maldives Economic Review, Volume 1, Issue 3, March 2020

On 9th of March Geopolitics caused a staggering 34% crash of oil prices in the world market. Together with the COVID-19 impact of keeping many factories closed, the continued feud between major oil suppliers and the US being unable presently to impact the market positively, the world witnessed another 10% drop just last week. And analysts do not believe that they’ve seen the bottom of the market yet.

Source Business Insider (25th March 2020) Customs statistics show that the total CIF cost of fuel imports to be MVR 4.1 bn in 2017, and MVR 6.1 bn in 2018. For the 9 months, Jan - Sep (latest figures available from the Customs) it was MVR 4.7 bn of imports in 2019. Oil prices started to plunge dramatically in March. Yet, with oil prices now below 40% of 2019 prices and forecasted to continue to stay below as long as the geopolitical spat goes on and economic outlook remains in bearish territory, it is I think reasonable to assume that we, as a nation will be able to save a minimum of 33% of the cost of fuel imports from 2019 import costs. Let us assume that our oil requirements for 2020 remain the same as 2019, I am aware that this quite a big assumption. This potential savings of 33% of the nation’s fuel bill for 9 months can be as high as MVR 1.5 bn The 2020 budget have also allocated MVR 350 m for electric subsidies, thus there’s also hope that there is a saving from the state budget on such subsidies as the difference between the import price and the target subsidy rate narrows down. Customs statistics does not separate private and public imports like it does for exports. Therefore, we are unable to state how much of the presumed savings will be public funds and how much private. However, even while being extra cautious, we estimate a potential savings of MVR 1 bn from fuel import costs to the nation at large. That is indeed not something to be sneered at. Especially at a time like this while our revenue is being strained and the state is trying desperately to offer aid and comfort to the nation. At any other time, we would advise to create a reserve for national emergencies and keep it for a rainy day. But guess what, we are drenched while caught in a sudden unanticipated downpour and clearer skies are still not forecasted. We hope that both private and public savings will be used wisely and productively to allow us to weather the storm and repair the damage.