Fuel price – Negative Shock That Must be Nullified at The Earliest

A picture of two men carrying a barrel of fuel is side-splitting and altogether a scene of remote land, however, it is not a distant land. Sadly, this comedy is happening in Bhutan.

The rise in fuel price will have a disastrous ripple-effect on the economy, and the ensuing condition will create a lasting void, and bridging these losses will incur heavy expenses in the long-run. It will directly affect the discretionary spending of consumers. It is a dangerous hurdle to the economy.

The effects of high oil prices are far-ranging.

The hardest-hit sector will be the transportation sector, which means the contagion will spread to all the other sectors. In these COVID times, the transportation sector is the lifeline of our economy as dependency on goods and services rely on them.

A truck owner spends about Nu 12,000 to fuel a full tank, with the record-high spike, it is about Nu 25,000 now. This will make him charge 100 percent more on the daily price he sets on one trip.

Everything will come down to affect the lives and livelihoods of the lower-income groups.

In such times, the government must come to the rescue, leaving the people, particularly those in lower-income cohorts to market forces will bring devastating effects and we will face tougher challenges to fix the issue as it prolongs. This is the right time to not just nip at the prices, but to bring it down for the greater good.

There are many ways to bring down the price to a bearable line. Our COVID spending too went off the roof, however, desperate times call for desperate measure. Bringing down the price to a bearable cost will boost the reviving economy, as well as ease inflationary pressure.

It is the right time to activate the stabilization fund. Its very purpose is to ensure a steady level of government revenue in the face of major commodity price fluctuations. The government should relent and act on activating the stabilization fund to cushion the volatility. Small economies like Bhutan establish stabilization funds for rainy days like this. And this is a rainy season for us. Using the funds now will not only create positive ripples through the economy but also and more importantly, help us avoid severe negative effects.

Waiving VAT will significantly help to bring down the fuel prices. The government levies a 5 percent green tax, 5 percent sales tax, and surcharges. These must be put on hold to such a time when the fuel prices drop to bearable levels. Otherwise, the whole economy will see a downward spiral.

The reduction in fuel prices will have a salutary impact on inflation by allowing more consumer spending. Fuel price is directly proportional to freight charges and then it creates immense ripples to goods and services.