Treasury has space to extend fuel levy relief – Citi’s Gina Schoeman

The National Treasury has the fiscal space to extend its fuel levy relief for May and even into June if oil prices remain elevated around or above the $100-a-barrel mark, says Citi South Africa economist Gina Schoeman.

Speaking at a Citi Group economic briefing in Sandton, Johannesburg, on Thursday she said Treasury “do have space for another reduction in the fuel levy [extending the relief] in May” – but they will likely be tight-lipped about such a move until late in April.

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The international banking group is reportedly SA’s largest foreign bank and the sixth largest commercial bank, according to Citi’s website.

Schoeman said Treasury will take a cautious approach and ‘not risk the market getting used to it” as the reduction in the fuel levy by R3-a-litre is a temporary measure to help mitigate the impact of the oil price shock on South Africans and business following the Middle East conflict.

She added that while there is room for extending the relief into May, it will have a negative impact on government revenues.

“However, National Treasury is in a much more credible fiscal position than a few years ago in terms of outlook,” she said.

Lower SA risk premium

“SA’s risk premium has come down. If this situation [Iran war and Middle East fallout] happened 10 years ago, I think the rand will have weakened much more…

“Government’s spending discipline has also improved… giving Treasury the flexibility to make such a move [extend the relief into May].”

While National Treasury said last month that the fuel relief measure would affect its revenues by around R6 billion, Schoeman believes it could be lower.

“Treasury wouldn’t want me to say this… However, it’s a yes. They do have space and flexibility to pause the fuel levy or continue the relief for even three months [April, May and June]. Based on Citi’s estimates this could cost them between R10 billion and R12 billion for this period,” she said.

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“I am not suggesting they should extend this for three months, but they do have the room to do so. They could even spread it out [keep the relief measure in place for longer, but at a reduced level of support],” added Schoeman.

When Finance Minister Enoch Godongwana jointly announced the temporary fuel levy relief on both petrol and diesel with Gwede Mantashe’s Department of Mineral Resources and Energy (DMRE) on 31 March, he said it would be in place until 5 May.

“I am still discussing what we can do for the next two months,” Godongwana told Bloomberg at the time.

However, with the oil price remaining elevated and volatile, the country can expect a further hike in fuel prices in May.

According to Stanlib economist Kevin Lings, the average month to date under recovery in SA petrol prices is around R2.79/l and around R8.50/l for diesel.

“We need the war to end [beyond the ceasefire] to get a reduction in fuel prices, but the average under recovery for petrol and diesel is getting better each day [with lower oil prices and a relatively stable rand currently],” he said.

Read:
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