Editor,

The recent fall in oil prices is a boon for oil importing countries like Rwanda. However, having been used to increasing rather than dropping prices seems to have caught policy on the wrong footing.

In Rwanda, policy is such that a change in international oil prices calls for a review of pump prices. But should we allow all the benefits to flow into consumption?

Let us look at a few facts. Prices are sticky downs—this is simple economics. When pump prices drop it does not necessarily translate into a fall in prices for other commodities. Even in regulated markets like public transport we have only seen reductions of say Rwf10/km and on some routes a drop of only Rwf1/km.

Secondly, the high price of fuel is already factored into the consumer’s budget and any savings will not cause meaningful adjustments in the individuals’ long term planning because it is perceived as transitory rather than permanent. The most likely tendency, therefore, will be to allow the increased disposable income to flow into consumption rather than savings and investments.

How we can use this opportunity better

Rwandans, under the leadership of President Kagame, are forward looking. So, why not, in the same spirit of our leader, use this windfall to fix a few long term investments and nagging social problems that will carry us forward?

A few easily come to mind: Low cost housing, for example. Could this windfall be used to subsidize housing for the poor? What about boosting our Agaciro Fund? What about increasing the portion on pump price that goes to the Road Maintenance Fund (RMF) and see more of our roads fixed?

And guess what? We will be addressing one more important economic ill caused by recent oil prices—volatility. When oil prices rise again, we will simply stop the flows to our collective basket whichever our nation chooses.

Certainly, a few exceptions need to be considered. Fuel to Rwanda Energy Group (REG), used to generate some of our electricity, could be subsidized, but did I see a drop in electricity prices? Sticky like any other.

John

Reaction to the story, "Fuel pump prices drop to Rwf810” (The New Times, March 5)