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Speaker 1: Stephen curd is telling us in the Market report that

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Speaker 1: the government is foregoing six billion rand in tax revenue

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Speaker 1: by halving the fuel levy for the month of April.

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Speaker 1: What is going to happen after the month of April.

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Speaker 1: We don't know. I think it is extremely unlikely that

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Speaker 1: the international oil supply situation will have settled to the

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Speaker 1: point that crude oil is back around sixty five seventy dollars.

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Speaker 1: So they are either going to have to reinstate the

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Speaker 1: three rand or reinstate one rand of it or one

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Speaker 1: round fifty of it. I simply don't know. But six

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Speaker 1: billion rand is what they are foregoing for one month.

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Speaker 1: Tracy Lee Solomon joins us now, an economist with a

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Speaker 1: specialty in the oil world. Hello Tracy Lee, Hi John.

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Speaker 1: Six billion rand is a lot of running for one month.

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Speaker 1: But what are the chances, I mean, what sort of

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Speaker 1: fiscal wiggle room does the government have to extend that

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Speaker 1: six billion or extend part of it for a month

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Speaker 1: or two longer.

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Speaker 2: Well, as you mentioned, six billion is a lot of money. Well,

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Speaker 2: previously we have seen the government do something similar, and

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Speaker 2: in that case what they did is not necessarily extend

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Speaker 2: the full amount but as you've mentioned earlier, possibly wiggle

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Speaker 2: it down to hobbit, maybe to one round fifty. I

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Speaker 2: think that is something they'd likely consider. And in terms

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Speaker 2: of wiggle room that they actually have, I mean, I've

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Speaker 2: been trying to wrap my head around their statement and

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Speaker 2: their yeah, their statement about the decline in revenue being

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Speaker 2: fiscly neutral, which means that they need to get this

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Speaker 2: revenue someone else. I've had a look at the numbers,

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Speaker 2: and I mean an increase in that is definitely not likely.

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Speaker 2: One of the things I've noted is that this could

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Speaker 2: potentially be a numbers game, maybe a matter of nominal GDP.

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Speaker 2: We saw the Reserve Bank upperly revising their information forecast

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Speaker 2: while leaving their real forecast unchanged. We suggest higher nominal GDP,

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Speaker 2: and nominal GDP is what determines that revenue. And if

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Speaker 2: this is something they think they're going to gain on,

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Speaker 2: so they think that that revenue could be higher than

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Speaker 2: previously projected, that could be one way in which they

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Speaker 2: make up that sixty to sixty.

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Speaker 1: Billion, and the I mean, we're still going to be

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Speaker 1: paying a lot more three rand more for petrol and

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Speaker 1: a record single price increase for diesel over seven rand.

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Speaker 1: The impact of that on the economy, because again I

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Speaker 1: doubt it's going to be short term. I doubt we're

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Speaker 1: going to be having too many downward fuel adjustments in

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Speaker 1: the next three six months. So I mean, how much

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Speaker 1: modeling has been done to two and understand what this

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Speaker 1: is going to do to GDP, what's going to do

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Speaker 1: to inflation, what it might do to interest rates since.

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Speaker 2: On, well, a lot of modeling has been done. Unfortunately,

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Speaker 2: that modeling is all about scenarios. As you mentioned, at

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Speaker 2: the moment, it seems unlikely that this is going to

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Speaker 2: resolve quickly. So what has been done is that inflation

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Speaker 2: forecasts have been upwardly revised, not very significantly, because we

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Speaker 2: don't expect that at this point there are going to

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Speaker 2: be a lot of what we call second round effects.

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Speaker 2: But if this were to continue for another couple of months,

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Speaker 2: then they could be in trouble. And with an increase

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Speaker 2: in inflation. I think the Reserve Bank has at about

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Speaker 2: a zero point four percent yeah, zero point four percentage

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Speaker 2: point increase in inflation. They actually haven't made any adjustments

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Speaker 2: to their viral GDP forecast. However, as you can imagine

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Speaker 2: the uncertainty and the risk is to the downside. So

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Speaker 2: this is likely to impact somewhat on GDP growth.

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Speaker 1: It has to, doesn't it. But I mean, at what

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Speaker 1: point does it impact inflation to the point where the

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Speaker 1: bank goes, you know what, We understand that there has

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Speaker 1: been a black Swan shock, but still we do need

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Speaker 1: to send a signal and increase rates to keep inflation

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Speaker 1: under control.

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Speaker 2: Yeah, that's exactly what they did as well. To think

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Speaker 2: is they have published some scenarios in their one True

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Speaker 2: policy statements, So there they noted that if this were

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Speaker 2: to continue for a couple more months, they would have

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Speaker 2: to hike their interest rate once by one twenty five

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Speaker 2: basis point hike in this year. In a worst case scenario,

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Speaker 2: if this continued for another twelve months, they'd need to

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Speaker 2: hike the interest rate by quite a bit. I have

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Speaker 2: it here that in their statement they mentioned that the

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Speaker 2: interest rate could be one hundred and fifty basis points

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Speaker 2: higher than it is currently. So in that case you

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Speaker 2: definitely see the significant an impact on the economy at

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Speaker 2: the moment. That is the worst case scenario. I think

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Speaker 2: we're all holding our fingers crossed that Donald Trump actually

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Speaker 2: does end his war within his stated time frame, What

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Speaker 2: do you say, four to six weeks? That seems unlikely,

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Speaker 2: And even if he does end it, it is awesome.

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Speaker 2: I think we're understanding now that oil flowers won't resume

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Speaker 2: to a normal level even if the war to end tomorrow.

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Speaker 1: Because at the moment, yes, I was going to ask,

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Speaker 1: I mean you're reading I'm sure a lot of the

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Speaker 1: time the thoughts are very clever people who've been studying

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Speaker 1: the oil markets for a very long time. Is there

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Speaker 1: any kind of clarity? There can't be because we're dealing

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Speaker 1: we're dealing with three countries, particularly, I mean, they are

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Speaker 1: obviously other countries involved. Israel has one set of objectives,

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Speaker 1: America has another set of objectives, and we can't be

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Speaker 1: exactly sure what they are given the mixed messaging, and

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Speaker 1: Iran's sort of only aim is to survive. I think,

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Speaker 1: so put all of that together, is anybody got any

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Speaker 1: kind of crystal ball, even if it's pretty cloudy, and

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Speaker 1: they can discern the shape of an ending somewhere somehow?

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Speaker 2: Yeah, So it definitely depends who you speak to. There

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Speaker 2: are those people, As I mentioned, I think that Trump

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Speaker 2: is going to stick to his agreement and end the

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Speaker 2: war soon. And just maybe claim some sort of hollow victories.

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Speaker 2: But then there are increasingly more people that expect that

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Speaker 2: this is going to be a protracted that likely pools

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Speaker 2: in other countries from the Middle East. We actually had

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Speaker 2: some research done on our behalf by a few energy specialists,

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Speaker 2: and there they noticed that this could be an raq

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Speaker 2: of got his Son type of war that actually keeps

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Speaker 2: American soldiers in Iran four years. And in that case,

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Speaker 2: we could see some I don't want to say a normalization.

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Speaker 2: We could see the return of oil flows, but definitely

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Speaker 2: not that level of energy security will not be there

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Speaker 2: that we saw prior to the war. So they'll still

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Speaker 2: be a Middle East for a premium embedded into the

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Speaker 2: oil price. If you look at some of the damage

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Speaker 2: that has been done to refineries in the Middle East,

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Speaker 2: I mean, Iran isn't just closing the straight They're actually

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Speaker 2: attacking facilities, and some of the damage there will take

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Speaker 2: years to rebuild. And that's the problem that we sit

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Speaker 2: with now is that things unfortunately, this has gone on

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Speaker 2: so long that we can't just go back to normal immediately.

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Speaker 1: Economist Tracy Lee Solomon, thanks for talking to us this afternoon.

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Speaker 1: Even though the message is not a particularly happy one.