Zambia: Someone Had to Deal With Subsidy Issue

On Friday last week, the IMF and Zambia reached a staff level agreement on a U.S.$1.4 billion debt bailout package.

Subsequently, Government announced the removal of subsidies on fuel, electricity and agriculture as part of measures to undertake in order for the IMF to begin to dispense the $1.4 billion.

That decision has caused consternation in many quarters, with many alleging the UPND has betrayed the voters after promising cheaper fertiliser and lower energy prices.

This reaction was to be expected. But it might be helpful to put context to the development, if any were needed.

Subsidies have been the elephant in the room for over a decade, something that politicians have tended to address only warily because of the political consequences of taking the right decision.

Subsidies are a useful tool for cushioning the impact of certain economic decisions on the vulnerable for services or products they cannot do without. In Zambia, two of those areas have been energy (electricity, fuel) and agriculture (fertiliser).

The government has been carrying this burden for years, mostly as a residue of the socialist policies of the UNIP era, but also because in truth, they were needed given the fact that few can afford the subsidised services and products at cost reflective prices.

That may have been then. Now the government says the Treasury is sitting a debt of over $400 million debt in unpaid petroleum bills, while bleeding more than $67 million monthly on subsidies.

So the question at this point was, how long would subsequent administrations continue to kick this can of subsidies down the road?

The 'New Dawn' Government has resolved to halt the 'rot' and save the country from the growing debt.

But most importantly, free up an impressive $800 million that it will then spread to many critical government programmes.

Additionally, this goes a long way in eliminating the fiscal inefficiencies that the IMF felt needed to be dealt with before a bailout was possible.

To further put it into context, the close to $1billion savings would then be directed to activities such as the recruitment of more health staff and teachers, as well as enhance school feeding programmes.

It should also be remembered that with the declaration of free education and re-introduction of meal allowances for university students, comes a huge cost which the subsidy savings could help to offset.

It would also go towards infrastructure improvement and construction, without having to keep borrowing at high interests.

This is not to say that the subsidy removal will not hurt the public, but that this hard work of flattening the hills and levelling the valleys is necessary to reach the smooth road to economic recovery and prosperity.

Perhaps the mitigating steps that government can make could be to remove some of the inbuilt taxes and middle men in the petroleum procurement process, which the UPND themselves promised do away with when they took office.

The entire process of subsidy removal and the interactions with the IMF has also not been effectively communicated to the public.

Government should have employed a more robust plan of communication to avoid the shock factor that seems to have gripped some sections of society.

Even now after the announcement of the subsidies removal, the ministries of Information, Finance and Energy, should have employed an intensive campaign to leave people in no doubt of the benefits of the changes in the price of fuel and electricity.

Such a campaign should actually have been intensified long before the announcement for maximum buy in from the public.

It is also a good time to help citizens to seriously consider cheaper alternative sources of energy such as solar energy.

In addition, it would be helpful to zero-rate solar equipment imports, to make them more affordable for the ordinary citizen who may struggle to pay for cost-reflective electricity tariffs.

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