Africa 6.9.2016 05:09 pm

World Bank advises Zambia to stop power and fuel subsidies

In an advisory report, the global financial institution says the removal of the subsidies would ease Zambia’s economic decline.

The World Bank (WB) has advised the Zambian government to cut its expenditure bill by dropping a fuel and power subsidy programme, which gobbles nearly U$600 million in public funds from the treasury annually.

In its latest country-focused cost-cutting advisory report, the global financial institution said the removal of the subsidies would help Zambia reduce the effects of the ongoing economic slowdown. Apart from internal currency pressures attributed to a strong US dollar, the Zambian economic slowdown has been linked to the ongoing global slump in demand and prices for mineral commodities including copper, its main export revenue earner.

In the report entitled Beating the slowdown: Making every Kwacha count, World Bank Country Manager for Zambia, Ina-Marlene Ruthenberg, said the removal of subsidies would help if run parallel with a public expenditure programme aimed at strengthening financial and other social safety nets to mitigate vulnerability to poverty among poor households.

“By making every Kwacha count, a return to faster growth will be expedited. That growth itself can be made more inclusive to support households escape from poverty and to ensure that prosperity is better shared in Zambia. It is estimated that fuel subsidies have averaged close to US$36 million per month between September 2015 and May 2016. With electricity subsidies at US$26 million per month, that makes a combined annual bill of US$576 million. That is putting pressure on the budget,” the report said.

Further, the report said the current power crisis underlined the need for government to ensure that new generation projects were adequately funded and old ones maintained to avoid the need for interventions like subsidies, which represented a massive drain on the national fiscus.

Further, the bank said the low power tariff regime in Zambia was scaring away new investments into the power development sector.

Because it was sub-economic, the low power tariff regime also made it impossible for the government to generate adequate power and maintain the current electricity transmission grid.

“Inadequate electricity tariffs limit the extent to which the existing generation and grid network is maintained and the extent to which investments in new generation capacity and network expansion by either ZESCO or private parties can be made. Furthermore, the cost of subsidising the sector creates significant fiscal pressures,” the report said.

Among other power saving measures, the Zambia Electricity Supply Corporation (ZESCO) runs a daily load-shedding regime of four hours.

Supplementary power is imported from Mozambique and Turkish company Ka-Power via a power barge moored off the coast of Mozambique. Internal power generation has been dogged by frequent equipment breakdowns, and of late, a drop in water levels on Lake Kariba where Lusaka jointly runs the Kariba Hydro Electric Power Station with neighbouring Zimbabwe.

– African News Agency (ANA)

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