World Bank advises Zambia to stop power and fuel subsidies

• 7 years ago (2016-09-07)
• David Flin

Africa 306 North America 1004

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

In its latest report, the World Bank 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 srong US dollar, the Zambian economic slowdown has been linked to the ongoing global slump in demand and prices for mineral commodities.

The report estimates that fuel subsidies have averaged $36 million per month between September 2015 and May 2016. With electricity subsidies at $26 million per month, that makes a combined annual bill of $576 million, placing pressure on the budget.

The report said that the current power crisis underlined the need for the 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 finances. The World Bank also said that the low power tariff regime in Zambia was scaring away new investments into the power development sector.

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

The report said: “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.”