The International Monetary Fund (IMF) has supported the government’s decision to scrap fuel subsidies because they disproportionately benefit the wealthy more than the poor.
IMF Resident Representative to Zambia Eric Lautier disclosed that IMF research studies show that subsidies are not the best approach to allocating resources in a constrained economy such as Zambia’s, which is struggling with long-term drought effects.
Lautier said, “These subsidies are also very bad for the climate, and in Zambia, we are dealing with the impact of climate change as we speak.”
He said the cost of subsidies is high and negatively impacts budget sustainability, adding that spending a large share of the budget on fuel subsidies means that a country cannot afford the investment needed to grow the economy and create jobs.
Lautier said that without this reallocation, the Zambian government would have found it very difficult to double social spending as a share of GDP, hire more teachers and health workers, and provide food for school pupils.
“Ultimately, the discussion around subsidies is about how best to allocate limited resources in an economy. We at the IMF have done a lot of research on subsidies and the way they impact developing economies. Past research has shown that the richest 20 percent of households benefit more from subsidies on average by a factor of six than the poorest 20 percent. Essentially, when you provide something below cost, the more you consume it, the more you benefit from this subsidy. These subsidies are also very bad for the climate and in Zamia we are dealing with the impact of climate change as we speak,” said Lautier.
Mr. Lautier confirmed the IMF’s participation in the forthcoming Economic Summit to be convened from July 25 to 26 by the Economics Association of Zambia under the theme Pioneering Zambia’s Sustainable Economic Transformation Through Climate Change Adaptation and Sustainable Financing Mechanisms after Debt Restructuring.
EAZ President Oswald Mungule said the IMF is expected to provide a comprehensive statement on Zambia’s debt resolution and offer insights into Africa’s economic outlook at the EAZ summit.
Mungule has urged various stakeholders to closely observe how the IMF supports Zambia in overcoming its debt burden.
He said Zambia is in a state of emergency and that natural disasters caused by climate change are hindering quick economic growth.
