World Bank raises concerns over Zambia’s subsidies removal

Zambia maize virtualwayfarerThe removal of subsidy on maize could lower the Food Reserve Agency's cost overrun. (Image source: virtualwayfarer)The World Bank has said it was "uncertain" over the medium-term fiscal impact on the removal of subsidies on fuel, maize and fertiliser in Zambia

The Bretton Woods institution recently released its 2013 Zambia Economic Brief, which revealed that the Zambian government this year removed subsidies on fuel and farming inputs, as a reform measure aimed at creating space for expanding better targeted spending on health, education and other key service programmes.

The brief also noted that the fiscal benefits of fuel could erode quickly if no mechanism is put in place to periodically adjust retail prices to reflect changes in the world price of oil and in the dollar against Kwacha exchange rate.

Before the fuel prices were raised, there was an implicit subsidy equal to the difference between the pump price and the fuel cost, the World Bank said.

The Zambian government paid more than US$147mn in 2012 towards the subsidy, about 0.7 percentage point of the gross domestic product (GDP) and so far paid US$227mn in 2013 to clear the outstanding bill, the bank stated.

The removal of subsidy on maize could reduce the Food Reserve Agency (FRA) budget overrun, which has averaged 1.1 per cent of GDP since 2010.

Nawa Mutumweno

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