Zambian economists divided on removal of subsidies

Zambian government decision to remove subsidies on fuel and maize has divided local economists, with some in support of the move and others arguing it will have serious repercussions

Zambian economists divided on removal of subsidies

World Bulletin/News Desk

A Zambian government decision to remove subsidies on fuel and maize has divided local economists, with some in support of the move and others arguing it will have serious repercussions on the national economy.

"The case for eliminating subsidies on maize is very strong; it is a good riddance, because it depletes the treasury and other sectors don't get any attention," Caleb Fundanga, former governor of the Bank of Zambia, told the Anadolu Agency.

Fundanga argues that subsidies are generally bad for the economy if they are not well implemented.

"There are findings that only bigger millers benefit, while targeted poor people didn't benefit in terms of reduced mealie meal prices," Fundanga said.

In May, the government removed fuel subsidies across the board, while also removing maize subsidies for millers. It retained maize subsidies for farming inputs, however.

Subsidies currently account for 60 percent of Zambia's state budget.

Finance Ministry figures indicate that the government spent nearly 750 million Zambian kwacha (KR) on fuel subsidies last year, while the estimated cost of subsidies this year would have exceeded KR 1.1 billion.

Fundanga has therefore advised the government to find other means of supporting small-scale farmers who will likely be affected by the removal of fertilizer subsidies.

In a previous interview with the AA, Finance Minister Alexander Chikwanda defended the removal of subsidies on fuel and maize, insisting that the government could not run a subsidy regime at the expense of other pressing national programs, such as poverty reduction and road and hospital construction.

"Fuel subsidies inflict a heavy burden on government budgets and add to wasteful consumption, which in turn, diverts much-needed resources from more pressing needs, such as health, education and infrastructure development," he said.

Chikwanda explained that the removal of subsidies would also help attract investments in the electricity-generation sector and improve the country's health and education sectors.

Bad move

Former bank governor Fundanga, for his part, believes that subsidies aimed at supporting production should be maintained.

"Subsidies that promote exports and increase production of goods and services should be kept," he told the AA.

"For instance, the subsidy on fertilizer input support worked well, since Zambia has become a grain exporter following successive maize bumper harvests, and increased incomes for smallholder farmers," he noted. "So this subsidy targeting production should be supported."

He added: "The government should find ways of supporting small-scale farmers because the removal of this subsidy will have implications on all of us, since it will result in maize deficits as well as food insecurity."

This assumption was challenged, however, by Professor Oliver Saasa, a former economic adviser to late president Levy Mwanawasa.

Saasa, now a private economic and policy consultant, insists that removing fuel subsidies will be problematic since energy constitutes the backbone of any economy.

He warns that the abrupt removal of fuel subsidies without putting alternative support programs in place would have an adverse impact on the poorest segments of the population.

"The government's management of the subsidies removal has been terrible, resulting in the economy being in panic mode," Saasa told the AA.

"And now we expect price hikes after the abrupt [subsidies] removal," he added.

Saasa expressed the view that the move's negative effects, such as the current rise in the cost of living, must be well-managed, otherwise the country will head towards economic doom.

As a result of the removal of subsidies, fuel prices have gone up by an average of KR 1.68 per liter, while maize meal prices have increased as well.

Although it agrees with the government decision to remove fuel and maize subsidies, the Zambia Congress of Trade Unions (ZCTU) believes the move has negatively affected public service workers.

ZCTU Secretary-General Roy Mwaba told the AA that the removal of fuel and maize subsidies would consume the planned 2013 salary increases already approved for civil servants.

But the ZCTU insists that the government should extend the removal of subsidies to the food, beer and accommodations provided to security officers.

"The government should stop subsidizing security officers so that an equal situation is created for all public service workers," Mwaba told the AA.

"All workers should be treated equally by ensuring that all subsidies are removed," he added.

"There is no way security officers can enjoy subsidies on food, beer and accommodations, which other workers are not enjoying."


Güncelleme Tarihi: 22 Ağustos 2013, 12:54