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Govt should reinstate fuel subsidies - Prof Saasa

Govt should reinstate fuel subsidies - Prof Saasa
By Chiwoyu Sinyangwe, Moses Kuwema and Kabanda Chulu
Thu 13 May 2010, 04:50 CAT

THE government should reinstate the fuel subsidies as a way of insulating domestic production lines and also preserving macroeconomic stability in the country, Lusaka economic consultant Professor Oliver Saasa said yesterday.

Prof Saasa warned that the economic growth rate the country had achieved in recent years risked being eroded by the current increases in energy prices.
The ERB on Tuesday announced a fuel increase of between 9.8 per cent (K598) and 13.18 per cent (K882) effective Tuesday and based on Lusaka pump prices. The move was blamed on high international oil prices and government abandonment of subsidies.

And commenting on the development, Prof Saasa feared the deterioration of the economic gains Zambia has made in recent times even amidst the global economic crisis.

He projected that Zambia would not achieve the key economic targets such as annual inflation rate and the Gross Domestic Product. He wondered why the government had abandoned fuel subsidies when it was subsidising mining activities through concessions embedded in the Development Agreements.

“There is need for the government to provide subsidies to some level that will allow for the achievement of the set macroeconomic targets,” Prof Saasa said.

“I wonder why in this country we treat subsidies as a curse…It is something governments world-over do to achieve growth targets. For me, 13 per cent increase is certainly too much to come in quick succession and in my view it is not purely market driven. So there is need for some modulation.”

Prof Saasa said some overzealous economic decisions, especially from the remains of International Monetary Fund (IMF) and World Bank peddled economic policies under the structural Adjustment Programme were pushing the idea of abolishing subsidies when key industries like mining companies were surviving and thriving on the government rebates.

“Mining companies shoulder on some relief provided to them under the development agreements for them to increase output,” said Prof Saasa. “So, at the rate we are going, the more we speed with these increases, the less we achieve the set targets for this year.”

And Mazabuka Central member of parliament Garry Nkombo said the increase in the pump price of fuel will have negative effects on the economy.

Nkombo said the increase would have an effect on prices of goods and services.

“The price of energy is the determining factor of all goods and services so the cost of transporting goods from far flung areas to the markets will go up and this will have negative effects on domestic households,” Nkombo said.

He wondered why the government kept on preaching about rural electrification when the rural communities could not afford the commodity.

He said civil servants’ salaries had only been increased by 15 per cent while the pump price of fuel had been increased by 13.18 and 9.8 per cent.

Nkombo wondered why other landlocked countries such as Zimbabwe and Malawi had lower prices of fuel as compared to Zambia.

And Zambia Association of Manufacturers (ZAM) vice-president Eugene Appel said the increase in fuel pump prices would make it difficult for companies to recover costs of production since contracts are fixed annually.

In an interview in Kitwe yesterday, Appel said fuel was an imported commodity which was affected by the foreign exchange regime.

And Chamber of Mines geal manager Frederick Bantubonse said the increase would result in higher cost of production for the mining sector.

Petrol will now cost K7,573 from K6,652 per litre, while diesel will be selling at K6,898 from K6,414 per litre.

Labels: ENERGY, FUEL, OLIVER SAASA

posted by MrK @ 3:55 PM