Monday, July 08, 2013

Identify people who should continue benefiting from subsidies - IMF
By Kabanda Chulu
Mon 01 July 2013, 14:01 CAT

COMMENT - It were the IMF and World Bank that demanded that Zambia privatise it's mines, making Zambia miss out on the boom in copper and commodities prices of the 2000s. I have not heard them apologize for that, let alone offer compensation. Until that date, IMF advise is unwelcome, to say the least. - MrK

IMF Zambia resident representative Tobias Rasmussen has advised the government to identify needy and vulnerable people who should continue benefiting from subsidies.

"Removing the subsidies does place an additional burden on those of meagre means who will struggle to pay more for fuel and maize. This calls for intervention to help offset the impact on the poor. Such intervention can take many possible forms, such as direct cash transfers to low-income households or free meals to underprivileged school children. By careful targeting, the needy can be compensated at much lower cost to the government budget than by subsidising everyone's consumption."

He said by failing to distinguish between rich and poor, subsidies were an inefficient way of social protection.
"Recent IMF research finds that in sub-Saharan Africa, on average, the richest 20 per cent of households capture about 45 per cent of fuel subsidies, while the bottom 20 per cent only receives 8 per cent. The situation regarding agricultural subsidies is more complicated and will take more time to correct, but also here it is clear that the current system is not effective in terms of targeting the most needy," he said.
Rasmussen said subsidies were an inefficient way of social protection.
He said the removal of subsidies on fuel and maize was an important step that had a potentially positive impact on the Zambian economy
He said subsidies were costly to the government and crowded out other areas of spending, including on much-needed infrastructure and social services.
"Together the fuel and maize subsidies cost about KR4 billion in 2012, and in some years, they have cost more than the government has spent on health or education. Fuel and maize subsidies also distort consumption patterns and discourage development of alternative supplies, reducing competitiveness and depressing economic growth," Rasmussen said, in an emailed response.
Rasmussen advised the government to stimulate the development of markets so that the private sector could step in to fill the void where the government was pulling out.
"With the right competitive environment, markets can greatly increase the efficiency of production and distribution, bringing benefits to producers and consumers alike," said Rasmussen. "Among others, this requires a stable policy environment, so grain traders know what to expect and will want to venture deep into rural areas to purchase maize that previously would have been sold to FRA at great cost to the government budget. In the case of fuel provision, greater competition can reduce pump prices and thus help offset the impact of subsidy removal at no cost to government."

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