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IMF loan can trigger steep rise in fuel prices on rolling back of subsidies

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Consumers in Zambia can face steep fuel price hikes if one goes by the cardinalities imposed on the  IMF deal just concluded.

As reported by www.trendsnafrica.com the International Monetary Fund (IMF) Board approved a new Extended Credit Facility (ECF) arrangement for Zambia on August 31st, 2022. The US$1.3 billion 38-month program is expected to address the government’s efforts to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth. One of the conditions of the IMF bailout package is removing implicit subsidies on fuel.

The ECF-supported program will target a large, front-loaded, and sustained fiscal consolidation through reforming regressive and wasteful subsidies. That includes removing all fuel subsidies in 2022.

To ease the impact of higher oil prices and the local currency -kwacha- depreciation, the government reduced excise on petrol and diesel and zero-rated them for Value Added Tax (VAT) in view of the concluded 2021 election. These tax expenditures are projected to cost the budget 1.7% of GDP in 2022.  But the government is determined to eliminate them this month. The government will eliminate explicit fuel subsidies as they are regressive and crowding out critical social spending.

Read Also:

https://trendsnafrica.com/zambia-finally-to-get-us1-3-billion-imf-bailout/

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https://trendsnafrica.com/zambian-president-calls-for-italian-investment-in-ev/

Prior to the IMF approving the bailout package, the government restored cost-plus pricing for petroleum products in December 2021. It also shortened the pricing cycle from 60 to 30 days. It also resorted to waiving both excise and customs duty to avoid a fuel price hike as the country was heading for polls in August 2021.

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