FUEL ADJUSTMENTS MEANT TO ATTAIN FISCAL CONSOLIDATION
THE upward adjustment of fuel pump prices which is inflationary in nature, has been necessitated by Government’s stance to attain fiscal consolidation and dismantle Zambia’s debt, according to the Kwacha Arbitrageur Magazine.
Zambia’s fuel arrears as at end-August 2021 stood at US$477.79 million
The Energy Regulation Board (ERB) therefore last week announced a 20-29 percent hike in fuel prices with petrol now selling for K21.16 per liter while diesel and Low Sulphur Gasoline is now trading at K20.15 and K22.29, respectively.
This upward adjustment comes almost exactly two years after the last hike effected on December 26 of 2019. Petroleum products nonetheless remain zero rated for Valued Added Tax
( VAT) purposes leaving a residue subsidy.
The Kwacha Arbitrageur Magazine however analysed that this move had been necessitated to reflect global crude and currency price.
It explained that this was in a quest to reallocate resources to productive sectors of the economy through a subsidy removal program as the Southern African nation readies for an International Monetary Fund programme (IMF).
“The fuel price
adjustment remains one of the boldest moves the new dawn government has implemented three months into office as they seek to deliver on electoral promises of restoring economic growth.
“However the step continues to be misunderstood by critics on account of the medium term effects it will have on the cost of living for Zambians. However the bailout package is said to have greater positive externalities in the long term if embraced wholly,” the magazine indicated.
International crude prices continue to trend bullish around US$75 a barrel while the copper currency has shaved over five to seven percent value in the last two years.
These are two key variables taken into consideration in determination of fuel prices according to the energy regulators cost plus pricing model.
The magazine also emphasised that electricity prices were expected to adjust higher as part of the removal of subsidies on power.
Zambia recently reached an agreement with the IMF for a US$1.4 billion extended credit facility which sets the pace for debt restructure targeted for the first quarter of 2022 which if successful will improve the country’s sovereign posture.