By Nation Reporter
GOVERNMENT should remove fuel and electricity subsidies which cost it a total of US$576 million every month to reduce pressure on the national Budget, the World Bank 7th Zambia economic brief has said.
According to the brief prepared by the World Bank senior economist Gregory Smith and other bank’s stakeholders, fiscal adjustment should be accompanied by a shift in spending priorities that supported both the efficiency of public expenditures and long-term inclusive growth.
“Over the past five years, public expenditure has increased at an annual average of 13.8 percent (in real terms) and a thorough review of the quality of this expenditure is required,” read the report.
The report said fuel and electricity subsidies was a key area of under-utilised expenditure where an US$576 million was spent monthly, putting huge pressure on the national Budget.
The World Bank in the report explains that fuel subsidies have averaged close to US$36 million per month between a combined September 2015 and May 2016 while those of electricity averaged around US$26 million per month during the same period.
There is now need to improve the quality of expenditure by eliminating fuel subsidies and improving the financial sustainability of the power sector.
It also says Government should carry out a review of public expenditure in key sectors so that the allocation of expenditure could be improved and lessons to boost the efficiency of spending could be found.
“While in many areas this is difficult to achieve, there are obvious areas for attention, including the growing cost of fuel subsides. There is need to identify and reallocate under-utilised resources to ensure that every kwacha spent is contributing towards each sector’s objectives,” read the report.
Meanwhile, the bank emphasizes that it is important to note that a weak Kwacha does not necessarily mean a weak economy and vice versa.
“For example, an appreciating Kwacha makes Zambian exports more expensive and imports relatively cheaper. Since many inputs for producing domestic goods are imported, when the currency depreciates production costs for many firms rise,” read the report.
The bank however noted that the stability of the exchange rate which helped in making sound investment and business decisions was essential.