Page 4 - DMEA Week 04 2021

DMEA COMMENTARY DMEA

Heavily indebted Zambia slashes

fuel tax to ease shortages

Instead of jacking up regulated prices, Zambia is putting further strain on its

finances by giving tax breaks to marketers to encourage them to import more

ZAMBIA ZAMBIA has slashed import duties on fuels, “This [policy] is with a view to adjusting
in a desperate effort to get marketers to bring downwards the cost of importing products so
WHAT: more supplies into the country and ease wors- that they become cheaper,” Energy Permanent
The Zambian government ening shortages. But the move will put further Secretary Trevor Luanda told reporters. He
has slashed import duties financial strain on the heavily indebted country added that marketers had complained that the
on fuels, after importers and could hinder discussions with the IMF for a removal of VAT alone was not enough to make
complained they were bailout deal. fuel imports profitable.
making losses because of The country became the first African nation
low regulated fuel prices to default on its debts last November, and the A dire fiscal position
in the country. government is currently in talks with the IMF These moves will further sap Zambia’s finan-
and creditors to restructure $12bn of external cial incomings, however, and jeopardise nego-
WHY: debt before August’s presidential election. But tiations with the IMF. The Washington-based
Lusaka is trying to authorities in Lusaka, seeking to retain power, lender strongly opposes subsidies and is calling
alleviate fuel shortages, have also resisted calls to raise regulated fuel on Zambia to enact austerity measures. It has yet
made worse by a collapse prices. These prices have not changed since to respond publicly to the latest tax breaks.
in the value of its December 2019, despite Zambia’s currency “The dire fiscal position suggests that the
currency and the closure shedding over a third of its value against the US zero-rating may be a pre-election ploy, prone to
of its only refinery. dollar over the last year. reversal as government funding lines run dry,”
Fuel marketers say the low regulated pump Irmgard Erasmus, senior financial economist
WHAT NEXT: prices mean they cannot afford to import sup- at NKC African Economists in South Africa,
By reducing taxes plies, given the disparity with international said of the decision by Zambia’s ruling Patriotic
and maintaining fuel prices, especially in light of the currency’s weak- Front Party. The concessions demanded by the
subsidies, Zambia ening. Rather than jack up prices, though, the deal “run counter to its political survival strategy
will further weaken its government has axed the import duty on diesel with some time still to go before the August poll.”
financial position and completely and cut the gasoline duty by three The government has also risked upending
jeopardise a bailout deal quarters. At the start of the year it also scrapped IMF talks by making a pre-election push to take
with the IMF. VAT on fuel imports. control of the country’s copper mines. Zambia’s

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