IMF Highlights the Impact of Fuel Subsidies on Wealth Disparities and Climate at Upcoming EAZ Summit
Eric Lautier, the International Monetary Fund (IMF) Resident Representative for Zambia, has emphasized the adverse effects of fuel subsidies on economic inequality and climate change.
His remarks come ahead of the 2024 Economic Summit hosted by the Economics Association of Zambia (EAZ) on July 25-26, at Ciela Resort in Chongwe District, Lusaka.
Lautier highlighted that IMF research consistently shows that fuel subsidies disproportionately benefit wealthier households.
“Past research has shown the richest 20 percent of households benefit more from fuel subsidies, on average by a factor of 6 than the poorest 20 percent. Essentially, when you provide something below cost, the more you consume of it the more you benefit from these subsidies,” he explained.
This means that large firms and individuals with higher consumption patterns, such as those driving large cars and owning big houses, gain more from subsidized fuel compared to less fortunate people.
Furthermore, Lautier pointed out the environmental implications of maintaining fuel subsidies, particularly in the context of Zambia’s current drought conditions. “Subsidies are very bad for the climate, and we are dealing with the impact of climate change here in Zambia as we speak,” he noted.
The financial burden of subsidies also poses significant challenges to Zambia’s budget sustainability. Lautier stressed that the high cost of subsidies limits the government’s ability to invest in essential sectors.
“Spending a large share of the budget on fuel subsidies means that a country cannot afford the needed investment to grow the economy and create jobs. Without this reallocation, it would have been difficult for the government to double social spending as a share of GDP, hire more teachers and health workers, and provide free lunch at school,” he said.
Lautier acknowledged that while removing subsidies benefits the poorest in the long run, these individuals are also the least equipped to handle the immediate cost increases in energy, transportation, and food. Therefore, he stressed the importance of calibrated support measures to cushion the impact on those with the lowest disposable income.
The IMF will participate in the upcoming EAZ 2024 Economic Summit to further address these pressing issues.
The summit, themed “Pioneering Zambia’s Sustainable Economic Transformation through Climate Change Adaptation and Sustainable Financing Mechanisms after Debt Restructuring,” aims to bring together stakeholders to develop strategies for navigating economic challenges and fostering resilience.
Tendai Posiana, Acting Chief Executive Officer of the EAZ, confirmed the event details in a statement. The summit is expected to provide a platform for robust discussions on sustainable economic transformation, focusing on climate change adaptation and financing mechanisms crucial for Zambia’s growth post-debt restructuring.
