Subsidies for rich – WB

Banner 3
Banner 3” class=”f”>State House of the Republic of Zambia by Thomas Nsama on 5/22/13

…savings will offer development options, says Kadiresan

THE World Bank says the removal of subsidies is an opportunity for Zambia to realign public resources to meet the country’s development goal of achieving inclusive growth.

World Bank country manager Kundhavi Kadiresan says the removal of subsidies can generate savings and offer options for development.

Ms Kadiresan was responding to a press query on Government’s recent removal of subsidies on maize and fuel.

She said judicious use of savings generated by the removal of subsidies could not only reduce the suffering of the poor but also create opportunities for growing out of poverty.

“There is enough evidence to show that the subsidies have largely benefited richer farmers and middlemen such as a few millers and transport companies, hence the need to eliminate them.

“Many more people know that the FISP and FRA, though categorised as poverty reduction programmes, benefit only a relatively small proportion of 10 to 20 percent of Zambia’s smallholders,” she said.

Government spent about KR750 million on fuel subsidies last year and this year’s estimated cost on subsidies would have been in excess of KR1.1 billion.

Ms Kadiresan, however, said there is need for Government to explore options that will ensure saved resources are directly transferred to the poor.

Ms Kadiresan said while the removal of subsidies will create losers and winners and could create tensions, the good news is that if savings are redirected smartly, Zambia can ensure that the poor fully benefit from the removal.

Last year, over KR2 billion was spent on agricultural subsidies which accounted for more than 60 percent of the agriculture budget. The money was allocated to the Farmer Input Support Programme (FISP) and Food Reserve Agency (FRA).

Several local research institutions have put out analytical information on the impact of subsidies on the economy.

“What we need to be careful about is that those who are already poor do not suffer more while these changes are taking place. The removal of the fuel subsidy has already led to an increase in transportation costs and prices of some goods that are used by all. It is less clear if the removal of subsidy to millers will actually result in higher mealie-meal prices,” she said.

Ms Kadiresan said Government is already preparing a social protection policy and exploring options under the policy to directly transfer resources to the poor.

She said Zambia can learn from the experiences of Brazil, Chile, Mexico and Ethiopia where cash transfers and safety net programmes are increasing the incomes and productivity of the poor.

On Monday, President Sata instructed all his ministers and their deputies to embark on a campaign that must categorically explain what the long-term benefits of the subsidy removals