The International Monterey Fund says the financial bailout that Zambia is negotiating will come with gradual structural adjustments.
IMF Africa Director Abebe Aemro Selassie told a media briefing at the IMF Headquarters that adjustment programs should be supported by safety nets that can help to minimize the impact on the poor.
Mr Selassie said there is a way to reduce eliminate the subsidy while putting in place protectionist measures for the people that will be impacted most.
So, very important aspect of our policy advice is to provide ideas, suggestions on how the tax rates can be made — taxing — tax adjustments are required and they can be made as progressive as possible. But importantly, adjustment programs are supported by safety nets that can help to minimize the impact on the poor.
“One of the challenges in Zambia, I think, is going to be trying to address the significant subsidies there are – a few subsidies in particular. In general, subsidies tends to be very regressive, so it tends to take up a lot of budgetary allocation and the beneficiaries tend to be the more wealthier segments of society,” Mr Selassie said.
“So, I think there is a way to reduce the subsidy, eliminate the subsidy while putting in place protectionist measures for the people that will be impacted most and have much lower levels of income.”
He added, “On Zambia, it is indeed [true] that Zambia is one of the countries that although not an oil exporter, of course, heavily relies on cooper exports and the decline in cooper prices has been a very severe shock to the economy. This has been coupled — with more domestic sources of pressure on the fiscal accounts, particularly, elevated spending in a number of areas.”
Mr Selassie said the first order of priority is going to be putting in place a significant fiscal adjustment.
“This needs to be coupled and supported by monetary policy steps, of course. You know, a lot of the work we do and a lot of the advice that we do with countries, we try and pay heed to the effect that fiscal policy adjustment can have on the poor.”