Fuel price threat to Zambia

Against a backdrop of crude oil surging by more than US$78 per barrel in recent days, the Zambian government contends that the development would wipe out the external debt relief gained and the projected six per cent of Gross Domestic Product (GDP) economic growth envisaged to be attained during the 2006 fiscal year.

Central Bank Governor Caleb Fundanga said conflicts raging in Israel, Iran, Lebanon and Palestine were a setback to the government’s envisioned economic growth facilitated by external debt relief by the country’s Paris Club and Multilateral partners and need to be redressed.

Fundanga noted that the recent decline in copper prices on the international market would force the exchange rate to depreciate and ultimately affect inflation, rated at an average 8.5 per cent in June.

“We are faced with increased price of crude oil on the international market and unless the violence raging among major oil producers is resolved sooner than later, we risk losing all the gains we have made in the economy, let alone affect inflation which has reduced considerably low,” he said in Lusaka during a quarterly briefing on July 13.

According to the Central Bank, the 90 percent (US$6 billion) reduced debt burden by creditors has meant the government is saving up to more than US$150 million in 2006.

Foreign exchange reserves have swelled to more than US$1 billion and created nine months of import cover facility.

Zambia’s financial credentials have been boosted by the International Monetary Fund’s recent approval of US$8.2 million (Special Drawing Rights 5.50 million), bringing the total amount drawn under the three-year-Poverty Reduction Growth Facility (PRGF) to US$327 million (SRD 192.58 million) since 2004.

The IMF board had on July 11 completed the fourth review of Zambia’s economic performance under the three-year PRGF after it was approved two years ago.

The PRGF is the IMF’s concessional facility for low income countries. PRGF-supported programmes are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in the Poverty Reduction Strategy Paper (PRSP).

The decision is intended to ensure that the PRGF-supported programmes are consistent with the comprehensive framework for macroeconomic, structural and social policies to foster growth and reduce poverty.

The loans under the PRGF carry an annual interest rate of 0.5 per cent and are payable over 10 years with a five and half-year grace period on principal payments.

The increased crude oil price on international market, the second this month, has prompted Zambia to increase the cost of petrol and other fuel related products in the country, leading to a reaction in the cost of goods and services.

In Lusaka, a random survey revealed that the hike in fuel has prompted most retailers and suppliers of goods and services to adjust the cost of doing business and ultimately affecting most households, already burdened by lack of reliable sources of income to sustain them.

Mary Mulenga, a widow looking after a family of 10 children and 12 grand children, said the increased cost of petroleum products would have devastating effects on her family because of her weak source of income.

Mulenga, 65, a marketer residing in Kalingalinga, one of the sprawling shanties in Lusaka, said her life was becoming unbearable because the providers of goods and services had hiked prices beyond her reach..

She cited the increased cost of mealie meal (pounded maize or corn) as a case in point arguing that she said forced to raise an average ZMK40, 000 (US$10) for a 25kg bag of breakfast (refined meal) and ZMK30, 000

(US$7.50) for roller meal (unrefined).

“I am left helpless with the constant price increases because every time I have to look for enough money to feed my children and grand children. My source of livelihood (marketeering) is no longer profitable because most people have no money to meet various needs,” she said while exposing her depressed face.

Other concerned citizens lamented the perpetual increase in the price of goods and services arising from fuel hikes on the international market.

They appealed to the government to speed up review of the Energy Act intended to promote the use of bio fuels as opposed to crude oil.

However, Energy minister Felix Mutati said the government was concerned at the increases in fuel and was working to formulate a framework regarding investors who are interested in investing in Jantropa farming.

He said the legal framework, to be implemented this year, would protect the out-growers in the event that fuel prices on the international market are reduced.

The framework would assist the government to ensure that set standards of production for all bio-fuels were maintained.

“We have to get a framework for out growers which would introduce standards for the quality of bio fuels that will be produced,” said Mutati.

According to Mutati when the production of bio fuels commences, Zambia would be estimated to reduce expenditure in buying crude oil on the international market by 20 per cent.

July 2006
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