Zambia increased fuel pump prices as it scrapped subsidies to secure a bailout from the International Monetary Fund. Gasoline and diesel rose respectively by 20% to 21.16 kwacha ($1.29) per liter and by 29% to 20.15 kwacha per liter effective Friday, Reynolds Bowa, who heads the Energy Regulation Board, told reporters in Lusaka, the capital, Thursday.
The hikes took into account international prices and the exchange rate, while maintaining fiscal incentives, according to Bowa. Pump prices will now be reviewed every 30 days after subsidies and tax breaks kept them artificially stable for two years, he said.
The move comes as the country, which became Africa’s first pandemic-era sovereign defaulter last year, seeks $1.4 billion in funding from the IMF. While the multilateral lender hasn’t publicly flagged Zambia’s energy subsidies as a deal breaker, it’s opposed them in the past.
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The national power utility owes suppliers about $1 billion, largely because it buys the electricity for more than it sells it. Zambian Finance Minister Situmbeko Musokotwane still needs to win final approval from the IMF board, having announced a staff-level deal on Dec. 3.
In a bid to secure the deal, he is implementing unpopular reforms including cuts to gasoline and power subsidies. He’s also engaged creditors to restructure about $16 billion in external debt with formal negotiations due to start in the second quarter.
Opposition lawmakers have played up the hardship higher prices may bring with inflation already at 19.3%. Central Bank Governor Denny Kalyalya has said it’s necessary to raise fuel and electricity prices, even if it adds to near-term inflationary pressures.
