The Contentious Issue of Subsidies
Late last year, the Ministry of Finance announced the removal of subsidies on petroleum products, a decision that has engendered diverse reactions. On the one hand, the movement to cost reflective energy has increased inflationary pressure, whilst on the other it has freed up resources for an already constrained treasury. Advocates of the subsidizing of fuel and electricity have argued the recent price hikes have taken necessities out of the reach of ordinary Zambians, with some going as far as claiming the UPND is not pro-poor. However, economists, often point out that removal of subsidies has improved Zambia’s chances of securing IMF board approval for the extended credit facility, which the country so badly needs. Let us begin by defining what a subsidy is. The World Trade Organization defines a subsidy as a grant given by the state to a particular industry with a view to keep prices artificially low (WTO, 2006). We cannot talk of subsidies without alluding to the Free Market System