Thanks to the IMF, Zambia's fuel prices have nearly doubled in two years

By Grieve Chelwa

On 31st January, Zambia’s Energy Regulation Board (ERB) announced yet another upward revision in the retail prices of petroleum products in the country. With very few exceptions, petroleum prices have been adjusted every month by the ERB since December 2021.

Prior to December of 2021, the prices of petrol and diesel, the two most important petroleum products by consumption in Zambia, were respectively K17.62 per litre and K15.59 per litre and had remained that way for much of the year. These prices were revised upwards starting that December and subsequently so on an almost monthly basis leading up to the announcement on 31st January.

In its latest announcement, the ERB increased the prices of the two commodities to K34.19 per litre for petrol and K32.15 per litre for diesel. Incredibly, these new prices meant that petrol and diesel had nearly doubled in price in the two years since December 2021 when the ERB’s aggressive pricing strategy began.

This effective doubling of fuel prices in two years is a direct result of the financing deal that the Zambian government struck with the International Monetary Fund (IMF) in December of 2021 (formally approved by the IMF’s Executive Board in September of 2022). A lynchpin of that deal was the IMF’s directive that the Zambian government should eliminate all subsidies to fuel consumption. Prior to this, Zambia maintained a regime of direct and indirect subsidies that helped cushion consumers from the wide swings in international oil markets.

The doubling of petrol and diesel prices since December of 2021 is unprecedented in Zambia’s recent history. Price data from the ERB shows that the rate of increase in fuel prices was much slower in the previous decade. For example, it took seven years for petrol and diesel prices to double between 2011 and 2018. This time around it has only taken a third of the time showing that the Zambian government has followed the IMF’s diktat to the letter.

Developments in the energy sector have had, as expected, devastating impacts on the wider economy. Data from the Zambia Statistics Agency shows that the rate of increase in food prices (i.e., food price inflation) is higher than overall inflation. Of equal concern is the fact that transportation costs have been increasing at a rate that is twice the overall inflation rate — much of the country’s working population relies on public transportation to get to and from areas of economic activity. The Jesuit Center for Theological Reflection, a widely respected NGO, has recently sounded the alarm that the country is undergoing a cost of living crisis that is disproportionately impacting the poor. The National Union of Small-Scale Farmers has argued that the price hikes “have negatively affected the cost of doing business for farmers across the country”. The Zambia Association of Manufacturers expects that the price hikes will gravely impact the country’s industrial output.

In following the IMF’s directive on the removal of subsidies, the Zambian government has unleashed a brutal cost of living crisis on its people and is crippling the economy in ways that will take ages to rectify.

Grieve Chelwa is an Associate Professor of Political Economy at the Africa Institute and a Non-Resident Senior Fellow at Tricontinental: Institute for Social Research.