Zambia's government has frozen financing for all non-essential projects and may delay further cuts to fuel taxes to keep its budget deficit below two percent of GDP, Finance Minister Ng'andu Magande said on Tuesday.
The copper-rich southern African nation has been financially squeezed by the global financial crisis, which has led to a drop in commodities prices and reduced investor interest in emerging markets in Africa and elsewhere.

Magande told journalists in Lusaka the government would only release funds for road construction and other infrastructure projects that were seen as critical to the development of the economy.

"It simply means that for other projects, we are not going to release funds the ministries needed (and) they have to live within the budget," Magande said.

Zambia's government had hoped to keep its deficit this year to 1.2 percent of GDP, but it conceded last month that it would not reach that target.

The belt-tightening flies in the face of a proposal made by acting President Rupiah Banda to push through additional reductions on fuel import taxes, lowering the cost of petrol.

Banda is running in an Oct. 30 presidential election to succeed former President Levy Mwanawasa, who died in France in August following a stroke.

Banda's government already has cut import duties on fuel and raised the amount of fertiliser subsidies for poor farmers. Opposition leader Michael Sata has described the moves as a ploy to win votes.

Magande, however, said that Zambians might have to wait until next year for another drop in the price of petrol.

"When we cut fuel prices in June, we suffered a loss of 120 billion kwacha ($31.1 million). This is good because less tax means there will be more economic activity, but I have to find money somewhere to cover the loss," Magande said.

The bad news was partly offset by the World Bank's announcement on Monday that it would provide $75.5 million to boost electricity generation in the mineral-rich country, which is facing a power crisis.

Kapil Kapoor, the Bank's country manager for Zambia, said 18,000 additional households would be connected to the national grid as a result of the funding. He noted, however, that Zambia would need up to $2 billion to meet growing power demand from industrial and residential customers.

Only 20 percent of Zambia's 12 million people have access to power and only three percent of those are in rural areas, according to the government. It has targetted raising access to electricity to 50 percent of the population by 2030.

Officials say Zambia has up to 1,650 megawatts of generation capacity but currently produces only 1,400 megawatts of power due to problems with aging power stations and transmission lines.

Reuters

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