IMF worried about power shortages

THE International Monetary Fund, which recently approved a Staff Monitored Programme with Zimbabwe, has expressed concern over the negative impact the current power outages will have on the country’s fragile economy.

By Kudzai Kuwaza

Power utility Zesa Holdings has introduced a massive daily 17-hour load-shedding programme brought about by several challenges which include foreign currency shortages, a breakdown of equipment, unpaid debt and severe reduction of water levels at Kariba Power Station.

The IMF representative to Zimbabwe Patrick Imam said the countrywide power outages will impact negatively on GDP growth and increase inflation which is currently at 97,85%, the highest since the introduction of the multi-currency regime in 2009.

“From a macro-economic perspective, not only is GDP growth negatively impacted by this supply side shock, but inflation will also increase and the country’s trade balance will worsen, as Zimbabwe either needs to import electricity from neighbouring countries or import fuel directly and we should not underestimate the environmental costs, with households cutting down trees for heating and cooking purposes,” Imam said.

He warned the mining sector which is the biggest consumer of electricity as well as the biggest generator of foreign exchange would be severely affected by the power deficit.

“If this sector does not get the electricity it needs to operate, one of the bright spots of the economy would be most impacted,” Imam said.

“The load-shedding is going to impact the economy negatively. If you think of it, a company that from one day to the next only gets a few hours of electricity a day has two options. One option is to use a generator as a substitute to electricity it was getting from Zesa, which requires buying expensive fuel but this assumes the company has access to fuel which is not a given in the Zimbabwean context.

“As running a generator is significantly more expensive, input costs will go up. And either these costs are then passed onto customers in the form of higher prices, or they are absorbed by the producer in the form of lower profit margins.”

The other option, Imam pointed out, is that companies will reduce production if they cannot access fuel or if it is not profitable to operate with higher electricity costs.

“In aggregate, therefore companies will be worse off and economic activity will be negatively impacted. By analogy, consumers will be squeezed as they will have more for goods purchased and on aggregate they will have earned less,” he said.

Imam said the power utility should in the short-term raise tariffs. “The long-term solution is clear which is to either diversify or use solar. But in the short-term you need to raise tariffs. If (South African power utility) Eskom say charges us12c per kilowatt then let Zesa charge slightly above that. Most are on prepaid metres so let those who can afford pay.”