The Executive Board of the International Monetary Fund (IMF) has approved a 38-month arrangement under the Extended Credit Facility (ECF) in an amount equivalent to SDR 978.2 million (around US$1.3 billion, or 100 percent of quota) for Zambia to help restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
The authorities’ program, supported by the ECF-arrangement, will advance the authorities’ homegrown reform plan to restore debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance.
Securing timely restructuring agreements with external creditors will be essential for the successful implementation of the new ECF arrangement, the IMF emphasized.
Zambia is dealing with the legacy of years of economic mismanagement, with an especially inefficient public investment drive. Growth has been too low to reduce rates of poverty, inequality, and malnutrition that are amongst the highest in the world. Zambia is in debt distress and needs a deep and comprehensive debt treatment to place public debt on a sustainable path.
The ECF-supported program will help reestablish sustainability through fiscal adjustment and debt restructuring, create fiscal space for social spending to cushion the burden of adjustment, and strengthen economic governance, including by improving public financial management.
Program to catalyze much needed financial support from development partners
The Fund disclosed in a statement that the program will also catalyze much needed financial support from development partners. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 139.88 million (about US$185 million).
Following the Executive Board discussion on Zambia, Ms. Kristalina Georgieva, Managing Director, issued a statement that highlighted that Zambia continues to face profound challenges reflected in high poverty levels and low growth. She noted that the ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
“Restoring fiscal sustainability will require a sustained fiscal adjustment. The authorities’ adjustment plans appropriately focus on eliminating regressive fuel subsidies, enhancing the efficiency of the agricultural subsidy program, and reducing inefficient public investment. Domestic revenue mobilization also needs to support the medium-term adjustment.
“The adjustment creates fiscal space for increased social spending to cushion the burden on the most vulnerable, help reduce poverty, and to invest in Zambia’s people. The ongoing expansion of the authorities’ Social Cash Transfer program and their plans to increase public spending on health and education are particularly welcome. Together with the fiscal adjustment, Zambia needs a deep and comprehensive debt treatment under the G20 Common Framework to restore debt sustainability”.Ms. Kristalina Georgieva
Ms. Kristalina Georgieva further underscored that a substantial strengthening of fiscal controls is needed to support the fiscal adjustment, as well as address governance and corruption vulnerabilities. Public investment management and procurement practices need to be strengthened to ensure transparency and the efficient use of scarce resources, she noted.
It will also be important, she said, to bolster the framework for monitoring fiscal risks, particularly those related to large state-owned enterprises.
The IMF Managing Director urged the Bank of Zambia to continue its efforts to reduce inflation and preserve financial stability. International reserves should be replenished as conditions allow and the exchange rate should continue to reflect market conditions, she said, adding that “addressing high NPL levels and ensuring adequate capital buffers will also be important”.