IMF approves extended credit facility

ZAMBIA ECONOMIC STRUCTURAL ADJUSTMENT 2022

Zambia has won International Monetary Fund board approval for a $1.3 billion support package, a important step toward the nation restructuring its debt and a boost for the global effort to help indebted developing nations.

The IMF said in a statement that the 38-month extended credit facility is based on Zambia’s “homegrown economic reform plan that aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.

The program will also “catalyze much needed financial support from development partners,” enabling an immediate disbursement equivalent to about $185 million, the fund said.

The Executive Board’s decision will enable an immediate disbursement equivalent of about US$185 million.

Following the Executive Board discussion on Zambia, Ms. Kristalina Georgieva, Managing Director, issued the following statement:

“Zambia continues to face profound challenges reflected in high poverty levels and low growth. 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.

“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. It will also be important to bolster the framework for monitoring fiscal risks, particularly those related to large state-owned enterprises.

“The Bank of Zambia should 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. Addressing high NPL levels and ensuring adequate capital buffers will also be important.”

Zambia had been seeking endorsement from the Washington-based lender for over three years as the government tries to finalize negotiations to revamp external liabilities that grew to $17.3 billion by the end of last year.

Chinese lenders account for more than one-third of its official dollar debt.

The IMF had needed assurances from Zambia’s official bilateral creditors that they were willing to renegotiate.

Those came on July 30, opening the way for the board to consider the bailout request after reaching a staff-level deal in December.

Zambia applied to restructure its obligations under the Group of 20’s Common Framework guidelines, which brings together members of the Paris Club of mostly rich creditor nations, and China, which has become the world’s biggest official lender.

Beijing was reluctant to join at first, preferring to negotiate separately.

“Securing timely restructuring agreements with external creditors will be essential for the successful implementation of the new ECF arrangement,” the fund said.