The Executive Board of the International Monetary Fund (IMF) has approved 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).
In a statement released by the Organization on Thursday, stated that this ECF program is based on authorities’ homegrown economic reform plan that aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
Recall that 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.
Following the Executive Board discussion on Zambia, the Managing Director, Ms. Kristalina Georgieva, said, “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 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”.
She added that 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 deep, comprehensive debt treatment under G20 Common Framework to restore debt sustainability”.
Ms Georgieva further said 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”.
She noted that 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.”
Also, the ECF-supported program will help reestablish sustainability through fiscal adjustment and debt restructuring, create fiscal space for social spending to cushion burden of adjustment, and strengthen economic governance, including by improving public financial management.
Furthermore, the program will 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).
Zambia’s President, Hakainde Hichilema on Twitter account has said that the IMF-supported program is vital in ensuring a sustainable macroeconomic environment in which meaningful socio-economic dividends for all our people can and shall be delivered.
According to him, “We encourage citizens to familiarize themselves with the Program so we enhance consensus building. Team work is important for all of us. Once we agree, we can walk together as a team and we’ll be ok as a country and as a people.
The President thanked those working towards maintaining adequate international Reserve buffers. “This approval doesn’t happen by luck or chance, it comes through strategic planning and action. We need these Reserves as a back up”.
Hichilema gladdened that within three months of being in office, his administration succeeded in securing IMF Staff-Level Agreement, while consideration of application by IMF board was subject to obtaining financing assurances from Zambia’s creditors.
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