A team from the International Monetary Fund will arrive in Zambia on Wednesday to discuss “challenges” facing Zambia, buffeted by the kwacha’s record slump as a drought, electricity shortage and falling copper revenue weigh on government finances.
The IMF staff team will visit the country “at the invitation of the authorities and as part of the ongoing dialogue,” Tobias Rasmussen, the Washington-based lender’s resident representative in the capital, Lusaka, said in an e-mailed response to questions on Tuesday. It will “review recent economic developments and discuss with the authorities their policy responses to the macro-economic challenges currently facing the country,” he said.
The kwacha weakened as much as 7.2 percent to 14.605 per dollar on Tuesday before paring losses to trade 3.5 percent weaker at 14.0923 by 5:25 p.m. in Lusaka. The currency of Africa’s second-biggest copper producer has lost more than half its value this year and may extend the decline unless the government seeks IMF help to restore confidence, according to Paarl, South Africa-based NKC Independent Economists.
A record 3-percentage-point increase in the benchmark lending rate by the Bank of Zambia on Nov. 3 failed to stem the kwacha’s plunge. The bank increased the policy rate to 15.5 percent after the inflation measure doubled to 14.3 percent in October, fueled by the currency’s depreciation. While central bank Governor Denny Kalyalya said the nation could benefit from IMF support, authorities have so far resisted turning to the lender for emergency loans, selling Eurobonds instead this year to raise funding for the budget.
“They’ve been quite vocal about not needing the IMF,” Irmgard Erasmus, an analyst at NKC, said by phone. “We differ from that. With rising global headwinds and commodity prices being suppressed in the medium term they might not have a choice but to ask for IMF aid.”
The kwacha’s collapse is wreaking havoc with the government’s debt ratios, according to the World Bank. Total debt may reach 56 percent of gross domestic product by the end of the year, Gregory Smith, an economist with the Washington-based lender, said on Nov. 6, when the currency traded at 13.11 per dollar. In June, before the kwacha’s rapid depreciation and the government’s third Eurobond sale, the ratio was about 32.7 percent, according to Finance Minister Alexander Chikwanda.
Yields on Zambia’s $1.25 billion Eurobonds sold in July and maturing from 2025 soared 34 basis points to 11.57 percent on Tuesday. The nation has $240 million of interest payments due on foreign debt in each of the next seven years, according to data compiled by Bloomberg.
Seeking IMF help “won’t be their first choice but we don’t see them as having any choices left,” Erasmus said. “Sooner rather than later, getting the IMF involved will be the better course of action.”