President Edgar Lungu has asked the International Monetary Fund to offer an emergency bail out to his government but only start implementing the needed austerity measures after the August elections.
President Lungu through Finance Minister Alexander Chikwanda made the plea when he met an IMF mission team that was in Zambia over the last two weeks.
The IMF is however not willing to offer emergency financing to the Zambian government before the country’s authorities submit a detailed technical report on how it will stabilise the economy.
This led to a deadlock and the much expected deal was not agreed at the end of the mission.
Impeccable sources who attended part of the consultations with the IMF team revealed that President Lungu was begging the IMF to relax its terms and allow his government to start implementing key austerity measures after August.
The sources said President Lungu contended that implementing a full set of austerity before the August elections will make it impossible for him to secure re-election.
Among the key measures the IMF team is demanding that government implements includes the removal of fuel subsidies, a serious reform of the Farmer Support Programme, introduces cost reflective power tariffs and a slowdown in infrastructure spending.
And in an End-of-Mission statement released on Friday, the IMF said the Zambian government indicated that strong near-term measures are being evaluated and that, at the IMF/World Bank Spring Meetings in mid-April, they would provide further guidance on the policy direction and reforms, and their plans for an IMF-supported program.
“Government finances are under immense stress. Expenditure is running far above budget, in large part as a result of fuel subsidies and contracted emergency electricity imports that together are estimated to cost the treasury about US$660 million a year at the current pace (equivalent to 3.2 percent of GDP). At the same time, domestic and external financing options have become more limited along with rising interest rates. Mounting domestic arrears are adding to concerns about debt sustainability,” the IMF said.
It added, ““tightening of monetary policy has been effective in stabilizing the exchange rate but tight liquidity conditions have contributed to persistent under-subscription of treasury bills and bonds. However, there is little scope to loosen monetary policy as long as fiscal imbalances are not addressed. A key challenge going forward will be to normalize activity in the interbank foreign exchange market while avoiding a return of last year’s extreme volatility in the exchange rate.”
The IMF said its mission and the Zambian government reached a shared understanding of the challenges and risks associated with the current economic situation.
“The authorities stressed that, notwithstanding the upcoming general elections, they are committed to addressing the budgetary pressures, including moving to cost-reflective energy pricing, and scaling back on discretionary spending while safeguarding social protection programs. They indicated that strong near-term measures are being evaluated and that, at the IMF/World Bank Spring Meetings in mid-April, they would provide further guidance on the policy direction and reforms, and their plans for an IMF-supported program,” it said.
“The mission is confident that Zambia’s current economic challenges can be overcome with resolute policy action, allowing a resumption of growth in line with the country’s abundant potential. In particular, a package of measures that makes clear that the fiscal pressures are being tackled would boost market confidence and pave the way for increased investment and growth. However, delays in implementing corrective measures will only worsen the situation, increase the adjustment cost and postpone the recovery.”