IMF
IMF

By Kalima Nkonde

The Announcement by Finance Minister, Mr. Felix Mutati that the IMF team will be coming at the end of October, 2016 may raise expectations in some quarters especially for those who think that the loan from the IMF is a panacea to the financial challenges that the Zambian government is facing.

IMF loans unlike Eurobonds are not easy and quick to arrange. There are procedures and conditions to be met before funds are disbursed. Zambia has not yet even formally engaged the IMF in negotiations as all issues were kept on hold due to the August 11, 2016 elections.

The IMF and the government have to agree formally on a program of policies aimed at achieving specific, quantified goals in support of the overall objectives of the authorities’ economic program and when both agree to a loan, the government will outline the details of its economic program in a “letter of intent” to the Managing Director of the IMF agreeing with the IMF conditions.

According to the IMF guidelines on conditionality, disbursements are only done on meeting certain conditions.

“Most IMF financing features disbursements made in installments that are linked to demonstrable policy actions. This aims to ensure progress in program implementation and to reduce risks to the IMF’s resources. Program reviews provide a framework for the IMF’s Executive Board to assess periodically whether the IMF-supported program is on track and whether modifications are necessary for achieving the program’s objectives. Disbursements under an IMF-supported program can take place only upon its approval, or completion of reviews, by the IMF’s Executive Board,” the Guidelines states.

The IMF has four broad categories of conditions: Prior actions, quantitative criteria, indicative targets and structural bench marks. Prior actions are measures that a country agrees to take before the IMF’s Executive Board approves financing.

Zambia will not receive a dollar from the IMF until it fulfills the Prior actions of the IMF which in our case are likely to include the following:

  • Implementing full cost recovery on fuel and electricity by removing subsidies
  • Implementing measures to reduce fiscal deficit
  • Limiting public debt accumulation
  • Ceiling on contracting external debt
  • Ceiling on public sector wages and salaries and cleaning up public sector payroll
  • Measures to fight corruption
  • Removal or reform of agriculture subsidies

The implication is that Zambians will start feeling the effects of the austerity measures before the government receives a single dollar from the IMF. On the basis of the experiences of other countries, the IMF and Government may agree on prior actions to be implemented in their October meeting which will be reviewed after three months say in February, 2017 and thereafter a formal agreement may be entered into after approval by the IMF Board. The first installment of the IMF loan should be expected in March, 2017 or April, 2017.

Ghana received $114.8million installment of the approved US$918million which was 12.5% of the total facility whereas Kenya received 78% or $535million of its $688million facility. This discrepancy is difficult to explain.

There are those who believe that a country’s relationship with United States does influence how it is treated by the IMF as the old adage goes, “He who pays the piper, calls the tune.” The USA is the largest shareholders of the IMF with 16.5% voting rights and with veto power.

In theory, the IMF is independent and does not involve itself in politics as that is violating its Articles of Agreement that prevent it from considering non-economic factors. The IMF argues “ Loans are made strictly on the basis of the monetarist ‘Financial Programming’ model and a ‘Doctrine of Economic Neutrality’ that is blind to such factors as international politics and the nature of developing country regimes.”

However, this denies the interconnected realities of global economic and political policies – everything is closely interconnected and IMF programs do not operate in a vacuum. The IMF statement does not also explain how certain countries receive preferential treatment. It will be naïve for anyone to believe that politics do not play a role in IMF loan approvals and disbursements.

According to James Vreeland he argued that …”the Managing Director has been reported to rarely act against the will of the US since the US has veto power over his or her appointment and reappointment.”

In his research and analysis, Storm Thacker’s, concluded that “political friends of the US are more likely to receive loans than are its enemies… the more closely a country aligns with the US, the higher the probability it will receive a loan from the IMF.”

It is clear from the above and past experience that it is not smart politics to appear to take on the US or UK and appear to be Mr. tough and independent guy like Mugabe and KK found out to their countries economic detriment.

There is no doubt that for countries in economic crisis like Zambia, IMF loans provide only a small portion of the resources needed to finance the balance of payments. But an IMF program can help unlock other financing because the program can serve as a signal that the country has adopted sound policies, reinforcing policy credibility and increasing investors’ confidence. It is in this respect that concluding an agreement by the government with the IMF is very important even if the disbursements are slow and will just trickle in subject to meeting the IMF conditionality.

One of the major sources of funds that the IMF program can unlock is bilateral funding with the Western donor community. It is not a secret that bilateral aid comes with conditions that are tantamount to interference in the internal politics of the country but a beggar is not a chooser. Zambia should expect this even on current aid.

Zambia is expected to return to increased dependency on bilateral aid for budget and balance of payments support. The Government is warned that Donor aid is likely to come with tougher conditions on good governance, rule of law, press freedom, accountability and other democratic practices set by the international donor community and we better be ready.

It is hoped that Zambian authorities will take correct measures immediately to avoid the repeat of 1996 and 1997 when there was a fall out between the Chiluba regime and Donors due to good governance issues resulting in the cutting of Aid to Zambia. Good leaders are those who anticipate events and take corrective measures rather than wait until an event comes and merely react to it, when it is late. Forecasting and anticipating is part of risk management and is an imperative in a knowledge based society of the 21st century. There is no time for posturing.

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22 COMMENTS

  1. Good analysis. However, the PF bloggers will not get it. They think IMF is trying to impose itself on Zambia, its their recklessness that has brought us to this point of being forced to undertake sane reforms.

    Dununa Reverse!

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    • @Senior Citizen This is not the usual riff raff cheap talk you specialise in! This for the big boys! Whence art ye!

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    • “Good leaders are those who anticipate events and take corrective measures rather than wait until an event comes and merely react to it, when it is late……”

      It is late already. What does that say about or “leadership”!!

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  2. @HA-CHILYATA is a qualified TONGA cattle header.these people are full of emotions leading to negative ways of sorting out issues. when they are in the BUSH heading cattle,all they say are insults on top of their voices.pliz @HA-CHILYATA, go back to ZWD where you suit with your behaviour.this site is for INTELLIGENT,CIVILISED and well mannered people.

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  3. @HA-CHILYATA, @HA-CHILYATA. @HA-CHILYATA, don’t forget that with your insults,you are dicompaining your beloved party up-n-down even more.with you HACHILYATA insulting,smart members of up-n-down will either disown you or join the party where there are SMART and CIVILISED PEOPLE.i urge you to continue portraying your BUSH manners as you continue to loose smart members and ELECTIONS.

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  4. @HA-CHILYATA,IF YOU INSULT TO SAY”MOTHER WHATEVER”MY MOTHER IS ZAMBIA.THATS WHY SHE IS CALLED MOTHER-ZAMBIA.DO YOU THINK SHE WILL GIVE YOU A CHANCE TO BECOME LEADERS AFTER ALL THE INSULTS SHE HAS RECEIVED FROM YOU @HA-CHILYATA?i know it will be extremely difficult to tame you to a civilised mind because of everything about your background including the political party you belong [email protected], ati hachilyataaa……kwati palibapo namano.kachemenifye Ing’ombe shakwa HAKULALUSAFYE HEVERY HATER 5 YEARS.you cattle header.we hate your insults as a result,we hate what you support as well,in this case up-n-down.

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  5. @HA-CHILYATA is a cattle header trying to attract people’s attention through insults,these people are attention seekers.didn’t you see HATE HATE jumping from one court to another seeking attention?that’s the only way they can win by attracting attention.Fima fontini,

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  6. Just go to ZAMBIAN WATCHDOG and see ubufi no bufontini bwbako,na @HA-CHILYATA limbi kuti abako na bwino,the site is inundated with ignorance starting with management,reporters and bloggers like @HA-CHILYATA who think insults symbolise wisdom.

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  7. We don’t need the IMF. Just collect tax from Freedom and CHA CHA CHA road shops. Millions of not collected tax just under our noses.

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  8. Implementing full cost recovery on fuel and electricity by removing subsidies
    Implementing measures to reduce fiscal deficit
    Limiting public debt accumulation
    Ceiling on public sector wages and salaries and cleaning up public sector payroll
    Removal or reform of agriculture subsidies

    Translation: higher cost of fuel, electricity, agricultural products. Lower incomes and aggregate demand for goods and services.

    This is standard, cookie cutter structural adjustment. The same the IMF demands from all countries.

    See the documentary Life And Debt by Stephanie Black, on the IMF’s treatment of Jamaica. Salient detail, the then VP of the IMF/WB/ Stanley Fischer was born in Zambia, and named after the explorer Henry Morton Stanley.

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  9. The effects of the Dununa Reverse message to which blinded poverty stricken Zambians who failed to see beyond that song were dancing for are around the corner, It will be survival of the fittest and the most corrupt. Looking forward to seeing the reactions of all the DUNUNA REVERSERS and their cheerleaders.

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  10. The writer is missing one thing. If the recent elections in Zambia are declared not free and fair then the Lungu govt will not be recognised by the International Community. An illegal and illegitimate Lungu govt will attract economic and financial sanctions just like Mugabe Regime in Zimbabwe. After stealing the 2016 Presidential Elections the Lungu govt will fail to lure Donor Aid and Multi-lateral funding and even IMF will withold any financial assistance to an illegal and illegitimate Lungu Regime. Until the Petetion is properly heard, determined and the Winner declared Lungu and his election riggers will be put under sanctions and travel restrictions. The writer forgets that the major shareholders in IMF have the highest voting powers when it comes to IMF and World Bank lending. These…

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  11. Very true indeed. We are in for a very rough time, especially when fuel and electricity are increased. It will be absolute suffering but IMF should also ensure that all loop-holes such as fake tenders and contracts are eliminated. We should all suffer together, kulibe ati ine ndine Kaizer chakuti na kuti, iyayi. Tight belts for everyone zo’ona.

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  12. In most cases IMF comes in to teach a lesson to careless spending governments on how strictly to manage their resources.

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  13. Why should people assume that the IMF will bailout Zambia at all costs? IMF can decide not to lend to Zambia for whatever reason. Its not automatic that IMF will bailout Zambia. If the recent elections are deemed not free,fair, credible and transparent they can decline bailing out Zambia on that account alone. IMF loans are a catalyst to other lenders. As for Donor Aid that will dry up if the elections are declared not free and fair. How the Concourt Petetion will be disposed off will either unlock or lock funding to Zambia. Without disposing off the Petetion properly,fairly and in reasonable time all International Election Observers will likely declare the Zambia Presidential Election not free and fair.If this is done then Lungu’s govt will be declared illegal and illegitimate and all…

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  14. Chirwa….exactly my point brother. PF will be squeezed by donors and IMF. Soon and very soon the Government will fail to pay civil servants and that’s when hell will break loose for Lungu and his doomed party. Today PF cadres are busy showering the President all kinds of praises but for the moment. But tomorrow are the sanctions from all donors stating that they cannot disburse funds to an iligitimate government.

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  15. Whatever will be center stage in the IMF policies for Zambia ,Fiscal stimulus is what is needed if you look at the macro economic outlook for Zambia in the world of too little needed Investments Inflows to create a support to the usual MPC rate hiking and review cycle and remove artificial effects created by Monetary policy in the Economy without any measure of Growth registering

    Its Government to know and prepare the positive outlook for the economy and ensure that The minister of Finance takes charge and simply gets the support from IMF

    Unfortunately I have observed the tendency to tighten both Monetary and Fiscal to the neglect of some measure of growth which…

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    • Fiscal stimulus is the last thing that is needed, when much of the population is earning $2/day or thereabout. What is needed is the stimulation of the demand side, not the supply side. People need more money, and their money needs to be able to buy as much or more than today. That should be the goal of any government.

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  16. It is really sad for the Highest Court in Zambia to be accused of Human Rights Violations. Such acts touch on the lives of the entire Zambian population and can only be effectively dealt with by an international criminal tribunal or the ICC.

    I have reported crimes against humanity committed on me to the United Nations, AU and ICC as well, and both PF and UPND members were complacent in pillaging, harassing, persecuting, murder of my daughter, forced exile, holding me in slavery and servitude, and sexual violence acts, intimidation and in obstructing my career, social and economic advantages, as a method of stealing from me and sabotaging my UN career, yet I donnot owe them anything and I never invaded anyone’s rights, and I am fully competent in my UN performance, which is on…

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  17. Clearly this law also includes US directors at the IMF:

    SEC. 3. DEFINITIONS.

    In this Act:

    (1) INTERNATIONAL FINANCIAL INSTITUTIONS- The term `international financial institutions’ means the
    multilateral development banks and the
    International Monetary Fund.

    (2) MULTILATERAL DEVELOPMENT BANKS- The term `multilateral development banks’ means the
    International Bank for Reconstruction and Development, the
    International Development Association, the
    International Finance Corporation, the
    Inter-American Development Bank, the
    Asian Development Bank, the
    Inter-American Investment Corporation, the
    African Development Bank, the
    African Development Fund, the
    European Bank for Reconstruction and Development, and the
    Multilateral Investment Guaranty Agency.

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