And the IMF says it may grant Zambia up to $1.3 billion in a three-year credit facility to help address a budget deficit of around 7 percent.
Addressing a news conference after the conclusion of its mission team to Zambia, staff leader Tsidi Tsikata said there has been increased foreign investor participation in the government securities market which has boosted the economy.
Mr Tsikata said a bumper harvest and increased hydroelectricity generation are expected to boost economic activity by more than previously projected.
He said the IMF staff project real GDP growth to improve slightly from the revised official rate of 3.4 percent in 2016 to about 4 percent in 2017.
“We also project the annual inflation rate (6.5 percent in May) to remain at single-digit levels, notwithstanding the impact of the move toward cost-reflective electricity tariffs,” he said.
Mr. Tsikata stressed that improved fiscal performance and discipline are needed to sustain market confidence.
“Fiscal performance in the first four months of 2017 was mixed relative to budget estimates. Total domestic revenue (tax and nontax) fell short of the projected level while total expenditures appeared to be broadly in line with the budget,” he said.
He added, “However, on the expenditure side, while the government has cleared substantial arrears, it appears that new arrears may be emerging. The government is taking steps to strengthen commitment control, including by expanding the coverage of the Integrated Financial Management Information System (IFMIS) to all central government agencies.”
Mr Tsikata said other remaining fiscal measures relate to reduced spending on the Farmer Input Support Program through improved targeting of beneficiaries and limiting maize purchases to the level in the budget.
“Weaknesses in the management of public finances and public investment pose significant risks to the 2017 budget objectives of “restoring fiscal fitness for sustained inclusive growth and development” and scaling up social spending.”
“In that context, IMF staff welcomed the heightened attention and efforts underway to strengthen the legal framework for managing public resources, including the introduction of the Planning and Budgeting Bill, and amendments to the Public Finance and Public Procurement Acts. IMF staff urged the authorities to continue strengthening their public debt management capacity in order to underpin their efforts to put public debt on a sustainable path.”
“Against the backdrop of contraction of credit to the private sector and a benign inflation outlook, IMF staff welcomed recent further easing of monetary conditions by the Bank of Zambia (BoZ). In view of growing nonperforming loans in banks and non-banks, the mission welcomed BoZ’s efforts to strengthen its supervision of the financial system, including with technical assistance from the IMF.
Meanwhile, Mr Tsikata has revealed that the Fund may grant Zambia up to $1.3 billion in a three-year credit facility to help plug a budget deficit of around 7 percent.
He said a decision will be made by the IMF board in August.
“We aim to reach understanding in the coming weeks that would form the basis for presenting the authorities’ request for an ECF (Extended Credit Facility) arrangement and report on the 2017 Article IV consultation to the IMF board in August 2017.”