The International Monetary Fund says challenges brought about by Zambia’s debt and how to dismantle domestic arrears are making it difficult for the country to conclude a deal with the Fund.
IMF Spokesman Gerry Rice told a news conference from Washington that key challenges in moving the talks forward include how to implement reforms to deal with huge fiscal deficit.
Dr Rice however admitted that broad consensus has been agreed and that the Zambian government knows what it should do to move forward.
“That said, key challenges remain including to implement reforms to correct current large fiscal imbalances, increasing revenues to provide the needed fiscal space to achieve those development objectives that I mentioned including through debt and expenditure transparency and halting the incurrence of domestic arrears,” Dr Rice said.
He added, “And, again, I want to emphasize, ensuring that the social protection scheme is fully funded with timely payments.”
“Again, they have requested a financing arrangement with the IMF to support their reform efforts. And we had discussions with the Zambian authorities earlier this year and they continued through this month and that would be a request for an extended credit facility,” Dr Rice said.
“What I can tell you is that there was broad agreement on the macroeconomic framework and notable progress was made in detailing the key policy measures to address the imbalances currently facing Zambia and to enable a return to sustained growth with ?? and this is important for us, enhanced fiscal space for social and development spending.”
The IMF Spokesman noted that the Zambian authorities have reaffirmed their continued commitment to reforms adding that Fund looks forward to continuing those discussions towards an Extended Credit Facility program as key measures are taken.
“And, of course, the timing as to when those measures are taken is, as always, in the hands of the authorities, in the hands of the Zambian government,” he stated.
And just to tie it up on the common framework, Zambia has expressed its interest in the common framework. And to the best of my knowledge, those discussions are continuing.
Last week, Bank of Zambia Governor Christopher Mvunga said that Zambia was close to reaching a deal with the International Monetary Fund that will be crucial to restoring macroeconomic stability.
“We couldn’t have gotten any closer with the IMF as we are today,” Mr. Mvunga told reporters on Wednesday, adding that he couldn’t provide a time-line for when the government might reach an agreement with the fund.
“We are very optimistic. It’s progressing pretty well.”
An IMF deal would also help create fiscal space, as would a one-off allocation of special drawing rights by the lender to help countries fight the coronavirus pandemic, Mr. Mvunga said.
The IMF said it was up to Zambia to implement agreed policies to pave the way for further talks.
That dealt a blow to hopes for an agreement before general elections in August, as parliament and cabinet were dissolved last week, and implementing some of the reforms, especially cutting back on energy and farm subsidies, may prove unpopular ahead of what will probably be a closely contested vote.
Africa’s first pandemic-era sovereign defaulter is seeking to reach a deal on an economic program with the Washington-based lender that’s crucial to the government’s plans to restructure as much as $12.7 billion of external debt and boost foreign-exchange reserves.
Zambian international reserves of $1.2 billion at end-March are close to record lows and the kwacha has consistently depreciated against the dollar, making it the second-worst performing sub-Saharan Africa currency tracked by Bloomberg over the past 12 months.
The depreciation has contributed to inflation surging to a five-year high to average 22.2% in the first quarter, compared with 17.6% in the three months through December.
While the central bank expects price growth to ease faster than previously expected, “it’s way outside our target range and it’s a serious concern,” Mr. Mvunga said.
Annual inflation will average 21.9% in 2021 and 16.7% next year, according to forecasts from the Bank of Zambia, which targets price growth at 6% to 8%.
Many, including Simon Quijano-Evans, chief economist at Gemcorp Capital LLP in London, expect Zambia to only conclude a deal after a new government is formed.
The government has been talking about an IMF program for seven years with no concrete results yet.
“So many finance ministers have attempted to push for IMF loan program in the past, in vain,” Quijano-Evans said Thursday in an emailed note.
“A loan program agreement just ahead of the August elections would thus come as one of the biggest surprises in emerging markets.”