CTPD welcomes IMF Extended Credit Facility

The Centre for Trade Policy and Development (CTPD) has said that it has welcomed the approval of an Extended Credit Facility by the Executive Board of the International Monetary Fund.

In a statement released to the media, CTPD Executive Director, Mr Isaac Mwaipopo, said that Zambia will be able to restructure its unsustainable debt, regain macroeconomic stability, and ensure the debt’s sustainability—all while freeing up cashflows to be distributed to the social and productive sectors.

Mr Mwaipopo said that an IMF program will boost the economy’s overall confidence, which will increase budget support, investor confidence, and Zambia’s credit rating.

Below is the full statement

FOR IMMEDIATE RELEASE
Date: 06/09/22
CTPD APPLAUDS ZAMBIA’S EXTENDED CREDIT FACILITY APPROVAL OF
US$1.3 BILLION

The Centre for Trade Policy and Development welcomes the approval of an Extended Credit Facility by the Executive Board of the International Monetary Fund. With the help of this significant achievement, Zambia will be able to restructure its unsustainable debt, regain macroeconomic stability, and ensure the debt’s sustainability—all while freeing up cashflows to be distributed to the social and productive sectors. Additionally, an IMF program will boost the economy’s overall confidence, which will increase budget support, investor confidence, and Zambia’s credit rating.

An improved credit rating gives Zambia the chance to get loans with better terms to fund its development now and in the future. While this is happening, increased investor confidence will result in a stronger Kwacha and lower exchange rate risk for upcoming external debt service obligations. The interest-free loan from the IMF will primarily be used to support the country’s balance of payments and increase its gross international reserves. While budget support will take the form of more lenient financial commitments from multilateral organizations like the World Bank and African Development Bank, which are anticipated to provide Zambia with financing commitments of approximately USD 959 million and USD 500 million over a three-year period, respectively.

Despite this great achievement, there is still work to be done, particularly in regard to fulfilling all future debt obligations to creditors, so now is not the time to unwind. Additionally, there a bit more work needed to persuade private creditors to grant Zambia comparable terms to those from the G20 common framework in terms of debt treatment comparability. In order to achieve the significant and sustained fiscal consolidation required to address the current fiscal imbalances, the Zambian government must focus on its fiscal reform agenda.

Further, in order to give the government, the financial room it needs to achieve its development goals, more domestic fiscal revenues must be secured. The other duty is to improve governance and the effectiveness of the use of public funds, including by being transparent about debt and expenditures. To protect the most vulnerable members of our society, the government must stop the occurrence of domestic arrears, including those related to fuel and the electricity sector, and ensure that the social protection program is fully funded with timely payments.

Furthermore, the government should learn from nations like Ghana, which was on an IMF program but is now pleading for a bailout just a few years later. A crucial lesson is that the government shouldn’t give up on the economy too soon or right after the three-year IMF program. Zambia’s IMF deal accomplishment will serve as an example for other nations. The G20 Common Framework has now succeeded for the first time, paving the way for other debt-stricken nations to have faith in its methodology. Ethiopia and Chad, who have been seeking this kind of assistance, are currently going through a drawn-out debt settlement process.

An IMF program will partially address Zambia’s precarious debt situation, but the larger solution lies in addressing the underlying reasons behind the nation’s current unsustainable debt issues. The government must therefore ensure that we never again experience unsustainable levels. The government must also make available for public consumption all pertinent information regarding the Memorandum of Economic and Financial Policies, Debt Sustainability Analysis and Prior Actions, and Structural Benchmarks and MoUs that support this IMF agreement.

While we welcome this development with regards to the IMF support to Zambia, we would like to appeal to the new administration to undertake the following:-

1. They should consider building consensus on the key social and economic reforms they plan to take because this is key especially that the citizens are the ones that will get to leave with the consequences of this programme.
2. There is need to publish the debt sustainability analysis that was done by the IMF working in partnership with the World Bank.
3. There also need to provide a clear road map to the structuring of Zambia’s debt under the G20 common framework, as this is critical in helping citizens understand how the 2023 national budget will look like.