The Zambia Institute for Policy Analysis and Research (ZIPAR) commends the government for successfully clinching the International Monetary Fund (IMF) programme which represents an opportunity for Zambia to reverse its economic fortunes and chart the way to long-term sustainable growth and prosperity.
Cognizant of the crucial role of the IMF program to Zambia’s economic recovery and sustainable development, ZIPAR recognizes the Government’s continued efforts in engaging the country’s external creditors over debt restructuring.
“We also recognize the prudent macroeconomics policies, through fiscal consolidation and monetary restraint over the last one year, that has led to a decline in inflation and appreciation and stabilization of the exchange rate,” The Institution noted
The Institution explained in a statement issued that, Zambia has been courting the International Monetary Fund (IMF) since 2016 following the economic crisis in 2015 that the country never quite fully recovered from, and the country’s macroeconomic environment deteriorated markedly, with Gross Domestic Product (GDP) declining from 2.9 percent in 2015 to 1.4 percent in 2019. Furthermore, the Covid-19 pandemic crippled the already ailing economy, driving the economy into recession in 2020 when the economy contracted by 2.8 percent.
They added that the fiscal deficit grew from 9.4 percent of GDP in 2015 to 14.5 percent in 2020, and by the end of 2021, the debt stock had soured to over 120 percent of GDP.
Additionally, the kwacha depreciated against major tradable currencies such as the US dollar breaching the K20/US Dollar mark, and inflation was sustained at over 22 percent by end 2021.
“To restore macroeconomic stability and accelerate recovery, Government turned to the IMF,” The Institution stated
ZIPAR has since urged the Zambian Government to stay the course with policy consistency being key in all this, as it will therefore be critical for the Government to establish how this program supports the achievement of the country’s medium- and long-term development plans, that is the 8th National Development Plan (8NDP) and the VISION 2030. And curtailing wasteful expenditure, for instance through reforming the subsidy programs such as FISP, and reducing inefficient public investment will be key in attaining fiscal sustainability.
On 1st September, 2022, the IMF Board approved Zambia’s request for a $1.3 billion Extended Credit Facility (ECF) support package, an important step towards restructuring the country’s external debt. The 38-month ECF is based on Zambia’s Economic Reform Plan that aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
The IMF further indicated that the program will also “catalyze the much-needed financial support from Development Partners,enabling further disbursement of $185 million, the IMF deal provides a fiscal framework and resource envelope for debt restructuring under the Common Framework.
This development comes shortly after Zambia’s official creditors committed to participate in the external debt restructuring, the level of debt relief required for Zambia to return to debt sustainable levels will be made public in the yet to be published Debt Sustainability Analysis (DSA), which was recently concluded in conjunction with the IMF by the Government.
These developments represent the concrete commitment from the Government in restoring fiscal credibility and attaining debt sustainability, as demonstrated through improved economic management and efforts towards enhancing economic governance.
Based on the previous fiscal trends, the country needed to make fiscal adjustments with or without an IMF Programme. However, the required fiscal adjustments would have been more painful without getting onto an IMF programme, therefore, it is highly imperative to outline some of the short to medium term benefits.
The IMF programme will create the much-needed fiscal space to dismantle domestic arrears which are in excess of K76 billion, address the public sector wage bill and also increase spending to the social sector among many other benefits, it is also worth noting that the $1.3 billion support comes at a zero-interest rate, with about 5 years grace period, and the Government intends to channel half of the bail-out towards budget support and the other half towards the enhancement of Gross International Reserves (GIR).
In addition, economic stabilization will be manifested through low and stable inflation and appreciation of the Kwacha, ultimately achieving economic growth in the medium to long term.
Moving on, it is no secret that the international community generally takes the IMF’s opinions very seriously when considering where to invest and where to provide development aid, even the international credit rating agencies look to the IMF for opinions about macroeconomic and financial soundness.
The IMF program is thus expected to boost investor confidence and increase investments in Zambia, which includes opening doors to funding from other multilaterals such as the World Bank (WB) and the African Development Bank (AfDB).