Zambia’s government has requested the International Monetary Fund (IMF) to refrain from penalizing the country if its debt restructuring plans don’t go as expected. The appeal was made as the country may not be able to sign an MOU with official creditors in time for the expected disbursement of US$188 million from the IMF. A Staff-Level Agreement has been reached between the IMF and Zambia on economic policies to conclude the first review of the Extended Credit Facility.
Zambia is currently facing a debt crisis, with an external debt burden of approximately US$12 billion. The country’s debt servicing costs have soared, causing a significant strain on its finances, and the country has struggled to access credit from international markets. In response to this crisis, the IMF approved a 38-month Extended Credit Facility (ECF) of US$1.3 billion to help stabilize Zambia’s economy.
As part of the ECF program, Zambia was required to undertake a series of economic reforms, including measures to control its public debt, reduce its fiscal deficit, and promote growth. The first review of the program was due to take place in June 2020, but it was delayed due to the COVID-19 pandemic. The review was eventually concluded last week, and the IMF announced that it had reached a Staff-Level Agreement with Zambia on economic policies.
The agreement paves the way for the disbursement of US$188 million to Zambia, subject to the completion of a memorandum of understanding (MOU) with the country’s official creditors. However, the government has expressed concerns that it may not be able to sign the MOU in time for the disbursement. If this happens, Zambia could face a penalty from the IMF, which would exacerbate the country’s already dire financial situation.
In light of these concerns, Zambia’s Minister of Finance, Dr. Situmbeko Musokotwane, has appealed to the IMF not to penalize Zambia if the debt restructuring plans don’t go as expected. Musokotwane has emphasized that the government is committed to implementing the economic reforms required under the ECF program, but the country’s debt crisis is complex and will take time to resolve fully.
The IMF has not yet responded to the government’s appeal, but it has previously indicated that it is willing to work with Zambia to address its debt crisis. In a statement last year, the IMF said that it was “committed to supporting Zambia’s efforts to address its macroeconomic challenges and reduce its debt vulnerabilities.”
The IMF’s support is crucial for Zambia, as it will help the country to access financing from other international institutions and markets. However, the government must also take decisive action to address the root causes of the country’s debt crisis, including improving the efficiency of its public finances, boosting revenue generation, and promoting private sector investment.