News Brief No. 02/117

News Brief: IMF Completes Review Under Zambia's PRGF Arrangement and Approves US$55 Million

November 27, 2002

The Executive Board of the International Monetary Fund (IMF) today completed the fifth review of Zambia's performance under an economic program supported by the Poverty Reduction and Growth Facility (PRGF). As a result, Zambia will be able to draw up to SDR 41.4 million (about US$55 million).

The Board also approved the disbursement of the last tranche of SDR 117.2 million (about US$155 million) of interim debt relief for 2003 under the Heavily Indebted Poor Countries (HIPC) Initiative.

Zambia's three-year arrangement was originally approved on March 26, 1999 (see Press Release No. 99/10) under the former Enhanced Structural Adjustment Facility (ESAF). So far, Zambia has drawn SDR154.7 million (about US$205 million) under its financing arrangement with the Fund, which now totals SDR 278.90 million (about US$370 million), up from SDR 254.45 million (about US$337 million).

The PRGF is the IMF's concessional facility for low income countries. It is intended that PRGF-supported programs are based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5 1/2-year grace period on principal payments.

After the Executive Board's discussion on Zambia, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, stated:

"The authorities are to be commended for their continued commitment to sound macroeconomic policies and structural reforms, notwithstanding capacity constraints and an adverse external environment. Zambia's overall economic performance has strengthened since mid-2000 after two decades of high inflation and low economic growth, reflecting sharply improved fiscal and monetary policies and progress in structural reforms.

"The government's financial policies in 2002, derived from the PRSP, focus on maintaining a positive per capita income growth rate and further reducing inflation. They allow for a reorientation of public expenditure toward the social and economic sectors made possible by HIPC debt relief. Although the overrun in the wage bill raises a serious concern about the composition of expenditure, the overall fiscal outturn for 2002 is expected to be on track based on the corrective measures undertaken by the government. HIPC-financed expenditure in the second half of 2002 is being restored to levels consistent with the poverty reduction goal of the PRSP. The government is also taking measures to strengthen the control of public expenditure to ensure adherence to spending priorities, particularly to ensure efficient delivery of social services and poverty-reducing programs, and to avoid accumulation of payment arrears.

"Structural reform measures are geared toward increasing private participation in economic activity and improving the investment climate. Having made some progress in 2001-02, the government's current structural reform program focuses on: speedy privatization of the Zambia National Commercial Bank (ZNCB); preparation of a plan to address the weaknesses in the financial sector, including certain state-owned nonbank financial institutions; completion of the oil sector reform; and continued improvement of the transparency and accountability in government operations.

"In 2002 the government has made an effort to incorporate part of the PRSP priority expenditure in the budget, and made progress in tracking social and poverty related expenditure. In 2003 the government will also focus on implementing the triggers for reaching the completion point under the enhanced HIPC Initiative, including preparing an annual progress report on PRSP implementation and improving the size and quality of social sector expenditures," Mr. Sugisaki said.