IMF Executive Board Approves New Extended Credit Facility (ECF) Arrangement for Zambia

August 31, 2022

  • The IMF Board approves SDR 978.2 million (about US$1.3 billion) 38-month ECF arrangement for Zambia to help restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
  • The authorities’ program, supported by the ECF-arrangement, will advance the authorities’ homegrown reform plan to restore debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance.
  • Securing timely restructuring agreements with external creditors will be essential for the successful implementation of the new ECF arrangement.

Washington, DC: The Executive Board of the International Monetary Fund (IMF) approved a 38-month arrangement under the Extended Credit Facility (ECF) in an amount equivalent to SDR 978.2 million (around US$1.3 billion, or 100 percent of quota). The program is based on the authorities’ homegrown economic reform plan that aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.

Zambia is dealing with the legacy of years of economic mismanagement, with an especially inefficient public investment drive. Growth has been too low to reduce rates of poverty, inequality, and malnutrition that are amongst the highest in the world. Zambia is in debt distress and needs a deep and comprehensive debt treatment to place public debt on a sustainable path.

The ECF-supported program will help reestablish sustainability through fiscal adjustment and debt restructuring, create fiscal space for social spending to cushion the burden of adjustment, and strengthen economic governance, including by improving public financial management. The program will also catalyze much needed financial support from development partners. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 139.88 million (about US$185 million).

Following the Executive Board discussion on Zambia, Ms. Kristalina Georgieva, Managing Director, issued the following statement:

“Zambia continues to face profound challenges reflected in high poverty levels and low growth. The ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.

“Restoring fiscal sustainability will require a sustained fiscal adjustment. The authorities’ adjustment plans appropriately focus on eliminating regressive fuel subsidies, enhancing the efficiency of the agricultural subsidy program, and reducing inefficient public investment. Domestic revenue mobilization also needs to support the medium-term adjustment. The adjustment creates fiscal space for increased social spending to cushion the burden on the most vulnerable, help reduce poverty, and to invest in Zambia’s people. The ongoing expansion of the authorities’ Social Cash Transfer program and their plans to increase public spending on health and education are particularly welcome. Together with the fiscal adjustment, Zambia needs a deep and comprehensive debt treatment under the G20 Common Framework to restore debt sustainability.

“A substantial strengthening of fiscal controls is needed to support the fiscal adjustment, as well as address governance and corruption vulnerabilities. Public investment management and procurement practices need to be strengthened to ensure transparency and the efficient use of scarce resources. It will also be important to bolster the framework for monitoring fiscal risks, particularly those related to large state-owned enterprises.

“The Bank of Zambia should continue its efforts to reduce inflation and preserve financial stability. International reserves should be replenished as conditions allow and the exchange rate should continue to reflect market conditions. Addressing high NPL levels and ensuring adequate capital buffers will also be important.”

Table 1. Zambia: Selected Economic Indicators, 2018–25

2018

2019

2020

2021

2022

2023

2024

2025

Projections

National accounts and prices

GDP growth at constant prices

4.0

1.4

-2.8

3.6

3.0

3.9

4.1

4.5

Agriculture

-21.2

7.7

17.2

-0.7

-4.4

8.8

4.0

4.0

Mining

6.3

-5.1

8.0

-6.3

3.1

3.5

5.6

6.2

Non-mining, non-agricultural

6.1

1.8

-5.3

5.2

3.5

3.5

3.9

4.4

GDP deflator

7.4

7.6

13.7

23.4

8.4

8.7

7.3

6.8

GDP at market prices (millions of kwacha)

275,175

300,449

332,223

424,453

473,917

535,028

597,667

667,213

Consumer prices

Consumer prices (average)

7.5

9.2

15.7

22.0

13.0

9.5

7.6

7.1

Consumer prices (end of period)

7.9

11.7

19.2

16.4

12.7

8.0

7.3

7.0

External sector

Terms of trade (deterioration -)

-1.9

-10.5

19.0

21.9

-8.6

-2.3

-0.4

-0.4

Average exchange rate (kwacha per U.S. dollar)

10.5

12.9

18.3

20.0

…

…

…

…

(percentage change; depreciation +)

9.9

23.3

42.3

9.1

…

…

…

…

End-of-period exchange rate (kwacha per U.S. dollar)

11.9

14.1

21.2

16.7

…

…

…

…

Current account balance

-1.3

1.4

12.0

7.6

1.4

0.3

2.5

2.7

Gross international reserves (months of prospective imports)

2.4

3.0

1.9

3.2

3.3

3.9

4.6

5.5

Money and credit

Reserve money (end of period)

-0.6

25.8

57.0

8.5

14.7

17.8

10.8

17.2

Broad money (M3)

16.5

12.5

46.4

3.7

11.0

12.1

10.8

8.2

Credit to the private sector (percent of GDP)

11.7

12.5

12.3

8.9

9.2

9.3

9.5

9.8

National accounts

Gross investment

38.6

39.3

32.3

28.7

31.6

31.5

31.5

31.6

Government

8.6

9.4

7.8

4.1

3.0

3.0

3.0

3.1

Private

30.1

29.8

24.5

24.5

28.5

28.5

28.5

28.5

National savings

37.3

40.7

44.3

36.3

32.9

31.8

34.0

34.3

Central government budget

Revenue

19.4

20.4

20.3

23.3

21.4

22.3

22.7

22.8

Taxes

16.1

16.1

15.7

16.8

16.7

17.6

17.9

18.1

Grants

0.2

0.3

0.5

0.6

0.4

0.3

0.3

0.3

Other revenue

3.1

4.0

4.1

6.0

4.3

4.3

4.4

4.4

Expenditure

27.7

29.8

34.1

31.8

30.8

29.4

28.9

27.7

Expense

19.1

20.4

26.3

27.7

27.7

26.5

25.9

24.6

Net acquisition of nonfinancial assets

8.6

9.4

7.8

4.1

3.0

3.0

3.0

3.1

Net lending/borrowing (cash basis)

-8.3

-9.4

-13.8

-8.5

-9.4

-7.1

-6.3

-4.9

Net lending/borrowing (commitment basis)

-11.7

-13.9

-17.4

-14.5

-6.9

-4.9

-4.3

-3.1

Primary balance (commitment basis) 1

-6.9

-6.9

-10.1

-6.0

0.7

2.2

2.7

3.2

Primary balance excluding mining revenues (commitment basis)1

-9.2

-9.4

-13.3

-11.9

-5.0

-3.0

-2.7

-2.3

Public debt

Total public debt (gross, end-period) 2,3

77.8

103.3

150.3

126.0

122.8

115.6

109.7

104.7

External4

48.1

62.1

95.8

64.7

69.5

69.1

68.5

67.3

Domestic

29.7

41.2

54.5

61.3

53.3

46.5

41.3

37.4

Sources: Zambian authorities; and IMF staff estimates and projections.

1 Adjusted for the accumulation/clearance of VAT refund claims and expenditure arrears.

2 Nonresident holdings of local currency debt are included under domestic debt here, unlike in the DSA, which is conducted on a residency basis.

3 Including arrears.

4 Public and publicly guaranteed external debt.

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