Zambia Progresses, Rebuilds Foreign Reserves, Tames Inflation -IMF
Zambia has made substantial progress in consolidating hard-won macroeconomic stabilisation under the recently completed supported program by the International Monetary Fund (IMF, according to an official statement released by staff team led by Edward Gemayel.
IMF said the country’s inflation returned to the Bank of Zambia’s target band in April 2026, international reserves were rebuilt to 4.4 months of prospective imports, and the primary fiscal balance recorded a surplus of 3.1 percent of GDP in 2025.
However, the IMF noted that the country’s fiscal pressures intensified in 2026, reflecting the impact of the war in the Middle East, pre-election spending, and expenditure overruns at the Food Reserve Agency. Absent corrective measures, the IMF said the primary surplus is projected to decline to 1.1 percent of GDP.
The authorities and IMF staff have advanced discussions on a successor IMF-supported arrangement, with negotiations expected to resume with the incoming government following the August 2026 elections.
The Zambian authorities reaffirmed their strong commitment to a Fund-supported program following the elections, anchored in sound macroeconomic policies and fiscal consolidation, while protecting social and other priority spending.
Mr. Gemayel said, “Zambia has made substantial progress in restoring macroeconomic stability under its recently completed Extended Credit Facility (ECF) arrangement. Gross international reserves have increased to USD 6.4 billion, equivalent to 4.4 months of prospective imports of goods and services.
“Inflation declined to 6.8 percent in April 2026, returning to the Bank of Zambia’s 6-8 percent target band, supported by kwacha appreciation and moderating food prices.
“The primary surplus reached 3.1 percent of GDP in 2025 reflecting sustained policy discipline and strong program implementation. In addition, debt restructuring agreements now cover approximately 94 percent of the restructuring perimeter.
“The key challenge now is to preserve these hard-won gains amid elections and heightened global uncertainty. Growth has been revised down to 4.3 percent in 2026, reflecting weaker mining output, a normalization of agricultural production following the exceptional 2025 harvest, softer trade activity, energy constraints, and spillovers from the war in the Middle East.
“Inflation is projected to reach 8.5 percent at the end of 2026, as higher fuel prices are expected to partially offset the disinflationary effects of the kwacha appreciation. The current account is projected to shift to a surplus of 1.5 percent of GDP. Nevertheless, rising global oil prices and geopolitical tensions pose downside risks and could exert renewed pressure on inflation and the exchange rate.”
“Fiscal pressures have intensified in 2026. The primary surplus is now projected at 1.1 percent of GDP, compared to 3.8 percent at the time of the Sixth Review of the completed ECF program.
“The deterioration reflects weaker tax collection, including from the suspension of fuel VAT and excise duties, spending pressures in the runup to the elections, a civil service wage adjustment, and agricultural subsidy overruns of about 1.3 percent of GDP.
“In addition, significant fiscal risks stemming from the Food Reserve Agency will require decisive mitigating measures.
“Domestic VAT revenue collection continues to underperform, reflecting structural and administrative weaknesses at the Zambia Revenue Authority, while the accumulation of VAT refund backlog is weighing on taxpayer compliance.
“Advancing fiscal structural reforms remains essential to generate durable revenue gains, broaden the tax base, and support a more progressive, equitable, and less complex tax system.
“The recent policy rate cut reflects the Bank of Zambia’s (BoZ) improved inflation outlook. Careful calibration of the interest rate path remains essential, particularly in light of recent fuel prices increases and heightened global uncertainty.
“The BoZ should remain guided by forward looking inflation forecasts and alert to upside risks, including from the Middle East conflict. Strong coordination among fiscal and monetary policies will be critical to anchoring inflation expectations.
“Maintaining external reserves at a comfortable level, of around five months of prospective imports, will further strengthen macroeconomic resilience.
“In response to the conflict in the Middle East, the authorities suspended the TAZAMA open-access framework. Prior to its suspension, the framework had reduced fuel import premium by approximately 50 percent, underscoring the role of competition in lowering supply costs.
“The mission urged the authorities to restore the TAZAMA open access framework, publish the terms of emergency procurement arrangements, and ensure that transparent monthly fuel import auctions become operational as soon as conditions allow.
“Priorities under a successor ECF arrangement have been identified. The authorities aim to consolidate macroeconomic stability while shifting toward more inclusive and private sector-led growth with a view to advancing economic diversification and raising productivity through non-distortive industrial policies.
“Enhancing copper value addition, alleviating energy supply constraints, while improving attractiveness of agri-business, tourism, and textiles, would support domestic value addition and generate jobs.
“Tangible revenue gains are urgently needed to reduce the domestic interest burden and bring debt to a moderate risk of distress. Stronger governance and greater transparency remain central to attracting private investment at lower cost.
“Given Zambia’s acute vulnerability to droughts and energy shocks, advancing climate adaptation and mitigation policies remains a priority to protect growth, safeguard food security, and strengthen fiscal resilience.
“The IMF team would like to thank the Zambian authorities and all stakeholders for their open and constructive engagement. The Fund remains committed to supporting Zambia’s efforts on advancing reform and preserving macroeconomic stability.
“The team met with Finance Minister Musokotwane, Bank of Zambia Governor Kalyalya, senior government officials, and representatives of CSOs and development partners.” Naira Slips as Interbank FX Turnover Reduces at Official Window
