Zambia, IMF Reach Agreement on Increase Funding Support
An International Monetary Fund, IMF, staff team led by Mercedes Vera Martin, IMF mission chief for Zambia, has reached staff level agreement with the authority, according to an official statement.
Zambia is seeking more funding support from the multilateral lender to drive growth and reflate its macroeconomic performance.
In a statement, the multilateral lender said in its latest discussions with Zambia, focused were on the authorities’ reforms and policy priorities in the context of the third review.
This is part of effort to augment Zambia’s 38-month IMF-supported program under the Extended Credit Facility (ECF). According to the statement, this staff-level agreement is subject to IMF Management approval and Executive Board consideration.
In August 2022, the IMF Executive Board approved SDR 978 million or US$1.3 billion for the country followings its default on sovereign debts.
Commenting, Ms. Vera Martin said, “We are pleased to announce that the Zambian authorities and the IMF team have reached a staff-level agreement on economic policies to complete the third review of Zambia’s ECF.
“In the context of significant macroeconomic challenges that have become more complex to manage due to the severe drought, staff also considered the authorities’ request for an augmentation of the IMF’s financial support to Zambia from the approved SDR 978.2 million (about $1.3 billion) to SDR 1,271.66 million (about $1.7 billion).
“Once approved by IMF Management and completed by the Executive Board, Zambia will have immediate access to SDR 433.34 million.
“The 2024 outlook has worsened due to the drought; GDP growth is now projected at 2.3 percent, half the forecast in December 2023.
“Agriculture production is expected to contract by 19 percent; power outages will hinder manufacturing activity; and copper production is expected to recover more gradually than initially envisaged.
“Inflation, at 14.7 percent in May, is projected to remain elevated. The medium-term outlook remains favorable, supported by expanding mining production and restored debt sustainability.
“Our discussions on policies and reforms revolved around four pillars.
“First, the revised 2024 Budget will seek to reprioritize spending to accommodate emergency relief for one million additional households.
“Additional external support will help finance a temporary expansion of emergency social cash transfers, with existing beneficiaries temporarily receiving double the current transfer value. Publishing all drought-related government contracts will support accountability amid limited financing options.”
“Second, fiscal consolidation will remain paramount to restore debt sustainability. The authorities committed to maintaining fiscal prudence over the medium term and considering additional domestic revenues, including by rationalizing tax exemptions, and improving tax compliance and administration. Better cash and liability management, improved expenditure and commitment controls, and enhanced decentralization efforts will also help reduce financing needs.”
“Third, monetary policy will need to remain appropriately tight, while allowing the exchange rate to play its role as a shock absorber. With inflation still outside the target band, the Bank of Zambia will remain vigilant in curbing inflation toward the 6-8 percent target band.
“Improving the monetary transmission will help develop interbank money markets. The Bank of Zambia will continue strengthening banking supervision, including by developing an effective deposit insurance scheme and reviewing the financial services framework.
“Finally, scaling up structural reforms’ implementation to level the playing field for all is key for the economic recovery and much-needed economic diversification.
“Greater transparency in the energy sector will be crucial to maximizing competition in the use of the oil pipeline, reducing fuel costs, and refraining from reintroducing fuel subsidies.
“Enacting the Access to Information Bill, enhancing the transparency of State-Owned Enterprises, and adopting anti-corruption legislation will strengthen governance and public accountability”.
IMF said they look forward to the bilateral agreements for the implementation of the agreed debt treatment with official creditors.
“We also welcome the authorities’ progress in reaching an agreement with bondholders and ongoing discussions with other private creditors to agree on a debt treatment in line with program parameters and with comparability of treatment as defined by the official creditors”, Martins said. #Zambia, IMF Reach Agreement on Increase Funding Support
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