The IMF team reached a staff-level agreement with the Zambian authorities on a new arrangement under the Extended Credit Facility (ECF) for 2022-2025 to help restore macroeconomic stability and provide the foundation for an inclusive economic recovery.The government’s ambitious reform program, supported by the IMF, seeks to restore fiscal and debt sustainability, create fiscal space for much needed social spending, and strengthen economic governance and transparency.To complement the authorities’ strong reform program a comprehensive debt treatment under the G20 Common Framework is needed to restore debt sustainability. The IMF Executive Board’s consideration of this agreement is subject to progress on this front.

An International Monetary Fund (IMF) team led by Ms. Allison Holland, Mission Chief for Zambia, conducted a virtual mission with the Zambian authorities during November 4 – Dec 2, 2021, to discuss a program to be supported by the IMF’s Extended Credit Facility (ECF) arrangement.

At the end of the mission, Ms. Holland issued the following statement:

“The IMF team reached a staff-level agreement with the authorities of Zambia on a three-year program supported by an arrangement under the Extended Credit Facility (ECF) in the amount of about SDR 980 million or $1.4 billion. The economic program aims to restore macroeconomic stability and foster higher, more resilient, and inclusive growth. The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances.

“The Zambian authorities have committed to an ambitious economic reform program to address the severe economic and social challenges facing the country. These reforms seek to remedy past weaknesses in economic governance and public financial management that led to an unsustainable debt overhang. They will also underpin the authorities’ efforts to rebuild the economy, including to boost economic resilience in the face of the ongoing COVID-19 pandemic and climate vulnerabilities. 

“Key elements of the authorities’ reform agenda aim to re-establish fiscal sustainability while reorienting public resources towards investment in people, particularly the youth. The expected large, upfront fiscal adjustment envisages an important shift in spending, away from inefficient public investment and poorly targeted subsidies, towards greater investment in health and education and the delivery of more social benefits. This shift will be underpinned by an ambitious medium-term agenda to enhance revenue mobilization through policy changes and administrative changes.

“To entrench medium-term fiscal sustainability steps are also being taken to strengthen economic governance and public financial management, together with debt management and debt transparency. Spending will be more tightly controlled, with the determined implementation of public procurement rules and regulations central to ensuring value for money and the transparent use of public resources. These efforts will restore the credibility of the budget, improve the efficiency of public expenditures, and halt the accumulation of arrears, thereby supporting private sector-led growth. Key legislative reforms, including the planned revision of the Loans and Guarantees Act, will increase public oversight and help address past weaknesses in debt accumulation. To support the authority’s efforts to strengthen governance and reduce corruption a comprehensive governance assessment will be undertaken with support from IMF staff. 

“Safeguarding central bank autonomy, and monetary and financial stability also remains a priority. The Bank of Zambia will continue strengthening its monetary policy framework and financial sector supervisory capacity, supported by a revision of the Bank of Zambia Act, including to ensure its operational independence. The authorities’ reform program should support a return to price stability over the medium term.”

“In light of unsustainable public debt, the authorities’ reform efforts will need to be supported by a comprehensive debt restructuring. We welcome the authorities’ request for a debt treatment under the G20 Common Framework and hope that official creditors can quickly form a committee and provide financing assurances. We support the authorities’ efforts to maintain a constructive engagement with private creditors to help secure a deal on comparable terms to official creditors. Sufficient progress on this front will be needed before the staff-level agreement can be presented to the IMF Executive Board for approval.”

“IMF staff held meetings with Finance Minister Situmbeko Musokotwane, Bank of Zambia Governor, Denny Kalyalya, and senior government and Bank of Zambia officials. Staff would like to express their gratitude to the Zambian authorities for their open, committed and constructive engagement.”