IMF staff and the Zambian authorities have reached a staff-level agreement on economic policies to conclude the first review of the 38-month ECF-supported program. All structural benchmarks and quantitative performance criteria for the first review have been met; Zambia will have access to about US$188 million in financing once the review is approved by IMF Management and formally completed by the IMF Executive Board. To remove any hurdles to the timely completion of the review, Zambia needs official creditors to move forward and reach agreement on a debt treatment in line with the financing assurances they provided in July 2022; the economy has rebounded, fiscal credibility has been restored, and, with the authorities’ continued strong reform momentum, growth is expected to pick-up further in the medium-term. The authorities remain committed to strengthening transparency and fighting corruption.

An International Monetary Fund (IMF) staff team, led by Ms. Allison Holland, Mission Chief for Zambia, held meetings in Lusaka from March 22 to April 5, 2023, to discuss progress on reforms and the authorities’ policy priorities in the context of the first review of Zambia’s 38-month program under the Extended Credit Facility (ECF)-supported program. The arrangement was approved by the IMF Executive Board for a total amount of SDR 978 million (US$1.3 billion) on August 31, 2022. The team also conducted the 2023 Article IV consultation.

At the conclusion of the visit, Ms. Holland issued the following statement:

“The Zambian authorities and IMF staff team have reached a staff-level agreement on the first review of Zambia’s economic program under the ECF arrangement. The staff-level agreement is subject to IMF Management approval and Executive Board consideration once the necessary financing assurances have been received. An agreement with official creditors on a debt treatment in line with program parameters would provide the needed financing assurances. Upon completion of the Executive Board review, Zambia would have access to SDR 140 million (about US$188 million), bringing the total IMF financial support disbursed under the arrangement to SDR 280 million (about US$376 million).

“Against an increasingly challenging global economic backdrop, the Zambian economy remains relatively resilient, with robust growth of 4.7 percent in 2022 despite weaknesses in the mining and agriculture sectors. Inflation has remained in single digits since May 2022 but is under increasing pressure with the sustained depreciation of the exchange rate. The tightening of monetary conditions in February by the Bank of Zambia was an appropriate policy response.

“While growth is expected to moderate to 3.6 percent in 2023, assuming a timely agreement with official creditors on an appropriate debt treatment, it is projected to accelerate over the medium term. This pick-up in growth will reflect the anticipated pay-off from the government’s economic transformation agenda, including a recovery in mining production driven by new and ongoing investment.

“In line with the government’s commitments under the Fund-supported program, fiscal performance has been very strong. Spending has remained within budget limits and, importantly, social spending has increased in line with government targets. On the revenue side, while revenues from the mining sector were lower than expected due to production challenges and a drop in copper prices, they were more than offset by higher revenue collection from other sectors of the economy. Ambitious structural fiscal reforms are contributing to raising domestic revenues, strengthening public financial management and debt management, and transparency. This rebuilding of budget credibility is critical for restoring fiscal and debt sustainability in the medium-term. Continued efforts to ensure value for money by following public procurement regulations and providing transparency will also contribute towards fighting corruption.

“Reforms are being undertaken to attract private investment and improve the business environment. The introduction of cost-reflective tariffs in the electricity sector, and reforms in the fuel sector are critical in this regard. An important aspect of the government’s reform efforts is to push forward on the governance and anticorruption agenda in line with the recommendations of the IMF’s Diagnostic Report on Governance and Corruption , published in December 2022.

“There are significant uncertainties going forward. Delays in the debt restructuring, weather-related shocks, and copper prices remain the dominant sources of risk. Globally, an abrupt growth slowdown would reduce copper prices, while an escalation of Russia’s war in Ukraine would increase fertilizer and food prices, increasing inflation and spending on agricultural inputs.

“In light of Zambia’s strong performance under the Fund-supported program, the critical next step is to secure an agreement with official creditors on a debt treatment consistent with the IMF Executive Board-approved program parameters and debt targets. We urge official creditors to move forward and agree an appropriate debt treatment in line with the financing assurances they provided in July 2022. Further delays risk a worsening outlook for Zambia, delaying its return to sustainable growth, and reducing its capacity to repay.”

“The IMF staff team met with Minister of Finance and National Planning Situmbeko Musokotwane, Governor Denny Kalyala, Secretary to the Cabinet Patrick Kangwa, Secretary to the Treasury Felix Nkulukusa, Deputy Governor Francis Chipimo, other senior government officials, representatives of the private sector, civil society organizations and development partners. The team would like to thank the Zambian authorities for their cooperation, hospitality, and constructive discussions.”