The Zambian authorities and the IMF team have reached a staff-level agreement on economic policies to conclude the second review of the 38-month Extended Credit Facility-supported program (ECF). Once the review is approved by IMF Management and completed by the Executive Board, Zambia will have access to about $184 million in financing (SDR 139.9 million); Despite a challenging environment, the economy is showing resilience, with real GDP growth now projected at 4.3 percent in 2023 and 4.7 percent in 2024. External and domestic conditions have put pressure on the external balance and the exchange rate, raising inflation; Economic policies will continue to focus on restoring macroeconomic stability and debt sustainability, while protecting health, education, and social spending, safeguarding financial stability, and stepping up structural and governance reforms to unlock Zambia’s growth.

A staff team from the International Monetary Fund (IMF) team, led by Ms. Vera Martin, IMF mission chief for Zambia, visited Lusaka from October 25th to November 8th, 2023, to discuss progress on economic and financial policies to in the context of the second Review under the Extended Credit Facility (ECF) arrangement. The arrangement was approved by the IMF Executive Board on August 31th 2022, for a total amount of SDR 978.2 million (about US$1.3 billion). The program is based on the authorities’ homegrown economic reforms that aims to restore macroeconomic stability and debt sustainability, and foster higher, more resilient, and more inclusive growth.

At the end of the mission Ms. Vera Martin issued the following statement:

“I am pleased to announce that the Zambian authorities and IMF staff team reached a staff-level agreement on the second review of Zambia’s economic program under the ECF arrangement. The staff-level agreement is subject to IMF Management approval and Executive Board consideration. Upon completion of the Executive Board review, Zambia would have access to SDR 139.9 million (about US$184 million), bringing the total IMF financial support disbursed under the arrangement to SDR 419.6 million (about US$555.7 million).

“Amidst challenging conditions, the Zambian economy has performed better than anticipated. Growth is expected to reach 4.3 percent in 2023 as non-mining non-agricultural growth is more than compensating for weak mining production this year. Inflation pressures persist despite a tighter monetary stance by the Bank of Zambia, driven by higher food and fuel prices and a sustained depreciation of the exchange rate. The current account balance is projected to deteriorate to a deficit of 1.8 percent of GDP in 2023, driven by lower mining exports receipts and strong import growth.

“The medium-term outlook remains favorable, supported by expanding mining production and the completion of the debt treatment plan, and hinges on proactive reform efforts. In a context of elevated global uncertainty, external downside risks arising from a weakened global economic outlook, commodity prices volatility and regional conflicts, prudent economic policies are warranted. Building external buffers remains important.”

“The Zambian authorities have made progress in implementing reforms under the Fund-supported program, including significant fiscal efforts in 2023, which are expected to continue in 2024, to address lower mining revenues. The primary balance (cash basis) in 2023 is projected at 0.2 percent of GDP, in line with program parameters. Fiscal targets for end-June were met supported by lower current spending and higher nonagricultural and non-mining revenues. Despite the consolidation, the authorities have upscaled social spending to support the most vulnerable and continue to provide free primary education. Near-term reform priorities should focus on perennial revenue measures and better cash and liability management that would reduce the financing needs, crucial to restore fiscal space and debt sustainability. In addition, strengthening tax administration, removing tax exemptions, and actively combating tax evasion can also contribute to improve revenues and governance.”

“Further tightening of monetary policy may be needed to contain inflationary pressures, while building reserves will enhance external resilience. The Bank of Zambia pursues reforms to enhance the effectiveness of monetary policy transmission through strengthening the monetary policy framework and its governance. The Bank of Zambia is also working on strengthening the banking sector and promoting financial inclusion.”

“Improving the business climate remains key for economic diversification and private sector-led growth and relies on continued efforts towards improving the anti-corruption framework and battling Anti-Money Laundering and Combating the Financing of Terrorism; enhancing transparency, including in the energy and agricultural sector; and publishing beneficial ownership information for awarded government contracts.”

“We welcome the agreement on the MoU reached with official creditors and ongoing discussions with private creditors to reach an agreement on a debt treatment. We look forward to the authorities’ continued efforts to reach an agreement with all creditors in line with program parameters.”

“The IMF staff team is grateful to the authorities for the open and productive discussions. The 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.”