An International Monetary Fund (IMF) staff team led by David Robinson held virtual meetings during February 11–March 3 to discuss the Government of Zambia’s request for support under the IMF’s Extended Credit Facility. The discussions covered recent economic developments, the near-term macroeconomic challenges, and policy options to return Zambia to a sustainable macroeconomic position over the medium-term.
Key takeaways from the virtual mission include:
- Recent economic developments, the near-term macroeconomic challenges, and policy options to return Zambia to a sustainable macroeconomic position over the medium-term.
- Significant progress has been made and discussions are expected to continue in the next few weeks, following additional technical work on the appropriate policy package.
- Key challenges remain, including implementing fiscal reforms to correct current large fiscal imbalances; increasing fiscal revenues to provide the needed fiscal space to achieve development objectives; bolstering governance and the efficiency of the use of public resources, including through debt and expenditure transparency; halting the incurrence of domestic arrears; and ensuring that the social protection scheme is fully funded with timely payments.
At the conclusion of the virtual discussions, Mr. Robinson issued the following statement:
“Macroeconomic and social outcomes deteriorated in 2020 as underlying macroeconomic imbalances were compounded by the COVID-19 shock. The economy is forecast to have contracted by 2.9 percent, while the exchange rate depreciated significantly, and inflation increased sharply.
With a weak economy and increased spending—both on emergency COVID-related needs as well as agricultural subsidies—the fiscal deficit widened further largely financed from domestic sources. The authorities chose not to adjust fuel prices or electricity tariffs in order to support the population and enterprises during the difficult economic downturn contributing to further increases in domestic arrears and adding to the burden on ZESCO, the state-owned electricity company.
Zambia received support under the G20 Debt Service Standstill Initiative, which provides some debt relief in 2020 and the first half of 2021, but with debt already unsustainable prior to the COVID-19 shock, Zambia has sought a comprehensive debt treatment under the G-20 Common Framework.
“Broad agreement was reached on the nature and cause of the underlying macroeconomic imbalances. Resolving the macroeconomic challenges will require navigating the need to continue to support the population and the economy through the pandemic in a constrained fiscal environment, while setting the stage for a sustained recovery as the impact of COVID-19 eases and macroeconomic imbalances are resolved.
“The Economic Recovery Program lays out the government’s broad policy directions and discussions sought to map that strategy into more detailed policy steps. Key challenges that need to be addressed include:
- detailing the fiscal reform agenda to achieve the large and sustained fiscal consolidation needed to correct current fiscal imbalances;
- securing increased fiscal revenues to provide the fiscal space for government to meet its development objectives;
- bolstering governance and the efficiency of the use of public resources, including through debt and expenditure transparency;
- halting the incurrence of domestic arrears (including on fuel and in the electricity sector);
- ensuring that the social protection scheme is fully funded with timely payments to protect lower income groups.
The recent sharp increase in copper prices should also provide additional resources to help smooth the adjustment. Significant progress has been made and discussions are expected to continue in the next few weeks, following additional technical work on the appropriate policy package.
“IMF staff held meetings with Finance Minister Bwalya Ng’andu, Bank of Zambia Governor, Christopher Mvunga, senior government and Bank of Zambia officials, members of the Budget and Public Accounts Committees of Parliament, and other stakeholders.
“Staff express their gratitude to the Zambian authorities for the constructive, determined and frank engagement.”