Zambia and the IMF
Press Release: IMF Approves US$320.41 Million PRGF Arrangement for Zambia
June 16, 2004
Country's Policy Intentions Documents
Free Email Notification
of Intent, Memorandum of Economic and Financial Policies, and Technical
Memorandum of Understanding
Dear Ms. Krueger:
In March, the Government of Zambia requested that the staff-monitored program (SMP) covering the second half of 2003 be extended through end-June 2004. The attached Memorandum of Economic and Financial Policies (MEFP) reviews progress in implementing the SMP and describes our medium-term adjustment strategy for the period 2004-07. In line with the agenda established in the PRSP, this strategy aims at accelerating economic growth and reducing poverty by, inter alia, implementing sustainable fiscal and monetary policies, and structural reforms to support fiscal adjustment and a reorientation of spending towards poverty reduction, improve the environment for private sector development and strengthen governance. In order to support the implementation of these medium-term reforms, the Government of Zambia requests a new arrangement under the Poverty Reduction and Growth Facility (PRGF) in a total amount equivalent to SDR 220.095 million (45 percent of quota).
Successful implementation of policies supported by the PRGF arrangement will be essential to allow Zambia to reach the Completion Point under the enhanced HIPC Initiative. Attaining the Completion Point will be key to reducing Zambia's external debt to sustainable levels and will also lower debt service payments to manageable levels, so as to release resources to poverty-reducing expenditures.
The Government of Zambia believes that the policies set forth in the attached MEFP are adequate to achieve the objectives of its program, but it will take any further measures that may become appropriate for this purpose. Zambia will consult with the Fund on the adoption of these measures and in advance of revisions to policies contained in the MEFP, in accordance with the Fund's policies on such consultation.
The Government of Zambia authorizes the IMF to make this letter and attached memoranda available to the public, including through the placement of these documents on the IMF website, subject to the removal of market-sensitive information, following the IMF Executive Board approval of the requested arrangement.
I. Performance Under The Extended Staff-Monitored Program
1. All the key quantitative targets for end-March 2004 under the extended SMP were met. These included: the ceilings on net domestic assets of the Bank of Zambia (BoZ) and net domestic financing of the central government, which were met by wide margins; the floor on gross international reserves of the BoZ; the ceilings on nonconcessional external debt and on concessional borrowing by the Zambia Electricity Supply Corporation (ZESCO), collateralized or guaranteed by the Government of Zambia; and the floor on cumulative deposits into the HIPC Initiative Account No. 49 at the BoZ to finance poverty-reducing programs. The target on the wage bill was also met, even after taking into account the accumulation of arrears toward government employees (Table 1).
2. Through end-April 2004, all the structural benchmarks were observed, with the exception of the benchmarks on preparing an action plan to deal with the insolvent Non-Bank Financial Institutions (NBFIs). and on awarding a contract for the procurement of hardware and software for an Integrated Financial Management and Information System (IFMIS). The latter was delayed, while awaiting a "no objection" from the World Bank (Table 2). The preparation of an action plan to deal with the insolvent NBFIs has been delayed as the Government sought additional technical assistance to deal with these difficult issues. All continuous benchmarks were also observed.
II. Recent Economic Developments
3. In 2003, Zambia's economic performance continued to improve. Real GDP is now estimated to have increased by 5.1 percent, bringing the average annual growth over the past four years to 4.2 percent. Preliminary indications from the mining sector, and from the continued strong growth in non-traditional exports, suggest that per capita income in 2004 will increase for the fifth year in a row. The 12-month inflation rate, at 17.2 percent in December 2003, was the lowest in two decades. However, the rate of inflation edged up to 17.6 percent in March 2004, marginally above the SMP target of 17.4 percent, largely on account of higher food prices in the months before the maize harvest.
4. Economic performance in 2003 was aided by some favorable exogenous developments, including the easing of drought conditions on agriculture and significantly higher copper prices, which offset some of the potential negative impact from the large budgetary overruns. The overall fiscal deficit (after grants) and net domestic financing in 2003 exceeded their targets under the SMP (July-December 2003) by 1.5 percent of GDP and 2 percent of GDP, respectively. These overruns mainly reflected unbudgeted security-related expenditures and payments of retrenchment benefits and wage arrears to workers in the Luanshya mine, to facilitate its sale to a strategic equity partner. Expenditures on poverty-reducing programs fell short of the budgeted levels, and domestic arrears continued to accumulate, although at a much reduced rate.
5. In the first three months of 2004, however, fiscal performance improved significantly. While revenues were in line with the SMP targets through end-March, expenditures were below the programmed amounts and, as a result, notwithstanding a significant shortfall in net external budgetary support, the adjusted target on net domestic financing was met by a comfortable margin. The monthly wage bill—including housing allowances—was in line with the SMP target. Cumulative funding for poverty-reducing programs was also in line with the SMP target, but actual expenditures on these programs again fell short of budgeted levels, pending approval of the 2004 budget by Parliament.
6. In 2003, broad money expanded by more than programmed, mainly reflecting the substantially higher net foreign assets of the banking system. Also, in October 2003, the BoZ loosened monetary policy by lowering the cash legal reserve requirement from 17.5 percent to 14 percent, to provide banks with liquidity for lending to the agricultural sector. Together, these factors resulted in excess liquidity in the banking system, which caused Treasury bill interest rates to fall from a range of 30-35 percent for most of the year to around 20 percent at end-December 2003. During the first three months of 2004, broad money grew by 3.8 percent, which was below the program target. However, excess bank reserves at the BoZ have persisted and, by end-March 2004, nominal interest rates on Treasury bills had fallen below 10 percent, becoming negative in real terms. The commercial banks' overnight lending rates were also in the low single digits. In contrast to developments in the Treasury bill market, commercial banks' weighted lending base rates have declined only gradually from about 37 percent in the last quarter of 2003 to 31.8 percent in March 2004.
7. External developments in 2003 were favorable, as exports were boosted by higher copper prices and further strong growth in nontraditional exports. With total exports growing by an estimated 24 percent, compared with a 16 percent increase in total imports, the external current account deficit, including grants, narrowed by almost 1 percent of GDP to 5.6 percent of GDP in 2003. During the first quarter of 2004, these favorable developments continued; copper prices increased sharply, and non-traditional exports rose by over 40 percent from the same period a year earlier, in part reflecting a substantial increase in tobacco exports. In the interbank foreign exchange market, the kwacha was stable against the U.S. dollar, but depreciated against the euro and the rand. In real effective terms, the kwacha is estimated to have depreciated by 3.3 percent in the 12 months to January 2004.
8. Progress in implementing structural reforms during 2003 was mixed. The BoZ introduced the interbank foreign exchange market, and the Government formulated a medium-term expenditure framework (MTEF) in the preparation of the 2004 budget. However, the impact of steps to strengthen the control of expenditure commitments was undermined by slippages in expenditure policies. To strengthen monitoring of the wage bill, the Ministry of Finance and National Planning (MoFNP) has issued an instruction introducing the tracking of all payments related to housing allowance for civil service employees which will allow the tracking and classifying under personal emoluments of all the payments related to housing allowance. The MoFNP has also set up a unit dedicated to monitoring and reporting, on a monthly basis, all payments to civil service employees as specified in the attached technical memorandum of understanding (TMU) (paragraph 27). The government has also approved a requirement that the Minister of Finance and National Planning should submit to the Cabinet an analysis of the short and medium-term budget costs of any agreement with government employees before it is finalized.
9. As noted above, the implementation of structural reforms improved in early 2004, with virtually all the structural benchmarks under the SMP observed. In addition, there has been progress in implementing the plan, agreed with the staff of the World Bank and IMF, to commercialize ZESCO. Discussions with the first preferred bidder for the partial sale of Zambia National Commercial Bank (ZNCB) are continuing; however, in order to expedite the sale, the Zambia Privatization Agency (ZPA) has initiated parallel discussions with the second preferred bidder. The Government completed the sale of the Luanshya mine, formerly owned by the Roan Antelope Mining Company of Zambia, in early 2004, and has made substantial progress in seeking a new strategic equity investor for the Konkola Copper Mines (KCM). In the area of public expenditure management, an activity-based budget was introduced for preparation, execution, and reporting of fiscal operations in 2004. However, the need to align the reporting system to the activity-based budget classification delayed the delivery of the monthly expenditure reports.
10. The Government made progress toward implementing the triggers for reaching the floating Completion Point under the enhanced Heavily Indebted Poor Countries (HIPC) Initiative. The macroeconomic environment has improved, as evidenced by the satisfactory performance under the extended SMP. Measures have been implemented in the areas of health and education and, as indicated above, in the privatization of ZNCB and the commercialization of ZESCO. Building on the experience in preparing the 2004-06 MTEF, the MoFNP is working to prepare the MTEF for 2005-07. The Poverty Reduction Strategy Paper (PRSP) progress report was finalized and has been issued to the Boards of the Fund and the World Bank.
III. The Medium-Term Reform Strategy
11. As articulated in the PRSP, and re-affirmed in the PRSP progress report, the government's strategy to reduce poverty focuses on promoting economic growth through diversification and improving the quality of public services, while addressing the cross-cutting issues of governance, HIV/AIDS, gender and the environment. Since poverty is concentrated in rural areas, agricultural development will receive a high priority, while the development of the road infrastructure throughout the country will also be a priority to facilitate growth and poverty reduction.
12. The central challenge is to strengthen the recent momentum of economic growth that has begun to reverse the prolonged decline in per capita incomes. The Government recognizes that long-term growth rates of 6 to 8 percent would be needed to reduce poverty in line with the Millennium Development Goals (MDGs). The Government is therefore striving to move the economy towards this higher growth path and reduce poverty by intensifying its efforts to remove obstacles to private sector development and improving the delivery of key services. However, the Government also recognizes that it will take time for these reforms to deliver a stronger sustained increase in economic growth. In addition, in line with the MTEF, the strategy for the next three years is developed around cautious projections of external assistance. The Government envisages that successful and consistent implementation of its reform agenda, including fundamental reforms in public expenditure management would, over time, facilitate higher levels of external assistance that could be incorporated into the framework to increase priority spending and reduce the high burden of domestic debt.
13. Key medium-term macroeconomic objectives include: (i) increasing real GDP growth from 3.5 percent in 2004 to at least 5 percent in 2006 and beyond; (ii) reducing the rate of inflation to around 10 percent in 2006 and to single digits thereafter; and (iii) increasing the gross international reserves of the BoZ to about 2 months of import cover by 2007. The strategy is also geared to restoring a sustainable external debt position by reaching the Completion Point under the HIPC initiative and reducing the external current account deficit to a sustainable level. At the same time, fiscal policy aims to re-orient spending towards priority poverty-reducing expenditures, while reducing domestic debt to sustainable levels.
14. Agriculture, mining, manufacturing, and tourism are expected to be the main sources of growth. Agricultural growth will moderate in 2004 after the recovery in 2003 from the drought of the 2001/02 season, and pick up to 4 percent by 2006. With the support of private investment and the positive outlook for prices, the copper sector is expected to contribute strongly to overall growth. Manufacturing is also expected to benefit from higher demand from the mining and agriculture sectors, and prospects for tourism, especially in the Livingstone area, are good. More generally, further progress in macroeconomic stabilization, improvements in the delivery of public services and infrastructure, and the removal of regulatory and other obstacles to private sector development are expected to support stronger private investment and a continuation of the recent trend of higher total factor productivity growth.
15. The medium-term framework embodies a front-loaded fiscal adjustment to halt the cycle of rising domestic debt and interest payments and thus allow high spending on poverty-reducing programs. Given Zambia's relatively high level of tax revenues, this fiscal adjustment is focused more on the expenditure side. The projected fiscal deficit should allow for a sharp reduction in domestic financing from 5 percent of GDP in 2003 to 2.2 percent of GDP in 2004, and a more gradual decline to 0.5 percent of GDP by 2007. This adjustment will provide for a significant reduction in both the stock of domestic debt and domestic interest payments. The reallocation of spending, and improvements in the efficiency and delivery of government services will be supported by the implementation of the government's Public Sector Reform Programme, with concerted support from development partners. Since work is needed to fully elaborate plans for "rightsizing" and pay reform (see below), which could yield some savings from the current wage bill of 8 percent of GDP, at this stage, the medium term framework reflects the government's policy of holding the wage bill to no more than 8 percent of GDP. Nevertheless, poverty reducing expenditures are targeted to increase over the medium term; within this total, the subset of expenditures identified as poverty reduction priorities, which are largely capital expenditures, would increase from 1 percent of GDP in 2003 to 3.8 percent of GDP in 2007.
16. Zambia's medium-term external outlook is expected to improve significantly on the basis of stronger exports and further debt relief once the Completion Point under the enhanced HIPC Initiative is reached. Although copper prices are expected to weaken from their current high levels, strong mining and non-mining exports will allow the current account deficit, including grants and debt relief on interest payments, to narrow from 5.6 percent of GDP in 2003 to 3.8 percent in 2007. The improvement in the overall deficit should permit a buildup of external reserves from 1.3 months of import cover in 2003 to almost 2 months by 2007. Projected financing gaps, after possible additional debt relief from Paris Club creditors beyond HIPC assistance (up to US$30 million per year), average US$43 million per year over 2005-07. These gaps could be covered by additional support from other donors. Zambia's gross external financing needs are expected to decline significantly in 2006, following the completion of principal payments to the Fund related to the arrears clearance of 1995.
17. Structural reforms will support the fiscal adjustment and reorientation of spending through reforms in public expenditure management and restructuring of the public sector. In addition, the program seeks to strengthen the financial system, improve the environment for private sector development and strengthen governance. The initial focus of these reforms will be on public sector management. But with progress towards fiscal stabilization in 2004, the Government expects that reform efforts and administrative capacities would then be increasingly focused on these "second generation" reforms.
18. The Government, in close collaboration with the development partners, is re-defining the Public Sector Reform Programme, in order to meet key objectives established in the PRSP and confirmed in the PRSP progress report. The program is comprised of three pillars, and in each of these areas, technical working groups have been elaborating detailed reform proposals and will supervise their implementation. The first pillar, strengthening Public Expenditure Management and Financial Accountability (PEMFA), addresses issues raised in the PEMFA Report, jointly prepared by the Government and the World Bank, and the Assessment and Action Plan (AAP) on the tracking of HIPC expenditures, jointly prepared by the Government, the World Bank and the Fund. The second pillar addresses issues of "rightsizing," pay reform to align government operations to achieving the PRSP objectives, and a sustainable Public Service Pension Fund. The government recognizes that further work is needed to clearly define the reform strategy for rightsizing and pay reform and has requested further assistance from the World Bank in this area as a matter of urgency. The third pillar addresses decentralization and participatory governance. Although the Public Sector Reform Programme is intended to be an integrated reform program, in line with immediate priorities and the progress achieved in defining the reform agenda, the initial focus will be on the PEMFA program, which is critical to improving expenditure policy and management reforms.
19. The Government has launched the Private Sector Development Initiative (PSDI), to improve the environment for private sector growth and accelerate domestic and foreign investment. The PSDI was developed from a comprehensive review of current policies, legislation and regulations. A draft of the initiative, which was prepared by a steering committee including representatives of the public and private sectors, as well as development partners, was presented to Cabinet in May 2004 and will be discussed with key stakeholders during a Private Sector Development Forum in June 2004. The key elements of the PSDI include: a revision of Zambia's investment act; a program of land reform; a reform of labor laws; a revision of business regulations and licensing policies; and the development of a new policy on tax incentives. While aiming to facilitate private activity in all sectors, the initiative will also focus on removing obstacles to investment in agriculture, tourism, gemstone production, telecommunications and energy and power. Full implementation of the PSDI agenda is expected to take at least two years. However, some legislative changes needed to support the PSDI are expected to be presented to parliament during the second half of 2004.
20. The Government is also proceeding with the reform of the electricity utility, ZESCO. Following the review by Fund and World Bank staff, the commercialization of ZESCO has reached the "entry point" and we intend to expedite implementation of the measures needed to reach the interim point by June 2004 and then embark on ZESCO's commercialization according to the agreed detailed framework. As previously agreed, to provide ZESCO some breathing space to build a track record of credit worthiness, new concessional borrowing by ZESCO guaranteed by the Government will be permitted, subject to cumulative limits of US$20 million to the end of 2004 and US$40 million to June 2005. This limit would be subject to review, in consultation with Bank and Fund staff, in the event that additional concessional resources are required.
21. A draft Financial Sector Development Plan (FSDP) has been issued for comments from stakeholders, and a national forum on the plan was held in May 2004. The wide-ranging plan, which will be finalized by June 2004, seeks to address issues raised in the Financial Sector Assessment Program. It recognizes the importance of addressing the issue of the insolvent NBFIs, in order to limit the potential exposure to the budget of additional contingent liabilities. The plan also stresses the importance of adequate autonomy in the formulation of monetary policy and, more generally, in strengthening the authority of the BoZ, especially in matters of banking supervision. The Government has also drafted regulations to support the development of the microfinance sector that are expected to come into force in 2004. The draft regulations aim to strengthen the governance of the sector through increased availability of information and better supervision of corporate governance.
22. Reform efforts are also concentrated on improving governance. The anti-corruption drive will remain central. In this regard, the Task Force on Corruption has seized money and assets suspected to have been illegally acquired. It is expected that, upon final settlement of any outstanding legal issues related to the monies and assets, in the event the judgment favors the Government, a cabinet memorandum would be issued on the disposal of these assets for the benefit of the people of Zambia. In addition to the measures pursued under the PEMFA program, the Government is strengthening the independence of the Office of the Auditor General and will work on extending to grant-aided institutions and state-owned enterprises the financial reporting requirements envisaged for the central government.
IV. The Program for 2004
23. The key macroeconomic objectives underlying the budget for 2004 are real GDP growth of at least 3.5 percent and end-period inflation of no more than 20 percent. Growth is expected to moderate in 2004 from the revised estimate of 5.1 percent in 2003, reflecting a slower pace of agricultural growth after the recovery in 2003 from the effects of the drought in 2002. The inflation target would imply some increase from the outturn for 2003, reflecting the expectation of a less favorable trend in food prices, which have a heavy weighting in the consumer price index, and the impact of higher petroleum prices on world markets. The program also targets gross international reserves of US$173 million (about 1 month of import cover) at end-2004.
A. Fiscal Policy
24. The budget for 2004 is geared to preserving macroeconomic stability, by containing domestic borrowing to reduce pressures on interest rates, prices and the exchange rate. In support of these objectives, the budget and the program for 2004 target a 3 percent improvement in the domestic primary balance, to a surplus of 2.4 percent of GDP. This will also allow government's recourse to domestic financing to decline from 5 percent of GDP in 2003 to 2 percent of GDP in 2004. Although the burden of this adjustment falls primarily on the expenditure side, the Government intends to increase spending on priority poverty-reducing programs.
25. The wage bill will be reduced by 0.5 percent of GDP from 8.5 percent of GDP in 2003 to 8 percent of GDP in 2004. In line with this objective, the Government has announced that there will be no nominal increase in wages, except for the Zambia Police, Immigration and Prison service personnel, who did not receive a raise in 2003. However, the wage bill will accommodate promotion increases or wage creep, and a housing allowance of K 7.2 billion per month and the mid-term gratuity for members of Parliament as provided for by the law. The Government has reaffirmed its intention to hold the wage bill to the budgeted amount and in line with established procedures, a reconciliation board, whose conclusions are not binding, is considering the trade unions' claims and the government position of no general wage increase in 2004. Allocations on ordinary recurrent departmental charges (RDCs) have been reduced by 0.7 percent of GDP from the 2003 outturn of 2.8 percent of GDP. Savings are to be achieved through re-organization of operations, aggressive cutting of discretionary spending, and strict enforcement of the commitment control system (CCS), supported by monthly cash releases from the MoFNP.
26. Despite this fiscal restraint, the Government is committed to increase priority poverty-reducing expenditures financed with HIPC debt relief from 1 percent of GDP in 2003 to about 2 percent of GDP in 2004. The Government will continue to make monthly payments into Account No. 49 at the BoZ to fund these expenditures. However, the balances of line ministries' accounts in commercial banks for these expenditures will be monitored closely and funds will be disbursed to these accounts from Account No. 49 only when existing balances are expected to be exhausted during the month. Government, in 2004, has also increased the allocation to the key social sectors, such as education, which has received at least 20.5 percent of discretionary spending.
27. The budget includes measures to raise revenues, which focus on broadening the tax base. The original structure and coverage of the VAT were restored by exempting most nonexport goods that were zero-rated. This measure, which took effect on February 7, 2004, is expected to yield K 95 billion or 0.4 percent of GDP. Increased compliance with the VAT has been facilitated by doubling the turnover threshold for the VAT to K 200 million. At the same time, cancellation of voluntary registration below this threshold should result in savings of K 26.3 billion from VAT refunds. A 3 percent turnover tax, replaced income tax and VAT for companies below the VAT threshold, and should yield K 7.3 billion. In addition, the personal income tax has been restructured to alleviate poverty and provide additional resources to the budget. The revised personal income tax regime, effective April 1, 2004, increases the threshold for exempting annual income to K 3.1 million (from less than K 2 million) and adds two income brackets (at tax rates of 35 and 40 percent) above the current top rate of 30 percent. These measures should yield K 23.8 billion. A 10 percent excise duty on cell phone airtime, introduced on February 7, 2004, should provide K 15.6 billion. The removal of the preferential corporate tax rate for companies listed on the Lusaka Stock Exchange should yield K 17.4 billion. In combination, the tax policy measures are expected to raise revenues by 0.6 percent of GDP. Measures on non-tax revenues (increase of fees and fines) and exceptional revenues (reduction of subsidy on sales of fertilizer) should generate additional resources of 0.4 percent of GDP. Consequently, total revenue collection should reach 18.7 percent of GDP in 2004. Total grants are estimated at 5.4 percent of GDP and include program grants carried over from 2003 and the first disbursement under a new program from the European Union that would be contingent on approval of a new PRGF.
28. The Government is fully committed to executing the budget as approved by Parliament. Specifically, the wage bill will be kept within the budget ceiling of 8 percent of GDP, while monthly transfers to the HIPC Initiative Account No. 49 at the BoZ will provide funding for full execution of poverty-reducing spending. Discretionary spending, in particular under ordinary RDCs, will not exceed budgetary allocations. In the first half of 2004, interest payments in domestic debt are not expected to be significantly different from their budgeted level. Current low interest rates on Treasury bills may give rise to some savings on domestic debt service in the second half of the year, but external debt service payments are now projected to be higher than in the budget. The possible use of any further net savings will be discussed at the time of the first review under the PRGF arrangement.
29. The MoFNP and the Ministry of Commerce, Trade, and Industry are continuing the analysis of the Export Processing Zones Act and the revision to the Investment Act. The Cabinet will review these issues by end-October 2004 and will submit to Parliament, for consideration and approval in the context of the budget for 2005, the amendments needed to make tax incentives sustainable, general, and non-discretionary, while minimizing the risks of erosion of the tax base.
B. Monetary and Exchange Rate Policies
30. Monetary and exchange policies in 2004 will be geared to achieving the program's inflation target while safeguarding the international reserve position. In line with these objectives, and taking into account a monetary overhang at the end of 2003, the expansion of broad money will be limited to about 18 percent through the BoZ's use of indirect monetary instruments. The monetary framework provides sufficient room for a significant real increase in credit to the private sector in support of the program's growth objective, and is consistent with the fiscal framework. Although the growth in broad money has so far remained within the programmed range, the BoZ is closely monitoring liquidity developments. In this regard, the BoZ is taking appropriate measures to mop up excess liquidity to ensure that broad money continues to stay within the programmed limits and is consistent with the projected inflation rate and to prevent pressure on the kwacha.
31. The exchange rate will continue to be market-determined. BoZ intervention in the market will be aimed at meeting the program's gross international reserves target and smoothing short-term fluctuations.
C. External Sector
32. The current account deficit (including grants and debt relief on interest payments) is projected to narrow from 5.6 percent of GDP in 2003 to 4.6 percent in 2004. Metal export receipts are projected to grow by 30 percent, mainly because of higher copper prices, while nontraditional exports including agricultural products such as sugar, vegetables, cotton, and tobacco would increase by about 12 percent. Prospects in the copper sector could be bolstered by the sale of a majority stake in KCM to a strategic equity partner and the start of copper production at the newly reconstituted mine in Luanshya. However, export gains are expected to be largely offset by stronger imports, mostly because of large capital expenditures in the mining sector. In addition to the large expenditures on the new Kansanshi copper mine, due to start operations in 2005, the mining sector is also expected to take advantage of high copper prices to finance other capital improvements.
33. External program assistance in the second half of the year will benefit from the approval of the new PRGF. In particular, in line with the budget for 2004, disbursements are expected under a new structural adjustment credit from the World Bank and a new three-year support program from the European Union. For the period leading up to the HIPC-Initiative Completion Point, the Government is requesting for a new rescheduling arrangement on Cologne terms. At the Completion Point, the Government would request a stock of debt operation from this group of creditors. The Government is also negotiating with non-Paris Club commercial creditors to obtain debt relief comparable to that under enhanced HIPC-Initiative debt relief. With the approval of the requested PRGF arrangement, and the official financing it would catalyze, the program would be fully financed in 2004.
34. The trade regime remains open and supportive of export development and the diversification of the economy. The simple average nominal tariff on imports is estimated to have declined in 2003 by 2 percentage points to 11.5 percent, as a result of the reclassification of some goods within the four tariff bands. Zambia does not have any nontariff import barriers. The establishment of a common external tariff by the Common Market for Eastern and Southern Africa free trade area, previously scheduled for 2004, is now expected in 2005. As a part of the strategy launched in 2000 to create a Southern African Development Community (SADC) free trade zone by 2012, the gradual reduction of tariffs for sensitive items (Category B of the SADC protocol) will be implemented on July 1, 2004. On export development, the government will benefit from the participation in the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries.
D. Structural Reforms, Public Expenditure Management, and Governance
35. The key structural reforms in the public sector for 2004 will aim to strengthen public expenditure management, improve cost-effectiveness of the public sector, and enhance transparency and governance. A broad-ranging and detailed program of reforms in Public Expenditure Management and Financial Accountability has been elaborated by Government and its development partners, drawing upon the diagnostic work prepared with the World Bank. The PEMFA program will be submitted for consideration and approval to a committee of Cabinet in May 2004 (a prior action for approval of the PRGF arrangement). The Government is determined to implement the PEMFA program, with the assistance of multilateral and bilateral donors. The program will, inter alia, reinforce the budget's role in the definition and execution of spending policy, facilitate enforcement of sanctions for noncompliance with the established spending procedures, support the implementation of the IFMIS, and strengthen internal audit and control.
36. In line with the implementation of the PEMFA program, initial steps to strengthen public expenditure management will include the following (i) fully integrating the activity based budget classification in the reporting system by end-May 2004; (ii) signing in June (structural benchmark) the contract for the supply and installation of the hardware and software needed to implement the fully computerized IFMIS; (iii) initiating the piloting of the IFMIS in three ministries before end-September (performance criterion) as a key step towards meeting the related trigger for the HIPC Completion Point on the piloting and midterm review of the IFMIS; (iv) preparing, by September 2004, an improved MTEF as a basis for more realistic and multi-year financial planning. From June 2004, the MoFNP will start to publish quarterly budget execution reports, using the activity based budget classification, within 45 days of the end of the quarter. From August 2004, these reports will include detailed and summary data on the execution of all poverty-reducing expenditures as well as the subset of these classified as priority poverty-reducing expenditures. Based on the audited stock of domestic arrears at end-2003, and a fully elaborated multi-year plan for clearing domestic arrears, the MoFNP will, by July 2004 (structural benchmark), start negotiations with contractors for infrastructure projects accounting for the bulk of these arrears, and initiate payment of arrears on goods and services and personal emoluments. All payments will be made by the MoFNP. The Government will also submit an amendment to the Constitutional Review Commission (CRC) that would enable the budget to be submitted to the Parliament and approved before the start of the fiscal year.
37. The MoFNP will strongly enforce expenditure procedures. Unbudgeted expenditure requirements will be funded only to the limits of the contingency resources indicated in the budget or only after Cabinet has approved any changes by finding compensatory funding within the approved budget resources. In order to prevent the accumulation of new arrears and virement of resources, the Budget Office in the MoFNP is strengthening timeliness and reliability of quarterly and monthly expenditure ceilings issued to spending agencies. The inclusion of the CCS in the computer-based Financial Management System-a precursor to the implementation of the IFMIS-will considerably improve spending execution. The new system will help ensure that control over monthly expenditure returns is appropriately and timely monitored, while improving transparency and the accountability of accounting officers. The Secretary to the Treasury is supervising strict enforcement of sanctions for noncompliance with the established spending procedures. The Accountant General is reporting on reductions of disbursements to line ministries, departments, and provinces responsible for over-commitment, diversion of funds between budget sub-heads without ex-ante written authorization by the Secretary to the Treasury, as well as failure to accurately report expenditures, as specified in the circulars issued in September 2002.
38. Work is now underway on the development of a strategy of government rightsizing and pay reform. The strategy aims to achieve a public service of optimal size and raise the quality of the services it delivers. The government will review progress in this key area with Fund staff at the time of the first review. In the meantime, efforts are continuing to strengthen control of the wage bill. A new Payroll Management and Establishment Control (PMEC) system, which is now being tested, will adopt phased implementation with the first batch of payrolls going live by end-June 2004 (20 payrolls). The U.K. Department for International Development (DFID) has been requested to support this phased implementation of the PMEC system, which is expected to run from June to December 2004. This system will imply close monitoring and reconciliation for the payroll and Establishment Registers for Ministries and Government Institutions, excluding National Assembly, Electoral Commission, Anti-Corruption Commission, Defense, Office of the President (Special Division), Human Rights Commission and Health Boards. Finally, the Government reiterates its intention to consolidate allowances into basic salaries. In 2005, subject to negotiations with Public Service Unions, the housing allowance will be consolidated in the basic salary, observing the ceilings provided by the MTEF.
39. An action plan for the implementation of the Financial Sector Development Plan is expected to be submitted, by June 2004, to Cabinet, for consideration and approval (prior action). In the meantime, financial sector reforms will focus on immediate priorities. The government is fully supporting the ZPA in its efforts to conclude the sale of 49 percent of the equity in ZNCB. As earlier envisaged, no interest on the bond issued in 2002 to recapitalize ZNCB will be paid before the sale is concluded. The BoZ will implement regulations for the microfinance sector, to support the use of rural branches of banks to enhance delivery of financial services in rural areas and boost growth in the agriculture sector.
40. In November 2001, Zambia enacted the Prohibition and Prevention of Money Laundering Act (PPMLA) which, inter alia, criminalized money laundering and provided for the seizure of assets derived from laundered funds. The Act also provided for the establishment of the Anti-Money Laundering Authority, the policy-making organ charged with providing guidance to the Anti-Money Laundering Investigations Unit, the unit charged with investigating money laundering offenses. Whilst these developments provided the necessary impetus to the fight against money laundering, it has been recognized that the provisions of the PPMLA need to be strengthened, largely due to changes in international standards for combating money laundering. In this regard, proposals have been made to review the PPMLA to bring it in line with the revised FATF40 recommendations of June 2003, and Technical Assistance from the IMF has been sourced to help the country come up with the appropriate anti-money laundering legislative framework. The proposals to amend the PPMLA have been presented to the Anti-Money Laundering Authority.
41. Resolution of three insolvent NBFIs remains an immediate priority and the following courses of action are being taken with technical assistance from the IMF:
42. The Government remains fully committed to enhance quality of governance and transparency of public sector operations. As indicated in the PRSP, the Government has elaborated and started a policy of zero tolerance for corruption. To improve transparency, the Government is strictly adhering to budgetary procedures. Quarterly reports of budget execution, including poverty-reducing priority expenditures, will be published. In line with last year's timely submission, the audited accounts for 2003 will be submitted to Parliament by end-2004. The Government is also committed to strengthening the independence of the Office of the Auditor General. However, since this will require a constitutional amendment, the Government will present a proposal to this effect to the CRC.
V. The PRSP Progress Report, the HIPC Triggers, and the MTEF
43. The Government completed the first PRSP Progress Report in April 2004. The participation of all main stakeholders in the assessment allowed the Government to draw lessons from the first 18 months of PRSP implementation. In the progress report, the Government acknowledges that weaknesses in expenditure policy and management, as well as delays in key structural reforms outside the fiscal area, resulted in delays in implementing poverty-reducing programs.
44. The Government is fully committed to meeting the HIPC triggers. The removal of the debt overhang at the HIPC Completion Point is a key element in eliminating potential obstacles to investment, growth, and poverty reduction. The Government is continuing the commercialization of ZESCO, as envisaged under the plan supported by the World Bank. The development of the 2005-07 MTEF is well underway (and is expected to be finalized by September 2004). In the second half of the year, the Government expects to pilot an IFMIS in at least three ministries. The Government is continuing with its efforts in the execution of programs in the education, health and HIV/AIDS areas, including poverty monitoring programs and the finalization of the privatization of ZNCB. In addition to intensifying reform efforts to meet the triggers, the Government is working on reconciling its debt with all external creditors. A full debt sustainability analysis (DSA) will be completed during the next few months.
VI. Technical Assistance and Data Issues
45. Zambia will need technical assistance to strength capacity and support program implementation. In the area of public expenditure management, following the expiration of the term of the Fiscal Affairs Department (FAD) resident advisor, the MoFNP is requesting further assistance in cash management from FAD. In the financial sector, the BoZ requested Monetary and Financial Systems Department (MFD) assistance on making operational the FSDP. Zambia is a participant in the General Data Dissemination System (GDDS) and is receiving technical assistance in the area of macroeconomic statistics, including BOP, national accounts and government finance statistics, under the project for Anglophone African countries, which is sponsored by DFID. Finally, a data ROSC will be completed in 2004 and will provide the basis for an action plan to improve the quality of statistical information.
VII. Program Monitoring
46. Progress in implementing the PRGF-supported program will be monitored quarterly, based on the quantitative and structural measures indicated in Tables 3 and 4. These targets are defined in the attached Technical Memorandum of Understanding. The Fund will conduct with Zambia two reviews of the annual program based on performance through end-September and end-December 2004, respectively. The first review, which would be completed no later than end-December 2004, would focus on the evolution of the wage bill, progress in developing a costed program for rightsizing and pay reforms in the government sector, and monetary developments. The second review will be completed no later than end-March 2005.
47. The Government is strengthening the effectiveness of the Economic Management Monitoring Committee at the MoFNP to provide timely reconciled financing and budgetary data and ensure that preemptive measures are taken to avoid lapses in program implementation. The Fund's Resident Representative continues to be invited to attend the committee meetings as an observer as may be required.
1. This memorandum sets out the understandings between the Zambian authorities and the International Monetary Fund (IMF) regarding the definitions of the quantitative and structural performance criteria and benchmarks for the program supported by the PRGF arrangement, as well as the related reporting requirements. The definitions are valid at the start of the program, but may need to be revisited to ensure that the memorandum continues to reflect the best understanding of the Zambian authorities and Fund staff to monitor the program.
II. Prior Actions
2. The prior actions below should be carried out and reported at least five working days before the Fund's Executive Board discussion. The implementation of the prior action shall be conveyed through a written communication from the Minister of Finance and National Planning indicating that the prior actions have been observed, using the language of the prior action itself.
A. Public Expenditure Management and
3. The prior action on the Public Expenditure Management and Financial Accountability (PEMFA) Program will be met following Cabinet approval of the program.
B. Financial Sector Development Plan (FSDP)
4. The prior action on the Financial Sector Development Plan (FSDP) will be met when the final FSDP with an action plan for its implementation is submitted to Cabinet for consideration and approval. The plan, which addresses issues raised in the Financial Sector Assessment Program, is expected to deal with, inter alia, the issue of the Non-Bank Financial Institutions (NBFIs); strengthening the authority of the Bank of Zambia (BoZ), especially in matters of setting monetary policy and in banking supervision; and microfinance-related issues.
III. Quantitative Performance Criteria and Benchmarks:
A. Net Domestic Assets (NDA) of the BoZ
5. Net domestic assets (NDA) of the BoZ are defined as the monthly average (based on daily data) of the reserve money less net foreign assets calculated at end-December 2003 BoZ mid-exchange rates (program exchange rate).1 Reserve money includes currency in circulation, required reserves on Kwacha deposits, required reserves on foreign currency deposits (at the program exchange rate), positive current account balances of banks with the BoZ and deposits of non-central government institutions. Net foreign assets of the BoZ are defined as gross international reserves (defined below) plus any other foreign asset, including the US$25 million blocked reserves at the former Meridien Bank (MBZ), minus foreign liabilities (defined below). The Kwacha figures are derived from the U.S. dollar values using the program exchange rate of K 4,645 per U.S. dollar.
6. Foreign liabilities are defined as short term (one year or less in original maturity) foreign currency-denominated liabilities of the BoZ to nonresidents and outstanding use of Fund credit.2
7. The ceilings on NDA will be adjusted upward by the amount of the shortfall of balance of payments support net of debt service as indicated in Table 3 (item 11) of the Memorandum of Economic and Financial Policies (MEFP), up to a maximum of US$14 million for the period end-June 2004 to end-December 2004. External disbursements that occur anytime during the month of the test date will be treated as if they were disbursed on the first day of the month.3 In the event of excess balance of payments support net of debt service, the ceiling on NDA will be adjusted downward by 100 percent of the additional excess support. However, if part of the excess support is used to reduce Treasury bills or bonds held by commercial banks and the non-bank sector, then the programmed NDA will be adjusted upward by that amount. The Kwacha value of the cumulative shortfall/excess will be calculated at the program exchange rate.
8. The ceiling on NDA will be adjusted downward/upward to reflect decreases/increases in the legal reserve requirements. The adjustor will be calculated as the percent change in the reserve requirement multiplied by the actual amount of reserves (Kwacha and foreign-currency denominated) at the end of the previous calendar month.
B. Net Domestic Financing (NDF)
9. Net domestic financing (Appendix II, Table 1) is defined as the Central Government's net borrowing from the banking and nonbanking sectors. All government-issued securities will be recorded at cost (face value less discount). NDF will be defined as:
(a) the net position of the Government with commercial banks, including: (i) Treasury bills; (ii) government bonds; (iii) loans and advances; less (iv) support to MBZ; and less (v) central government deposits (defined to include account balances under the authority of controlling officers); plus
(b) BoZ holdings of: (i) Treasury bills; (ii) government bonds; (iii) the Kwacha bridge loan (overdraft facility); less (iv) the government's position at the BoZ; less (v) the donor suspense account; plus (vi) the long-term non-transferable security issued against government's total indebtedness to BoZ as at end-2002.
(c) Nonbank holdings will include: Treasury bills; and government bonds.
(d) In the event of the Zambia National Commercial Bank's (ZNCB) privatization, the measurement of NDF will exclude the government bond issued to ZNCB in 2002 in the amount of K 249 billion.
10. The NDF ceiling will be adjusted upward by the amount of the shortfall in balance of payments support net of debt service as indicated in Table 3 (item 11) of the MEFP, up to a maximum of US$14 million for the period end-June 2004 to end-December 2004. In the event of excess balance of payments support net of debt service, the ceiling on NDF will be adjusted downward by 100 percent of the additional excess support. The Kwacha value of the cumulative shortfall/excess will be converted at the corresponding monthly average of the Bank of Zambia mid rate.
11. The data source for the above will be the "Net Domestic Financing" Table produced by the BoZ Economics Department, submitted on a weekly basis, and reconciled with the monthly monetary survey.
C. Gross International Reserves of the BOZ
12. Unless otherwise noted here, gross international reserves of the BoZ will be defined as reserve assets of the BoZ (Appendix II, Table 2). Reserve assets are defined in the IMF BOP manual (5th edition) and elaborated in the reserve template of the Fund's special data dissemination standards (SDDS). They exclude, for example, foreign assets not readily available to or controlled by the monetary authorities, and foreign currency claims on Zambian residents.
13. Gross international reserves consist of (i) monetary gold; (ii) foreign currency in cash; (iii) unencumbered foreign-currency deposits at non-resident banks; (iv) foreign securities and deposits; (v) SDR holdings and Zambia's reserve position with the Fund; and (vi) balances in the BIS account related to debt service to Paris Club creditors. Gross reserves will exclude non-convertible currencies, pledged, swapped, or any encumbered reserve assets including but not limited to reserve assets used as collateral or guarantees for third-party external liabilities, commercial banks reserve requirements in foreign currency, and will exclude the US$25 million deposit in MBZ, which is under liquidation.
14. The floor on gross international reserves will be adjusted: (i) downward by the amount in U.S. dollars of the shortfall in balance of payments support net of debt service as indicated in Table 3 (item 11) of the MEFP, up to a maximum of US$14 million for the period end-June 2004 to end-December 2004; (ii) upward by 100 percent of the cumulative excess balance of payments support net of debt service. However, if part of the excess support is used to reduce Treasury bills or bonds held by commercial banks or the nonbank sector, then the programmed reserves buildup will be adjusted downward by that amount; (iii) downward/upward for any shortfall/excess in the U.S. dollar value of disbursements from the IMF under the PRGF arrangement; and (iv) downward for any increase in BoZ short-term foreign currency denominated debt (to resident and nonresidents), using the definition of short-term debt below.
15. For the purpose of this target, as well as those for external debt and arrears, valuation will be in U.S. dollars using the program exchange rate.
16. Data on gross international reserves including its components will be reported by the BoZ on a weekly and end-month basis.
D. External Payment Arrears
17. The performance criterion on the nonaccumulation of new external arrears is continuous. Official external payment arrears are defined as unpaid debt service by the Central Government and BoZ, beyond the due date and/or the grace period, if any. This definition excludes arrears subject to rescheduling. It also excludes the accumulation of external arrears that arise from the transfer to non-residents of foreign currency denominated obligations owed by the Government of Zambia to resident creditors.
18. Data on arrears are compiled jointly by the Ministry of Finance and National Planning (MoFNP) and BoZ and will be reported by MoFNP on a quarterly basis.
E. Official Medium- and Long-Term Concessional External Debt
19. This is defined as all forms of official debt with original maturity of more than one year contracted or guaranteed by the central Government and BoZ having a grant element of more than 40 percent, but excludes debts subject to rescheduling. The grant element is to be calculated by using currency-specific commercial interest reference rates (CIRRs) reported by the OECD; for maturities of less than 15 years, the grant element will be calculated based on six-month averages of CIRRs, and for maturities longer than 15 years, the grant element will be calculated based on 10-year averages. Adjustment lending from the IMF will be excluded.
20. This target applies not only to debt as defined in Point 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85) August 24, 2000) (see Annex), but also to commitments contracted or guaranteed for which value has not been received. This excludes nonconcessional loans stemming from the rescheduling of external arrears.
21. Detailed data on all new concessional and non-concessional debt contracted or guaranteed will be provided by MoFNP on a monthly basis.
F. Official External Short-Term Non-concessional External Debt
22. This is defined as the outstanding stock of external debt with original maturity of less than one year owed or guaranteed by the central Government or the BoZ. For this purpose short-term debt will include forward commodity sales but will exclude normal trade credit for imports. There will be no new official external short-term debt during the program period. The term "debt" has the meaning set forth in point No. 9 of the Guidelines on Performance Criteria with Respect to Foreign Debt (Decision No. 12274-(00/85) August 24, 2000).
23. The data will be reported by the MoFNP and BoZ on a monthly basis.
G. Collateralizing/Guaranteeing of Loans to
24. The Government and the BoZ shall not extend or guarantee any new commercial debts to the Zambia Electricity Supply Corporation (ZESCO), including in the form of loans, suppliers credits and leases. New concessional borrowing, as defined above (Paragraph 20), will be subject to a cumulative limit of US$20 million in 2004. The limit on new concessional borrowing will be subject to review, in consultation with Fund and World Bank staff, in the event that additional concessional resources are required.
H. Domestic Arrears of Government
25. Domestic arrears are defined as: (i) any bill that has been received by a spending Ministry from a supplier for goods and services delivered (and verified) and for which payment has not been made within 30 days after the due date of payments; (ii) Wage, salary and any payment to government employees, including any direct or indirect scheme of housing allowance, that were due to be paid in a given month but remained unpaid on the 15th of the following month; and (iii) interest or principal obligations which remain unpaid 30 days after the due date of payment. This definition of domestic arrears excludes changes in the stock on account of interest, penalties and valuation changes.
26. The information is to be compiled through audits of the accounts of spending Ministries and agencies, conducted by the Internal Audit division of the MoFNP. The audits will be completed and data submitted to Fund staff by the Accountant General within six weeks of the end of each quarter.
I. The Central Government's Wage Bill
27. For the purposes of the wage bill, the definition of Central Government includes all heads covered in the 2004 Yellow Book. The Central Government's total wage bill will include payments on wages, salaries, allowances, and all other items specified as personal emoluments in the Yellow Book, and any direct or indirect payments of housing allowance to employees. The Government will provide, on a monthly basis and by budget head, the following data: (i) the number of all employees in the Central Government for each budget head; (ii) the basic salary, the allowances and any other personal emoluments released during the month; (iii) the arrears incurred during the month on the basic salary, on the allowances, and on any other personal emoluments; (iv) the number of employees retrenched and the corresponding retrenchment costs; and (v) the number of ghost workers removed from the payroll and the corresponding monthly savings on the wage bill.
28. All the data will be submitted to the Fund staff by the MoFNP within three weeks of the end of each month.
IV. STRUCTURAL PERFORMANCE CRITERIA AND BENCHMARKS
A. Public Expenditure Management
29. The MoFNP will publish quarterly budget execution reports using the classification system of activity-based budgeting within 45 days of the end of each quarter.
30. The benchmark on domestic arrears refers to the commencement of negotiations to clear the audited stock of domestic arrears as at end-2002. The negotiations will be based on a revision of the March 2004 arrears strategy which will incorporate a rules-based and transparent strategy for negotiations with contractors. Payments made will be within the budgetary allocations. Within the quarterly expenditure ceilings issued by the Budget Office, the Office of the Accountant General will have the exclusive responsibility to settle the amounts due following the conclusion of negotiations. Line ministries, Departments, and Provinces will not settle any arrears.
31. The Government will award a contract for the procurement and installation of software and hardware needed for the full implementation of the Integrated Financial Management and Information System (IFMIS).
32. The Government will initiate the piloting of the IFMIS in at least three ministries as a key step towards meeting the related trigger for the HIPC Completion Point on the piloting of the IFMIS and a mid-term review of the pilot.
33. The Government will refrain from making payments for which it is not legally liable, including Zambia National Oil Company (ZNOC) liabilities on liquidation. It will also guide the liquidation process of public enterprises, such as ZNOC, to minimize government's liabilities consistent with the law.
B. Tax Policy
34. The MoFNP and the Ministry of Commerce, Trade and Industry will elaborate a policy for the granting of tax concessions which will be sustainable, general and nondiscriminatory, while minimizing the risks of erosion of the tax base.
C. Financial Sector Reform
35. Cabinet approval of a proposal to repeal sections of the Building Societies Act, the National Savings and Credit Bank (NSCB) Act, and the DBZ, so that these institutions can be incorporated under the Company's Act, to removing inconsistencies with the BFSA and strengthen the BoZ's supervisory powers over NBFIs.
36. The Government and the BoZ, subject to timely provision of technical assistance from the Fund and the World Bank, will adopt an action plan for addressing the weaknesses of the state-owned NBFIs, including the NSCB; the Zambia National Building Society (ZNBS); and the DBZ. The technical assistance will focus mainly on assessing the viability of the business plans of the three institutions and preparing for appropriate supervisory actions. The Government will collaborate with the IMF and the World Bank in preparing the strategic plan and seek necessary technical assistance, including on designing institutional structures to support the development of financial services to rural areas and other related issues.
D. Governance and Transparency
37. Unbudgeted expenditure requirements will be funded only to the limits of the contingency resources indicated in the budget or only after Cabinet has approved any changes by finding compensatory funding within the approved budget resources.
Guidelines on Performance Criteria with Respect to Foreign Debt
Excerpt from Executive Board Decision No. 6230-(79/140), as revised on August 24, 2000
9.(a) For the purpose of this guideline, the term "debt" will be understood to mean a current, i.e., not contingent, liability, created under a contractual arrangement through the provision of value in the form of assets (including currency) or services, and which requires the obligor to make one or more payments in the form of assets (including currency) or services, at some future point(s) in time; these payments will discharge the principal and/or interest liabilities incurred under the contract. Debts can take a number of forms, the primary ones being as follows:
(i) loans, i.e., advances of money to the obligor by the lender made on the basis of an undertaking that the obligor will repay the funds in the future (including deposits, bonds, debentures, commercial loans and buyers' credits) and temporary exchanges of assets that are equivalent to fully collateralized loans under which the obligor is required to repay the funds, and usually pay interest, by repurchasing the collateral from the buyer in the future (such as repurchase agreements and official swap arrangements);
(ii) suppliers' credits, i.e., contracts where the supplier permits the obligor to defer payments until some time after the date on which the goods are delivered or services are provided; and
(iii) leases, i.e., arrangements under which property is provided which the lessee has the right to use for one or more specified period(s) of time that are usually shorter than the total expected service life of the property, while the retains the title to the property. For the purpose of the guideline, the debt is the present value (at the inception of the lease) of all lease payments expected to be made during the period of the agreement excluding those payments that cover the operation, repair or maintenance of the property.
(b) Under the definition of debt set out in point 9 (a) above, arrears, penalties, and judicially awarded damages arising from the failure to make payment under a contractual obligation that constitutes debt are debt. Failure to make payment on an obligation that is not considered debt under this definition (e.g., payment on delivery) will not give rise to debt.
1 Unless otherwise defined, program exchange rates for 2004 between the U.S. and other (non-Kwacha) currencies, including the SDR, will be equal to the end-2003 rates. Any other assets (e.g. gold) would be revalued at their end-2003 market prices.
2 The liability to Camdex will continue to be treated as a short-term foreign liability of the BoZ.
3 This implies that for purposes of monitoring the NDA, disbursements during the month of the test date will not be subject to averaging and the targeted NDA will be adjusted to reflect the full amount of the disbursement.