News Brief: IMF Completes Fourth Review of Zambia's PRGF Arrangement, Approves US$64 Million Disbursement
May 30, 2002
The Executive Board of the International Monetary Fund (IMF) has completed the fourth review of Zambia's performance under an economic program supported by the Poverty Reduction and Growth Facility (PRGF), and agreed to increase the amount of potential access to IMF resources over the remainder of the program.
As a result, Zambia will be able to draw up to SDR 49.9 million (about US$64 million) from the facility immediately, and have potential access to SDR 124.23 million (about US$159.8 million) in the course of subsequent program reviews scheduled into February 2003, an increase of SDR 24.45 million (about US$31 million).
Zambia's PRGF-supported program was originally approved on March 26, 1999 (see Press Release No. 99/10) under the former Enhanced Structural Adjustment Facility. So far, Zambia has drawn SDR 104.8 million (about US$134.8 million) under its financing arrangement with the Fund, which now totals SDR 278.90 million (about US$358.7 million) up from SDR 254.45 million (about US$327.3 million).
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a Poverty Reduction Strategy Paper (PRSP). This is intended to ensure that PRGF-supported programs are consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty.
PRGF loans carry an annual interest rate of 0.5 percent, and are repayable over 10 years with a 5 ½-year grace period on principal payments.
The Executive Board also approved Zambia's request for release of the equivalent of SDR 117.2 million (about US$150.7 million) in 2002 as additional interim assistance under the enhanced Heavily Indebted Poor Countries Initiative (HIPC). This assistance represents nearly 70 percent of Zambia's principal obligations to the IMF in 2002, and brings total assistance by the IMF under the enhanced HIPC Initiative to about SDR 234.4 million (about US$301.5 million).
After the Executive Board's review of Zambia's performance under the PRGF-supported program, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, said:
"Zambia's economic performance continued to improve in 2001, as reflected in the relatively high growth of real GDP and per capita income, a significant reduction in inflation, and a more stable exchange rate. All the structural and most of the quantitative targets of the program were observed. There were, however, overruns in expenditures in the run up to national elections and the overall fiscal deficit exceeded the target. In view of the corrective steps taken by the authorities to date, including adoption of the 2002 budget, the Fund has granted waivers for the nonobservance of the end-September 2001 performance criterion on domestic arrears and the end-December 2001 performance criteria on net domestic assets of the Bank of Zambia, net bank claims on government, gross international reserves, and nonaccumulation of external payments arrears.
"Zambia now faces very difficult economic and financial prospects in light of the regional drought and its consequences on output, and the decision by Anglo-American plc to discontinue funding its mining operations in Zambia. The key medium-term economic challenge is to sustain the recent gains in macroeconomic stability and economic growth. The Fund welcomes the government's resolve to meet this challenge by strengthening macroeconomic policy and accelerating the structural reform agenda under the 2002 program, so as to create conditions for economic diversification and sustainable growth. In this context, timely disbursement by donors of pledged assistance will be important, and Zambia, for its part, must help make this possible, including by meeting all conditionality. This would help to avoid destabilizing the macroeconomic situation and compressing social sector spending. The Fund endorses the government's commitment not to reassume ownership of the mines and to address the financial problems of Konkola Copper Mines in ways that are consistent with sound government finances. Strict adherence to the 2002 budget and a decisive improvement in budgetary discipline will be critical. On structural reform, the Fund commends the recent re-advertisement inviting bids for an increase in the sale of the Zambia National Commercial Bank shares to 51 percent, which is indicative of the commitment to move forward with major structural reform policies.
"The Fund welcomes the completion of the full participatory Poverty Reduction Strategy Paper, including a credible poverty reduction strategy that lays the foundation for future concessional assistance from the Fund. The PRSP also provides a framework for the allocation of resources that will be freed up under the enhanced HIPC Initiative. To sustain investment in the social sectors, it will be important to speedily implement the conditions for reaching the completion point under the enhanced HIPC Initiative, especially by increasing the amount and quality of social sector expenditures. During 2002, the Fund will continue to support Zambia's efforts to reduce poverty by extending interim assistance under the enhanced HIPC Initiative," Mr. Sugisaki said.