Press Release: IMF Executive Board Completes Third Review Under Zambia's PRGF Arrangement and Approves US$15.9 Million Disbursement
January 11, 2006Press Release No. 06/09
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Zambia's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement, which was approved on June 16, 2004 (see Press Release No. 04/117) in the amount of SDR 220.1 million (about US$318.8 million).
The completion of the review enables the release of a further SDR 11.0 million (about US$15.9 million), which will bring the total amount drawn under the arrangement to about SDR 187.1 million (about US$271.0 million). Zambia is on a quarterly disbursement schedule under the PRGF arrangement and received two disbursements of SDR 5.5 million each for broadly satisfactory performance through June 2005 and September 2005, respectively.
The Board also approved a waiver for the nonobservance of the end-September 2005 quantitative performance criterion on the net domestic financing of the central government.
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"The Zambian authorities are to be commended for the successful implementation of sound economic policies and the broad achievement of their program objectives in 2005. In particular, sustained efforts to strengthen the public finances, have contributed to improved macroeconomic stability and robust growth. Zambia's external position has strengthened in recent years and debt relief has greatly reduced Zambia's external debt burden. However, inflation, though declining, remains high, and there is a critical need to seize the opportunity provided by debt relief to sustain improved economic performance and accelerate the reduction of Zambia's widespread poverty.
"The strong pace of investment suggests that prospects for robust economic growth in the years ahead are favorable. The authorities' policy framework aims to extend the recent gains in macroeconomic stability, including the reduction of inflation to single-digit levels by 2007. If sustained, these policies would provide a solid foundation for continued strong economic growth and poverty reduction. Thus, it is critical that the authorities resist election year pressures that could undermine fiscal and monetary policies.
"Continued progress under the comprehensive Public Expenditure Management and Financial Accountability (PEMFA) reform would lead to substantial improvements in the effectiveness of public resources. In addition, longer-term budget planning and the allocation of resources to eliminate domestic payments arrears and provide for forthcoming contingent liabilities, including the projected cash flow deficit in the public sector pension fund (PSPF), are welcome. Proceeding expeditiously with pension system reforms will be critical to reducing risks to the public finances.
"The recent appreciation of the kwacha, spurred by the improvement in Zambia's longer-term prospects, points to the importance of closely monitoring exchange rate developments and increasing productivity in order to maintain competitiveness. Therefore, the implementation of structural reforms to remove impediments to business activity, expand access to credit, and improve infrastructure should be stepped up. In order to maintain confidence in the financial sector, it is essential for the authorities to follow through on plans to resolve financially troubled nonbank financial institutions, privatize the Zambia National Commercial Bank and, more generally, strengthen financial sector supervision and regulation," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. It is intended that PRGF-supported programs are 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.