Press Release: IMF Executive Board Completes Fifth and Sixth Reviews Under Zambia's PRGF Arrangement and Approves US$33.4 Million Disbursement
June 8, 2007Press Release No. 07/124
The Executive Board of the International Monetary Fund (IMF) completed the fifth as well as the sixth and final review of Zambia's economic performance under a Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the reviews enables the release of a further amount equivalent to SDR 22 million (about US$33.4 million).
The Executive Board also approved the request for waivers for the nonobservance of performance criteria in view of the corrective actions taken. These include the end-June 2006 and end-December 2006 quantitative performance criteria on net domestic financing of the central government; the end-June 2006 quantitative performance criterion on gross international reserves of the Bank of Zambia; and the end-September 2006 and end-March 2007 structural performance criteria on the initiation of the piloting of the Integrated Financial Management and Information System (IFMIS).
The PRGF arrangement was approved on June 16, 2004 (see Press Release No. 04/117) in the amount equivalent to SDR 220.1 million (about US$333.6 million). On May 25, 2007 a request to extend the original three-year arrangement to September 30, 2007 was approved by the Board on a lapse-of-time basis.
Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:
"The Zambian authorities are to be commended for pursuing sound macroeconomic policies that have sustained robust economic growth and achieved a marked reduction in inflation. High copper prices and extensive debt relief have helped to strengthen Zambia's external position and allow a build up of international reserves.
"Going forward, the challenge for the authorities is to consolidate macroeconomic stability and implement structural reforms to raise productivity and diversify the economy. Continued prudent fiscal policy is needed to restrain the growth of government domestic debt, while monetary policy will need to remain firm in the months ahead to keep inflation on a downward path. Better coordination between fiscal and monetary policy will help improve liquidity management.
"It will be important to press ahead with tax reform to broaden the tax base while making the tax system simpler, more efficient, and equitable. Higher levels of tax revenue will be required over the medium term to accommodate spending on infrastructure, agriculture and the social sectors as envisaged in the Fifth National Development Plan.
"The public expenditure management and accountability reforms being implemented are essential for the successful implementation of the government's poverty-reducing programs and the effective use of public resources more generally. Budget execution and reporting, which are key elements of the reform, will be greatly enhanced by the planned establishment of a treasury single account and implementation of the integrated financial management and information system. Strengthened debt management will help ensure that new borrowing does not undermine debt sustainability.
"To foster diversification of the economy and boost economic growth and employment, it will be important to implement vigorously the economic reform agenda set out in the Fifth National Development Plan, particularly the measures to stimulate the private sector development," Mr. Kato said.
The PRGF is the IMF's concessional facility for low-income countries. 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 the 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 5½-year grace period on principal payments.