IMF Executive Board Completes Third Review Under the PRGF Arrangement with Zambia and Approves US$ 81.2 Million Disbursement

Press Release 09/458
December 14, 2009

The Executive Board of the International Monetary Fund (IMF) today completed the third review of Zambia’s economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review will enable the immediate disbursement of an amount equivalent to SDR 51.013 million (about US$ 81.2 million), bringing total disbursements to SDR 164.91 million (about US$ 262.5 million).

The PRGF arrangement for Zambia in the amount of SDR 48.91 million (about US$79.2 million) was originally approved in June 2008 ( see Press Release No. 08/134), and later augmented by SDR171.185 million (about US$256.4 million) to SDR 220.095 million (about US$329.7 million) in May 2009 (see Press Release No. 09/147).

The Executive Board today also concluded the 2009 Article IV consultation with Zambia. A Public Information Notice and the staff report will be published in due course.

Following the Executive Board's discussion, Mr. Murilo Portugal, Deputy Managing Director and Acting Chair, stated:

“The Zambian authorities are to be commended for their solid performance under the PRGF-supported program. Their prudent macroeconomic management was demonstrated by the Zambian economy’s resilience to the global economic crisis.

“The 2010 budget is well balanced. The authorities aim to create fiscal space for poverty reducing expenditure and for infrastructure investment to sustain robust and diversified growth. The authorities will review tax policy and administration, with a view to broadening the tax base and reinforcing tax collection. The upward trend in the wage bill needs to be reversed to free resources for other priority outlays and social spending. Further reforms to enhance government spending efficiency are also needed.

“Zambia’s risk of debt distress is low and there is some scope for external borrowing on non-concessional terms to finance the government’s share in essential infrastructure projects, particularly in electricity generation. The authorities plan to adopt a comprehensive debt management strategy, which will ensure that external borrowing is consistent with continued low risk of debt distress. The authorities are committed to improve aid management and to coordinate closely with donors.

“The floating exchange rate regime and reserve money-based monetary program have served Zambia well. The authorities’ plans to transition to an inflation targeting regime should be premised on the establishment of the necessary preconditions. The authorities aim to implement the second phase of their financial sector development plan to enhance financial system stability and financial intermediation.

“Attracting private sector investment in the electricity sector requires aligning tariffs with cost recovery levels. Efforts to strengthen the financial and operational efficiency of the state-owned electricity utility ZESCO should be accelerated,” added Mr. Portugal.



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