IMF Executive Board Completes Fourth Review Under ECF Arrangement for Zambia and Approves US$27.1 Million DisbursementPress Release No.10/260
June 25, 2010
The Executive Board of the International Monetary Fund (IMF) today completed its fourth review of Zambia’s economic performance under the Extended Credit Facility (ECF) arrangement. Completion of the review allows Zambia to draw an amount equivalent to SDR 18.395 million (US$27.1 million) immediately, bringing total disbursements under the arrangement to the equivalent of SDR 183.305 million (US$270.5 million). In completing the review, the Executive Board granted a waiver of non-observance of the performance criterion concerning the non-concessional debt ceiling at end-December 2009.
The ECF (formerly Poverty Reduction and Growth Facility) arrangement for Zambia was originally approved in June 2008 (see Press Release No. 08/134) and augmented in May 2009 by SDR171.185 million (about US$252.6 million) to an amount equivalent to SDR 220.095 million (about US$324.7 million) (see Press Release No. 09/147). Zambia has been a member of the Fund since September 1965.
Following the Executive Board’s discussion of Zambia, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:
“The Zambian economy has performed well in the aftermath of a sharp decline in copper prices in late 2008-early 2009, thanks to prudent macroeconomic policies and structural reforms. Growth is high; inflation has moderated; the current account deficit has narrowed; international reserves have strengthened, thanks in part to the SDR allocations and ECF augmentation; and the economic outlook is positive. The financial sector’s recovery has, however, been slow.
“The moderate tightening of the policy stance in 2010 is appropriate. As the world economy emerges from recession, prospects for the Zambian economy are improving and the need for fiscal and monetary stimulus is receding. Excess reserves should drain, and real interest rates on government securities should gradually return to positive territory, as credit to the private sector picks up. The Bank of Zambia should stand ready to tighten its monetary policy stance if broad money growth picks up faster than assumed.
“The key macroeconomic policy challenge is to create fiscal space for spending to enhance economic diversification and reduce Zambia’s dependence on a narrow export base. This will require mobilizing more revenues, including from mining; containing current spending, including on the wage bill; and improving overall spending efficiency. The 2010 fiscal program rightly focuses on harnessing domestically generated resources.
“The return to full cost-recovery pricing of petroleum products and the reinstatement of the automatic fuel pricing mechanism is welcome. It will help safeguard budgetary resources so they can be channeled to higher-priority use.
“Addressing Zambia’s investment needs in the electricity sector requires cost-recovery tariffs to encourage private sector participation in electricity generation and distribution projects.”