Press Release No. 13/543

Press Release:IMF Executive Board Reviews Noncomplying Disbursements and Recommendation for Waiver of Nonobservance of a Performance Criterion

December 19, 2013

On December 11, 2013, the Executive Board of the International Monetary Fund (IMF) met to review a report from the Managing Director on Noncomplying Disbursements and Recommendation for Waiver of Nonobservance of a Performance Criterion.

Directors supported the authorities’ request for a waiver of non-observance of the continuous performance criterion on the non-accumulation of nonconcessional external debt under the Extended Credit Facility that expired in June 2011, given that the grant element of the two loans was close to the 35 percent threshold and the authorities’ corrective actions.

The Executive Board of the International Monetary Fund (IMF) has reviewed two non-complying purchases by Zambia totaling SDR 36.79 million (SDR 18.395 million each) that were made on December 22, 2010 and June 29, 2011 respectively, following the completion by the Executive Board of the fifth and sixth reviews under Zambia’s three-year Extended Credit Facility Arrangement.

The non-complying disbursements arose as a result of misreporting on the observance of the continuous performance criterion on the ceiling on contracting or guaranteeing of medium- and long-term nonconcessional external debt. In the context of the 2013 Article IV Consultation, it became known to staff that the disbursements following the completion by the Executive Board of the fifth and sixth reviews were made on the basis of inaccurate information. The Government of Zambia contracted two loans in late 2010, equivalent to 0.9 percent of GDP, that were not reported to the Fund at the time of the fifth and sixth reviews of Zambia’s program under the ECF arrangement. These loans were not concessional because when they became effective, their grant element was 32.78 and 33.40 percent, respectively. Under Zambia’s ECF-supported program, a loan was considered concessional if it had a grant element of at least 35 percent.

The authorities have since taken corrective actions to strengthen coordination between various functions within the debt management department that led to the reporting failure, and on this basis the Executive Board granted a waiver for the nonobservance of the continuous performance criterion on the ceiling on contracting or guaranteeing of medium- and long-term nonconcessional external debt. The authorities continue their efforts to strengthen debt management, including formulating and implementing a Debt Management Reform Plan, prepared in collaboration with the World Bank, and have committed to sharing the terms of all future external loan agreements with the Fund prior to their signing.

The Extended Credit Facility Arrangement was approved in June 2008 for a total amount equivalent to SDR 48.91 million (about US$79.2 million, 10 percent of quota) in support of Zambia's economic policies aimed at alleviating poverty and sustaining growth (see Press Release No. 08/134). The arrangement was later augmented to provide access in an amount equivalent to SDR 220.095 million (45 percent of quota) and expired on June 29, 2011.