## 1zmbea2025001-source-pdf ## Source details **Canonical URL:** [1zmbea2025001-source-pdf](https://www.imf.org/-/media/files/publications/cr/2025/english/1zmbea2025001-source-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2025/english/1zmbea2025001-source-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2025/english/1zmbea2025001-source-pdf.pdf.json) --- ### EXECUTIVE SUMMARY — Context and headline outcomes - Zambia’s economy stabilized with average per capita income growth of about 2 percent over 2022–24. - Real GDP growth in 2024 is estimated at 4 percent. - Inflation averaged 15 percent in 2024 and peaked at 16.8 percent y/y in February 2025 before declining to 15.3 percent y/y in May 2025. - Authorities’ reforms: macroeconomic stability improving, fiscal consolidation progressing, reserve buffers strengthening. - Persistent vulnerabilities: high poverty and inequality; exposure to external shocks, climate events, and domestic political pressures ahead of the 2026 elections. ### RECENT ECONOMIC DEVELOPMENTS - Growth and sector performance: - Real GDP growth in 2024: 4 percent (vs. 1.2 percent projection at Fourth Review). - Noted strength in ICT, mining, financial activities, and construction; prioritization of electricity to mining and large corporates mitigated drought-related power shortages. - Inflation and monetary policy: - Inflation averaged 15 percent in 2024. - Inflation: peaked at 16.8 percent y/y in February 2025; 15.3 percent y/y in May 2025. - Food inflation: 20.6 percent in February; 17.9 percent y/y in May. - Non-food inflation: 11.7 percent y/y in February; 11.6 percent y/y in May. - Policy rate: cumulative 300 basis points in 2024 and 50 basis points in February 2025, bringing the rate to 14.5 percent; held steady in May. - External sector and reserves: - 2024 current account deficit estimated at 2.6 percent of GDP (down from 3.0 percent in 2023). - Gross international reserves (GIR): $4.3 billion at end-2024 (equivalent to 4.2 months of prospective imports); $4.7 billion by end-May 2025. - FX and market operations: - Kwacha depreciation in 2024: 21.5 percent (nominal) and 13.3 percent (real effective). - BoZ net FX sales: $970 million in 2024; net-sold $393.5 million by early June 2025. - Observed impermissible spreads related to MCPs in April and May 2025. - Fiscal and arrears developments: - Primary balance (cash basis) in 2024: K 20.2 billion (above adjusted program target K 8.4 billion / K 8.3 billion reported elsewhere). - Revenues (excluding grants) boosted by 1 percent of GDP; grants lower by 0.8 percent of GDP. - Investment spending reduced by 0.8 percent of GDP; arrears of 1 percent of GDP accumulated. - Legacy fuel arrears cleared in 2024: $103 million (out of $600 million) — $26 million in loans, $78 million from revenues. - Banking sector (as of March 2025): - Capital adequacy ratio: exceeded 24 percent. - Liquid assets: 49 percent of total assets and 65 percent of deposits. - NPL ratio declined to 3.6 percent; provisioning at 89.5 percent of NPLs. - Private sector credit growth: 9 percent in 2024 (constant exchange rate terms). - Loan-to-deposit ratio: 40 percent. - Largest 20 loans: 62 percent of total lending. - Banks’ exposure to government securities: 20.4 percent of total assets. - Deposit and loan dollarization: 44 percent; unhedged positions below 10 percent. ### PROGRAM PERFORMANCE - Overall assessment: - Program performance broadly satisfactory. - All end-December 2024 quantitative performance criteria (QPCs) and indicative targets (ITs) were met. - Three end-March 2025 ITs missed: non-mining tax revenues, clearance of expenditure arrears, and net international reserves. - Structural conditionality: - Six out of 14 structural benchmarks met; four completed with delays; four proposed to be reset to the next review (Anti-Corruption Act, Banking and Financial Services Act, deposit insurance framework, DMO procedures manual). - Prior action for the review: adopting an amended 2025 budget in line with program commitments. - Waiver and nonobservance: - Revised data show contracting of two non-concessional loans in 2024Q4 amounting to 0.2 percent of GDP, with grant element below 35 percent — non-observance of the continuous PC on the ceiling on contracting/guaranteeing new non-concessional external debt; staff proposed a waiver and authorities committed to confirm grant element of prospective loans with staff before signature. ### OUTLOOK AND RISKS — Near-term and medium term projections - Near-term projections (2025): - Growth projected at 5.8 percent in 2025. - Inflation expected to decline gradually; staff projection of average inflation in 2025 reported as 14.2 percent in some tables and 14.0 percent elsewhere. - Gross reserves projected to reach 4.5 months of imports by end-2025; other projections indicate 4.6 months or 4.5 months depending on table. - Medium-term: - Growth projected to accelerate in 2026-27 and stabilize around 4.8 percent over the medium term; other sections project growth averaging 5.5 percent over 2026-31. - Completion of external debt restructuring would lower risk premia and support investment. - Public debt assessed as sustainable in a post-restructuring scenario but at high risk of overall and external debt distress. - Downside risks: - Weaker copper prices; climate shocks; social unrest; electoral spending pressures ahead of August 2026 elections. - Upside scenario: - Renewed mining investment could strengthen external balances and support a robust growth recovery. ### SELECTED MEDIUM-TERM MACRO FRAMEWORK HIGHLIGHTS (space-separated sequences as in source) - Real GDP (percent change): 5.4 1.2 4.0 6.2 5.8 6.4 6.5 5.1 4.8 4.8 - CPI inflation, average (percent): 10.9 14.9 15.0 12.8 14.2 9.2 7.4 7.0 7.0 7.0 - Gross international reserves (months of prospective imports): 3.3 4.5 4.2 5.3 4.5 4.4 4.7 4.9 5.0 5.0 ### FISCAL POLICY — 2025 AMENDED BUDGET, revenue measures, and PFM priorities - 2025 fiscal stance and key aggregates: - Overall fiscal deficit expected to widen to 5.3 percent of GDP (compared to 3.8 percent at Fourth Review). - Fuel arrears repayment operation: 1.3 percent of GDP (prospective domestic financing identified). - Higher interest spending: 0.9 percent of GDP. - Additional expenditure pressures include FISP arrears: 0.7 percent of GDP; social cash transfers at K 400/month; election-related expenditures. - Proposed cut in goods and services: 0.9 percent of GDP. - Primary balance (cash basis, program target) projected at 1.1 percent of GDP (from 1.9 percent at Fourth Review); excluding the fuel operation, primary balance strengthens to 2.5 percent of GDP. - Non-fuel domestic borrowing to increase by 0.5 percent of GDP. - Amended 2025 budget selected figures (presented in source, numbers preserved): - Total Revenues (excl. grants): 8,145 1.0 (in million of Kwacha; in percent of GDP) - Revenue excluding grants: 8,340 1.0 - of which New Revenue Measures: 3,827 0.5 - Expenditure: 20,958 2.6 - Interest: 7,595 0.9 - o/w Domestic Interest: 2,369 0.3 - Extenal Interest: 6,184 0.8 - Primary Expenditure (net): 13,363 1.6 - additional spending needs: 21,183 2.6 - FISP: 5,799 0.7 - Fuel operation: 10,712 1.3 - Spending Cuts: -9,227 -1.1 - Use of Goods and Services: -7,222 -0.9 - Overall Balance (cash basis): -12,813 -1.6 - Primary Balance: -5,217 -0.6 - Adjusted Primary Balance (without fuel operation): 5,495 0.7 - Financing: 12,813 1.6 - Net Domestic Financing: 14,659 1.8 - of which Government Securities: 4,000 0.5 - of which Fuel arrears loan (net of amortization): 10,659 1.3 - Net External Financing: -1,846 -0.2 - Revenue measures and tax reforms: - 2025 revenue measures expected to yield an additional ½ percent of GDP (prior action). - Measures include halving duty relief on imported manufacturing inputs; doubling surcharge on imports of domestically produced goods; increasing excise duties on alcoholic beverages, sugar and sugary drinks; exempting wheat and wheat products instead of zero VAT rating; increasing withholding tax on interest payments of government securities from 15 to 20 percent. - 2023 estimated foregone revenues: 1.5 percent of GDP (0.7 percent of GDP from CIT reduced rates; 0.6 percent of GDP from customs duty exemptions). - PFM and medium-term fiscal framework: - Over 2025-31 average tax revenues projected to increase to 22.7 percent of GDP—1½ percentage points higher than 2021-24 average. - Primary expenditures need compression to an average of 20.5 percent of GDP. - PFM priorities: consolidate government bank accounts; operationalize Cash Management Unit; finalize DMO procedures manual (proposed reset to end-July 2025 SB); advance IFMIS rollout; submit a new SOE Act (end-September 2025 SB); 2026 Fiscal Risk statement to include quantitative SOE and PPP info (end-September 2025 SB). ### LIABILITY MANAGEMENT OPERATION (LMO) FOR FUEL ARREARS - Fuel arrears context and LMO: - Fuel arrears at earlier dates: $600 million referenced; partial clearance $103 million in 2024. - Authorities progressed on LMO with agreed discounts on accumulated interest and late fees. - Repayment expected to be completed in 2025; LMO proposed as generating NPV savings. ### MONETARY POLICY, FX MANAGEMENT, AND RESERVE ACTIONS - Monetary policy guidance: - With real policy rates still in negative territory, gradual and data-dependent tightening may be needed to bring the real policy rate into positive territory. - Strengthen BoZ communication to anchor expectations. - Open market operations and liquidity management recommendations: - Structured OMO framework anchored on a weekly fixed-rate full-allotment operation linked to reserve requirement maintenance period. - Reverse SRR provision strictly to cash balances. - Deepen financial markets, finalize ISDA documentation, adopt standardized Master Repurchase Agreement to improve pass-through to lending rates. - FX market and reserve considerations: - Reconsider $5 million threshold for interbank FX transactions; lower threshold recommended to avoid reducing market volumes. - BoZ net FX sales in 2025Q1: $233.5 million (programmed amount $79 million). - ZRA increased monthly VAT arrears clearance from K 1.3 billion to K 2 billion; ZRA should limit offsetting of FX-related tax obligations. - BoZ should limit FX sales to support meeting end-September 2025 NIR target. - Sustained reserve accumulation essential given import demand and external financing needs in 2026. - Net International Reserves (NIR): - NIR at end-2024: US$1,892 million (exceeding adjusted end-December 2024 NIR QPC US$1,891 million). - Reserve accumulation target from Fourth Review: US$2,550 million by end-September 2025. ### FINANCIAL SECTOR, SAFEGUARDS, AND QUASI-FISCAL FACILITIES - Financial sector stability and supervision: - Strengthen systemic risk analysis, stress-testing framework, and macroprudential tools to address loan and deposit concentration, dollarization, maturity mismatches, low intermediation, and sovereign-bank nexus. - BFSA revision: proposed reset to end-September 2025; draft Bill expected to be submitted to Parliament by end-September 2025. - Capital regulations on countercyclical and conservation buffers delayed to June 2025. - LCR introduction expected in 2025 with five-year phase-in; NSFR due by June 2026. - Deposit insurance framework SB proposed reset to end-September 2025. - BoZ credit facilities and quasi-fiscal operations: - Stability and Resilience Facility (SRF): K 5 billion envelope (0.5 percent of GDP in 2025; 1.8 percent of banks’ balance sheet at end-2024); BoZ received applications amounting to K3.2 billion as of end-May 2025; drawdown period one year, concludes end-2025; repayment up to 7 years. - Small Business Growth Initiative (SBGI): K 5 billion credit guarantee scheme via BoZ-owned SPV; initial coverage 40 percent, could increase to 80 percent; legal and fiscal backstop safeguards recommended. - Both facilities constitute quasi-fiscal operations and should have a fiscal backstop to protect BoZ’s autonomy. - Legal and safeguard items: - Attorney General to issue legal opinion clarifying BoZ statutory limit on credit to government and treatment of securitized accrued interest by end-June 2025 (proposed end-July 2025 SB). - Outstanding IMF safeguard issues on government securities issuance remain. ### DEBT RESTRUCTURING AND DSA UPDATES - Debt restructuring status: - Agreements in principle reached with about 94 percent of creditors within the restructuring perimeter. - Three bilateral agreements signed with France, India, and Saudi Arabia as of May 2025; expectation to complete bilateral agreements by 2025Q3. - Eurobond exchange completed on June 11, 2024. - Public and PPG external debt stock: - External PPG contractual external debt stock: US$21.4 billion at end-2024 (up from US$21.3 billion at end-2023). - Drivers: US$1.35 billion in new foreign-currency disbursements; US$1.05 billion in interest arrears; US$336.3 million principal repayment on restructured bond. - Public and publicly guaranteed external debt arrears (principal and interest) as of March 2025: US$5.1 billion (increase of US$0.3 billion since end-2024). - DSA key findings and risk metrics: - Debt-carrying capacity (CI) assessed as weak: CI score 2.58 (recalculated to 2.59 with CPIA update). - Public debt assessed as sustainable in a post-restructuring baseline but at high risk of overall and external debt distress. - DSRR projected breach: 14.7 percent in 2025 (breach of 14 percent threshold), with 2026-31 average DSRR projected at 13.8 percent. - PV of external PPG debt-to-exports expected to decline below 84 percent by 2027. - Stress tests: standardized exports shock is most extreme, PV of PPG external debt-to-exports ratio peaks at 262 percent in 2026 under that shock. - LMO and fuel arrears: - Fuel arrears totaled US$897 million at end-2023 (48 percent principal); partial LMO financing to date US$26 million; completion expected in 2025 to generate NPV savings. - Borrowing conditionality and compliance: - Program stipulates zero ceiling on new non-concessional external borrowing; two non-concessional loans contracted in 2024 (US$50 million BADEA in October; US$7.9 million IFAD in November) with grant elements below 35 percent. ### STRUCTURAL REFORMS, PRODUCTIVITY, AND PIM - Structural transformation priorities: - Raise labor productivity, enable firm expansion, reduce informality, close infrastructure gaps, expand access to finance, improve governance, and strengthen climate resilience. - Agriculture: - Expand e-voucher scheme and implement Comprehensive Agriculture Transformation Support Program (CATSP). - Redesign SAFF to leverage private participation and reduce fiscal risk; Treasury committed K 803 million (about $29 million) over two seasons. - FISP and e-voucher details: 2025 FISP spending expected at 1.9 percent of GDP in 2025; program spending going forward to be maintained at 1.1 percent of GDP; 74 districts migrated to e-voucher; ZIAMIS clean up removed ~212,000 ineligible beneficiaries and replaced with 200,000 better-targeted farmers. - Energy sector: - Electricity open access regulations in effect; priority for access to productive sectors; pilot acceleration of solar project approvals targeting 1,000 MW by end-2025 (Chisamba MW100, Choma MW50, Kasama MW100, Kariba MW100). - TAZAMA open access implementation challenges: first delivery delayed; open access tender publication and transparency measures introduced; capacity adjustments and publication commitments through mid-2025 to September 2025. - ZESCO total outstanding debt: US$2.6 billion in March 2025 (on-lent loans US$384 million; commercial lenders US$207 million; government guaranteed loans US$2.0 billion). - Business environment and mining governance: - One-stop shop licensing proposals; Minerals Regulation Commission established (Act No. 14 of 2024 assented December 20, 2024); improved mineral licensing transparency. - Climate resilience and green economy: - Green Economy and Climate Change Act enacted in 2024; National Adaptation Plan 2023 guidance; carbon market regulations and bilateral agreements with Sweden and Norway. - Public Investment Management (PIM) and PPPs: - Government investment averaged ~4.4 percent over 30 years; overhang of unfinished projects equivalent to 150 percent of capital budget in 2024. - Reforms recommended: prioritize projects, strengthen appraisal and procurement, enhance transparency, integrate climate analysis, produce ex-post evaluations. - Labor market and productivity (Annex VI): - Labor productivity in agriculture declined nearly 50 percent over two decades. - Informality affects over 80 percent of workers. - TEVET reforms, work-based learning, ALMPs, vacancy observatory, and modular training recommended to support formal job creation and skills matching. ### DATA, MONITORING, AND PROGRAM MODALITIES - Program modalities: - Monitoring to continue on a semi-annual basis through ITs, QPCs, and SBs (consistent with MEFP Table 1). - Disbursement use: half of disbursement for budget support under ECF arrangement. - Adequate financing assurances in place through October 2025; staff supports completing the financing assurance review. - Reporting and TMU specifics: - Detailed reporting requirements for fiscal, monetary, external, and arrears data with specified frequencies (daily, weekly, monthly, quarterly). - Definitions and adjustors defined for NIR, primary balance (cash basis), ceilings on new external borrowing (grant element threshold 35 percent; discount rate 5 percent; program reference rates for SOFR at 2.38 percent), and continuous QPCs (including MCPs). - Program exchange rates as of May 31, 2022 (ZMW per currency unit and currency units per US$) provided in TMU. - Data and statistical improvements: - ZamStats rebasing national accounts to 2023 base expected in first quarter of 2026; NADABAS integration targeted by April 2025. - e-BoP system in effect since January 2024; services module to go live by mid-2025; import-tracking module rollout Q4 2025. - Public sector debt statistics recommended to expand to general government coverage and be made machine-readable. ### STAFF APPRAISAL, RECOMMENDATIONS, AND NEXT STEPS - Staff appraisal: - Notable progress stabilizing the economy and advancing reforms; per capita income growth averaged 2.1 percent over 2022–24. - Program remains broadly satisfactory; ECF arrangement expiry October 31, 2025 — continued reform commitment essential. - Key policy recommendations (preserve exact language and priorities): - Fiscal: sustain fiscal consolidation, strengthen PFM, mobilize durable revenues via tax policy and administration reforms. - Monetary/FX: maintain proactive, data-dependent monetary policy; strengthen BoZ liquidity operations and FX market functioning. - Financial sector: advance reforms including key legislation and risk-based supervision. - Structural priorities: accelerate structural transformation to support inclusive growth; address informality, infrastructure gaps, and limited access to finance; improve governance, raise agricultural productivity, promote energy sector competition, strengthen climate resilience, and enhance public investment management. - Staff support: - Support completion of the Fifth Review under the ECF-supported arrangement and the financing assurances review. - Support resetting four missed structural benchmarks to the next review given satisfactory program performance and progress in debt restructuring. *Source: EXECUTIVE SUMMARY and selected excerpts, 1zmbea2025001-source-pdf.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Zambia’s economy has stabilized, with average per capita income growth of about 2 percent over 2022–24, supported by continued reform efforts. - Inflationary pressures are gradually subsiding. - In 2024, real GDP growth is estimated at 4 percent—well above earlier projections—underpinned by stronger mining and services performance and prioritizing electricity access to productive sectors. - Authorities’ reforms are yielding dividends: macroeconomic stability is improving, fiscal consolidation is progressing, and reserve buffers are strengthening. - Persistent challenges: poverty and inequality remain high; the outlook is vulnerable to external shocks, climate events, and domestic political pressures ahead of the 2026 elections. ### Recent Economic Developments - Growth and sector performance: - Real GDP growth in 2024 is estimated at 4 percent, higher than the 1.2-percent projection at the Fourth Review. - Strength in ICT, mining, financial activities, and construction; prioritization of electricity to mining and large corporates supported activity despite drought-related power shortages. - Inflation and monetary policy: - Inflation averaged 15 percent in 2024. - Inflation peaked at 16.8 percent y/y in February 2025 before declining to 15.3 percent y/y in May. - Food inflation decelerated to 17.9 percent y/y in May from 20.6 percent in February. - Non-food inflation was 11.6 percent y/y in May (from 11.7 percent y/y in February). - The Bank of Zambia raised the policy rate by a cumulative 300 basis points in 2024, plus 50 basis points in February 2025, bringing the rate to 14.5 percent and held it steady in May. - External sector and reserves: - 2024 current account deficit estimated at 2.6 percent of GDP, down from 3.0 percent in 2023. - Improvement driven by higher inflows from cooperating partners and increased tourism receipts; offset by stronger-than-anticipated imports of petroleum products and electricity. - Gross international reserves (GIR) rose to $4.3 billion at end-2024 (equivalent to 4.2 months of prospective imports). - By end-May 2025, GIR increased to $4.7 billion. - FX developments: - In 2024, the kwacha depreciated by 21.5 percent and 13.3 percent y/y (on average) in nominal and real effective terms, respectively. - The BoZ sold $970 million on a net basis in 2024; by early June 2025 the BoZ net-sold $393.5 million (around ⅓ less than in the same period of 2024). - In 2025, impermissible spreads related to multiple currency practices (MCPs) were observed in April and May. - Fiscal developments and arrears: - Tight domestic financing led to deeper spending cuts and arrears accumulation, resulting in a higher 2024 primary fiscal balance (cash basis). - Primary balance reached K 20.2 billion, well above the adjusted program target K 8.4 billion (Text Table 1). - Revenues (excluding grants) boosted by one percent of GDP; lower grants by 0.8 percent of GDP kept overall revenues unchanged. - Investment spending was reduced by 0.8 percent of GDP and arrears of one percent of GDP accumulated. - Authorities cleared $103 million in legacy fuel arrears (out of $600 million), securing $26 million in loans and $78 million from their own revenues. - Domestic debt and liquidity: - Liquidity tightening reduced banks’ demand for government securities in 2024H1; demand recovered after June 2024. - 2024 net domestic financing was 0.7 percent of GDP. - Declining bond yields in 2024Q4 lowered weighted average yields by about 80 bps in 2024 compared to 2023. - Non-resident holdings (NRHs) rose to K 57.6 billion at end-2024 and to K 59.2 billion by end-April 2025 (7.3 percent of GDP). - The share of NRHs remained stable at 25 percent of total outstanding bonds between end-2023 to end-April 2025. - Authorities limited NRHs’ participation to 5 percent of annual gross primary issuances; as of end-March 2025, primary issuance stood at K 842.6 million versus the limit of K 1,572 million. - Banking sector indicators (as of March 2025): - Capital adequacy ratio exceeded 24 percent. - Liquid assets accounted for 49 percent of total assets and 65 percent of deposits. - NPL ratio declined to 3.6 percent; provisioning at 89.5 percent of NPLs. - Private sector credit growth slowed to 9 percent in constant exchange rate terms in 2024 (from 17.8 percent in 2023). - Financial intermediation remains low: loan-to-deposit ratio 40 percent. - Loan concentration: largest 20 loans account for 62 percent of total lending. - Banks’ exposure to government securities stands at 20.4 percent of total assets. - Deposit and loan dollarization rose to 44 percent; unhedged positions remain below 10 percent. ### Program Performance - Overall assessment: - Program performance broadly satisfactory. - All end-December 2024 quantitative performance criteria (QPCs) and indicative targets (ITs) were met. - Three end-March 2025 ITs were missed: non-mining tax revenues, clearance of expenditure arrears, and net international reserves. - Structural conditionality: - Six out of 14 structural benchmarks (SBs) were met. - Completed SBs: publication of report with description and costing of tax expenditures; retail and wholesale price structures (continuous SBs); quarterly debt bulletin (continuous SB); revised pipeline open access tender procedures (end-December 2024 SB). - Four SBs were completed with delays: enactment of the 2016 Public Audit Act and the 2016 State Audit Commission Act on May 23, 2025 (end-January 2025 SB); procurement contracts for maize imports; tender results for the Tazama open access. - Four SBs are proposed to be reset to the next review: submission to Parliament of the Anti-Corruption Act (end-September 2025), the Banking and Financial Services Act (end-September 2025), adoption of the deposit insurance framework (end-September 2025), and adoption of the debt management office’s procedures manual (end-July 2025). - Prior actions: - One prior action for this review: adopting an amended 2025 budget in line with the program commitments. ### Outlook and Risks - Near-term projections: - Growth projected at 5.8 percent in 2025, supported by improved rainfall, agricultural recovery, and higher mining output. - Inflation expected to decline gradually. - Gross reserves projected to reach 4.5 months of imports by end-2025. - Medium-term conditions: - Prospects hinge on scaling up mining investment, sustained fiscal discipline, and structural reforms. - Downside risks: - Weaker copper prices. - Climate shocks. - Social unrest. - Electoral spending pressures ahead of August 2026 elections. - Upside scenario: - Renewed mining investment could boost confidence, strengthen external balances, and support a more robust growth recovery. ### Policy Discussions and Recommendations - Fiscal policy: - Sustain fiscal consolidation to preserve space for investment and social spending. - Strengthen public financial management. - Mobilize durable revenues through tax policy and administration reforms. - Monetary policy and FX management: - Maintain a proactive and data-dependent monetary policy stance to anchor inflation expectations. - Strengthen Bank of Zambia liquidity operations and FX market functioning to enhance monetary transmission and support reserve accumulation. - Financial sector: - Advance financial sector reforms, including key legislation and risk-based supervision, to safeguard stability. - Structural and medium-term priorities: - Accelerate structural transformation to support inclusive growth by raising labor productivity and enabling firm expansion. - Address barriers: informality, infrastructure gaps, and limited access to finance. - Complementary reforms: improve governance, raise agricultural productivity, promote energy sector competition, strengthen climate resilience, and strengthen public investment management. *Approved by C. Christou (African Department) and M. Cihak (Strategy, Policy, and Review Department).* *Source: EXECUTIVE SUMMARY, 1zmbea2025001-source-pdf.* ### 11. Revised data on borrowing indicates non-observance of the continuous PC on the ### 11. Revised data on borrowing indicates non-observance of the continuous PC on the ceiling on the contracting or guaranteeing of new non-concessional external debt. ### Revised borrowing and non-observance - Authorities contracted two non-concessional loans in 2024Q4, amounting to 0.2 percent of GDP, with grant element below 35 percent. ### Outlook and risks - Near-term growth and inflation - Growth in 2025 is projected at 5.8 percent reflecting a continued rebound in mining output, improved agricultural harvest and electricity generation as rainfall normalized. - Inflation is expected to gradually decline driven mostly by declining food prices, as supply conditions improve. - Gross reserves are projected at 4.5 months of imports by end-2025. - Medium-term projections and conditions - Growth is projected to accelerate in 2026-27 and stabilize at around 4.8 percent over the medium term. - Completion of the external debt restructuring would lower risk premium and further support investment and broader economic activity. - Based on a post-restructuring scenario, Zambia’s public debt is assessed as sustainable but remains at high risk of overall and external debt distress with limited room to absorb shocks (DSA Annex). - Key downside and upside risks - Downside: growth slowdown in major economies affecting copper prices; real income losses and worsening inequality; narrow investor base and elevated sovereign-bank nexus; electoral cycle; recurrent droughts or floods. - Policy responses if downside risks materialize: additional fiscal consolidation, tighter monetary policy, exchange rate adjustment, and seeking additional bilateral and multilateral external financing. - Upside: positive price dynamics lowering inflation by end-year; renewed mining investments boosting confidence and growth. ### Selected medium-term macroeconomic framework highlights (2023–30, extracted) - Real GDP (percent change): 5.4 1.2 4.0 6.2 5.8 6.4 6.5 5.1 4.8 4.8 - CPI inflation, average (percent): 10.9 14.9 15.0 12.8 14.2 9.2 7.4 7.0 7.0 7.0 - Gross international reserves (months of prospective imports): 3.3 4.5 4.2 5.3 4.5 4.4 4.7 4.9 5.0 5.0 (Note: table values are presented in the source as space-separated sequences across years.) ### Authorities’ views on outlook - Authorities broadly agreed with staff’s views: expect growth rebound driven by mining recovery and improved agricultural production. - Authorities emphasized commitment to advancing reforms and maintaining macroeconomic stability. ### Policy discussions — overall focus - Policies to support macro-financial stability, restore debt sustainability, and support medium-term growth and structural transformation: - Revenue-based fiscal consolidation. - A tight monetary stance to anchor inflation expectations. - Strengthened financial policies. - Structural reforms: improving governance, reinforcing the rule of law, fostering level-playing field for private sector, and implementing climate adaptation policies. ### A. Sustaining fiscal consolidation — findings and measures - 2025 budget amendments - Overall fiscal deficit expected to widen to 5.3 percent of GDP, compared to 3.8 percent at the time of the Fourth Review. - Fuel arrears repayment operation with discount agreed with suppliers: 1.3 percent of GDP (prospective domestic financing identified). - Higher interest spending: 0.9 percent of GDP (mostly related to past due interest on the restructured external debt and domestic interest projection updated with Q42024 debt stock). - Additional expenditure pressures include FISP arrears of 0.7 percent of GDP, USAID health-related stop-gap financing, social cash transfers at K 400/month, and election-related expenditures. - Proposed cut in goods and services of 0.9 percent of GDP. - Primary balance (cash basis, program target) projected at 1.1 percent of GDP (from 1.9 percent of GDP at the Fourth Review); excluding the fuel operation, primary balance strengthens to 2.5 percent of GDP. - Non-fuel domestic borrowing will increase by 0.5 percent of GDP. - Amended 2025 budget changes (selected figures from Text Table 3) - Total Revenues (excl. grants): 8,145 1.0 (in million of Kwacha; in percent of GDP) - Revenue excluding grants: 8,340 1.0 - of which New Revenue Measures: 3,827 0.5 - Expenditure: 20,958 2.6 - Interest: 7,595 0.9 - o/w Domestic Interest: 2,369 0.3 - Extenal Interest: 6,184 0.8 - Primary Expenditure (net): 13,363 1.6 - additional spending needs: 21,183 2.6 - FISP: 5,799 0.7 - Fuel operation: 10,712 1.3 - Spending Cuts: -9,227 -1.1 - Use of Goods and Services: -7,222 -0.9 - Overall Balance (cash basis): -12,813 -1.6 - Primary Balance: -5,217 -0.6 - Adjusted Primary Balance (without fuel operation): 5,495 0.7 - Financing: 12,813 1.6 - Net Domestic Financing: 14,659 1.8 - of which Government Securities: 4,000 0.5 - of which Fuel arrears loan (net of amortization): 10,659 1.3 - Net External Financing: -1,846 -0.2 ### Revenue measures and tax reforms - 2025 revenue measures expected to yield an additional ½ percent of GDP (prior action). - Measures include: halving duty relief on imported manufacturing inputs; doubling surcharge on imports of domestically produced goods; increasing excise duties on alcoholic beverages, sugar and sugary drinks; exempting wheat and wheat products instead of zero VAT rating; increasing withholding tax on interest payments of government securities from 15 to 20 percent. - Tax policy priorities - 2023 estimated foregone revenues amounted to 1.5 percent of GDP, including from CIT reduced rates (0.7 percent of GDP) and custom duties exemptions (0.6 percent of GDP) per the 2023 Tax Expenditure Report. - Suggested actions: eliminate exemptions and tax incentives; unify corporate income tax rate; improve progressivity of personal income tax by adding a new bracket for high earners and expanding base to include fringe benefits; increase excises on diesel. - Tax administration priorities - Restrict VAT deductions to transactions under the Smart Invoice System (SIS). - Establish and staff a compliance risk management unit by mid-2025 (end-June 2025 SB). - Increase pace of VAT refunds (including offsetting with tax payments) and adopt risk-based audits by end-2025. - Ensure collection of transportation differential revenues from oil pipeline and remit to Treasury. ### Medium-term fiscal framework and PFM reforms - Over 2025-31: - Average tax revenues projected to increase to 22.7 percent of GDP—1½ percentage points higher compared to the 2021-24 average. - Primary expenditures need compression to an average of 20.5 percent of GDP. - In absence of additional revenue measures, primary fiscal balance (cash basis) consistent with authorities’ goal of domestic borrowing around 2 percent of GDP is expected to hover around 2.7 percent of GDP, with the debt-service-to-revenue ratio below 14 percent. - PFM priorities and deadlines - Consolidate government bank accounts and operationalize Cash Management Unit. - Finalize debt procedures manual (end-March SB, proposed reset to end-July 2025 SB). - Advance IFMIS rollout to support expenditure control and arrears monitoring. - Submit to Cabinet a new SOE Act consistent with SOE policy (end-September 2025 SB). - 2026 Fiscal Risk statement expected to include quantitative financial information about SOEs and signed PPPs (end-September 2025 SB). ### LMO for fuel arrears - Authorities progressing on LMO for fuel arrears: agreed discounts with fuel suppliers on accumulated interest and late fees. - Repayment expected to be completed in 2025. - Authorities propose to proceed with the LMO as it generates net-present-value savings. ### Fiscal framework for resource wealth - Need for a fiscal framework that accounts for resource wealth to enhance fiscal governance and intergenerational equity. - Reference to the 2022 Debt Rule—limiting public debt to 65 percent of GDP in the future. ### Authorities’ views on fiscal reforms - Authorities reaffirm commitment to restoring fiscal sustainability and advancing PFM and tax administration reforms. - Committed to mixture of permanent revenue measures and spending reallocations to address 2025 pressures and to revamp fiscal framework to reduce procyclicality. ### B. Safeguarding price and external stability — monetary and FX policies - Monetary policy stance - Despite pause in rate hikes, BoZ may need to tighten policy further to anchor inflation expectations (MEFP, ¶32-33). - With real policy rates still in negative territory, gradual and data-dependent tightening may be needed to bring the real policy rate into positive territory and guide inflation toward the target band. - Strengthening BoZ communication recommended to anchor expectations. - Open market operations and liquidity management - Recommend a more structured and predictable OMO framework anchored on a weekly fixed-rate full-allotment operation linked to the reserve requirement maintenance period. - Reverse provision of the statutory reserve requirement (SRR) strictly to cash balances to enhance monetary framework. - Improve pass-through to lending rates by deepening financial markets, strengthening bank intermediation, reducing credit risk, finalizing ISDA documentation, and adopting a standardized Master Repurchase Agreement. - FX market efficiency and reserve accumulation - Reconsider the recently increased $5 million threshold above which interbank FX transactions are allowed; lower threshold recommended to avoid reducing market volumes. - Ensure more active interbank FX market to improve FX liquidity and price discovery. - In 2025Q1, net FX sales by the BoZ for market support reached $233.5 million, well above the programmed amount of $79 million. - ZRA increased monthly VAT arrears clearance from K 1.3 billion to K 2 billion partly by offsetting tax liabilities—some settled in FX; ZRA should limit offsetting of FX-related tax obligations. - BoZ should limit FX sales to support progress toward meeting the end-September 2025 NIR target (IT). - Sustained reserve accumulation is essential given ongoing import demand and increased external financing needs in 2026. *Source: IMF staff report text provided in the content unit.* ### 28. Zambia’s external position is weaker than the level implied by medium-term ### Zambia’s external position is weaker than the level implied by medium-term fundamentals and desirable policies ### External position and policy implications - The external position is assessed as weaker than implied by medium-term fundamentals and desirable policies (Annex IV). - Addressing external imbalances requires sustained implementation of policies under the ECF-supported arrangement. - Key levers to ease external pressures: - Strengthening the fiscal position. - Advancing export diversification with greater value addition. - Attracting foreign direct investment. ### Authorities’ views on monetary policy and FX markets - Authorities remain committed to maintaining a prudent monetary policy stance, emphasizing: - Exchange rate flexibility. - Improving monetary policy transmission. - Enhancing market functioning. - A data-driven approach to guide future policy actions. - Authorities broadly agreed with staff assessment of Zambia’s external position. - Authorities considered the recently increased $5 million limit for interbank FX transactions to be suitable for promoting meaningful market activity and ensuring that transactions reflect genuine demand. ### Strengthening financial policies and supervision - Strengthening financial surveillance is important to support financial stability (MEFP, ¶39-41). - The BoZ has continued to enhance systemic risk analysis, upgrade the stress testing framework, and reinforce macroprudential tools to address vulnerabilities including loan and deposit concentration, dollarization risks, maturity mismatches, low financial intermediation, and the sovereign-bank nexus. - Specific measures and timelines: - BFSA revision: end-March 2025 SB, proposed to be reset to end of September 2025; draft Bill now expected to be submitted to Parliament by end-September 2025. Revisions align with international standards and best practices (licensing and market access, ownership changes, prudential requirements, governance, early intervention and resolution). - Macroprudential toolkit and stress testing: issuance of capital regulations on countercyclical capital and conservation buffers delayed from October 2024 to June 2025. - Liquidity Coverage Ratio (LCR): introduction expected this year, with a five-year phase-in period. - Net Stable Funding Ratio (NSFR): due by June 2026. - Annual macro (top-down) and micro (bottom-up) stress testing now in place. - Cyber risk oversight: BoZ conducted four onsite examinations in 2024. - Deposit insurance regulation: SB end-April 2025, proposed to be reset to end-September 2025; framework to cover scope, depositor preference, and funding, aligned with the IADI Core Principles and Basel Supervision Principles. Authorities are considering aligning rollout with the bank resolution framework and should strengthen the clause on deposit protection in the BFSA. - AML/CFT and market conduct: two AML/CFT examinations conducted in 2024, with four additional examinations underway or planned for 2025. Deeper collaboration needed with the Financial Intelligence Center (FIC) and Zambia Revenue Authority (ZRA). Full implementation of the electronic balance of payments system and the Export Proceeds Tracking Framework will support AML/CFT. - The upcoming Financial Sector Stability Review (FSSR) will help identify capacity needs and inform future reforms. ### Policies on domestic currency settlement and de-dollarization - BoZ is working on regulations to settle all domestic transactions in kwacha using a phased approach: - Central government and public institutions first required to use the kwacha for domestic operations, with exemptions limited to certain sectors such as tourism, taxes paid in foreign currency, and services in the mining sector. - Staff view: - The measure may enhance monetary policy effectiveness. - Caution about possible higher kwacha volatility and some financial disintermediation. - Administrative measures should be accompanied by market-driven incentives once macroeconomic stability is consolidated. - Prudential regulations should internalize financial risks associated with financial dollarization. ### Oversight of BoZ’s new credit facilities and fiscal safeguards - Stability and Resilience Facility (SRF): - Offers K 5 billion in liquidity support with preferential terms to financial service providers. - Expected to promote credit to sectors impacted by the energy shock and 2024 drought-related agricultural supply challenges. - Given the SRF’s size—0.5 percent of GDP in 2025 and 1.8 percent of banks’ balance sheet at end-2024—it is important to assess its impact on liquidity and BoZ’s monetary operations to avoid undermining inflation expectations. - The BoZ has received applications amounting to K3.2 billion as of end-May 2025. - Drawdown period is one year and will conclude at end-2025, followed by a repayment period of up to 7 years. - To maintain credibility, the SRF should be regularly reviewed and fully integrated into BoZ’s liquidity management framework. - Small Business Growth Initiative: - K 5 billion credit guarantee scheme aimed at addressing structural bottlenecks in small businesses’ access to credit. - Will be operated through a special purpose vehicle (SPV) under BoZ Board control to support BoZ’s autonomy. - Credit guarantee coverage will start at 40 percent and could increase up to 80 percent to promote certain areas (e.g. environmental goals, women entrepreneurship). - Given the target on previously unbanked borrowers, potential risks to the BoZ balance sheet will need careful management. - Legal framework should include clear decision criteria, transparent distribution of responsibilities, full administrative separation between the SPV and bank supervisory function, and accountability mechanisms. - Policy guidance: - Both facilities constitute quasi-fiscal operations and should have a fiscal backstop to avoid risk to BoZ’s financial autonomy. - BoZ should prioritize its role as bank supervisor over development objectives by refraining from relaxing prudential requirements and ensuring robust credit risk management. - Develop a strategy to phase out these activities. ### Outstanding safeguard and legal issues - Outstanding issues from the IMF’s safeguard assessment on government securities issuance remain. - The Attorney General’s Office is expected to issue a legal opinion clarifying interpretation of the statutory limit on credit to the government, rollover of government securities, legal treatment of securitized accrued interest, and to ascertain compliance with the law by end-June 2025 (proposed end-July 2025 SB). ### Structural reforms to boost inclusive growth - Structural transformation is essential to reduce poverty and inequality by shifting labor to more productive employment. - Key findings: - Much of the workforce remains trapped in informal, low-productivity activities; recent negative structural transformation driven by labor shifts into lower-productivity sectors such as informal services. - Limited private sector dynamism has constrained creation of higher-productivity jobs. - Firm-level evidence: firms with access to credit and reliable power grow significantly faster; binding constraints include limited access to finance, unreliable electricity, and widespread informality. - Working-age population projections and the need to absorb a growing labor force underpin the urgency of higher labor productivity (Text Figure 6; UN World Population Prospects, 2025). - Priority reform areas and policy recommendations: - Agriculture: - Enhance agricultural productivity with fiscally sustainable support mechanisms. - Expand the e-voucher scheme and advance implementation of the Comprehensive Agriculture Transformation Support Program (CATSP). - Redesign the Smallholder Agricultural Finance Facility (SAFF) to better leverage private sector participation and reduce fiscal burden: current SAFF poses significant fiscal risks with an 80-percent guarantee on loans and limited collateral requirements; Treasury has committed K 803 million (about $29 million) over two seasons, but delays in disbursement have undermined productivity and repayment capacity. - Energy sector: - Promote competition to improve efficiency, access, and attract private investment. - Open access for fuel imports via the TAZAMA pipeline: tenders completed up to August 2025, but the open access regime starting on April 1 faced challenges (OMCs that won tenders could only deliver diesel through the pipeline starting mid-April). For the first half of April, authorities directly allocated delivery to another OMC, undermining the open access regime; OMCs resorted to diesel swaps. Authorities published the contract on delivering fuel in the first half of April to enhance transparency. - Electricity open access regime enables eligible producers, suppliers, and large consumers (with capacity of at least MW1) to access transmission and distribution infrastructure irrespective of ownership, facilitating direct electricity trading and prioritizing long-term access to reduce dependence on ZESCO’s power purchase agreements. - Renewed efforts needed to support the financial sustainability of ZESCO. - Business environment: - Remove cumbersome regulations, reduce corruption, improve transparency of procedures, and establish regular consultative platforms. - Develop a one-stop shop for opening business to streamline procedures. - Mining sector governance: - Enhance transparency in mining licensing and resource management. - Create a one-stop-shop Licensing, Mineral and Appeals Tribunal and launch the Minerals Regulation Commission to centralize oversight, streamline permitting, and enforce compliance. - Address institutional capacity and data governance challenges to ensure transparent and enforceable rules. - Climate resilience: - Strengthen resilience to safeguard development gains and reduce fiscal and economic vulnerabilities. - Authorities preparing carbon market regulations and have signed bilateral agreements with Sweden and Norway for carbon credit trading financing energy efficiency, renewable energy, and low-emission technologies. - The 2023 National Adaptation Plan outlines a roadmap for resilience in water and irrigation, energy, food security, and climate-resilient infrastructure. - Efforts underway to document climate-related losses to support future access to financing from the Loss and Damage Fund established under COP27. - Policy focus should prioritize mitigating frequent and fiscally significant shocks such as droughts and floods via resilient infrastructure, enhanced buffer mechanisms, and electricity generation diversification. - Governance: - Strengthen transparency, integrity, and accountability; anti-corruption oversight remains weak and perceived as selective. - Anti-Corruption Act aligned with IMF recommendations: end-March 2025 SB, proposed to be reset to end-September 2025 SB. Post-enactment reforms include a forfeited asset management framework, an asset declaration system for public officials, and public interest disclosure measures. - Infrastructure and PPPs: - Scale up public investment with enhanced public investment management, greater transparency on project costs, timelines, and implementation status. - Leverage private sector participation under the new PPP framework while assessing and disclosing fiscal risks associated with PPPs. - Incorporate PPP fiscal risks into the Fiscal Risk Statement starting from 2026. - Access to finance: - Private sector credit remains below half the Sub-Saharan Africa average. - Domestic financing to the government contributes somewhat to crowding out private sector credit. - Lending bank rates averaged over 26 percent in 2025 to end-May 2025. - Priorities: expand access to credit, deepen capital markets, enhance banking sector competition, and strengthen financial infrastructure to improve credit access for SMEs, bolster financial resilience, and advance economic inclusion. - Over time, increased private sector credit and a more diversified investor base for government securities could help reduce the sovereign-bank nexus and enhance financial intermediation. ### Authorities’ stated commitment on structural reforms - Authorities underscored commitment to advancing structural reforms to promote inclusive growth, enhance productivity, and support economic diversification. - Emphasis on improving agricultural productivity, strengthening infrastructure, fostering a more competitive energy and business environment, improving transparency in resource management, building climate resilience, and leveraging private sector participation to sustain long-term growth. *International Monetary Fund — Zambia: selected chapter content* ### 39. Program modalities remain unchanged. Program monitoring will continue on a semi- ### Program modalities remain unchanged. Program monitoring will continue on a semi-annual basis through indicative targets, quantitative performance criteria, and structural benchmarks, consistent with the updated macroeconomic framework (MEFP, Table 1). ### Program modalities, monitoring, and structural benchmarks - Program monitoring: semi-annual through indicative targets, quantitative performance criteria, and structural benchmarks (consistent with MEFP, Table 1). - Disbursement use: In line with the ECF arrangement, half of the disbursement will be used for budget support. - Deadline reset requests by authorities: - Submit Anti-Corruption Act to Parliament: end-September 2025. - Submit Banking and Financial Services Act to Parliament: end-September 2025. - Adopt deposit insurance framework: end-September 2025. - Shift deadline for adopting debt management office’s procedures manual: from end-March to end-July 2025. - Three new structural benchmarks proposed for the remainder of the program period (MEFP, Table 2). ### Waiver and nonobservance - Staff proposal: grant a waiver of the nonobservance of the performance criterion on new non-concessional external debt. - Authorities’ cooperation: fully cooperated to ascertain relevant facts. - Mitigating commitment: authorities agreed to preemptively confirm the grant element of prospective loans with staff before signature. ### Financing assurances and program financing - Statement: Adequate financing assurances are in place for the remainder of the program; program remains fully financed, with firm commitments through October 2025 (Text Table 4). - Staff recommendation: support completing the financing assurance review given Zambia’s progress and active engagement with official and commercial creditors. - Baseline Program Financing (US$ million) — presented in source as Text Table 4 (values preserved in source). ### Debt restructuring, arrears, and creditor engagement - Authorities’ efforts: continue making good-faith efforts toward restructuring agreements with official and private commercial creditors consistent with program parameters. - Official agreements: Preparation of bilateral agreements under the MoU signed with the Official Credit Committee (OCC) satisfies the IMF’s Lending into Official Arrears (LIOA) policy. - Arrears status: arrears to other official bilateral creditors are considered eliminated under LIOA. - Coverage: Agreements to date cover about 94 percent of Zambia’s external debt within the restructuring perimeter. ### Capacity to repay the Fund and debt dynamics - Capacity: assessed as adequate but subject to downside risks including commodity prices, climate shocks, and policy slippages. - Mitigating factors: authorities’ strong track record servicing Fund obligations, significant fiscal consolidation, progress in debt restructuring, and catalytic role of the IMF program. - IMF debt projections: - Debt to the IMF projected to peak at 5.5 percent of GDP in 2025. - Annual repayments projected to peak at 0.6 percent of GDP and 1.4 percent of exports in 2031. - Relative position: - IMF-related debt and debt service relative to total Public and Publicly Guaranteed external debt remain moderate. - IMF debt service indicators near or below comparator medians and below the 75th percentile as a share of exports. ### Financial and enterprise risks - Enterprise risks: assessed as moderate. - Fund financial risks: arise from the high risk of debt distress and potential macro-financial challenges, mitigated by program design and credible debt relief prospects. - Program catalytic role: attracts donor and creditor support while anchoring policy adjustments and reforms. ### PRGT enhanced safeguard on debt composition - Requirement met: PRGT enhanced safeguard requirement on debt composition is met. - FX-denominated external debt composition: - Share of multilaterals and other IFIs in Zambia’s FX-denominated external debt projected to rise from 21½ percent at end-2023 to around 28 percent over the medium term. - FX-denominated external debt potentially considered collateralized stood at 10 percent of GDP at end-2024 and is expected to decline through restructuring efforts. ### Capacity building and data adequacy - CD priorities: aligned with program objectives (Annex VII); supported by AFRITAC South and coordinated with stakeholders. - CD focus areas: public financial management, monetary policy, financial supervision, debt management, and governance. - Noted successes: integrating the Forecasting and Policy Analysis System; improved customs and tax administration; enhanced capacity in debt management, liquidity risk regulations (Basel II/III), and public financial management. - Data adequacy: broadly adequate for surveillance and program monitoring, but fiscal and public sector debt data coverage should expand to at least general government (Annex VIII). - Public sector debt statistics (PSDS) assessment findings and recommendations: - Recognized efforts: establishing Public Debt Management Act, 2022, and operationalizing the Debt Management Office. - Disseminated statistics: broadly reliable, transparent, and of good quality. - Recommendations: - Expand sector coverage beyond budgetary central government. - Transparently publish reconciliations of stocks and flows and a more detailed breakdown of arrears. - Make PSDS more widely available in machine readable formats. - Priority areas: expand institutional coverage beyond central government; automate data flows; improve inter-agency collaboration; formalize revision policies; improve data accessibility and transparency. - National accounts and BOP improvements: - Zambia Statistics Agency: developing quarterly GDP by expenditure and rebasing national accounts. - Current GDP by production improvements: rebasing the Index of Industrial Production; enhancing indicators for construction, agriculture, and education; refining deflators. - BoZ efforts: improve balance of payments statistics—deeper granularity and consistency between balance of payments and international investment position. ### Staff appraisal — macroeconomic performance and outlook - Progress: Zambia made notable progress in stabilizing the economy and advancing reforms. - Per capita income growth: averaged 2.1 percent over 2022–24 under the Eighth National Development Plan. - Poverty and inequality: remain high. Key macroeconomic indicators and projections: - GDP growth: - Estimated at 4 percent for 2024. - Projected to reach 5.8 percent in 2025. - Inflation: - Eased slightly in 2024. - Projected to average 14.2 percent in 2025. - Reserves: rose to 4.7 months of imports by May 2025. - Current account: deficit narrowed (no numerical value provided). ### Program performance and governance risks - Program performance: remains broadly satisfactory. - All end-December 2024 quantitative performance criteria and indicative targets were met. - Implementation of structural benchmarks ongoing, though some delayed. - Breach noted: continuous performance criterion on non-concessional external borrowing was breached in 2024Q4. - Political cycle risk: rising political pressures ahead of the 2026 elections could increase policy slippage risk. - ECF arrangement expiry: October 31, 2025—authorities’ continued reform commitment is key to supporting market confidence and limiting policy slippage. ### Fiscal stance, vulnerabilities, and recommended measures - 2025 fiscal stance: remains aligned with program goals but faced with emerging pressures requiring stronger revenue mobilization. - 2024 fiscal performance: exceeded expectations—driven by one-off revenues and contained spending—but weak investment execution and new arrears signaled financing constraints. - 2025 pressures: higher payments related to past due interest on restructured debt and fuel arrear clearance putting pressure on the deficit. - Policy recommendations to safeguard development spending and limit expenditure cuts: - Durable revenue measures to broaden the tax base by reducing exemptions. - Unify corporate tax rates. - Streamline VAT. - Strengthen compliance and audit practices. ### Public financial management and fiscal governance priorities - Strengthen PFM to enhance fiscal governance, support budget execution, and mitigate fiscal risks. - Noted progress: cash forecasting and Cash Management Unit improvements. - Further needed: - Consolidation of government accounts to improve liquidity oversight and control. - Better coordination between debt and cash management. - Faster IFMIS rollout. - Stronger expenditure controls to curb arrears. - Advance SOE reforms, implement the PPP framework, and prepare the Fiscal Risk Statement. ### Monetary policy and reserves management - Recommendation: data-driven and proactive monetary policy to anchor inflation expectations and preserve policy credibility. - Current conditions: inflation expectations still elevated; further tightening may be needed to guide inflation toward the target band. - Operational improvements for BoZ: - Strengthen operational framework including structured open market operations and reserve averaging. - Develop a more efficient interbank FX market and disciplined FX intervention to safeguard reserves and support the reserve target. ### Financial sector reforms and stability - Importance: advancing financial sector reforms to strengthen stability and support inclusive growth. - Observations: banking sector sound but low intermediation and concentrated credit pose risks. - Recommendations: - Closely monitor BoZ’s new credit facilities for alignment with monetary policy. - Finalize the Banking and Financial Services Act. - Operationalize the deposit insurance scheme. - Expand macroprudential tools to bolster financial stability framework. ### MCPs and Fund policy compliance - Progress on eliminating MCPs should be accelerated. - Authorities’ commitment: remove MCPs by end-October 2025. - Importance: timely implementation will ensure consistency with program objectives and Zambia’s compliance with its obligation under the Articles of Agreement. ### Structural reforms and inclusive growth - Persist with structural reforms to boost productivity and support inclusive, private-sector-led growth. - Priorities: - Reallocate labor to higher-productivity sectors. - Reform agricultural support. - Enhance energy sector competition. - Improve the business climate, mining transparency, and anti-corruption measures to attract investment. - Focus on climate resilience, carbon markets, and infrastructure governance—particularly through the PPP framework—to mitigate fiscal risks and sustain growth. ### Data provision and transparency (reiteration) - Data provision: broadly adequate for surveillance but improving fiscal and public debt coverage remains a priority. - Actions to enhance transparency and policy effectiveness: - Expand reporting to the general government. - Automate data flows. - Strengthen inter-agency coordination. - Formalize revision and dissemination practices. - Timely completion of the national accounts rebasing important for accurate macroeconomic analysis. ### Staff recommendations and support - Staff support: - Complete the Fifth Review under the ECF-supported arrangement and the financing assurances review. - Authorities’ request to reset four missed structural benchmarks to the next review is supported given satisfactory program performance, progress in debt restructuring, continued commitment to fiscal and debt sustainability, sound macroeconomic policies, and structural reforms. *Source: Excerpts from the IMF staff report on Zambia (selected pages).* ### 59. It is expected that the next Article IV Consultation be held within 24 months in ### It is expected that the next Article IV Consultation be held within 24 months ### Real sector: recovery and composition - Zambia is recovering from a severe drought, with the recovery notably stronger in the primary sector and accompanied by robust mining growth. - Services growth is lagging relative to primary activity. - Inflation peaked in February and has since started to ease, driven mainly by a recent decline in food prices and supported by recent stabilization of the exchange rate. ### External sector: narrower current account and reserves - The current account deficit narrowed in 2024, supported by increased grants and stronger tourism receipts. - Copper and gold exports increased, particularly toward the end of the year, but higher oil and electricity imports amid power shortages offset part of the gain. - Stronger FDI boosted financial inflows, excluding a one-off (outflow) private debt transaction recorded in Q1 2024. - Reserves increased, supported by increased FX statutory reserve requirement and multilateral financing; external debt remained at elevated levels. ### Fiscal developments: primary balance and financing - The 2024 primary balance far exceeded the target, as revenue performed in line with the budget and primary spending—especially capital—was compressed. - The overall balance improved, and with tight domestic financing conditions the deficit was mostly financed from external sources; public debt declined on a pre-restructuring basis. ### Monetary and financial developments: liquidity and transmission - M3 growth remained elevated, as did credit growth, while lending rates remained persistently high and deposit rates remained near zero—indicating weak monetary transmission through the banking system. - The interbank rate converged toward the policy rate since June 2024, but bank lending rates stayed elevated. ### Financial sector: market dynamics and FX - Reliance on bond financing led to outstanding bonds swelling relatively more than T-bills. - A return by non-resident investors supported rising demand for bonds, sustained by a high yield differential between bonds and T-bills; spreads with T-bills have since narrowed. - Banks were net purchasers of FX given a shortage of FX in the system. - Spreads on Zambian Eurobonds are now on par with other SSA issuers. ### Capacity to repay and IMF engagement - It is expected that the next Article IV Consultation be held within 24 months in accordance with the Executive Board decision on consultation cycles for members with Fund arrangement. - The schedule of reviews and disbursements reflects an IMF arrangement with periodic reviews and disbursements; the total availability under the arrangement is recorded as 1,271.66 (in the units shown in the source table) with quota-related entries. *Source: IMF staff estimates and Zambian authorities, as presented in the supplied content.* ### Annex I. Key Recommendations of the 2023 Article IV ### Annex I. Key Recommendations of the 2023 Article IV Consultation ### Fiscal Policy and Governance - Fiscal policy stance: Restore debt sustainability and rebuild buffers. - Status: Ongoing. - Findings: - Primary balance improved from minus 1.6 percent of GDP in 2022 to 3 percent of GDP in 2024. - The bulk of consolidation has been mostly expenditure driven. - Priority spending for health, education and social assistance preserved, but investment spending has shrunk. - Revenue mobilization: Increase revenue from a combination of policy and tax administration measures. - Status: Partially implemented. - Findings: - Zambia Revenue Agency increased efforts to reduce the compliance gap and improve tax administration, leveraging better use of data across government agencies. - A large taxpayer office was established in 2024 and a new e-invoice system for VAT has gone live. - The tax base remains narrow. - Tax policy: some but not all CIT rates have been harmonized; excises have been indexed with inflation; many exemptions remain that do not bring tangible benefits. - VAT internal audit improved but clearing VAT refund arrears remains a challenge. - Public Financial Management (PFM): Enhance budget credibility and implement structural reforms to underpin fiscal strategy. - Status: Partially implemented. - Findings: - IFMIS system rolled out across all central spending agencies. - A new PPP bill adopted in 2023 increased the oversight role of the Ministry of Finance. - A list of active investment projects is maintained and updated annually but in-year controls are weak. - A Fiscal Risks report was first published in 2024. - The Debt Management Office has been reorganized and a debt bulletin is published quarterly. - Efficient cash management is hampered by lack of coordination and multiple government accounts. - Improve governance and reduce corruption vulnerabilities. - Status: Ongoing and Implemented items. - Findings: - A new Anticorruption Act, initially planned for submission to Parliament by end-March 2025, is planned for submission by end-September 2025. - Authorities have worked on improving the beneficial ownership (BO) register of the Patent and Copyright Registration Agency, building capacity in identifying BO. - Implemented: statutory instruments of the 2016 Public Audit Act and Public Audit Commission Acts were enacted on May 23, 2025. - Renewed efforts to strengthen the independence of the judiciary are needed. ### Monetary and Financial Sector Policies - Monetary policy stance: Ensure inflation returns to the monetary policy band. - Status: Ongoing. - Findings: - Bank of Zambia (BoZ) has tightened the monetary policy stance, but inflation remains above the policy band due to supply shocks. - Monetary policy effectiveness is diluted by the high level of dollarization. - Monetary policy framework: Grant BoZ formal operational independence to pursue price stability by amending the BoZ Act. - Status: Implemented. - Findings: - The new BoZ act went into effect in 2023. - Bank supervision: Strengthen banking supervision capacity, including risk-based prioritization of onsite inspections and crisis preparedness. - Status: Ongoing. - Findings: - An inter-agency Financial Stability Committee was established in 2023, and the first Financial Stability Report was published in June 2024. - Regulations for countercyclical capital and conservation buffers; and for liquidity coverage ratio (LCR) and net stable funding ratio (NSFR), will be implemented by mid-2025. - The Banking and Financial Services Act is being amended. ### Energy Sector - Restore the financial viability of power utility ZESCO and minimize the need for fiscal transfer. - Status: Ongoing. - Findings: - A multi-year tariff framework was adopted in 2023. - Tariffs have been revised annually, but emergency tariffs adopted in response to the 2024 drought are not fully cost-reflective. ### Annex II — Risk Assessment Matrix (Selected Risks, Likelihood, Impact, and Policy Responses) - Domestic Risks - Recurrent drought and extreme climate events affecting agricultural output and infrastructure. - Relative Likelihood: L - Impact if Realized: H. Higher food prices and reduced agricultural production would raise inflation and hinder medium-term growth. Lower hydropower generation and open-pit mining could dampen growth prospects. - Policy Response: - Provide effective support to vulnerable households. - Diversify food crops to varieties better aligned to extreme weather. - Consider medium-term strategies to help regulate water flows. - Maintain exchange rate flexibility to adjust to external sector pressure resulting from the climate shock. - Social discontent from supply shocks, high inflation, and spillovers from crises in other countries. - Relative Likelihood: L - Impact if Realized: M. Social unrest could weaken political impetus for economic adjustment and reform, dent investor confidence, and lead to rising financing pressures and capital flight, growth slowdown, and higher inflation. - Policy Response: - Continue to improve governance and implement orderly fiscal adjustment, especially by increasing domestic revenues, to support social spending. - Maintain exchange rate flexibility while keeping monetary policy focused on price stability. - Clear and timely communication on objectives and benefits of reforms to secure public support. - Further delays in debt restructuring negotiations. - Relative Likelihood: L - Impact if Realized: M. Exchange rate pressures could intensify; domestic yields may increase partly due to exiting non-resident domestic debt holders; additional external arrears could increase uncertainty in restoring debt sustainability and dampen the growth outlook. - Policy Response: - Expedite fiscal adjustment through revenue mobilization and identify financing sources. - Enhance public investment management and structural reforms to boost investment and FDI. - Strengthen financial sector surveillance and contingency planning. - Global Risks - Trade policy and investment shocks (higher trade barriers or sanctions). - Relative Likelihood: H - Impact if Realized: H. Weakened global demand may lower copper prices, widen external and fiscal balances, and lead to kwacha depreciation. Lower FDI and disrupted supply chains will lower growth potential. - Policy Response (selected): - Continue implementing orderly fiscal adjustments and maintain exchange rate flexibility. - Enhance domestic revenue mobilization and strengthen the fiscal framework. - Enhance export competitiveness and diversification; diversify import supply chains; enhance regional integration (SADC and AfCFTA). - Implement structural reforms to improve business environment and productivity. - Sovereign debt distress from higher interest rates, stronger U.S. dollar, and shrinking development aid. - Relative Likelihood: H - Impact if Realized: H. Tighter financial conditions and capital outflows could worsen fiscal and external imbalances and exert pressure on exchange rate and inflation; fiscal financing gaps from withdrawn development aid may require public spending cuts. - Deepening geo-economic fragmentation. - Relative Likelihood: H - Impact if Realized: M. Disruption in global supply chains may weaken demand for Zambia’s upstream exports and increase import costs of intermediate goods. - Commodity price volatility. - Relative Likelihood: M - Impact if Realized: H. Volatile and rising commodity prices may worsen balance of payments and fiscal positions, potentially driving up inflation. - Regional conflicts. - Relative Likelihood: M - Impact if Realized: M. Spillovers through supply chains or commodity prices could negatively affect growth, inflation, balance of payments, and financial system vulnerability. ### Annex III — Improving Public Investment Management (PIM) - Context and importance: - Addressing infrastructure gaps is crucial for enhancing productivity and fostering economic growth. - Zambia’s 8th National Development Plan (8NDP) outlines ambitious investment goals to tackle large infrastructure gaps that hinder productivity growth. - Historical and recent trends: - Government investment has averaged around 4.4 percent over the last thirty years, with temporary spikes in 2002 and 2019. - Constrained fiscal space since 2020 contributed to an increased number of uncompleted projects, with an overhang of unfinished projects with incomplete contracts equivalent to 150 percent of the capital budget in 2024. - Private investment reached 28 percent of GDP in 2023. - Capital expenditure comprised 10 percent of total public spending in 2023. - PPPs and financing: - Zambia has the highest level of PPP capital stock among relevant comparators; estimated PPP capital stock of 8.2 percent of GDP by end-2019, compared to about 6 percent of GDP for LIDCs and 4 percent of GDP for SSA. - In 2024, the authorities signed six PPPs. - Constraints on public investment: - Limited fiscal and financing space due to efforts to restore debt sustainability forces tradeoffs between short-run shock responses (subsidies, cash transfers) and infrastructure spending. - PIM framework deficiencies exacerbate constraints. - Progress and remaining weaknesses: - Progress since the 2017 PIMA: strengthened planning and PIM regulatory framework; consolidated database of projects; targeted capacity building; improved project appraisal through PIM Guidelines and an Appraisal Manual anchored in the 2020 National Planning and Budgeting Act. - Remaining weaknesses: weak linkages between planning and budgeting; limited information on investment projects in budget documentation; less competitive procurement processes; prevalence of arrears and payment delays due to funding shortfalls; weak asset monitoring. - Recommended reforms to improve PIM: - Prioritize and rationalize projects; streamline the portfolio of underfunded and incomplete projects. - Strengthen project appraisal, ensuring standardized risk evaluations across ministries. - Present information on project costs, timelines and financing needs in the budget; enhance forecasting of public investment needs to improve multi-year budgeting. - Strengthen implementation through standardized competitive procurement practices; improvements in cash management and forecasting; develop an asset register to manage and maintain infrastructure efficiency. - Incorporate climate change analysis in appraisal and selection of public investment projects; improve coordination between public entities including State-Owned Enterprises to prevent fragmented climate-related investment governance. - Develop a framework to track climate-related expenditure and expand climate risk analysis to improve disaster risk management strategies. - Expected benefits: - Efficient project selection can deliver higher returns on capital and incentivize crowding-in by the private sector, reducing the need for higher borrowing. - Greater transparency in procurement could lead to cost savings and better project outcomes, helping avoid fiscal slippages and corruption-related risks. - Ex-post evaluations of public investment can limit fiscal waste and boost debt dynamics. - Overall reforms can support higher levels of economic activity and generate additional government revenues. *Annex I. Key Recommendations of the 2023 Article IV Consultation — IMF staff summary as presented in the source document.* ### Annex IV. Central Government Compensation and Employment ### Annex IV. Central Government Compensation and Employment ### Recent Trends in the Wage Bill - Central government wage bill in 2024: 7.7 percent of GDP. - Wage bill level in 2024: K 53.5 billion. - Wage bill shares in 2024: - 34.9 percent of government revenues. - 30.3 percent of government expenditures. - Change 2018–2024: - Nominal increase: 144 percent. - Wage bill as share of GDP: 0.2 percentage points lower than in 2018. - Incidence on revenues: declined by 3.3 percentage points. - Incidence on expenditures: increased by 1.7 percentage points. - Almost 70 percent of the 2018-24 nominal increase occurred in 2021-2024. - Since 2021: - Wage-bill-to-GDP ratio increased by 0.5 percentage points. - Incidence on revenue increased by 2.5 percentage points. - Incidence on expenditure increased by 7 percentage points. - Composition (2024): health and education account for 58 percent of the total wage bill. - Payments outside payroll (2018–2024 average): gratuities, specific allowances, and repayment of arrears averaged 6 percent of the wage bill. - International comparison (2024): - Zambian wage-bill-to-GDP ratio exceeded SSA average by 1.2 percentage points and SSA-MI average by 0.5 percentage points. - As share of revenues, differences: 1.7 percentage points vs SSA and 4.1 percentage points vs SSA-MI. - As share of expenditures, differences: 2.4 percentage points vs SSA and 3.5 percentage points vs SSA-MI. - The 2021-24 increase in Zambia’s wage bill exceeded that of peers. ### Driving Changes in the Wage Bill - Data scope limitation: analysis restricted to the PMEC payroll (largest of six payrolls). - PMEC payroll in 2024: - Accounts for 76 percent of the central government wage bill. - Covers health, education, police and prisons, statutory and political employees, and “mainstream” civil servants. - Employment level: exceeding 300 thousand employees in 2024. - PMEC employment change 2018–2024: - Increased by more than 83 thousand employees. - More than 60 thousand of the increase concentrated in 2021-2024. - Decomposition (2018–2024): - PMEC wage-bill-to-GDP ratio fell from 5.3 to 4.1 times per capita GDP. - PMEC employment as a share of population increased by almost 0.2 percentage points, exceeding 1.4 percent in 2024. - Out of a decline in PMEC wage-bill-to-GDP ratio of 0.6 percentage points: - Role of wages: negative effect of 1.6 percentage points. - Role of employment: positive effect of 1.0 percentage points. - Period-specific trends: - 2018–2021: PMEC wage-bill-to-GDP ratio declined by 1.5 percentage points, driven by decline in the wage component. - 2021–2024: PMEC wage-bill-to-GDP ratio increased by 0.9 percentage points, driven by the employment component. ### Analysis of the Wage Premia - Data source: 2021 Labor Force Survey (LFS). - Estimated public sector wage premia (controlling for gender, age, education): - Central government workers vs all other formal sector workers: 55 percent premium. - General government employees (including local government): 65 percent premium. - Public sector workers (including SOE employees): 95 percent premium. - By education level: - Workers with secondary education: - Central government employees: 120 percent premium. - Public sector employees: 179 percent premium. - Gaps are significantly smaller for civil servants holding a university diploma. - Gaps are negative both at the bottom and at the top of the education distribution, except for public sector employees with primary education (where gap is not negative). ### Conclusions and Policy Recommendations - Status and trend: - Wage bill as share of GDP is lower in 2024 than in 2018, but an increasing trend has been in place since 2021. - Zambia’s wage bill is larger than peers in 2024. - 2018–2021 decline in wage-bill-to-GDP ratio was driven by a decline in public wages relative to per capita GDP. - 2021–2024 increase in wage-bill-to-GDP ratio was driven by increases in the size of the civil service and growth of average wages. - A significant public wage premium exists, particularly large for middle-skilled employees (secondary education). - Recommendations: - Closely monitor recent upward trend in the wage bill. - Calibrate merit increases to compensate for losses in purchasing power to prevent further increases in the wage bill; limit workforce increases when designing compensation measures. - Establish a centralized registry of all civil servants, maintained at the Ministry of Finance, to facilitate more efficient management of civil service size. - Address the significant wage premium in favor of middle-skilled civil servants and public sector workers to: - Reduce the wage bill. - Contribute to a more efficient allocation of labor. - Support the development of the private sector. *Source: Annex IV. Central Government Compensation and Employment (from the provided PDF).* ### Annex VI. Strengthening Labor-Market Productivity to Support ### Annex VI. Strengthening Labor-Market Productivity to Support Growth and Structural Transformation in Zambia ### Key findings on labor productivity and employment - Labor productivity in agriculture, the largest sector for employment, has declined by nearly 50 percent over the past two decades. - Widespread informality affects over 80 percent of workers, limiting access to training, finance, and social protection. - Formal job creation, especially in higher-productivity sectors, has not kept pace with a rapidly growing youth population, leaving many youth unemployed or trapped in informal work. - Employment opportunities are concentrated in urban centers, leaving secondary towns and rural areas underutilized despite potential in agribusiness, tourism, and mining (Priority sectors). ### Constraints hampering formal-sector productivity and job creation - Skill mismatches and underinvestment in technical education reduce labor productivity and employment growth in the formal sector. - TEVET system issues: - Prevalence of long, low-return, craft-level vocational training misaligned with market demand. - Funding for Technical Education, Vocational and Entrepreneurship Training (TEVET) remains insufficient despite overall education spending increasing from 10 to 15 percent of the budget in the last two years. - Disconnect between TEVET providers and labor market needs; many secondary school graduates lack foundational skills while tertiary graduates occupy low-skill service jobs. - Fragmented labor market institutions, weak labor market information systems, and poor coordination among institutions undermine information sharing, employment initiatives, and job matching. - Labor force and firm-level survey data are sparse and delayed (noted elsewhere in the document), constraining timely monitoring of employment trends. ### Policy priorities and recommended reforms (summarized from Table 1) - Strengthen Technical and Vocational Training (TEVET) - Increase TEVET’s share of the education budget. - Link TEVET Fund disbursements to job placement. - Expand scholarships for low-income students and redirect merit-based aid to earlier education levels. - Encourage co-contributions from higher-skill technician trainees by expanding student loan programs. - Promote private sector participation, including by redirecting training levies to TEVET institutions. - Introduce short, modular, stackable courses (3-6 months) to enable informal and self-employed workers to upskill without exiting current work. - Scale modular programs in mining, agribusiness, tourism, and green energy. - Invest in digital and remote TEVET delivery. - Expand Work-Based Learning and Apprenticeships - Update the Apprenticeship Act with the Work-Based Learning Bill (2022). - Offer firm-level grants to offset costs and increase employer participation and link provider payments to job outcomes. - Pilot dual-training programs in priority sectors. - Co-design curricula with employers. - Strengthen Labor Market Institutions and Matching Infrastructure - Launch the National Vacancy & Skills Observatory. - Integrate job services into digital Job Hubs. - Improve data collection and surveys across labor force and firms. - Publish dashboards on vacancies and wages. - Scale up school-based career counseling and use tracer surveys to track employment outcomes. - Reform Secondary and Post-Secondary Education Pathways - Introduce vocational tracks in more upper-secondary schools. - Scale second-chance and bridging programs. - Expand short courses, certifications, hybrid models, and flexible learning options. - Scale Active Labor Market Programs (ALMPs) and Entrepreneurship Support - Provide internships, skills training, and job search assistance for youth. - Link e-wallet subsidies to verified participation in training or employment. - Support youth entrepreneurship through expanded credit-guarantee schemes, group-lending models, and mobile-money platforms, complemented by mentorship, incubation, and market-access services. - Introduce green jobs training in key sectors. - Targeted incentives for job creation - Firm-level matching grants or hiring subsidies to offset training costs and increase employer-led hiring and upskilling. ### Implementation considerations and complementary measures - With limited near-term prospects for formal wage employment, expanded support for entrepreneurship and self-employment is essential as critical pathways for youth livelihoods. - Financial access interventions should include expanding credit guarantee schemes, group lending models, and mobile money platforms to reach informal businesses without collateral. - Incubation support, financial literacy, and digital tools should be provided through the TEVET system to complement financing measures. - Strengthening TEVET, promoting work-based learning and apprenticeships, strengthening labor market institutions and secondary education, and scaling up ALMPs together can improve job matching and contribute to employment and economic growth while safeguarding fiscal space. *Source: Annex VI. Strengthening Labor-Market Productivity to Support Growth and Structural Transformation in Zambia.* ### Appendix I. Letter of Intent ### Appendix I. Letter of Intent ### I. Context - The Letter of Intent updates the MEFP attached to the Fourth Review under the Extended Credit Facility (ECF) arrangement approved on December 16, 2024. - Primary objectives: entrench fiscal prudence, macroeconomic stability, debt sustainability; maintain reforms to promote sustainable development and strengthen economic resilience. ### II. Recent economic developments and performance - Growth and output - Preliminary real GDP growth: 4 percent in 2024. - 2024Q4 year-on-year growth in information and communication, mining, agriculture, and transportation: 8.6 percent. - Sectoral contractions in 2024: electricity generation (–29 percent y/y), agriculture (–9.2 percent y/y). - Inflation and exchange rate - Inflation averaged 15.0 percent in 2024; ended 2024 at 16.7 percent y/y. - Headline inflation: peaked at 16.8 percent y/y in February 2025; eased to 15.3 percent y/y in May 2025. - Food inflation: 20.6 percent in February; decelerated to 17.9 percent y/y in May. - Non-food inflation: 11.7 percent in February; 11.6 percent y/y in May. - Kwacha depreciation in 2024: 21.5 percent (nominal) and 13.3 percent (real effective). - Monetary policy: policy rate raised by 50 basis points to 14.5 percent in February 2025 after a 50-bps increase in November 2024; policy rate maintained at 14.5 percent in May 2025. - External sector and reserves - 2024 current account deficit (preliminary): 2.6 percent of GDP (down from 3 percent of GDP in 2023). - Trade surplus: around 5 percent of GDP in 2024 (broadly unchanged from 2023). - Gross international reserves: US$4.3 billion at end-2024 (equivalent to 4.2 months of prospective imports); US$4.7 billion by end-May 2025. - Public debt and arrears - External PPG contractual external debt stock: US$21.4 billion at end-2024 (up from US$21.3 billion at end-2023). - Drivers of debt stock increase: about US$1.35 billion in new foreign-currency disbursements to central government; accumulation of about US$1.05 billion in interest arrears on foreign-currency denominated central government debt; principal repayment of about US$336.3 million on the restructured bond; Eurobond exchange haircut reflected in stock. - Nonresident holdings of domestic-currency debt (external PPG classification): declined from US$2.2 billion at end-2023 to US$2.1 billion at end-2024. - External PPG debt rose by about US$118 million over the year. - Public and publicly guaranteed external debt arrears (principal and interest) as of March 2025: US$5.1 billion (increase of US$0.3 billion since end-2024). - Expenditure arrears: K 80.8 billion at end-2024 (down from K 97.8 billion at end-2023); end-2024 stock increased to K 17.7 billion for VAT refunds (from K 16.4 billion at end-2023) due to ongoing audits. - Debt restructuring progress - Agreements in principle reached with 94 percent of creditors within restructuring perimeter. - Advancing signing of bilateral agreements; progressing toward formalizing agreements in principle with commercial private creditors. - Expect completion with bilateral creditors by 2025Q3. - Zambia’s weighted average sovereign spread: 505 bps as of June 9, 2025 (spiked to 1,055 bps on April 7, 2025). - Liquidity, financing, and financial sector - Net domestic financing in 2024: 0.7 percent of GDP (below the 3.3 percent of GDP projected at the Fourth Review). - Domestic government securities mobilized 48 percent of the 2025 borrowing plan in 2025Q1. - Weighted average yield on Government bonds: 17.8 percent at end-April 2025 (from 21.3 percent at end-December 2024). - Weighted average yield on Treasury bills: 13.5 percent at end-April 2025 (from 13 percent at end-December 2024). - Private sector credit growth: 9.0 percent in 2024 (constant exchange rate terms), down from 17.8 percent in 2023. - Statutory reserve ratio on kwacha and foreign currency deposits: 26 percent. - Financial soundness: total regulatory capital adequacy ratio rose to 24.4 percent at end-2024 (from 23.5 percent at end-2023); NPL ratio 4.1 percent at end-2024 (4.2 percent at end-2023); NPL ratio improved to 3.6 percent at end-2025Q1; provisions remained above 90 percent of total NPLs during 2024. - Noted vulnerabilities: electricity supply deficit, low financial intermediation, elevated share of foreign-currency denominated loans, maturity mismatches, and global policy uncertainty. - Program implementation and targets - All end-December 2024 QPCs and ITs under the ECF arrangement were met. - Three end-March 2025 ITs were not observed: on non-mining tax revenues, clearance of expenditure arrears, and reserve accumulation. - Of 14 structural benchmarks relevant for this review, six were met; four completed with delays; four outstanding SBs where new deadlines are requested (Anti-Corruption Act, Banking and Financial Services Act, deposit insurance framework, Debt Management Office procedures manual). - End-2024 primary fiscal surplus (cash basis): K 20.2 billion vs. adjusted target (QPC) of K 8.3 billion. - Non-mining revenues: K 131 billion at end-2024 vs. IT of K 119 billion. - Social spending protected: K 53.8 billion at end-2024 vs. IT of K 50 billion. - Cleared expenditure arrears: K 8.5 billion vs. IT floor of K 4.8 billion. - Cleared VAT refunds: K 11.6 billion of pre-2024 arrears vs. target of K 4.4 billion. - End-2024 expenditure arrears: K 80.8 billion. - Primary balance (commitment basis) in 2024: 4.3 percent of GDP vs. projection of 2.5 percent of GDP at Fourth Review. - Capital expenditure in 2024: 2.1 percent of GDP (projected 2.9 percent of GDP at Fourth Review). - Primary spending in 2024: 19.2 percent of GDP (from 21.3 percent of GDP in 2023). - Liability Management Operation (LMO) to repay fuel arrears: partial payment of US$103 million in 2024 (US$26 million financed through domestic loan; US$78 million from own revenues); LMO advanced for clearing fuel arrears in 2025. - Financing received in 2024 from cooperating partners: US$1,346 million (US$701 million for budget support). - Net domestic financing in 2024: K 4.7 billion (below K 16 billion envisaged in 2024 Budget). - Central bank net credit to government: abstained (QPC). - Contracted new non-concessional external debt in 2024Q4: $57.9 million (against zero ceiling on contracting/guaranteeing new non-concessional external debt, QPC). ### III. Outlook and risks - Short-term outlook (2025) - Real GDP growth projected at 5.8 percent in 2025 (compared to 6.2 percent projected at the Fourth Review). - Inflation trajectory: peaked at 16.8 percent in February 2025; projected to average around 14.0 percent in 2025, supported by lower food and fuel prices. - Current account: expected to record a small surplus in 2025, driven by mining exports; surplus narrowed relative to Fourth Review due to higher-than-projected energy imports. - Gross reserves projected at 4.5 months of prospective imports by end-2025. - Medium-term outlook (2026–31) - Growth projected to average 5.5 percent over 2026-31, driven by mining and services sector expansions. - Current account surplus projected to increase to 3.5 percent of GDP over 2027-30. - Gross international reserves expected to stabilize at 5 months of prospective imports. - Risks - Downside risks: commodity price volatility; global slowdown in trade; heightened geopolitical conflicts; subdued mining production; climate-related shocks; rising social discontent; delays in debt restructuring; delays in pledged investments (including mining). - Upside scenario: completion of debt restructuring and resurgence in mining investment could bolster confidence and support growth. ### IV. Macroeconomic policies — Fiscal policy - Fiscal outturns and composition - End-2024 primary fiscal balance (cash basis): K 20.2 billion (above adjusted QPC target of K 8.3 billion). - Non-mining revenues at end-2024: K 131 billion (above IT of K 119 billion). - Social spending at end-2024: K 53.8 billion (above IT of K 50 billion). - Expenditure arrears cleared: K 8.5 billion (above IT floor of K 4.8 billion). - VAT refunds cleared: K 11.6 billion (target K 4.4 billion); end-2024 VAT arrears stock increased to K 17.7 billion. - Expenditure arrears at end-2024: K 80.8 billion (down from K 97.8 billion at end-2023). - Primary balance (commitment basis) in 2024: 4.3 percent of GDP (versus 2.5 percent of GDP projected at Fourth Review). - Capital expenditure in 2024: 2.1 percent of GDP (projected 2.9 percent). - Primary spending in 2024: 19.2 percent of GDP (from 21.3 percent in 2023). - Fiscal measures and financing - Spending containment actions: delayed new hirings; reduced intragovernmental transfers and operational spending totaling K 5.9 billion (0.8 percent of GDP). - Subsidies in response to drought: Food Reserve Agency allocation doubled to K 3.2 billion in 2024; a $30 million subsidy provided to ZESCO for electricity imports. - Fuel arrears repayment in 2024: US$103 million settled (US$26 million via domestic loan; US$78 million from own revenues); plan to conclude LMO in 2025. - External financing in 2024: US$1,346 million received from cooperating partners (US$701 million for budget support). - Net domestic financing in 2024: K 4.7 billion (below the K 16 billion envisaged). - Central bank net credit to government: abstained (QPC maintained). - Compliance issues: contracted $57.9 million in new non-concessional external debt in 2024Q4 (against zero ceiling QPC). ### V. Program requests and commitments - Request: completion of the fifth review under the ECF arrangement and of the financing assurances review. - Disbursement upon completion: SDR 139.88 million (half for budget support). - Program conclusion: October 2025; remainder of program to be based on end-September ITs, continuous performance criteria, and structural benchmarks per reform agenda. - Commitments - Continue consultation with IMF staff before adopting revisions to policies in the LOI and MEFP. - Provide all data and information required per the TMU. - Reaffirm commitment to restoring compliance with Article VIII obligations. - Consent to publication of the LOI, MEFP, TMU, and staff report on the Fifth review upon IMF Executive Board approval. - Structural benchmarks and prior action - Working to amend the 2025 Budget in line with program commitments (prior action). - Requesting new deadlines to complete four outstanding SBs: Anti-Corruption Act, Banking and Financial Services Act, deposit insurance framework, Debt Management Office procedures manual. *Source: Appendix I. Letter of Intent, Memorandum of Economic and Financial Policies, and attachments (as provided).* ### 8. We have adjusted the government-to -government contract with Tanzania and ### 8. We have adjusted the government-to -government contract with Tanzania and ### Transparency, procurement, and drought response - Revised government-to-government contract: reduced amount to MT195,000 of maize. - FRA used imported maize to rebuild the reserve stock. - FRA mopped about MT15,300 of maize to further build the reserve stock at US$350/MT. - Contracts awarded in June and July 2024; procurement contracts for maize imports and logistics (with summary information, including beneficiary ownership) were published in October 2024 on the websites of FRA and DMMU as contracts are allocated (continuous SB). - Commitment to publish an audit report by the Controller of Internal Audit detailing the government response to the drought, including price and services rendered for all FRA and Government activities (procurement and logistics contracts, storage, and distribution), and DMMU procurement contracts (end-September 2025 SB). - Commitment to publish FRA’s 2024 audited financial statements by end-September 2025 (end-September 2025 SB). ### Fiscal consolidation and 2025 fiscal outcomes - Projected primary surplus (cash basis) in 2025: K 9.3 billion (1.1 percent of GDP). - Comparison: K 14.2 billion (1.9 percent of GDP) envisaged at the time of the Fourth Review; difference includes repayment of fuel arrears (1.3 percent of GDP). - Overall deficit in 2025 expected to widen to 5.3 percent of GDP, 1.9 percent of GDP higher with respect to the Fourth Review, to account for additional interest payments (by 0.7 percent of GDP). - Commitment: end-June 2025 primary balance (cash basis) of K 7.6 billion (QPC). - Commitment: end-September 2025 primary balance (cash basis) of K 6.4 billion (IT). - On a commitment basis, overall balance expected to improve by 3.1 percent of GDP in 2022-25. ### 2025 budget revision and financing measures (prior action) - Additional spending needs relative to the Fourth Review: 2.6 percent of GDP (including the fuel repayment operation). - Financing of additional spending: additional revenues 1 percent of GDP, spending reallocations of 1.1 percent of GDP, and increase in domestic borrowing of K 4.0 billion (0.5 percent of GDP). - Additional revenue measures (amounting to ½ percent of GDP in 2025): - Halving exemptions on imports of manufacturing inputs in 2025 (revoking them fully in 2026 onwards). - Doubling the surcharge on imports of domestically produced goods (to 10 percent). - Increasing excise duties on alcoholic beverages, sugar and sugary drinks. - Revoking tax exemptions on wheat. - Increasing the withholding tax on interest payments of government securities, from 15 to 20 percent. - Key additional expenditure items to be reflected in the 2025 revised budget: - Clearance of 2024 arrears (1 percent of GDP, of which FISP is 0.7 percent of GDP). - Higher interest spending (mostly related with the resumed payment of restructured external debt and higher domestic borrowing in 2024Q4 whose interest was not factored in 2025 budget). - Upscaled health spending to compensate the USAID downsizing (0.2 percent of GDP). - Increasing the Social Cash Transfer value by 100 percent compared to the pre-drought value (0.1 percent of GDP). - Reallocation of spending from: - Use of goods and services (1.1 percent of GDP). - Investment (by 0.1 percent of GDP). - Other transfers, including the transfer for the Food Reserve Agency (by 0.1 percent of GDP). - Authorities stand ready to adopt additional revenue measures if revenues do not materialize as expected; will consult with IMF staff on any changes and commit to using any additional revenues for arrears repayment or VAT refunds in a rule-based and transparent manner. - Commitment to submit a draft 2026 Budget to Parliament consistent with program parameters (proposed end-September 2025 SB). ### Revamping fiscal framework for mining wealth and SWF - Government committed to improving fiscal policy formulation to better account for mining wealth. - Intention to introduce a new fiscal rule and a sovereign wealth fund (SWF) as integral parts of the fiscal policy framework. - SWF to be anchored within the Ministry of Finance to enable integration with public financial management systems. - Authorities have requested IMF capacity development to improve the fiscal framework. ### Fiscal structural reforms — Mobilizing revenues (tax policy) - 2024: refrained from introducing new tax expenditures, except for custom duties on maize imports. - 2025: harmonization of corporate income tax rates across sectors by increasing from 15 to 20 percent the tax rates applied to sectors “Export of non-traditional products” and ”value addition to copper cathodes”. - Excises applied to tobacco and tobacco products, secondhand motor vehicles and fuels have been indexed to inflation. - Advance Income Tax (AIT) at the rate of 15 percent applied on remittances and exports above US$2,000 made through a commercial bank by an account holder without a valid Tax Clearance Certificate. - A detailed report on tax expenditures, covering the prior fiscal year, was published in December 2024 (end-December 2024 SB). - A diagnostic assessment of Zambia’s tax system (income tax, value added tax, and excise tax) was produced following a request to the Fund; recommendations will be leveraged for wide-ranging tax reform. ### Tax administration modernization (ZRA) - ZRA is modernizing internal organization and expanding data analytics; new operating model includes: - Smart invoicing system (SIS): - Since January 2025, penalties enforced for non-compliance on use of SIS. - Effective January 1, 2025, input VAT deductions restricted to transactions with invoices issued through SIS, except for exempted invoices envisaged by the Act. - As of April 2025, 17,830 out of 20,000 VAT registered business are using SIS; and 17 thousand non-VAT registered business are voluntarily using the SIS. - Compliance and corporate risk management (CRM): - Formal governance structure in place, including a steering committee; CRM function to report to the Audit and Risk Committee of the ZRA Board as it matures. - Compliance risk management unit (CRMU) being created under the department of data analytics; plan to make the CMRU operational by 2025Q2 (end-June 2025 SB). - Domestic Taxes Risk Management Unit being established to work closely with the CRMU. - Dedicated data quality unit established covering data integrity. - As part of the second phase of the BIDA project, ZRA developing a compliance risk management tool integrating third-party data for a 360-degree view of taxpayer transactions. - Interfaces launched or planned: Road Traffic and Safety Agency (eZAMTIS) and PACRA; interface with Ministry of Lands and Natural Resources (ZILAS) launched in 2024 with full data validation rules targeted for completion by end-Q2 2025; final integration expected by end-December 2025. - Major planned interfaces include Bank of Zambia (eBoP) in 2025Q2 and the Ministry of Finance and National Planning (IFMIS) in 2025Q3; interfaces with the Zambia Public Procurement Authority and the Zambia Information Communication Technology Authority scheduled by 2025Q4. - MOSES connection to BIDA is complete; report development is ongoing. Gemstones capturing (emerald, aquamarine, beryl, and other precious minerals) has started in MOSES; further upgrades expected by December 2026 to capture other Gemstones and Industrial Minerals. - Customs-to-customs electronic data exchange: - Interface with Namibia Revenue Agency to be completed by end-September 2025. - Phase II to align implementation to WCO standards and incorporate unique consignment reference (UCR) and integrate exchanged data with customs declaration processes. - ZRA working on customs-to-customs interfaces with Tanzania and the DRC. - VAT refunds: - Pace increased from K 1.7 billion to K 2 billion per month since February 2025. - Refunds could increase to K 2.5 billion per month depending on revenue performance. - Where overlap exists, offsetting legacy refund claims with tax debt is allowed. - Plan to implement risk-based audits and prioritize audits of high-risk claims by 2025Q4. ### Enhancing expenditure efficiency and protecting social spending - Public expenditure to remain transparent and accountable; focus on improving efficiency and channeling resources to impactful programs and projects. - Revised 2025 budget envisages increasing social spending to a floor of K60 billion, including continued interventions in response to the drought. - Education hiring: - Hire 2,000 teachers in 2025; improve primary teacher-pupil ratio to an average of 1:44 in 2025 from 1:54 in 2022. - Improve secondary teacher-pupil ratio to an average of 1:33 in 2025 from 1:45 in 2022. - Plan to hire over 2,000 additional education workers in 2026. - Health hiring: - Recruit 2,000 more health workers in 2025. - Plan to hire over 2,000 frontline health personnel in 2026, bringing total to over 20 thousand additional health workers since mass recruitment started in 2022. ### Social protection and humanitarian programs - Social Cash Transfer: - Spent K8.3 billion on social and emergency cash transfers in 2024. - Drought-related emergency cash transfer (ECT) will expire in June 2025 as planned. - Plan to maintain transfer value for regular beneficiaries at K400 per month, raising program budget to K 9.8 billion. - School feeding program: - Expand to an additional 36 districts in 2025, reaching all 106 districts. - Cash-for-work (CFW) program: - 2024 CFW K0.7 billion provided temporal income at K 600 per month. - CFW will continue till December 2025 within original adopted budget of K2.0 billion. - Targeting to be strengthened through establishment of a consolidated social register with World Bank assistance by end December 2025. - Humanitarian support: - DMMU coordinated in-kind support distributing MT41 thousands of maize as of January 2025. - No further distribution since February 2025. ### e-Voucher system and FISP spending - Total program spending in 2025 expected to increase by 0.7 percent of GDP due to settlement of arrears from the 2024/2025 farming season. - Overall spending for FISP in 2025 expected to close at 1.9 percent of GDP. - Going forward, expenditure under the program to be maintained at 1.1 percent of GDP. - 2024/2025 farming season operations: - 74 districts migrated to the e-voucher with flexible inputs and 42 districts on direct input supply (end-September 2024 SB). - All districts will be under the e-voucher system during the 2025-26 season. - ZIAMIS e-Voucher database clean-up: approximately 212,000 ineligible beneficiaries removed and replaced with 200,000 better-targeted farmers. - ZIAMIS enhancements (upgraded online payment functionality and audit trail systems) completed by end-2024. - Independent audit of the 2024 e-voucher rollout to be completed by end-September 2025 (end-September 2025 SB), following full input redemption. - Government published summary information on all procurement contracts related to FISP, including beneficial ownership on the Ministry of Agriculture website (continuous SB). - Contracts for seeds and fertilizers awarded in June-July 2024 were published with beneficial ownership information except for one company on October 2. - As all districts move to the e-voucher, the MoA will not procure direct inputs in the 2025/2026 farming season. ### Improving public financial management and arrears clearance - Started to repay some high-cost fuel arrears to secure NPV savings; uncollateralized liability management operation financed domestically and ensuing debt service within the budget envelope for arrear clearance. - Commitment control system: - Transition for provincial and district offices of the Ministry of Health and rollout to the Ministry of Livestock and Fisheries to start in 2025Q3. - Partial upload of arrears before 2024 due to insufficient documentation; verification exercise for arrears accrued before 2024 to be undertaken by end-2025. - Amount of arrears recorded in system amounted to K2.9 billion for 2024. - Recording of multi-year commitments in IFMIS did not commence in January 2025 as planned due to coordination issues; to be corrected by end November 2025. - Navision adopted as the Public Finance Management System for all local authorities. - Cost benefit analysis to determine optimal solution for Local Authorities (off the shelf vs Open-Source Software) in line with the Zambia Devolution Support Program. - Envisage that 90 percent of Local Authorities will produce their Financial Statements in 2026 based on the Uniform Standard Financial Management system; remaining 10 percent to use the Unified System in 2027. ### Public investment management (PIM) and PPPs - Efforts to record in IFMIS project module investment projects included in the 2025 Budget to facilitate monitoring are ongoing; expected to be finalized in 2026. - Commitment not to sign new PPP until approval of the regulatory framework. - IMF Public Investment Management Assessment (PIMA) with climate module took place in October 2024. - Completed prioritization of public investment projects based on mission’s recommendations. - GIZ provided technical assistance to prepare manuals and appraisal criteria to prioritize climate projects and tagging of climate investment into the budget. - Road Sector Investment Program III (ROADSIP III) through RDA developed and awaits Cabinet approval by August 2025. ### Improved cash management and forecasting - Survey of government accounts in commercial banks planned by end-June 2024 still receiving information; as of end-March 2025 about 2,120 bank accounts in commercial banks have been closed. - Daily monitoring of sweeping arrangements with BoZ and commercial banks ongoing. - Full operationalization of the Cash Management Unit being implemented. - With IMF support in January 2025, cash flow forecasting for 2025 implemented (end-March 2025 SB). - Forecasting to be updated with realizations rather than budget commitments by end September 2025. ### Fiscal transparency, reporting, and fiscal risk management - Government will continue publishing quarterly economic reviews on budget performance; annual financial report to continue to be published. - Budget Execution Report expanding performance on broad revenue and expenditure categories including social spending to be produced by end-June 2025. - Fiscal Risk Statement to be expanded in 2025 to incorporate sensitivity analysis scenarios for the macro, quantify impacts on fiscal variables, and include quantitative financial information about SOEs and signed PPPs (end-September 2025 SB). - Fiscal Risk Management Framework approved on April 30, 2025. - Fiscal Risk Unit, placed under the Economic Management Department, being formalized and expected to be fully operational by end September 2025. ### State-Owned Enterprises (SOEs) - Publish 2023-24 IDC’s audited financial statements by end-September 2025. - MoFNP to sign performance contracts with 3 SOEs under direct control of the MoFNP by end-June 2025; delay due to conflicting legislation assigning oversight to line Ministries. - Implementation for remaining 7 SOEs to proceed once the SOE Bill is enacted. - With GIZ assistance, initiated review of performance contracts already signed with IDC to improve future contracts. - Developing a new SOE Act in line with recently adopted SOE policy to be submitted for Cabinet approval (end-September 2025 SB). - Debt Policy and Strategy under the Debt Management Office to continue conducting credit risk assessments on public bodies intending to borrow; by law any public institution intending to borrow requires MoFNP’s approval. - Conducted nine credit risk assessments, eight entities passed the assessment. *Source: 1zmbea2025001-source-pdf - 8. We have adjusted the government-to -government contract with Tanzania and* ### 23. Implementation of the open access to the TAZAMA pipeline has proven challenging, ### 23. Implementation of the open access to the TAZAMA pipeline has proven challenging, and we are working on setting the conditions for its success. ### Implementation and operational challenges - The list of prequalified OMCs for the next 12 months—along with beneficial ownership details—was published on the Tazama and Ministry of Energy websites on May 5. - The first delivery under the open access framework was initially scheduled for April 1, 2025, but delayed due to storage capacity problems from a previous March delivery and berthing issues, delaying offloading. - A product swap was implemented to enable first sales under open access only on April 17, 2025 (end-April 2025 SB). - As of end-May, all OMCs except for one, who were awarded tenders in April and May, delivered allocated quantities through direct pumping and product swaps. The affected OMC had a delayed discharge while the Tanzanian Port Authority installed a bulk flow meter to better monitor equipment on infrastructure. - An OMC was allowed to sell product during April 1 -15, 2025, while awaiting the arrival of product under the open access framework. The direct bidding contract for that sale was published on June 17, 2025 on the Ministry of Energy website (including volume, price, and beneficial ownership information), despite a commitment to publish within one month. ### Transparency, publication, and nomination reporting - The results of TAZAMA open access tenders are now published on the Ministry of Energy/Tazama websites within one month of contract award (continuous SB). Disclosed information includes: - the winning bidder (with price, type and quantities of inputs, total contract amounts and their beneficial owners), - all unsuccessful bids (with price, type, and quantities of inputs). - Due to non-availability of beneficial ownership information at PACRA, TAZAMA now requests OMCs to submit their beneficial ownership information as part of their financial proposals. - MOE/TAZAMA will publish nominations and uplifts from Ndola Fuel Terminal by OMCs monthly. TAZAMA will publish by 15th of the following month monthly offtake by each OMC including volume and use for the past month and intended uplift per customer category (Retail, Commercial, Mining) for the ongoing month. - All export/removal in transit permits issued in a month will be published by 15th of the following month on the MOE/TAZAMA website, for each OMC with beneficial ownership and volume granted under each permit. A new section under the amended open access guidelines to stipulate the triggers, process and procedures for issuing export/transit permits will be introduced by end-August 2025. ### Capacity, court order and allocation rules - Between July and September 2025, the capacity under the open access will be reduced to MT70,000 to comply with a court order that grants MT35,000 to an OMC to fulfil previous commitments. - The sale of all products transiting through the pipeline will match the lowest price on the open access winning bid for the delivery month. - Emergency procurement will remain an exception, regulated under the open access guidelines. Any nominated OMC will undergo the standard procurement vetting process applied to all OMCs in open tenders. Going forward, there will be no discretionary award of tenders outside the open access framework. ### Currency, domestic sales, and pricing policy changes - The Government commits to no longer grant waivers for the domestic sale of petroleum products outside of the ERB price and in foreign currency. Going forward, diesel imported through the pipeline will be sold by TAZAMA in local currency with domestic retail distribution being priority. - The fuel price formula will continue to incorporate the BPS premium for all fuels (both road and pipeline). Detailed implementation guidelines have been developed to provide clear instructions for the fuel price formulation. - The Energy Regulatory Board (ERB) will keep publishing the retail and wholesale price structures simultaneously with the fuel price adjustments on a monthly basis (continuous SB). - Statutory Instrument No. 77 on Energy Regulation (Petroleum Products Price Setting) Regulations was issued on 3rd December 2024 to define the process, formulas, and data sources guiding the monthly price review to ensure cost recovery (plus margin) for OMCs while passing pipeline savings more effectively to consumers. ### Legacy transportation fee differential and revenue expectations - TAZAMA has just started collecting the extra compensation from legacy transportation cost differential for diesel imported through the pipeline between July 2024 and end-March 2025. As of mid-May 2025, US$0.6 thousand has been collected on the legacy debt to be remitted to the Treasury. - The revised estimate for this compensation is US$56 million, down from the previously reported US$78 million. - The Government will request all OMCs using the pipeline to pay or have agreed to a repayment schedule on the transportation fee differential by September 1, 2025. Any OMC that builds arrears with respect to the transportation fee differential will be suspended from participating in future open access tenders. - Since implementation of open access on April 1, 2025, the Government expects to collect about US$7.1 million per month based on a monthly average throughput of MT90,000. Monthly revenues from the transport differential, including remits to the Treasury, and monthly throughput volumes will be published by the 15th of the following month on the TAZAMA and MoFNP websites. ### ZESCO tariffs, debt, and tariff policy - The emergency tariffs in November 2024 paused the application of the pre-approved multi-year tariffs for the period 2023-27. Emergency tariffs, introduced for a three months period, have been extended to end-July 2025. Revenues from these tariffs remain below cost-recovery. - Before reintroduction of the multi-year tariffs, the Government commits to revise tariffs to take into account recent structural change in the market and lead ZESCO to apply cost reflective tariffs by end-2026. - ZESCO’s total outstanding debt amounted to US$2.6 billion in March 2025, from US$2.1 billion at end-2022. Breakdown: - On-lent loans from the Central Government: US$384 million - Commercial lenders: US$207 million - Government guaranteed loans: US$2.0 billion - Measures to improve ZESCO’s balance sheet include negotiating remaining IPP debt, mobilizing long-term domestic financing to repay IPP obligations, and converting on-lent public loans to equity in close consultation with the MoFNP. ### Restoring debt sustainability and debt management transparency - The Government is committed to refraining from contracting non-concessional debt (continuous PC) and limiting new external borrowing and disbursements of contracted but undisbursed external debt to the central government and ZESCO (ITs). - Targets and objectives: - Bring the debt service-to-revenue ratio to 14 percent by 2025 and maintain it at this level (on average) during 2026-31. - Bring the PV of external PPG debt-to-exports ratio to 84 percent by 2027. - The Government will update the annual borrowing plan consistent with the 2025 Revised Budget and continue to publish, on a quarterly basis, the Debt Statistical Bulletin covering external and domestic debt developments (continuous end-quarter SB). The 2025Q1 debt bulletin was published on the MoFNP website at end-May 2025. - The Government will continue to refrain from any payments on any external debt under the restructuring negotiation before a debt treatment agreement is reached on terms comparable with those provided by official creditors. ### Debt Management Office (DMO) and capacity building - The new DMO was operationalized in December 2024 with appointment of key staff, including the Director. The DMO is operating on a partial staff complement, with slightly over 50 percent of the staff establishment. The Government is working to ensure the DMO has a full staff complement by 2026. - Technical assistance: IMF, World Bank and MEFMI have provided assistance. A GiZ Consultant assisted in developing a Procedures Manual. The DMO Procedures Manual was initially envisaged to be finalized by end Q1 2025 (end-March 2025 SB), but due to longer stakeholder engagements is now set to be finalized by end July 2026. A GiZ consultant has been engaged to undertake a change management exercise running until end-2025. ### Strengthening institutional debt management capacity - World Bank technical assistance was provided in May 2025 to enhance capacity in conducting credit risk assessments to assess the capacity of public bodies to borrow and to equip the DMO staff to develop a robust credit risk assessment framework. ### Domestic financing strategy and limits on non-resident holdings - The Government will continue to issue securities for domestic financing and diversify its domestic investor base, issuing a quarterly issuance calendar based on domestic financing conditions, investor appetite and cash management needs. - Limits on non-resident holdings: - Primary market limit: 5 percent of the annual issuance of government bonds, with a nominal upper bound of K 1.56 billion in 2024. - Annual gross issuance limit to non-resident holdings: K 1.572 billion in 2025. - When conditions allow, the Government will start reopening benchmark bonds to build liquidity and will consolidate efforts at developing the domestic bond market with IMF technical assistance. ### Monetary policy, inflation, and exchange rate framework - The Bank of Zambia (BoZ) remains committed to achieving price stability. End-of-period inflation in 2024 reached 16.7 percent (within the inner consultation band). The Monetary Policy Committee aims to bring inflation back to the 6-8 percent target band by 2026. - The Monetary Policy Consultation Clause (MPCC) will be observed: if actual inflation deviates beyond the inner consultation band of ±2 percent, BoZ will consult with IMF staff; deviation beyond the outer consultation band of ±3 percent triggers consultation with the IMF Board. - BoZ expects inflation to decline in 2025 given positive crop harvest estimates and lower global fuel prices, but notes downside risks from higher tariffs and global uncertainty. The policy rate remains the key signal for monetary policy stance. - The BoZ is consulting stakeholders to remove two multiple currency practices (MCPs). Removal is envisaged in October-2025 and will require changes in the regulatory framework. The most recent impermissible spreads were observed for mining taxes and customs duties on May 23, 2025. - The BoZ will maintain a flexible exchange rate regime while mitigating excessive volatility. Mining companies will continue to sell U.S. dollars to BoZ to meet tax obligations to ZRA and BoZ will utilize these to build reserves. BoZ will continue to support the FX market to mitigate undue volatility. - The limit for negotiating the exchange rate in FX transactions was revised to US$5 million in March 2025; all FX transactions up to US$5 million are now conducted at board rates that are firm and not indicative. ### International reserves and reserve accumulation targets - Net International Reserves (NIR) stood at US$1,892 million at end-2024, exceeding the adjusted end-December 2024 NIR QPC (US$1,891 million). The end-March 2025 NIR IT was missed due to higher-than-expected FX demand. - Reserve accumulation target from the Fourth Review: US$2,550 million by end-September 2025. The central government will continue to transfer all FX-related budget support disbursements (loans and grants) to BoZ to support reserve accumulation. ### Modernizing monetary policy operations - Planned operational changes and progress: - Review the daily reserve compliance requirement with a view to moving to reserve averaging as conditions allow. - ISDA adoption: Engagement process finalized end-2024; eight banks have signed the ISDA with BoZ, agreements with five banks under internal review. - Revision of the Global Master Repurchase Agreement (GMRA) has commenced; completion targeted by end of Q3 2025. Four banks have submitted comments on the revised GMRA. - Recalibration of the Quarterly Projection Model (QPM) parameters started with MEFMI; expected completion by 2025Q2 after Monetary Policy Committee consideration. Delay resulted in completion after the February MPC, with follow-up discussions pending. ### Strengthening financial policies and supervision - BoZ actions on financial stability and regulation: - The Bank publishes a semi-annual Financial Stability Report (FSR); a third edition was published in April 2025. The next macro stress test results will be published in the fourth edition of the FSR in October 2025. - A Financial Sector Stability Review has been requested to cover: (1) regulation and supervision of banks and deposit-taking non-banks, (2) systemic risk analysis and stress testing frameworks and macroprudential frameworks, (3) crisis management and resolution, and (4) financial markets infrastructure. - Macro-prudential toolkit expansion: - Capital regulations (guidelines on countercyclical capital and conservation buffers) expected to be issued by end-June 2025 following Business Regulatory Review Agency approval on April 10, 2025 (originally due end-October 2024). - Liquidity coverage ratio (LCR) directives expected to be issued sometime in 2025; LCR to be implemented in a phased manner over a five-year period. - Net stable funding ratio (NSFR) regulations will be issued and implemented by June 2026. - Quarterly quantitative impact analysis continues to assess banks’ preparedness for liquidity regulations; quarterly and micro stress tests are ongoing. - Cyber resilience: four cyber on-site examinations in 2023 and four more as of end-December 2024; targeted inspections and follow-ups continued in 2025. ### Legal and regulatory updates for the financial sector - The BoZ is reviewing the Banking and Financial Services Act, 2017 (BFSA) and the National Payment Systems Act, 2007. The BFSA review incorporates IMF Governance Diagnostic Assessment 2022 recommendations and IMF comments on the Financial Sector Assessment Program 2017. The review aims to strengthen licensing, ownership changes, corporate governance, auditing, prudential requirements, consolidated supervision, early intervention, enforcement, and resolution. - Following consultations and IMF review of the draft bill, BoZ is working on a revised draft with IMF staff to address supervisory and resolution shortcomings by end-June. The draft bill is envisaged to be submitted to Parliament in 2025H2 (end-March 2025 SB, proposed to be reset to end-September 2025 SB). The draft National Payment Systems Bill has been submitted to the Ministry of Justice for legislative drafting. *Source: 1zmbea2025001-source-pdf - 23. Implementation of the open access to the TAZAMA pipeline has proven challenging,* ### 40. The BoZ has taken steps to enhance deposit insurance framework. After establishing the ### The BoZ has taken steps to enhance deposit insurance framework. After establishing the ### Deposit insurance and regulatory framework - The Bank of Zambia (BoZ) established the Deposit Protection Fund (DPF) Unit in December 2023. - The BoZ is drafting the regulatory framework on a deposit protection scheme under the 2017 BFSA Section 132 (5) (including its coverage, form of depositor preference and funding). - The BoZ will adopt the deposit insurance framework consistent with the Core Principles for Effective Deposit Insurance Systems (end-April 2025 SB, proposed to be reset to end-September 2025 SB). ### Stability and Resilience Facility (SRF) to mitigate drought and electricity shock - The BoZ established the Stability and Resilience Facility (SRF) with an envelope of K 5 billion. - The facility is available for one year and aims at facilitating affordable bank credit to viable businesses in the agricultural sector and those negatively impacted by the current electricity shortages. - Credit under the SRF is provided to eligible Financial Services Providers (FSPs) at 100 bps and 300 bps below the policy rate, for conventional and green loans, respectively. - The loans have a maximum maturity of up to seven years. - As of end-May 2025, the BoZ has approved K 1.7 billion out of applications for K 4.8 billion. ### MSME support and credit guarantee initiatives - Government proposed an increased allocation to the Zambia Credit Guarantee Scheme to K 851.7 million in the 2025 Budget from K386 million in 2024. - The BoZ, in collaboration with the National Advisory Board for Impact Investment, will launch the Small Business Growth Initiative (SBGI) establishing a K 5 billion credit guarantee facility, via a BoZ-owned special purpose vehicle under the oversight of the BoZ Board of Directors. - The SBGI facility will allow banks to lend more to the MSME sector. ### Kwacha use in domestic transactions - The BoZ will enhance the role of the Kwacha in domestic transactions consistent with the provisions of the law. - After finalizing consultations with stakeholders and, in consultation with the IMF staff, the BoZ will issue revised regulations on the use of the kwacha as the settlement currency in domestic transactions, to be effective in 2025. ### AML/CFT/CPF supervision and anti-illicit flow measures - The BoZ implemented a dedicated AML/CFT/CPF supervision unit at end-2023 to support its risk-based approach and the effective application of sanctions for failure to comply with ML/TF/PF preventative measures. - The BoZ participated in a joint examination of a large commercial bank in July 2024 and conducted a second examination on a small commercial bank in November 2024. - Two new examinations are ongoing (due by end-June 2025) and two others are planned for 2025H2. - The Financial Intelligence Centre has scaled up efforts to identify illicit funds, coordinating with ZRA on detection, and proceeding with flows freeze when identifying these in the banking sector. - Going forward, authorities are seeking to establish limits on cash operations (up to k 300,000) as a means to constrain illicit flows. ### Legal clarification on BoZ holdings of Government securities - The Attorney General has been requested to provide clarity on the interpretation of: - (i) the statutory limit in Section 50 of the BoZ Act on the treatment of accrued interest, as well as securitized accrued interest; and - (ii) whether rollovers of Government securities are, and under what terms, consistent with applicable laws and regulations. - This clarification is expected by end-June 2025 (proposed end-July 2025 SB). ### Structural reforms to promote higher and more inclusive growth - Increasing productivity in agriculture: - The Comprehensive Agriculture Transformation Support Program was approved in March 2024 and underpins the medium-term agricultural investment strategy emphasizing service delivery, irrigation expansion, value addition, and access to finance. - Key investments focus on developing farm block infrastructure in Nansanga, Luena, Luswishi, and Shikabeta, incorporating climate-resilient technologies. - The National Crop Diversification Strategy was launched in September 2024 to promote agro-business and food security. - Reducing market distortion in agriculture: - The Food Reserve Agency Act is being revised to reduce market distortions and clarify the Agency’s role; the revised Act will require FRA to operate using market-based prices and define its role strictly as a buyer of last resort. - The Agricultural Marketing Act will establish the Agriculture Market Observatory and the Agricultural Marketing Council (AMC) as described. - The Agricultural Credit Act will be aligned with the Securities Act to ensure warehouse receipts can function as tradeable financial instruments. - The Food Reserve Agency Act, Agricultural Marketing Act, and Agricultural Credit Act will be submitted to Parliament consistent with policy position papers and incorporating the principle of market-based pricing (proposed end-September SB). - Energy sector reforms and capacity expansion: - The Electricity (Open Access) Regulations are now in effect, enabling independent power producers (IPPs) to access the national grid and sell electricity directly to consumers. - The Ministry of Energy has streamlined the approval process for solar projects from over six months to 48 hours to expedite addition of 1,000 MW of solar capacity by the end of 2025, including Chisamba (MW100), Choma (MW50), Kasama (MW100) and Kariba (MW100). - Phase II of the 300 MW Maamba Thermal Plant is expected to be completed by end-2025. - Mining sector expansion and governance: - The Minerals Regulation Commission (MRC) is expected to centralize oversight of mineral resource development and management. - The Minerals Regulation Commission Act No. 14 of 2024 was assented to law on December 20, 2024. - The Minerals Regulation Commission Regulations will be issued by September 2025. - The Geological and Minerals Development Bill has been submitted to Parliament. - The Mines and Minerals Development (local content) Regulations are under review to enhance citizen participation. ### Green economy and climate policy - The Green Economy and Climate Change Act was enacted in 2024, providing a legal framework to address climate risks and advance sustainable development. - The Act mandates National Adaptation and Mitigation Plans and five-yearly updates of the nationally determined contributions (NDCs). - It introduces a carbon market regulation through a national registry and fee system aligned with Article 6 of the Paris Agreement; establishes a dedicated climate fund; and mandates greenhouse gases inventory systems. ### Social programs and development initiatives - GEWEL 2 launched, supported by a $123 million grant from the World Bank and Global Financing Facility. - Targets 1.5 million vulnerable households, provides nutrition support to 25,000 families, keeps over 107,000 girls in school, and expands livelihoods for 58,000 women. - Focus areas: cash transfers, women's economic empowerment, girls’ education, and building institutional capacity. - Zambia’s CAMFED program received the 2024 UNESCO Prize for Girls’ and Women’s Education. ### Financial inclusion targets and surveys - Implementation of the National Financial Inclusion Strategy 2024-28 aims to increase financial inclusion to 85 percent by 2028. - Zambia is conducting a FinScope Survey in 2025; a multisectoral project team has been established and enumerators are conducting interviews across all ten provinces. - The topline findings are expected to be disseminated by end-2025. ### Governance, transparency, and anti-corruption reforms - Regulation to operationalize the Access to Information (ATI) bill will be issued by end-September 2025, providing procedures for requests and exemptions, and designating officers in each institution. - Work continues to amend the Anti-Corruption Act to strengthen the Anti-Corruption Commission (ACC); the amended ACA will: - (i) strengthen ACC’s independence and accountability by introducing a transparent and participatory selection process for the ACC Board and Director General with independent experts from civil society; - (ii) streamline the powers of the ACC Board vis-à-vis the Director General; - (iii) align the definition of “public official” with UNCAC and ensure criminalization of all corruption offences covered under the Convention; and - (iv) introduce dissuasive penalties. - The amended Act will be submitted to Parliament in September 2025 (end-March 2025 SB, proposed to be reset to end-September 2025 SB). - Commitment to maintain a sole online mining license application system under the Mining Cadaster System. - Use of the e-GP system has been made mandatory. - Government will amend the Companies Act with respect to the beneficial ownership (BO) requirement to simplify BO forms and accurately capture BO related information by end-September 2025. - The MoPNP issued Statutory Instruments (Commencement Orders No. 30/2025 and No. 31/2025) associated with the 2016 Public Audit Act and the 2016 State Audit Commission Act on May 23, 2025 (end-January 2025 SB). - Bringing the State Audit Commission Act into force will create a Board to be established by end-2026 to provide oversight of the Auditor General’s office. - Government will continue publishing regular tax expenditure reports and revenue and expenditure performance reports including explanations for deviations. - Legal and regulatory amendments to operationalize PACRA’s beneficial ownership register will be finalized by end-September 2025 (originally planned for March 2025), ensuring availability of accurate, complete, and up-to-date beneficial ownership information and imposing administrative sanctions for non-compliance. - A comprehensive legal framework on asset declarations will be developed with clear timeframes for submission and dissuasive and proportionate sanctions for breaches. ### Improving statistics and data systems - Strengthen production and dissemination of macroeconomic and fiscal statistics under the Second-Generation Strategy for the Development of Statistics (NSDS2), including establishment of Statistics Units and Management Information Systems across Ministries, Provinces, and Agencies (MPAs). - ZamStats is rebasing national accounts from the 2010 base year to 2023, with completion now expected in the first quarter of 2026. - The rebasing will incorporate data from the 2022 Living Conditions Monitoring Survey (LCMS), the ongoing 2024/25 Household Budget Survey (HBS), the Economic Census scheduled to conclude by March 2025, and the forthcoming Integrated Agriculture Survey. - Supply and Use Tables (SUT) for 2023 are being compiled using the NADABAS system, aligned with a 36-industry, 68-product framework. - Work includes updated estimates for the informal sector, agriculture, and financial services, and expansion of quarterly GDP estimates using the expenditure approach. - ZamStats is transitioning from a prototype Excel system to full implementation in the NADABAS platform, with integration targeted by April 2025. - The electronic Balance of Payments (e-BoP) system now captures all transactions; since January 2024 it is complemented by the Export Proceeds Tracking Framework requiring export proceeds be received through local banks. - The services module, piloted in late 2024, will go live by mid-2025. - An import-tracking module is under development for rollout in the fourth quarter of 2025. - Gaps related to unidentified other flows were identified and attributed largely to accumulation of foreign assets by the private sector. - Initial flow-of-funds accounts for selected mining companies were completed with IMF TA assistance. - The BoZ revised the balance of payments statistics for 2020-22 following IMF TA recommendations. - In December 2025, the BoZ will release results from the flow of funds study of the manufacturing sector. - Authorities commit to improving quality of external sector statistics and publishing more granular and timely balance of payments data. ### Program monitoring, technical assistance, and IMF financing use - Institutional capacity building will continue with partner support to strengthen internal monitoring and program implementation; technical assistance has contributed to diagnostics including enhancing cash management. - Further technical assistance is sought on fiscal framework reforms, resource revenue management, tax policy recommendations, enhanced assessment of tax expenditure costs and efficiency, administration of local excise (especially alcoholic and other taxable beverages), and the VAT control model. - Progress will be monitored through semi-annual reviews of quantitative performance criteria, indicative targets, and structural benchmarks as defined in the Technical Memorandum of Understanding (TMU). - The sixth review will be based on end-June 2025 test dates and should be completed on or after October 1, 2025. - Intention to use half of the IMF financing as budget support and the other half as a buffer to boost Zambia’s international reserve position, consistent with the Memorandum of Understanding signed in August 2022 between the Government and the BoZ. ### Selected quantitative indicators and targets (as presented) - SRF envelope: K 5 billion. - SRF approvals as of end-May 2025: K 1.7 billion (applications for K 4.8 billion). - Proposed Zambia Credit Guarantee Scheme allocation in 2025 Budget: K 851.7 million (from K386 million in 2024). - SBGI credit guarantee facility: K 5 billion. - Cash operation limit proposed to constrain illicit flows: up to k 300,000. - Solar capacity target by end of 2025: 1,000 MW, including Chisamba (MW100), Choma (MW50), Kasama (MW100), Kariba (MW100). - Maamba Thermal Plant Phase II: 300 MW expected completed by end-2025. - Minerals Regulation Commission Act No. 14 of 2024 assented on December 20, 2024; Regulations to be issued by September 2025. - GEWEL 2 support: $123 million grant; targets 1.5 million vulnerable households; nutrition support to 25,000 families; keeps over 107,000 girls in school; expands livelihoods for 58,000 women. - National Financial Inclusion Strategy 2024-28 target: increase financial inclusion to 85 percent by 2028. - ZamStats national accounts rebasing completion expected in the first quarter of 2026; NADABAS integration targeted by April 2025. - e-BoP complementary framework in effect since January 2024; services module to go live by mid-2025; import-tracking module rollout in Q4 2025. - BoZ to release manufacturing sector flow of funds study results in December 2025. - Sixth program review: based on end-June 2025 test dates; completion on or after October 1, 2025. *Source: IMF staff report (excerpt).* ### 13. Expected budget grant disbursments (millions of US dollars)114114n.an.an.a ### 13. Expected budget grant disbursments (millions of US dollars)114114n.an.an.a ### Expected disbursements and adjustors - 13. Expected budget grant disbursments (millions of US dollars): 114114n.an.an.a - 14. Expected public sector loan disbursements into the Treasury Single Account at the Bank of Zambia (millions of US dollars): 320; 87174 - 15. Expected public sector disbursements, including budget support grants and loans, expected to be channeled into the Treasury Single Account at the Bank of Zambia (millions of U.S. dollars) NIR Adjustor: 434564390; 1360272208408279 - 16. Government Debt Service (millions of U.S. dollars) NIR Adjustor: 873; 5839943409436449523 - 17. Expected liability management operation to clear fuel arrears (millions of US dollars). If the size of this operation is higher (lower), the primary balance will be adjusted downwards (upwards) by the difference expressed in the equivalent kwacha amount. Primary Balance Adjustor: 600103600600600 ### Notes on sources and adjustors - Sources: Zambian authorities; and Fund staff estimates and projections. - 1/ All definitions and adjustors are available in the Technical Memorandum of Understanding (TMU). - Selected additional footnotes referenced in the source: - 2/ IMF CR No. 24/350 - 3/ Indicative targets for March and September. - 4/ Without prejudice to the relevant provisions in the BoZ Act. - 5/ Cumulative from the date of program approval. - 6/ Excludes borrowing from the IMF, IDA, and the AfDB. - 7/ Excludes disbursements from IDA and AfDB. - 8/ From June 2023, the indicative target on the floor of revenue will drop the adjustment for VAT backlog, since this is a separate IT. - 9/ From June 2023, the indicative targets on the clearance of arrears are split into separate ITs on expenditure arrears and tax refund arrears to better capture progress in each category. ### Structural benchmarks and prior actions (selected highlights) - Prior Action (Fifth ECF Review): Parliamentary adoption of an amended 2025 Budget in line with program parameters. (MEFP ¶10) - Continuous and other structural benchmarks (selected status items and timelines): - Publish at the Ministry of Energy (MoE) website revised pipeline open access tender procedures — End-December 2024 — Met (guidelines published mid-December 2024). - Imports of diesel through the Tazama pipeline via open access at full capacity — End-April 2025 — Not met (open access only for part of the capacity; first delivery received April 8, 2025; delivery at Ndola started April 17). - Publish quarterly debt statistics bulletin — Quarterly (within 3 months) — Met (2024Q4 published February 27, 2025; 2025Q1 published May 29, 2025). - Publish summary information on financing agreements for newly contracted external loans — Quarterly (ongoing) — Met (as at end-December 2024 no new loans contracted). - FISP contracts publication — Ongoing (within 3 months of contract award) — Not met, completed with a delay (contracts published October 2, 2024). - Adopt the procedures manual for the Debt Management Office — End-March 2025 — Not met (DMO operationalized beginning 1st January 2025; manual proposed end-July 2025). - Submit to Parliament a comprehensive review of the Banking and Financial Services Act — End-March 2025 — Not met (proposed end-September 2025). - Adopt the deposit insurance framework — End-April 2025 — Not met (proposed end-September 2025). ### Proposed new structural benchmarks (selected) - Submit to parliament the revised FRA act, Agricultural marketing bill and Agricultural credit act — End-September 2025. - Submit the 2026 Budget in line with program parameters — End-September 2025. - Publish the date of first delivery of low sulphur gas oil procured under open access guidelines and summary of contract — Continuous SB. - Adopt the procedures manual for the Debt Management Office — End-March 2025, now proposed end-July 2025. - Submit to Parliament a revised Anti-Corruption Bill — End-March 2025, now proposed end-September 2025. - Other planned actions include establishment of a ZRA Compliance Risk Management Unit (End-June 2025), expanded 2026 Fiscal Risk Statement (End-September 2025), submission of a new SOE bill (End-September 2025), and various audit and publication requirements relating to FRA/DMMU and FISP (End-September 2025). ### Technical Memorandum of Understanding — Definitions, reporting, and adjustors (selected) - Scope: The TMU defines indicators used to monitor the program and associated reporting requirements; central government corresponds to the budgetary central government including Parliament, Office of the President, judiciary, all ministries, departments, agencies, constitutional commissions, and independent offices. - Fiscal year: starts on January 1 and ends on December 31. - Quantitative performance criterion — Floor on the Central Government’s Primary Balance (Cash Basis): - Definition: Measured from revenue and expenditure side at current exchange rates and on a cash basis; primary fiscal balance = government primary revenue − primary expenditure. - Government primary revenue: includes all tax and non-tax receipts, including external grants but excluding all interest revenue. - Primary expenditure: current plus capital expenditure, excluding all interest payments. - Reporting: Data provided to the Fund, using current exchange rates, with a lag of no more than 60 days after the test date for December test dates; for all other test dates, lag no more than 30 days after the test date. - Adjustors: - If general budget support grants expected to be disbursed fall short of programmed amount, the floor on the primary balance will be adjusted downward by the shortfall (kwacha value calculated at current exchange rate). General budget support grants exclude grants linked to externally financed capital projects or earmarked grants. - If the amount of fuel arrears repaid via liability management operation is lower (higher) than baseline, the primary fiscal balance (cash basis) will be adjusted upwards (downwards) by the difference (kwacha value at current exchange rate at time of loan disbursement). - Quantitative performance criterion — Ceiling on New Central Bank Credit to the Central Government: - Definition: Change in total stock of outstanding loans and advances by the BoZ to the central government. - Exclusions: purchases by BoZ of government debt securities in open market operations; on-lending of IMF credit; interest accrued on stock of outstanding loans and advances by BoZ to government entities. ### Program exchange rates (Rates as of May 31, 2022) - Zambian Kwacha per currency unit: - US Dollar: 17.28 - GB Pound: 21.71 - Euro: 18.46 - Rand: 1.10 - SDR: 23.32 - Renminbi: 2.58 - Currency units per US Dollar: - US Dollar: 1.00 - GB Pound: 0.80 - Euro: 0.94 - Rand: 15.67 - SDR: 0.74 - Renminbi: 6.67 - Source: Bank of Zambia. *Sources: Zambian authorities; and Fund staff estimates and projections.* ### 10. The data for new central bank credit to the central government will be reconciled with the ### 10. The data for new central bank credit to the central government will be reconciled with the ### Reporting requirements for new central bank credit and related claims - Monthly submissions: new central bank credit to the central government reconciled with the monthly monetary survey and submitted within 25 business days of the end of the month. - Required breakdowns to be included in submissions: - outstanding loans and advances; - outstanding amounts of other central bank claims on the government, including debt securities and on-lending of IMF credit. *ZAMBIA — INTERNATIONAL MONETARY FUND* ### 3. Floor on the Net Official International Reserves (NIR) of the Bank of Zambia (BoZ) - NIR definition: - NIR = gross international reserves − official reserve liabilities. - Gross international reserves consist of: - Monetary gold; - foreign currency; - unencumbered foreign-currency deposits at non-resident banks; - foreign securities and deposits; - SDR holdings and Zambia’s reserve position with the IMF. - Gross international reserves exclude: - Non-convertible currencies, except for operational balances in Rand with the South African Reserve Bank; - any encumbered reserve assets including but not limited to reserve assets pledged, swapped, or used as collateral or guarantee for third-party external liabilities; - reserve requirements on other depository corporations’ foreign currency deposits; - any foreign assets not readily available to or not controlled by the BoZ; - any foreign currency claims on Zambian residents. - Official reserve liabilities: - defined as short-term (one year or less in original maturity) liabilities of the BoZ to non-residents, plus any outstanding use of IMF credit, and swap arrangements (maturing in less than one year) with residents and non-residents. - Short-term liabilities exclude liabilities with an asset counterpart that is encumbered (excluded from the asset side as well). - Currency conversion: - All values not in U.S. dollars are to be converted to U.S. dollars using the program exchange rates defined in paragraph 2 above. - Reporting cadence: - Daily data on net international reserves, including their components, will be reported by the BoZ on a weekly basis, within 15 business days from the end of each week. ### Adjustor for TSA disbursements and debt service deviations - TSA disbursement shortfall adjustor: - If public sector disbursements expected to be channeled through the Treasury Single Account (TSA) at the BoZ fall short of the programmed amount (e.g., due to disbursement delays or delays in the transfer of the associated funds from GRZ accounts to BoZ gross international reserves), the NIR target will be adjusted downward by the amount of the shortfall. - Starting in 2024, if the amount of public sector disbursements expected to be channeled through the TSA at the BoZ is lower(higher) than the programmed amount, the NIR target will be adjusted downward (upward) by the amount of the shortfall (excess). - External debt service adjustor: - If central government external debt service payments fall short of agreed projections, the NIR target will be adjusted upward by the amount of the shortfall. - If actual debt service payments exceed agreed projections, the NIR target will be adjusted downward by an equivalent amount. ### Continuous performance criteria — external debt definition and related clarifications - External debt defined on a residency basis. - “Debt” definition (per paragraph 8 of the Guidelines on Public Debt Conditionality): - Current (not contingent) liability created under a contractual arrangement requiring future payments in assets or services to discharge principal and/or interest. - Primary forms include loans, suppliers’ credits, and leases (debt = present value at inception of all lease payments expected to be made during the agreement, excluding operation/repair/maintenance payments). - Arrears, penalties, and judicially awarded damages arising from failure to make payment under contractual obligation that constitutes debt are debt. - Failure to make payment on an obligation not considered debt under this definition (e.g., payment on delivery) will not give rise to debt. ### 4. Ceiling on the non-accumulation of new external debt arrears - Scope and timing: - Performance criterion defined as a cumulative flow in gross terms starting from the date of program approval (August 31, 2022) and applies on a continuous basis. - Arrears definition: - External debt arrears are debt service (principal and interest) that is overdue (considering any contractually agreed grace periods) on external debt contracted or guaranteed by the central government, the BoZ, and ZESCO with non-residents. - Does not cover arrears on debt subject to renegotiation or restructuring. - Monitoring and reporting: - Arrears will be monitored continuously by the MoFNP, including for ZESCO, and the BoZ. - The MoFNP will immediately report to IMF staff any new accumulation of external arrears; otherwise, data will be compiled jointly and reported by the MoFNP on a quarterly basis, within 30 days from the end of each quarter. ### 5. Ceiling on contracting or guaranteeing of new non-concessional external debt - Concessionality threshold: - Newly contracted or guaranteed external debt is concessional if it includes a grant element of no less than 35 percent. - Grant element = (NPV of debt subtracted from nominal value) expressed as a percentage of nominal value. - NPV at contracting time calculated by discounting future debt service payments using a discount rate of 5 percent. - Loans by private entities are not concessional unless accompanied by a grant/grant element from a foreign official entity as part of an integrated financing package with combined grant element ≥ 35 percent. - Variable-rate debt PV calculation: - PV calculated using a program reference rate plus the fixed spread (in basis points) specified in the debt contract. - Program reference rate for the three-month U.S. SOFR is 2.38 percent and will remain fixed for the duration of the program. - Specified spreads: - spread of three-month Euro EURIBOR over three-month USD SOFR is -150 basis points; - spread of three-month JPY Tokyo Interbank Offered Rate (TIBOR} over three-month USD SOFR is -250 basis points; - spread of three-month U.K. Sterling Overnight Index Average (SONIA) over three-month USD SOFR is -50 basis points; - for currencies other than Euro, JPY, and GBP, the spread over three-month USD SOFR is -50 basis points. - Where variable rate linked to a benchmark other than three-month U.S. SOFR, a spread reflecting the difference between the benchmark and three-month U.S. SOFR (rounded to the nearest 50 basis points) will be added. - Note on LIBOR transition: once operationally feasible, TMU can be updated to reflect benchmark replacement for JPY LIBOR, the Tokyo Overnight Average Rate (TONAR). - Applicability: - Minimum grant element applies to debt as defined in Point 9 of the Guidelines on Performance Criteria with Respect to External Debt in Fund Arrangements and to commitments contracted or guaranteed for which value has not been received. - Definition of new non-concessional external debt: - Any new debt other than concessional debt as defined above, contracted or guaranteed by the central government, BoZ, and ZESCO with non-residents. - Exclusions from the ceiling: - (i) loans from restructuring or rescheduling of external debt; - (ii) central government securities issued in domestic currency, placed in domestic primary or secondary markets, and held by non-residents; - (iii) debt contracted from IMF, World Bank and AfDB; - (iv) short-term trade credits for imports, incurred since the beginning of the calendar year; - (v) central bank debt issuance for monetary policy or reserves management and FX swaps for monetary policy or reserves management. - Contracting date: - A debt is considered contracted when all conditions for its entry into effect have been met in accordance with contract terms and national legislation. - Contracting of credit lines with no predetermined disbursement schedules or multiple disbursements will be considered contracting of debt. - Reporting: - The MoFNP will immediately report details of any new external loans contracted or guarantees issued to IMF staff. - Detailed data on all new external debt (concessional and non-concessional) contracted or guaranteed by the central government, BoZ, and ZESCO will be provided monthly, within 30 days from the end of each month, including (i) amounts contracted or guaranteed; (ii) currencies; and (iii) terms and conditions, including interest rates, maturities, grace periods, payments per year, commissions and fees, and collaterals. ### 6. Other continuous quantitative performance criteria (QPCs) - Continuous QPCs include non-introduction of exchange restrictions and multiple currency practices: - (i) non-imposition or intensification of restrictions on making of payments and transfers for current international transactions; - (ii) non-introduction or modification of multiple currency practices; - (iii) non-conclusion of bilateral payments agreements inconsistent with Article VIII; - (iv) non-imposition or intensification of import restrictions for balance of payments reasons. - These continuous QPCs are non-quantitative and therefore not listed in the QPC table annexed to the MEFP. ### Monetary policy consultation clause - Consultation bands apply to the average CPI inflation as published by ZamStats. - If observed quarterly average CPI inflation (average of the 3 monthly year-on-year inflation rates within a quarter) falls outside the outer bands for June and December test dates: - Authorities will complete a consultation with the IMF Executive Board focusing on: (i) stance of monetary policy and program track; (ii) reasons for deviations; (iii) proposed remedial actions if necessary. - When consultation with the IMF Executive Board is triggered, access to Fund resources would be interrupted until consultation and relevant program review are completed. - If observed quarterly average CPI inflation falls outside the inner bands for each test date: - Authorities will conduct discussions with Fund staff. ### Indicative targets — definitions and reporting - 7. Floor on fiscal revenues of the central government excluding grants and mining revenues - Definition: - Fiscal revenues include all tax and non-tax receipts but exclude external grants and revenues from corporate income tax on the mining sector and the mineral royalty tax. - Reporting: - Data on fiscal revenues (cash basis) provided using current exchange rates, with a lag of no more than 60 days after the test date for December test dates; for all other test dates, lag no more than 30 days after the test date. - 8. Ceiling on the present value (PV) of new external borrowing - Definition: - Ceiling applies to PV of all new external debt contracted or guaranteed by the central government, the BoZ and ZESCO, including commitments contracted or guaranteed for which no value has been received. - PV calculated by discounting future debt service (principal and interest) at a discount rate of 5 percent and taking into account maturity, grace period, payment schedule, upfront commissions, and management fees. - For loans with grant element zero or less than zero, PV is set equal to the nominal value of the debt. - Guarantees: - Guarantee arises from any explicit legal obligation of the government to service a debt in the event of nonpayment by the debtor (payments in cash or kind). - Exclusions from the ceiling: - (i) loans from restructuring or rescheduling of external debt; - (ii) central government securities issued in domestic currency, placed in domestic primary or secondary markets, and held by non-residents; - (iii) debt contracted from IMF, World Bank and AfDB; - (iv) short-term trade credits for imports, incurred since the beginning of the calendar year; - (v) central bank debt issuance and FX swaps for monetary policy or reserves management. - Reporting: - Authorities will inform IMF staff of any planned external borrowing and conditions before loans are contracted or guaranteed and will consult with staff on potential debt management operations. - 9. Ceiling on disbursement of contracted but undisbursed external debt to central government and ZESCO - Definition: - Applies to disbursement of contracted but undisbursed external debt to the central government and ZESCO, and contracted but undisbursed government-guaranteed external debt to ZESCO. - Ceiling set based on data shared by authorities on projected disbursements of contracted but undisbursed external debt between 2022 and 2025, after considering authorities’ estimates for cancellation and rescoping of such loans; applies to this list. - Disbursements from IDA and AfDB excluded. - Reporting: - Detailed data on disbursements of contracted but undisbursed external loans of the central government and ZESCO (government-guaranteed or not) to be provided quarterly, within 30 days from the end of each quarter, including amounts, currencies, creditors, and project names. - 10. Floor on social spending by the central government - Definition: - Social spending = central government expenditure on the Social Cash Transfer, Food Security Pack, Empowerment Fund (Women and Youth), the Public Welfare Assistance Scheme, Water and Sanitation, budget transfers to the Public Service Pensions Fund, the Health Sector, and the Education Sector. - Computed on a cash basis. - Reporting: - Data provided using current exchange rates, with a lag of no more than 60 days after the test date for December test dates; for all other test dates, lag no more than 30 days after the test date. - 11. Floor on net clearance of expenditure arrears and floor on net clearance of tax refund arrears - Arrears definitions: - Expenditure arrears: - Wages, salaries, and pension contributions: payments outstanding after the agreed date for payment of staff and payroll deductions to third parties. - Goods & services and capital spending (including contractor payments): arrear arises when bill received and delivery verified but payment not made within normal period per standard GRZ policy (30 days), or as stated in supplier’s contract. - Utilities: if unpaid after the due date. - Subscriptions and leases: amounts outstanding after the due date. - For assessing the indicative target, changes in the stock of expenditure arrears due to ongoing audits, accumulation of penalties or interest, and exchange rate valuation effects will not affect the assessment. - Target considered met when agreed stock at end of previous fiscal year is reduced in an amount equal or larger than the agreed pace of rundown of arrears. - Tax (VAT) refund arrears: - For VAT refunds: overdue if unpaid one month after the claims were validated and approved for payment. - For assessing the indicative target, impact of newly validated claims for the previous year will be neutralized: target assessed as met if gross clearance of VAT refunds ≥ sum of new claims submitted for the current year plus the agreed pace of rundown of the previous year’s arrears. *Source: 1zmbea2025001-source-pdf - 10. The data for new central bank credit to the central government will be reconciled with the (PDF).* ### 42. Information regarding central government arrears on expenditure and tax refunds will ### 1zmbea2025001-source-pdf - 42. Information regarding central government arrears on expenditure and tax refunds will ### Arrears compilation and audit process - Central government arrears on expenditure and tax refunds will be compiled through quarterly audits of the accounts of the ZRA and spending ministries and agencies, conducted by the Internal Audit Department of the MoFNP. - The audits will be completed, and data submitted within 90 days from the end of each quarter. - For expenditure arrears, arrears denominated in foreign currency will be reported in the original currency of denomination. ### VAT refund arrears reporting - For the clearance of VAT refund arrears, the MoFNP will report separately: - clearance of the stock of audited VAT refunds accumulated up to the end of the previous fiscal year, and - accumulation of claims and clearance of newly approved VAT refund in the current fiscal year. ### Monitoring and reporting framework - To facilitate program monitoring, specified information in Annex Table 2 will be reported to IMF staff within the indicated timeframes. - These data will be provided electronically by email to AFRZMB@IMF.ORG. ### Administrative units comprising the budgetary central government - Office of the President – State House - Office of the Vice President - National Assembly - Electoral Commission of Zambia - Civil Service Commission - Office of the Auditor General - Cabinet Office – Office of the President - Teaching Service Commission – Office of the President - Zambia Police Service Commission - Zambia Police Service - Office of the Public Protector - Ministry of Mines and Mineral Development - Ministry of Home Affairs and Internal Security - Drug Enforcement Commission - Ministry of Foreign Affairs and International Cooperation - Judiciary - Disaster Management and Mitigation Unit - Local Government Service Commission - Ministry of Information and Media - Public Service Management Division - Ministry of Local Government and Rural Development - Zambia Correctional Services - Ministry of Justice - Ministry of Commerce, Trade and Industry - Human Rights Commission - Ministry of Small and Medium Enterprise Development - Zambia Correctional Service Commission - Ministry of Finance and National Planning - Smart Zambia Institute - Ministry of Labor and Social Security - Ministry of Water Development and Sanitation - Ministry of Green Economy and Environment - Ministry of Infrastructure, Housing and Urban Development - Ministry of Energy - Ministry of Technology and Science - Ministry of Tourism - Ministry of Youth, Sport and Arts - Ministry of Defense - Zambia Security Intelligence Services – Office of the President - Ministry of Education - Ministry of Lands and Natural Resources - Ministry of Fisheries and Livestock - Anti-Corruption Commission - Muchinga Province - Ministry of Agriculture - Lusaka Province - Copperbelt Province - Central Province - Northern Province - Western Province - Eastern Province - Luapula Province - North-Western Province - Southern Province ### Reporting requirements (selected items and timing) - Monetary and Financial Sector (BoZ reporting unless otherwise noted): - Reserve money and its components (NDA and NFA) at current and program exchange rates — D (Daily) - Excess reserves — D - Overnight interbank rates — W (Weekly) - Treasury bill and BoZ bill auction results — M (Monthly) - Monetary survey (incl. the BoZ and ODC surveys) — M - Financial soundness indicators by bank — M - External Sector: - Exchange rates — D - Gross international reserves and foreign exchange purchases and sales — D - BoZ FX cash flow — M - FX backlog — W - Fiscal: - Net domestic financing — M - Revenues from the Tazama pipeline transport cost differential — M - Fiscal table including revenue, expenditure, and financing — M - Social spending — M - Stocks of arrears on expenditure, tax refunds, and domestic debt service — Q (Quarterly) with reporting deadlines indicated as T90 (T = X days after the date of the last observation) - Stock of VAT arrears divided by stock of arrears as of end-year plus new approved VAT refund claims and payments in the current fiscal year — Q - Real Sector: - Consumer price index and monthly statistical bulletin — M - National accounts — Q - External Debt: - New external loans contracted or guaranteed by the central government, BoZ, and ZESCO, with detailed amounts, currencies, terms, conditions, and purposes — Q - Disbursements of contracted but undisbursed external loans to the central government and to ZESCO — Q - Program Monitoring: - Report on program performance — M (Note: reporting frequencies in source use D = Daily, W = Weekly, M = Monthly, Q = Quarterly, BA = Bi-annual, A = Annual; TX = X days after the date of the last observation.) ### Debt sustainability assessment (key findings and metrics) - Risk of external debt distress: High - Overall risk of debt distress: High - Granularity in the risk rating: Sustainable - Application of judgment: No - Summary findings: - Zambia’s public debt is assessed as sustainable but remains at high risk of overall and external debt distress. - Analysis incorporates post-restructuring macro-framework, treatment of official bilateral claims agreed with the Official Creditor Committee (OCC), completed Eurobond exchange, agreements in principle with some external commercial creditors, and assumed treatment of residual claims of other external commercial creditors. - Key numeric indicators and projections: - The present value of external debt-to-exports ratio is expected to decline below the 84 percent threshold by 2027. - The debt service-to-revenue ratio (DSRR) is projected to breach the 14 percent threshold in 2025 at 14.7 percent (excluding the fuel arrears clearance liability management operation and past due interest on restructured debt). - The 2026-31 average DSRR is projected at 13.8 percent, slightly above the 13.4 percent in the previous DSA. - ZESCO and contingent liabilities: - The DSA includes non-guaranteed external debt of ZESCO and its domestic and external arrears given fiscal importance. - Outstanding payables to domestic independent power producers (IPPs): US$256 million at end-2024. - Outstanding payables to external IPPs: US$81 million at end-2024. - Non-resident holdings of domestic-currency debt: - End-December 2024 stock held by non-residents: K 57.6 billion (US$2.09 billion or 25.1 percent of the outstanding domestic-currency government securities). - End-2023 comparable stock: K 56.4 billion. - Policy: authorities are restricting participation of non-residents in the primary market; in 2024-25 a limit of 5 percent of the face value of gross domestic bonds issuance in the primary market will be applied in line with restructuring perimeter agreement with the OCC (June 2023). - DSA preparation and approval: - The Debt Sustainability Analysis was prepared jointly by IMF and IDA staff in consultation with the authorities. - Approved by Costas Christou and Martin Cihak (IMF) and Manuela Francisco and Hassan Zaman (IDA). - Date on DSA document: July 2, 2025. *Source: Zambia staff report excerpts and informational annex.* ### 4. Zambia sought debt treatment under the G20 Common Framework following its 2020 ### 4. Zambia sought debt treatment under the G20 Common Framework following its 2020 ### Debt restructuring process and status - Zambia defaulted on its sovereign Eurobonds in 2020 and accumulated arrears to official bilateral and other commercial external creditors; authorities requested debt treatment under the G20 Common Framework (CF) in January 2021. - Official Creditor Committee (OCC) under the CF formed in June 2022 and reached agreement on a memorandum of understanding (MoU) on terms of the debt restructuring in October 2023; the MoU was signed by all OCC members. - As of May 2025, three bilateral debt restructuring agreements under the OCC deal have been signed: France, India, and Saudi Arabia. - Debt service under the OCC agreement did not commence in 2023 as envisaged, pending signature of bilateral agreements between Zambia and each OCC member; signatures began in late 2024 and are expected to be completed in 2025, with debt service—including past dues—expected to begin in 2025. - Eurobond exchange completed on June 11, 2024, aligning with program parameters and Comparability of Treatment (CoT) requirements. - Agreements in principle (AIPs) reached with four major external commercial creditors: Bank of China, Industrial and Commercial Bank of China, China Development Bank, and Polytech; additional AIPs reached with other commercial creditors. - Agreed deals cover about 94 percent of the external debt in the restructuring perimeter compared to about 90 percent in the previous DSA; these agreements are considered sufficiently credible to be included in the baseline. - Outstanding debt to residual external commercial creditors: US$0.74 billion, 6 percent of the public debt under restructuring. ### Creditor classification, arrears, and policy implications - Some official creditors requested classification of claims backed by official export-credit agencies as commercial claims; China requested classification of all Sinosure-backed claims as private; these claims are included as commercial creditors’ claims and related arrears are treated as arrears to the private sector for Fund policy application. - Under the DSSI, China requested to classify its national development bank, the China Development Bank, as a commercial creditor—consistent with CF classification requests. - In the baseline, official creditors’ treatment includes a fully quantified two-stage approach with a state-contingent treatment linked to Zambia’s debt carrying capacity (DCC); state-contingent clause to be evaluated at end-2025. - Base case (Zambia assessed as having a weak DCC): official creditors will significantly lengthen maturities and reduce interest costs consistent with ECF parameters. - Upside treatment (if upgraded to medium DCC): acceleration of principal payments and higher interest payments; anchored in LIC-DSF thresholds (PV of external debt-to-exports at 108 percent by 2027 and external debt service-to-revenue at or below 18 percent over 2026-31). ### Public external debt stock and recent movements - External public and publicly guaranteed (PPG) debt on contractual basis rose to US$21.4 billion by end-2024. - Debt stock reflects the haircut from the completed Eurobond exchange and a principal payment of about US$336.3 million on the restructured bond. - Drivers of the increase in contractual debt stock: - About US$1.35 billion in new foreign-currency denominated disbursements to the central government—mainly from the IMF and World Bank. - Buildup of about US$1.05 billion in interest arrears on central government foreign-currency denominated debt. - External PPG debt ended the year about US$118 million higher. - Nonresident holdings of domestic-currency debt declined in dollar terms to US$2.1 billion by end-2024 partly due to primary market purchase limits and exchange rate depreciation. - Zambia remains without access to international capital markets. - Weighted average spreads on Eurobonds: peaked at 6,954 basis points on March 20, 2023; narrowed to 534 basis points by June 3, 2025. ### Domestic debt market, stock, and yields - Outstanding domestically issued government securities: - K229.4 billion at end-2024 (33.6 percent of GDP) compared to K232 billion at end-2023 (42 percent of GDP). - Nonresident (NR) holdings of domestic securities: - Increased in nominal terms by 2.3 percent from K 56.4 billion (10.1 percent of GDP) at end-December 2023 to K 57.6 billion (8.4 percent of GDP) at end-December 2024. - By end-April 2025, NR holdings rose to K 59.2 billion in nominal terms and declined as a share of GDP to 7.3 percent. - Yields divergence in 2024: - 91-days T-bill yield increased by 200 bps in 2024. - Yields on longer-term bonds declined by 150 bps to 341 bps in 2024; decline continued through February 2025. - Monetary policy actions: Bank of Zambia raised policy rate by a cumulative total of 300 basis points in 2024; Statutory Reserve Requirement (SRR) increased by 900 basis points in February 2024. ### Macroeconomic framework and projections underpinning the DSA - The macroeconomic framework aligns with the baseline of the combined Fifth Review of the ECF program and the 2025 Article IV consultations. - Key changes from previous DSA: upward revision in real GDP growth, stronger fiscal adjustment, deteriorated external sector over the medium term, and a more depreciated exchange rate. - Growth: - Real GDP growth in 2024 revised upward to 4 percent from 1.2 percent during the Fourth Review. - Copper production expected to ramp up in 2026-28; growth expected to average around 5.2 percent over 2025-34. - Inflation: - In 2025, inflation expected to average 14.2 percent, with end-year inflation projected at 11.1 percent. - Inflation is now expected to fall within the BoZ’s target band by end-2026. - External: - Current account deficit in 2024 estimated at 2.4 percent of GDP compared to a surplus of 0.7 percent of GDP projected in the Fourth Review. - Non-interest current account surplus projected to average 4.7 percent of GDP over the medium term (lower than in previous DSA). - Fiscal: - End-December 2024 primary balance (cash basis) reached 2.9 percent of GDP (K20.2 billion), exceeding adjusted program target of 1.2 percent of GDP. - Primary balance (commitment basis) improved to 4.3 percent of GDP in 2024 from 1.5 percent in 2023. - Fiscal consolidation expected to continue in 2025 with a primary surplus target of 1.1 percent of GDP (2.4 percent of GDP—excluding the fuel arrear operation). - Revenue excluding grants (adjusted for VAT backlog) projected to rise to 21.9 percent of GDP in 2025, up from 19.6 percent in 2019; elimination of fuel tax exemptions (1.2 percent of GDP) among measures. - Target cumulative improved primary balance (commitment basis) of 9.3 percent of GDP over the program period. ### Financing assumptions and composition - External financing over 2022-25 comprises: - US$1.6 billion on contracted but undisbursed priority project loans. - About US$2.3 billion of new financing from the World Bank (including grants). - US$1.7bn financing from the IMF. - US$393 million from the African Development Bank. - World Bank assumed to disburse US$1.135 billion over 2025–26 (in line with previous DSA). - Under the program, Zambia will not undertake non-concessional borrowing unless an exception is granted per IMF or World Bank policy; nevertheless, two non-concessional loans were contracted in 2024: - US$50 million BADEA loan in October (27 percent grant element). - US$7.9 million loan in November 2024 from the International Fund for Agricultural Development (25.2 percent grant element). - Domestic financing: - In 2024H1, T-bill subscription rates dropped to 57 percent from over 100 percent in 2023; bond subscription rates rose to 91 percent from 88 percent in 2023. - Net domestic financing declined to 0.7 percent of GDP in 2024 compared to 1.6 percent of GDP in 2023. - In 2025, authorities aim to raise K19.4 billion in net domestic financing. - Medium-term average real interest rates projected around 1.9 percent for T-bills and 6.3 percent for bonds. - Net issuance of domestic debt (excluding short-term debt) anticipated to be slightly negative in coming years. - Domestic debt-to-GDP ratio projected to converge with the median LIC level only by 2031. ### State-contingent clauses and triggers across creditor groups - OCC (official creditors): state-contingent clause linked to Zambia’s DCC; assessed end-2025; upside treatment if upgraded to medium DCC. - Eurobond: state-contingent clause with a dual trigger linked to Zambia’s DCC and/or the 3-year moving average of exports and fiscal revenues in U.S. dollars; state-contingent clause assessed January 2026 to December 2028; one note includes a state-contingent clause that, if triggered, accelerates payments and increases coupon rates. - Commercial creditors: state-contingent clause triggered by Zambia’s DCC; clause to be assessed on June 30, 2026; base case features maturity extension and lower interest costs if DCC remains weak; upside treatment for medium DCC involves accelerated principal and higher interest. - Residual arrears with residual external commercial creditors can be considered as treated on comparable terms and deemed away for the DSA in line with LIC DSF Guidance Note, conditional on good faith efforts and alignment with program parameters and CoT principle. *Source: IMF staff report chapter excerpt (text provided).* ### 19. Similar to the previous DSA update, the baseline includes the authorities’ strategy for clearing ### Zambia: Debt Sustainability Analysis — Selected Findings (DSA update) ### Arrears resolution and liability management operation - Baseline includes authorities’ strategy for clearing arrears, particularly fuel arrears to external suppliers. - Fuel arrears totaled US$897 million at end-2023, with only 48 percent as principal and the rest as accrued interest and penalties. - Authorities announced a liability management operation (LMO) to achieve net present value savings on these arrears. - The LMO was to be financed through a dollar-denominated loan from domestic banks, using their foreign-held assets. - Financing progress and timeline: - Originally envisaged US$450–500 million; only US$26 million secured to date. - Initial finalization expected in 2024; constrained financing delayed progress. - Discussions with domestic banks advanced; operation now expected to be completed in 2025. - Completion is expected to improve the medium-term debt service profile by generating significant NPV savings. ### Program conditionality and borrowing framework - Debt conditionality under the IMF program and the IDA Sustainable Development Finance Policy: - Stipulates a zero ceiling on new non-concessional external borrowing by the central government during the program period. - The program sets a ceiling on the PV of new concessional external borrowing as well. - Indicative Target (IT) on the present value of new external borrowing is set in line with the expected borrowing plan for 2024-25. - In 2025, no other new external borrowing is expected, except financing from the IMF, World Bank, AfDB, and issuances on the domestic market. - Text Table 3 (summary): Volume and PV of new debt in 2023-25 presented as USD million and Percent (details in source). ### Key downside and upside risks - Downside risks: - A slowdown in major economies (trade or investment shocks or rising geopolitical tensions) could depress copper prices and worsen external and fiscal balances. - Recent U.S. tariffs could further weigh on commodity prices, including copper. - Rainfall variability and climate risks: hotter and drier models suggest likely decrease in precipitation and worsening annual variability (climate link cited). - Materialization of these risks would increase debt vulnerabilities despite the authorities’ reform agenda. - Upside risks: - Faster global and domestic growth, speedy resolution of remaining debt restructuring aspects, stronger reform momentum, higher copper prices, and realization of announced mineral development investments. ### Country classification and composite indicator (CI) - Zambia’s debt-carrying capacity under the Composite Indicator (CI) rating is assessed as weak, unchanged from the previous DSA. - CI score: 2.58 (as of April 2025), below the 2.69 threshold for medium debt-carrying capacity. - Accordingly, thresholds applicable to countries with weak debt-carrying capacity are used. ### External debt indicators and breaches - Three external debt indicators breach their respective thresholds under the baseline, signaling a high risk of external debt distress. - External debt service relative to revenues breaches its threshold in 2025 and 2026, and again in 2031. - The 2025 breach is driven primarily by exchange rate depreciation which reduces revenues in U.S. dollar terms by about $316 million, although revenue in kwacha is projected to be about 4.9 percent higher than in the previous DSA. - Higher-than-projected debt service to NRs, projected past due interest (PDI) payment on the restructured debt, and the delayed fuel arrears LMO also contribute to the breach. - The breach remains after excluding the fuel arrears LMO (US$ 391 or 6 percent of revenue) and PDI (3 percent of revenue), with the ratio projected at 14.7 percent in 2025. - The 2026-31 average is projected at 13.8 percent compared to 13.4 percent in the previous DSA. - PV of PPG external debt-to-GDP remains above its 30 percent threshold through 2030 (measurement challenged by ongoing GDP rebasing). - PV of external debt-to-exports projected to fall below the 84 percent “substantial space to absorb shocks” threshold by 2027. - External debt service-to-exports ratio expected to remain well below its threshold throughout the forecast horizon, averaging 6.8 percent over 2025–31. ### Stress tests and most extreme shocks - Under standardized stress tests, thresholds for all four external debt indicators are breached by large margins. - The standardized exports shock is the most extreme for all external debt indicators. - Under this shock, the PV of PPG external debt-to-exports ratio peaks at 262 percent in 2026 and remains well above the threshold throughout the long term. - Market financing tool does not signal debt vulnerabilities, but relevance is limited because Zambia currently has no access to international capital markets. ### Public debt outlook - The PV of total PPG debt-to-GDP ratio remains above its benchmark through the medium and long term. - Ratio is on a declining trajectory but remains elevated—averaging over 55 percent over 2025-34—before falling below the 35-percent threshold in 2036. - Elevated domestic debt vulnerabilities contribute to breaches of the total PPG debt-to-GDP ratio. - The most extreme shock scenario for the PV of total PPG debt-to-GDP is the exports shock; the growth shock would impact the total debt service-to-revenue indicator the most. ### Risk rating, medium-term assessment, and policy measures - Public debt is assessed as sustainable but remains at high risk of overall and external debt distress due to remaining breaches of overall and some external debt indicator thresholds. - Projections suggest improvement toward targets identified in Zambia’s 2022 ECF Request consistent with moderate risk of external debt distress in the medium term. - Authorities’ measures and commitments to restore debt sustainability include: - Maintaining a primary surplus over the medium term, including through additional revenue mobilization. - Indexing excise taxes to inflation and refraining from introducing new tax expenditures. - Streamlining tax exemptions and adjusting excise and import duties to enhance revenues. - Strengthening tax policies and tax administration through technological advancements to bolster domestic revenue mobilization. - Initiatives to reduce informality to broaden the tax base. - Advancing debt management and transparency initiatives: publishing a quarterly debt bulletin and a medium-term debt management strategy for 2024–26, updating annual borrowing plans, and establishing a Debt Management Office expected to be fully operational in 2025. - Alternative upside scenario (if CI upgraded to medium and upside treatment activated): - With baseline macro unchanged but upside treatment activated, PV of external debt-to-exports falls below the 108 percent threshold by 2027. - External debt service-to-revenue ratio stabilizes at an average of about 17.4 percent over 2026-31, below the 18 percent threshold. - External debt service-to-exports ratio averages 8.2 percent over 2026-31. - Temporary breaches beyond 2031 are judged distant and potentially mitigated by likely improved economic conditions under an upgrade. ### Overall risks and policy implications - Risks to the debt outlook are significant and hinge on the authorities’ sustained commitment to macroeconomic stabilization and reform implementation. - Key vulnerabilities include potential delays or slippages in fiscal adjustment, adverse weather and external shocks, and continued exchange rate depreciation which would increase the debt service burden. - Mitigating actions in progress include the Public Debt Management Act (approved August 2022), establishment of the Debt Management Office, improved debt reporting and transparency, and broader public financial management reforms (including cash management and PPP fiscal risk management). *Source: IMF staff projections and analysis (selected excerpts from the DSA update).* ### 34. The authorities agreed with staff’s debt sustainability assessment and reaffirmed their strong ### The authorities agreed with staff’s debt sustainability assessment and reaffirmed their strong commitment to restoring sustainability ### Authorities' commitments and policy actions - Agreed with staff’s debt sustainability assessment and reaffirmed their strong commitment to restoring sustainability. - Committed to implementing a combination of fiscal and structural reforms, alongside the completion of external debt restructuring consistent with the DSA and IMF program objectives. - Recognized the need for credible and sustained policy efforts to reduce vulnerabilities and support durable growth. - Noted considerable progress in concluding agreements with both official and commercial creditors and reiterated determination to finalize the remaining deals in line with IMF program parameters and the CoT principle. - To reinforce fiscal consolidation and underpin debt sustainability, revised the 2025 budget to include new revenue measures aimed at broadening the tax base and mobilizing additional resources. ### Recent macroeconomic developments and fiscal adjustments - Economic growth: The economy grew by 4.5 percent in the first quarter of 2025. - Sectoral performance: Mining output increased by 17.5 percent y/y during January-May 2025. - Inflation: Declined to 14.1 percent y/y in June 2025. - Revenue performance: Revenue collection data for January-May 2025 show an overall strong performance in line with the budget, despite an increased pace of clearing VAT refund arrears partly through netting off against current tax obligations. - 2025 amended budget: Adopted on July 17, 2025 in line with program parameters; envisages a total of 0.5 percent of GDP in revenue measures and spending reprioritization to offset fiscal pressures from higher interest payments on restructured debt, sustained support for social cash transfers, stop-gap health spending following the suspension of USAID funding, and advancing expenditures related to the electoral process. ### Institutional and program indicators - CPIA: The 2025 Country Policy and Institutional Assessment (CPIA) score improved from 3.24 to 3.28, primarily driven by improvements within the economic management cluster. - Prior action: Adoption of the amended 2025 budget was a prior action for completion of the Fifth Review. ### Key numerical indicators highlighted in the DSA and staff update - Growth in Q1 2025: 4.5 percent. - Mining output change (Jan–May 2025): 17.5 percent y/y. - Inflation (June 2025): 14.1 percent y/y. - 2025 amended budget revenue measures: 0.5 percent of GDP. - CPIA score change: from 3.24 to 3.28. *Source: Staff Report for the 2025 Article IV Consultation and Fifth Review under the Extended Credit Facility Arrangement — Supplementary Information.* ### 4. The updated CPIA has a minimal impact on the composite indicator (CI) used in the ### The updated CPIA has a minimal impact on the composite indicator (CI) used in the debt-carrying capacity assessment ### CPIA update and CI recalculation - The CPIA feeds into the CI used in the DSA; staff recalculated the CI score using the new data. - The improved CPIA raised the CI marginally from 2.58 (as reported in the Staff Report) to 2.59. - The recalculated CI of 2.59 remains below the 2.69 threshold for medium debt-carrying capacity. - This marginal change does not alter the DSA assessment. ### Statement by Mr. Ubisse and Ms. Motsumi — Introduction - Authorities thanked Fund management and staff for engagement during the Fifth Review under the ECF arrangement and the 2025 Article IV consultation. - Growth averaged above 4 percent in the past two years, significantly exceeding the 2024 projection. - Authorities noted improved inflation dynamics, external resilience, increased inflows, improved investor sentiment, and a stronger reserves position. - Progress on debt restructuring: agreement in principle reached with approximately 94 percent of creditors within the restructuring perimeter, up from 90 percent previously reported. - Authorities considering options as the ECF program comes to an end on October 31, 2025. ### Program performance - All end-December 2024 quantitative performance criteria (QPCs) and indicative targets (ITs) were observed. - Three end-March 2025 ITs related to non-mining revenue, arrears clearance, and net international reserves (NIR) were not observed. - Of fourteen structural benchmarks assessed: six observed on time, four implemented with delays, and four remain outstanding. - On July 17, the authorities adopted the amended 2025 budget as a prior action for the Fifth Review. ### Recent economic developments and outlook - Real GDP growth: projected to accelerate to 4.0 percent in 2024 (up from the 1.2 percent growth projected at the fourth review). - Growth expected to average 5.8 percent in 2025 and 5.5 percent over the medium term. - Inflation: 16.7 percent in December 2024; peaked at 16.8 percent in February 2025; declined to 14.1 percent in June 2025. - Inflation projection at time of Service Level Agreement consultations: expected to average 13.8 percent in 2025 and 8.8 percent in 2026; now expected to decline much faster than was projected. - Current account deficit: narrowed from 3.0 percent of GDP in 2023 to 2.6 percent in 2024; expected to record a surplus of 1.3 percent in 2025. - Gross international reserves (months of import cover): rose from 3.3 months at end-December 2023 to 4.3 months at end-December 2024; expected to rise to 4.6 months in 2025. ### Fiscal policy and debt management - Primary balance surplus exceeded the program target as of end-2024 for the second consecutive period. - Primary surplus projected at 1.1 percent of GDP in 2025, below the 1.9 percent anticipated in December 2024. - Budgetary adjustments reflect clearance of fuel arrears, higher interest and health spending, and an increase in social cash transfers. - Tax measures approved: halving duty relief on imported manufacturing inputs; doubling the surcharge on imports of domestically produced goods; increasing excise duties on alcohol, sugar, and sugary drinks; revoking tax exemptions on wheat; raising withholding tax on interest payments of government securities from 15 to 20 percent. - Compliance and efficiency measures: full rollout of the Smart Invoice System; operationalization of a risk-based audit unit at the Zambia Revenue Authority (ZRA). - Mandate effective July 31, 2025: all vendors to public institutions in Zambia must provide a valid taxpayer identification number (TPIN). - Public debt at end-2024: total public and publicly guaranteed external debt at US$21.4 billion. - Debt management objective: maintain debt service to revenue ratio at an average of 14 percent over the medium term. - Debt Management Office (DMO) became operational in December 2024. ### Monetary and exchange rate policies - BoZ aims to anchor inflation expectations toward the 6–8 percent target band by 2026. - Policy rate changes: cumulative 300 basis points increase in 2024 and a further 50 basis points in February 2025, bringing the rate to 14.5 percent; rate maintained in May 2025. - BoZ enhancements: updates to forecasting model and policy analysis; use of ISDA and GMRA agreements; revisions to FX market practices. - Preparations underway to eliminate multiple currency practices by October 2025. ### Financial sector policies - Financial stability risks declined since October 2024; banking sector remains broadly stable with capital adequacy above regulatory requirements and lower NPL ratios. - Macroprudential enhancements: countercyclical and conservation buffers in final stages; LCR guidelines to be issued by end-2025 and phased in over a five-year period; NSFR regulations scheduled for implementation by June 2026. - Cyber resilience supervision: four on-site inspections conducted in 2024. - BoZ launched the Stability and Resilience Facility (SRF) in December 2024 to support sectors affected by drought and energy shortages. - Small Business Growth Initiative (SBGI) to be launched later in the year to support risk sharing and access to affordable credit. - Several structural benchmarks (Banking and Financial Services Act amendments, deposit insurance regulations, resolution and supervision framework) rescheduled to end-September 2025. ### Structural reforms and governance - Agriculture reforms: reduce market distortions, promote market-based pricing, expand access to agricultural finance, and strengthen governance. - Mining sector: Minerals Regulation Commission established in December 2024; Geological and Minerals Development Bill submitted to Parliament. - Energy sector transparency: revised TAZAMA tender procedures published December 2024; open access regime for imported fuel adopted; fuel delivery contracts publicly disclosed as of April 2025. - On June 26, 2025, authorities received a dividend from TAZAMA. - Electricity sector: open access framework introduced; solar project approval timelines reduced from six months to two days. - Governance and anti-corruption: Statutory Instrument associated with the 2016 Public Audit Act and the State Audit Commission Act issued in May 2025; Cabinet approved the Superior Court Bill on July 2, 2025. - Beneficial ownership register under PACRA aimed to be operationalized by end of September 2025. ### Conclusion - Authorities reaffirm full ownership and commitment to the ECF-supported program. - Focus areas: safeguarding macroeconomic stability, restoring debt sustainability, and fostering inclusive and private sector-led growth. - Continued engagement with the Fund and development partners viewed as vital to secure lasting stability, stronger institutions, and better living standards for all Zambians. *Source: Statement by Mr. Ubisse and Ms. Motsumi on Zambia, July 25, 2025 (excerpt).* --- _Source: https://www.imf.org/-/media/files/publications/cr/2025/english/1zmbea2025001-source-pdf.pdf_