Press Release: IMF Approves ESAF Loan for Zambia
IMF News, March 26, 1999
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- Published: March 26, 1999
IMF approval and financial terms
- The IMF approved a three-year arrangement for Zambia under the Enhanced Structural Adjustment Facility (ESAF) equivalent to SDR 254.45 million (about US$349 million) to support the government’s 1999/2001 economic and financial program.
- The first annual loan of SDR 40 million (about $55 million) is available in 4 equal installments, the first of which will be available on March 31, 1999.
- Footnote on ESAF terms: ESAF loans carry an interest rate of 0.5 percent a year and are repayable over 10 years with a 5 ½ year grace period.
Background: 1998 shocks and macro developments
- 1998 setbacks:
- Real GDP contraction of an estimated 2 percent in 1998 (compared with growth of 3.5 percent in 1997).
- Pronounced fall in copper prices and sharp decline in copper production.
- Agriculture adversely affected by El Niño.
- Unexpected delays in the privatization of the Zambia Consolidated Copper Mines (ZCCM).
- Fiscal and external outcomes in 1998:
- Domestic revenue was more than 4 percent below budget estimates.
- Expenditure overruns in wages, public service retrenchment, and settlement of domestic arrears.
- A 35 percent decline in metal exports contributed to a significant weakening of the external position.
- The kwacha depreciated by 39 percent.
- International reserves fell by US$170 million to US$44 million at the end of 1998, or less than two weeks of import cover.
The 1999 program: objectives and fiscal stance
- Macroeconomic objectives for 1999:
- Achieve real GDP growth of 4 percent.
- Reduce inflation to 15 percent.
- Strengthen gross reserves to the equivalent of 1 ½ months of imports.
- Fiscal program targets and measures:
- Reduce the overall budget deficit to 3 percent of GDP.
- Increase revenue yield by 0.5 of 1 percentage point of GDP in 1999.
- Firm control over the public wage bill.
- Increase public investment and reorient outlays in favor of health and education.
- Total revenue and grants programmed to increase to 28 percent of GDP.
- Total expenditures (excluding the contingency reserve) budgeted to increase to 29 percent of GDP.
- Priority on strengthening budget implementation, including improved control and analysis of spending commitments, cash outlays, and domestic arrears.
Monetary policy and inflation
- Monetary program targets:
- Reserve money growth programmed to slow to 18 percent (from 36 percent in 1998).
- Broad money growth projected at 20 percent.
- Policy rationale:
- The kwacha’s depreciation improved external competitiveness (as measured by the real effective exchange rate) but had inflationary effects; a rapid deceleration in inflation is needed to preserve competitiveness gains.
Structural reforms
- Privatization and state-owned enterprises:
- Accelerate completion of ZCCM privatization.
- Further divestiture of large state-owned enterprises in the nonmining sector.
- Transport sector reforms:
- Management contract entered with Zambia Railways.
- In 1999, tendering of concessions for the railway system and management rights for the National Airports Corporation operations.
- Public service reform:
- Comprehensive public service reform in 1999 including a reduction in the public service workforce of 7,000 employees through retrenchment, natural attrition, and hiving off public institutions.
- Monitoring of the World Bank-supported retrenchment plan requires reliable payroll data and effective controls on the establishment register.
- Continued reorganization of ministries.
- Banking and supervision:
- Strengthening of monetary and banking supervision is part of the program.
Social issues and poverty mitigation
- Poverty indicators:
- World Bank estimates: in 1996 about 70 percent of Zambians were living in poverty, with 58 percent of the population lacking basic nutrition.
- Safety net and social spending:
- The Public Welfare Assistance Scheme (PWAS) is the main vehicle for assisting the poorest but has limited coverage and effectiveness.
- The World Bank is supporting reforms to make PWAS more community-based.
- Government intends to reorient public expenditure toward the social sectors, primarily health and education.
The challenge ahead
- 1998 economic setbacks significantly weakened the economy and eroded prior adjustment gains.
- The 1999 program aims to restore macroeconomic stability and promote sustainable growth by:
- Reducing inflation.
- Strengthening the external position.
- Emphasizing private sector development.
- Steadfast implementation of the 1999 program is expected to restore private sector confidence and lay the basis for sustained medium-term growth.
Zambia’s IMF membership and quota
- Zambia joined the IMF on September 23, 1965.
- Its quota is SDR 489.1 million (about US$670) and its outstanding use of IMF resources currently totals SDR 843 (about US$1.2 billion).
- Note on quota: A member’s quota in the IMF determines, in particular, the amount of its subscription, its voting weight, its access to IMF financing, and its share in the allocation of SDRs.
Selected economic and financial indicators, 1996-2001 (highlights and exact figures)
- National income and prices
- Real GDP: 1996: 6.6; 1997: 3.3; 1998: -2.0; 1999 (Program): 4.0; 2000: 4.5; 2001: 5.5
- GDP deflator: 1996: 23.4; 1997: 26.8; 1998: 23.1; 1999: 20.8; 2000: 11.3; 2001: 5.4
- Consumer prices (annual average): 1996: 43.1; 1997: 24.4; 1998: 24.5; 1999: 21.6; 2000: 11.6; 2001: 5.3
- Consumer prices (end of period): 1996: 35.2; 1997: 18.6; 1998: 30.6; 1999: 15.0; 2000: 8.0
- Nominal GDP (in billions of kwacha): 1996: 3,945; 1997: 5,169; 1998: 6,241; 1999: 7,839; 2000: 9,118; 2001: 10,135
- Copper production (in thousands of metric tons): 1996: 314; 1997: 291; 1998: 300; 1999: 330; 2000: 347
- External sector
- U.S. dollar value of exports of goods and services (annual percent change): 1996: -13.1; 1997: 17.2; 1998: -24.6; 1999: 8.3; 2000: 15.1; 2001: 14.6
- Of which: copper (annual percent change): 1996: -33.3; 1997: 14.4; 1998: -33.6; 1999: 4.9; 2000: 13.2; 2001: 18.5
- U.S. dollar value of imports of goods and services (annual percent change): 1996: -11.2; 1997: 15.5; 1998: -15.5; 1999: 13.8; 2000: 8.7; 2001: 7.6
- Export volume: 1996: 9.4; 1997: 7.0; 1998: -12.4; 1999: 11.8
- Import volume: 1996: -10.9; 1997: 25.3; 1998: -10.2; 1999: 7.2; 2000: 6.5
- Copper export volume: 1996: -4.1; 1997: -8.0; 1998: -13.9; 1999: 15.7; 2000: 10.0; 2001: 5.0
- Copper exports (in thousands of metric tons): 1996: 327; 1997: 301; 1998: 259
- Copper export prices (average, US$ per metric ton): 1996: 1,734; 1997: 2,156; 1998: 1,661; 1999: 1,507; 2000: 1,550; 2001: 1,750
- Nominal effective exchange rate (percent change): 1996: -26.4; 1997: -1.7; 1998: -24.1
- Real effective exchange rate (percent change): 1996: 3.8; 1997: 19.8; 1998: -8.7
- Average official exchange rate (kwacha per U.S. dollar): 1996: 1,208; 1997: 1,315; 1998: 1,862
- Terms of trade (percent change): 1996: -22.8; 1997: -10.3; 1998: -5.1; 1999: 0.8; 2000: 6.0
- Money and credit (percent changes and levels)
- Net foreign assets (percent change): 1996: -23.6; 1997: -100.3; 1998: 11.1; 1999: 9.2; 2000: 10.6
- Net domestic assets (percent change): 1996: 27.4; 1997: 4.4; 1998: 65.8; 1999: -0.8; 2000: -0.4; 2001: -1.4
- Net domestic credit (percent change): 1996: 36.3; 1997: 6.9; 1998: 91.0; 1999: -2.4; 2000: -1.2; 2001: -4.4
- Net claims on government (percent change): 1996: 22.7; 1997: 8.4; 1998: 355.4; 1999: -19.6; 2000: -22.3; 2001: -33.7
- Claims on nongovernment (percent change): 1996: 40.4; 1997: 20.2; 1998: 13.7; 1999: 9.8
- Broad money (percent change): 1996: 34.4; 1997: 24.0; 1998: 22.6; 1999: 20.3; 2000: 12.9; 2001: 9.7
- Velocity1: 1996: 6.3; 1997: 6.4
- Official bank rate (in percent; end of period): 1996: 69.5; 1997: 23.5; 1998: 43.6
- Treasury bill rate (in percent; end of period): 1996: 57.7; 1997: 34.0
- Central government budget (percent changes)
- Revenue (excluding grants) (percent change): 1996: 37.0; 1997: 25.2; 1998: 29.1; 1999: 19.0; 2000: 14.5; 2001: (blank)
- Grants (percent change): 1996: -12.0; 1997: 52.8; 1998: 80.3; 1999: -42.1; 2000: 10.7; 2001: (blank)
- Expenditure and net lending (percent change): 1996: 9.6; 1997: 33.4; 1998: 39.3
- Current expenditure (percent change): 1996: 3.2; 1997: 23.0; 1998: 15.6; 1999: 20.4; 2000: 10.5
- Capital expenditure (percent change): 1996: 28.1; 1997: 13.0; 1998: 74.7; 1999: 22.8; 2000: 15.8
- (In percent of GDP)
- Gross national savings2: 1996: 11.0; 1997: 7.5
- Gross domestic investment: 1996: 14.8; 1997: 13.6; 1998: 17.6; 1999: 20.0
- Of which: public investment: 1996: 7.7; 1997: 8.5; 1998: 7.4; 1999: 7.9
- Revenue and grants (percent of GDP): 1996: 24.8; 1997: 27.8; 1998: 23.6; 1999: 24.2; 2000: 6.1; 2001: 9.1; (additional figure) 4.6
- Expenditures (excluding interest)3: 1996: 20.9; 1997: 28.4; 1998: 23.9; 1999: 24.6
- Interest due4: 1996: 4.8; 1997: 4.1; 1998: 2.3; 1999: 2.6
- Overall balance, cash basis: 1996: -2.6; 1997: -1.9; 1998: -4.3; 1999: -3.2; 2000: -1.3
- Overall balance, cash basis, excluding grants: 1996: -7.0; 1997: -10.7; 1998: -12.3; 1999: -7.5; 2000: -7.3
- Current account balance5 (percent of exports of goods and services): 1996: -3.7; 1997: -6.2; 1998: -8.8; 1999: -8.3
- External debt and reserves
- External debt service before rescheduling6: 1996: 40.7; 1997: 28.8; 1998: 33.2; 1999: 36.7; 2000: 49.0
- Net present value of total debt6: 1996: 430.4; 1997: 374.6; 1998: 509.7; 1999: 467.3; 2000: 431.3; 2001: 390.7
- External program assistance: 1996: 12.7; 1997: 0.0; 1998: …
- Selected dollar figures (in millions of U.S. dollars)
- Current account balance: 1996: -122; 1997: -239; 1998: -269; 1999: -281; 2000: -362; 2001: -302
- Overall balance of payments: 1996: -105; 1997: -127; 1998: -249; 1999: -111; 2000: -294; 2001: -209
- Gross official reserves (end of period): 1996: 186; 1997: 213; 1998: 44; 1999: 165; 2000: 306; 2001: 403
- In months of imports of goods and services: 1996: 1.7; 1997: 0.4; 1998: 1.4; 1999: 2.8
Sources: Zambian authorities; and IMF staff estimates and projections.