IMF Staff Concludes Visit to Zambia

IMF News, June 11, 2017

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IMF staff team led by Tsidi Tsikata visited Zambia during May 31-June 10 to continue discussions on the 2017 Article IV consultation and the authorities’ request for an IMF-supported program.
The mission aimed to reach staff-level agreement on a program that could be supported under the IMF’s Extended Credit Facility (ECF) and to form the basis for presenting the authorities’ request and the 2017 Article IV consultation report to the IMF Executive Board in August 2017.
The views expressed are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.

Real GDP growth projected to improve slightly from the revised official rate of 3.4 percent in 2016 to about 4 percent in 2017.
Annual inflation rate was 6.5 percent in May; IMF staff project inflation to remain at single-digit levels, notwithstanding the impact of the move toward cost-reflective electricity tariffs.
Near-term outlook improved due to:
- Good rains and a bumper harvest.
- Increased hydroelectricity generation.
- Positive sentiments in financial markets, evidenced by increased foreign investor participation in the government securities market.

Remaining actions to reach staff-level agreement entail measures to improve fiscal performance and concrete steps toward implementation of key policies contained in the 2017 budget.
Fiscal performance in the first four months of 2017 was mixed relative to budget estimates:
- Total domestic revenue (tax and nontax) fell short of the projected level.
- Total expenditures appeared to be broadly in line with the budget.
- While the government has cleared substantial arrears, it appears that new arrears may be emerging.
Government steps and reform measures noted:
- Strengthen commitment control by expanding the coverage of the Integrated Financial Management Information System (IFMIS) to all central government agencies.
- Reduced spending on the Farmer Input Support Program through improved targeting of beneficiaries and limiting maize purchases to the level in the budget.
- Heightened attention to strengthen the legal framework for managing public resources, including the introduction of the Planning and Budgeting Bill, and amendments to the Public Finance and Public Procurement Acts.
- Urged the authorities to continue strengthening public debt management capacity to underpin efforts to put public debt on a sustainable path.
IMF staff warned that weaknesses in the management of public finances and public investment pose significant risks to the 2017 budget objectives of “restoring fiscal fitness for sustained inclusive growth and development” and scaling up social spending.

IMF staff welcomed recent further easing of monetary conditions by the Bank of Zambia (BoZ) against the backdrop of contraction of credit to the private sector and a benign inflation outlook.
Concerns and supervisory actions:
- Growing nonperforming loans in banks and non-banks.
- BoZ efforts to strengthen supervision of the financial system, including with technical assistance from the IMF.

Complete remaining fiscal measures and improve implementation of key 2017 budget policies to reach staff-level agreement on an ECF-supported program.
Strengthen commitment control and expand IFMIS coverage to all central government agencies.
Improve targeting and limit scale of the Farmer Input Support Program and limit maize purchases to the budgeted level.
Strengthen legal framework for managing public resources (Planning and Budgeting Bill; amendments to Public Finance and Public Procurement Acts).
Continue strengthening public debt management capacity.
Reinforce BoZ supervision of the financial system, with continued technical assistance to address rising nonperforming loans.

IMF staff team met with President Edgar Lungu; Minister of Finance Felix Mutati; BoZ Governor Denny Kalyalya; Minister of Agriculture Dora Siliya; Minister of Development Planning Lucky Mulusa; other senior government and BoZ officials; members of parliament; and representatives of the private sector, labor unions, civil society organizations, and Zambia’s development partners.
The team expressed its gratitude to the authorities and stakeholders for the constructive spirit in which all discussions were held.

IMF press release, June 11, 2017.