IMF Executive Board Concludes the 2023 Article IV Consultation with Zambia and Completes the First Review Under the Extended Credit Facility Arrangement

IMF News, July 13, 2023

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IMF Executive Board Concludes the 2023 Article IV Consultation with Zambia and Completes the First Review Under the Extended Credit Facility Arrangement

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Bibliographic details

• Published: July 13, 2023

Program status and review

• The 38-month Extended Credit Facility (ECF) Arrangement for Zambia is for a total of SDR 978.2 million (100 percent of quota) or about US$1.3 billion at the time of program approval on August 31, 2022.
• The Executive Board completed the First review under the ECF and the 2023 Article IV consultation, allowing an immediate disbursement of SDR 139.88 million (about US$ 189 million).
• The First review completion brings Zambia’s total disbursements under the arrangement to about US$ 374 million.
• Performance under the program:
  • All quantitative performance criteria for the first review have been met.
  • Nine of eleven structural benchmarks for the first review have been met; two benchmarks experienced only marginal delays.
  • Specific benchmark timing adjustments:
  • Target date for submission of a revised Public-Private Partnership Bill reset to end-July to allow stakeholder feedback.
  • Target date for implementation of the IFMIS commitment control module reset to end-August to allow sufficient time for validation.

Debt treatment and creditor engagement

• On June 22, 2023, the Zambian authorities reached an agreement with the Official Creditor Committee (OCC) on a debt treatment that is in line with Fund program parameters.
• The OCC agreement is described as putting Zambia on the path to debt sustainability, contingent on the financing assurances necessary for the Executive Board review to be completed.
• The statement emphasizes the importance of swift finalization and signature of the Memorandum of Understanding with the OCC and timely agreements with private creditors on comparable terms to restore debt sustainability over the medium term.

Reform actions and social priorities

• Authorities have taken steps to:
  • Restore fiscal sustainability and cut inefficient public spending.
  • Raise social spending and invest in human capital, including providing free education for all and hiring 41,000 additional health and education workers.
  • Strengthen economic governance and implement public procurement regulations to ensure value-for-money and increased transparency of public spending.
  • Improve the business environment to attract private investment.
• The Executive Board and Managing Director underscore the need to sustain increased social spending to protect the most vulnerable while maintaining fiscal credibility.

Economic outlook and projections

• Recent economic performance and outlook:
  • Zambia’s economy is beginning to strengthen after several external shocks and a post-COVID GDP rebound is expected to continue.
  • Growth is projected to moderate in 2023 and accelerate in 2024, settling at around 5 percent over the medium term.
  • Challenges remain: poverty and inequality among the highest in the world and high exposure to climate shocks.
• Managing Director Kristalina Georgieva emphasized:
  • The need to sustain commitment to strong policies to safeguard macroeconomic stability, restore debt sustainability, and promote durable and inclusive growth.
  • The Bank of Zambia should remain alert to inflationary pressures and continue reforms to preserve financial stability and enhance inclusion.

Key statistics (Table 1: Zambia: Selected Economic Indicators, 2019–26 — National accounts, prices, and other aggregates)

• GDP growth at constant prices:
  • 2019: 1.4
  • 2020: -2.8
  • 2021: 4.6
  • 2022: 4.7
  • 2023: 3.6
  • 2024: 4.3
  • 2025: 4.5
  • 2026: (no value shown)
• Sectoral growth:
  • Agriculture: 7.7, 17.2, 6.9, -2.2, -0.2, 3.8, 4.1, 4.2
  • Mining: -5.1, 8.0, -6.3, -4.4, 4.9, 9.0, 8.7, 7.4
  • Non-mining, non-agricultural: 1.8, -5.6, 5.9, 6.5, 3.7, 4.0, 4.4
• GDP deflator: 7.6, 13.7, 27.6, 8.6, 12.1, 9.9, 7.3
• GDP at market prices (millions of kwacha): 300,449; 332,223; 443,362; 504,477; 585,449; 671,332; 752,580; 841,746
• Consumer prices (average): 9.2, 15.7, 22.0, 11.0, 10.6, 9.6, 7.5, 7.0
• Consumer prices (end of period): 11.7, 19.2, 16.4, 11.4, 7.9
• Terms of trade (deterioration -): -6.4, 13.9, 22.1, -6.8, 5.8, -0.5, -0.7
• Average exchange rate (kwacha per U.S. dollar): 12.9, 18.3, 20.0, 17.0, …
  • (percentage change; depreciation +): 23.3, 42.3, 9.1, -15.3
• End-of-period exchange rate (kwacha per U.S. dollar): 14.1, 21.2, 16.7, 18.1
• Gross international reserves (months of prospective imports): 3.0, 1.9, 3.4, 3.5, 5.0
• Reserve money (end of period): 25.8, 57.0, 8.5, 12.0, 12.5, 11.8
• Broad money (M3): 46.4, 24.5
• Credit to the private sector (percent of GDP): 12.3, 10.0, 15.2, 21.1
• National accounts — gross investment: 39.3, 32.3, 28.5, 31.9, 31.6, 31.8
  • Government: 9.4, 7.8, 3.9, 3.3, 3.1, 3.2
  • Private: 29.8
• National savings: 39.7, 42.9, 38.1, 35.5, 36.4, 39.1, 40.3, 40.9
• Central government budget:
  • Revenue: 20.
  • Revenue series continued: 20.3, 22.3, 21.8
  • Taxes: 16.1, 16.0, 15.8, 17.5, 17.8, 17.9
  • Grants: 0.3, 0.5, 0.6, 0.7
  • Other revenue: 5.7
  • Expenditure: 34.1, 30.4, 26.2, 26.3, 25.4, 26.0
  • Expense: 20.4, 26.5, 24.3, 23.1, 22.2
• Net lending/borrowing (cash basis): -9.4, -13.8, -8.1, -7.7, -5.0, -3.3, -4.3
• Net lending/borrowing (commitment basis): -13.9, -17.4, -5.3, -3.2, -2.7, -1.8, -3.0
• Primary balance (commitment basis)1: -6.9, -10.1, -5.8, 0.8, 2.0, 2.9, 2.4
• Primary balance excluding mining revenues (commitment basis)1: -13.3, -11.4, -3.7, -1.5, -1.2, -2.1
• Public debt — Total public debt (gross, end-period)2,3: 103.3, 150.3, 112.1, 110.9, 110.2, 100.8, 94.1, 88.5
  • External4: 62.1, 95.8, 57.8, 58.8, 69.6, 65.9, 62.9, 59.2
  • Domestic: 41.2, 54.5, 54.4, 52.1, 40.6, 34.9, 31.3, 29.3

Notes from table:

• Sources: Zambian authorities; and IMF staff estimates and projections.
• 1 Adjusted for the accumulation/clearance of VAT refund claims and expenditure arrears.
• 2 Nonresident holdings of local currency debt are included under domestic debt here, unlike in the DSA, which is conducted on a residency basis.
• 3 Including arrears.
• 4 Public and publicly guaranteed external debt.

Policy recommendations and priorities

• Sustain commitment to strong macroeconomic policies to:
  • Safeguard macroeconomic stability.
  • Restore debt sustainability.
  • Promote durable and inclusive growth.
• Further fiscal adjustment should be focused on revenue mobilization and supported by continued fiscal reforms, including in public financial management (PFM), revenue administration, and debt management.
• Sustain increased social spending to protect the most vulnerable while creating space for social, development, and climate spending.
• Strengthen the framework for Public-Private Partnerships to mitigate fiscal risks.
• Strengthen economic governance and address corruption vulnerabilities, including implementation of the IMF’s Diagnostic Report on Governance and Corruption recommendations, to enhance transparency and public procurement implementation.
• The Bank of Zambia should remain alert to inflationary pressures and continue reforms to preserve financial stability and enhance inclusion.

IMF Press Release No. 23/262, July 13, 2023.

References

• Zambia and the IMF
• IMF Policy Advice -- A Factsheet
• The IMF and Good Governance -- A Factsheet
• Special Drawing Rights (SDRs) -- A Factsheet
• Press Releases
• PRESS CENTER
• Extended Credit Facility
• Press Release 22/297
• agreement with the Official Creditor Committee (OCC)
• IMF’s Diagnostic Report on Governance and Corruption
• https://www.imf.org/en/home