An IMF team led by Tsidi Tsikata visited Zambia during March 9-24, to
conduct the 2017 Article IV consultation and hold discussions on an
economic program that could be supported by an IMF financial arrangement.
At the end of the mission, Mr. Tsikata issued the following statement:
“We have had fruitful discussions with the Zambian authorities and made
progress towards reaching understandings on an economic program that could
be supported by an IMF arrangement. There is broad agreement on key
objectives, targets, and policies, most of which are drawn from the
Government’s Economic Program. However, further engagement is needed on
details of measures and reforms to achieve fiscal consolidation targets
while protecting social spending and clearing the large stock of arrears
without accumulating new ones. We have agreed to continue discussions at
the forthcoming Spring Meetings of the IMF and World Bank in Washington
D.C. next month.
“The mission held wide-ranging discussions with a broad range of
stakeholders. Topics included Zambia’s experience under past IMF-supported
programs, reforming the subsidies in the energy and agriculture sectors,
and policies needed to diversify Zambia’s exports, create jobs and make the
economy more resilient to shocks.
“The mission projects real GDP growth in Zambia to improve slightly from
about 3 percent last year to 3.5 percent this year, reflecting good rains
which are expected to boost agricultural output and domestic electricity
generation. Over the medium term, realization of Zambia’s enormous
potential for achieving and sustaining high inclusive growth will depend on
the continuous implementation of sound economic policies, and on reforms to
boost productivity across sectors and enhance Zambia’s international
competitiveness.
“The mission welcomed the fiscal consolidation plans outlined in the 2017
budget speech by the Minister of Finance, which aims at putting public
finances on a sustainable path. However, in the first two months of the
year, expenditures outpaced revenues substantially, with the deficit
financed mostly by domestic borrowing. In contrast to most of last year
when the government faced severe domestic and external financing
constraints, so far this year government securities auctions have been
consistently over-subscribed, with increased participation of foreign
investors. The mission advised the government to steadfastly implement the
measures needed to achieve the 2017 budget targets; this would reassure
markets and reduce the risk of souring sentiments and associated outflow of
funds.
“The mission welcomed the recent easing of monetary conditions by the Bank
of Zambia (BoZ). The BoZ’s tight monetary stance since late-2015 succeeded
in stabilizing the exchange rate and lowering the annual rate of inflation
from a peak of 22.9 percent in February 2016 to 6.8 percent in February
2017. However, the ensuing very tight liquidity conditions contributed to
elevated stress in the banking system. Monetary conditions remain tight;
although interest rates in the interbank money market and the yields on
government securities have started coming down, lending rates remain very
high.
“The mission also discussed the findings and recommendations of the Joint
IMF-World Bank Financial Sector Assessment Program (FSAP) mission that took
place in July 2016. The assessment found that the financial sector was
under considerable stress from the combination of external and domestic
shocks. Financial supervision was not fully effective and several financial
sector laws are in urgent need of upgrading. The authorities have welcomed
the FSAP findings and recommendations, and have energetically initiated
remedial actions. A resulting Financial Sector Stability Analysis report is
expected to be published in the context of the Article IV consultation
process.
“The mission met with Minister of Finance Felix Mutati; Governor of the
Bank of Zambia Denny Kalyalya; Minister of Health Chitalu Chilufya; 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 mission expresses its gratitude to the authorities and stakeholders
for their openness and the constructive spirit in which all discussions
were held.”
