An International Monetary Fund (IMF) staff team led by Ms. Mary Goodman
visited Zambia during April 16-30, 2019 to conduct the 2019 Article IV
consultation.
At the conclusion of the mission, Ms. Goodman issued the following
statement:
“Our discussions on Zambia’s 2019 Article IV were frank and
collaborative. This has been a valuable opportunity to take stock of the
current situation and outlook for the economy and to gain a shared
appreciation of current challenges and policy options going forward.
“Growth is projected to slow from 3.7 percent in 2018 to 2.3 percent
in 2019, lower than earlier envisages due to the impact of the drought on
agricultural production. Inflation is close to the Bank of Zambia’s
upper band and is projected to rise over the course of 2019. Reserves stood
at 1.7 months of imports at end-March 2019.
“Zambia’s development strategy targeting a rapid scaling up in
infrastructure spending has resulted in large fiscal deficits, financed by
nonconcessional debt. The 2018 budget deficit (commitment basis) reached 10
percent of GDP (7.5 percent on a cash basis), and total public and
publicly-guaranteed debt including domestic arrears at end-2018 was 73.1
percent of GDP.
“With the recent increase in yields on government paper and higher
interest costs on foreign debt due to the depreciation of the kwacha,
government spending in other areas is being squeezed, including on social
programs and transfers to local governments. The significant buildup in
domestic expenditure arrears is weighing on households and businesses and
presents a risk for the financial sector.
“To reduce risks, staff recommended a large up-front and sustained
fiscal effort, including: avoiding contracting any new non-concessional
debt, steps to raise revenues, halting the buildup of new arrears, and
aligning the pace of spending on well-targeted public investment projects
with Zambia’s available fiscal space.
“With a diminished impact of the drought over time, and progress in
addressing arrears, there is potential for growth to accelerate over the
medium term.
“The mission welcomed the enactment of the Public Finance Management
Act in 2018, which should strengthen management of public resources once
the accompanying legislation has been enacted. Specifically, the passage of
the Planning and Budgeting Bill will be important to enhance the project
selection/appraisal process while the revised Loans and Guarantees Act
would provide the necessary framework for medium-term debt management.
“The team met with Minister of Finance, Ms Mwanakatwe, Bank of Zambia
Governor, Dr. Kalyalya, other senior officials, representatives of the
Parliamentary Committees on budget and on trade and national economy, as
well as financial market, business, and trade union representatives, civil
society organizations, and development partners. The IMF mission wishes to
express its gratitude to the authorities and other stakeholders for the
openness and constructive discussions during its visit to Zambia. The
mission will prepare a report of the Article IV consultation which will be
discussed by the IMF’s Executive Board in the coming months.”
