Washington, DC:
An International Monetary Fund (IMF) staff team led by David Robinson held
virtual meetings during February 11–March 3 to discuss the Government of
Zambia’s request for support under the IMF’s Extended Credit Facility. The
discussions covered recent economic developments, the near-term
macroeconomic challenges, and policy options to return Zambia to a
sustainable macroeconomic position over the medium-term.
At the conclusion of the virtual discussions, Mr. Robinson issued the
following statement:
“Macroeconomic and social outcomes deteriorated in 2020 as underlying
macroeconomic imbalances were compounded by the COVID-19 shock. The economy
is forecast to have contracted by 2.9 percent, while the exchange rate
depreciated significantly, and inflation increased sharply. With a weak
economy and increased spending—both on emergency COVID related needs as
well as agricultural subsidies—the fiscal deficit widened further largely
financed from domestic sources. The authorities chose not to adjust fuel
prices or electricity tariffs in order to support the population and
enterprises during the difficult economic downturn contributing to further
increases in domestic arrears and adding to the burden on ZESCO, the
state-owned electricity company. Zambia received support under the G20 Debt
Service Standstill Initiative, which provides some debt relief in 2020 and
the first half of 2021, but with debt already unsustainable prior to the
COVID-19 shock, Zambia has sought a comprehensive debt treatment under the
G-20 Common Framework.
“Broad agreement was reached on the nature and cause of the underlying
macroeconomic imbalances. Resolving the macroeconomic challenges will
require navigating the need to continue to support the population and the
economy through the pandemic in a constrained fiscal environment, while
setting the stage for a sustained recovery as the impact of COVID-19 eases
and macroeconomic imbalances are resolved.
“The Economic Recovery Program lays out the government’s broad policy
directions and discussions sought to map that strategy into more detailed
policy steps. Key challenges that need to be addressed include: detailing
the fiscal reform agenda to achieve the large and sustained fiscal
consolidation needed to correct current fiscal imbalances; securing
increased fiscal revenues to provide the fiscal space for government to
meet its development objectives; bolstering governance and the efficiency
of the use of public resources, including through debt and expenditure
transparency; halting the incurrence of domestic arrears (including on fuel
and in the electricity sector); and ensuring that the social protection
scheme is fully funded with timely payments to protect lower income groups.
The recent sharp increase in copper prices should also provide additional
resources to help smooth the adjustment. Significant progress has been made
and discussions are expected to continue in the next few weeks, following
additional technical work on the appropriate policy package.
“IMF staff held meetings with Finance Minister Bwalya Ng’andu, Bank of
Zambia Governor, Christopher Mvunga, senior government and Bank of Zambia
officials, members of the Budget and Public Accounts Committees of
Parliament, and other stakeholders.
“Staff express their gratitude to the Zambian authorities for the
constructive, determined and frank engagement.”
