Zambia: IMF Executive Board Completes Fourth Review Under the Extended Credit Facility and Financing Assurances Review

IMF News, December 17, 2024

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Canonical URL: Zambia: IMF Executive Board Completes Fourth Review Under the Extended Credit Facility and Financing Assurances Review

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Published: December 17, 2024

Review outcome and disbursement

The Executive Board completed the fourth review of Zambia’s 38-month Extended Credit Facility (ECF) Arrangement and financing assurances review on December 16, 2024.
Completion of the review allows for an immediate disbursement of SDR 139.88 million (about US$184 million).
Total disbursement under the ECF-supported program now stands at SDR 992.86 million (about US$1.3 billion).

Program design and access

Zambia’s ECF Arrangement was approved on August 31, 2022, for SDR 978.2 million (100 percent of quota, or about US$1.3 billion).
Access was augmented to SDR 1,271.66 million (130 percent of quota, about US$1.7 billion) on June 24, 2024.
The program supports Zambia’s home-grown Eighth National Development Plan, aiming to:
- entrench macroeconomic stability,
- attain debt and fiscal sustainability,
- enhance public governance,
- foster inclusive growth to improve the livelihood of the Zambian people, especially the vulnerable.

Program performance and fiscal/structural targets

Program performance has remained broadly satisfactory despite difficult domestic and international challenges.
All June 2024 quantitative performance criteria (QPCs) were met.
Most indicative targets (ITs) for June and September 2024 were met, except:
- the June 2024 IT on the clearance of expenditure arrears (missed by a small margin),
- the September 2024 IT on social spending (missed by a small margin).
Structural benchmarks: Five out of fifteen structural benchmarks were not met, although two were completed with a slight delay.

Macroeconomic outlook and shocks

The historic drought significantly contracted agriculture and electricity production.
Growth projections and inflation:
- Growth in 2024 is expected to decline further to 1.2 percent, down from 2.3 percent projected in the Third Review.
- Inflation has risen further due to higher food prices and past currency depreciation.
External sector and reserves:
- The current account has improved, including due to subdued imports earlier in the year.
- Reserve accumulation and exchange rate flexibility are emphasized as critical for addressing external shocks.

Debt sustainability assessment

Zambia’s public debt is assessed as sustainable, but the country remains at high risk of overall and external debt distress based on a full post-restructuring macro-framework.
The post-restructuring macro-framework incorporates:
- the treatment of official bilateral claims agreed with Zambia’s Official Creditor Committee (OCC),
- the completed Eurobond exchange,
- the agreements in principle (AIP) reached with most external commercial creditors, which enable Zambia to fully close its exceptional financing gap.
Although at high risk because of near-term breaches of the DSA thresholds, Zambia is expected to reach a moderate risk of external debt distress over the medium term.

Policy recommendations and authorities’ commitments

Authorities remain committed to maintaining macroeconomic stability and restoring fiscal and debt sustainability, while supporting vulnerable households and advancing structural and governance reforms to foster growth.
Key policy priorities and recommended measures:
- Fiscal consolidation, prudent monetary policy and further reserve accumulation.
- Exchange rate flexibility and sound financial policies to safeguard macro-financial stability.
- The fiscal consolidation path envisaged in 2025 to support restoring fiscal and debt sustainability.
- Planned measures to expand the tax base, harmonize corporate income tax, and index excises are considered adequate, though contingency revenue and expenditure measures are needed given recovery risks.
- Progress in enhancing revenue mobilization and strengthening spending efficiency and transparency, including of state-owned enterprises, to generate fiscal space to support the most vulnerable.
- The Bank of Zambia should maintain data-dependent monetary policy to preserve the credibility of its inflation targeting framework.
- Governance and structural reforms to promote private sector activity and economic diversification, including:
- enhancing transparency in the energy sector and resource management,
- strengthening anti-corruption measures,
- continuing agriculture reform,
- building climate resilience.

Statement by the Acting Chair (Mr. Nigel Clarke, Deputy Managing Director)

Excerpted remarks:
- “Program performance remains satisfactory, as the authorities remain committed to economic stabilization and advancing structural and governance reforms, despite the severe impact of a historic drought. Contracting agricultural and electricity outputs have slowed growth and accelerated inflation.”
- “Fiscal consolidation, prudent monetary policy and further reserve accumulation, exchange rate flexibility, and sound financial policies will be crucial for safeguarding macro-financial stability and building resilience against shocks.”
- “The fiscal consolidation path envisaged in 2025 will support restoring fiscal and debt sustainability. Planned measures to expand the tax base, harmonize corporate income tax, and index excises are adequate, although heightened risks to the post-drought recovery necessitate contingency revenue and expenditure measures. Progress in enhancing revenue mobilization and strengthening spending efficiency and transparency, including of state-owned enterprises, are critical to generate much needed fiscal space, including to support the most vulnerable.”
- “Zambia’s public debt is assessed as sustainable but remains at high risk of overall and external debt distress. This assessment is based on a full post-restructuring macro-framework, incorporating the treatment of official bilateral claims agreed with the official creditors committee, the completed Eurobond exchange, and the agreements in principle with most commercial private creditors. Zambia is expected to reach a moderate risk of external debt distress over the medium term.”
- “The Bank of Zambia remains ready to act and maintains data-dependent monetary policy, which is key to preserving the credibility of its inflation targeting framework. Reserve accumulation and sustained exchange rate flexibility remain critical for addressing external shocks.”
- “Governance and structural reforms are vital for promoting private sector activity and economic diversification. Enhancing transparency in the energy sector and resource management, strengthening anti-corruption measures, continuing agriculture reform, alongside building climate resilience, will improve the business climate and support sustainable and more inclusive growth.”

Source: IMF Press Release No. 24/476 — Zambia: IMF Executive Board Completes Fourth Review Under the Extended Credit Facility and Financing Assurances Review (December 16, 2024).