July 27, 2000
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The Executive Board of the International Monetary Fund (IMF) completed its first review of Zambia's economic performance under a program supported by a three-year SDR 254.45 million (about US$336.3 million) Poverty Reduction and Growth Facility (PRGF) credit (see Press Release No. 99/10). The completion of this review is a significant step toward the release of a further SDR 10.0 million (about US$13.2 million) disbursement, which would bring total disbursements under the current program to SDR 20.0 million (about US$26.4 million).
After the Executive Board's discussion of Zambia's economic and structural reform program, Shigemitsu Sugisaki, Deputy Managing Director and Acting Chairman, issued the following statement:
"Zambia's past economic performance has been adversely affected by problems relating to the state-owned copper company ZCCM. Its privatization in early 2000 and the agreement on a program for 2000 under the Poverty Reduction and Growth Facility (PRGF) have substantially improved the prospects for enhanced economic growth and poverty reduction.
"In light of the widespread poverty in Zambia, the authorities' firm commitment to poverty reduction, as outlined in their Interim Poverty Reduction Strategy Paper (I-PRSP), is welcome. The authorities' efforts to establish a legal environment that sustains private sector led economic growth, promotes stable macroeconomic conditions conducive to private investment, and targets poverty reduction programs, (clearly prioritized within the available resources), are essential to achieve poverty reduction. The full PRSP, which is scheduled to be completed by the middle of 2001, will develop further the authorities' poverty reduction strategy, expand and broaden the consultative process. The authorities should enhance the effectiveness of policies in the areas of health and education, and give priority to strengthening the poverty database and monitoring mechanisms.
"The 2000 program will improve the accountability and transparency of budget management and control. The program's success will depend critically on a sustained strong political commitment to fiscal discipline, especially in the period prior to elections next year. Fiscal policy for 2000 is adversely affected by the large allocation made to settle ZCCM debt, but it is expected that the 2000 budget will provide the basis for a move towards a more sustainable fiscal position in the medium-term. Strong revenue efforts, including collections of taxes from the electricity company ZESCO and the oil company ZNOC, and strict adherence to the expenditure targets, including arrears clearance, will be necessary to achieve the program's objectives. The authorities are also committed to abstaining from granting any new tax exemptions, rebates or any other preferential tax treatment.
"The authorities intend to pursue a prudent monetary policy and to limit the credit to public enterprises with a view to reducing inflation. The Bank of Zambia (BoZ) has addressed the weaknesses at the Zambia National Commercial Bank, including through the issuance of a supervisory directive from BoZ to ZNCB. Privatization of the ZNCB in accordance with the timetable envisaged in the program will help to strengthen the financial sector.
"In view of the fragility of Zambia's external position, the authorities are seeking to improve external competitiveness in order to diversify the export base. Maintenance of a competitive exchange rate, reducing the cost of utilities through completion of the privatization agenda, and liberalization of the trade system will be essential in this respect.
"The government's intention to complete the transition to a private sector-led economy, including through privatization of the remaining public utilities and the operations of the oil sector, is welcome. The authorities are encouraged to take strong actions to improve governance, including through enhancing transparency and eliminating corruption," Mr. Sugisaki said.
1 On November 22, 1999, the IMF's concessional facility for low-income countries, the Enhanced Structural Adjustment Facility, was renamed the Poverty Reduction and Growth Facility, and its purposes were redefined. It is intended that PRGF-supported programs will in time be based on country-owned poverty reduction strategies adopted in a participatory process involving civil society and development partners, and articulated in a poverty reduction strategy paper. This is intended to ensure that each PRGF-supported program is consistent with a comprehensive framework for macroeconomic, structural, and social policies to foster growth and reduce poverty. PRGF loans carry an annual interest rate of 0.5%, and are repayable over 10 years with a 5 ½-year grace period on principal payments.
