IMF Executive Board Concludes 2009 Article IV Consultation with Zambia

Public Information Notice (PIN) No. 09/137
December 17, 2009

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On December 14, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zambia.1 The Executive Board also completed the third review under Zambia’s Poverty Reduction and Growth Facility arrangement (see Press Release No. 09/458).


The Zambian economy has performed well in recent years and showed some resilience to the recent global recession. Growth in 2009 is now projected at 5.3 percent, in line with the average for recent years, as the slowdown in the tertiary sector was compensated by a significant increase in copper production and a bumper crop. Inflation has moderated steadily from the food and fuel price induced highs of 2008 and stood at 12.3 percent in October 2009. The current account deficit has narrowed, helped by a recovery of copper prices and import compression following a sharp depreciation of the Kwacha. Zambia’s reserve position is now stronger than it has been in almost four decades at about 4½ months of import cover, thanks in part to the augmentation of access under the PRGF arrangement and the recent SDR allocation. Progress is being made towards the attainment of the Millennium Development Goals. Poverty indicators have improved over the past decade, though the issue of rural poverty and service delivery remains a challenge. Health indicators have been improving, while the country is on-track towards meeting its goal of universal primary education.

While the overall performance of the economy has held up well, government revenue collections, particularly of import-related taxes, have fallen short of expectations. In order to preserve targets for domestically-financed capital spending, the government has accessed additional domestic financing, including from the BoZ. Delays in the disbursement of donor aid have further hampered the government’s ability to meet spending targets.

After coming under sustained pressure in late 2008 and early 2009, the Kwacha has more recently strengthened and stabilized, supported by the recovery in copper prices. During the period of downward pressure, the Bank of Zambia intervened to maintain orderly conditions in the foreign exchange market, drawing on its earlier build up of reserves. Foreign exchange sales also helped the Bank meet its reserve money target for the first half of 2009. More recently, the Bank has relied to a greater extent on open market operations for liquidity management. While there has been an increase in non-performing loans, the banking sector remains adequately capitalized and liquid.

Executive Board Assessment

Executive Directors commended the Zambian authorities for their prudent macroeconomic management, observing that the Zambian economy has proven resilient to the global economic crisis. Growth is expected to be in line with its average for recent years and inflation is projected to moderate, while international reserves have risen to new highs owing in part to the PRGF augmentation and to the SDR allocation.

Directors commended the government for their response to spending pressures in 2009, and noted that the 2010 budget is well balanced. They supported the authorities’ emphasis on creating fiscal space for pro-poor expenditure and for infrastructure investment to sustain robust and diversified growth. Directors welcomed the authorities’ plans to undertake a comprehensive review of tax policy and administration, broaden the tax base, and reinforce tax collection efforts. They underscored the need to reverse the upward trend in the wage bill in order to free resources for other government priority outlays and social spending, and encouraged the authorities to make progress in implementing the civil service and pay reform program in 2010. Further measures to improve government spending efficiency will be necessary, building on the recent alignment of the budget cycle to the fiscal year and the ongoing reforms related to the treasury single account and the integrated financial management and information system.

Directors noted that staff assessed Zambia’s risk of debt distress as low. They concurred that there is some scope for non-concessional borrowing to finance the government’s share in essential infrastructure projects, particularly in electricity generation. Nonetheless, a robust debt management strategy is needed to maintain debt sustainability. The government’s commitment to improve aid management was welcomed along with closer coordination with donors, including on governance concerns.

Directors agreed that the floating exchange rate regime and reserve money-based monetary program have served Zambia well. They noted the staff’s assessment that the exchange rate is broadly in line with fundamentals. They encouraged the authorities to continue to limit foreign exchange interventions to reducing excessive exchange rate volatility. They saw scope for a gradual shift toward interest rates as the main instrument to anchor inflationary expectations. They stressed that a transition to an inflation targeting regime should be premised on further analysis and on ensuring that the necessary preconditions are in place.

Although the banking sector remains adequately capitalized and liquid, deeper financial intermediation is needed to spur growth. Directors encouraged the authorities to implement the second phase of the financial sector development plan to enhance financial system stability and financial intermediation. They welcomed plans to develop a secondary market in government securities and to enact a lender of last resort policy for the Bank of Zambia. A few Directors stressed the importance of strengthening efforts to fight money laundering.

Directors welcomed the move to raise electricity tariffs toward cost recovery levels and emphasized the importance of ensuring full cost recovery to attract private sector investment. They supported strict adherence to a multiyear program of tariff increases. They encouraged the authorities to accelerate efforts to strengthen the financial and operational efficiency of ZESCO. A few Directors underscored the importance of a reliable legal framework to govern public-private partnerships in infrastructure investment. Directors called on the authorities to address the weaknesses in the quality and timeliness of economic statistics, which pose a significant obstacle to economic analysis and policymaking.

Zambia: Selected Economic Indicators


2006 2007 2008 2009  



  (Percent changes; unless otherwise indicated)

National account and prices





GDP at constant prices

6.2 6.2 5.7 5.3

GDP deflator

13.3 12.8 12.9 12.4

GDP at market prices

38,561 46,195 55,079 65,196

(Billions of kwacha)


Consumer prices


Consumer prices (average)

9.0 10.7 12.4 13.7

Consumer prices (end of period)

8.2 8.9 16.6 12.0



External sector


Terms of trade (deterioration -)

55.2 8.4 -17.1 -15.4

Average exchange rate (kwacha per U.S. dollar)

3,601 4,002 3,754

(percentage change; depreciation -)

19.3 -11.1 6.2

Real effective exchange rate (depreciation -)1

-33.1 7.2 -16.5



Money and credit (end of period)



Domestic credit to the private sector

54.3 43.0 50.2 14.3

Reserve money2

29.7 1.6 28.4 19.0

Broad Money (M3)

45.1 26.3 22.0 19.0






National accounts

(Percent of GDP; unless otherwise indicated)

Gross investments

20.8 20.6 19.4 22.1


4.2 4.0 3.6 4.2


16.6 16.6 15.9 17.9

National savings

23.8 16.0 13.9 20.3

Gross foreign savings

-3.0 4.6 5.6 1.8



Central government budget


Overall balance3

18.9 -0.2 -2.2 -2.6

(excluding grants)

-7.6 -4.8 -6.0 -7.1


17.2 18.4 18.6 15.7


26.5 4.6 3.8 4.5

Total expenditure

23.5 24.3 23.8 22.8



External sector


Current account balance (including current and capital grants)

3.0 -4.6 -5.6 -1.8

Gross international reserves (months of imports)4

2.2 2.5 2.1 4.5



Public debt


Total central government debt (end-period)

27.2 24.3 26.7 26.4


11.0 9.2 11.2 11.9


16.2 15.1 15.5 14.5







Sources: Zambian authorities; and IMF staff estimates and projections. 


1Excludes Zimbabwe.

2The projected reduction in reserve money for December 2007 reflects the lowering of statutory reserve requirements

from 14 to 8 percent on October 1, 2007. 

3 Including discrepancy between the above-the-line balance and below-the-line financing.  

4Imports in current year. Includes the new SDR allocation of SDR 401 millions in 2009. 

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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