IMF Executive Board Concludes 2012 Article IV Consultation with Zambia

Public Information Notice (PIN) No. 12/82
July 19, 2012

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 June 13, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Zambia.1


Zambia has achieved high and sustained growth and macroeconomic stability over the past decade, but poverty remains high. Real gross domestic product (GDP) growth averaged 5.2 percent in 2000–10 (or 3.1 percent per capita); inflation declined from 30 percent to single digits; debt declined sharply; and international reserves increased to comfortable levels.

Economic conditions remain favorable and there has been little impact to date from the European crisis. Real GDP growth is estimated to have been strong in 2011, driven by a record maize harvest and strong expansion in bank credit, which has surpassed pre-crisis (2008–09) levels. Inflation continued to decline, broadly in line with the authorities’ target of 7 percent. Despite copper prices rising to record highs, the external current account surplus narrowed significantly, mainly reflecting a strong expansion in imports and a decline in grants. However, gross international reserves rose above $2 billion for the first time, equivalent to 3 months of prospective imports. Preliminary data suggest that the fiscal deficit of the central government remained flat at around 3 percent of GDP in 2011, as a large expansion in election-related spending was offset by a one-off payment of mining tax arrears.

In 2012, real GDP is projected to rise by 7.7 percent, reflecting strong growth in copper production and non-maize agriculture, and an expansionary fiscal policy. The 2012 budget targets a deficit of 4.1 percent of GDP and a significant increase in investment. More than half of budget financing is expected to come from a US$500 million sovereign bond issue, and net domestic financing is targeted to remain low at about 1 percent of GDP. Inflation is projected to remain close to its current level of around 6 percent in 2012. The Bank of Zambia (BOZ) recently changed its monetary policy framework from reserve money targeting to the use of a policy rate as the main monetary policy tool.

Executive Board Assessment

Executive Directors commended the authorities for their sound macroeconomic management and welcomed Zambia’s strong economic performance in recent years. Directors noted that while the outlook for the economy is favorable, it is subject to risks arising from volatility of copper prices and delays in implementing measures needed to meet the 2012 budget deficit target. To safeguard macroeconomic stability and to make growth more inclusive, they stressed the need for continued commitment to strong policies and implementation of structural reforms.

Directors agreed that fiscal policy should aim at prioritizing growth enhancing expenditures and mobilizing revenues to create the space needed to achieve the fiscal objectives. They emphasized the importance of implementing reforms to maize marketing and pricing, fertilizer subsidies, and public sector pension funds. These measures should help restore fiscal sustainability and correct market distortions that have created overdependence on maize production. Directors noted that revenue enhancing measures, including strengthening tax administration and reducing subsidies and incentives will also be critical for achieving the fiscal targets. In addition, the reinstatement of the automatic petroleum price adjustment mechanism and the implementation of the multi year electricity tariff framework are needed to minimize fiscal risks associated with the current pricing below cost recovery.

Directors underscored that public financial management reforms are essential to improve budgetary planning and execution and prioritizing spending. They welcomed the plan to complete the implementation of the Treasury Single Account and urged the authorities to continue to strengthen their investment and debt management capacity. These measures would support the planned scaling up of infrastructure spending and increased use of non-concessional financing.

Directors endorsed the plans to further enhance the monetary policy framework in support of a low inflation objective. They encouraged the authorities to remain vigilant to inflationary pressures and tighten policy if needed. Directors agreed that the introduction of the monetary policy rate, combined with use of a broad set of economic indicators to assess the monetary policy stance, should make monetary policy more flexible and forward looking and enhance liquidity management. Directors noted that the flexible exchange rate regime has helped Zambia weather external shocks. They highlighted that increasing the reserve coverage would also provide an added buffer.

Directors welcomed the authorities’ efforts to strengthen the financial sector and improve access to financial services. They urged the authorities, however, to work closely with key stakeholders to minimize any risks to the financial sector stemming from the implementation of the new minimum capital requirement for commercial banks and the redenomination of the local currency.

Directors emphasized that structural reforms will be critical to achieve economic diversification and make growth more inclusive, in order to tackle the high rate of poverty and unemployment. In this context, they encouraged the authorities to formulate a broad based reform strategy for the agriculture sector, and to strengthen formal sector development, in particular by improving the business climate.

Zambia: Selected Economic Indicators, 2009–12
(Percent of GDP, unless otherwise indicated)


2009 2010 2011 2012



  Act. Proj.

Adjustment scenario


National account and prices





  GDP growth at constant prices

6.4 7.6 6.6 7.7


20.3 15.2 -5.2 23.0


5.2 6.8 7.9 6.2

  GDP deflator

10.7 11.7 12.8 4.8

  GDP at market prices (Billions of kwacha)

64,616 77,667 93,354 105,383

  GDP per capita (US$)

990 1,221 1,414 1,457

  Gross national income per capita (US$)

958 1,118 1,299 1,347

  Consumer prices


    Consumer prices (average)

13.4 8.5 8.7 5.6

    Consumer prices (end of period)

9.9 7.9 7.2 6.0

External sector


  Terms of trade (deterioration -)

-16.6 35.2 4.1 -3.0

  Average exchange rate (kwacha per US$)

5,046 4,797 4,861  

    (percentage change; depreciation -)

-34.7 4.9 -1.3  

  Real effective exchange rate (depreciation -)1

-14.2 5.8 -0.4

Money and credit (end of period, unless otherwise specified)


  Domestic credit to the private sector

-5.7 15.4 27.9 17.5

  Reserve money (end of period)

19.3 27.8 6.8 8.6

  Broad Money (M3)

7.7 29.9 21.7 17.0

National accounts





  Gross investment

19.6 21.1 23.4 23.6


3.4 3.2 5.4 7.4


16.1 17.8 18.0 16.2

  National savings

23.8 28.1 24.7 24.7

  Net lending(+)/net borrowing(-)

4.2 7.1 1.2 1.2

Central government budget



18.9 19.6 22.5 20.9


14.6 16.4 19.3 16.6

    Social contributions


2.9 1.8 1.6 1.7

    Other revenue

1.4 1.4 1.6 2.6


21.3 22.6 25.5 25.0


17.9 19.4 20.0 18.4

    Of which: Wages and salaries

8.2 8.1 7.9 9.1

    Of which: Arrears payments

0.4 0.3 0.4 0.3

    Net acquisition of nonfinancial assets

3.4 3.2 5.4 7.4

  Net lending/borrowing2

-2.4 -3.1 -3.0 -4.1

    Excluding grants

-5.3 -4.8 -4.5 -5.8

  Net acquisition of financial assets

1.9 -0.3 0.1 0.1


1.9 -0.3 0.1 0.1


0.0 0.0 0.0 0.0

  Net incurrence of liabilities

4.4 2.8 3.1 4.2


4.4 2.5 1.5 1.1


-0.1 0.3 1.6 3.2

External sector


  Current account balance

4.2 7.1 1.2 1.2

    (excluding grants)

1.8 5.6 0.5 0.5

  Gross international reserves (months of prospective imports)

3.7 3.0 3.0 3.3

Public debt


  Total central government debt (end-period)

22.0 22.1 22.3 24.1


10.0 9.1 10.2 12.5

    Stock of domestic debt, net

12.1 12.9 12.1 11.6
Sources: Zambian authorities; and IMF staff estimates and projections.
1 Excludes Zimbabwe.
2 Including discrepancy between the above-the-line balance and below-the-line financing.

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 summing up can be found here:


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