IMF Executive Board Completes Sixth and Final Review Under the Extended Credit Facility Arrangement for Zambia and Approves US$29.3 Million Disbursement

Press Release No. 11/244
June 20, 2011

The Executive Board of the International Monetary Fund (IMF) today completed the sixth and final review of Zambia’s economic performance supported under the Extended Credit Facility (ECF). The Board’s decision will enable an immediate disbursement in an amount equivalent to SDR 18.395 million (US$29.3 million), bringing total disbursements under the arrangement to an amount equivalent to SDR 220.095 million (US$350.4 million). In completing the review, the Executive Board approved a waiver for the nonobservance of a performance Criterion related to the net domestic financing.

Zambia’s three-year ECF arrangement which was approved in June 2008 (see Press Release No. 08/134) comes to an end. The government is studying the options available for future IMF support.

Following the Executive Board’s discussion on Zambia, Mr. Naoyuki Shinohara, Deputy Managing Director and Acting Chair, issued the following statement:

“The Zambian economy continues to gather strength and performance under the ECF-supported program continues to be satisfactory. Growth accelerated further in 2010, private sector credit has recovered to pre-global financial crisis levels, the current account is in surplus, and international reserves are solid. Prospects of strong growth provide an opportunity for more rapid poverty reduction and employment creation. Enhanced access to social and economic facilities—including health and water, transportation, markets, and financial services—is needed, particularly in rural areas where poverty is still high.

“The fiscal program for 2011 is appropriate. The expenditure mix is set to shift toward social and capital spending. As the authorities tap the sovereign bond market to finance capital spending, it will be important to strengthen debt and liquidity management capacity. Containing spending pressures, including with regard to wages and maize purchases, is critical to safeguard priority poverty-related and investment spending. Sequential bumper crops have revealed the limitations of the current maize pricing and marketing system. The government needs to modulate its maize marketing role to minimize distortions, contain fiscal risks, and provide incentives for the private sector to develop.

“The authorities’ inflation target for 2011 is appropriate. Keeping inflation low and stable requires close attention to underlying inflation developments. As inflation expectations, nonperforming loans, and operating costs are reduced, and credit risk concerns ease, bank lending rates should come down.

“Inaccurate data on net domestic borrowing provided in June 2010 for the fourth review under the ECF resulted in a noncomplying disbursement. In view of corrective actions taken to bring domestic borrowing back in line with the program, and to improve data compilation and monitoring, the Board decided to waive the nonobservance of the performance criterion that gave rise to the noncomplying disbursement,” he added.



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