IMF Staff Reach Staff-Level Agreement on Extended Credit Facility Agreement with Zambia
The IMF team reached a staff-level agreement with the Zambian authorities on a new Extended Credit Facility (ECF) arrangement for 2022-2025 to help restore macroeconomic stability and lay the groundwork inclusive economic recovery. The government’s ambitious reform program, supported by the IMF, seeks to restore fiscal and debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance and transparency. debt sustainability. The IMF Executive Board’s review of this deal is conditional on progress on this front.
An International Monetary Fund (IMF) team led by Ms. Allison Holland, Head of Mission for Zambia, conducted a virtual mission with the Zambian authorities from November 4 to December 2, 2021, to discuss a program to be supported by the IMF Extended Credit Facility. (ECF).
At the end of the mission, Ms. Holland made the following statement:
âThe IMF team has reached a staff level agreement with the Zambian authorities on a three-year program supported by an Extended Credit Facility (ECF) arrangement in the amount of approximately SDR 980 million. or $ 1.4 billion. The economic program aims to restore macroeconomic stability and foster higher, more resilient and inclusive growth. The staff-level arrangement is subject to approval by IMF management and the Executive Board, and receipt of the necessary funding assurances.
âThe Zambian authorities have embarked on an ambitious economic reform program to address the serious economic and social challenges facing the country. These reforms aim to remedy past weaknesses in economic governance and public finance management which have led to unsustainable over-indebtedness. They will also support the authorities’ efforts to rebuild the economy, in particular to strengthen economic resilience in the face of the COVID-19 pandemic and ongoing climate vulnerabilities.
âThe key elements of the authorities’ reform program are aimed at restoring fiscal sustainability while redirecting public resources towards investment in people, especially young people. The expected large initial fiscal adjustment calls for a major shift in spending, shifting from inefficient public investments and poorly targeted subsidies, to greater investment in health and education and the provision of more social benefits. This change will be underpinned by an ambitious medium-term program to improve revenue mobilization through policy changes and administrative changes.
âTo anchor medium-term fiscal sustainability, steps are also being taken to strengthen economic governance and public financial management, as well as debt management and transparency. Spending will be more tightly controlled, with determined implementation of public procurement rules and regulations essential to ensure value for money and the transparent use of public resources. These efforts will restore the credibility of the budget, improve the efficiency of public spending and stop the accumulation of arrears, thus supporting private sector-led growth. Key legislative reforms, including the planned revision of the Loans and Guarantees Law, will strengthen public oversight and help address past weaknesses in debt accumulation. To support the authority’s efforts to strengthen governance and reduce corruption, a comprehensive governance assessment will be undertaken with support from IMF staff.
âSafeguarding the autonomy of the central bank and monetary and financial stability also remains a priority. The Bank of Zambia will continue to strengthen its monetary policy framework and financial sector surveillance capacity, supported by a review of the Bank of Zambia law, in particular to ensure its operational independence. The authorities’ reform program should support a return to price stability over the medium term.
âGiven the unsustainable public debt, the authorities’ reform efforts will need to be supported by comprehensive debt restructuring. We welcome the authorities’ request for debt treatment within the common framework of the G20 and hope that official creditors can quickly form a committee and provide financing guarantees. We support the authorities’ efforts to maintain constructive engagement with private creditors to help reach an agreement on terms comparable to public creditors. Sufficient progress on this front will be needed before the staff level agreement can be presented to the IMF Executive Board for approval. “
âIMF staff have held meetings with Finance Minister Situmbeko Musokotwane, Bank of Zambia Governor Denny Kalyalya, and senior government and Bank of Zambia officials. Staff would like to express their gratitude to the Zambian authorities for their open, engaged and constructive engagement.
Distributed by APO Group on behalf of the International Monetary Fund (IMF).