Article

Zambia to receive $577 million in debt relief from the IMF

Author(s):
International Monetary Fund. External Relations Dept.
Published Date:
January 2006
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As a result of its overall satisfactory macroeconomic performance, progress in reducing poverty, and improvements in public expenditure management, Zambia has qualified for debt relief under the Multilateral Debt Relief Initiative (MDRI). Its sustained, robust growth over the past five years represents a striking turnaround after more than two decades of decreasing per capita income.

Zambia’s economic performance has been underpinned by a marked improvement in public finances. Inflation, although still too high, has moderated, and Zambia’s external position has strengthened because of a rebound in copper export receipts and relatively strong growth in non-traditional exports. To tackle poverty, the government has increased its spending on education and health care and established a sound record of implementing its poverty reduction strategy. Improved public expenditure management and more disciplined fiscal policy have contributed to poverty reduction, and the planned further strengthening of public expenditure management systems will be crucial to ensuring that Zambia makes effective use of the resources made available under the MDRI.

Zambia’s striking turnaround…

Improved public finances have underpinned Zambia’s economic performance.

Est.
20012002200320042005
(annual percent change)
Real GDP4.93.35.15.44.3
Inflation (end of period)18.726.717.217.519.0
Real effective exchange rate8.5-5.8-1.78.112.2
Broad money10.831.523.430.28.6
(percent of GDP)
Overall fiscal balance1-8.1-6.3-6.6-1.7-2.7
Current account balance1-13.9-9.2-9.6-5.4-6.0
(months of imports)
Foreign exchange reserves0.82.11.31.21.5

Including grants.

Data: Zambian authorities and IMF staff estimates.

Including grants.

Data: Zambian authorities and IMF staff estimates.
will be aided by dramatically lower debt1

Favorable external debt sustainability prospects will help to provide a solid basis for stronger economic performance.

2006 (Proj.)2007 (Proj.)
2005BeforeAfterAfter
(Est.)MDRIMDRI2MDRI
(million U.S. dollars, unless otherwise indicated)
PPG external debt owed to3,4933,594502628
IMF6016356480
International Development Association2,4292,499220330
African Development Fund2612723045
NPV of PPG external debt to exports365.863.014.114.5
Debt service to exports35.03.32.51.9
PPG external debt to GDP (percent)50.943.16.07.0
NPV of PPG external debt to GDP (percent)22.819.84.44.5
Note: PPG = Public and publicly guaranteed; NPV = Net present value.

After assistance under the Heavily Indebted Poor Countries Initiative.

Assuming delivery on January 1, 2006, for the IMF and the African Development Fund, and on July 1, 2006, for the World Bank’s International Development Association.

Exports of goods and services for the year under consideration.

Data: IMF staff estimates and projections.
Note: PPG = Public and publicly guaranteed; NPV = Net present value.

After assistance under the Heavily Indebted Poor Countries Initiative.

Assuming delivery on January 1, 2006, for the IMF and the African Development Fund, and on July 1, 2006, for the World Bank’s International Development Association.

Exports of goods and services for the year under consideration.

Data: IMF staff estimates and projections.

Poverty is still deeply rooted and widespread, however, and, although Zambia’s prospects for reaching the Millennium Development Goals have improved in recent years, it still faces significant challenges. To accelerate its progress, Zambia needs to boost and sustain pro-poor growth and increase financial and human resources for the social sectors.

Under the MDRI, the IMF is providing 100 percent relief on all outstanding debt to the IMF that Zambia incurred before January 1, 2005. The debt relief will amount to approximately $577 million, or $572 million excluding the remaining assistance under the Heavily Indebted Poor Countries (HIPC) Initiative. With additional debt relief expected from the World Bank and the African Development Fund in 2006, Zambia’s external debt, which had already been lowered considerably under the HIPC Initiative, would be substantially reduced—from about $3.5 billion in nominal terms at end-2005 to about $500 million at end-2006. In net present value terms, the ratio of Zambia’s external debt to exports is projected to decline from 66 percent at end-2005 to 14½ percent at end-2006. Zambia’s highly favorable external debt sustainability prospects, together with the maintenance of sound economic policies, provide a solid basis for strengthened economic performance over the medium and long terms.

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