April 8, 2005
This statement provides additional information that has become available since the issuance of the staff report. Recent developments were broadly in line with the program and do not alter the thrust of the staff appraisal.
In March, the 12-month rate of inflation stood at 17.4 percent (in line with program assumptions), down from 18.7 percent in February, reflecting a leveling-off of food prices. Low rainfall in some regions of the country may reduce the maize harvest in coming months, but a firm estimate will not be available until the crop forecasting survey is completed in late April or early May. Existing maize stocks amount to about 10 percent of annual consumption. As a precautionary measure, the government has temporarily banned the export of maize.
Preliminary data through February indicate that government revenues were about 1 percent below authorities’ monthly target, which is consistent with program projections for end-March. Net domestic financing of the government was similarly also in line with the authorities’ end-February ceiling after applying program adjustors.
Net domestic assets of the Bank of Zambia were held within the authorities’ monthly ceiling for end February and gross reserves of the Bank of Zambia exceeded the adjusted floor by comfortable margins. In line with the program, reserve and broad money growth moderated substantially, as the 12-month growth rates dropped to 15½ percent and 22½ percent, respectively, in February. The average yield on treasury bills eased slightly in March to 18.0 percent, from 18.3 percent in February while the kwacha appreciated against the U.S. dollar by 0.5 percent in nominal terms.
On March 29, cabinet approved the proposal to repeal sections of the Building Societies Act, the National Savings and Credit Bank Act, and the Development Bank of Zambia Amendment Act which were in conflict with the Banking and Financial Services Act. The written notification of this measure received by staff on March 30 satisfies the prior action for the Board discussion of the PRGF review.
On March 31, the Zambia Privatization Agency (ZPA) advertised an invitation for bids for the sale of a 49 percent share with management rights of the Zambia National Commercial Bank. The staff welcomes this action, which has restarted the privatization process and could soon lead to the issuance of international bidding documents as called for by the HIPC trigger on which a waiver is recommended. The ZPA has established a deadline for submitting bids of June 30, 2005. In addition, since the issuance of the invitation for bids fulfilled a proposed performance criterion for May 2005, a revised decision removing this performance criterion has been circulated.
Parliament approved the 2005 budget on March 30. The final budget is in line with the framework under the PRGF-supported program, including a ceiling on government domestic financing of 1.6 percent of GDP. Total revenues and expenditures are unchanged from the original budget proposal. The budget includes a minor reallocation of spending (of 0.1 percent of GDP) to grants to local governments with offsetting cuts in various administrative and capital expenditures and the contingency.
The contract for the installation of the integrated financial management and information system (IFMIS) has yet to be finalized. The World Bank’s Legal Department recommended changes to a proposal for a joint venture arrangement between the contractor and its former parent company, in order to comply with the original prequalification conditions for bids. At this point, the authorities and the contractor have not indicated whether these recommendations are acceptable.
The authorities have given their consent to the publication of the staff report and the Completion Point Document for the Enhanced HIPC Initiative.