Abstract
IMF Country Report No. 22/292
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IMF Country Report No. 22/292
ZAMBIA
REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY—PRESS RELEASE; STAFF REPORT; STAFF SUPPLEMENT; STAFF STATEMENT; AND STATEMENT BY THE EXECUTIVE DIRECTOR FOR ZAMBIA
September 2022
In the context of the Request for an Arrangement Under the Extended Credit Facility, the following documents have been released and are included in this package:
A Press Release including a statement by the Chair of the Executive Board.
The Staff Report prepared by a staff team of the IMF for the Executive Board’s consideration on August 31, 2022, following discussions that ended on June 15, 2022, with the officials of Zambia on economic developments and policies underpinning the IMF arrangement under the Extended Credit Facility. Based on information available at the time of these discussions, the staff report was completed on August 9, 2022.
A Debt Sustainability Analysis prepared by the staffs of the IMF and the International Development Association.
A Staff Statement updating information on recent developments.
A Statement by the Executive Director for Zambia.
The IMF’s transparency policy allows for the deletion of market-sensitive information and premature disclosure of the authorities’ policy intentions in published staff reports and other documents.
Copies of this report are available to the public from
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© 2022 International Monetary Fund
Press Release
PRESS RELEASE
PR22/297
IMF Executive Board Approves New Extended Credit Facility (ECF) Arrangement for Zambia
FOR IMMEDIATE RELEASE
The IMF Board approves SDR 978.2 million (about US$1.3 billion) 38-month ECF arrangement f or Zambia to help restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
The authorities’ program, supported by the ECF-arrangement, will advance the authorities’ homegrown reform plan to restore debt sustainability, create fiscal space for much-needed social spending, and strengthen economic governance.
Securing timely restructuring agreements with external creditors will be essential for the successful implementation of the new ECF arrangement.
Washington, DC – August 31, 2022: The Executive Board of the International Monetary Fund (IMF) approved a 38-month arrangement under the Extended Credit Facility (ECF) in an amount equivalent to SDR 978.2 million (around US$1.3 billion, or 100 percent of quota). The program is based on the authorities’ homegrown economic reform plan that aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
Zambia is dealing with the legacy of years of economic mismanagement, with an especially inefficient public investment drive. Growth has been too low to reduce rates of poverty, inequality, and malnutrition that are amongst the highest in the world. Zambia is in debt distress and needs a deep and comprehensive debt treatment to place public debt on a sustainable path.
The ECF-supported program will help reestablish sustainability through fiscal adjustment and debt restructuring, create fiscal space for social spending to cushion the burden of adjustment, and strengthen economic governance, including by improving public financial management. The program will also catalyze much needed financial support from development partners. The Executive Board’s decision will enable an immediate disbursement equivalent to SDR 139.88 million (about US$185 million).
Following the Executive Board discussion on Zambia, Ms. Kristalina Georgieva, Managing Director, issued the following statement:
“Zambia continues to face profound challenges reflected in high poverty levels and low growth. The ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.
“Restoring fiscal sustainability will require a sustained fiscal adjustment. The authorities’ adjustment plans appropriately focus on eliminating regressive fuel subsidies, enhancing the efficiency of the agricultural subsidy program, and reducing inefficient public investment. Domestic revenue mobilization also needs to support the medium-term adjustment. The adjustment creates fiscal space for increased social spending to cushion the burden on the most vulnerable, help reduce poverty, and to invest in Zambia’s people. The ongoing expansion of the authorities’ Social Cash Transfer program and their plans to increase public spending on health and education are particularly welcome. Together with the fiscal adjustment, Zambia needs a deep and comprehensive debt treatment under the G20 Common Framework to restore debt sustainability.
“A substantial strengthening of fiscal controls is needed to support the fiscal adjustment, as well as address governance and corruption vulnerabilities. Public investment management and procurement practices need to be strengthened to ensure transparency and the efficient use of scarce resources. It will also be important to bolster the framework for monitoring fiscal risks, particularly those related to large state-owned enterprises.
“The Bank of Zambia should continue its efforts to reduce inflation and preserve financial stability. International reserves should be replenished as conditions allow and the exchange rate should continue to reflect market conditions. Addressing high NPL levels and ensuring adequate capital buffers will also be important.”
Zambia: Selected Economic Indicators, 2018–25
Adjusted for the accumulation/clearance of VAT refund claims and expenditure arrears.
Nonresident holdings of local currency debt are included under domestic debt here, unlike in the DSA, which is conducted on a residency basis.
Including arrears.
Public and publicly guaranteed external debt.
Zambia: Selected Economic Indicators, 2018–25
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | ||
| Projections | |||||||||
| National accounts and prices | |||||||||
| GDP growth at constant prices | 4.0 | 1.4 | -2.8 | 3.6 | 3.0 | 3.9 | 4.1 | 4.5 | |
| Agriculture | -21.2 | 7.7 | 17.2 | -0.7 | -4.4 | 8.8 | 4.0 | 4.0 | |
| Mining | 6.3 | -5.1 | 8.0 | -6.3 | 3.1 | 3.5 | 5.6 | 6.2 | |
| Non-mining, non-agricultural | 6.1 | 1.8 | -5.3 | 5.2 | 3.5 | 3.5 | 3.9 | 4.4 | |
| GDP deflator | 7.4 | 7.6 | 13.7 | 23.4 | 8.4 | 8.7 | 7.3 | 6.8 | |
| GDP at market prices (millions of kwacha) | 275,175 | 300,449 | 332,223 | 424,453 | 473,917 | 535,028 | 597,667 | 667,213 | |
| Consumer prices | |||||||||
| Consumer prices (average) | 7.5 | 9.2 | 15.7 | 22.0 | 13.0 | 9.5 | 7.6 | 7.1 | |
| Consumer prices (end of period) | 7.9 | 11.7 | 19.2 | 16.4 | 12.7 | 8.0 | 7.3 | 7.0 | |
| External sector | |||||||||
| Terms of trade (deterioration -) | -1.9 | -10.5 | 19.0 | 21.9 | -8.6 | -2.3 | -0.4 | -0.4 | |
| Average exchange rate (kwacha per U.S. dollar) | 10.5 | 12.9 | 18.3 | 20.0 | … | … | … | … | |
| (percentage change; depreciation +) | 9.9 | 23.3 | 42.3 | 9.1 | … | … | … | … | |
| End-of-period exchange rate (kwacha per U.S. dollar) | 11.9 | 14.1 | 21.2 | 16.7 | … | … | … | … | |
| Current account balance | -1.3 | 1.4 | 12.0 | 7.6 | 1.4 | 0.3 | 2.5 | 2.7 | |
| Gross international reserves (months of prospective imports) | 2.4 | 3.0 | 1.9 | 3.2 | 3.3 | 3.9 | 4.6 | 5.5 | |
| Money and credit | |||||||||
| Reserve money (end of period) | -0.6 | 25.8 | 57.0 | 8.5 | 14.7 | 17.8 | 10.8 | 17.2 | |
| Broad money (M3) | 16.5 | 12.5 | 46.4 | 3.7 | 11.0 | 12.1 | 10.8 | 8.2 | |
| Credit to the private sector (percent of GDP) | 11.7 | 12.5 | 12.3 | 8.9 | 9.2 | 9.3 | 9.5 | 9.8 | |
| National accounts | |||||||||
| Gross investment | 38.6 | 39.3 | 32.3 | 28.7 | 31.6 | 31.5 | 31.5 | 31.6 | |
| Government | 8.6 | 9.4 | 7.8 | 4.1 | 3.0 | 3.0 | 3.0 | 3.1 | |
| Private | 30.1 | 29.8 | 24.5 | 24.5 | 28.5 | 28.5 | 28.5 | 28.5 | |
| National savings | 37.3 | 40.7 | 44.3 | 36.3 | 32.9 | 31.8 | 34.0 | 34.3 | |
| Central government budget | |||||||||
| Revenue | 19.4 | 20.4 | 20.3 | 23.3 | 21.4 | 22.3 | 22.7 | 22.8 | |
| Taxes | 16.1 | 16.1 | 15.7 | 16.8 | 16.7 | 17.6 | 17.9 | 18.1 | |
| Grants | 0.2 | 0.3 | 0.5 | 0.6 | 0.4 | 0.3 | 0.3 | 0.3 | |
| Other revenue | 3.1 | 4.0 | 4.1 | 6.0 | 4.3 | 4.3 | 4.4 | 4.4 | |
| Expenditure | 27.7 | 29.8 | 34.1 | 31.8 | 30.8 | 29.4 | 28.9 | 27.7 | |
| Expense | 19.1 | 20.4 | 26.3 | 27.7 | 27.7 | 26.5 | 25.9 | 24.6 | |
| Net acquisition of nonfinancial assets | 8.6 | 9.4 | 7.8 | 4.1 | 3.0 | 3.0 | 3.0 | 3.1 | |
| Net lending/borrowing (cash basis) | -8.3 | -9.4 | -13.8 | -8.5 | -9.4 | -7.1 | -6.3 | -4.9 | |
| Net lending/borrowing (commitment basis) | -11.7 | -13.9 | -17.4 | -14.5 | -6.9 | -4.9 | -4.3 | -3.1 | |
| Primary balance (commitment basis)1 | -6.9 | -6.9 | -10.1 | -6.0 | 0.7 | 2.2 | 2.7 | 3.2 | |
| Primary balance excluding mining revenues (commitment basis)1 | -9.2 | -9.4 | -13.3 | -11.9 | -5.0 | -3.0 | -2.7 | -2.3 | |
| Public debt | |||||||||
| Total public debt (gross, end-period)2,3 | 77.8 | 103.3 | 150.3 | 126.0 | 122.8 | 115.6 | 109.7 | 104.7 | |
| External4 | 48.1 | 62.1 | 95.8 | 64.7 | 69.5 | 69.1 | 68.5 | 67.3 | |
| Domestic | 29.7 | 41.2 | 54.5 | 61.3 | 53.3 | 46.5 | 41.3 | 37.4 | |
Adjusted for the accumulation/clearance of VAT refund claims and expenditure arrears.
Nonresident holdings of local currency debt are included under domestic debt here, unlike in the DSA, which is conducted on a residency basis.
Including arrears.
Public and publicly guaranteed external debt.
Zambia: Selected Economic Indicators, 2018–25
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | ||
| Projections | |||||||||
| National accounts and prices | |||||||||
| GDP growth at constant prices | 4.0 | 1.4 | -2.8 | 3.6 | 3.0 | 3.9 | 4.1 | 4.5 | |
| Agriculture | -21.2 | 7.7 | 17.2 | -0.7 | -4.4 | 8.8 | 4.0 | 4.0 | |
| Mining | 6.3 | -5.1 | 8.0 | -6.3 | 3.1 | 3.5 | 5.6 | 6.2 | |
| Non-mining, non-agricultural | 6.1 | 1.8 | -5.3 | 5.2 | 3.5 | 3.5 | 3.9 | 4.4 | |
| GDP deflator | 7.4 | 7.6 | 13.7 | 23.4 | 8.4 | 8.7 | 7.3 | 6.8 | |
| GDP at market prices (millions of kwacha) | 275,175 | 300,449 | 332,223 | 424,453 | 473,917 | 535,028 | 597,667 | 667,213 | |
| Consumer prices | |||||||||
| Consumer prices (average) | 7.5 | 9.2 | 15.7 | 22.0 | 13.0 | 9.5 | 7.6 | 7.1 | |
| Consumer prices (end of period) | 7.9 | 11.7 | 19.2 | 16.4 | 12.7 | 8.0 | 7.3 | 7.0 | |
| External sector | |||||||||
| Terms of trade (deterioration -) | -1.9 | -10.5 | 19.0 | 21.9 | -8.6 | -2.3 | -0.4 | -0.4 | |
| Average exchange rate (kwacha per U.S. dollar) | 10.5 | 12.9 | 18.3 | 20.0 | … | … | … | … | |
| (percentage change; depreciation +) | 9.9 | 23.3 | 42.3 | 9.1 | … | … | … | … | |
| End-of-period exchange rate (kwacha per U.S. dollar) | 11.9 | 14.1 | 21.2 | 16.7 | … | … | … | … | |
| Current account balance | -1.3 | 1.4 | 12.0 | 7.6 | 1.4 | 0.3 | 2.5 | 2.7 | |
| Gross international reserves (months of prospective imports) | 2.4 | 3.0 | 1.9 | 3.2 | 3.3 | 3.9 | 4.6 | 5.5 | |
| Money and credit | |||||||||
| Reserve money (end of period) | -0.6 | 25.8 | 57.0 | 8.5 | 14.7 | 17.8 | 10.8 | 17.2 | |
| Broad money (M3) | 16.5 | 12.5 | 46.4 | 3.7 | 11.0 | 12.1 | 10.8 | 8.2 | |
| Credit to the private sector (percent of GDP) | 11.7 | 12.5 | 12.3 | 8.9 | 9.2 | 9.3 | 9.5 | 9.8 | |
| National accounts | |||||||||
| Gross investment | 38.6 | 39.3 | 32.3 | 28.7 | 31.6 | 31.5 | 31.5 | 31.6 | |
| Government | 8.6 | 9.4 | 7.8 | 4.1 | 3.0 | 3.0 | 3.0 | 3.1 | |
| Private | 30.1 | 29.8 | 24.5 | 24.5 | 28.5 | 28.5 | 28.5 | 28.5 | |
| National savings | 37.3 | 40.7 | 44.3 | 36.3 | 32.9 | 31.8 | 34.0 | 34.3 | |
| Central government budget | |||||||||
| Revenue | 19.4 | 20.4 | 20.3 | 23.3 | 21.4 | 22.3 | 22.7 | 22.8 | |
| Taxes | 16.1 | 16.1 | 15.7 | 16.8 | 16.7 | 17.6 | 17.9 | 18.1 | |
| Grants | 0.2 | 0.3 | 0.5 | 0.6 | 0.4 | 0.3 | 0.3 | 0.3 | |
| Other revenue | 3.1 | 4.0 | 4.1 | 6.0 | 4.3 | 4.3 | 4.4 | 4.4 | |
| Expenditure | 27.7 | 29.8 | 34.1 | 31.8 | 30.8 | 29.4 | 28.9 | 27.7 | |
| Expense | 19.1 | 20.4 | 26.3 | 27.7 | 27.7 | 26.5 | 25.9 | 24.6 | |
| Net acquisition of nonfinancial assets | 8.6 | 9.4 | 7.8 | 4.1 | 3.0 | 3.0 | 3.0 | 3.1 | |
| Net lending/borrowing (cash basis) | -8.3 | -9.4 | -13.8 | -8.5 | -9.4 | -7.1 | -6.3 | -4.9 | |
| Net lending/borrowing (commitment basis) | -11.7 | -13.9 | -17.4 | -14.5 | -6.9 | -4.9 | -4.3 | -3.1 | |
| Primary balance (commitment basis)1 | -6.9 | -6.9 | -10.1 | -6.0 | 0.7 | 2.2 | 2.7 | 3.2 | |
| Primary balance excluding mining revenues (commitment basis)1 | -9.2 | -9.4 | -13.3 | -11.9 | -5.0 | -3.0 | -2.7 | -2.3 | |
| Public debt | |||||||||
| Total public debt (gross, end-period)2,3 | 77.8 | 103.3 | 150.3 | 126.0 | 122.8 | 115.6 | 109.7 | 104.7 | |
| External4 | 48.1 | 62.1 | 95.8 | 64.7 | 69.5 | 69.1 | 68.5 | 67.3 | |
| Domestic | 29.7 | 41.2 | 54.5 | 61.3 | 53.3 | 46.5 | 41.3 | 37.4 | |
Adjusted for the accumulation/clearance of VAT refund claims and expenditure arrears.
Nonresident holdings of local currency debt are included under domestic debt here, unlike in the DSA, which is conducted on a residency basis.
Including arrears.
Public and publicly guaranteed external debt.
Title page
ZAMBIA
REQUEST FOR AN ARRANGEMENT UNDER THE EXTENDED CREDIT FACILITY
August 9, 2022
EXECUTIVE SUMMARY
Context. Zambia is dealing with large fiscal and external imbalances resulting from years of economic mismanagement, especially an overly ambitious public investment drive that did not yield any significant boost to growth or revenues. A drought in 2019 and the COVID-19 pandemic exacerbated the acute economic and social challenges facing the country, with poverty, inequality, and malnutrition rates amongst the highest in the world. As a result, Zambia is in debt distress, defaulting on its Eurobonds in November 2020 while also accumulating arrears to other creditors. The war in Ukraine has increased prices of fuel and fertilizer, amplifying pressures further.
Extended Credit Facility Arrangement (ECF). The authorities have requested a 38-month arrangement under the ECF in the amount of SDR 978.2 million (100 percent of Zambia’s quota).
Outlook and risks. With a resolution to the debt crisis, economic recovery is anticipated to continue in 2022 and inflation should continue falling. Key risks to the outlook include volatility in copper prices and production, climate shocks, spillovers from the war in Ukraine, and reform fatigue, especially in the face of a large fiscal adjustment.
Program objectives and policies. The proposed ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth. The program reflects the goals of the authorities’ Eighth National Development Plan and is tailored to addressing Zambia’s most pressing macroeconomic challenges, namely (i) restoring sustainability through fiscal adjustment and debt restructuring; (ii) creating fiscal space for social spending to cushion the burden of adjustment; and (iii) strengthening governance and reducing corruption vulnerabilities, including by improving public financial management. The program will seek to ensure that monetary and exchange rate policies support the restoration of macroeconomic stability, international reserves return to adequate levels, and the financial sector remains stable.
Approved By
Costas Christou (AFR) and Martin Cerisola (SPR)
Discussions took place over 18 months, including during virtual missions in February-March 2021, April-May 2021, and November-December 2021. A staff level agreement was announced on December 3, 2021, with the underpinning macroeconomic framework updated during a June 2022 virtual staff visit. The staff team was led by Mr. Robinson (until June 2021) and Ms. Holland (afterwards), and consisted of Ms. Sharma (Resident Representative), Messrs. Gupta, Mbaye, Meleshchuk, and Slavov (all AFR), Mdmes. Balta and Singh (SPR), Mr. Saab (MCM), Mr. Feher, Ms. Stone, and Ms. Tchelishvili (all FAD). Mr. Mungala and Mr. Mwansa (local office) assisted the team. Ms. Mannathoko (Executive Director), Mr. Damane, and Ms. Maidi (all OED) participated in most discussions. Ms. Bravo, Mr. Guzman, and Ms. Kumar (all AFR) assisted from headquarters. Staff met finance ministers Ng'andu and Musokotwane, Bank of Zambia governors Mvunga and Kalyalya, and many other senior government officials.
Contents
CONTEXT
RECENT DEVELOPMENTS
OUTLOOK AND RISKS
PROGRAM OBJECTIVES AND POLICIES
A. Restoring Medium-Term Fiscal Sustainability
B. Enhanced Social Spending
C. Restoring Debt Sustainability and Improving Debt Management and Transparency
D. Strengthening Governance
E. Strengthening Monetary Policy and Re-Building External Resilience
F. Safeguarding Financial Stability
G. Improving Statistical Capacity
PROGRAM MODALITIES AND OTHER ISSUES
STAFF APPRAISAL
BOXES
1. The COVID-19 Pandemic
2. Electricity Sector Reforms
FIGURES
1. Recent Developments, 2000–22
2. External Sector, 2013–22
3. Fiscal Developments, 2016–21
4. Monetary & Financial Developments
5. Capacity to Repay Indicators Compared to UCT Arrangements for PRGT Countries
TABLES
1. Selected Economic Indicators, 2018–25
2a. Zambia: Balance of Payments, 2018–25 (Millions of U.S. dollars)
2b. Balance of Payments, 2018–25 (Percent of GDP)
3a. Fiscal Operations of the Budgetary Central Government, 2018–25 (Millions of Kwacha)
3b. Fiscal Operations of the Budgetary Central Government, 2018–25 (Percent of GDP)
4. Monetary Accounts, 2018–25
5. Financial Soundness Indicators, 2013–22
6. External Financing Needs and Sources, 2018–25
7. Schedule of Reviews and Disbursements
8. Indicators of Capacity to Repay the Fund, 2022–32
ANNEXES
I. Risk Assessment Matrix
II. External Sector Assessment
APPENDIX
I. Letter of Intent
Attachment I. Memorandum of Economic and Financial Policies, 2022–25
Attachment II. Technical Memorandum of Understanding
