The Zambian government, through its Ministry of Finance has been engaged in high level meetings with the IMF in order to secure and extend credit facility from the multi-lateral lending institution. Zambia, one of the first countries to default on its sovereign debt obligations is seeking to boost investor confidence and return its economy to a sustainable trajectory of growth. The Zambian government has been in contact with the IMF since September 2019.
According to a statement from former Finance Minister, Bwalya N’gandu, “We have engaged systematically with our official creditors for debt service suspension as well as our commercial creditors to seek similar debt service treatment, including the rescheduling of past due arrears accumulated throughout the year. We hope to be in a position to reach an agreement in principle with our external creditor community on a debt treatment and with the IMF on a staff level agreement for a programme by the end of the standstill period.”
At the heart of the protracted negotiations includes a lack of fiscal discipline, transparency in debt acquisition and disclosure which has led to macro-economic instability. According to the IMF, “Macroeconomic stability exists when key economic relationships are in balance—for example, between domestic demand and output, the balance of payments, fiscal revenues and expenditure, and savings and investment. These relationships, however, need not necessarily be in exact balance. Imbalances such as fiscal and current account deficits or surpluses are perfectly compatible with economic stability provided that they can be financed in a sustainable manner.”
Zambia as a country has exhibited macroeconomic instability as witnessed in the high levels of public debt, double digit inflation and declining GDP growth. Excessive acquisition of non-concessional debt and introduction fuel (zero rate value‑added tax on fuel) and electricity subsidies by the Zambian government has further delayed the process of securing a deal.
During the high-level visit in Lusaka from December 7 to 9, 2020 undertaken by the IMF’s Director for African Department, Mr. Abebe Aemro Selassie emphasized public financial management as a key sticking point towards negotiations. According to a statement by Mr. Selassie at conclusion of the talks “Given the deep-rooted challenges faced, policies would need to be calibrated to restore sustainability while protecting the vulnerable and creating more inclusive growth. The authorities reiterated their intention of restoring the credibility of the budget, increasing debt transparency, strengthening public financial management, as well as improving governance and preserving financial stability.”
In another statement released to the press, during their virtual visit to Zambia in March 2021 led by Mr. Robinson , the IMF indicated that “ Key challenges that need to be addressed include: detailing the fiscal reform agenda to achieve the large and sustained fiscal consolidation needed to correct current fiscal imbalances; securing increased fiscal revenues to provide the fiscal space for government to meet its development objectives; bolstering governance and the efficiency of the use of public resources, including through debt and expenditure transparency; halting the incurrence of domestic arrears (including on fuel and in the electricity sector); and ensuring that the social protection scheme is fully funded with timely payments to protect lower income groups. ”
Clearly, the IMF identified an already large stock of public and external debt in addition to fiscal indiscipline by the previous administration, as a key hurdle towards achieving a deal. Efforts to reduce government debt accumulation under the previous government were muted additionally, allegations of corruption and misuse of public resources were rife.
In a recent statement to parliament, the Energy Minister, Peter Kapala revealed that the utility company ZESCO, had incurred debt amounting to $3.5 billion. According to the Energy Ministers statement “ZESCO debt arose from costly emergency power imports and increased use of Independent Power Producers (IPP).” Furthermore, he added that “ZESCO had made $400 million in loses between 2018 and 2019 owing to the depreciation of the local Kwacha currency, disputed invoices and the inability of some mining companies to pay bills had resulted in these entities owing a combined $887 million as at August 2021”.
There has been renewed hope for a deal with the IMF as the new government has committed to transparency in the acquisition of debt, public financial management and governance. “Zambia’s sovereign dollar bonds and currency rallied on Monday as investors were optimistic opposition leader Hakainde Hichilema would bring a swift resolution to the country’s debt woes after a landslide election win. The 2024 and 2027 bonds added more than 8 cents in the dollar to trade at 76.1 cents and 75.1 cents respectively, their highest level since 2019 Tradeweb data showed”.
The new Minister of Finance Situmbeko Musokotwane has further reiterated calls to secure an IMF program as quickly as possible. According to the current Finance Minister, “It was critical to agree to a lending program with the IMF because it would give creditors confidence and the government cheaper and longer financing”.
The IMF and Zambian officials held virtual meetings from September 27 to October 1, 2021, with the IMF paying special attention to the 2022 budget preparations ahead of its presentation to parliament. In a statement made to the press by the Mission Chief for Zambia, Ms. Allison Holland, “We welcomed the opportunity to hear an update on recent fiscal and macroeconomic developments and learn about the new authorities’ reform priorities that focus on restoring macroeconomic stability, re-establishing fiscal and debt sustainability, generating growth, and improving human development. We look forward to discussions on a Fund-supported program in the near future”.
Considering the previous events and statements by the IMF and Zambian government, the 2021-2022 budget and implementation will be a significant factor towards bringing the IMF to the table. The IMF will be looking at the current governments’ commitment towards fiscal consolidation, policy consistency, the fight against corruption and transparency in governance as contributing factors towards securing an extended credit facility.