IMF backs Zambia reforms

Zambia has received a significant boost from the International Monetary Fund (IMF) with a disbursement of $570 million after the completion of the third review of the country's Extended Credit Facility. This financial injection comes at a crucial time for Zambia, as the country grapples with the aftermath of a severe drought that has had a profound impact on its economy and population. In an exclusive interview with CNBC Africa, Mercedes Vera-Martin, Mission Chief for Zambia at the IMF, discussed the key outcomes of the review and outlined the progress made by the Zambian government on economic and structural reforms. One of the main highlights of the review was the approval of a 30% increase in the quota, allowing the authorities to address the effects of the drought on the population. The $570 million disbursement will be used to provide additional social transfers to households impacted by the drought. Despite the challenges posed by the drought, program performance remained satisfactory, and the economy showed resilience in 2023. Vera-Martin emphasized that Zambia has been making strides in key economic and structural reforms. The government's focus on fiscal consolidation, generating fiscal space for social spending, and implementing institutional reforms has been commendable. Measures such as strengthening the monetary policy transmission mechanism, improving tax administration, and enhancing transparency in fiscal programs have been instrumental in driving progress. The impact of the drought on Zambia's economic outlook led to a revision of the growth forecast for 2024 to 2.3%. With 40% of agricultural production destroyed and significant cuts in electricity production, the country faces challenges in economic activity. The IMF estimates external financing needs of about $580 million in 2024, which will be covered through support from the IMF and the World Bank. To mitigate the effects of the drought, the Zambian government has increased social transfers, maize milling, and school feeding programs for affected households. These initiatives are estimated to cost 0.9% of GDP and have been incorporated into the revised budget submitted to Parliament. While acknowledging the progress made by Zambia, Vera-Martin highlighted the need for continued vigilance and policy implementation to ensure sustainability over the medium term. The completion of debt restructuring agreements with creditors and ongoing engagement with private creditors are crucial steps for the country's financial stability. Looking ahead, the IMF urges Zambia to maintain a careful calibration of policies, prioritize fiscal sustainability, mobilize revenue, focus on inflation, and scale up structural reforms. These measures are essential for sustaining growth and creating opportunities for the Zambian population. Despite meeting most quantitative and structural benchmarks, Zambia fell short on two targets related to VAT claims reduction and banking operation rationalization. However, efforts are underway to address these areas and continue progress towards economic stability. In conclusion, Zambia's receipt of $570 million from the IMF underscores the commitment to addressing the impact of the drought and advancing economic reforms. The support provided by international financial institutions will play a crucial role in helping Zambia navigate through current challenges and achieve sustainable growth in the future.