Press Release No. 24/476

Zambia: IMF Executive Board Completes Fourth Review Under the Extended Credit Facility and Financing Assurances Review

December 16, 2024

• The IMF Executive Board completed the fourth review under the 38-month Extended Credit Facility (ECF) Arrangement for Zambia, providing Zambia with immediate access to about US$184 million.
• Program performance has remained broadly satisfactory. All June 2024 quantitative performance criteria (QPCs) and most indicative targets for June and September 2024 were met.
• The authorities remain committed to maintaining macroeconomic stability and restoring fiscal and debt sustainability, while supporting vulnerable households and advancing structural and governance reforms to foster growth.

Washington, DC - December 16, 2024: The Executive Board of the International Monetary Fund (IMF) completed today the fourth review of Zambia’s 38-month Extended Credit Facility (ECF) Arrangement and financing assurances review. Completion of the review allows for an immediate disbursement of SDR 139.88 million (about US$184 million), bringing Zambia’s total disbursement under the ECF-supported program to SDR 992.86 million (about US$1.3 billion).

Zambia’s ECF Arrangement was approved on August 31, 2022, for SDR 978.2 million (100 percent of quota, or about US$1.3 billion), with the access augmented to SDR 1,271.66 million (130 percent of quota, about US$1.7 billion) on June 24, 2024 (See IMF Press Release No. 24/242). The program supports Zambia’s home-grown Eighth National Development Plan that seeks to entrench macroeconomic stability, attain debt and fiscal sustainability, enhance public governance, and foster inclusive growth to improve the livelihood of the Zambian people, especially the vulnerable.

Program performance has remained broadly satisfactory despite difficult domestic and international challenges. All June 2024 quantitative performance criteria (QPCs) and most indicative targets (ITs) for June and September 2024 have been met, except for the June 2024 IT on the clearance of expenditure arrears and the September 2024 IT on social spending, which were missed by a small margin. Five out of fifteen structural benchmarks were not met, although two were completed with a slight delay.

With the historic drought significantly contracting agriculture and electricity production, growth in 2024 is expected to decline further to 1.2 percent, down from 2.3 percent projected in the Third Review. While the current account has improved, including due to subdued imports earlier in the year, inflation has risen further due to higher food prices and past currency depreciation. Nevertheless, the authorities remain committed to maintaining macroeconomic stability and restoring fiscal and debt sustainability, while supporting vulnerable households. The authorities are also taking steps to improve governance and advance other structural reforms, including in the energy sector, to foster inclusive growth.

Zambia’s public debt is assessed as sustainable, but the country remains at high risk of overall and external debt distress based on a full post-restructuring macro-framework. This framework incorporates, among others, the treatment of official bilateral claims agreed with Zambia’s Official Creditor Committee (OCC), the completed Eurobond exchange, and the agreements in principle (AIP) reached with most external commercial creditors, which enable Zambia to fully close its exceptional financing gap. Although Zambia is at a high risk of debt distress because of near-term breaches of the DSA thresholds, Zambia is expected to reach a moderate risk of external debt distress over the medium term.  

Following the Executive Board discussion on Zambia, Mr. Nigel Clarke, Deputy Managing Director, and Acting Chair, issued the following statement:

“Program performance remains satisfactory, as the authorities remain committed to economic stabilization and advancing structural and governance reforms, despite the severe impact of a historic drought. Contracting agricultural and electricity outputs have slowed growth and accelerated inflation.

“Fiscal consolidation, prudent monetary policy and further reserve accumulation, exchange rate flexibility, and sound financial policies will be crucial for safeguarding macro-financial stability and building resilience against shocks.

“The fiscal consolidation path envisaged in 2025 will support restoring fiscal and debt sustainability. Planned measures to expand the tax base, harmonize corporate income tax, and index excises are adequate, although heightened risks to the post-drought recovery necessitate contingency revenue and expenditure measures. Progress in enhancing revenue mobilization and strengthening spending efficiency and transparency, including of state-owned enterprises, are critical to generate much needed fiscal space, including to support the most vulnerable.

“Zambia’s public debt is assessed as sustainable but remains at high risk of overall and external debt distress. This assessment is based on a full post-restructuring macro-framework, incorporating the treatment of official bilateral claims agreed with the official creditors committee, the completed Eurobond exchange, and the agreements in principle with most commercial private creditors. Zambia is expected to reach a moderate risk of external debt distress over the medium term.

“The Bank of Zambia remains ready to act and maintains data-dependent monetary policy, which is key to preserving the credibility of its inflation targeting framework. Reserve accumulation and sustained exchange rate flexibility remain critical for addressing external shocks.

“Governance and structural reforms are vital for promoting private sector activity and economic diversification. Enhancing transparency in the energy sector and resource management, strengthening anti-corruption measures, continuing agriculture reform, alongside building climate resilience, will improve the business climate and support sustainable and more inclusive growth.”