For more information, see Zambia and the IMF

Enhanced Structural Adjustment Facility
Policy Framework Paper, 1999-2001

Contents

Tables

Table 1. Zambia: Selected Economic and Financial Indicators, 1996-2001

1996
1997
1998
1999
2000
2001

Est.
Program

(Annual percentage change, unless otherwise indicated)

National income and prices
  Real GDP 6.6 3.3 -2.0 4.0 4.5 5.5
  GDP deflator 23.4 26.8 23.1 20.8 11.3 5.4
  Consumer prices (annual average) 43.1 24.4 24.5 21.6 11.6 5.3
  Consumer prices (end of period) 35.2 18.6 30.6 15.0 8.0 4.0
  Nominal GDP (in billions of kwacha) 3,945 5,169 6,241 7,839 9,118 10,135
  Copper production (in thousands of metric tons) 314 314 291 300 330 347

External sector
  U.S. dollar value of exports of goods and services -13.1 17.2 -24.6 8.3 15.1 14.6
  Of which: copper -33.3 14.4 -33.6 4.9 13.2 18.5
  U.S. dollar value of imports of goods and services -11.2 15.5 -15.5 13.8 8.7 7.6
  Export volume 9.4 7.0 -12.4 11.8 11.8 7.0
  Import volume -10.9 25.3 -10.2 13.2 7.2 6.5
  Copper export volume -4.1 -8.0 -13.9 15.7 10.0 5.0
  Copper exports (in thousands of metric tons) 327 301 259 300 330 347
  Copper export prices (average, US$ per metric ton) 1,734 2,156 1,661 1,507 1,550 1,750
  Nominal effective exchange rate -26.4 -1.7 -24.1 ... ... ...
  Real effective exchange rate 3.8 19.8 -8.7 ... ... ...
  Average official exchange rate (kwacha per U.S. dollar) 1,208.3 1,315.0 1,862.0 ... ... ...
  Terms of trade -22.8 21.6 -10.3 -5.1 0.8 6.0

Money and credit
  Net foreign assets -23.6 7.2 -100.3 11.1 9.2 10.6
  Net domestic assets 27.4 4.4 65.8 -0.8 -0.4 -1.4
    Net domestic credit 36.3 6.9 91.0 -2.4 -1.2 -4.4
      Net claims on government 22.7 8.4 355.4 -19.6 -22.3 -33.7
      Claims on nongovernment 40.4 6.5 20.2 15.0 13.7 9.8
  Broad money 34.4 24.0 22.6 20.3 12.9 9.7
  Velocity 1 6.0 6.3 6.5 6.3 6.4 6.4
  Official bank rate (in percent; end of period) 69.5 23.5 43.6 ... ... ...
  Treasury bill rate (in percent; end of period) 57.7 14.4 34.0 ... ... ...

Central government budget
  Revenue (excluding grants) 37.0 25.2 10.6 29.1 19.0 14.5
  Grants -12.0 7.6 52.8 80.3 -42.1 10.7
  Expenditure and net lending 9.6 19.8 33.4 39.3 -0.4 11.6
    Current expenditure 3.2 23.0 15.6 7.2 20.4 10.5
    Capital expenditure 28.1 13.0 74.7 22.8 7.6 15.8

(In percent of GDP)

Investment and savings
  Gross national savings 2 11.0 7.5 6.4 8.7 11.3 13.2
  Gross domestic investment 14.8 13.6 14.4 17.6 20.3 20.0
    Of which: public investment 6.0 5.4 7.7 8.5 7.4 7.9

Central government budget
  Revenue and grants 26.8 24.8 24.5 27.8 23.6 24.2
  Grants 6.1 5.0 6.4 9.1 4.6 4.5
  Expenditures (excluding interest) 3 22.6 20.9 24.4 28.4 23.9 24.6
  Interest due 4 4.8 4.1 3.3 2.3 2.6 2.3
  Overall balance, cash basis -2.6 -1.9 -4.3 -3.2 -1.3 -1.2
  Overall balance, cash basis, excluding grants -8.7 -7.0 -10.7 -12.3 -7.5 -7.3

External sector
  Current account balance 5 -3.7 -6.2 -8.0 -8.8 -10.7 -8.3

(In percent of exports of goods and services)

External debt
  External debt service before rescheduling 6 40.7 28.8 33.2 37.0 36.7 49.0
  Net present value of total debt 6 430.4 374.6 509.7 467.3 431.3 390.7
  External program assistance 12.7 9.2 0.0 28.8 … …

(In millions of U.S. dollars, unless otherwise indicated)

Current account balance		 -122 -239 -269 -281 -362 -302

Overall balance of payments		 -105 -127 -249 -111 -294 -209

Gross official reserves (end of period)		 186 213 44 165 306 403
  In months of imports of goods and services 1.7 1.7 0.4 1.4 2.3 2.8
Sources: Zambian authorities; and Fund staff estimates and projections.

1 GDP/average broad money.
2 Gross national disposable income minus consumption.
3 Including contingency reserve (1999-2001).
4 After debt relief.
5 U.S. dollar GDP calculated on the basis of changes in real GDP and U.S. GDP deflator (base year = 1998).
6 External debt pertains to public and publicly guaranteed debt.



Contents

Table 2. Zambia: External Financing Requirement, 1996-2001
(In millions of U.S. dollars, unless otherwise indicated)

1996
1997
1998
1999
2000
2001



Est.
Program
Requirements

 888 642 483 907 954 907
  Current account deficit, excluding official transfers 426 437 509 632 604 550
  Amortization of medium- and long-term debt 255 181 136 202 258 266
    Multilateral 1 97 83 71 50 48 54
    Other 158 98 65 151 210 212
  Reduction in arrears 176 0 0 0 0 0
  Change in net official reserves (+ inc.)

 31 24 -162 73 92 91
Resources

 578 483 361 688 540 583
  Grants 304 198 240 351 242 249
    Program 22 9 0 112 0 0
    Project 269 189 228 229 232 236
    Commodity assistance 13 0 13 10 10 13
  Loans 206 190 91 311 105 110
    Program 119 111 0 195 0 0
      Of which: World Bank 119 111 0 175 0 0
    Project 87 79 91 116 105 110
      Of which: World Bank 61 59 91 97 85 90
  Foreign direct investment and other private capital 2 76 149 6 26 194 224
  Errors and omissions

 -8 -54 25 0 0 0
Financing gap (before debt relief)

 310 159 122 219 413 325
Debt relief 3

 310 159 122 0 0 0
Residual financing gap 4

 0 0 0 219 413 325
Memorandum items:
  IMF (net) 0 13 0 56 56 11
  Fund disbursements 0 13 0 56 56 245
  Repayments to the Fund 0 0 0 0 0 -234
  Gross reserves 5 186 213 44 165 306 403
    (in months of imports) 1.7 1.7 0.4 1.4 2.3 2.8


Sources: Zambian authorities; and Fund staff estimates and projections.

1 Excludes IMF repayments.
2 Including change in net foreign assets of the commercial banks.
3 Reflects 1996 Paris Club rescheduling agreement and comparable terms from other bilateral creditors.
4 The financing gaps shown do not reflect any new rescheduling from Paris Club creditors.
5 Including balance in special Bank of International Settlements account established in accordance with the 1996 Paris Club accord, but excluding the Meridien Bank deposits of US$25 million.



Contents

Table 3. Zambia: Structural Policy Matrix, 1999-2001
Policy Area Objectives and Targets Strategies and Measures Timing Technical
Assistance
A. External policies
1. Exchange rate policy Achieve efficient allocation of foreign exchange and competitive tradable goods sector. • Maintain competitive, unified, market-based exchange rate. 1999–2001
2. External debt management Reduce the external debt burden. • Remain current on external debt-service obligations.
• Seek further concessional rescheduling with Paris Club and rescheduling of non-Paris Club/private sector debt on comparable terms.
• Abstain from medium- and long-term borrowing on nonconcessional terms.
• Seek exceptional debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative.
 1999–2001

1999–2001


1999–2001

2000–01
 United Kingdom,
Sweden
3. Trade policy and export promotion Stimulate nonmining exports, reduce/eliminate barriers to imports, and continue to rationalize tariff structure. • Maintain tariff policy consistent with the Cross-Border Initiative.
• No new import duty exemptions.
• Reduce maximum import tariff rate to 20 percent.
 1999–2001

1999–2001
2001
B. Fiscal policy and public sector management
1. Budget policy Promote macroeconomic stability. • Improve the overall fiscal position and generate an annual average domestic fiscal surplus of 1¼ percent of GDP (excluding exceptional lending to the ZCCM). 1999–2001 EU
2. Revenue mobilization Broaden tax base and raise revenue-GDP ratio (excluding grants and privatization receipts) by 1½ percentage points of GDP over the period 1999-2001. • Improve customs administration by rehabilitating border stations, enhancing cooperation with neighboring countries, and improving computer systems.
• Review the structure of corporate income tax rates with a view to its unification.
• Improve compliance with direct tax rules.		 1999–2001



1999

1999–2001
 United Kingdom
Improve nontax revenue performance. • Improve collection of debt service from parastatals and privatized companies.
• Put in place an effective administrative system to collect road and land taxes.
 1999–2001

1999
3. Expenditure policies Reallocate expenditure to priority sectors. • Reduce the wage bill as a share of domestic noninterest expenditures to 25 percent in 2001.
• Allocate at least 36 percent of domestic spending (excluding debt service) to social sectors.
• Raise domestically financed capital expenditure to more than 3 percent of GDP in 2001.
• Keep domestic noninterest expenditure below 18 percent of GDP.
 1999–2001

1999–2001


1999–2001

1999–2001
 EU
4. Fiscal management Improve budget control and cash management. • Eliminate domestic payments arrears and avoid accumulation of new arrears.
• Strengthen expenditure controls.
• Introduce strengthened external debt- management system.
 1999–2001

1999
1999–2001
 EU, IMF
5. Public service reform Improve efficiency and reduce cost of public service. • Implement strengthened management arrangements for the Public Service Reform Program (PSRP) and decide on a timetable for developing a PSRP action plan.
• Introduce a reliable establishment control system for the public service.
• Submit to the President recommendations on the establishment of an actuarially sound civil service pension system.
 Dec. 1998



Apr. 1999

Apr. 1999
 World Bank,
United Kingdom,
UNDP, Ireland
• Obtain government approval and initial implementation of a revised action plan for the PSRP that includes phased actions on retrenchments, pay and pension policies, establishment and payroll controls, ministerial restructurings, performance monitoring, and safety net measures.
• Implement the revised action plan.
 June 1999






1999–2001
6. Privatization Nonmining sectors, continue to implement accelerated privatization program. • Add utilities, transport companies, and financial institutions to the portfolio of the Zambia Privatization Agency (ZPA).
• Complete privatization or liquidate the remaining 50 commercial entities in ZPA portfolio.
 1999


1999
 USAID,
Germany
For public utilities, take following actions:
• Offer for sale telecommunications company (ZAMTEL).
• For ZESCO, see E4 below under energy.
 September 1999 USAID
Discontinue government’s direct involvement in retail credit operations and privatize the state-owned enterprises. • With respect to financial institutions:
• Offer for sale the ZNCB and ZSIC, Zambia National Building Society (ZNBS) and National Savings and Credit Bank (NSCB).
• With respect to transport, for Zambia Railways, see E3 below under transport.
• In petroleum sector, offer for sale or close the INDENI Refinery and the oil distribution company (ZNOC).
• In government departments, take following actions:
• Decide whether to privatize, commercialize, liquidate, or reduce departments.
• Implement the above decision.
 2000
1999–2000


1999

2000–01


2000–01

1999

2000-01
Privatize copper mining company (ZCCM). • Sell remaining asset packages for which bids have been received.
 1999 World Bank
C. Monetary and financial sector policies
1. Monetary policy Improve effectiveness of monetary policy. • Avoid unsecured lending by the Bank of Zambia (BOZ).
• Reduce reliance on reserve and liquid asset requirements for domestic credit control.
• Make more active use of open market operations, e.g., through the purchase and sale of treasury bills
 1999–2001

1999–2001

1999–2001
2. Financial market development Increase variety of financial investments and improve savings allocation. • Offer more maturities on government securities.
• Broaden financial markets.		 2000–01
1999–2001
3. Financial system supervision Improve prudential oversight and supervision. • Introduce new manual for on-site inspections.
• Strengthen quality of management of commercial banks.
• Adopt amendment to Banking and Financial Services Act providing for strengthened supervisory powers of BoZ.
 1999
1999–2001

1999		 IMF
4. Bank of Zambia operations Enhance operational efficiency. • Enhance accounting system.
• Enhance domestic payments/clearance system consistent with Southern African Development Community (SADC) initiatives to upgrade and develop integrated regional system.		 1999
1999–2001		 IMF
IMF
D. Private sector development: land policy
Develop efficient markets for land under leasehold. • Improve the Ministry of Lands’ system to manage leasehold applications so as to provide complete information on all lodged applications.
• Complete the plot surveys for five of the declared urban settlements by end-1999 and a further five by end-2000.		 1999


1999–2000
E. Sectoral and related policies
1. Agriculture Facilitate private sector activity in supply of maize and inputs. • Implement policy action matrix agreed under ASIP, including, inter alia, no government intervention or direct involvement in grain imports/exports, input supply, or agricultural credit. 1999–2001 World Bank,
USAID, FAO,
Sweden, Finland,
The Netherlands
Improve the response of the research and extension system to the needs of smallholders. • Decentralize adaptive research and extension services and make these services accountable to the district agricultural committees.
• Strengthen financial management systems at central ministry and district level and complete the financial decentralization.		 1999–2001


1999
2. Industry Promote efficiency in the manufacturing sector. • Maintain a policy environment conducive to private sector development and export promotion. Strengthen institutional framework for public sector-private sector consultations. 1999–2001 Germany
3. Transport Develop an efficient transport network.


Strengthen the institutional framework.




Improve revenue mobilization.



Improve operational efficiency and services related to railways.		 • Complete the preparation of a national transport policy framework document and have it adopted by cabinet.

• Complete the restructuring of the Roads Department.
• Overhaul the legislative framework of the Roads and Road Traffic Act. Give National Roads Board executive (as opposed to advisory) legal status.

• Allocate transit charges and weighbridge fines to the Road Fund.
• Allocate at least one-third of vehicle license fees to the Road Fund.

• Undertake a study on incremental heavy vehicle license fee.
• Put out to tender concession contracts for Zambia Railways.		 Mid-1999



Mid-1999

Dec. 1999




Apr. 1999

Apr. 1999


Dec. 2000

Dec. 1999		 African
Development
Bank
EU
Sweden
4. Energy Reform and liberalize the energy (including power) sector.

Commercialize the operations of electricity company (ZESCO).		 • Facilitate private sector involvement in new electricity generation and transmission projects.



• Tranche ZESCO to the ZPA with a view to its eventual privatization.
• Contract out ZESCO’s distribution system.
• Liberalize retail pricing and distribution system for petroleum products.
• Complete the study on fuel supply options.
• Initiate discussions with Tanzania on privatization of TAZAMA pipeline.		 1999–2001




1999

2000
1999–2001

1999
1999		 France, Finland, Sweden
5. Health and education Increase coverage and improve efficiency of health sector service and delivery • Allocate 40 percent of the sector budget and releases to district health boards for the delivery of essential services by 1999, 50 percent by 2000, 60 percent by 2000. 1999–2001 The Netherlands, Denmark, EU, UK, USAID, Canada, Sweden
Improve access to, and quality of, education system. • Implement the policy framework agreed under BESSIP, including the following:
• Take actions to deploy more equitably between urban and rural areas.
• Create district education boards in remaining districts.
• Increase share of GRZ discretionary expenditures devoted to education and training sector from 19.5 percent in 1998 to 20 percent in 1999.		 1999–2001

1999

1999–2000

1999–2001
6. Tourism Promote tourism • Present Tourism and Hospitality Bill to parliament 1999
7. Poverty reduction/ social safety net Mitigate the social costs of implementing the adjustment program.

Improve poverty-monitoring capacity.

Focus poverty interventions more on women and children.		 • Implement the National Poverty Reduction Plan.



• Complete, analyze and disseminate data from LCMS II (ongoing under Social Recovery Project SRP II)

• Refine and diversify ongoing microprojects program to address more effectively the needs of poor households, particularly female- and child-headed households, through community-based initiatives.
• Prepare a study on legal constraints to participation of women in development interventions.		 1999–2001




1999



1999–2001




1999–2001		 Finland, EU, World Bank



World Bank
8. Environment and natural resources Promote sound natural resource management and environmental protection. • Review and harmonize legal framework.
• Strengthen institutional capacity.
• Launch Community Environmental Management Program.		 1999–2001 1999–2001 1999 Canada, Finland, Netherlands
9. Economic governance Improve economic management and transparency. • Ensure effective operation of Anticorruption Commission, Drug Enforcement Commission, Human Rights Commission. 1999–2001 Finland, Sweden, United Kingdom
10. Data issues Improve timeliness and quality of data at macroeconomic and firm levels. • Improve monetary statistics.
• Improve national accounts.
• Improve debt statistics.		 1999
1999
1999		 EU, IMF



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