Press Release No. 04/268

Press Release: IMF Executive Board Completes First Review Under Zambia's PRGF Arrangement and Approves US$126.3 Million Disbursement

December 16, 2004

The Executive Board of the International Monetary Fund (IMF) today completed the first review of Zambia's economic performance under a three-year Poverty Reduction and Growth Facility (PRGF) arrangement, which was approved on June 16, 2004 (see Press Release No. 04/117). The Board also approved waivers for the nonobservance of quantitative and structural performance criteria.

The completion of the review enables the release of a further SDR 82.5 million (about US$126.3 million), which will bring the total amount drawn under the arrangement to about SDR 165.1 million (about US$252.6 million).

Following the Executive Board discussion, Mr. Takatoshi Kato, Deputy Managing Director and Acting Chair, said:

"Zambia's economic performance continued to strengthen in 2004. This performance is particularly encouraging against the backdrop of the economic decline in the preceding two decades. However, Zambia still faces significant challenges. Growth is still not strong enough to make large inroads into widespread poverty, and inflation is too high, even though progress was made in this area in 2004.

"The execution of the large fiscal adjustment envisaged under the PRGF-supported program contributed to the strengthened economic performance in 2004. The sharp reduction in government's domestic borrowing halted an unsustainable rise in government's domestic debt, facilitated monetary restraint, and reduced pressure on interest rates.

"The 2005 budget framework is broadly appropriate, given the need to reduce domestic borrowing while allowing for increased spending on priority sectors. In particular, the framework reflects the authorities' commitment to hiring additional frontline staff in the health and education sectors.

"Continued implementation of sound macroeconomic policies and structural reforms identified in the Poverty Reduction Strategy Paper (PRSP) should boost the growth potential of the economy, and raise private sector investment while encouraging donors to increase their support for Zambia.

"Zambia has made progress toward meeting the triggers for the HIPC Initiative completion point and could reach the HIPC completion point at the time of the second review under the PRGF arrangement based on performance through the end of 2004, provided that performance under the PRGF-supported program remains strong and implementation of the poverty reduction strategy is satisfactory. In particular, it will be important that the authorities make further progress in strengthening public expenditure management to help ensure that debt relief is used effectively," Mr. Kato said.