HARARE- Approval of a much-needed $1.4 billion (R22.6bn) credit facility for Zambia by the International Monetary Fund (IMF) is expected to boost investor confidence and unlock further financing facilities in the aftermath of a debt default by the Southern African country.
Zambia under President Hakainde Hichilema, following the ouster of former leader Edgar Lungu, has been hard-pressed for external financing after it defaulted on a $42.5 million Eurobond coupon repayment at the end of last year.
Hichilema has been desperate to push through economic reforms to place Zambia’s economy on a growth trajectory after the worst effects of the pandemic, but has been hobbled by the debt default
Now, with an IMF rescue package, Zambian Finance Minister Situmbeko Musokotwane has said: “The IMF programme will provide much needed fiscal space to Zambia and anchor our domestic economic programme, which is based on four pillars.”
This follows confirmation by the IMF on Friday that it had reached a staff-level agreement with Zambia “on a three-year programme that could be supported by an arrangement under the Extended Credit Facility (ECF)” in the amount of about $1.4bn”.
The agreement is pivoted on Lusaka’s plans to undertake bold and ambitious economic reforms, while the agreement at the IMF’s staff-level to advance Zambia the credit facility “is subject to IMF management and executive board approval and receipt of the necessary financing” assurances.
Further details of the facility are expected today, the IMF and the Zambian finance minister said at the weekend. Apart from this credit facility, Zambia has already drawn down about $1.2bn in its allocation under the IMF’s Special Drawing Rights framework.
“The staff-level agreement paves the way for debt restructuring talks with our creditors. Upon reaching an understanding with the creditors, including through the G20 Common Framework for Debt Treatment… we will have access to highly concessional financing from the IMF and will also be able to start accessing financial support from other multilateral and bilateral partners,” said Musokotwane.
While Zambia has secured the fresh financing facility, there are sceptical critics, such as the Fight Inequality Alliance Zambia, which believes that “the government should explore non-IMF alternatives in resolving the Zambia debt crisis”.
According to IMF data, Zambia’s government debt as a percentage of gross domestic product (GDP) is expected to decline from 128.7% in 2020, to 101% in 2021, and 106.8% in 2022. The external debt position as a percentage of GDP was also expected to decline from 62.4% in 2020, to 59.1% in 2021, to 49.4% next year.
There have also been fears that Zambia, owing to its high indebtedness, could be sinking into austerity. However, economists say they “do not see any”, explaining that the “National Budget itself has not imposed” any.
“Government appears to have moved in the direction of supporting growth of the enterprises as a way of alleviating poverty and spurring economic development,” one economist said.