Find us on Google+

Monday, 4 May 2009

MoFNP Press Release : IMF Financial Support to Zambia

Press Release by the Ministry of Finance and National Planning :

IMF Approves US$ 256.4 Million Increase in Financial Support to Zambia and disburses US$ 160.1 Million

Lusaka, Saturday 2nd May 2009. The Executive Board of the International Monetary Fund (IMF) yesterday completed the first and second reviews of Zambia’s economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. The Executive Board also approved an increase in financial support under the PRGF by US$ 256.4 million to US$329.7 million to help Zambia cope with the global economic slowdown and financial crisis. The completion of the combined reviews allows for the immediate disbursement of US$ 160.1 million, bringing total disbursements to US$ 170.6 million.

Last year the IMF approved a three-year, Poverty Reduction and Growth Facility (PRGF) arrangement for Zambia in an amount equivalent to US$79.2 million in support of the country's economic policies aimed at alleviating poverty and sustaining growth. The decision enabled Zambia to request the first disbursement in an amount equivalent to US$11.3 million.

Following the Executive Board's discussion, Mr. Takatoshi Kato, IMF Deputy Managing Director and Acting Chair, stated that Zambia’s PRGF Program implementation and recent economic performance have been adversely affected by a number of exogenous shocks. In particular, the international food and fuel price increases shocks in the first half of 2008 pushed inflation above the program target, while a steep fall in copper prices related to the current global economic and financial crisis has severely compressed export proceeds and Government revenue. Mr. Kato praised Zambia for responding appropriately to these shocks.

“Zambia’s public debt sustainability outlook is favorable. The authorities have adopted a new public debt management policy and strategy to help ensure that the public debt remains sustainable. In this regard, caution will be needed in contracting new non-concessional external debt. Fiscal policy has struck the right balance between high-priority infrastructure spending to promote medium-term economic growth and diversification, and safeguarding short-term macroeconomic stability. Zambia has appropriately scaled back investment and recurrent spending, while protecting priority social spending. Zambia is seeking to strengthen public expenditure management, particularly by establishing a treasury single account and improving the execution of capital projects,” Mr. Kato said.

He commended Zambia for maintaining a floating exchange rate saying it has served the country well in helping the economy adjust to external shocks.

“However, the volatility of the kwacha underscores the need to reduce Zambia’s vulnerability to fluctuations in copper prices, through continued vigorous implementation of structural reforms to diversify the economy. The Zambian banking sector overall remains adequately capitalized and liquid. Nevertheless, continued vigilance is needed in light of the global financial crisis and pressures on the exchange rate, particularly to safeguard against increased credit risk and adverse balance sheet effects. Intensification of contingency planning and crisis preparedness at the Bank of Zambia will be important. The authorities are also seeking to enhance the population’s access to financial services, including credit,” Mr. Kato said.

“The authorities are also implementing a new electricity sector strategy to improve the reliability of the electricity supply, given the strategic importance of this sector. Determined implementation of the strategy will be essential to attract private investment and to improve the efficiency and governance of the state-owned power utility,” he said.

The new PRGF arrangement succeeds a previous arrangement that was successfully completed in September 2007. The new three-year PRGF arrangement will support Government's objectives of boosting economic growth and enhance employment and income opportunities, especially for the poor, while maintaining macroeconomic stability. It is a "low-access" program (10 percent of quota), reflecting Zambia's limited balance-of-payments needs. Zambia remains committed to maintaining prudent macroeconomic policies and pursuing structural reforms to sustain high economic growth, further reduce poverty, diversify the economy, and preserve macroeconomic stability and debt sustainability. We will continue with prudent conduct of monetary policy to help maintain low inflation. To strengthen liquidity management, a formal mechanism to coordinate monetary and fiscal policies will be established. We will continue to maintain a flexible exchange rate in enhancing the effectiveness of monetary policy and facilitating the economy's adjustment to shocks.

The PRGF envisages a cautious policy on foreign borrowing, emphasizing concessional loans and close monitoring of external borrowing by public enterprises. To preserve the recent gains in external debt sustainability, Zambia will give priority to developing and implementing a comprehensive debt management strategy. The PRGF is the IMF's concessional facility for low-income countries. PRGF loans carry an annual interest rate of 0.5 percent and are repayable over 10 years with a 5½-year grace period on principal payments.

Chileshe Kandeta
Public Relations Officer
Ministry of Finance and National Planning

1 comment:

  1. Interesting article on inflation vs. deflation:


All contributors should follow the basic principles of a productive dialogue: communicate their perspective, ask, comment, respond,and share information and knowledge, but do all this with a positive approach.

This is a friendly website. However, if you feel compelled to comment 'anonymously', you are strongly encouraged to state your location / adopt a unique nick name so that other commentators/readers do not confuse your comments with other individuals also commenting anonymously.