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Saturday, 14 June 2014

IMF - Zambia Watch (June 2014)

Editor's note: The latest IMF statement on Zambia released on 6 June diplomatically suggests that Zambia's  macroeconomic situation in the country, though potentially promising, is unfortunately a mess and needs fixing urgently. It has been poorly managed. Hence the need for "forceful measures". It bluntly says that monetary policy is currently abnormal. The real question is what can be done to restore the situation. It appears Government now wants IMF funding, possibly a bailout. That appears to be the hint of GRZ's request for an "economic program that could be supported by a Fund arrangement".  The short term impact of course is that the possibility of an IMF route atleast suggests that GRZ are desperately trying to find a way of restoring policy credibility. And they seem committing themselves to an IMF programme as the best way of signalling that.  At what price? We wait to see.
Press Release No. 14/264
June 6, 2014

An International Monetary Fund (IMF) team led by Byung Jang visited Lusaka during May 27–June 6 to review economic developments and discuss the macroeconomic framework with the Zambian authorities. The mission met with Finance Minister Alexander Chikwanda, Bank of Zambia Governor Michael Gondwe, and other senior government officials, as well as representatives from the private sector and civil society.
At the end of the mission, Mr. Jang issued the following statement:

“The economy continues to grow at a rapid pace but fiscal and exchange rate developments point to significant vulnerabilities. Rebasing of the national accounts has revealed that the economy is 20-25 percent larger than earlier estimated, growth is projected to remain strong at 6.5 percent in 2014, and the medium term outlook is supported by ongoing expansion in copper production. However, the recent steep depreciation of the kwacha is raising inflationary pressures and expansionary fiscal policy has created large budgetary imbalances.

“Maintaining strong growth in the period ahead will require forceful measures to address the emerging vulnerabilities. The Bank of Zambia has already substantially tightened monetary policy in response to exchange rate developments and to address rising inflation, including by raising its policy rate and reserve requirements for banks. On the fiscal side, spending overruns in some areas will require compensating adjustments to meet the budgeted deficit target and available financing. Moreover, a solution to the impasse regarding VAT refunds for exporters is urgently needed.

“The IMF is working closely with the Zambian authorities to develop a plan that will anchor macroeconomic stability. The authorities have indicated strong determination to ensure that the fiscal deficit does not go beyond the budgeted 5.2 percent of rebased GDP in 2014 and is reduced to 3 percent of GDP over the medium term. Steps in this direction would go a long way towards restoring confidence in the foreign exchange market, removing fiscal funding pressures, and allowing for a normalization of monetary policy and a reduction in interest rates.

“The authorities have requested the IMF team to return in early September to discuss an economic program that could be supported by a Fund arrangement. The current mission has made important progress in laying the ground work for such a program.”

Chola Mukanga
Economist | Consultant | Researcher
Copyright © Zambian Economist 2014


  1. Question: Why is anyone still taking advice from the IMF? Edith Nawakwi was told back when copper was still $2000 per tonne, that prices would not rise in her lifetime. The Zambian state should be suing them in court.

    (THE POST) IMF, World Bank pressured govt to privatise mines - Nawakwi
    By Chiwoyu Sinyangwe and Chibaula Silwamba
    Friday November 02, 2007 [03:00]

    According to a report by Action for Southern Africa (ACTSA), Christian Aid, and Scotland’s Aid Agency entitled, “Undermining development, Copper mining in Zambia” dated October 2007, Nawakwi - who is Forum for Democracy and Development president - admitted that the International Monetary Fund (IMF) and the World Bank told the Zambian government that copper prices would never increase, hence they should privatise the mines.

    “We were told by advisers, who included the International Monetary Fund and the World Bank, that not in my life time would the price of copper change. They put production models on the table and told us that there (was) no copper in Nchanga Mine, Mufulira was supposed to have five years life left and all the production models that could be employed were showing that for the next 20 years, Zambian copper would not make a profit,” the report quoted Nawakwi as having told its author in an interview on July 26, 2007.

    “Conversely, if we privatised we would be able to access debt relief, and this was a huge carrot in front of us – like waving medicine in front of a dying woman. We had no option (but to go ahead).”

  2. It does look like the control of the spend will return to the IMF. At least, major conditions will be imposed and agreed to in order to get the bailout. It is not debt-relief yet but heading that way. It will mean austerity or something like it. It remind me of Britain and Dennis Healey.

    The conclusion of the above is that it all could easily have been avoided. It is no coincidence that it all concides with the coming to power of the current government. Banda et al were no great shakes but they wouldn't be asking the IMF for a bailout if they were still in power. This proves that it is an internal problem of economic mismanagement. I suppose that the current government is feeling rather embarrassed and chastened at asking for this help. On a positive side it does indicate some contrition and a wish to fix things.


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