Zambia, one of Africa’s largest copper producers, has received a $187 million loan from the International Monetary Fund (IMF) to support its economic recovery and debt sustainability. The loan is the third installment under a $1.3 billion Extended Credit Facility (ECF) arrangement approved in August 2022.
The IMF said the ECF program aims to restore macroeconomic stability, boost growth and reduce poverty, while addressing fiscal and debt vulnerabilities.Â
According to a report by Reuters, the program also supports Zambia’s efforts to restructure its external debt, which amounted to about 120% of GDP at the end of 2022.
Zambia defaulted on its debt obligations in November 2020, becoming the first African country to do so since the onset of the COVID-19 pandemic. The country has been in talks with its official and commercial creditors to reach a comprehensive debt deal that would restore debt sustainability and unlock further IMF financing.
However, the process has been delayed by several challenges, including the rejection of Zambia’s preliminary restructuring proposal by its official creditors in November 2021. The creditors, who are mostly members of the Paris Club, said the proposal did not offer comparable debt relief to what they had agreed to.
The IMF’s mission chief for Zambia, Mercedes Vera Martin, told reporters on Wednesday that the Zambian authorities were revising their proposal to meet the comparability of treatment requirements, which are defined by the official creditors.
“While significant progress has been achieved, some adjustments still need to be made until both program parameters and comparability of treatment, as required by official bilateral creditors, are met,” the IMF said in a question-and-answer document posted on its website.
The IMF also said that Zambia’s economic outlook had improved, thanks to higher copper prices, a bumper harvest and the easing of COVID-19 restrictions. The fund projected that Zambia’s real GDP would grow by 5.5% in 2023, after contracting by 3.9% in 2020 and expanding by 0.7% in 2021.
However, the IMF warned that Zambia still faced significant risks and challenges, such as the persistent COVID-19 pandemic, high inflation, exchange rate volatility and social pressures. The fund urged the authorities to maintain fiscal discipline, strengthen governance and transparency, and implement structural reforms to enhance competitiveness and diversification.
Zambia’s government welcomed the IMF’s approval of the loan payout and said it was an endorsement of its reforms and a boost to investor confidence. The government also reiterated its commitment to reaching a debt deal with its creditors as soon as possible.
Zambia is seen as a test case for how African countries can deal with their debt challenges amid the COVID-19 crisis, which has worsened their fiscal and external positions. Several other countries, such as Ethiopia, Chad and Benin, have also sought debt relief from their creditors under the Common Framework, a new initiative launched by the G20 and the Paris Club in 2020.
The Common Framework aims to provide timely and coordinated debt treatment for eligible low-income countries, while ensuring fair burden sharing among all creditors, including China and private lenders. However, the implementation of the framework has been slow and complex, raising concerns about its effectiveness and impact.
Zambia’s debt saga also highlights the need for more transparency and accountability in the management of public debt, especially in resource-rich countries that are prone to boom-bust cycles and corruption.Â
As Zambia strives to overcome its debt crisis and secure a brighter future, it will have to learn from its past mistakes and adopt sound policies and practices that foster fiscal sustainability, economic diversification and social inclusion.
