Zambia and the International Monetary Fund have reached a deal on a $1.4 billion “Extended Credit Facility” for the nearly bankrupt country in what could be a key step to its economic recovery.
An updated version of the rescue package was announced Monday, though IMF’s board must still approve it. Zambia will have to take steps to access the money, including showing “Sufficient progress” in talks with its many creditors.
The move will likely mean significant cuts to the country’s agriculture and energy subsidies, according to Finance Minister Situmbeko Musokotwane. Depending on how the reforms are handled, prices could go up, at least in the short run.
IMF was less specific, but said the plan “envisages an important shift in spending, away from inefficient public investment and poorly targeted subsidies, towards greater investment in health and education and the delivery of more social benefits.”
Why it matters: Zambia was the first African country to default in the COVID-19 era. The nation’s previous administration had dragged its feet on IMF talks, and the new government entered office in August saying it found the Treasury “empty.” A deal with IMF could open other funding opportunities for Zambia, whether through multilateral institutions or markets.
Debt: The country is around $15 billion in debt, according to the Finance Ministry, after a spending spree by the previous administration. IMF said this amount is “unsustainable.”
Last year, Zambia was unable to make payments on its eurobonds. Going ahead, it will have to balance competing creditors, including Chinese lenders owning more than $6 billion of the debt.
The government has not shied from saying it will have to cut its annual budget deficit, even as it promised to safeguard health and other key sectors. Musokotwane has said he hopes to increase copper production as a means of boosting revenues.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
