Since 2016 the Zambian Government and the IMF have been engaged in talks around possible support to the Home-Grown Economic Stabilisation and Growth Programme (ESGP), also called Zambia Plus.
In August 2017, it was announced these talks have been halted despite the fact that the Zambian authorities had taken a number of commendable prior actions in pursuit of improved fiscal and economic governance.
In view of the aforementioned, the Zambia Institute for Policy Analysis and Research (ZIPAR) has finalised a Working Paper entitled "Financing the Economic Stabilization and Growth Programme (Zambia Plus) in the Shadow of the IMF".
Without IMF support, ZIPAR argues, that the risk of debt distress will grow as Zambia is likely to continue facing numerous challenges such as;
- A continuation of excessive spending and mounting fiscal imbalances between revenue and expenditure;
- Continued mounting of the public debt as the Government attempts to sustain high spending appetite;
- Escalating risks of fiscal slippages and wastage given the expansionary fiscal environment;
- Further increases in the already high debt burden, with the possible emergence of external payment imbalances;
- Rising pressure to raise domestic resources through a multiplicity of taxes and non-tax measures.
- Intense social and economic hardships for ordinary Zambians.
The paper observes that an IMF supported programme would still be highly relevant for Zambia, and proposes a number of measures to improve fiscal governance as well as improve the prospects for a resumption of talks with the IMF.
ZIPAR recommends a number of policies and measures as follows:
- The Government should continue with fiscal consolidation, steering Zambia back toward a state of “medium risk of debt distress”;
- The Executive should consider fostering fundamental political and social changes to the current economic philosophy, nudging Zambia to move away from a path of fiscal expansion;
- The Executive must muster greater political will for and commitment to fiscal discipline;
- The Government should introduce explicit quantitative fiscal rules (or long-lasting, legally binding, quantitative constraints or restrictions on budgetary aggregates), developed in consultation with local institutions like ZIPAR;
- The authorities should undertake in-depth and comprehensive studies to explore and understand the size, nature and short, medium and long-term implications of the mounting Chinese debt.
ZIPAR Senior Research Fellow Caesar Cheelo said:
Under the current economic environment, an IMF supported programme is still very relevant for Zambia; US$ 1.3 billion of interest-free money is a very big deal! But winning the IMF over will not be easy and may take some time. It will require renewed and consistent credibility in our policy and structural reform efforts. The Government has done fairly well in using Zambia Plus to institute key reforms like fuel and electric energy subsidy removal, but must now muster the political will to foster a deep-rooted paradigm shift towards a disciplined and spend-thrift public sector.
Notes to Editors
- In February 2018, the IMF reaffirmed its August 2017 formal withdrawal from negotiations with Zambia over a package of financial support. The strong position to hold negotiations came in the IMF’s Article IV Consultations report of 2017, which concluded that Zambia was at high risk of debt distress, and that whilst financial management and fiscal discipline were improving, the extent of the improvement was not sufficient to mitigate the growing public debt and fiscal deficit.
- This week, the fiscal authorities (Ministry of Finance, MOF), the monetary authorities (Bank of Zambia, BOZ) and the national planning authorities (Ministry of National Development Planning, MNDP) are in Washington D.C. to attend the 2018 Spring Meetings of the IMF and World Bank from 16-22 April 2018. The Spring Meetings will discuss key issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness. However, a conversation around possible IMF support to Zambia Plus will not be on the cards.
- This News Release is based on a report titled; “Financing the Economic Stabilization and Growth Programme (Zambia Plus) in the Shadow of the IMF”. The report is found here: https://goo.gl/mNnrDd