Zambia to benefit from IMF’s $650bn boost

INCREASE in Special Drawing Rights (SDR) by the International Monetary Fund (IMF) for member states totalling an additional US$650 billion will boost Zambia’s foreign exchange reserves.

The IMF in the coming weeks is set to approve an increase in SDRs for its members totalling an additional $650 billion.

This comes a few weeks after the world’s richest nations, the G7 recently met at their annual summit where deliberations concerning how to assist developing nations fight Covid-19 and global combating of climate change were key agenda items.

The development once approved does spell hope for an opportunity to shore up decade low foreign exchange reserves for Zambia.

This is according to the Economics Association of Zambia (EAZ) National Secretary, Mr Mutisunge Zulu, in an interview.

According to Mr Zulu, this was a positive development for Zambia with an additional US$1.3 billion accounting for 0.02 percent the country’s SDR quota.

“Being the first African nation to default on its coupon payments on dollar bonds in Covid-19 period 2020, an injection of that magnitude will cushion Zambia from the acute dollar liquidity bottlenecks it has faced manifesting in foreign exchange scarcity and widening backlogs that have adversely impacted the ease of doing business.

“Foreign exchange reserves were officially last reported at US$1.2 billion (March) translating to 2.1 months of import cover whose build up has been buffered by dollarisation of mining taxes. SDR allocation are ‘cost-free’ with a very infinitesimal interest charge in some cases,” he said in an interview.

Mr Zulu also said over and above the SDR allocation Zambia still seeks bailout assistance through an Extended Credit Facility (ECF) for which its authorities had been in talks with the Washington based lender.

Earlier in the year, hopes lingered for deal closure ahead of the August polls more specifically with focus on likelihood of cabinet approval before dissolution of parliament on May 14 which did not happen.

The IMF, he said, had earlier reported that it had agreed a macroeconomic framework with the Zambian authorities and that positive strides had been made.

“This continued optimism in the offshore space attracting more flows into Zambia especially with increased interest in Government securities. Many analysts forecast a package to be concluded post the August polls,” he said