Zambia Suspends Non Concessional Borrowing as it aims to Conclude IMF Deal
Finance Minister Felix Mutati has announced measures that are expected to step government borrowing and moving the country from a " high debt distress" position to moderate over the medium term and to ensure that debt remains sustainable.
Zambia Finance Minister Felix Mutati (right) with IMF Director for Africa Region Dr. Abebe Selassie (centre) and IMF head of mission to Zambia Dr. Boileau Loko
Finance Minister Felix Mutati has announced measures that are expected to step government borrowing and moving the country from a " high debt distress" position to moderate over the medium term and to ensure that debt remains sustainable. He said this on 22 November in his ministerial statement delivered to Zambian lawmakers at Parliament.
Mutati who was giving the government position and briefing to Zambian Lawmakers on the state and outlook of discussions with the International Monetary Fund (IMF), said that in March, 2017, Cabinet approved that the Government should engage the IMF on a possible line of credit under the Extended Credit Facility - ECF. The engagement was on the basis of the Economic Stabilisation and Growth Programme - ESGP.
He said that the engagement with the IMF was aimed at leveraging international support for attaining the Government’s key objectives of restoring fiscal fitness, debt sustainability, addressing the external sector vulnerabilities, job creation, sustained inclusive growth and development. Mutati clarified that this engagement does not mean that the IMF is here to bailout Zambia, we have as a nation, defined the ESGP that is required to move the economy forward. The IMF is being engaged to provide the Balance of Payment (BOP) support as well as to provide an independent policy assessment.
The Finance Minister later confirmed that the main outstanding issues under discussion with the IMF are the need to take measures to slow down on the pace of debt accumulation and return Zambia’s debt risk from high to low and scaling up fiscal consolidation measures, particularly, expenditure restraint. Both these aspects are part of our key reform measures and are clearly outlined in the Economic Stabilisation and Growth Strategy (ESGS). What the IMF has asked is to have these measures accelerated.
Mutati said that the government has put in place about 5 key measures that should see the government and IMF conclude the ECF deal.
These measures include:
(a) developing a new financing profile that will ensure the reduction in debt distress from high to moderate over the medium term and to ensure that debt remains sustainable thereafter;
(b) re-prioritising projects by concentrating on on-going projects;
(c) re-scoping projects to be implemented in stages to ensure fiscal sustainability. An example is the implementation of the Lusaka/Ndola Dual Carriageway which will be implemented in stages;
(d) accelerating the implementation of revenue mobilisation measures such as automation, appointment to tax agents, establishment of single windows at border posts, land titling and tolling; and
(e) suspension of new non-concessionary borrowing and that no commercial contracts that require debt financing should be signed without Treasury Authority with the requirement that tender and legal approvals be obtained where the funds are not available.
Mutati further confirmed that "in addition to the provision of Balance of Payments Support, the International Monetary Fund (IMF) is also a catalyst to access budget support and other inflows from multilateral and bilateral co-operating partners. Further, having an IMF-supported programme will enhance inflows from the private sector investors and reduce the negative sentiments on the investment climate in the country. This is because many investors mainly rely on the IMF for the assessment of the country’s investment climate".
The local unit, the Kwacha has slide in the past two months from highs of about ZMW8.9/USD to currently about ZMW10.1/USD. Some analysts have questioned the government's Minister of Finance and his team’s failure to tightly manage their finances and ensure strict policy implementation.
It is this lack of delivery of promised quarterly fiscal briefings and reports on both revenue mobilization, expenditure and debt positions against budget by the Ministry of Finance that has led to the market opting for an IMF/World Bank monitored program as assurance of strict implementation of fiscal consolidation measures and stemming of un-budgeted expenditure. This perhaps is a clear indictment on the performance of the MOF team.