Zambia has gained approval for a $1.3 billion, 38-month loan program from the International Monetary Fund, a vital step in the southern African country’s quest to restructure its debts and rebuild an economy ravaged by mismanagement and COVID-19.
In a statement, the IMF that the new Extended Credit Facility arrangement would provide total funding of 978.2 million Special Drawing Rights – roughly $1.3 billion at current exchange rates – equivalent to 100% of Zambia’s Fund quota, or shareholding.
Approval from the IMF’s Executive Board will unlock an immediate disbursement of about $185 million, the Fund said.
Zambia’s creditors agreed in late July to negotiate a restructuring of the country’s debts, a decision that IMF Managing Director Kristalina Georgieva had welcomed as “clearing the way” for the new Fund program.
“Zambia continues to face profound challenges reflected in high poverty levels and low growth,” Georgieva said. “The ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.”
The IMF program aims to restore financial stability in Zambia through fiscal adjustment and debt restructuring and strengthening economic governance.
Georgieva said this would require “sustained” reductions in spending and that Zambian authorities were suitably focused on removing “regressive” fuel subsidies, reforming agricultural subsidies, reducing inefficient public investments and increasing tax revenues. This would free up some fiscal space to increase social spending to ease transition burdens on the most vulnerable, she said.