THE DEBT RESTRUCTURING PROCESS AND THE IMF SUPPORTED PROGRAMME
Lusaka, Sunday, 19th June 2022 – In light of public statements by certain sections of society on the status of the International Monetary Fund (IMF) Supported Programme and the debt restructuring process, the Ministry of Finance and National Planning considers it necessary to clarify on some matters of concern and on others that have been misrepresented.
The New Dawn Government reached a Staff Level Agreement (SLA) with the International Monetary Fund barely three (3) months after assuming office in August, 2021. This was on the backdrop of futile efforts previously pursued for more than five
(5) years. The Government’s anticipation was for the IMF Supported Programme to be agreed by June 2022, however, there are some finalisation steps, mainly related to the debt restructuring process, that still need to be undertaken before the IMF Management and Board considers and approves the programme.
The consideration of Zambia’s application for an Extended Credit Facility by the IMF Board and the country’s debt restructuring process, are interrelated. Therefore, getting the IMF Board approval is centered on getting financing assurances from the Official Creditor Committee (OCC) under the G20 Common Framework for Debt Treatment. Their pace of progress, however, is not entirely dependent on the Zambian Government’s efforts. Notwithstanding, it is our expectation that with the due processes followed, we will get an IMF Supported Programme this year and place our debt on a sustainable trajectory, once again.
For the information of stakeholders, negotiations with our Creditors under the Common Framework are supported by an independent Debt Sustainability Analysis conducted by the IMF and the World Bank, accompanied by reforms, to ensure the future sustainability of public debt through an IMF Supported Programme (in Zambia’s case a 3-Year Extended Credit Facility). The whole process is systematic and entails substantial traction as we move towards attainment of credible assurances on how the country’s debt will be treated by the Official Creditor Committee before the IMF staff submit Zambia’s case to the IMF Management and the Board for consideration.
Some key milestones are as follows:
- Finalisation of the Debt Sustainability Analysis (DSA) with the IMF and the World Bank. This has been done;
- Pledges by multilateral lenders to provide concessional financing to Zambia as part of the effort to resolve the country’s financing limitations based on the DSA results;
- Convening the OCC (mainly bilateral related lenders) to discuss Zambia’s request for debt relief under the G20 Common Framework for Debt Treatment. This action has commenced; and,
- Convening, immediately after the OCC, a committee of Commercial Lenders (Eurobonds, Commercial Banks, and Private Lenders etc). This is pending completion of discussions by the OCC.
Pursuant to some of the milestones listed above, the Government has regularly engaged both Official Creditors and Private Creditors. They have been provided with economic policy and debt data, with a view to facilitate decision-making and successive meetings of the two creditor groups.
High-level bilateral discussions have been held, too. One such engagement was the virtual summit meeting between Mr. XI JIPING, the President of the Peoples Republic of China (Zambia’s biggest bilateral creditor and the world’s second biggest economy) and Mr. HAKAINDE HICHILEMA, the President of the Republic of Zambia (Currently one of Africa’s best investments destinations). The engagements resulted in the first successful meeting of the OCC on Thursday 16th June, 2022, under the auspices of the Paris Club and the G20. The meeting with private creditors will follow-through after consensus is reached by Official Creditors.
The Government has been engaging multilateral partners for concessional financing as part of the effort to resolve Zambia’s fiscal limitations. As announced before, the engagements have culminated in several benefits such as the pledge by the World Bank to support the national budget through a Development Policy Operation. As soon as the IMF Supported Programme is approved by the IMF Board, it is envisaged that the World Bank will supply funding amounting to US$275 million over the next three (3) years.
Furthermore, the Bank is providing sizeable positive net flows to Zambia. Under IDA19, the Bank is committing approximately $959 million to support Zambia’s recovery from the multiple debt and economic crises and help to institute reforms for inclusive growth and poverty reduction. Of this, U$$294 million has already been committed for scaling up social cash transfers and projects to strengthen the pandemic response, including vaccination and emergency health financing to improve service delivery.
The remaining U$$665 million will be presented in three operations to the World Bank Board for approval within June 2022. The program includes two results-based operations, the first to reinvigorate growth in agriculture and support reform of the agricultural subsidy regime and the second to strengthen decentralized public service delivery while enhancing public financial management, accountability, and citizen engagement and will support the increased resource allocation towards Constituency Development Fund. The third operation will finance additional social protection spending in response to various shocks.
Furthermore, upon agreement of the Country Assistance Strategy during the second half of 2022, financing is also expected from the Africa Development Bank (AfDB) over the next 3 years. This implies that over the medium-term, an estimated US$500 million or more will be available to Zambia (through the Africa Development Fund), for economic and social development. This is another demonstration of a functional and cordial relationship between Zambia and her multilateral partners.
Going forward, the Government will continue to work tirelessly towards returning the country to a state of fiscal stability that will facilitate sustainable growth. Through the soon to be launched Eighth National Development Plan (8NDP), the Public Private Dialogue Forum and other development delivery frameworks, the New Dawn Administration will continue to make sincere efforts targeted at trending the living conditions of our fellow citizens towards equal opportunities, sustained prosperity and poverty reduction, on the platform of a stabilized and transformed economy that inspires improved investor confidence, facilitates more local and foreign investments, creates more opportunities and jobs, and nurtures the economic freedom of the people of Zambia.