Government Reaches Staff Level Agreement With IMF

On Friday the government and the International Monetary Fund (IMF) reached a staff level agreement on a three-year, $1.4 billion extended credit facility for Zambia, bringing the country a step closer to a comprehensive debt overhaul.

The agreement comes after three months of talks initiated by President Hakainde Hichilema and the UPND government. It seeks to remedy the chronic overborrowing of the previous administration, which drove the country’s debt burden over 120% of annual economic output. 

In 2020, Zambia became the first African country to default on its debts in the pandemic era. 

In a statement, the IMF’s mission chief for Zambia said Friday’s agreement is “based on authorities’ plans to undertake bold and ambitious economic reforms.”

“The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances. Further details on the agreement will be released on Monday,” she added.  

Finance Minister Situmbeko Musokotwane praised the relief package, saying that “the IMF programme will provide much needed fiscal space to Zambia and achor our domestic economic programme.”

In October’s budget the finance minister promised to slash the country’s deficit and substantially reduce borrowing in order to qualify for IMF support. He also cut spending on subsidies for power, fuel and farming – likely at the Fund’s request.  

Zambia’s external debts include $3 billion in international bonds, $2.1 billion to multilateral lending agencies such as the IMF, and a further $3 billion to China and Chinese state entities. 

In response to Friday’s deal, Zambia’s currency bonds rallied up to 1.3 cents – trading between 75 and 78 cents in the dollar. 

Financial experts also welcomed the news, with economist Irmgard Erasmus of Oxford Economics hailing the deal as “a very good sign that authorities provided the much-needed (and previously lacking) financial assurances.”