Zambia wins IMF board approval for $1.3bn lending program

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By Jorgelina do Rosario and David Lawder

(Reuters) – Zambia on Wednesday won approval from the International Monetary Fund for a 38-month $1.3 billion loan program, a crucial step in the southern African country’s quest to restructure its debts and rebuild an economy ravaged by mismanagement and COVID-19.

The IMF said in a statement that the new extended credit facility arrangement would provide total financing of 978.2 million special drawing rights – about $1.3 billion at current exchange rates – equivalent to 100% of the quota or participation in the Zambia Fund.

IMF Executive Board approval will release an immediate disbursement of about $185 million, the Fund said.

Zambia’s creditors, led by China and France, pledged in late July to negotiate a restructuring of the country’s debts, a move IMF Managing Director Kristalina Georgieva hailed as “opening the way” to the new Fund program.

“Zambia continues to face profound challenges reflected in high levels of poverty and low growth,” Georgieva said on Wednesday. “The ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth.”

The IMF program aims to restore macroeconomic stability to Zambia through fiscal adjustment and debt restructuring and strengthening economic governance.

Georgieva said this would require “sustained” spending cuts and that the Zambian authorities were focusing appropriately on eliminating “regressive” fuel subsidies, reforming agricultural subsidies, reducing inefficient public investment, and reducing inefficient public investment. increase in tax revenue. This will free up fiscal space to increase social spending to ease the transition burden for the most vulnerable, she said.

The IMF said the loan will also catalyze much-needed financial support from development partners and donor countries.

‘MILESTONE’ DEBT RESTRUCTURING

In 2020, Zambia became the first African country in the era of the pandemic to default. The restructuring of its external debt, which stood at more than $17 billion at the end of 2021, is seen by many analysts as a test for the region.

It is one of three African countries, along with Chad and Ethiopia, that have sought to restructure under a common G20 debt restructuring framework. The IMF had reached a staff-level agreement with Zambia last December for a loan of up to $1.4 billion, but that depended on Zambia’s ability to reduce debt to levels the Fund deems sustainable.

Georgieva said in a Twitter post that the loan approval for Zambia was a “major milestone” for the G20 effort, which has long stalled, showing it can produce results for other countries. in debt.

The Fund said the next step in the debt restructuring process is for Zambia’s committee of official creditors to agree specific steps on how to provide debt relief, in the form of a memorandum of understanding to conclude by the end of 2022.

(Reporting by Jorgelina do Rosario and David Lawder; Additional reporting by Rodrigo Campos; Editing by Richard Pullin, Stephen Coates and Lincoln Feast.)

Copyright 2022 Thomson Reuters.

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