By Nawa Mutumweno – The fifth review of Zambia’s economic performance under a programme supported by the Extended Credit Facility (ECF) has been completed by the International Monetary Fund (IMF) executive board.
This finalization facilitates the immediate disbursement of an amount equivalent to SDR 18.395 million (about $28.3 million), bringing the total disbursements under the arrangement to SDR 201.7 million (about $310.3 million). SDRs are international foreign exchange reserve assets
In completing the review, the executive board also granted a waiver for the non-observance of a performance criterion on non-concessional external debt at end-December 2009 and approved the modification of the performance criteria for end December 2010 on net domestic assets of the Bank of Zambia and on net domestic finamcing of the central government, as well as a modification to the performance criterion on non-concessional external debt.
The ECF arrangement for Zambia was originally approved in June 2008 and then augmented in May 2009 by SDR 171.185 million (about $256.4 million) to an amount equivalent to SDR 220.095 million (about $329.7 million).
Further to this development, IMF deputy director and acting chair Naoyuki Shinohara gave Zambia kudos for its impressive economic programmes.
“Zambia’s economic prospects continue to improve, thanks to sound macroeconomic policies and progress in structural reforms.Growth remains strong, inflation is subdued, and the external position has been solid. The main medium-term challenge is to create fiscal space for priority spending, enhance economic diversification and reduce poverty,” Shinohara pointed out.
A prudent policy framework will help shelter the economy from continued global uncertainty and ensure that underlying inflation, especially on non-food items, continued to decline as targeted.
The fiscal strategy remains centred on increasing revenues, including from the mining sector, containing wages and other recurrent spending, and improving the efficiency of spending.
The 2011 budget was consistent with making significant progress in meeting the country’s challenges. There should also be increased but prudent reliance on non-concessional financing which is appropriate, given the challenges in identifying additional concessional resources and the moderate external debt levels.
Zambia’s financial sector conditions are improving gradually with credit to the private sector slowly increasing, although non-performing loans remained high.
“While most banks are well-capitalised and have ample liquidity, the authorities need to strengthen bank monitoring and contingency planning to contain vulnerabilities,” he pointed out.