IMF SUPPORT PROGRAM

Zambia 2017 | FINANCE | FOCUS: SME GROWTH

An IMF support program stands to provide Zambia with some much-needed discipline on its expenditure and operational efficiencies; however, many caution the need for Zambia to determine what it wants to achieve and how the program will benefit the country.

At the end of 2016, the IMF announced it would enter Zambia with an economic supplementation program midway through the following year. At the end of 1Q2017, Finance Minister Honorable Felix Mutati announced the conclusion of the consultative process preceeding the implementation of the support program. The finer details of the program—of what it will consist and how it will be packaged—have to be confirmed. Estimates say the sum of the financial support provided could be as high as USD1 billion, enough to help cover the financing needs stated in the government's 2017 Budget of USD1.2-1.3 billion.

Judging by the tone of Minister Mutati's many speeches given on the topic, it appears the Zambian authorities are determined to be the driving force behind any IMF intervention. “We are taking ownership and responsibility for the execution of our own economic recovery program,” Mutati announced. “External organizations, including the IMF, as well as the international business world, and the private sector, must feed into this.”

In October 2016, the IMF conducted a mission in Zambia, led by Tsidi Tsikata, to assess the complexities of Zambia's situation and later diagnosed external and domestic shocks, coupled with an unbalanced policy mix, government overspending, and a build-up of arrears as the country's principal afflictions. While a tightening of monetary policy had resulted in more stable kwacha and low levels of inflation, the side effect, reported the IMF, was squeezed liquidity, which, combined with these other factors, had placed considerable stress on the private sector and the financial system

Such financial woes mean that many welcome the IMF's arrival in Zambia, while others naturally have their own reservations. As the Honorable Sebastian Kopulande, CEO of the Zambian Trade and Investment Center and MP for Chembe constituency, told TBY, “I am optimistic, though conditionally. We must define what we want. If we do not, then we will be contracting a long-term debt that will not be invested in economic activities to directly increase our capacity to payback.” Indeed, many TBY interviewees have echoed the sentiment, emphasizing the vital role Zambia must play in these negotiations. “If we receive the promised resources from the IMF, we need to have mapped out how we will employ such resources, what exactly we want to achieve, and set success benchmarks, so that we make sure that this program works, and that it works for us,” Kopulande highlighted.

The IMF also stress that conditions linked to loan disbursements must be appropriate to the country in question. In line with this assertion, aside from financing, the organization offers technical assistance, policy advice, public financial management, and banking supervision to its struggling member states. There are a growing number of sceptics expressing the usual concerns relating to IMF conditions. In 2016, rumors abounded that the IMF would demand the privatization of state-owned companies such as ZESCO or Zamtel and that it would crack down on government spending, reducing budgets for health and education. Their fears were not entirely unfounded. The government is sticking to its new year's resolutions, having embarked on a “fiscal fitness” mission, with belt-tightening and austerity measures. In early 2017, for example, cuts were made to the substantial subsidies on fuel, a move that has been championed by numerous TBY interviewees in the private sector and multinational organizations.

Then, there is the question of what kind of package will be implemented and how effectively this will dovetail with Zambia's own economic recovery strategy. The devil is in such details for the likes of Charles Carey, CEO of Cavmont Bank, who told TBY he welcomes a support program in principle, but has concerns regarding what the effects, in practice, will be for Zambia's fragile economic recovery. “If the medicine required is more severe than the expected relief,” he said, “we have to critically evaluate the rigorous and time-bound criteria to meet such a support program and determine whether the opportunity is really in our best interests.” As he summarized, “It might not be the actual destination that matters as much as the journey we undertake to get there, which proves more valuable.”