ZAMBIA might not get on an International Monetary Fund (IMF) economic programme due to its unsustainable level of debt, says Bank of Zambia (BoZ) governor Dr Denny Kalyalya.

And BoZ data has revealed that K1 billion has so far been approved for disbursement under the Central Bank’s K10 billion Medium-Term Loan Facility.

Meanwhile, Dr Kalyalya has announced a reduction in the Monetary Policy Rate (MPR) by 225 basis points to 9.25 per cent to mitigate the adverse impact of the COVID-19 pandemic to help stabilize the financial sector, among others.

Addressing questions from journalists after the MPR announcement in Lusaka, Wednesday, Dr Kalyalya said Zambia’s chances of clinching a much-needed IMF economic programme were slim because of the country’s unsustainable debt levels.

He was reacting to a question on whether Zambia would ever get on an IMF programme, which was previously expected to be in the region of US $1.3 billion for balance of payments support.

“Yes, the (Finance) Minister (Dr Bwalya Ng’andu) I think was very clear. Go to the IMF website, check on low income countries and the facilities that are available, all IMF facilities have conditions that they can only provide support to a country which has a sustainable debt situation or at least it must have a credible plan that will bring that to sustainable level. Those are the conditions, I am not dreaming them up, they are there and Zambia and 188 other countries are members of the IMF and those are rules through the institution because the money they fund, the money they lend, is money collected from member countries. Zambia, as a member, we have a quota there, which is close to something like 490 million SPR. And our quota, Zambia is quite big actually for our size of the quota, we are not flexing our muscle fully. Zambia, when we joined the IMF in 1965, our economy was relatively strong and in terms of size, Zambia is third only to South Africa and Angola. Now, we are not exploiting and over the years, with the decline in growth that we are talking about, our economy has been shrinking and we are not benefiting from that advantage that we have,” Dr Kalyalya said at Mulungushi International Conference Centre (MICC).

“So, I think it’s about time we realized our place in the global setting and play at that level. So, that’s the challenge we have and that’s what the Minister has been saying to work on getting the debt to sustainable levels, that’s the key requirement for us to be able to work and get Balance of Payment (BoP) support that we want from the IMF. Now, sadly, international financial architecture, the way it is is that the multilateral institutions, but we have our own institution, the AfDB (African Development Bank), they all look up to the assessment of the IMF in terms of giving BoP support. These days, especially after the 2008 (financial) crisis, even project funding is now caught up in that problem. When the World Bank comes and assesses us, if the IMF doesn’t endorse that the macro framework that we have is good enough, they will not proceed to provide Balance of Payment support, equally, the AfDB will not. But these are rules, which we set which are very unfair! And you see, one would have thought that when a country is in problems, that’s when actually you get assistance. Unfortunately, that’s not how international financial architecture works; you are expected to be strong enough so that the support that you are being given is used for the purpose for which you have got it.”

When asked if his job was frustrating, Dr Kalyalya conceded that he did get frustrated by the slow progress because he was only human.

“Frustration, do I get frustrated? I am human, everybody gets frustrated sometimes but you have to work through your frustrations, you can’t let your frustrations get in the way of doing what you need to do. I think all of us, we have to learn to handle our frustrations; if you’re frustrated, some will go and start binge drinking or do something, you are just wasting yourself away! So, actually sometimes these frustrations are good, they push you to do perhaps more than what you did earlier. In fact, you need to get frustrated enough so that you act, you get angry from frustration and then you act, you know. There are days when you feel: ‘what is going on?’ But that’s life,” he replied.

And when asked on the level of subscription to the K10 billion Medium-Term Loan Facility, BoZ deputy governor for operations Dr Francis Chipimo announced that K1 billion had so far been approved for on-ward lending.

Dr Chipimo, however, attributed that the under-subscription of the facility to conditions set out for the banks in terms of who was to benefit from the facility.

“…So, yes, we are hearing some challenges around take-up of this facility. Maybe, I should just give a bit of background. We started discussing quite some time before it was finally launched in April, with the banks, thought the Bankers’ Association of Zambia (BAZ) and an association, which deals with non-finance lenders. The process took a bit of time. But even after it was launched, there were some banks that would come back and say, ‘what does this mean?’ One area where I know there has been some back and forth is we said to them: ‘we don’t want a situation where you borrow this money at 12.5 per cent at the time and you simply say, ‘Treasury Bills are at 30 per cent, we are just going to put money in there or I am going to put it in foreign exchange,’ so those two we said, ‘no, we want you to lend to businesses or individuals.’ But in terms of specifics, so we have had up to-date something like K3.2 billion in terms applications, which have come to us, we have now approved, essentially, about K1 billion to be disbursed, and that K1 billion we are now just going through that position of: ‘can you show us what benefits are going to come to the customer…?’ But once they agree with us, we can monitor later on and say, ‘okay, in your normal reporting, if our have not put that benefit to the customer we can be able to see and take the appropriate action’,” said Dr Chipimo.

Earlier, Dr Kalyalya announced that Monetary Policy Committee (MPC) had slashed the Policy Rate by 225 basis points despite the projected path of inflation being higher than the medium-term target corridor of six to eight per cent.

“In the face of COVID-19 pandemic, the MPC cut the Policy Rate by 225 basis points to 9.25 per cent, despite the projected path for inflation being higher than the medium-term target range of 6-8 per cent. This is intended to mitigate the adverse impact of COVID-19 pandemic on financial sector stability, economic activity, and ultimately on people’s lives and livelihoods. The Committee noted that, in the absence of urgent and appropriate policy response, prospects are likely to significantly deteriorate, as the economy is projected to record a recession in 2020. The cut in the Policy Rate, therefore, also complements the broader set of measures the Bank has already undertaken. These include: the targeted Medium-Term Refinancing Facility, prudential measures taken to ease the flow of credit to businesses and households, and scaled-up use of digital financial services,” said Dr Kalyalya.

“The Committee calls for concerted efforts and strengthened collaboration among all stakeholders to effectively deal with the COVID-19 shock and its effects. In this context, implementation of fiscal and structural reforms that deliver inclusive and sustainable growth remains an urgent imperative. Decisions on the Policy Rate will continue to be guided by inflation forecasts, outcomes, identified risks, including those associated with the COVID-19 pandemic.”