On 31st August 2022, Zambia was granted a 36-month Extended Credit Facility (ECF) International Monetary Fund (IMF) supported programme marking a crucial step in the country’s quest to restructure its debt and rebuild its economy. To ensure the success of this programme, the IMF periodically conducts performance reviews and ties the disbursements of funds conditional upon meeting specific criteria including quantitative performance criteria, indicative targets, and structural benchmarks. In April this year, a joint team of IMF staff and Zambian authorities completed the first semi-annual review based on data and performance criteria as at end-December 2022. The team concluded that the country had met all the structural benchmarks and quantitative performance criteria for the first review of its programme. Hence, this week’s Monday Opinion delves into Zambia’s performance on its structural benchmarks focused on restoring fiscal and debt sustainability.

Structural benchmarks are reform measures that are often non-quantifiable but are critical for achieving IMF programme goals. They include improvements in financial sector operations, building up social safety nets, and strengthening public financial management. Benchmarks are designed to reduce risks and ultimately improve the programme’s chances of success. Zambia’s ECF program hopes to restore the country’s sustainability through fiscal adjustment and debt restructuring among other objectives. This will be key in achieving both fiscal and debt sustainability even as the country aims to enhance social sector spending to cushion the burden of the adjustment programme.

Fiscal Benchmarks

To support the programme’s objective of restoring fiscal sustainability, the Government had committed to implementing tax reforms aimed at broadening the tax base, augmenting domestic resource mobilization, strengthening tax administration, and ensuring cost reflective pricing. Additionally, in October 2022, Government’s action plan to integrate all tax policy and administration measures into a comprehensive and holistic strategy was adopted. Several reforms were implemented by December 2023 including the removal of implicit subsidies on fuel, the reinstatement of value added tax (VAT) and excise duty on petroleum products and ultimately the corresponding adjustment of fuel prices.

Effective January 2023, excise duties on alcohol, cigarettes, and other tobacco products were increased, the roll out of electronic fiscal devices was fast tracked, the use of digital stamps on excisable products was introduced, personal income tax bands were revised and rates for corporate income tax were consolidated. To mitigate some of the cost inefficiencies surrounding Zambia’s flagship Farmer Input Support Program (FISP), guidelines to implement the new Comprehensive Agricultural Support Program (CASP) and ensure a full migration of FISP to an electronic agrо-input system were to be submitted by end December 2022.

External Debt Management Benchmarks

To support the programme’s objective of restoring debt sustainability, several reforms aimed at improving debt management and transparency have been made. To enhance debt management efforts, loan contraction and to provide a framework for evaluation, issuance and monitoring of public guarantees, there was need to revise the Loans and Guarantees (Authorization) Act (LGAA). By December 2022, a new piece of legislation, the Public Debt Management Act (PDMA), repealed and replaced the LGAA. Although, the PDMA is not an end in itself, it scores significantly higher than its predecessor the LGAA in providing an effective and efficient legal framework in debt management.

With the aim of fostering transparency in the management of debt, Government, publishes semi-annual debt summary reports and comprehensive quarterly statistics on debt. These statistical bulletins provide comprehensive information on debt, including details such as debt by currency, residency of creditors, and debt instrument. They cover general government debt (including guaranteed debt), the debt of non-financial public enterprises (including non-guaranteed external debt) and contracted but undisbursed debt. Government also developed and published an Annual Borrowing Plan which is useful in informing the treasury’s financing guidelines for the year. Other benchmarks where public enterprise forms, governance, and financial stability measures. By December 2022, all these reforms were implemented, and the benchmarks were met.

However, even though the country has met all its structural benchmarks which led to the signing of a Staff Level Agreement (SLA), the second disbursement of funds under the program remains subject to the country reaching a debt treatment plan with its creditors. The second disbursement remains key if the country is to successfully implement its 2023 national budget and ultimately achieve the objectives of its reform programme. Furthermore, this has also led to the delay in Governments finalization of the 2023 – 2025 Medium Term Debt Strategy which is a critical tool that guides Government intentions around debt management over the medium-term. Therefore, it is imperative that Zambia closes in on a debt restructuring plan with its creditors in the soonest possible time. Look out for next week’s opinion as we continue to expound on the country’s performance on an IMF program.

About Author

Peter N Mumba is a policy researcher and development economist who currently coordinates activities of the Zambia Debt Alliance. He studied at the University of Namibia, graduating with a master’s degree in economics. He also holds additional qualifications in monitoring and evaluation, and business information systems.