Part One: Why Another Programme After Debt Restructuring?

Introduction

Zambia completed its previous IMF Extended Credit Facility in January 2026, receiving approximately US$1.7 billion over the life of the arrangement. On 9 October, the Government and IMF staff reached agreement on a proposed new three-year facility worth US$1.472 billion. The obvious question is why Zambia is seeking another programme so soon after completing the first. It is tempting to interpret the agreement either as proof of renewed international confidence or as evidence that Zambia remains trapped in financial dependence. Neither interpretation explains enough.

Debt sustainability and fiscal independence are not the same thing

The 2022 IMF programme helped address an emergency: Zambia had defaulted and required debt restructuring, fiscal adjustment and restored external confidence. Those gains are significant. Yet the IMF’s January debt assessment still classified public debt as sustainable at high risk of distress. Sustainability means projected obligations can be met under specified assumptions and policies; it does not mean the budget has abundant resources for development, or that adverse shocks can be absorbed easily.

Concessional IMF financing can be economically sensible even as conditions improve. It may ease immediate financing pressures and reinforce policy credibility. The harder assessment is whether it helps Government build a revenue base and expenditure system capable of reducing its future need for exceptional support. Zambia can regain the capacity to repay creditors without simultaneously gaining the capacity to finance its ambitions.

Why fiscal pressure returned

What makes the successor programme particularly revealing is that the immediate pressure is not exclusively inherited debt. It is also the re-emergence of fiscal imbalances during recovery. The IMF reported a primary surplus of 3.1 percent of GDP in 2025. In May, it projected this would fall to 1.1 percent in 2026. Its October statement identified weaker-than-expected VAT and fuel-tax revenues and higher-than-budgeted Food Reserve Agency expenditure.

FIGURE 1 | Zambia’s Primary Surplus: 2025 Outturn of 3.1% of GDP and a 2.7-Percentage-Point Downward Revision to the 2026 Forecast

Source: IMF mission statement, 14 May 2026  |  January versus May projections.

FRA illustrates why fiscal discipline is not simply a choice between helping citizens and cutting expenditure. Maintaining food reserves can be justified by drought risks and imperfect agricultural markets. But procurement beyond the budget, without credible financing, transfers costs to future budgets through borrowing, arrears or displaced investment. Expenditure intended to stabilise food markets can then undermine fiscal stability itself.

FIGURE 2  |  FRA 2025 procurement: actual deliveries versus the original purchase plan

2025 MAIZE MARKETING SEASON

Source: National Assembly of Zambia, ministerial statement, 6 February 2026  |  2025 marketing-season figures; not a 2026 outturn.

Budget credibility presents a related concern. The previous IMF programme missed its expenditure-arrears clearance target, illustrating why fiscal adjustment must be assessed beyond headline balances. Protecting health or education allocations is insufficient if financing does not translate into timely payments and effective services. The successor programme should be evaluated against releases and outcomes, not social-spending floors alone. Yet protection must not mean automatically preserving every programme. Expenditure supporting vulnerable households or raising productivity has a stronger claim on scarce resources than projects whose costs are clear but benefits remain unproven.

The proposed programme seeks to rebuild the primary surplus gradually to 3 percent of GDP by 2029. This is worth examining carefully: the target is broadly comparable with the reported 2025 surplus. The programme is therefore partly about recovering fiscal ground lost in 2026, not simply achieving a historically unprecedented level of restraint. The unanswered question is whether the institutions that allowed the slippage will change.

A surplus is not spending money

A primary surplus excludes interest payments. Government can record such a surplus and still face an overall deficit, refinancing pressure and limited room for new investment. Nor should gross debt repayments, which include maturing principal, be confused with the interest burden or net new borrowing. Each measures a different constraint.

That distinction matters in Zambia, where domestic refinancing, payment arrears and debt-service obligations compete with investment priorities. A fiscal programme judged only by its primary balance can look successful even while suppliers remain unpaid, capital projects stall or liabilities accumulate outside the central budget. A better criterion is whether fiscal adjustment reduces these pressures without cutting expenditure that demonstrably improves productivity.

Revenue is a question of quality

Zambia’s fiscal adjustment depends not only on revenue growth but also on its predictability. According to ZRA’s 2025 Annual Report, import VAT and PAYE contributed 39.9 percent of net collections, while mining income tax and mineral royalties contributed 19.4 percent. Just 1,011 taxpayers accounted for 80 percent of gross collections. Such concentration is not inherently problematic but can heighten exposure to shocks affecting major taxpayers. ZIPAR’s 2026 Mid-Year Budget Performance Analysis illustrates the challenge: mining company income tax exceeded target by 75.5 percent, supported by higher copper prices, while VAT fell 48.4 percent below target, partly reflecting temporary fuel-tax relief. Overall domestic revenue still underperformed by 9.2 percent. The proposed IMF programme should therefore prioritise revenue predictability, effective compliance and expenditure discipline, avoiding permanent spending commitments financed by temporary mineral-revenue gains.

The question before approval

The October announcement remains a staff-level agreement, not an approved programme. The final staff report, quantitative conditions and financing path remain to be published. What matters now is understanding how the proposed fiscal adjustment will be achieved and whether it addresses the weaknesses exposed during 2026.

Zambia’s challenge is not simply to restore its primary surplus, but to prevent the fiscal pressures that eroded it from recurring. A surplus achieved through delayed payments or compressed productive investment may improve the immediate fiscal position without resolving underlying financing constraints. Unless revenue performance becomes more predictable and expenditure commitments remain within credible financing limits, Government risks repeatedly correcting fiscal imbalances rather than preventing them.

Next week, we examine the second half of the equation: whether the IMF framework and the Grow Zambia investment agenda are financially compatible.