- The Executive Board of the International Monetary Fund (IMF) has completed the third review of Zambia’s economic performance under the Poverty Reduction and Growth Facility (PRGF) arrangement. The completion of the review will also enable the immediate disbursement of an amount of about US$ 81.2 million, bringing total disbursements to the country to $ 262.5 million.
The PRGF arrangement for Zambia in the amount of $79.2 million was originally approved in June 2008 and later augmented by $256.4 million to about $329.7 million in May 2009.
The IMF’s Executive Board also yesterday concluded the 2009 Article IV consultation with Zambia.
“The Zambian authorities are to be commended for their solid performance under the PRGF-supported program. Their prudent macroeconomic management was demonstrated by the Zambian economy’s resilience to the global economic crisis,” Murilo Portugal, Deputy Managing Director and Acting Chair, stated following the Executive Board's discussion.
He also noted that the 2010 budget of Zambia is well balanced and that the authorities aim to create fiscal space for poverty reducing expenditure and for infrastructure investment to sustain robust and diversified growth.
Amongst others he mentioned that the authorities will review tax policy and administration, with a view to broadening the tax base and reinforcing tax collection, adding that the upward trend in the wage bill needs to be reversed to free resources for other priority outlays and social spending. Further reforms to enhance government spending efficiency are also needed, he also said.
“Zambia’s risk of debt distress is low and there is some scope for external borrowing on non-concessional terms to finance the government’s share in essential infrastructure projects, particularly in electricity generation. The authorities plan to adopt a comprehensive debt management strategy, which will ensure that external borrowing is consistent with continued low risk of debt distress. The authorities are committed to improve aid management and to coordinate closely with donors,” he said.
According to the IMF’s acting chair, the floating exchange rate regime and reserve money-based monetary programme have served Zambia well, saying the authorities’ plans to transition to an inflation targeting regime should be premised on the establishment of the necessary preconditions. He also noted that the authorities aim to implement the second phase of their financial sector development plan to enhance financial system stability and financial intermediation.
“Attracting private sector investment in the electricity sector requires aligning tariffs with cost recovery levels. Efforts to strengthen the financial and operational efficiency of the state-owned electricity utility ZESCO should be accelerated,” added Mr Portugal.
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