Can The IMF Save The Economy?

Following the debt default earlier this month the Government is in a difficult position. Zambia owes international creditors an estimated $12bn. What's more, it will now have to comply with additional levels of transparency in order to restructure loans and regain access to global markets. 

While the coronavirus pandemic has added further strain on the economy Zambia has struggled to access international support afforded to others as a result of concerns regarding the structure and lack of transparency around its debt. In particular there are concerns and uncertainty regarding the Government’s handling of Chinese loans that were an important factor. More than $3bn has been borrowed from Chinese lenders including China Exim Bank and the China Development Bank. These concerns were one of the reasons cited for why Eurobonds holders were reluctant to grant Zambia a six-month relief period on interest payments.  

The debt problem has been mounting for some time.  According to the UPND’s national chair Mutale Nalumango, President Lungu’s PF Government have borrowed more in six years than UNIP and MMD borrowed in their 47 years in office. The opposition party estimates total debt now stands at over US$33 billion, meaning each of Zambia’s 18 million citizens owes the equivalent of around K37,000.  

A major stumbling block to resolving the situation has been the failure of Government to strike a deal with the International Monetary Fund (IMF). Discussions regarding a bailout have been on and off throughout President Edgar Lungu’s time in office.  

Having rejected a proposed deal in 2015, the President then challenged the IMF to leave the country if they felt he had gone beyond the norms of good governance and democracy following the declaration of a state of emergency in 2017. The fund subsequently withdrew its representative to Zambia in August 2018.  

The major stumbling block appears to have been concerns regarding debt sustainability, which are a long-running concern on the fund’s part. In 2018 the IMF warned that discussions could only progress once Zambia had implemented credible measures to manage the country’s growing debt burden.  

The IMF is now expected to return to Zambia in early December. However, a deal will not be easy and analysts suggest the fund will want to see progress on liability management before going ahead with any formal bailout. It has also been speculated that with elections scheduled for August next year President Lungu’s Government may try and hold out until after the polls to strike a deal.