Washington, DC: On July 25, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation [1] and fifth review of Zambia's 38-month Extended Credit Facility (ECF) Arrangement, approved on August 31, 2022, and financing assurances review for Zambia. [2] The completion of this review allows for an immediate disbursement of SDR 139.88 million (about US$184 million), bringing Zambia's total disbursement under the ECF-supported program to SDR 1132.74 million (about US$1.55 billion). The ECF Arrangement seeks to entrench macroeconomic stability, restore debt and fiscal sustainability, enhance public governance, and foster inclusive growth to improve the livelihood of the Zambian people.
Program performance has been broadly satisfactory, with all end-December 2024 quantitative targets and most end-March 2025 indicative targets met. Three end-March 2025 indicative targets—on non-mining tax revenues, arrears clearance, and reserve accumulation—were missed. Six out of fourteen structural benchmarks (SBs) for this review were met, four were completed with delays, and the remainder four SBs on debt office procedures, along with financial sector and governance reforms, were proposed to be reset to the next review. The recent adoption of an amended 2025 budget in line with the program commitments satisfies the prior action set for this review. The Executive Board also granted a waiver for nonobservance of the continuous performance criterion on contracting non-concessional external debt in the fourth quarter of 2024.
With the effects of the historic drought receding, Zambia's economic outlook remains positive. Real GDP growth is estimated at 4 percent in 2024, underpinned by stronger mining and services performance as electricity access was prioritized to productive sectors. Real GDP growth in 2025 is projected at 5.8 percent on the back of continued recovery in agricultural production in the wake of the drought and continued strong performance in mining and services. Headline inflation is expected to gradually decline, to 11 percent by end-2025. The outlook is subject to significant downside risks stemming from global uncertainty. Medium-term prospects hinge on scaling up mining investment, sustained fiscal discipline, and structural reforms to promote private sector activity, economic diversification, and more inclusive growth.
Zambia's public debt is assessed as sustainable, but the country remains at high risk of overall and external debt distress. The authorities have reached agreements in principle with most external commercial creditors, and efforts are ongoing to advance bilateral agreements with official bilateral creditors, in line with program parameters and comparability of treatment as defined by the Official Creditors Committee. Although Zambia is at a high risk of debt distress because of near-term breaches of the DSA thresholds, it is expected to reach a moderate risk of external debt distress over the medium term.
The authorities have consented to the publication of the Staff Report prepared for this consultation [3]
Executive Board Assessment [4]
Executive Directors agreed with the thrust of the staff appraisal. They welcomed Zambia's solid growth performance and broadly satisfactory performance under the ECF-supported program, and positively noted that economic conditions are starting to stabilize. Given downside risks, however, Directors stressed the need for sustained reform momentum to bolster debt sustainability and to foster private sector led, inclusive growth through ambitious structural reforms.
Directors underscored the importance of revenue-led fiscal consolidation to address Zambia's fiscal and growth challenges. They welcomed new revenue measures and spending reprioritization introduced in the revised 2025 budget, and called for intensified domestic revenue mobilization efforts over the medium term to create space for priority social and capital spending while strengthening debt sustainability. Broadening the tax base and improving tax administration remain important in this regard. Directors encouraged further efforts to strengthen public financial management to help improve the efficiency, transparency, and credibility of fiscal operations. They emphasized the need for sustained budget discipline ahead of the 2026 elections.
Directors welcomed the authorities' good progress on external commercial and official debt restructuring, thereby reducing the risk of debt distress and contributing to the restoration of debt sustainability. They encouraged the authorities to sustain efforts to finalize all restructuring agreements promptly.
Directors concurred that the Bank of Zambia (BOZ) should maintain an appropriately tight monetary-policy stance to combat inflation. They supported the BOZ's data-driven approach to policy decisions, while also emphasizing the need to further strengthen monetary policy transmission to anchor inflation expectations. They supported efforts to strengthen liquidity operations and deepen financial markets, and underscored the importance of reserve accumulation and sustained exchange rate flexibility to absorb external shocks. Directors also encouraged further reforms to enhance financial stability and inclusion.
Directors stressed that structural reforms remain vital for stimulating private sector activity and economic diversification. They highlighted the importance of improving the business environment, raising labor productivity, enabling firm expansion, reforming agricultural support mechanisms, as well as addressing informality, infrastructure gaps, and the limited access to finance. Directors underscored the importance of strengthening governance, promptly adopting the new Anti-Corruption Act and strengthening the independence of the Anti-Corruption Commission. They reiterated calls for enhanced transparency in the energy sector and resource management.
It is expected that the next Article IV consultation with Zambia will be held in accordance with the Executive Board decision on consultation cycles for members with Fund arrangements.
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[2] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
[3] Under the IMF's Articles of Agreement, publication of documents that pertain to member countries is voluntary and requires the member consent. The staff report will be shortly published on the https://www.imf.org/en/Countries/ZMB page.
[4] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.IMF.org/external/np/sec/misc/qualifiers.htm .
Table 1. Zambia: Selected Economic Indicators |
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