The odds of Zambia’s long awaited International Monetary Fund (IMF) bailout package are widening as the Washington based lender gears up for a fortnight of virtual deliberations in April. According to a media release signed by secretary to the treasury Fredson Yamba, the International Monetary Fund (IMF) will be in virtual talks with Zambia for an Extended Credit Facility (ECF) commencing 30 March 2021 and continue into the first two weeks of April 2021.
Read also: Despite ‘debt and pandemic’ labyrinth, Zambia still hopeful of IMF bailout
Amidst deteriorating fiscals and balance sheet vulnerabilities, Zambia formally requested for a fully funded program with the IMF in the fourth quarter of 2020 which was followed by a visit by a high level staff team led by Alex Segura-Ubiergo in December 2020 and the Davison Robinson’s mission team in February – March period.
The copper producers fiscal fragility was amplified by pandemic effects that saw reallocation of resources to public health care at the expense of real sectors of the economy. Inflation has spiralled to 61month highs, 20bps shy of 23% (March), while currency depreciation has worsened on the back of mismatches in supply – demand fundamentals and weak reserve buffers at decades lows of $1.2billion (<2.5months if import cover). Risks to growth remain prevalent with widening dollar scarcity as the red metal producer grapples with revenue earning capacity. Metal prices come as a reprieve measure but with benefits only to effectively trickle substantially when the mining ownership completes and production ramps up.
Read also: Zambia formally requests for IMF financing as economic woes deepen
Earlier on March 04, the IMF mission team said deliberations would continue with further talks to determine the technical package that would suit Zambia’s dire situation. With a hat-trick of coupon payment defaults falling $118.9million across all dollar bonds maturing 2022, 2024 and 2027 sentiment has dwindled with Zambia dubbed the worst performer of all emerging and frontier market assets.
Various analysts have speculated how much of balance of payment support Zambia would be given ranging from $1.3billion – $4.2billion. The Southern African nation procrastinated the decision to request for an extended credit facility for over 3 years following which the corona virus pandemic worsened the economic position leading to talks for assistance. on the positive side, the copper producer hired a financial advisor Lazard Frere’s to help with restructure but amidst a tag of war between the west and the east (China).
For a long time Zambia had no IMF resident representative after the recall of Alfredo Baldini. Appointment of Preya Sharma signalled a beam of hope to Zambia a sign the IMF were willing to assist the nation turn around its unsustainable debt quagmire.
Read also: Preya Sharma named Zambia’s IMF resident rep
Of all the mission team feedback in the history of Zambia, the February takeaways were the least negative and provided hope to the Zambian authorities of eventual light at the end of the tunnel. in order to demonstrated the will to restore fiscal fitness, the economic recovery plan was launched in December for the 2020-2023 period as part of a medium term expenditure framework that would drive Zambia’s ‘V’ shaped growth recovery.
As of late January 2021, Zambia has requested a debt treatment under the common framework agreed by the G20 nodded by the Paris Club, which is expected to contribute to restoring the red metal producers public debt sustainability.
The Kwacha Arbitrageur