Zambia Asks for IMF Loan to be Increased to $1.7 billion

Zambia is set to receive an extra $388 million from the International Monetary Fund as soon as this month to help the southern African nation deal with its worst drought in at least four decades.

The Washington-based lender’s staff reached a deal with the government on the third review of an existing $1.3 billion economic program, as well as a request to augment it to about $1.7 billion, the IMF said in an emailed statement Tuesday. The nation will have immediate access to about $573 million as soon as the emergency lender’s management and board approve the agreement, with a meeting due by the end of June.

The copper-rich nation, which became Africa’s first pandemic-era sovereign debt defaulter in 2020, faced delays in completing the review as it worked out how to fill a funding gap caused by the drought, which has hammered its harvest and vital hydroelectric production.

Fallout from the El Niño-induced dry spell prompted the southern African nation to slash its 2024 economic growth forecast by half to 2.5% and appeal for help in closing a $900 million budget shortfall it had caused. The Finance Ministry had already received indicative pledges of support totaling about $500 million from co-operating partners to help deal with the impact.

The IMF funds will help support the government as it seeks to conclude a years-long restructuring of about $13.4 billion of external debt. Holders of Zambia’s $3 billion in outstanding eurobonds were due to meet Tuesday to approve exchanging their debt for new notes. They’d already given early voting instructions, with investors holding more than 92% of the bonds in favor the restructuring.

Other key points from the IMF statement:

The fund sees farming output shrinking by 19%, with copper production expected to recover more gradually than initially envisaged

Zambia’s revised 2024 budget will provide emergency relief for an extra one-million households, and additional external funding will help temporarily expand social cash transfers

Monetary policy will need to remain appropriately tight, while allowing the exchange rate to play its role as a shock absorber

 

June 04, 2024