After fighting hard, Zambia expected to stumble into the IMF’s waiting arms

Country preparing ground for ‘inevitable’ post-election aid, as economy under intense pressure.

ZAMBIA reeling from a copper-price slump and a power shortage, is readying for “inevitable” assistance from the International Monetary Fund that may be finalised in December, Treasury Secretary Fredson Yamba said.

A deal will only come after general elections set for August 11 and until then, government will work on lowering electricity and fuel subsidies that the fund last month estimated could cost the southern African nation $660 million a year, Yamba said in a statement Friday in the capital, Lusaka.

“With respect to Zambia going on an IMF programme, the government is fully resolved, and as directed by cabinet, this is inevitable,” he said.

“In the meantime, government will work towards setting the stage for the necessary adjustments in electricity tariffs and fuel-pump prices, while ensuring that austerity measures announced by the president in November 2015 are diligently enforced.”

The economy of Africa’s second-biggest copper producer, which expanded at the slowest pace in 17 years last year, “is under intense pressure,” the IMF said in March.

The budget deficit grew to 8.1% last year and will probably exceed 7% in 2016, according to Moody’s Investors Service, which cut the country’s credit rating by one level to B3 and changed its outlook to negative from stable this week.

The government and the fund agreed to milestones at the IMF-World Bank spring meetings in Washington this month that will lead to an economic programme being in place during the fourth quarter, Yamba said. The Finance Ministry will in June provide the IMF with details of its macroeconomic and fiscal plans for 2017. 

The fund will visit the country in September to give input into the Zambian budget for next year so that it will be in step with the planned aid programme he said.

Ray of hope

Discussion over an IMF programme will then start in October and November, with talks at board level set for December, Yamba said. An aid package “would help not only with the liquidity challenges but also with putting public finance on a sustainable path,” Zuzana Brixiova, an analyst at Moody’s, said in a report April 19.

But there may be a ray of hope. Copper prices have risen 6.1% this year. Analysts, traders and brokers are the most bullish since December, according to a survey by financial data company.

Restocking in top user China and signs of improving demand in that country are boosting prices. 

The same firm also found that Zambia’s kwacha currency has gone from the world’s third-worst performance in 2015 to the best this year, outshining gold, silver and 150 other currencies and precious metals.

The country would join another major commodities exporter, Angola, which has sought solace in the IMF’s arms.

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