Hope and fear as Zambia eyes IMF bailout

Zambia has inched much closer to securing a $1.3-billion (R17-billion) bailout package from the International Monetary Fund, nearly three years after it first approached the global institution for help with its tanking economy.

Analysts this week said the finalisation of a deal with the IMF would guarantee "fiscal discipline" in Zambia's economy and also help boost foreign investor confidence.

The lack of fiscal discipline has been the fatal weakness of President Edgar Lungu's administration.

Two presidential polls, held in 2015 and 2016, fuelled the government's spending as it pursued populist economic policies and borrowed excessively, raising concern that Africa's second largest copper producer would sink into a debt trap.

This week's IMF and World Bank spring meetings in Washington are expected to give the thumbs-up to Zambia's bailout package. The first tranche of funding, about $400-million, could be released in June this year.

Central to the discussions at the spring meetings will be the findings of the IMF's mission, which was in Zambia last month to deliberate over the bailout package and an array of other economic reforms needed to help lift Zambia out of its economic sinkhole.

Led by Tsidi Tsikata, the IMF mission said the discussions with the Zambian authorities had been "fruitful" - taken as an encouraging sign, given that discussions in the past three years have been on and off.

"There is broad agreement on key objectives, targets and policies, most of which are drawn from the government's economic programme," Tsikata said in a statement issued after the IMF mission concluded its visit at the end of March.

"However, further engagement is needed on details of measures and reforms to achieve fiscal consolidation targets while protecting social spending and clearing the large stock of arrears without accumulating new ones."

The Zambian finance minister, Alexander Mutati, has tabled his own economic recovery programme, dubbed "Zambia Plus" - which among other things imposes a hiring freeze on the civil service and scraps fuel and power subsidies.

"Their hope is that the IMF will not bring in any additional layers and all they will do is provide oversight and bring credibility to the budget. What they really want is for Zambia Plus, the home-grown programme, to be adopted," said Chrispin Mphuka, president of the Economics Association of Zambia.

The IMF is buoyant over Zambia's economic growth prospects, revising its growth rate to 3.5% this year from 3% last year.

The positive growth forecast comes on the back of a good rainy season, from which the country expects a harvest of three million tons of maize.

Other positive signs include a firmer kwacha against the dollar and a fall in inflation from 26% in February last year to the single-digit figure of 6.8% this February. Copper prices have also seen an uptick and on Thursday this week were trading at $5597/ton from $4981/ton a year ago, according to Bloomberg data.

Despite these green shoots, economic analysts said that Zambia needs to do much more before it fully turns the corner. The nation's economy could grow at 7% a year on full throttle, they said.

Zambia is heavily weighed down by debt of $10-billion - about $7-billion owed to foreign lenders and $3-billion to the domestic market.

Maambo Haamundu, a financial analyst based in Lusaka, said the IMF bailout package was the "best available option", as the cost of borrowing from the institution was relatively low. Reports suggest that Zambia once considered seeking lines of credit from China - hoping to avoid approaching the IMF.

"It is known that the IMF will not give money to spend as you wish. There are certain benchmarks that have to be fulfilled to ensure that the money they are lending is secure. It comes with conditions and helps in mitigating problems of fiscal indiscipline," said Haamundu.

But the pain of IMF programmes adopted in the 1980s and 1990s by Zambia still haunts the country.

Isaac Ngoma, a development consultant and board chairman of the Civil Society for Poverty Reduction, a network of civil society groups in Zambia, said there was a lot of anxiety among ordinary citizens about the bailout.

"Many people still recall the impact of the structural adjustment programme, which seems to have suffocated the economy back then.

"But people have come to rethink the inevitable marriage with the IMF, because Zambia is sinking into an unsustainable economic situation. The IMF will help mitigate Zambia from falling into a debt trap and provide technical assistance and balance of payments support," he said.

Meanwhile, Ngoma cautioned that Zambia's political tensions were also likely to get some attention at the spring meetings.

Zambia's main opposition leader, Hakainde Hichilema, was arrested last weekend and has been charged with treason for blocking Lungu's motorcade earlier this month.

"The IMF tends to avoid overstepping into the political realm. But in as much as they are meeting for fund assistance to Zambia, governance issues are also of paramount importance. It is what informs the positions of global ratings agencies as they look at political and fiscal risks in a country," Ngoma said. "So the current political tensions in Zambia cannot be ignored and will be looked at."