Zambia is set to receive $1.3 billion after the International Monetary Fund approved the country’s 38-month loan program. The money will help the country restructure its debt and rebuild an economy ravaged by the Covid-19 pandemic and mismanagement.
According to the IMF, the newly approved Extended Credit Facility arrangement will provide the Zambian government with total funding of 978 million for Special Drawing Rights. While the IMF has approved the country’s loan request of $1.3 billion, the organization will release the money in tranches, with the first tranche estimated to be about $185 million.
For many months, Zambia has been battling with mounting pressure from creditors. That said, the country’s representatives have agreed with top creditors, including China and France, to renegotiate a restructuring of the country’s debt. With that agreement in place, the IMF agreed on a new Fund program to help the government manage its current financial situation.
According to Georgieva, the chair and managing director of the IMF, “Zambia has continued to struggle with significant changes, reflected by the country’s increasing poverty levels and stunted growth. But with the ECF-supported program, the IMF believes the country will be able to restore economic stability while fostering growth.”
The loan from the IMF will help Zambia restore its economy via debt restructuring and fiscal adjustment.
While the IMF chief believes that the country needs to maintain spending reductions, it also says the Zambian government is committed to removing regressive fuel subsidies, increasing tax revenues, and reforming agricultural subsidies. With this move, the IMF believes the country will be able to open some space for increased social spending.
Zambia and the quest for debt restructuring
During the pandemic, Zambia became the very first country in Africa to default on its loan agreements. Nevertheless, the restructuring of the country’s $17 billion debt in 2021 is considered by analysts a test for the region.
Zambia is one of the three countries in the region, along with the likes of Ethiopia and Chad, to seek debt restructuring as enshrined in the G20 common debt restructuring framework.