Categories: Editor's Picks

JCTR nods IMF’s Extended Credit Facility for Zambia

• Zambia desperately needs the IMF bailout.
• It will help enhance the local economy once approved.
• The bailout will also help restore price stability.

Jesuit Centre for Theological Reflection (JCTR) says International Monetary Fund (IMF’s) Extended Credit Facility (ECF) for Zambia will help enhance the local economy once approved, leading to more investment and reduced unemployment in the country.
Organization Head of Research Rawlings Kalubi said Zambia desperately needs the IMF bailout because it will help the Kwacha to appreciate against the US dollar and other currencies, and also boost investor confidence.
Mr. Kalubi stated that the bailout will also help restore price stability through promotion of efficient and long-term growth, while bringing the debt management problem under control by allowing Zambia to refinance its debt.
He further said once Zambia’s application for an Extended Credit Facility is approved by the IMF management and Executive Board, it will allow the country to start debt restructuring engagements with its creditors.
“Even though the staff-level agreement is yet to be approved, it is already bearing fruits for Zambia and this can be seen in the Zambian Kwacha appreciating against the United States (US) dollar. Following the announcement of the staff-level agreement, the Kwacha appreciated to K16.00 per dollar on 9th December, 2021, from a close of K17.8078 on 2nd December, 2021. Entities or individuals holding foreign exchange are likely to start converting to the Zambian Kwacha to avoid further foreign exchange losses.”
“The current high US dollar supply and sudden inflows into Zambia of US dollars is coming from off-shore market players and corporations closing off their dollar positions. The Zambian kwacha is expected to continue making further gains against the US dollar due to positive sentiment from the staff-level agreement reached between the IMF and the Zambian Government for a bailout,” Mr. Kalubi stated.
He noted that without the IMF deal, the exchange rate will get worse due to the current economic status as prices will escalate as a result of low production in the country owing to high interest rates following the Monetary Policy Rate adjustment by the Bank of Zambia.
Mr. Kalubi further observed that in the absence of the IMF deal, Poverty will get out of hand due to lack of jobs in the economy, while credibility of government plans such as the national budget and its commitment to debt restructuring will be low.
“Government policies are prone to the time inconsistency problem which could mean Government trading long-term debt sustainability with short-term appeasement policies,” he said.
Meanwhile, Mr. Kalubi supported the removal of subsidies on fuel and electricity stating that it is unsustainable to keep subsidizing the energy sector.
“Money that is currently being used to finance subsidies in the energy sector and any other inefficient public investment will be redirected to finance greater investment in healthcare, education and the delivery of more social benefits to the Zambian people. Apart from rationalizing expenditure, the government also seeks to enhance revenue mobilization through policy and administrative changes. These are some of the economic reforms in the IMF deal.”
Recently, Government reached a staff-level agreement with the International Monetary Fund (IMF) team on a new arrangement under the Extended Credit Facility (ECF) for 2022-2025 to help it restore its macroeconomic stability and provide the foundation for an inclusive economic recovery.
The three-year extended credit facility is worth $1.4 billion and is yet to be approved by the IMF’s management and Executive Board.

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