The Executive Board of the International Monetary Fund (IMF) has expressed concern with the pace at which public debt, especially external debt, has increased and now put Zambia at risk of debt distress.
In a statement at the conclusion of the Article IV consultation with Zambia, the IMF Executive board has, however, commended the progress made in developing a medium-term debt strategy.
While recognizing the need to address infrastructure gaps, the IMF board of Directors emphasized that to maintain debt sustainability, it is critical to slow down on the contraction of new debt, especially non-concessional loans, strengthen debt management capacity, and improve project appraisal and selection processes.
The board noted that Zambia’s public debt has been rising at an unsustainable pace and has crowded out lending to the private sector and increased the vulnerability of the economy.
It notes that the outstanding public and publicly guaranteed debt rose sharply from 36 percent of GDP at end-2014 to 60 percent, driven largely by external borrowing and the impact of exchange rate depreciation.
The IMF Executive board further noted that while increased participation of foreign investors in the government securities market has eased the government’s financing constraints, this has made the economy more vulnerable to swings in market sentiments and capital flows reversals.
It states that the medium-term outlook for the economy is contingent on policies.
The IMF Directors emphasized that macroeconomic stability, policy consistency, and investment in human capital are critical to addressing Zambia’s high rates of poverty and income inequality and promoting sustainable growth.
They encouraged the authorities to address policy uncertainties that are clouding the investment climate, including clarifying the roles of the state and the private sector in the energy and agriculture sectors.