The International Monetary Fund has given approval for a $1.3 billion, 38-month loan program for Zambia.
The approval given on Wednesday is a crucial step in helping the country to restructure its debts and rebuild an economy ravaged by mismanagement and COVID-19.
The IMF said in a statement that the new Extended Credit Facility arrangement would provide total funding of 978.2 million Special Drawing Rights.
That is about $1.3 billion at current exchange rates, equivalent to 100% of Zambia’s Fund quota, or shareholding.
With the approval there would be an immediate disbursement of about $185 million, the Fund said.
IMF Managing Director Kristalina Georgieva said “Zambia continues to face profound challenges reflected in high poverty levels and low growth”.
“The ECF-supported program aims to restore macroeconomic stability and foster higher, more resilient, and more inclusive growth,” she added.
Zambia’s creditors including China and France have pledged to negotiate a restructuring of the country’s debts.
In 2020, Zambia became the first African country in the pandemic era to default on its debts.
The restructuring of its external debt, which amounted to more than $17 billion at the end of 2021, is seen by many analysts as a test case for the region.
The IMF program is expected to restore Zambia’s macroeconomic stability through fiscal adjustment and debt restructuring and strengthening economic governance.
Georgieva said there would be the need for reduction in spending with focus on eliminating “regressive” fuel subsidies and reforming agricultural subsidies.
There has been a call also for reduction in inefficient public investments and increasing tax revenues, the fund boss said.
Georgieva said these new measures should free up some fiscal space to increase social spending to ease transition burdens on the most vulnerable.