Abstract
This paper examines Zambia’s 2003 Article IV Consultation and Ex Post Assessment of Performance Under IMF-Supported Programs. Zambia’s economic performance has improved significantly in the last four years. After more than two decades of economic decline and inflation averaging more than 50 percent, growth has averaged about 4 percent per year since 2000. The Ex Post Assessment of Performance under IMF-supported programs pointed out that implementation under the Enhanced Structural Adjustment Facility arrangement, approved in 1995, was poor, but generally improved under the Poverty Reduction and Growth Facility arrangement, approved in 1999.
This statement provides additional information that has become available since the issuance of the staff report for Zambia. This information, which indicates that developments have been broadly in line with the targets of the staff-monitored program (SMP), does not alter the thrust of the staff’s assessment.
Preliminary data indicate that through end-February, fiscal revenues and expenditures were in line with the program and the limit on net domestic financing was observed. Monetary growth of less than 2 percent for the first two months of 2004 was slower than programmed. However, external debt-service payments were higher than expected in the program, reflecting some arrears clearance. The authorities explained that nonpayment of these arrears could have jeopardized some inflows of external assistance. In addition, there was a delay in receipt of external budget support. As a result, gross international reserves at end-February fell short of the adjusted target by US$8 million and the ceiling on net domestic assets was also exceeded by a small margin.
In March, the 12-month rate of inflation stood at 17.6 percent, marginally above the target in the SMP of 17.4 percent. The kwacha exchange rate against the U.S. dollar has remained broadly unchanged since end-2003 mainly because of the continuing favorable external sector developments, particularly the increase in copper prices.
The implementation of the structural reforms in the SMP is also broadly on track. The budget that was passed by parliament on April 2 is consistent with the SMP, and despite initial strikes in the public sector, the government remains committed to containing the wage bill to 8 percent of GDP. A draft bill to grant autonomy to the Office of the Auditor General has been submitted to cabinet, and work on the strategy to clear the audited stock of arrears is continuing. Finalization of plans to resolve the insolvent nonbank financial institutions (NBFIs), with technical assistance from the Fund is also continuing. The awarding of a contract for the procurement of hardware and software for IFMIS also appears to be on track. All the continuous benchmarks have been observed.