Zambia, IMF Reach ‘Broad Consensus’ on Deal, Lungu Says

  • Fund says formal talks yet to start, to engage new government
  • Opposition to challenge Lungu victory in Constitutional Court

Zambia has made “great progress and reached broad consensus” with the International Monetary Fund on a planned support package, President-elect Edgar Lungu said. Yields on the nation’s Eurobonds fell to the lowest in more than a year.

Lungu, who narrowly won a Aug. 11 presidential election in Africa’s second-biggest copper producer, said in an e-mailed statement that having been elected for a whole term has given him time to implement difficult decisions he couldn’t do ahead of the vote. The IMF representative in Zambia said formal negotiations hadn’t started.

Zambia’s government hopes to secure an IMF bailout that could exceed $1.2 billion to shore up the nation’s budget and top up foreign reserves after a slump in copper prices, which account for more than 70 percent of export earnings, curbed capital inflows. The economy expanded last year at the slowest pace since 1998. Lungu won a five-year term after first taking over the presidency in January 2015 in a vote held after Michael Sata died in office.

“Tough decisions will be made, some will be painful but necessary,” said Lungu, 59, after a meeting with businessmen in Lusaka, the capital. “I will take measures to grow the economy and control expenditure.”

Formal discussions were yet to start, IMF resident Representative Alfredo Baldini said in reply to e-mailed questions.

“The IMF and the Zambian authorities have been in talks about a possible IMF-supported program,” he said. “At this stage however, there have been no formal negotiations on the type of arrangement or potential size of financial support, IMF staff stand ready to pursue these issues with the new government that will be formed after the elections.”

The package could come with conditions including cutting subsidies that will result in higher electricity and fuel prices. Zambia’s budget deficit, which ballooned to almost 10 percent of gross domestic product in 2015, will probably reach 9.3 percent this year, according to Samantha Singh, a Johannesburg-based strategist at Standard Bank.

Subsidy Cuts

Yields on the country’s $1 billion of Eurobonds maturing in April 2024 fell 23 basis points to 8.91 percent by 6 p.m. in Lusaka on Thursday.

The government is considering “rapid but progressive” energy subsidy cuts, and will restructure a fertilizer and seed support program for farmers, Lungu said. The Food Reserve Agency will also be changed to only buy strategic stocks, he said.

The opposition United Party for National Development plans to contest Lungu’s election victory in the country’s Constitutional Court, citing irregularities in the vote that the ruling party and electoral commission denied. It’s leader, Hakainde Hichilema, widely known by his initials HH, called the election “a coup on democratic process”.

Legal Challenge

The legal challenge could affect the timing of an aid deal from the Washington-based lender, Ahmed Salim, a Dubai-based analyst with Teneo Intelligence, said in an e-mailed note Aug. 15.

“A loan agreement with the IMF is a foregone conclusion, but the timing will be subject to making sure that due process, particularly with the challenge by HH, is completed in a transparent manner,” he said. “Going into the election, donors had made it clear that the transparency of the elections will influence IMF negotiations.”

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