Zambia Faces Financing Challenge as Deficit Grows, IMF Says

  • Shortfall to be slightly less than 8.1% posted in 2015
  • Delay in corrective measures would make situation worse

Zambia faces a “key challenge” funding the growing budget deficit confronting Africa’s second-largest copper producer, the International Monetary Fund said.

While the 2016 budget shortfall will probably be less than the 8.1 percent of gross domestic product recorded last year, it will still be more than double the 3.8 percent Finance Minister Alexander Chikwanda targeted in his budget, Treasury Secretary Fredson Yamba said last week. The Bank of Zambia will increase the size of local debt auctions, it said Wednesday, in a bid to help fund the budget deficit as a weakening currency and rising yields on dollar bonds make external debt sales less attractive.

“How the government deficit will be financed in the months ahead -- and also over the next couple of years -- is one of the key challenges facing the country,” Tobias Rasmussen, the IMF’s resident representative for Zambia, said in reply to e-mailed questions from Lusaka, the capital. “As we have noted before, government finances are under stress, and delays in implementing corrective measures to reduce the deficit will only make the situation more difficult.”

President Edgar Lungu must defend the record of his government in August elections to voters suffering inflation that has soared to exceed 20 percent and an increase of a fifth in the cost of staple corn meal in a year. Economic growth slowed to the weakest pace in 17 years in 2015, as revenue from copper sales tumbled and the kwacha’s value against the dollar plunged 42 percent.

‘Tight Timeline’

The plans government unveiled last month to secure an emergency bailout from the lender by the end of the year could be tough to complete, Rasmussen said.

“There is a tight timeline for getting there, but it is possible if the different steps in the roadmap outlined by the secretary to the Treasury are followed,” he said.

These include the fund visiting the country in September to provide input on the 2017 budget that will be presented to parliament the following month, Fredson Yamba, Zambian secretary to the treasury, said last month. The government will also provide the IMF with its 2017 fiscal plans in June, Yamba said.

“Details of a possible IMF-supported program, including the type of arrangement, have not yet been discussed,” Rasmussen said. “The plan is that the IMF team will return to Lusaka in September -- soon after the general election -- to take stock of the economic situation. This would then be followed by program discussions in October-November.”

Before it's here, it's on the Bloomberg Terminal.