Zambia’s high debt levels worries IMF

By Staff Reporter

The International Monetary Fund (IMF) Executive Board has expressed concern at Zambia’s high debt levels now standing at 78 per cent of the country’s gross domestic product (GDP).

Meanwhile, the IMF has welcomed the recent monetary tightening measures by the Bank of Zambia (BoZ), after concluding its 2019 Article IV consultations with Zambia.

In its report after the conclusion of the Article IV visit, the IMF expressed concern about the total public and publicly-guaranteed (PPG) debt, which includes arrears.

The Board stated that at the end of 2018, the public debt and public guaranteed debt, which included arrears, stood at 78 percent of the national Gross Domestic Product (GDP).

But the Institute of International Finance has projected that Zambia’s debt could rise up to as much as 90% of the Gross Domestic Product (GDP).

IFF Associate Economist Gregory Basile said that the Institute expects Zambia’s debt to continue to grow up to 90% of GDP, assuming a modest baseline.

Basile however said that the trajectory is highly susceptible to shocks.

“A sharp depreciation would have a significant effect, quickly raising the level of debt, before automatic dynamics take effect,” he said.

“On the other hand, a significant shock to real growth would not only raise the level of debt (relative to GDP), but also change the debt trajectory, pushing the slope of the curve up. But these channels do not operate separately.”

Basile warned that if investor confidence weakens and or copper prices decline, both could experience a significant shock.

“This would balloon the debt as well as financing needs, despite long maturities on foreign debt,”he said.

The IMF has been advising Zambia to scale down on borrowing and rationalize its infrastructure development programme to reduce debt.

And the IMF has commended BoZ’s actions in its report to have the recommendations of the 2017 Financial Sector Assessment Programme (FSAP) implemented, including strengthening its supervisory capacity and enhancing the crisis preparedness framework.

The report reveals that the Board underscored the important role for forward looking monetary policy in securing macroeconomic stability and supporting reserves, in conjunction with a reorientation of the fiscal stance.

Meanwhile, the report commended government’s efforts to deal with various risks in the economy.

The report has further highlighted that poor weather conditions and the USA-China trade war were having an adverse effect on economic growth of the country.