THE COPPERBELT UNIVERSITY

SCHOOL OF BUSINESS
Georgina Mwanza: 19152956

Susan Chushi: 19139780

Yawo Avemee: 18125917

Bufwayo Museba: 19141881

Levy Lubinda: 19145667

Mwape Josphat: 19143690

Bright Lutenta: 19134035

Mukuka Bwalya: 19145492

Dexter Zimba: 19135525

Chileshe Kabaso: 19133633

PROGRAMME: BSc IN BANKING AND FINANCE

COURSE: INTERNATIONAL TRADE AND FINANCE (BF310)

TASK: TASK 1

LECTURER: MR. BRAVO MUCHUU

DUE DATE: 14th JANUARY, 2022

In the context of the International Monetary Fund (IMF), conditionality are policies a member
must adopt to secure access to fund resources. These policies are mainly intended to help a
member country overcome its external payments problems.

IS AN IMF PROGAMME SIGNED BY ZAMBIA ON 3 DECEMBER 2021 NECCESARY?

Yes, it is! the past displays that there is a considerable amount of mistrust by the IMF among
economic drivers in Zambia and other member countries. Thus, an IMF program which was
signed on 3 December 2021 by the New Dawn Government and the IMF mission to Zambia
under the IMF Extended Credit Facility (ECF) that envisages the provision of financial support
amounting to 1.4bn over three years is nonetheless absolutely and resoundingly necessary for
Zambia given the countries current economic context of protracted balance of payments
problems.

To illustrate the necessity of the program, we looked at the country’s recent economic history
from the year 2011to date.

The year 2011 was the last year in which Zambia received support from the IMF which was a
key support in the countries 1990s economic reformation until the stabilization and
establishment of a sustainable real GDP growth after 2000. The same year Zambia issued three
Eurobonds totaling to USD 3 billion between 2012 and 2015 mainly intended to finance
infrastructure development which unfortunately up to now still raises questions as to what
economic returns they yielded. Again, the same year, the patriotic Front party which took office
in the same year became a huge spendthrift party and shifted from a conservative fiscal policy
stance to an irrational, arrogant and corruption ridden as seen in various ministries under its
leadership i.e. The Ministry of Health corruption Scandals under DR. Chitalu Chilufya.

ARGUMENTS FOR THE SIGNED IMF AGREEMENT

Given the countries recent economic history and its current circumstances, it is inevitably
necessary for the country to make significant financial adjustments with or without an IMF
Program. However, without a fund program, it can be very difficult to achieve the required
fiscal adjustments. Fiscal adjustments commonly known as IMF conditionalities, are actuary

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PRIOR actions that professional economic drivers generally view as necessary changes with or
without an IMF program.

The key points that make us to approve the signed program to be necessary and inevitable in
restructuring the general outlook of Zambia positively are:

 IMF loan terms are more favorable than any other commercial debt and debt
rearrangements as it uses three concessional lending facilities one being the one signed
for by Zambia which is the Extended Credit Facility (ECF) which is anticipated will
engage the countries case of protracted balance of payments problems. This agreement
is concessional in the sense that it is interest free this will therefore help Zambia to
replace expensive commercial loans which bears coupon rates for cheaper (zero
interest rate) money creating a significant fiscal space.
 the IMF loan conditions helps in containing the risk of moral hazard on the side of the
borrowing government where it can potentially avoid, or delay reforms needed to
restore economic viability. this will make the Zambian government to be quick in
restoring the economic outlook of the country in general.
 the IMF loan conditions are important to correctly attribute fiscal adjustments to their
rightful sources. That is several fiscal adjustments are being undertaken in restoring
fiscal stability, these includes: the dismantling of fuel and electricity subsidies,
addressing VAT refunds to the mining houses in Zambia as well as protecting social
sector spending during fiscal adjustment.
 Quantitative conditions, Structural Benchmarks as well as program reviews by the IMF
board will help in monitoring the Macro critical reforms to achieve the program goals.
An example of a country which accessed the ECF from IMF and was successful though
some challenges remained is Ghana which had acquired the fund in 2015, this gives us
the confidence that the program will be successful in Zambia.

In conclusion, the IMF and the Zambian governments agreement does not mean ill for Zambia’s
current economic challenges. It is however an essential element for the economic recovery of
the country. With a New political party in office, we strongly believe the authorities established
a strong strategic negotiating position and secured a reasonable deal which will restore the
country’s economic view positively.

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REFERENCES

IMF, PDRD, “Conditionality in Fund-Supported Programs”, www.imf.org, 2001.

(https://www.imf.org/external/np/fin/tad/exfin2.aspx?memberkey1=1080&date1key=2021-08-31) ii
World Bank (2021) “International Debt Statistics 2021”. Washington, DC: World Bank

Markstone Mcfarland Simweene Similimo ( Research Economist)

https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-
Conditionality#:~:text=When%20a%20country%20borrows%20from,able%20to%20repay%20the
%20IMF

https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF-
Conditionality#:~:text=When%20a%20country%20borrows%20from,able%20to%20repay%20the
%20IMF

https://openknowledge.worldbank.org/handle/10986/32572

https://www.afdb.org/en/countries-southern-africa-zambia/zambia-economic-outlook

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