Benefits of IMF package, policy reforms
Published On December 22, 2021 » 1573 Views» By Times Reporter » Business, Columns
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THIS has been another week when there has been so much to write about.
Apart from continuing with the International Monetary Fund (IMF) issues other questions have arisen including the need to review the year.
As is usually the case, this forum is supposed to look at some of the highlights of the 2021 in terms of economic happenings and some of the areas covered.
On the other hand, there is the issue of the IMF, which was triggered by Zambia’s reaching staff-level agreement with the fund over the imminent Extended Credit Facility (ECF) bailout package.
Within the IMF subject, there are various topics including the programme’s possible benefits to Zambia and the IMF’s ‘conditionalities’ amid the concerns and fears always expressed by some citizens at any mention of IMF.
As an offshoot of that there is the issue of the subsidy removal which has been exemplified by last week’s increment in the prices of petroleum products.
Today, this article, therefore, in brief terms, looks at the general benefit of the proposed IMF package and some of the general policy reforms as the result of or before that.
The economic backdrop against which the programme is being sought and the rationale for it was already given last week.
According to Finance minister Situmbeko Musokotwane and other experts, there are many benefits of the IMF arrangement.
This column has always argued even when it never sounded fashionable and was somewhat risky that Zambia needs the IMF support not necessarily for just financial reasons but for approval or endorsement and as a sign that it is determined to implement the laid-down economic plans.
Therefore, Zambians should remain open-minded to new policies which could be proposed and implemented to help cure the current economic malaise.
State House economic advisor, Pamela Nakamba once gave an analogy of Zambia and IMF.
Dr Nakamba, the then Policy Analysis and Research (ZIPAR) executive officer, said Zambia’s possible engagement of the IMF package was analogous to a person determined to shed off some weight who engages a fitness instructor as opposed to running and exercising alone.
The instructor is desirable to ensure that the client adheres to the laid down weight-loss procedures, no matter how severe.
She said that there was no need, therefore, to treat the instructor (IMF) with misgivings because he/she was only there to help the client (Zambia) adhere to discipline, in this case fiscal prudence.
The staff-level agreement is such an important milestone in that it has opened the way for Zambia to enter into discussion with creditors regarding the re-profiling of what they are owed so that repayments are affordable.
Further, according to Dr Musokotwane some key policy reforms will be undertaken in the medium-term with the support of the IMF, generally aimed at increasing the checks and balances required for the government to borrow and increasing revenue mobilisation as well as shifting expenditure of public finances.
On the revenue side, the Programme is geared towards increasing domestic revenue mobilisation.
The government wants to raise its collection from Value Added Tax, Customs and Excise Duties as well as Income Taxes.
On the expenditure side, the issue of subsidy seems to take centre stage as the reforms aim at shifting public expenditure away from areas considered less critical to the direr ones.
It is in that light that the new fuel pump prices should be viewed together with the 2022 national budget which will shift funds towards investment in people, especially the youth.
“An example of an area where expenditure will be reduced is the subsidy on petroleum products. For years, the government sold fuel at a price that was lower than the cost of bringing it in the country,”
Dr Musokotwane told Parliament recently.
This issue will be tackled separately as a topic on its own soon.
In terms of general direct benefits, once a formal IMF programme is fully approved there will be highly-concessional financial support to the tune of $1.4 billion from the fund.
Additionally, Zambia will receive international support in negotiating with creditors, leading to a more affordable debt service arrangement.
This, it is envisaged, will take into consideration the government’s social and economic obligations locally to balance between debt repayment and the local economy as well as citizens.
Further, Zambia will access cheaper and longer-term financing as compared to the expensive commercial loans like the Eurobonds contracted by the government in the last 10 years.
Economically, Zambia will be better placed to have stable exchange rate because the outflow of foreign exchange will reduce as the result of the envisioned lower interest rates to be paid on those loans.
It is anticipated, all things being equal, that prices of commodities locally will be more stable.
In the end, it is projected that there will be greater confidence from investors to come to Zambia and help create jobs as well as grow the economy with more and bigger investments.
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