Executive Summary
- In the opinion of the staffs of the International Monetary Fund (IMF) and International Development Association (IDA), Zambia has satisfactorily fulfilled the requirements for reaching the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC Initiative). The staffs recommend that Executive Directors agree with this assessment and commit resources for the enhanced HIPC Initiative to Zambia, as approved at the decision point, on an irrevocable basis.
- At the decision point in December 2000, Executive Directors agreed that Zambia’s external public debt should be reduced by 62.6 percent (or US$2.5 billion) in 1999 net present value (NPV) terms, after the full use of traditional debt-relief mechanisms. Full delivery of this assistance would lower the ratio of Zambia’s NPV of external public debt to exports to the enhanced HIPC Initiative’s threshold of 150 percent, based on end-1999 parameters and debt stocks. The IMF and IDA commitments to
this debt relief were US$602 million and US$488 million, respectively, in NPV terms of which US$452 million and US$98 million, respectively, were delivered as interim assistance as of March 2005.
- Zambia has met all but three of the completion point conditions, as specified in the decision point document. Zambia made satisfactory progress in implementing and monitoring its Poverty Reduction Strategy Paper (PRSP) for at least one year, and
maintained a stable macroeconomic environment as evidenced by satisfactory performance under a program supported by the Poverty Reduction and Growth Facility (PRGF). Zambia has met the completion point targets in the social sectors, has undertaken important structural reforms and strengthened public expenditure management. Conditions regarding restructuring and privatization of the electricity utility (ZESCO) and the review of the implementation of an integrated financial management and information system (IFMIS), however, have not been met. In addition, the condition regarding privatization of the Zambia National Commercial Bank (ZNCB) has not fully been met, as the authorities recently terminated negotiations with the current bidders in order to restart the privatization process to allow the participation of new bidders. Based on progress achieved in the areas of restructuring ZESCO, public expenditure management, and privatization of ZNCB, it is recommended that the IMF Board grant waivers for the nonobservance of the completion point conditions regarding ZESCO, the IFMIS, and ZNCB.
- Financing assurances on the provision of assistance under the enhanced HIPC Initiative have been obtained from creditors representing 97 percent of Zambia’s total debt in NPV terms. Government has requested enhanced HIPC Initiative debt relief from non-Paris Club bilateral and commercial creditors. Some non-Paris Club bilateral creditors have provided partial relief.
- An updated debt sustainability analysis based on end-2003 debt data and parameters indicates that, after full delivery of enhanced HIPC Initiative assistance and additional bilateral debt relief, the NPV of debt-to-exports ratio was 174 percent, 13 percentage points above the decision point projection. The NPV of debt-to exports ratio is estimated to have fallen to 140 percent in 2004 and is projected to decline steadily thereafter. On this basis, the staffs do not recommend a topping-up of debt relief at
the completion point.
- A sensitivity analysis suggests that Zambia’s debt sustainability position after the completion point should be able to withstand some severe shocks, such as a sizeable permanent fall in the price of copper, Zambia’s principal export commodity,
substantially slower economic growth, or a significant shortfall in donors’ grants.
- Government’s capacity for public sector debt management is relatively low. Zambia participates in the joint IMF/World Bank Debt Reform and Capacity Building Program. An assessment of the main challenges was undertaken in May 2004. With technical assistance from IDA and other cooperating partners, government has prepared a public debt management reform program, which is to be implemented over the next few years to remedy this situation.
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