Zambian Central Bank Head Sees Crucial IMF Deal as Close

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Zambia is close to reaching a deal with the International Monetary Fund that will be crucial to restoring macroeconomic stability, the southern African nation’s central bank governor said.

“We couldn’t have gotten any closer with the IMF as we are today,” Christopher Mvunga told reporters Wednesday, adding that he couldn’t provide a time-line for when the government might reach an agreement with the fund. “We are very optimistic. It’s progressing pretty well.”

Africa’s first pandemic-era sovereign defaulter is seeking to reach a deal on an economic program with the Washington-based lender that’s crucial to the government’s plans to restructure as much as $12.7 billion of external debt and boost foreign-exchange reserves.

Zambian international reserves of $1.2 billion at end-March are close to record lows and the kwacha has consistently depreciated against the dollar, making it the second-worst performing sub-Saharan Africa currency tracked by Bloomberg over the past 12 months.

The depreciation has contributed to inflation surging to a five-year high to average 22.2% in the first quarter, compared with 17.6% in the three months through December. While the central bank expects price growth to ease faster than previously expected, “it’s way outside our target range and it’s a serious concern,” Mvunga said.

Annual inflation will average 21.9% in 2021 and 16.7% next year, according to forecasts from the Bank of Zambia, which targets price growth at 6% to 8%.

An IMF deal would also help create fiscal space, as would a one-off allocation of special drawing rights by the lender to help countries fight the coronavirus pandemic, Mvunga said.

Last week, the IMF said it was up to Zambia to implement agreed policies to pave the way for further talks. That dealt a blow to hopes for an agreement before general elections in August, as parliament and cabinet were dissolved last week, and implementing some of the reforms, especially cutting back on energy and farm subsidies, may prove unpopular ahead of what will probably be a closely contested vote.

Many, including Simon Quijano-Evans, chief economist at Gemcorp Capital LLP in London, expect Zambia to only conclude a deal after a new government is formed. The government has been talking about an IMF program for seven years with no concrete results yet.

“So many finance ministers have attempted to push for IMF loan program in the past, in vain,” Quijano-Evans said Thursday in an emailed note. “A loan program agreement just ahead of the August elections would thus come as one of the biggest surprises in emerging markets.”

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