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East-West Debt october 2003 news, update : ZAMBIA

Zambia: emergency discussions

The Zambian government and the International Monetary Fund (IMF) attempted to resolve a stand-off over fiscal policy. In June, the Fund suspended a $100m loan after Zambia surprised the market with a proposed $125m budget deficit. The IMF is worried that Zambia's external stability would be in jeopardy, given its $6.8bn of foreign debt. Without a resolution of the conflict with the IMF, Zambia will not be able to keep on terms with inter-national lenders. The extra spending will practically double Zambia's deficit to 3 percent of GDP, from the previous target of 1.55 percent.

The quarrel with the IMF is likely to make things even worse, as Zambia becomes ever more isolated from foreign lenders. The local currency - the kwacha - is likely to be hit in turn by the increased demand for dollars to pay for imports. Some are anxious that the government might postpone or cancel large-scale investment projects, thereby further weakening Zambia's potential for economic growth in the future.

The Fund is expected to agree to make at least a partial payment. For its part, the Zambian government demonstrated willingness to consider some spending cuts. The government is trying to resist the pressure of civil servants and other public-sector employees, who are giving the government an option of paying higher salaries or experiences massive strikes.

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