The African Development Bank Group has approved an $11.1m loan to support Zambia’s efforts to restore fiscal stability.
The funding was approved by the Abidjan-based African Development Fund in a bid to help Zambia improve its management of public resources.
The four-year project, spanning 2019–2022, will aim to strengthen the capacity of staff in institutions responsible for public finance, economic management, development planning and statistics.
Zambia is pursuing reforms to stabilise its economy by reining in a widening public debt fueled by depreciation of its currency, drought, and commodity price shocks – it is a major producer of copper, the price of which fell by more than 18% in 2018.
The fund is part of the African Development Bank Group, whose latest economic outlook indicates that Zambia’s high capital investment, high debt-servicing costs, and large wage bill have contributed to its fiscal deficit, estimated at 7.1% of GDP in 2018.
Despite a fiscal consolidation programme, last year’s deficit still missed its target – 6.1% of GDP – due mainly to high capital spending, rising debt servicing, and growing arrears.
The country’s debt ratio increased from 25% of GDP in 2012 to 61% in 2016, and high public and publicly guaranteed debt led to Zambia being classified as at high risk of debt distress in 2017.
Mining output in Zambia is expected to increase by up to 5% this year, although lower demand from China associated with escalating trade tensions is likely to further dampen copper prices.
The AfDB says the slow pace of fiscal consolidation in Zambia represents a key downside risk to its outlook and improving debt sustainability should remain a key priority.
An active debt management strategy would help to strengthen confidence in the economy and rebuild fiscal space.
The ADF approved the latest loan in an effort to strengthen institutional capacity in fiscal and debt management, development planning, public investment management, monitoring and evaluation, and statistics.