Zambia has reached a bailout deal with the International Monetary Fund (IMF) worth US$1.4 billion that will help the African country to restructure its extensive debts.  

The long-awaited three-year IMF agreement under its extended credit facility is predicated on Zambia’s plans to undertake “bold and ambitious reforms.”

The IMF deal is a major boost to President Hakainde Hichilema, who was elected this year on a promise of resuscitating the economy and building bridges with multilateral lenders after relations soured under predecessor, Edgar Lungu. 

The deal followed virtual meetings held throughout November and early December between IMF staff, Finance Minister Situmbeko Musokotwane and Bank of Zambia Governor Denny Kalyalya.

IMF Mission Chief for Zambia, Allison Holland explained, “The staff-level agreement is subject to IMF Management and Executive Board approval and receipt of the necessary financing assurances. Further details on the agreement will be released on Monday… Staff would like to express their gratitude to the Zambian authorities for their open, committed and constructive engagement.”

In a research note released on Thursday (December 2), a day before the deal was struck, emerging markets economist at Capital Economics, Virag Forizs explained that debt talks with creditors could prove challenging even in the result of an IMF deal.

He argued, “It will be a tall order to secure a large restructuring and stick to the fiscal consolidation that will be needed to leave the public debt ratio on an even keel.” 

According to Forizs, “There are two key considerations. The first is the scale of the debt restructuring that the authorities manage to secure…The second consideration is whether Zambia can stick to a fiscal consolidation plan that will be needed to ensure debt sustainability even after securing a debt write-down.”

He explained that an IMF programme would provide a framework for austerity over the coming years, which reports suggest will include cutting capital expenditure as well as farming and energy subsidies.