In response to a severe drought, Zambia has made an official request to the International Monetary Fund (IMF) for an additional $400 million in funding. The lender issued a statement yesterday explaining that the request aims to bolster the total funding announced under the ongoing Extended Credit Facility (ECF) agreement from $1.3 billion to $1.7 billion. The motivation behind this move lies in the harsh macroeconomic conditions made worse by the country's drought.

“The 2024 outlook has worsened due to the drought; GDP growth is now projected at 2.3 percent, half the forecast in December 2023. Agriculture production is expected to contract by 19 percent; power outages will hinder manufacturing activity; and copper production is expected to recover more gradually than initially envisaged,” the IMF stated. This situation is expected to keep inflation prospects high, with a rate that already reached 14.7% in May 2024, nearly double the 6% to 8% range set by the Central Bank.

In 2022, Zambia secured a loan from the IMF to fund an economic reform program, two years after officially defaulting on its external debt. Since then, authorities have been striving to secure a restructuring agreement accepted by all of Zambia's official creditors.

“We look forward to the bilateral agreements for the implementation of the agreed debt treatment with official creditors. We also welcome the authorities’ progress in reaching an agreement with bondholders and ongoing discussions with other private creditors to agree on a debt treatment in line with program parameters and with comparability of treatment as defined by the official creditors,” the Fund emphasized.

Following the mission to the country, the IMF team led by Ms. Vera Martin announced that a staff-level agreement on policies and economic reforms had been reached with Zambian authorities to conclude the third review of the ECF. This agreement awaits approval from the Fund's Board after reviewing the mission's findings.