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IMF ENDORSES ZAMBIA'S ECONOMIC AND FINANCIAL PROGRAM

 IMF ENDORSES ZAMBIA'S ECONOMIC AND FINANCIAL PROGRAM
 WASHINGTON, July 17 /PRNewswire/ -- The International Monetary


Fund has endorsed Zambia's economic and financial program and approved the accumulation of "rights" for Zambia for up to a maximum of Special Drawing Rights (SDR) 836.9 million (about US$1,211 million), the level of its arrears to the IMF as of July 1, 1990.
 Upon successful implementation of this program, which runs through March 1995, and prior clearance of its arrears to the IMF, as well as meeting all other requirements for using IMF resources, Zambia would be eligible to "encash" the accumulated rights under a successor IMF arrangement.
 Today's decision was taken under the rights approach endorsed by the Interim Committee at its May 1990 meeting. Through this procedure, a member with protracted arrears to the IMF at the end of 1989 can earn rights based on its performance under an IMF-monitored economic program. The accumulated rights would then be encashed as part of the first disbursement under a successor IMF-supported program financed from the IMF's general resources or, for eligible members such as Zambia, from a blend of general resources and concessional SAF and ESAF(A) resources.
 Zambia may -- based on program performance during 1992 -- accumulate rights up to the equivalent of SDR 251.1 million (about US$363 million). Further rights would be phased over the remaining period of the program. Zambia has met all financial obligations falling due to the IMF this year. It eliminated its arrears to the World Bank on Jan. 31, 1992, and has since met its financial obligations falling due to the bank. Zambia intends to continue to meet such obligations to the IMF and World Bank as they fall due, as well as to reduce its arrears to the IMF by SDR 84 million (about US$121.6 million) by the end of 1993.
 The IMF previously endorsed a rights accumulation program for Zambia in April 1991. However, there were slippages in policy implementation in the run-up to the multi-party elections at the end of October 1991, and Zambia failed to accumulate any rights under that program. The government which took office following the elections requested that the previous program be canceled and replaced with the present one.
 In early 1992 Zambia and most of Southern Africa were hit by a very severe drought. Despite this difficult situation, the new government has implemented a series of key measures necessary to re- establish economic stability and set the stage for economic recovery. Subsidies will no longer place a major burden on the budget; fertilizer subsidies have been eliminated and maize meal prices increased. A fundamental reform of personal taxation has been implemented, an essential step to establishing a viable tax system; and important actions have been taken to liberalize the exchange system and encourage non-copper exports.
 In view of Zambia's extremely heavy external debt-servicing burden and the expected longer-term downturn in copper production, the government regards the diversification of sources of foreign exchange earnings as crucial to the adjustment effort. Policies that are expected to contribute to this objective, and to a more effective use of foreign exchange, include further liberalization of exchange and trade policies; the establishment of a unified exchange system with a market-determined exchange rate; and the creation of an environment conducive to domestic and foreign private investment in both mining and non-traditional export industries.
 Reform of the state enterprise sector is a further major effort designed to transform the economy. Most state-owned enterprises will be privatized or liquidated over the next five years. A few, mostly public utilities, will be retained in the public sector, but restructured and strengthened. A Privatization Act has been approved by parliament, and a new privatization agency will be responsible for undertaking all activates relating to privatization. Ten enterprises, out of the 140 that are to be divested, will be completely privatized by the end of 1992, and a further 10 are being prepared for offer for sale by the end of the year.
 The implementation of Zambia's program can be expected to have a positive impact in the coming years on employment and income generation by increasing overall economic activity, labor intensity, non-traditional exports, and the
role of the private sector. In the short run, however, the impact of the drought and the reduction of subsidies will affect the rural and urban poor. To address this, the government has devised an approach that will, with the assistance of donors, temporarily provide free or reduced-cost maize to the most vulnerable groups; channel part of the savings from the abolition of subsidies into programs to aid the poorest of the poor; advise and retrain retrenched workers; and implement, with World Bank and donor assistance, a program of small-scale labor intensive public works in water, sanitation, health and education. Also, the government intends to steadily increase the share of budgetary expenditures going to health and education over the medium term, particularly for the neediest groups.
 Zambia joined the IMF on Sept. 23, 1965, and its quota(B) is SDR 270.3 million (about US$391 million). Zambia's outstanding financial obligations to the IMF, including overdue obligations, currently total SDR 920.7 million (about US$1,332 million).
 (A) The Structural Adjustment Facility (SAF) and the Enhanced Structural Adjustment Facility (ESAF) are IMF lending windows under which loans are made to eligible low-income members that carry an interest rate of 0.5 percent and are repayable over 10 years, with a five and a half year grace period.
 (B) A member's quota in the IMF determines, in particular, its subscription, its voting weight, its access to IMF financing and its allocation of SDRs.
 -0- 7/17/92
 /CONTACT: International Monetary Fund, External Relations Department, 202-623-7100/ CO: International Monetary Fund ST: District of Columbia IN: FIN SU:


IH -- DC013 -- 0432 07/17/92 17:23 EDT
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Date:Jul 17, 1992
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