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Zambia: First and Second Review of the Three-Year Arrangement Under the Poverty Reduction and Growth Facility, Request for Waivers of Nonobservance of Performance Criteria, and Augmentation of Access—Informational Annex

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International Monetary Fund
Published Date:
June 2009
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Appendix I. Zambia: Relations with the Fund

(As of February 28, 2009)

I. Membership Status: Joined: September 23, 1965; Article VIII

II. General Resources Account:

SDR MillionPercent

Quota
Quota489.10100.0
Fund holdings of currency489.10100.0
Reserve position in Fund0.020.0

III. SDR Department:

SDR MillionPercent

Allocation
Net cumulative allocation68.30100.0
Holdings6.729.83

IV. Outstanding Purchases and Loans:

SDR MillionPercent
Quota
PRGF arrangements62.0112.68

V. Latest Financial Arrangements:

ApprovalExpirationAmount ApprovedAmount Drawn
TypeDateDate(SDR Million)(SDR Million)
PRGF06/04/200806/03/201148.916.99
PRGF06/16/200409/30/2007220.10220.10
PRGF03/25/199903/28/2003278.90237.52

VI. Projected Payments to the Fund

(SDR million; based on existing use of resources and present holdings of SDRs)

Forthcoming
20092010201120122013
Principal0.553.307.7011.70
Charges/interest0.580.670.660.630.58
Total0.581.223.968.3312.29

VII. Implementation of HIPC Initiative

Enhanced
Framework
Commitment of HIPC assistance
Decision point dateDec. 2000
Assistance committed (1999 NPV terms)11
by all creditors (US$ million)2,499.20
Of which: Fund assistance (US$ million)602.00
(SDR equivalent in million)468.80
Completion point dateApril 2005
Disbursement of IMF assistance (SDR million)
Assistance disbursed to Zambia468.80
Interim assistance351.60
Completion point balance117.20
Additional disbursements of interest income1239.47
Total disbursements508.27

VIII. Implementation of MDRI Assistance

I. Total debt relief (SDR million)13402.59
Of which: MDRI398.47
HIPC4.12
II. Debt relief by facility (SDR million)
Delivery
DateGRAPRGFTotal
January 2006N/A402.59402.59

IX. Safeguards Assessment

In connection with the 2008 PRGF arrangement, an update safeguards assessment of the Bank of Zambia (BoZ) was completed on January 13, 2009. The assessment found that aspects of the BoZ safeguards framework have been strengthened since the previous assessment, completed in 2004. Specifically, the BoZ implemented IFRS in 2005 and recently strengthened foreign reserves management and oversight. Weak statutory independence, protracted external audit completion, and lack of or delayed publication of audited information remain safeguards concerns. To address these issues, the assessment recommended that the BoZ:

(i) put in place year-end closing and audit planning procedures to facilitate earlier completion of the annual external audit;

(ii) enact legal amendments that address all legal safeguards concerns raised in the 2004 safeguards report;

(iii) publish the annual audited financial statements and audit opinion on the BoZ’s external website no later that one month after audit completion;

(iv) commission an external quality assurance review of the work practices of the internal audit function and the oversight exercised by the BoZ Audit Committee;

(v) mandate that the external audit firm, in coordination with the Internal Audit Department, verify unissued currency in vaults at year-end, and reconcile the confirmed balances to supporting documentation from the printing firms;

(vi) request that the MoFNP fill the vacant seat on the Board by appointing a person with professional experience in accounting and auditing, who should also serve on the Audit Committee; and

(vii) implement a review of all program data submitted to the Fund for accuracy, and for consistency with the technical memorandum of understanding (TMU), to be conducted by the BoZ’s Internal Audit Department.

X. Exchange Rate Arrangement

The currency of Zambia is the kwacha. The exchange rate arrangement is an independent float, with the kwacha exchange rate determined in the interbank market. The buying rate of the Bank of Zambia (BoZ) is a simple average of the primary dealers’ low bid rates and the BoZ’s selling rate is the simple average of the primary dealers’ high offer rates. On April 19, 2002, Zambia accepted the obligations of Article VIII, Section 2, 3, and 4 of the Articles of Agreement. However, the Fund urged the authorities to eliminate the exchange restriction evidenced by the accumulation of external payments arrears, which is subject to Fund approval under Article VIII, as soon as possible.

XI. Article IV Consultations

Zambia is on the standard 24-month Article IV consultation cycle, subject to the provisions of the decision on consultation cycles approved on July 15, 2002. The Executive Board concluded the last Article IV consultation on December 7, 2007.

XII. FSAP Participation and ROSC

Zambia has participated in the financial sector assessment program (FSAP); an FSAP mission from the Fund and the World Bank conducted a comprehensive external assessment of the financial system April 30-May 15 and July 15–26, 2002. A mission from the Fund and the World Bank conducted a follow up FSAP in November, 2008.

The fiscal transparency module of a Report on Observance of Standards and Codes (ROSC) assessing compliance with the IMF’s Code of Good Practices on Fiscal Transparency—Declaration of Principles was issued to the Executive Board on October 31, 2001. A ROSC-data module was issued to the Executive Board on January 18, 2005.

XIII. Technical Assistance (since 2003)

Resident advisors
DepartmentDatesPosition
FAD2002–03Advisor on public expenditure management
Technical assistance missions
DepartmentDatesPurpose
MFDJanuary and May 2003Development of foreign exchange interbank market, monetary operations, and reform of the financial system
September 2003Monetary operations, reform of the financial system, government securities market, and payments system
April–October 2004Resolution of nonbank financial institutions (three missions)
April–May 2005Liquidity management operations
March 2006Liquidity management, monetary and exchange rate policies
MCMMarch 2009Contingency planning and lender of last resort
September 2007Institutional arrangements and operation of the foreign exchange market.
September 2007Foreign exchange market
November 2007Risk-based supervision
July 2008Bank Restructuring
STAJune 2004Data ROSC
April–May 2005Monetary Statistics (GDDS)
May 2005Government Finance Statistics (GDDS)
February 2006Real Sector (GDDS)
July 2006Real Sector (GDDS)
April 2008Monetary and Financial Statistics
January 2009Consumer Price Index
FADJuly–August 2005Regulations for the Public Finance Act
November 2005Fiscal regime for copper mining
July 2006Revenue administration
August 2006Follow up on fiscal arrangements for the mining sector
October 2006Review of tax policy
June 2008Tax administration
November 2008Tax administration
January 2009Tax administration
LEGAugust 2004–February 2005Assistance on amending legislation on nonbank financial institutions
May 2005Strengthening the regulatory framework for nonbank financial institutions

XIV. Resident Representative

A Fund Resident Representative first took up the position in Lusaka in June 1990. Mr. Birgir Arnason has been the Resident Representative since November 20

Appendix II. Zambia: Joint World Bank-Fund Work Program, 2009–10
TitleProductsExpected delivery date
World Bank work program in next 12 months1. Investment Climate Assessment.June 1,2009
2. Water Resources Assistance StrategyFebrurary 25, 2009
3. EITI++ Scoping StudyMarch 2009
4. Epidemiological Synthesis in ZambiaJuly 2009
5. Fertilizer Support Program – Public Expenditure Tracking StudyJune 2009
6. Public Expenditure ReviewDecember 2009
7. Drivers of Growth Study2010
8. Transport Cost Analysis2010
9. Health Sector Assessment2010
10. Strategy for Post Basic Education2010
11. Zambia Business Survey2010
IMF work program in next 12 months1. Article IV Consultation and Third PRGF reviewNovember 2009
2. Fourth PRGF reviewMay 2010
3. Technical assistance: lender of last resort instrumentsApril 2009 (and follow up)
4. Technical assistance: single treasury account implementationApril 2009 (and follow up)
Fund request to Bank1. Public Expenditure Review.December 2009
2. Review the Fertilizer Support Program (FSP). With significant increase in budget allocation, there is an urgent need to assess the FSP’s poverty targeting goals.June 2009
3. Conduct electricity pricing study with the purpose of determining the average electricity tariff consistent with long run cost recovery.June 2009
Bank request to Fund1. Medium-term macroeconomic framework
Joint products in next 12 months1. DSAAugust 2009
2. FSAP follow up missionMarch/April 2009
Appendix III. Zambia: Statistical Issues

1. Data provision is broadly adequate for surveillance. However, there are shortcomings in the national accounts, balance of payments, and consumer prices. The present arrangements for compiling macroeconomic statistics involve duplication of effort and insufficient coordination among the Bank of Zambia (BoZ), the Ministry of Finance and National Planning (MFNP), and the Central Statistical Office (CSO). The situation largely reflects resource constraints and organizational weakness within the CSO that have affected its ability to produce economic statistics on a timely basis.

2. Resource constraints have also hampered the capacity to absorb technical assistance (TA) in statistics. A STA mission visited Lusaka in October 2006 to discuss ways to enhance the effectiveness of technical assistance. Discussions with the authorities and donors focused on the need to implement outstanding data ROSC recommendations. Under a pilot project initiated by AFR to encourage countries to undertake the compilation of the Statistical Appendix to Article IV staff reports, STA participated in the Article IV consultation mission in September 2007 to provide assistance. The authorities expressed their willingness to compile and publish the Statistical Appendix but indicated the need for further technical assistance. The authorities are yet to post the Statistical Appendix for 2007 on the national website as had been indicated at the end of the mission.

3. As one of 22 countries participating in the Fund’s General Data Dissemination System (GDDS) Project for Anglophone African Countries, Zambia has undertaken to use the GDDS as a framework for the development of its national statistical system. The country is participating in the national accounts and the GDDS/PRSP modules of the Anglophone Africa project (funded by the U.K. Department for International Development (DFID)). This project aims to assist participating countries to implement plans for improvement identified in the metadata and to meet GDDS recommended statistical practices. The metadata were posted on the Dissemination Standards Bulletin Board on November 1, 2002 and partially updated in June 2006.

Real sector statistics

4. The national accounts estimates are compiled according to the conceptual guidelines of the 1968 SNA, but a phased approach to the introduction of the 1993 SNA is ongoing. For the production approach, 1994 is the latest benchmark year for value-added ratios. For many important industry areas, such as wholesale and retail trade, construction, business services and many other service industries, (consisting mainly of small-scale private service providers) there are no appropriate indicators. Data on total production and intermediate consumption of establishments are not available. On the expenditure side, there are no reliable indicators of household consumption and private final consumption expenditure is derived as a residual. Source data for estimating gross fixed capital formation and changes in stocks are incomplete.

5. A February 2006 IMF/DFID GDDS mission noted that the CSO had obtained data comprehensive enough to enable it to produce a new benchmark for 2003. A follow-up mission in July 2006, however, found little progress in producing one. The authorities have launched a comprehensive economic census to complete the rebasing of the national accounts in 2007.

6. A July 2008 DFID funded mission reviewed progress to date, and provided training and recommendations for further work to ensure the estimates are 1993 SNA compliant, including the incorporation of the forthcoming economic census data. If the tasks identified in the agreed action plan are completed, a further mission will be undertaken in March 2009. VAT data will be developed as a cross-check for the economic census data and future data sources.

7. Current price GDP estimates for both production and expenditure have been derived from the constant price indicators using wholesale price indices (WPIs) and consumer price indices (CPIs) as deflators. However, for the most recent period, the WPI were not available and the CPI components were used throughout the system.

8. The CPI broadly adheres to international methodological standards. The classification system used for compilation closely follows the Classification of Individual Consumption by Purpose. However, the frequency of the household budget surveys has been insufficient to capture changes in consumer expenditure structure on a timely basis. The current index has 1994 as base year with weights derived from the 1993/1994 household budget survey. The authorities plan to launch a new rebased CPI in 2008.

Government finance statistics

9. In 2007, the authorities made progress in improving reporting government finance statistics (GFS) for publication in the GFSY. They submitted a consistent time series of GFS data, covering only the budgetary central government, for 2001 through 2007, based on the GFSM 2001 framework. The transactional coverage of these data is limited to government operations and transactions in nonfinancial assets. Data on transactions in financial assets and liabilities are still unavailable. No monthly or quarterly fiscal data are reported for publication in International Financial Statistics (IFS). The authorities report monthly budget data to AFR for operational use in a timely manner, but the data are often subject to substantial revisions, and data on extra-budgetary institutions and local governments are not available.

10. An IMF/DFID GDDS mission in March 2003 provided technical assistance to the MFNP on government finance statistics and to advise on migration to the methodology of the Government Finance Statistics Manual 2001 (GFSM2001).

11. Another IMF/GDDS mission in May 2005 assessed the overall quality, coverage, and timeliness of fiscal data. The mission found that decentralization of government activities in earlier years had led to the creation of numerous extra-budgetary institutions. While the majority of these entities follow international accounting practices, they are not obliged to report to the MFNP. Currently, an estimated 35 percent of government activities are not captured in the data. The mission also noted that the implementation of Integrated Financial Management and Information System (IFMIS) is a long-term project with an expected completion date of 2009.

Monetary and financial statistics

12. The April-May 2008 monetary and financial statistics (MFS) mission found that the BoZ had made substantial progress in implementing the key recommendations of the 2005 MFS mission. As a result, there has been a noticeable improvement in the quality of monetary accounts compiled and reported in accordance with the standardized report forms (SRFs) for the BoZ and other depository corporations (ODCs). However, the implementation of some recommendations pertaining to the ODCs accounts still has some way to go and in some instances the pace of implementation could have been accelerated.

13. The institutional coverage of other depository corporations has been expanded to include commercial banks (including three banks in liquidation), building societies, and the National Savings and Credit Bank. Data reported by commercial banks are considered generally adequate, but there are some problems in the sectorization of public sector deposits and the recording of repurchase agreements, which are treated as outright sales or purchases. In this context, the mission recommended that the BoZ (i) provide the ODCs with a comprehensive list of all government agencies, indicating whether each should be classified as central government, statutory bodies, local government, donors’ funds, or a public nonfinancial corporation (parastatals); and (ii) that ODCs classify donors’ funds as deposits of the central government, separately identify loans denominated in the national and foreign currencies, and establish procedures for collecting data on accrued interest and on financial derivatives. Deposits of three banks that are currently in the process of liquidation are classified as restricted deposits and excluded from broad money.

External sector statistics

14. Balance of payments statistics are compiled and disseminated by the BoZ in accordance with the fifth edition of the Balance of Payments Manual. However, the CSO is legally responsible for compiling all macroeconomic statistics. The most recent balance of payments data reported to STA are for 2007.

15. A technical assistance mission in January 2008, the most recent, found that little progress had been made since the assessment by the 2004 ROSC mission. Data sources remain poor (some items are estimated without reference to current source data) and compilation methods are inadequate. Resources available for balance of payments compilation have been increased, but are still inadequate, while coordination between the BoZ and CSO had improved.

16. As a result, significant gaps in data remain in many areas including reinvested earnings, trade in services, and the financial account (including export proceeds held abroad by mining and nontraditional exporters). While the source data are generally adequate in terms of timeliness, they fall short in terms of coverage. As a result the shortcomings in source data coverage, indirect estimation methods are used, some of which have remained unchanged for many years and are out of date. Source data on private sector foreign assets and liabilities are insufficient to compile an International Investment Position statement.

Zambia: Table of Common Indicators Required for Surveillance

As of August 13, 2008
Date of latest observationDate receivedFrequency of Data7Frequency of Reporting7Frequency of publication7Memo Items:
Data Quality – Methodological soundness8Data Quality – Accuracy and reliability9
Exchange RatesJul.. 2008Aug. 08, 2008DDD
International Reserve Assets and Reserve Liabilities of the Monetary Authorities1Jun. 2008Jul. 2008WWM
Reserve/Base MoneyJun. 2008Aug. 8, 2008WWFLO, LO, LO, LOLO, O, O, O, O
Broad MoneyJun. 2008Aug. 8, 2008MMM
Central Bank Balance SheetJun. 2008Aug. 8, 2008MMM
Consolidated Balance Sheet of the Banking SystemJun. 2008Aug. 8, 2008MMM
Interest Rates2Jun. 2008Aug. 8, 2008WWF
Consumer Price IndexJun. 2008Aug. 22, 2008MMMO, LO, O, LOLNO, LO, LO, LNO, LO
Revenue, Expenditure, Balance and Composition of Financing3 – General Government4NALO, LNO, LNO, LOLNO, LO, O, O, LNO
Revenue, Expenditure, Balance and Composition of Financing3 – Central GovernmentJun. 2008Aug. 8, 2008MMM
Stocks of Central Government and Central Government-Guaranteed Debt5Dec. 2005Apr. 21, 2006MMA
External Current Account Balance2007Jun. 12, 2008AAALO, LNO, LNO, OLNO, O, LNO, LO, LNO
Exports and Imports of Goods and Services2007Jun. 12, 2008QQA
GDP/GNP2006Mar. 2007AAALO, LO, LO, LOLNO, LO, LNO, LNO, LNO
Gross External DebtSep. 2005Mar. 2006QII
International Investment Position 6

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discounts rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); or Not Available (NA).

Reflects the assessment provided in the data ROSC, published February 1, 2005, and based on the findings of the mission that took place during May 18-June 3, 2004 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.

Both market-based and officially determined, including discounts rates, money market rates, rates on treasury bills, notes and bonds.

Foreign, domestic bank, and domestic nonbank financing.

The general government consists of the central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.

Including currency and maturity composition.

Includes external gross financial asset and liability positions vis-à-vis nonresidents.

Daily (D), Weekly (W), Monthly (M), Quarterly (Q), Annually (A); Irregular (I); or Not Available (NA).

Reflects the assessment provided in the data ROSC, published February 1, 2005, and based on the findings of the mission that took place during May 18-June 3, 2004 for the dataset corresponding to the variable in each row. The assessment indicates whether international standards concerning (respectively) concepts and definitions, scope, classification/sectorization, and basis for recording are fully observed (O), largely observed (LO), largely not observed (LNO), or not observed (NO).

Same as footnote 8, except referring to international standards concerning (respectively) source data, assessment of source data, statistical techniques, assessment and validation of intermediate data and statistical outputs, and revision studies.

11Net present value (NPV) terms at the decision point under the enhanced framework.
12Under the enhanced framework, an additional disbursement is made at the completion point corresponding to interest income earned on the amount committed at the decision point but not disbursed during the interim period.
13The Multilateral Debt Relief Initiative (MDRI) provides 100 percent debt relief to eligible member countries that are qualified for assistance. The debt relief covers all debt owed to the Fund as of end-2004 that is outstanding at the time the member qualifies for the relief.

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