I.M.F. plays ‘stern Samaritan’ to Zambia

Press, 30 May 1981, Page 14

I.M.F. plays ‘stern Samaritan’ to Zambia

From 'The Economist,’ London

The Intern. ' ietary Fund's decision w ituu the equivalent of $165 to every man, woman and child in Zambia has lifted spirits in the gloomy' copper, country. The three-year extended fund facility announced on May 12 of SDRBOOM (S9SOM) is the largest the IMF. has ever made in sub-Saharan African (though Zaire is now angling for one even larger), and in per capita terms among the largest in the world.

The loan will bail Zambia out of the. worst foreign-ex-change crisis of its 17-year independence. It has financed its current-account deficit by letting foreign, payments’ arrears accumulate-.to about 520 M kwacha- (S6IOM), leaving S4SM-70M in banks’ letters of credit uncovered, and running down reserves to an estimated S6OM at the end of 1980. Suppliers willing to export to Zambia were becoming a rare breed, arid imports like petroleum have been financed by international commercial banks only on the assumption that I.M.F. help was in the offing.

The sequel to the previous I.M.F. programme (a two-year SDR2SOM scheme completed in April, 1980) is not wholly reassuring. Despite tangible successes (the mines returned to profitability and manufacturing grew in 1980 for the first time in several years), fiscal controls dissolved at the end of the agreement. The current account swung into a deficit of S4OOM from a surplus in 1979 of SI7OM, the debt pipeline lengthened, supplementary budgets raised authorised outlays by 70 per cent and actual spending by 35 per cent, and the two Zambian finance officials most trusted by the I.M.F. were dismissed. The fall in world metal prices and demand did not help. • For the new loan, the I.M.F. has imposed “no conditions at all,” according to the Finance Minister, Mr Kebby Musokotwane, “because none of what we have agreed with the LM.F. is new.” In fact, Zambia is thought to have accepted the usual basketful of conditions: restrictions on Government borrowing, a 5 per cent ceiling on domestic credit expansion, and early payment of about a

fifth of foreign bills, if metal prices hold their present level. Zambia is also committed to reduce consumer subsidies, which cost the country $265M last year. Maize subsidies were chopped earlier this year along with subsidies of other essential commodities. This provoked ominous grumbling. Fertiliser subsidies to farmers are to be cut.

For the longer term, Zambia is to overhaul its parastatal sector — a vast amalgam of public services, statutory boards (i.e. agricultural marketing agencies) and companies in which the Government has a majority share ■ — which lies like a dead hand across four fifths of the economy. Excoriated by Zambia's own auditorgeneral for unprofitability, inefficiency and corruption (with exceptions), parastatals are to be led into economic pricing and an emphasis on productivity.

The aim is to release funds for investment elsewhere. Gross fixed investment has fallen by about three. fifths since 1975. Farming, the biggest sufferer, is now to be the main target for expansion.