The Working Relationship between Zambia and the IMF

Presentation by Dr. Mark J. Ellyne IMF Resident Representative To the seminar on The Role of Parliament in the National Budgeting Process February 25, 2002

What is the IMF and What Does It Do?

Cooperative international monetary organization (182 members) Purposes: Promote Exchange rate stability International trade Economic growth Ease adjustment
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Why is the IMF in Zambia?

Zambia is a shareholder (quota = $620 M =.23% of all shareholders) IMF provides loans to Zambia IMF provides free technical assistance and policy advice

Role of the IMF Vs. World Bank

Policy areas covered: macro vs. sectoral Lending arrangements: Budget support vs. IMF support Amount and terms of Fund lending PRGF (10 years, 0.5%) Loans exceed $1 billion
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How Does the IMF Work with the Government of Zambia?

Article IV reviews of the economy Technical assistance non-binding advice Resident Representative office Reviews & New Programs Letter of Intent (LOI) obligations for loan disbursements
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Elements of IMF-Supported Programs

Coordination among agencies of government to establish consistent macro-economic framework Quantitative elements of financial programs Structural Elements of programs Public expenditure management Financial sector management PRSP monitoring Improved statistical monitoring
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Quantitative Elements of Financial Programs

Process of Financial Programming, set targets for: Real sector: growth and inflation Balance of Payments: reserves, financing gap Budget: foreign and domestic financing Monetary balance sheet to reflect above sectors: Net foreign flows Credit to government Credit to private sector

IMF Financial Programming

Foreign
Foreign Trade Foreign Borrowing Foreign Debt Debt Service

Government
Tax/ Spending Government Borrowing

Domestic Private
Private Credit

Monetary Sector (money)

Quantitative Performance Criteria in the LOI

Ceiling on net domestic assets of BoZ: to control monetary expansion Ceiling on bank lending to GRZ Floor on international reserves: to strengthen currency Ceiling on non-concessional external debt Ceiling on new guaranteed loans for ZESCO and ZNOC Ceiling on government arrears: domestic and external 9

Structural Performance Criteria and Benchmarks

Improve operation of TB market Produce public quarterly HIPC reports Improve monitoring and control of domestic payments arrears, including audit of Ministry of Works & Supplies No new tax arrears by ZESCO or ZNOC
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Structural Performance Criteria and Benchmarks

Accountant General to prepare final audited accounts of budget as required by law No new tax reductions or exemptions Implement cabinet decision on governments divestiture of ZNCB Continue implementation of IFMIS timetable
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How to Examine the Budget

What is the size of the budget deficit and how is it financed? What is the composition of budget expenditure? Non-discretionary wages, pensions, interest payments Discretionary RDCs, capital expenditure Externally financed Where is the revenue coming from?
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Monitoring the Economy

Statistics Fortnightly (BoZ) Monthly Macroeconomic Indicators (MoF)

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Good Governance and the IMF

Code of Good Practices in Fiscal Policy Report on Observance of Standards and Codes in Fiscal Transparency (ROSC) Clarity of rules and responsibilities Public availability of information Open budget preparation, execution and reporting Independent assurance of integrity
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Fiscal Transparency ROSC Comments

The dual domestic and external budget should be unified ( 6) Internal control in government agencies should be strengthened ( 7) MOFNP should initiate quarterly reports ( 8) Create database of contingent GRZ liabilities ( 9) Provide better fiscal information to Parliament with the annual budget, including annual reports of 15 the major public enterprises ( 11)

Good Governance
Code of Good Practices in Monetary and Financial Policies Reasons for not making information public Transparency important: disclosure of targets Clarify rules, responsibilities of BoZ and relationship with MoF Accountability: publish balance sheet of BoZ Authorities Financial Sector Assessment to begin in 2002
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The IMF Stands for:

Prudent financial policies Low inflation, stable exchange rate regime Market-oriented mechanism for price determination Liberal trade environment Transparency and accountability in Government These elements create the basis for economic growth, rising standards of living, and financial stability. Socially responsible government tax & expenditure policies reduce poverty.
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