Tread softly on IMF credit, think tank warns govt

Tread softly on IMF credit, think tank warns govt

 By Favourite Kalando

ZAMBIA’S decision not to extend the International Monetary Fund (IMF) Extended Credit Facility (ECF) programme comes at a time when the economy is only beginning to show credible signs of recovery after years of fiscal stress and debt distress, the Centre for Trade Policy and Development (CTPD) has said.

Lead public finance researcher Robert Mwale said figures from the IMF Country Report and the Ministry of Finance indicated that abandoning the programme at the current stage could quickly disentangle the recent gains.

In a statement seen by The Mast, Mwale said the total government expenditure last year increased from 25.5 per cent of the gross domestic product (GDP) in 2024 to 28.0 per cent, while the cash fiscal deficit widened sharply from negative 3.3 per cent to minus 5.3 per cent of GDP.

“The slippage occurred despite the discipline imposed by the IMF programme. Removing this policy anchor in an election year heightens the risk of budget diversion, off-budget spending and weakened expenditure controls,” he said.

Mwale said the move would undermine fiscal credibility at a time when restraint was much needed.

“The immediate consequence is heavier reliance on domestic borrowing. Historically, Zambia has financed cash-basis deficits through treasury bills and bonds, crowding out the private sector,” he said.

Mwale noted between the third quarter of 2024 and the third quarter of 2025, the total public debt increased by 11.7 per cent, from US$25.3 billion to US$28.01 billion, largely driven by domestic debt.

He said the period under review saw the borrowing go up by 25 per cent from US$8.51 billion to US$10.60 billion.

“External debt rose by 4.1 per cent from US$16.72 billion to US$17.41 billion over the same period,” he said.

Mwale warned that without the ECF’s fiscal guardrails, treasury bills and bonds could once again become the default financing instruments.

He said although private-sector credit expanded strongly by 52.1 per cent in 2025, it was projected to slow down to 29.7 per cent in 2026 as government financing needed to increase.

Mwale said excessive domestic borrowing would exert upward pressure on interest rates, reverse the easing inflation trend and stifle productive investment.

He said the most concerning risk would be debt sustainability.

“Public debt declined sharply from 123.9 per cent of GDP in 2024 to 91.9 per cent in 2025, with projections showing a further fall to 79.0 per cent in 2026. These gains are directly anchored in IMF-backed fiscal consolidation. Election-driven fiscal loosening risks reversing this trajectory and returning Zambia to debt distress within a single budget cycle,” he said.

Mwale said the ECF also supported Zambia’s external recovery, with the current account improving from a 2.6 per cent deficit in 2024 to a 1.3 per cent surplus in 2025, while international reserves strengthened to 4.5 months of import cover.

He warned that abandoning the programme now could weaken investor confidence, destabilise the exchange rate and reverse fragile balance-of-payments gains.

“Zambia is not exiting the programme from a position of fiscal comfort, but at a moment of vulnerability. In an election year, the IMF ECF is not a constraint; it is a safeguard. Walking away risks reopening the cycle of over-borrowing, widening fiscal deficits, rising debt and macroeconomic instability that the country has only just begun to escape,” he said.