The talks, which began on February 11, are due to end on March 3. They are at least a sign that relations between Lusaka and the IMF are improving, but there is little prospect of significant results in the short time leading up to the election, says Indigo Ellis, managing partner of strategic consultancy Africa Matters in London.
“It is highly unlikely that an IMF support plan will be put in place before the general election,” says Ellis. “Despite arguments to the contrary, we continue to believe that Lungu is unable to sell the large-scale reforms needed by the Patriotic Front (PF) and its electorate.
“We should cancel the pre-election period for an IMF support plan – spending will explode and the budget is canceled to ensure the incumbent’s victory. “
The winner of the Zambian election will have to choose between relying on China and restoring the confidence of the Western market after its default on Eurobonds in November 2020. The danger for the West is that Chinese loans will be the option the easiest.
China is the world’s largest consumer of copper and invested in Zambia’s mines, which could be used as collateral to raise more money.
- “Until African countries like Zambia have increased access to capital markets, resource-backed loans remain the most viable way to raise capital,” said Ellis.
- “It is highly unlikely that states will reject opaque Chinese loans unless solutions are found. “
Behind the curve
Irmgard Erasmus, senior financial economist at NKC African Economics in Cape Town, is optimistic that in the medium term the IMF can act as a “political anchor” – helping to restore credibility.
- The central bank’s decision this month to raise the benchmark interest rate by 50 basis points to 8.5% suggests openness to IMF guidance, she wrote in a note.
- Yet, Erasmus writes, some of Zambia’s liabilities are only vaguely recorded, making it difficult to guess at the country’s overall debt levels.
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IMF talks are coming “too late in the political cycle” strike a deal before Zambia goes to the polls, says Nick Branson, director of Gondwana Risk in London. The talks are “on a road that leads nowhere”.
- The IMF must conduct a comprehensive debt sustainability analysis to assess Zambia’s commitments before a staff program can begin. This is an unpleasant prospect for Lungu ahead of the vote, given the risk that “uncomfortable truths about historical borrowing” will be uncovered, Branson says.
- Persistent delays will prevent Zambia from securing further concessional financing from the IMF before the fourth quarter of this year, he predicts.
- The government is expected to miss at least $ 175 million in additional interest payments over the next few months, further weakening its hand in the negotiations, Branson adds.
According to Ellis, the best election result in terms of debt would be the victory of Hakainde Hichilema and the opposition United Party for National Development (UPND). This would have the potential to create a new start for the IMF negotiations and a break with the PF’s economic overexploitation, she said.
Rising consumer inflation poses the biggest threat to Lungu’s re-election, Ellis says. But that of Lungu authoritarian tendency suggests that he will not easily give up power.
Lungu in 2017 had Hichilema imprisoned for treason which have been widely regarded as bogus. Ellis indicates suspected electoral fraud in the last election in 2016 as casting a shadow over the chances of the UPND.
At the end of the line
The economy will be a major factor in the upcoming Zambian elections, and IMF interventions are unlikely to yield results until they are held.