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Zambia finally clinches crucial $1.4b IMF deal

6 December 2021

No Zambian President has ever survived a fallout with the International Monetary Fund (IMF). First Republican President, Kenneth Kaunda, made a gallant attempt in May 1987 when he pulled out of the IMF restructuring programme and called for a “new approach to solving our internal and external economic problems”. He lost power four years later to a Western-back pro-democracy candidate, Frederick Chiluba. The second IMF fallout happened in 2018 under the administration of the sixth Republican President, Edgar Lungu, whose mismanagement sent the economy into a death spiral that culminated in Zambia becoming the first African country to default on Eurobond loans since the start of the Covid-19 pandemic.

The circumstances that both presidents faced were very different. Kaunda was concerned about the effects of the IMF austerity measures that had been in effect since 1983 and were hurting rather than helping the economy: the GDP per capita has plunged from $630 in 1981 to less than $200 in 1987. Zambia was spending most of its export earning servicing interest payments on debts that had been accumulated during the oil crises in the 1970s and restructured by bilateral creditors. Kaunda sought to limit debt servicing to no more than 10% of export earnings to allow Zambia to invest internally and grow, while still committed to repaying all debts in full.

"I am fully aware that this move will not be welcomed by all our creditors. However, before they condemn us let me put this question to them: which is a better partner for you in the long run, a nation which devotes all its resources to paying the debt and therefore, grinds to an economic and political halt OR as stable nation capable of sustaining the repayment of its entire debt?"

President Kenneth Kaunda, 1 May 1987

Lungu, on the other hand, was desperately trying to get into an IMF programme. Zambia’s economy plunged in 2015-16, battered on all fronts by low copper prices, poor rainfall which impacted agriculture and crippled the mainly hydro electricity production. However, it was the reckless spending by the Lungu government to secure elections in 2015 and 2016, and rampant corruption, which raised the most concern with the IMF. Much of this spend was financed by secret loans obtained from China and other lenders, that were neither disclosed to the Zambian public nor other bilateral lenders.

ONGOLO timeline on the deterioration of Zambia's relationship with the IMF
Zambia's relationship with the IMF is back on track after a turbulent period under the Lungu administration. Photo credit: Muloongo Muchelemba

The relationship soured when the Fund pressed for full details of Chinese loans and suspended bailout discussions in July 2018 after the requests were ignored. The following month, the government asked the IMF Resident Representative, Alfredo Baldini, to leave the country after openly criticising the government. A series of blunders including asking the US Ambassador to leave in December 2019 and then firing the competent Central Bank Governor in August 2020 led to a further deterioration in the relationship with the IMF. Even though the IMF appointed Preya Sharma as the new IMF Resident Representative for Zambia in October 2020, after a two-year lull, Zambia’s only hope of an IMF bailout was if Lungu lost the election in August 2021, which he thankfully did.

When Hakainde Hichilema was sworn in on 24 August 2021, one of his key priorities was to repair the relationship with bilateral creditors and with Eurobond lenders who were furious that Zambia had defaulted on loans in November 2020. Hichilema met the IMF Managing Director, Kristalina Georgieva in September 2021 to re-establish a better working relationship and kick-start the bailout discussions. He also met with Eurobond investors who made clear that the IMF bailout was a key condition for restructuring external debt. Hichilema reinstated Denny Kalyalya as Central Bank Governor and brought back former Minister of Finance, Situmbeko Musokotwane, to ensure that there was a strong team leading the negotiations with the Fund.

One of the first acts of the new UPND government was to fully disclose the extent of Zambia’s debt, including the not-so-surprising but still disappointing fact that Zambia owed China $6.6b and not $3.4b, as the previous administration had led many to believe. This represented more than 44% of Zambia’s total external debt of $15bn. Even though China is set to overtake the United States as the world’s biggest economy by 2028, it insists on being treated like a developing country and has never been a member of The Paris Club, allowing it to play by its own rules. The creation of the G20 Common Framework for debt restructuring is the Western countries’ attempt to bring this reluctant player within the fold and have a common and transparent approach to lending.

When Georgieva told reporters on 3 November 2021 that she was "optimistic a deal would be reached with Zambia", it was a clear sign that Zambia was back in the good graces of western creditors. The $1.4b deal that was announced on 3 December 2021 still needs to be approved by the IMF board and management team, which is almost certain to happen.

The 1987 Presidential Committee on the Economy
Minister of Finance and National Planning, Dr Situmbeko Musokotwane, finds himself in the driving seat of executing the IMF restructuring programme 34 years after Kaunda pulled Zambia out of it. A shoutout to my mother, who was also part of the team that supported President Kaunda. Photo credit: Muloongo Muchelemba

Next steps

The IMF bailout will give the Hichilema government some breathing room from external creditors but will create domestic pressure, as the need to comply with austerity measures will be at odds with an election promise to turbocharge Zambia’s economy. Musokotwane was part of Kaunda’s Presidential Committee on the Economy in 1987 that concluded that austerity hurt the economy and will need to ensure that the mistakes of 1987 are not repeated in 2022-25. How will the UPND government successfully juggle the need to keep both the Zambian people and the IMF happy?

The Government of the Republic of Zambia and the International Monetary Fund will hold a joint press conference on Monday 6 December 2021 at 15:00 CAT which will be broadcast live on national tv and on the Ministry of Finance and National Planning Facebook page. Questions can be sent in advance to or



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