Answer to Question #281114 in Macroeconomics for Comfort

Question

On the 3 December 2021, the new dawn government and IMF mission to Zambia reached a staff level agreement on a program under the IMF's extended credit facility that envisages provision of financial support of $1.4bn over the next three {3} years

Taking into account the anticipated IMF conditionalities what implications will such an agreement have on the general economic outlook of Zambia?

To what extent do you approve or disapprove such an agreement? [25 marks]

Answer 1

$Solution$

The economic plan intends to re-establish macroeconomic stability as well as promote greater, more robust, and inclusive growth.

The IMF-backed government's ambitious reform agenda aims to restore fiscal and debt sustainability, provide fiscal flexibility for much-needed social investment, and improve economic governance and transparency.

To protect IMF resources, the measures are designed to ensure that the country's balance of payments is strong enough to repay the loan, which is why they have been put in place.

The Zambian government has committed to an ambitious economic reform agenda to solve the country's significant economic and social issues. These changes aim to address past flaws in economic governance and public financial management, which contributed to an unsustainable debt burden. They will also support the government's attempts to restore the economy, particularly efforts to increase economic resilience in the face of the ongoing COVID-19 pandemic and climate risks.

The predicted big upfront fiscal adjustment envisions a significant shift in expenditure away from inefficient public investment and poorly targeted subsidies and toward increased investment in health and education, as well as the provision of more social benefits. This move will be supported by a long-term strategy to improve revenue mobilization through policy and administrative improvements.

The Bank of Zambia will need to continue to strengthen its monetary policy framework and financial sector regulatory ability, with the help of a modification of the Bank of Zambia Act, which will ensure the bank's operational independence. Over the medium run, the authorities' reform program should assist a return to price stability.

Increase in industrial activities will make Zambia to contribute more of toxic gas emission to the atmosphere which results to greenhouse effect.

There will be an increase in temperatures due to imerging development. As a result, there will be increase in melting of ice, increase in sea levels and increased hurricanes which are a danger to human.

Zambia will be in debts. It will take decades for her to pay back the loan. The high interest rates will see her pay more than it received which is a burden to the coming generation