Answer to Question #281320 in Macroeconomics for Douglas

Question

On 3rd December,2021, the new Dawn government and the IMF mission to Zambia reached a staff level agreement on a programme under the IMF's Extended Credit Facility (ECF) that envisages provision of 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 economy outlook of Zambia? To what extent do you approve or disapprove such an agreement.

Answer 1

Solution:

When a country borrows from the IMF, its government agrees to change its economic policies in order to address the issues that prompted it to seek financial assistance. These policy changes are IMF loan conditions that ensure the country will be able to repay the IMF. This conditionality system is intended to promote national ownership of strong and effective policies.

Therefore, such an agreement will have major implications for the general outlook of Zambia. This is because of the numerous economic policies that will have to be adopted or restructured as a result of IMF conditionalities. This includes things like the removal of price controls, the removal of subsidies, an increase in taxes, and the widening of the tax base, including an increase in fuel and other levies, all of which are intended to stabilize the country and enhance economic growth and quick repayment of the loan issued.

 

I approve of the agreement since it will be able to enhance the nation's economic outlook, in the long run, leading to enhanced stability and massive economic growth. The agreement could turn the country around from complete distraction due to massive debt. This agreement will lift the country from the financial distress it is undergoing and enable it to rise up stronger economically through adhering to the enacted policies.