Answer to Question #281813 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 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 economy outlook of Zambia? To what extent do you approve or disapprove such an agreement.

Note: your answers should not be more than 2 pages.

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 in the first place. These policy changes are IMF loan conditions that guarantee the country's ability to repay the IMF. The purpose of this conditionality system is to encourage national ownership of strong and effective policies.

As a result, such an agreement will have far-reaching consequences for Zambia's overall outlook. This is due to the numerous economic policies that must be implemented or restructured as a result of IMF conditions. This includes things like the removal of price controls, the removal of subsidies, an increase in taxes, and the broadening of the tax base, including an increase in fuel and other levies, all of which are intended to stabilize the country and boost economic growth and the quick repayment of the loan issued. 

 

I support the agreement because it will improve the nation's economic outlook in the long run, resulting in increased stability and massive economic growth. The agreement has the potential to bring the country back from the brink of bankruptcy as a result of massive debt. This agreement will lift the country out of its current financial crisis and allow it to rise economically stronger by adhering to the policies that have been enacted.