Austerity prescriptions the IMF package is coming with to Zambia.

IMF offices in Washington D.C.

Now that the election petition is out of the way, life in Africa’s second largest copper producer continues. Talks with the International Monetary Fund – IMF had stalled pending outcome of the litigation process. A deal is highly likely for $1.25billion as Zambia’s head of state had intimated at a meeting with business leaders a day post his victory. Zambia grapples with fiscal and monetary policy mismatches in addition to power deficits. The Southern African nation needs to narrow a to 9.3% fiscal gap. Fundamentals have deteriorated ranging from high inflation of 19.6% and record high interest rates of between 34%-41%. Proceeds of copper exports are at 31% lower than previous years, fuelled by waning red metal prices that have reverberated between $4,400 – $5,100 per metric ton in the last 1 year. Copper has reversed all 2016 gains as worst performing industrial metal. Times are hard for Zambia.

Sources that declined to be mentioned yet familiar with the matter have revealed some of the austerity measures this package is coming with.

Energy tariff restructure and partial privatization
Electricity tariffs will be hiked gradually in an attempt to make them cost reflective. The state owned electricity generating company ZESCO will shave off a significant portion of state stake to private equity partner. This way the IMF believes the state owned power generation company will operate more efficiently. ZESCO will be expected to shed off employees in a move expected to manage costs better. The power company has a workforce of 16,000. ZESCO is currently overstaffed the sources revealed. Energy subsidies are also expected to be scrapped off to save the government roughly $700million annually, a cost the state has been incurring as the price for not having reflective tariffs.

Telecommunications parastatal privatization
There are recommendations around disposing off state stake in ZAMTEL as it has been a coat driver for sometime now. This will reduce the burden of grant injection to salvage its operations. Zamtel was a few years back sold of to Libya’s LapGreen in a transaction that was reversed by Zambia’s 5th republican president. Zamtel to date has continued bleeding cash to the extent that bailiffs have pounced on its premises and assets for failing to meet supplier payment obligations.

Government Employee 3yr wage moratorium
The state will be expected to implement a 3 year wage moratorium to manage its wage costs that feed into its fiscal expenditure. Suffice to say wages are the states biggest cost driver. This will include audits of payrolls for potential ghost employees. This variable is key for the IMF as it was the causer of the widened budget deficit in 2012 when the state had awarded a 48% wage increase to public sector employees. African countries have been known to award wage increments not backed by increased revenue generating sources. Ghana and Zambia share close to identical experiences.

Retrenchments from restructure
With such privatizations and restructures, retrenchments are inevitable as the aim would be to keep costs minimal yet use the procceeds for capital expenditure.

The southern African nation will undergo a very tight program as it seeks to correct misaligned economic fundamentals. It’s is expected that a package should be finalized in Q4 should the government agree to the prescriptions by the Washington based lender.

More articles on the Zambia IMF program prescriptions.