The International Monetary Fund warned that Zambia’s hard-won macroeconomic stability is facing renewed risk from a surge in pre-election spending and costly energy distortions, even as the southern African nation successfully consolidates its massive debt restructuring.
Following a two-week mission to Lusaka led by Edward Gemayel, the Washington-based lender signaled that while the copper-producing nation has made “substantial progress,” its fiscal position has deteriorated sharply. The IMF now projects Zambia’s primary budget surplus to narrow to 1.1% of gross domestic product this year, a steep drop from the 3.8% anticipated during its last economic review.
The financial slippage reflects a confluence of structural weaknesses and near-term political pressures as the country heads toward a general election. A combination of weaker domestic tax collection crippled by an accumulation of value-added tax refund arrears civil service wage adjustments, and agricultural subsidy overruns estimated at 1.3% of GDP are actively hollowing out public finances.
Fuel and Geopolitical Headwinds
Adding to the fiscal strain is a controversial decision by Zambian authorities to suspend the TAZAMA open-access fuel procurement framework, a mechanism the IMF noted had previously slashed fuel import premiums by roughly 50%. The government halted the open-access system in response to volatile spillovers from the ongoing conflict in the Middle East, prompting the Fund to urge an immediate return to transparent monthly fuel auctions.
“Fiscal pressures have intensified in 2026, reflecting the impact of the war in the Middle East, pre‑election spending pressures, and expenditure overruns,” the IMF staff team said in a statement. “The main challenge for Zambia is to preserve these gains during an election period and amid heightened global uncertainty.”
The IMF revised Zambia’s 2026 economic growth forecast downward to 4.3%. The slowdown reflects softer mining output, pervasive energy constraints, and a return to normal agricultural production following an exceptionally strong harvest the prior year.
Monetary Calibration
The fiscal erosion complicates tasks for the Bank of Zambia, which recently capitalized on an improved inflation outlook to cut its benchmark interest rate. Driven by a strengthening kwacha and moderating food prices, consumer price growth slowed to 6.8% in April, successfully landing within the central bank’s 6% to 8% target band.
However, the relief is expected to be short-lived. The IMF projects inflation will march back up to 8.5% by the end of December, as rising global oil prices and localized fuel tariff hikes threaten to undo the currency’s disinflationary momentum.
Zambia’s external buffers offer a crucial silver lining. Gross international reserves have climbed to $6.4 billion, providing roughly 4.4 months of import cover. The IMF is nudging the central bank to aggressively build that buffer toward a safer five-month threshold to better insulate the economy against future climate droughts and commodity shocks.
Succeeding the Credit Facility
The baseline stability achieved so far stems from the recently completed Extended Credit Facility (ECF) program, which helped orchestrate restructuring deals covering about 94% of Zambia’s eligible public debt.
While the formal ECF program has wrapped up, Finance Minister Situmbeko Musokotwane and Central Bank Governor Denny Kalyalya have reaffirmed Zambia’s commitment to a successor IMF arrangement once the elections conclude. Discussions for the new framework are already underway, focusing heavily on economic diversification, scaling up copper value-addition, and eliminating structural bottlenecks within the Zambia Revenue Authority to widen the tax base.
To unlock a successor deal and drive long-term borrowing costs down, the IMF emphasized that Lusaka must secure tangible revenue gains and curb fiscal risks stemming from the state-backed Food Reserve Agency.
“Tangible revenue gains are urgently needed to reduce the domestic interest burden and bring debt to a moderate risk of distress,” the Fund noted. “Stronger governance and greater transparency remain central to attracting private investment at lower cost.”
