The International Monetary Fund (IMF) has agreed to lend Zambia $81 million to be disbursed immediately, a factor likely to provide short-term support to its kwacha currency.
Despite being a fully convertible currency, Zambia’s kwacha remains very illiquid and can be moved by aid and donor flows. The unit has gained more than 20% since February due to a recovery in the price of copper, its main export.
The IMF said the anti-poverty funds were the final part of a $262 million concessional lending package, but added that Africa’s biggest copper producer could afford to borrow from capital markets to pay for new infrastructure.
“The 2010 budget is well balanced. The authorities aim to create fiscal space for poverty-reducing expenditure and for infrastructure investment to sustain robust and diversified growth,” it said in a statement.
Zambia’s risk of default was low and there was scope for external borrowing on non-concessional terms to finance essential infrastructure, particularly in power generation, it said.
However, the Washington-based lender said the government needed to improve the efficiency of state power firm Zesco and raise electricity tariffs to levels that would attract private investment.