Zambia IMF Talks Seen Shielding Country Amid Trump Risks

LUSAKA (Capital Markets in Africa) – Zambia is asking the International Monetary Fund for March talks over a program that could help buffer it from uncertainties relating to U.S. President Donald Trump’s policies and rising rates in that country that will lift borrowing costs for frontier markets, NKC African Economics said.

Formal agreement to a technical and financial support package would also help Zambia rein in a ballooning budget deficit that’s pushed up debt, said Irmgard Erasmus, an economist at NKC in Paarl, near Cape Town. It could also make Zambia stand out in a region where many countries are still struggling with low commodity prices and budget shortfalls.

“This is indeed a positive development, especially in light of rising external headwinds amid the uncertain policy mix in the U.S. and risk of a more aggressive pace of U.S. interest-rate normalization,” she said. “Fiscally fragile emerging and frontier countries will again bear the brunt of portfolio flow shifts.”

Zambia asked the fund to visit from March 1-16 for so-called Article IV consultations as well as program discussions, Alfredo Baldini, the IMF’s resident representative in Lusaka, the capital, said Monday. While the southern African nation announced plans to secure an aid package from the fund as far back as 2014, and again last year, formal talks never started. A budget deficit that topped 10 percent of GDP prompted Finance Minister Felix Mutati to say in November that discussions would take place in the first quarter of this year.

Allay Speculation
The announcement would allay speculation that government might not agree to a program, said Neville Mandimika, an analyst at Johannesburg-based Rand Merchant Bank, a unit of FirstRand Ltd. Yields on Zambia’s $1 billion Eurobonds due 2024 fell 7 basis points to 8.59 percent after dropping 14 basis points on Monday.

“There had been rumors of internal disagreements in the government over whether Zambia needed the program or not,” Mandimika said by e-mail. “The announcement does quash those rumors and has given the bonds some legs to rally.”

Fiscal consolidation under an IMF program would be gradual, and the budget deficit will remain wide in 2017 at about 8.2 percent of GDP, Erasmus said.

Government won’t meet its target of concluding an agreement with the fund by March, and RMB expects it to do so in the third quarter, said Mandimika.

A Finance Ministry spokesman didn’t answer two calls or respond to a text message seeking comment.