Washington - The International Monetary Fund plans to come to Zambia in January to start talks about a new loan programme for Africa's top copper producer, the Fund said on Tuesday.
The IMF said Zambia's economy is projected to expand six percent this year as copper production increases, and inflation is now 7.1 percent year-on-year, close to last year's level.
But copper prices have fallen and the government's spending is much higher than planned in its budget, while revenue is below target.
Zambia now only has enough reserves to cover less than three months' worth of imports, below the ratio the IMF typically considers adequate to protect a country in case of shocks.
“A further build-up of reserves from the current level... is needed in light of risks stemming from a potentially deteriorating external environment,” John Wakeman-Linn, the IMF's mission leader, said in a statement after visiting Zambia this week.
The mission came to Zambia for the IMF's regular analysis of its economy, known as an Article 4.
The government has spent money on fuel subsidies, a September wage hike for civil servants, and paying for the debt and operations of the Food Reserve Agency, which purchases food from farmers in disadvantaged parts of the country for prices usually higher than those in the market.
The IMF said Zambia's budget deficit this year should now reach about 8.5 percent of GDP, above the five percent target.
Investors have become more interested in fast-growing Zambia in recent years, and the country's debut $750-million bond issue last year was 15 times oversubscribed.
However, the bonds for B-plus-rated Zambia have performed poorly this year. Investors have become more reluctant to take on the biggest risks as the US Federal Reserve is planning to scale back its bond-buying programme, which had boosted risky assets. - Reuters