The International Monetary Fund has urged Zambia to carefully manage its monetary policy and restore fuel sector reforms amid rising inflation risks and growing global uncertainty linked to the Middle East conflict.
In a statement released on Thursday following discussions with Zambian authorities, the IMF said the recent policy rate cut by the Bank of Zambia reflected an improved inflation outlook, but warned that authorities must remain alert to upside risks, particularly from higher fuel prices and external shocks.
The Fund stressed the need for strong coordination between fiscal and monetary policies to anchor inflation expectations and maintain macroeconomic stability. It also advised Zambia to maintain external reserves at levels equivalent to around five months of prospective imports to strengthen economic resilience.
The IMF expressed concern over the suspension of the TAZAMA open-access framework following tensions in the Middle East. According to the Fund, the framework had reduced fuel import premiums by about 50 per cent before it was halted, demonstrating the importance of competition in reducing supply costs. The mission called on authorities to reinstate the TAZAMA framework, disclose the terms of emergency fuel procurement arrangements and ensure transparent monthly fuel import auctions resume as soon as possible.
The IMF further outlined priorities under a possible successor Extended Credit Facility (ECF) programme, including consolidating macroeconomic stability while promoting inclusive and private sector-led growth. It said Zambia should focus on enhancing copper value addition, resolving energy supply constraints and improving investment opportunities in agriculture, tourism and textiles to create jobs and diversify the economy.
The Fund also emphasized the urgent need for stronger revenue mobilization to lower domestic borrowing costs and reduce debt vulnerabilities. It noted that improved governance and transparency would be essential for attracting private investment. Given Zambia’s vulnerability to droughts and energy shocks, the IMF said advancing climate adaptation and mitigation policies remained crucial to protecting economic growth, food security and fiscal stability.
The IMF team held meetings with Finance Minister Situmbeko Musokotwane, Bank of Zambia Governor Denny Kalyalya, senior government officials, civil society organisations and development partners.