The International Monetary Fund (IMF) has warned that Zambia’s recent economic gains could come under pressure as rising election-related expenditure, higher fuel costs and persistent fiscal challenges threaten to weaken the country’s public finances.
The warning follows a two-week IMF mission to Lusaka led by Edward Gemayel, which reviewed Zambia’s economic performance and progress under its reform programme. While the Fund acknowledged the country’s significant achievements in restoring macroeconomic stability and advancing its debt restructuring process, it stressed that maintaining fiscal discipline will be critical in the period leading up to the next general elections.
Fiscal Pressures Mount
According to the IMF, Zambia’s fiscal position has weakened more rapidly than previously expected.
The Fund now projects the country’s primary budget surplus to decline to 1.1% of Gross Domestic Product (GDP) in 2026, compared with the 3.8% forecast during the previous programme review.
The deterioration has been attributed to several factors, including weaker-than-expected domestic revenue collection, growing value-added tax (VAT) refund arrears, higher public sector wage costs and increased expenditure on agricultural support programmes.
The IMF noted that agricultural subsidy overruns alone are estimated to account for approximately 1.3% of GDP, placing additional pressure on government finances.
Fuel Procurement Changes Raise Concerns
The Fund also expressed concern over Zambia’s decision to suspend the TAZAMA open-access fuel procurement system, which had previously reduced fuel import costs by introducing competitive monthly procurement.
According to the IMF, the suspension was influenced by disruptions in global energy markets linked to the ongoing conflict in the Middle East. However, it encouraged authorities to restore the transparent fuel procurement mechanism as soon as possible to help contain import costs and improve market efficiency.
The IMF said fiscal pressures have intensified during 2026 due to a combination of external shocks, election-related spending and expenditure overruns.
Despite the progress achieved under Zambia’s economic reform programme, the Fund cautioned that preserving these gains during an election period will require prudent fiscal management and continued policy discipline.
Growth Forecast Revised Lower
The IMF has also lowered Zambia’s economic growth outlook for 2026.
Real GDP growth is now projected at 4.3%, reflecting weaker mining production, ongoing electricity supply constraints and a return to more normal agricultural output following the exceptionally strong harvest recorded in the previous season.
Although the outlook remains positive, the Fund said these factors are expected to moderate the pace of economic expansion over the coming months.
Inflation Expected to Rise Again
Inflation has eased significantly in recent months, allowing the Bank of Zambia to reduce its benchmark policy rate after consumer price growth returned to the central bank’s target range.
Inflation slowed to 6.8% in April, supported by a stronger kwacha and declining food prices.
However, the IMF expects inflationary pressures to re-emerge later in the year, forecasting inflation to rise to approximately 8.5% by December as higher international oil prices and domestic fuel cost adjustments filter through the economy.
The Fund said maintaining price stability will require careful coordination between monetary and fiscal policy.
Foreign Exchange Reserves Strengthen
One of the brighter aspects of Zambia’s economic performance has been the continued improvement in foreign exchange reserves.
Gross international reserves have increased to approximately US$6.4 billion, providing the country with around 4.4 months of import cover.
The IMF welcomed the improvement but encouraged the Bank of Zambia to continue building reserves towards the equivalent of five months of import cover, strengthening the country’s ability to withstand future commodity price fluctuations, climate-related shocks and global economic uncertainty.
Debt Restructuring Progress Recognised
The IMF praised Zambia’s successful implementation of its Extended Credit Facility (ECF) programme, which played a central role in restoring macroeconomic stability and facilitating the restructuring of approximately 94% of the country’s eligible public debt.
Although the current ECF programme has concluded, the government has reaffirmed its commitment to continued engagement with the IMF.
Finance Minister Situmbeko Musokotwane and Bank of Zambia Governor Denny Kalyalya have indicated that discussions are already underway regarding a successor programme that would support the next phase of Zambia’s economic reform agenda after the elections.
The proposed framework is expected to focus on strengthening domestic revenue collection, expanding value addition in the copper sector, promoting economic diversification and addressing structural inefficiencies within the tax system.
Governance and Fiscal Discipline Remain Key
The IMF emphasised that Zambia’s long-term economic outlook will depend on sustaining reforms that improve public finances and strengthen investor confidence.
The Fund called for stronger revenue mobilisation, tighter control of public expenditure and improved governance within state institutions, including measures to reduce fiscal risks associated with the Food Reserve Agency.
According to the IMF, continued progress on transparency, sound public financial management and structural reforms will be essential to lowering borrowing costs, attracting greater private sector investment and placing Zambia’s debt on a more sustainable path.
While acknowledging the country’s significant economic progress over recent years, the Fund stressed that maintaining fiscal discipline during the election period will be crucial to safeguarding the stability achieved through Zambia’s extensive reform and debt restructuring efforts.
