Zambia risks joining the long-term list of African countries hooked on juice from the International Monetary Fund (IMF).

The fund is assessing how it could support Zambian reform efforts through a possible funding program. That follows a government request for a financing agreement and a December visit from IMF officials to Lusaka.

“Recipients of the IMF’s largesse rarely follow the script,” says Steve Hanke, professor of applied economics at Johns Hopkins University and an emerging market currency expert.

“In the long run, most IMF programmes fail because the conditionalities attached to the programmes have dull teeth.”

Hanke cites research from Harvard University’s Robert Barro that a higher IMF loan participation rate tends to reduce economic growth and that IMF lending lowers investment.

Worse still, countries that participate in IMF programs tend to keep coming back. “The IMF programs don’t provide cures but create addicts,” says Hanke.

If there is an IMF programme for Zambia, Hanke expects to see the normal pattern of positive hype accompanying a liquidity injection. The longer-term reality is that “most IMF programmes fail, and the recipients return again in a few years and pass the begging bowl with great frequency.”

Data on the history of IMF lending compiled by Hanke shows a pattern of recidivism.

• As of July 2019, only 13 out of the 146 countries to have entered into an IMF lending arrangement had done so only a single time.

• 56 countries have needed at least 10 IMF arrangements, including Zambia with 12.

• 13 countries have turned to the IMF 20 times or more.

• The pattern of recidivism is deeply engrained in Africa. Of the 40 countries with the most IMF arrangements, sixteen are African. The continent’s leaders are Liberia on 21, Morocco on 20 and Kenya on 19.

Politically toxic

Following Zambia’s eurobond default in November, some analysts have welcomed the formal request for an IMF financing arrangement.

Irmgard Erasmus, senior financial economist at NKC African Economics in Cape Town, writes that a first tranche of IMF finance is likely to be disbursed in the first quarter of 2021, provided the government accepts IMF consolidation targets.

This, argues Erasmus, would need a deviation for the “populistic” path taken by the Lungu administration in the run-up to elections in August.

• The IMF is likely to insist on wage and subsidy reform, and greater transparency on public sector debt, Erasmus writes.

• A financing agreement would be “a pivotal step towards a less-acrimonious bond swap negotiations process.”

• NKC’s central assumption is that the government will agree to IMF reforms. This, NKC says, will play a role in relieving tensions between creditors and “crowding-in additional support from international stakeholders.”

Others point to the political costs any such process would involve. Debt relief under the G20’s Common Framework for Debt Treatments would require an IMF-World Bank Debt Sustainability Analysis. That would be a “politically toxic” step ahead of elections, says Nick Branson, director of Gondwana Risk in London.

• “The ruling Patriotic Front has yet to demonstrate the political will required to tackle the debt crisis, and is unlikely to change course now, irrespective of discussions with the IMF,” he says.

• Branson points out that President Lungu has failed to address the nation on Zambia’s default.

• Electoral considerations mean the IMF is unlikely to secure the level of buy-in it needs to carry out a comprehensive audit of Zambia’s debts, he adds.

• Bondholders, Branson says, cannot expect meaningful negotiations until the next government assumes office in the second half of next year.

Bottom line

Without political will in Lusaka to achieve reform, help from the IMF will become part of the problem rather than part of the solution.