- Zambia’s Growth Outlook Cut to 4.3% as IMF Warns of Fresh Fiscal and Inflation Pressures
The International Monetary Fund has warned Zambia to preserve its hard-won macroeconomic stability, as election-related spending pressures, weaker tax collection, fuel-price risks and spillovers from the war in the Middle East threaten to weaken the country’s fiscal and inflation outlook.
An IMF staff team led by Edward Gemayel visited Lusaka from April 30 to May 13, 2026, to advance discussions on a successor Fund-supported arrangement and exchange views with Zambian authorities on policy priorities after the completion of the country’s Extended Credit Facility programme.
The Fund said Zambia had made “substantial progress” in restoring macroeconomic stability under the recently completed ECF arrangement, with inflation returning to the Bank of Zambia’s target band, reserves rebuilt and the primary fiscal balance recording a strong surplus in 2025.
Gross international reserves rose to US$6.4 billion, equivalent to 4.4 months of prospective imports of goods and services, while inflation declined to 6.8% in April 2026, returning to the central bank’s 6% to 8% target band. The IMF said the disinflation was supported by kwacha appreciation and moderating food prices.
Zambia also recorded a primary surplus of 3.1% of GDP in 2025, reflecting what the Fund described as sustained policy discipline and strong programme implementation. Debt restructuring agreements now cover about 94% of the restructuring perimeter.
But the IMF cautioned that the main challenge is now to protect these gains ahead of the August 2026 elections and amid heightened global uncertainty.
Growth has been revised down to 4.3% in 2026, reflecting weaker mining output, normalisation of agricultural production after the exceptional 2025 harvest, softer trade activity, energy constraints and spillovers from the Middle East war.
Inflation is projected to reach 8.5% by end-2026, as higher fuel prices partly offset the disinflationary effects of the stronger kwacha. The current account is expected to shift into a surplus of 1.5% of GDP, although the IMF warned that rising global oil prices and geopolitical tensions could renew pressure on inflation and the exchange rate.
The Fund’s strongest warning focused on fiscal policy.
The IMF said Zambia’s primary surplus is now projected at 1.1% of GDP, sharply below the 3.8% expected at the time of the sixth review of the completed ECF programme. The deterioration reflects weaker tax collection, including the suspension of fuel VAT and excise duties, pre-election spending pressures, a civil service wage adjustment and agricultural subsidy overruns of about 1.3% of GDP.
The Fund also flagged significant fiscal risks from the Food Reserve Agency, saying these would require decisive mitigating measures. It added that domestic VAT collection continues to underperform due to structural and administrative weaknesses at the Zambia Revenue Authority, while VAT refund arrears are weighing on taxpayer compliance.
The IMF urged Zambia to advance fiscal structural reforms to generate durable revenue gains, broaden the tax base and support a more progressive, equitable and less complex tax system.
On monetary policy, the Fund said the Bank of Zambia’s recent policy rate cut reflected an improved inflation outlook but warned that the interest rate path must be carefully calibrated given recent fuel price increases and heightened global uncertainty.
It said the central bank should remain guided by forward-looking inflation forecasts and stay alert to upside risks, including those linked to the Middle East conflict. Strong coordination between fiscal and monetary policy, the IMF added, will be critical to anchoring inflation expectations.
The Fund also urged Zambia to maintain external reserves at a comfortable level of around five months of prospective imports to strengthen macroeconomic resilience.
In the fuel sector, the IMF raised concern over the suspension of the TAZAMA open-access framework in response to the Middle East conflict. It said that before its suspension, the framework had reduced the fuel import premium by about 50%, demonstrating the role of competition in lowering supply costs.
The mission urged authorities to restore the framework, publish the terms of emergency procurement arrangements and ensure that transparent monthly fuel import auctions become operational as soon as conditions allow.
Discussions on a successor IMF-supported programme are expected to resume with the incoming government after the August elections. The IMF said authorities had reaffirmed their commitment to a Fund-supported programme anchored in sound macroeconomic policies and fiscal consolidation, while protecting social and other priority spending.
The Fund said priorities under a successor ECF arrangement would include consolidating macroeconomic stability, shifting toward more inclusive and private sector-led growth, advancing economic diversification and raising productivity through non-distortive industrial policies.
It identified copper value addition, energy supply constraints, agribusiness, tourism and textiles as areas that could support domestic value addition and job creation.
The IMF also said Zambia urgently needed tangible revenue gains to reduce the domestic interest burden and move debt toward a moderate risk of distress. Stronger governance and greater transparency, it added, remain central to attracting private investment at lower cost.
For Zambia, the Fund’s message is clear: stabilisation has been achieved, but it is not yet secure.
The country has rebuilt reserves, brought inflation back within target and advanced debt restructuring. But the combination of election spending, fuel shocks, weaker mining output, agricultural subsidy overruns and tax underperformance could quickly erode the credibility built under the previous IMF programme.
The next test will be whether Zambia can move from stabilisation to durable reform protecting fiscal discipline while creating space for investment, jobs and diversification beyond copper.
