ADF Approves US$29.6 Million Budget Support Loan for Poverty Reduction in Zambia
Tunis, 29 November 2006 – The Board of Directors of the African Development Fund (ADF), the concessional window of the African Development Bank (AfDB) Group, approved on Wednesday in Tunis a loan of 20 million Units of Account (UA*), equivalent to US$ 29.6 million to finance a budget support programme for poverty reduction in Zambia.
The objective of the operation is to assist the government to implement its Fifth National Development Plan (FNDP) which is focusing on poverty reduction and improvement of the service delivery in the country. In integrating its proposed operation into the existing Poverty Reduction Budget Support (PRBS), ADF aims at aligning, as much as possible, with the country’s budgetary and accountability systems and harmonizing its development assistance with other development partners under the 10th African Development Fund ADF-X intervention in Zambia.
The Poverty Reduction Budget Support loan covers four broad areas, namely; macroeconomic management, public sector reforms, wealth creation and social equity, with 33 indicators and milestones.
The macroeconomic targets include achieving real GDP growth rate of 6% annually, reducing inflation to below 10% in 2006 and 5% in 2007 and 2008, reduce domestic borrowing to 1.6% of GDP in 2006, 0.7 in 2007 and 0.5 per cent in 2008, increasing the official gross international reserves to 1.5 months of imports in 2006, 1.8 months of imports in 2007 and 2.2 months of imports in 2008, and the current foreign debt service which has been significantly reduced following the recent debt relief. The fiscal objectives include consolidation and reduction of fiscal deficit to below 3.0% of GDP over the medium term. The MTEF macroeconomic framework also constitutes the targets under the ongoing Medium Term Expenditure Framework (IMF) supported Poverty Reduction and Growth Facility (PRGF) programme.
The total estimated cost of implementing the FNDP is expected to rise from a baseline of about US$ 12.5 billion to about US$ 14.5 billion. The expectation is that the MTEF and annual budgets will consistently reflect the priorities set in the FNDP and development partners will scale up assistance following international commitments made by the G8. The financial requirements in the medium term are reflected in the MTEF covering the period 2006 – 2008. The total projected expenditure needs during this period amount to about US$ 9.484 billion (UA 6.39 billion). This will be financed by Government’s own resources, external grants and loans.
The budget support financing in 2007 will be provided by development partners currently supporting the existing Poverty Reduction Budget Support, namely IDA, ADF, DFID, EC, Sweden, Norway, Finland and Germany. This amounts to US$ 184.10 million against Government’s projection of US$ 192 million.
The PRBS will have a positive impact on economic development since it will support the financing of development programmes in the FNDP, specifically the 2007 budget programmes. It will also strengthen ownership of the development programmes as it allows easier integration of external support into the country’s systems. In addition to targeting overall poverty reduction, the support targets public reforms in procurement and debt management which will contribute to accountability and efficiency in service delivery. It will also contribute to the attainment of the Millennium Development goals which cut across sectors.
The ADB Group began operations in Zambia in 1971. The Bank’s cumulative commitments in the country currently stand at US$ 838.87 million in 80 operations.
- Title of Programme: Poverty Reduction Budget Support Loan (PRBS).
- Location: National territory
- Executing Agency: Ministry of Finance and National Planning, Lusaka, Zambia.
- Estimated Starting Date: January 2007.
- Duration: 11 months
- Total cost of Program: US$ 184.1 million (PRBS Group)
- ADF: UA 20.00 million
- DfID: UA 31.2 million
- European Union: UA 40.03 million
- Finland: UA 3.23 million
- Germany: UA 2.02 million
- IDA: UA 10.0 million
- Netherlands: UA 5.66 million
- Norway: UA 3.03 million
- Sweden: UA 8.69 million
* 1 UA = 1.48004 US$ = 6,174.78 ZMK as at 29/11/2006