Zambia - Country assistance strategy

Document of The World Bank FOR OFFICIAL USE ONLY Report No. 15761-ZA MEMORANDUM OF THE PRESIDENT OF TLE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE REPUBLIC OF ZAMBIA June 25, 1996 Southern Africa Department Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  The last Country Assistance Strategy was dated February 15, 1994 CURRENCY EQUIVALENTS Currency Unit = Zambian Kwacha (K) US $I = K 1240.93 (as of May 31, 1996) SDR I = K 1780.45 K 1,000 = US$ 0.81 ABBREVIATIONS AND ACRONYMS AEF Africa Enterprise Fund APDF Africa Project for Development Facility ASIP Agricultural Sector Investment Program CAR Operations Evaluation Department's Country Assistance Review of Zambia (1980-1995) CAS Country Assistance Strategy COMESA Common Market for Eastern and Southern Africa CPPR Country Portfolio Performance Review EDI Economic Development Institute ESAF Enhanced Structural Adjustment Facility ESP Environmental Support Program GDP Gross Domestic Product IBRD International Bank for Reconstruction and Development IDA International Development Association IDF Institutional Development Fund IFC International Finance Corporation IMF International Monetary Fund MIGA Multilateral Investment Guarantee Agency MMD Movement for Multiparty Democracy MOF Ministry of Finance NEAP National Environmental Action Plan NGO Non-Governmental Organization OED Operations Evaluation Department PA Poverty Assessment PER Public Expenditure Review PFP Policy Framework Paper PIRC Privatization and Industrialization Reform Credit PSRP Public Sector Reform Program SADC Southern African Development Community SAF Structural Adjustment Facility SCC Systematic Client Consultation SIP Sector Investment Program SME Small- and Medium-sized Enterprise SRP Social Recovery Program SSA Sub-Saharan Africa UJNDP United Nations Development Programme ZCCM Zambia Consolidated Copper Mines ZIMCO Zambia Industrial and Mining Company ZPA Zambia Privatization Agency ZRA Zambia Revenue Authority FISCAL YEAR January I to December 31  FOR OFFICALE USE ONLY ZAMBIA COUNTRY ASSISTANCE STRATEGY TABLE OF CONTENTS A. Recent Economic and Social Performance I B. External Environment 7 C. The Government of Zambia's Development Objectives and Policies 9 D. The Bank Group's Assistance Strategy 12 Objectives and Strategic Priorities 12 Bank Services 13 Strategy 14 Portfolio Perfornance and Management 17 Proposed Lending 21 IFC and MIGA Activities 23 Links with IMF and Other Donors 24 E. Agenda for Board Consideration 24 Boxes Box I Zambia Country Profile I Box 2 Zambia Poverty Profile 2 Box 3 Adjustmnent Operations Since 1991 3 Box 4 Major Economic Indicators 6 Box 5 Indications of Positive Results on the Ground 19 Box 6 Bank Actions to Implement the CAS in Zambia 20 Box 7 The Proposed Lending Program FY97-99 21 Figures Figure I Copper Prices in 1990 US$ 5 Figure 2 Total External Financing Required 5 Figure 3 Total Debt: Net Present Value 7 Attachment CAS Objectives and Actions 26 Annex A Annex A I Selected Indicators of Portfolio Performance and Management 27 Annex A 2 Bank Group Fact Sheet FY93-99 28 Annex A 3 Summary of Economic and Sector Work 30 Annex A 4 Poverty and Social Development Indicators 31 Annex A 5 Key Economic Indicators 33 Annex A 6 Key Exposure Indicators 36 Annex A 7 Status of Bank Group Operations in Zambia 37 Annex A 8 Map of Zanbia (Map #26792) 39 This docurnent has a restrictcd distribution and may bc used by recipients only in the performance of their aficial duties. Its concents may not otherwise be disclosed wi.hout World Bank authorization.   MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE REPUBLIC OF ZAMBIA A. RECENT ECONOMIC AND SOCIAL PERFORMANCE 1. Background. Before Independence, when it was called Northern Rhodesia, Zambia's rich endowment of copper seemed to ensure a glowing future. The reality has been vastly different. Since Independence in 1964, Zambians have grown poorer and more heavily indebted, and the economy is facing large external imbalances which will grow into the next decade. Excessive reliance on copper, despite falling prices and production since the mid-1970s, coupled with an economic policy regime which failed to adapt to the new economic realities, explain much of the decline in living standards and the accumulating debt. Several partial economic reform programs were initiated during the 1 980s, but these reforms were not sustained and had little lasting effect. With the accumulation of arrears, Bank and IMF lending operations were suspended between 1987 and Box 1: Zambia Country Profile March 1991, and again in September Despite once being one of the most prosperous, albeit 1991. In November 1991, the dualistic countries in Sub-Saharan Africa. Zambia is today a Movement for Multiparty Democracy country of low economic development, declining incomes and (MMD), a political party committed deteriorating social indicators. As a result of recent reforms, to policy reform, won the national the economic decline is being halted and growth is expected elections. The new Zambian to resume. Govemment cleared arrears to the Zambia SSA Bank, agreed on a new Policy Income per capita 1994(USS) 350 510 Framework Paper (PFP) with the Population mid-1994(millions) 9.2 565 Bank and the IMF, and began a Land area (thous. sq. k7m.) 753 Rights Accumulation Program to Population growth rate (%) 3.0 2.9 clear arrears to the INF. Urbanization (%) 43 28 Disbursements under IDA operations resumed in February 1992. Over the last four years, the Zambian Govemment has implemented one of the most ambitious economic reform programs on the African continent. Nonetheless, it continues to confront a heavy debt burden, falling copper exports, and a consequently high dependence on external assistance. The challenge the Zambian Government faces today is to sustain economic and political reform in order to foster inclusive growth and bring about a better life for the majority of its citizens who have sunk more deeply into poverty over the past twenty years. 2. poverty. As of 1991, about 68 percent of Zambians lived in poverty, as compared to an estimated 60 percent in 1974-75. Although Zamnbians on average still have better access to health services, education, and safe water than many of their neighbors on the continent, recent data suggest that, unlike most Sub-Saharan African countries, the trend in poverty indicators has been worsening since the early 1970s. This is evidenced by the rising rate of malnutrition among children under five and, increasingly, among adults as well. 3. Apart from South Africa, Zambia is the most urbanized country in Southern Africa. Its growing urban poor tend to live in unplanned squatter settlements in and around urban centers.  -2 - They are mostly employed in petty trading in the informal sector. Lack of legal status and scant service availability in those settlements constrain productivity. This is particularly the case for women: physical insecurity induces women to eke out a living at home and to keep girls out of school. Although the increase in urban poverty has narrowed the gap between urban and rural inhabitants, rural poverty is still more prevalent and deeper, and is closely associated with geographic isolation. The farther a community is from "the-line-of-rail" (the rail corridors to export copper and link the copper-producing region, the Copperbelt, with Lusaka and the rest of Southem Africa), the more likely it is to be poor and lacking in basic services. A quarter of all rural households are over one km from a (usually unsafe) water source; a third live 20 km from a food market; and a fifth live more than 20 km from public transport. Approximately 59 percent of the population living below the core poverty line is located in the Southem, Northem, Eastern and Copperbelt provinces. The incidence of poverty is greatest in Westem and Luapula provinces, but these more remote provinces are not as densely populated, and therefore their share of the total poor is not as high as that of other provinces. The very high incidence of AIDS further compounds the effect of poverty on households and increases the burden on the public and private sectors from the loss of critical human resources and the costs associated with medical care, funerals, absenteeism and replacement. It is estimated that one in four Zambian adults is HIV positive; half of those infected are women. The impact of HIV/AIDS is suffered by women disproportionately, however, as they carry the burden of caring for people with AIDS and are at a disadvantage as survivors, partly because of current inheritance laws. 4. Social Services. The ability of poor Zambians to help themselves is constrained by grossly inadequate services in health, education, transport and in the provision of water and sanitation. During the decade between Independence and the crash in Box 2: Zambia Povert Profile copper prices in 1974, Zambia a) Distribution gf thepoor saw great improvement in Poverty Gu (%) access to and provision of Poverty Groups (