Fitch downgrades Zambia, realigns to S&P rating

Frequent revision of fiscal deficits triggers budget credibility concerns for the copper producer

Credit rating agency Fitch, on 11 October,  announced a long term issuer rating (LTR) downgrade for Zambia to ‘B-‘ (negative outlook). The rating agency cited the inconsistent fiscal deficit targets that the copper producer has revised a number of times. Fitch stated that revision of fiscal deficit then questions budget credibility and adherence to the medium term expenditure framework. Zambia’s MTEF target by 2021 was initially 5.1% but the copper producer recently revised its target upwards to  7.4% from an initial target of below 7%. Other factors mentioned in the assessment are a rising debt stock to USD9.37-billion from USD8.7-billion attributed to additional disbursements on infrastructure in the period.

The rating agency cited stability in copper prices at current levels and also that debt to GDP ratio for the copper producer could rise to 69% from the current 60%.

“The rating is merely a realignment to Standards and Poor’s – S&Ps ‘B-‘ announced a few months ago but slightly higher than Moody’s ‘Caa1’ (stable outlook),” the Economics Association of Zambia said in an interview with Diamond TV.  This rating will increase the states borrowing costs in the international capital markets evidenced by widened spreads on its dollar bonds of over 1300 bps, the Association said through its National Secretary. We would urge the Ministry of Finance to expedite its announced austerity measures to restore the nation to fiscal fitness because that’s what the investor wants to see, rather than mere pronouncements, the Association cited.

As at 15.45pm in Lusaka credit spreads on Zambia’s  2022 and 2024 were 1,245 bps and 1,304 bps respectively sending yields to record high levels of above 16.55% exceeding Mozambique with a record of default.

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