Just three days after Standards & Poor downgraded Zambia’s credit rating to negative, Fitch Ratings has also downgraded Zambia’s Long-term foreign and local currency Issuer Default Ratings (IDRs) to ‘B’ from ‘B+’.
Zambia’s foreign currency senior unsecured bond ratings have also been downgraded to ‘B’ from ‘B+’.
Simultaneously, the Short-term IDR has been affirmed at ‘B’ and the Country Ceiling downgraded to ‘B+’ from ‘BB-‘.
The downgrade of Zambia’s Long-term IDRs is due to the sharply deteriorated Government finances.
Despite that, Fitch still predicts spending over-runs and revenue shortfalls and predicts a deficit of 9% of GDP for 2013.
Read the report: ‘A 38% increase in public sector wages will contribute to the deficit remaining elevated at 6.6% of GDP in 2014, based on budget figures announced in October 2013. Fitch forecasts that spending will over-run again in 2014, reflecting the cost of the wage increase and higher debt service costs. -Fitch expects that wider deficits will place upward pressure on key debt ratios, and forecasts that gross general government debt (GGGD) will rise to 36.3% of GDP by end-2013, from 25.5% in 2011. A slow pace of fiscal consolidation is expected to push GGGD to 40% of GDP by 2015, above the current ‘B’ median of 38.1%. Medium: -Zambia’s external position has weakened, despite robust foreign direct investment of 5.5% of GDP and running only a modest current account deficit of an estimated 2% in 2013. However, Fitch forecasts a deficit on the balance of payments, due to continued large outflows from the domestic private sector. This will put further pressure on reserves which are forecast to end the year at 2.3 months of import cover, adding to Zambia’s external vulnerability and uncertainty regarding microeconomic policies that could deter investment and adversely affect medium-term growth prospects and macroeconomic stability.