Global rating agency says Zambia likely to fail to repay debt

Global rating agency says Zambia likely to fail to repay debt

INTERNATIONAL RATING AGENCIES DOWN GRADE ZAMBIA, SAYS LIKELY TO FAIL TO PAY DEBT

International Credit Rating Agency Standard and Poor (S&P) has lowered its long-term sovereign credit rating on Zambia to ‘CCC’ from ‘CCC+’.

The outlook on the long-term rating is negative.

‘We affirmed the ‘C’ short-term sovereign credit rating.. We also revised the Transfer & Convertibility assessment to ‘CCC’ from ‘CCC+, S&P said in a statement.

S&P explained that the outlook is negative because ‘we see Zambia as being vulnerable to nonpayment of upcoming commercial obligations, for which it could depend on favorable financial and economic conditions.’

S&P says :
We lowered the rating on Zambia due to our perception that the country faces increasing risks of likely nonpayment of commercial obligations this year. In December 2019, Zambia missed an interest installment of US$1.4 million to an official lender, constituting debt arrears. The arrears have since been cured. The missed interest installment was due to administrative delays. That is, topping up the Zambian kwacha (ZMW) equivalent funds to match the unanticipated depreciation in December 2019, and be able to repay the foreign currency obligation in full to the creditor. The kwacha experienced significant depreciation of almost 20% in 2019, which increased external debt service costs for the government.

At the same time, Zambia’s macrofiscal situation is still weak. We estimate that economic growth is likely to be only around 2% for 2019, while the fiscal deficit still exceeds 7% of GDP.

Zambia’s external buffers, measured by foreign currency reserves at the Bank of Zambia (the central bank), are still weak, covering less than two months of imports. Moreover, we expect the government’s external debt service obligations will remain high. Should economic and financial conditions weaken further, Zambia could face difficulties in meeting its financial commitments to commercial creditors.
Several structural factors also constrain Zambia’s overall credit quality, including low wealth, high fiscal deficits, and a large debt burden.

We view external risks as high, due to the country’s dependence on copper exports to generate current account receipts (CARs). We believe that continued high fiscal deficits weaken the support for sustainable public fin

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