International rating agency downgrades Zambia’s economy to negative

International rating agency downgrades Zambia’s economy to negative

Moody’s Investors Service (Moody’s) has downgraded Zambia’s long-term issuer rating to the bottom rung of ‘highly speculative’ as it warns on fiscal slippage,according to IOL.

Moody’s is one of the three main credit rating agencies in the world and all international banks and other financial institutions follow their advice and ratings.

The international ratings agency has dropped Zambia’s issuer rating from B2 to B3 and changed the outlook to negative from stable.
What this means is that it is risky to lend money to Zambia, as it has no capacity to repay and the PF government will now have difficulties to borrow money but will rely on untrustworthy, street lenders who charge exorbitant interests.
This is the same as a bank or other financial institution telling you as an individual that you are not worthy giving a loan to because you have no capacity to repay.
B3 is Moody’s rating for the bottom end of the highly speculative range and a further downgrade would drop its issue rating to “not prime”.
Moody’s says in a statement issued overnight that the downgrade on the issuer rating was driven by:
1. Greater-than-anticipated fiscal slippages in 2016 leading to material liquidity pressures and significant challenges to finance the budget deficit;
2. The prospects of further deterioration in Zambia’s debt matrix in a lower growth environment, with the government debt likely to exceed 60 percent of gross domestic product by 2018.
“The negative outlook reflects the view that risks are skewed toward even greater fiscal slippages and slower fiscal consolidation, which creates uncertainty over the magnitude of the funding challenges and deterioration of Zambia’s debt profile over the rating horizon.”

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