No vision: Zambia’s economic outlook downgraded to negative

No vision: Zambia’s  economic outlook downgraded to negative

GLOBAL rating agency Moody’s has downgraded Zambia’s economic outlook rating from stable to negative on account of deteriorating debt metrics,” as evidenced by a rapidly rising debt burden and increasing debt servicing costs” among other drivers. In a statement, Moody’s observed that there was a trend of missed fiscal targets that point to high execution risks in current deficit reduction plan to arrest the upward debt trajectory, particularly amid spending pressures in the lead-up to next year’s presidential election.

“Moody’s Investors Service has today affirmed Zambia’s B1 government bond rating and changed the outlook to negative,” the statement read in part. “The first driver of the negative outlook is the deteriorating trend evident in Zambia’s debt metrics. The debt burden, as measured by the debt-to-GDP ratio, has risen more than 10 percentage points of GDP since 2010 to an estimated 31.1 per cent of GDP in 2014.” Moody’s observed that domestic interest rates had risen sharply while yields on 365-day Treasury Bills rose to 23.5 per cent last month, up from 15.75 per cent in January 2014.

And this is how pupils learn in Zambia

And this is how pupils learn in Zambia

The rating agency predicted that this year’s fiscal deficit would be considerably higher than originally budgeted as a result of lower revenues due to the policy reversal regarding the mining tax regime. Moody’s said it expected a number of additional revenue-generating and cost-reduction measures to be announced in the mid-year budget update aimed at compensating for this year’s deterioration in the fiscal position. “…meaning the deficit and debt outcomes should ultimately be lower than these projections. However, economic headwinds and political dynamics point to high implementation risk and the likelihood of further budgetary slippage. “Despite some success in implementing politically difficult measures in the past two years – for example, the two-year public sector wage freeze, fuel subsidy reduction…following the 2013 budget ‘blowout’, three consecutive years where the deficit has exceeded five per cent of GDP and the outcome has been materially worse than originally budgeted, point to high execution risks in the current deficit reduction plan to arrest the upward debt trajectory, particularly amid weaker revenue growth and spending pressures in the lead-up to next year’s presidential election,” it stated.  “The constrained growth outlook for the next two years, where GDP growth will undershoot the 7 per cent plus average of the past decade, will further complicate fiscal consolidation efforts and delay upward debt trajectory stabilization.” Moody’s stated that it expected growth to remain subdued at 5.8 per cent this year as a result of the slowdown in the mining sector. “The third driver of the negative outlook is the recent shift of the current account into deficit as a result of the decline in the trade surplus and fiscal imbalance, removing one of Zambia’s key credit supports that suppressed external vulnerability,” stated Moody’s.  “The kwacha hit a record low against the US dollar in March, reflecting the decline in copper prices and the fiscal imbalance transmission through lower foreign exchange reserves and weaker investor sentiment.”   – See more at: http://www.postzambia.com/news.php?id=8589#sthash.gOkgBq4z.dpuf

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