Zambia’s credit rating was cut by Standard & Poor’s, which warned of a rapidly widening budget gap and said elections may prevent the government from addressing it.
S&P lowered the rating to B, five levels below investment grade. “Zambia’s fiscal position is markedly and negatively deviating from our previous expectations,” and any policy response will be “constrained” before September 2016 elections, it said. It was the first rating change since S&P’s coverage began in 2011.
The budget gap is set to reach 10 percent of economic output this year on a cash basis and 14 percent when debt payments are included, S&P said. The International Monetary Fund has predicted a deficit of 7.7 percent, while the government projects at least 6 percent.
Zambia, Africa’s second-biggest copper producer, has been hit by a slide in prices and has scaled back plans to increase taxes on miners, adding to budget strains. The government has signaled it may sell as much as $2 billion of Eurobonds as it seeks to finance the deficit.