Rating agency Moody’s says the suspension of operations at Glencore’s Mopani mine and at the Chinese-operated Luanshya mine will depress growth and reduce proceeds from exports and royalties.
In a research report released today, Moody’s says reduced copper production will put further pressure on the country’s fiscal and external positions.
Moody’s Vice President Senior Analyst Zuzana Brixiova said the suspension of some mining operations now introduces downside risk to the government’s revised growth projections.
Ms. Zuzana Brixiova said Zambia’s growth prospects already face challenges from subdued global copper demand, depressed copper prices which she said Moody’s expects to persist and drought-induced electricity shortages.
“Zambia’s growth which has averaged more than 7% per year over the past decade — is now at risk of falling to the Sub-Saharan Africa median, Moody’s estimates that next year’s fiscal deficit will widen by additional 0.75-1.00 percentage points of GDP owing to the reduced copper tax base alone,” She said.
Ms. Brixiova estimated that next year’s fiscal deficit will widen by an additional 0.75-1.00 percentage points of GDP owing to the reduced copper tax base alone.
“Lower growth and tax revenues will negatively pressure the government’s already rising budget deficit and debt levels, continuing a trend of missed fiscal targets that were among factors behind our 29 May decision to assign a negative outlook,” Ms. Brixiova said.
She said reduced export proceeds will exacerbate the trade deficits that have emerged in recent months further widening the current account deficit beyond the projected 3% of GDP for 2015, and add to the forces driving the recent rapid depreciation of currency.
“During the past five months, the kwacha has depreciated by 30% against the US dollar, more than any other currency in the region,” Mrs Ms. Brixiova said.
Last Monday, Glencore International AG announced that it would suspend operations at its Mopani Copper Mine in Zambia for 18 months.
Glencore’s suspension follows a recent decision by China’s Luanshya to place the mine on care and maintenance.