Fitch expects Zambia’s budget deficit to remain high due to a rapidly falling Kwacha, an ongoing energy crisis and falling commodity prices.
The ratings firm said in a statement that the ambitious fiscal consolidation plan in Zambia’s 2016 budget will prove challenging due to its reliance on raising revenue rather than cutting expenditure.
Finance Minister Alexander Chikwanda announced in his budget address on Friday that he saw the fiscal deficit to narrowing to 3.8 percent of GDP in 2016, from a projected 6.9 percent in 2015, but Fitch said this was unlikely.
The following statement was released by the rating agency) LONDON, October 12 (Fitch
The ambitious fiscal consolidation plan in Zambia’s 2016 budget will prove challenging due to its reliance on raising revenue rather than cutting expenditure, Fitch Ratings says.
Revenue assumptions are optimistic as an energy crisis, falling commodity prices and a rapidly depreciating currency weigh on growth.
In the budget announced on Friday, the Ministry of Finance expects the fiscal deficit to narrow to 3.8% of GDP in 2016, from a projected 6.9% in 2015. This is likely to prove challenging, particularly in an election year.
The authorities expect revenue to rise by 3.1% of GDP in 2016, but this is unlikely due to the lack of significant revenue-raising measures and weak growth.
They also forecast expenditure to remain flat at 25.1% of GDP. We expect the deficit to remain above 6% of GDP in 2016.
The deficit will be financed largely from external sources, including proceeds from July’s USD1.25bn Eurobond.
This should ease pressure on domestic debt markets, where increased government issuance over the past two years has caused yields to rise sharply.
Nevertheless, financing costs will rise to 20% of government revenue in 2016 due to currency depreciation (the kwacha has fallen nearly 50% since the start of the year) and the Eurobond issue, which priced to yield 9.375%.
This is also likely to push debt well above 50% of GDP by the end of the year, from 24.1% in 2012. The proceeds of the Eurobond issue have boosted reserves, which rose to USD3.8bn in July, from USD2.6bn at the start of the year.
But external risks remain high and could intensify, with USD300m in external interest payments due next year if market access becomes more limited or costly for fiscally troubled emerging markets. Macroeconomic challenges may also intensify next year.
Monetary policy will face weak growth and rising inflation due to kwacha depreciation. An end to electricity shortages would boost the economy, and support the mining sector. The rains, expected to begin in November, are critical to this, as low water levels in the Kariba dam have reduced hydropower electricity projections.
A poor rainy season would intensify Zambia’s fiscal and external challenges next year, as would further falls in copper prices, which are down around 10% since January 2015 and nearly 30% since January 2014.
Chikwanda also softened his stance on seeking emergency aid from the International Monetary Fund. While the government will avoid approaching the IMF for now, it won’t rule out the possibility, he said.
“In the event where it became necessary to, we will do so,” he said.
Second time YOU have BANKRUPTED the Nation you old FOSSIL!!
Tough times ahead for Zambians, now we will have to start paying for this PF foolishness and corruption!
It is sad how PF has failed to understand and appreciate that one cannot spend from without. What is needed to be done is known, however, these people are not interested in cutting expenditure at govt level. This will cost the nation in the long run when most of these leaders are long gone.
This fossil Chikwanda knows nothing! Even where he knows something is negative he would rather cheat the gullible citizens to paint a good image of PF! Very cheap politicking indeed, because he likes it or not eventually the truth will be known.
These budgets 10-15 years ago used to be what people were waiting for and getting excited about.
It is not like that anymore- it is laughable and no one cares, because its all empty promises when it clearly shows the economy and the people running it are limping.
I wish nothing food for this current regime.
I am forever indebted with PF but I don’t like the pilferer at the helm
Thanks
BB2014
TIME again opposition and even ABC has said zambia needs austerity measures but we will hear kambwili saying we didnt hear the advice bcz it wasdone thru the media.zambians dont fear change .learn from the australians who has changed 5 prime ministers in 5 yrs.i feel 2016 is too far with these hardships.
Since Fitch are their supposedly good credit consultants that PF elicits opinions from, what is PF going to say now? If the whole opposition and the whole World are telling you one thing, it is PFoolish to maintain that everybody is wrong except yourself. The 2016, just like the 2015 budget, is a dreamers creation. Where is the money to run govt going to come from when companies are closing, people are not buying and prices have doubled within 2 months? For **** Chikwanda to maintain that the economy is doing well, he must be talking about his family and PF crooks who are abusing the Eurobonds from their Range Rovers.
I don’t understand what people think Fitch are experts when the couldn’t do anything to avert the economic crunch of 2008. They are just prophets of doom who couldn’t foresee what is happening in China but to Zambians they are gods.
Thank you. A Zambian with a brain that reasons. Yes what Fitch has said is already known to Zambians and the government ( opposition MPS and PF ). What needs to be asked, is what are Zambians going to do about it? China devalued their currency and economic system to make export proceeds cheaper for their nation. It was all calculated have no second quams about that. Africa should always treat all these foreign investors with a business tact and not as friends. Not even India is our friend, remember that, Europe as pompous as they are are closer to us in business than they third world upstarts of China and India. Japan would be our best Asian trade partner, but African nations fear a clean cut country like Japan.
Surely it doesn’t take a ratings agency to tell you this. …even the marketeer on this streets know this. We have a clueless weak lazy President and a Fossil of a minister with nothing new to bring on the table.
But dandy krazy says pf are winning in 2016 based on his new song attacking HH. Did Fitch consult dandy krazy before coming up with this?!
Of course with foreseeable macroeconomic challenges you wouldn’t expect the minister to come out conspicuosly on whatever austerity measures his govt may wish to take as that would not only be politically risky going into elections but also stupid of him. Fitch should understand African politics better or do they just want to spell doom so as to see zambians strangling each other?
”Unsolicited”
Am happy that most *****s on this forum haven’t commented because this is beyond you. This analysis is not for grade 9s and 12s.
Government is appalled, disappointed and flabbergasted by these wild uncouth insinuations by Fitch aimed at undermining a legitimately elected government. We know that Fishi is making noise to get funding from donors, their pockets are empty. Fishi should not be used by selfish opposition politicians to discredit the much loved and respected Pononeni Fitch(PF). Further, the nation is advised to ignore this unsolicited rating.
NB: Mulabasa DG, make this as the headline at 19:00hrs
3.8% budget deficit is simply not achievable. I do not know who he was trying to impress, certainly not the international lenders! With our loan repayment in dollars and our kwacha depreciating at a never seen before rate, more money will have to be diverted to meet repayment obligations hence increasing the expenditure part of the budget and also the deficit. Meanwhile, our income keeps on falling due to low copper prices, low productivity due to load shedding in the mines, coupled with the closing of industries and mines and low agricultural output due increase in prices of inputs (fertiliser). We should not also forget the El Nino effect which could lead to low rain-fall. Simple economics and I do not even need to be one to understand Mr Chikwanda’s lies.
Is HH a share holder in this Fitch
Looks like people have misread Fitch warning. Al they are saying is that the budget decided to massage the boil than cut it. The boil will get even more aggressive as long as we do not squeeze it out. Chikwanda himself has admitted cutting travel costs has been near to impossible because of lack of integrity in government.
But honestly speaking PF needs to do something about the expenditure side of the budget. 256 delegates going to the UN in a chattered plane as revealed by the Malawian president is too extravagant. PF should recall that we kicked RB out because of his unecessary tours with bloated delegations
256 seater plane is almost the size air bus 380-400 which is too big to land in Zambia. Know what you are talking about.
Zedians – even when you can clearly see that you are sinking with the Titanic, and people are giving you options, life boats, you still want to stand tall and claim that everyone is wrong and you are right.
Very well, then. You are right. PF is doing a good job, Fitch don’t know what he’s talking about and the money we have borrowed is being put to good use. Chikwanda is doing a stellar job, and blackouts will end with the rains start to fall.
You are all very right.
You win!
#OneZambia
Even if he is, so what? Is he the one looting the treasury now? Last time i checked on the register of members of fitch, HH was not there.,
I know everyone is trying to inform those people who are not aware about what is happening in the country economic wise. Now that we have said enough and have made our points known to all, what is the solution to the dillema at hand? I think it is time we started talking more on what we should do as a people to rescue our country from bankrapcy. Inform or tell the people what is the best way forward from this point on. The DINASOUR Minister of Finance has done his part to frastrate the sitting government, by not doing the best he know, because it is like he is benefiting from this confusion he has caused. The EMPTY Vessels of KAMBWILI type have all gone wild calling people names even making it difficult to hold the DAY OF PRAYERS, FASTING AND reconciliation peacefully. By the way KAMBWILI…