THE revision of Zambia’s rating to B3 by Moodys’ will not have an effect on the interest payments of the Eurobonds, Finance Deputy Minister Christopher Mvunga has said.
Moody downgraded Zambia’s long-term rating to B3 from B2, changing the outlook to negative from stable.
The downgrade on the issuer rating was driven by greater-than-anticipated fiscal slippages in 2016, leading to material liquidity pressures and significant challenges to finance the Budget deficit.
Further, the prospects of additional deterioration in Zambia’s debt matrix in a lower growth environment, with Government debt, are likely to exceed 60 per cent of the Gross Domestic Product (GDP) by 2018.
Mr Mvunga, however, said that Moodys’ assessment had implications for the country as it may require to pay a higher premium on new borrowings from the international capital market.
“Their assessment has implications for our country as we may require to pay a higher premium on new borrowing from the international capital market.
“The revision, however, does not have an effect on the interest payments that we are paying on the three Eurobonds,” Mr Mvunga said.
Despite the generally held view that it would affect investor confidence, Mr Mvunga said this did not hold for Zambia as illustrated by a tightening yield on the current Eurobonds from an average of 14.5 per cent in February this year to around 12 per cent currently.
“Regarding the domestic market, we have limited exposure currently from foreign investment, hence there will be minimal impact associated with net portfolio outflows,” Mr Mvunga said.
He said the revision of the outlook did not necessarily mean the country would have to pay a higher premium in the international market, stating that it would be imprudent for the Government to continue borrowing externally at unsustainable levels in such a scenario.
“You may wish to note that this assessment by Moody’s is based on the assessment that we should be close to our peers in terms of future debt to GDP accumulation,” Mr Mvunga said.
He said debt sustainability remained Government’s key objective, hence enhancing of the debt management capabilities, including the periodic undertaking of debt sustainability analysis.
He said the country’s debt stock stood at US$6.6 billion, a marginal rise from $6.4 billion, representing 38.7 per cent of GDP in December 2015.
Blah bla bla blah. We are a borrowing economy so what? As long as the funding is used for intended projects to better the economy. The Moody’s crew were having a period when they issued those rantings. Next topic
*****!
What stoopidity! A rating downgrade will result in the yields (interest rates) on the bonds going up. That’s the way capital markets work. That means that interest payments will increase. That’s a big impact on Zambia’s ability to repay the debt. This PFool, Mvunga, should not be a Finance Ministry deputy. He is clueless. He should be running something he understands like the Ministry for Beer.
Nonsense mvunga
It will affect borrowings. That is our concern not payment which is an agreed liability you toad.
Your repayments are solely card on your borrowings.
It won’t affect repayments I agree in the short term.
In the long term if Zambia is unable to borrow you are screwed. That is the view you should tell us and not sweep it under the carpet.
Thanks
BB2014
The debt stock has experienced a marginal rise only, Zambia’s credit worthiness is still good. Zambia has no record of failing to pay back its debts. In other words to the dull, cowardly evil minded UPND inciters of hate-Zambia will get over these harsh times.
Just like the Eagle will soar above our problems defeating the S.a.t.a.n.i.c wishes of ZWD and extremist UPND cowardly thugs whose only purpose is to create panic for their own ends.
2016 ECL nafuti, August we are defeating HH for the 5th time into permanent retirement!
Worldliness in trying to mask a simple fact. Lending is investment, so if the lender assesses you as high risk and charges a premium for it, where is the confidence in that? Defending the indefensible.
Moody’s downloading scheme is one of those soft power tools being used by cartels of Globalists in the preponderant powers corridor. They use such to asysphiate dreams of ambitious nations denying them momentum of infrustracture and systemic development. But a Growing world order of resolute and self aspiring people never quiver when faced with such schemes. A lot of trolls rumbling brainlessly in the cyberspace don’t know what the likes of Lee Kuan Yew ‘Father of Singapore’ went through to get Singapore where she is today. Imagine he had curved to the ferrocious schemes and name callings of of careless spending dictator the cartel led by Dick Cheney, Richard Perle, Kissinger or a Brzezinski etc had directed on Lee Kuan. They only praised him in his death that he was a model leader…
They can downgrade our rating but we don’t quiver. We know its a timed scheme of downloading a wishful cataclysmic political tempo. Not my Zambia we believe in solving things and not turning our country into a war zone. We don’t admire the new Libya or Central African Republic.
So their first priority is loaners and not Zambians. How about social programs that affect peoples’ lives?
Zambians open his PF and Lungu are a danger to the Nation.Our future and that of our children is so uncertain now.The creditors have indicated a yellow light next its red.Any creditor has now been told that it is a risk to lend Zambia.yet these *****s in PF are still defending themselves.What a shame.Even at an individual level to use simple example,when local banks indicate to you that you are risk borrower what pride would you have?Any person who borrows to extend that his capacity to pay back is in doubt is a mad.especially if the kongongole brings hunger in the house in the name of building a house can children stop eating or going to school because you are building.Shame on PF just surrender you have failed.
***** indeed
What a dumb response from a Minister.
@Kudos
So many projects have been initiated & some completed by your PF brainiacs but the economy is dwindling every day. Kambwili even said that PF government has turned Zambia into a ‘construction site’. Good infrastructure but broken economy
It’s easy for a person with full pockets & full stomach to say that these eurobonds will be paid because they can’t get to see beyond their bellies.
I THINK HE DRUNK TOO MUCH OF LUNGUMAINA. DOES HE NOT UNDERSTAND THAT A BAD CREDIT RATING MEANS NOBODY WILL BE WILLING TO LEND ZAMBIA AND WITH ALL THESE POORLY PLANNED AND VERY EXPENSIVE PROJECTS WITH LOSS OF DONOR INTEREST IN ADDITIONAL FUNDING. ADD TO THAT, OVERSPENDING, RAMPANT CORRUPTION OF THE GOVERNMENT WITH A VERY BAD KWACHA AND LOW ECONOMIC PRODUCTIVITY DUE POWER PROBLEMS. HOW ON EARTH DO YOU EXPECT TO MEET THESE LARGE EXPENSES?? THEN YOU HAVE ELECTIONS WERE MONEY WILL INTO THE WRONG PRIORITIES. WE MIGHT END UP DEFAULTING.
NEXT TIME THIS CHAP WANTS TO ISSUE A STATEMENT LET HIM CONSULT PROFESSIONALS LIKE MAGANDE NOT OLD LOGS THAT HAVE DESTROYED THE COUNTRY LIKE CHIKWANDA
We know that! You have destroyed the economy and you want five more years to? Anyway Zambians will vote for you because the easy forget.
Not that Zambians easily forget, the major problem is that the large majority of the Zambian electorate comprises people that are illiterate and ignorant. They are so cheap that they can easily be bought with salt and cheap beer.
The downgrading will erode away potential investment as those who wanted to come will think twice and go where business is secure. ?n a country that has always negative speculation economies does’t grow and Zambia is one of them. Mvunga knows but pretending because he is protecting his job and that of his masters.
The drunkard is merely stating the obvious of course when you personally borrow at fixed interest rate and your credit rating deteriorates it doesn’t have any effect on repayments of your previous loans. Why would anybody in his right mind even think of contracting another loan.
The assessments made by both IMF and Moody’s on Zambia’s macro-economic situation are not encouraging. In fact both institutions have no confidence in the way the current govt is managing economic and financial affairs of the Zambian economy. They have issues on fiscal, monetary and exchange rate policies, both domestic and external borrowings etc. The prospects for growth in these two institutions’s analyses appear dim unless there are fundamental reforms in managing the economy. These issues will not go away until they are fully addressed by the govt.
Part I.
Source: Mining News
Commodity shock knocks Africa’s growth prospects – World Bank 11th April 2016
The World Bank has lowered its 2016 growth forecast for Africa to 3.3%, from 4.2% previously, after the continent expanded by only 3% in 2015; the slowest pace of growth since the 2009 global financial crisis and well below the 6.8% levels experienced by the continent between 2003 and 2008. The bank’s latest Africa’s Pulse publication, released on Monday, indicated that the weak 2015 performance, as well as the 2016 downward revision, could be attributed largely to the plunge in commodity prices, which had dramatically lowered the terms of trade for the continent’s oil and minerals exporters. “The fall in commodity prices represented a significant shock for the region, because of…
II. “The fall in commodity prices represented a significant shock for the region, because of the large share of commodities in exports: fuels, ores and metals account for more than 60% of the region’s exports compared with 16% for manufactured goods and 10% for agricultural products,” the bank outlined. Commodity price drops would also lower Africa’s terms of trade in 2016 by an estimated 16% and the “impact of this shock is expected to lower economic activity by 0.5% from the baseline, and to weaken the current account and fiscal balance by about 4 and 2 percentage points below the baseline, respectively”. Growth expectations for 2017 had also been reined in to 4.5%, from 4.7% previously, and the bank argued that commodity exporters across the region would need to adjust to a “new,…
Growth expectations for 2017 had also been reined in to 4.5%, from 4.7% previously, and the bank argued that commodity exporters across the region would need to adjust to a “new, lower level of commodity prices”. “Furthermore, with commodity markets, and external conditions more generally, likely to be less supportive than in the past, the region will also need to focus on developing new sources of growth.”
For South Africa, the slump in commodities had helped motivate the bank’s recent downward revision of the country’s 2016 growth outlook to 0.8%. Senior economist for South Africa Marek Hanusch said that, while there could be some improvement in commodity prices in 2016, mining was still unlikely to be a source of economic expansion during the year. South Africa’s weak growth performance was also likely to be a key factor in determining the outcome of the current review of South Africa’s foreign currency sovereign rating by the ratings agencies, which would make pronouncements in June. The country’s rating was at risk of being junked and, besides South Africa’s debt and fiscal balances, the growth outlook (together with the influence that the politics of the day could have on the…
The country’s rating was at risk of being junked and, besides South Africa’s debt and fiscal balances, the growth outlook (together with the influence that the politics of the day could have on the implementation of growth-supportive policies) would be critical factors in shaping the final determination. Hanusch said government seemed to be taking serious steps to deal with debt levels and to moderate spending, but indicated that growth remained the “big unknown”. However, he also stressed that South Africa’s domestic currency rating remained two notches above junk……
IMF and other lenders now know beyond a doubt this PF govt is a govt yafipuba, to borrow from GBM’s vast vocabulary of descriptive words. That’s why IMF wants to listen to Zambia’s loan requests only after a new proactive govt is installed in August this year.
VI. Nevertheless, South Africa, along with the rest of the continent, would need to focus on developing new sources of growth, especially in light of an expectation that commodity prices would remain low and volatile for some time. For South Africa, the deterioration in the business environment would depress investment growth in 2016, the bank said, adding that high unemployment and interest rate hikes would also limit private consumption. However, Hanusch felt there was still potential for government to take actions to stimulate the services sector and for the country’s manufacturing sector to begin taking greater export advantage of the 16% decline in the value of the rand against the dollar since January 2015.
Moody’s or no Moody’s, Truth be told: Things are not OK in our country. The matters and indicators Moody’s are commenting on are real! PF has failed this country and has driven it in the wrong direction!
K Bwalya and everyone condemning the president and PF what have you done for your country? Are running a small or big business to improve the outlook of the economy? Economies don’t just improve they are driven by entrepreneurship. I know you will say bank rates are high to find finance. Keep looking for faults in the PF before you find these politicians changing political parties like shirts. Wasn’t the current president a member of UPND. He was UPND but he became president on PF. Atleast UPND has already produced a President.
WHAT IS THE DIFFERENCE BETWEEN SOVEREIGN AND COUNTRY RISK MAKE THE DIFFRENCE
WITH ARGENTINA THAT DEFAULTED RECENTLY WHAT HAS BEEN ITS RECENT YIELDS ON ITS RESTRUCTURE WHAT ARE THE CURRENT YIELDS AND ATTARCTIVENESS FOR 2 5 10 YEAR SOVEREIGN NOW WHY ARE SOVEREIGN SELLING OFF THEIR POSITIONS NOW
DIFFERENTIATE BETWEEN AN ISSUE ON DISCOUNT AND PREMIUM AND SEE THE PREPAYMENT,DURATION RISKS ,CURRENCY RISK AND THE REINVESTMENTS RISK NOW EMPHASISED BY MVUNGA ASSUMING YOU WHAT TO MAINTAIN THE CLASS
ITS NOT BAD ON OUR SIDE THAN ON THE INVESTORS UNLESS THE SINKING FUND FAILS THEN YOU NEED TO BORROW TO FINANCE AT MATURITY THE PRINCIPAL REPAYMENT BUT…
BUT IN THAT CASE YOU HAVE A PROVISION IN SINKING FUND NICELY HEDGED AGAINST CURRENCY AND INTEREST MOVEMENT
This economic malaise will soon be over and forgotten. Thank God for the raise in price of metals both at Shanghai and London markets, the boom days are coming back with new injection in the mining industry. It’s to the glory of Zambia and the people at large.
You have got it all wrong.
Say you bought $100 of the first eurobond tranche. On your bond certificate there were 10 coupons of $5. You tear off each coupon as you reach 31 December 2013,2014,2015 etc etc.
GRZ is obliged to honour each coupon of $5 as it falls due.
Now if the situation deteriorates and you try to offload your eurobond, the next buyer may only give you $70 for the eurobond that costed you $100. You cannot get your face value of $100 back since the market is asking you for a “discount” to factor in the risk of a default.
The new buyer gets his coupon interest of $5 but on a cost of $70 for his eurobond. Therefore the new bondholder ends up getting $5 on his $70 and lets call that a return of 12%.
To sum up :
1. GRZ has no change to the $5 interest…
2. The drop in the value of the bond from$100 to $70 reflects risk perception of a GRZ default
3. The investor who bought the eurobond for $100 but can sell it for only $70 now will be in no mood to entertain you if you come back to sell more eurobonds
4. The interest % that one earns on the eurobond is an important barometer of how capital markets are judging your economic management
TO MAKE PEOPLE UNDERSTAND AND FOLLOW THROUGH IN THE INCREASED SPREAD FOR THIS MOODY RATED SOVEREIGN EXPLAIN THE GAINS OR LOSSES IN CAPITAL TO THE INVESTOR AND THE ISSUER AND LET THE PEOPLE SEE THE AT THOSE INDICATED RATES OR STATED RATES SHOW THE NUMBER OF COUPONS WETHER SEM OR ANNUALLY SEE THE EFFECTIVE RATES
TRY ALSO TO FLEX THE CONVEXITY OR DURATION MEASURES IN THE ZAMBIAN BOND AND SEE THE IMPLICATION HOW MANY PERIODS DO YOU HAVE IN THE FUTURE WHAT ARE THE RATES IN MIN AND MAXIMUM FORECAST WOULD BE SO WHAT WILL BE THE VALUE OF THE BONDS AND CAPITAL GAINS OR LOSSES ON THE ZAMBIA TO THE INVESTOR OR ISSUER AND TALK ABOUT IT…
Those people who believe is a secret code of only a Bemba or Easterner is Good for the Job of president in order to protect their interests will again vote for Lungu even if they assure the economy is bad. They don’t care as long as its one of the ruling. This was the case in USA where Anglo Saxons were believed to the only ones to rule America. They thought Obama a black would betray there interest but alus it has proved otherwise. Even here in Zambia all people know HH is the right person for the Job but they will still resist because they feel Tongas will suppress them. This myth or belief has not be been tested and I urge all Zambians to try and see.It is not true that HH will favor Tongas.Tongas believe in hard work not favors.so stop having sleepless nights over nothing.
it has been tested in offices and recruitments
LIKE AN ABSOLUTE RETURN
LET THE PEOPLE AND SEE WETHER THERE ARE GAINS OR LOSSES HERE IMPLIED IN THE MOODYS FOR THE ZAMBIAN SOVEREIGN BONDS
LETS SEE THE BOND ECONOMICS HERE IN THE MOODYS
Anyone who takes pride takes pride in borrowing is insane. Why should we as a nation take pride in borrowing.
PF is a joke.This GVT is reckless and irresponsible
This is pretty much like president Zuma saying, and quote: “I did not contract HIV from that woman because I took a shower after our se.xual escapade”. It’s a nullify, a downgrade yields escalated interest rates, period! If Mvunga wants to fool fools like his bosses Lungu and that fossil Chikwanda, “aise ona kafoo malaswambwa ahae”
Even me who is not an economist knows that indirectly there is an effect on paying back what we owe by making it more painful and other areas like education might be starved of funding.
LETS SEE WHAT THE CAPITAL GAINS AND LOSSES THERE ARE TO THE INVESTOR AND ISSUER MR APATHY SO THAT THE CONVERSATION CAN BE REASONED AND THE PEOPLE HERE UNDERSTAND THE IMPLICATION OF MOODY FOR THE FUTURE PERIODS