Fitch Downgrades Zambia to B Minus, with a Negative Outlook

Minister of Finance ,Margaret Mwanakatwe arrives at parliament building for 2019 National budget presentation in Lusaka.
File:Minister of Finance ,Margaret Mwanakatwe arrives at parliament building for 2019 National budget presentation in Lusaka.
Minister of Finance ,Margaret Mwanakatwe arrives at parliament building for 2019 National budget presentation in Lusaka.
File:Minister of Finance ,Margaret Mwanakatwe arrives at parliament
building for 2019 National budget presentation in Lusaka.

Fitch Ratings has downgraded Zambia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-‘ from ‘B’, with a Negative Outlook.

The downgrade and Negative Outlook on Zambia’s Long-Term IDRs reflects the substantial upward revision in the government budget deficit targets.

The Minister of Finance presented the 2019 Budget to the National Assembly on 28 September.

This followed the release of the 2019-2021 Medium-Term Expenditure Framework (MTEF) earlier in September. Both documents lay out the government’s fiscal framework, which envisages a reduction in the fiscal deficit to 5.1% of GDP by 2021, down from 7.9% in 2017.

The new fiscal framework represents a significantly less ambitious fiscal consolidation effort than the previous MTEF, which had set out the objective of reducing the fiscal deficit to no more than 3% of GDP by 2020.

Upward revisions to fiscal deficits and government debt have weakened the credibility of the government’s fiscal targets.

The government revised the 2018 fiscal deficit target to 7.4% of GDP from the 6.1% contained in the 2018 budget.

Earlier in the year, the government revised its 2017 fiscal deficit to 7.9% of GDP from the provisional figure of 7%, and also revised its external debt stock up to USD 8.7 billion from USD 7.9 billion.

The deficit revisions have been the result of the reconciliation of previous disbursements to externally financed projects and of higher debt-servicing costs, both of which reflect broad deficiencies in public financial management and a rapid accumulation of new external debt.

The government has taken some steps to keep future disbursements in line with the budget, but this is likely to remain a problem over the medium term.

The 2019 Budget envisages an increase in revenue from a number of tax reform measures.

These measures include reducing tax expenditures by updating the rules on tax deductions and transfer pricing, and increasing the withholding tax. The budget also proposes changes to the mining tax regime, which would increase royalty rates by 1.5pp across all brackets and add a new top bracket.

These measures could help to marginally increase government revenue, but not by enough to counter the expected increase in capital expenditure.

The government’s budget targets a reduction in the 2019 fiscal deficit to 6.5% of GDP, from 7.4% in 2018. Fitch believes that the budget targets are optimistic, and forecasts a deficit of 7.5% of GDP in 2018 and 6.9% in 2019.

The agency also believes that the risks are tilted to the downside.

The Ministry of Finance released a statement in June, noting the need for fiscal consolidation and highlighting the high risk of debt distress. The statement indicated the government’s intention to curtail the contraction of new debt and to cancel some of the contracted but undisbursed loans.

Despite the statement, the current MTEF contains a total of USD3.4 billion in new external financing in the years 2019 to 2021, which equates to approximately 4.3% of GDP each year.

The government has reduced some domestically financed project spending, but capital expenditure remains at around 7% of GDP per year through 2021.

Over the same period, debt servicing will consume approximately 24% of government revenue.

Fitch now forecasts Zambia’s general government debt to reach 69% of GDP by end-2018, up from 60% at end-2017, and to rise again in 2019.

This represents an increase from our previous forecast of a rise to 64% of GDP in 2018 and for government debt to begin falling in 2019.

The further expected increase in foreign-currency debt will make Zambia’s debt stock more vulnerable to FX volatility and to a rising global interest-rate environment.

Increased external borrowing will also weaken the external position.

Reserves were USD 1.7 billion in August 2018, which is down from the USD2.1 billion (or 2.4 months of current external payments (CXP)) at end-2017, as the Bank of Zambia has sought to contain currency depreciation.

Fitch forecasts reserves to remain below three months of CXP through 2018 and 2019.

Zambia’s ‘B-‘ IDRs also reflect the following key rating drivers:

Fitch forecasts GDP growth at 4.5% in 2018 and 2019, but emphasises that risks are tilted to the downside. Copper output will increase to around 830,000 metric tonnes (mt) in 2018, and to grow at approximately 5% per annum in the following years. However, Fitch expects that copper prices will plateau, which, along with increasing mining taxes and questions about the business environment, may reduce investment in the sector.

Beyond the mining sector, increased government capital expenditure will support growth in the construction and services sector.

Delayed fiscal consolidation and high debt will weigh on macroeconomic stability.

In a sign of stress, the Zambian kwacha depreciated by almost 20% in September 2018, after a period of relative stability beginning in 2H16.

The kwacha may recover some ground, but FX volatility raises risks to debt/GDP projections.

CPI growth has increased to 8% yoy in August 2018, having fallen to 6.1% at end-2017.

Inflation will accelerate further if the recent weakness of the kwacha is not reversed.

The ability of the Bank of Zambia to tighten monetary policy in response will be constrained by the impact on the government’s interest expenditure which is already high, while currency depreciation will increase the government debt/GDP ratio.

Zambia’s sovereign ratings remain constrained by weak development indicators.

Both GDP per capita and per capita income remain below half the historical ‘B’ median, and measures of human development compare weakly with rated peers.

Furthermore, deterioration in performance on governance indicators has put downward pressure on the ratings.


  1. Fitch are BLIND and are worthless

    How do you downgrade Zambia hen we are doing so well on many levels?

    Look at the Malls, look at infrastructure, hospitals etc

    Ignore them with the contempt the deserve

    Trust President LUNGU



    • @Mushota
      Your chronic diarrhea will never stop. Have you ever tried to use herbal medicine to stop it? You really stink !!

    • I know you are joking…we can ignore them but investors will not. We just need to get to work and put the right policies in place

    • Either Fitch or PF-government is junk. Economy can’t be junk. You can’t say the poor in Luapula have “junk” economy.
      Please Kaizer and your fellows SUE Fitch so courts can determine who is JUNK!!

    • @Mushota malls and infrastructure, please give us a break. The World Bank Group just unveiled a new system on Thursday to rank countries based on their success in developing human capital, an effort to prod governments to invest more effectively in education and healthcare.
      The bank’s “Human Capital Index,” showed poor African countries fared the worst in the rankings, with Chad and South Sudan taking the two lowest spots, while Singapore topped the list, followed by South Korea, Japan and Hong Kong.
      The rankings, based on health, education and survivability measures, assess the future productivity and earnings potential for citizens of 157 of the World Bank’s member nations, and ultimately those countries’ potential economic growth.
      It found that on average 56 percent of children born…

    • Continued
      It found that on average 56 percent of children born today will forego more than half their potential lifetime earnings because governments were not investing adequately to ensure their people are healthy, educated and ready for an evolving workplace.
      World Bank Group President Jim Yong Kim said he hoped the new index would encourage governments to take steps aimed at moving up the rankings, much as they seek to with the bank’s popular “Doing Business” survey, which ranks countries based on ease of doing business, with low-tax, low regulation economies faring better.

    • Zambian’s please, please, please, don’t reply to Syph1llis infested Green fly -Mushota.

    • Tiye tiye na dununa regret…again it’s HH’s fault. Wow this HH is really powerful, he is blamed for everything in Chambia

    • Meanwhile China has upgraded it as its looking for fooooolish African leaders willing to leverage debt with precious assets.

    • Please not this Bonehead again. Mushota, as you have a PHD can you please give us a detailed analysis of the factors resulting in this downgrading, whilst also explaining the reasons for the devaluation of the Kwacha. Please prove to us that you hold a PHD and that you’re not just another Bonehead cadre!!!

    • This too shall pass. There is no nation that never has any challenges. To politick because of a classification by one H-organisation receiving its news from Mapatizya Formula Tribal Grouping which is the biggest TRIBALISM GROUP in Zambia is to say the least being CHILDISH. Zambia has done very well and this is the report I hear daily from travellers to Zambia both foreign and local! I am glad HAZALUZA HAGAIN.


    • It’s easy to right an election for PF but not easy to rig an economy. They have Lamentably failed. Only good at embezzlement and things have really worsened. Bunch of jokers

  2. Okay its a negative picture, but what next?
    The government need to listen and listen carefully. Take serious views into account in order to turn the negative into positive.
    1.) Cut Lungu’s trips
    2.) Stop unnecessary contracts
    3.) come back to real world award real contract prices than the existing bloated ones.
    4.) Review all existing contracts from 2015 – this one gonna be hard to ECL, Eule-Dora and others

    • A west African country just suspended construction of a $400 million Chinese funded airport as it was pointless…but our dull leaders think incur bad debt is good.

    • A Namwala Tribal UPND operative is suggesting to a hard-working government policies of a failed bid for presidency of his TRIBALISM-prone H-organisation because the President is NOT Tonga and he is full of BITTERNESS and suffers from MAD COW DISEASE.

  3. The Zambia downslide to the gutters, seems it can not be redeemed. How do you think you can develop the country with such status. There will come a point China will take over Zambia because this country is headed to fail to repay their loans. The sets upon which the loans have been borrowed a gone. Yet you will hear how PF will cook their cover up garbage story to outsmart their blind followers.

  4. I used to trust these rating Agents before, but I now hold them in very low esteem after they were exposed colluding with certain organization to downgrade the economy of this country I’m blogging from today. Yes our economy may be un health, but these rating Agents too have junk rating intergrity

    • Why do you think you should be upgraded you just stated the economy is bad…i mean your dull President can not even reassure potential investors.

    • That is what makes it scary. The B- rating is probably better than should be because these rating companies want you to go back to them for favorable ratings. Scary times these are for all of us.

  5. They removed Mutati and brought in lose woman who cant apply austerity measures

    Let pf field Given lubinda or Dr Chilufya

    Upendi let Cornelius Mweetwa stand

    Mmd field in Mutati

    Now ng’wangwazi’s -(call boys) like Freedom Sikazwe, Kaizer. & Muslim sounding “Munir Zulu” control who gets hired, & fired, whilst Chakolwa Jona is totally oblivious to whats going on, coz hes forever nursing a hangover, & concentrating on getting paid his cut for The treasury he’s embezzling on a daily basis.
    Jona’s inept leadership has led to civil servants not being paid on time, BUT HEY – Civil servants were dancing Dununa not so long ago, so let them enjoy like its Christmas time!
    The only victims of Jona’s incompetence I feel sorry for are the poor U.N.Z.A students.

  7. Meanwhile our lazy President and all MPs have even time to go to watch a football match on taxpayer’s time as their economy is doing fine with increments of salaries which are backdated to 9 months.
    …they dont feel the pinch of their recklessness!!

    • From the USA, Lungu has already jumped on a plane and went to see his boy Museveni, what a useless irresponsible this dude is.

    • Lazy bum illiterate tribal hooligan bully UPND online operative and son of a tribal polygamist father who never trained him in toilet training pooping in public HAGAIN! Anyone to give him a diaper please? UPND is a COALITION OF THE WICKED.

  8. I cant blame Fitch for downgrading Zambia to junk because according to point 42 of the 2019 national budget (which outlines the macroeconomic objectives),the last objective(vii) reads:’Reduce the pace of debt accumulation and ensure sustainability’.This statement does not stop the government from borrowing but says reduce the pace. How fast or slow is the pace of current borrowing?…Coming to these rating agencies,much as I may appreciate their analysis,they are not always right.These are the same rating agencies that made one of the biggest investment banks in the world-LEHMAN BROTHERS-to collapse and die.They rated LEHMAN BROTHERS’ mortgages as prime (Triple AAA etc) or simply as the best ever and yet the opposite was the truth(the mortgages were subprime/undervalued).Its because…

    • Its because of their ratings that made LEHMAN BROTHERS to issue(sell) Collateralised Mortgage Obligations(Mortgage backed Securites) which were infact backed by subprime or worthless mortgages.When the bubble caused by these rating agencies burst,we all know what happened to the Legendary LEHMAN BROTHERS and the financial turmoil that followed. An average American is skeptical of these agencies given their history of market bias.However,unlike what happened to LEHMAN BROTHERS,when they paint you black as is the case with Zambia,its a wake up call.

  9. Some space to loot government resources by Ministry of Justice. Just sue Fitch so that the truth can come out. After all you like suing people over nothing here is something to sue about. Here are the costs: Court sessions $12m, government officials allowance to London plus transport in form of business class $10m. Outcome of he ruling Zambian Government has lost with costs amounting to $16m; Fitch sues for defamation and wins. Zambian Government pays Fitch $32m for lose of business.

  10. Doesn’t matter who trusts the rating agencies in Zambia or not, the investors ( Not Chinese investors selling chickens) trust these guys a lot, and most of them use these agencies to determine where they will invest, When SA was down graded you saw how Cyril had to run around and put counter measures in place to make sure that they stabilize the economy. We need to take these guys seriously you can go on the whole day saying how useless they are but unfortunately that what most investors use as their measure. Pompwe and friends need to be careful with their borrowing as it is down hill from an investment point of view

    • I concur.Rating agencies wield important influence on investor confidence.They can make our borrowing really expensive.

  11. These are trusted agencies held in esteem by major economies in the world. You would fool yourself to say you will ignore them fact is investor confidence will be eroded and borrowing for development will almost impossible.RSA was also downgraded the before Jacob Zuma was forced to resign. This is a sign Zambians should prepare for more hardships, once your foreign reserves are drained you would not be able to borrow. No use of blaming HH, pf government is already in the gutter.

  12. If these dunderheads running Zambia were to set up their own business they’d become insolvent in a short time.Yes that downgrade is well deserved bcoz we’ve allowed incompetent and lying dunderheads to run a complex entity.

  13. Mushota ur PHD means Probable Huntington’s Disease, coz you are really sick in in the head, Mall and infrastructure, ulichipuba, no wonder you boast that u drive a Micra Ku Europe, makaka.

  14. Is there no way for LT to not allow comments that do not add value to the discussion? Insults and personal attacks show that someone has nothing to say. I like LT and no longer read the Observer because of the poor editorial work or lack of it and the personal insults of people who even hardly understand what news items are about. This analysis is excellent and if someone does not understand the economics on which it is based, just keep quiet. You will still be paid by whoever wants you to show you are good at insults and abuse. LT please help. Many online comment sites review what is posted before allowing inclusion. Save us from time wasters.

  15. When an internation ratings agency rates a country it is actually eating the leader of that country. For example of the ratings agency says you have been downgraded from B to B- then that means the country’s leader has been downgraded. When they say you are junk then you already know who you are.

  16. Ratings are not a factor to go by because they change like the weather. On the other hand, there are other factors affecting economic stability like a strict tax policy on copper exports and that’s the key thing to guarantee steady economic growth despite all the negative prognosis.

  17. Who cares, I still have sex 4 times a week, 3 square meals a day able to replenish my bar still play a round of golf twice a week,so what downgrading are they talking about.

    • Yes that is how PF leadership think… is the masses that were dancing dunnuna reverse with lungu who will now dance pelepete with hunger..

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