Fitch Ratings says the 2020 national budget has failed to address external financing risks for the country.
In a report, the rating agency says Zambia’s 2020 Budget could increase risks to the sovereign’s external debt sustainability unless new sources of grant funding or concessionary lending are found, Fitch Ratings says.
It says the budget envisages a significant increase in such funding, but does not identify the likely sources.
Finance Minister Bwalya Ng’andu delivered the 2020 Budget in a speech to parliament on 27 September.
The budget seeks to narrow the fiscal deficit to 5.5% of GDP, but also sees an increase in expenditure, to 27.5% of GDP.
Debt amortisation will add a further 4.9% of GDP to the government’s financing needs in 2020.
The budget forecasts a revenue increase to 22% of GDP, driven by expected increases in mining revenue, adjustments to VAT and higher government fees and fines. Zambia’s revenue averaged 19% of GDP in the five years to 2018.
In 2018, revenue outperformed the budget target when copper production exceeded expectations.
Fitch expects a slight increase in revenue, but says it thinks the 2020 deficit target will probably be missed.
Fitch’s current deficit forecast assumes that expenditure falls slightly, to 26% of GDP in 2019 and remains broadly the same in 2020, resulting in a cash deficit of 6.7% of GDP.
The higher spending contained in the 2020 Budget will likely lead us to make an upward adjustment to its 2020 fiscal deficit forecast, but Fitch believes that finding new sources of external financing will be difficult and that the lack of new financing sources will constrain spending.
“New external borrowing is forecast to exceed estimated external amortisation in 2020, which would keep Zambia’s government debt on an increasing trajectory. The budget envisages ZMW30.6 billion in foreign financing and grants, equivalent to nearly 9% of GDP, whereas historically grants have provided no more than 1%-2% of GDP in financing,” it said.
“In the absence of significant new sources of grant funding or concessionary lending, this would increase the risks to Zambia’s external position from already high debt servicing costs.
The 2020 budget envisages total public external debt servicing costs of about USD1.5 billion, up from USD800 million in 2018 and an estimated USD1.1 billion in 2019.”
Fitch downgraded Zambia’s sovereign rating to ‘CCC’ in June in view of the high external financing requirements, the continued fall in foreign exchange reserves, constrained access to financing and a further rise in government debt.
The country has increased its stock of external debt and increased the percentage of commercial and non-concessionary public borrowing to fund an ambitious program of infrastructure development.
The level of capital expenditure increased to an average of 5.9% of GDP in the years 2014 to 2019 compared to 3.9% in the previous five years.
Zambia has been in discussions with the IMF on a programme that would likely provide additional external financing, but has yet to reach staff level agreement.
Fifth says an IMF agreement would offer a stronger signal of Zambia’s commitment to fiscal adjustment and would also mitigate external debt servicing risks as Zambia approaches repayments of a USD750 million Eurobond in 2022 and another USD1.25 billion bond due in 2024.
Yaba.
This PF government can not account for how they spent the Euro bonds they borrowed. Billions of Dollars just vanished.
First they told us they would use the money to revamp Zambia Railways. This never happened.
And that this why the IMF would not lend them more money.
Then they went borrowing from the Chinese.
Make no mistake, the Chinese will collect.
We are currently only repaying debt incurred under M.Sata (mhsrip).
We haven’t even started repaying for billions of billions borrowed by Lungu’s administration. Then lumpsum Eurobonds repayments are around the corner.
Brace for hard times fellow countrymen. The pain we’ve been preaching to you since 2011 is slowly biting.
The PF government has got us snowballing …they are praying some miracle will happen they think they can get out of this mess without focus, policy consistency and painful sustained fiscal discipline …PF is not the government to get us out Sata Started it and Lungu perpetuated it ….we are seeing this happening to many “populist” governments that are just bent on pleasing the masses for Votes based on very euphoric and myopic “wants”
BUT WHO ASKED FITCH FOR THEIR UNSOLICITED OPINION??
HOW MANY TRILLIONS DOES THE USA OWE PARTICULARLY UNDER TRUMP UNDER WHOM THE DEFICIT HAS BALLOONED?
2020 kunya bebele! these fools you installed in power will take you straight into purgatory, and deserverdly so. Just look at the minister of Mines’ reaction to the saga of mining in the Lower Zambezi Valley, ati it was not me alone! These chaps are follish, you bet when they die and appear before god to answer for their sins, the likes of Lungu will say, and quote: “Oh lord it was not me alone, it was collective responsibility including Gogo Inonge”. Much like Miyanda forcing the stinking new Public Order Act down our throats and yet he was the first one it came back to bit in his stinking backside where it never shines! OH behold, the alledged coup ploterous one star general cried, chimuchembele choonse kulila monga kadoli sure, chinze libe na nsoni sure!
Thankfully in the rest of the world people have caught on to these nationalist fraudsters and they are now being kicked out and some are having sustained protests the ballot is soon catching up for the PF
Yes Zambia is in a mess but if there was a time for someone to stand up and do something this is it. Times like these don’t call for cowards but for people equal to the task to shine. Anyone can be that man or woman who will gather courage to take up the opportunity once it arrives.
“…there is no country in the world that doesn’t borrow…”
Junior JJ, borrowing is not a problem, how you use the borrowed money is what becomes the problem. It would make sense if one borrowed and made a fortune out of the borrowed funds and does not give you a headache when paying it back. Am sure everyone who borrows knows what is expected of them and it would be utter folly for one to keep adding more problems to themselves when they already have the one of borrowing that money. The system of shifting debts by borrowing to repay another existing debt simply drives makes one borrow more money than the existing debt to offset both principal and interest of that current pressing debt. Once this debt is paid the borrower will have to borrow higher than the second debt to offset it and the cycle continues and becomes even harder when you’re…
Continued: generating little or no income from borrowed funds due to other factors affecting playing.
“This budget seeks to narrow the fiscal deficit to 5.5% of the GDP,but also sees an increase in the expenditure,to 27.5 % of the GDP.”
This discrepancy is exclamatory and defies economic logic.
“The budget envisages K30.6 billion in foreign financing and grants,equivalent to nearly 9% of GDP,whereas historically grants have provided no more than 1-2 % of the GDP in financing.”
Budgetary allocations are based on real and NOT imagined expectations. If history shows that foreign financing and grants have been between 1 to 2 percent of the GDP,did the minister of finance do his math or get guarantees for the envisaged 30.6 billion in foreign financing and grants?Budgeting is done within one’s means and never beyond ,so is living.