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Alba Iulia
Saturday, June 6, 2020

Fitch downgrades Zambia’s rating to near junk status, expects Zambia to default on debt

Headlines Fitch downgrades Zambia’s rating to near junk status, expects Zambia to default...

Fitch Ratings has downgraded Zambia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CC’ from ‘CCC’.

Fitch says the downgrade reflects its view that the shock from the coronavirus pandemic has exacerbated Zambia’s already constrained external liquidity, increasing the likelihood of a default event.

“We see default as probable, as evidenced by the government’s tender of a request for proposals from advisors on a potential liability management exercise. We also see the liability management exercise as a probable precursor to a support programme from the IMF or other international financial institution,” it says.

The rating agency charges that the government is unlikely to be able to fully meet its external debt obligations in 2020 and 2021 in the absence of new external financing sources.

It says government faces external debt service payments, including principal and interest, totalling USD1.5 billion in 2020 which is approximately 115% of official gross international reserves at end-January 2020.

“A combination of already programmed external borrowing and mineral royalties will add to reserves. However, much of the external borrowing is directly tied to project financing and will not be readily available for debt servicing.”

It added, “We also expect copper export receipts to fall on lower production and copper prices. As a result, the Bank of Zambia (BOZ) will struggle to maintain the necessary external liquidity to allow for uninterrupted debt servicing, in our view.”

It predicts that the maintenance of reserves in 2020 will be further challenged by a current account deficit and currency depreciation pressure.

It says reserve levels were supported by a current account surplus of 1% of GDP in 2019, but it forecasts the current account will swing to a deficit of 2% of GDP this year.

“The BOZ was able to bolster reserves in 2019 by opportunistically purchasing hard currency from the foreign-currency market. However, as of 11 April, the kwacha had depreciated by 24% year-to-date, which will make dollar purchases costlier. Reserve accumulation could also exacerbate downward pressure on the foreign-currency rate.”

“The sovereign’s medium-term solvency has deteriorated, along with its liquidity. This will limit the government’s refinancing options and is likely to see conditions imposed on new lending. We forecast the general government deficit to expand to close to 10% of GDP in 2020, although the running of domestic payment arrears may keep the deficit lower on a cash basis.”

It added, “We also forecast general government debt to reach 113% of GDP and to continue rising over the long term.”

Fitch says Zambia’s public finances will be further affected by slowing growth.

It forecasts GDP growth to contract by 0.7% in 2020, and to experience a slight recovery to 1.0% in 2021.

“Zambia’s growth was already slowing due to a combination of lower copper production, power shortages caused by seasonal droughts, and spotty agricultural production due to poor rain.”

The rating agency says Zambia’s economy could return to trend growth of approximately 3.0% by 2023, but that this is well below the 5.6% average that Zambia experienced in the decade to 2018.

“The shock to the domestic economy will also further stress Zambia’s banks, which have struggled with poor asset quality and low levels of credit provision. Extra stress will inhibit banks’ ability to finance the government.”

It says, The government’s domestic debt issuance is already routinely undersubscribed at longer maturities, while yields across the curve have risen steadily. The BOZ has set up a ZMW10 billion liquidity facility, which aims to enable banks to restructure or refinance qualifying facilities or on-lend to eligible clients.”

The rating agency says the BOZ facility will provide some support to the banks and the domestic economy, but will not significantly enhance banks’ ability to provide funding to the government.

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55 COMMENTS

  1. You expect cadres and Lusambo to decipher this anology? To them it’s business as usual beating people with impunity in the name of protecting umuntu kkkk its junk status that’s what it is folks,say it right.

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  2. I am yet to come across a citizen anywhere in this world who ate a fitch rating of A+. We deal with grassroots economics and some imaginary rating created by some imperial neocolonialists does nothing to move me, maybe diasporans will be moved by this rating. As for us we continue to fight for our people fitch rating or not. You can leave it to HH to talk you to sleep about fitch rating. That is the only thing he good at. Kz

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  3. We don’t care! shame on these loan sharks to pounce on us when there is a world pandemic and a looming world recession. Name one country in the world today who will come out of this with A+ rating? The oppotunists are trying to derail our fight against coronavirus so that they can deflect their own inefficiencies. The world economy is on hold so why are they trying to preach to us. Ma [email protected]

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  4. Typical loan sharks, trying to create panic in a country by deflecting what’s going on in the world with economic mismanagement. The entire world is on pause and one wonders what the motives for such moves by these organisations are. Shame on them.

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  5. Such advise from KZ is the reason why the economy had gone belly up even before COVID.

    How can a household borrow from a neighbor and then turnaround and say “the demotion at my work place should not worry my neighbor, I use a different kind of math”?

    Davis Mwilwa was right. Comprehension is low in PF.

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  6. We have enough natural resources lets stop giving it away to the Western world for peanuts….in return they kill our economies so that they can control us with their loans….The whole African continent needs to wake up and start doing business more with fellow African Countries from Cape to Cairo..but for as long bandit President Lungu starts crying when he hears that Boris Johnson is sick,,,nothing will change

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  7. Sikfuele and who said that the households only source of income is from work? It is this type of thinking that has slowed Africa down. You are used to working for others instead of being your own boss. Wake up

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  8. Waste of time educating PF Cadres. They think they just do a ‘Mbita’ and go to borrow in the market with junk status above their heads.

    With reserves lower than debt service, dollar supply will soon dry out. So how do think we will pay debt service, with Kwacha, copper or maize bumper harvest?

    At this point, no one will lend Zambia funds without express comfort from the IMF. That is the rule out there. The sooner Zambians get that point the easier will be the reforms.

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  9. There will be no default. IMF is already working on measures to relieve economic distress of member countries including Zambia. So, what is Fitch talking about? Do they confer with the other organizations?

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  10. These ratings are a complete fraud and don’t move me at all. What exactly do they rate? Fact is without our resources like copper, cobalt etc. the world economy would suffer and would definately not be where it stands today, so how do you rate the source of your wealth lower than you?

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  11. My dear, KZ, income can only come from work, inheritance, gift or lottery. Illegal means include theft, extortion and corruption. Also note that borrowings are never income.

    In this case, Zambia borrowed and has no right to discount the judgement of the agency creditors look to when assessing capacity to repay.

    We can bury our heads in the sand if makes us feel better, but those debt will need to be repaid and we do not have the revenues (income) to pay it off in 2022-2025. We will have to reissue. But at junk status, interest rates will be above 25%. While one can argue that PF may not be there, it still falls on the Zambian taxpayer.

    Play show alternative math.

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  12. KZ take it easy badaala. No need to talk about junk in the trousers here. This is not a shabeen. We are talking about issues that affect real lives.

    Numbers don’t lie. Currently, Boma is struggling to pay its suppliers, pensioners, buy drugs etc. When steps outside state house this becomes clearer. The simple reason is that we are running a deficit and the cost of debt payment is taking away funds for running government. Debt payment is the first call on revenues.

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  13. @Nine Chale, please contact KZ when in Zed. You can discuss the notes in pushing out. However, note that there will not be an exam. We shall leave that to reality.

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  14. @Nine Chale, please contact KZ when in Zed. You can discuss the notes I am pushing out. However, note that there will not be an exam. We shall leave that to reality.

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  15. @abilima Fitch and other rating agencies look at the probability of default. So they simply assess your capacity to pay based on you revenue and expenditure profile.

    Will no growth, revenue is flat or declining. Meanwhile, expenditure patterns are unchanged. As the same the supply of dollars in reserves is not enough to pay $1.5 billion in debt service in 2020.

    Go figure or just read the report.

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  16. @KZ I’m humbled. It’s a small world, we’ll definately meet down the line.. we stand together as patriots in defence of our one and only Zambia! It is not for sale… as I keep telling them here.

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  17. @Nine Chale, you already sold Zambia – when you over borrowed.

    We have been sold to the holders of the sovereign bonds, the Chinese and other domestic and external creditors.

    Like I said, it’s a waste of time education you folks. Let all bury our heads in the Sand!! All is well and we shall have a strong growth and wealth under or humble leader Dr ECL!!!

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  18. It is unbelievable that our people have been tightening their belts, our land has been mined, and churned out minerals without number, and yet the economy we are trying to build is being “juncked”. What traps and hoops have we failed to beat and jump?

  19. But I thought this is what the IMF is talking about. After covid-19, even big economies will struggle. Just put Angola, Gabon or South Sudan?? These are oil dependant countries whose main export has taken a 59% knock on its price. You expect them to meet their budgetary obligations??? I think these ratings need to be suspended until after covid-19. Very unhelpful.

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  20. “GDP growth is forecast to contract by 0.7%.” Wow ,Fitch is being disingenuous bcoz last night the IMF forecasted Zambia to contract by 3.5% in 2020.

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  21. If these Junk status was upgraded by a knotch tomorrow the selfsame people on this thread would come praise the Rating Agency.

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  22. Interesting exchange between KZ and Sikufele. Sikufele is spot on that our revenue is not sufficient to cover Govt expenditure and debt repayment . This has been necessitated by a number of factors eg the trade war between China and the USA which did not help this country at all. However, KZ has point, these rating agencies do not give an exact scenario of what happens in these countries, they have been charged for giving cooked information therefore misleading the financial world. Going forward as a country we should minimize borrowing, unless were necessary. God bless Zambia

  23. @nine chale,up to now I sought you are sane but now I know you are not!Go and meet KZ and have a good time…..

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  24. Sikufele or whatever you call yourself. Don’t be a useful *****s of this imperialists. Is not the same Rating Agency that was fined for lying?? Avoid using tribe to think.

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  25. KZ no matter how much you and your pf bots try to spin this as a positive i just want to let you know that Zambians comprehend the cost of living….and for that you can hire as much cadres as you like to defend the poor economy by words and songs but Zambians will comprehend hunger!

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  26. Nine Chale ati am humbled by an imposter, peep game.You seem to be a troubled and lost soul, stay in line with reality and the truth, you bore us man.
    apply some critical thinking to your rants,The question is why are you cleaning toilets in Germany instead of being a samazai here in zambia.

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  27. No need to panic. What we need is to clean up the debt.
    All debt that was accrued without Parliament’s approval should be separated from debt that was approved by Parliament. Debt accrued without Parliament’s approval should be sent to the PF Secretariat who should know what to do with the debt we don’t know. PF party and member assets must be attached to settle the unapproved debt! The creditors who aided these anomalies must take some liability!

  28. The Fitch rating is not to be dismissed as this is one of the tools used by bond holders to assess the risk on their investment.
    Note Zambia issued euro/dollar bonds back in 2012, 2014 & 2015 to the total amount of $3billion, so that’s already done. These bonds have a 10 year yield period meaning they have to pay a fixed interest rate every 6 months and face value at the end of 10 years. Now the downgrading from CCC (currently vulnerable and dependent on favorable economic conditions to meet its commitments) to CC (highly vulnerable, very speculative bond), is simply sending a message to bondholders that toughluck you wont be seeing your dividents any time soon!! Zambia can argue that the Covid-19 pandemic messed things up and reschedule payment. If you have other priorities why service…

  29. Ok , ok , we seem not to agree on the relevance of credit rating agencies.

    The only real pointer is the prof in the pudding…….

    The standard of living of the common man on the streets , is it improving ?

    If life for the common man is improving, then these agencies have a problem with their mafs ,

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  30. @ Ghost Dog no one can make a living cleaning toilets in Germany. It just can’t work. Besides, I’ve been here too long to end up that way. And if I did, then I’d make sure I did it large scale and professionally – provide toilet cleaning services for entire companies, luxury villas, office blocks and other public facilities.

    Otherwise, no need to take offence because of my posts. I don’t have problems interacting with anyone here. We may disagree on many things but when it comes to uplifting our people and our nation, I will embrace everyone who supports the cause.

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  31. It is interesting how as Zambians, we tend to dismiss challenges, assessments and solutions, then turnaround ask ourselves why the few economic opportunities to uplift living standards.

    Let’s be open to challenge the conventional thinking. As it is, 55 years of independence and over 55 percent of people should tell us that we are using a wrong approach.

    KZ and his bosses could listen, without referencing the opposition, perhaps we provide reasonable suggestions for a home-grown turnaround.

  32. We all borrow money. However, is what we use that money for. The problem for Zambia has been long coming. At least now they can use the COVID19 pandemic to point fingers. when we got those Euro Bonds, we should have invested in sectors that were going to give the country good returns. Even you as an individual, you borrow to go shopping in Edgars??? You will surely struggle to repay. Borrow to invest and use the profits to pay back. What happened with borrowed money in Zambia? its for people to answer!!! Brace yourselves for hard times.

  33. KZ, ‘Life is the art of drawing without an eraser; so be careful before taking any decisions on valuable pages of life’. Others who come later will read those pages of life. When PF regime was busy borrowing recklessly, thought no one will ever know. Its not Zambians reading those pages of recklessness borrowing by Edgar Chagwa Lungu, its others now informing Zambians. Lies were told to Zambians and have short legs.

  34. BS TO RATING AGENCIES AND THOSE HAPPY ABOUT ZAMBIA’S STATUS
    WORLD ECONOMY WILL RECOVER AND ZAMBIA’S PROSPECTS ARE BRIGHT

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  35. The headline is wrong. CC rating is ‘not near junk status’ but deep into junk status. Actually 4 notches below investment level.

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  36. A full who does not understand anything will continue to look at this fitch rating as business as usual. A full will not know that this rating even affects the country’s desire to borrow from bilateral and multilateral partners, this effectively puts your desire for your IMF bail out to fall out completely.

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  37. We are a Christian Nation we don’t believe in Crystal Ball readings of the future. Thanks Fitch old boyo!

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  38. It’s just an opinion and a pointer but not necessary to stop people to work and avoid those pointers .Debt sustainability analysis has always been a defective macroeconomic model and as observed in the commentary and analysis by Fitch here the application in the Zambian macroeconomic is not correct The Zambian debt to GDP cannot go to infinity But what should be the observations is the inflationary pressures in the demands(aggregate) Modern Monetary economics theory rejects the Fitch assumptions In Zambia’s debt sustainability analysis here for a floating sovereign currency such as our kwacha .Fiscal sustainability is when the interest payments on sovereign debts does not…

  39. or do not rise over and above the productive capacity of the economy or simply explained debt to GDP does not go to infinity Economies will always be assumed to revert to long run average behavior and to project and comment like that might not be correct for Fitch The primary fiscal deficit must be more observed and analysed further and not necessary the gross As a way to explain further this if in the comments for example fiscal deficit is 7% of GDP, and interest expense is 3% of GDP, the primary fiscal balance is a deficit of 4% of GDP.U then look at that and work the economy to ensure you are macro prudential
    You can further to see the real options in that the FDIs and…

  40. and what you need to do properly in corona environments and work the economy and Finances and navigated the seemingly debt overhangs and restructured Not all is lost except for those with little economic understanding or thought but heeding some of the commentary from Fitch will be of values to those decisions Bond holders and other debt holders cannot hold everything or buy everything to hold the Zambian economy not to grow or become product that is the catch word To have the Zambian debt-to-GDP ratio rising to infinity could be a very strange economic new idea Therefore the economy can still grow to register growth to restructure certain

    Okay

  41. As long as the dollar is king when it comes to global commerce payments system, then cradit rating agencies such ad Fitch and Moody’s , are very credible indeed.
    The trolls can ad hominem all they like about neo colonialists and imperial masters and opposition parties but the ugly truth is written in the submissions , on this topic, of sifukele.
    You may argue and disparage all you want , but those are the rules of capitalism. And in Zambia , we copy and paste! ….From the neo colonialists!

  42. It’s too much Data for PF’ CPU (Central Processing Unit).

    Error message
    ////no output….error#% Covid////19. $€$¥debt.nkongole///…corruption.100%~….BLANK SCREEN!!!

    Warning!!!! Shut down PF and restart with UPND to clean the Disk.

  43. Africa and Zambia should come to the realization that the world in and after COVID-19 will no longer be the same. The COVID-19 present a great opportunity to rethink trade and investments. There is a great need for creation of localized production, value and supply chains. The localized trade should be the start and center for future trade and investment.

  44. You expect Global and risks therefore to increase It increased from 2019 by 10 Trillion Dollars to $255 Trillion a 322% of GDP Global With the Virus now you obviously expect further drastic increase this 2020
    What should be on top your game is how you will diverse strategies amidst those risks and do restructuring to repay and mitigate refinancing risks because most of these debts of about 20 Trillion true come due this 2020 So you simply cannot sit and wait being feared by Fitch ratings opinion Most countries in EM will need $730 Billion and most have put up strategies and are already yielding positive results and Zambia is not in a Solid wall…

  45. it made use of those debts to build infrastructure on which it was premised that growth will register but if growth will come some day its important to find solutions and plug in the gaps Finding the right strategy could be challenging now but effective accommodative fiscal and monetary policies will be helpful to help navigate and save many solvency risks but such policies must be in the shorter to enable savings in incomes for proper debt consolidations and income build ups But growth will come such is policies on financing growth with debt but for those with faith It could be dearer in the years like projected 2030 maybe

  46. Some of these rating agencies were fined for lying, what’s your take on this sikufele? Still rely on there warped ratings? Who eats ratings anyway.
    For Zambia, lets get Mopani back to Government and ensure KCM never goes back to the mweyes. So far Milingo Lungu is doing well, contractors are getting their monies regularly. The combination of KCM and Mopani’s cash all going to BOZ can turn around things for mother Zambia. Not forgetting the Gold deposits that SHOULD be mined by ZCCM-IH only.

  47. There is still need for FDI inflows in equity and others and we still need Investments inflows in our top 10 Sectors It will happen with accommodation investments regulatory and other environments There is need for PPI and Private participation When Fitch is writing that its writing to its own subscribers and our ZDA and others must up the promotion and activate more of those FDIs

    Because of funding and liquidity needs Black rock is building a Book for the FEDs and it will be done so why not Zambia Succeed in this Refinancing also with proper marketing and promotions of sectors of Value in the world of Investing in our commodities

  48. Okay downgrades will be there always but The good thing always to remember in global investments is that downgrades of creditworthiness by rating agencies will be always there as a check and will affect and cover a number of countries , sectors and individuals and entities but the good side of these ratings is that they will also in turn provide real options and provide interesting investing opportunities for other investors of value also There will be recessions and grow always in business cycles and those who hold on will profit in our valued country and commodities

    Okay

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