Thursday 11, October 2018 by Jessica Combes

Zambia eurobonds slide as Fitch cuts rating further into junk

 

Fitch Ratings cut Zambia deeper into junk Thursday, citing a widening budget gap and a faster-than-expected rise in debt levels.

The southern African nation’s eurobonds fell.

The rating company lowered its long-term foreign currency assessment to B- with a negative outlook, the same level as at Standard & Poor’s, which has a positive outlook. Moody’s cut its assessment in July to Caa1.

Zambia’s 2019 budget, presented by Finance Minister Margaret Mwanakatwe last month, laid out “a significantly less ambitious fiscal consolidation effort” compared to targets her ministry set earlier in September, Fitch said. The country has also consistently failed to achieve goals to trim the budget gap.

“Upward revisions to fiscal deficits and government debt have weakened the credibility of the government’s fiscal targets,” Fitch said in a statement. “Delayed fiscal consolidation and high debt will weigh on macroeconomic stability.”

Yields on Zambia’s $1 billion of Eurobonds due 2024 rose 33 basis points to 16.64 per cent by midday in the capital, Lusaka.

The government is targeting cutting the fiscal deficit to 6.5 per cent in 2019 from 7.4 per cent this year. That’s “optimistic,” according to Fitch, which sees it reaching 6.9 per cent. Zambia’s debt will hit 69 per cent of gross domestic product by the end of this year, up from the previous forecast of 64 per cent, the rating company said. This figure could grow if recent currency depreciation continues, it said.

Features & Analyses

Economics Adapting to a new era

  Abdullah Al-Fozan, Chairman of KPMG MESA and KPMG Saudi Arabia, provides an exclusive commentary on the Kingdom’s business… read more