Fitch affirms Zambia's ratings at B with stable outlook.

By bne IntelliNews March 21, 2014

Fitch announced in a written statement that it has affirmed Zambia's Long-term foreign and local currency Issuer Default Ratings (IDRs) at B with a stable outlook. Fitch also affirmed the ratings on the country’s senior unsecured foreign and local currency bonds at B while it affirmed the Country Ceiling at B+ and short-term foreign currency IDR at B.

The rating action reflected Zambia’s strong growth performance while keeping inflation at low levels, according to Fitch. However, the rating agency also warned that vulnerabilities have increased as a result of the deterioration in fiscal balance and the depreciation in ZMW due to weaker copper prices and new regulations which undermined the private sector’s confidence.

Fitch forecasts Zambia economy will grow 7.2% this year and 7.0% next year due to strong infrastructure investments and sustained growth in copper production. Growing budget deficit, low agricultural productivity and energy constraints impose risks to the growth performance, according to Fitch.

Fitch also forecasts inflation to remain around 7%, however, currency and wage pressures impose upside risks to the inflationary outlook.

Zambia’s government deficit rose to 6.8% of GDP in 2013 from an average of 2.3% between 2005 and 2012. Fitch projects budget deficit to increase further to 7.2% of GDP this year versus the government’s target of 6.6%.

Fitch may downgrade the country’s ratings, if fiscal and external deficits deteriorate further and/or commodity prices decline and/or policy environment for private sector deteriorates further. On the other hand, Fitch may upgrade the ratings, if fiscal deficit and/or international reserves improve and on-going infrastructure investments contribute to growth performance.

 

 

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