Zambia gets positive sovereign rating

Former Minister of Finance FELIX C. MUTATI

A RATING agency Standards and Poors Global (S&P Global) has upgraded Zambia’s sovereign rating from negative to positive with a stable outlook.

Minister of Finance Felix Mutati has described the upgrade as “an endorsement of the soundness of the policies being implemented by the government to stabilise and grow the economy.
This is according to a statement issued yesterday by Ministry of Finance spokesperson Chileshe Kandeta.
Mr Mutati said the development rides on the basis of the critical reforms which Government has embarked on under the Economic Stabilisation and Growth Programme.
The programme is meant to implement fiscal consolidation, remove subsidies, reform the energy sector, and embark on diversification of the economy through agriculture development and industrialisation.
“The result from the assessment conducted by S&P Global is a welcome incentive for investors as they should remain assured that this country is on track with economic stabilisation and growth,” Mr Mutati said.
He said his ministry will remain alert on the need to reduce borrowing by enhancing resource mobilisation initiatives such as public-private partnerships, increasing grant-inflows, and reinforcing tax-related initiatives to strengthen enforcement and compliance.
“Although still tight, the government’s fiscal financing position appears more assured, with domestic liquidity conditions continuing to improve,” a report on Zambia released last Friday by S&P Global reads in part.
S&P Global also says Zambia’s economic growth prospects are improving as a result of which it has revised its “outlook on Zambia to stable from negative and affirming the ratings at ‘B/B’.”
S&P Global further says Zambia’s “stable outlook balances an improving macroeconomic picture against a number of negative rating pressures, including a still large fiscal deficit and substantial debt stock.”
The agency has however cautioned that the rating could be lowered if Government materially deviates from its fiscal consolidation target.
The agency says it could also lower the ratings if previously destabilising factors such as a fall in copper prices and poor rainfall re-emerge.
S&P Global views reducing fiscal deficits and the stock of debt as core to Zambia’s rating trajectory, particularly as larger external debt maturities enter the forecast horizon through 2020.
The agency expects the agreement with the International Monetary Fund (IMF) to be in place by the end of this year and that “this will act as a policy anchor”.
“We also note that discussions with the IMF have been ongoing for well over a year, derailment of an expected agreement could dent confidence, reduce investment, and offset the positive factors,” the report cautions.
Copper prices have risen by about 18 percent this year and core liquid assets in Zambia’s banks by 44 percent over the same period.
The Bank of Zambia has continued to ease its policy rate and the Kwacha has remained on a slight appreciation path for some time now.
The report says as a result of these factors, the cost of debt for Government has also reduced.
S&P Global Ratings’ analysis of sovereign creditworthiness rests on its assessment and scoring of institutional, economic, and external assessments, the average of fiscal flexibility and performance, as well as debt burden and monetary assessment.

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