Fitch Ratings has affirmed Zambia’s Long-term Foreign-Currency Issuer Defaulting Rating at “B’ with a negative outlook.
The rating agency said Zambia’s ‘B’ rating reflected the country’s elevated public debt burden, weak fiscal management, high commodity dependence and low income and human development indicators.
It added that the negative outlook reflected the continuing downside risks from persistent fiscal deficits and increased external debt servicing costs.
“The weaknesses are balanced against a credible monetary policy, strengthening economic growth, a net external creditor status, and the potential for the government’s reform agenda to successfully ameliorate structural constrains in the economy while continuing fiscal consolidation,” a Fitch statement said on Monday.
While acknowledging that the country’s public finances have continued to present a downside risk to the sovereign credit profile, the rating agency commended the government for taking steps toward fiscal consolidation which has shrunk the fiscal deficit by close to 5 percent of gross domestic product (GDP) on a commitment basis since 2015 but has projected the general government fiscal deficit to widen to 7.8 percent of GDP in 2017 on a cash basis from 5.8 percent last year.
This was mainly due to a combination of current year budgeted spending and the payment of accumulated arrears to contractors.
The rating agency noted that while the authorities have managed to keep expenditure broadly in line with the budget through the first half of 2017, revenue had underperformed and that a number of weaknesses in the government’s fiscal framework and public financial management will increase the likelihood of new arrear accruals and off-budget spending in the short term.
Zambia’s continued rising public debt has been of great concern, with the International Monetary Fund (IMF) last month saying this was putting the country at high risk of debt distress.
According to government figures, Zambia’s total public debt stood at 12.45 billion U.S. dollars as of August 2017, representing 47 percent of GDP, with the external debt standing at 7.5 billion dollars. Enditem