Zambia’s economic position continues to be gloomy following the downgrade of the country’s long-term foreign currency ratings deeper into junk status by Standards and Poor’s rating agency, says FNB Zambia.
Last Friday, Zambia was downgraded to CCC+ with stable outlook by Standards and Poor’s rating agency, with its long-term foreign and local currency ratings lowered in credit assessment to CCC+ from B-.
This comes approximately one month after Fitch lowered Zambia’s credit assessment lower to CCC, while Moody’s rated Zambia Caa2 from Caa1 earlier in the year.
According to the Business Telegraph, a combination of factors, including rising external debt levels, huge infrastructure spending and domestic arrears remained a key concern for Zambia’s economy, while currency risks remain high given the country’s dwindling reserves position to around US $1.4 billion, around 1.6 months of import cover.
Other factors reviewed in the credit downgrade, according to the Telegraph, were widening fiscal deficits and delays in locking in a much-needed International Monetary Fund (IMF) deal for balance of payment support.
“Zambia’s credit default spreads have widened significantly to above 1,350bps reflecting waning confidence. Given the fiscal posture of the counterparty (Zambia) and the balance sheet vulnerabilities S&P decided to lower the credit assessment of Zambia, citing risks to growth and vulnerabilities to external shocks,” it reported, Friday.
And in its Treasury Market Update, Monday, FNB noted that Zambia’s economic situation remained gloomy following another credit downgrade.
“Current economic position continues to be gloomy. Although S&P’s economic outlook is stable from negative, they have downgraded Zambia’s long-term debt to CCC+ from B-. The downgrade, coupled with increased load shedding hours, could have an impact on dollar demand from investors,” FNB stated.
And it stated that last month’s dollar supply had no impact on cushioning the kwacha’s depreciation against major currency convertibles.
“It was a typical Friday with market activity quite subdued. Market dynamics continue to be balanced as there was no movement in market level. Markets opened and closed at K13.07/K13.12. We expect market activity to pick up this week as month-end approaches. Previous month’s dollar supply had no positive impact on the local unit and that could be the same for this month. We can place support to be at K13.00 and resistance at K13.17,” stated FNB.