THE Fitch Ratings Agency has upgraded Zambia’s Long-term Local-Currency Issuer Default Rating (IDR).
In a move that has also seen the Agency affirms Zambia’s Long-Term Foreign-Currency (LTFC) IDR at ‘RD’, upgraded the country’s rating to ‘CCC’ from ‘CC’.
The Agency says the upgrade reflects that the government has continued to service its local currency debt and has made no indication that it plans to include domestic debt in any potential debt restructuring.
“This means an eventual re-structuring of external debt could improve the overall public finance position and support local-currency debt sustainability,” says the Agency in a statement.
However, the ‘CCC’ rating still reflects a real possibility of a local-currency default, given Zambia’s weak public finances and tight domestic financing conditions.
Fitch estimates the 2020 general government deficit widened to 12 percent of GDP and forecasts a 2021 deficit of 10.3 percent.
General government debt reached an estimated 114 percent of GDP at end-2020, versus the current ‘B’ median of 66%.
The need to roll over domestic debt has increased interest rates.
The government’s weighted-average cost of domestic government bond issuance reached a real rate of 11.7% in February, when inflation was 22%.
Zambia’s LTFC IDR of ‘RD’ reflects that the government has not serviced its outstanding Eurobonds pending a restructuring since its failure to pay the coupon due 14 October 2020 on its US$1 billion Eurobond that matures in 2024.
The government has continued to service foreign currency-denominated debt to multilateral financial institutions and debt on a few priority projects that have immediate social and economic impact.
The Government of Zambia officially requested debt treatment under the G20 Common Framework in February 2021, and began discussions with the IMF on a possible support programme. Debt treatment under the common framework is likely to be driven by the outcome of a debt sustainability analysis (DSA) prepared by the authorities with the IMF and the World Bank.