Novi Insight
  • Home
    • About
  • Analysis
  • Economic Indicators
  • Financial Markets
    • African Explosives Zambia
    • Airtel Networks
    • Bata Zambia
    • British American Tobacco
    • Cavmont Bank
    • First Quantum Minerals
    • Copperbelt Energy Corp.
    • Investrust Bank
    • Lafarge Zambia
    • Madison Financial Services
    • Metal Fabricators of Zambia
    • National Breweries
    • Pamodzi Hotel
    • Prima Reinsurance
    • Puma Energy
    • Real Estate Investments Zambia
    • Standard Chartered Bank Zambia
    • Zambeef
    • Zambian Breweries
    • Zambia Sugar
    • Zambia National Commercial Bank
    • ZCCM Investment Holdings
  • Contact
  • Home
    • About
  • Analysis
  • Economic Indicators
  • Financial Markets
    • African Explosives Zambia
    • Airtel Networks
    • Bata Zambia
    • British American Tobacco
    • Cavmont Bank
    • First Quantum Minerals
    • Copperbelt Energy Corp.
    • Investrust Bank
    • Lafarge Zambia
    • Madison Financial Services
    • Metal Fabricators of Zambia
    • National Breweries
    • Pamodzi Hotel
    • Prima Reinsurance
    • Puma Energy
    • Real Estate Investments Zambia
    • Standard Chartered Bank Zambia
    • Zambeef
    • Zambian Breweries
    • Zambia Sugar
    • Zambia National Commercial Bank
    • ZCCM Investment Holdings
  • Contact
Search

Fitch Ratings Affirms Zambia 'B' Rating; Revises Outlook to Positive

20/9/2014

0 Comments

 
The following is the statement that Fitch Ratings released on Friday:

Fitch Ratings has revised the Outlook on Zambia's Long-term foreign and local currency Issuer Default Ratings (IDR) to Positive from Stable and affirmed the IDRs at 'B'. The issue ratings on Zambia's senior unsecured foreign and local currency bonds have also been affirmed at 'B'. The Country Ceiling has been affirmed at 'B+' and the Short-term foreign currency IDR at 'B'. 
Picture
KEY RATING DRIVERS

The revision of the Outlook on Zambia's IDRs reflects the following key rating drivers and their relative weights: Medium The outlook for Zambia's public finances is more positive compared with October 2013, when we downgraded the Long-term IDR to 'B'. The fiscal outturn for 2013 (5.7% of GDP or 6.6% prior to GDP rebasing) came out significantly below the budget figure of 8.6% of GDP announced in August 2013. Furthermore, fiscal data for the first six months of 2014 suggest that the deficit was well contained at 2% of GDP (against a target of 2.5% of GDP). Although this partly reflects higher-than-expected VAT receipts due to the build-up in VAT refund arrears (2.5% of GDP) to exporters, Fitch acknowledges the commitment to expenditure restraint over 1H14. The authorities' decision to approach the IMF, combined with the latest medium-term expenditure framework, which shows the budget deficit falling to 3.2% of GDP by 2017, suggests renewed commitment to fiscal prudence by the government.

However, possible pre-election spending ahead of the 2016 presidential contest, failure to agree on an IMF programme as well as the repayment of VAT arrears to mining companies once a final agreement is reached, all add to fiscal risks. The government has revised down the expected budget deficit for 2014 from 6.6% to 5.2% (6.2% on old GDP base), reflecting the rebased GDP as well as the lower-than-expected deficit in the first six months of the year. However, the risk remains that the government will overrun the deficit in 2014, due to the better than expected maize harvest and consequent spending pressure from the Food Reserve Agency, higher wages, as well as the payment of VAT refunds. Fitch therefore forecasts a deficit of 5.8% of GDP. An improved fiscal outlook as well as strong GDP growth is forecast to contain the debt burden. Fitch expects consolidated general government debt to peak at 33% of GDP in 2016, well below 'B' peers.

Tight domestic liquidity conditions have seen yields on 182- and 364-day treasury bills rise to 17.5% and 23% in mid-August, up from 13.2% and 13.3%, respectively, a year ago. Treasury auctions in the first six months of the year were significantly under subscribed. The policy environment has improved, following the uncertainty initially created after the election of President Michael Sata. Early pronouncements from the new administration led Fitch to revise the Outlook to Negative in February 2012. However, the decision to revoke regulations that were adversely impacting the foreign exchange market is credit supportive. Although risks persist, particularly ahead of the elections, the business environment has not deteriorated as much as previously expected and the likelihood of significant and adverse policy shifts has significantly reduced.

Zambia's 'B' IDRs also reflect the following key rating drivers: The recent rebasing of GDP has revised upwards Zambia's already robust average growth rate over the past five years, to 7.3% from 6.8%, well above the 'B' median of 4.3%. Fitch forecasts growth to remain at a robust 6%-7% in 2014-2016, benefiting from the government's ambitious infrastructure investment programme, rising copper production and continued foreign direct investment (FDI). The rebased GDP shows that the economy was 20% larger in 2013 than previously measured, with services and mining now the two largest sectors in the economy. Inflation remains above the Bank of Zambia's 6.5% year-end inflation target.

The current account is expected to remain in surplus over the medium term, supported by rising copper production and broadly stable copper prices. Foreign companies' repatriation of profits abroad is more than offset by strong inflows of FDI (5% of GDP). The recent Eurobond issue has boosted reserves above three months of current external payments (CXP). The decision to revoke exchange rate regulations as well as the announcement that the government intends to approach the IMF has seen the local currency appreciate 12.9% since May, after a sharp sell-off in 1H. Nevertheless, the kwacha remains sensitive to external shocks from capital flows or copper prices. A decade of growth above 6% has resulted in an improvement in social indicators, but per capita income (at 60% of the 'B' median) and measures of human development still compare weakly with 'B' category peers. Health and education outcomes are especially weak, with average life expectancy of 49 years. The lack of skills adversely affects the employability of the workforce, with only 10% employed in the formal sector. The average adult has less than seven years of schooling.
 RATING SENSITIVITIES

The main factors that could lead to an upgrade are:

 - Continued progress on narrowing the budget deficit.

- A further improvement in the macroeconomic policy framework.

- An improvement in international reserves to reduce Zambia's vulnerability to external shocks.

- Well-implemented infrastructure investments, which improve growth potential and increase market access for traditional and non-traditional exports.

The current rating Outlook is Positive. Consequently, Fitch's sensitivity analysis does not currently anticipate developments with a material likelihood of leading to a downgrade. However, any sustained deterioration in fiscal discipline, or external balances as well as a marked deterioration in the policy environment ahead of the 2016 elections would result in the rating Outlook being revised to Stable. 
KEY ASSUMPTIONS

Fitch assumes that GDP growth will remain robust, averaging between 6%-7%, based on the assumption that copper production will increase significantly by 2020, with strong net FDI inflows. Fitch assumes that some fiscal consolidation will take place, albeit at a slower pace than the authorities' projections. We assume new power stations come on-stream as scheduled and help alleviate electricity shortages. Fitch does not assume any material volatility in copper prices over the forecast horizon.
0 Comments



Leave a Reply.

    Picture

    Mutale M.

    Trying to decipher this puzzle that is Zambia by using a variety of publicly available data (structured and unstructured) in conjunction with my own skill/experience.  * * *

    Tweets by @Novi_insight

    Archives

    February 2018
    December 2016
    November 2016
    July 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015
    November 2015
    October 2015
    September 2015
    August 2015
    July 2015
    June 2015
    May 2015
    April 2015
    March 2015
    February 2015
    January 2015
    December 2014
    November 2014
    October 2014
    September 2014
    August 2014
    July 2014
    June 2014
    May 2014
    April 2014
    March 2014

    Categories

    All
    2015 Earnings
    2015 Elections
    2015 National Budget
    2016 Elections
    2016 National Budget
    2017 National Budget
    2019 Afcon Bid
    ACC
    AFDB
    Agriculture
    Airlines
    Airtel Networks Zambia
    Aquaculture
    Auction
    Auditor General Report
    Automobiles
    Aviation
    BaDEx
    Banking
    Bank Of Zambia
    BATA
    BATZ
    Biofuels
    Business Environment
    Cabinet
    Capital Markets
    CEC
    Cement
    Central Bank
    Clear Beer
    Coal
    Commercial Banking
    Construction
    Copper
    Country
    Credit Rating
    Currency
    Debt
    DEC
    Defense
    Derivatives
    Digital Migration
    Digital TV
    Earnings
    E-commerce
    Economic Growth
    Edible Oils
    Elections
    Emeralds
    Energy
    Equities
    Eurobond
    Exports
    Fed-tapering
    Fed-tapering
    Fibre
    Financial Services
    Financing
    Finscope
    First Quantum Minerals
    Fiscal 2014
    Fiscal 2015
    Fiscal 2016
    Fiscal Reform
    Fitch Ratings
    Football
    Foreign Aid
    Frontier Markets
    Fuel
    Futures
    FY 2014
    GDP
    Governance
    Government Expenditure
    H1 2015
    Health
    Hedging
    Hospitality
    ICT
    IDC
    IMF
    Imports
    Industrial Action
    Inflation
    Infrastructure
    Insurance
    Interest Rates
    International Women's Day
    Internet
    Investing
    INVESTRUST
    IPO
    Islamic Finance
    Kcm
    Kwacha
    LAFARGE
    Legislature
    LME Copper
    LuSE
    Manufacturing
    Markets
    Mergers And Acquisitions
    MFIN
    Microfinance
    Mining
    Mobile Banking
    Monetary Policy
    Money-transfer
    NATBREW
    Oil
    Opaque Beer
    Parliament
    Pay TV
    Policy
    Politics
    PRIMA RE
    Private-equity
    PUMA
    Rail
    Railway
    Real Estate
    Regulations
    REIZ
    Research Note
    Retail
    Rio-tinto
    RIP President Sata
    SA Rand
    SCZ
    SMEs
    South Africa
    Stadia
    Sugar
    Survey
    Tax
    Taxes
    Tbills
    T/bills
    T/bonds
    Technology
    Telecoms
    Tobacco
    Tourism
    Trade
    Transport
    US Dollar
    Venture Capital
    World Bank
    Yields
    Zamabian Breweries
    Zambeef
    Zambia
    Zambian Award
    ZAMBREW
    ZANACO
    ZRA
    ZSUG

    RSS Feed

© 2019 Novi Insight Limited. All rights reserved.
  • Home
    • About
  • Analysis
  • Economic Indicators
  • Financial Markets
    • African Explosives Zambia
    • Airtel Networks
    • Bata Zambia
    • British American Tobacco
    • Cavmont Bank
    • First Quantum Minerals
    • Copperbelt Energy Corp.
    • Investrust Bank
    • Lafarge Zambia
    • Madison Financial Services
    • Metal Fabricators of Zambia
    • National Breweries
    • Pamodzi Hotel
    • Prima Reinsurance
    • Puma Energy
    • Real Estate Investments Zambia
    • Standard Chartered Bank Zambia
    • Zambeef
    • Zambian Breweries
    • Zambia Sugar
    • Zambia National Commercial Bank
    • ZCCM Investment Holdings
  • Contact