Economy Gains B+ Rating

THE Economist Intelligence Unit (EIU) has affirmed a B-plus rating on Zambia’s economic outlook following the improvement on the country’s sovereign risk score by four points in the first half of 2014.

EIU lead analyst Jonathan Hyman said after recalculation of the Gross Domestic Product (GDP), the Zambian economy is 25 per cent larger than formerly estimated, improving various matrixes such as debt and deficit ratios.

Mr Hyman said in Brussels, Belgium that g mining investment in recent years will see metal exports rise in 2014 and 2015, compensating for lower copper prices and this will see Zambia enjoying ready access to international finance.

“The economic growth outlook is premised on copper output rising more quickly than prices fall, although this is not assured given the global economic context.

“The removal of capital controls in March 2014 has only slightly addressed concerns about the government’s economic management, which will weigh on growth, investment and fiscal revenue prospects,” he said.

Mr Hyman said despite the new Eurobond, public external debt is mostly concessional loans with long maturity periods and this will help preserve debt sustainability regardless of the economy’s vulnerability to exogenous shocks.

The other key factor weighing on the rating is the gaping fiscal deficit as policy remains expansionary and spending oversight remains weak.

He said despite this weak fiscal picture, gross public debt is modest at an estimated 35.5 per cent of recalculated GDP, lower than the median of countries under the B-plus category.

“Such modest debt levels partly explain the g demand for Zambia’s second sovereign issue of US$1 billion in April 2014, although it was oversubscribed at 8.625 per cent,” he said.

Mr Hyman said as a small, fairly open economy, Zambia is exposed to external shocks particularly squeeze in international credit or a sharp fall in copper prices.

“However, weak fiscal policy direction and lower copper prices weighing on exports and the exchange rate as well as interventionist policy making and plans to increase public borrowing, could weigh on the upgraded B+ rating,” he said.

Source : The Times of Zambia

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