Credit rating downgrade sustainable-State

GOVERNMENT says the downgrading of Zambia’s rating by Moody; a leading sovereign credit rating agency does not have an effect on the interest payments for the three Eurobonds.

Deputy Minister of finance Christopher Mvunga told Journalists at a media briefing in Lusaka that the downgrading of Zambia to B3 from B2, which meant from stable to negative, would not in any way affect the rates on the three Eurobonds.

He said Government would not pay a higher premium in the international capital market on existing bonds and that it would be prudent for Government to continue borrowing externally at unsustainable levels.

“You may also note that this assessment by Moody’s is based on the assessment that we should be close to our peers in terms of future debt to GDP accumulation,” Mr Mvunga said.

He however said assessment may be required to pay premium on new borrowing from the international market.

“This means that if we were to issue another bond because we have been downgraded, we may need to pay risk premium for that,” he said. As opposed to Moody’s downgrade attributed to among other reasons, the performance of the Kwacha, Mr Mvunga explained that an exchange rate trading between K9 and K10 was sustainable for an economy.

Mr Mvunga also said the performance of the kwacha meant that Government was saving as required to meet debt service obligation.

He said the views held by Moody that the downgrade would affect investor confidence did not hold for Zambia as illustrated by a tightening of the yields on bonds from an average of 14.5 percent in February 2016, to 12 percent currently.

Mr Mvunga said Zambia had in the recent past seen a re-affirmation of investor confidence with firms such as Glencore indicating their expansionary plans worth over $1.1 billion.

He further explained that the Government remained committed to fiscal consolidation even at a time of elections because it had prioritised reducing the fiscal deficit.

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