Zambia’s upgraded credit rating will enable it to leverage international capital to drive economic growth, says economist Trevor Hambayi.
Speaking with Zambian Digest about the practical implications of Moody’s Ratings’ recent credit status upgrade for Zambia, Hambayi described the upgrade as a positive development, which speaks to the country’s improved fiscal position.
“The rating had been dropped to an SD – selective default – in November 2020 when we defaulted on our Eurobonds, so with this upgrade the country’s international risk profile has improved. When we borrow funds from outside the country, we pay a premium depending on what risk they consider us to have and that premium was higher prior to this because we had defaulted,” he explained.
“The upgrade now says that our risk profile is lower; it means our international risk profile is lower, and we are going to be paying lower interest rates.”
Hambayi said the positives extend to the private sector, which will pay lower interest rates when borrowing international funds.
“But also from a country perspective, it means that we are now eligible to borrow commercial funds on the international market. Prior to this, we could not borrow because we had a junk status credit rating,” he stated.
He said this is a positive development in terms of where the country is as it allows us to try and leverage international capital for us to be able to drive economic growth.
Hambayi said he expected that the remaining international credit ratings agency, S&P, which is yet to review Zambia’s status will likely also render an upgrade.
Last week, Moody’s Ratings upgraded Zambia’s foreign and local currency ratings from Ca and Caa3 to Caa2 respectively.
A statement issued on June 14 explained that Moody’s had upgraded the Zambian Government’s long-term foreign-currency issuer rating from Ca to Caa2, and the long-term local-currency issuer rating from Caa3 to Caa2 and maintained the stable outlook.
“The issuer ratings upgrade reflects an incremental improvement in the still very weak credit profile post-bond restructuring, which achieved some financial relief by easing government liquidity pressures, improving debt affordability, and slightly reducing the debt burden,” the statement reads.
Moody’s, however, notes that the Caa2 ratings indicate a still-elevated risk redefault over the next few years given that government debt remains very high and debt affordability remains strained with constrained access to funding.
“Meanwhile, economic challenges related to the reliance on a single export commodity (copper)persist, as do very high environmental and social risks and ongoing governance challenges,” stated Moody’s.
The stable outlook, Moody’s explained, balances risks at the Caa2 rating level, reflecting anticipated access to concessional financing from international financial institutions that eases liquidity pressures and supports debt sustainability, notwithstanding slowing growth and rising financing requirements in the near term.
Explaining the rationale for the ratings, Moody’s said the recently completed bond exchange alleviates the Zambian government’s immediate liquidity pressures by extending maturity payments and reducing the coupon payments compared to the original obligations.
“Nevertheless, the servicing and annual maturity payments of Bond A will remain challenging given the government’s constrained access to financing, especially in foreign currency.”
