Zambia’s economy to recover by 5 pc – Moody

Fri, 03 Mar 2017 10:36:12 +0000

By BUUMBA CHIMBULU

MOODY, a credit rating agency, says it is expecting Zambia’s economic growth to recover to 5 percent or more in 2019-2020 if there will be no significant new external shocks.

And Moody’s vice president – senior analyst and the report’s co-author Zuzana Brixiova, observed that Zambia faced several short and medium-term challenges of liquidity pressures resulting from a series of large fiscal deficits.

In the latest annual report, Moody said Zambia still had good medium-term economic growth potential despite rating it with a B3 Government bond rating, representing a negative outlook.

The agency said in the absence of significant new external shocks, Zambia’s growth would recover to 5 percent or more in 2019-2020, aided by gradually rising copper prices, extra mining capacity and reduced electricity shortages.

“Zambia’s fiscal strength is set at very low based on the country’s public debt that has risen rapidly over the past few years, relatively high share of external debt and a series of missed fiscal targets,” said the agency.  Moody expects that Government could narrow the fiscal deficit to 6.1 percent of the Gross Domestic Product (GDP) in 2017 if it successfully reduced spending, possibly as part of the prospective International Monetary Fund (IMF) programme.

According to the agency, the outlook on Zambia’s rating could be stabilised should the trends behind the negative outlook dissipate or reverse over the next year to 18 months.

These would include containing the fiscal deficit and increased certainty surrounding Government fiscal policies and funding sources.

“Zambia’s economy, smaller than the median for Sub-Saharan Africa and B-rated sovereigns, is vulnerable to external factors, particularly copper price shocks and a slowdown in China’s growth, a major trading partner,” said the agency.

For 2017, the agency forecast real GDP growth to accelerate to 4.1 percent, with factors like continued robust foreign direct investment (FDI) above regional peers’ off-setting subdued commodity prices and power shortages.

Ms Brixiova said Zambia had other challenges which included limited access to international capital markets, restoring financial support from the international community and improving governance and the transparency of the public finances.