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IMF DEAL IN SIGHT – FITCH

By BUUMBA CHIMBULU
ZAMBIA is more likely to get the US$1.3 billion financial programme deal with the IMF over the next few months as investor confidence has surged, Fitch Solutions has predicted.


According to the latest Fitch Solutions report on Zambia, the US$1.3 billion deal with the IMF was more likely to materialise now that the August 12 elections were over, and progress on debt restructuring negotiations would likely be faster under the new administration.


Fitch Solutions is closely linked to Fitch Ratings and helps clients determine their best investment options, sharing data from their market research with investors to provide them with risk solutions and debt market solutions, among others.


“With the elections now over, we expect discussions with the IMF to proceed, and result in an agreement on a financial programme over the next few months.


“In addition, progress on complex debt restructuring negotiations with foreign creditors, following the government’s technical default in November 2020, is likely to be faster under the new president,” Fitch stated.


Fitch applauded President Hakainde Hichilema’s commitment to find an “amicable solution” and treat all creditors equally, reducing fears among Eurobond holders that Chinese creditors might receive preferential treatment.


Yields on Zambia’s Eurobonds fell sharply following Mr Hichilema’s victory, indicating improving investor sentiment, and the spread between yields on the 2022 and 2024 Eurobonds has narrowed, pointing to a less bearish outlook for the short term.


Fitch estimated that total Government debt increased to 110.0 percent of Gross Domestic Product (GDP) in 2020 (excluding arrears), but forecast that it would gradually fall to 69.3 percent in 2030.


It expected Zambia’s fiscal deficit to narrow from an estimated 12.7 percent of GDP in 2020 to 6.8 percent in 2021, as revenues rebound, but spending pressures related to the run-up to the August 2021 elections and Covid-19 remain elevated.


“We forecast the deficit will narrow more rapidly from 2022 onwards, as a likely IMF programme underpins stronger fiscal consolidation efforts.
“That said, a relatively weak revenue outlook and elevated spending commitments will keep the budget in deficit across our forecast period,” Fitch stated.

Zambia’s public external debt has outweighed government domestic debt since 2012, but this trend has been reversing, with the government having to rely more on domestic sources of financing following its technical default in November 2020.

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