Fitch Ratings sees Zambia as probably defaulting on debt as the economic fallout from the coronavirus pandemic worsens the southern African nation’s already stretched finances.
The credit-ratings company downgraded Zambia’s debt to CC, the second lowest level outside of an actual default, joining Moody’s Investors Service that made a similar cut earlier this month. Zambia’s Eurobonds fell.
“The shock from the coronavirus pandemic has exacerbated Zambia’s already constrained external liquidity,” Fitch analysts including Jermaine Leonard said in a statement Thursday. “We see a default as probable, as evidenced by the government’s tender of a request for proposals from advisers on a potential liability management exercise.”
Zambia’s Finance Ministry last month called for proposals from advisers to assist it in managing its external liabilities.
Africa’s second-biggest copper producer had $11.2 billion in external debt at the end of last year, climbing from $4.8 billion in 2014. Payments due this year total $1.5 billion -- 115% more than Zambia’s gross international reserves in January, Fitch said.
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The planned liability management exercise may be a precursor to a support program from the International Monetary Fund, it said.
The yield on Zambia’s Eurobonds due in 2022 rose nine basis points to 51.22% by 12:10 p.m. in London.
Other key points from Fitch report:
- The general government deficit will expand to almost 10% of gross domestic product in 2020. The IMF forecasts it at 5.7%
- General government debt to reach 113% of GDP and to continue rising in the long term
- Fitch forecasts Zambia’s economy will shrink by 0.7% in 2020, the IMF sees a 3.5% contraction.
©2020 Bloomberg L.P.