Zambia Debt Default Seen as Probable by Fitch After Virus Shock
Zambia Debt Default Seen as Probable by Fitch After Virus Shock
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.
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.
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