Zambia’s Credit Rating Outlook Cut to Negative by S&P

Chikwanda’s budget ready today
Chikwanda’s budget ready today

Standard & Poor’s cut its credit rating outlook for Zambia, Africa’s biggest copper producer, to negative, saying growth in the government’s planned spending for next year will boost debt.

The ratings agency affirmed its ’B+’ long-term and ’B’ short-term ratings for government debt, saying there was a more than one-in-three chance it could downgrade if the country’s financial situation deteriorated.

“We believe that the government, elected two years ago, is adopting this expansionary fiscal stance just as it faces decreasing support, given the economy’s failure to generate sufficient job opportunities,” Standard & Poor’s analysts including Marie-France Raynaud wrote in a note today.

Zambian Finance Minister Alexander Chikwanda on Oct. 11 announced a 33 percent increase in spending for 2014, saying the budget deficit will grow to 8.5 percent this year, nearly double what had been planned. The country is trying to speed development by spending billions of dollars on roads, hospitals and schools.

Government debt will reach about 35% of gross domestic product by 2016 compared to 19 percent last year, even if Zambia meets its revenue targets, Standard & Poor’s said. The budget deficit will be 7.6 percent next year, higher than the 6.6 percent Chikwanda is planning for, the ratings agency said.