S&P reaffirms Zambia ‘B+/B’ ratings, outlook remains negative – cpifinancial

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Konkola Copper Mines (KCM),

“In our opinion, the Zambian authorities have been responsive to the significant economic and political challenges the country faced throughout the first half of 2014. We believe the government will look to further consolidate its fiscal position. However, measures to increase revenues are uncertain, and expenditure pressure from important infrastructure projects and the need for job creation remains significant; we expect further clarity on these points to be announced in the 2015 budget later this month. A probable IMF program could help manage further policy uncertainty as a result of a potential presidential change, which could also hurt Zambia’s fiscal and external positions,” S&P said in a statement.

 

Zambia’s vulnerability to copper prices is one of the biggest factors in its rating, as copper accounts for nearly 70 per cent of total exports. Promising investment opportunities in the mining sector, positive economic growth trends, moderate general Government debt and a moderately indebted external balance sheet all support S&P’s ratings.

S&P noted that it would revise its data following the Government’s rebasing of the GDP, from 1994 to 2010, to push GDP up by 25 per cent.

The Bank of Zambia tightened the policy rate from 9.75 per cent to 12 per cent this year and increased banks’ reserve requirement by six per cent to a total 14 per cent. S&P said that these measures, along with the stabilisation of copper prices and the Government’s repeal of a regulation requiring local currency use in domestic transactions, have all helped prevent future currency pressures. The Government also successfully issued a Eurobond, strengthening its foreign reserves.

 

“Zambia’s growth has been strong in 2014, and we expect a 6.5 per cent rise in real GDP,” S&P said. Copper production has increased by eight per cent this year and the country’s cola and gemstone resources remain substantial, as well as its capacity to generate and support electricity, S&P said.

Though external demand for copper has been high, it warns that future demand remains uncertain and ‘may not be sufficient to absorb Zambia’s expected production increases over the next few years at current prices’.

“Zambia’s economic prospects depend on copper prices remaining stable. That said, we expect growth in other sectors to increase and, therefore, overall real GDP growth to average about seven per cent during 2014-2017, similar to the 6.5 per cent of 2007-2012,” S&P said.

 

http://www.cpifinancial.net/news/post/28488/s-p-reaffirms-zambia-b-b-ratings-outlook-remains-negative

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