Fitch gives Zambia B+, clears path for Eurobond

Fitch Ratings agency ( has given Zambia a “B+” rating on long-term foreign and local currency, with a stable outlook. Fitch has also assigned a Short-term rating of ‘B’ and a Country Ceiling of ‘BB-‘. This could pave the way for a $500 million Eurobond, according to Standard Bank, but the country has plenty of local deposits seeking homes as local interest rates are attractive and the currency that looks strong against the US dollar.
Veronica Kalema, Director in Fitch’s Sovereign Group, says in a statement: “The ratings reflect the marked improvement in Zambia’s economic performance since 2003 driven by improved macroeconomic stability, economic liberalisation, rising private investment and production in the mining sector, and more recently, a strong agricultural performance.
“The rating is also supported by Zambia’s resilience to the global financial crisis, with growth accelerating in 2009 and 2010, and comfortable external and public debt ratios, which deteriorated only slightly in 2009 before recovering in 2010. After spiking in 2008 and 2009, inflation fell to high single digits in 2010 and the currency has been stronger and more stable since H2 2009.”
Fitch notes real GDP growth has averaged 6.3% since 2006 and accelerated to 7.1% in 2010. Copper production reached a record high of 820,000 metric tonnes (MT) in 2010, ahead of targets, and the Government expects it to reach 1m MT in 2012. Standard Bank, in a research note today (3 March) notes that the price of copper is up from $2,800/tonne in Dec 08 and passed $10,000/tonne during Feb 11. Zambia also grew more maize than it could consume locally last year and exported some. The harvest is looking even better this year.
“Predictably, the country’s trade balance has improved to record a large surplus during 2010, roughly 20% of GDP,” writes Standard Bank analyst Phumelele Mbiyo. Fitch also gives B+ ratings to Angola, Ghana, Kenya. Nigeria and Gabon (BB-) are more highly rated, Mozambique and Rwanda (B) are lower.
The Government is planning extensive infrastructure investment, chiefly on energy and roads. in 2008 it has postponed plans for a $1 billion bond due to the global financial crisis. In 2010 it has raised funds separately to extend the Kariba North Bank power station and build the Kafue Gorge Lower power plant. This would cut the size of any potential Eurobond.

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