Fitch downgrades Zambia's economic outlook

By Chiwoyu Sinyangwe
 GLOBAL rating agency Fitch has downgraded Zambia's economic outlook from stable to negative a few months before the country's planned US$700 million Eurobond is issued.

But finance minister Alexander Chikwanda says it is "inglorious opinion" for Fitch to downgrade Zambia's economic outlook to negative.

Fitch Ratings which provides issuer and bond ratings last year assigned the Zambia Long-term foreign and local currency Issuer Default Ratings (IDR) of B+.
Zambia's rating is the same as that for Ghana, Kenya and Angola and one step above Lebanon.

In its latest outlook released on Thursday, Fitch downgraded Zambia's ratings from stable, citing concerns about the direction of economic policy in the southern African state.

"The revision of Zambia's rating reflects the agency's concerns about some of the government's recent actions and announcements, which bring into question the direction of economic policy," Fitch stated.

The agency affirmed Zambia's short-term issuer default ratings at B and the country ceiling at BB-.

Fitch stated that Zambia's recent decision to reverse a privatisation deal could undermine property rights, while planned reforms of the mining and banking sectors could negatively impact investment and consequently macroeconomic stability.

It stated that the government's decisions to reverse the privatisation of Zamtel and investigate the privatisation of Zanaco represent perhaps the most worrying recent development.

"The revision of Zambia's outlook to negative reflects the agency's concerns about some of the government's recent actions and announcements, which bring into question the direction of economic policy," says Carmen Altenkirch, director in Fitch's Sovereign ratings group.

"The recent decision to reverse a privatisation deal without as yet compensating the investing parties could undermine property rights, while planned reforms of the mining and banking sectors could risk unintended consequences in terms of their potential impact on investment, and consequently on the growth outlook and macroeconomic stability."

The government is investigating the 2007 sale of a 49 per cent stake in state-owned Zanaco Bank to Rabobank, in a case that Fitch said "could lead to a reversal of a deal involving foreigners".

On January 24, 2012, President Sata dissolved the board of directors of Zamtel and appointed Dr Mupanga Mwanakwatwe as acting chief executive officer and chairman as the government took 100 per cent ownership of the country's total mobile phone provider whose 75 per cent was corruptly sold to Libya's LAP Green Networks for US$257 million in 2010.

"A further concern surrounds a recent announcement by the Central Bank to significantly increase the minimum capital requirements for the banking sector," stated Fitch. "Although the government's objective of increasing the size and capitalisation of the banking sector is laudable, Fitch is concerned about the potential impact on asset quality, inflation and foreign bank participation in the sector."

But Chikwanda dismissed all the benchmarks on which Fitch demoted Zambia's economic outlook from last year's positive trajectory.

He said it was wrong for Fitch to state that government's decisions to reverse the privatisation of Zamtel and investigate the privatisation of Zanaco represent perhaps the most worrying recent development.

Chikwanda said the economic outlook for Zambia was positive premised on expected robust performance of key sectors like mining, agriculture and tourism.

"Zanaco is different from Zamtel. But that also shows how corrupt they Fitch are," Chikwanda said.

"A rating agency of its respectability, has read the report of Zamtel and the indefensible massive corruption that was involved in that transaction, and they are acting as very ardent high priests and supporters of the corruption perpetuated by Zamtel. Obviously this can only impinge on their Fitch integrity and credibility. The economic outlook for Zambia is very bright. And its not Fitch which is going to determine the future of Zambia. It's you and I who are doing to determine the future of Zambia individually and collectively, and not what the rating agency does or says."

Chikwanda said the probe into Zanaco and the reversal of Zamtel should not be misconstrued that the government did not respect and protect private properties, especially foreign-owned assets domiciled in the country.
"The PF government is based on the rule of law. We have total scrupulous respect for property," he said.

"So, the ideas of Fitch and other people are just a figment of imagination. Government is totally committed to the rule of law."

Chikwanda also said Fitch's assessment would not impact negatively the pricing of the US$700 million the country plans to borrow to fund expansionary budget with key focus on infrastructure development.

"I don't think so because the people who will be in the market to buy our bond are banks which have roots or connections with Zambia and are well-informed," he said.

Chikwanda also blamed inconsistent statements among some top government officials for the growing apprehension among investors, and partly for the decision by Fitch to portray "a gloomy picture for the Zambian economy".

He also said the government had no plans to raise its stake in foreign-owned mining firms, contrary to recent comments by former mines minister Wylbur Simuusa that the government would raise its shareholding in the mining firms to 35 per cent.

"This is an admission on all of us Zambians, government and citizens that we should be consistent. So, our policies are consistent, and of course people have the right to question us, especially if you journalists publish something which is alarming or some of the people in government, at whatever level, say things which appeal to be adrift with the set policies outsiders have the right to question us," he said.

"That is why they are fence-sitting. They sit on the fence, they want to assess our credibility, and our credibility comprises two major components: one of them is policy consistency because policy somersaults are not helpful to the countrys image. The other component of credibility is simply predictability. People including citizens must know where your government stands, not today is this."

Chikwanda said the significant increase in the minimum capital requirements for the banking sector would help solidify the financial sector lend to real sectors.