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Chikwanda, BoZ Experts need to up economic management strategies

Filed under: Breaking News,Business |
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The increasingly large budget gap in Zambia may prove costly to finance, Fitch Rating says.

Domestic financing conditions are constrained, and new external financing could push government debt toward 40% of GDP by end-2015.

Increased domestic borrowing in the 2015 budget and a shortage of liquidity have pushed up financing costs, while demand for domestic government securities has fallen short of supply so far this year.

Tapping external sources of financing can expand an emerging market sovereign’s investor base.

But we have previously highlighted the risks of greater reliance on more expensive non-concessionary external financing to fund large budget deficits, particularly current expenditure. These include refinancing risk (although the Zambian governments announcement of a sinking fund to repay the sovereign’s two outstanding Eurobonds may mitigate this), and the risk that debt servicing costs rise due to currency depreciation (the kwacha has fallen by 14% since January 2015).

Zambia’s external position has worsened since the start of the year.

Falls in reserves have been more pronounced this year than in early 2014, reflecting falling export revenues due to lower copper prices.

Reserves have fallen by USD400m since December to USD2.6bn, from a peak of USD3.7bn in April 2014, following the last Eurobond issue.

A sustained deterioration in fiscal discipline would be negative for Zambia’s sovereign credit profile. The next scheduled rating review is on 21 August – Reuters

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