By JUDITH NAMUTOWE –

THE revision of Zambia’s rating to B3 by Moodys’ will not have an effect on the interest payments of the Eurobonds, Finance Deputy Minister Christopher Mvunga has said.
Moody downgraded Zambia’s long-term rating to B3 from B2, changing the outlook to negative from stable.
The downgrade on the issuer rating was driven by greater-than-anticipated fiscal slippages in 2016, leading to material liquidity pressures and significant challenges to finance the Budget deficit.
Further, the prospects of additional deterioration in Zambia’s debt matrix in a lower growth environment, with Government debt, are likely to exceed 60 per cent of the Gross Domestic Product (GDP) by 2018.
Mr Mvunga, however, said that Moodys’ assessment had implications for the country as it may require to pay a higher premium on new borrowings from the international capital market.
“Their assessment has implications for our country as we may require to pay a higher premium on new borrowing from the international capital market.
“The revision, however, does not have an effect on the interest payments that we are paying on the three Eurobonds,” Mr Mvunga said.
Despite the generally held view that it would affect  investor confidence, Mr Mvunga said this did not hold for Zambia as illustrated by a tightening yield on the current Eurobonds from an average of  14.5 per cent in February this year to around 12 per cent currently.
“Regarding the domestic market, we have limited exposure currently from foreign investment, hence there will be minimal impact associated with net portfolio outflows,” Mr Mvunga said.
He said the revision of the outlook did not necessarily mean the country would have to pay a higher premium in the international market, stating that it would be imprudent for the Government to continue borrowing externally at unsustainable levels in such a scenario.
“You may wish to note that this assessment by Moody’s is based on the assessment that we should be close to our peers in terms of future debt to GDP accumulation,” Mr Mvunga said.
He said debt sustainability remained Government’s key objective, hence enhancing of the debt management capabilities, including the periodic undertaking of debt sustainability analysis.
He said the country’s debt stock stood at US$6.6 billion, a marginal rise from $6.4 billion, representing 38.7 per cent of GDP in December 2015.