Zambia Credit Rating Cut to B by Fitch on Budget Gap

Zambia’s credit rating was cut by Fitch Ratings after Africa’s largest copper producer said that spending on wages and subsidies will widen the budget deficit more than forecast.

The rating was lowered to B, five levels below investment grade, from B+, Fitch said in a report today. Fitch said the outlook was stable. Zambia is rated one level higher by Standard & Poor’s, which cut its outlook to negative last week, and Moody’s Investors Service.

“Spending will over-run again in 2014, reflecting the cost of the wage increase and higher debt service costs,” said Carmen Altenkirch, an analyst at Fitch. “Wider deficits will place upward pressure on key debt ratios.”

Zambia’s budget gap will probably widen to 9 percent of gross domestic product this year, exceeding Finance Minister Alexander Chikwanda’s target of 8.5 percent, Altenkirch said. That’s more than double the government’s 4.3 percent estimate earlier this year, as falling copper prices hurt revenue.

The kwacha dropped 0.8 percent to 5.395 per dollar today. The yield on the 2022 dollar bond rose 2 basis points to 6.724 percent.

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