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Moody’s Investors Service has upgraded Zambia’s local currency long-term issuer rating to Caa3 from Ca, indicating a stable outlook.
The stable outlook reflects balanced risks.
Moody’s upgrade of the local-currency rating which took place on Monday, followed the announcement of an agreement on a comprehensive debt treatment between the government and the Official Creditor Committee (OCC).
The debt restructuring agreement covered about US$6.3 billion of central governments’ debt owed to external bilateral creditors and the debt of ZESCO that has been guaranteed by government and also owed to official bilateral creditors.
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Moody acknowledged that this agreement clearly excluded local-currency debt from the restructuring treatment, reducing the risk of losses for local-currency creditors including non-resident holders.
“The upgrade is limited to one-notch in recognition of the high risk of future default on local-currency debt due to very weak debt metrics, vulnerabilities to environmental risks and external shocks, as well as high social risks and very weak governance,” according to Moody’s.
In June this year, Finance and National Planning Minister, Situmbeko Musokotwane, told parliament in his ministerial statement on debt restructuring agreement with official bilateral creditors that official creditors had agreed with the government that domestic debt would be excluded from any treatment.
Meanwhile, Moody’s stated that ongoing negotiations over the restructuring of the government’s foreign-currency debt under the G20 Common Framework could prove lengthy or external conditions could turn markedly adverse.
This, according to Moody’s, increasing the need to find debt relief elsewhere including from local-currency debt restructuring.
Equally, the foreign-currency debt restructuring could go relatively smoothly, with ongoing international financial support and reform progress reducing the likelihood of future default events.
The foreign-currency long-term issuer rating is Ca.
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