Zambia downrated to negative

Standard & Poor’s on Friday revised down its credit outlook for Zambia to negative from stable while leaving the sovereign credit rating at B-plus, four notches below investment grade status.

“We consider that Zambia’s government has recently adopted an expansionary fiscal stance, which we think will substantially increase the government debt burden in 2013-2016, despite strong nominal GDP growth,” S&P said in a statement.

The change in the outlook signifies a one-in-three chance that Zambia could see its credit rating downgraded within a year, S&P said.

S&P affirmed the B-plus rating, but warned of concerns it has that Zambia’s external debt profile could weaken “owing to rising capital goods imports and higher profit repatriation.”

“We now forecast a budget deficit averaging 7 percent of GDP over 2013-2016, against our previous forecast of 3.5 percent,” S&P said.

S&P pointed toward rising civil servant salaries starting in 2013 and an expectation the government plans to increase social welfare spending and capital expenditures for the anticipated fiscal deterioration.

“We believe that the government, elected two years ago, is adopting this expansionary fiscal stance just as it faces decreasing support, given the economy’s failure to generate sufficient job opportunities,” S&P said.

Zambia is rated B1 with a stable outlook by Moody’s Investors Service and B-plus with a negative outlook by Fitch Ratings.

NEW YORK (Reuters)

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