Zambia’s second Eurobond will prove costlier than its debut issue in 2012 after the budget deficit ballooned leading the country to lose its spot as Africa’s biggest copper producer last year, Bloomberg has observed.
Bloomberg observed that spending reforms by President Michael Sata were met by a Fitch Ratings downgrade last year, pushing the country deeper into junk and making it the continent’s worst bond performance.
Bloomberg notes that Sata, has focused on developing roads and railways in the $21bn economy and sought to harmonise civil-servant salaries that drove the budget deficit to 8.5% of gross domestic product (GDP) last year.
Zambia, which mined an estimated 830,000 tonnes has been topled by the Democratic Republic of Congo as Africa’s top copper producer, the US Geological Survey has observed.
“The market’s perception of the government’s ability to manage public funds has worsened,” Yvette Babb, a fixed-income and currency strategist at Standard Bank in Johannesburg, said. “The credibility of Zambia’s fiscal policy has suffered as a result of the overrun in the budget deficit in 2013 as well as inconsistent statements about the magnitude.”
According to Bloomberg, Zambia is planning to issue $1bn of Eurobonds and has hired Deutsche Bank and Barclays to lead the sale.
Bloomberg says according to the International Monetary Fund World Economic Outlook, infrastructure investments and expansion in mining, including projects developed by Vancouver-based First Quantum Minerals, are set to boost the country’s growth to 6.5% of GDP this year, faster than the sub-Saharan African average of 6%. Bloomberg notes that the slump in the price of copper, which accounts for about 70 percent of Zambia’s export earnings, has seen the kwacha weaken 8.3 percent this year, the worst performer among the African currencies.
Meanwhile,Zambia’s copper mines would be threatened should the price of the metal extend its decline to $5,000 a metric ton, according to the country’s mines minister, Christopher Yaluma.
Copper has dropped 13 percent this year to the lowest levels since 2010. The metal, which last traded below $5,000 a ton in July 2009, was down 1.4 percent to $6,415 as of 12:36 p.m. on the London Metals Exchange. “When it starts getting to $5,000 and below,” that would threaten the country’s economic outlook.
I don’t think this is going to carry on, it will still bounce back,”Yaluma said.