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Tuesday, 8 June 2010

Zambia's sovereign debt rating, 2nd Edition

The quest for a sovereign debt rating is back on track with announcement last week that Zambia plans to issue a $1 billion international bond this year "to raise money for power generation plants, railways and roads". The plans were put on ice last year following the global economic crisis, with BoZ Governor Caleb Fundanga emphasising that "Zambia will only issue an international bond if it needs to fund a specific project". One is tempted to ask what are these projects? Also the timing does not seem right to me. We are on the verge of elections, is this the time to start issuing bonds? Why not wait until the elections are done? Is this being done in consultation with the Opposition?

Finance Minister Musokotwane believes "Bond holders want a credit rating and we expect this process to take us about three months".  He is also quoted as suggesting that we may get a credit rating of at least B+ similar to what Angola has achieved. A previous blog on this discusssed a World Bank policy research paper, which  predicted Zambia's shadow sovereign rating to be around Brazil /Turkey's level (BB- to BB) with Angola above at BB+ at Peru/ El Salvador's level.  Obviously these are way off and 2010 is not 2006.  What is clear from that paper though is that Zambia has implicitly lower credit  than Angola. Therefore we are looking at something like B or B- which is five levels below investment grade on the scales of Standard & Poor’s and Fitch Ratings. A view shared by other analysts.

Update (1 June 2010):

Many thanks to YM for point to more recent results. The results though reversed Angola and Zambia's position. These downgraded Angola's results and pointed to B to BB- and therefore in line with the B+ that was awarded to Angola (being the mid rating). In this paper Zambia  has slightly improved to BB to BB+ therefore point to a better showing than Angola. Based on this work, a B+ should be consider the minimum. Its one to watch!

Update (8 June 2010): The video with Minister Musokotwane is now available - also a bit on his defence of the current mining fiscal regime:


  1. There is a more recent version of the World Bank study that puts us still at BB+, this is dated July 2009. Just FYI.


  2. Thanks for this.

    Have you got a link to the paper?

    I wonder whether the "non-changing" result is simply due to the fact that the data has not changed.

  3. Here it is:

    It's using fresh data and is dated June 2009, not July as earlier stated.


  4. Thanks.

    The results though reversed Angola and Zambia's position.

    Would be interesting to see if they have done any actual validation. But then again may they don't need to. In this paper they had Angola at B to BB- and clearly B+ is in the middle! So who knows Zambia with BB to BB+ we may do better than Angola! May be Musokotwane read the paper!

    Thanks again. You have become more constructive :) Just joking... good to see you are still reading though!

  5. Mr. Capitalist1 June 2010 at 22:41

    I wonder if I am the only one who is excited about Zambia getting a sovereign credit rating. This is something I will watch and follow closely.

  6. Nigeria, Zambia May Sell First Bonds:


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