Fitch rating signals need for stability - Schouten

Fitch rating signals need for stability - Schouten
By Gift Chanda
Wed 07 Mar. 2012, 11:59 CAT

THE downgrading of Zambia's economic outlook from stable to negative signals the importance of having economic stability and predictable policies in a country, says Zanaco managing director Martyn Schouten.

In its latest outlook released last Thursday, global rating agency, Fitch, downgraded Zambia's economic outlook from stable to negative a few months before the country's planned US$700 million Eurobond is issued, citing concerns about the direction of economic policy.

Fitch said Zambia's recent decision to reverse a privatisation deal could undermine property rights, while planned reforms of the mining and banking sectors could negatively impact investment an consequently macro-economic stability.

But finance minister Alexander Chikwanda said it was an "inglorious opinion" for Fitch to downgrade Zambia's economic outlook to negative.

Commenting on the development, Schouten said "I think it is a rating agency's message to everyone that it is important to have stability in economic arena to ensure that there is predictability in things that happen and to ensure that foreign direct investors to Zambia are comfortable with the overall economic framework and the policy outlook going forward and as result it seems to make seen that they have a small change in their outlook."

Fitch in its report stated that "the revision of Zambia's rating reflects the agency's concerns about some of the government's recent actions and
announcements, which bring into question the direction of economic policy."

The government is investigating the 2007 sale of a 49 per cent stake in state-owned Zanaco Bank to Rabobank, in a case that Fitch said "could lead to a reversal of a deal involving foreigners".

Schouten said the downgrade of Zambia's outlook could have an impact on investors' perception on Zambia, although it may not be very significant.

"I think foreign direct investment is important for growth in any country and where there is a slight change of economic outlook potentially as seen by a rating agency, that may have a small impact on some foreign investors in terms of how they view the overall investment and the time table they want to follow for their investment," he said.

"On the other hand, Zambia has also proven over many decades that it is one of the most stable politically and economically countries in the world and certainly in Africa and as a result this may have very little impact on FDI."

Meanwhile, Schouten said it is not a surprise that the central bank plans to increase minimum capital requirements for commercial banks considering the instability in the global economy.

Fitch raised concerns on the Bank of Zambia's plans to raise the minimum capital requirement for commercial banks.

Schouten said Zanaco was in a position to meet the new requirements the central bank plans to implement.