Zambia's Credit Rating downgrade a warning to govt - Chigunta
By Gift Chanda
Tue 29 Oct. 2013, 14:00 CAT
DR Francis Chigunta says the government should ensure maximum fiscal discipline following the slashing of Zambia's credit rating outlook by Standard & Poor's.
S&P 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.
The rating agency said it considered that Zambia's government had recently adopted an expansionary fiscal stance, which would substantially increase the government debt burden in 2013-2016, despite strong nominal GDP growth.
Dr Chigunta, who was former president Rupiah Banda's political advisor, said the latest rating should be taken as a warning to the government to resist any further deterioration in the economy.
"It's a cautionary statement to the government to be wary... and to enhance economic management," he said in an interview yesterday.
Dr Chigunta said the government should be very careful in the way it handles macroeconomic management of the country given the risks that are arising from the expansionary fiscal policy the government has taken.
Finance minister Alexander Chikwanda recently announced a 33 per cent increase in spending for 2014, saying the budget deficit will grow to 8.5 per cent this year, nearly double what had been planned.
"Unavoidably, it is good to have an expansionary fiscal policy because the money is going to infrastructure which is not only critical for the growth of this country, but we have to be very careful in the manner we handle our fiscal affairs to avoid any further deterioration which may send wrong signals to the international community," Dr Chigunta added.
S&P forecast a budget deficit averaging seven per cent of GDP over 2013-2016, against its previous forecast of 3.5 per cent.
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.
But Dr Chigunta said while borrowing to invest in infrastructure was important for economic development, the government should resist borrowing beyond the country's capacity to pay back.
S&P affirmed its 'B+' long-term and 'B' short-term ratings for government debt, but warned of concerns it has that Zambia's external debt profile could weaken "owing to rising capital goods imports and higher profit repatriation."
The government, which has been in office for two years, is trying to speed development by spending heavily on roads, hospitals and schools
Zambia is rated B1 with a stable outlook by Moody's Investors Service and B-plus with a negative outlook by Fitch Ratings.
Labels: FRANCIS CHIGUNTA
posted by MrK @ 5:51 PM
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