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Moody’s Investors Service cut Zambia’s credit rating to the second-lowest level, citing rising default risks and a debt restructuring that could involve significant losses for private creditors.
Ratings agencies and institutions such as the International Monetary Fund have warned that Zambia’s rapidly increasing external debt placed it at high risk of distress even before the coronavirus pandemic struck. A declining price for copper, which the nation depends on for more than 70% of foreign earnings, will further erode reserves already at record lows.
“A restructuring of Zambia’s government debt that constitutes a default under Moody’s definition has become increasingly likely,” the ratings company said in a statement Friday. “Should a default occur, the losses expected to be experienced by investors will likely be larger than Moody’s previously estimated.”
The downgrade is the latest blow to Zambia’s struggling economy, which Moody’s sees contracting by 1% this year. Many African countries will struggle to service their external debt as the coronavirus pandemic throttles their economies.
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Zambia on March 30 called for proposals from advisers for a “liability management exercise” that it said would involve multilateral, bilateral, commercial, capital-market and export-credit agency debts. The southern African nation was carrying this out to avoid lenders being “forced into any restructuring,” according to the request for proposals.
“In recent years, the government has consistently indicated its intention to implement a market-based liability management exercise to improve the external debt profile,” Moody’s said. “While the outcome of this exercise is highly uncertain, Moody’s expects that it could involve significant losses for private creditors.”
Zambia’s Eurobonds rebounded on Friday after plunging this month. The $1 billion in notes maturing April 2024 rose 5.8% to 37 cents on the dollar.
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