Fitch Ratings downgraded Zambia's long-term foreign- and local-currency issuer default ratings to B- from B, with a negative outlook, following the substantial rise in the government's budget deficit targets.
Zambia's government is aiming to reduce its fiscal deficit to 5.1% of GDP by 2021 from 7.9% in 2017. The government was previously targeting a fiscal deficit of at most 3% of GDP by 2020.
For 2018, the government upwardly revised its fiscal deficit target to 7.4% of GDP, compared to the 6.1% figure in the year's budget. Additionally, Zambia's 2017 fiscal deficit was revised higher to 7.9% of GDP from the provisional figure of 7%.
"Upward revisions to fiscal deficits and government debt have weakened the credibility of the government's fiscal targets," the rating agency said.
Fitch raised its forecast for Zambia's general government debt to 69% of GDP by the end of 2018 from a previously estimated 64%, before it begins to decline in 2019. The further expected increase in foreign-currency debt will make Zambia's debt stock more vulnerable to foreign exchange volatility and to a rising global interest-rate environment, the rating agency said.
Fitch expects the Zambian economy to grow by 4.5% in 2018 and 2019, though risks are tilted toward the downside.
Zambia's short-term foreign- and local-currency issuer default ratings were affirmed at B.