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Moody's downgrades Zambia, citing greater fiscal consolidation risks

Moody's lowered Zambia's long-term issuer ratings to Caa1 from B3, citing the country's fiscal consolidation challenges and increasing debt burden, and maintained a stable outlook.

Despite the government's progress with fiscal consolidation in 2017, challenges are rising again and Moody's expects the issues to persist and to push up the national debt burden, which is contrary to the debt watcher's expectations that Zambia's obligations would stabilize.

A wider budget deficit over the next few years, official revisions to the level of external debt as of the end of 2017, evidence of a further increase in external debt this year, as well as potential pressure on the kwacha currency, also point to rising debt, according to the agency.

Moody's said the downgrade also reflects Zambia's increased liquidity and external vulnerability risks, caused by greater financing needs and falling foreign exchange reserves. The agency added that it does not expect the country's liquidity and external pressure to subside.