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 Moody's Investors Service, ("Moody's") has today downgraded the Government of Zambia's long-term issuer ratings to Caa1 from B3 and maintained a stable outlook. 


The downgrade reflects ongoing fiscal consolidation challenges, pointing to an increasing government debt burden. These developments are contrary to Moody's previous expectations that the debt burden would stabilize. Relatedly, and despite higher copper prices until recently, liquidity and external vulnerability risks are rising, reflecting larger gross funding needs than Moody's previously estimated, higher public external debt and lower foreign exchange reserves buffers, trends which Moody's does not expect to reverse.


The outlook is stable, reflecting balanced risks at the Caa1 rating level. The outlook captures downside risks related to persistent fiscal and liquidity challenges, a high and rising debt burden, low foreign exchange reserves buffers and moderate domestic political risk. These challenges are balanced by strong growth potential derived from ample natural resources and a young population which point to potential upside risks in the medium term.


Concurrently, Moody's has lowered Zambia's long-term foreign-currency bond ceiling to B2 from B1, its long-term foreign-currency deposit ceiling to Caa2 from Caa1, and its long-term local-currency bond and deposit ceilings to B1 from Ba2.

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