LONDON (Reuters) - Zambia’s improving growth prospects and greater liquidity in its banking system have prompted S&P Global Ratings to tweak its outlook on the country to stable from negative.
The credit ratings firm said late on Friday, however, that this remained hostage to the government sticking to its budget plans and to outside factors over which Lusaka has no control - the international price of copper, and rainfall.
It also based the move - which accompanied an affirmation of Zambia’s non-investment grade B rating - on an expected deal with the International Monetary Fund by the end of the year.
“Copper prices have risen by about 18 percent in 2017 and core liquid assets in Zambia’s banks by some 44 percent over the same period,” S&P said.
The IMF visited Zambia in July and concluded that the economy was improving but that revenues were falling short of budget estimates but not spending.
“The near-term outlook for the economy has improved in recent months,” it said, citing a bumper harvest and increased hydroelectricity generation.
It projected real GDP to grow 4 percent this year compared with 3.4 percent in 2016.
Copper production remains key. The World Bank estimated in 2016 that mining accounted for 12 percent of Zambia´s GDP and 70 percent by value of total exports.
Production is expected to rise to 850,000 tonnes in 2017 from 770,597 tonnes last year, according to the government.
Copper futures, meanwhile, were at their highest level in 33 months during the past week on the London Metal Exchange.
Analysts said the sharp rise in the price over the past few month could ease if the dollar rises and Chinese demand slows.
Reporting by Jeremy Gaunt; Editing by Andrew Bolton