March 2, 2012 / 8:33 AM / 7 years ago

Fitch revises Zambia outlook to negative

JOHANNESBURG (Reuters) - Fitch revised Zambia’s rating outlook to negative from stable on Thursday, citing concerns about the direction of economic policy in the southern African state.

Zambia's President Michael Sata speaks to journalists at the 18th African Union (AU) summit in Ethiopia's capital Addis Ababa January 30, 2012. REUTERS/Noor Khamis

“The revision ... reflects the agency’s concerns about some of the government’s recent actions and announcements, which bring into question the direction of economic policy,” Fitch said in a statement.

The agency affirmed Zambia’s short-term issuer default ratings at ‘B’ and the country ceiling at ‘BB-‘.

It said Zambia’s recent decision to reverse a privatisation deal could undermine property rights, while planned reforms of the mining and banking sectors could negatively impact investment and consequently macro-economic stability.

“The government’s decisions to reverse the privatisation of Zamtel and investigate the privatisation of Zanaco represent perhaps the most worrying recent development,” Fitch added.

The new government of President Michael Sata is investigating the 2007 sale of a 49 percent stake in state-owned Zanaco Bank to Rabobank, in a case that could lead to a reversal of a deal involving foreigners.

It has also said it will take full control of fixed-line operator Zamtel from Libyan owner LAP Green Networks after an inquiry in November ruled the 2010 transaction illegal.

“A further concern surrounds a recent announcement by the Central Bank to significantly increase the minimum capital requirements for the banking sector,” said Fitch.

“Although the government’s objective of increasing the size and capitalisation of the banking sector is laudable, Fitch is concerned about the potential impact on asset quality, inflation and foreign bank participation in the sector.”

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