Kwacha goes into freefall after ‘unsolicited’ Moody’s downgrade

LUSAKA: Zambian assets slumped to record lows yesterday, hit by a ratings downgrade from credit agency Moody’s that the country’s government criticised as unsolicited.

The kwacha currency fell 5 percent and Zambia’s short-dated dollar-denominated sovereign debt dropped to 74c on the dollar after the cut late on Friday to B2 from B1, which moved Africa’s second-biggest copper producer one notch deeper into non-investment grade territory.

Moody’s cited slower economic growth, low commodity prices, power shortages and expectations of worsening fiscal and debt positions.

While mindful of the need to maintain debt at sustainable levels, Zambian authorities said the downgrade “should be ignored because its correctness was not discussed with any authorised representative of the… government.”

The only rating agencies Zambia had relationships with and engaged with on policy matters were Fitch and Standard & Poor’s, the government said on Sunday.

Zambia’s kwacha currency, hit by falls in the price of copper and a domestic power crisis, fell 5.6 percent to a record low of 11.4200 a dollar by 11.50am yesterday.

Irmgard Erasmus, Cape Town-based Zambia analyst at NKC African Economics said: “Criticising Moody’s wasn’t the best step to take. A better way would be for Zambia to assure investors they are taking steps to alleviate the rampant power crisis. With the central bank largely on the sidelines we expect the kwacha to continue to spiral unless we see more aggressive action from the central bank. We expect them to tighten liquidity. Absent of that you will see a panic-buying increase. The central bank will have to step forward and we also need to see some vocal concern from the government.” – Reuters