Moody’s yesterday upgraded Zambia’s local currency long-term issuer rating to Caa3 from Ca with a Stable outlook. The rating agency said that the upgrade follows the announcement of an agreement on a comprehensive debt treatment between Zambia’s government and official creditors that explicitly excludes local currency debt from the restructuring treatment, reducing the risk of losses for local currency creditors (including non-resident holders). However, Moody’s added that the upgrade is limited to one-notch in recognition of the high risk of future default on local currency debt due to weak debt metrics, vulnerabilities to environmental risks and external shocks, as well as high social risks and weak governance.
The stable outlook reflects balanced risks. On the downside, ongoing negotiations on foreign currency debt could prove lengthy or external conditions could turn markedly adverse, increasing the need to find debt relief elsewhere including from local currency debt restructuring. Conversely, the foreign currency debt restructuring could go relatively smoothly, with ongoing international financial support and reform progress reducing the likelihood of future default events.
Meanwhile, S&P raised Cameroon’s long- and short-term foreign currency ratings to CCC+/C from SD/SD and affirmed the long- and short-term local currency credit ratings at CCC+/C. The stable outlook reflects the balance between the country’s improving fiscal trajectory and liquidity pressures that could arise from petroleum subsidies, security threats or tightening financing conditions.
Uganda: State Minister Musasizi yesterday confirmed that the government plans to review the FY2023/24 budget to factor in less external financing after the World Bank said it would halt new financing to the country in response to its Anti-Homosexuality law.
The remarks follow a statement issued by World Bank on 8 August, in which it said that Uganda’s Anti-Homosexuality Act (2023), enacted in May, contradicts the World Bank Group’s values and that no new public financing to Uganda will be presented to the Executive Directors Board until the efficacy of the additional measures has been tested.
In July, the World Bank, in its economic update for Uganda, warned that the country’s Anti-Homosexuality law could result in possible reduction in concessional finances, tourism and foreign direct investments, which would jeopardise authorities’ fiscal consolidation plans and raise Uganda’s risk of debt distress from its current moderate level. The FY2023/24 Budget tabled in parliament in June showed that authorities had planned to finance 74% of the UGX7.2tn deficit from external sources and only 26% from domestic sources. This would have enabled the Finance Ministry to reduce domestic issuance (see Uganda Budget: Revenue led consolidation poses risks, 23 June 2023). However, the government may now need to revise its financing mix.
Namibia: Consumer inflation eased 0.8pp from June to 4.5% y/y in July and in line with our expectations. CPI rose 0.3% m/m, a marginally faster increase than 0.1% seen in June. Driving the faster rise in CPI in July was alcoholic beverages & tobacco (+1.1% m/m), housing & utilities (+0.3%), transport (+0.5%) and recreation & culture (+0.5%). The food & non-alcoholic beverages index fell 0.2% over the month. We do not expect inflation to ease much further but believe that it will remain within the Bank of Namibia’s 3-6% target band through the remainder of the year, closing the year at 5.1%. Although the exchange rate, along with global food and crude oil prices, remain key upside risks, we believe inflation will average 5.6% this year (2022: 6.1%), falling further to 4.4% in 2024. As such, we expect an unchanged policy rate for the remainder of the year.
