Zambia is expected to witness an increased participation in the local debt market, particularly from non-resident investors following an upgrade from Moody’s rating agency on the country’s local currency by one notch.
Moody’s rating agency last month upgraded Zambia’s local currency rating by one notch to Caa3 from Ca following a deal in principle with bilateral creditors to restructure US$6.3 billion of local currency debt.
Chileshe Moono, First National Bank (FNB) Zambia Country Economist in his comment on the upgrade anticipated an influx of non-resident investors in the local debt market.
“On the back of this decision, we expect to see increased participation in the local debt market, particularly from on-resident investors,” Moono said in the Monthly FNB Zambia newsletter released on Wednesday this week.
He acknowledged that Zambia’s deal with bilateral creditors provided clarity on the exclusion of local currency debt from the current restructure process.
This, according to Moono, was why the upgrade was limited to local currency for now.
“An upgrade on foreign currency may be considered once the full; external debt restructure is concluded,” Moono stated.
On the foreign exchange, Moono anticipated some occasional reprieve, spurred by some of the interest seen in the local bond market by offshore players.
He pointed out that the foreign exchange market volatility had continued in recent months, with the US$/ZMW pair establishing a wide trading corridor of 17.00 and 20.50 since the announcement of the deal with bilateral creditors in June.
Moono said the local demand for foreign exchange had continued to outstrip supply, and this had seen foreign currency liquidity challenges persisted.
“Granted, the progress made on the debt restructure had seen some return of foreign portfolio flow the market, helping ease some of the foreign exchange supply constraints.
“Nevertheless, we expect that the relatively strong demand for foreign exchange in the economy will keep the Kwacha under some pressure,” he stated.
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