Moody’s, an international rating agency and investor advisor, said recent announcements by some mining firms in Zambia to suspend their operations may depress economic growth and put pressure on the sovereign’s fiscal and external positions.
This week, Mopani Copper Mines (MCM) owned by Glencore Xstrata of Australia announced plans to declare over 4 000 workers redundant due to operational challenges from the slump in copper prices on the international market.
“Reduced copper production is credit negative for Zambia, because it will depress growth, export proceeds and royalties, further pressuring the sovereign’s increasingly precarious fiscal and external positions,” Moody’s said in a statement.
According to the statement, the suspension of some mining operations will introduce downside risk to the country’s revised economic growth projections, adding that the country’s economic growth, which averaged seven percent per year over the past decade, was now at risk of falling to the sub-Saharan Africa median.
“Zambia’s growth prospects already face challenges from subdued global demand, depressed copper prices, which we expect to persist, and drought-induced electricity shortages.
Although copper production contributes only about 10 percent of total value added, it generates more than two-thirds of export revenues and, under a new tax regime in Zambia, about 20 percent of tax revenues, or the equivalent of three percent GDP,” the statement said.
It added that lower growth and tax revenues will negatively pressure the government’s already rising budget deficit and debt levels, continuing a trend of missed fiscal targets that were among factors behind the rating agency’s decision to assign a negative outlook in May this year.
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