Zambia came back on the radar during the last few days, but not for good reasons. The ZMK depreciated again (-28% during the last 12 months). This weakness also translated into increasing sovereign risk, with the yield on the USD bond due in 2024 rising to 18.7% (about +1000bp during the last year). Zambian growth was increasingly debt-intensive in recent years. Public debt should reach 81% of GDP in 2019 (from 36% in 2014). However, growth did not accelerate enough to balance this debt accumulation (+3.7% in 2018), particularly in the agricultural and metal sectors. Currently, drought is affecting both the agricultural output and power supply. It should weigh on mining activities and, as liquidity conditions are very poor (the import cover of FX reserves is just 1.5 months), time is running out. The government reacted through a threat to foreign interests in the copper sector (Vedanta), but showed no intention to rebalance the fiscal deficit which is expected at -11% of GDP in 2019. Cash constraints should also weigh on growth which we forecast at +1.5% this year.
