In late March Standard & Poor's (S&P) followed Fitch and gave Zambia a B+ sovereign credit rating with a stable outlook. This is a non-investment grade rating but places Zambia on a par with Kenya, Angola, Ghana and Nigeria-whose ten-year, US$500m debut international bond, issued in January 2011, was 2.5 times oversubscribed. S&P's assessment of Zambia's creditworthiness is very similar to that offered by Fitch (March 2010, Economic performance). It notes that Zambia's macroeconomic fundamentals are strong but are highly vulnerable to shocks in copper prices. S&P also notes that the stable outlook on its rating reflects the view that the elections later this year will not be followed by a radical change in the policy agenda. The Economist Intelligence Unit concurs with this, as despite the nationalist rhetoric of the opposition front-runner, Michael Sata, strong public pressure to promote job creation is likely to ensure that he would largely stick to the pragmatic economic agenda of the current government if he were to win.

The two ratings have paved the way for the US$500m sovereign bond that Zambia plans to launch later this year. The proceeds from this will be used to finance investments in infrastructure. Earlier in March, while speaking at the Reuters Africa Investment Summit, the president, Rupiah Banda, said that he hoped that the bond would be issued before the elections, due in September 2011 (although likely to take place before then). Mr Banda's chief economic adviser, Kumendo Chembe, said that the government hoped to price the bond in the same range as Ghana's ten-year, US$750m Eurobond. This was issued with a coupon rate of 8.5% in 2007 and was heavily oversubscribed. Strong demand for the bond has pushed up its price on the secondary market and lowered the yield to roughly 6.5%.

A number of analysts have said that the ratings could also enable companies in Zambia to borrow abroad, thereby bringing down lending rates, which currently average roughly 19%. We think that any such effect is likely to be limited for the reasons given below.

• Large, established companies in Zambia can already borrow at fairly reasonable rates. The mining companies are all foreign-owned and are already raising funds internationally.
• Small and medium-sized enterprises (SMEs), which comprise the vast majority of Zambian-owned businesses, will not benefit from the rating, as the high degree of perceived risk will deter banks from lending to them.
• The rating may enable locally owned banks to raise money abroad. This would increase the amount of liquidity in the system and put pressure on banks to find ways to lend to SMEs at cheaper rates. However, this effect would be small, as all the major banks have large foreign shareholders who can presumably already raise money abroad.