March 22, 2011

Research Update:
Republic of Zambia Assigned 'B+/B'
Sovereign Credit Ratings; Outlook
Stable
Primary Credit Analyst:
Christian Esters, CFA, Frankfurt (49) 69-33-999-242;christian_esters@standardandpoors.com
Secondary Contact:
Moritz Kraemer, Frankfurt (49) 69-33-99-9249;moritz_kraemer@standardandpoors.com

Table Of Contents
Overview
Rating Action
Rationale
Outlook
Related Criteria And Research
Ratings List

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Research Update:
Republic of Zambia Assigned 'B+/B' Sovereign
Credit Ratings; Outlook Stable
Overview
• In our view, the Republic of Zambia displays strong economic growth, a
strong external balance sheet, and moderate general government deficits
that should keep general government debt lower than 30% of GDP over the
next few years.
• However, income levels are below peers' and the October 2011 presidential
elections could trigger instability. Zambia is also vulnerable to copper
prices, and rising imports and the repatriation of mining profits could
weaken the current account.
• We are assigning our 'B+/B' sovereign credit ratings to Zambia.
• The stable outlook reflects our view that despite the potential for
instability, owing to the forthcoming elections, and uncertainty about
the next government's political focus, Zambia's approach to macroeconomic
policy will not undergo a radical change.

Rating Action
On March 22, 2011, Standard & Poor's Ratings Services assigned its 'B+'
long-term and 'B' short-term foreign and local currency sovereign credit
ratings to the Republic of Zambia. The outlook is stable.

At the same time, a transfer and convertibility assessment of 'B+' was

assigned. With this rating, Standard & Poor's now rates 127 sovereigns
worldwide.

Rationale
The ratings on the Republic of Zambia are supported by strong economic growth
rates that have benefited from market-oriented policies, privatization of the
copper industry, and investment; a strong external balance sheet after debt
relief from creditors in 2005; and moderate general government deficits that
should keep general government debt lower than 30% of GDP over the next few
years.

The ratings are constrained by Zambia's income levels, which are lower than
peers' at per capita GDP of $1,300, and our expectation that the October 2011
presidential elections could be closely contested and accompanied by
instability and uncertainty on the next government's policies. Further
constraints are our view that Zambia's balance of payments is vulnerable to
copper prices and that the current account--which showed a surplus of 3.8% of
GDP in 2010--could weaken, owing to a rising import bill and the repatriation

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 Research Update: Republic of Zambia Assigned 'B+/B' Sovereign Credit Ratings; Outlook Stable

of profits from the mining industry.

The ratings are supported by our assessment that Zambia's government has been
pursuing market-oriented policies and has privatized the mining industry.
Strong investment, particularly in the mining and construction sectors, has
underpinned Zambia's high real GDP growth rates of more than 5% annually over
the past few years. Real GDP rose 7.6% in 2010, boosted by ongoing growth in
copper production, construction, and agriculture, and a recovery of tourism.

We estimate narrow net external debt to remain close to zero in 2011 and to
increase only very mildly over the next few years. We expect gross external
debt, which decreased significantly with the debt relief granted in 2005, to
increase slightly to a very moderate 18% of GDP in 2011.

General government debt has remained fairly stable at about 26% of GDP since
2007. With projected moderate fiscal deficits and robust nominal GDP growth
rates, we expect general government debt to increase only mildly over the next
few years and to remain lower than 30% of GDP.

Zambia's low GDP per capita of an estimated $1,300 in 2011 is well below the
'B' median of $2,960 and constrains the ratings.

The upcoming presidential election is another rating constraint. Although the

likely opposition candidate has toned down some of the more radical rhetoric
pursued in the past, we believe that the country's future political
orientation would be subject to a higher degree of uncertainty if he succeeded
the incumbent president. We consider that post-election stability will also
depend on the winning margin after the ballots are counted.

Zambia's external liquidity is vulnerable to copper prices because copper

accounts for about 70% of Zambia's merchandise exports. In 2011 and beyond, we
expect the current account to weaken, owing to rising import costs related to
Zambia's planned infrastructure investment and the repatriation of profits
from the mining industry, despite recent increases in royalties and profit
taxes. Financial relations between mining subsidiaries and their nonresident
parents comprise intragroup equity injections or loan transactions, foreign
direct investment, and dividend payouts.

We note that external private creditors hold outstanding claims (totaling 1%

of Zambia's GDP) pertaining to the Bank of Zambia's transfer and
convertibility restrictions on domestic debtors in 1985. We do not expect
these claims to affect the Zambian government's access to external commercial
financing.

Outlook
The stable outlook reflects our view that despite the potential for
instability, owing to the forthcoming elections, and uncertainties about the
next government's political focus after the elections, Zambia's approach to

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 Research Update: Republic of Zambia Assigned 'B+/B' Sovereign Credit Ratings; Outlook Stable

macroeconomic policy will not undergo a radical change. The outlook also
reflects our expectation that general government and external debt levels will
remain broadly stable.

The ratings could be lowered if Zambia's external liquidity were to

deteriorate significantly, for instance, as a result of an extended depression
of copper prices. The ratings could also be lowered if a more radical policy
shift occurred after the elections than we currently expect.

The ratings could be raised if Zambia's external liquidity were to become less
vulnerable to copper prices and if investment in infrastructure were to keep
economic and per capita income growth rates at consistently high levels.

Related Criteria And Research

• Sub-Saharan African Sovereigns Have Withstood External Shocks Well, But
Volatile Commodity Prices Remain A Risk, Aug. 31, 2010
• Updated Criteria for Determining Transfer And Convertibility Assessments,
May 18, 2009
• Sovereign Credit Ratings: A Primer, May 29, 2008
• Sovereign Foreign and Local Currency Rating Differentials, Oct. 19, 2005

Ratings List
New Rating

Republic of Zambia
Sovereign Credit Rating B+/Stable/B
Transfer & Convertibility Assessment B+

Additional Contact:
Sovereign Ratings;SovereignLondon@standardandpoors.com

Complete ratings information is available to subscribers of RatingsDirect on

the Global Credit Portal at www.globalcreditportal.com. All ratings affected
by this rating action can be found on Standard & Poor's public Web site at
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column. Alternatively, call one of the following Standard & Poor's numbers:
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(46) 8-440-5914; or Moscow (7) 495-783-4011.

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