(The following statement was released by the rating agency)
March 20 - Fitch Ratings says that additional strain could be placed on Zambia's ('B+'/Negative/'B') government finances and its relatively strong governance undermined if the Registrar of Societies' decision to de-register the country's official opposition party is not overturned by the courts.
On 14 March, the Registrar of Societies announced that the Movement for Multiparty Democracy (MMD), the party that lost last September's election after two decades in power, would cease to operate as a political party due to the alleged non-payment of dues over the past 20 years. The registrar called for by-elections for the 53 parliamentary seats held by the MMD.
In Fitch's view, it is too early to tell if this is simply the actions of an over-zealous official, or whether the decision was politically motivated, with negative consequences for democracy and governance, factors which Fitch has traditionally regarded as amongst Zambia's rating strengths. However, the agency's revision of Zambia's Outlook to Negative on 1 March 2012 reflected Fitch's concerns about some of the government's early actions and announcements, which have brought into question the direction of government policy. This latest development only increases the agency's concerns over policy direction and governance quality.
It is not obligatory under the Act for the Registrar to suspend a society that has not paid its dues. Furthermore, a society should be given at least 21 days to respond to any allegations. In addition, the Registrar does not have the authority to dismiss elected parliamentarians and call for by-elections. The Registrar may therefore have overstepped its mandate. The high court has subsequently halted the suspension and ruled that by-elections to fill the party's seats in parliament must await the outcome of a legal challenge to the suspension.
However, even if the decision is overturned by the courts, Fitch highlights again the risks associated with sending a negative message on matters relating to economic policy, property rights and respect for the rule of law. This is particularly the case in a year that the government will seek to raise USD500m from international capital markets in a debut eurobond.
If the decision to de-register the MMD is upheld and by-elections are called, there will also be adverse fiscal consequences. Holding elections will put unnecessary strain on the budget or divert funds from much-needed capital spending. Furthermore, if donors believe governance is deteriorating, they could decide to suspend aid, which makes up 7% of government revenue. This has been a response to similar events in other aid recipients in Africa and elsewhere in the past. It also risks sparking political instability, particularly given the support the MMD still garners in rural areas.
Fitch will continue to monitor this issue closely, and the government's actions and policy announcements more generally over the coming months. Evidence that the fiscal position is being damaged and growth eroded through a weaker investment environment would have negative implications for the rating.