Ratings agency S&P has slashed Zambia’s credit rating to “selective default” after the government missed an interest payment last week and announced it would suspend debt service to external commercial creditors. Zambia - one of the world’s top copper producers - was struggling with its ballooning debt before the coronavirus pandemic roiled global markets and looks headed for a messy and protracted default. “We view the nonpayment of debt service and the statement that the government will not make debt service payments as a default on its commercial debt obligations,” S&P Global Ratings said in a statement released late on Wednesday. “We forecast that Zambia will remain in payment default for at least the six months of the standstill period, during which the government hopes to complete a broader debt restructuring.” S&P previously rated Zambia’s long- and short-term foreign currency sovereign credit ratings at ‘CCC-/C’ - signalling the prospect of an imminent default. On Oct. 14, Zambia missed payment of a $42.5 million coupon on one of its Eurobonds, with a 30-day “grace period” kicking in. It was forced to adjourn a meeting with creditors on a plan to defer payments on its Eurobonds until April after failing to reach a quorum. A blocking group of creditors has already rejected that proposal. Meetings are rescheduled for Nov. 13, coinciding with the grace period expiry. “(The) unilateral decision to skip coupon payment may set the tone for a more hostile restructuring process,” said Irmgard Erasmus, senior financial economist at NKC Research. Zambia’s external public debt burden amounts to nearly $12 billion, with $3 billion of outstanding Eurobonds, $3.5 billion of bilateral debt, $2.9 billion of other commercial debt and $2.1 billion owed to multilaterals. A quarter of its debt is owed to China. S&P also warned it could cut the domestic rating, currently at ‘CCC-/C’, though added it did not expect a suspension of payment on local debt. “That said, by March 2020, Zambia had built up domestic arrears amounting to 25.4 billion Zambian kwacha ($1.26 billion), reflecting fiscal stresses in local currency,” S&P said. “Most of the arrears comprised unpaid VAT refunds and obligations due to suppliers of goods and services.”