Zambia’s US Dollar-denominated bonds continue to weaken, as the government has still not clarified the debt situation or its fiscal and borrowing plans, according to Exotix Capital.

Stuart Culverhouse, Head of Sovereign and Fixed Income Research at Exotix, said: “Until it does, absent a credible fiscal anchor, we think there is little to stop the bonds falling further. Indeed, the macro situation may get worse before it gets better as domestic financing difficulties mount and inflation risks are skewed to the upside.”

The firm has downgraded its recommendation on Zambia 2027 bonds to Sell from Hold (yield 11.5%). 

“Market yields that have now reached 11.5% show the market has lost faith in Zambia and, if there was any confidence back in October that an IMF programme was still possible, this has now all but disappeared,” commented Culverhouse.

“As the government has relied increasingly on issuing domestic securities for financing, absent a Eurobond and an IMF programme, we think non-resident outflows present a further risk to financing and macro-stability, amid already low reserves,” he said.

Culverhouse thinks that a key risk stems from the significant presence of non-resident investors in government securities, who are less stable than domestic investors, and any outflows would put additional strain on reserves and the financing outlook. 

Non-resident investors had been attracted by Zambia’s relatively high real yields (carry trade) and have helped the government to cover its domestic financing needs. 

Non-resident holdings of domestic government securities were 17.1% at end- March, according to the central bank’s May Monetary Policy Committee statement. 

“While not the highest share in SSA (Ghana is nearly 40%), it is significant in absolute terms. It equates to cUS$860mn (at today’s exchange rate), which is c46% of reserves (gross reserves stood at $1.8bn in March, according to the central bank). We are not aware of any signs of non-residents rushing for the exit (either through outright sales or unwillingness to roll over maturities), but if they did, accommodating any outflows, given low reserves (reserves/import cover was c2.1 months in March, according to the central bank), would pose a significant risk to the currency (with echoes of Argentina’s recent LEBAC woes),” Culverhouse said. 

“And expectations of a weaker currency (as part of the adjustment process) could lead to non-resident outflows. Lack of further foreign inflows would also strain future financing. It is not obvious that the domestic market could absorb the difference, while resorting to central bank financing would be a negative signal and inflationary,” he added.

Culverhouse said that a crucial test of investor confidence will come at the next scheduled government bond auction on June 29. 

“If the auction is undersubscribed (as has been seen in recent T-bill auctions) and/or yields go higher this could signal problems ahead for financing the deficit. Ultimately, this could force the government’s hand, either to take remedial action itself, or return to the Fund for help,” he said.

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    • Seen all this before in Kaunda time….. as it now unravels under these merciless plunderers. Most of you supporting them will also sit back and start wondering what happened. Think of your country first before u post some of these nonsensical comments. You kept arguing and assuming that PF had a plan even as things have been getting worse


  1. Still relying on old economic conservatism to issue advisories. Those who buy this advisory can tail in for low safe returns in advanced economies.

    The big winners in this era are the quants (quantitatives) who shroud risk in Game. If the game is winnable, the risk is worth it for the Investment Fund. 11% annual return is way better than many investment options in the West. The implosion preached by Kainde and his baits is being seen for what it is. There will still be enough risk takers for the double digit returns albeit slightly reduced returns as has been in the recent past in countries with Zambia’s outlook.


    • Busushi ubu! What kind of thinking is this ?You want to put it on God even when these chaps are plundering and tanking the economy


    • Another National day of prayer after messing things up yourselves.Economic mismanagement has nothing to do with God.
      Some Zambians are deluded.Anyway continue wallowing in poverty.


  2. Am not saying this to demean anyone but one has to admit that in the face of such negative independent reports regarding the backward trajectory our economy is taking, people who still celebrate this leadership are simply !d!ots. Anyone would conclude that. Mukula scandal, fire tender scandal, FIC report, useless bonds, debt crisis, violence, a president who has failed to address the nation, Swazi land scandal etc. And one says yipee what a great leadership. Mwebantu, are you not insulting God for you chaps who believe in him by failing to reason but happily embrace stup!dity? For people like Sharon one can understand coz she has never said anything normal since she started blogging which makes her a genuine mental patient who requires our support. The rest of you have no excuse. Shameful…


    • Coz think about it, what normal person, when presented with the wrong doings of govt, respond by attacking an opposition leader? I sit and try and find some sort of logic or correlation to the subject matter. I re-read certain stories thinking that maybe, just maybe I missed something. Maybe somewhere when the story is about IMF telling us our debt is not sustainable, then I see some PF lunatic go ‘HH should reveal his offshore accounts’ am like, huh? Scroll back up, read the stories again. But then it dawns on me. Sata, like Trump, targeted the ignorant and sold utopia to them and these guys are still so dumb that they still celebrate the PF even though they are 100 times more miserable than they were under the educated MMD.


  3. Their dumbness can be explained. They did not see the inside of a classroom. But when I see guys like B.R Mumba, now that’s a mystery to me. He talks like he lives in an economic text book which only focuses on positive models and fails dismally to acknowledge that our economic growth is at 3% from MMD’s 7%. There is one question that I always ask PF friends and it shuts them up all the time: “How have PF policies added value to the life of an ordinary Zambian?” Apo ninshi umuntu ashima. My conclusion, since I refuse to believe people who know how to use the internet can be this dumb, it only means they are all politically connected to the PF. Direct beneficiaries so to speak. Logic demands it.


  4. We need to increase interest rates in government securities to attract these so called non resident investors. Just like the article says in Ghana it’s 40% hence they have inflows. During MMD we had government bonds at more than 50% And treasury bills sometimes reached over 100% but the economy was ticking, everyone was paid on time including salaries and contractors as well as suppliers. The exchange rate was about K4 to a dollar and everyone was happy.


    • @ Razor

      And interest rates at 40% will help economy?
      !MBECILE, do you know what are you are suggesting?



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