Bonds continue to be a key instrument of choice for many governments to raise money. They are extremely vital in assessing the health of a country’s economy. In 2022, the combined wealth created by the primary and secondary market was approximately K19 billion, according to the securities and exchange (SEC) report for the year.
Currently, the yield rates in Zambia are beginning to ease in the primary market. However, last year on the primary bond market, the country experienced the lowest and highest bond face values and turnover in July and September respectively.
According to Zamstats, the inflation rate between this period went from 9.7% as of July 2022 and 9.9% in September 2022. As of January 2023, annual inflation is currently sitting at 9.4% compared to 9.9% in December 2022 with this being the lowest inflation rate recorded since August 2019.
Currently, in February 2023 the exchange rate between the Zambian Kwacha and the US dollar is trading in the K19 range with speculation that the Kwacha may continue to depreciate against the dollar. However, on 1st February 2022, the Central Bank moved to cool off further depreciation through circular no. 2 of 2023 notifying all commercial bank heads on increasing the minimum statutory reserve ratio in both local and foreign currency deposits, including Government deposits and vostro accounts depositions by 2.5 percentage points to 11.5 from the current 9.0 percent.
Preceding the Covid-19 pandemic, Zambia had been in a financial and economic crisis and the country became the first Covid-era defaulter after it missed a $56.1m coupon payment on January 30, 2020 on its Eurobond maturing in 2027 which damaged the country’s reputation as an investment destination. However, the administration under the new President Hakainde Hichilema has taken a number of fiscal reforms aimed at improving Zambia’s attractiveness to investors. This is currently being tested as the Government engages with the IMF and counterparties in the country debt situation to help find a solution on how the restructuring of what is owed to different lenders will be handled.
Foreign Direct Investment continues to play an important role in Zambia’s economy. However, Zambia’s debt overhang remains a severe inhibitor of economic growth. Agriculture, healthcare, energy, financial services and the ICT sector offer potentially attractive opportunities for expanded US trade and investment which could potentially boost the investment environment in Zambia.