Keypoints:
- Local bonds return 36 percent in dollars
- Election clarity could attract fresh investors
- Currency and copper risks threaten further gains
ZAMBIA’S local-currency government bonds have returned 36 percent in US dollar terms this year, the strongest performance among emerging-market local debt tracked by Bloomberg, as investors assess whether economic reforms will survive the August 13 election.
The rally is now approaching its most important political test. Citi says a decisive election result that preserves the current policy direction could unlock fresh offshore demand, but the trade remains exposed to political uncertainty, a reversal in the kwacha and weaker copper prices.
What is driving the rally?
The 36 percent return does not mean Zambia is paying bondholders a 36 percent interest rate. It combines coupon income, changes in bond prices and the gains foreign investors receive when the kwacha strengthens against the dollar.
The currency has appreciated by about 20 percent this year after gaining roughly 25 percent in 2025, magnifying returns for investors holding kwacha-denominated debt. Strong copper prices and export earnings have helped support the currency.
Citi strategist Katie Kironde expects the kwacha to remain broadly stable through the election period, although any reversal would reduce the dollar returns earned by foreign investors.
At the Bank of Zambia’s June 26 auction, cut-off yields ranged from 14.25 percent for two-year securities to 17.5 percent for 15-year bonds. Those yields remain attractive by emerging-market standards, particularly as confidence improves following Zambia’s prolonged debt restructuring.
The rebound builds on the wider recovery examined in Africa Briefing’s report on how Zambia’s debt reforms lifted market confidence after the country became Africa’s first pandemic-era sovereign defaulter in 2020.
Why Citi sees more upside
Kironde said a decisive victory for President Hakainde Hichilema could encourage cautious offshore investors to return at the next government bond auction.
Fresh foreign demand could push bond prices higher and yields lower, extending a rally that has already sharply outperformed the Bloomberg Emerging Market Local Currency Government Index, which has returned about 1.35 percent this year.
The argument rests largely on policy continuity. Hichilema’s administration has pursued fiscal consolidation, completed an IMF-supported reform programme and advanced agreements with official and commercial creditors.
The IMF completed the sixth and final review of Zambia’s 38-month programme in January, bringing total support to about $1.7bn. It nevertheless warned that continued fiscal discipline, prudent borrowing and further debt-restructuring progress remained essential.
Zambia is now seeking a successor IMF programme by the end of 2026. Discussions have advanced but are expected to continue after the election, making the result important to the policy credibility underpinning investor confidence.
That policy repair has also helped draw new investment into mining, energy and agriculture. A subsequent S&P sovereign rating upgrade reinforced the view that Zambia is moving beyond default, although its debt position remains vulnerable.
Election exposes a deeper divide
The bullish market narrative does not fully capture the mood among voters. Hichilema is campaigning on economic stabilisation, debt restructuring and renewed mining investment, but many households continue to feel squeezed by living costs, unemployment and unreliable electricity.
Africa Briefing has reported on rising public anger ahead of the polls, including criticism that improvements in reserves, inflation and investor sentiment have not translated quickly enough into better living standards.
The election is therefore more than a routine political event for bondholders. It is also a public test of whether the market-friendly recovery has built enough support to secure another mandate without prolonged uncertainty.
What could derail momentum?
A decisive and peaceful outcome would remove a major source of investor hesitation. A close contest, legal challenge or unrest could instead trigger currency pressure and encourage foreign investors to reduce their exposure.
Copper remains another central risk. Zambia relies heavily on the metal for exports, government revenue and foreign-exchange inflows. A sharp decline in prices could weaken the kwacha and erase part of the dollar gains that made the bond trade exceptional.
Post-election spending also requires scrutiny. Pressure from the government wage bill, agricultural support and election-related expenditure could complicate fiscal consolidation if borrowing rises or reform momentum slows.
Zambia’s bonds currently combine high yields, a stronger currency and improving policy credibility. But the durability of those gains will depend on the election outcome, fiscal discipline, copper prices and whether economic recovery reaches households beyond Lusaka’s financial markets.
