Harare- In a strategic move aimed at deepening foreign investor participation and buttressing the country’s hard-won currency stability, the Zambian government has tripled the cap on foreign investments in local currency bonds, signalling renewed confidence in macroeconomic fundamentals and a willingness to align debt sustainability with broader financial market development.

The adjustment comes at a critical inflection point as a US$1.6 billion tranche of Zambia’s restructured external debt nears maturity, policymakers are seeking to avert refinancing stress while preserving the resilience of the kwacha, which posted one of the strongest currency performances globally in 2025.

Chart Kwacha Performance 2025

The expanded bond cap which allows a significantly larger share of domestic instruments to be held by non-residents reflects a calibrated effort to tap foreign savings into the domestic debt market and create a structural buffer against external shocks. Non-resident holdings of domestic-currency debt had declined to around US$2.1 billion by end-2024, illustrating the challenge Zambia faced in attracting offshore capital into its financial system amid lingering markets scepticism following the 2020 default and restructuring process

Zambia’s journey back to credible market access has been arduous. The default on dollar-denominated bonds in 2020 triggered a comprehensive external debt restructuring under the G20 Common Framework and negotiations with multilateral partners including the International Monetary Fund (IMF).

Under those arrangements, Zambia agreed to significant restructuring terms, including debt relief and extended maturities with creditors both official and private. The government’s decision in 2024 to strike a major restructuring deal with bondholders saw concessions on repayment terms that eased near-term pressures and provided fiscal breathing room.

The US$1.6 billion component tied to private refinancing arrangements falls into this broader restructuring architecture, and its impending maturity has focused policymakers on ensuring liquidity and market confidence remain intact. As Zambia moved away from seeking an extension of its IMF-supported Extended Credit Facility toward negotiating a new programme, financial authorities have underscored that market access is contingent on sustained policy discipline and credible macroeconomic frameworks.

In parallel, Standard & Poor’s raised Zambia’s foreign currency sovereign credit rating to ‘CCC+/C’ in late 2025, reflecting measured progress in restoring fiscal and external buffers. However, this upgrade also highlights the fragility that remains: while access to broader financing sources is gradually reopening, underlying vulnerabilities persist.

Kwacha’s Rally and the Currency’s Fragile Foundation

One of the more striking elements of Zambia’s recent economic narrative has been the performance of the kwacha. After years of volatility and sharp depreciation common to frontier markets wrestling with external imbalances, the kwacha surged in 2025 and into early 2026, posting notable gains against the US dollar. In early 2026, the local unit was reported to have appreciated by nearly 10–12% against the USD, reaching its strongest level in over two years as investor confidence improved and macro-stability indicators aligned.

This strength was not accidental. It reflected a combination of disciplined monetary policy, improved foreign exchange inflows from mining and agriculture, and greater investor certainty following IMF engagement and debt resolution pathways. Broad confidence in policy direction helped reduce speculative pressure on the kwacha, even as broader global emerging-market contagion risks lingered.

Yet, analysts caution that currency resilience remains conditional. Despite recent gains, the kwacha’s path has been uneven with short-term volatility still prevalent. Even in 2025, data suggested periods where the kwacha experienced weakening pressures over shorter windows. Moreover, currency stability in frontier markets is often fragile, vulnerable to sudden shifts in capital flows, commodity price reversals, or changes in global risk sentiment.

Bond Market Liberalisation: Appetite and Risks

The tripling of the foreign investor cap on local bonds is a clear bid to deepen market participation and anchor the currency through diversified demand for kwacha-denominated assets. Opening space for foreign portfolio inflows can simultaneously support domestic yield curves and reduce rollover risk on short and medium-term maturities.

From an investor’s perspective, the move enhances Zambia’s appeal by broadening the investible opportunity set and signalling policy commitment to financial market development. Given Zambia’s strong returns on equities and currency in recent periods, offshore money managers seeking frontier market exposure view local bond markets as a complement to equities and commodity plays. Zambia’s stock index, for example, has ranked among the world’s top performers in 2026, fuelled by record copper prices, improved energy supply, and better agricultural output.

Despite these positives, sustainability questions remain. Opening domestic bonds to foreigners increases exposure to cross-border capital flow volatility. In tightening global liquidity conditions or during sudden shifts in investor risk appetite, offshore holders can rapidly adjust positions, placing pressure on yields and the exchange rate. The government will need to ensure robust liquidity management frameworks and maintain credible monetary policy anchors to mitigate such vulnerabilities.

Copper Prices and Growth Prospects

Central to Zambia’s economic outlook is copper accounting for a significant share of export earnings and foreign exchange generation. Sustained high copper prices in 2025, reportedly rising by over a third and nearing record levels, have materially strengthened export receipts and supported both the kwacha and fiscal balances.

Strong performance in the mining sector, alongside rebounds in agriculture and services, has provided a foundation for growth. The IMF estimated Zambia’s real GDP growth at over 5% for 2025, bolstered by these sectors.

Copper’s role in the economy cannot be overstated. As a globally traded commodity, it anchors foreign exchange inflows and supports investor confidence. However, heavy reliance on a single commodity introduces concentration risk. A downturn in global demand or a sharp price correction could rapidly erode external buffers, undoing currency gains and complicating debt servicing.

Zambia’s recent policy decisions from external debt restructuring and IMF engagement to loosening domestic investor caps reflect a pragmatic response to past crises. They have helped stabilise key macroeconomic variables and rekindle investor interest. However, long-term sustainability hinges on deep structural reforms including broadening the economic base beyond mining, strengthening revenue mobilisation, and embedding resilience into financial markets.

Opening local bonds to foreigners is promising, but it must be complemented by fiscal discipline and deepening of domestic savings and pension fund participation to avoid overreliance on fickle offshore capital. Likewise, maintaining a stable business environment that shields policy frameworks from short-term political cycles will be critical for institutional credibility.

Zambia’s expanded foreign access to local currency bonds marks a significant evolution in the country’s financial architecture, helping to reinforce the kwacha’s stability and broaden investor engagement. Yet, its success will depend on disciplined macroeconomic management, prudent risk controls, and diversification beyond copper. As the US$1.6 billion debt milestone looms and global conditions fluctuate, policymakers will need to balance market opening with safeguards against volatility ensuring that recent gains are not undone by short-term pressures.