Zambia’s government bonds are set to gain greater exposure to international investors following the country’s inclusion in J.P. Morgan’s new local-currency government bond index.
Reuters reported on September 14 that Zambia had qualified for the J.P. Morgan Government Bond Index-Emerging Markets (GBI-EM) Edge, which is expected to launch by the end of September.
The index will cover nearly US$330 billion in local-currency government debt across 26 countries. At an exchange rate of K19.7195 to the US dollar, the total is equivalent to approximately K6.51 trillion.
Zambia will join other emerging markets, including African economies such as Egypt, Morocco and Nigeria, as well as Vietnam, Pakistan and Sri Lanka.
The inclusion gives international investors a common benchmark through which to assess Zambian government securities alongside those of other emerging markets.
While index inclusion does not guarantee new investment, it is expected to increase the visibility of Zambia’s domestic bond market and could contribute to greater trading activity.
Zambia qualified after meeting requirements that eligible government bonds must have a minimum value of US$250 million, equivalent to approximately K4.93 billion, and at least two-and-a-half years remaining before maturity.
The country’s strategy of increasing the size of existing benchmark bonds has helped it meet the requirements.
The Bank of Zambia has been working to build larger benchmark securities, with a target of at least K10 billion, or approximately US$507 million, for each benchmark bond.
The framework covers five-, seven-, 10- and 15-year bonds, although no further five-year bonds are scheduled to be issued in 2026. Government bond auctions are currently scheduled twice per quarter rather than monthly.
Analysts say greater participation in the bond market could help address some of the liquidity challenges that have historically affected Zambia’s secondary government securities market.
Research by Essers and other scholars found that weak liquidity and a narrow investor base had been obstacles to the development of Zambia’s bond market. The research reported a secondary-market bid-ask spread of 100 basis points in 2013.
A larger and more diverse investor base could make it easier for investors to buy and sell government securities and could improve the availability of market price information.
Increased competition among investors could also potentially reduce the interest rates demanded on government debt, lowering borrowing costs for the State. However, such benefits are not guaranteed and will depend on investor participation and broader economic conditions.
The index also has an eight percent limit for any individual country. Based on the total index value of US$330 billion, eight percent would be about US$26.4 billion, equivalent to approximately K520.59 billion.
That figure does not represent a guaranteed investment allocation for Zambia. The index is a benchmark for tracking government bond markets rather than a fund that distributes money among participating countries.
For Zambia, the immediate significance is increased international visibility for its domestic debt market.
The challenge for policymakers will now be to translate that visibility into sustained investor participation, deeper bond-market liquidity and, where possible, more favourable borrowing conditions while ensuring that borrowed funds are directed towards productive economic activity.
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