Finance Minister Situmbeko Musokotwane will present Zambia’s 2027 National Budget on October 30, against ambitious targets for economic growth, copper production, electricity generation and fiscal consolidation. The proposed fiscal deficit of 0.2% of GDP is particularly striking. But the real test is whether the numbers will hold during implementation — and what the Government’s financing strategy means for businesses.The K19.9 billion supplementary budget proposed for 2026 illustrates the challenge. Agriculture accounts for K15.8 billion, including K14.7 billion to pay farmers who supplied maize to the Food Reserve Agency (FRA). The FRA purchased 2.7 million tonnes against an original target of 500,000 tonnes. Other allocations include K540 million for university tuition and allowances, K422.5 million for Defence and K300 million for contingencies.The financing plan relies on K18 billion in additional domestic borrowing, supplemented by K1.3 billion in additional revenue collections and K510.8 million in donor funding, alongside smaller savings and unspent balances.The maize purchases may be justified by food-security concerns. The fiscal question is whether such expenditure pressures are adequately anticipated in the original budget. When spending significantly exceeds initial estimates, Government must find additional revenue, cut other expenditure or borrow more. A supplementary budget can be necessary, but repeated adjustments make the credibility of the original fiscal targets harder to assess.The bigger question is what domestic borrowing means for the private sector.Government borrowing competes with businesses for financial resources. Banks and institutional investors compare lending to private firms with investing in Treasury bills and Government bonds. When government securities offer attractive returns relative to the risks and costs of commercial lending, financial institutions have an incentive to allocate more funds to them.This is the crowding-out risk: businesses may face higher borrowing costs or reduced access to credit because Government absorbs a larger share of available domestic financing.The effect is not automatic. Domestic borrowing can also mobilise savings, support economic activity and finance necessary public expenditure. Its impact depends on market liquidity, investor demand, the maturity structure of government debt and the availability of alternative funding. But the risk deserves attention when private investment is expected to drive faster economic growth.A lower policy rate does not guarantee cheaper business loans.The Bank of Zambia’s policy rate influences monetary conditions, but commercial lending rates also reflect banks’ funding costs, credit risks, inflation expectations and returns available on alternative investments.If the policy rate declines while Government continues borrowing heavily, attractive Treasury bill and bond yields could limit the reduction in commercial lending rates. Banks may still prefer government securities to loans for businesses perceived as riskier, particularly small and medium-sized enterprises.The result could be a widening gap between monetary easing and the financing conditions businesses actually experience. A lower policy rate would offer limited relief to an SME if its working-capital loan remains expensive or its application is rejected.This matters for investment in machinery, inventories, construction and expansion. Zambia cannot sustainably pursue growth of 6–7% while productive businesses struggle to access affordable finance.The scale of refinancing also matters. Government’s 2026 Annual Borrowing Plan projected K106 billion in gross domestic borrowing, including substantial refinancing of maturing debt. Gross borrowing should not be confused with new deficit financing: much of it replaces existing obligations. Nevertheless, refinancing requires Government to return to the domestic market, while debt-service payments continue to place pressure on public resources.Zambia is therefore managing two related challenges: financing current expenditure and refinancing past borrowing. The 2027 Budget needs to show how both can be managed without undermining private investment.The Government’s Grow Zambia Agenda provides the economic rationale for getting this balance right. Higher copper production should create opportunities for local suppliers and exporters. More electricity should support mines, manufacturers and agricultural businesses. Higher agricultural output should strengthen rural incomes and food security.The test is whether public expenditure expands productive capacity and generates future economic returns, rather than simply increasing spending.For the 2027 Budget, three questions deserve particular attention: Are the revenue and expenditure assumptions realistic? How much domestic financing will Government require, including refinancing? And will its borrowing strategy leave sufficient capital available for businesses?The projected 0.2% deficit is an important headline, but the private sector will judge the Budget partly by what happens to credit availability, lending rates and investment.The central trade-off is clear: Government must finance its obligations while creating room for businesses to finance growth. Fiscal consolidation and private-sector investment can reinforce each other, but only if the financing strategy supports both.On October 30, the important question will not simply be how much Government plans to spend. It will be whether the Budget can deliver fiscal discipline without making productive investment harder to finance.

Zambia’s 2027 Budget: The real test is whether the numbers hold

&nbsp;A new bond from Zanaco may sound like a story for bankers and pension funds. But its real significance could eventually be felt by businesses looking for money to buy equipment, expand farms, install solar power or build new infrastructure.Zanaco has announced a US$100 million Medium-Term Note Programme, starting with a planned US$50 million sustainability bond.It is the first sustainability bond issued by a Zambian bank, according to the Lusaka Securities Exchange.The idea is relatively simple: investors provide Zanaco with capital, and the money raised is intended to support projects with defined environmental and social benefits.That includes areas such as renewable energy, climate-smart agriculture, energy efficiency, affordable housing, healthcare, education and financial inclusion.For Zambian businesses, the interesting question is not really what a sustainability bond is.It is whether it creates another source of money for productive investment.<h3>So, what changes for a business?</h3>Imagine a farming company that wants to invest in irrigation.The investment could improve production for years, but the equipment requires substantial money upfront. The same applies to a manufacturer wanting to install solar power, a property developer building more energy-efficient housing, or an SME investing in equipment that reduces its energy costs.Traditionally, such businesses might rely on conventional bank loans, shareholder capital or retained earnings.Sustainability finance introduces another possibility.Capital raised through the bond can be channelled into qualifying projects, potentially expanding the amount of financing available for businesses whose activities meet the relevant sustainability criteria.Zanaco's existing green-finance framework already identifies areas including renewable energy, resource efficiency, green buildings, climate-smart agriculture, aquaculture, forestry and waste management.<h3>But this is not a cheap-money announcement</h3>There is an important caveat.The US$50 million does not mean every SME will suddenly be able to borrow at lower interest rates.Businesses will still have to qualify for financing, and projects will need to meet the requirements attached to sustainability funding.For some companies, therefore, the immediate impact may be limited.The bigger opportunity is the possibility of more capital being directed towards particular types of investment.<h3>Agriculture could be one of the biggest beneficiaries</h3>Agriculture provides a good example of why this matters.Irrigation, storage, solar-powered equipment, efficient processing and other climate-smart investments can make businesses more productive and resilient. But many require significant capital before they start generating returns.If sustainable finance helps fund those investments, the benefits can extend beyond an individual company.A better irrigation system can increase production. Better storage can reduce losses. More efficient processing can create additional value from agricultural output.That is where financial-market developments begin to connect with the real economy.<h3>And SMEs should pay attention</h3>For a small business, the language of sustainable finance can sometimes sound distant.But the underlying question is familiar: Where can I get the money to grow?A sustainability-finance pipeline could become relevant to SMEs investing in energy efficiency, renewable energy, climate-smart agriculture and other qualifying activities.Zanaco says the programme is intended to support entrepreneurs and SMEs alongside farmers and communities requiring social infrastructure.The eventual impact, however, will depend on the financing terms, eligibility requirements and how effectively the money reaches viable projects.<h3>Why the bond matters beyond Zanaco</h3>There is also a bigger story developing in Zambia's financial markets.The country needs capital for productive investment, while investors — particularly institutional investors — need opportunities to deploy long-term funds.A sustainability bond attempts to connect those two needs.Instead of capital simply moving through the financial system, it is tied to a defined set of environmental and social investments.The Lusaka Securities Exchange has described the transaction as a new chapter for Zambia's capital markets and indicated that it wants to work with stakeholders to develop a pipeline of future thematic bonds.That could eventually lead to more specialised financing instruments for sectors such as energy, agriculture, housing and infrastructure.<h3>The real test starts after the headline</h3>US$100 million makes for an impressive headline.But the more important story will be what happens after the money is raised.Which businesses receive financing?What are the interest rates and repayment periods?How many SMEs can actually access it?How much goes into productive investment rather than simply refinancing existing obligations?And does the financing generate measurable economic activity?Those questions will determine whether sustainability finance becomes more than a new label in Zambia's banking sector.For businesses, the message for now is straightforward: a new pool of capital is being created around projects that meet sustainability criteria.The opportunity will be in understanding the criteria — and positioning viable projects to qualify.For Zambia's financial system, meanwhile, Zanaco's bond marks an important shift: sustainability is increasingly becoming not just a development concept, but a way of organising and mobilising capital.

Zanaco’s $100 Million Sustainability Bond: What It Could Mean for Zambian Businesses

&nbsp;Zambia is set to join a new J.P. Morgan benchmark for frontier-market government bonds, giving its kwacha-denominated debt greater visibility among international institutional investors.J.P. Morgan plans to launch the Government Bond Index–Emerging Markets Edge (GBI-EM Edge) by the end of September, covering nearly US$330 billion in local-currency government debt across 26 frontier economies.African markets are expected to account for almost 45 percent of the index, according to an investor note reviewed by Reuters. Zambia, alongside markets including Angola, Egypt, Morocco and Nigeria, is among the African countries expected to qualify.For Zambia, the significance is less about an immediate injection of foreign capital and more about gaining a place on a benchmark watched by global fixed-income investors.J.P. Morgan's bond indices are used by asset managers to measure portfolio performance and, in some cases, construct investment portfolios. Inclusion can therefore place Zambian government securities in front of investors who may not otherwise actively consider the country's relatively small domestic bond market.But inclusion does not mean that J.P. Morgan is investing US$330 billion in Zambia or distributing that amount among the countries in the index. The figure represents the approximate value of eligible debt tracked by the benchmark. Actual capital flows will depend on how many investment managers follow the index and the size of the funds they manage.<h3>Zambia had to make its bonds large enough</h3>The development also highlights changes underway in Zambia's domestic government securities market.J.P. Morgan's rules require eligible bonds to have at least US$250 million equivalent in outstanding value and at least 2.5 years remaining to maturity, while no country can account for more than 8 percent of the index.The minimum bond-size requirement had raised questions about whether Zambia would qualify. Reuters reported that Zambia's efforts to increase the size of its benchmark securities enabled it to meet the threshold.The Bank of Zambia has been deliberately working to create larger and more liquid benchmark securities. Under changes introduced in 2026, benchmark bonds have a minimum target outstanding size of K10 billion, with the central bank reopening existing benchmark bonds to build them towards that level.Government bond auctions were also increased to K6.3 billion per auction in the second quarter of 2026, with auctions scheduled twice during the quarter.The reforms are important because size and liquidity matter to institutional investors. A large bond that trades regularly is easier for a fund manager to enter and exit than a small, thinly traded security.<h3>Foreign participation is already increasing</h3>Zambia's inclusion comes as foreign participation in the domestic government bond market has been expanding.The Bank of Zambia raised the ceiling for non-resident participation in primary government bond auctions from 5 percent to 23 percent of planned annual issuance in January 2026.During the first quarter, demand for government bonds exceeded the amounts offered by an average 175.3 percent, with the Bank of Zambia attributing the strong demand partly to substantial participation by non-resident investors.That provides an important backdrop to the J.P. Morgan development: international investors were already showing greater interest in Zambia's domestic debt before the new index is launched.<h3>A changing macroeconomic backdrop</h3>The index inclusion also comes against an improvement in some of Zambia's macroeconomic indicators.Annual inflation fell to 6.2 percent in August 2026, from 6.5 percent in July, according to the Zambia Statistics Agency.The IMF said in May that Zambia had made substantial progress in consolidating macroeconomic stabilisation, while gross international reserves had risen to US$6.4 billion, equivalent to 4.4 months of prospective imports. The Fund also noted continuing fiscal pressures and the need for further reforms to reduce the domestic interest burden and strengthen fiscal resilience.These factors matter to investors because the attractiveness of a kwacha-denominated bond is determined not only by its coupon or yield, but also by expectations about inflation, fiscal policy, exchange-rate movements and the government's ability to manage its debt.<h3>What it could mean for borrowing costs</h3>If index inclusion leads to sustained foreign demand, Zambia could benefit from a deeper and more liquid government bond market.A broader investor base could increase demand for kwacha-denominated securities and potentially reduce the yield investors require to hold them. Government bond yields also serve as reference rates for other borrowing in the economy, meaning lower sovereign funding costs could eventually influence financing conditions for banks and companies.There is, however, no guarantee that this will happen.Frontier-market bonds offer higher yields partly because investors take on greater currency, liquidity and sovereign risks. J.P. Morgan expects the new index to have an estimated average yield of about 10.4 percent, roughly 4.4 percentage points above its mainstream emerging-market local-currency bond index.For an international investor, a high kwacha bond yield can be offset by a depreciation of the currency against the dollar. Investors can also withdraw quickly from smaller markets when global interest rates rise or risk appetite deteriorates.That makes index inclusion a gateway to capital, rather than a guarantee of cheaper borrowing.For Zambia, the more immediate significance is that its domestic bond market is increasingly being structured around the requirements of international institutional investors: larger benchmark securities, greater liquidity and wider access for non-residents.After years in which Zambia's international financial-market profile was dominated by debt distress and restructuring, the inclusion in J.P. Morgan's frontier-market benchmark provides another indication that the country's domestic capital market is being reconnected to global investors.The next test will be whether that visibility translates into sustained investment, deeper market liquidity and, ultimately, a lower cost of financing for the Zambian government and the wider economy.

Zambia Enters New J.P. Morgan Frontier Bond Index

Bond yields are among the most closely watched indicators in financial markets, but they are often discussed as though investors are expected to understand what they mean.At their simplest, bond yields tell investors what return the market is demanding for lending money for a particular period. But changes in yields can also provide clues about expectations for inflation, interest rates, government borrowing and economic growth.For investors, understanding the movement can sometimes be as important as understanding the level. <h2>What Is a Bond Yield?</h2>A bond is essentially a loan.When an investor buys a government bond, for example, the government receives money today and promises to make specified payments before returning the principal at maturity.The yield is the return an investor expects to receive from holding the bond, based on its price and payments.The important point is that bond prices and yields generally move in opposite directions.If demand for an existing bond increases, its price rises. Because the bond's payments have not changed, the effective return to a new buyer falls.If investors sell the bond and its price falls, its yield rises.This relationship is fundamental to understanding bond markets. <h2>Why Do Yields Move?</h2>Several factors can push yields higher or lower.<h3>Interest-rate expectations</h3>Central banks influence short-term interest rates, and markets constantly assess where those rates could be heading.If investors expect interest rates to remain high, yields on many bonds can rise as investors demand greater returns.Conversely, expectations of lower future rates can contribute to falling yields, particularly at shorter maturities.<h3>Inflation</h3>Inflation matters because investors care about their real return—the return after accounting for changes in purchasing power.If a bond offers a 10% nominal yield while inflation is 8%, the approximate real return before taxes and other considerations is only 2%.When investors expect higher inflation, they may demand higher nominal yields to compensate.<h3>Government borrowing</h3>Governments frequently issue bonds to finance deficits and refinance existing debt.If the supply of government debt increases substantially, investors may demand higher yields, particularly if there are concerns about the government's ability or willingness to manage its debt burden.But supply is only one part of the equation. Strong demand for government securities can absorb additional issuance without producing a corresponding increase in yields.<h3>Economic growth</h3>Bond yields can also reflect expectations about economic activity.Stronger expected growth may increase expectations for inflation and higher interest rates, putting upward pressure on yields.Weak economic expectations can have the opposite effect as investors seek relatively predictable income and anticipate easier monetary policy. <h2>What Does the Yield Curve Tell Us?</h2>One of the most useful ways to read the bond market is through the yield curve.The yield curve compares yields across different maturities, such as two-year, five-year and ten-year government bonds.Normally, longer-term bonds offer higher yields because investors are committing their money for longer and face greater uncertainty.But the curve can take different shapes.A steepening curve may indicate that long-term yields are rising relative to short-term yields. This can reflect changing expectations around inflation, economic growth or government borrowing.A flattening curve means the difference between short- and long-term yields is narrowing.An inverted curve, where shorter-term yields exceed longer-term yields, has historically attracted attention because it can occur when markets expect future interest rates and economic activity to weaken.None of these signals should be interpreted in isolation. <h2>What Does This Mean for a Zambian Investor?</h2>For a Zambian investor, the headline government bond yield should be only the starting point.The first question is: what is the yield after inflation?A bond yielding 15% may appear attractive, but if inflation is running at 12%, the difference between the nominal yield and inflation is much smaller than the headline number suggests. Investors therefore need to distinguish between the return stated on the bond and the return in terms of purchasing power.The second question is: what is happening to the exchange rate?A Zambian investor who measures wealth partly in US dollars may experience a very different outcome from one measuring returns entirely in kwacha. A high kwacha bond yield does not automatically translate into a high foreign-currency return if the kwacha depreciates significantly during the investment period.The third question is: what is driving the yield?A high yield can reflect attractive income, but it can also reflect higher perceived risk, inflation expectations, fiscal pressures or uncertainty about future monetary conditions. The number needs to be interpreted alongside the conditions producing it.The fourth question is: how long is the money being locked up?A longer-dated government bond may offer a higher yield, but it also exposes an investor to greater interest-rate and price risk if the investor needs to sell before maturity.This creates an important distinction between an investor who intends to hold a bond to maturity and one who may need to trade it before maturity. <h2>A Simple Zambia Investor Dashboard</h2>For someone following Zambia's fixed-income market, five indicators provide a useful starting point:1. Government bond yieldsTrack yields across different maturities rather than focusing on one bond.2. InflationCompare nominal yields with the inflation environment to assess the potential real return.3. Monetary policyWatch the direction of interest rates and the signals coming from the Bank of Zambia.4. Exchange rateConsider how movements in the kwacha could affect returns, particularly for investors who think in foreign-currency terms.5. Fiscal and debt developmentsGovernment borrowing requirements, debt restructuring developments and the overall fiscal position can influence how investors price government securities.Together, these indicators provide more information than the bond yield alone. <h2>The Key Takeaway for Zambia</h2>For Zambian investors, a high bond yield should not automatically be interpreted as a high return.The more useful question is: <blockquote>What does the yield compensate me for?</blockquote>It may compensate for inflation. It may reflect interest-rate expectations. It may reflect the time commitment involved in holding the bond. It may reflect fiscal or credit concerns. Or it may simply reflect prevailing market conditions.The answer matters because two bonds with apparently attractive yields can carry very different economic implications.An investor considering Zambian government securities should therefore look at the yield, inflation, maturity, interest-rate environment, exchange rate and fiscal conditions together.That is the central lesson of reading bond markets: the yield is the price of the opportunity—and the risks embedded in that opportunity.For Zambia, understanding those risks is particularly important because nominal returns can look very different from real and foreign-currency-adjusted returns.

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Bond Yields and What They Signal for Investors

A decision made by a central bank thousands of kilometres away can eventually show up in the price of imports, the value of a currency and the cost of borrowing in Zambia.Interest rates are usually presented as domestic policy decisions.The US Federal Reserve changes its policy rate to influence the American economy. The European Central Bank does the same for the euro area. But in an increasingly interconnected financial system, these decisions rarely remain within their own borders.For emerging markets, changes in global interest rates can have very real consequences.<h3>It starts with investors</h3>International investors are constantly comparing returns.When interest rates in advanced economies rise, government bonds and other assets in those markets can become more attractive relative to riskier emerging-market investments.Some investors may therefore reduce their exposure to emerging markets and move funds into assets perceived as safer or offering better risk-adjusted returns.The reverse can happen when global rates decline.Lower returns in advanced economies can push investors to search for yield in emerging and frontier markets.These movements can influence the availability and cost of foreign capital.<h3>The currency channel</h3>One of the most visible effects can appear in foreign-exchange markets.If international investors reduce their holdings of local assets, demand for the local currency can weaken. Depreciation can follow.For an economy that imports fuel, machinery, medicines, food or industrial inputs, this matters.A weaker currency means that the same dollar-priced import costs more in local currency.That can feed into domestic inflation.Central banks may then face a difficult balancing act. Cutting interest rates could support economic activity, but doing so while the currency and inflation are under pressure may create additional risks.<h3>Governments feel it too</h3>The impact does not stop with private investors.Emerging-market governments often rely on domestic and international borrowing to finance public expenditure and investment.When global interest rates rise, international borrowing can become more expensive. Investors may also demand higher yields to compensate for the increased opportunity cost and perceived risk of holding emerging-market debt.Foreign-currency debt creates another vulnerability.If the local currency depreciates against the dollar, the domestic-currency cost of servicing dollar-denominated debt increases even if the amount owed in dollars has not changed.This can place additional pressure on government budgets.<h3>Why Zambia is exposed</h3>Zambia provides a useful illustration of these transmission channels.The country is integrated into global markets through trade, investment and external financing. Copper exports generate foreign exchange, while the economy also depends on imported fuel, machinery and other goods.Global financial conditions therefore matter.A change in the attractiveness of US or European assets can influence international investor appetite for emerging and frontier markets. Changes in commodity prices can simultaneously affect Zambia's export earnings and foreign-exchange position.The result is that the impact of a global interest-rate shift is not necessarily straightforward.A period of higher global rates may create pressure through financing costs and capital flows, while strong copper prices could provide an offset through higher export receipts.Domestic policy and economic fundamentals matter as well.<h3>Not every emerging market experiences the same shock</h3>The phrase "emerging markets" can sometimes make very different economies sound identical.They are not.A country with substantial foreign-exchange reserves, strong export earnings and relatively manageable external debt may respond differently to a global rate increase than a country with large external financing needs and weak reserves.The structure of the economy matters too.Commodity exporters, for example, may benefit from rising prices for their major exports even as tighter global financial conditions create pressure elsewhere.This is why global interest rates should be understood as one part of a larger transmission mechanism rather than a single cause of economic outcomes.<h3>From Washington to Lusaka</h3>The important point is that monetary policy has become increasingly global in its consequences.A rate decision in Washington can influence international capital flows.Capital flows can affect exchange rates.Exchange-rate movements can influence import prices and inflation.Global borrowing costs can affect government financing.And these pressures can eventually feed into decisions made by businesses, households and policymakers in countries far from the original decision.The chain is not always immediate, and it does not operate in exactly the same way everywhere.But it helps explain why emerging-market economies pay close attention to decisions made by the world's major central banks.For countries such as Zambia, understanding this connection is increasingly important.The price of money is globalising, even when economic policy remains largely national.

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How Shifts in Global Interest Rates Reach Emerging Markets

A recent Katondo Street Journal analysis by economist Kampamba Shula, “What Does HH’s Re-election Mean for the Zambian Economy?”, <a href="https://www.katondostreet.com/article/what-does-hhs-re-election-mean-for-the-zambian-economy" rel="noopener noreferrer" target="_blank">https://www.katondostreet.com/article/what-does-hhs-re-election-mean-for-the-zambian-economy</a> is a timely contribution to the debate on Zambia’s economic direction. It correctly identifies the next challenge as converting macroeconomic stability into jobs, stronger businesses, reliable energy, higher incomes and greater value from Zambia’s natural resources.I would go further and name the objective that should sit beneath all these priorities. The purpose of economic development is to enable people to live comfortably, with rising and sustainable incomes, and to progressively gain access to the quality of goods, services, technology, infrastructure and opportunities enjoyed in successful economies, without being suffocated by unproductive debt. That is what economic transformation should mean for ordinary Zambians.<h2>The debt-service train is still coming</h2>The metaphor of an oncoming train captures the reality of Zambia’s rescheduled debt-service obligations. Without substantially higher household and national incomes before that train gathers speed, the future debt burden could once again overwhelm the economy.The G20 Common Framework restructuring bought Zambia breathing space, but it deferred and reprofiled the burden rather than eliminating it. What we do with that space is therefore critical. It must be used to increase productivity, expand enterprise ownership, diversify the economy, deepen value addition and, above all, ensure incomes rise substantially before the heavier obligations crystallise.The trajectory ahead requires preparation rather than complacency.2026–2028: Escalation window. Amortisation on restructured Eurobonds begins, with coupon rates stepping up from approximately 5.75% to 7.5%. Annual external debt-service requirements are expected to move into the US$450–650 million range.2029–2031 and beyond: Peak obligations. Principal repayments under official-creditor arrangements increasingly combine with commercial debt-servicing. Annual obligations could rise towards US$700–750 million or more.The precise path will depend on final restructuring arrangements, economic performance and market conditions, but the direction is clear. Zambia must deliberately build the income-generating capacity of its economy before the debt-service train arrives. For more see full article on Zambian Economist Below:<a href="https://zambianeconomist.com/zambia-msmes-debt-restructuring-income-growth/" rel="noopener noreferrer" target="_blank">https://zambianeconomist.com/zambia-msmes-debt-restructuring-income-growth/</a>