Zambia’s Local Bond Market Draws Global Capital as Index Inclusion Beckons

Foreign investors now account for nearly half of recent bond purchases after Zambia raised participation caps. Finance Minister Musokotwane tells the Financial Times that the case for benchmark index inclusion is clear.

Zambia’s domestic bond market is attracting significant international attention. In a new interview with the Financial Times, Finance Minister Situmbeko Musokotwane made the case for Zambia’s local currency debt to be included in major international benchmark indices — a step that could unlock substantial new capital flows into the country’s debt market.

The backdrop is striking. Since Zambia raised the cap on foreign participation in government bond issuance from 5 per cent to 23 per cent in January, international investors have responded decisively. In two auctions held so far this year, total bids reached K32 billion ($1.7 billion) against K8.4 billion in debt offered — an oversubscription ratio of nearly four to one. The government ultimately sold K19 billion at yields of between 14 and 19 per cent. Non-resident investors accounted for 49 per cent of purchases.

For fixed income investors tracking frontier markets, these are notable numbers. Zambia’s kwacha-denominated bonds offer yields well above the current policy rate of 13.5 per cent, in a currency that has strengthened 17 per cent against the US dollar year-to-date. That combination of high nominal yield and currency appreciation has made Zambian local debt one of the most attractive frontier market trades of 2026.

The minister’s push for index inclusion reflects the broader trajectory of Zambia’s capital markets development. Benchmark indices operated by providers such as JPMorgan and FTSE Russell direct hundreds of billions of dollars in passive and benchmark-tracking capital across emerging and frontier markets. Inclusion would expose Zambia’s local bonds to a significantly wider investor base, improve secondary market liquidity, and reduce borrowing costs over time. FTSE Russell already operates a frontier market local currency index covering approximately $500 billion in debt across 14 countries, but Zambia is not yet included.

“The level of interest in our local bond market shows a clear case for including Zambia in any international index,” Minister Musokotwane told the FT.

The FT reports that JPMorgan has been consulting on a possible new frontier market index of local currency debt. Minimum issuance thresholds — typically $500 million per sovereign bond issue — may require adjustment to accommodate frontier issuers. The minister declined to comment on specific discussions but was unequivocal on the merits of the case.

The macroeconomic context supports the argument. Zambia’s inflation fell to 7.5 per cent in February, returning to the central bank’s target band for the first time since 2019. The Bank of Zambia cut its policy rate by 75 basis points in its most recent decision. Foreign exchange reserves stand at $5.5 billion, providing 4.8 months of import cover. The IMF projects GDP growth of 5.8 per cent this year, underpinned by record copper prices and a recovering agricultural sector. Zambia never restructured its domestic debt during the 2020 external default — a point of confidence for local currency bondholders.

The government is also diversifying the currency composition of its revenue base. Mining companies can now pay taxes in renminbi, with the minister estimating that approximately 15 per cent of mining taxes will be collected in the Chinese currency in 2026, alongside 60 per cent in US dollars and 25 per cent in kwacha. The move reflects both the practical realities of Zambia’s trade relationships and the broader shift in international settlement currencies.

For investors, the signal is clear. Zambia is actively building the infrastructure — regulatory, institutional and market — to transition from a post-restructuring recovery story to a mainstream frontier market allocation. The combination of fiscal consolidation, currency strength, high yields and growing foreign participation makes the case for benchmark inclusion increasingly difficult to ignore. The question is now one of timing and threshold design rather than principle.

Read the full Financial Times article here.