Citigroup Inc. is taking a bullish stance on Zambia's bonds following the re-election of President Hakainde Hichilema, seeing the copper-producing nation as ripe for credit upgrades. Citi strategists, including Katie Kironde, recommended buying Zambia's domestic seven-year notes at Friday's local debt auction, the first since Hichilema's victory last week. The bank also moved to an "overweight" position on Zambia on the credit side, signaling strong confidence in its financial outlook.
Citi's upgrade of Zambia's international bonds to "overweight" and its intention to purchase local government debt at the auction are driven by the perceived political stability following President Hichilema's re-election. Hichilema secured a second term with approximately 60% of the vote. Citi anticipates strong demand for the seven-year local-currency bond due to high financial system liquidity exceeding the bond supply. The bank also projects potential credit rating upgrades, with Moody's possibly raising Zambia from Caa2 and S&P potentially increasing the rating to B-minus in 2027 if fiscal consolidation plans are maintained.
Investors view Hichilema's re-election as providing policy continuity, crucial for the nation emerging from economic turmoil after defaulting in 2020. His first term focused on debt restructuring and IMF-backed reforms. The government is not planning to borrow on international markets before securing a new International Monetary Fund (IMF) program, which Citi expects by year-end. A new IMF program is seen as the initial test for investors to gauge whether Hichilema's second term can translate economic stabilization into sustained growth.
Despite the positive outlook, risks remain, including potential political unrest and the economic impact of El Niño in early 2027. The El Niño weather phenomenon could affect copper production, a key industry for Zambia, as it did three years ago when drought reduced hydropower output and led to declines in copper production. However, the kwacha, already Africa’s top-performing currency this year, strengthened after the election results, reflecting investor relief over eased political risk.
