Zambian President Hakainde Hichilema's re-election has been largely welcomed by investors, who are anticipating policy continuity and sustained economic growth. Hichilema secured approximately 60% of the vote, defeating his main challenger, Brian Mundubile, who garnered 38%. This victory is seen as a crucial step for Zambia, which is still recovering from a 2020 sovereign debt default during the COVID-19 pandemic. His first term focused on debt restructuring and IMF-backed reforms, with a new IMF program expected to be secured by the end of the year.
Citi has upgraded Zambia's international bonds to "overweight" from "marketweight," citing improved political stability and stronger investor confidence. The bank anticipates strong demand for local currency bonds and expects Zambia's credit standing to improve, potentially leading to upgrades from Moody's (from Caa2) and S&P Global Ratings (to B minus by 2027) if fiscal reforms continue. This positive outlook is underpinned by the government's fiscal consolidation program and the expected new IMF program.
Zambia's local kwacha bonds have already seen a world-beating 36% return in dollar terms this year, significantly outperforming an emerging local debt index that returned just 1.35%. This performance has attracted investor attention, and the re-election of Hichilema is expected to extend this rally. While there are some risks, such as potential political unrest and the impact of El Niño on agriculture in early 2027, the overall sentiment among investors remains bullish.
Hichilema's administration has overseen a significant improvement in macroeconomic indicators. Public debt, which stood at 112% of GDP in 2021, is forecasted to decrease to 78% this year. Inflation has also fallen from 22% in 2021 to 6.5%, and foreign direct investment (FDI) has increased from 0.7% of GDP in 2022 to 4.5% last year. Despite these improvements, concerns remain among the public regarding the high cost of living, with annual food inflation at 14.9% last August, and the translation of mining investments into broad employment.
Looking ahead, the government does not plan to return to international capital markets until a new IMF program is secured. However, an eventual Eurobond issuance could attract further foreign capital. The combination of political continuity, ongoing fiscal reforms, and a new IMF program is expected to further support Zambia's bonds and strengthen the government's access to funding, providing a clearer path toward renewed external financing and sustainable economic growth.
