Zambian Economist Kelvin Chisanga, speaking to Channel Africa, welcomed the development but warned that inclusion would not automatically reduce borrowing costs or remove risks associated with domestic debt.
JPMorgan is expected to launch the local-currency government bond index by the end of September. The benchmark will cover nearly $330 billion in debt across 26 frontier economies.
Africa is expected to account for about 45% of the index. Egypt, Morocco and Nigeria are set to receive some of the largest allocations, while Angola and Zambia have qualified. Kenya and Namibia are also expected to participate. “This is a very good page that we’re turning, where our local government bonds will be indexed on the international markets,” Chisanga said.
“We are going to have more visibility on the global stage and more foreign investment capital.”
Chisanga said the index would provide international investors with a recognised benchmark for assessing Zambia’s local-currency government bonds.
The increased visibility could strengthen foreign portfolio demand, improve market liquidity and potentially reduce the cost of capital if supported by disciplined economic management.
However, Zambia would need to direct additional financing towards productive sectors such as infrastructure, energy, agriculture and mining. “It is important that we look at how we can channel that capital into productive activities in the local market,” Chisanga said.
Qualifying bonds require a minimum issuance of about $250 million and at least 2.5 years before maturity. Country allocations are determined by factors including market size, available qualifying debt and economic conditions.
Chisanga cautioned that investors would continue assessing Zambia according to inflation, sovereign credit risk, currency performance and expected returns. “Inclusion does not automatically reduce yields or remove some of the challenging risks that we see in the local market,” Chisanga said.
Foreign participation in Zambia’s domestic debt market has already increased from about 5% to 23%, according to Chisanga.
The growth brings capital but also increases exposure to changes in global investor sentiment. A sudden withdrawal by foreign investors could place pressure on bond prices and the Zambian Kwacha.
Chisanga said Zambia must maintain fiscal and monetary discipline to maximise the opportunity while managing exchange-rate, refinancing and capital-flow risks.
–ChannelAfrica–
