A Cautionary Tale of Zambia’s International Sovereign Bond Issuances

Despite the benefits of concessional borrowing, African sovereigns are increasingly tapping into the international capital markets mainly as a result of dwindling concessional resources. Another reason is the low returns on investments in Europe and the United States which appear to be pushing international investors away from the developed world and towards emerging markets such as Africa. This strong investor demand, alongside higher funding rates in the developed countries, currently makes it convenient for many African countries to issue debt on the international markets than domestically. Other reasons include the exceptionally high liquidity and lack of conditionalities. This study assesses the opportunities and challenges of Zambia’s entry onto the sovereign bond market by exploring exactly what the country is getting itself into. In pursuing this key objective, the study seeks to understand the definition and conceptual issues surrounding sovereign bonds and the national legal and institutional frameworks in place for borrowing from international capital markets, including the role of credit rating agencies. It also examines the benefits, costs and risks associated with the issuance of sovereign bonds, including the cost and risk of sovereign defaults. Lastly, it proposes the mitigation of vulnerabilities associated with sovereign bond issuance.