Zambia's Debt Restructuring Spur Bond Gains, S&P Upgrade to CCC+

Zambia has exited its five-year default status following a credit rating upgrade from S&P Global Ratings. The agency removed its selective default (SD) rating and assigned a CCC+ long-term foreign currency sovereign credit rating with a stable outlook. The move has spurred optimism among investors, with Zambian dollar bonds rising 0.3 cents on the dollar to 95.91 cents as of Monday afternoon in London.

The upgrade marks a pivotal milestone in the country's economic recovery, signaling growing international confidence in Zambia's reform efforts. Finance Minister Situmbeko Musokotwane hailed the decision, calling it a "strong vote of confidence" in the government's fiscal discipline and governance. He emphasized that Zambia remains committed to completing its debt restructuring and expanding energy access according to the report.

Zambian dollar bonds have returned 15% since hitting a record low in April, with the country's benchmark stock index rising 98% in dollar terms this year. The kwacha has also strengthened 20% against the dollar, making it Africa's third-best-performing currency. These developments suggest a gradual restoration of market trust in Zambia's economic trajectory.

Why the Standoff Happened

Zambia became Africa's first pandemic-era sovereign defaulter in 2020 after missing a dollar bond payment. S&P and Fitch Ratings maintained their selective default classifications for years as the country worked to restructure over $13 billion in debt. While agreements were reached with about 94% of creditors, concerns over holdout risks and the finalization of remaining deals remained unresolved.

The government has been engaged in protracted negotiations to restructure its commercial and official debt. Progress was made through agreements with both international and commercial creditors, but the final steps—particularly a $50 million loan with the African Export-Import Bank—remained unresolved. S&P noted that while some lenders could still act as holdouts, the likelihood of major disruptions has decreased according to market analysis.

How Markets Reacted

Zambia's bond market responded positively to the news. The 2033-dated dollar bonds climbed in price, reflecting renewed investor appetite. Analysts at Abrdn Investments Ltd. acknowledged the upgrade but cautioned that Zambia remains among the most vulnerable borrowers. Anthony Simond, an investment director for emerging-market debt, noted that the real turning point would come when the country regains a B- rating, which would attract a broader pool of investors.

Zambia's economic performance has shown signs of stabilization. The government projected a halved budget deficit for 2026 and expects growth to exceed 6%. Improved fiscal management, supported by an IMF disbursement of $191.1 million, has bolstered confidence. The copper sector, a key driver of the economy, saw a 17.8% increase in production in the first half of 2025.

Risks to the Outlook

Despite the progress, S&P highlighted ongoing risks. The finalization of debt restructuring remains incomplete, and political uncertainty looms ahead of the 2026 elections. President Hakainde Hichilema, who has pursued tough economic reforms, faces a potential challenge from the United Kwacha Alliance. S&P noted that the election outcome could depend on whether the government can translate stabilization efforts into tangible improvements in living standards according to market analysis.

Inflation remains a concern, with projections of 13.8% in 2025 and 9.0% in 2026. The Bank of Zambia cut its monetary policy rate by 25 basis points to 14.25% in November, aiming to support economic activity. However, the central bank's policy flexibility is constrained by the need to maintain fiscal discipline and control borrowing costs according to economic reports.

What This Means for Investors

The upgrade by S&P is a critical step for Zambia's return to global capital markets. While the CCC+ rating remains far from investment grade, it opens the door for increased engagement with institutional investors. Anthony Simond from Abrdn emphasized that Zambia's path to a B- rating is vital for broader market participation. Until then, the country will remain reliant on a narrower investor base according to market analysts.

For now, Zambia's improved credit profile is attracting attention. The country's benchmark stock index has surged, and the kwacha's strength reflects growing confidence. As the government moves toward finalizing its debt restructuring and implements structural reforms, international investors are watching closely for further signals of stability and growth according to market reports.