When Government Bonds Are Oversubscribed: What It Really Means for Zambia’s Economy- Prof Lubinda Haabazoka

When Government Bonds Are Oversubscribed: What It Really Means for Zambia’s Economy

By Prof Lubinda Haabazoka

As published in the Daily Nation Wednesday 18th February 2026

In recent days, the Government of the Republic of Zambia (GRZ) bond auction results released by the Bank of Zambia have attracted significant attention. The figures show that the bond auction was heavily oversubscribed. But what does this mean? And why should ordinary citizens, businesses, and policymakers care?

Let us begin with the basics.

What Is a Bond?
A bond is essentially a loan. When you buy a government bond, you are lending money to the government for a specified period. In return, the government promises two things:

1. To pay you interest (called a coupon) at an agreed rate, and
2. To repay your principal (the original amount invested) at maturity.
Unlike Treasury Bills, which are short-term (usually less than one year), government bonds are medium- to long-term instruments, typically ranging from 2 years to 15 years or more.

Who Issues Government Bonds?
In Zambia, government bonds are issued by the Ministry of Finance through the Bank of Zambia (BoZ), which acts as the government’s agent. The BoZ conducts regular auctions where institutional investors such as commercial banks, pension funds, insurance companies, asset managers, and sometimes individuals submit bids indicating how much they are willing to invest and at what interest rate.

Why Does Government Issue Bonds?
Government bonds serve several important purposes:

● Financing infrastructure such as roads, schools, and hospitals
● Supporting budget deficits when revenue is insufficient
● Refinancing maturing debt
● Developing the domestic capital market
● Providing safe investment instruments for pension funds and financial institutions
A well-functioning bond market is a cornerstone of financial sector development and macroeconomic stability.

What Happened in the Latest Auction?
According to the Bank of Zambia’s official results for Bond Tender No. 02/2026/BA held on February 13, 2026:

● Total amount offered: K4.2 billion
● Total amount bid: K21.335 billion
● Total amount allocated: K9.879 billion
In simple terms, investors were willing to lend the government more than five times the amount initially offered.

For example:

● The 15-year bond had K560 million on offer but received bids totaling K8.824 billion
Bonds-Press-Results-02-2026-BA
.
● The 10-year bond had K600 million offered but attracted K4.287 billion in bids
Bonds-Press-Results-02-2026-BA
This is what we call oversubscription. When demand for bonds exceeds the amount the government is seeking to borrow.

What Does Oversubscription Mean?
Oversubscription sends several powerful signals about the economy. In an election year, oversubscription is a signal from investors of approving continuity and being sure that those managing economic affairs of the country will be around beyond the elections. Other meanings include:

1. Strong Investor Confidence
When investors aggressively bid for long-term government bonds, it suggests:

● Confidence in macroeconomic stability
● Belief that inflation will moderate over time
● Trust that the government will honor its debt obligations
Investors do not commit billions of kwacha to 10- or 15-year instruments unless they believe the economic environment will remain relatively stable.

2. Excess Liquidity in the Financial System
Oversubscription can also indicate that there is substantial liquidity in the banking system. Commercial banks and institutional investors may be sitting on surplus funds and view government bonds as a safe and attractive investment.

This is particularly likely in an environment where:

● Private sector credit growth is moderate
● Risk appetite toward SMEs is cautious
● Banks prefer low-risk sovereign assets
3. Attractive Yields
The auction results show cut-off yields ranging from:

● 14.5% for 2-year bonds
● 16.6% for 10-year bonds
● 17.59% for 15-year bonds
Bonds-Press-Results-02-2026-BA
In a declining inflation environment, these yields may be viewed as attractive in real terms, especially for pension funds seeking long-term predictable returns.

Is Oversubscription Always Good News?

While oversubscription is generally positive, it must be interpreted carefully.

The Positive Side
● It reduces borrowing pressure.
● It allows government to reject excessively high interest rate bids.
● It demonstrates market appetite for government securities.
● It supports development of Zambia’s domestic capital market.
The Cautionary Side
If banks prefer buying government bonds instead of lending to businesses, we may see a phenomenon called crowding out, where private sector credit growth slows.

When financial institutions can earn 16–17% from government bonds with minimal risk, they may become less incentivized to lend to SMEs or entrepreneurs who carry higher default risk.

This can affect job creation and private sector expansion.

What Does This Mean for Households and Businesses?
For households:

● Strong bond demand can reflect macroeconomic stability.
● Stable yields may support pension fund performance.
● It may signal confidence in long-term inflation control.
For businesses:

● If liquidity remains strong, lending rates may gradually decline.
● However, if government borrowing expands aggressively, private sector credit could tighten.
For the broader economy:

● Oversubscription enhances Zambia’s credibility in domestic debt markets.
● It strengthens the case for reduced reliance on external commercial borrowing.
● It deepens financial market development.
The Bigger Picture
In recent years, Zambia has been navigating debt restructuring, inflation pressures, and currency volatility. A bond market that is oversubscribed five times over suggests that domestic investors are increasingly confident in macroeconomic direction.

However, policymakers must strike a careful balance:

● Maintain fiscal discipline.
● Ensure borrowing finances productive investments.
● Avoid excessive domestic debt accumulation.
● Promote private sector credit growth.
Oversubscription is not merely a technical financial term. It is a reflection of market sentiment. It tells us how investors view Zambia’s economic trajectory.

At this stage, the signal appears positive.

But sustained confidence will depend on continued macroeconomic prudence, inflation management, and growth in real sector productivity.

Government bond oversubscription is therefore not just about numbers. It is about trust — and trust is the currency of economic stability.

Dr Lubinda Haabazoka is Associate Professor of Banking and Financial Economics and Director at the Graduate School of Business, University of Zambia.