Zambia Begins Buying Back Eurobonds: A Major Step Toward Lower Debt Costs and Fiscal Sustainability
By Prof. Lubinda Haabazoka
The Government of Zambia has taken a significant step in strengthening the country’s public finances by launching a buyback of more than US$1.3 billion worth of Eurobonds. This operation represents one of the most important debt management decisions undertaken since Zambia completed its debt restructuring process and signals a shift from crisis management toward proactive debt reduction.
To appreciate the significance of this transaction, it is important to first understand what a bond is and why Eurobonds are among the most expensive forms of government borrowing.
What Is a Bond?
A bond is essentially a loan provided by investors to a government or corporation. When a government issues a bond, it borrows money from investors and promises to repay that money at a future date known as the maturity date
The original amount borrowed is called the principal or face value.
During the life of the bond, the borrower does not normally repay the principal. Instead, the borrower pays periodic interest known as coupons.
For example, if a government issues a bond worth US$1,000 with a coupon rate of 8%, it pays US$80 annually in interest to the bondholder. The government continues making these coupon payments every year until the bond matures, at which point it repays the entire US$1,000 principal.
This means that for many years the borrower is paying interest without reducing the original debt.
As a result, Eurobonds often become some of the most expensive debt instruments available to governments because:
– They carry relatively high commercial interest rates.
– Interest payments continue throughout the life of the bond.
– The principal remains outstanding until maturity.
– They expose governments to foreign exchange risks.
– They are usually issued in foreign currencies such as US dollars.
Unlike concessional loans from institutions such as the African Development Bank or the World Bank, Eurobonds do not offer grace periods, subsidized interest rates, or highly flexible repayment terms.
Zambia’s Eurobond Legacy
Between 2012 and 2015, Zambia issued three Eurobonds totaling approximately US$3 billion.
The funds were intended to finance infrastructure projects and support economic development. However, a combination of declining commodity prices, fiscal imbalances, droughts, rising debt accumulation, and external economic shocks eventually made debt servicing increasingly difficult.
The situation culminated in Zambia’s sovereign default in November 2020, making the country the first African nation to default on its external debt during the pandemic era.
Following years of negotiations under the G20 Common Framework, Zambia successfully restructured much of its external debt. As part of this process, new bonds were issued in 2024 to replace some of the old obligations.
These replacement bonds included Fixed Rate Step-Up Amortising Notes due in 2053.
The challenge with these instruments is that they contain step-up coupon rates, meaning the interest Zambia pays increases over time. While such structures can assist during restructuring negotiations, they can become increasingly expensive for taxpayers in the long term.
The Buyback Strategy
The Government has now announced a tender offer to purchase these bonds back from investors. The targeted bonds have a face value of approximately US$1.36 billion. Importantly, Zambia is offering to buy them back at around 78 cents on the dollar. This means that a bond with a face value of US$1,000 can be repurchased for approximately US$780. Once purchased, the bonds will be permanently cancelled.
This is a crucial point.
The transaction does not simply refinance the debt; it removes a significant portion of Zambia’s future debt obligations while simultaneously reducing future interest payments.
The operation will largely be financed through a US$600 million facility from the African Development Bank, supplemented by government resources.
Why This Makes Economic Sense
From a financial management perspective, the transaction offers several advantages.
1. Lower Interest Costs
African Development Bank financing carries significantly lower interest rates than commercial Eurobonds. This immediately reduces Zambia’s future debt servicing burden.
2. Reduced Long-Term Obligations
Cancelling bonds today eliminates decades of future coupon payments that would otherwise continue until 2053.
3. Improved Debt Sustainability
The operation improves Zambia’s debt profile by replacing expensive commercial debt with cheaper concessional financing.
4. Fiscal Space for Development
Lower debt service requirements create room within the national budget for: Schools, Hospitals, Roads, Irrigation infrastructure, Social protection programmes, Agricultural support initiatives
5. Strengthened Investor Confidence
The ability to conduct a voluntary market buyback demonstrates improving economic credibility and prudent debt management.
A Vote of Confidence in Zambia
Perhaps one of the most overlooked aspects of this transaction is what it says about Zambia’s standing in international financial markets.
Only a few years ago, Zambia was in debt distress and unable to access international capital markets.
Today, major institutions such as the African Development Bank are willing to support debt management operations designed to improve the country’s financial position.
Such confidence does not emerge by accident. It is usually built through: Fiscal discipline; Economic reforms; Improved debt transparency; Better public financial management; and Consistent engagement with international financial institutions.
The African Development Bank’s willingness to provide a US$600 million facility is therefore not merely a financing arrangement; it is also an endorsement of Zambia’s ongoing economic recovery efforts.
What It Means for Ordinary Citizens
For many Zambians, discussions about bonds and debt restructuring can seem distant from everyday life.
However, the reality is that excessive debt service competes directly with expenditure on public services.
Every dollar spent paying bondholders is a dollar unavailable for teachers, nurses, medicines, roads, electricity infrastructure, and agricultural development.
By retiring expensive Eurobonds and replacing them with lower-cost financing, Zambia is effectively reducing future pressure on taxpayers while creating greater fiscal space for development priorities.