(Bloomberg) -- Zambia’s dollar bonds climbed after its 2025 spending plan won praise from Morgan Stanley even as it drew concern from locals battling with the impact of the nation’s worst drought in a century.
The advance on its $1.7 billion in notes due 2033 sent yields tumbling by the most on record, reaching 7.86%. They’ve dropped more than 30 basis points since Finance Minister Situmbeko Musokotwane announced the budget on Sept. 27, reversing a weakening trend that started after the government completed a debt restructuring in June.
The bonds have performed so well that Secretary to the Treasury Felix Nkulukusa on Monday said the window may be closing to exchange them in a potential debt-for-nature swap.
Neville Mandimika, emerging-markets strategist at Morgan Stanley, upgraded his view on Zambia’s bonds to “like” after the spending plan showed a strong fiscal performance, with revenues exceeding expectations and expenditures controlled in the first half of 2024.
The outlook showed room for further consolidation next year, which will be helped by rising output and prices for copper, Zambia’s biggest export, Mandimika said.
Still, Musokotwane’s plan to trim 2025’s fiscal deficit to 3.1% from 6.4% estimated for this year means tighter spending controls.
While Peter Mumba, national coordinator at the Zambia Debt Alliance campaign group, praised Musokotwane’s increased spending on social cash transfers that benefit the rural poor in particular, he said the budget failed to offer immediate measures to deal with the power shortage, and its severe impact on businesses and households such as tax rebates. The plan seemed more aimed at appeasing the International Monetary Fund, with whom the nation has a 38-month program, Mumba said.
“Government doesn’t seem to be responding to the electricity crisis in the short term,” he said. “We had expected that perhaps the government would be looking to address urban poverty.”
The El Niño-induced dry spell has scorched crops, fanned inflation and constrained energy supplies from hydropower dams, subjecting businesses and households to lengthy electricity cuts. Many have been forced to turn to diesel and gasoline generators at a time when local fuel prices are near record highs.
The Non-governmental Gender Organisations’ Coordinating Council, an umbrella group based in Lusaka, raised concern over the smaller percentage of total spending the government allocated toward education and health. It also expected tax relief.
“While the debt restructuring is progressive, ordinary Zambians must see and feel the trickle-down effects,” NGOCC Executive Director Anne Mbewe-Anamela said in a statement. “This must reflect in the cost of living, including the cost of fuel and alternative sources of energy. However, 2025 may be difficult to navigate.”
--With assistance from Taonga Mitimingi.
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