Fitch Upgrades Zambia to B- from Restricted Default
Fitch Ratings has upgraded Zambia’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) to ‘B-‘ from ‘Restricted Default’ (RD) with rating outlook accorded as stable.
The upgrade of Zambia’s credit rating reflects Fitch’s assessment that the country has normalised relations with a significant majority of its external commercial creditors.
Zambia restructured its USD3.8 billion Eurobonds in June 2024 and has subsequently either restructured or reached an agreement on restructuring terms on USD272 million of non-bond external commercial debt.
According to Fitch, approximately USD44 million of non-bond commercial debt, representing 1% of total external commercial debt included in the restructuring perimeter, is still being negotiated, and ratings analysts assess holdout risks as small.
The rating note explained that Fitch excludes export-credit agency-backed claims, supplier credits and loans from plurilateral lenders from its commercial debt definition.
Ratings analysts stated that USD13.3 billion of commercial, bilateral and plurilateral external debt was included in the restructuring perimeter.
As of November 2025, Zambia has either restructured or reached an agreement on restructuring terms for approximately 94% of this, Fitch said.
Of the USD889 million of claims that still need to be restructured, USD300 million is supplier credits, USD455 million is debt to plurilateral lenders and USD44 million is the debt to commercial creditors mentioned above.
“We project government debt will decline from 114% of GDP in 2024 to 93% in 2025 and 85% in 2026, helped by strong nominal growth, continued primary surpluses, and currency appreciation in 2025.
“We include central government arrears to external contractors, to independent power producers, to fuel providers and to domestic suppliers in our headline government debt.
“We exclude government guaranteed debt, of 6% of GDP at end-2024, from Zambia’s government debt. We forecast Zambia’s debt will be lower than its pre-default level in 2027, at 79% of GDP, against 81.5% in 2019, still well above the ‘B’ median of 51%”.
Fitch analysts estimate the weighted average interest rate on external debt will be below 1.5% in 2025-2027, against 7.5% in 2019, due to the increase in the share of official bilateral and multilateral debt in total external debt (excluding arrears), from 46% in 2019 to 58% in 2024, and the large reduction in coupon and interest rates on treated debt.
The duration of treated external debt has also been significantly extended. Ratings analysts forecast external debt service obligations will decline to 2.5% of GDP in 2025 and 2% in 2027, from 2.8% in 2024 and much below the 5.1% level of 2019, reflecting the lower interest payments and the duration extension.
Both the bilateral and Eurobond treatment involve contingent instruments with an upside trigger. Fitch estimated that there is a substantial likelihood of the upside case treatment being triggered on the Eurobonds (potentially with implications for restructured official debt under possible undisclosed claw-back rules).
This would not have a material impact on Zambia’s credit profile in the near to medium term, according to the rating note released.
Zambia’s annual cash coupon payments on Bond B would marginally increase by USD13.5 million from the trigger date to June 2031, or 0.03% of forecast 2027 GDP -with a potential additional impact on official debt service due to possible clawback clauses.
High yields on domestic debt will contribute to a still high interest-to-revenue ratio, although declining from 28% in 2024 to 21% in 2027, above our 2027 ‘B’ median forecast of 15%.
Ratings analysts forecast domestic debt service – excluding short-term amortisations- will remain high at 5.7% in 2027 against 7% in 2024.
They noted that the re-introduction of benchmark bonds, an anticipated increased cap on non-resident participation to primary auctions, liquidity buffers and our expectation of declining yields on domestic debt mitigate liquidity and refinancing risks in our view, supporting the upgrade of the Long-Term Local-Currency IDR.
“We forecast Zambia’s primary surplus will decline to 1.8% of GDP in 2025, down from 3.1% in 2024, reflecting the clearance of some of its arrears to fuel suppliers.
“A continued increase in revenue boosted by high copper prices, partly offset by continued net clearance of arrears, will contribute to the primary balance improving to 2.2% in 2026 and 2.1% in 2027 in our projections”.
August 2026 elections could pose a risk to fiscal discipline, but Zambia has a limited record of fiscal slippages on election years and the authorities have shown strong commitment to the restoration of macroeconomic stability.
Fitch analysts forecast real GDP growth will remain robust and accelerate to 6% in 2027 from 5.2% in 2025, driven by continued mining growth and a recovery in agricultural production, assuming typical weather patterns and gradual normalisation of energy supply.
In 2024, prioritisation of energy supply to mines and large corporates shielded these sectors from large drought-related load-shedding, contributing to a much more resilient 4% growth than we anticipated.
The authorities plan to rebase GDP in September 2026. We anticipate this will have a material impact on some key metrics, but it is not incorporated in our metrics.
Inflation is expected to remain broadly unchanged in 2025, averaging 14% after 15% in 2024, but will then decline to 10% in 2026 and 8% in 2027, supported by a pass-through of currency appreciation, higher agricultural output contributing to food price pressures abating, and declining oil prices on international markets and higher energy generation reducing cost of production.
Bank of Zambia cut its policy rate by 25bp in November 2025, to 14.25% with analysts anticipating that the authority will further cut its policy rate in 2026 and 2027, but real rates will remain positive.
Higher than anticipated investment-related and energy imports will contribute to the current account balance remaining in deficit in 2025, at 2% of GDP, against previous forecast of a 1% surplus, according to Fitch.
Ratings analysts expect investment in mining will remain heavily import-intensive, but forecast the current account balance to shift to a surplus of 0.2% in 2026, followed by 1.5% in 2027, driven by a rebound in copper production and high copper prices.
The improvement in the current account balance and high net foreign direct investment inflows will contribute to an increase in international reserves, to 5.4 months of current external payments in 2027, from 3.6 in 2024.
Presidential and parliamentary elections are due to be held in August 2026 and analysts estimate the fragmentation of the opposition will contribute to the ruling administration being re-elected, ensuring broad policy continuity.
Fitch believes the ruling administration could have a smaller majority in parliament than currently. #Fitch Upgrades Zambia to B- from Restricted Default Zenith Bank Sees Slight Gain on Huge Trading Volume
