Zambia to Cash in On IMF Deal Hopes With Larger Bond Sales

(Bloomberg) --

Zambia's central bank will bump up the size of its local-currency bond auctions by 73% this month to cash in on improved investor sentiment after the government moved closer to concluding a bail-out deal with the International Monetary Fund.

The size of monthly bond tenders will increase to 2.6 billion kwacha , from 1.5 billion kwacha previously, according to the Bank of Zambia. It will offer 2 billion kwacha in fortnightly treasury bill sales, a 43% rise from the previous 1.4 billion kwacha.

Zambia became Africa's first pandemic-era sovereign defaulter in 2020, and the government needs the extra money. It has about 56 billion of kwacha of bonds and treasury bills maturing this year, while the 2022 budget foresees 25 billion kwacha of local financing. President Hakainde Hichilema's administration, which won power in August, meanwhile plans to restructure as much as $17 billion in dollar debt.

“There has also been a downward trend in the yields arising from the high participation in the government paper by both domestic and non-resident investors,” Besnat Mwanza, spokeswoman at the Bank of Zambia, said in an emailed reply to questions Tuesday. “This was on the back of improved sentiments on the Zambian economy and the prospects of an IMF program to anchor macroeconomic stability.”

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Yields have fallen sharply -- to as low as 12% on one-year notes in November from a high of 29.3% in April 2020. For 10-year kwacha bonds, the yield has plunged to about 24% from a high of 34.5% in March.

Foreign investors have been drawn by the still-attractive returns, with the expectation that an IMF program will help prevent currency depreciation that would erode profits. The Bank of Zambia plans to start an electronic auction platform this year to boost demand from retail investors, Mwanza said.

Zambia is targeting IMF board approval for the three-year extended-credit facility in the first quarter of 2022, having reached a staff-level agreement Dec. 3.