Domestic Debt Needs Technical Reprofiling to Safeguard Market Stability
Zambia’s domestic Bond and Treasury Bill market has become a central pillar of fiscal financing, though treasury bills will not move as much with a lower benchmark rate as recently set by the Bank of Zambia.
As momentum gains and reliance on this market keeps increasing, transparency must also improve to safeguard sustainability and hand-hold hopes of investor confidence.
The critical issue is not only the volume of borrowing, but the structure of that borrowing and the composition of investors especially with an elevated percentage in foreign participations.
A structured monthly or quarterly reporting framework should therefore disclose opening and closing book balances, total bids received, ticket values, actual issuance, yield movements, principal maturities and most importantly, net issuance calculated as gross issuance minus maturities.
However, this will further reveal whether government is expanding domestic debt or simply refinancing existing obligations.
Equally important is the resident versus non-resident split in value and maturity. With non-resident participation capped at 23 percent, monitoring this ratio is quite essential, as it can be easily translated to extremely dangerous risk factor if the market gets to uncertainties.
If recent strong subscriptions are largely driven by foreign investors chasing comparatively higher yields, demand may soften once the ceiling is reached. That scenario could lead to under-subscriptions and upward pressure on yields.
Furthermore, high non-resident holdings will re-introduce foreign exchange exposures and conditioned stimulus risks.
When securities mature, capital repatriation can place pressure on the Kwacha and foreign reserves, especially if maturities are concentrated within short periods and the secondary market will also at one time get flooded with offloading.
Comparing auction ticket values with actual allotments also provides insight into whether borrowing aligns with budgeted domestic financing targets or reflects frontloaded fiscal pressure, also important is fiscal discipline policy framework.
In essence, enhanced disclosure strengthens market discipline, improves policy coordination and provides early warning signals of liquidity and yield risks.
Sustainable domestic debt management depends not only on access to funding, but on transparency and structural balance.
