By Dr Mohamed Z M Aazim
In June 2026, Zambia completed a debt management operation that drew international attention. Following its 2024 debt restructuring, the country launched a buyback of a USD1.36 billion bond maturing in 2053. It replaced part of that commercial debt with concessional financing from the African Development Bank.
What interests me about this operation is how Zambia sought to reduce its future debt costs while supporting financial stability and national development.
Why did Zambia act?
Zambia’s debt challenges are well documented. After defaulting on its external debt in 2020, it became one of the first countries to complete a debt treatment under the G20 Common Framework. The restructuring brought much-needed relief from immediate repayments, but it also led to the issuance of a new long-term bond maturing in 2053.
What made this bond different was its built-in “step-up” feature, meaning that interest payments were set to rise over time. This reduced debt-service costs immediately after the restructuring but meant that Zambia’s repayment obligations could become more expensive in later years.
Recognising this risk, the government identified the bond as a suitable candidate for an early buyback and replacement with more affordable financing.
How did the buyback work?
The first step was to secure affordable financing. Zambia obtained a US$600 million loan from the African Development Bank on favourable terms and combined it with its own resources.
The government then invited investors to sell their holdings back before the bond reached maturity through a market-based tender offer. Investors were offered USD 740 for every USD 1,000 of bond principal. Those who accepted the offer early received an additional USD 40 per USD1,000. This incentive encouraged strong participation.
The response was significant. Investors holding 97.85 percent of the outstanding bond accepted the offer, allowing Zambia to redeem the remaining securities and retire the entire bond issue.
The operation replaced commercial debt, whose interest costs could have risen over time, with financing on more favourable terms and lower future repayment obligations. This reduced future fiscal pressures and helped preserve resources for development priorities.
Debt for development
For me, what makes this transaction particularly notable is its connection to a wider development goal.
As part of the arrangement, Zambia committed to a 15-year Grid Resilience Programme aimed at improving the country’s electricity transmission and distribution network. Reliable electricity remains essential to improved economic growth and improved living standards. By linking debt management with infrastructure investment, Zambia demonstrated how debt operations can support wider development objectives.
This is why the transaction has been described as “debt-for-development” or “debt-for-energy” conversion.
Lessons for others
Zambia’s experience offers several practical lessons. First, restructuring is not the end of the process. It can provide breathing space, but governments still need to manage their debt proactively to preserve those gains. Second, buybacks and other liability management operations can reduce future repayment costs and improve the structure of a country’s debt.
Third, concessional financing can be used strategically. Support from development partners can allow countries to replace expensive debt with more affordable obligations. Fourth, incentives matter. Appropriately structured incentives can encourage strong investor participation and improve the prospects of a successful market-based operation.
Most importantly, debt management and development do not have to be treated as separate goals. Carefully designed debt operations can reduce financial pressures and support investments that promote economic growth and resilience.
Looking ahead
At a time when many developing countries are facing rising debt vulnerabilities and limited fiscal space, Zambia’s experience offers a useful example of innovative debt management. The operation shows that carefully designed liability management can do more than reduce debt obligations. It can strengthen debt sustainability, improve investor confidence and preserve resources for development priorities that directly benefit citizens.
- Dr Mohamed Z M Aazim, Debt Adviser at the Commonwealth Secretariat
Sources: Ministry of Finance and National Planning of Zambia (2026); African Development Bank announcements; Reuters (2026); IMF Zambia Article IV Consultation Reports.
