Key takeaways
- The $1.7 billion IMF programme ended in January 2026, and engagement with the Fund now centres on fiscal credibility, debt sustainability and domestic revenue mobilisation rather than access to new external money.
- The Treasury targeted 82 per cent of the 2026 national budget to be financed domestically, so the shift to home-grown funding is already underway.
- Pension funds, insurers and collective investment schemes hold long-term kwacha savings that can finance productive projects if government supplies a credible, investable pipeline.
- Debt service and arrears absorbed K4.3 billion of the K21.1 billion Treasury release in July 2026, roughly a fifth, against K1.2 billion for capital projects.
- The constraint is institutional: project selection, procurement discipline and predictable policy decide whether domestic savings fund growth or finance consumption.
Zambia is moving into an important phase of its economic transformation: the shift from debt-financed development to domestic capital formation. The direction of travel is already visible in the numbers. The Treasury planned to finance 82 per cent of the 2026 national budget from domestic sources, and the IMF arrangement that once anchored the recovery came to an end in January 2026.
The lesson of the debt crisis is clear. External borrowing can accelerate development, but when institutional frameworks, project selection and fiscal discipline are weak, debt becomes a constraint rather than an enabler of growth. Zambia learned this between 2020 and 2024, when it spent nearly four years in default after obligations accumulated faster than the institutions needed to manage them.
What the default taught Zambia
Zambia entered sovereign default in November 2020. The restructuring that followed, completed with Eurobond holders in June 2024, reset the terms on external commercial debt and drew a line under that chapter, as we examined in our review of the deal two years on. Dollar bonds rose 18 per cent once the terms landed, a verdict from creditors on the government that signed them.
Not everything was settled. Afreximbank and the Trade and Development Bank are still contesting their classification as preferred creditors on loans that were priced commercially, sometimes at very high rates. Where that dispute lands will shape the cost of any future external borrowing.
The IMF’s priorities have moved
The Fund’s engagement with Zambia reflects the same shift. The $1.7 billion programme that ran until January 2026 was, in practice, a credibility device: it committed government to a fiscal path and gave creditors a reference point for judging whether that path was being kept. What comes next, whether a new arrangement or continued standalone consolidation, centres on fiscal credibility, debt sustainability, domestic resource mobilisation and institutional reform rather than simply expanding access to external financing.
The African Development Bank projects the fiscal deficit narrowing from 2.7 per cent of GDP in 2026 to 1.9 per cent in 2027 on stronger revenue mobilisation. Numbers like that are earned at home, through Zambia Revenue Authority collections and disciplined spending, not borrowed from abroad.
The domestic market is already carrying more of the load
Domestic financing is no longer a rounding item. Government securities auctions, commercial banks, pension funds, insurance companies and collective investment schemes now stand between the Budget and its funding in a way they did not a decade ago. NAPSA, the country’s largest pension scheme, and the Public Service Pension Fund collect contributions every month that must be invested somewhere. The question is whether they are invested in assets that build productive capacity.
The scale of the domestic effort shows up in the monthly Treasury releases. In July 2026, K21.1 billion went out for services, wages, debt and projects. Debt service and domestic arrears absorbed K4.3 billion of it, about a fifth, while capital expenditure received K1.2 billion, less than six per cent. Mobilising money domestically is necessary, but on its own it is not development finance. What the money buys decides whether it becomes capital formation.
| Domestic savings channel | What it offers | Binding constraint |
|---|---|---|
| Government securities | A deep, liquid benchmark for the kwacha yield curve | High yields crowd out private sector borrowing |
| Pension funds, including NAPSA and the Public Service Pension Fund | Long-term savings matched to infrastructure horizons | Investment mandates and a shortage of vetted projects |
| Insurance companies | Patient, stable capital | Low penetration keeps the pool small |
| Collective investment schemes | A route for household savings into listed assets | Shallow liquidity on the LuSE |
None of these channels is new. What would be new is using them deliberately, so that long-term savings finance energy transmission, water systems and agribusiness rather than rolling consumption expenditure.
What stands in the way
The obstacles are practical. The kwacha yield curve remains short, which limits the tenor of financing available to anyone other than government. The Bank of Zambia’s policy rate stands at 14 per cent, yet a typical small business still borrows at rates close to 35 per cent, a gap we examined in our reporting on the SME credit gap. When government paper pays handsomely and carries no credit risk for a bank, lending to a farmer or a fabricator loses the argument.
Institutional weakness is the deeper constraint. Debt became a trap in the last cycle not because the money was foreign, but because project selection was poor, procurement leaked and fiscal discipline slipped once borrowing was easy. A domestic capital market without credible institutions would repeat the same cycle in kwacha.
What this means for business, investors and policy
For business: a deeper domestic market should eventually mean longer-tenor kwacha financing and pension money available for private infrastructure, with less dependence on dollar debt or shareholder equity.
For investors: the composition of Zambia’s financing matters as much as its quantity. Debt issued in kwacha to domestic savers carries no transfer risk, and a state that funds itself at home is less exposed to the currency swings that have whipsawed Eurobond returns.
For policy: the September Budget is the first test. It can lock in the domestic financing strategy with a credible project pipeline, disciplined borrowing ceilings and continued arrears clearance, or it can loosen the fiscal anchor at exactly the moment no IMF arrangement is in place. President Hichilema’s second term begins with the stability won. How it finances what comes next decides what that stability is worth.
The real transition
This does not mean abandoning external financing. It means changing the composition of development finance so that domestic savings do more of the productive work.
If Zambia builds credible institutions, predictable policies and a pipeline of investable projects, future governments will be able to finance infrastructure and productive sectors locally, reduce foreign-exchange exposure and strengthen monetary and fiscal sovereignty.
The real transition is from external borrowing appetite to domestic capital formation: from consuming borrowed money to mobilising Zambian savings for productive investment.
Related coverage
- Zambia Domestic Financing 2026: Treasury Targets 82% of National Budget
- Life After the IMF: What a New Programme Could Mean for Zambia
- Zambia’s Debt Restructuring, Two Years On: What Changed for Bondholders
- Treasury Releases K21.1 Billion for July Services and Debt
- Beyond the Ballot, Zambia Turns the Page to Economic Delivery
- What the Bank of Zambia Policy Rate Means for Your Loan
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