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Effective January 2024, the Bank of Zambia (BOZ) will issue government bonds at par in the primary market for all new issuances, selling them at face value
Effective January 2024, the Bank of Zambia (BOZ) will issue government bonds at par in the primary market for all new issuances, selling them at face value. The coupon rate for each instrument will be determined during the auction and advised that the coupon rate for each instrument on auction will be the respective highest accepted yield rate.
The re-issuances of any existing bonds and secondary trading of any bonds may be done at a discount, par, or premium depending on market conditions. The change has been made to streamline Government debt metrics and debt service in general.
Zambia is having an issue with debt servicing and the government does not want to overburden itself with debt service. Hence, it decided to change the structure in which the bonds are issued. The discount that was being given to investors needed government money to be paid forcing the government to incur costs on the coupon itself as well as on the discount that was given to the investors.
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The apex bank said that it was difficult for the government to have enough fiscal space to even afford discounts. The aspect of discounts was not working well for the government in managing debt because the difference became a debt to the investor. To make the bonds attractive with this arrangement, the government will have to raise the coupon payments and align them to the prevailing interest rates at that particular time. Investors will still benefit from higher yields despite them not taking discounts.
