Zambia: IMF surprise disappoints MLB holders

• Zambia's composite indicator (CI) score has fallen in the latest IMF review due to lower import cover projections

• Expectations were that the CI score would increase, leading to a DCC upgrade, and accelerated payments under the MLBs

• MLB prices are down and expectations may now need to reset. But there is still time
  
  

The IMF published the long-awaited staff report for the fifth review of Zambia's ECF overnight following board approval on 25 July. The key takeaway for bondholders is that it showed a surprise fall in the country's composite indicator (CI) score. This contrasted with expectations of an increase that would bring it closer to, if not exceed, the threshold that would trigger higher payments on the 2053 Macro Linked Bonds (MLBs).

The lower CI score has disappointed markets, with the ‘53s down 4pts this morning on Bloomberg (although recovering a bit later, to -3.6pts, at US$69.9 at the time of writing) and the ‘33s down a bit (-0.5pts) in sympathy.

Details

The CI score has fallen to 2.58 from 2.62 in the fourth review in December 2024. This compares to the threshold of 2.69 that is needed in the DSA for an upgrade in the debt carrying capacity (DCC) from weak to medium which would trigger accelerated payments on the MLBs. Our own calculations suggested the score would increase from 2.62 to 2.687, within touching distance of the threshold, and raising the tantalising prospect that it could even be exceeded in this review. No such luck…