Government securities - bonds and Treasury bills - are often called the safest investment in Zambia. But what does that actually mean, and what should you watch out for? This article breaks down the safety case, the risks to consider, and what realistic expectations look like.
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What default-free means
The Zambian government guarantees both interest and principal payments on its domestic securities. This is the strongest guarantee available in the domestic market. Unlike a bank deposit, where you rely on the bank remaining solvent, government securities are a direct obligation of the state.
The Bank of Zambia handles issuance, custody (through the CSD), and payment directly. There is no intermediary risk in the payment chain. For domestic Kwacha-denominated investors, government securities are considered risk-free - the benchmark against which all other investments are measured.
Zambia's credit rating - context matters
Zambia's credit history has been eventful. The country received its first sovereign credit rating in 2011 - B+ from both Fitch and S&P. In November 2020, Zambia defaulted on external commercial debt denominated in foreign currency, leading to downgrades to Selective Default and Restricted Default ratings.
Since completing its debt restructuring, Zambia's ratings have been upgraded, reflecting improved fiscal discipline, strong copper production, and declining inflation.
The 2020 default was on external commercial debt denominated in foreign currency. Domestic government securities - Treasury bills and bonds - continued to be serviced throughout the crisis.
This distinction is important. The government never missed a payment on Kwacha-denominated domestic securities, even during the period of external default. Domestic and external debt are fundamentally different - the government can always service domestic debt because it controls the currency in which it is denominated.
Benefits according to the Bank of Zambia
Default-free: Full faith and credit of the Zambian Government.
Paperless: Fully dematerialised - no physical certificates. Securities are stored electronically in the Central Securities Depository (CSD).
Collateral: Can be pledged as security for loans from commercial banks.
Locked-in interest rates: Coupon rates (for bonds) and yield rates (for T-bills) are fixed for the full term.
Liquidity: Can be sold on the secondary market before maturity.
Risks to consider
Inflation risk: If inflation exceeds your yield, your real return is negative. Your money grows nominally but loses purchasing power.
Opportunity cost: Money locked in bonds (especially long tenors) cannot be deployed to potentially higher-returning investments.
Liquidity risk for bonds: There is no BoZ redemption before maturity. The secondary market exists but may have limited buyers, meaning you might sell at a discount.
Currency risk (for foreign investors): Kwacha depreciation can erode returns when converted back to the investor's home currency.
Reinvestment risk: When your T-bill matures, the next auction may offer a lower rate. You cannot guarantee the same returns on rollover.
Call risk: The government can call 7, 10, and 15-year bonds after 60% of their life has elapsed, potentially ending your income stream earlier than expected.
Who should consider government securities
Conservative investors seeking predictable, guaranteed returns.
Businesses parking surplus cash - T-bills for short-term liquidity, bonds for medium-term reserves.
Retirees who need regular income - bond coupons every six months provide a predictable cash flow.
Portfolio diversifiers - government securities serve as the low-risk anchor in a diversified portfolio.
First-time investors - non-competitive bidding from K1,000 makes it accessible, and the process is straightforward.
Realistic expectations
At current yields (14.25% to 17.50% for bonds, 10.85% to 13% for T-bills), gross returns are attractive compared to many alternatives.
After 20% withholding tax and 1% handling fee, net returns are roughly 79% of the gross yield.
After accounting for inflation (roughly 7%), real returns on bonds are approximately 5% to 8%.
For T-bills, real returns are more modest at approximately 1.5% to 3% after tax and inflation.
This is not a get-rich vehicle. It is capital preservation with modest real growth - exactly what it is designed for. Government securities protect your capital and provide a predictable return that keeps ahead of inflation on the longer tenors.
Learn how to get started with our detailed guides: How to Invest in Government Bonds in Zambia and How to Invest in Treasury Bills in Zambia. Compare both instruments in Government Bonds vs Treasury Bills in Zambia.