Zambia’s copper reforms intends to reinforce macro stability

Zambia’s mining resurgence under President Hakainde Hichilema has evolved from policy reset to measurable macro recovery. After a decade of regulatory uncertainty and power constraints that curtailed output, structural reforms—transparent royalty systems, restored VAT refunds, and predictable licensing—have repositioned the mining sector as the anchor of post-debt restructuring growth.

Copper production rose 12% in 2024 to 784,000 tonnes and is projected near 900,000 tonnes in 2025, with a one-million-tonne target for 2026. This momentum has translated into renewed capital flows, a narrower fiscal gap, and early signs of sovereign-risk repricing in line with frontier-market peers.

Real GDP expanded 3.8% in 2024 and is forecast to grow 4.3% in 2025, supported by mining, construction, and transport. Inflation slowed to 12.1% year-on-year in September 2025 from 24% in 2022 as food and fuel costs eased. The Bank of Zambia maintained the policy rate at 12.5% in August 2025, sustaining a mildly restrictive stance to protect disinflation gains.

The kwacha traded around USD/ZMW 23.5 in mid-October, appreciating roughly 5% year-on-year on stronger copper inflows and lower current-account volatility. Reserves reached USD 3.2 billion in September, equivalent to 3.2 months of import cover, up from 2.4 months a year earlier. The fiscal deficit narrowed to 4.2% of GDP in 2024, with a medium-term target of 3.5% by 2026, underpinning debt sustainability and investor confidence.

The macro-financial feedback loop is visible. The June 2024 restructuring of USD 6.3 billion in external debt reduced coupon pressure and freed capital for infrastructure spending. Higher copper receipts, coupled with improved tax administration, lifted non-grant revenues 22% year-on-year to USD 2.8 billion by Q3 2025. Sovereign spreads have tightened: Zambia’s 2027 Eurobond (XS1267081575) narrowed by roughly 170 basis points since January 2025, tracking improved reserves and fiscal metrics.

Each 100 bps reduction in sovereign spread typically compresses project-level weighted-average cost of capital by 50 bps, enhancing IRRs for mid-life mine expansions and new smelting capacity. The bond’s performance has decoupled slightly from short-term copper price swings (HG=F), reflecting a shift in investor perception from cyclical to policy-anchored credit risk.

External conditions remain favourable but fragile. COMEX copper futures (HG=F) have averaged USD 3.85 per pound in 2025, near the industry’s incentive level, while global refined inventories are at a five-year low. A stable price floor above USD 3.60 sustains Zambia’s fiscal receipts, though local beneficiation faces structural bottlenecks.

Power-generation shortfalls of around 250 megawatts during dry months and transmission losses near 8–10% continue to inflate mining input costs. The government’s pipeline of 400 megawatts in independent power-producer and solar-hybrid projects through 2027, if executed, would close most of the deficit and lower production volatility.

Monetary and fiscal coordination has stabilised expectations. The real policy rate turned positive in Q3 2025, limiting inflationary second-round effects, while sterilisation of mining inflows has reduced kwacha overshooting. Restructuring gains have trimmed the external debt-to-GDP ratio to about 47%, still high but more manageable within the global frontier-market median of 55–60%. Compared regionally, Zambia’s 2027 Eurobond now trades roughly 120 bps inside the Democratic Republic of Congo’s 2029 issue, signalling a risk-premium discount driven by reform execution rather than commodity luck.

Forward conditions are clearly testable. Sustained copper output above one million tonnes, inflation within a 10–12% corridor, reserves exceeding 3.5 months of imports, and Eurobond spreads below 650 basis points by end-2026 would confirm a durable macro stabilisation path. A weaker copper cycle or fiscal slippage around the 2026 elections would challenge this equilibrium, but steady policy discipline could keep USD/ZMW volatility beneath its three-year average of 9%.

If these metrics hold while HG=F prices remain near USD 3.80–3.90 and grid expansion advances on schedule, Zambia will consolidate its position as southern Africa’s benchmark for post-restructuring mineral-led recovery—a shift from cyclical boom-bust exposure to a credible, policy-anchored growth regime.