Zambia’s private sector significantly reduced its exposure to foreign debt in 2025, with external borrowings falling by more than US$700 million, signalling a cautious shift by businesses amid tighter global financing conditions and elevated domestic interest rates.
According to the Debt Statistical Bulletin for the third quarter of 2025 released by the Ministry of Finance and National Planning, private sector external debt declined by 10.53 percent, dropping from US$6.74 billion at the end of the first quarter of 2025 to US$6.03 billion by the end of the second quarter. This represents a net reduction of US$709.24 million within a single quarter.
The decline was largely driven by principal repayments outpacing new disbursements, indicating that firms are prioritising balance sheet consolidation over expansion financed through external loans. Economists say the trend reflects increased caution by corporates in response to global interest rate uncertainty, tighter lender conditions and foreign exchange risk.
The reduction in private sector foreign debt comes at a time when external financing costs remain elevated, while exchange rate volatility continues to pose a risk to companies with dollar-denominated obligations. By scaling back external borrowing, businesses are limiting exposure to currency depreciation, which can significantly increase debt servicing costs when revenues are largely Kwacha-based.
However, analysts warn that the sharp decline in foreign borrowing may also point to slowing private investment, particularly in capital-intensive sectors such as mining, manufacturing, energy and infrastructure, which traditionally rely on offshore funding. With domestic borrowing costs still high, reduced access to affordable long-term financing could constrain expansion plans and job creation.
The development contrasts with trends in public sector borrowing, where domestic debt continues to rise as government finances budget deficits through increased issuance of Treasury bills and bonds. This divergence suggests that while the state remains active in domestic and external debt markets, the private sector is adopting a more defensive financial posture.
Despite the drop in private sector external debt, Zambia’s overall debt profile remains under pressure, with total public sector debt standing at US$28.01 billion by the end of the third quarter of 2025 and arrears exceeding US$8 billion. The Ministry of Finance has acknowledged that sustained macroeconomic stability, improved access to credit and continued progress in debt restructuring will be critical to restoring confidence among private investors.
For businesses, the report highlights a delicate balancing act reducing foreign currency risk while navigating limited financing options in both domestic and international markets. How quickly investment rebounds will depend largely on interest rate trends, exchange rate stability and the pace of broader economic reforms.
