Foreign holdings of Zambian debt have fallen to their lowest since 2005, reflecting uncertainty over the direction of policy following elections last year and the spillover from the global financial crisis, a central bank official said on Tuesday.

The Bank of Zambia also wants to consolidate the 170-plus bonds in circulation to spur trading in the secondary market, the bank's assistant director of market operations, Jonathan Chipili, told Reuters in a phone interview.

Offshore investors' holdings of Zambian government bonds are less than 5 percent of outstanding debt, the lowest proportion since foreigners were first allowed in to the market seven years ago, Chipili said.

September's election, in which populist opposition leader Michael Sata unseated Rupiah Banda's Movement for Multiparty Democracy, looked like one significant factor, he said.

"The participation of foreign investors in our securities market has reduced, even prior to the elections," he said.

"They want to be sure how the government is going to steer its policy."

Since coming to power, Sata has made a series of decisions that have unsettled investors in Africa's top copper producer, including reversing the sale of state telecoms firm Zamtel and doubling mineral royalties for copper miners to 6 percent.

Last month, Fitch cut Zambia's rating outlook to negative from stable, citing concerns about the government's actions.

In addition to Zamtel, Sata's administration has reversed the $5.4 million sale of a domestic bank to South Africa's FirstRand.

Chipili said the euro zone debt crisis was also to blame for the declining foreign interest in a high-risk frontier African market.

"It's difficult to argue that the lower participation of foreign investors is purely due to an election," he said. "It's a combination of factors."

Offshore holdings of bonds were at their highest in 2008, accounting for 18.08 percent of all bond holdings, while 2011 saw the highest foreign holdings of Treasury bills at 13.35 percent.

Zambia's central bank last week rolled out a monetary policy framework to replace money-supply targeting, setting its inaugural benchmark interest rate at a high 9 percent, effective from Monday.

Chipili said the central bank was also talking to the Ministry of Finance about reforms to improve trading in the secondary market, including introducing a primary dealership system and consolidating the number of outstanding bonds.

Just 1 percent of bonds in issue are traded on the secondary market, he said.

Zambia issues bonds in six maturities ranging from two to 15 years. But the adoption of a multiple pricing approach means each bond has its own price, Chipili said.

"We've got so many bonds on issue, so the bond market is highly fragmented," he said. "What we want to do is to have whatever is circulating on each tenor consolidated into one bond so that they've got the same maturity date and when we reissue they should have the same price."

The bank hoped to introduce the reforms this year, he added.