One of the landmark developments in Africa’s copper producer Zambia, characterizing central banking reforms, is the recent enactment of law that shields governors and their deputies from being sacked with no valid reasons. Zambia’s head of state Hakainde Hichilema has signed into law a new legislation that will protect the Bank of Zambia governor and his deputies from being relieved of their duties without valid reasons. The BOZ Act No. 5 of 2022 prescribes for the President to constitute a three man tribunal led by a judge or former judge for the purpose of probing any allegations leveled against central bank leaders. The new piece of legislation will permit a sitting head of state to terminate a governors contract only on recommendation of the tribunal as contained in section 13 (7) of the Act.
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Prior to enactment of this law, the authorities in the Southern African nation have been on record for dismissing central bank chiefs without no reasons accorded which by many was deemed political in nature. As such, for many years central bank independence has been questioned especially if the head of state is the appointing authority. BOZ chiefs have historically had contracts terminated, with no reasons in the past with the most controversial and recent being that of the current governor, Dr. Denny Kalyalya who in August 2020 who was summarily dismissed the week of the penultimate rate decision of the year leaving markets guessing as to why he was dismissed. Dr. Kalyaya has been dubbed by the market as one of Zambia’s most independent and objective governor that was at the helm of monetary policy when Zambia’s fiscal vulnerabilities were heightened.
Thirteen (13) months later, in September 2021 Dr. Kalyaya was re-instated as BOZ governor while he served as chair of the IDA20 of the World Bank a Washington based lender where he initially served as executive director. The complexity of the termination was characterized by an international response from former South Africa’s reserve bank head Tito Mboweni who recommended the need for a body within Africa that would look into laws that would protect African governors that will also ensure central bank independence. This response at the time, sparked a diplomatic brawl when South Africa distanced itself from the statement which Mboweni firmly stood by.
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However the new law provides for exceptional conditions for termination namely; in the event of “gross misconduct, incompetence and bankruptcy,” or “if convicted and imprisoned for a term of not less than 6 months”. The bill was assented to and has now become law on August 18, 2022.
Other landmark prescriptions in the new BOZ Act include the creation of a financial stability committee in addition to the already existing monetary policy committee. This will be responsible for financial sector stability aligned to international best practice. The new law provides for a 6 year renewable tenure an increase from 5 years previously.
The Kwacha Arbitrageur