Patriots for Economic Progress leader Sean Tembo

Patriots for Economic Progress President Sean Tembo says he has noted with much consternation the statement that was issued by the Bank of Zambia regarding measures intended to stimulate the Zambian economy in view of the COVID-19 pandemic.

Mr Tembo says the measures that have been announced by BOZ are disjointed, impractical, vague and merely intended to give a false perception that BOZ is doing something about the current economic situation when in fact not.

He said the first measure announced by the Bank of Zambia was that it has set up a medium-term refinancing facility of K10 billion to be accessed by financial service providers in Zambia which is not a genuine measure because before BOZ can talk about lending money to financial service providers as a way of mitigating the economic impact of COVID-19 as they should first of all pay back all the money the Government owes these financial service providers in unremitted loan deductions from civil servants done at PMEC which are currently estimated at K2 billion.

Mr Tembo said it is hypocritical of Government to talk about lending money to institutions that they owe money instead of firstly paying back what they owe.

He said the second measure announced by the Bank of Zambia which is to scale up open-market operations in order to increase short-term liquidity to commercial banks lacks specificity and is vague as it does not outline what those open market operations are.

Mr Tembo said it is therefore meaningless and unlikely to have any positive impact on Zambia’s ailing economy.

On the third measure announced by BOZ is that it will revise rules related to inter-bank foreign exchange transactions, Mr Tembo said just like others, this pronouncement lacks specificity and is vague as it does not outline what those rules related to inter-bank forex transactions which will be revised, are.

Mr Tembo said the fourth and fifth pronouncements made by BOZ to relax rules related to loan classification and provisioning as well as extend the transitionally period for the application of International Financial Reporting Standard (IFRS) 9 which is an accounting standard that regulates the classification, measurement, impairment, presentation and disclosure of financial instruments such as loans have dire financial and economic consequences because Zambia’s financial reporting system will not be compliant with that of the rest of the world.

Mr Tembo said International Financial Reporting Standards are issued by the International Accounting Standards Board (IASB) and IFRS 9 in particular was issued on 24th July 2014 to replace IAS 39 and was optional during the transitionally period until 1st January 2018 when it became mandatory.

“It must further be noted that the Bank of Zambia has no authority whatsoever to defer or postpone the application of IFRS 9 as only the IASB is vested with such authority. It therefore follows that the pronouncement by BOZ to extend the transitionally period for the application of IFRS 9 to Zambian FSPs is utra vires, inconsequential and done without due research and advice on the matter. It must be further noted that other regulators have equally found IFRS 9 to be a thorn in the fresh for FSPs in view of the COVID-19 pandemic, but they have not called for its suspension because it is a worldwide accounting standard”, he added.

He said a case in point is the European Banking Authority which has issued an advisory that the application of IFRS 9 in view of the COVID-19 pandemic must be done by taking all factors into account including the economic stimulus packages that are being implemented by respective Governments.

Mr Tembo said the sixth pronouncement to allow financial institutions to use capital instruments that do not qualify as equity for purposes of computing capital adequacy levels amounts to window-dressing of the financial statements of these FSPs and is illegal as it conflicts with the requirements of section 251 of the Companies Act, 2017 and also amounts to fraudulent false accounting.

He added that measures 7 and 8 talk about reducing the cost of digital payment channels and are commendable, although most financial service providers are unlikely to immediately comply and there is need for the Central Bank to enforce timely compliance.

He has since urged the Bank of Zambia to revisit the majority of the pronouncements made in its communique and ensure that such measures are consistent and not in conflict of international and local laws and regulations.

Mr Tembo has acknowledged the efforts being made by BOZ to try and mitigate the economic impact of COVID-19, but such measures should be properly researched and well advised, otherwise the medicine may end up being more fatal than the disease.

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1 COMMENT

  1. Unfortunately President Tembo is right. If Government can do anything to mitigate problems brought about by the Corona virus, they should as priority pay organisations and individuals they owe money. If this is not done it will mean that Government is using money for retirees and other organizations to fight the Corona virus and it is not right to take away money from poor people to fight a national cause. It would even be better not to pay MPs their gratuities and divert the money to fighting the Corona virus.

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