What Chishimba Kambwili Was Proposing Is Attainable – Financial Expert
I have listened carefully to the audio recording between Chishimba Kambwiliand the Bank of Zambia Governor, Chris Mvunga. I have also read ChishimbaKambwili’s write-up that provides background to his proposal.
I understand structured finance very well (at SARS I was a Structured Finance Specialist) and removing politics, Kambwili’s suggestion was smart and very doable.
In a nutshell, Kambwili was merely suggesting shift of credit exposure from government to BoZ. Through BoZ, Government borrows from the market through issuance of Treasury Bills “TBs” (issued every 2 weeks through out the year) and Bonds (issued every month throughout the year).
The money borrowed is intended to finance government expenditure requirements including paying suppliers and contractors.
Many contractors and suppliers have not been paid for months even years for some and the Debt stands at $5 billion. This is despite the fact that Government raises money every 2 weeks and every month through issuance of TBs and Bonds respectively through BoZ.
The challenge is that when BoZ remits proceeds of security issues to Ministry of Finance, most of the money goes to fund RDCs, wage bill, unplanned allowances, etc and little is allocated to suppliers.
This makes government ‘default’ on payments to suppliers. Whereas government defaults on suppliers, BoZ does not and has never defaulted on the securities it issues.
With this in mind and seeing that BoZ acts as the agent of Government in the issuance of TBs and Bonds, Kambwili was suggesting that a structure be designed whereby suppliers be issued government securities as payment for their long outstanding receivables owed to them by government.
This in my view should have been a very simple and straight forward arrangement. Many of you will recall that in the 1990s the MMD government used to issue negotiate Promissory Notes as payment to farmers for maize supply.
Famers would then either hold the notes and receive payment at maturity or discount them in the OTC market if they needed money immediately.
The new government should consider a similar mechanism as it tries to dismantle the local debt: either issue a bond program to raise money specifically for local suppliers or issue to the suppliers BoZ guaranteed negotiable Promissory Notes which suppliers can discount with local commercial banks.
Local suppliers need to be paid to unclog liquidity and jump start the economy. It is possible to design a structure which will enable Government to pay suppliers on normal terms of 30 days. This can reduce the overpricing of supplies to Government as payments will be guaranteed in 30 days.
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