Capital markets need system to compel banks participate in Govt bonds

By BUUMBA CHIMBULU

ZAMBIA needs to establish a system which will involve the country’s large commercial banks being obligated to buy government bonds in the primary market.

Through a primary dealership system, banks will then quote both buy and sell prices to the market at all times, according to the Capital Market Master Plan (CMMP) 2022 launched recently in Lusaka by President Hakainde Hichilema.

The CMMP states that this would contribute to greater transparency in the government bond market.

It indicated that the system, along with the implementation of an electronic trading platform for government bonds, would likely reduce investor costs and create a more dynamic, liquid market.

“The country’s government bond issuance process is generally well-defined, with the BoZ conducting bond auctions. However, the auctions are open to members of the public, rather than being the sole domain of institutional investors.

“Furthermore, the process could benefit from greater transparency (especially with regards to the timing of the auction results) and movement towards a true primary dealership system,” it stated.

The plan however took into account some prerequisites for the establishment of primary dealership systems.

It stated that establishing a vibrant primary and secondary market for government bonds was of crucial importance as such a market was, in many ways, foundational to the development of the capital markets.

“This is particularly true as far as completing the government bond yield curve is concerned, as this serves as a benchmark for the rates on a number of other securities.

“Consequently, assessing the country’s current government bond environment and streamlining it are of great importance in order to drive capital market development,” the plan stated.