Last week, it was widely reported that president Hakainde Hichilema had signed into Law the Bank of Zambia Act of 2022. The new law replaces the Bank of Zambia Act of 1996. According to the accompanying memorandum from the Attorney-General, the new law has many objectives including providing for the establishment of a Monetary Policy Committee and a Financial Stability Committee -- both laudable initiatives.
However, one amendment that caught my attention, widely discussed and praised on social media, is the introduction of new clauses that guarantee security of tenure of the governor, who is the head of the Bank of Zambia. In the 1996 Act, the governor (and his/her deputies) did not have such security and could be summarily dismissed by the president. Article 10(7) of the 1996 Act read:
The Governor may resign from office by giving three months notice to the President and may be removed by the President.
Essentially this meant that the president could dismiss a governor at a moment's notice without the need to provide cause.
The new Act introduces security of tenure in Article 13 (in subsections 3 to 7). The basic gist of the amendment is that the president is now required to constitute a tribunal should he/she see the need to remove a governor (or any of the deputies). The tribunal is then required to carry out its investigations and submit a report with a recommendation to the president in about a month.
This amendment gives the governor the kind of security of tenure that is enjoyed by the likes of judges and the Director of Public Prosecutions (DPP) although interestingly (and perhaps curiously) the security of tenure of the governor is not guaranteed in the Constitution, as it is for judges and the DPP, but in subsidiary legislation (more on this below).
On the face of it, this amendment seems like a good thing as it buttresses the so-called independence of the central bank. According to the "independence thesis", central banks are sacred institutions that ought to be staffed by computer-like technocrats that are insulated from the vagaries and emotions of politics, leaving them to focus almost exclusively on technocratic concerns with price stability. (As a matter of fact, Article 5(2) of the new Act makes it explicit that price stability is the new god of our central bank and little else should sway their decision making).
But as careful scholars have demonstrated, central bank independence and its hyper-focus on price stability is a terrible policy constraining the ability of developing countries to fully transform their economies via, for example, large-scale industrialisation. Lots of scholars have documented how the now-developed and industrialized countries have historically used their central banks as tools of industrial policy that have deliberately directed financing towards strategic sectors of the economy. Writing in 2006, the economist Gerald Epstein had this to say:
…virtually throughout their history, central banks have financed governments, used allocation methods and subsidies to engage in ‘sectoral policy’ and have attempted to manage the foreign exchanges, often with capital and exchange controls of various kinds. The current ‘best practice recipe [of central bank independence with a narrow focus on price stability]’...goes against the history and tradition of central banking in the [developed] countries now most strongly promoting it…
And the distinguished Malawian economist Thandika Mkandawire writing about the South Korean experience had this to say:
[V]irtually all central banks have engaged in ‘industrial policy’ or ‘selective targeting’. In the credit allocating functions central banks have been “most effective in helping to foster development, especially in ‘late developers’ [such as South Korea], where they have been part of the governmental apparatus of industrial policy” (Epstein 2006). In South Korea, the Central bank was subservient, “nearly an administrative arm of the Economic Planning Board and the Ministry of Finance” (120)
Central banks, in the now-developed countries have historically viewed their societal roles as going beyond narrow and technocratic concerns with price stability. In so doing, these central banks have not been independent of the body politic but have been every bit a part of it, and in most cases subservient to it.
At this point in our country's development, the Bank of Zambia ought to be a vital engine of industrialization directly providing and directly facilitating the type of long-term capital required for meaningful (and not lip service) industrialization. We need the central bank to not shield itself from the people, but to be with the people and answerable to them as the "People's Bank".
Additionally, new academic work has shown that "independence" is often only in name. As a practical matter, so-called independent central banks tend to be beholden to the moneyed classes, a situation that has led to rising inequality in those parts of the world that have institutionalized such "independence".
In the Zambian case, it is also interesting to note that central bank governors have largely enjoyed sufficiently long tenures even in the absence of formalized security of the sort contained in this new amendment. For example, since 1992, the average tenure of office of a governor has been a healthy 5 years. If we exclude the lone year served by Christopher Mvunga, the average tenure rises to 6 years. In many ways, Zambian central bankers have enjoyed lengthy stays in office -- a situation suggestive of a healthy dynamic with their principals. For example, current governor Denny Kalyalya, during his first stint as governor, enjoyed a five year tenure in spite of his public disagreements with the policy positions of government. So why the need to secure tenure at this point in our country's development trajectory?
Lastly, my good friend Goodwell Mateyo, who recently appeared on Capital FM with Frank Mutubila, and a lawyer by training, has made the rather interesting argument that the new amendment might be in violation of the Constitution. Additionally, Mateyo has argued that matters around security of tenure ought to be reflected in the supreme law of the land, the Constitution, as opposed to subsidiary legislation as is the case with judges and so on. Also, the threshold to make a constitutional amendment is much more stringent than an amendment to an Act. Something as heavy as safeguarding the tenure of office of the governor ought to have been subjected to such a stringent criteria. You can listen to a recording of Mateyo's insightful interview with Frank Mutubila by clicking here.
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