Bank of Zambia: Pillars of Economic Development

Mandate & Core Functions

The **Bank of Zambia (BOZ)**, established 1964, is the central bank mandated by the **Bank of Zambia Act (1996, amended 2022)** to:

1. Monetary Policy — Price Stability & Growth

• Target: Inflation 6–8% (medium-term).
• Tools: Policy Rate (currently 13.5%), Open Market Operations (OMO), Reserve Requirements (statutory 9%), Standing Facilities.
• Transmission: Rate → interbank → lending → demand → inflation/output.
• Framework: Inflation Targeting Lite (transitioning to full IT).

2. Financial Stability — Supervision & Crisis Prevention

• Prudential Regulation: Capital adequacy (Basel II/III), liquidity, asset quality, corporate governance.
• Supervision: On-site exams, off-site surveillance (returns), stress testing.
• Resolution: Prompt Corrective Action, Deposit Protection Fund (DPF — 2018), crisis management.
• Macroprudential: Countercyclical buffers, sectoral limits (real estate, consumer).

3. Foreign Exchange Management

• Reserves Management: ~$3.5B (2024) — import cover ~3.5 months.
• Market Operations: Spot/forward interventions to smooth volatility.
• Regulation: FX Bureau licensing, repatriation rules, capital flow measures.
• Exchange Rate: Market-determined (floating) since 2012; BOZ intervenes only for disorderly conditions.

4. Government Banking & Debt Management

• Fiscal agent: T-bill/bond auctions (primary dealer system).
• Ways & Means advances (statutory limit: 20% of revenue).
• Debt recording, reporting, sustainability analysis (DSA).

5. Payment Systems — Modernization

• **ZIPSS** (RTGS) — high-value.
• **ZECS** (ECS) — retail (cheques, EFT).
• **Mobile Money** (Airtel Money, MTN MoMo, Zoona) — interoperability via **National Financial Switch (NFS)**.
• **Instant Payments** (ZIPIT) — 24/7 P2P, P2B, G2P.

6. Financial Inclusion — Reaching the Unbanked

• National Financial Inclusion Strategy (NFIS 2017–2022, 2023–2027).
• Agent banking, tiered KYC, credit reference bureaus (TransUnion, CreditInfo).
• MSME finance: Credit Guarantee Scheme, Movable Collateral Registry.
• Financial literacy: School curriculum, consumer protection.

7. Developmental Role — Beyond Core Central Banking

• Rural finance: Rural Finance Programme, Agricultural Credit Window.
• Housing: Zambia National Building Society support.
• Export: Export Development Fund (EDF) — pre/post-shipment finance.
• Green Finance: Sustainable Finance Framework (2023), taxonomy development.

Impact Assessment

BOZ's credibility rests on **inflation control** (single digits 2017–2021; spiked 2022–23; re-anchoring), **reserve adequacy**, **banking sector soundness** (NPLs ~8–10%), and **payment innovation**. Challenges: fiscal dominance, shallow markets, climate shocks, informal sector scale.