Zambia’s financial sector needs secondary market to take off – BoZ

Zambia’s financial sector needs secondary market to take off – BoZ
By Chiwoyu Sinyangwe
Mon 07 Dec. 2009, 04:00 CAT

ZAMBIA’S financial sector still faces a number of pressing issues, including developing a secondary market to act as a primer for other fixed income securities market, the Bank of Zambia (BoZ) said Saturday.

During a workshop to formulate a framework for developing the secondary market for government securities, BoZ deputy governor for operations Denny Kalyalya said the financial markets development agenda could not be complete without a vibrant secondary market.

Dr Kalyalya said the country risked losing the benefits achieved in the financial sector if it did not develop an energetic secondary market.

“Notwithstanding the major investments that have taken place in our economy, Zambia still faces a number of pressing issues in the financial sector and one of those is the issue of developing a secondary market,” Dr Kalyalya said.

“…the development of a well-functioning secondary market in government securities will act as a primer for other fixed-income securities markets…a government securities yield curve provides a benchmark for the pricing of other fixed income securities such as corporate bonds. Despite these benefits, the promotion of a vibrant secondary market for government securities has proven to be a major challenge for many developing economies.”

Dr Kalyalya said whereas the country had recorded growth in the development of the primary market, the state of the secondary market still lagged behind.
“Financial markets development agenda cannot be complete without a vibrant secondary market. It is therefore instructive that if we continue to allow our secondary market to remain at its current stage, we run the risk of failure to sustain the many achievements we have made thus far,” he said.

“A liquid and efficient secondary market offers tremendous benefits to the economy…a secondary market provides a platform for risk sharing among investors without jeopardising the capabilities of issuers to continue raising finance in an orderly manner.”

Dr Kalyalya further said a liquid market ensured that issuers raised long-term finance at lower cost without worrying about investor appetite while investors were assured that they could liquidate such long-term assets in an orderly manner.