THE international financial flows take a variety of forms, the most important ones being that of foreign direct investment (FDI), foreign portfolio investment (FPI) and debt.
To ensure transparency in international financial flows, the Government through the Bank of Zambia (BoZ) has developed the Export Proceeds Tracking Framework (EPTF) being implemented this year.
According to the International Journal of Accounting Research the international financial flows also helps to ascertain the economic status of other countries and judge the foreign markets.
Having transparency in international finance is critical for a country and is based on governments’ obtaining financial information on citizens and businesses and exchanging it with other governments.
The process is carried out according to rules agreed by intergovernmental institutions to combat illicit financial flows that reduce revenue for Governments.
Deputy BoZ Governor for Operations Francis Chipimo says under the EPTF, all exporters will be required to route export earnings through an account at a bank domiciled in Zambia, while retaining full rights and control to use the funds as they deem fit.
Dr Chipimo says this will only be done provided exporters complied with Anti-Money Laundering, Combating the Financing of Terrorism Proliferation Financing obligations as has been the case under the current foreign exchange arrangement.
He says the framework will ensure more transparency in international financial flows and contribute to financial sector integrity by curbing trade-based laundering.
Stakeholders have welcomed the framework which they feel will help stabilise the Kwacha and increase revenue for the government.
Private Sector Development Association chairperson Yusuf Dodia says the introduction of the framework once implemented this year will strengthen the kwacha and ensure economic stability in the country.
Mr Dodia says the regulations and rules to bring export earnings into the country by ensuring that local banks have enough foreign exchange will strengthen the kwacha and reduce economic instability.
He said the move to bring export earnings into the country through foreign exchange-dominated transactions will further bring about price stability therefore reducing inflation and ensuring economic stability.
“Ensuring enough foreign exchange into the local banks
will bring about price stability in terms of foreign exchange transactions, this will reduce economic instability in the country and strengthen the kwacha,” he says.
Mr Dodia says the private sector in the country is concerned about the depreciation of the kwacha, high inflation and the increase in the Monetary Policy Rate by the BoZ, the factors that have increased the cost of doing business.
He says the implementation of the Export Proceeds Tracking Framework this month as announced in the National Budget will help to turn the economy around.
Economists Emmanuel Zulu and Mwiya Ikabongo say that the framework that requires mining companies to remit the export earnings into the Zambian banking system will help the Zambia Revenue Authority (ZRA) to increase revenue collection from the sector.
Mr Zulu says through the framework, mining companies that are exporting minerals would be captured by ZRA and this will in turn lead to improved tax collection from the mines.
For Ikabongo, ZRA has not maximised revenue from the mines because the majority of them are artisanal and small-scale mines that sell to the big mines because they have the machinery to process and export the minerals.
Mr Ikabongo said most artisanal and small-scale mines don’t have the machinery to extract and process the minerals, so they only end at the extraction stage and then sell to the bigger players in the mining sector.
“This is the reason why the country has so many mines with operating licenses and yet their contribution in terms of tax to ZRA is very low,” he says.
Mr Ikabongo is hopeful that the Export Proceeds Tracking Framework will help ZRA maximise revenue from the mines among other exporting businesses in the country.
The framework developed by the Central Bank is intended to enhance the compilation of balance of payment statistics by expanding the coverage of external sector statistics.
Particularly, relating to the capture of data on the utilisation of export earnings and information on balances held abroad by resident enterprises and other financial account flows.
Curbing illicit financial flows is critical in ensuring economic growth because the act drains foreign exchange reserves and distorts competition, says the International Monetary Fund (IMF).
With enhanced transparency in international financial flows and improved financial sector integrity, the country is poised to grow its economy through earnings from exports.