Transparency International Zambia



Public Finance Management and Utilisation Project



Report on
Strategies and Mechanisms of an Effective System of Public Finance Management in Zambia


November, 2004
Lusaka




Prepared by


Nchite Roy
&
Nsana Stuart































TABLE OF CONTENTS

LIST OF TABLES.. ivACRONYMS AND ABBREVIATIONS.. v
EXECUTIVE SUMMARY.. vii
1.0 INTRODUCTION.. 1
1.1 Background. 1
1.2 Objectives and Methodology of the Study. 2
1.3 Limitations of the Study. 3
1.4 Organisation of the Report 4
2.0 ADMINISTRATIVE PROCEDURES IN PUBLIC FINANCE MANAGEMENT.. 5
2.1 Central Government Budgeting and Accounting. 5

2.1.1 Budget Formulation. 6
2.1.2 Budget Enactment 6
2.1.3 Budget Execution. 6
2.1.4 Accounting and Reporting. 8
2.1.5 Budget Auditing and Assessment 8
2.2 Local Government Accountability. 9
2.3 Quasi-Public Sector Entities Accountability. 9

2.3.1 Public Funds. 9
2.3.2 State – Owned Enterprises (SOEs). 10
2.4 Public Debt Management 11
3.0 LEGAL FRAMEWORK FOR PUBLIC FINANCE MANAGEMENT.. 12
3.1 Main Pieces of Legislation. 12

3.1.1 The Republican Constitution. 12
3.1.2 The Finance (Control and Management) Act 13
3.1.3 The Public Audit Act 13
3.1.4 The Privatisation Act 13
3.1.5 The Tender Board Act 13
3.2 Other Relevant Pieces of Legislation. 14

3.2.1 The Financial Regulations. 14
3.2.2 The Prohibition and Prevention of Money Laundering Act 14
3.2.3 The Loans and Guarantees (Authorisation) Act Chapter 366. 14
3.2.4 The Local Government Act 15
4.0 INSTITUTIONAL FRAMEWORK IN PUBLIC FINANCE MANAGEMENT.. 16
4.1 Multilateral Donor Agencies. 16
4.2 Government Ministries and Bodies. 17

4.2.1 The Ministry of Finance and National Planning. 17
4.2.2 The Zambia Revenue Authority. 18
4.2.3 The Zambia National Tender Board (ZNTB). 18
4.2.4 The Ministry of Local Government and Housing (MoLGH). 18
4.3 Government Watchdog Bodies. 19

4.3.1 The Anti-Corruption Commission. 19
4.3.2 The Office of the Auditor General (OAG). 20
4.3.3 Parliament (The Legislature). 21
4.4 Civil Society. 22

4.4.1 Transparency International Zambia (TIZ). 23
4.4.2 The JCTR / Jubilee Zambia. 23
4.4.3 The Catholic Commission for Justice, Development and Peace (CCJDP). 24
4.4.4 Economics Association of Zambia (EAZ). 24
4.4.5 The Zambia Institute of Certified Accountants (ZICA). 24
4.4.6 The Labour Movement 25
5.0 GOVERNMENT REFORMS.. 26
5.1 Government Reforms in Financial Management Systems. 26
5.2 Decentralisation and Financial Management 27
6.0 APPRAISAL OF PUBLIC FINANCE MANAGEMENT SYSTEMS.. 30
6.1 The National Budget Cycle. 30

6.1.1 Budget Formulation. 30
6.1.2 Budget Enactment 31
6.1.3 Budget Execution. 33
6.1.4 Budget Auditing and Assessment 34
6.2 Appraisal of the Local Government Accountability. 36
6.3 Accountability in the Quasi – Public Sector Entities. 37
6.4 Management of Public Debt 38
6.5 Other Weaknesses Contributing to Poor PFM... 40

6.5.1 Watchdog Institutions. 40
6.5.2 The Anti-Corruption Commission. 40
6.5.3 Challenges Facing Civil Society. 41
6.5.4 Low Remuneration in the Public Service. 42
6.5.5 Corruption as part of the Zambia Culture. 42
6.5.6 Need for Professionalism in the Investigative Wings. 42
7.0 RECOMMENDATIONS AND CONCLUSIONS.. 43
7.1 Summary. 43
7.2 Recommendations. 43

7.2.1 Legal Reforms. 43
7.2.2 Strengthening of Watchdog Institutions. 44
7.2.3 Administrative Reforms. 45
7.2.4 Civic Education. 46
7.3 Conclusions. 46
REFERENCES.. 48
APPENDICES.. Error! Bookmark not defined.
Appendix I Summaries of Workshop Reports. Error! Bookmark not defined.

(Ia) Luapula Province Workshop. Error! Bookmark not defined.
(Ib) Copperbelt Province Workshop. Error! Bookmark not defined.
(Ic) Eastern Province Workshop. Error! Bookmark not defined.
(Id) Lusaka Workshop. Error! Bookmark not defined.
Appendix II Procurement Thresholds under the ZNTB Act 52
Appendix III Terms of Reference for the Consultant Error! Bookmark not defined.


LIST OF TABLES

Table 1‑1: Zambian Macro-Economic Indicators, 1970s – 2002............................................................................... 2

Table 2‑1: List of Budgetary Funds........................................................................................................................... 10

Table 6‑1: Expenditure Vs Approved Budget Estimates for Selected Line Items.............................................. 30

Table 6‑2: Selected Budgeted Vs Actual Disbursements (Year 2000).................................................................. 31

Table 6‑3: Monies Budgeted for & Actually Received by the Auditor General’s Office.................................. 35

Table 6‑4: Fuel Levy Collections and Remittances to the National Roads Board (1995 – 2002)...................... 37

Table 6‑5: Zambia’s External Debt Stock, 2000 – June 2003 (US $ million).......................................................... 38

Table 6‑6: Zambia’s Domestic Debt Portfolio as at end of June 2003................................................................... 39



ACRONYMS AND ABBREVIATIONS

AAP Assessments and Action Plans
ABB Activity Based Budgeting
ACC Anti-Corruption Commission
AFRONET Inter Africa Network for Human Rights and Development
AG Auditor General
BOZ Bank of Zambia
CBO Community Based Organisation
CCPJD Catholic Commission for Peace, Justice and Development
CDF Constituency Development Fund
CFAA Country Financial Accountability Assessment
CO Controlling Officer
CPAR Country Procurement Assessment Report
CSO Civil Society Organisation
CSPR Civil Society for Poverty Reduction
DEC Drug Enforcement Commission
DfID Department for International Development (of the United Kingdom)
DPP Director of Public Prosecutions
EAZ Economics Association of Zambia
EJP Economic Justice Programme
ESAC Economic and Social Adjustment Credit
FFTUZ Federation of Free Trade Unions in Zambia
FMS Financial Management System
FODEP Foundation for Democratic Process
FSC Fiscal Sustainability Credit
GDP Gross Domestic Product
GRZ Government of the Republic of Zambia
HIPC Heavily Indebted Poor Country
IFMIS Integrated Financial Management Information System
IG Inspector General (of Police)
INDECO Industrial Development Corporation Limited
JCTR Jesuit Centre for Theological Reflection
MoFNP Ministry of Finance and National Planning
MoLGH Ministry of Local Government and Housing
MTEF Medium Term Expenditure Framework
NGO Non Governmental Organisation
NGOCC Non Governmental Organisations Coordinating Committee
OAG Office of the Auditor General
PAC Public Accounts Committee
PE Personal Emoluments
PEM Public Expenditure Management
PEMFAR Public Expenditure Management Financial Accountability Review
PER Public Expenditure Review
PFM Public Finance Management
PRSP Poverty Reduction Strategy Paper
PSCAP Public Service Capacity Building Programme
PSRP Public Service Reform Programme
PHI Presidential Housing Initiative
RDC Recurrent Departmental Charge
RIZES Revenue Institutions in Zambia – Enhanced Support
ROSC Reports on the Observance of Standards and Codes (of Fiscal Transparency)
SOE State Owned Enterprise
TIZ Transparency International Zambia
TNDP Transitional National Development Plan
VAT Value Added Tax
ZCCM Zambia Consolidated Copper Mines Limited
ZCTU Zambia Congress of Trade Unions
ZESCO Zambia Electricity Supply Corporation Limited
ZICA Zambia Institute of Certified Accountants
ZIM Zambia Institute of Marketing
ZIMCO Zambia Industrial and Mining Corporation Limited
ZNTB Zambia National Tender Board
ZPA Zambia Privatisation Agency
ZRA Zambia Revenue Authority


EXECUTIVE SUMMARY

Introduction
This study was conceived out of the recognition that public finances can contribute directly to the reduction of poverty and the general welfare of the majority of Zambians. According to the various Auditor General’s reports, Zambia appears to have serious challenges in the manner public finances are managed.

Background
At independence, the Zambian economy was considered one of the best in Africa but bad internal economic management practices and a couple of external economic shocks in the 1970s and 1980s triggered the current persistent economic downturn. The economy remains undiversified (still heavily dependant on mining) despite numerous attempts to diversify it. Zambia is now classified among the poorest countries in sub-Saharan Africa and among the most indebted in the world. Additionally, Zambia is ranked as the 11th most corrupt country in the world according to the Transparency International Corruption Perception Index.

The subject of public finance management is so cardinal to any country that in Zambia, Transparency International Zambia (TIZ) initiated a project specifically dedicated to public finance management and utilisation in Zambia. Research, a consultative process of major stakeholders and ordinary citizens that included holding workshops and public discussions and a media campaign were conducted. The ultimate goal of all these efforts was to arrive at a set of proposals that would make the bedrock of the recommendations and strategies on better public finance management contained in this report for submission to the Ministry of Finance and National Planning (MoFNP).

Administrative Procedures in Public Finance Management
The essence of public finance management is to facilitate the implementation of national policies through the preparation of national budgets, appropriation of funds, and reporting the actual financial outcomes against the budgeted. At the local government level, the Ministry of Local Government and Housing (MoLGH), through local councils, generates revenue from internal and external sources for the provision of services in areas under the local authorities. The MoLGH also administers the Constituency Development Fund (CDF).

Government has further established several funds some of which are reflected in the budget while others are not. There are also state owned enterprises in which government has equity interest. After the liquidation of the Industrial Development Company (INDECO) and the Zambia Industrial and Mining Corporation (ZIMCO), the oversight responsibilities over these companies are now spread thinly over the responsible ministry, MoFNP and the ZPA often with no clear financial performance targets.

Still under the subject of public finance management procedures, the management of Zambia’s domestic and external debt is the responsibility of the MoFNP and the Bank of Zambia (BOZ) through the Investment and Debt Management Department at the MoFNP and the International Division of the Economics Department at BOZ.

Legal Framework for Public Finance Management
The main pieces of legislation that interface with the management of public finances are:

the Republican Constitution;
the Finance Act – Chapter 347;
The Public Audit Act of 1980;
the Privatisation Act; and
The Tender Board Act.

Apart from the above pieces of legislation, there are few other pieces of legislation that have a bearing on the management of public finances. Some of these are:

The Financial Regulations;
The Prohibition and Prevention of Money Laundering Act;
The Loans and Guarantees (Authorisation) Act; and
The Local Government Act

Institutional Framework in Public Finance Management
There are four main categories of institutions that interface in the management of public finance: the multilateral donor agencies; government ministries and agencies; government watchdog bodies; and civil society. Multilateral donor agencies use assessments were based on questions covering the critical elements of public expenditure management (PEM) systems to assess capabilities necessary for tracking public spending.

The MoFNP, operating through other ministries and agencies, normally co-ordinates most of the functions pertaining to the management of public finance. The local councils, apart from receiving public funds from the MoFNP, collect further revenues through property taxes, local levies, and licence fees, among others for the provision of services within their boundaries.

Apart from the mainstream government setup, the legal provisions provide for the establishment of bodies such as the Office of the Auditor General (AOG) and the Anti – Corruption Commission (ACC). In the context of public finance management, the OAG is responsible for the assessment and audit of the budget outcome while the ACC would have to prosecute any official who is cited for impropriety.

On the sidelines, the civil society (regarded as the third sector) plays various roles including fighting against corruption, monitoring government’s delivery of social services, government’s budgetary matters (revenue and expenditure), and monitoring the protection of human rights. The leading organizations involved in fighting corruption are TIZ, Integrity Foundation, Inter African Network for Human Rights and Development (AFRONET), the Foundation for Democratic Process (FODEP), and the Partnership Forum.

Organisations directly or indirectly involved in matters of public finance management include:

· TIZ through focusing attention on the advocacy for the establishment of systems that promote transparency and accountability both in economic and political governance of the country;

· the Jesuit Centre for Theological Reflection (JCTR) through the Jubilee Zambia programme that fights for the cancellation of Zambia’s debt;

· The Catholic Commission for Peace, Justice and Development (CCPJD), the development wing of the Roman Catholic Church in Zambia that frequently advises government on various matters ranging from poverty to the HIPC initiative and the budget and hosting a pre and post budget discussion;

· The Economics Association of Zambia (EAZ) by providing a forum for members to be involved in matters of public finance management such as hosting a pre and post budget analysis and hosting the Revenue Institutions in Zambia – Enhanced Support (RIZES) project (in collaboration with the Department for International Development of the United Kingdom); and

· The Zambia Institute of Chartered Accountants (ZICA) through the advice to government on fiscal management.

Various other civil society groups including the labour movement undertake advocacy activities pertaining to public finance management in Zambia.

Government Reforms
The government has in the past few years tried to improve its performance in public finance management. It is undertaking the Public Expenditure Management and Financial Accountability Review (PEMFAR) with support from the World Bank.

The government has had a long standing vision of achieving a fully decentralized and democratically elected system of government. However, very little progress has been made so far in implementing the decentralisation policy.

Appraisal of Public Finance Management Systems
The appraisal of the public finance management systems brings out the following salient points.

(i) Despite being an important phase, budget formulation seems to be degenerating into a formality. There is a persistent lack of clear relationships between the budgeted amounts and the actual expenditures at the year end. Parliament’s role on the other hand is largely reduced to that of review and consent. However, it might be important to point out that the MoFNP has in the recent years adopted a consultative approach in budget formulation even though the groups consulted seem not to be well – defined.

(ii) Legal provisions provide for operational flexibility that can be used for a good cause. However, they can also be misused especially in the absence of proper parliamentary oversight. In the public procurement process, there is rampant political interference in procurement resulting in flouting of established rules and regulations.

(iii) Although the Auditor General (AG)’s report is supposed to be submitted twelve (12) months after the end of each financial year, this has not been the practical case for many years now while follow up action on the findings of the AG is not effective to deter financial malpractices in the institutions and agencies covered in the AG’s report.

(iv) During the privatisation of the state owned enterprises (SOE) the enforcement of the Privatisation Act has been undermined by political interference from the executive. Furthermore, accountability with respect to the proceeds from the sale of government assets has generally been weak.

(v) The contracting of loans for the country is regulated by the Loans and Guarantees (Authorisation) Act which has been observed as having certain inherent weaknesses regarding inadequate public information on total public debt, and excessive powers given to the Minister of Finance and National Planning

(vi) Even though the ACC Act gives much more comprehensive powers to the ACC than the Corrupt Practices Act did, it is still not effective in giving the ACC financial autonomy or facilitating direct reporting to the public.

This study therefore recommends a multi-pronged approach towards solving the problem. This includes legal reforms, strengthening of watchdog institutions, administrative reforms and civic education.

Legal Reforms
The following legal issues have been identified as requiring urgent reform to ensure better public finance management:

(i) Legal reforms to strengthen autonomy of all supervisory / watchdog institutions;

(ii) The freedom of information bill needs to be re-introduced and passed into an Act of Parliament and should draw a clear definition of what constitutes state secrets;

(iii) Existing penalties need to be reviewed;

(iv) The Loans and Guarantees (Authorisation) Act needs to be amended to make the loan contracting process more open to the public;

(v) The systematic protection of whistleblowers, media practitioners and persons mandated to enforce the law from victimization through administrative codes has to be entrenched in the Zambian constitution; and

(vi) Local councils should be legally compelled to publicly publish their budgets and annual financial reports.

Strengthening of Watchdog Institutions
In this category, the study suggests addressing the following:

(i) The appointment and tenure of office of chief executives of supervisory/watchdog institutions should be a parliamentary rather than presidential function; and

(ii) There is need to have adequate appropriation of finances and other resources to support the activities of watchdog institutions.

Administrative Reforms
The report proposes the following:

(i) A review of the powers of the speaker of Parliament needs to be undertaken as part of the parliamentary reforms with a view to having the Speaker’s powers reduced to those of a chairperson or moderator;

(ii) Government needs to build on the budget reforms already begun with the aim of strengthening parliamentary oversight on public expenditures;

(iii) Current efforts aimed at making the budget preparation process more consultative and participatory are welcome and should be broadened;

(iv) The current Public Service Reform Programme (PSRP) should seriously address the issue of improvements in the remuneration packages for public service workers; and

(v) Government should engage in a consultative process with key stakeholders in coming up with an action plan and implementation strategy for the decentralisation policy whose implementation is long overdue.


Civic Education
Government should deliberately encourage directly or indirectly (such as through CSOs) educational campaigns on the role of supervisory/watchdog institutions and on the content and other civic matters to make the general public more alert to instances of abuse of public office. Important public documents like the few mentioned above should be made available through the council offices and public libraries to the people.


1.0 INTRODUCTION

This study was conceived out of the recognition that public finances are perhaps the most important resource that Zambia has that can contribute directly to the reduction of poverty and the general welfare of the majority of Zambians. Needless to note, finances in Zambia are in short supply compared to the demand for their usage therefore judicious usage of these resources requires the comprehensive and participatory involvement of all stakeholders.

According to the various annual reports prepared by the Auditor General (AG), Zambia appears to have serious challenges in the manner in which public finances are managed. It is reasonable to expect that funds lost through bad financial management practices could have been used to finance the perpetual budget deficits that are pushing the country into a vicious circle of unsustainable debt and poverty.

1.1 Background

The economic malaise that Zambia has found herself in is rather sad considering that this country has a very economically sound past. At independence, the economy was considered one of the best in Africa. Bad internal economic management practices and a couple of external economic shocks in the 1970s and 1980s triggered the current persistent economic downturn. Mining, the driving force in the Zambian economy, declined for a long time, dragging down the other sectors that depend on it. No major substitutes from other economic sectors came aboard. This has resulted in a reduction in gainful employment and in failure by the state to provide basic services such as education, health, and clean water that it provided in the past. From the mid 1990s, the HIV/AIDS pandemic and other diseases have worsened the poverty situation further.

The economy remains undiversified (still heavily dependant on mining) despite numerous attempts to diversify it. Zambia is now classified among the poorest countries in sub-Saharan Africa with a per capita income fluctuating at about US $300 for the last couple of years. The country is also among the most indebted in the world such that it qualified for debt relief under the Heavily Indebted Poor Countries (HIPC) Initiative in December 2000. The depressed economic situation has also partly led to an increase in cases of corruption to the extent that Zambia is now ranked as the 11th most corrupt country out of 146 countries according to the Transparency International Corruption Perception Index.

Ironically, Zambia has largely enjoyed peace unlike other countries in the region that have had worse calamities and cases of civil war. Most fundamentally however, the failure of Zambia’s economy over the past thirty years, evidenced by worsening macroeconomic indicators (see table 1-1 below), has had the most telling effect on poverty in the country.

Table 1‑1: Zambian Macro-Economic Indicators, 1970s – 2002
Indicator (in percent)
1970s Average
1980s Average
1990s Average




GDP Growth Rate
1.5
1.4
0.3
CPI Inflation Rate[1]
10.2
36.1
70.9
Domestic Savings/GDP
33.2
14.0
7.1
Investment/GDP
30.2
16.2
14.1
Interest Rate (lending rate)
7.8
16.0
54.7
Exchange Rate (Kwacha/US $)
0.7
4.8
903.1
External Debt/GDP
64.5
171.9
204.1
Source: World Bank (2003)

The country’s poverty and poor economic performance could therefore be largely be attributed to poor economic policies and mismanagement of public finances.

The subject of public finance management is so cardinal to any country that, in Zambia, Transparency International Zambia (TIZ) initiated a project specifically dedicated to public finance management and utilisation in Zambia.

1.2 Objectives and Methodology of the Study

The project on public finance management had three major objectives. These were to:

Identify gaps in current legislation and advocate for reforms to make the system more accountable;

Make policy and administrative recommendations and influence reforms to watchdog institutions, and;

Mobilise civil society support and input in calling for changes that will contribute to dealing with issues of abuse of public funds.

In order to achieve the above objectives, research was used as the major strategy for identifying the weaknesses in public finance management. The outcomes of the research were two reports that shed more light on Public Finances Management in Zambia (PFM) and suggested Systems of Tracking and Documenting the Abuse of Public Funds.

Then a consultative process of major stakeholders and ordinary citizens that included holding workshops and public discussions was conducted in four provinces namely:

Lusaka province (within Lusaka district);

Luapula province (in Mansa and Samfya districts);

Copperbelt province (in Kitwe and Luanshya districts); and

Eastern province (in Chipata and Petauke districts)

A synthesis of the main findings of the two studies and summary reports of the public discussions are attached at appendix I.

Thereafter, a campaign was launched in Lusaka using radio, television and print media as a channel for encouraging public discussion and debate on these issues. A public discussion was also held at which various stakeholders and ordinary people were invited.

The ultimate goal of all these efforts was to arrive at a set of proposals that would make the bedrock of the recommendations and strategies on better public finance management contained in this report. The whole process was deliberately consultative and participatory to ensure that the recommendations presented are a reflection of a broad based consultative process that takes into account the various views and situations of stakeholders at district and national level. A policy makers’ workshop was conducted particularly to bring on board the views of stakeholders at national level from both the civil society and the government. Through the media campaign, ordinary people were afforded an opportunity to peek into the intricacies of financial management in Zambia and make their voices be heard regarding the way forward.

This report is therefore a culmination of a year’s work on the study of the management and utilisation of public funds that TIZ launched in August 2003. The report is primarily intended for submission to the Ministry of Finance and National Planning (MoFNP), which is charged with the responsibility of ensuring proper financial management although it is hoped that many other stakeholders and ordinary citizens will find it useful in widening their scope of understanding and also as an advocacy tool.

1.3 Limitations of the Study

The public finance management and utilisation project enjoyed a lot of support. However, like many other undertakings, it suffered from the following major limitations:

Half hearted commitment from government officials to participate in proposing and reviewing proposals made by grassroots citizens. It was only in very rare circumstances that government officials would turn up for the workshops even when invitations would have been sent to them in good time;

Insufficient knowledge on the part of some citizens (especially in rural districts) on matters of public finances and the procedures involved; and

Limited financial resources to conduct a more thorough tour of all the provinces to collect people’s proposals. Only seven districts were visited around the country. (However, this limitation is mitigated by research data collected and the media campaign conducted).

1.4 Organisation of the Report

This report is composed of seven sections. Following this introductory section, the next one (section two) provides insight into the administrative procedures of public finance management in Zambia. It gives an overview of the national budgeting procedures, public finance management roles at local government level and quasi-public sector entities. Thereafter, public debt management is highlighted along the same lines.

Section three looks at the legal framework that is used to shape up the administrative procedures in the way they are.

Section four considers the institutions that are involved in public finance management. Some of these institutions are established under the legislation discussed in section three. Conversely, these institutions draw their authority from the legislation looked at in section three.

The following section discusses some of the reforms that government is undertaking within the field of public finance management.

In section six, the report presents an appraisal of the public finance management system in Zambia. This is done by analysing the problem areas of the current procedures, the legislation, the institutions set to apply the regulations, and the reforms being undertaken as discussed in the previous sections.

Drawing from the report in general, section seven gives a summary. Furthermore drawing from section six in particular, section seven provides recommendations on how to improve the situation.



2.0 ADMINISTRATIVE PROCEDURES IN PUBLIC FINANCE MANAGEMENT

This section presents the administrative procedures in the management of public finances in Zambia. The section is divided into four parts. The first part highlights the national budgetary cycle. The second part looks at public finance management at a lower level – the local government. The third part considers how the quasi-public sector entities manage public funds while the last part provides an overview of the management of public debt.

Of course the report recognises that central government is just one component of the public sector with the others[2] contributing significantly to the overall public sector deficit. For purposes of this report, it was felt that the subject matter could be better handled by breaking it down the way the section has been done.

2.1 Central Government Budgeting and Accounting

Public finance is used to finance public programmes. These programmes emanate from national policies. Therefore, the essence of public finance management is to facilitate the implementation of national policies (of course translated into national programmes) by the government. This is achieved through:

(vii) The preparation of national budgets to meet the expected expenditures;

(viii) Appropriation of funds to meet the expenditures when they fall due; and

(ix) Reporting the actual financial outcomes against the budgeted (to the electorate through their representatives in parliament or directly through the Yellow Book).

Therefore, the budget is an instrument that takes centre stage in any discussion of public finance management. A budget, in public finance management context, could be said to be a statement of government finances. These finances include expenditures, revenues, deficits or surpluses, and debt. In a way, the budget indicates the government’s socio-economic priorities by translating policies, political commitments, and goals into decisions of how and where funds will be collected from and spent. Therefore, the budget could be said to be the government’s main economic policy document that indicates how government intends to use public resources as it strives to achieve policy targets.

The importance of the budget in this context calls for the distinction of the mere budget document from the budget process. The budget document is just an aspect of the lengthy budget making process. The budget process on the other hand is a lengthy iterative cycle that has interrelated stages, namely:

Budget formulation;

Budget enactment;

Budget execution; and

Budget auditing and assessment.

As the budget is being executed, there is need for the transactions to be recorded and accounted for by those entrusted to handle the particular components that make up the whole budget task. This gives rise to the function of accounting and reporting. It is this recording and accounting that forms one of the pillars upon which the budget auditing and assessment function rests. Without recorded figures, auditing would be difficult.

2.1.1 Budget Formulation

This refers to the compilation of the budget plan by the government. In Zambia, this is done or co-ordinated by the MoFNP through the Budget Office. The budget is then tabled before cabinet that endorses it after making alterations, if any are felt necessary.

The Zambia Revenue Authority (ZRA), a government agency created by an Act of Parliament in 1993, helps the MoFNP to set the target tax revenues to be collected that are included in the annual national budgets.

2.1.2 Budget Enactment

The next phase in the budget cycle is for Parliament to discuss the budget document cabinet would have presented (through the Minister of Finance). The presentation of the budget used to be done in the last quarter of the year. However in the last thirteen years or so, it has been done in late January or early February of each year. The budget is enacted when Parliament adopts it, either in the original form presented or after making amendments. The broadest publicity of the budget occurs from the time the minister of finance presents it to Parliament up to the time Parliament finally adopts it.

2.1.3 Budget Execution

After the budget has been approved or enacted by Parliament, it has to be executed or rather implemented. The execution/implementation phase is the period when budget policies are carried out by the government. During this phase monitoring and control also occurs to ensure that spending and revenue collection adheres to plan, the budget. In Zambia, the ZRA bears the responsibility of collecting all government tax revenues[3].

Officially, implementation begins when the permanent warranties are granted to the line ministries. However, it is the cash releases that impact most on budget execution. In Zambia, the MoFNP operates a decentralised kind of payment system whereby cash transfers to line ministries’ bank accounts are made for them to pay their suppliers and/or creditors. The timing of the releases and their quantum are not formalised or legalised but are at the discretion of the MoFNP. The general practice is that the Budget Office representatives, Accountant General’s office and others, as a committee, make such decisions.

In the mid 1990s, the deficit limits agreed with the IMF were the general guiding light for the decisions of this committee albeit within the provisions of the Yellow Book. Generally the ranking was as follows:

Statutory obligations such as debt servicing;

Followed by personal emoluments;

Then Recurrent Departmental Charges (RDCs); and

Capital expenditures funded out of the residue, if any.

In mitigation though, the MoFNP tended to provide some form of protection to social sector spending across ministries as part of an agreement with the World Bank[4]. More recent agreements with the World Bank, such as the Fiscal Sustainability Credit (FSC), have prescribed minimum monthly releases to ministries[5]. However, the final decision remains with the MoFNP and the variations from month to month and from ministry to ministry still exist even though they are less than in the 1990s when a ministry could receive zero in one month and double in the next.

Line ministries over the past several years have had literally no prior information about the quantum or the timing of the budgetary releases from the MoFNP. Even though it was suggested that ministries be notified quarterly as to their minimum expectations, this system was not effected beyond a short period after the initial implementation.

As if the uncertainty of the releases is not enough, the annual cumulative amount is also up in the air. Generally over the years, RDCs to administrative ministries tended to be increased, while those in the social sectors were maintained, and those providing economic services have been treated to reductions.

2.1.4 Accounting and Reporting

Accounting and reporting are all part of the budget execution process but for purposes of this report, they are dealt with separately.

The Minister of Finance appoints the Controlling Officers (CO) for each expenditure head[6]. After the budget enactment by Parliament and the issuance of general warrants by the President, the Secretary to the Treasury issues sub-warrants to each CO. The accounting units at the appropriate levels keep the records of these credits. The appropriate levels are:

Ministries’ headquarters in Lusaka for RDCs and offices in Lusaka; and

Provincial offices for all departments located outside Lusaka.

These sub-warrants serve as the basis for the budgetary cash releases. The COs and their designated Accounting Officers, using the clearly spelled-out instructions, are responsible for executing the budget including creating commitments, managing contracts, and accounting and reporting to the MoFNP. Apart from internal auditors seconded to each CO, segregation of duties is normally the bedrock for control. As a basis for financial reports, each spending agency maintains a simple cash-based accounting system.

On the revenue side, the ZRA is tasked with the collection of tax revenue which is the main source of internally generated government revenue. The MoFNP regularly monitors the collection of revenue through:

Daily reports on Control Account 99 from the Bank of Zambia;

Monthly reconciliations between MoFNP and the ZRA; and

Quarterly and ad-hoc reports from the ZRA.

Revenues collected by Lusaka and Ndola ZRA offices are banked promptly with the Bank of Zambia while revenues from other centres are banked in commercial banks for onward transmission to the Bank of Zambia inside 4 – 14 working days.

2.1.5 Budget Auditing and Assessment

This is about the last stage in the government cycle of control over public finances. At this stage, the budget outcome is assessed and the executive reports to Parliament (and the general public). Perhaps the most detailed comprehensive assessment of the budget is carried out by the AG. The Public Accounts Committee (PAC) of Parliament and (at times) the Anti – Corruption Commission (ACC) carry out further assessment of the budgetary outcome.

2.2 Local Government Accountability

Local government is the lower level of government, i.e. local authorities. Local authorities are supposed to submit annual budgets sixty (60) days before the year end to the Minister of Local Government and Housing (MoLGH) for approval. In Zambia, local authorities generate revenue from internal and external sources[7]. These funds are used for the provision of services in areas under the local authorities. Expenditures are normally based on cash availability.

The MoLGH is also charged with the responsibility of administering the Constituency Development Fund (CDF)

2.3 Quasi-Public Sector Entities Accountability

Under the quasi-public sector entities, the report presents an overview of public funds and state owned enterprises.

2.3.1 Public Funds

Government has established several funds reflected in the budget. Their expenditures are reported in the Government annual accounts. See table 2-1 for a list of some of the funds with the corresponding ministry mandated to manage them.

Other funds have been established outside the budget, otherwise called extra-budgetary funds. In this case, the inflows into the funds do not reflect in the national budget while the expenditures are also not incorporated in the government Appropriation Accounts. The Road Fund and the Pensions Fund are two of the major sources of extra-budgetary expenditures.

Although the Road Fund (established by an Act of Parliament) is government owned, it is driven by the private sector with public sector participation. The main sources of income are the fuel levy and grants from donors. The external auditor for this fund is appointed by the AG from the private sector.


Table 2‑1: List of Budgetary Funds
Department/Ministry
Fund
Community Development & Social Services
Africa Housing Fund
Copperbelt Province
Dag Hammarskjold Trust Fund
Energy & Water Development
Rural Electrification Fund
Home Affairs
Prisons Welfare Fund
Local Government & Housing – Loans & Investments
Africa Housing Fund
Local Government & Housing
Constituency Development Fund
District Innovation Fund
Gwembe Special Fund
Local Authority Superannuation Fund
National Water & Sanitation Council Trust Fund
Finance & National Planning – Loans & Investments
Enterprise Development Fund
Zambia Social Investment Fund
Sports, Youth and Child Development
Youth Development Fund
Source: World Bank (2003)


Through its board, the Roads Fund is accountable to Parliament (to which it presents annual reports). Stakeholders of the fund are informed through annual workshops and can access the annual reports (including audited financial statements) from the internet.

2.3.2 State – Owned Enterprises (SOEs)

When nationalisation was the fashionable way of managing the economy, government incorporated the Zambia Industrial and Mining Corporation (ZIMCO) and the Industrial Development Corporation (INDECO) to manage the SOEs. With the drastic change of government policy in 1992 to pursue privatisation, government established the Zambia Privatisation Agency (ZPA) and liquidated INDECO and ZIMCO. This abrupt shift in policy created a vacuum in the financial supervision of the SOEs. The oversight responsibilities over these companies are now spread thinly over the responsible ministry, MoFNP and the ZPA often with no clear financial performance targets. When targets are set they often have conflicting commercial and political indicators.

Out of the 280 SOEs that were up for privatisation in 1992, there are less than thirty remaining to be privatised or restructured. Many of these SOEs in their current form are not profitable. Some (such as ZESCO, Nitrogen Chemicals, Zambia National Commercial Bank and the Food Reserve Agency) are owed large amounts by government and government related institutions. Some of these claim that the major obstacle to debt collection however, is government ownership that does not for instance allow aggressive debt collection in good time such as appointing receivers or liquidators.

Government mechanisms for setting or approving borrowing limits for most of the SOEs are either weak or non-existent. In some cases, government has provided loan guarantees to these companies. The end result of this policy (lapse) has been the existence of unsustainable debts on the books of the SOEs that are eventually passed on to government to liquidate, thus a burden on the ordinary tax payer.

2.4 Public Debt Management

The management of Zambia’s domestic and external debt is the responsibility of the MoFNP and the Bank of Zambia (BOZ). The MoFNP manages public debts and publicly guaranteed external debts while BOZ manages private sector debts and its own external debts. Concurrently though, BOZ manages government securities (the traditional government debt) on an agency basis.

At negotiation stage, the key government team for debt contracting includes the Minister of Finance, Minister of Justice and the Accountant General. Parliament plays a minimal role (if any) in the debt contracting process. In terms of management, debt is within the ambit of the Investment and Debt Management Department at the MoFNP and the International Division of the Economics Department at BOZ.


3.0 LEGAL FRAMEWORK FOR PUBLIC FINANCE MANAGEMENT

This section is divided into two parts. The first part discusses the main pieces of legislation on public finance management. In the second part, the report considers other pieces of legislation that have a bearing on public finance management.

3.1 Main Pieces of Legislation

The main pieces of legislation that interface with the management of public finances are:

the Republican Constitution;

the Finance Act – Chapter 347;

The Public Audit Act of 1980;

the Privatisation Act; and

The Tender Board Act.

This list is not exhaustive but for the purposes of this report, focus will be placed on these five.
3.1.1 The Republican Constitution

Part X of the Republican Constitution of Zambia deals with Finance. It gives Parliament the authority of approving government revenue and expenditure proposals. The government cannot spend any funds unless they are voted for by Parliament. It is also the exclusive mandate of Parliament to impose and regulate taxes – the main source of government revenue. In other words, Parliament exercises oversight over the generation and utilisation of public finances.

Articles 114 -121 of the Constitution also define the financial management roles of the President as the head of the executive wing of government, the Minister responsible for finance and the Auditor General. The articles further provide for annual appropriation Acts, supplementary and “excess” estimates and supplementary, and “excess expenditure” Acts.

In principle, the Constitution extends the Westminster system of financial control and reporting system in the management of public finances.


3.1.2 The Finance (Control and Management) Act

The Finance (Control and Management) Act-Chapter 347 of the laws of Zambia is the main legislation that defines the roles and responsibilities for financial management within the executive arm of government. The Act reposes substantial authority in the Minister of Finance for the management, supervision, control and direction of all matters relating to the financial affairs of the country. The minister of finance is responsible for designating a controlling officer (CO) for each head of expenditure provided for in the annual budget.

The Finance (Control and Management) Act also makes mention of the role of internal audit, albeit very briefly and without clear definition.

3.1.3 The Public Audit Act

The Public Audit Act of 1980 defines the roles, responsibilities, and reporting obligations of the AG. The Act gives the AG authority to audit books, records and reports of institutions in which government has an interest just as the Finance (Control and Management) Act gives the AG authority to scrutinize the financial affairs of government departments and statutory corporations for audit purposes. However, the Public Audit Act empowers the AG to follow up records of institutions beyond those prescribed in the Finance (Control and Management) Act to include every private institution that receives a government grant, subsidy or subvention in any financial year. Under the Public Audit Act, the AG has authority to request from independent auditors of parastatals any document, reports, or information relating to the accounts of parastatal companies. The AG is further empowered to have access, for the purposes of audit scrutiny, to all contracts involving government or its agencies and enterprises.

3.1.4 The Privatisation Act

The Privatization Act provides for the privatization and commercialisation of state-owned enterprises. The Act contains provisions intended to enhance transparency in this process. All proceeds from completed sales of shares and assets must be deposited into a Privatisation Revenue Account established by the Minister of Finance at the Bank of Zambia.

The Act stipulates that the Minister of Finance and Parliament will exercise oversight over the privatization process.

3.1.5 The Tender Board Act

The Act functions to regulate and control the procurement of goods and services for the government and parastatals. The Act provides for the establishment of Tender Committees in each ministry, province, city, municipality or district. The Act also provides for the establishment of parastatal tender committees. The Regulations set the financial limits for the various Tender Committees established under the Act (Part IV). See appendix II.

3.2 Other Relevant Pieces of Legislation

Apart from the above pieces of legislation, there are few other pieces of legislation that have a bearing on the management of public finances. Some of these are discussed below.

3.2.1 The Financial Regulations

The Finance Act is complemented by a subsidiary piece of legislation called ‘Financial Regulations’ which contains general financial rules and procedures, some MoFNP finance/treasury regulations and circulars, accounting guidelines and other procedures and instructions such as stores regulations. The internal audit function is also explained in the financial regulations.

3.2.2 The Prohibition and Prevention of Money Laundering Act

The Act provides for the establishment of the Anti-Money Laundering Authority and an Anti-Money Laundering Investigations Unit. The major objective of the Act is the prohibition, prevention and detection of money laundering in Zambia. This is to be achieved by different means and the adoption of certain measures.

3.2.3 The Loans and Guarantees (Authorisation) Act Chapter 366

The Loans and Guarantees (Authorisation) Act chapter 366 of the laws of Zambia empowers the Minister of Finance to raise loans from time to time (from within and outside the country) on behalf of the government as he or she deems fit. The ceilings on such loans are authorized from time to time by resolution of Parliament.

The law requires the Financial Report to provide a statement on the particulars of debt charges paid in that particular year with regard to loans raised under the Act. Loans are raised through several ways including the issue of bonds or stock, issue of treasury bills, or by agreement in writing.



3.2.4 The Local Government Act

The Local Government Act (CAP 281 of the laws of Zambia) of 1991 governs the conduct of the 72 local councils in Zambia. Section 61 of this Act sets out the functions and powers of the councils.

Section 29 (1) of the Local Government Act makes all meetings of a council open to the public except in some exceptional circumstances. However, section 29 (2) allows a council, by resolution, to exclude the public from a meeting during the whole or any part of the proceedings whenever publicity would be prejudicial to the public interest by reason of the confidential nature of the business to be transacted or for other special reasons stated in the resolution and arising from the nature of that business or of the proceedings.


4.0 INSTITUTIONAL FRAMEWORK IN PUBLIC FINANCE MANAGEMENT

This section presents an overview of the institutions concerned with public finance management. It is divided into four main parts. The first part highlights the framework of multilateral donor agencies and their monitoring techniques and tools. The second part considers the MoLGH, the MoFNP and its subsidiary bodies – the ZRA on the revenue side and the ZNTB on the expenditure side. The third part looks at the government watchdog bodies namely the ACC, the AOG, and Parliament while the last part highlights selected CSO activities.

4.1 Multilateral Donor Agencies

Multi-lateral donor agencies include the World Bank, the IMF, and the European Union among others. Each of these has a mechanism for tracking public expenditure for the recipient countries. Even though the mechanisms have slight variations, they are generally similar.

Some of the instruments used to assess public finance management systems are:

The World Bank Public Expenditure Reviews (PERs), Country Financial Accountability Assessments (CFAAs), and Country Procurement Assessment Reports (CPARs);

IMF Reports on the Observance of Standards and Codes of Fiscal Transparency (Fiscal ROSCs);

IMF–World Bank Public Expenditure Tracking Assessments and Action Plans (AAPs) for Heavily Indebted Poor Countries (HIPCs);

European Commission audits of public financial management systems; and

The United Kingdom Department for International Development (DfID) assessments of fiduciary risk.

As a follow-up to the March 2001 Board paper entitled “Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries”, the IMF’s Fiscal Affairs Department and the World Bank’s Poverty Reduction and Economic Management Network in collaboration with other departments of the IMF and the World Bank prepared a paper (in March 2002) that sought the Board’s concurrence on the approach to tracking poverty-reducing spending of public finances. The assessment mechanism used in this paper can be used as an indicator of some of the tools multi-lateral donor agencies use to monitor public finance management. The earlier paper[8] reported on the preliminary desk assessments of the capacity of 25 HIPCs to track poverty-reducing public spending.

The assessments were based on 35 questions covering the critical elements of public expenditure management (PEM) systems. From the questions, fifteen (15) indicators were chosen to represent the PEM system capabilities deemed necessary for tracking poverty-reducing public spending.

Seven (7) indicators related to budget preparation;

Four (4) related to execution; and

The last four (4) related to reporting.

The total number of benchmarks met was viewed as an indicator of the quality of a country’s PEM system. Using this methodology, the assessors were able to determine the status of the country they were assessing: whether satisfactory in tracking with a small amount of upgrading of the PEM systems; requiring some upgrading; or requiring substantial upgrading.

However, results were supposed to be taken with caution. For instance, those countries suggested requiring substantial upgrading did not imply that they could not track poverty-reducing spending at all. What they possibly suggested was that the accuracy and timeliness of data was likely to be relatively weak. Effective tracking of poverty-reducing spending was deemed to require PEM systems with some minimum level of capacity in each of the three areas: budget formulation, execution, and reporting.

4.2 Government Ministries and Bodies

In this part of section four, there are four components: MoFNP as the overall ministry in charge of public finances; ZRA as the tax collector; Zambia National Tender Board as the government procurement agency; and the MoLGH as the ministry in charge of the local government authorities – the local representatives of the central government at the grassroots.

4.2.1 The Ministry of Finance and National Planning

The MoFNP has the primary responsibility of co-ordinating most of the functions pertaining to the management of public finance. However, it normally operates through other ministries and agencies or bodies. For instance, during the budget formulation phase, it relies on the input of the ZRA for projections on the tax revenues that could be collected. Similarly during the execution phase, the MoFNP disburses funds to other ministries and bodies that execute government programmes.

4.2.2 The Zambia Revenue Authority

Established by an Act of Parliament in 1993, the ZRA is responsible for collecting all tax revenues on behalf of government. It is supervised by a board, appointed by government from the public and private sectors. The board in turn is answerable to the Minister of Finance who is accountable to Parliament for the performance of ZRA. The authority is financed from the government budget for its operations. Even though ZRA’s annual financial statements are audited by an independent firm of auditors, its accounts are also examined by the AG. The accounts are also presented to Parliament.

For operational purposes, ZRA does not normally give ad-hoc exemptions from taxes. Exemptions are given through Statutory Instruments.

4.2.3 The Zambia National Tender Board (ZNTB)

The Zambia National Tender Board Act, CAP 394 of the laws of Zambia, provided for the establishment of the Zambia National Tender Board (ZNTB). The ZNTB is responsible for regulating and controlling procurements on behalf of the government. Therefore, it is part of ZNTB’s responsibility to:

Formulate regulations for procurement on behalf of the government;

Regulate the procedures for the award of contracts on behalf of government; and

Advertise tenders for procurement on behalf of government.

The Act further provides for the establishment of tender committees to facilitate procurements at parastatal, ministry, provincial and district levels. Only procurements above certain specified limits are referred to the Central Tender Committee of the ZNTB for authorisation. The financial limits for each tender committee level are attached at appendix II. The Act (in section 16) also provides for the establishment of an Inspectorate Unit to monitor all contracts placed under the jurisdiction of the Act.

4.2.4 The Ministry of Local Government and Housing (MoLGH)

Of all the government ministries receiving public funding from the MoFNP, perhaps special mention should be made of the MoLGH. The MoLGH is responsible for the lower level of government, i.e. local authorities. Apart from receiving public funds from the MoFNP through the MoLGH, local authorities collect further revenues through property taxes, local levies, and licence fees, among others for the provision of services within their boundaries.

The MoLGH is also charged with the responsibility of administering the Constituency Development Fund (CDF) through the local authorities. These funds come from the national treasury at the MoFNP.

4.3 Government Watchdog Bodies

In this part of the report, we provide an overview of two government watchdog bodies – the Anti-Corruption Commission and the Office of the Auditor General.

4.3.1 The Anti-Corruption Commission

The Anti-Corruption Commission (ACC) is fundamental in the management of public finances as it acts as a safeguard institution in case of abuse of the trust and authority entrusted to the public officials. It acts as a watchdog in case of any impropriety on the part of the public finance managers.

The ACC was established under the Anti-Corruption Commission Act No. 42 of 1996, which repealed the Corrupt Practices Act No. 14 of 1980 or Chapter 91 of the Laws of Zambia. The amendments greatly empowered the Commission by strengthening its autonomy in terms of making its own procedures and the delegation of its functions and powers.

The President however, still maintains a presence in the ACC. The Commission’s powers to fundraise are subject to the approval of the President. The ACC’s report is also sent to the President for onward transmission to Parliament. One advantage, on the other hand, is that the ACC has the power to make recommendations based on its findings to any appropriate authority, which must within thirty days thereafter report to the ACC as to the action taken by that authority.

Structure and Security of Tenure

The ACC has a two-tier structure. It is made up of a commission which is a policy setting body. The commission is chaired by a person holding or has held high judicial office. He/she is assisted by four other commissioners. Commissioners are appointed by the President subject to ratification by the National Assembly for a renewable term of three years. The Commissioners are immune from civil and criminal proceedings for anything done in their official capacity under the ACC Act. However, they are obliged to disclose any special interests that they have.

The ACC also has a directorate which is the implementing body. It is headed by a Director-General who is appointed by the President subject to ratification by the National Assembly. He must be a person holding or has held high judicial office and must be a full-time employee of the ACC. He enjoys security of tenure until the age of sixty-five. His removal from office is thus possible only upon specified reasons and following the fulfilment of a lengthy procedure initiated by a resolution of the National Assembly.

Powers and impartiality

The Director-General acts under the direction of the commission and is empowered to make Standing Orders for managing the ACC’s operations and staff. He also has investigative powers except over issues that fall under the State Security Act[9].

The Director-General has powers to search suspects subject to the issue of a warrant by a magistrate. Furthermore, a court order is required to access bank accounts and records making it rather difficult to quickly access information relating to criminal financial activities. The written consent of the DPP is required before any offence can be prosecuted

4.3.2 The Office of the Auditor General (OAG)

The OAG is established under article 121 of the Constitution. The AG is appointed by the President subject to ratification by the National Assembly. The AG’s responsibility is to audit all public accounts and satisfy himself/herself that the public funds are properly received, expended and accounted for. His/her brief extends to accounts of parastatals, statutory corporations, and every private institution which received a government grant, subsidy or subvention in any financial year.

However, the AG’s access to the records, books, reports or other documents as well as the premises of the Defence Forces and the Zambia Intelligence Security Service is severely restricted. He/she can be denied access or entry to the premises if that might prejudice the security, defence or international relations of the country or the investigation or detection of offences, or involve the disclosure of any matters or deliberations of a secret or confidential nature of the Cabinet or any sub-committee of the Cabinet. It is therefore a remarkable achievement that in recent times the AG carried out an audit of the defence forces.

Article 121(6) of the Constitution provides that the AG, in the exercise of his/her duties, shall not be subject to the direction of any other person or authority. The AG enjoys security of tenure and vacates office at the age of sixty years. His/her removal from office can only come about as a result of the decision of the National Assembly, following recommendations by a judicial tribunal.

The Public Audit Act confers immunity on the AG and his/her staff from any action and proceedings in respect of the findings of any audit, examination, or inspection carried out by him/her in the exercise of his/her functions. It is also an offence for any person to obstruct or resist the AG or person acting under his/her authority in the exercise of his/her functions.

Article 121(4) of the Constitution requires the AG to send an annual report to the President, who is required to table it before the National Assembly. The AG, however, is authorized by the Public Audit Act to prepare a special interim or other audit report relating to his/her investigations if he/she has reason to believe that delay in reporting serious irregularities in expenditure of public funds through the annual report may occasion financial loss to the government or prejudice effective financial control.

4.3.3 Parliament (The Legislature)

Parliament is the legislative wing of government and holds the executive wing accountable (including in the management of public finances) through a number of measures. The Zambian Parliament, like its many other counterparts in the commonwealth, operates through the committee system. Parliamentary committees may be defined as a composition of a number of Members of Parliament specifically named or appointed to consider, inquire into, or deal with particular matters or bills (Chibesakunda, 2001). These committees enjoy the same powers, immunities and privileges as the Parliament itself. Examples of these committees include the Public Accounts Committee, the Committee on Estimates and the Committee on Ways and Means. It is for this reason that parliamentary committees are referred to as “miniature parliaments.”

4.3.3.1 Public Accountability of Parliament

During what is termed ‘question time’ at the beginning of each day, Members of Parliament may ask ministers questions requiring oral answers. Ministers are also required to make interim statements regarding the operations of their ministries. Members of Parliament can also move a motion requesting the government to do something or state their position on a particular matter.

Members of the public can petition Parliament to take action in relation to some issue that they wish Parliament to put right. Government departments and ministries are also obliged to submit their annual reports detailing their income and expenditure and other activities before Parliament each year. This is in order to enable Parliament to review the performance and operations of each ministry or public institution.

4.3.3.2 Budget Oversight

The budget function of Parliament is to authorize government expenditure and revenue collection measures. At the beginning of each financial year the government puts forward proposed annual estimates of revenue and expenditure (in form of a budget). Parliament sitting as the Committee of Supply debates these proposals.

After this, the Estimates Committee examines the estimates of each ministry, department and statutory body contained in the Yellow Book. Any expenditure that takes place outside of this authorization is regarded as unconstitutional. Additional expenditure is authorized through an ‘excess expenditure’ or ‘supplementary estimates’ bill depending on whether the spending has already been incurred or not.

Any new taxation must be debated in the Committee of Ways and Means to ensure that the public is not unduly burdened and that the new taxes are justified.

4.3.3.3 Public Accounts Committee (PAC)

The PAC of Parliament is mandated to examine the accounts showing the appropriation of sums granted by the National assembly to meet the public expenditure, the report of the AG on the accounts of government and such other accounts.

When the AG’s report is presented to the National Assembly, it is first examined by the PAC which then tables it before the whole House for debate and adoption. The PAC has powers to summon witnesses, question them and demand explanations. The PAC, however, lacks powers to punish erring officers. The responsibility of dealing with erring officers is passed on to the executive. The executive is required to submit a Treasury Minute or Action Taken Report to the National Assembly after six months outlining what measures it has taken to correct the anomalies that were pointed out by the PAC.

4.4 Civil Society

The civil society in Zambia continues to be regarded as the third sector (with the first and second sectors being government and business respectively) because of the cardinal role it plays in the different development processes of the country (PACT Zambia, 1996). Civil society is composed of non-governmental organisations (NGOs), community based organisations (CBOs), churches, trade unions, among others.

The Societies Act[10] provides the legislative framework for the operation of NGOs, CBOs and churches. A few organisations are created under the Companies Act[11] as companies limited by guarantee while others are formed under the Land (Perpetual Succession) Act[12]. Trade Unions are regulated by the Industrial and Labour Relations Act[13].

These organisations play various roles including fighting against corruption, monitoring government’s delivery of social services, government’s budgetary matters (revenue and expenditure), and monitoring the protection of human rights. The leading organizations involved in fighting corruption are TIZ, Integrity Foundation, Inter African Network for Human Rights and Development (AFRONET), the Foundation for Democratic Process (FODEP), and the Partnership Forum.

Organisations directly or indirectly involved in matters of public finance management include TIZ, the Catholic Commission for Peace, Justice and Development (CCPJD), FODEP, Economics Association of Zambia (EAZ), the Zambia Institute of Chartered Accountants (ZICA), and the Jesuit Centre for Theological Reflection (JCTR).

Various civil society groups have been undertaking advocacy activities pertaining to public finance management in Zambia. Some of these advocacy activities are discussed below.

4.4.1 Transparency International Zambia (TIZ)

The overall objective of TIZ is to develop sustainable capacity in the civil society, media, public and private sector to effectively fight corruption and promote high integrity and good governance in Zambia. It is against this background that TIZ is focusing attention on the advocacy for the establishment of systems that promote transparency and accountability both in economic and political governance of the country.

TIZ therefore, has been undertaking an initiative that seeks to identify and highlight, why and where, leakages in the administration of public finances occur as well as mobilising support for necessary reforms and improvements in the system. This will build on TIZ activities undertaken in the past that focused on the problems of efficient service delivery, accountability and transparency of the local authorities in Zambia and subsequently led to the development of policy recommendations aimed at addressing these problems. The final output is the set of recommendations being made to the MoFNP.

TIZ realises that plugging these financial loopholes will call for concerted efforts in the introduction of transparent and effective monitoring systems to promote accountability on the government side and the CSOs aiming to monitor the process. Government has already instituted some reforms to address this problem. However, such measures can only succeed if they are part of a comprehensive strategy of strengthening the management of public finances at all levels which brings on board all sectors.

4.4.2 The JCTR / Jubilee Zambia

The JCTR is hosting a programme called the Jubilee Zambia programme. This programme arose from the need to fight for the cancellation of Zambia’s debt in 2000, the year in which the country was officially recognised internationally as being among the most indebted in the world through its qualification for debt relief under the HIPC initiative. Many CSOs and even government leaders have also acknowledged that debt has reached unsustainable levels. The thrust of the Jubilee programme however goes further and demands for better accountability of the financial resources available and realistic borrowing that will not drag the country into more debt.

4.4.3 The Catholic Commission for Justice, Development and Peace (CCJDP)

The CCJDP is the development wing of the Roman Catholic Church in Zambia. Through its Economic Justice Programme (EJP), the CCJDP is becoming one of the foremost commentators on matters of public finance. The CCJDP is a frequent advisor to the government on various matters ranging from poverty to the HIPC initiative and the budget. The programme has been releasing a number of position papers on contentious issues of public finance management. The CCJDP also has a pre and post budget discussion which has become a popular forum for organisations and ordinary citizens involved in public finance management to critically analyse the budget and its implications on people’s livelihoods.

4.4.4 Economics Association of Zambia (EAZ)

The EAZ is a body of professionals in various fields. It provides a forum for members to be involved in matters of public finance management. The EAZ has been hosting a pre and post budget analysis each year at which recommendations are made to the government on various fiscal policy matters. The EAZ is also, in collaboration with the Department for International Development (DfID) of the United Kingdom, hosting the Revenue Institutions in Zambia – Enhanced Support (RIZES) project. The project looks at revenue and expenditure with the long term goal of supporting government to achieve a ‘pro-poor, pro-growth fiscal policy framework’. It has predominantly been providing support to the ZRA and the MoFNP.

4.4.5 The Zambia Institute of Certified Accountants (ZICA)

ZICA is an important institution representing the interests of certified accountants. The institute is also a major player in advising government on fiscal management. The institute was also vice-chair of the banned HIPC Tracking and Monitoring team[14] that provided important insights into the management of HIPC funds in the country.



4.4.6 The Labour Movement

The labour movement in Zambia is very vibrant and influential. It is composed predominantly of the two mother bodies, the Zambia Congress of Trade Unions (ZCTU) and the Federation of Free Trade Unions in Zambia (FFTUZ). Unions are affiliated to either of these two mother bodies. Apart from fighting for the rights of the members, the unions’ advocacy work has predominantly been targeted at agitating for better financial management since better financial management would lead to better incomes for workers and consequently many more people who are dependant on those workers.


5.0 GOVERNMENT REFORMS

In any organisation, changes are an on-going phenomenon. Similarly, government has been instituting some changes regarding its operations. In this section, we highlight some of the operational changes that have a bearing on the management of public finances.

5.1 Government Reforms in Financial Management Systems

The government has in the past few years tried to improve its performance in public finance management. Most efforts are still on paper and the process on implementation is quite slow. This is mainly because the reform process itself is heavily dependant on donor support and requires a lot of political will. Furthermore, there are a number of other non financial matters that directly impact on financial management that need to be attended to in order to ensure sustainable implementation of programmes such as the Public Service Reform Programme (PSRP) and the Public Service Capacity Building Programme (PSCAP). Some of these interlinking programmes require time and training to be effectively implemented.

Within the overall framework of the PSRP, government is undertaking the Public Expenditure Management and Financial Accountability Review (PEMFAR) with support from the World Bank. The main aim of PEMFAR is to enhance the utilisation and management of public resources. Five core pillars underlie the foundation of this programme, namely:

Reviving medium and long term planning;

Moving away from incremental budgeting to activity based budgeting;

Introducing integrated financial management information systems;

Undertaking accounting reforms; and

Undertaking capacity building.

Reviving Medium and Long Term Planning

Pursuant to this objective, government has devised a Transitional National Development Plan (TNDP). The plan takes into account the Poverty Reduction Strategy Paper (PRSP). Through the TNDP, government hopes to improve the allocation of resources over time. Due to the complexity of objectives and strategies, government has with effect from the 2004 budget introduced the Medium Term Expenditure Framework (MTEF) which will further streamline the management of resources. The MTEF however, is highly dependent on the preparation of strategic plans and work plans by ministries which form the overall national budget. It is feared that there might not be sufficient capacity in the ministries for this micro detail to be done on time.

Activity Based Budgeting (ABB)

Government is moving away from the traditional (and subjective) incremental budgeting system to ABB. Expenditure estimates are built costing the programmes and activities making the work plans of a ministry or department and thus set the targets for performance. To achieve this MoFNP, is in the process of introducing the ABB software. Some government ministries and departments are already using this but it is yet to be completely rolled out.

Integrated Financial Management Information Systems (IFMIS)

The IFMIS is intended to enhance the monitoring and evaluation mechanism of public funds. Through IFMIS, financial, administrative and control systems of government are being overhauled. Secondly, financial management information will be easily accessible than was previously the case. IFMIS will complement the current Financial Management System (FMS) in providing vital information. A team of skilled personnel to man the IFMIS implementation has been hired and some training is being conducted for personnel in government departments.

Accounting Reforms

A commitment has been made to the donors that Zambia will review the Finance Act. The general orders are also being targeted for harmonisation but this still remains to be done. Furthermore, government has made a commitment to reduce arrears to domestic suppliers but this is proving to be an uphill battle. To its credit however, government has in the past two years managed to significantly reduce its domestic borrowing thereby freeing up more money to the private sector to borrow at reduced interest rates.

Capacity Building

Through PSCAP, public service employees are being afforded training opportunities. The PSCAP is also focussing on purchase of equipment such as computers to enhance productivity of public service workers. Other efforts have been with widening and improving the collection of Non Tax Revenue which has been streamlined by being passed on to commercial banks through Revenue Transit Accounts under the office of the Accountant General and not line ministries.

5.2 Decentralisation and Financial Management

The Zambian government has had a long standing vision of achieving a fully decentralized and democratically elected system of government. This has been born out of the realization that over centralization of authority and resource management has adversely affected public service delivery. Decentralization is also seen as a means of empowering the citizens to exercise control over their local affairs and fostering meaningful development which requires some degree of authority to be decentralised to provincial, district and sub-district levels as well as councils.

The main activities targeted under this programme include:

Development and implementation of a comprehensive strategy and action plan to facilitate effective decentralization;

Harmonizing legal provisions, building adequate human and institutional capacity;

Constructing and rehabilitating the infrastructure, and;

Improving and broadening the financial base of local governments.

Very little progress has been made so far in implementing the decentralisation policy. While the process began as far back as 1992, the policy itself was only adopted in 2002. A secretariat to specifically oversee the implementation process has been set up but no tangible results are being seen that suggest that government is serious about this policy. The policy has ten years (10) years from the time of adoption. Two years have been spent so far with negligible results, if any.

In spite of this reluctance, Zambia seems to favour the decentralisation policy. The arguments in favour of decentralisation are as follows:

Political stability will be secured by active participation of the local people in development activities and in politics through voting and other practices such as civic education, which will strengthen democratic accountability;

Lower level participation in development and politics would be a basis for training in political leadership which would create a seedbed for prospective political leaders to develop skills in policy making, political party operations and budgeting. This could enhance the quality of political leadership;

Accountability will be enhanced because local representatives will be more accessible to the local populace and will thus be more closely accountable for their policies and outcomes than distant national political leaders (or public servants). A vote at local elections will be a unique mechanism for the local community to register its satisfaction or dissatisfaction with the performance of its representatives;

Responsiveness of government will be improved because local representatives will be best placed to know the exact nature of the local needs and how they can be met in a cost-effective way;

Locally specified plans will be tailor made for local areas using detailed and up to date information; and

Motivation of field-level personnel will be enhanced when they have greater responsibility for the programme they manage.


6.0 APPRAISAL OF PUBLIC FINANCE MANAGEMENT SYSTEMS

This section is presented along the lines of section two – first appraising the budgeting procedures, then local government, followed by quasi-public sector entities and lastly public debt management. However, in this section, the legal and institutional aspects are discussed as well to appraise how they facilitate or hinder the procedures.

6.1 The National Budget Cycle

Unlike in section two where the accounting and reporting aspect was discussed separately, this part of the report considers it as part of the budget execution phase. Therefore, the budget cycle is discussed as composed of four stages: budget formulation; budget enactment; budget execution; and budget assessment.

6.1.1 Budget Formulation

Budget formulation is an important phase but it seems to be degenerating into a formality rather than an activity that would call for serious policy implementation planning[15]. The persistent lack of clear relationships between the budgeted amounts and the actual expenditures at the year end bears testimony to this. It is not unusual to find budget figures that are lower than the current cost of undertaking a programme, even though the figures would have been increased from the previous year’s budget. See table 6-1 below.

Table 6‑1: Expenditure Vs Approved Budget Estimates for Selected Line Items
Budget Line Item
1998
1999
2000
Budget
Actual
Budget
Actual
Budget
Actual
K’million
K’million
K’million
K’million
K’million
K’million









Home Affairs
RDCs
HQ
469
944
400
1,020
620
1,553

Prisons
447
4,285
390
1,495
1,508
3,871








Foreign Affairs
RDCs
HQ
2,440
5,116
797
3,415
2,228
5,511

Lubumbashi
47
276
75
205
57
107


Washington
305
622
264
629
385
120


Cairo
260
589
223
641
661
644


Kinshasa
145
429
135
430
139
546


Addis Ababa
302
566
237
725
804
1,110


Abuja
160
608
124
474
168
360









Defence
PEs
Army
24,970
30,396
26,259
30,697
28,098
44,579









Defence
RDCs
Army
3,078
19,373
4,360
30,989
3,935
42,369


Air Force
2,468
8,584
2,063
27,602
1,941
46,423


Nat’l Service
2,247
5,257
2,794
8,286
2,793
13,814
Source: World Bank (2003)
This could be due to the flexible legislative framework as discussed in section 6.1.3. Therefore, this suggests that budget formulation has been based on the incremental budgeting process without due regard to the activities intended to be implemented.

Perhaps the problem emanates from the flexibility of the legislation that has literally allowed the executive to entrench the practice of using supplementary budgets to legitimise over-spending that has already taken place. Moreover, a pattern emerges where sectors that benefit from supplementary budgets are not “productive” or economic sectors but the administrative ones. The table below helps in illustrating this point.


Table 6‑2: Selected Budgeted Vs Actual Disbursements (Year 2000)


Description
Total Authorized

K’million
Actual Expenditure

K’million
Actual Release

K’million
Diff. Between Releases & Expenditure

K’million
Diff. Between Releases & Authorised Provision
K’million
Min. of Health

285,228

140,950

140,497

(453)

(144,731)
Min. of Education

424,390

231,504

228,974
(2,530)

(195,416)
Auditor General

3,573

2,830

1,992

(838)

(1,581)
Min .of Defence

153,975

194,382

215,024

20,642

61,049
Off. of the Pres. Spe/Div

62,477

63,902

63,246

(656)

769


929,643

633,568

649,733

16,165

(279,910)
Source: Auditor General’s Annual Report 2000


6.1.2 Budget Enactment

The Zambian Parliament’s role is largely limited to proposing savings and not additional spending. Furthermore, Parliament cannot make functional reallocations within the budgetary envelope since the budget is voted by head and the time is not sufficient for scrutinizing the voluminous documents provided with the budget. With the lack of information about programmes and the in-house expertise to provide technical advice to Members of Parliament, the quality of the budget debate is naturally limited. Therefore, Parliament’s role is effectively reduced to that of review and consent. Moreover, Parliament is faced with political pressure to quickly pass the budget because the provisional warrant that legally enables the government to function runs out on April 1.

The criteria for one to be eligible to be voted into Parliament are not so rigorous in Zambia. With the illiterate and semi-literate dominating the electorate in Zambia, educational qualifications are among the least sought after qualities. This leads to candidates that (at times) are of humble educational background getting elected to Parliament. With financial competence being an additional skill over and above general literacy, Parliament normally finds itself with a very limited number of members that have the educational competence to handle tasks of public finance management.

Furthermore, the Zambian Parliament is constrained by the fact that it has in the past been overwhelmingly dominated with members of the ruling party. Since a refusal to approve the budget could theoretically paralyse the government, the members of Parliament are unlikely to do anything to seriously compromise the government’s position. Consequently, since party loyalties often take precedence over common interests, members of parliament, as the conduit between the public and the government, may not fulfil their responsibility to their constituents.

The constitutional procedure relating to public expenditure requires that a warrant of expenditure should normally be preceded by the passing of an ‘Appropriation Act’. Such an Act contains all the heads of expenditure. The only exceptions are expenditure to maintain continuity of government, supplementary estimates, urgent and unplanned expenditure, and ongoing capital projects. The exceptions, which are justified by expediency, are very broadly framed and present opportunities for financial indiscipline on the part of the Ministry of Finance.

Government attempted to curb regular excessive expenditure by operating a cash budget system[16] but this was not enough to strengthen parliamentary oversight. In addition, the procedure for passing Appropriation and Supplementary Appropriation Acts is weak. Estimates of expenditure are laid before Parliament within three months after the commencement of a particular financial year. Once the estimates have been approved, they are drafted in the form of an Appropriation Bill to be laid before Members of Parliament and published in the Government Gazette for public consumption. But by the time the Appropriation Act is passed, it would be well into the applicable financial year and a substantial amount of expenditure would have taken place.

Moreover authorised excess or altered supplementary expenditure need not be presented before Parliament for as long as 15 months after the end of the financial year. When the Bill relating to such expenditure is finally presented, it serves only the purpose of ratifying expenditure that has already taken place. Where an appropriate Parliamentary committee has given prior blanket approval of expenditure, then the Minister of Finance has up to 30 months after the end of the financial year in which the expenditure took place to introduce the relevant bill into Parliament. Thus ‘unauthorised’ expenditure can take over 2 years to become public knowledge. The ramifications of the lengthy delay in informing Parliament are only partially offset by the requirement that a financial report of the Ministry of Finance’s activities must be laid before Parliament within 9 months after the end of a particular financial year.

In general, it is noted that the weakness of Parliament in monitoring government expenditure gives the executive too much discretion.

6.1.3 Budget Execution

Whereas article 115 (of the Constitution) states that no expenditure may occur without an appropriation being approved by Parliament, clause 2 (d) of the same article provides for exceptional circumstances under which the President can authorize expenditure without waiting for Parliament’s approval. Similarly, article 117 provides the Minister of Finance the authority to make substantial modifications to spending without seeking prior approval from Parliament. The approval will only be sought through a supplementary or excess expenditure appropriation bill. The legislation provides that the Minister of Finance and National Planning should present to the National Assembly:

Estimates of the national revenues and expenditures for that year (in accordance with Article 117 (1) of the Constitution) within three months after the commencement of each financial year.

A supplementary appropriation bill not later than fifteen months after the end of that financial year; and

The excess expenditure appropriation bill not later than thirty months after the end of that financial year.

Article 118 (of the Constitution) requires the Minister of Finance and National Planning to present to the National Assembly within nine months after the end of each financial year a financial report for that year.

These legal provisions for operational flexibility can be used for a good cause. However, they can also be misused especially in the absence of proper Parliamentary oversight. Moreover, the same provisions in a way undermine the oversight role of the National Assembly with the excessive authority given to the executive wing of government. Furthermore, the deadlines for seeking parliamentary authorisation for supplementary or excess expenditure appropriation bills seem not appropriate for proper financial accountability. Finally, the deadline set for the presentation of the annual financial reports does not allow enough time for the proper scrutiny of the report before the commencement of the debate for the next financial year’s budget.

In the execution of the budget, there is heavy reliance on the provisions of the Finance (Control and Management) Act. However, it has been observed by numerous commentators and attested by the AG that this Act is extremely weak. There is widespread failure to observe the law and regulations with resultant weak internal control systems. Similarly, while the Financial Regulations might be sufficient for controlling possible abuse, the people who are supposed to obey them are either not oriented in their use (perhaps due to cost implications of sending all new civil servants for orientation training) or they simply disregard them.

As discussed in section 2.1.3, the knowledge of when and how much of the ministerial or departmental budgetary allocation will be released is not within the domain of the respective ministries but with the MoFNP. There is a major weakness in this mechanism since there seems to be no systematic approach of linking the MoFNP cash release decisions and the commitments line ministries get into. Line ministries need to make procurements for their activities throughout the year, but without certainty regarding the budget releases the effectiveness and efficiency of their procurement activities would be compromised. For instance, procurement officers may be compelled to delay initiating local purchase orders until cash has been transferred to the ministry’s account but such a strategy brings problems for large procurements requiring lengthy tender procedures. Where supplies are required urgently, ministries may be forced to buy in less than economical quantities. Even though cash may not be available but with certainty about the amounts to be released later on, probably the contracting process would commence earlier thus smoothening the operational modalities of the ministries.

The alternative for the ministries has been to rely on suppliers to provide credit facilities. However, supplier credit has a cost as vendors normally build in a risk premium for late or uncertain payments and where credit is provided on contract, there are penalties for late payments that are commonplace in a system with so much uncertainty. The result has been for ministries to build up arrears.

Procurement in the public sector is regulated by the Tender Board Act. However, there is rampant political interference in procurement resulting in flouting of established rules and regulations. Although tender advertisements are usually put out, feedback information on who won the contracts and at what price is not made public.

Parliamentary control over public finances is extremely weak as is evidenced by cases in which funds have been diverted by senior government officials. For instance, the late Mr Godden Mandandi, the then Minister of Works and Supply, was charged with diverting K250 million from Parliament to fund a by-election in 2001 (The People Vs Godden Mandandi). A tribunal found two ministers guilty of diverting K2 billion in an attempt to fund the MMD national convention in 2001.

6.1.4 Budget Auditing and Assessment

Even though the AG’s report is to be submitted twelve (12) months after the end of each financial year, this has not been the practical case for many years now. As if that is not enough, follow up action on the findings of the AG is not effective to deter financial malpractices in the institutions and agencies covered in the AG’s report.

Performance of the AG’s Office has been seriously constrained by several factors, among them:

Inadequate funding;

Shortage of staff on account of poor conditions of service offered;

Lack of functional independence. Although the AG himself/herself is independent, the rest of the staff are not.17

It has been observed that the OAG has been receiving far much less funding than is needed to operate efficiently and effectively. The budget of the OAG is (by and large) determined by the MoFNP and usually bears little relationship to the Plan of Operation prepared by the AG. (For instance, see table 3-2). It also raises serious questions about the actual independence of the AG’s office if it still remains dependant on budgetary support that is determined by the MoFNP, an institution that is subject to audit by the AG.


Table 6‑3: Monies Budgeted for & Actually Received by the Auditor General’s Office

1996
K’million
1997
K’million
1998
K’million
1999
K’million
2000
K’million

Total Government Appropriation

1,266,026

1,625,562

2,919,683

2,493,793

3,261,961







Amount proposed by the office

5,680

6,685

6,307

6,100

8,800

Amount appropriated

2,487

2,841

2,468

2,123

2,385

Amount released to the office

869

1,225

1,868

1,084

1,995






Amount released as % of Amount appropriated

35%

43%

76%

51%

84%
Amount released as % of Amount proposed

15%

18%

30%

18%

31%
Amount released as % of total Government Appropriation

0.07%

0.08%

0.06%

0.04%

0.06%
Source: Auditor General’s Annual Report (1999)


Inadequate funding has affected the operations of the OAG and affected the timely production of the audit report. Consequently, some expenditures are not audited for several years. The AG’s reports are always late, sometimes by several years. This reduces the usefulness of these reports as they deal with events that are often beyond redress. The abusers of the funds may have retired, resigned, transferred to other departments or even died. However, there has been a remarkable improvement in the timeliness of the AG’s reports in the past three years. For example, the PAC was provided with both the 2001 and 2002 for scrutiny this year (2004).

Despite the important role played by the PAC, some observers feel it has done little to improve probity in government for several reasons, among them:

Late submission of the Auditor General’s reports;

Lack of power to compel the executive to take corrective action; and

Some members of the committee have scanty knowledge of public finance management.19

6.2 Appraisal of the Local Government Accountability

With the current policy drive towards decentralisation, the importance of the local government structures in the management of public finance is likely to increase. However, there are concerns regarding some legal provisions in the conduct of council affairs. For instance, section 29(1) of the Local Government Act makes all council meetings open to the public but section 29(2) allows a council to pass a resolution to exclude the public from a meeting if the presence of the public may jeopardise the proceedings. As good as this provision may be, it is a major weakness which officials can use to withhold vital information from the public that concerns development projects in their areas. Councils have used such provisions to insulate themselves from public scrutiny and are rarely accountable to the public.

Secondly, the central government structures seem to be using the local government as an excuse for the misapplication of funds. According to the AG’s report for the national accounts of the year ended 31 December 2002, a provision of K15.5 billion was made in the 2001 and 2002 estimates of revenue and expenditures for grants to councils. However, MoFNP released K22.7 billion without a supplementary provision to cover the excess release of K7.2 billion. Out of the K22.7 billion, MoLGH disbursed K18.4 billion to councils, the balance of K4.3 billion being used at the headquarters. Included in the amounts stated to have been disbursed to councils, no disbursement details were available for K1.9 billion making it difficult for the AG to independently and conclusively verify that this amount was disbursed to councils.

According to CDF guidelines, MoLGH is supposed to disburse the funds equally to all the 150 constituencies upon receipt of the funds from the MoFNP. In 2001, the MoFNP released K4.5 billion to the MoLGH for CDF out of which only K2.16 billion was remitted to 72 constituencies. K2.34 billion (for 78 constituencies) was diverted, depriving the intended communities of developmental activities. Furthermore, out of the K2.16 billion remitted to the 72 constituencies, no expenditure returns had been received to account for the funds. With a history of CDF being an important tool for incumbent members of parliament to bribe voters and create a cadre of loyalists around them, one cannot avoid speculating that this could have happened. Perhaps as a means of curbing these anomalies, new guidelines for administering CDF have been issued. The efficacy of these guidelines is yet to be assessed.

6.3 Accountability in the Quasi – Public Sector Entities

The Roads Fund seems to be performing well in terms of financial accountability. However, it has its share of problems like all other extra budgetary funds. In this case, some levy funds collected through government agencies have not been remitted to the Fund, having been moved to other pressing government needs. The table below provides more information on such discrepancies.


Table 6‑4: Fuel Levy Collections and Remittances to the National Roads Board (1995 – 2002)
Period
Collections
(K’billion)
Remittances
(K’billion)
Difference
(K’billion)
Difference
(as % of collection)





1995 – 2000
127.3
101.2
26.1
20.5%
2001
55.4
33.7
21.7
39.2%
2002
90.3
45.7
44.6
49.4%

273.0
180.6
92.4
33.8%
Source: Auditor General’s Report (2002)


Perhaps this problem emanates from the assumption at the creation of the Fund that government funds are not “fungible”. This assumption has been proven wrong – resources are fungible.

As noted in section 2.3.2, the dissolution of INDECO and ZIMCO (“replaced” by ZPA) created a financial supervision vacuum for SOEs. Many of them are heavily indebted, and it is a matter of time before government (using public resources) liquidates these debts for them (as has happened before) whether government may have consented to the debt contracting or not. The bottom line is that government policy has a bearing on the way these SOEs are managed.

The AG has a legal responsibility to audit books, records and reports of institutions in which government has an interest. Furthermore, the AG has authority to request from independent auditors of SOEs any document, reports, or information relating to the accounts of parastatal companies. The AG is further empowered to have access, for the purposes of audit scrutiny, to all contracts involving government or its agencies and enterprises.

However, with the problems facing the OAG as highlighted in section 6.1.4 and other sections, the AG’s audit does not cover the operations of SOEs to the detail that would be appropriate with their status. For instance, the AG’s audit does not normally address issues of financial performance which should be a requirement given the liberal control government has over the enterprises’ financial performance.

Regarding the privatisation of SOEs, the enforcement of the Privatisation Act has been undermined by political interference from the executive. In particular, the privatization Act was disregarded during the privatisation of the assets of the giant mining conglomerate, Zambia Consolidated Copper Mines (ZCCM). At that time government set up, by Cabinet decision, a parallel structure (the GRZ/ZCCM Privatisation Negotiating Team) which usurped the role of the ZPA established under the Privatisation Act. The negative consequences of this action came out most vividly in the debacle that followed the privatization of the Luanshya/Baluba mine.

Furthermore, accountability with respect to the proceeds from the sale of government assets has generally been weak.

6.4 Management of Public Debt

Perhaps it is important to accept that debt contracting is an acceptable economic phenomenon at all organisational levels. At national level therefore, debt is a crucial instrument in the growth and developmental process. However, there is need to distinguish two types of national debt: external public debt; and domestic public debt.

External public debt is the liability of the nation to the rest of the world and can easily be converted into grants or even rescheduled. Table 6-5 below provides a summarised profile of Zambia’s external debt position.


Table 6‑5: Zambia’s External Debt Stock, 2000 – June 2003 (US $ million)

2000
2001
2002
June 2003

Bilateral

2,638.5

3,091.8

2,614.8

2,013.5

Multilateral

3,404.3

3,346.1

3,854.9

4,016.8

Private

410.3

832.3

670.4

832.3

Total

6,453.1

7,270.2

7,140.1

6,862.6
Source: Ministry of Finance and National Planning


On the other hand, domestic debt is owed to the citizens. A variation of the domestic debt would be the domestic arrears – a situation where the government consumes goods and services but fails to service its obligations within the financial year of consumption. Since government accounts operate annually with no carry-overs, this becomes an economic burden over time and then affects the economic operations of the system. Table below provides an overview of Zambia’s domestic debt portfolio as at June 2003.


Table 6‑6: Zambia’s Domestic Debt Portfolio as at end of June 2003
Debt Category
2002
(K’billion)
June 2003
(K’billion)
Treasury bills
611.9
1,134.7
Bonds and stocks
882.4
2,793.7



Loans/Overdrafts


Foreign exchange bridge loan
1,233.5
89.5
Kwacha bridging loan
467.8
-



Arrears


Suppliers’ arrears
433.6
635.5
Pension contribution arrears
270.7
273.8
Awards and compensation
70.0
61.6
Contingent liabilities
6.2
-




3,976.1
4,988.8
Source: Ministry of Finance and National Planning


Similarly, the economic impact of the other forms of debt is that funds that would ordinarily be used on improving the economic welfare of the citizens are spent on servicing the loan obligations. This becomes more apparent in situations where loan levels reach unsustainable levels and loan servicing amounts become substantial outlays in the national budget. Therefore, if these loans were not used for a good cause, then there is a direct negation of the citizens’ welfare. debt position.

The contracting of loans for the country is regulated by the Loans and Guarantees (Authorisation) Act. However, this Act has certain inherent weaknesses. Firstly, there is inadequate public information on total public debt. The budget provides information on the level of external debt but does not give information on more intricate details such as currency of the loan, maturity profile and interest rates of the loans.

Secondly, excessive power is given to the Minister of Finance and National Planning to commit the nation to external debt obligations without Parliamentary approval. Under this legislation, the minister of finance is permitted to commit the nation to a maximum of K20 trillion as outstanding external loans at any one time. This figure represents more than 300 percent of GDP (in 1998, the nominal level of GDP stood at K6.0 trillion) (Mwanawina et al).

6.5 Other Weaknesses Contributing to Poor PFM
6.5.1 Watchdog Institutions

In order to fulfil their oversight function, watchdog institutions must be autonomous, impartial, and above reproach. They must be independent from the executive and headed by persons of proven integrity. Their role is to lobby for and ensure that supervisory institutions are given the autonomy and resources to enable them to exercise independent judgment as well as to exert compliance with the law. In a developing country, revitalising watchdog institutions is a major challenge, but extremely essential for democracy to flourish.

Strengthening watchdog institutions basically means increasing their capacity to monitor government and hold government accountable for failure to fulfil its responsibilities in accordance with the law. It means recognising and acting upon the premise that watchdogs are critical in a democracy because government is made up of individuals who can and do abuse or manipulate their positions in order to gain personal benefits rather than promote public interest. It also means ensuring that the watchdog institutions are legitimate and transparent in their operations.

All the watchdog institutions in Zambia face serious problems of inadequate funding, staffing and technological support. The institutions are too dependent on government for resources and have too few offices, often located in the major cities only. Consequently they are inaccessible to the majority of the population. Chief executives are generally appointed by, and in too many cases report to the President, making it difficult for them to monitor the executive arm of government effectively. Once appointed, such chief executives do not enjoy adequate security of tenure, freedom from political interference or sufficient remuneration. They do not enjoy public confidence or public support in situations of political victimization for performance of their mandate.

6.5.2 The Anti-Corruption Commission

Although the Director-General of the ACC has considerable powers necessary for the smooth operation of the ACC, he has no powers over issues that fall under the State Security Act. In cases where corruption stems from the state security wings, this provision makes it very difficult for the ACC to deal effectively with corrupt individuals especially those at the top[17].

The Director-General has powers to search suspects subject to the issue of a warrant by a magistrate. Furthermore, a court order is required to access bank accounts and records making it rather difficult to quickly access information relating to criminal financial activities. Additionally, the written consent of the DPP is required before any offence can be prosecuted leading to some incidences of conflict when the DPP exercises his/her right to refuse/grant authority to prosecute or enters a nolle proseque. Delays also occur in prosecuting but these are partially offset by provisions that allow the arrest and charging of accused persons whilst awaiting the DPP’s authorization. An accused person may be detained on court order for up to ten days.

While this Act gives much more comprehensive powers to the ACC than the Corrupt Practices Act did, it is still not effective in giving the ACC financial autonomy or facilitating direct reporting to the public.

6.5.3 Challenges Facing Civil Society.

Civil society faces a number of constraints in its efforts to make government accountable and transparent in its operations. The absence of a Freedom of Information Act means that the public can only access information that the public authorities choose to release. The State Security Act is used extensively to keep information away from the public. The Act is reinforced by the General Orders, which forbid public officers from disclosing information to the public without authorization. Moreover, several statutes governing the operations of various statutory bodies contain provisions forbidding unauthorized disclosure of information by staff and board members[18].

Secondly, government’s attitude towards civil society has not always been positive. Its relationship with civil society depends on the nature of activities civil society is involved in. Government has no difficulties in dealing with developmental or service NGOs, whose work does not involve criticism of government. Some churches, especially those which are supportive of government leaders, get along very well with government. The same goes for compliant trade union and NGO leaders. Most of these are alleged to have been beneficiaries of the presidential discretionary fund, which President Chiluba is suspected to have abused.

However, the relationship between government and critical parts of civil society has been characterized by antagonism over the years due to the critical stance these organizations have taken on issues of national interest, such as the high incidence of corruption, lack of genuine constitutional reform, the oppressive conduct of the police, flawed elections, the proposed third term for Chiluba, poverty, and poor economic management.

The government’s hostility manifests itself through denial of access to government controlled media, public officials attacking the civil society groups through the public media, refusal by government officials to participate in functions or activities of some of these organizations and refusal by top government leaders to have meetings with leaders of critical groups.

It must however be noted that relations between civil society and government are getting better since the beginning of January 2002 when President Mwanawasa took office. There is a marked change in the attitude of public authorities towards civil society. There now seems to be eagerness on the part of government officials to co-operate with civil society although the recent banning of the Oasis Forum (a loose alliance of some civil society groups) has once again derailed that trust even though the ban was subsequently rescinded after presidential indulgence.

Thirdly, the interaction between civil society and Parliament has been minimal because until recently, parliamentary business has been closed to the public. Thus, there has been no mechanism established to facilitate civil society making submissions to the legislature on proposed legislation. Moreover, the government did not encourage MPs to interact with civil society. There is now an increase in instances of consultation perhaps due to donor pressure demanding for the involvement of CSOs. For example, government has sought the views of civil society on proposed legislation. One such occasion was in 1994 when the government established the Mwanakatwe Constitutional Review Commission.

6.5.4 Low Remuneration in the Public Service

Conditions of service in the public service, including the law enforcement institutions, are unacceptably low. This is a fertile ground for corruption. Moreover, the Public Service is invariably unable to recruit and retain highly qualified personnel who can contribute to more efficient government operations.

6.5.5 Corruption as part of the Zambia Culture

There seems to be ready acceptance of corruption by the public. Corrupt politicians and public officials can only thrive if the public does not see anything wrong with corruption. During the past decade or so, corruption seems to have become part of the Zambian culture. Since the State started investigating economic plunder by the Chiluba regime, some sections of the Zambian society such as traditional rulers, marginal opposition political leaders have expressed great unhappiness with the investigations to the dismay of upright thinking citizens. There is, therefore, need to raise public awareness about the need to fight corruption so that there is zero-tolerance for corruption in the management of public finance.

6.5.6 Need for Professionalism in the Investigative Wings

The Zambia Police, and other security and investigative wings need to improve on their professionalism. They are normally perceived to act at the whims of politicians in power. This perception needs to be clarified by these institutions so that the public can regain the lost confidence in these institutions.

The job insecurity of the Inspector-General (IG) of Police has largely contributed to the lack of professionalism of the Police. The job insecurity has exposed the IG to political manipulation.

7.0 RECOMMENDATIONS AND CONCLUSIONS

This section has three parts: a summary of the report; recommendations arising out of the identified weaknesses; and lastly the conclusions.
7.1 Summary

The purpose of this study is to contribute to the improvement of the public finance management and utilisation system in Zambia. It considers the adequacy and shortcomings of the legal and administrative systems in place. TIZ recognises and appreciates the efforts that the government is putting in place. Government’s acceptance and enthusiastic involvement in the development of the PEMFAR report is testimony of these efforts. Government is implementing some of the recommendations arising from PEMFAR, and this is commendable. However, we also realise that TIZ and other civil society organisations can still play a part in ensuring that suggested systems are implemented and monitoring and evaluation mechanisms are sharpened.

7.2 Recommendations

The recommendations of this report are in four main categories:

Legal reforms;

Strengthening of watchdog institutions;

Administrative reforms; and

Civic education.

Each of these is discussed as a sub-section.

7.2.1 Legal Reforms

There are a number of weaknesses with the current legislation as it relates to matters of public finance management. Some of these weaknesses have already been identified by the government and other stakeholders. The suggestions made in the PEMFAR report of reforming laws on procurement are already being attended to and possibly a bill will be introduced in Parliament soon.

The following legal issues however need urgent reform to ensure better public finance management:

(i) Legal reforms to strengthen autonomy of all supervisory/watchdog institutions as free standing entities while at the same time defining their relationships with each other in the most cost effective and efficient way possible. In order to ensure transparency and accountability, supervisory/watchdog institutions must incorporate representatives of NGOs in their executive boards;

(ii) The freedom of information bill needs to be re-introduced and passed into an Act of Parliament. The Act should further draw a clear definition of what constitutes state secrets;

(iii) Existing penalties need to be reviewed to ensure that they are a suitable deterrent for offenders. For instance, punishment for abuse of office or corruption needs to be made stiffer than is currently the case.

(iv) The Loans and Guarantees (Authorisation) Act needs to be amended to make the process more open to the public so that every interested party knows what the money will be used for and the repayment mechanisms in place. This will substantially reduce the power that is vested in the Minister of Finance as the only one who can negotiate and procure loans for the country. The current system exposes the country to too much debt and possible corruption;

(v) The systematic protection of whistleblowers, media practitioners and persons mandated to enforce the law from victimization through administrative codes has to be entrenched in the Zambian constitution. Further, individuals who report cases of impropriety (whistle blowers) need not be compelled to testify in the open courts if they feel threatened should they do so; and

(vi) The local councils are about the lowest level of government representation at the grassroots. However, it is almost fashionable for councils across the country to shield operational affairs from public scrutiny. For this reason, it is recommended that councils be legally compelled to publicly publish their budgets and annual financial reports. Additionally, it should be made a little more difficult for councils to exclude the public from their meetings.

It must be noted that without political commitment, it is difficult to bring about substantial changes that will yield tangible benefits to the country.

7.2.2 Strengthening of Watchdog Institutions

Watchdog institutions provide the checks and balances necessary to contain the propensity of leaders to gravitate towards abuse of their power and authority. The current problem is not necessarily that Zambia lacks the institutions, but that the institutions are not strong enough to bite and leave a permanent mark that will be a reminder to all (including the perpetrator of the crime) that the law is alive and effective in the country. The politicisation of the chief officers of these institutions also makes the matter more complex. There is therefore need to address the following:

(i) The appointment and tenure of office of chief executives of supervisory/watchdog institutions should be a parliamentary rather than presidential function. Reforms should be made to rationalize the President’s powers vis-à-vis watchdog institutions. Specifically, the reforms should revise the reporting procedures so that they report directly to the public or to Parliament such as through mandatory annual reports, free Government Gazette available country-wide, and even through independent public/private media. This would eliminate any discretion regarding who may be investigated and prosecuted by the institutions for corruption or abuse of office. Supervisory/watchdog institutions should direct themselves (through their independent boards) on their daily operations. The emphasis of these institutions should be to let the law take its course. Reforms should ensure that the institutions have autonomy over recruiting and remuneration of operational officers so that they are sufficiently motivated; and

(ii) There is need to have adequate appropriation of finances and other resources to support the activities of watchdog institutions. Thus, supervisory/watchdog institutions should be assured of funding directly from the national treasury, eliminating any room for manipulation by government which may force such institutions to tow the ruling party or government line.

7.2.3 Administrative Reforms

Some of the weaknesses noticed in the management of public finance in Zambia relate to the administrative procedures in place. Sufficient provisions are not made to ensure that people have trust and confidence in the government and its institutions. The systems in place are quite weak and sometimes (even when they are available) are simply ignored. We therefore propose the following:

(i) A review of the powers of the speaker in Parliament needs to be undertaken as part of the parliamentary reforms with a view to having the Speaker’s powers reduced to those of a chairperson or moderator. He should not, for instance, have power to block a motion (which we fear, can in some instances be done on political grounds) nor have discretionary powers over the appointment of parliamentary committee members;

(ii) Government needs to build on the budget reforms already begun with the aim of strengthening parliamentary oversight on public expenditures. In particular, the role of the PAC needs further power to make it follow through recommendations that it makes and demand action from law enforcement wings within a specific time frame. We further propose having a representative of law enforcement agencies as part of the PAC to ensure that the law enforcement agencies have first hand information on the deliberations;

(iii) Current efforts aimed at making the budget preparation process more consultative are welcome. However, this process should be done much earlier in the year and be more participatory so that people making submissions are not hurried. This will also serve to reduce the time for budget preparation so that the budget would actually start being presented to Parliament in January or earlier.

(iv) The current PSRP should seriously address the issue of improvements in the remuneration packages for public service workers. Current public service salaries are too low thus they act as a major disincentive to the workers and a possible excuse for impropriety; and

(v) Government should engage in a consultative process with key stakeholders in coming up with an action plan and implementation strategy for the decentralisation policy whose implementation is long overdue.

7.2.4 Civic Education

An educated citizenry is a necessary ingredient to the blossoming of a democratic state. Government has the cardinal role of informing its citizens and not concealing information. The current situation whereby most citizens have never even seen (and possibly even heard) of the Republican Constitution, the Yellow Book, or the AG’s report is unacceptable. These documents are public documents which should be readily available.

Therefore, we strongly recommend that government should deliberately encourage educational campaigns on the role of supervisory/watchdog institutions and on the content and meaning of the Parliamentary and Ministerial Code of Conduct, Chapter 16 of the Laws of Zambia, and other civic matters to make the general public more alert to instances of abuse of office. Important public documents like the few mentioned above should be made available through the council offices and public libraries to the people.

7.3 Conclusions

This report has identified a number of weaknesses and strengths in the governance system of this country. A truly democratic government is one which allows its citizens to share in the governance of the country. After 40 years of political independence, Zambia needs to reflect on the past and chart the best way forward. From an economic powerhouse on the continent, this country has been reduced to one that is heavily in debt and at the mercy donor countries and/or agencies. We believe that with proper financial management, not all is lost.

The government has the biggest responsibility to ensure that this is achieved. Leadership is a challenge and a privilege. It is a challenge in that there are a lot of pressures on all sides to perform to the expectations of many interest groups. However, it is also a privilege which can be utilised to turn things around. The Zambian government has shown remarkable commitment to fighting corruption and the abuse of public resources. More effort has been exhibited in the past two years than in the preceding ten (10) years. Stolen resources are being recovered. Suspected perpetrators are either in court, being investigated or have already been convicted. The government has gone further in showing commitment to implement the work plans suggested under PEMFAR. We believe that PEMFAR is a timely report that could bring about the turnaround this country needs. However, Zambia’s heavy dependence on goodwill from donors makes the whole process susceptible or rather vulnerable.

On the other hand, government needs to seriously consider the recommendations and/or suggestions brought to its attention by interest groups like TIZ. There are a lot of areas, as listed above that need to be addressed quickly. This country cannot afford to drag its feet when its citizens are wallowing in poverty and dejection. Some have argued that Zambia is not necessarily poor but probably just faces major challenges in the management of its resources such as finances. There is therefore urgent need to attend to the identified flaws in the system to make it more relevant.


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Afronet (2003), Corruption in the Financial Sector: Externalisation of Funds in Zambia, Report of a Thematic Study of Corruption in the Financial Sector, Lusaka, July.

Afronet (2002), Nchekelako: An Afronet Reader on Corruption in Zambia, Lusaka: Afronet.

Anti-Corruption Commission Act, no.42 of 1996.

Anti-Corruption Commission (2002), Annual Report for the Year 2000, Lusaka.

Anti-Corruption Commission (2001), Annual Report for the Year 1999, Lusaka.

Banerji, A., Zimmerman, D.J and Mwinga, M (1996), “Parastatals in Zambia: The Conflict Between Equity and Efficiency,” in Henry J. Bruton and Catherine B. Hill (eds.), The Evaluation of Public Expenditure in Africa, Washington, D.C: Economic Development Institute.

Bank of Zambia, Annual Report 2000, Lusaka

Bowanda Consultancy Services (2002), Chingola Municipal Council: Notes for a Councillors’ Orientation Workshop 8th-9th March 2002

Chanda, Alfred (2002), The National Integrity System Study in Zambia, Lusaka

Chibesakunda, M.N. (2001), The Parliament of Zambia, National Assembly, Lusaka

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Embassy of Sweden (2000) Strategy of Sweden’s Support to Democratic Governance in Zambia 2000-2002, Stockholm

GRZ (2003), Government Strategy and Action Plan for public service Management and Capacity Building for 2004-2008, Cabinet Office, Lusaka

GRZ (2003), The National Decentralisation Policy: Towards Empowering the People, Cabinet Office, Lusaka

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Appendix I: Summary Report of Civil Society Activity Plan on Public Finances Management

OBJECTIVE
STRATEGY
ACTIVITIES
1.To strengthen public finance administrative and regulatory framework

Review administrative procedures and legislation that relate to public finance management
· Lobbying Government and Parliament
· Networking with other civil society organizations
2.To promote enforcement of existing rules and regulations

Raise public awareness on the need for observance of financial rules, regulations and procedures
· Seminars/workshops
· Lobby relevant Parliamentary committees
· Initiate public petitions, including petitioning the Chief Justice
3.To strengthen supervision of the management and utilization of public finances

Strengthen the capacities of the Accountant-General, Controlling Officers and Internal Auditors
· Lobby for the administrative autonomy of the Accountant-General and Internal Auditors vis-à-vis unethical interference
4.To expedite early detection of cases of abuse of public funds


Review and strengthen reporting systems
· Conduct research on the efficacy of existing financial reporting systems
· Lobby for enforcement of effective reporting systems
5.To promote accountability and transparency in the management and utilization of public finances
To provide information on the operations of the public financial management system
· Raise public awareness through dissemination workshops, radio programmes and other public campaigns
6.To devise appropriate sanctions against officers guilty of abuse of public funds

To review legislation relating to various forms of abuse of public funds
· Conduct research
· Disseminate research findings
· Network with other civil society organizations
· Lobby for appropriate legislation
7.To promote retention of qualified staff in watchdog institutions

Review conditions of service for staff in watchdog institutions
· Lobby for the financial independence of watchdog institutions
8.To promote efficiency in the operations of watchdog institutions

Review the operations of watchdog institutions
· Conduct research
· Advocate for functional and financial independence of these institutions
9.To establish mechanisms/systems for monitoring and tracking of public expenditures

Review existing mechanisms of monitoring and evaluation of public expenditures
· Conduct research
· Lobby for the development of participatory mechanisms of monitoring and evaluation of public expenditures
· Network with other civil society organizations
· Identification and prioritization of areas where abuse of public funds is most common
· Establish a data base on the management and utilization of public finances
10.To promote popular participation in the scrutiny of people appointed to public offices

Review and strengthen current systems of scrutiny of appointments to public office
· Conduct research
· Advocate for systems that encourage popular participation in the scrutiny of people appointed to public office
· Lobby Parliament
· Lobby Government
Appendix II Procurement Thresholds under the ZNTB Act

Government Ministries, Departments, Municipalities, Schools & Health Boards.
Approved Purchase Limits
Approving Authority
Procurement Unit Not Established

Informal procurements - values from K5 million up to K30 million
Tender Committee
Above K30 million (formal tenders)
Central Tender Committee (ZNTB)
Procurement Unit Established

Values from K5 million up to K30 million (informal tenders)
Tender Committee
Above K30 million (formal tenders)
Central Tender Committee (ZNTB)
Certified Procurement Units

Category A

· Values from K30 million up to K200 million (formal tenders)
Tender Committee
· Above K200 million (formal tenders)
Central Tender Committee (ZNTB)
Category B

Values from K30 million up to K500 million (formal tenders)
Tender Committee
Above K500 million (formal tenders)
Central Tender Committee (ZNTB)
Category C

Values from K30 million up to K1.2 billion (formal tenders)
Tender Committee
Above K1.2 billion (formal tenders).
Central Tender Committee

Procurement Thresholds for Parastatal Bodies (Other than Municipalities)
Approved Purchase Limit
Approving Authority
Small Parastatal Bodies (Without Tender Committee)

Values up to K5 million (informal tenders)
Chief Executive
Values above K5 million
Central Tender Committee (ZNTB)
No Procurement Units

Values from K5 million to K30 million (informal tenders)
Tender Committee
Above K30 million (formal tenders)
Central Tender Committee (ZNTB)
Uncertified Procurement Unit

Values between K5 million up to K30 million (informal)
Tender Committee
Above K30 million (formal tenders)
Central Tender Committee (ZNTB)
Certified Procurements Units

Category A

Values from K30 million to K200 million (formal tenders)
Tender Committee
Above K200 million
Central Tender Committee (ZNTB)
Category B

Values from K30 million to K1.2 billion (formal tenders)
Tender Committee
Above K1.2 Billion (formal tenders)
Central Tender Committee (ZNTB)

[1] The 1990s average inflation rate was high because of the very high inflation in the first half of the 1990s (not reported).
[2] These include local government, state owned enterprises, extra-budgetary funds and the central bank.
[3] Tax revenues include income taxes, value added tax (VAT), customs and excise duties.
[4] The Economic and Social Adjustment Credit (ESAC) agreement required that releases to the social sector be maintained at least 36% of total discretionary budget releases.
[5] For example, it was suggested that social and economic sector ministries should have at least 80% of their monthly budgeted RDCs
[6] The minister draws his/her authority from the Constitution and the Finance Act. These two pieces of legislation are discussed in section three of this report.
[7] Internal sources consist of property taxes, local levies and user fees for goods and services provided by the council while external sources consist of grants from the central government through the Ministry of Local Government and Housing (MoLGH), donors and commercial borrowings.
[8] Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries
[9] The effect of the Act is to shift the primary provision for the offences of corruption from the Penal Code and primary responsibility for the investigation of corruption from the police force to the ACC.
[10] Cap. 119, Laws of Zambia.
[11] Cap. 388, Laws of Zambia.
[12] Cap. 186, Laws of Zambia.
[13] Cap 269, Laws of Zambia.
[14] The HIPC Tracking and Monitoring Team was composed of civil society organizations namely: Civil Society for Poverty Reduction (CSPR), ZICA, EAZ, CCJDP, Non-Governmental Organizations Coordinating Committee (NGOCC), JCTR, CIP, ZIM, Zambia Association of Public Finance. It was constituted by the Minister of Finance and Economic Development in the year 2001 but was banned from conducting its work in April 2004. This was for apparently ‘operating illegally’.
[15] This is despite the fact that recent budget formulation exercises have had some semblance of consultative activities, but not participatory.
[16] The cash budgeting system was introduced in the early 1990s and has since been greatly modified to address problems that arose along the way.
17 Alfred Chanda (2002), The National Integrity System Study in Zambia, commissioned by Transparency International-Zambia, Lusaka p.21
19 Alfred Chanda, op.cit.
[17] The Chiluba administration is accused of having used the Office of the President to perpetrate various corrupt practices
[18] E.g. The Privatisation Act; the Local Government Act