Zambia and Fiscal Transparency

UNCLAS SECTION 01 OF 03 LUSAKA 000293

SIPDIS

SIPDIS
SENSITIVE

FOR EEB/IFD/OMA A. SNOW, R. FIGUEROA
FOR AF/EPS A. BREITER, E. REPKO
FOR MCA B. PARKS, S. ROSE, S. KRAHAM

E.O. 12958: N/A
TAGS: ECON EFIN PGOV KCOR ZA
SUBJECT: Zambia and Fiscal Transparency

REF: A) STATE 16737; B) 07 Lusaka 303

LUSAKA 00000293 001.2 OF 003



1. (SBU) Background and introduction: Zambia has a history of
endemic government corruption, both under a one-party statist regime
during the 1970s and 80s, and also during a period of economic
liberalization and privatization in the 1990s. Since 2002, the
government has increased its efforts to fight corruption and improve
accountability, starting with high-profile prosecutions of corrupt
acts by senior government officials.


2. (SBU) In 2002, at the urging of President Mwanawasa, Zambia's
National Assembly voted to remove former President Frederick
Chiluba's immunity from prosecution. Shortly thereafter, Mwanawasa
established a Task Force on Corruption to investigate and prosecute
high-level corruption committed between 1991-2001. As of March
2008, the Task Force had successfully completed three criminal cases
and two civil cases. The criminal cases resulted in the convictions
of former director of government-owned Zambia National Commercial
Bank Samuel Musonda, former Ministry of Health Permanent Secretary
Kashiwa Bulaya, and former military commander Wilford Funjika.
Other convictions are expected to follow, but the legal proceedings
have moved very slowly. The case against former President
Chiluba--one of the few of its kind in Africa--continues in Zambian
courts.


3. (SBU) High-profile prosecutions are an important beginning, but
are only one of the battlefronts of the war against corruption.
Petty corruption in the public service undermines living standards
throughout the country by blocking the delivery of essential
services in education, health care, public safety, and the
administration of justice. Efforts to curb these day-to-day abuses
will not succeed until officials at all levels of the public service
are held to account. In addition, improving government financial
management systems, such as financial information and cash
management, also contributes to greater government accountability
and transparency. End Background and introduction.

Budget Made Public, But...


4. (SBU) As required by Zambian law, Zambia's budget is made public,
both in its draft "yellow book" version as presented annually to the
National Assembly (Parliament) and in a final "white paper" version
as approved by Parliament. Although all revenues and expenditures
are, in theory, included in the publicly available budget, actual
budget execution is considered weak. The budget can be amended
mid-year without prior Parliamentary approval (and in the past,
large supplementary budgets were presented to Parliament for
"approval" long after the expenditures were made; this has improved
in recent years),and the Ministry of Finance and National Planning
(MOFNP) does not yet have effective control over the financial
activities of line ministries. Tendering procedures also caused
delays in spending on capital projects and contributed to poor
budget execution in 2007, according to the IMF. Income tax
administration has improved somewhat (see para 11),but proper
collection of and accounting for non-tax revenues remains
problematic.


5. (SBU) Relevant laws/regulations relating to budget disclosure
include the following: Finance (Control and Management) Act and
Regulations, Cap 347; Public Audit Act, Cap 378; Loans and
Guarantees (Authorization) Act, Cap 366; General Loans
(International Bank) Act, Cap 365; and Treasury Bills Act, Cap 348.
The national budget is published in hard copy with minimum delay in
a government publication, and is available online. Article 117 of
the Zambian constitution provides the legal framework and
authorization for the appropriation of the country's estimates of
revenues and expenditure. Also, the constitution mandates that the
Auditor General (A-G) prepare reports on national government
accounts. The A-G reports analyze budget performance and document
losses flowing from revenue and expenditure activities.
Transparency International reviews the A-G reports carefully and has
published analysis of misappropriations and other problems (Ref B).
Local media coverage of A-G reports and government spending
anomalies is increasing as well.


6. (SBU) In order to obtain HIPC completion in 2005, and thereafter
to maintain macroeconomic stability, the Zambian government has
exercised commendable fiscal restraint. However, this discipline is
not underpinned by solid legislation, accounting, controls, and
clear assignment of roles and responsibilities among the branches of
government, and between government and the central bank.


7. (SBU) The weaknesses of the system are a result of both a lack of
capacity and, particularly in the past, a lack of political will.
Recent developments indicate that political will is improving.

LUSAKA 00000293 002.2 OF 003


Since taking up his position in 2006, the Secretary to the Treasury
(ST) at the Ministry of Finance and National Planning (MOFNP) has
demonstrated a commitment to improving accountability, by initiating
plans for the creation of a treasury function and on cash
management, both of which demonstrate a focus on strengthening
fiscal capabilities and control. Under the ST's leadership, MOFNP
has established a Task Force to organize the Ministry's functions
into a single Treasury Department. To improve cash management, the
Ministry is working to introduce direct deposits of government
salary payments into bank accounts and to make payments using
electronic funds transfer mechanisms. MOFNP is also taking steps to
consolidate government payments, as it moves toward creating a
single Treasury account.

USG Programs That Promote Accountability, Transparency


8. (SBU) Increased government transparency and accountability is one
of the Mission's top strategic objectives. We support this goal
through diplomatic and public affairs activities by State
Department, and with USAID programs and Treasury technical advice.


9. (SBU) Recent USAID projects contributed to the fight against
corruption by strengthening the Parliamentary public accounts
committee's capacity to oversee budget processes, improving the
capacity of watchdog institutions, and drafting legislation that
supports government accountability.


10. (SBU) USAID is initiating a program to strengthen MOFNP's
ability to develop and use a budget model to forecast and analyze
the costs and benefits of expenditures in three key sectors:
agriculture, HIV/AIDS, and education.


11. (SBU) Corruption continues to be the key factor in Zambia's
failure to obtain Millennium Challenge Account compact eligibility.
Zambia's Millennium Challenge Account Threshold Program,
administered by USAID, started in 2006 and targeted corruption and
economic freedom. In coordination with the UK (DFID),it has
developed capacity for corruption prevention at the Anti-Corruption
Corruption Commission and strengthened cooperation between the
Anti-Corruption Commission and civil society. The Threshold Program
has also implemented streamlined business practices at government
entities such as the Department of Immigration, Ministry of Lands,
and the Zambia Revenue Authority (ZRA),to reduce opportunities for
administrative corruption. The improved business practices at ZRA
have also improved the collection and accounting of Value-Added Tax
revenues.


12. (SBU) Past U.S. Treasury Office of Technical Assistance (OTA)
Financial Enforcement Advisors helped the Task Force on Corruption
with prosecutions and in building investigative capacity. An OTA
Debt Advisor worked with the Ministry of Finance and National
Planning (MOFNP) from 2005 through 2007 to develop an audited
comprehensive database of Zambian debt, including external and
domestic debt, as well as arrears and on-lending. The Advisor's
efforts on a national debt management strategy helped ensure that
the Government of Zambia is committed to future payments only if
transactions fall within the official planning framework. The Debt
Advisor also helped MOFNP to develop a work plan to create a single
Treasury account. An OTA Budget Advisor arrived in early 2008 to
work with MOFNP to implement the single Treasury project and
supporting activities.

Support from Other Donors


13. (SBU) Embassy officials, USAID program officers, and Treasury
OTA experts coordinate regularly with the bilateral and multilateral
donors on fiscal accountability issues. Other donors, including the
World Bank, the European Commission, and UK's Department for
International Development (DFID) support a Public Expenditure
Management and Financial Accounting framework program, of which one
key component is implementation of an Integrated Financial
Management Information System (IFMIS). Norway and the Netherlands
have provided extensive support to the Office of the Auditor
General. In recent years, several donor governments, including
Denmark, Sweden, Norway, the Netherlands, Ireland, the UK, and the
U.S., provided support to the Task Force on Corruption and actively
coordinated efforts to interact with the Zambian government on
anti-corruption policy issues.

ROSC Reporting


14. (SBU) Zambia has not reported on fiscal transparency in its
voluntary submissions to the IMF Report on the Observance of
Standards and Codes (ROSC). Its only submission to the IMF ROSC,
made in 2005, was a module on data dissemination.

LUSAKA 00000293 003.2 OF 003



MARTINEZ