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