ZAMBIAN BUDGET TRANSPARENT -- EXECUTION IMPROVING

UNCLAS SECTION 01 OF 03 LUSAKA 000020

SENSITIVE
SIPDIS

STATE FOR EEB/IFD/OM BRIANA SAUNDERS
STATE ALSO FOR AF/S LAURA AYLWARD AND AF/EPS MARY JOHNSON

E.O. 12958: N/A
TAGS: ECON EAID EFIN PREL AID ZA
SUBJECT: ZAMBIAN BUDGET TRANSPARENT -- EXECUTION IMPROVING

REF: A. SECSTATE 1923

B. LUSAKA 749

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SUMMARY
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1. (SBU) The Zambian government (GRZ) publishes its budget in
draft and final form annually, as required by law. The
budget is available for purchase from government printers,
and is analyzed by civil society organizations (CSOs) and
international accounting firms during the budget debate
process. Budget execution is less transparent, as the GRZ
relies on a system of cash releases to numerous bank accounts
to manage expenditures at the national, provincial and local
level. The GRZ publishes quarterly disbursement reports and
an end-of-year financial report, and the Auditor General's
Office (AGO) publishes annual audits, although these are
usually delayed a year or more. Line ministries also, on
occasion, publish disbursement reports in the press. In
2010, the GRZ is implementing a new Integrated Financial
Management Information System (IFMIS) -- now functioning at
the Ministry of Finance and National Planning (MFNP) -- and
has begun implementing a Treasury Single Account (TSA)
system, which will help the GRZ to better manage its finances
and make budget execution much more transparent. Given
Zambia's transparent budget development process and the
government's progress in improving budget execution, Embassy
considers it unnecessary to obtain a waiver of the
requirements under Section 7088(c) to allow continued
financial assistance to the GRZ in FY 2010. End Summary.

BUDGET TRANSPARENT -- EXECUTION IMPROVING
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2. (SBU) The following information is in response to Ref A
request for information regarding Zambia's budget
transparency to determine its eligibility whether it needs
waiver of the requirements under Section 7088(c)(1) of the
Department of State, Foreign Operations, and Related Programs
Appropriations Act (SFOAA),2010. and if so, whether it
should be eligible for a waiver:

a. The GRZ is expected to receive USG assistance under the
FY10 SFOAA.

b. As required by law, the GRZ publishes its budget in its
draft form as presented to the Parliament and in a final
version as approved by the Parliament. The budget is
published in its entirety, with over 1,600 pages of line
items for expenditures and an income statement that
summarizes tax revenue, government borrowing, and foreign
assistance revenues included in the Minister of Finance's
annual budget speech (Ref B). The budget is available for
purchase from the government printer for about USD 50, making
it prohibitively expensive for average citizens. It has also
been available free of charge on the internet. The budget is
analyzed by CSOs and by international accounting firms and
the results of those analyses are typically reported in the
press and available online free of charge. Parliamentary
debate and the vote on the budget is made public on the
Parliament's website and in the press. The GRZ sometimes
relies on supplementary budgets that are passed during the
fiscal year. Those supplementary budgets generally are
similar to continuing resolutions in the United States, and
cover the beginning of a fiscal (and calendar) year when an
annual budget has not yet been passed. Details about
supplementary budgets are generally less transparent than the
annual budget process. A 2009 constitutional amendment
(discussed in paragraph d.) that shifts the budget cycle to
align it to the fiscal year should make such supplementary
budgets less common in the future.

c. The GRZ publishes quarterly disbursement reports and a
financial report at the end of each fiscal year. In
addition, line ministries on occasion publish data on budget
transfers to provincial, district and local "spending
agencies." Actual expenditures are generally lower than
those projected in the approved budget, as the GRZ executes
its budget on a cash rather than accrual basis. As such, the
budget is executed based on cash on hand at a given moment.
The Auditor General's Office (AGO) publishes annual
government audits, although they are generally delayed by
more than a year given the current lack of an integrated
financial reporting system. The AGO also audits parastatals
such as the national electric utility, Zesco.

d. Since the 2009 review, the GRZ has shifted its budget

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cycle to align it to the fiscal year, which starts on January

1. In previous years, the draft budget was presented after
the start of the fiscal (and calendar) year. A 2009
constitutional amendment requires the budget cycle to adhere
more closely to the fiscal year. As such, the draft budget
was made public on October 9 and passed before Parliament
adjourned in December, allowing for a full 12 months of
budget execution. The new budget cycle should also reduce
the need to pass supplementary budgets to cover government
operations in the first part of a fiscal year -- a common
practice in years past.


3. (SBU) The GRZ's budget process is relatively transparent.
Zambia's score of 48 out of 100 on the International Budget
Partnership's 2008 Open Budget Index means it tied for 34th
out of 80 countries, putting Zambia ahead of other countries
in the region including Namibia, Tanzania, and Rwanda, none
of which required waivers for Section 7088(c) in FY09.
Budget execution has been less transparent, but measures have
recently been taken or are underway which will improve
execution transparency. Its current finance and accounting
system relies on cash releases which are deposited in more
than one thousand bank accounts controlled by various
ministries at the national, provincial, and local level. As
such, once the treasury releases money to line ministries,
the GRZ is unable to report accurately its budget execution
during the fiscal year. At the end of the year, Ministries
are required to sweep remaining cash back to a central
account, at which point the GRZ can publish its end of year
financial report.

IMPROVING FINANCIAL MANAGEMENT AND BUDGET EXECUTION
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4. (SBU) The GRZ is implementing several projects to improve
its financial management capabilities. It is developing a
donor-supported Public Expenditure and Financial Accounting
(PEMFA) framework, a key component of which is implementation
of an Integrated Financial Management Information System
(IFMIS). The GRZ launched its IFMIS at the Ministry of
Finance and National Planning (MFNP) on January 4 with plans
to roll it out to line ministries during the year. The IFMIS
should help with budget execution and allow the GRZ to shift
to an accrual system of accounting for revenue and
expenditures. However, a number of line ministries currently
lack the expertise and technical infrastructure to take full
advantage of the new system.


5. (SBU) The U.S. Treasury Office of Technical Assistance
(OTA) continues to guide and support the GRZ's efforts to
implement centralized treasury functions through a Treasury
Single Account (TSA). The TSA system, which will reduce the
number of government bank accounts from more than one
thousand to less than 50, will allow the GRZ to manage and
forecast its finances better while saving on bank transaction
and foreign exchange costs. In 2010, the MFNP will implement
a pilot project on some payments and transfers within budget
execution to test the TSA framework. A December 2009 IMF
Staff Report for Zambia's Article IV and PRGF Review noted
Zambia's significant progress in implementing public
financial management reform, and highlighted TSA and IFMIS as
integral parts of a successful public financial management
system.

OTHER USG ACTIONS
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6. (SBU) In addition to our ongoing cooperation between
Treasury and the MFNP to implement STA, Embassy will continue
to engage the GRZ to promote improved fiscal transparency
through various avenues. We will encourage the GRZ to commit
to acquiring the requisite ICT infrastructure and training
ministry personnel so that IFMIS can be successfully rolled
out to line ministries on schedule. We will explain the
importance of fiscal transparency, not only for the GRZ to
maintain legitimacy in the eyes of Zambians, but to continue
to maintain eligibility for USG assistance, especially MCA.
We will urge the GRZ to respond meaningfully to the findings
of the annual AGO reports, and reinforce the importance of
IFMIS and TSA in the AGO's ability to produce audits in a
timely manner. Finally, we will continue to press forward
with Embassy's ongoing anti-corruption work plan, recognizing
that GRZ governance reform will have ancillary benefits to
fiscal transparency and accountability.

COMMENT
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7. (SBU) Embassy considers it unnecessary to obtain a waiver
of the requirements under Section 7088(c) to allow continued
financial assistance to the GRZ in FY2010. If the Department
determines otherwise, Embassy recommends a waiver be granted
to Zambia to allow continued USG assistance. Zambia's budget
development process is, relative to its peers, adequately
transparent, and it scores better on the open budget index
than many of its neighbors that are not subject to the waiver
process. It publishes draft revenues and expenditures far in
advance of budget adoption, and budget debates are open, both
on the floor of the National Assembly and among civil society
and private sector groups. Zambia's ability to manage its
budget execution is hampered by a lack of technical and
technological capacity. As a result, actual revenue and
expenditures rarely match those projected in the approved
annual budget. However, the GRZ's commitment to TSA and
IFMIS shows that it is working to improve its public
financial management capacity.
BOOTH