Context
The Good Financial Governance Programme III (GFG III) builds its work on the foundation of a long-lasting partnership with the Ministry of Finance and National Planning (MoFNP), the Zambia Revenue Authority (ZRA), as well as the Zambian Public Procurement Authority (ZPPA). While this cooperation has brought along many developments, new challenges have emerged over the last few years.
Insufficient public revenues and lack of budget credibility have led to government spending significantly outpacing revenues. Following its default in 2020, the debt burden of the government stood at over 123% of the gross domestic product at the end of 2021. After the peaceful transfer of power in August 2021, a program was agreed with the International Monetary Fund in September 2022. The agreement foresees comprehensive reforms of the public finance system and paves the way to a restructuring of the country's debt. GFG III supports its partner institutions in implementing this ambitious reform agenda.
Objective
Financial governance in Zambia has been strengthened in terms of transparency, accountability, responsiveness to citizens’ needs, and efficiency.
Approach
The project focuses on two main areas of activity: (1) improving the processes for budget planning, implementation, and execution within MoFNP, and (2) increasing tax revenues collected by ZRA.
Budget Component
GFG III provides support to the MoFNP in enhancing budget credibility and spending efficiency. To enhance budget credibility, the MoFNP is assisted in improving multi-year macroeconomic and fiscal planning, introducing Output-Based Budgeting (OBB) in all ministries, provinces and government agencies.
To increase spending efficiency, GFG supports the Public Investment Planning Department of the MoFNP and line ministries in strengthening investment planning. For improved control and accountability in budget execution, the Programme supports capacity building to strengthen the mechanisms of preventing arrears, address payroll control, and facilitate the issuance of timely and accurate reports. To promote equity at the sub-national level, the Programme supported an improved resource allocation mechanism through sector grants from central to local government. Finally, to improve ZPPA’s procurement oversight, GFG supports its organizational development and shift to e-procurement.
Domestic Revenue Mobilisation Component
GFG III supports ZRA in enhancing revenues through increased taxpayer compliance using a two-tiered approach. First, to improve taxpayer compliance enforcement, it assists the enhancement of ZRA’s risk and audit management through supporting the set-up of a Bulk Intelligence Data Analysis (BIDA) system, which assesses the compliance risk of registered taxpayers. Support is also provided in equipping tax auditors with specialized skills to effectively audit companies and individual taxpayers.
Second, to increase voluntary tax compliance, GFG III supports ZRA in making tax compliance easier in both rural and urban regions through the development of a customer experience strategy, mobile applications, and the procurement of mobile tax offices to extend the reach of ZRA to rural regions.
Lastly, GFG III supports the MoFNP in the area of tax policy by supporting the development of a national Revenue Action Plan (RAP), assisting in the review of the tax-policy making process, and strengthening the ministry’s capacities in revenue forecasting.
Results
• With the programme’s assistance, MoFNP has implemented Output Based Budgeting in line with legal requirements and is strengthening the linkages between strategic and investment planning and budget implementation, including through improved financial reporting.
• The Programme has significantly contributed to ZRA becoming a "data-driven" organization and using existing data to better detect and close revenue leakages as well as to the improvement of the organization’s digital and physical taxpayer service provision