Strengthening good financial governance in Zambia

Project description

Title: Strengthening good financial governance in Zambia
Commissioned by: German Federal Ministry for Economic Cooperation and Development (BMZ), Department for International Development (DFID)
Country: Zambia
Lead executing agency: Ministry of Finance (MoF), Ministry of National Development Planning (MNDP), Zambia Revenue Authority 
Overall term: 2016 to 2018

Context

Although Zambia's economy has been gradually recovering since the severe economic crisis of 2015/2016, the situation of the country's public finances remains fragile. Government spending is significantly outpacing revenues. The reason is that tax revenues are insufficient and budget planning and execution is at times arbitrary. Around 80 per cent of the budget for 2018 has been firmly earmarked to pay salaries of public servants (50 per cent) and service debt (30 per cent). As a result, the government has virtually no financial scope for implementing development-oriented policies or sustainable debt management.

Objective

The Zambian Government increasingly implements the national budget in accordance with the principles of transparency, credibility and effectiveness.

Approach

GIZ has been working with the Zambian authorities on resolving various issues relating to the administration of public finances on behalf of the German Federal Ministry for Economic Cooperation and Development since 2005, applying the good financial governance approach of German development cooperation. The project has also been cofinanced by the UK Department for International Development (DFID) since 2014.

The current project aims to:

  1. improve tax administration,
  2. improve the budget preparation, and
  3. improve budget implementation.

To this end, the programme’s advisors have been assigned directly to the partners at the Zambia Revenue Authority, the Ministry of Finance and the Ministry of National Development Planning. The advisory services are also targeted at budgetary processes and points of intersection between the various stakeholders in the national budgetary cycle, such as the cooperation with internal auditors.

The first area of activity is primarily concerned with strengthening Zambian tax administration and, in this way, enhancing tax compliance by small and medium-sized taxpayers and raising revenues from value added tax.

The second area of activity aims to improve the capacity of the Ministry of Finance to carry out budget preparations in line with the National Planning and Budgeting Policy and to take account of national development goals. The project also provides advisory services to the Ministry of National Development Planning on developing a management information system. This system is intended to support the ministry in monitoring and evaluating the Seventh National Development Plan.

In the third area of activity the project advises the Ministry of Finance on executing the budget effectively and in line with the budget law. It also seeks to strengthen internal capacity to audit the management of public finances and, thus, to ensure that public funds are used efficiently and appropriately.

Results

The continuous cooperation and professional advisory services succeeded in building a positive and trustful relationship between GIZ and the Zambian authorities.

Examples of successful cooperation include:

  • Revision of the manual for the auditors of the Zambia Revenue Authority in collaboration with the Bavarian revenue authority and training on applying indirect methods.
  • Advice on draft planning and budgetary regulation and piloting of results-oriented budgeting in several individual ministerial plans.
  • Advice on process optimisation in budget implementation, e.g. on the topic of payroll and settlements.
  • Improving the procedure for preparing supplementary budgets, which now follows the legal requirements. This means, in particular, that the role of parliament has been strengthened as it is now required to approve unexpected expenditures.
  • Development of a National Performance Framework which helps the government monitor and evaluate its long-term development objectives.
  • Development of a manual for internal control that follows international standards, as well as a manual on risk-based auditing.