Strengthening good financial governance in Zambia

Project description

Title: Strengthening good financial governance in Zambia
Commissioned by: Federal Ministry for Economic Cooperation and Development (BMZ)
Co-funded by: European Union (EU)
Country: Zambia
Lead executing agency: Zambian Ministry of Finance (MoF) 
Overall term: 2019 to 2022

Context

Public finances are in a very fragile position. Government spending is significantly outpacing revenues, which is partly due to insufficient tax revenues. Moreover, budget planning and implementation are at times arbitrary. More than 85% of domestic revenues for 2019 has been firmly earmarked – nearly half to pay salaries of public servants and nearly half to service debt. As a result, the government’s financial scope for implementing development-oriented policies or sustainable debt management is severely limited.

Objective

Financial governance in Zambia has been strengthened in terms of transparency, accountability, responsiveness to citizens’ needs and efficiency.

Approach

The project has been working with the Zambian authorities on resolving various issues relating to the administration of public finances since 2005, applying the good financial governance approach of German development cooperation. The project has been cofinanced by the European Union (EU) since 2019.

The project focuses on two areas of activity, the first being to increase the tax revenues of the Zambia Revenue Authority (ZRA). To this end, the project is improving the efficiency and quality of tax audits performed on large and medium-sized businesses. In addition, a digital tax data analysis is to be introduced and the existing taxpayer database optimised. The project also strives to improve the quality of the ZRA’s services by introducing new service channels, including for the registration of taxpayers and payment of taxes. Specifically, for example, there are plans for mobile citizens’ offices. 

The second key area of activity entails improving the processes for budget planning and budget implementation. In future, the Zambian government aims to use output-based budgeting incorporating planned procurements and investments. The Zambian Ministry of Finance is to implement the budget more strictly in line with the requirements of budget law so that it can meet the corresponding financial obligations. Discipline in budget implementation is to be strengthened and internal controls professionalised. The Ministry of Finance is also to be advised on implementing the planned fiscal decentralisation.

To implement these plans, the project's advisors are working directly on site with partners in the Ministry of Finance (MoF), the Zambia Revenue Authority (ZRA) and the Ministry of National Development Planning (MNDP). Advisory activities also include the Zambia Public Procurement Agency (ZPPA) and selected line ministries. 

Results

• Supplementary budgets are now prepared in line with legal requirements. According to which, parliament must now approve unexpected expenditures in advance. The project has helped to improve this procedure. 
• The government now has a National Performance Framework that defines indicators to measure the achievement of development goals. This enables the government to monitor and evaluate its long-term development objectives.
• The project has provided advice on draft planning and budgetary legislation and piloted output-based budgeting in several ministerial budget plans.
• In budget implementation, process improvements have been achieved through extensive advice, for instance on the topic of payroll management.
• An electronic queue management system has been implemented, reducing waiting times for taxpayers in the service centres from several hours to less than 20 minutes.
• The manual for the ZRA’s auditors has been revised in collaboration with the Bavarian tax authority and training seminars have been provided.
• Manuals for internal control and risk-based auditing have been developed in compliance with international standards.