VZCZCXRO0455
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #0293/01 0701432
ZNR UUUUU ZZH
R 101432Z MAR 08
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC 5563
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC

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