VZCZCXRO5862
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHLS #0020/01 0121542
ZNR UUUUU ZZH
R 121542Z JAN 10
FM AMEMBASSY LUSAKA
TO RUEHC/SECSTATE WASHDC 7557
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHNR/AMEMBASSY NAIROBI 0007
RUEHLMC/MILLENNIUM CHALLENGE CORP 0200

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 
 
LUSAKA 00000020  001.2 OF 003 
 
 
SUMMARY 
-------- 
 
¶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 
-------------------------------------- 
 
¶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 
 
LUSAKA 00000020  002.2 OF 003 
 
 
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 
--------------------------------------------- ---- 
 
¶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 
----------------- 
 
¶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 
------- 
 
LUSAKA 00000020  003.2 OF 003 
 
 
 
¶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