The International Monetary Fund says Zambia’s legal framework for Public Finance Management is fragmented and outdated, according to its latest country report for Zambia.
The IMF says the laws fall short of capturing both recently introduced reforms and internationally accepted practices.
It says the government has prioritized a revision of the existing legal framework for Public Finance Management and national development planning.
This revision will permit a range of important Public Finance Management reforms that were ongoing or planned to be incorporated within the legal framework.
‘These reforms include medium-term planning and budgeting, a performance oriented approach to budget management, the introduction of comprehensive commitment controls, adoption of international accounting and reporting standards (International Public Sector Accounting Standards (IPSAS) and Government Finance Statistics Manual (GFSM) 2001), implementation of a treasury single account (TSA), and recognition of electronic transaction processing arrangements,’ it says.
An updated legal framework would permit other important improvements in current practices to be incorporated.
“These amendments include extending the coverage of the law from the budgetary central government to general government and financial oversight of the wider public sector, harmonizing definitions and terminology, provisions on the management and monitoring of fiscal risks, and the approval for borrowing and guarantees issued by the government.”
It added, “Clarification of the roles of the MoF and the BoZ on cash and debt management, clear rules and procedural arrangements for supplementary budgets, excess expenditure, and the end-year carry-over of unspent appropriations and broadening the sanctions regime for breaches of financial regulations to the controlling offices of organizations as well as individuals.”
A revision of the legal framework would facilitate the strengthening of existing institutions, in particular the powers of the National Assembly to scrutinize the government’s medium-term fiscal and budget strategy and to oversee the execution of the budget, and the independence of the Auditor General (AG).
The IMF also suggests that consideration could be given to elevating the position of the Accountant General to permanent secretary level, in line with several other African countries.
The Fund also notes that revisions to the Public Finance Management legal framework will need to be harmonized with the new Constitution, a draft of which was finalized in 2014.
It says the reform will require the establishment of legal provisions for enhancing intergovernmental fiscal relations, including central government’s oversight of local government fiscal operations as well as harmonization of the Local Government Act (LGA) with the Public Finance Act (PFA).
The IMF also notes that the Zambian Government is currently proposing a two-track approach to revising the Public Finance Management legislation.
“The first track comprises a Planning and Budgeting Bill (PBB) that has already been drafted and should be submitted to the Cabinet and National Assembly in summer 2015. The PBB covers broadly the preparation of the national development plan (NDP) and the budget. The second track would comprise the preparation, in longer time, of the revised PFA and other specific PFM-related laws, including on debt management, state-owned enterprises (SOE), and local government finance.”
The IMF said it has reservations about the government’s two-track approach as there are risks that the two laws will not be comprehensive, and will lack consistency and comparability.
“A preferred approach would be to prepare a single integrated PFM law—a new Public Finance Management Act (PFMA)—taking elements from the PFA 2004 and the draft PBB, and consolidating and updating them.”
It said many other African countries (such as Kenya, Liberia, Mauritius, Rwanda, Seychelles, Swaziland, and Uganda) have followed a similar path in updating their legal framework for budgeting and public finance