Public Financial Management Reforms: a key step in tackling Zambia’s debt situation

Recently, the President, His Excellency Edgar Chagwa Lungu, held an emergency Cabinet meeting to discuss the state of the economy. This included a focus on Zambia’s growing government debt. A subsequent government statement informed Zambians that the cabinet agreed that the current situation is not “business as usual”. This sense of urgency was welcome.

Zambia’s debt situation is a major concern to citizens as it has begun to show negative implications on the economy. These include redirected investments from quality public services, reduced economic activity due to local businesses not being paid on time by the Government, and tougher economic conditions such as a depreciating currency and high inflation. The need for the government to communicate its plan to tackle the country’s debt situation is cardinal.

Through a new series on debt, CUTS will explore various actions the Government could consider to tackle the debt situation and put the economy back on track. One key action that the Government needs to consider is the urgent implementation of financial reforms that will improve the management of debt and inspire investor confidence in the country’s plans to address the issue at the heart of our current economic woes.

Firstly, the manner in which the Government acquires debt needs to be revised to ensure that debt is better managed. In Zambia the Loans and Guarantees (Authorisation) Act guides the contraction of debt and in 2017 the Government indicated its intention to make changes to the Act. Currently, regulations on debt contraction allow the Minister of Finance to borrow funds after cabinet approval. Revising the Loans and Guarantees (Authorisation) Act would be instrumental in strengthening the management of the country’s debt by enabling the Minister of Finance to table before parliament the reasons why the country should contract debt. This would help empower parliament to have direct oversight role on national debt matters and allow for the public to see how much the Government is borrowing and for what purpose.

Once the manner in which government contracts debt is improved, there is still a need to ensure that the funds obtained are well utilized and will translate to development for the Zambian people through further changes to the legislative framework. As Cabinet noted, the Public Procurement Act of 2008 needs to be revised to help deal with managing the current loopholes in procurement, such as inflated costs of public goods and services. There have been concerns by the general public that when government is procuring goods and services, they do so at amounts which do not reflect the market value. This inflation of prices by suppliers deprives the country of resources which could be directed to other programs that require funding.

Further to the above two: The Planning and Budgeting Bill is another legal reform that needs to be enacted as it will be part of the legal framework for managing public resources. Once, the bill is enacted into law it will have provisions that require the appraisal of all major public investments before project commencement. This will ensure better quality spending and will allow for Zambia’s debt to be channeled into productive investments. However, since 2014 when plans to enact the bill were made, the bill still has not been tabled before parliament. Passing this bill into law will be important to help reduce outside budget expenditures and the continued increase in the misapplication of funds as revealed in the Auditor General’s reports over the past years.

These reforms, if delivered, would be a positive step on the road to recovery. The cabinet statement noted the previous delays in implementing such reforms and has directed that all ministers will be allocated tasks and set timelines. Implementation will be monitored by the Ministry of Finance and reported to cabinet office on a monthly basis. Progress on implementation should also be reported to the public, to assure Zambian citizens and investors that the government is serious about Zambia’s future.

Creating an environment that ensures better acquisition of public debt and prudent management of the country’s resources is important in addressing Zambia’s high debt levels. Implementing these important financial management reforms will help to reassure the financial markets that Zambia is serious about addressing debt that will result in improved investor confidence. It is imperative therefore, that the government implements the outstanding financial reforms as the first step to addressing the country’s debt situation and restoring the country to a path of sustainable development.

(Kangwa Muyunda works for Consumer Unity and Trust Society (kmu@cuts.org) For Further information, please contact, the Centre Coordinator, The Consumer Unity and Trust Society, 298 Ngwerere Road, Roma, Lusaka)

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