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Earlier this month, the government of the Republic of Zambia and the EU signed a €17m financing agreement to improve public financial management (PFM) in Zambia. This agreement and funding will contribute to the improvement of the planning, budgeting and budget implementation capacities in the African country.
Zambia’s economy during 2015 and 2016 was in near-crisis, reflecting the impacts of unpredictable shocks and slack fiscal policy in the lead up to general elections. While a tight monetary policy in August 2017 helped stabilise the exchange rate and slow down inflation to 6.3%, public debt has been rising at an unsustainable pace which eliminated any possibility to lending out to the private sector and greatly increased the vulnerability of Zambia’s economy.
Zambia has recognised that improving the effectiveness of the public financial management system can generate widespread and long-lasting benefits, and may in turn help to reinforce wider societal shifts towards inclusive institutions that strengthen the nation, reduce poverty, and produce balanced growth.
Zambia’s government, in its bid to transform and accelerate development over the last two decades, has been undertaking public sector reforms. The PFM system has been a major component of these reforms and their implementation has been an on-going process. So the news of a signed agreement with the EU with a cash injection to help improve PFM in Zambia, will make implementation of these reforms easier.
Alessandro Mariani, Ambassador of the European Union to Zambia, explained during the signing ceremony that with political support this agreement can greatly contribute to the strengthening of public finance management, which is in the supreme interest of the people of Zambia.
Why does good PFM matter? As explained in CIPFA’s Public financial management: taking responsibility report, without good financial information and advice policy makers and managers of public services will fail to make sound decisions. As a result, their actions will lead to poor use of public money, ineffective and inefficient services, and the exposure of organisations, services and people to unnecessary risk.
PwC summarises the Zambian Government’s key proposals for 2018, in which they explain that “among the objectives to limit fiscal deficit is the option to increase tax revenues. There are few significant tax measures pronounced in the current budget. The measures proposed primarily comprise of strengthening regulations and systems aimed at increasing revenue generation.” Addressing tax revenues is an avenue that could help the country’s budget and transparency levels.
As Alessandro Mariani stated, the agreement will help improve fiscal transparency and accountability for Zambia through the effective oversight of the country’s budgeting. The agreement will also support the modernisation of revenue collection processes, ensuring that tax systems are simpler, with the tax base expanded and compliance increased.
CIPFA, the Chartered Institute of Public Finance and Accountancy, is a long-time advocate of strengthening PFM. We strongly believe this can only be achieved by taking a holistic view of the strengths and weaknesses of PFM systems that are operating within a country and/or organisation. A good PFM system is critical for supporting poverty reduction and the achievement of a country’s sustainable development goals.
Zambia receiving €17m in financing from EU to improve PFM will help the country tackle its budgeting systems and will help improve its transparency and accountability. This in turn will help Zambia to support public services efficiently, reduce poverty and increase sustainability.
This article first appeared in The Accountant.