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Executive summary
The mission of the current report is to track resources that have been used under the PRSP to fight poverty. In undertaking this task, we employ both budget (financial) data and results of document reviews including relevant statutes. The reason we use expenditure data is that public expenditure is the public policy instrument available to a government that best reflects its true priorities. Whereas a priority may be stated in a policy document, its actual implementation can easily be seen in expenditure data.
In order to put into context how the PRSP would be financed and what sort of resources could realistically be expected from domestic and external sources, various assumptions were made. The total available resources for the economy were defined as the sum of tax (Income, Excise, Value Added (both domestic and import), and Customs taxes) and non-tax (fees and fines) revenues, domestic budget deficit financing, and external support in the form of programme and project grants and external borrowing in the form of programme and project loans. In 2002, the total resource envelope was projected to be K4,999.0 billion while that for 2003 was projected to be K5,176.0 billion with a financing shortfall of K430.0 billion. For 2004, the resource envelope was projected at K5,657.0 billion with a financing shortfall of K336.0 billion.
The PRSP estimated a total of US $1.2 billion that could be available for PRSP spending over the period 2002 - 2004. In terms of allocating what expenditures could be available in any given year, an allocation assumption of "20% 40% -40%" was used.
With regard to the law regulating public finances, the Constitution of Zambia provides the overall framework under which various other laws operate in the area of public finance. Below the Constitution is the Finance (Control and Management) Act. This Act defines the roles and responsibilities for the management of public finances by the executive arm of government. The Minister of Finance is charged with the responsibility for managing, supervising, controlling and directing all financial matters of the Republic.
In deriving the programmes that were included under the Poverty Reduction Programmes (PRPs) in the annual budgets for 2002 and 2003, budgetary programmes under HIPC 2001 were selected from among those considered to have a strong pro-poverty focus. Since Zambia only reached HIPC Decision Point in December 2000, it was necessary to quickly find a way of including HIPC programmes in the 2002 Budget. Thus the HIPC programmes in the Yellow Book were transformed into PRP for 2002 and subsequently 2003. In 2003, Capacity Building and Coordination was added to the PRP as a whole programme mainly as a result of the re-introduction of an explicit planning function at the Ministry of Finance and National Planning (MoFNP).
The sectors in the PRSP were selected on the basis of submissions from break up sessions at the first PRSP National Conference held in July, 2000. At the first national conference, the following working groups were formed in the sectors that were considered to be critical to poverty reduction: Macroeconomic, Industry, Tourism, Education, Health, Agriculture, Governance, and Mining. Subsequently, other sectors such as Environment, Roads, Energy, Transport and Communications, Water and Sanitation, and Gender were added. Monitoring and Evaluation and Social Safety Net were added in the final analysis.
Analysis revealed that programmes contained in the PRP 2003 broadly answered the objectives under the PRSP. However, the match is imperfect as some PRPs do not easily map with PRSP programmes. This is because the budget was not adjusted to be in line with the way programmes in the PRSP appeared. Further programmes in the PRP may not fully represent what might be considered poverty spending in the Budget. On the other hand, while some programmes are considered as PRP, others that would suit to be under this category are left in Recurrent Departmental Charges (RDC).
In the area of budget execution, the Budget Office under the MOFNP undertakes the execution of PRP expenditures. The cash budgeting system is the general framework under which releases to various budget heads are made. A committee within the MOFNP makes the actual decisions regarding how much each budget head will receive for the various expenditure categories during a particular month. In making these decisions, attention is paid to the benchmarks agreed with the IMF in the PRGF programme and the IDA for social sector expenditure.
Having analyzed the patterns of resource allocations and releases under the PRPs, there does not seem to be a deliberate effort to link the budgets and releases to match the PRSP priorities. Further, the level and pattern of resources released would seem to confirm the notion that funding for PRPs is done on a residual basis. In addition, a great deal of prorating seems to take place at the point of funding and in some cases at the point of establishing the final ceiling for specific items under the PRP sub head. It is further clear from the above that from the time HIPC programmes were introduced and continued into PRP, the sub head has consistently received much less resources than budgeted.
In assessing whether the PRP expenditures were adequate judging from what should have been spent under the PRSP, data shows that in 2003, approximately K2,258.9 billion should have been spent on PRSP programmes representing 56.8 percent of the total annual budget for that year. However, the total PRP budget represented only 7.0 percent of total national budget in 2002 and 10.5 percent in 2003. This is clearly a very marked shortfall from what was supposed to be spent. It is clear that resources that were spent on PRP programmes fell well short of the requirement under the PRSP. Despite the fact that the PRP expenditures were short of what was required, the budgetary classification system is not revealing enough to concretely confirm this finding as the RDC expenditure category does not fully reveal which sector and programmes clearly benefited from the expenditure. This is cited as a limitation in this study.
The dismal performance of PRP expenditures may be cited on other expenditure pressures that prevented the release of resources to PRPs under the cash budget system. If this were to be the case, how possible is it that other non-poverty reducing expenditures actually received over 100 percent funding? A recommendation should be made for more political will to ensure that PRPs receive at least 100 percent of budgeted resources. Further, there is need for transparency in the budget classification system to unmask other expenditures that could be of a poverty reduction nature under the sub head of RDCs. Some grants (sub-head 3) do actually contain personnel, recurrent, capital and some kind of poverty related expenditures. This suggests that the budget is actually not a transparent document, as expenditure cannot be traced to its true function and sector.
As a recommendation, the Finance (Control and Management) Act and its Financial Regulations requires an extensive review and amendment to bring it in line with modern government operations. Control measures to curtail over expenditure and to articulate a transparent budget classification system requires to be put in place. Civil society should take an active role in advocating for the amendment of outdated laws in the area of public finance.
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