Experience and Practices of Public Debt Management in Zambia

1. Experience and Practices of Public Debt Management in Zambia Annual Meeting of INTOSAI Working Group on Public Debt-Vilnius, Lithuania 09-10 June 2011 Presenter: R M Chilupula Deputy Auditor General – Audit & Consultancy Office of the Auditor General Zambia

2. Introduction Government/Public debt can be defined as the outstanding stock of recognized, direct liabilities of the government to the rest of the economy and the world • Debt management is the process of establishing and executinga strategy for managing the public debt in order to raise the required amount of funding at the desired risk and cost level

3. Background of Government Debt in Zambia Debt management in Zambia has been challenged in previous years by: • Fiscal requirements • Infrastructure • Cost of Flooding This had resulted in: • An increased need for debt financing • Reduced Zambia’s external debt stock by over 80% - from US$7080 million in 2005 to US$ 1,218.7 million in 2008 • However, external debt stock increased by 23.2 percent to US $1,501.5 million at end 2009 from US $1,218.7 million

4. Legal Provisions External Debt Management in Zambia is governed by the following Acts: • Chapter 366 of the Laws of Zambia (enacted in 1969 and amended in 1972) • Chapter 353 of the Laws of Zambia (enacted in 1969 and amended in 1991)

5. Legal Provisions Other secondary legislations include the following: a) The Bank of Zambia (BOZ) Act of 1996 – Chapter 360 of the Laws of Zambia b) The Treasury Bills Act of 1965-Chapter 348 of the Laws of Zambia- c) The Securities Act- Chapter 354 of the Laws of Zambia- d) Securities and Exchange Commission (SEC) which is a regulatory body e) The Public Finance Act No.15 of 2004

6. Management of Public Debt • The Investment and Debt Management (IDM) Department in the Ministry of Finance and National Planning is responsible for: - Effective monitoring and evaluation - Capital markets - Maintains an up-to-date database

7. Debt Management Strategy • External Debt - In the Sixth National Development Plan (SNDP), one of the macroeconomic objectives is to maintain public debt sustainability • Domestic - For domestic debt, Government intends to reduce the stock of domestic debt through the gradual reduction of issuances as well as refinancing maturing government securities

8. Management of Public Debt Cont’d… • Disclosure/Application Information is disclosed in the following reports prepared by the Ministry Of Finance and National Planning: • Minster’s Budget Speech • Annual Economic Reports

9. Management of Public debt Cont’d… However, the situation has now changed and the users of the reports include: • Parliament • Government • The general public • Foreign creditors and cooperating partners

10. The Role of the Auditor General in the Audit of Public Debt • The mandate of the Auditor General to audit public debt is drawn from: - Article 121 of the Constitution of Zambia, Public Audit Act of 1980 and Public Finance Act No. 15 of 2004

11. The Role of the Auditor General in the Audit of Public Debt Cont’d... - The Auditor General has no direct role to play in deciding the level or purpose of public debt management, data disclosure policies and regulatory regimes for the financial sector

12. The Role of the Auditor General in the Audit of Public Debt Cont’d... • The primary responsibility is to audit the publicly disclosed debt information • The Auditor General undertakes independent analysis and aims to ensure that: • Data is disclosed to foster improved management • Reliable information is made to all stakeholders

13. The Role of the Auditor General in the Audit of Public Debt - Full disclosure of complete and among policy makers, markets and the general public - Risk management practices and strategies are adopted and put in place - Government is encouraged through recommendations - Government is encouraged to make use of debt ratios/indicators in its reporting and overall debt management

14. The Role of the Auditor General in the Audit of Public Debt Cont’d... - Proper regulatory and supervisory framework are put in place - Quality of the information on fiscal exposures - Subsidiary Laws are revised - Legal provisions are complied with best practice - Debt ratios/indicators are used

15. Experiences in the Audit of Public Debt The following have been observed from the audits carried out on the public debt in the past six (7) years: - loans are not subjected to scrutiny of parliament before they are obtained - Lack of effective high-level coordination

16. Experiences in the Audit of Public Debt Cont’d… - Power to vary loans cap by Minister - Fragmentation - Lack of central depository of original loan agreements - Copy of agreement is laid before the National Assembly - Public debt portfolio is still in draft form which might lead to unsustainable debt as evidence by increment of 23.2% post HIPC

17. Experiences in the Audit of Public Debt Cont’d… - Lack of a complete data base - Insufficient Loans and Guarantees Act - Lack of proper guidelines

18. Challenges Encountered • some of the challenges encountered during audits include: • Lack of special knowledge in the field of economics • Poor Record keeping • Delays/failure to respond to queries • Failure to implement audit recommendations • Inadequate provisions in the law

19. Lessons Learnt • Apart from the obligation to express an annual opinion of the office needs to: • carry out performance audits of public debt • take an active role in ensuring that debt policy and debt management systems are well designed

20. Way Forward • Legislations Currently the legislation is being reviewed to address the following among others: • Include a provision requiring the Minister to obtain approval and authorization of National Assembly and also to report on; • The source of the loan • The extent of the total indebtedness by way of principal and accumulated interest

21. Way Forward • Provision made for servicing or repayment of the loan • All borrowings by any state institution or authority annually • Provision requiring debt managers’ strict adherence • Provision for the establishment of a central depository of original loan agreements • Setting limits to the indicators such as Public debt/Gross Domestic Product (PD/GDP)

22. Way Forward Cont’d… • Debt Management Office • Continued Strengthening of the institutional framework • Ensure compliance with the legal and other requirements • Design and maintain the Central Depositing System • Revision of subsidiary laws • Inclusion of specific reports • Development of operational guidelines

23. Way Forward Cont’d… • Office of the Auditor General • Training of auditors • Enhancement of efforts to retain professional staff • Employment of other professionals • Encourage joint audits with other SAIs • Conduct Performance audits on various topics

24. CONCLUSION • It is hoped that our involvement with other SAIs will help in building capacity

25. CONCLUSION Cont’d… • Following The Trans-regional Public Debt Management Audit training conducted from October to November 2009 followed by the planning meeting in Kenya in 2010 and the review of reports meeting in Zambia 2011,the office greatly benefited in that: • Auditors are conversant with Public Debt Management related issues • Public debt audit skills have been acquired • Auditors now have broader public debt audit topics

26. Thank You