Public Investment Management in Zambia

1. Public Investment Management in Zambia Tuan Minh Le Patricia Palale (ppalale@worldbank.org) Gael Raballand(graballand@worldbank.org)

2. Outline 1. Context 2. PIM Diagnostic 3. A Way Forward?

3. Context • Macro • Political Economy • Institutional • Governance

4. Macro Context • Zambia is a large country with low density and sparse population: geographical and demographic impediments to PIM efficiency. • Donor dependent country though the trend is slowly shifting. • Low level of capital expenditures (app. 4% of GDP 2009), while capital/recurrent expenditures persistently decrease. • Strong economic growth during 1999-2008 but still not translated into significant decline in poverty, especially in rural areas.

5. Political Economy Context • Wide-scale ambitious reforms do not fare well. • First best solutions have usually not worked well. • Governance challenges do not explain all the negative outcomes. There is also sometimes: • neglect, in which actual public policy does not follow stated policy priorities, and • lack of capacity to implement, or simply well-intentioned incompetence.

6. Institutional Context • There is a great fragmentation of institutions and there is usually an absence of accountability. • Ministry of Finance is relatively weak and does not usually play its challenging role. • The Ministry of Works and Supply, which according to the law, is supposed to be in charge of physical investments, has lost some control of this function. • Sectors are playing a greater role in making PIM decisions, from prescreening of project proposals to implementation and supervision & monitoring. • Recent PFM reforms have not necessarily addressed some key PIM challenges.

7. PIM Diagnostic • Investment guidance and preliminary screening • Formal Project Appraisal • Budgeting and Project Selection • Project Implementation • Project Adjustment • Facility Operation • Project Evaluation

8. Investment guidance and preliminary screening • A number of long to medium term planning instruments developed and intended for guiding annual budgeting in general and prioritization in capital budgeting in particular. • The National Long Term Vision 2030. • The Fifth National Development Plan (FNDP) 2006-10 -to be succeeded by the Sixth National Development Plan (SNDP). • Sector-specific development strategies. • MTEF.

9. Investment guidance and preliminary screening (2) • But the poor quality of strategic/medium term guidance leads to inefficient investment prioritization and investment screening. • FNDP lacked a robust macro fiscal framework or guidance for sector and regional development policies and strategies. • Sector strategies – typically used to pre-screen project proposals – reflect optimism bias with no credible link with revenue estimation.

10. Formal Project Appraisal • Dual modalities for donor financed and government financed project proposals. • Highly decentralized appraisal process while key challenges long existing: • Inadequate legal framework and lack of centrally publicized/transparent guidance for project appraisal. • Weak institutional capacity in appraisal function.

11. Formal project appraisal (2) • The whole process of prescreening and appraisal managed exclusively by Sectors. • No integrated central guidance on project appraisal and selection developed. Planning and Budgeting Bill still under preparation. • CBA/CEA for deemed significant projects, but no transparent threshold for conducting such analyses or no formal guidance for methodology. • The core functions of independent review of appraisal de facto are missing – no challenge function.

12. Budgeting and Project Selection • Although MTEF was one of the biggest strides in PFM, quality of MTEF still needs to be improved. • Complete disconnect of the MoFNP from project planning and evaluation by sectors, breaking link between the budget cycle and the specific project appraisal and selection process. • MoFNP active role remains confined to establishing sector envelopes with no downstream follow-up. • Disconnect between strategic capital planning, budgeting, and project selection -- in effect heavily discount the gate keeper function.

13. Project Implementation • Budgeting focuses more on annual cost control rather than on total cost control. • The absence of central guidelines for project implementation. • Implementing agencies not under pressure - nor do they have any vested incentives-- to prepare periodic progress reports and to establish a comprehensive database that could have helped trace progress and detect early symptoms of project delays and incompleteness. • MoFNP and Ministry of Works and Supply have no capacity/mechanisms to identify and analyze the root causes of incompleteness or cost overrun. • Reforms in procurement are being conducted, but competitive bidding is either not strictly feasible or enforceable due to a number of challenges.

14. Project Adjustment • Updating project financial or economic analysis is not mandatory for receiving the next tranche of project financing. • Change in completion plan or investment costs is usually done or presented on an ad hoc basis. • M&EDepartment at MoFNP is responsible for monitoring and facilitating the development of M&E systems project implementation in sectors. But it faces numerous challenges: • Understaffed (with only 6 officials) to carry its ambitious mandates. • Coordination, internally in MoFNP, or externally with MPSAs, is particularly difficult. • Active monitoring of project implementation does not exist – no links with sector planning units. • What appears to be a duplication of roles with the Project Implementation department within MoFNP

15. Facility Operation • A mechanism to undertake inventory and registration of public property being developed. The process was significantly delayed. (The mechanism is planned to be developed and implemented by December 2006 but until late 2008, only 80% of the work has been completed.) • The establishment of a database of government property – which is scheduled to be operational by 2007—has also been postponed: by the end of 2008, only 10% of the work plan was completed. • Donors tend to undermine national systems where they exist – e.g. motor vehicle registration.

16. Project Evaluation • No formal institutional arrangement to allow for effective central monitoring and feeding the evaluation results into learning, communicating and drawing lessons for new project cycles. • MPSAs are responsible for making all decisions on project selection, implementation and tracking service deliveries whereas M&E, Budget and Planning Departments in the MoFNP do not play a direct role in their evaluation.

17. Summary Findings • Predominant role of line Ministries in appraising project and implementation, • Weak challenging role and unclear institutional mandates of the MoFNP, • Lack of vertical and horizontal coordination and cross-institutional misaligned incentives => Leading to low public investment efficiency and rampant corruption in some sectors.

18. Way forward? • Focus engagement narrowly is preferable • Need to consider feasible steps that will concentrate on institutional building that will call attention to promoting accountability systems • ………..keeping in mind that first best solutions will probably not work …………………..

19. What can be the way forward? The First Best… (guiding light….) 1. Legal reform constitutes a critical institutional development to strengthen PIM in Zambia, 2. The MoFNP should be mandated with preparing central, uniform guidelines for public investment evaluation. 3. The MoFNP should publish standard guidance on appropriate format of project proposals and techniques applicable to evaluate economic and social values as appropriate to the scale and scope of proposed projects and commensurate to appraisal capacity at MPSAs. 4. Basic architecture for de facto missing functions (e.g., independent review and ex-post evaluation) needs to be established.

20. What can be the way forward? The feasible way….. • Pilot experiments in some sectors/Ministries (where there is an explicit link with beneficiaries, such as access to health, education, water) by: • reviewing strategies, • develop monitoring and evaluation systems, • change project implementation, • develop impact evaluation. • Strengthen MoFNP (M&E department??). Initial step could be to work with Office of the Auditor General —to carry out an ex post review of recently completed projects in several sectors…….

21. Conclusions • PIM in Zambia embedded in the political economy context, • Intrinsic weak role of the MoFNP on PIM issues could continue in the near future, • However, some experiments / pilots in some sectors / Ministries should be undertaken to strengthen the MoFNP at the margin.