fiScal
DecenTralizaTion
in zambia
Sec1:i
United Nations Human Settlements Programme
Nairobi 2012
FISCAL DECENTRALIZATION
IN ZAMBIA
ii
e Global Urban Economic Dialogue Series
Fiscal Decentralisation in Zambia
First published in Nairobi in 2012 by UN-HABITAT.
Copyright © United Nations Human Settlements Programme 2012
HS/034/12E
ISBN (Series): 978-92-1-132027-5
ISBN (Volume): 978-92-1-132449-5
Disclaimer
e designations employed and the presentation of the material in this publication do
not imply the expression of any opinion whatsoever on the part of the Secretariat of
the United Nations concerning the legal status of any country, territory, city or area
or of its authorities, or concerning the delimitation of its frontiers of boundaries.
Views expressed in this publication do not necessarily reect those of the United
Nations Human Settlements Programme, the United Nations, or its Member States.
Excerpts may be reproduced without authorization, on condition that the source is indicated.
Acknowledgements:
Director: Naison Mutizwa-Mangiza
Chief Editor and Manager: Xing Quan Zhang
Principal Author: Andrew Chitembo
English Editor: Roman Rollnick
Design and Layout: Peter Cheseret
Assistant: Agnes Ogana
iii
Urbanization
is one of the
most powerful,
irreversible forces
in the world. It
is estimated that
93 percent of
the future urban
population growth
will occur in the
cities of Asia and
Africa, and to a lesser extent, Latin America
and the Caribbean.
We live in a new urban era with most of
humanity now living in towns and cities.
Global poverty is moving into cities, mostly
in developing countries, in a process we call
the urbanisation of poverty.
e world’s slums are growing and growing
as are the global urban populations. Indeed,
this is one of the greatest challenges we face in
the new millennium.
e persistent problems of poverty and
slums are in large part due to weak urban
economies. Urban economic development is
fundamental to UN-HABITAT’s mandate.
Cities act as engines of national economic
development. Strong urban economies
are essential for poverty reduction and the
provision of adequate housing, infrastructure,
education, health, safety, and basic services.
e Global Urban Economic Dialogue series
presented here is a platform for all sectors
of the society to address urban economic
development and particularly its contribution
to addressing housing issues. is work carries
many new ideas, solutions and innovative
best practices from some of the world’s
leading urban thinkers and practitioners
from international organisations, national
governments, local authorities, the private
sector, and civil society.
is series also gives us an interesting
insight and deeper understanding of the wide
range of urban economic development and
human settlements development issues. It will
serve UN member States well in their quest
for better policies and strategies to address
increasing global challenges in these areas
Joan Clos
Under-Secretary-General
of the United Nations,
Executive Director, UN-HABITAT
FOREWORD
iv
CONTENTS
FOREWORD III
CONTENTS IV
LIST OF ABBREVIATIONS AND ACRONYMS VI
LISTS OF FIGURES, GRAPHS, MAPS AND TABLES VIII
CHAPTER 1 LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA 1
Administrative Structure and Functions 1
Central Government 2
Local Government 3
LEGAL FRAMEWORK 4
Constitutional Provisions 4
Statutory Provisions 5
DECENTRALISATION 7
Justication 7
Decentralised Development Planning 8
Situation to Date 8
PUBLIC EXPENDITURE RELATIVE TO GROSS DOMESTIC PRODUCT 8
FISCAL DECENTRALISATION INDICATORS and PERFORMANCE 9
Global Indicators and Ranges 9
The Zambian Indicators 10
The Zambian Performance 11
CHAPTER 2 OVERVIEW OF LOCAL GOVERNMENT FINANCE 13
PUBLIC FINANCE 13
Allocation 13
Distribution 14
Stabilisation 14
LOCAL GOVERNMENT FINANCE AS AN ASPECT OF PUBLIC FINANCE 15
Why Local Government Finance? 15
The Role of Local Government Finance in Zambia 15
Allocation 15
Distribution 15
Stabilisation 16
REVENUE SOURCES FOR LOCAL GOVERNMENT IN ZAMBIA 16
CHAPTER 3 THE CONCEPT OF FISCAL DECENTRALISATION 17
WHAT IS FISCAL FEDERALISM AND FISCAL DECENTRALISATION? 17
Fiscal Federalism 17
Fiscal Decentralisation 17
THE NEED FOR FISCAL DECENTRALISATION IN ZAMBIA 17
FISCAL DECENTRALISATION CONCEPTS 18
Finance Follows Function 18
Informed Public Opinion 19
Mechanisms for Articulating Local Priorities 19
Adherence to Local Priorities 19
Incentives for Participation 19
Local Government Fiscal Responsibility 19
Instruments to Support Decentralisation 20
ISSUES FOR CONSIDERATION 20
Vertical Imbalance 20
Horizontal imbalance 21
APPLYING THE CONCEPTS IN ZAMBIA 21
Instability of Expenditure Assignments 21
The Cost of Undertaking the Functions 21
Instability of Revenue Assignments 22
Current Status 22
CHAPTER 4 ELEMENTS OF FISCAL DECENTRALISATION 23
THE KEY ELEMENTS / PILLARS 23
Expenditure Assignments and Autonomy 23
Local Revenue Source Assignments and Autonomy 26
Intergovernmental Fiscal Transfers 27
Access to Capital Funds 28
THE ENABLING ENVIRONMENT 28
Policy Framework 28
Legal Framework 28
Locally Elected Councils 29
Locally Appointed Chief Ofcers 29
Fiscal Discipline 30
Political Accountability 30
SEQUENCING THE ELEMENTS 31
CHAPTER 5 FACTORS DETERMINING THE ALLOCATION OF FISCAL
RESOURCES AT DIFFERENT GOVERNMENT LEVELS 33
FISCAL RESOURCES 33
FISCAL CAPACITY 33
vi
FISCAL DECENTRALIZATION IN ZAMBIA
Tax Base 33
Ability to Pay 34
Fiscal Effort 34
Tax Burden 34
POLITICAL WILL 34
THE NEED FOR A STRONG CG 34
CHAPTER 6 LOCAL AND MUNICIPAL GOVERNMENT
FUNCTIONS AND EXPENDITURES 37
LEGAL PROVISIONS 37
FUNCTIONS CURRENTLY UNDERTAKEN 37
SHARED FUNCTIONS 38
ISSUES TO RESOLVE 38
CHAPTER 7 LOCAL AND MUNICIPAL GOVERNMENT REVENUES
AND SOURCES 39
INTERNATIONAL DECLARATIONS ON LOCAL GOVERNMENT FINANCE 39
LG REVENUES IN ZAMBIA 40
LOCAL TAXES 40
Rates 40
Personal Levy 41
Business Levies 42
OTHER LOCAL REVENUE SOURCES 42
Fees and User Charges 42
Business Licenses 43
CAPITAL FUNDS 43
CHAPTER 8 INTERGOVERNMENTAL FINANCIAL
RELATIONS AND TRANSFERS 45
THE TRANSFERS 45
Trends and Values 45
Comparisons 48
THE INTERGOVERNMENTAL FISCAL ARCHITECTURE (IFA) 48
Restructuring Grant 48
Recurrent Grant 49
Capital Grant 49
Devolution Grant 49
ISSUES WITH IFA 50
vii
CHAPTER 9 CONCLUSIONS AND RECOMMENDATIONS 51
The Decentralisation Process 51
LESSONS LEARNED 51
Lessons to be relearned from the DDPI 51
Decentralisation Indicators 52
Sequencing 52
Service level determination 52
The role of CG 52
RECOMMENDATIONS 52
Lessons to be relearned from the DDPI 52
Decentralisation Indicators 52
Sequencing 52
Service level determination 53
The role of CG 53
APPENDICES 55
Appendix 1: Works Cited 55
Appendix 2: Zambia Exchange Rates and Inflation 59
Appendix 3: GRZ Budget 2012: Address to Parliament 60
Appendix 4: Bank of Zambia Policy Rate Announcement 61
Appendix 5: District Population and Budgets 2007 63
Appendix 6: Sources of revenue – Lusaka City Council 66
Appendix 7: Required Services and Ranking 67
viii
FISCAL DECENTRALIZATION IN ZAMBIA
LIST OF ABBREVIATIONS AND ACRONYMS
Abbreviation Full Term (extra information)
ADC Area Development Committees
ADZ Area Development Zone
AG Auditor General
Cap Chapter (usually in references to the Laws of Zambia)
CDF Constituency Development Fund
CG Central Government
CRC Constitution Review Commission
CRCs Core Recurrent Costs
DDCC District Development Coordinating Committees
DDPI District Development Planning and Implementation
DIP Decentralisation Implementation Plan
DP Decentralisation Policy
ERC Electoral Reform Committee
FD Fiscal Decentralisation
GDP Gross Domestic Product
GFS Government Financial Statistics
GRZ Government of the Republic of Zambia
HR Human Resource
IFA Intergovernmental Fiscal Architecture
IGT Intergovernmental Transfer (Grants)
IMF International Monetary Fund
JICA Japan International Cooperation Agency
LED Local Economic Development
LG Local Government
LGAZ Local Government Association of Zambia
LGSC Local Government Service Commission
LuSE Lusaka Stock Exchange
MCRC Mung’omba Constitution Review Commission
MLGELE Ministry of Local Government, Early Learning and Environment (until October 2011 for-
merly; Ministry of Local Government and Housing)
ix
MLGH Ministry of Local Government and Housing (October 2011, renamed Ministry of Local
Government, Early Learning and Environment)
MoFNP Ministry of Finance and National Planning
MTEF Medium Term Expenditure Framework
NDCC National Development Coordinating Committee
OOR Optimized Own Resources
PAYE Pay As You Earn
PDCC Provincial Development Coordinating Committee
PKSOI U.S. Army Peacekeeping and Stability Operations Institute
PPP Public Private Partnership
PSRP Public Sector Reform Programme
RTC Road Trafc Commission
SNDP Sixth National Development Plan
ToR Terms of Reference
US $ United States Dollar
VFG Vertical Fiscal Gap
VFI Vertical Fiscal Imbalance
ZDA Zambia Development Agency
ZESCO Zambia Electricity Supply Corporation
ZICA Zambia Institute of Chartered Accountants
ZMK Zambian Kwacha (Zambian currency)
x
FISCAL DECENTRALIZATION IN ZAMBIA
LISTS OF FIGURES, GRAPHS, MAPS AND TABLES
LIST OF TABLES
Table 1-1: Population Distribution 1990 - 2010 3
Table 1-2: District Types, Population and Budgets 4
Table 1-3: Zambian Government Expenditure
Relative to GDP (World Bank Data) 9
Table 1-4: Decentralization Indicators for Developing
and Transition Economies 9
Table 1-5: Zambia’s Fiscal Decentralisation Indicators 1976 – 1980 10
Table 1-6: Countries Reporting Decentralisation Statistics in GFS 10
Table 1-7: Zambian Decentralisation Performance 11
Table 1-8: Zambian Indicator Progress towards Maximum Benchmarks 12
Table 2-1: Performance of Council Revenue Sources -2006 16
Table 4-1: Expenditure Responsibilities 24
Table 4-2: Population Densities Mpika and Monze 25
Table 4-3: Per Capita Revenue Budgets for Cities 25
Table 4-4: CG and LG Tax Bases 27
Table 4-5: Sequence Steps and the DIP Components 32
Table 5-1: Emerging Governance Structure (from (Sharma, 2003, p. 183) 35
Table 7-1: Revenue Composition 2006 40
Table 7-2: Valuation Roll Arrears 41
Table 7-3: GRZ Budget for MLGH Loans 2006 – 2012 (US $ 000) 44
Table 8-1: Total GRZ Expenditure and Budgeted Intergovernmental
Transfers 2002 – 2011 (US $ Million) 45
Table 8-2: National Support as Percentage of Total Council Revenue 47
Table 8-3: National Support (source (JICA, 2007) 47
Table 8-4: Composition of IGTs 2010 - 2012 (US $ ) 49
LIST OF FIGURES
Figure 1-1: Government Administrative Levels 1
Figure 1-2: Administrative Structure of
Central and Sub-National Governments 2
Figure 1-3: Zambian Indicators – Maximum Attainment 12
Figure 3-1: Trends in IGTs 2002 - 2011 22
Figure 4-1: Sequencing Fiscal Decentralisation
(Adapted from Bahl & Martinez-Vazquez (2006, p. 4)) 32
Figure 8-1: IGTs as Percent of GRZ Expenditure 46
1
CHAPTER 1
LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA
CHAPTER 1 LOCAL GOVERNMENT IN THE
CONTEXT OF ZAMBIA
Zambia is a unitary state, the Government
of the Republic of Zambia (GRZ), with two
levels of government; Central and Local.
e provincial level is in reality a part of the
Central Government as it has no separate
legal framework, assigned expenditure or
revenue raising assignments to dierentiate
it from the Central Government. Zambia
attained political independence from the
British in 1964. While at the local level, Local
Authorities (referred to collectively as Councils
in this document) have some responsibilities
for service provision, Central Government
(CG) also has oces at that level to provide
other services.
e Local Government Association of
Zambia (LGAZ) provides, in the Councillors
Orientation Manual (MLGH-LGAZ, 2006),
an interesting history of pre-colonial, pre-
independence and post-independence
local governance in Zambia. For purposes
of discussing Fiscal Decentralisation (FD)
in Zambia, a brief history of the post-
independence developments in local
governance is outlined in this section.
Administrative Structure and
Functions
While Zambia has two levels of government,
Central and Local, it has four administrative
levels for delivering government services as
shown in Figure 1-1.
FIGURE 1-1: Government Administrative Levels
Central Local
Institution Policy Head Executive
Head
Institution Policy Head Executive
Head
National Cabinet Republican
President
Secretary to
the Cabinet
Line Ministries Minister Permanent
Secretary
Provincial Provincial
Administration
Provincial
Minister
Permanent
Secretary
District District
Administration
District
commissioner
City and Municipal
Councils
Mayor Town Clerk
District
Councils
Chairman Council
Secretary
Sub District Wards Councilor
Source: Own depiction.
2
FISCAL DECENTRALIZATION IN ZAMBIA
Professor Saasa (Saasa & Others, 1999, p. 65) adds co-ordinating organisations to his depiction
of the administrative structures of the Zambian government as shown in Figure 1-2.
FIGURE 1-2: Administrative Structure of Central and Sub-National Governments
Level Administrative Decentralised Deconcentrated &
Semi-autonomous
Co-ordinating
Bodies
NATIONAL Secretary to
the Cabinet
Line Ministries
NDCC
PROVINCE Provincial
Permanent
Secretary
Provincial
Departmental
Head
PDCC
(Chaired by Provincial
Permanent Secretary)
DISTRICT Line Ministry Ofcials Councils Health Boards
Education
Management Boards
DDCC
Chaired by Town Clerk
or Council Secretary
Source: (gure 3.2 (Saasa & Others, 1999, p. 65))
e functions of the dierent administrative
levels of government, as articulated in Chapter
2 of the National Decentralisation Policy
(GRZ - Cabinet Oce, 2002, p. 8) are
outlined below.
Central Government
National Level Institutions
At national level, there exists the Cabinet
Oce, which is responsible for the
management and coordination of the Public
Service. e Secretary to the Cabinet is
head of Government Administration, which
comprises sector Ministries and statutory
bodies, Provincial and District administration.
In order to enhance the operations at National
level, Cabinet Oce is expected to coordinate
development activities through the National
Development Coordinating Committee
(NDCC).
Provincial Level Institutions
At each Provincial level, there is the Provincial
Administration Headquarters headed by a
Deputy Minister assisted by a Permanent
Secretary responsible for the coordination of
Government business in the Province. Apart
from this oce, there are Provincial Heads
of Departments through whom functions of
sector Ministries are carried out. Provincial
Heads of Departments are answerable to
3
CHAPTER 1
LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA
their respective Sector Ministries on technical
matters but administratively supervised by the
Permanent Secretaries for the Province on day-
to-day administration.
To enhance the operations of the Provincial
Administration, Government through
Circulars has established the Provincial
Development Coordinating Committee
(PDCC) as a forum for coordinating the
planning, implementation and monitoring of
development activities at the Provincial level.
e PDCC is, however, ineective because its
creation and existence is not backed by any legal
framework. Equally, the Permanent Secretaries
of the Provinces, who are the chairpersons of
the PDCC, have no legal powers to supervise
and discipline sector ministry personnel.
District Level Institutions
At the District level, there is District
Administration headed by a District
Commissioner, appointed by the Republican
President, who is responsible for coordinating
developmental activities. District
Administration comprises various sector
Ministerial departments performing specied
Government functions and responsible for
implementing programmes and report to their
respective Provincial heads of department. In
order to enhance the operations of District
Administration, Government through
Circulars established DDCC as a forum for
coordinating the planning and implementation
of development activities at the District level.
e District Development Coordinating
Committee is ineective because no legal
framework backs its operations. Town Clerks
and Council Secretaries who, until the
appointment of District Commissioners,
were chairing the DDCCs had no legal
backing to supervise and discipline sector
Ministry personnel operating at the District
level. In addition, there are semi-autonomous
institutions of local governance, such as,
Health and Education Management Boards
created to perform specied functions on
behalf of sector Ministries aimed at increasing
community participation in the planning and
delivery of services.
Local Government
District Level Institutions
“As regards local Government, there is
a single-tier system of local government
comprising three types of councils, namely:
City, Municipal and District Councils
responsible for the provision of services”
(GRZ - Cabinet Oce, 2002, p. 9). Until
2011, Zambia had 9 provinces and 72 councils.
e councils were made of 4 City Councils, 14
Municipal Councils and 54 District Councils.
eir populations as per 1990, 2000 and 2010
census are given in Table 1-1.
TABLE 1-1: Population Distribution 1990 - 2010
Type # Councils
1990
Census
1990
Percent
2000
Census
2000
Percent
2010 Census
2010
Percent
City 4 1,526,645 19.68% 1,938,872 19.61% 2,862,299 21.94%
Municipal 14 2,021,327 26.05% 2,425,728 24.54% 2,958,714 22.68%
District 54 4,211,145 54.27% 5,520,991 55.85% 7,225,495 55.38%
Grand Total 72 7,759,117 100.00% 9,885,591 100.00% 13,046,508 100.00%
Source: 1990, 2000 & 2010 Census of Zambia
4
FISCAL DECENTRALIZATION IN ZAMBIA
In early 2011 the government created an
additional district, Manga. In 2012, as part
of the process of decentralising the government
administration and getting the government
closer to the people, the government has,
since its election in September 2011, created
an additional province, Muchinga, and 5
additional district councils (Chikankata,
Chirundu, Mulobezi, Nsama and Chilanga)
bring the totals to 10 provinces and 78
councils.
e second schedule (section 61), of the
Local Government Act Cap 281 prescribes
sixty-three (63) functions to be performed
by all Councils regardless of their status and
capacity. e sixty three functions, some of
which have sub-functions, are all discretionary
as section 61 states “Subject to the provisions
of this Act, a council may discharge all or
any if the functions set out in the Second
Schedule”.
e assignment of the sixty-three functions
listed under the Act without taking into
account capacity, results in Councils not
performing to the satisfaction of their local
communities. Although councils are bodies
Corporate, they also perform delegated
functions of the Central Government.
e Mayor/Council Chairperson is a
political head of the Council and, performs
ceremonial functions. However, there is a weak
link between the Mayor/Council Chairperson
and the Ministry of Local Government
and Housing which has led to lack of co-
ordination, transparency and accountability
on civic matters.
Sub-District Level Institutions
ere are wards, which are sub-structures
of the councils at sub-district level for the
purposes of Local Government Elections
only. e Registration and Development
of Villages Act establishes the Ward
Development Committees and Village
Productivity Committees in each ward as a
forum for community participation in local
development activities and aairs. However,
these institutions are not linked to Local
Government and are no longer functional in
most districts. is has led to lack of forum for
community participation in decision-making
on their local development activities and
aairs at sub-district level.
LEGAL FRAMEWORK
Constitutional Provisions
Before the Constitution Amendment Act
No. 18 of 1996 came into force, there were no
constitutional references to Local Government
in Zambia. e country could therefore have
been administered without local government
up to then.
TABLE 1-2: District Types, Population and Budgets
Type # Districts Pop 2007 Revenue Budget
Average Per
District
Per
Capita
City 4 2,585,271 $44,084,651 $11,021,163 $20.86
Municipal 14 2,798,817 $29,500,457 $2,107,175 $12.36
District 54 6,714,144 $20,910,983 $387,240 $3.47
Grand Total 72 12,098,232 $94,496,091 $1,312,446 $6.17
Summarised from Appendix 5, 2007 population interpolated between 2000 and 2010.
e 2007 council revenue budgets per type of district are given in Table 1-2.
5
CHAPTER 1
LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA
Article 109 of Part VIII of the 1996
Constitution provides that “ere shall be
such system of Local Government in Zambia
as may be prescribed by an Act of Parliament.
e System of Local Government shall be
based on democratically elected Council on
the Basis of universal surage.”
e Mung’omba Constitution Review
Commission (MCRC), appointed in June
2003, in its report, the Report Of e
Constitution Review Commission (MCRC,
2005, p. 402) stated, in respect to the above
constitutional provision that: “What this
means is that the local government system in
Zambia has been left to operate within the
provisions of an Act of Parliament (Local
Government Act Cap. 281 of the Laws
Zambia), which could be changed at will to
suit a given political situation. e present
Act has many weaknesses. For example:
• the Act does not expressly dene the purpose
and objectives of local government;
• in terms of service delivery, the Act does
not set minimum standards for measuring
performance in Councils;
• since governance transcends the State and its
organs to include civil society, the Act does
not dene relationships between various
stakeholders in local governance, that is, the
Act does not provide for decentralisation or
co-operative governance at all;
• the Act leaves out the all-important aspect
of local government nance in terms of
scal relations between Central and Local
Government;
• the Act also gives the Minister so many powers
over democratically elected councils that he
or she can legally suspend all councillors and,
with the approval of the President, dissolve
all the councils and administer the whole
country with appointed local government
administrators; and
• the Act makes no reference to Provincial
Administration or how the councils will
relate with the province.
Statutory Provisions
Since becoming independent, Zambia
has implemented three Local Government
Reforms in which the legal framework for
Local Government (LG) has been modied.
The Local Government Act - 1965 - 1980
Councils operated under the Local
Government Act of 1965 from 1965 to 1980.
e Act came into eect on 1st November,
1965. is Act provided for a system of local
government in a multi-party environment. It
provided for councillors elected by universal
adult surage with Mayors and Council
Chairmen elected by fellow councillors. It also
provided for four categories of councils; City,
Municipal, District and Rural.
Under the Local Government Act of 1965,
the operations of councils could be further
split into two sub-phases. e period 1965
to 1973 was a period of great successes in
local government. During this period local
councils operated electricity and water supply
and sanitation services and, according to the
National Decentralisation Policy, (GRZ -
Cabinet Oce, 2002, p. 14), “70% percent of
the income of Councils came from the Central
Government through the Ministry of Local
Government and Housing as grants, while 30%
was met by revenue raised from local levies, fees
and charges as well as specied funds from other
Sector Ministries whose functions they performed”.
is enabled councils to plan and implement
adequate service delivery programmes.
During the period 1973 to 1980 the nancial
bases of councils began to deteriorate directly
as a result of CG decisions. e withdrawal
of the housing grant in 1973, police grant,
health grant and re grant, among others; the
1974 Rent (Amendment) Act which restricted
councils from evicting defaulting tenants
6
FISCAL DECENTRALIZATION IN ZAMBIA
(until after accruing arrears in excess of three
months); the declaration that undeveloped
land had no value and was not rateable;
the transfer of electricity distribution from
Councils to the Zambia Electricity Supply
Corporation (ZESCO), without transferring
the liabilities that related to those services; and
the withdrawal of long term capital funding all
impacted negatively on the councils’ abilities
to deliver service.
Local Administration Act 1980 - 1991
Councils operated under the Local
Administration Act No. 15 of 1980 from 1980
to 1991. Under this Act, which operated under
the one party state, party and government
functions were merged and additional oces
created in councils without additional
nancing. Ward Chairmen, elected during the
single party elections, became the councillors
and the District Governors, appointed by the
Republican President became the Chairmen of
Councils.
Some CG functions were transferred to LG
without nance following these functions.
ese included registration of villages,
construction of feeder roads and water supply
schemes according to the Decentralisation
Policy (GRZ - Cabinet Oce, 2002, p. 4),
thereby further deteriorating service provision.
Local Government Act 1991 to date
After returning to multi-party politics in
1991 the Local Government Act (Cap 281) of
1991 replaced the Local Administration Act
of 1980. is Act was substantially a return
to the Local Government Act of 1965. Under
this Act, the operations of councils can also be
split into two sub-phases. During the period
1991 to 2001 various CG policies and pieces
of legislation were passed that either reduced
the revenue bases of councils or imposed
additional expenditure on councils.
ese included the following: e complete
withdrawal of government grants to Councils
announced in the 1992 national budget
speech. Ironically that budget was itself only
balanced by inclusion of grants to the Central
Government by various bi-lateral and multi-
lateral partners; the 1993 transfer of motor
vehicle licensing functions from Councils to
the Road Trac Commission (RTC) while the
responsibility to maintain the roads remained
with the council; the Presidential directive for
sale of council and parastatal housing units
to sitting tenants in 1996 at below market
prices thereby wiping out rental income from
the council revenue bases; the rating Act No.
12 of 1997 which increased the categories of
properties exempt from paying rates (this was
reversed in 1999 but councils had still lost
substantial income).
In addition, water supply and sanitation
undertakings were transferred from councils
to commercial utilities, wholly owned by
councils, under Statutory Instrument No. 55
of 2000, without transfer of related liabilities;
the Local Authorities Superannuation Fund
(Amendment) No. 27 of 1991 which made
it mandatory for council employees who had
spent 22 years in service of Councils to retire
but did not provide for the resulting terminal
payments to retiring employees. is also had a
negative impact on the operational capacities of
councils as key expertise was lost; and granting
of backdated 50 percent salary increments to
unionised council employees just before the
2001 elections without providing the required
nancial resources to cover those increments.
During the period 2001 to date several
positive CG policies and pieces of legislation
have been passed that reverse some of the
negative trends of the previous 27 years. ese
include: the reverting of management of bus
stations and collection of market levies to
councils through the Markets and Bus Stations
Act No 7 of 2007; the appointment of Local
Government Practitioners on the Constitution
Review Commission (CRC) and the Electoral
Reform Committee (ERC); the extension of
councillors tenure of oce from three to ve
7
CHAPTER 1
LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA
years; the protection of council property from
seizure by court bailis; the enactment of the
Market and Bus Stations Act; the resumption
of capital and recurrent grant to councils; the
approval of the Decentralization Policy (DP);
and the formulation of the Decentralisation
Implementation Plan (DIP).
One of the Terms of Reference (ToR) of the
2003 MCRC Commission was to “…examine
the local government system and recommend
how a democratic system of local government
as specied in the constitution maybe realized”.
According to Simwinga (a Constitution Review
Commissioner and Former Town Clerk of
Kitwe City Council) in “Local Government in
Zambia: Issues Relevant to the Constitution
Making Process” (Simwinga, 2007, p. 16),;
“e Commission received an overwhelming
3,799 submissions on Local Government alone.
Most of the petitioners called for the devolution
of power and the transfer of the resources from
central government to Local Authorities”. In
response to this, the Constitution Review
Commission (CRC, 2005a) provided in Part
XII of their Draft Constitution 28 Articles,
articles 230 to 257, dealing with Local
Government. e Constitution of Zambia
Bill presented to Parliament in 2010 (NCC,
2010) had 13 Articles from 212 to 224 dealing
with Local Government. e Bill was rejected
by Parliament as not representing the peoples
will.
Zambia’s fth Republican President, elected
into oce in September 2011, His Excellency
Michael Chilufya Sata in his inaugural speech to
Parliament on 14
th
October 2011 said, relating
to scal decentralisation, “Our government will
also devise an appropriate formula for sharing
national taxes collected at the centre within the
jurisdiction of every local authority in order to
strengthen their revenue base and ensure that
all government grants are remitted on time.”
(Zambian Economist, 2011). In the 2012
Budget Address to Parliament (Scribd, 2011,
p. 9) on 11
th
November 2011, the Minister
of Finance and National Planning Hon.
Alexander Chikwanda MP, stated that “in
2012, I have increased the grants to councils by
more than 100 percent to ZMK K257.1 billion
(US $ 75.4 million)” ese statements seem
to be a continuation of the positive trends in
local government during this phase.
DECENTRALISATION
e Public Sector Reform Programme
(PSRP) launched in 1993 has three
components: Restructuring the Public
Service; Management and Human Resources
Improvement; and Decentralization and
Strengthening Local Government. Zambia’s
Vision 2030 (GRZ, 2006) which sets out
the long term aspirations of Zambia includes
the aspiration for “Decentralized governance
systems”. e Sixth National Development
Plan (SNDP) 2011 – 2015 (GRZ, 2011) one
of the tools for implementing the Vision 2030
states “In line with the goal to decentralise service
delivery functions to the councils, focus will be
on the implementation of the Decentralisation
Implementation Plan (DIP). In the medium-
term the Government will focus on building the
necessary capacity of the councils to prepare them
to carry out the devolved functions”. us the
theme of decentralisation runs through various
government pronouncements and policies.
Justication
According to the DIP (MLGH, 2006,
p. 5) “the most fundamental rationale for
decentralisation in Zambia lies in its opportunity
to bring the government closer to the people by
providing citizens with greater control over the
decision making process and allowing their direct
participation in public service delivery” e
DIP has now been revised (MLGH, 2010) but
essentially has the same content.
is rationale, together with the possibility
of improving the eectiveness of public
expenditure by targeting needs identied
by the communities, runs through all the
8
FISCAL DECENTRALIZATION IN ZAMBIA
government policies and pronouncements
that relate to decentralisation.
Decentralised Development Planning
As part of the preparation for addressing the
Decentralisation pillar of the PSRP, Zambia
undertook a decentralised planning pilot
project the “District Development Planning and
Implementation in Eastern Province” (DDPI)
from 1996 to 2001. is project covered
all the eight districts in the province and its
immediate objectives were:
1. MLGH uses lessons learned from Eastern
Province for national decentralization
policy and implementation process.
2. Stakeholders involved in District
development produce and maintain
sustainable infrastructure using
decentralized scal transfers of
discretionary and conditional grants,
participatory development planning and
localized production arrangements in
Eastern Province.
3. Local government demonstrates eective
and responsive leadership and facilitation
of the development process.
Even though, according to the project’s
terminal evaluation report (Rwampororo,
Tournee, & Chitembo, 2002), “the project
increased capacity for service delivery of District
Council sta, Councillors, District Development
Coordinating Committees (DDCC) members
and other relevant stakeholder groups in order
for them to understand and perform their roles
better” the upscaling of lessons learned has not
been possible as the underlying decentralised
governance system has not been put in place
to date.
Situation to Date
Zambia’s Decentralisation Policy (GRZ
- Cabinet Oce, 2002) was approved in
2002 and ocially launched in 2004. e
Decentralisation Implementation Plan (DIP)
2006-2010 (MLGH, 2006) revised to cover
2009 – 2013 (MLGH, 2010) was developed
in 2006 and approved in 2010. In 2006
Zambia, with the participation of various
cooperating partners led by the World Bank,
embarked on developing and implementing
a Local Development program (LDP) aimed
at operationalizing the DIP. rough its
preparatory process the LDP developed
and agreed on various principles in the
operationalization of the DIP including the
required Intergovernmental Fiscal Architecture
(IFA) to address the scal relations of a
decentralised governance system.
e delay in GRZ formally approving the
DIP led to some cooperating partners, such
as the World Bank, shifting the focus of their
cooperation away from decentralisation to
other activities. Despite this, some aspects
of the IFA have been implemented and are
discussed in Chapter 8.
PUBLIC EXPENDITURE RELATIVE TO
GROSS DOMESTIC PRODUCT
Public expenditure as percentage of Gross
Domestic Product (GDP) gives an indication
of the size of the public sector in an economy.
e World Bank data (World Bank, 2011) for
Zambian GDP and government expenditure
as a percentage of GDP for Zambia and
averages for Africa are are given in Table 1-3.
9
CHAPTER 1
LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA
ese data show moderate public sector
expenditure in the economy. Similar “ratios for
Ethiopia, Kenya and Uganda are, respectively,
24.1 per cent (1995), 28.7 per cent (1995) and
18.1 per cent (1996)” (Smoke, 2001, p. 9)),
it would therefore seem that in this regard,
Zambia is within the norm.
FISCAL DECENTRALISATION
INDICATORS and PERFORMANCE
Global Indicators and Ranges
Anwar Shah (Shah, 2004, p. 15) provides
various indicators for decentralisation and
calculates ranges from IMF and World Bank
data. ese indicators and their ranges are
given in Table 1-4
TABLE 1-3: Zambian Government Expenditure Relative to GDP (World Bank Data)
1998 1999 2000 2001 2002 2003
GDP US $ Million 3,237.20 3,131.34 3,237.72 3,636.94 3,716.09 4,373.86
Zambia ((Govt exp x 100)/GDP) 21.4303 17.4303 - 15.8781 15.9944 17.6443
Africa ((Govt exp x 100)/GDP) - - - - - -
2004 2005 2006 2007 2008
GDP US $ Million 5,423.20 7,156.85 10,675.37 11,410.06 14,381.87
Zambia ((Govt exp x 100)/GDP) 20.0127 23.0007 17.0112 22.9420 -
Africa ((Govt exp x 100)/GDP) 24.8842 24.9347 25.5451 25.3162 26.3082
Source: (World Bank, 2011) (ADI.xlsx) GDP Series: NY.GDP.MKTP.CD; ((Govt exp x 100)/GDP) Series: GC.XPN.
TOTL.GD.ZS
TABLE 1-4: Decentralization Indicators for Developing and Transition Economies
Transition (1999 Developing (1997
Average Max Min Average Max Min
Sub-national Expenditures
As % GDP 10.8 20.4 5.8 7.4 18.3 0.8
As % of public sector expenditures 22.3 38.8 7.3 23.3 45.2 3.5
Sub-Nat 1 education expenditures, as % public sector education
expenditures
55.9 91.4 0.2 49.8 97.5 0.2
Sub-Nat 1 health exp.. as % of public sector health expenditure 41.9 95.9 0.3 60.2 98.1 13.7
Sub-national revenues
As % of GDP 7.9 17.1 2.9 5.3 12.5 0.5
As % of public sector revenues 18.4 36.0 5.6 16.6 39.8 2.2
Fiscal transfers
As % of sub-national revenues 24.0 50.4 4.1 42.2 80.8 5.0
Sub-national autonomy
Tax autonomy 55.1 91.0 29.1 40.1 76.5 7.6
Expenditure autonomy 74.0 96.2 49.6 58.0 95.0 23.4
Source: (Shah, 2004, p. 15)
10
FISCAL DECENTRALIZATION IN ZAMBIA
LG expenditure as a percentage of public
expenditure, that is expenditure of all levels
of government, is often used as a proxy
for the degree of scal decentralisation as
indicated in Table 14. Smoke (Smoke, 2001,
p. 10), indicates this gure at 43.5 percent for
Ethiopia (1996), 21 percent for Uganda (1995)
and “only” 4.2 percent for Kenya (1995). All
these are within the ranges provided by Shah
in Table 14 of maximum of 45.2%, average of
23.3% and a minimum of 3.5%.
1. The Zambian Indicators
e World Bank (World Bank, 2001b)
provides various indicators of scal
decentralisation for Zambia for the period
1976 to 1980. ese are summarised in Table
1-5.
TABLE 1-5: Zambia’s Fiscal Decentralisation Indicators 1976 – 1980
Indicator 1980 1979 1978 1977 1976
Sub-national expenditures (% of GDP) 1.62 1.68 2.19 2.02 1.50
Sub-national Expenditures (% of total expenditures) 4.19 5.23 6.87 5.39 3.98
Sub-national revenues (% of GDP) 1.35 1.41 1.35 1.58 1.51
Sub-national Revenues (% of total revenues) 5.13 5.94 5.19 5.91 5.94
Fiscal Transfers (% of total sub-national revenues) 34.08 27.75 26.92 31.21 3.05
General Public Services (% of total sub-national expenditures) 46.28 47.43 44.62 29.35 23.59
Vertical Imbalance (%) 43.06 32.21 22.72 35.32 3.17
Source: Extracted from (World Bank, 2001b)
More recent data are not readily available
for decentralisation indicators in Zambia. In
some instances this is not peculiar to Zambia.
For instance regarding the indicator for
total annual Local Government Revenue or
Expenditure the World Bank notes that: “While
the framework for the GFS (IMF Government
Financial Statistics) is very comprehensive,
available data are much less comprehensive
when analyzing decentralization. For instance,
only 46 countries reported expenditures at both
the national and subnational level in 1996”
(World Bank, 2001). It is feasible that some
the countries that might not have reported
could have this information locally. e
breakdown of countries reporting indicators
for decentralization in the GFS is shown in
Table 1-6.
TABLE 1-6: Countries Reporting
Decentralisation Statistics in GFS
Levels of Reporting Number of Countries
Central and Local 32
Central and Provincial 2
Central, Provincial and Local 12
Total 46
Source: (World Bank, 2001)
11
CHAPTER 1
LOCAL GOVERNMENT IN THE CONTEXT OF ZAMBIA
The Zambian Performance
is section looks at the Zambian
decentralisation performance by comparing
the Zambian indicators to the established
indicator ranges.
e “International Monetary Fund (IMF):
Government Finance Statistics Yearbook”
(IMF, 2008, p. 487) has both Zambia’s CG
and LG budgeted revenue for 2005. e CG
revenue gure was ZMK 7,973.90 Billion
($1,992,229,856) while the LG gure was
ZMK 92.7Billion ($23,160,525). is
indicates that for 2005, LG revenues were less
than 1.5% of general government revenues.
e above IMF data series has the Zambian
Central Government revenue and expenditure
budget amounts for three years, 2005 – 2007,
but has no Local Government revenue data for
2006 or 2007. Using the Local Government
budgeted revenue of ZMK378.22 Billion
($94,496,091) from Appendix 5, the IMF
Central Government expenditure for 2007
of ZMK 10,094.6 Billion ($2,522,073,704)
(IMF, 2008, p. 487), would imply, even though
there might be slight dierences in denitions
of revenue, that local government revenues
were about 3.6% of total public revenues.
Relating the LG revenues of 2005 and 2007
to the Zambian GDP of $13,228,627,361
and $15,932,984,420, respectively, the LG
revenues were found to be 0.16% and 0.59%
of the 2005 and 2007 GDPs, respectively.
e table below compares various Zambian
performance indicators, for specied years,
against the Shah benchmarks.
TABLE 1-7: Zambian Decentralisation Performance
Indicator
Benchmarks Zambian Performance
Min. Avg. Max. 2007 2005 1980 1979 1978 1977 1976
Sub-national expenditures (% of GDP) 0.8 7.4 18.3 1.62 1.68 2.19 2.02 1.5
Sub-national Expenditures
(% of total expenditures)
3.5 23.3 45.2 4.19 5.23 6.87 5.39 3.98
Sub-national revenues (% of GDP) 0.5 5.3 12.5 0.59 0.16 1.35 1.41 1.35 1.58 1.51
Sub-national Revenues
(% of total revenues)
2.2 16.6 39.8 3.6 1.5 5.13 5.94 5.19 5.91 5.94
Fiscal Transfers
(% of total sub-national revenues)
5 42.2 80.8 34.08 27.75 26.92 31.21 3.05
It would seem therefore that relative
to the range by Shah, Zambia’s level of
decentralisation, as measured by LG revenues
relative to total public revenue, was below the
minimum of 2.2% in 2005 at 1.5% but this
improved to 3.6% in 2007, however, this was
still considerably below the average of 16.6%.
Zambia’s performance in the late 70’s was much
better averaging 5.62% from 1976 to 1980.
For the other indicators, the Zambian trends
are that they are just above the minimum for
each indicator. is indicates that is more
centralised that is the norm for developing
countries.
Using the minimum and maximum
benchmarks to be 0% and 100% respectively,
the status of each of the available Zambian
indicators along the above scale is given
in Table 1-8. .. e table shows that none
of the available indicators went above the
average, 50%, of the range and some of them,
the negative values, indicate that Zambia’s
performance in these was even below the
minimum standard.
12
FISCAL DECENTRALIZATION IN ZAMBIA
TABLE 1-8: Zambian Indicator Progress towards Maximum Benchmarks
Indicator
Zambian Performance Towards Maximum Benchmark
2007 2005 1980 1979 1978 1977 1976
Sub-national expenditures (% of GDP) 4.7% 5.0% 7.9% 7.0% 4.0%
Sub-national Expenditures (% of total expenditures) 1.7% 4.1% 8.1% 4.5% 1.2%
Sub-national revenues (% of GDP) 0.8% -2.8% 7.1% 7.6% 7.1% 9.0% 8.4%
Sub-national Revenues (% of total revenues) 3.7% -1.9% 7.8% 9.9% 8.0% 9.9% 9.9%
Fiscal Transfers (% of total sub-national revenues) 38.4% 30.0% 28.9% 34.6% -2.6%
Figure 1-3 shows the maximum percentages ever achieved, for each of the ve indicators, in
relation to Shah’s ranges.
FIGURE 1-3: Zambian Indicators – Maximum Attainment
Maximum State Attained
38.4%
9.9%
9.0%
8.1%
7.9%
0.0%
Fiscal Transfers (% of total sub-national revenues)
Sub-national Revenues (% of total revenues)
Sub-national Revenues (% of GDP)
Sub-national Expenditures (% of total expenditures)
Sub-national Expenditures (% of GDP)
10.0% 20.0% 30.0% 40.0% 50.0%
Despite most of the data being from the
1970s, the data mined for 2005 and 2007 as
regards LG revenues conrms the downwards
trends from 1977 onwards. erefore, it is safe
to assume that, with the exception of Fiscal
Transfers, which seem to have stabilised in
the 30% percentage range, Zambia has been
centralising over the past three decades.
13
CHAPTER 2
OVERVIEW OF LOCAL GOVERNMENT FINANCE
is chapter presents the concept of public
nance and its role in nancing the goods and
services described in Chapter 1. It describes the
characteristics of public nance, the market
justication for public nance and compares
and contrasts public nance to market based
nancial management disciplines such as
corporate nance. It then links the concept of
public nance to LG as a component of public
nance and outlines how the concepts outlined,
which form the theoretical framework for LG
nance generally, are applied in Zambia.
PUBLIC FINANCE
Public Finance is the area of nancial
management that has to do with the
mobilisation, stewardship and utilisation
of nancial resources for the provision of
public goods and services. It diers from
other specialisations in nancial management,
such as Corporate Finance or Securities and
Investments, as in those other specialisations
the markets, when functioning correctly,
are expected to regulate the interactions
between sellers and buyers. Both sellers and
buyers have a choice whether to transact
or not, hence the concept of willing buyer
and willing seller that underpins the market
concepts. Underlying the market concept is
the exclusivity of entitlement to the goods and
services exchanged, if one buys a pair of shoes
or pays for a haircut, they have exclusive right
to the goods or service acquired and those
particular goods or service are not available to
anybody else.
Public goods and services have two key
characteristics: Non-excludability, meaning
the cost of excluding non-payers from
enjoying the services may be prohibitive; and
Non-rivalry, meaning consumption by one
does not diminish consumption by others.
Such services include services like national
security and defence and street lights. So even
though individual choice can also be exercised,
to some extent, in the choice of public goods
and services, due to the non-exclusivity
and non-rivalry nature of public goods and
services, the market is unlikely to provide such
services even if there was demand for them as
the buyers would be unlikely to voluntarily
pay for services to which they would not have
exclusive rights. Financing the provision of
such goods and services is the realm of public
nance.
e provision of public goods and services
is mainly through taxes and therefore public
nance is the collection of nancial resources,
mainly through taxes, the stewardship of
those resources on behalf of the public and
the prudent expenditure of those resources to
supply the required public goods and services.
e justication for public nance is that it
can, through appropriate policies, contribute
to the ecient allocation, equitable
distribution of the goods and services and to
the stabilisation of the economy (Musgrave,
2004)..
Allocation
Since public goods and services are non-
exclusive, and therefore benet all consumers,
whether they have paid or not, people will
not voluntarily directly pay for such services
to which they do not have exclusive rights. If
such services are not paid for then they cannot
CHAPTER 2 OVERVIEW OF LOCAL
GOVERNMENT FINANCE
14
FISCAL DECENTRALIZATION IN ZAMBIA
be provided; no roads, no street lights and no
national security.
us for public goods and services the
ballot box becomes the proxy for the market
mechanism for allocating goods and services
as voters “will nd it in their interest to vote
such that the outcome will fall closer to their own
preferences” (Musgrave, 2004, p. 8).. us it
becomes the responsibility of the government
elected on the platform of providing a specic
bundle of goods and services to nd the
mechanisms to do so irrespective of whether
such goods and services are produced by the
government or the private sector.
Distribution
How the public goods and services can be
distributed equitably among the beneciaries
is a matter for consideration in public nance.
Whereas public goods and services are non-
exclusive, and therefore everybody is free to
enjoy them, the spatial distribution of these
goods and services may create conditions that
may exclude some from the ability to enjoy
them. e benets of street lights in one
neighbourhood may not necessarily equally
accrue to residents of another neighbourhood.
Spatial considerations may also mean that
street lights may be a key priority in one
neighbourhood but not in another. Public
policy and public nance can be tools for
dealing with the equitable distribution of
public goods and services.
Stabilisation
Public policy and public nance can be tools
for macro-economic stability targeting such
issues as unemployment, ination, foreign
exchange rates and economic growth through
the use of scal and monetary policies.
“Stabilization of the economy is a prerequisite
for economic growth” (PKSOI, 2009, p. 135),
see also (Ocampo, 2005) “Macroeconomic
stabilization policy can be broadly summarized
as methods to mitigate short-run business cycle
uctuations around some long-run growth path
using dierent policy instruments. Two policy
tools are often emphasized in the literature:
scal policy – the way that governments choose
aggregate expenditure and tax collection; and
monetary policy – the way central banks change
the amount of money supply via the price of
money – interest rates”. (Liu P. , 2010, p. 8).
In his address to the National Assembly
for the 2012 GRZ budget the Minister
of Finance and National Planning stated
“Mr. Speaker, macroeconomic policy under
the new administration will be geared
towards maintaining a stable macroeconomic
environment conducive to investment, inclusive
growth and employment creation” (GRZ -
MoFNP, 2011, p. 4). He set targets in respect
of GDP growth (7%), ination (7%), scal
decit (4.3% of GDP) and gross international
reserves (4 months import cover). He also
articulated the tools for achieving the targets;
limiting money supply growth, enhancing
eectiveness of monetary policy, maintaining
a exible exchange rate and nancial sector
regulatory framework. e budget extract
attached as Appendix 3 provides the rationale,
objectives and policy tools proposed to be
used by GRZ for achieving macro-economic
stability.
On 27
th
March 2012 the Bank of Zambia
announced that it would introduce a
benchmark interest rate called the Bank of
Zambia Policy Rate from the beginning
of April, see Appendix 4 for the full
announcement. On 30
th
March the Central
Bank News reported that “e Bank of Zambia
announced it would set its new monetary policy
benchmark interest rate at 9.00%. e move
marks a transition in the Bank’s monetary policy,
from money supply targeting to an interest rate
target system. e overnight lending facility rate
is due to be set at 250 basis points higher than the
policy rate. e new interest rate level represents
signicant tightening, and compares to previous
interest rate levels of around 6 percent. e
15
CHAPTER 2
OVERVIEW OF LOCAL GOVERNMENT FINANCE
Bank of Zambia’s adoption of a monetary policy
benchmark interest rate follows similar moves by
Uganda and Angola last year.” (Central Bank
News, 2012).
LOCAL GOVERNMENT FINANCE AS
AN ASPECT OF PUBLIC FINANCE
Why Local Government Finance?
The issues
Given that public nance covers the
provision of public goods and services, it can
be assumed that it fully addresses the issues
related to LG nance which has to do with the
provision of public goods and services at the
local, rather than national, level. Except for
city states, this is only correct to some extent.
Since LGs operate within environments
created by CGs and both provide public goods
and services, issues arise regarding which
bundle of services are best provided by which
level of government (expenditure assignment),
which revenues are best collected by which
level of government (revenue assignment) and
how do these assignments of expenditures
and revenues match. With specic reference
to Zambia, the expenditure and revenue
assignments are discussed in Chapter 6 and
Chapter 7 respectively. Ensuring that LGs’
assigned responsibilities are commensurate
with their assigned resources is the central
theme of Fiscal Decentralisation.
Some goods and services are clearly best
suited to be provided by CG, National
Defence and Security for instance, others
are best suited to LG, street lights and refuse
removal, for instance. However, there are
several goods and services that are somewhat
less clear which is why LG setups are dierent
from country to country.
Definition
Local government nance “is about the
revenue and expenditure decisions of municipal
governments. It covers the sources of revenue
that are used by municipal governments – taxes
(property, income, sales, excise taxes), user fees,
and intergovernmental transfers. It includes
ways of nancing infrastructure through the
use of operating revenues and borrowing as well
as charges on developers and public-private
partnerships. Municipal nance also addresses
issues around expenditures at the local level and
the accountability for expenditure and revenue
decisions, including the municipal budgetary
process and nancial management”. (UN-
HABITAT, 2009, p. 1)
The Role of Local Government Finance in
Zambia
In reviewing the role of Local Government
nance in Zambia it is useful to use the public
nance context outlined earlier relating to the
contribution of public nance to the ecient
allocation, equitable distribution of the
goods and services and to the stabilisation of
the economy
Allocation
Zambia is a diverse country; from high
rainfall areas in the north to sandy almost
desert like areas in the west, from densely
populated areas in the urban centres to sparsely
populated areas in the rural areas. ere are
therefore considerable spatial variations in
demand for local public goods and services. It
would not be ecient for CG to provide these
area specic goods and services and therefore,
given a multi-level government system, as the
case is for Zambia, these area specic preferred
bundles of goods and services are better
provided by LG.
Distribution
Income inequalities in many places within
the same LG areas, urban and peri-urban areas
for instance, mean that some services, for
which basic access levels have been determined,
cannot be provided to all areas on the basis of
16
FISCAL DECENTRALIZATION IN ZAMBIA
ability to pay. If, however, those services are
not provided they impact the whole LG area.
For Zambia, the case of cholera outbreaks is
a case in point. If proper water supply and
sanitation services are not provided for the
peri-urban areas, these outbreaks, even though
they may start in the peri-urban areas, can
quickly cross over to the urban cores of the
cities even if these are well served in terms of
water supply and sanitation.
LGs have the ability to cross-subsidise these
services by charging higher taris for the
higher consumption in the urban cores of the
LG areas and lower taris in the peri-urban
areas. ey also have the discretion to use the
general rate fund resources, collected mostly
from the properties in the urban core, for
providing services in the peri-urban areas.
is re-distribution of allocated services
within the LG areas can more eciently be
done at the local level.
Stabilisation
Stabilisation mostly relates to macro-
economic issues. Due to the macro nature
of the issues involved, national, this function
of public nance is primarily a central
government and central bank function.
REVENUE SOURCES FOR LOCAL
GOVERNMENT IN ZAMBIA
e major revenue sources for councils in
Zambia, apart from the intergovernmental
transfers, are Rates (property tax), Levies
(taxes on local, usually, business activities),
User Charges, Personal Levy (a Local tax on
personal income) and Licences (business
permits). e relative signicance of these
sources is somewhat dierent between the
dierent types of councils; City, Municipal
and District with rates (73%), User Charges
(70%) and Levies (60%) being by far the
leading source for each category respectively
as shown in Table 2-1.
TABLE 2-1: Performance of Council Revenue Sources -2006
Type of
Council
# of
Respondent
Councils
Revenue Sources
Sub-Total
Average
Per
Council
Property
Rates
Levies
User
Charges
P. Levy Licenses
City 2
$4,481,707 $434,835 $1,018,633 $42,545 $97,069 $6,074,789 $3,037,395
73.8% 7.2% 16.8% 0.7% 1.6% 100.0%
Municipal 3
$128,723 $85,605 $656,718 $25,381 $41,345 $937,772 $312,591
13.7% 9.1% 70.0% 2.7% 4.4% 100.0%
District 4
$40,948 $379,140 $95,416 $51,840 $57,840 $625,184 $156,296
6.5% 60.6% 15.3% 8.3% 9.3% 100.0%
Total 9
$4,651,378 $899,580 $1,770,768 $119,766 $196,254 $7,637,745 $848,638
60.9% 11.8% 23.2% 1.6% 2.6% 100.0%
Compiled from data collected during (MoFNP-MLGH, 2008)
17
CHAPTER 3
THE CONCEPT OF FISCAL DECENTRALISATION
is chapter discusses the framework for
sharing the responsibilities and resources
discussed in Chapter 2, between dierent levels
of governments, scal federalism. It applies the
concepts within this framework to the process
transferring more of those responsibilities
those that can be so transferred to lower levels
of government, scal decentralisation.
WHAT IS FISCAL FEDERALISM AND
FISCAL DECENTRALISATION?
Fiscal Federalism
Fiscal federalism is the term used to
describe the “general normative framework for
the assignment of functions to dierent levels of
government and appropriate scal instruments
for carrying out these functions. It explores, both
in normative and positive terms, the roles of
the dierent levels of government and the ways
in which they relate to one another through
such instruments as intergovernmental grants”
(Sharma, 2003, p. 177) e concept applies
to most countries not just federations, since
most countries, other than City States such as
the Vatican or Singapore, have more than one
level of government.
A central theme of scal federalism and
decentralisation, therefore, is the existence of
a multi-level government.
Fiscal Decentralisation
Within this context, scal decentralisation
(FD) refers to the applications of the norms
of scal federalism to the process of devolving
service delivery responsibilities (expenditure
assignments) and the scal means to perform
those responsibilities (revenue assignments) to
lower level governments.
us scal federalism is ‘centralisation
– decentralisation’ neutral while scal
decentralisation applies these neutral norms in
the process of decentralisation. In ‘e Federal
Approach to Fiscal Decentralisation: Conceptual
Contours for Policy Makers’ (Sharma, 2003),
Sharma lists some concepts that contribute
to the creation of the right framework for
decentralisation. ese are discussed within
the Zambian context in the next section.
THE NEED FOR FISCAL
DECENTRALISATION IN ZAMBIA
e decentralization policy denes the need
for decentralization in Zambia as stemming
“from the need for the citizenry to exercise control
over its local aairs and foster meaningful
development which requires that some degree of
authority is decentralised to provincial, district
and sub-district levels as well as Councils, in
the background of centralisation of power,
authority, resources and functions, which has in
turn subjected institutions at provincial, district
and sub-district levels to absolute control by the
centre. In order to remove the absolute control by
the centre, it is necessary to transfer the authority,
functions and responsibilities, with matching
resources to lower levels”. (GRZ - Cabinet
Oce, 2002, p. 6)
is need “for the citizenry to exercise control
over its local aairs” has been a result of
deteriorating local service delivery over the
years arising primarily from reduced local
CHAPTER 3 THE CONCEPT OF FISCAL
DECENTRALISATION
18
FISCAL DECENTRALIZATION IN ZAMBIA
revenue bases and unpredictable IGTs and the
resultant loss of human resource capacity as
the reduced revenue bases could not sustain
the required human resource recruitment,
development and retention.
e status of the available decentralisation
indicators, as outlined in Chapter 1, would
also seem to support the need for more
decentralisation..
Zambia’s Decentralisation Policy itemises
challenges within the current centralised
framework which the decentralisation process
is expected to address in respect of:
1. e Institutional Arrangements:
Challenges include; parallel administrative
structures at district level, absence of
sub-district level coordination structure
and lack of clear lines of authority and
reporting relationships between district,
provincial and national authorities;
2. Development Planning: Challenges include;
weak linkages between district planning and
national budgets and lack of local people
involvement in the planning process;
3. Human Resource Development and
Management: Challenges include; lack
of a comprehensive National Training
Policy, lack of capacity for councils to pay
skilled labour and lack of sta recruitment
guidelines for councils;
4. Infrastructure Development and
Management: Challenges include; Lack
of clear and comprehensive infrastructure
development and management policy, lack
of adequate human and nancial resources
and absence of a preventive maintenance
culture;
5. Financial Mobilisation, Utilisation
and Management: Challenges include;
Lack of a clear IGTs allocation formula,
unpredictable timing and value of IGTs,
out-dated nancial regulations;
6. Local Government Electoral System:
Challenges include lack of provisions
for; making the Mayor / Chair Person
accountable to the electorate, empowering
the Mayor / Chair Person to enforce
implementation of council resolutions and
empowering the Mayor / Chair Person to
enforce discipline ( currently no-executive
Mayor / Chair Person); and
7. Legal Framework: Challenges include;
lack of appropriate legislation to
support and guide decentralisation and
bureaucratic provisions requiring Central
Government approval of council by-laws
and budgets.
All these challenges have contributed to
poor levels of service provision at local levels
resulting in the need “for the citizenry to exercise
control over its local aairs” as demonstrated
by the “overwhelming” submission on local
government to the 2003 MCRC reported
by Simwinga (Simwinga, 2007, p. 16) and
more recently, discussions on the Barotse
Agreement (Kunda & Lewanika, 1964) as a
way for devolution
1
.
FISCAL DECENTRALISATION
CONCEPTS
Finance Follows Function
is means that when functions are assigned,
or there are changes in assigned functions,
to the dierent levels of government, those
assignments must be accompanied with
revenue raising authority to those levels of
government and, if necessary, equalisation
mechanisms to ensure adequate resources
are available for undertaking the assigned
responsibilities.
1 See also the following for discussions on the agreement:
http://
en.wikipedia.org/wiki/Barotseland
,
http://www.statehouse.
gov.zm/index.php/component/content/article/48-featured-
items/2636-bre-hands-over-barotse-report-to-president-banda
and
http://www.lusakatimes.com/2012/01/08/conspiracy-
theories-kk-abrogated-barotse-agreement/
19
CHAPTER 3
THE CONCEPT OF FISCAL DECENTRALISATION
From the discussions in 0, it is evident that
this concept has not been fully addressed in
the past. Present eorts in the development of
the IFA are aimed at addressing this shortfall.
Informed Public Opinion
In Zambia a key underlying rationale for
decentralisation is to encourage meaningful
local participation in matters of development
that aect them. For this to happen there must
be local availability and access to the right
information to enable the local community
to develop meaningful public opinion and to
decide local priorities.
An uninformed community is unlikely to
make informed choices.
Mechanisms for Articulating Local Priorities
While in Zambia it is assumed that
Councillors aord the community the
means for articulating their priorities, formal
systems for ensuring that this is so, are not
in place. Some council wards are extremely
large geographically and sub-ward structures,
such as the area development committees
(ADC) used in the DDPI, are not in place.
ese mechanisms for making local priorities
known must be in place to ensure that the
matters reaching the council chambers are in
line with the local priorities decided upon by
an informed community.
Other key community pillars, such as the
business community and civic society, must
also have means to articulate their needs.
eir needs might create the basis for Local
Economic Development (LED).
Adherence to Local Priorities
ere should be incentives for the councils
and the elected ocials to be responsive
to community priorities and accountable
to the community for delivering on those
priorities. Part of that incentive is the level of
community participation in monitoring the
delivery of services. e DDPI had a system
of public display of council monthly activities
and nancial data to enable the community
track council activities and validate them as
these were undertaken in the community.
When elected ocials and council ocers
are obliged to publicise information on
their activities and given an informed local
community, they are less likely to deviate from
the agreed local priorities as the informed local
community will note these variations and
apply appropriate injunction.
Incentives for Participation
For the community to participate there
must be incentives for that participation.
e ADC participation in the DDPI was
secured by the boreholes and feeder roads
developed from which the participants could
see the tangible output of their participation.
(Sharma, 2003, p. 39) states that “Writers on
institutional economics have long observed that
people’s willingness to participate varies according
to their perception of how much impact such
participation will have”.
Local Government Fiscal Responsibility
Zambia’s Medium Term Expenditure
Framework (MTEF) for Councils (MLGH,
2009) has the following three objectives;
Overall scal discipline, Allocative eciency
and Operational eciency. However the
“Eective incentive and sanctions frameworks
need to be in place to ensure accountability”
(MLGH, 2009, p. IX) cited as one of the
key features of an eective MTEF are not
yet in place. Fiscal indiscipline can cause
economic destabilisation but it is “argued that
destabilization eects of decentralization arose
mainly from inappropriate incentives than any
problem inherent in decentralization” (Sharma,
2003).
20
FISCAL DECENTRALIZATION IN ZAMBIA
Instruments to Support Decentralisation
e Decentralisation Policy is a statement of
political objectives. To achieve those objectives
other instruments relating to the creation of
an enabling environment require to be in
place. ese instruments are discussed as part
of the enabling environment in Chapter 4.
ISSUES FOR CONSIDERATION
Matching the assigned functions
(expenditure assignment) to the scal means to
perform those functions (revenue assignment)
and developing the means for addressing
scal imbalances that may arise between
these assignments is at the core of scal
decentralisation. Fiscal imbalances may relate
to vertical as well as horizontal imbalances.
Vertical Imbalance
Vertical Imbalance refers to scal imbalances
between the dierent levels of government.
is occurs when, at any level of government,
the expenditure assignments are greater than
the scal means to discharge these assignments
or, rarely, the available scal means are in
excess of the requirements for discharging the
expenditure assignments.
is imbalance can be caused by one or both
of the following conditions; inappropriate
allocation of revenue powers and spending
responsibilities, that is, scal asymmetry with
Vertical Fiscal Imbalance (VFI); or a desirable
revenue-expenditure asymmetry but with
a scal gap that needs to be closed, that is,
scal asymmetry without scal imbalance but
with a Vertical Fiscal Gap (VFG). Meaning
the right functions have been allocated on
the basis of which level of government can
best deliver which service and the right scal
means have been allocated on the basis of
which level of government can best collect
which revenues and still the rightly allocated
revenue sources are inadequate to undertake
the rightly allocated functions.
ere are two ways of addressing issues of
vertical imbalances; assignment of additional
(or less) local revenue raising powers and / or,
increase (or reduction) in intergovernmental
scal transfer to councils. Relating to which of
the two options is readily feasible for addressing
vertical imbalances (Bhal, 2000, p. 2) notes
“In developing and transition countries, there
are limited choices for the delegation of taxing
autonomy to local governments. e alternative
is to leave the bulk of revenue raising power at
the central level, and to provide a subsidy to
local government revenues to accommodate the
mismatch. e result is that transfers comprise
a major component of subnational government
revenues. As local governments grow into the
ability to use modern instruments of local
taxation, the importance of transfers diminishes.
In the U.S., for example, transfers nance less
than one-fourth
2
of all state and local government
expenditures and subnational governments have
access to a wide variety of consumption and
income taxes.”
Increased local revenue raising powers
While VFIs can normally be resolved
by increased local revenue raising powers,
however, issues of local scal capacity may
mean that this might not be readily feasible.
An additional factor that limits the viability
of increased local revenue raising powers is
the major dierences in local revenue bases
between the councils. ese dierences in
local revenue bases also contribute to the
horizontal imbalance.
Increased intergovernmental transfers
Increased IGTs while more particularly
suited to addressing VFGs can be used to
address VFIs. e major dierences in local
revenue bases between the councils in Zambia
means that correctly utilised IGTs can be used
for purposes of equalisation to enable councils
with diering revenue bases undertake their
bundle of assigned functions.
2 Underlining ours
21
CHAPTER 3
THE CONCEPT OF FISCAL DECENTRALISATION
Horizontal imbalance
Horizontal scal imbalances refer to
imbalances between the same levels of
government. is occurs when LGs with
similar expenditure assignments have dierent
local resource endowments therefore creating
LG scal disparities which dierently aect
the ability of the individual LGs to discharge
their functions. According to (Boadway &
Shah, 2007, p. 19) citing (Shankar & Shah,
2003) such scal disparities if large “can be
politically divisive and may even create threats
of secession (Shankar and Shah 2003).is
threat is quite real: since 1975 about 40 new
countries have been created by the break-up of
existing political unions. Fiscal equalization
transfers could forestall such threats and create a
sense of political participation, as demonstrated
by the impact of such transfers on the separatist
movement in Quebec, Canada”
ese imbalances can be addressed through
IGTs as the central government has the ability
to provide the required mechanisms for
implementing scal equalisation transfers.
IGTs must therefore take account of both
the vertical and horizontal imbalance in their
design and application.
APPLYING THE CONCEPTS IN
ZAMBIA
e concepts outlined in the preceding
section create the basis for eective scal
decentralisation. In applying these concepts
in Zambia, there are issues that reduce the
eectiveness of FD eorts. While some of
these issues, such as; nance not following
function, the lack of mechanisms for clearly
articulating local priorities and the dierences
in local revenue bases, have been highlighted
in the preceding sections, there are others
which have not explicitly been highlighted.
Some of these are outlined below.
Instability of Expenditure Assignments
Chapter 1 has outlined the frequent changes
that have happened in LG in Zambia which
have had implications for the functions
councils are expected to undertake. ese
have included assignment of new functions,
such as; registration of villages, construction
of feeder roads and water supply schemes
and withdrawal of other functions, such as;
electricity supply, water and sewerage services
and motor vehicle licensing
is instability in functions means that the
assignment of the scal means should also
have been changing to keep pace. is did not
happen.
The Cost of Undertaking the Functions
In determining scal imbalances a key
parameter is the cost of undertaking the
assigned functions. is cost has two
components; the bundle of functions that have
to be undertaken and the minimum required
level of service. In the Zambian context none
of these have been clearly articulated.
Functions
Section 61 of the Local Government Act
Cap 281 of the laws of Zambia lists sixty three
discretionary functions. While this discretion
is important, in view of the wide variety of
circumstances and local priorities among
councils, determining how much they may
cost is not feasible as they are not dened. It
is possible that a minimum bundle of services
for the dierent types of councils could be
dened, but this has not been done yet.
Service level determination
Since the minimum bundle of services has
not been determined, determining the level of
provision of these services is not possible. e
minimum standard of some services, such as
water supply, have been determined as a result
of other activities so at least the cost of these
can be determined if it is agreed that these
22
FISCAL DECENTRALIZATION IN ZAMBIA
should form the basic mandatory bundle of
services to be provided.
Instability of Revenue Assignments
While the revenue sources have remained
reasonably stable, there has been considerable
instability in their applications as this is
determined and approved by CG. e
declaration of land as having no value for rating
purposes and the exemption of various types of
property from rates (now both reversed), the
write-o of council rental houses, the reversal
of certain levies after initially being approved
(for instance the Truck Levy for Kapiri
Mposhi, a major truck route intersection and
the Bicycle Levy in Chipata both reversed after
being approved) among others, have meant
that while these sources are available, their
yield is highly subject to the whims of CG.
Alternative sources to cover the lost revenue
were not provided.
Current Status
Even though the decentralisation
implementation process has not fully gotten
underway and some of the normative concepts
outlined in this chapter are not fully adhered
to yet, some work in this direction has been
on-going. An area in which this is evident is in
the underlying upward trend in the percentage
of IGTs in the GRZ budget as shown in Figure
3-1. e percentage, albeit still small at less
than 1%, is growing.
FIGURE 3-1: Trends in IGTs 2002 - 2011
IGT as % of GRZ Budget
Intergovernmental Transfers as % of GRZ Budget
Percentage
1.00%
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
2002
0.06%
2003
0.32%
2004
0.06%
2005
0.36%
2006
0.34%
2007
0.85%
2008
0.76%
2009
0.72%
2010
0.81%
2011
0.71%
e approval of the Decentralisation
Implementation Plan and its articulation of
most of the foregoing concepts create a road
map for monitoring progress.
23
CHAPTER 4
ELEMENTS OF FISCAL DECENTRALISATION
is chapter describes the interrelated
components that make up a system of FD
within conceptual framework discussed in
chapter 3.
e key elements of scal decentralisation
are; assignment of expenditure responsibilities
to sub-national government levels, assignment
of tax and revenue sources to sub-national
government levels, Intergovernmental scal
transfers and sub-national government access
to development capital. ere are, however,
other necessary elements that must operate
in concert with the foregoing to create the
optimal operating environment for scal
decentralisation. From available literature, see
for instance (Smoke, 2001) and (Bahl, 2009)
these other elements include an enabling
environment that includes; locally elected
council, locally appointed Chief Ocers,
budget autonomy, hard budget constraints /
scal discipline.
(Bahl, 2009, p. 7) gives the following
examples of scal decentralisation that
addressed only some of these necessary
elements whilst overlooking the others:
• Russia has reformed its intergovernmental
scal system to replace ad hoc grants with a
formula based transfer, but has not removed
its extensive system of expenditure mandates.
Clearly there are gains in transparency, but
this has not been accompanied by increased
local discretion as to the expenditures of
these monies.
• South Africa has assigned signicant non-
property taxing powers to subnational
governments, including a payroll and
turnover tax, and has granted local
governments some borrowing powers.
However, the government still has not put
in place a hard budget constraint for local
governments to force ecient use of these
instruments.
• China’s 1994 scal reform dramatically
changed the national revenue sharing
system, gave local governments more
control over the administration of locally
assigned taxes, and changed the balance of
revenue availability between the two levels
of government. However, no commensurate
changes in expenditure assignment were
made.
e elements of scal decentralisation are
outlined below.
THE KEY ELEMENTS / PILLARS
Expenditure Assignments and Autonomy
The principles
e assignment of functional responsibilities
between the dierent levels of government is
the rst pillar of scal decentralisation in so
far as it articulates which level of government
does what. Everything else is structured
around ensuring the necessary conditions for
undertaking the assigned functions.
e subsidiarity principle, which suggests
that responsibility for providing government
goods and services should be assigned to the
lowest level of government that can most
eciently provide those goods and services,
underlies scal decentralisation. Given
CHAPTER 4 ELEMENTS OF FISCAL
DECENTRALISATION
24
FISCAL DECENTRALIZATION IN ZAMBIA
the geographical coverage of sub-national
governments, as sub-sets of the areas covered
by national governments, it seems logical that
functions that have national coverage, such as
national defence, are best assigned to national
governments. In the same vein, functions that
have major spill over eects into neighbouring
jurisdictions might most eciently be
provided by higher levels of government. Even
though the allocations of responsibilities are
dierent in dierent countries due to factors
such as history, culture and politics, according
to (Smoke, 2001, p. 21) “Many countries do
follow these principles in a broad way”
e issue of autonomy is important as
councils must respond to local priorities for
scal decentralisation to be meaningful. e
underlying need for decentralisation is for
the local communities to have a say, within
the agreed institutional and legal framework,
in determining their local aairs. ere are
however, as (Smoke, 2001, p. 18) notes, “some
national priorities that should take precedence,
and some types of supply-side standards may be
appropriate for certain services and activities”.
Some of these national priorities like feeder
roads and water supply and sanitation,
which are prioritised at national level for
implementation at local level, happen also to
be high on local priorities. Others like village
registration might not be so.
Applying the principles in Zambia
e Local Government Act denes the
functions that LG can undertake. As far as
allocating responsibilities between central
and local government in Zambia Chitembo
(Chitembo, 2002, p. 12) shows the allocation
as outlined in Table 4-1. State enterprises
include LG owned enterprises such as the
Water and Sewerage Companies.
TABLE 4-1: Expenditure Responsibilities
Responsibilities Central Government State Enterprise Local Government
Drainage
Education
Electricity
Environment
Fire Fighting
Health
Housing
Land Development
Markets
Recreation Facilities
Roads (District)
Roads (National)
Sewerage
Solid Waste
Street Lighting
Telephones
Water supply
Source: (Chitembo, 2002, p. 12)
25
CHAPTER 4
ELEMENTS OF FISCAL DECENTRALISATION
In so far as the functions assigned to councils
in the Local Government Act are discretionary
and not mandatory, there is local autonomy
in Zambia in determining which of the
functions will be undertaken, how they will be
undertaken and how they will be prioritised
according to local needs by each council. is
is as it should be as the local circumstances
and needs of individual councils dier
considerably. For instance while both Mpika,
the largest district before the creation of
Manga District, and Monze are both district
councils, Mpika had a population density
of 4.7 people per square kilometre in 2007
compared to Monze which had almost 8 times
more, at 38.4 people per square kilometre.
e logistics of providing services to the two
councils are likely to be completely dierent.
Table 4-2 provides a summary of the two
district proles.
TABLE 4-2: Population Densities Mpika and Monze
Name
Population
2007
Area Density 2007 Budget 2007 Per Capita 2007
Mpika 191,856 40,659 4.72 $392,440.15 $2.05
Monze 186,218 4,850 38.40 $510,580.08 $2.74
Summarised from Appendix 5
ese compare to the national average of
16.10 people per square kilometre in 2007
(17.3 in 2011) and that of Lusaka, the most
densely populated district, of 4,293.04 per
square kilometre in 2007 (4,841.6 per square
kilometre in 2010 (CSO, 2011)). ese
capacity dierences are not only between
councils of dierent types; cities, municipalities
and districts, or restricted to district councils
alone. For instance the dierences in revenue
raising capacities relative to population sizes,
among the four cities are substantial. In 2007
Kitwe was budgeting to raise almost four
times more per Capita than Lusaka as shown
in Table 4-3.
TABLE 4-3: Per Capita Revenue Budgets for Cities
Type
Population
2007
Area in
Square Km
Average People
Per Square KM
Council Budget
2007
Average Budget
Per Capita 2007
Kitwe 478,302 777.04 615.545 $18,179,939.54 $38.01
Livingstone 130,410 694.88 187.672 $2,806,117.05 $21.52
Lusaka 1,545,496 360.00 4,293.037 $17,740,826.98 $11.48
Ndola 431,063 1,102.97 390.822 $5,357,767.15 $12.43
Grand Total 2,585,271 2,934.89 880.876 $44,084,650.72 $17.05
Standard deviation $10.65
Summarised from Appendix 5
26
FISCAL DECENTRALIZATION IN ZAMBIA
e foregoing capacity dierences create
an inherent complication in determining,
nationally, which level of government can most
eciently provide which goods and services.
An additional complication in Zambia is
that functions are sometimes assigned by the
national government without involvement,
or consideration of the capacities, of Councils
and without consideration for the concept of
nance following function. For instance, until
the mid-nineties water supply and sanitation
was provided by councils in the urban areas
but by Central Government in the rural areas.
As a result of on-going water sector reforms,
these services are now provided by commercial
utilities wholly owned by councils, in most
cases by more than one council where the
utilities cover more than one council area, in
urban areas (cities and municipal councils)
while rural councils now provide this service
within their jurisdictions. No specic needs
assessment has been undertaken to identify the
council specic needs of these rural councils
to provide this service and to provide targeted
capacity support for this additional function.
Other than for water supply, in which
national supply-side standards are articulated,
by the National Water Supply and Sanitation
Council (NWASCO), there are hardly any
other services provided by councils in Zambia
that have national standards. is lack of
both minimum bundle of services to be
provided and, national service standards on
those and other services provided by councils,
makes service level performance comparisons
between authorities problematic.
e determination of which level of
government does what, in Zambia, must
therefore take into account these capacity
dierences and cluster councils by capacity.
Each cluster should then be assigned a
minimum bundle of services they must provide.
Capacity development ladders must then
be clearly dened and capacity development
activated developed and deployed to graduate
councils upwards over a period of time.
LG expenditure assignments in Zambia are
discussed in more detail in Chapter 6.
Local Revenue Source Assignments and
Autonomy
e next logical pillar is revenue source
assignment. e scal decentralisation dictum
that nance follows function alludes to this
relationship. It is logical in that until functions
are assigned, it is not possible to determine with
any certitude what nancial resources will be
required to undertake an unidentied function.
In arriving at the revenue needs of councils (Bahl
& Martinez-Vazquez, 2006) suggest a logical
three point approach; clearly assigning a package
of expenditure responsibilities to local authorities,
establishing the cost of providing a minimum level
of assigned services / responsibilities and assessing
issues related to aordability.
In the Zambian context this discussion is
complicated by the lack of clarity regarding
the minimum bundle of services to be
provided and the minimum standards to be
attained in providing each of the services in
that bundle. e issue of aordability further
compounds the complication, given not only
the poverty levels in general but also the
dierences between rural and urban poverty
and population density levels.
e assignment of revenue sources in Zambia
allows councils to charge for various services
and administrative functions. e key sources
of revenue as listed in Table 4-4 are: rates
(property tax), personal levy (personal income
tax), levies (usually some sort of business levy),
user charges and (business) licences. ese
sources are all appropriate for councils as
they are immobile and are unlikely to cause
inter-jurisdictional conict. However they all
suer from lack of buoyance which adversely
aects the revenue yield over time. Chitembo:
(Chitembo, 2002, p. 13) comparisons of the
of the elasticity CG and LG taxes is given in.
27
CHAPTER 4
ELEMENTS OF FISCAL DECENTRALISATION
TABLE 4-4: CG and LG Tax Bases
Central - Local Government Comparative Sources of Income
Source Elasticity Source Elasticity
Taxes Income Tax PAYE 90 Income Tax Personal Levy 45
Property Transfer Tax 100 Property Tax Rates 65
Value Added Tax 100
Company Tax 85
Fuel Levy 100
Custom Duty 100
Excise Duty 100
Others Fines 65 Fines 50
Motor Vehicles Licences 65 Market Fees 50
Donors 20 Grants 0
Commercial Undertakings (ZIMCO) Commercial Undertakings (Clothing
Factory)
User Fees 65
Subjective ination elasticity indicators
0 - 40 Does not respond to ination at all
40 - 60 Requires outside overt action to increase yield in response to ination (ie Statutory instrument etc)
60 - 80 Requires local overt action to increase yield in response to ination (ie Council resolution)
80 - 100 Responds automatically to ination
Source: (Chitembo, 2002, p. 13)
Other than rates and personal levy, the other
sources comprise of a miscellany of charges.
For instance levies for one local authority may
include pole levy (charged on electricity poles),
charcoal levy and bicycle levy In addition
to the ve listed broad categories there are
various permits and charges for various civic
registrations such as re registration, marriage
registration, health permits whose cost of
administration (and compliance where this is
mandatory) would probably exceed the revenue
yield. For an example of the revenue sources of
Lusaka City Council see Appendix 6.
While the revenue sources are well
documented there is little local autonomy in
administering them as each single one of them
requires approval by the Minister responsible
for LG. is approval is sometimes late and
sometimes withdrawn after approval. In
addition to this administrative requirement
for ministerial approval, some of the revenue
sources have design features that reduce their
potential yield. A summary of the key issues
relating to some of these revenue sources as
presented in a “Consultancy on the Revenue
Base of District Councils” (MoFNP-MLGH,
2008). LG revenue sources are discussed in
Chapter 7.
Intergovernmental Fiscal Transfers
IGTs are a key pillar of scal decentralisation
as they address the scal gaps described
in chapter 3. In line with the view that
expenditure assignments determine revenue
assignments, (Boadway & Shah, 2007, p.
16) observe that “For enhancing government
accountability to voters, it is desirable to match
revenue means (the ability to raise revenues
from own sources) as closely as possible with
expenditure needs at all levels of government.
28
FISCAL DECENTRALIZATION IN ZAMBIA
However, higher-level governments must be
allowed greater access to revenues than needed
to fulll their own direct service responsibilities,
so that they are able to use their spending power
through scal transfers to full national and
regional eciency and equity objectives”.
Optimal revenue allocation therefore
includes ensuring a revenue surplus at higher
levels of government to enable IGTs. e use
of IGTs in Zambia is discussed in Chapter 8.
Access to Capital Funds
e long term nature of developments
undertaken by LGs requires access to long
term capital funds as these developments are
unlikely to be nanced from LGs recurrent
revenues. e access of Zambian LGs to
capital funds is discussed in Chapter 7.
THE ENABLING ENVIRONMENT
Fiscal Decentralisation is about the transfer of
political power to local communities. e correct
policies, legal and institutional frameworks,
together with the political will to implement
them form the overarching framework within
which the scal decentralisation process can be
implemented.
Policy Framework
Articulation of an appropriate and
comprehensive policy for decentralisation
provides a statement of the political intent
and coverage for decentralisation. A review of
the Decentralisation Policy in Ghana, Joint
Government of Ghana and Development Partner
Decentralisation Policy Review - Final Report,
notes that while Ghana had been implementing
various activities in support of decentralisation
further real progress would “require policy
clarication to guide implementation, particularly
the linkages between the local government reform
in a narrow sense and the overall decentralisation
linkages with the sectors” (Nordic Consulting
Group, 2007, p. i)
Zambia has a well-articulated
decentralisation policy (GRZ - Cabinet
Oce, 2002) and now a Decentralisation
Implementation Plan (MLGH, 2006) which
covered the period 2006 – 2010. However
the plan was only approved in 2010. e 8
year timespan between policy formulation and
implementation plan approval would seem to
indicate that the process of persuading the
CG to devolve functions to the local level was
rather hesitant despite the policy intent.
Legal Framework
Councils being creatures of statutes require
appropriate legal mandates to carry out their
assigned functions. An evaluation of the
decentralization process in Rwanda, Revised
Fiscal and Financial Decentralization Policy,
notes that among the “challenges hampering
optimal functioning of the decentralization
framework” was a legal framework which lacked
clarity and coherence between documents
(MINECOFIN, 2011, p. 5). e Ghanaian
constitution provides that “Parliament shall
enact appropriate laws to ensure that functions,
powers, responsibilities and resources are at all
times transferred from central government to
local government units in a coordinated manner”
(Nordic Consulting Group, 2007, p. i).
e 28 Articles provided in Zambia’s Draft
Constitution (CRC, 2005a) were intended
to create the appropriate legal framework
for scal decentralisation as the current legal
framework does not do so. As the DIP notes
“e current policies and pieces of legislation
governing the operations of the public service, in
general, and Sector Ministries/Departments, in
particular, were developed without devolution
but with deconcentration in mind. Some of
them are at variance with the requirements of
the Decentralization Policy” (MLGH, 2010, p.
13). e eight components of the DIP include
a review of the legal and regulatory framework
for enhancing scal decentralisation. ese
components are listed below (MLGH, 2010,
p. 12).
29
CHAPTER 4
ELEMENTS OF FISCAL DECENTRALISATION
(a) Sensitisation and Civic Education
(b) Legal and Regulatory Framework
(c) Institutional and Human Resource
Capacity Building
(d) Local Development Planning and
Budgeting
(e) Financial Management and Accounting
(f) Fiscal Decentralisation and Revenue
Mobilisation
(g) Sector Devolution
(h) Infrastructure Development and Services
Provision
(i) Monitoring and Evaluation
Locally Elected Councils
A key rationale for scal decentralisation is
the “opportunity to bring the government closer
to the people by providing citizens with greater
control over the decision making process and
allowing their direct participation in public
service delivery (MLGH, 2010, p. 6). is
greater control over the decision making
process includes the ability for citizens to
“appoint” their local representatives, through
elections. “If the local leadership is appointed by
higher levels of government, their accountability
will be upwards and not downward to the local
population”(Bahl, 2009, p. 5).
In Zambia, Section 12 of the Local
Government Act Cap 281 provides that
Councillors will be elected in accordance with
the Local Government Elections Act Cap 282.
Section 14 of the Local Government Elections
Act Cap 282 provides that a person registered
as a voter in a ward or a rate payer in the area of
the council is entitled to vote for a councillor.
e law therefore provides for locally elected
councils.
Locally Appointed Chief Ofcers
Locally appointed Chief Ocers are
necessary for eective scal decentralisation
for the same reason that locally elected
councils are necessary, local accountability.
(Shah, 2005, p. 72) observes that “higher-
level government political and administrative
appointments created a hierarchical structure
in Bangalore that made local governments more
responsive to central and regional government
demands than they were to the needs of local
constituents” and that “it is apparent that local-
level responsiveness is enhanced where politicians
and administrators are appointed locally” (Shah,
2005, p. 73).
Section 90 of the Local Government Act
provided that Councils could appoint and
discipline ocers. Section 92 however,
provided that the Minister may “make
regulations governing service with a council and
the powers and duties of councils with regard to
their ocers and employees” through the issuance
of a Statutory Instrument”.
e Local Government Act has now
been amended by the Local Government
(Amendment) Act No. 6 of 2010 which,
among other things, provides for the Local
Government Service Commission (LGSC),
appointed by the President, whose mandate
includes the appointment and discipline of
council ocers. is development is somewhat
contrary to (Shah, 2005), (Bahl, 2009) and to
(Boadway & Shah, 2007, p. 9) who describe
a new public management framework which
“seeks to strengthen accountability for results
by changing the management paradigm in the
public sector from permanent appointments
to contractual appointment and continuation
of employment subject to fulllment of service
delivery contracts”
e LGSC arrangement is more suited to
the deconcentrated form of decentralisation
rather than the devolved form preferred in
Zambia’s Decentralisation Policy.
30
FISCAL DECENTRALIZATION IN ZAMBIA
Fiscal Discipline
Fiscal discipline, as implemented through
regulations relating to the development and
implementation of hard budget constraints,
is an element of scal decentralisation since
“local ocials, especially elected local ocials
with short time horizons, much prefer to nance
expenditures with grants from higher level
governments than to raise taxes, and much prefer
borrowing vs. nancing services with current
revenues” (Bahl & Martinez-Vazquez, 2006, p.
39). According to “(Liu & Webb, 2011) lack
of scal discipline can lead to macroeconomic
instability.
In Zambia, budget constraints are imposed
by the CG by establishing a resource envelope
within the MTEF in which council must
budget and operate. However, the absence of
a basis for properly costing the expenditure
assignments as described above means that
these constraints may be somewhat arbitrary.
Political Accountability
Since the rationale for decentralisation is
to allow greater participation of the local
communities in aairs of local governance,
it seems logical to assume that the primary
accountability of the decentralised local
government systems must be to the local
communities. According to (Bahl & Martinez-
Vazquez, 2006, p. 15) “Accountability to local
voters is perhaps the most crucial element of a
decentralized system, and the one that ties together
all the other components of decentralization
design”. It “is enhanced through the appointment
of ocials through open politically contested
elections, as well as by other institutions
including, proper publicity, internal control
and external audit and evaluation of budgets,
a free press, and the participation in the public
discourse of non-governmental organizations”.
Along similar lines (Liu & Webb, 2011, p.
13) state that scal responsibility framework
“requires annual publication and legislative
discussion of a scal plan and budget, and often
this is for multiple years on a rolling basis. e
presentation may have to include full costing
of any new spending programs or tax changes.
Fiscal transparency includes having an audit of
subnational nancial accounts, making periodic
public disclosures of key scal data, or exposing
hidden liabilities”.
In order for the local communities to
hold councils to account, they must be well
informed. Elements of the accountability
framework are discussed below.
Appointment of local officials
While councillors are locally elected,
ocers are centrally appointed. Centrally
appointed ocers have a higher incentive to
be accountable to the appointing authorities,
vertical accountability, rather than to the local
communities, horizontal accountability. is
dilutes to some extent the underlying rationale
for scal decentralisation.
Planning and budgeting
In Zambia, wards represent the lowest
sub district structure in which the local
communities can formally articulate, through
their councillors, their views and priorities.
In some cases, especially in rural areas, these
wards can cover large areas. e District
Development Planning and Implementation
(DDPI) project implemented in Eastern
Province from 1996 to 2001, developed a strong
development planning system that started
at sub-ward levels, the Area Development
Zone (ADZ). e delayed implementation
of the decentralisation policy has meant that
the lessons learnt from the DDPI have not
been upscaled. As a result the designing and
implementation of “a mechanism to ensure
a “bottom up” ow of integrated development
planning and budgeting from the District to
the Central Government” (MLGH, 2010,
p. 16) is now one of the components of the
Decentralisation Implementation Plan (DIP).
31
CHAPTER 4
ELEMENTS OF FISCAL DECENTRALISATION
Public disclosures of fiscal data
e DDPI developed and implanted a
system of displaying, on a monthly basis, the
scal activities of the councils involved. As a
result of the community awareness activities
of the DDPI, the local communities were able
to access this data and provide feedback. e
lessons learnt from there should be included as
part of component 1: “Sensitisation and Civic
Education” of the DIP.
Section 43(2) of the Local Government Act
provides that the accounts of a council and its
supporting documents “shall at all reasonable
times be open to the inspection of any councillor
and of any interested person”. Even though this
right exists, it is hardly ever exercised by the
councillors and interested persons.
Evaluation of fiscal performance
Section 55 of the Local Government Act
provides for a 30 day period, after the annual
statutory (external) audit is conducted and
before the External Auditor nishes the audit,
during which the public can examine and
question the audit. e accountability impact
of this provision is however compromised as
currently for most councils these audits are in
considerable arrears and public awareness of
this provision is somewhat low and the right
to inspect is hardly ever exercised, not even by
the NGOs who are usually vigilant in these
matters.
External audit
Section 43(3) of the Local Government
Act provides that the accounts of a council
must be presented to the council within
six months of the end of the year to which
they relate. Section 52(1) provides that the
Minister appoint an auditor to audit the
accounts of councils. Currently the Auditor
General (AG), being responsible for auditing
all public institutions, audits councils directly
or through audit rms registered with the
Zambia Institute of Chartered Accountants
(ZICA) who undertake the audits on the AG’s
behalf.
ese audits are in most cases in arrears as
the preparation of accounts by the councils
is not done within the specied six month
period.
SEQUENCING THE ELEMENTS
Given the high number of elements in
the decentralisation process, how they are
implemented as cosequencie for the possible
outcomes as some elements create preceding
conditions for others. In ‘Sequencing Fiscal
Decentralization’ Bahl and Martinez-Vazquez
(Bahl & Martinez-Vazquez, 2006, p. 1), suggest
that “the sequencing of decentralization policies
is an important determinant of its success. e
consequences of a poorly sequenced decentralization
program can range from minor delays and
complications to ineectiveness and subsequent
failing support of decentralization eorts,
macroeconomic instability, and fundamental
failure in public sector delivery. At a minimum,
the strategy of “making it up as we go” will not
lead to the same structure of decentralization as
will a planned strategy”. ey suggest the six
step sequence as shown in Figure 41. ey also
note that countries do not generally follow
optimal sequencing. From Figure 4-1 it is clear
that after nearly 20 years, Zambia is just on the
second of the six step sequence.
32
FISCAL DECENTRALIZATION IN ZAMBIA
FIGURE 4-1: Sequencing Fiscal Decentralisation (Adapted from Bahl & Martinez-Vazquez
(2006, p. 4))
Maping these steps to the current situation in Zambia shows that the bulk of the work is yet
to be undertake. is mapping is shown in Table 4-5.
TABLE 4-5: Sequence Steps and the DIP Components
Sequence Steps DIP Component
Step 1: Carryout a National Debate on Issues Related
to Decentralisation
Continuation of component a) Sensitisation and Civic Education
Step 2: Develop the Decentralisation Policy and
Implementation Plan
Policy and Implementation done.
Step 3: Pass the Decentralisation Law Part of b) Legal and Regulatory Framework, yet to be done
Step 4: Develop the Implementation Regulations Part of b) Legal and Regulatory Framework, yet to be done
Step 5: Implement the Decentralisation Policy c) Institutional and Human Resource Capacity Building
d) Local Development Planning and Budgeting
e) Financial Management and Accounting
f) Fiscal Decentralisation and Revenue Mobilisation
g) Sector Devolution
h)Infrastructure Development and Services Provision
Step 6: Monitor, Evaluate and Review i) Monitoring and Evaluation
Source: DIP Components from (MLGH, 2010)
Step 1: Carryout a National Debate on Issues Related to Decentralisation
Step 2: Develop the Decentralisation Policy and Implementation Plan
Step 3: Pass the Decentralisation Law
Step 4: Develop the Implementation Regulations
Step 5: Implement the Decentralisation Policy
Step 6: Monitor, Evaluate and Review
33
CHAPTER 5
FACTORS DETERMINING THE ALLOCATION OF FISCAL
RESOURCES AT DIFFERENT GOVERNMENT LEVELS
e primary determinant of the allocation of
scal resources at dierent levels of government
is the allocation of scal responsibilities which
should, ideally, be based on the principle of
subsidiarity. Chapter 4 in general and the
section on Local Revenue Source Assignments
and Autonomy in particular provide the
normative framework for assigning scal
resources to LGs. e scal resources actually
available to LGs in Zambia are described in
Chapter 6 for local resources and Chapter 8
for IGTs. is chapter discusses the factors
that determine the actual allocation of scal
resources to dierent levels of government.
FISCAL RESOURCES
Fiscal resources are the resources available
to governments to undertake their scal
responsibilities. Jamie Boex (Boex, 2009, p. 12)
states that “public nance management requires
that public resources are properly allocated
vertically between dierent levels or tiers in the
intergovernmental structure, and horizontally
across the national territory, in such a manner
that resources arrive at the service delivery units
within the various subnational jurisdictions in
proportion to their relative need”. is need arises
primarily from the expenditure assignment.
Where these resources “arrive” from is then
a result of revenue assignments and IGTs.
ere are, however, other factors that impact
on this “arrival” which then also become
determinants. ese include; scal capacity
and political will. ese other determinants
are discussed below within the context of
assigned expenditure responsibilities.
FISCAL CAPACITY
Fiscal capacity refers to the ability of
groups, institutions and governments to
generate revenue which, for governments, is
determined by: tax base, ability to pay, scal
eort and tax burden.
Tax Base
Given that all levels of government rely
on the same tax base, broadly income
(both personal and corporate), economic
activity (sales tax, value-added tax, etc.) and
general wealth (property tax), which level of
government actually collects revenues from
which source is dependent on which sources
can easily be mapped to the jurisdictional
boundaries of the sub-national levels (spatial
considerations) `and thereby reduce inter-
jurisdictional conicts and which can be more
eciently collected by which level.
Spatial considerations
Spatial considerations include which source
can be directly related to which service and
at what level of government is that service
provided. In this regard relative immobile
bases, such as property render themselves
more towards LG than national defence.
Efficiency considerations
Eciency considerations include issues
related to cost of collection which in turn
are inuenced by institutional frameworks in
place and the scal eort described below.
CHAPTER 5 FACTORS DETERMINING THE
ALLOCATION OF FISCAL RESOURCES
AT DIFFERENT GOVERNMENT LEVELS
34
FISCAL DECENTRALIZATION IN ZAMBIA
Ability to Pay
e ability to pay is determined by per
capita income. How much can feasibly be paid
by the tax payer has implications for revenue
yield, the resources that can actually “arrive” at
the service delivery unit.
Fiscal Effort
Fiscal eort is the amount that can be
collected by a government with a given scal
capacity. It is usually expressed as a percentage
of the amount that can be collected relative
to the scal capacity and is determined by
administrative and technical capacity of
the tax collectors to manage the taxation
process; tax assessment, billing, collection and
enforcement.
(Smoke, 2001, p. 2) states that “In
many developing countries, a general lack of
managerial and technical expertise has precluded
or been used as an excuse to avoid the formation
of local government institutions and an eective
working relationship between the central and
local governments”. A lack or perceived lack
of capacity can be used to inuence decisions
related to scal decentralisation.
In Zambia this perceived lack of capacity
is compounded by the perception that if CG
evolves functions to LGs, it is the councils in
their present form that will now be tasked to
undertake these functions. is assessment is
incorrect to the extent that at local level there
already exists capacity in the CG structures that
must be taken into account that is currently
no so taken. ere are Doctors and Teachers
under the sector Ministries, at district level,
who would still practice their professions at
that level.
Tax Burden
Who actually pays the tax, where they are
domiciled and what services are likely to be
provided from that tax have implications for
who collects the tax.
POLITICAL WILL
Allocation of scal resources is ultimately
a political decision. CGs may be inclined
to centralise scal resources as much as
possible, to give them more leeway in how
this is spent, while political pressure from the
constituents may require greater allocations
and predictability of scal resources to
enable local prioritisation of development
and accountability to the local constituents.
(Smoke, 2001, p. 3) observes that “e most
important reason local governments have been
neglected in developing countries is that strong
central governments often oppose decentralization.
Some reasons for this reluctance are legitimate,
such as the need for nation building in ethnically
fragmented societies and central macroeconomic
control in fragile economies. Equally important,
however, is the reality that the governing elite,
who may be dominated by particular ethnic
groups, fear the loss of power and wealth inherent
in meaningful decentralization. In addition,
central ministries and/ or political parties that
control substantial resources rarely want to share
them with autonomous local governments” In
Zambia the situation during period 2006 to
2011 when a considerable number of councils
were under the control of the opposition
party, which is now in government, may
have contributed to the slowing down of the
decentralisation process for the reasons that
Smoke observes.
THE NEED FOR A STRONG CG
Paradoxically, while discussions relating to
scal decentralisation tilt in favour of strong
LGs for its success, the decentralisation process
can, in some cases as shown in the preceding
paragraph, be hampered by a CG that is not
strong or that feels threatened. In ‘e Federal
Approach to Fiscal Decentralisation: Conceptual
Contours for Policy Makers’ (Sharma, 2003)
argues that one of the conditions for successful
scal decentralisation is a strong central ability
to monitor and evaluate decentralisation and
35
CHAPTER 5
FACTORS DETERMINING THE ALLOCATION OF FISCAL
RESOURCES AT DIFFERENT GOVERNMENT LEVELS
that decentralisation “unless carried out under
the aegis of a reasonably strong centre, is doomed
to fail. A weak centre is prone to get manipulated
by the strong coalitions and interest groups.”
(Sharma, 2003, p. 181). Given, however, the
rapidly changing national operating landscapes
in which some (previously) national functions
like “suppression of money laundering, drug
smuggling and terrorism)” will, in the global
borderless world, will pass beyond national
borders at the same time as decentralisation
devolves functions downwards, the role of the
centre will change from command and control
to stewardship and leadership. ese changes
are outlined in Table 5-1.
TABLE 5-1: Emerging Governance Structure (from (Sharma, 2003, p. 183)
20th Century 21st Century
Unitary Federal/Confederal
Centralized Globalized and Localized
Centre Manages Centre leads
Bureaucratic Participatory
Command and Control Responsive and accountable
Input controls Results matter
Top down accountability Bottom up accountability
Internally dependent Competitive
Closed and slow Open and Quick
Intolerance of risk Freedom to fail/succeed
36
FISCAL DECENTRALIZATION IN ZAMBIA
37
CHAPTER 6
LOCAL AND MUNICIPAL GOVERNMENT
FUNCTIONS AND EXPENDITURES
LEGAL PROVISIONS
Section 61 of the Local Government Act
provides that “Subject to the provisions of
this Act, a council may discharge all or any of
the functions set out in the Second Schedule.”
e second schedule provides 63 dierent
functions, some of them with sub-functions.
ese functions cover a diversity of areas,
for instance, administrative functions, “1. To
establish and maintain oces and buildings
for the purpose of transacting the business of the
council and for public meetings and assembles”;
agricultural functions “5. To establish and
maintain farms and allotment gardens”,
commercial functions “24. To brew beer” and,
“59. To undertake mining operations.” Others
cover public order, public health, community
development, education in addition to the
more traditional ones of roads, street lighting,
water supply and sanitation. As per the
wording of section 61, all the functions are
discretionary.
In addition to the functions provided in
section 61 of the Local Government Act,
other laws provide additional functions.
ese include: Cap 282. Local Government
Elections Act, Cap 283. Town and Country
Planning Act, Cap 284. Local Authorities
Superannuation Fund Act, Cap 286,
Provincial and District Boundaries Act, Cap
287. Chiefs Act, Cap 288. District Messengers
Act, Cap 289. Registration and Development
of Villages Act, Cap 290. Markets Act (now
replaced by the Markets and Bus Stations Act
No 7 of 2007), Rating Act No. 12 of 1997 and
Cap 326 Personal Levy Act.
Other than the administrative functions
which every council needs to undertake to
remain functional, the discretionary nature of
the law means that each local authority can in
eect, choose which functions to undertake
given the local conditions and priorities.
is is in line with both the concepts of scal
decentralisation relating to local priorities
and to the diversity of socio- economic and
environmental conditions of the various
councils. e priorities of one council may not
necessarily be the priorities of another.
Currently the legal framework has not yet
been revised to bring it into line with the
intent of the Decentralisation Policy and
therefore the legal basis for the devolution of
functions to LG is still missing even though
some devolution can still be achieved under
the current framework. e functions listed
Table 41 are still, to a large extent, legally the
same authorised to date.
FUNCTIONS CURRENTLY
UNDERTAKEN
While some functions previously undertaken
by LGs, such as roads, have been take away
and centralised, others, such as water supply
and some aspects of sanitation, have been
reformed to be managed by commercial
entities wholly owned by LGs. In most cases
one Commercial Utility (CU) is responsible
for water supply and sanitation of several LGs
and is owned by those LGs.
e remaining common functions include,
housing, street lighting, drainage, registration
of births, marriages and deaths, provision of
CHAPTER 6 LOCAL AND MUNICIPAL GOVERNMENT
FUNCTIONS AND EXPENDITURES
38
FISCAL DECENTRALIZATION IN ZAMBIA
parks and open spaces, zoning, pest control,
markets, bus stations, refuse removal and
preventive health. is list is not exhaustive.
Under the current legal framework any of these
functions, and any other currently carried out
by LGs, can be withdrawn or reformed out of
LG mandate.
A perception survey carried out during
a (MoFNP-MLGH, 2008, p. 4) found
that residents expected and prioritised the
following services from councils “Water and
sanitation, Refuse collection, Roads, Markets,
Cleaning, Plot allocation and Street lighting were
the most frequently mentioned services and also
the most highly ranked in terms of desirability”.
Appendix 7 gives the stakeholder responses
sorted by total weight.
SHARED FUNCTIONS
Arising from the discretionary nature of
functional assignments to LGs, reduced and
inelastic LG revenue sources and Zambia’s
increasing liberalisation of the economy, more
functions are now shared with the CG and /
or with the private sector. us currently the
private sector can and do provide university
education, previously a preserve of CG in
competition or cooperation with the CG. In
the same manner housing can and is provided
by LGs, CG and the private sector.
In order to formalise the process of working
leveraging synergies between the private sector
and government, both CG and LG, Zambia
has developed Public Private Partnership
(PPP) Policy and enacted a law, the Private
Public Partnership Act No. 14 of 2009, to
provide the necessary policy guideline and
legal framework for such activities. PPPs are
implemented in various ways from outsourcing
of service provision, such as refuse collection,
outsourcing of revenue collection functions
for a fee, such as collection of parking fees,
to development of infrastructure such as bus
stations on a Build Operate and Transfer
(BOT) basis
ISSUES TO RESOLVE
Zambia has not dened a common basket
of services which LGs must provide and
has therefore, except for water supply, not
set minimum standards for those services.
is lack of a common basket of reference
services and minimum standards has adverse
implications in the determination of the scal
gaps required for developing the appropriate
IGTs.
39
CHAPTER 7
LOCAL AND MUNICIPAL GOVERNMENT
REVENUES AND SOURCES
is chapter discusses local revenue sources
as intergovernmental transfers are covered in
Chapter 8. e local revenue sources include
local taxes and charges. e sources are;
• Property Rates - a tax based on the value of
property;
• Levies – ad valorem taxes on commercial
/ business activities which include such
levies as grain levy (for farmers), billboards
and even sand levies (for the construction
industries);
• User Charges- such as market fees for market
traders, parking fees or transport fees;
• Personal Levy – a personal income tax; and
• Licenses – fees paid for permits to operate
business / commercial enterprises.
INTERNATIONAL DECLARATIONS
ON LOCAL GOVERNMENT
FINANCE
At its 31
st
World Congress held in June
1993 in Toronto, Canada, the International
Union of Local Authorities (IULA), outlined
some principles of LG nance which cover the
foregoing, in article 8 e resources of local
authorities of their declaration (IULA, 1993).
ese principles were re-armed, with some
slight re-wording, by the United Nations
Centre for Human Settlements (Habitat)
and World Associations of Cities And Local
Authorities Coordination (WACLAC), the
successor to IULA in May 1998 (GDRC, May)
in part C Article 9 - Financial resources of local
authorities of a proposed World Charter on of
Local Self Government. ese principles, as
re-worded in 1998, are reproduced below:
1. Local authorities shall be entitled to
adequate nancial resources of their own,
of which they may dispose freely within
the framework of their powers.
2. Local authorities’ nancial resources shall
be commensurate with their tasks and
responsibilities.
3. A reasonable proportion of the nancial
resources of local authorities shall derive
from local taxes, fees and charges of which
they have the power to determine the rate.
4. Taxes which local authorities shall be
entitled to levy, or of which they receive a
guaranteed share, shall be of a suciently
general, buoyant and exible nature
to enable them to keep pace with their
responsibilities.
5. e protection of nancially weaker local
authorities requires a system of vertical and
horizontal nancial equalisation.
6. Local authorities shall participate in
framing the rules governing the general
apportionment of redistributed resources.
7. As far as possible, nancial allocations
to local authorities shall respect their
priorities and shall not be earmarked for
specic projects. e provision of grants
shall not remove the basic freedom of local
authorities to exercise policy discretion
within their own jurisdiction.
CHAPTER 7 LOCAL AND MUNICIPAL GOVERNMENT
REVENUES AND SOURCES
40
FISCAL DECENTRALIZATION IN ZAMBIA
8. For the purpose of borrowing for capital
investment, local authorities shall have
access to the national and international
capital markets.
LG REVENUES IN ZAMBIA
LG revenues in Zambia are made up of
local taxes, user fees, administrative charges/
permits / licenses and grants for operational
needs and borrowing, through CG and capital
grants for capital developments. e tax and
user fee rates all have to be approved by the
Minister and in some cases these rates have
been reversed by the Minister after approval.
An overview of the top three major sources
of revenue and their contribution to total
revenue for some councils in Zambia in 2006
is given in Table 7-1 adapted from table 5-5
(MoFNP-MLGH, 2008, p. 20).
TABLE 7-1: Revenue Composition 2006
Council Source 1 % of total Source 2 % of total Source 3 % of total Top 3 Total
Livingstone Rates 46.70% Personal Levy 2.90% Permits 2.00% 51.60%
Kitwe Rates 38.40% Flat Rate 15.00% Bus Station Fees 9.80% 63.20%
Chipata Other Fees 39.10% Rates 9.40% Grain Levy 7.60% 56.10%
Solwezi Fees 37.80% Licenses 9.20% Rates 3.80% 50.80%
Mongu Market fees 14.40% Land 11.40% Rates 9.40% 35.20%
Chibombo Levies 41.30% Charges 7.20% Personal levy 5.30% 53.80%
Monze Rates 13.70% Sales 8.30% Fees Charges 6.80% 28.80%
Mpika ZESCO 12.40% Licenses 5.20% Packing 1.50% 19.10%
Kasempa Levies 6.20% Personal Levy 4.40% Transport 0.40% 11.00%
Top 3 Average 41.07%
Even allowing for the highest IGT transfer
of 22 percent of total revenue, see Chapter 8,
noted by (MoFNP-MLGH, 2008), these top
sources including IGTs contribute, on average,
less than 65 percent of total of LG revenues.
e remaining 35 percent is contributed by
a myriad of sources whose individual yields
might be negligible which may need a review
of for possible consolidation as no cost-benet
analysis is usually done on some of these
sources. e various major revenue sources are
described below:
LOCAL TAXES
Traditionally there were two major local taxes
in Zambia, rates (property tax) and personal
levy (a personal income tax). e inelasticity
of these taxes have resulted in LGs in Zambia
imposing various business levies eectively
turning some administrative charges, such as
business permits, into ad valorem taxes.
Rates
Rates are the top ranked source of revenue
for most major local authorities in Zambia.
For Lusaka City Council rates represented 92
percent of local tax revenues and 39 percent
of all revenues for 2005 compared to 26
percent and 9 percent respectively for Chipata
Municipal Council, a provincial capital, and 3
percent and 1 percent respectively for Petauke
District Council, a typical rural district,
according to a 2006 study (MLGH - GTZ,
2006). For rural councils rates are a relatively
new source of revenue which has replaced the
withdrawn beer surtax grant. In addition to
being new for rural councils, these councils
41
CHAPTER 7
LOCAL AND MUNICIPAL GOVERNMENT
REVENUES AND SOURCES
also have a higher proportion of CG and
agricultural properties, which are exempt from
rates, than do the major councils.
However, the yield and elasticity of this
source are compromised by procedural
complexities of administering it. e current
system is based on absolute valuations of every
individual property every ve years. e system
for approving the valuation roll and thereafter
the annual rate levy is complicated and
cumbersome and has proved to be technically
impossible to implement eectively, given that
there are now 78 councils that must be revalued
every ve years (more than 15 valuations per
year) with less than 50 registered valuation
surveyors in Zambia.
e three key determinants of revenue yield
from rates are the valuation roll status, the
rate levies used and the collection eciency.
A study on rates and the valuation roll process
(MLGH - GTZ, 2006) found that while the
collection eciency for rates was improving
during the period 2001 to 2005 from 47
percent to 79 percent for the sampled councils,
the valuation roll, which is supposed to be
updated every 5 years, was for those councils
on average 6 years overdue. e status of the
valuation rolls for those councils is given in
Table 7-2.
TABLE 7-2: Valuation Roll Arrears
Date Age Overdue
Lusaka City Council 1995 11 6
Chipata Municipal Council 1998 8 3
Katete District Council 1992 14 9
Petauke District Council 1992 14 9
Solwezi Municipal Council 1992 14 9
Kitwe City Council 2003 3 -2
Kalomo District Council
1993 13 8
Average 11 6
Standard Deviation 4.16
Source: (MLGH - GTZ, 2006, p. 10)
is meant that those councils were
operating on valuation rolls that were 11 years
old. e report also identied fteen dierent
steps that were required from the time the
councils decides to undertake the valuation
to the time the valuation roll is implemented,
and this is before the process of getting the
rate levy approved is started. In addition the
rate levies, or rate poundage, had tended to
remain the same for the councils over the ve
years to 2005. Upward adjustments of the rate
levy have to be approved by the Minister. e
combination of an old value base and static
rate levy meant that not only was the revenue
ination inelastic but also, in excluding
property developments in the intervening 11
years, provided an unocial “tax break” for
these new properties
In trying to get around the procedural
diculties of the Rating Act, a quick x
solution, the Flat Rate Tax, was introduced by
councils to apply to property not yet on the
valuation roll. is was subsequently declared
to be in conict with the main act the Rating
Act and stopped by 2005 by the CG.
Personal Levy
Section 3(1) of the Personal Levy Act Cap
326 provides that persons with an annual
income in excess of ZMK 300,000 ($60) will
pay one percent of their income as personal
levy to a maximum levy of ZMK 15,000 ($3).
ese rates were xed in 1994 and eectively
mean any income in excess of ZMK 1,500,000
($300) per year is not taxable. According to
both (LGAZ, 2010) and (MoFNP-MLGH,
2008) Personal Levy provides about 5% of
the total revenue of councils. Being number
4 on revenue source rankings in Table 21 and
providing, on average 5% of total revenues
would seem, given that some LGs might have
more than 10 dierent sources of revenue,
to indicate LGs may have many sources of
revenue whose contribution to total revenues
are negligible.
42
FISCAL DECENTRALIZATION IN ZAMBIA
Apart from the fact that the tax is a
duplication of the nationally administered
personal income tax of Pay As You Earn
(PAYE); it has other attributes that are
inconsistent with taxation in general and local
taxes in particular. Firstly, is highly regressive
as while a person earning ZMK 1,500,000
($300) per year will pay ZMK 15,000 ($3)
or one percent of their earnings, a person
earning the new minimum threshold for
PAYE of ZMK 24 Million ($ 4,800) per year
will also pay ZMK 15,000 ($3) or 0.06% of
their earning. Secondly, it is not buoyant as
having been xed in Zambian Kwacha terms
in 1994 it does not automatically respond to
ination or to increased productivity. Finally,
with the increasing incidences of both worker
commutation, the Copperbelt for instance has
seven urban councils within 70 kilometres of
each other, and businesses operating in more
than one local authority area but ocially
domiciled in one, the question of to which
authority are individual workers supposed
to pay becomes a possible issue for inter-
jurisdictional conict.
Business Levies
Business levies, normally some ad valorem
tax, on business activities of all types have
proliferated as sources of revenue for LGs in
the last 10 years or so. ese include levies on
agricultural produce of various types (grain
levy for instance), on collection of natural
resources (caterpillar and sand levies), on types
of business operations (bicycle levy in a district
where bicycle taxis were the norm, truck levy
in a district which is a major truck stop), and
on some types of commercial infrastructure
(on cellular phone communication masts
and ZESCO electricity poles). While they are
mostly levied on the movement of commercial
goods from or through a council jurisdiction
(grain levy, sand levy) others are on economic
infrastructure (Electricity pole levy and
Cell phone tower levy). e levy charged is
dierent from council to council even for the
same charge. One council charged, in 2008,
a productivity levy in a commercial farming
area of 0.08% of farm turnover while another
charged 1% cotton levy (MoFNP-MLGH,
2008, p. 26).
ese levies have proliferated as a response
to loss of revenue sources described in
Chapter 1and any visible commercial activity
is prone to be levied. It seems no specic
analysis is undertaken by each council before
implementing them as noted in (MoFNP-
MLGH, 2008, p. 26), there is “something akin
to a “herd mentality” when it comes to levies. As
one council identies another candidate source
for a levy and gets a bye law approved by the
Minister of Local Government and Housing
under Part VIII of the Local Government Act,
most other councils quickly follow suit and
submit similar bye laws for their own councils
to use to raise revenue. us, it was reported
that Mambwe District Council was the rst to
get a ZESCO pole levy bye law approved by the
Minister and was quickly followed by most other
councils”. e report further notes that “e
proliferation of levies is causing some discomfort
for the business sector. As a result, Chibombo
district has - following dialogue between the
council and the commercial farmers - led to a
substitute “productivity” levy being introduced,
technically estimated at 0.08% of farm turnover.
is was bought (sic) in to minimise the nuisance
eect of multiple agricultural levies by their
replacement with a single levy.”
e signicance of these levies can be seen
from Table 21 and Table 71 where they are in
the top three in most cases.
OTHER LOCAL REVENUE SOURCES
Fees and User Charges
LGs provide various services for which both
the user and quantum of use can be identied
and whose consumption excludes consumption
by another user at the same time. For these
services which include market stalls, parking
spaces, refuse collection and public restroom
43
CHAPTER 7
LOCAL AND MUNICIPAL GOVERNMENT
REVENUES AND SOURCES
facilities, users seem to accept the concept
of paying if the service provided is up to the
required standard. Table 21 highlights their
signicance. A recent trend in the provision
of these services has been the outsourcing of
the service provision, such refuse collection in
Lusaka and / or the revenue collection, such
as parking fees in some towns, and charging
the outsourced service provider a fee for the
opportunity to provide the service.
Business Licenses
LGs were, in the recent past, collecting
a myriad of business licences and permits
from all sorts of enterprises operating within
their jurisdiction. ese included trading,
professional, re and liquor licences. LGs were
often not the only business licensing entities in
a particular sector. Other government agencies,
especially in the tourism and the extractive
resources industries, were also collecting various
licences and permits from enterprises operating
within their sector of concern. e myriad of
licences tended to violate a cannons of taxation,
convenience, which may have tended to
undermine licence-payer voluntary compliance
due to high compliance costs (in terms of time
and money. Of late the concept of a general
business licence to cover the myriad of licenses
previously charged is being implemented
ere is some confusion relating to business
licences and permits in respect to their revenue
raising function on the one hand and their
business regulation aims on the other.
CAPITAL FUNDS
e long-term nature of some of the services
provided by councils such as the physical
infrastructure of roads, street lights, water
supply and reticulation systems, and so on,
imply that it might not be feasible to nance
the capital development of these services
from recurrent income. In this regard access
to investment funds is essential. However
this access requires a regulatory framework to
ensure that councils do not borrow beyond
their capacity to repay or for covering recurrent
expenditure needs.
Section 47 of the Local Government Act
in Zambia allows councils to borrow for
discharging their functions while section 48
forbids them from borrowing or receiving
grants from foreign governments or
institutions. Up to the end of the seventies
councils were able to borrow, with CG
sanction, from their pension fund; the Local
Authorities Superannuation Fund. However
the Local Authorities Superannuation Fund
(Amendment) No. 27 of 1991 which made
it mandatory for council employees who had
spent 22 years in service of Councils to retire
and an earlier CG decision in the late eighties
to cancel the transferable Local Government
Service and to allow ocers to take early
retirement put such a stress on the fund
that it is no longer a source of such funding.
ere is currently no major municipal credit
institution in Zambia.
e lack of long term investment funds
in Zambia and the prohibition on foreign
funding to councils have meant that to a large
extent funds for capital developments have
had to come from or through the CG. Some
councils have utilised the available short term
commercial credit to develop infrastructure
such as sites and service which are then
taken up by private developers for further
development. e councils use the proceeds
from the private developers to redeem their
short term borrowing
1
. As an additional
route for leveraging synergies with the private
sector, Zambia has developed a Public Private
Partnership (PPP) Policy; see “Public Private
Partnerships” (Zambia Development Agency,
2008) for a write-up. Both CG and LG are
1 In the mid-eighties Kitwe City Council used a variation of the
theme by borrowing from a local commercial bank sufcient
money for building fty medium cost houses in Riverside
Extension for sale to the public. During the three year loan
tenure they created a revolving fund and built and sold more
than three hundred houses before redeeming the loan thereby
increasing their rate base.
44
FISCAL DECENTRALIZATION IN ZAMBIA
exploiting this approach for infrastructure
development.
e Lusaka Stock Exchange (LuSE) is
providing some platform for accessing
development funds but experiments with
Municipal Bonds from 2004 have not, to date,
proved successful as noted by the Zambian
Economist (Zambian Economist, 2010).
ey have, to a large extent, been shelved for
the time being. is source however, requires
further exploration as, given its function, the
councils should be able to, collectively or even
on an individual council basis, access some
form of development nance from LuSE
subject to meeting its various requirements.
All long term loans acquired by LGs in
Zambia are acquired through MoFNP. e
budgetary provisions for these loans in the CG
budgets are shown in Table 7-3 .
TABLE 7-3: GRZ Budget for MLGH Loans 2006 – 2012 (US $ 000)
Head Department 2006 2007 2008 2009 2010 2011 2012
20/04 Physical Planning and Housing $2,046 $9,222 $2,323 $1,875 $1,965 $2,350 $2,223
20/05 Administration $392 $807 $0 $0 $0 $0 $0
20/06 Infrastructure and Support services $69,820 $98,967 $127,416 $47,664 $111,101 $132,282 $60,895
20/09 Decentralisation Secretariat $0 $0 $0 $8,526 $1,251 $1,887 $4,395
Total $72,258 $108,997 $129,738 $58,064 $114,318 $136,519 $67,513
Source: Summarised from GRZ Budget Estimates 2006 - 2011
e IGTs are discussed in Chapter 8
45
CHAPTER 8
INTERGOVERNMENTAL FINANCIAL
RELATIONS AND TRANSFERS
CHAPTER 8 INTERGOVERNMENTAL FINANCIAL
RELATIONS AND TRANSFERS
THE TRANSFERS
Trends and Values
e Grants included in the 2011 GRZ
estimates for Councils are $30.77 Million or
0.71 percent of the total government budget
of $4,323.65 Million. Between 2002 and
2011 this has uctuated considerably both
in terms of value and as a percentage of GRZ
budget as shown in Table 8-1.
TABLE 8-1: Total GRZ Expenditure and Budgeted Intergovernmental Transfers 2002 – 2011
(US $ Million)
2002 2003 2004 2005 2006
Govt Exp $1,157.79 $1,348.72 $1,443.55 $1,865.00 $2,505.72
IGTs $0.79 $4.70 $1.05 $7.84 $9.71
Percent $0.07% $0.35% $0.07% $0.42% $0.39%
2007 2008 2009 2010 2011 Est.
Govt Exp $2,768.65 $3,420.15 $2,744.12 $3,676.26 $4,323.65
IGTs $25.66 $28.03 $21.86 $28.06 $30.77
Percent $0.93% $0.82% $0.80% $0.76% $0.71%
Source: Adapted and summarised from (MoFNP-MLGH, 2008) and GRZ Budget Estimates 2006 - 2011
e percentage which is showing an upward trend is in line with the more positive Central
Government policies and pieces of legislation referred to earlier for the period 2001 to date. is
trend is shown in Figure 8-1.
46
FISCAL DECENTRALIZATION IN ZAMBIA
e uctuation and unpredictability in the
value of IGTs in Zambia is compounded by
additional unpredictability of the allocation
of these amounts to the dierent councils. A
2008 study of council revenue bases, (MoFNP-
MLGH, 2008), found that as a percentage of
total council revenue for the fteen councils
reviewed, IGTs accounted for between 7 and
20 percent for the period 2002 to 2006. Table
82 extracted from that report shows these
uctuations between the dierent councils
and within the councils from year to year.
While no data are readily available regarding
total council revenues or expenditures, various
documents indicate that IGTs as a percentage
of total council revenues are below twenty
ve percent. e Commonwealth Local
Government Forum (CLGF, 2007) put this
gure at about 3 percent for that time, while
Homan and Gibson (Homan & Gibson,
2005, p. 7) put it at 15 percent and (MoFNP-
MLGH, 2008, p. 13) which reviewed data
from fteen Councils in Zambia for a ve year
period, 2002 – 2006, at an annual averages
between 8 and 22 percent. All of these are
well below the level of 70 percent indicated
in the Decentralisation Policy (GRZ - Cabinet
Oce, 2002) and below the average 42.2%
average in Table 14.
e (MoFNP-MLGH, 2008) also noted
major variations both in amounts during
the ve year period and in allocations to and
between the fteen councils. Table 8-2 is
extracted from that report.
Percent
1.00%
0.90%
0.80%
0.70%
0.60%
0.50%
0.40%
0.30%
0.20%
0.10%
0.00%
0.07% 0.35% 0.07% 0.42% 0.39% 0.93% 0.82% 0.80% 0.76% 0.71%
2002 2003 2004 2005 2006 2007 2008 2009 2010
2011
Est.
IGTs Percent
FIGURE 8-1: IGTs as Percent of GRZ Expenditure
47
CHAPTER 8
INTERGOVERNMENTAL FINANCIAL
RELATIONS AND TRANSFERS
TABLE 8-2: National Support as Percentage of Total Council Revenue
2002 2003 2004 2005 2006
Kasempa 70.66% 4.73% 48.41%
Kaoma 36.32% 10.94% 4.98%
Solwezi 2.50% 36.48% 9.12% 39.69% 25.87%
Mongu 15.99% 0.00% 2.91% 44.85% 25.12%
Kitwe 19.86% 0.50% 1.84% 11.01% 4.42%
Petauke 42.04% 26.92% 32.36% 27.26%
Livingstone 3.20% 13.96% 6.12%
Chipata 4.56% 0.48% 8.96% 20.08% 7.88%
Monze 1.58% 29.36%
Chibombo 2.83% 10.26% 14.89% 18.56%
Mkushi 19.76% 0.16% 9.95% 0.85% 11.60%
Mpika 6.50% 2.69% 15.16% 30.47% 19.04%
Kasama 4.52% 0.00% 6.16% 24.47% 13.85%
Average 20.71% 7.78% 10.97% 21.68% 17.93%
Source: (MoFNP-MLGH, 2008, p. 14)
ese variations are also noted in JICA review (JICA, 2007, p. 15) which shows IGTs
(National Support) as being on average 14.5 percent with a range of 2 percent to 18% as shown
in Table 8-3.
TABLE 8-3: National Support (source (JICA, 2007)
National support
(million kwacha)
National support as % of the
total (average)
All local Authorities 261.2 14.5
Municipal and City 470.5 4.2
Municipal and City excluding Lusaka and Livingstone 147.7 2.0
Rural District 191.5 18.0
Lusaka & Livingstone 3053 10
Source: (JICA, 2007, p. 15)
48
FISCAL DECENTRALIZATION IN ZAMBIA
Comparisons
e foregoing level of IGTs are below the
level of 70 percent of total councils revenues
indicated in the Decentralisation Policy (GRZ
- Cabinet Oce, 2002). (Boadway & Shah,
2007, p. 1) state that “intergovernmental
scal transfers nance about 60 percent of
subnational expenditures in developing countries
and transition economies and about a third of
such expenditures in member countries of the
Organisation for Economic Co-operation and
Development (29 percent in the Nordic countries,
46 percent in non-Nordic Europe)”
(Smoke, 2001, p. 20) notes that the “function
o-loading and local revenue inadequacy are
major concerns in many developing countries.
Both Ethiopia and Uganda recognize that
eective local governments must have adequate
resources to meet their responsibilities under
decentralization. Accordingly, both countries
have developed signicant transfer programmes
that account for substantial proportions of total
central revenues (around 30 per cent in Uganda
and more than 40 per cent in Ethiopia)
1
”. .
Zambia’s IGTs compared to total council
income, at just under 22 percent, are below
those indicated by (Boadway & Shah,
2007, p. 1) of 60 percent of sub-national
government expenditure for developing
countries. Zambia’s IGTs compared to central
government expenditure at less than 1 percent
are also well below those indicated by (Smoke,
2001, p. 20) of 30 percent for Uganda .
It would seem, therefore, that even taking
into account the dierent local government
arrangements, Zambia’s IGTs are below the
norm and still below its levels of the of 70
percent of total councils revenues indicated in
the Decentralisation Policy (GRZ - Cabinet
Oce, 2002) which were closer to the norm.
1 Underlining ours
THE INTERGOVERNMENTAL FISCAL
ARCHITECTURE (IFA)
In trying to address the issues of the scal
gap at local level, Zambia developed the
Intergovernmental Fiscal Architecture (IFA) in
2006 - 2007. e IFA had four components;
Restructuring, Recurrent, Capital and
Devolution Grants. According to an analysis
by the Local Government Association of
Zambia (LGAZ, 2007), taken together,
these four elements were to constitute the
Intergovernmental Fiscal Architecture (IFA)
that would form the backbone of successful
decentralization in Zambia.
While the IFA had the support of various
stakeholders and cooperating partners, led by
the World Bank, the slow rate of progress on
the implementation of the Decentralisation
Policy led to some loss of support with the
World Bank redirecting its participation more
towards water supply and sanitation and away
from decentralisation. e components of the
IFA are outlined below.
Restructuring Grant
is was expected to be a one-time grant
which was meant to facilitate the nancial
restructuring of councils by clearing
retrenchment, retirement costs and other
debts.
It was also aimed at assisting councils to
prepare restructuring plans which were to
cover the:
(a) specication of the core business of
each council based on consultation with
communities;
(b) denition of the human resource (HR)
and systems required to carry out the
dened core business, and dene that core
recurrent costs (CRCs); and
(c) determination of the optimized own
resources (OOR) the LG can generate,
49
CHAPTER 8
INTERGOVERNMENTAL FINANCIAL
RELATIONS AND TRANSFERS
compare to CRCs and dene the scal gap
(FG), if any: OOR – CRCs = FG
Even though the restructuring plans,
being part of the implementation of the
Decentralisation Policy, have no yet been fully
drawn up, the grants have been implemented.
Even though this was supposed to be a one-
time grant, for the period 2007 – 2009 ZMK
25.0 billion (about US $ 6 Million at 2007
exchange rates) per annum had been allocated
for the restructuring grant. e grant is still
on-going as at 2011 even though now in
dollar terms it is about US $ 5 Million, see
from Table 84. .
Recurrent Grant
is grant is a conditional recurrent grant
intended to support the recurrent costs of all
eligible councils, and replaced the previous ad
hoc general purpose grant given to councils.
Councils which would have successfully
implemented the restructuring reforms
described above would become eligible. An
allocation of ZMK50.0 billion (about US $
12.5 Million) per annum was provided for this
grant.
Capital Grant
is is a conditional, formula-driven grant,
and serves as a means by which resources
for development are channelled to local
authorities. Councils that had restructured
and were meeting their recurrent grants were
eligible to access this grant. ZMK10.0 billion
(about US $ 2.5 Million at 2007 exchange
rates) per annum was allocated for the 2007-
2009 period.
Devolution Grant
All councils that had successfully
implemented the package of reforms under the
three grants above would then be eligible to
receive devolved sta, funding and functions
from sector line agencies. As sector functions
are devolved, the Recurrent and Capital Grants
would be adjusted to reect the additional
expenditure and investment responsibilities
transferred to the Local Authorities. Table
8-4 shows the composition of the IGTs in the
2011 GRZ budget. e table shows that while
the capital, restructuring and recurrent grants
are budgeted for by GRZ, the devolution
grant is not included, perhaps indicating that
no council has yet become eligible.
TABLE 8-4: Composition of IGTs 2010 - 2012 (US $ )
Activities 2010 2011 2012
01 Capital Grants - Councils $0 $5,002,105 $25,108,400
02 Grants in Lieu of Rates $4,560,909 $5,002,105 $5,108,400
03 Restructuring Grants - Councils $4,560,909 $5,002,105 $5,108,400
04 Recurrent Grants - Councils $14,376,733 $15,767,457 $16,102,515
06 Constituency Development Fund (CDF) $20,731,404 $22,736,842 $24,020,000
Programme Total $44,229,995 $53,510,615 $75,447,715
Net Transfer (Less CDF) $23,498,551 $30,773,773 $51,427,715
Increase 31% 67%
Source: 2010 actual MLGH, 2011 & 2012 GRZ Budgets
50
FISCAL DECENTRALIZATION IN ZAMBIA
e Constituency Development Fund
(CDF) is a transfer through Councils for
undertaking developments in various electoral
constituencies. e Councils have little say in
what the developments should be. e Grants
in lieu of rates are grants paid to Councils to
reimburse councils for rates income lost due
to exemption by the Central Government of
Central Government from paying property
tax to councils.
ISSUES WITH IFA
e conceptual framework and content of
the IFA are in line with the normative concepts
of intergovernmental transfers with respect to
vertical scal gaps. e implementation of
the IFA has, however, not been in line with
the concepts as while some of the transfers
contained in the IFA have been made, some
of the conditions precedent to those grants,
such as the specication and costing of core
services, have not been determined. It is
therefore not possible to determine the value
of the required grants, vis-à-vis issues of scal
discipline, as the basis for such determination
does not yet exist. e delay in implementing
the Decentralisation Policy has meant that
conditions for determining and allocating
these grants are ad-hoc.
e IFA has not addressed the issues of
horizontal scal imbalances and the scal
equalisation measures necessary to address
these. e basis used by the MLGH in
distributing the allocated funds to councils
has not been clearly articulated.
e Local Government Association of
Zambia (LGAZ, 2007) noted that while
council indebtedness needed to be addressed,
that indebtedness was, in most cases a result
of; debt between CG and LG which may
need to be addressed structurally, not through
simple payment of grants. It also noted the
inadequate management capacity which
needed to be addressed to ensure that once
solvent, the councils do not slip back into
insolvency.
51
CHAPTER 9
CONCLUSIONS AND RECOMMENDATIONS
CHAPTER 9 CONCLUSIONS AND
RECOMMENDATIONS
The Decentralisation Process
Zambia, a unitary state with two levels of
government, has been decentralising since
the early-1990s when it embarked on the
Public Sector Reform Programme (PSRP)
launched in 1993 had as one of its three
pillars, Decentralization and Strengthening Local
Government. Progress has been slow and erratic
as, for instance, the decentralisation policy
which was to be in place by the end of the District
Development Planning and Implementation in
Eastern Province (DDPI), undertaken between
1996 and 2001, and which should have created
the basis for upscaling lessons from the DDPI,
was not in place at that time. e policy was
nally approved in 2002 and ocially launched
in 2004. e Decentralisation Implementation
Plan (DIP) 2006-2010 (MLGH, 2006) revised
to cover 2009 – 2013 (MLGH, 2010) was
developed in 2006 and approved in 2010. A
review of the Decentralisation Policy and the
DIP indicates that Zambia has reasonably
articulated its policy direction and how to
implement the policy, but has not, made
adequate progress in eecting these documents.
us almost 20 years have passed from the
PSRP to the DIP and the decentralisation
process is still in its early stages, at step 2 of
6 according to sequence of steps suggested in
(Bahl & Martinez-Vazquez, 2006).
A review of the various available
decentralisation indicators reveals that in
eect, Zambia has been centralising in the
last three decades. Some components of the
Decentralisation Process, such as the IFA, have
been implemented but as the implementation
has been ad hoc, some conditions precedent
have not been fully addressed and some
concepts, such as nance follows function,
have not been followed, the impacts of
implementing those components have been
somewhat diluted. is dilution creates a
situation which can be used to increase the
perception that decentralisation does not work
as pointed out by (Bahl & Martinez-Vazquez,
2006) who argue that correctly sequencing the
implementation of decentralisation can be a
major determinant of its success.
Recent CG pronouncements, such as the
approval of the DIP, and actions, such as the
67% increase in IGTs, seem to indicate a
renewed eort to drive the decentralisation
process forward. However as noted in the
preceding paragraph this renewed eort will
not provide optimal impacts unless they
implementation is done in a coordinated
manner and the data required for tracking
the decentralisation indicators generated
and monitored. e DIP provides such a
coordinating framework.
LESSONS LEARNED
Lessons to be relearned from the DDPI
e DDPI generated various key
lessons that should have been fed into the
decentralisation process had the policy been in
place. ese lessons covered most of the issues
covered in Chapter 3 including mechanisms
for articulating local priorities, enforcing
adherence to local priorities and incentives for
local community participation. ese lessons
require to be relearned as the process for which
they were initially learned nearly 20 years ago
is now in progress.
52
FISCAL DECENTRALIZATION IN ZAMBIA
Decentralisation Indicators
e process of decentralisation is complex.
Developing and monitoring data for
decentralisation indicators provides a means
for tracking progress along the decentralisation
process. is is not currently done but should
be at the centre of the core activities of the
Decentralisation Secretariat
Sequencing
Implementing scal decentralisation in
an ad hoc manner considerably reduces the
chances for success and provides reasons
for not decentralising. A comprehensive
implementation framework, such as the
DIP, will also create stable conditions for the
current unstable expenditure assignments,
even as additional functions are devolved to
LGs.
Given however that the Implementation
Matrix attached to the DIP seems indicate
that activity on all the eight components will
start at the same time, in 2009, and in view of
the DIP having been approved in December
2010, the implementation of the DIP itself
might require urgent review.
Service level determination
Enforcing scal discipline without
determining the core services to be delivered
and the minimum service delivery standards is
not easily feasible as the basis for determining
the required hard budget constraint will,
under those circumstances, be arbitrary. While
the DIP does not directly with issue of core
service level determination, the (LDP) aimed
at operationalizing the DIP, does so.
The role of CG
e role of the CG in the scal
decentralisation process is critical. e CG
must facilitate the building of LG capacity
and provide the framework for providing
incentives for LGs to behave responsibly.
ese incentives can be built into the IGTs.
Given the diering capacities of LGs, CG
activities must including bundling LGs into
capacity clusters to enable capacity needs
assessments of the dierent clusters and to
deliver targeted capacity building activities.
RECOMMENDATIONS
Lessons to be relearned from the DDPI
e DDPI generated various key
lessons that require to be relearned. It is
therefore recommended that as part of the
implementation process the lessons of the
DDPI be relearned and implemented.
Decentralisation Indicators
e Ministry of Local Government and
Housing being the only point at which national
data on LG activities can be aggregated
must be an the centre of developing data for
decentralisation indicators. It is therefore
recommended the the Decentralisation
Secretariat unit in the ministry undertakes this
role as a matter of priority
Sequencing
In view of the low and possibly negative
impact of the ad hoc measures implemented
so far, it recommended that henceforth,
the implementation of the decentralisation
policy be done in line with the sequencing
of activities outlined in the DIP in order to
optimise the impact of the resources used in
the process.
It is also recommended that the DIP
itself be reviewed to ensure that the lessons
relearned from the DDPI, the concepts
articulated in the LDP and the appropriate
sequencing of activities are taken into account
in implementing the decentralisation process.
53
CHAPTER 9
CONCLUSIONS AND RECOMMENDATIONS
Service level determination
In order to create the basis for enforcing scal
discipline it is recommended that the bundle
of core services to be delivered for each level
of council should be identied, the minimum
service delivery standards of those services and
their cost of delivering these services should be
determined.
The role of CG
e role of the CG in the scal decentralisation
process is critical in the developing requisite
policy and legal frameworks and tracking
progress in the decentralisation process. is
role should be claried and the CG must
develop the requisite capacity to full this role.
54
FISCAL DECENTRALIZATION IN ZAMBIA
55
DATA APENDICES
APPENDIX 1: Works Cited
Bahl, R. (2009, January). Implementation Rules For Fiscal Decentralization. Retrieved October
29, 2011, from Georgia State University, Andrew Young School of Policy Studies : http://
aysps.gsu.edu/isp/les/ispwp9901.pdf
Bahl, R., & Martinez-Vazquez, J. (2006, 05 05). Sequencing Fiscal Decentralization. Retrieved
November 12, 2011, from World Bank: http://www-wds.worldbank.org/servlet/
WDSContentServer/WDSP/IB/2006/05/05/000016406_20060505110515/Rendered/
PDF/wps3914.pdf
Bhal, R. (2000, April). Intergovernmental Transfers in Developing and Transition Countries:
Principles and Practice. Retrieved September 29, 2011, from World Bank Website : http://
www1.worldbank.org/publicsector/LearningProgram/Decentralization/ITFPrinciples.pdf
Boadway, R., & Shah, A. (2007). Intergovermental Fiscal Transfers: Principles and Practice.
Retrieved 12 11, 2011, from World Bank: http://siteresources.worldbank.org/PSGLP/
Resources/IntergovernmentalFiscalTransfers.pdf
Boex, J. (2009, June). Fiscal Decentralization and Intergovernmental Finance Reform as an
International Development Strategy: IDG Working Paper No. 2009-06. Retrieved October 8,
2011, from Urban Institute Center on International Development and Governance: http://
www.urban.org/uploadedpdf/411919_scal_decentralization.pdf
Central Bank News. (2012, March 30). Bank of Zambia Introduces New Policy Rate at
9.00%. Retrieved April 3, 2012, from Central bank News: http://www.centralbanknews.
info/2012/03/bank-of-zambia-introduces-new-policy.html
CLGF. (2007). Commonwealth Local Government Handbook 2007. London: Commonwealth
Local Government Forum.
CRC. (2005a). e Constitution of Zambia Bill, 2005: NCC Zambia. Retrieved October 24, 2012,
from NCC Website: http://www.ncczambia.org/media/the_constitution_of_zambia.draft.pdf
CSO. (2011). Preliminary Results of the 2010 Population Census. Lusaka: Central Statistical Oce.
GDRC. (May, 1998). Towards a World Charter of Local self Government. Retrieved January 10,
2012, from Global Development Research centre: http://www.gdrc.org/u-gov/charter.html
GRZ - Cabinet Oce. (2002). e National Decentralisation Policy. Lusaka: Oce of the
President.
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56
FISCAL DECENTRALIZATION IN ZAMBIA
GRZ - MoFNP. (2011). 2012 Budget Address by Hon. Alexander B. Chikwanda, MP Honourable
Minister of Finance, Delivered To the National Assembly on Friday 11th November, 2011.
Losaka: GRZ - MoFNP.
GRZ. (2006). Vision 2030 - “A prosperous Middle-income Nation By 2030”. Lusaka: GRZ.
GRZ. (2011). Sixth National Development Plan 2011 - 2015 “Sustained Economic Growth and
Poverty Reduction”. Lusaka: GRZ.
Homan, B. D., & Gibson, C. C. (2005, September). Fiscal Governance and Public Services:
Evidence from Tanzania and Zambia. Retrieved October 14, 2011, from Department of
Political Science, University of California: http://www.sscnet.ucla.edu/polisci/wgape/
papers/9_GibsonHoman.pdf
IMF. (2008). International Monetary Fund: Government Finance Statistics Yearbook. Retrieved
December 2, 2011, from http://www.imf.org/external/pubs/ft/gfs/yearbook/2008/gfsy08.
pdf
IULA. (1993, June). IULA World Wide Declaration of Local Self-Government. Retrieved January
10, 2012, from bunken.nga.gr Japanese LG Website: http://www.bunken.nga.gr.jp/
siryousitu/eturansitu/charter/iula_decl_txt.html
JICA. (2007, March). A Review of the FNDP, PDP and DDP Development Processes. Retrieved
December 27, 2011, from JICA Website: http://www.jica.go.jp/english/publications/reports/
study/topical/gov/pdf/001.pdf
Kunda, K. D., & Lewanika, M. t. (1964). e Barotse Agreement 1964. Retrieved April 2012,
from Mbinji Mufalo: http://miliko.vacau.com/Barotse%20Agreement.pdf
LGAZ. (2007). Analysis of the Intergovernmental Fiscal Architecture (IFA). Retrieved September
8, 2011, from LGAZ Website: http://www.mlgh.gov.zm/index.php?option=com_
docman&task=doc_download&gid=54&Itemid=58
LGAZ. (2010). Report On Revenue Enhancement and Development Of Information And Database
Management Systems. Retrieved December 25, 2011, from LGAZ Website: http://www.
lga-zambia.org.zm/LGAZ%20Information/LGAZ%20Materials/Finances/Revenue%20
enhancement%20report.pdf
Liu, L., & Webb, S. B. (2011, March). Laws for Fiscal Responsibility for Subnational Discipline:
International Experience. Retrieved September 8, 2011, from World Bank: http://www-wds.
worldbank.org/servlet/WDSContentServer/WDSP/IB/2011/03/11/000158349_20110311
132517/Rendered/PDF/WPS5587.pdf
Liu, P. (2010, January). Essays on Macroeconomic Stabilization Policy in Small Open Economies:
A thesis submitted for the degree of Doctor of Philosophy of e Australian National University.
Retrieved March 16, 2012, from Philip Lui’s website: http://www.philip-liu.net/les/thesis/
thesis.pdf
MCRC. (2005, December 29). Final Report of the Constitution Review Commision: ncczambia.
Retrieved October 24, 2011, from NCC Website: http://www.ncczambia.org/media/nal_
report_of_the_constitution_review_commission.pdf
57
DATA APENDICES
MINECOFIN. (2011, May 11). Revised Fiscal and Financial Decentralization Policy. Retrieved
December 18, 2011, from Government of Rwanda - Ministry of Finance and Economic
Planning: http://www.minecon.gov.rw/webfm_send/2181
MLGH - GTZ. (2006). Property Rates – Valuation Roll / “raw model” of by-laws. Lusaka: MLGH
- GTZ.
MLGH. (2006). e Decetralisation Implementation Plan 2006 - 2010. Lusaka: MLGH.
MLGH. (2009). Medium Term Expenditure Framework (MTEF) Budgeting Manual For Local
Governments In Zambia. Lusaka: MLGH.
MLGH. (2010, January 3). Decentralization Implementation Plan 2009 - 2016. Retrieved
December 18, 2011, from MLGH Website: http://www.mlgh.gov.zm/index.php?option=com_
docman&task=cat_view&gid=21&Itemid=58
MLGH-LGAZ. (2006). Councillors Orientation Manual. Retrieved October 22, 2012, from Local
Government Association of Zambia Web site: http://www.lga-zambia.org.zm/LGAZ%20
Information/LGAZ%20Materials/Councils%20&%20Councillors/Councillors%20
Orientation.%20Reference%20Manual%202006.pdf
MoFNP-MLGH. (2008). Consultancy on the Revenue Base of District Councils. Lusaka: MoFNP
- MLGH.
Musgrave, A. M. (2004). Public Finance in eory and Practice. New Delhi: Tata McGraw-Hill.
NCC. (2010). e Constitution of Zambia Bill, 2010: NCC. Retrieved October 24, 2011, from
Nataional Constitutional Council Website: http://www.ncczambia.org/zambia2010.pdf
Nordic Consulting Group. (2007, February 6). Joint Government of Ghana and Development
Partner Decentralisation Policy Review - Final Report. Retrieved December 18, 2011, from
DEGE Consult Website: http://dege.dk/assets/les/DecentralisationPolicyReview.pdf
Ocampo, J. A. (2005, October). A Broad View of Macroeconomic Stability. Retrieved March 16,
2012, from UN Website: ttp://www.un.org/esa/desa/papers/2005/wp1_2005.pdf
PKSOI. (2009, November). Guiding principles for stabilization and reconstruction. Retrieved
March 16, 2012, from United States Institute of Peace (USIP) : http://www.usip.org/les/
resources/guiding_principles_full.pdf
Rwampororo, R. K., Tournee, J., & Chitembo, A. (2002, April). Final Evaluation Report: United
Nations Capital Development Fund - District Development Planning and Implementation in
Eastern Province (ZAM/93/CO1): uncdf. Retrieved October 24, 2011, from United Nations
Capital Development Website: http://www.uncdf.org/english/local_development/uploads/
evaluations/ZAM93C01-Final%20Report%20(RR).pdf
Saasa, O. S., & Others. (1999, June). Fiscal Decentralisation and Sub- National Government
Finance in Relation to Infrastructure and Service Provision in Zambia. Retrieved March 5,
2012, from USAID Website: http://pdf.usaid.gov/pdf_docs/PNACN735.pdf
Scribd. (2011, November). 2012-Budget-Address-by-Hon-Chikwanda. Retrieved January 14, 2012,
from Scrbd: http://www.scribd.com/doc/72406609/2012-Budget-Address-by-Hon-Chikwanda
58
FISCAL DECENTRALIZATION IN ZAMBIA
Shah, A. (2004, April). Fiscal Decentralization in Developing and Transition Economies; Progress,
Problems, and the Promise. Retrieved April 8, 2012, from European Commission: capacity4dev.
ec.europa.eu: http://capacity4dev.ec.europa.eu/system/les/le/26/07/2011_-_1342/4-wb_
scal_decentralization_in_developing_and_transition_economies.pdf
Shah, A. (2005). Public Services Delivery. Retrieved June 17, 2008, from World Bank Website:
http://siteresources.worldbank.org/PSGLP/Resources/PublicServiceDelivery.pdf
Shankar, R., & Shah, A. (2003). Bridging the Economic Divide within Countries: A Scorecard on the
Performance of Regional Policies in Reducing Regional Income Disparities.” World Development 31
(8): 1421–41. Retrieved January 2, 2012, from World Bank: http://siteresources.worldbank.
org/PSGLP/Resources/BridgingtheeconmicdividewithinNationsShankarShah.pdf
Sharma, C. K. (2003, May). e Federal Approach to Fiscal Decentralisation: Conceptual Contours
for Policy Makers. Retrieved November 1, 2011, from http://mpra.ub.uni-muenchen.de/178/
Simwinga, A. (2007). Local Government in Zambia: Issues Relevant to the Constitution Making
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Website: http://www.lga-zambia.org.zm/LGAZ%20Information/LGAZ%20Materials/
NCC/Simwinga,%20LG%20&%20Constitutional%20Process%202007.pdf
Smoke, P. (2001, February). Fiscal Decentralization in Developing Countries: A Review of Current
Concepts and Practice. Retrieved October 29, 2011, from CiteSeerX: http://citeseerx.ist.psu.
edu/viewdoc/download?doi=10.1.1.124.876&rep=rep1&type=pdf
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2011, from databank.worldbank: http://databank.worldbank.org/databank/download/
ADI_excel.zip
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World Bank. (2001). Fiscal Decentralization Indicators. Retrieved 04 12, 2012, from World
Bank: Decentralalisation & Sub-National Regional Economics: http://www1.worldbank.
org/publicsector/decentralization/scalindicators.htm
World Bank. (2001b, March). Dencetralisation Indicators. Retrieved April 8, 2012, from World
Bank: http://www1.worldbank.org/publicsector/decentralization/Indicators.xls
Zambia Development Agency. (2008). Public Private Partnerships. Retrieved December 26,
2011, from ZDA Website: http://www.zda.org.zm/64-public-private-partnerships
Zambian Economist. (2010, January 6). Municipal Bonds. Retrieved December 26, 2011,
from e Zambian Economist Website: http://www.zambian-economist.com/2010/01/
municipal-bonds.html
Zambian Economist. (2011, October 14). Zambian Economist: President Sata : Parliament Speech
(Transcript). Retrieved October 23, 2011, from Zambian Economist Website: http://www.
zambian-economist.com/2011/10/president-sata-parliament-speech.html
59
DATA APENDICES
APPENDIX 2: Zambia Exchange Rates and Ination
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Ination (%) 22.2 21.5 18 18.3 9.1 10.7 12.4 13.4 8.5
Average Exchange Rate ZMK per US $ K4,398.60 K4,733.30 K4,778.90 K4,463.50 K3,603.10 K4,002.50 K3,745.70 K5,046.10 K4,823.60 K4,750.00
60
FISCAL DECENTRALIZATION IN ZAMBIA
APPENDIX 3: GRZ Budget 2012: Address to Parliament
PART II: MACROECONOMIC OBJECTIVES, POLICIES AND STRATEGIES IN 2012
Macroeconomic Objectives
27. Mr. Speaker, macroeconomic policy under the new administration will be geared towards
maintaining a stable macroeconomic environment conducive to investment, inclusive growth
and employment creation.
28. Sir, the specic macroeconomic objectives in 2012 will be to:
(a) achieve real Gross Domestic Product growth of above 7.0 percent;
(b) attain end-year ination of no more than 7.0 percent;
(c) limit overall scal decit to 4.3 percent of GDP and domestic borrowing to 1.3 percent
of GDP; and
(d) maintain gross international reserves of at least four months of import cover.
Monetary and Financial Sector Policies
29. Mr Speaker, monetary policy in 2012 will remain focused on the maintenance of single-digit
ination. In line with this objective, the Bank of Zambia will continue to use market-based
instruments to limit money supply growth. e Central Bank will also continue to work
towards enhancing the eectiveness of the monetary policy. In this regard, the option of
adopting an interest rate-based framework will be explored further.
30. Sir, a exible exchange rate regime has worked well for Zambia by absorbing external
shocks that could have been harmful to trade, employment and ination. In this regard, the
Government will ensure that determination of the exchange rate remains market based while
supporting the competitiveness of our exports. To minimize the impact of rapid movements
in the exchange rate, the Bank of Zambia will maintain its policy of intervention to smoothen
volatility.
61
DATA APENDICES
APPENDIX 4: Bank of Zambia Policy Rate Announcement
BANK OF ZAMBIA
PRESS RELEASE
Introduction of the Bank of Zambia Policy Rate
e Bank of Zambia wishes to announce the introduction of a BOZ Policy Rate, with eect
from April 2, 2012. A Policy Rate is utilised to inuence monetary and credit conditions in an
economy. is Policy Rate will, in this regard, allow the Bank of Zambia to signal an increase or
a decrease in the price of credit in the market. To announce changes to the BOZ Policy Rate, the
Bank of Zambia will be issuing a monthly communiqué covering, among other things, factors
taken into account when arriving at its decision on the BOZ Policy Rate as a means of explaining
its monetary policy stance. e rst BOZ Policy Rate shall be announced on ursday, March
29, 2012.
e Bank of Zambia has, over the past few years, been working with commercial banks to
design a transparent framework for determining interest rates in Zambia. Transparency in the
interest rate determining behavior among commercial banks is very important as it implies
openness, eective communication and accountability.
e Bank of Zambia expects that the following benets, among others, will accrue:
(a) e Policy Rate will allow the Bank of Zambia to clearly signal its monetary policy stance to
the market, providing nancial market participants with a credible and stable anchor for the
setting of interest rates on their credit products;
(b) e increased reliance on interest rate policy-based instruments is expected to provide a
relatively more transparent and ecient process through which the Bank of Zambia can
better anchor ination expectations; and
(c) Following this reform, it is expected that the standard practice of quoting the price of loans
and similar credit products by all commercial banks will be the BOZ Policy Rate plus a
margin. e margin will be set by commercial banks on the basis of their risk premium
assessments. is transparent way of pricing credit products will enhance many stakeholders’
62
FISCAL DECENTRALIZATION IN ZAMBIA
business planning processes and assist in eciently managing their nancial commitments.
Further, this will enable borrowers to understand the basis upon which commercial banks
price their credit products.
e public is hereby advised that the Bank of Zambia, in collaboration with other stakeholders,
will continue to work on building an eective and ecient nancial system which is expected to
benet all stakeholders accordingly.
For any further information, please contact:
Head of Public Relations
Bank of Zambia
P.O. Box 30080
LUSAKA
www.boz.zm
63
DATA APENDICES
APPENDIX 5: District Population and Budgets 2007
Province District Name Type
1990
Census
2000
Census
2010
Census
2010
Density
Square
Km
ZMK District
Fund Budget
ZMK Per
Capita
US $
District Fund
US $
per
Capita
Central Chibombo District 158,382 241,612 293,765 21.9 13,414 K2,700,000,000.00 K11,174.94 $674,578.39 $2.79
Central Kabwe Municipal 169,026 176,758 202,914 129.1 1,572 K8,001,675,581.00 K45,269.10 $1,999,169.41 $11.31
Central Kapiri Mposhi District 110,762 194,752 240,841 14.0 17,203 K2,306,176,020.00 K11,841.60 $576,183.89 $2.96
Central Mkushi District 76,747 107,438 151,803 8.6 17,652 K3,328,541,090.00 K30,981.04 $831,615.51 $7.74
Central Mumbwa District 148,927 158,861 218,328 10.3 21,197 K5,144,862,356.00 K32,385.94 $1,285,412.21 $8.09
Central Serenje District 107,974 132,836 160,152 6.9 23,210 K1,773,876,134.00 K13,353.88 $443,192.04 $3.34
Copperbelt Chililabombe Municipal 65,218 67,533 90,530 88.2 1,026 K5,430,660,000.00 K80,414.91 $1,356,816.99 $20.09
Copperbelt Chingola Municipal 168,999 172,026 210,073 125.2 1,678 K13,921,540,000.00 K80,926.95 $3,478,211.12 $20.22
Copperbelt Kalulushi Municipal 69,597 75,806 96,206 132.7 725 K12,479,274,000.00 K164,621.19 $3,117,869.83 $41.13
Copperbelt Kitwe City 347,024 376,124 522,092 671.9 777 K72,765,208,000.00 K193,460.69 $18,179,939.54 $48.33
Copperbelt Luanshya Municipal 144,815 147,908 153,117 188.8 811 K9,792,728,000.00 K66,208.24 $2,446,652.84 $16.54
Copperbelt Lufwanyama District 51,745 63,185 75,542 7.7 9,811 K1,950,815,460.00 K30,874.66 $487,399.24 $7.71
Copperbelt Masaiti District 84,831 95,581 102,503 19.0 5,395 K1,139,941,500.00 K11,926.44 $284,807.37 $2.98
Copperbelt Mpongwe District 38,718 64,371 91,765 11.0 8,342 K1,395,348,703.00 K21,676.67 $348,619.29 $5.42
Copperbelt Mufulira Municipal 152,735 143,930 161,601 98.7 1,637 K13,957,990,000.00 K96,977.63 $3,487,317.93 $24.23
Copperbelt Ndola City 334,777 374,757 455,194 412.7 1,103 K21,444,463,000.00 K57,222.31 $5,357,767.15 $14.30
Eastern Chadiza District 66,681 83,981 104,255 40.5 2,574 K989,791,700.00 K11,785.90 $247,293.37 $2.94
Eastern Chama District 55,172 74,890 101,412 5.8 17,485 K351,380,911.00 K4,691.96 $87,790.36 $1.17
Eastern Chipata Municipal 261,100 367,539 452,428 67.6 6,693 K12,537,863,661.00 K34,113.02 $3,132,508.10 $8.52
Eastern Katete District 143,952 189,250 240,818 60.4 3,987 K2,256,639,459.00 K11,924.12 $563,807.49 $2.98
Eastern Lundazi District 179,414 236,833 314,281 22.4 14,030 K2,016,886,808.00 K8,516.07 $503,906.76 $2.13
Eastern Mambwe District 60,016 70,425 71,074 13.4 5,304 K832,094,400.00 K11,815.33 $207,893.67 $2.95
Eastern Nyimba District 38,300 47,376 85,684 8.2 10,449 K899,221,309.00 K18,980.52 $224,664.91 $4.74
Eastern Petauke District 200,058 235,879 337,779 39.4 8,573 K2,198,792,000.00 K9,321.69 $549,354.65 $2.33
Luapula Chienge District 47,290 83,824 109,147 27.5 3,969 K1,605,561,931.00 K19,153.96 $401,139.77 $4.79
Luapula Kawambwa District 85,307 102,503 130,680 14.0 9,334 K1,061,025,000.00 K10,351.16 $265,090.57 $2.59
Luapula Mansa Municipal 132,500 179,749 217,603 22.0 9,891 K13,266,718,915.00 K73,806.91 $3,314,608.10 $18.44
Luapula Milenge District 20,045 28,790 43,649 7.0 6,236 K1,261,381,475.00 K43,813.18 $315,148.40 $10.95
64
FISCAL DECENTRALIZATION IN ZAMBIA
Province District Name Type
1990
Census
2000
Census
2010
Census
2010
Density
Square
Km
ZMK District
Fund Budget
ZMK Per
Capita
US $
District Fund
US $
per
Capita
Luapula Mwense District 86,326 105,759 117,990 17.6 6,704 $0.00 $0.00
Luapula Nchelenge District 72,761 111,119 147,927 36.2 4,086 K1,296,132,436.00 K11,664.36 $323,830.71 $2.91
Luapula Samfya District 120,264 163,609 191,980 18.6 10,322 K1,258,107,100.00 K7,689.72 $314,330.32 $1.92
Lusaka Chongwe District 95,738 137,461 187,969 21.7 8,662 K4,132,632,000.00 K30,064.03 $1,032,512.68 $7.51
Lusaka Kafue District 117,354 150,217 242,754 25.8 9,409 K3,624,653,000.00 K24,129.45 $905,597.25 $6.03
Lusaka Luangwa District 17,070 18,948 25,294 7.3 3,465 K743,102,000.00 K39,217.96 $185,659.46 $9.80
Lusaka Lusaka City 761,064 1,084,703 1,742,979 4,841.6 360 K71,007,660,000.00 K65,462.77 $17,740,826.98 $16.36
Northern Chilubi District 44,350 66,338 76,911 16.5 4,661 K663,052,883.00 K9,995.07 $165,659.68 $2.50
Northern Chinsali District 89,779 128,646 147,845 9.6 15,401 K1,370,443,919.00 K10,652.83 $342,396.98 $2.66
Northern Isoka District 82,563 99,319 164,410 17.8 9,237 K1,895,734,000.00 K19,087.32 $473,637.48 $4.77
Northern Kaputa District 53,403 87,233 113,485 8.7 13,044 K1,432,047,000.00 K16,416.34 $357,788.13 $4.10
Northern Kasama Municipal 125,492 170,929 238,035 22.1 10,771 K1,889,124,000.00 K11,052.10 $471,986.01 $2.76
Northern Luwingu District 72,164 80,758 134,426 15.1 8,902 $0.00 $0.00
Northern Mbala Municipal 110,980 149,634 213,254 25.6 8,330 K2,475,579,246.00 K16,544.23 $618,508.24 $4.13
Northern Mpika District 123,099 146,196 211,425 5.2 40,659 K1,570,741,704.00 K10,744.08 $392,440.15 $2.68
Northern Mporokoso District 54,888 73,929 100,933 8.4 12,016 K1,704,988,287.00 K23,062.51 $425,980.83 $5.76
Northern Mpulungu District 44,533 67,602 96,322 9.8 9,829 K2,496,381,081.00 K36,927.62 $623,705.45 $9.23
Northern Mungwi District 74,735 112,977 144,537 14.8 9,766 K1,296,000,000.00 K11,471.36 $323,797.63 $2.87
Northern Nakonde District 49,879 75,135 118,017 25.5 4,628 K2,923,970,000.00 K38,916.22 $730,535.92 $9.72
North-Western Chavuma District 27,944 29,941 33,893 7.9 4,290 K461,476,990.00 K15,412.88 $115,297.19 $3.85
North-Western Kabompo District 25,151 71,238 91,160 6.3 14,470 K995,285,800.00 K13,971.28 $248,666.03 $3.49
North-Western Kasempa District 60,164 51,904 65,730 3.2 20,541 K558,306,016.00 K10,756.51 $139,489.32 $2.69
North-Western Mufumbwe District 42,261 44,002 55,099 2.7 20,407 K1,139,840,737.00 K25,904.29 $284,782.20 $6.47
North-Western Mwinilunga District 93,941 117,505 132,688 6.3 21,062 K1,018,324,734.00 K8,666.22 $254,422.17 $2.17
North-Western Solwezi Municipal 137,728 203,797 239,051 7.9 30,260 K13,662,474,890.00 K67,039.63 $3,413,485.29 $16.75
North-Western Zambezi District 51,027 64,963 88,841 6.3 14,102 K1,366,652,380.00 K21,037.40 $341,449.69 $5.26
Southern Choma Municipal 170,687 204,898 244,180 33.5 7,289 K3,190,352,815.00 K15,570.44 $797,090.02 $3.89
Southern Gwembe District 39,785 34,133 52,711 13.6 3,876 K809,814,839.00 K23,725.28 $202,327.26 $5.93
Southern Itezhi District 31,424 43,111 64,593 4.0 16,148 K892,563,646.00 K20,703.85 $223,001.54 $5.17
Southern Kalomo District 127,762 169,503 254,211 16.9 15,042 K1,345,450,493.00 K7,937.62 $336,152.53 $1.98
65
DATA APENDICES
Province District Name Type
1990
Census
2000
Census
2010
Census
2010
Density
Square
Km
ZMK District
Fund Budget
ZMK Per
Capita
US $
District Fund
US $
per
Capita
Southern Kazungula District 45,157 68,265 98,292 5.8 16,947 K1,034,596,768.00 K15,155.60 $258,487.64 $3.79
Southern Livingstone City 83,780 103,288 142,034 204.4 695 K11,231,483,500.00 K108,739.48 $2,806,117.05 $27.17
Southern Mazabuka Municipal 162,321 203,219 261,268 41.9 6,236 K4,416,983,000.00 K21,735.09 $1,103,556.03 $5.43
Southern Monze District 133,671 163,578 195,921 40.4 4,850 K2,043,596,768.00 K12,493.10 $510,580.08 $3.12
Southern Namwala District 61,848 82,810 101,589 17.9 5,675 K1,085,803,213.00 K13,111.98 $271,281.25 $3.28
Southern Siavonga District 37,497 58,864 89,787 23.2 3,870 K1,675,031,477.00 K28,455.96 $418,496.31 $7.11
Southern Sinazongwe District 71,659 80,455 102,207 21.0 4,867 K1,288,362,570.00 K16,013.46 $321,889.46 $4.00
Western Kalabo District 103,878 114,806 132,968 7.6 17,496 K942,330,241.00 K8,208.02 $235,435.41 $2.05
Western Kaoma District 116,616 162,568 179,326 7.7 23,289 K1,506,037,389.00 K9,264.05 $376,274.18 $2.31
Western Lukulu District 54,053 68,375 83,902 5.2 16,135 K942,330,241.00 K13,781.80 $235,435.41 $3.44
Western Mongu Municipal 150,129 162,002 178,454 17.7 10,082 K3,052,614,179.00 K18,843.06 $762,676.87 $4.71
Western Senanga District 98,804 109,119 126,974 8.2 15,485 K1,227,441,050.00 K11,248.65 $306,668.59 $2.81
Western Sesheke District 68,424 78,169 94,612 3.2 29,566 K3,017,845,800.00 K38,606.68 $753,990.21 $9.65
Western Shang’ombo District 46,852 70,049 85,288 5.9 14,456 K724,797,000.00 K10,347.00 $181,086.07 $2.59
Zambia 7,759,117 9,885,591 13,046,508 751,463 K378,220,602,605.00 K38,259.79 $94,496,090.59 $9.56
Source: Adapted and compiled from data collected for (MoFNP-MLGH, 2008) and (CSO, 2011)
66
FISCAL DECENTRALIZATION IN ZAMBIA
APPENDIX 6: Sources of revenue – Lusaka City Council
1
Major Source:-
• Property Rates
• General Revenue
• Personal Levy
• Licenses
• Billboards
Other sources:
• Parking fees
• Market levies
• Ground rent
• Lusaka Clothing Factory (manufacture and sale of school and Industrial uniforms etc)
• Bus stations (Inter-City and Kulima Tower)
• Miscellaneous e.g.
• Meat Inspections
• Plan scrutiny fees
• lease of commercial properties
• funerals etc.
1 Source: Local Government Association Website accessed on 15th January 2012 at: http://www.lcc.gov.zm/index.php?option=com_cont
ent&view=article&id=62&Itemid=90
67
DATA APENDICES
APPENDIX 7: Required Services and Ranking
SN Service Count Average Total
1 Water & Sanitation 11 92.29 1,015.22
2 Refuse Collection 10 84.85 848.49
3 Roads
1
9 77.75 699.72
4 Markets 9 74.80 673.19
5 Cleaning 8 79.51 636.11
6 Plot / land allocation 8 75.42 603.39
7 Street Lighting 9 65.63 590.69
8 Health 6 88.89 533.33
9 Fire services 6 82.92 497.50
10 Toilets 5 86.17 430.83
11 Town Planning 5 81.11 405.56
12 Housing 6 65.83 395.00
13 Infrastructure 4 81.08 324.31
14 Drainage 4 79.69 318.75
15 Security 4 75.69 302.78
16 Bus Stations 4 60.00 240.00
17 Recreation/social amenities 5 46.94 234.72
18 Electricity 2 86.11 172.22
19 Social Services 2 77.78 155.56
20 Environmental 2 75.00 150.00
21 Street Names 2 68.75 137.50
22 Licenses 2 66.96 133.93
23 Car parking /garages 1 100.00 100.00
24 Education 1 100.00 100.00
25 Revenue Collection 1 95.00 95.00
26 Truck And Bus Station 1 87.50 87.50
27 Bridges/culverts 1 75.00 75.00
28 Food security 1 25.00 25.00
Where:
• Count - is the number of councils in which the service was mentioned.
• Average - is the service’s average importance rating by all participating councils on a scale
where Vital service - 100; Very Important Service - 75; Important service - 50; Moderately
important service - 25; and Nice to have service - 0
• Total - is the product of count and average
Source: (MLGH - GTZ, 2006, p. 5)
1 “Drainage” and “Bridges/culverts” although listed separately in table 3-1, could legitimately be seen as a subset of “roads”. Similarly,
not all of the above categories are mutually exclusive e.g. “infrastructure” is a general term for several other categories in Table 3-1,
including roads.
68
FISCAL DECENTRALIZATION IN ZAMBIA
UNITED NATIONS HUMAN SETTLEMENTS PROGRAMME
P.O.Box 30030,Nairobi 00100,Kenya;
Tel: +254-20-7623120;
Fax: +254-20-76234266/7 (Central ofce)
www.unhabitat.org/publications
This report examines the economic role of cities. It illustrates
the important contributions of cities to national economic
development and poverty reduction. It looks at the agglomeration
economies, city clusters, city regions and mega city regions.
HS/034/12E
ISBN (Series): 978-92-1-132027-5
ISBN (Volume): 978-92-1-132449-5
The Global Urban economic DialoGUe SerieS
