Linking CDSs to Zambia’s Emerging Intergovernmental Fiscal System

Project

At-a-Glance

Approval Date
Actual Completion Date
Proposal Focus
1471
Core Focus
Secondary Cities
Country Type
Zambia
Lesson Learned for Cities Alliance Members and Partners
The fiscal decentralization group has defined an intergovernmental fiscal architecture that will help to prepare local governments to accept devolved functions from line agencies. Debt restructuring in the absence of a sustainable operating base will lead to recurrence of debts. Therefore, a true partnership between each of the municipalities and the national government must be forged as the basis of restructuring. These partnerships will require a commitment on both sides: 1) From cities and municipalities to retire debt, control costs, and maximize own revenues 2) From National Government to pay obligations, particularly rates and to ensure that local government tax bases are adequate and stable. Cities and municipalities should produce comprehensive plans that provide detailed roadmap for restructuring. These plans should specify: a) What the key proposed remedial actions are; b) What resources are necessary to implement these plans; c) What time frame each action would be taken in; d) The financial implications of each action; e) Risk mitigation measures to be taken. The restructuring plan should form the basis for negotiation between cities/municipalities and MLGNH/MFNP. These negotiations should result into a clear definition of responsibilities of all parties in implementing the plans and should be codified in formal and time bound restructuring agreements. Once finalized these agreements should be supported by council resolution by each of the participating cities and municipalities. At national level, the agreements should be endorsed in an appropriate manner that will commit national agencies to make co-funding available and supporting sustainable local government resource bases through payments of rates, maintenance of local taxation regimes, etc.

Detail

Summary
For the past 30 years, local governments (LG) in Zambia have been severely constrained in providing sustainable basic services to citizens due to fiscal and financial constraints that have largely prevented investments in infrastructure and services, and in O&M. By supporting the design and installation of a clear intergovernmental fiscal system in Zambia, this proposal will enable all LGs to restructure their operations and prepare realistic development strategies to serve the priority need of their constituents.
Objectives
The objective of this preparatory grant application is to secure Cities Alliance support for the key design work that will allow a well functioning intergovernmental fiscal system to emerge in Zambia. This work will include specification of strategic planning processes—in essence CDSs—that will be conditions precedent for funding to LGs through the decentralized fiscal system.
Activities
Support the Fiscal Decentralization Working Group, led by MoFND: Final design of the restructuring, recurrent and capital grants, and implementation of the latter two starting in GRZ’s FY07 budget. Specification of the “Rules of Access” for the 3 grants: Final specification of the strategic planning processes required to access those grants, thereby laying the groundwork for CDS preparation. Analysis of the local government revenue bases, including recommendations for capacity building and tax reform required to strengthen those bases, leading to specification of the recurrent grant amounts to be made available through the budget.
Expected Impacts and Results
The impact will be to establish a clear enabling environment for local governments in Zambia and clear “rules of access” that empower local governments to access recurrent and capital grants and, therefore, to prepare credible development strategies based on predictable budgets.