## 1zmbea2023001 ## Source details **Canonical URL:** [1zmbea2023001](https://www.imf.org/-/media/files/publications/cr/2023/english/1zmbea2023001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2023/english/1zmbea2023001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2023/english/1zmbea2023001.pdf.json) --- ### Mission, scope and timing - Mission undertaken at the request of His Excellency Mr. Hakainde Hichilema President of Zambia (request dated November 18, 2021). - Governance Diagnostic Assessment (GDA) mission: January 14 to May 6, 2022; data collection January – June 2022; authorities provided updates in October 2022. - Diagnostic followed IMF’s 2018 Framework on Enhanced Fund Engagement on Governance and focused on macroeconomically critical priority areas: (i) anti-corruption and anti-money laundering (AML); (ii) fiscal governance (PFM, revenue administration, SOE oversight, natural resource management, procurement); (iii) enforcement of contract and protection of property rights; (iv) central bank governance and operations; (vi) financial sector oversight. ### Major cross-cutting findings - Serious governance weaknesses and corruption vulnerabilities across state functions with macroeconomic impact in: - public financial management (planning and monitoring of large investment projects); - granting and managing contracts in the mining sector; - transparency in public procurement, including monitoring of Politically Exposed Persons (PEPs); - autonomy of the central bank and effective financial sector oversight (especially oversight of banks with government ownership); - Beneficial Ownership (BO) transparency; - land management. - Recurring themes: - weak transparency and accountability mechanisms in public service; - weak legal frameworks for key institutions; - lack of coordination and clarity in roles and responsibilities in governance and anti-corruption functions; - legacy of impunity and weak enforcement capacity. ### Macroeconomic context and key numeric indicators preserved from source - Population: approximately 17.9 million. - Unencumbered reserves: about [$972] million by end-October 2020 (about [2.4] months of imports). - Projected external debt service: at least [$1.3 billion] in 2021. - Real GDP growth: shrank by 2.8 percent in 2020; rebounded by 4.6 percent in 2021; expanded by 3.5 percent in 2022Q1. - Inflation: peak of almost 25 percent in mid-2021; receded to 9.7 percent in October 2022. - External PPG debt: reached 78 percent of GDP by end-2021, including $2.3 billion of principal and interest arrears, and $1.3 billion arrears to external suppliers. - Total PPG debt: reached 132 percent of GDP. --- ### Effectiveness of Anti-Corruption and AML Frameworks — findings - Legal framework broadly aligned with international instruments (UNCAC, AU Convention, SADC Protocol); FIC admitted to Egmont Group in 2018; Mutual Evaluation Report (ESAAMLG) published in 2019. - Key governance and implementation weaknesses: - limited transparency and absence of an effective access to information framework; - compromised independence and operational autonomy of key institutions (ACC, DEC, FIC, AG); - limited technical, operational and financial capacities of anti-corruption and AML/CFT institutions; - inadequate coordination mechanisms and lack of designated legal lead for anti-corruption policymaking; - incomplete BO implementation and poor BO data quality. - Specific AML/CFT operational findings: - FIC operates at about 50% of envisaged staff capacity and requires additional budget, staff and office space. - FIC supervisory activities in 2021: banks — 2 on- and off-site inspections and 16 post-monitoring reviews; DNFBPs — 33 off-site monitoring engagements and 95 post-monitoring reviews. - FIC froze 55 bank accounts held with eight commercial banks due to suspected illicit activities. - FIC made 10 requests for information to foreign FIUs in 2021 and received 5 requests. ### Anti-corruption institutions and governance constraints - Executive retains broad discretion in appointment/dismissal of key anti-corruption and AML officials; selection processes lack transparency and public participation. - ACC classified as non-grant aided, must obtain MoFNP approval for personnel structure; law requires Executive consent for donor grants to ACC, DEC, AG and FIC. - Public Audit Act (PAA) 2016 and State Audit Commission Act (SACA) 2016 not yet in force; AG lacks full operational autonomy pending statutory instrument by MoFNP. - Budget increases in 2022 (as reported): - DEC’s budget dedicated to AML/CFT increased by 85.1 percent. - FIC’s overall budget increased by 27.6 percent. - ACC’s budget increased by 39.8 percent. - AG’s budget increased by 5.7 percent. ### Enforcement, prosecutions and whistleblowing - Whistleblower law includes criminalization of “frivolous, malicious or vexatious” complaints (Sect. 39) — risk of deterrence; AfroBarometer 2021: 79% of respondents said ordinary people risk retaliation if they report corruption. - Investigations/prosecutions: ACC data outdated; 2017 data showed 78 percent of concluded investigations closed with no further action and 7 per cent resulting in convictions. - DPP bottleneck: DPP consent for prosecutions has no timeframes; DPP can nolle prosequi or take over cases without providing explanations. - Constitutional definition of “public officer” (art. 266) introduced in 2016 excludes State and Constitutional Office holders, counsellors, judges and judicial officers — legal impediment to holding top officials accountable under anti-corruption legislation. ### IMF recommendations (selected, preserved wording and timelines) - Adopt legal framework guaranteeing public access to information. Authority: MOJ, Ministry of Information, ACC, SH, NA. Timeline: ST. - Strengthen whistleblower protection by removing criminal liability for filing frivolous, vexatious or malicious complaints under Section 13(3) of the Public Interest Disclosure (Protection of Whistleblower) Act of 2010. Authority: MOJ, ACC, State House, National Assembly. Timeline: ST. - Operationalize PACRA’s beneficial ownership register and ensure accurate, complete and up-to-date BO information; impose effective sanctions for non-compliance. Authority: PACRA, MoFNP. Timeline: Immediate. - Increase resources to FIC and consider establishing a dedicated sub-unit focused on PEP-related intelligence. Authority: BoZ, FIC, MoFNP. Timeline: ST. - Bring the Public Audit Act of 2016 and the State Audit Commission Act of 2016 into force by issuing the statutory instrument by MoFNP. Authority: MoFNP. Timeline: Immediate. - Prepare, with participation of civil society, academia and legal profession, a comprehensive reform strategy to strengthen independence, professionalism and efficiency of the judiciary and prosecution services. Authority: MOJ, Judiciary, State House. Timeline: MT. --- ### Fiscal governance — key vulnerabilities and PFM findings - Major vulnerabilities across PFM, public procurement, revenue administration, natural resource management and SOE oversight. - Public Investment Management (PIM) weaknesses: - Roads construction arrears: 15.5 billion ZMK as of July 1, 2021. - Arrears for public investment projects in water, education, health: 2.9 billion ZMK as of July 1, 2021. - PIM Guidelines and National Planning and Budgeting Act (NPBA) 2020 provide sound basis but implementation and capacity at MPSAs weak. - ZRA governance weaknesses and data integrity: - Inaccuracies in taxpayer register; multiple NRCs; TPIN not mandatory in all commercial transactions. - Bulk Intelligence Data Project (BIDA) limited to internal tax sources and customs; lacks consolidated view of taxpayer information. - Tax expenditures (TEs): - Zambia does not publish public tax expenditure reports nor comprehensively cost TEs; TEs can equal several percentage points of GDP. - Mining sector governance: - Mining sector contributions (2019): 28% of government revenue; 77% of exports. - MMMD oversight stretched: 3,570 active mining licenses as of 2020 (EITI); MMMD funding Kwacha 96 million (~USD 5.5 million, or USD 1,600 per active license). - Evidence of license hoarding and MLC processing “seventy applications within two hours thirty minutes per meeting” per 2020 OAG report. - SOEs: - 34 SOEs with estimated liabilities of 20 percent of GDP (IMF 2019 estimate). - IDC is 100% owned by MoFNP and acts as holding company with shareholdings in 41 entities; President historically chaired IDC board. - Annual budget recapitalization line ZMK ~2 billion in 2021 (1.5 percent of total spending). ### PIM and PFM recommended actions (selected) - Institute integrated planning and budgeting across public sector; develop tools to screen capital proposals; clear arrears and prevent future arrears. - Mandate FMIS use for all transactions able to be undertaken through the system. Authority: MoFNP. Timeline: Immediate. - Prepare time-bound action plan and roll-out E-Government Procurement (E-GP). Authority: ZPPA. Timeline: Immediate. - Mandate regular preparation and external publication of tax expenditure reports. Authority: MoFNP. Timeline: ST. - Increase internal audits in VAT refund process and customs warehouse management. Authority: ZRA. Timeline: ST. - Strengthen MMMD capacity to scrutinize license and transfer applications and monitor environmental/safety commitments. Authority: MOFNP, SH, MMMD. Timeline: ST. - Enact a SOE law in line with international standards with robust ownership, corporate governance, transparency and accountability frameworks for IDC. Authority: SH, MOJ, MoFNP. Timeline: MT. - Ensure IDC and other SOEs timely prepare and publish audited financial statements and annual reports. Authority: MoFNP, IDC. Timeline: ST. --- ### Central Bank (BoZ) governance and operations — findings and numeric figures - 2022 BoZ Act substantially aligns with IMF recommendations and strengthens autonomy and governance arrangements but some gaps remain. - BoZ total assets as of end-December 2021: K120 billion (about US$7.2 billion). - Included in total assets: - credit extended to government and related securities: K 16 billion (13 percent of total assets); - government securities acquired on secondary market: K 13 billion (11 percent of total assets). - Key legal and governance observations: - Clarified “lending of last resort” provisions; prohibited BoZ from issuing guarantees for Government and public institutions’ loans and debts. - Representative of Secretary to the Treasury remains an ex-officio director entitled to attend and participate without vote; gap for full institutional autonomy. - Personal autonomy: appointment procedures lack double veto mechanism; eligibility criteria and safeguards against arbitrary dismissal strengthened. - Financial autonomy: profit distribution now clarifies unrealized gains deduction; monetary financing cap set at 15% of the ordinary Government revenue in the previous financial year. - Governance gaps: no explicit statutory collegial decision-making reference; AFC charter/composition needs revision to comprise only independent non-executive Board members. - Audit and reporting: - External auditors: PwC Zambia since FY 2020; external auditors issued unmodified audit opinions for FY 2019–2021. - Internal audit: independence and authority maintained; external quality assessment December 2020 confirmed adherence to IIA standards. - BoZ applies IFRS with timely audits and publication. ### IMF recommendations on BoZ (selected) - Board to revise composition of Audit and Finance Committee and amend charter so membership comprises non-executive Directors exclusively. Authority: BoZ. Timeline: ST. - Further align micro-prudential supervision mandate with Basel Core Principles in primary legislation and enshrine collegial decision-making and stronger safeguards against government interference where appropriate. --- ### Financial sector oversight — findings and numeric indicators - Banking sector assets: represented 37 percent of GDP as of December 2021. - Sector composition: seventeen banks — ten subsidiaries of foreign banks; three smaller locally owned commercial banks; four banks partially owned by the Government (including the country’s largest bank). - Key vulnerabilities: - Supervisory capacity constraints: Banking Supervision Department operating below agreed staffing levels; BoZ currently has 38 staff covering prudential and AML/CFT examinations (BoZ-wide AML/CFT staff figure noted elsewhere). - Exemptions and exceptions in BFSA 2017 are widespread; secondary legislation often lacks specific terms and conditions — creates risk of supervisory forbearance. - Related-party transaction framework requires strengthening; Regulation 97 uses “substantially” risking misinterpretation. - Fit-and-proper criteria need clearer competency and conflict-of-interest definitions. - Disclosure and transparency shortcomings: some banks do not publish financial statements and Annual Reports on their websites; Basel Pillar 3 not implemented. ### Financial sector oversight recommendations (selected) - Align BoZ micro-prudential supervision mandate closer with Basel Core Principles (BCP1 EC2) in primary legislation. - Strengthen institutional set-up and capacity of banking supervision; improve accountability and transparency through additional disclosures. - Modernize fit-and-proper framework and enhance regulatory/supervisory framework for related-party transactions. - Include definition of “ultimate beneficial owner” in Banking and Financial Services Act. - Develop and reinforce supervisory processes for banks and specialized financial institutions with Government ownership to address specific risks and ensure early corrective action. Authority: BoZ. Timeline: MT. --- ### Rule of Law — protection of property rights and contract enforcement — findings and key numeric indicators - Land tenure: - By estimations, 80% of the land is customary. - State land lease types and durations: 10 years; 14-year lease; 25 to 30-year land occupancy licenses; 99-year lease; President may lease more than 99 years (art. 3 of the Land Act). - Land registration and disputes: - Registration partially digitalized; Certificates of Title issued with delays; registration currently undertaken only in Lusaka and Ndola. - Land Tribunals are fast-track circuit courts under Ministry of Land with limited effectiveness (part-time members, inadequate travel resources, limited autonomy). - Courts and access to justice: - Commercial Court judges: 8 judges in total; Lusaka Commercial Court: 7 judges. - Small Claims Courts: operational in 3 locations with 30 commissioners. - Small Claims Court threshold: less than ZMK20,000. - Mediator remuneration in court-attached mediation: ZMK750 per day. - Population and territory references preserved: 18 million people; about 752,617 square meters (as stated in source). - Workload example: 7 judges in the Commercial Court in Lusaka were responsible for 780 cases in 2021. - Case disposition time from final submission date in Commercial Court: 180 days. - Judicial Officer per 100,000 population in Zambia in 2020: 5.70 (overall); 2.09 (subtracting local court magistrates). - ADR and traditional mechanisms: - ADR legally recognized (Court Annexed Mediation introduced 1997); statutory instruments require referral to mediation except in exceptions, but low mediator fees and lack of non-court attached mediation reduce uptake. - Traditional dispute resolution recognized (art. 118.2.d. of the Constitution) but lacks detailed framework and support. ### Recommendations on property rights and contract enforcement (selected) - Accelerate registration and digitalization of State land titles; develop reliable, traceable, verifiable database. Authority: Ministry of Lands/Commissioner of Lands. Timeline: ST. - Develop fair and uniform procedures for alienation of State land with clear division of roles between central and local authorities and capacity building for local authorities. Authority: Ministry of Lands/Commissioner of Lands. Timeline: ST. - Streamline transformation procedures from customary land to State land to minimize abuse and corruption. Authority: Ministry of Lands/Commissioner of Lands. Timeline: ST. - Strengthen Commercial Court capacity: introduce electronic filing, add adjudicators and support staff, and deliver specialized training programs. Authority: MOJ, Judiciary, MoFNP. Timeline: ST/MT. - Expand Small Claims Courts to all districts, recruit additional commissioners and support personnel. Authority: Judiciary, MoFNP. - Strengthen ADR and traditional dispute resolution by allowing competitive mediator remuneration, introducing non-court attached mediation, and developing detailed framework for traditional dispute resolution. Authority: MOJ, Judiciary. Timeline: MT. --- ### Priority recommendations and sequencing (selected timetable markers) - Recommendations categorized by timeline: - Immediate — up to 6 months; - ST — Short Term, six to twelve months; - MT — Medium Term, up to 24 months. - Selected immediate or ST actions: - Operationalize PACRA’s BO register. Authority: PACRA, MoFNP. Timeline: Immediate. - Prepare time-bound action plan and roll-out E-Government Procurement. Authority: ZPPA. Timeline: Immediate. - Mandate use of FMIS for all transactions that can be undertaken through the system. Authority: MoFNP. Timeline: Immediate. - Bring PAA 2016 and SACA 2016 into force via MoFNP statutory instrument. Authority: MoFNP. Timeline: Immediate. - Mandate regular external publication of tax expenditure reports. Authority: ZRA, MoFNP. Timeline: ST. - Increase internal audits in VAT refund process and customs warehouse management. Authority: ZRA. Timeline: ST. - Strengthen MMMD capacity to scrutinize licenses and monitor environmental and production commitments. Authority: MOFNP, SH, MMMD. Timeline: ST. - Board of BoZ to revise AFC composition to comprise non-executive Directors exclusively. Authority: BoZ. Timeline: ST. - Medium-term priorities include transparent, merit-based appointment processes for top anti-corruption and AML officials; judiciary and prosecution reforms; strengthening financial-sector supervision and SOE legal framework. --- *IMF | Diagnostic Report on Governance and Corruption – Zambia* ### Preface ................................................................................................................ ### Preface ### Mission mandate and timing - The mission was undertaken in response to a request from His Excellency Mr. Hakainde Hichilema President of Zambia, of November 18, 2021. - An International Monetary Fund (IMF) mission undertook a governance diagnostic assessment from January 14 to May 6, 2022. - The report is based on information collected in January – June 2022. - The mission notes that several reform initiatives were launched or advanced by the authorities of Zambia after June 2022, including the adoption of the new Bank of Zambia Act in August 2022. The mission team reflected the new initiatives in the GDA report, to the greatest extent possible. ### Mission team - The mission was led by Ms. Tina Burjaliani and was comprised of: - Mr. Enrique Rojas - Ms. Nino Tchelishvili - Mr. Nate Vernon - Mr. Elie Chamoun - Mr. Riaan van Greuning - Ms. Aldona Jociene - Mr. Ron Snipeliski - Ms. Luisa Malcherek - Mr. Hans Weenink - The mission was assisted by a short-term expert Ms. Marja Hinfelaar. ### Meetings and consultations - The mission met with: - the President of Zambia - advisors of the President - Members of the Parliament - the Bank of Zambia Governor, Deputy Governor and officials - officials from the Ministry of Finance, Ministry of Justice, Ministry of Mines and Minerals Development - Office of Auditor General - Ministry of Education - Ministry of Health - Ministry of Agriculture - Zambia Revenue Administration - Zambia Procurement Agency - Anti-Corruption Commission - Judiciary - Financial Intelligence Center - Drug Enforcement Commission - Industrial Development Corporation - Chamber of Industry and Commerce - The mission also met with members of civil society and international partners working on governance and anti-corruption issues. ### Acknowledgements and support - The mission expresses appreciation for the excellent support and cooperation given by officials and staff of the various agencies listed above. - The mission is grateful to civil society and staff of international partners for sharing information and providing valuable insights. - The mission appreciates the support provided by: - Ms. Allison Holland (IMF Mission Chief for Zambia) - Ms. Preya Sharma (IMF Resident Representative in Zambia) - Mr. Slavi Slavov (Senior Economist) and other IMF staff - The mission is thankful for the administrative assistance provided by Ms. Alexandra Rajs. *IMF | Diagnostic Report on Governance and Corruption – Zambia — Preface* ### Executive Summary ### 1zmbea2023001 - Executive Summary ### Mission scope and objectives - An interdepartmental (LEG/FAD/MCM/FIN) Governance Diagnostic Assessment (GDA) mission was conducted at the request of the authorities of Zambia during January 14 – May 6, 2022. The data collection through remote meetings continued through June 2022; authorities provided updates in October 2022. - The diagnostic assessment followed the IMF’s 2018 Framework on Enhanced Fund Engagement on Governance and focused on governance weaknesses and corruption vulnerabilities in macroeconomically critical priority areas: - (i) anti-corruption and anti-money laundering (AML); - (ii) fiscal governance (public financial management, revenue administration, oversight of State Owned Enterprises, natural resource management, procurement); - (iii) enforcement of contract and protection of property rights; - (iv) central bank governance and operations; - (vi) financial sector oversight. ### Macroeconomic context and recent developments - Zambia: large, land linked, resource-rich, population of approximately 17.9 million; borders eight countries. - Political: stable multi-party democracy; President H.E. Hakainde Hichilema elected in August 2021. - Shocks and macro outcomes: - Drop in copper prices (2015-2016), major droughts (2015-2016 and 2018-2019), and the Covid-19 pandemic aggravated pre-existing hurdles. - Unencumbered reserves shrank to about [$972] million by end-October 2020 (about [2.4] months of imports). - Projected external debt service of at least [$1.3 billion] in 2021; signs of significant unmet FX demand. - Government defaulted on Eurobonds in November 2020 and stopped servicing most external debt. - Real GDP: shrank by 2.8 percent in 2020; rebounded by 4.6 percent in 2021; expanded by 3.5 percent in 2022Q1 (mostly driven by public sector). - Inflation: peak of almost 25 percent in mid-2021; receded to 9.7 percent in October 2022. - External PPG debt reached 78 percent of GDP by end-2021, including $2.3 billion of principal and interest arrears, and $1.3 billion arrears to external suppliers (budget arrears and external IPP arrears). - Total PPG debt reached 132 percent of GDP. ### Overall GDA findings (cross-cutting) - The GDA revealed serious governance weaknesses and corruption vulnerabilities across all state functions, with particular macroeconomic impact in: - public financial management (planning and monitoring of large investment projects); - granting and managing contracts in the mining sector; - transparency in public procurement, including monitoring of Politically Exposed Persons (PEPs); - autonomy of the central bank and effective financial sector oversight (especially oversight of banks with government ownership); - Beneficial Ownership (BO) transparency; - land management. - Recurring themes: - weak transparency and accountability mechanisms in public service; - weak legal frameworks for key institutions; - lack of coordination and clarity in roles and responsibilities in governance and anti-corruption functions; - legacy of impunity and weak enforcement capacity. ### Specific governance weaknesses and corruption vulnerabilities by area - Anti-Corruption and AML frameworks: - Frameworks are in place but require upgrades to address governance weaknesses and vulnerabilities. - Most significant weaknesses: limited transparency and absence of an effective access to information framework; limited autonomy and capacity of key oversight institutions; inadequate coordination among them. - Corruption vulnerabilities: legacy of impunity; weak accountability frameworks; sustained challenges in effective enforcement of anti-corruption laws. - AML-specific weaknesses: lack of risk-based approach to AML supervision; delayed implementation of legal framework on BO transparency; inadequate monitoring of PEPs; ineffective application of sanctions; limited resources to investigate and prosecute money laundering. - Fiscal governance: - Zambia accumulated large fiscal and external imbalances due to consistently high fiscal deficits, inefficient public investment, and weak spending controls. - 2014-2019: external public and publicly guaranteed (PPG) debt more than quadrupled. - PFM weaknesses: - poor management of large public investment projects; - lack of capacity at district level to manage increased budgets from fiscal decentralization; - limited use of technology; - weak expenditure controls. - Public procurement (PP): - PP is a major area of governance inefficiency and vulnerability to corruption, particularly in high-spend sectors (e.g., agriculture, road construction). - Recent PP legislative upgrades need effective implementation. - Efforts to increase control of PEPs in procurement are impeded by incomplete implementation of the BO register. - Revenue Administration (ZRA): - High corruption vulnerabilities in the VAT refund process. - Governance weaknesses in organizational structure and compliance risk management systems. - Lack of BO transparency for legal persons enables concealment of ill-gotten proceeds. - Mining sector: - Mining legislation generally robust, but implementation impeded by resource constraints. - Ministry of Mines and Mineral Development (MMMD) lacks capacity and resources, including digitalization. - Corruption vulnerabilities in granting, transfer, and oversight of mining licenses. - State-Owned Enterprises (SOEs): - Lack of legal framework for ownership, corporate governance, oversight, transparency, and accountability. - Legal framework allows opportunities for political interference and patronage. - Central bank governance: - Bank of Zambia (BoZ) faced governance weaknesses primarily derived from the BoZ Act. - Subsequent to the GDA mission, the BoZ Act was amended and important legal reforms were enacted in August 2022. The amended BoZ Act is substantially in line with IMF recommendations and significantly strengthens the Bank of Zambia’s autonomy and governance arrangements. - Financial sector oversight: - Progress in aligning legal and regulatory framework with international standards, but constraints remain in effective oversight. - Governance weaknesses: supervisor’s operational independence, accountability, transparency, decision-making, enforcement of prudential requirements, and insufficient human resources. - These weaknesses limit oversight, increase opportunities for corruption, and undermine safeguards for banking sector integrity. - Increased corruption vulnerabilities for banks and specialized financial institutions with Government ownership. - Contract enforcement and property rights: - Legal framework for contract enforcement is well developed, but access to dispute resolution is limited due to insufficient courts and adjudicators and ineffective alternative dispute resolution (ADR). - Governance weaknesses in land management: need to streamline procedures for transforming customary land into State land, detailed procedures for land management at local authorities, and full operationalization of land tribunals. ### Reform sequencing and implementation - Addressing all governance weaknesses requires careful sequencing, continued strong political will, significant resources, and prolonged efforts, including support from international partners. - The mission identified priority recommendations intended to catalyze transition to stronger governance and effective, sustainable anti-corruption reforms. - Recommendations are classified as: - Immediate – up to 6 months; - ST – Short Term, six to twelve months; - MT – Medium Term, up to 24 months. ### Priority recommendations (selected items and objectives with timelines) - Adopt a legal framework that guarantees public access to information. - Authority: MOJ, MOI SH, NA - Objective: Strengthen transparency and accountability - Timeline: ST - Introduce measures to ensure that top anti-corruption and AML officials (Director General of ACC, Director General of DEC, Director General of FIC, DPP) are selected and appointed through transparent, merit-based and participatory processes. - Authority: MOJ, SH, NA - Objective: Strengthen transparency and accountability - Timeline: MT - Prepare, with participation of civil society, academia and legal profession, a comprehensive reform strategy to strengthen the independence, professionalism and efficiency of the judiciary and prosecution authorities. - Authority: MOJ, Judiciary - Objective: Strengthen AC & Oversight institutions - Timeline: MT - Operationalize PACRA’s beneficial ownership register, including ensuring availability of accurate, complete and up-to-date beneficial ownership information and imposing effective sanctions for non-compliance. - Authority: PACRA, MoFNP - Objective: Strengthen transparency and accountability, reduce AML/CFT risks - Timeline: Immediate - Prepare a time-bound action plan and roll-out E-Government Procurement. - Authority: ZPPA - Objective: Strengthen PFM - Timeline: Immediate - Mandate the use of the FMIS system for all transactions currently able to be undertaken through the system. - Authority: MoFNP - Objective: Strengthen PFM - Timeline: Immediate - Mandate regular preparation and external publication of tax expenditure reports on measures expected to result in significant foregone revenue. - Authority: ZRA, MoFNP - Objective: Strengthen fiscal governance - Timeline: ST - Increase internal audits in VAT refund process and customs warehouse management, as well as in other processes where IT systems are not fully integrated or are unstable. - Authority: ZRA - Objective: Strengthen fiscal governance - Timeline: ST - Strengthen the MMMD’s capacity to properly scrutinize license and transfer applications, and monitor associated commitments on safety and environment, work programs, and production. - Authority: MOFNP, SH, MMMD - Objective: Strengthen fiscal governance - Timeline: ST - Bring the Public Audit Act of 2016 and the State Audit Commission Act of 2016 into force by issuing the statutory instrument by MoFNP. - Authority: MoFNP - Objective: Strengthen AC & Oversight institutions - Timeline: Immediate - Develop and reinforce supervisory processes for banks and other financial institutions with Government ownership to address specific risks and challenges associated with these special entities. - Authority: BoZ - Objective: Strengthen financial sector oversight - Timeline: MT ### Intended integration with the ECF program - All recommendations from the diagnostic are intended to contribute to formulation of governance and anticorruption policies and programs, improvement of legal and institutional frameworks, and governance and anti-corruption reform measures agreed in the Extended Credit Facility Arrangement (ECF) for Zambia. *IMF | Diagnostic Report on Governance and Corruption – Zambia: Executive Summary* ### Box 1. Graphs showing downward path of Corruption Indicators ### Box 1. Graphs showing downward path of Corruption Indicators ### Evidence from public perception and international indices - Figure 1: Government handling of the fight against corruption — categorical responses shown as "Fairly well/Very well" and "Fairly badly/Very badly". - Numeric labels appearing on the figure area: 33 24 15 66 70 79 0 100 2014 2017 2020 - Figure 2: Control of Corruption — labeled with "Pct MinMaxPercentile Rank". - Figure 3: Zambia’s Corruption Perceptions Index (CPI) — labeled "CPI Score" with axis ticks or labels 30 35 40 and "Years". - Sources cited for figures and data: - AfroBarometer - WB Worldwide Governance Indicators - Transparency International - World Justice Project Rule of Law Index 2021 ### Findings on governance weaknesses and corruption channels - Weak transparency and accountability mechanisms allowed political and economic elites to bend rules and mismanage vast resources. - Large public investment projects were often transformed into vehicles for political patronage and rent seeking opportunities. - Corruption is believed to have inflated the costs of numerous high-profile tenders and construction projects (Bertelsmann Stiftung 2020). - Enormous financial resources invested in infrastructure projects, such as road construction, provided avenues for corruption, especially in the award of tenders, where political connections allowed members of the elite to bend the rules and access to lucrative contracts. - The Farmer Input Supply Program (FISP), introduced in 2002, was perceived as ineffective due to corruption, poor targeting, leakage to non-beneficiaries, among others. - Despite proposals to reform FISP, program processes vulnerable to corruption were retained given their value in funneling political largess to political supporters. - Anecdotal evidence suggests that FISP favored a few input suppliers who appeared to be politically connected and selected in the program by bending the tender procedures. - Numerous governance weaknesses in the management of public finances, including weak parliamentary oversight over the Executive, contributed to the recent sovereign debt crisis. - While unfavorable macroeconomic factors played a significant role, embedded governance weaknesses materially contributed to the accumulation of sovereign debt and the subsequent crisis. ### Institutional and legal reforms and recent actions - Authorities adopted a new Public Debt Management Act to: - tighten control on the authority to borrow, - strengthen oversight, - clarify objectives of debt contraction, - enhance risk management around government guarantees. - Authorities have started publishing a quarterly debt statistics bulletin with comprehensive statistics publishing summary information on the financing agreements for all newly contracted external loans every quarter as required by the ECF. - Authorities declared commitment to strengthen governance and efficiency of FISP; recommended measures include: - increased transparency, - compliance with the public tender procedures for procuring input, - publishing summary information on contracts in line with the new Public Procurement Act and its implementing regulations. ### Policy recommendations to institutionalize anti-corruption efforts - Enhance transparency in the public sector. - Introduce and enforce high accountability standards for top officials. - Strengthen anti-corruption and oversight institutions. - Ensure clear delineation between political party/leadership and civil service. - Upgrade key anti-corruption and related legislation. - Note: The authorities’ declared prioritization of the anti-corruption agenda and initiation of long-awaited policies in fiscal governance and BoZ in particular are welcome, but the impact is too early to assess. *IMF | Diagnostic Report on Governance and Corruption – Zambia* ### Section II. Effectiveness of Anti-Corruption and Anti-Money ### Section II. Effectiveness of Anti-Corruption and Anti-Money Laundering Frameworks ### Overview: legal framework, compliance, and main constraints - Zambia’s anti-corruption and anti-money laundering (AML) legal framework and institutional setup are generally in line with international standards: the Constitution and more than a dozen legal acts cover prevention and prosecution of corruption and ML offences and regulate key institutions such as the ACC, NPA, FIC, the Auditor-General (AG) and the Drug Enforcement Commission (DEC). - International instruments and memberships noted: - Party to the United Nations Convention Against Corruption (UNCAC), the African Union Convention on Preventing and Combatting Corruption and the Southern Africa Development Community Protocol Against Corruption. - FIC admitted into the Egmont Group of Financial Intelligence Units in 2018. - Assessed with an on-site visit by ESAAMLG in 2018; Mutual Evaluation Report published in 2019. - UNCAC country implementation review (2nd cycle) on preventive measures and asset recovery ongoing and expected to be concluded by the end of 2022. - Despite formal alignment, significant legal, structural and implementation weaknesses hinder effective fight against corruption and money laundering (ML). Key governance weaknesses include: - limited transparency and accountability in the public sector; - lack of public access to information; - compromised independence and operational autonomy of key institutions; - limited technical, operational and financial capacities of anti-corruption and AML/CFT institutions; - inadequate policy formulation and coordination mechanisms; - incomplete policies and/or ineffective prevention and detection systems; - lack of prioritization in investigating and prosecuting corruption and ML offences. - Authorities have publicly declared addressing corruption and strengthening governance as top priorities; President H.E. Hakainde Hichilema was elected on an anti-corruption agenda and 2022 budgets for anti-corruption and AML agencies were significantly increased. ### Prevention of corruption and money laundering - Limited transparency and accountability in the public sector - Constitutional recognition of proactive provision of accurate information (art. 173.1.h) remains declaratory without an enabling law; a draft access to information act is being finalized and planned for adoption by end of 2022. - Delays in preparation and publication of activity reports across government; authorities cite lack of resources and capacity constraints but a root cause is a strong tendency for opacity. - Authorities unable to provide updated statistical data and activity reports from public agencies, including the ACC, AML institutions, SOEs and justice sector. - Anti-corruption information sharing, policy formulation and coordination - Formulation, monitoring, coordination and evaluation of anti-corruption policies and strategies are sporadic and not based on needs and priorities. - No legal requirement for corruption risk-mapping and assessment or for preparation, periodic update and evaluation of the National Anti-Corruption Policy and related strategies. - No entity designated by law to lead anti-corruption policymaking and coordination. The first and only five-year National Anti-Corruption Policy adopted in 2009; MOJ recently entrusted with coordinating development of a new Anti-Corruption Policy. - Internal audits are available across public institutions per the Public Finance Management Act and can support detection and reporting of corruption risks; sharing internal audit findings with ACC can aid follow-up. - Asset disclosure by public officials - Constitution requires disclosure of assets and liabilities for a person holding public office (art. 263) but option to disclose either at assuming or leaving office undermines effectiveness; enabling legislation not adopted since Constitutional revisions in 2016. - Parliamentary and Ministerial Code of Conduct Act (1994) has limited coverage and lacks sanctions and monitoring mechanisms for accuracy. - Low compliance: only 21 assets and liabilities declarations filed in 2019-2020 and 64 in 2021; as of May 2022 only the Speaker, two Deputy Speakers and 17 Ministers complied. - Monitoring Politically Exposed Persons (PEPs/PIPs) - Authorities, financial institutions and DNFBPs are aware of PEP/Prominent Influential Persons (PIPs) risks but some reporting entities compromise reporting obligations due to business dependence on PIPs. - FIC case observations and statistics: - FIC’s analysis of CTRs submitted by ZRA in 2021 observed cash withdrawals in excess of ZMK 50 million and USD 3.5 million accounted for by Prominent Influential Persons; trend observed before and after general elections. - FIC issued a ‘Revised Guidance Note – AML/CFT Procedures for Prominent Influential Persons’ in 2021. - FIC lacks an appointed Board to support the Acting Director General, affecting decisions on policy and operational recommendations. - Legal changes and guidance: - FIC (Amendment) Act No.16 of 2020 applies a comprehensive definition of “prominent influential persons” covering domestic and foreign PEPs and associates, aligning with FATF standards. - BoZ’s Corporate Governance Directives (art. 6.11) differentiate between ‘politicians’ and PEPs and place restrictions on politicians serving as directors of regulated entities. - Practical challenges: - Lack of reliable beneficial ownership (BO) information limits PEP identification and verification. - Larger institutions use third-party global PEP lists; smaller institutions often rely on customer-provided information. - DNFBP sector particularly vulnerable due to poor client identification and difficulties obtaining beneficial ownership information. - Transparency of Beneficial Ownership (BO) information - Companies Act No. 10 of 2017 requires companies to maintain, update and share a beneficial ownership register and provide BO statements on incorporation; regulations allow unrestricted access to BO register by law enforcement and allow PACRA to restrict publication for persons “showing sufficient interest to the Registrar.” - Companies Amendment Act of 2020 broadened definition of beneficial owner to align with FATF; Land (Perpetual Succession) Act amended in 2020 to require BO statements for trusts. - Implementation shortcomings: - Enforcement and operationalization are not yet effective, impeding use of BO information. - Authorities could not demonstrate examples of sanctions imposed for non-compliance; current framework focuses more on penalties against individuals (directors) rather than company-level fines or de-registrations. - Quality of BO information collected by PACRA is inadequate: missing information, not regularly updated or verified, and lacks details on complex ownership structures. - BO shortcomings affect corruption-vulnerable sectors: mining, procurement and tax collection/administration. - Application of AML/CFT preventive measures and supervision - Understanding and application of ML/TF preventive measures varies: larger financial institutions and DNFBPs generally better prepared; small to medium-sized entities less equipped. - Banking sector: - 2016 National Risk Assessment assessed banking as ‘medium’ ML vulnerability; ESAAMLG 2019 MER identifies banks as channel most vulnerable to ML due to material importance. - Risk-based supervision: - FIC had issued a risk-based supervision framework and guidance manual but supervisors had yet to fully apply it. - BoZ’s AML/CFT inspections are part of prudential supervision schedule; since 2020 BoZ has developed AML/CFT-specific examination approaches and conducted a pilot on-site AML/CFT exam in 2020-2021. - Since 2016 AML/CFT risk information collected via quarterly returns and questionnaires instead of examinations. - BoZ committed to establish dedicated AML/CFT supervision unit; BoZ currently has 38 staff covering prudential and AML/CFT examinations. - Sanctions and enforcement: - Legal framework (FIC Act of 2010 and amendments) provides for sanctions including supervisory directives and license suspensions, but in practice supervisors mainly issue recommendations, directions and sometimes suspend licenses. - DNFBP supervisors have not issued remedial actions or sanctions due to lack of inspections. - FIC Amendment Act no. 16 of 2020 introduced administrative sanctions; introduction of sanctioning powers for FIC finalized in 2021 and FIC is operationalizing administrative sanctions regime. - FIC’s supervisory activities in 2021: banks — 2 on- and off-site inspections and 16 post-monitoring reviews; DNFBPs — 33 off-site monitoring engagements and 95 post-monitoring reviews. - FIC froze 55 bank accounts held with eight commercial banks due to suspected illicit activities. - FIC resourcing: - FIC operates at about 50% of its envisaged staff capacity and requires additional budget, staff and office space to fulfil expanded role and ensure dissemination quality. ### Anti-corruption and AML institutional arrangements - Key institutions: ACC, Auditor-General (AG), DEC, FIC, National Prosecution Authority (NPA), Economic and Financial Crimes Court (EFCC). - Historical weakening: over the past decade most oversight institutions were weakened or compromised; informal networks wielded influence over key policy decisions. - Executive influence and appointment processes: - Executive preserves broad discretion in appointment and dismissal of key anti-corruption and AML officials; selection processes closed, lack transparency and public participation. - Some presidential appointments require parliamentary ratification by simple majority (e.g., Director General of the ACC, AG, DPP) but selection lacks openness. - Eligibility and fit-and-proper criteria related to independence are weak; statutory language allows Presidential determination of “terms and conditions” for ACC Director-General and Presidential “directions” for DEC Commissioner and FIC Director-General. - ACC Director-General removal involves a complex procedure but causes for removal are very broad, allowing potential arbitrary and politically motivated decisions; media reported Executive dissolving ACC, NPA and FIC Boards disregarding statutory terms. - AG appointed by President on recommendation of State Audit Commission (SAC) and subject to ratification by National Assembly; SAC members are direct Presidential appointees and no eligibility criteria for AG currently in place. - Operational and financial autonomy constraints - ACC designated a non-grant aided institution and treated like a ministry for budgetary and PFM purposes; must go through Treasury and obtain MoFNP approval for personnel structure. Similar constitutionally independent bodies (Electoral and Human Rights Commissions) are grant-aided and manage own expenses. - Law requires Executive consent for ACC, DEC, AG and FIC to receive donor grants, limiting financial autonomy. - Public Audit Act (PAA) 2016 and State Audit Commission Act (SACA) granted AG safeguards and tools (ability to issue regulations, collect audit fees, surcharge/disallow illegal expenditures, approve own organizational structure), but PAA and SACA not yet in force awaiting formal enactment resolution by MoFNP, delaying strengthening of AG. - AG staff appointed, assigned and transferred by Public Service Commission and personnel structures authorized by MoFNP; AG lacks ability to define and manage staff. - Coordination mechanisms - No overarching legal mechanism for heads of anti-corruption entities to interact on policy priorities, planning, prevention strategies, risk assessment, information exchange, or resource allocation. - AML entities use Anti-Money Laundering Authority (AMLA) as a forum; operational coordination for high-profile cases occurs via Joint Investigations Team (ACC, NPA, DEC, FIC, Police). - AML/CFT coordination also through AMLA and National Task Force of Senior Officials on AML/CFT. - Resource constraints - Anti-corruption and AML/CFT agencies underfunded for past decade; enhanced personnel structures approved but hiring stalled by budget constraints. - Low salary structures hinder attraction and retention of skilled professionals; training needs significant but planning and prioritization lag. - Severe vehicle shortages and limited territorial presence impede operations. - Budget increases for 2022: - DEC’s budget dedicated to AML/CFT increased by 85.1 percent. - FIC’s overall budget increased by 27.6 percent. - ACC’s budget increased by 39.8 percent. - AG’s budget increased by 5.7 percent. - Notable institutional performance despite constraints - AG and FIC have been impactful despite constraints: AG publishes well-structured audit reports uncovering mismanagement and corruption; audits have led to investigations and prosecutions. - FIC faced political pressure in 2018 leading to Board changes and a hiatus in Trends Reports in 2020; resumed issuing Trends Reports in 2021 and produced intelligence leading to further investigations. - Economic and Financial Crimes Court (EFCC) - EFCC established January 2022 as a “fast-track” specialized division in the High Court via Statutory Instrument No.5 of 2022, to hear corruption, ML and asset recovery cases. - Legislative reforms needed to clarify jurisdictional scope and to enable swifter adjudications; fit-and-proper criteria and eligibility requirements for EFCC judges not yet comprehensive. - Eight judges to be designated by Chief Justice from 51 sitting High Court judges; no current plans for specialized training for EFCC adjudicators; additional resources needed. - While EFCC pending operationalization, eight magistrates (seven in Lusaka and one in Copperbelt) designated at subordinate court level to hear corruption and economic and financial crimes cases; trials commenced but no judgements rendered as of July 1st, 2022. - Need to address low public trust and perception of corruption in judiciary; appointment, promotion, discipline and dismissal procedures for judges lack transparency; judges appointed by President upon approval of Parliament (art. 140) with candidates proposed by Judicial Service Commission (JSC) but selection rules not publicized. ### Anti-corruption and AML enforcement: investigations, prosecutions, and whistleblower environment - Whistleblower protection and deterrents - Public Interest Disclosure (Protection of Whistleblowers) Act grants legal safeguards but criminalization of “frivolous, malicious or vexatious” complaints (Sect. 39) risks deterring disclosure. - AfroBarometer 2021: 79% of respondents said ordinary people risk retaliation or other negative consequences if they report corruption to authorities. - ACC noted declining trend in corruption-related reports and complaints from 2011-2017; no updated data provided. - Investigations and prosecutions - Corruption investigations and prosecutions increased since new government took office but lack clear risk-based prioritization criteria or strategies; ACC unable to provide up-to-date data and statistics (latest available data dates back to 2017). - 2017 data: 78 percent of concluded investigations were closed with no further action, while only 7 per cent resulted in convictions. - ACC uses internal Complaints Review Committee (CRC) to analyze reports and recommend investigations; no formal prosecution prioritization strategy in place. - Investigations department cites need for better capacities in financial investigations, intelligence gathering, asset tracing and forensics; investigations manual under review. - Relationship with DPP and prosecution bottlenecks - ACC conducts investigations but must seek DPP’s consent to prosecute; DPP can terminate (nolle prosequi) or take over cases. - All ML-related investigations by DEC sent by AMLIU to DPP for prosecution. - DPP reviews corruption and ML cases and grants/denies/conditions consent with no particular timeframe; this has become a bottleneck causing delays and duplication of effort. - DPP does not usually explain denials of consent or grants of immunity, diminishing accountability and creating public perception of undue external influence. - Centralization of prosecution can increase efficiency when accompanied by statutory guarantees for independence, transparency and accountability (e.g., publication of activity reports, prosecution guidelines, reasoned timeframes). - Corruption-related ML enforcement gap - Corruption and tax evasion are most prevalent predicate offences for ML in Zambia. - PEPs (politicians, procurement officials) and associates predominantly involved in these predicate crimes. - Authorities understand sector-specific ML risks but did not share specific data on number of related investigations, prosecutions, and convictions. - FIC as FIU disseminates intelligence and made 25 requests for information, received 33 requests and undertook 4 joint operations with LEAs in 2021 (FIC Trends Report 2021); no correlated statistics on prosecutions/convictions provided. - Constitutional definition of “public officer” introduced in 2016 excludes top government officials (State and Constitutional Office holders, counsellors, judges and judicial officers - art. 266), creating a legal impediment to hold these officials accountable under anti-corruption legislation; ACC has resorted to charging other offenses (theft of public property, illegal expenditures, failure to comply with regulations) to avoid legal challenges. - International cooperation - International cooperation and exchange against corruption, ML and for asset recovery increasingly important; FIC’s admission to Egmont Group supports this. - Mutual legal assistance processes limited usefulness in some regional agreements due to lack of responses or differing legal definitions of predicate crimes; authorities seek to strengthen cooperation. *IMF | Diagnostic Report on Governance and Corruption – Zambia, Section II. Effectiveness of Anti-Corruption and Anti-Money Laundering Frameworks* ### Section 3: “public officer means any person who is a member of, holds office in, is employed in the service of, ### 1zmbea2023001 - Section 3: “public officer means any person who is a member of, holds office in, is employed in the service of, ### Definitions and institutional roles - Section 3 definition: “public officer means any person who is a member of, holds office in, is employed in the service of, or performs a function for or provides a public service for a public body, whether such membership, office, service, function or employment is permanent or temporary, appointed or elected, full time or part time, or paid or unpaid, and public office shall be construed accordingly”. - “State Office” includes the office of President, Vice-President, Speaker, Deputy Speaker, Member of Parliament, Minister and Provincial Minister. - “Constitutional Office” means the office of the Attorney-General, Solicitor-General, Director of Public Prosecutions, Public Protector, Auditor-General, Secretary to the Cabinet, Secretary to the Treasury and Permanent Secretary. - “Judicial officer” includes a magistrate, local court magistrate, registrar and such officers as prescribed. ### International cooperation and information exchange (FIU / Egmont / ESAAMLG) - Access to the Egmont Group’s platform in 2018 is supporting the FIC’s requests and receipt of information from ESAAMLG region, Asia, the Middle East and Europe. - In 2021, the FIC collaborated with 11 Egmont Group member FIUs and 4 non-Egmont member FIUs. - FIC mutual assistance volumes: - FIC made 10 requests for information to foreign FIUs (compared to 5 in 2019 and 20 in 2020). - FIC only received 5 requests (compared to none in 2019 and 4 in 2020). - Observations: - Informal exchange of information is generally improved under ESAAMLG membership. - Asset tracing within the ESAAMLG region and selected overseas jurisdictions is a focus area but is hampered by long response times or lack of responses. - Authorities did not demonstrate current data on any case management system, precluding an assessment of whether current mutual legal assistance and information exchange processes are working effectively in practice. - International cooperation in anti-corruption is weak; legal framework improvements are needed to address transnational corruption-related offences, expedite asset recovery, and support extradition. ### Asset recovery framework and operational challenges - Legal framework: - Forfeiture of Proceeds of Corruption Act (FPOCA) of 2010 allows conviction and non-conviction-based forfeiture; deprivation of proceeds, benefits, or property derived from the commission of any serious offence; and facilitation of tracing proceeds, benefits, and property derived from serious offences. - Asset Forfeiture Department (AFD) leads FPOCA implementation. - Performance and gaps: - AFD has shown some successes in recovering proceeds of corruption. - Challenges include need for continuous capacity development, enhanced inter-agency, regional and international cooperation. - ACC and NPA have conflicting views on effectiveness of current framework; consensus that judges require training in adjudicating these cases. - Data on recovered assets is incomplete and does not allow monitoring progress. - Decisions on seizure are being challenged by defendants, exposing the State to liability for mismanagement or undue deterioration of seized assets. - Seized and confiscated asset management is an increasing operational challenge due to absence of a proper legislative framework, unclear roles and responsibilities, and insufficient resources and skills across institutions. ### IMF recommendations on anti-corruption and AML frameworks (selected) - Legal and transparency reforms: - Adopt a legal framework that guarantees public access to information (including proactive transparency requirements for government agencies) in line with Zambia’s international obligations and designate an agency responsible for overseeing implementation. - Ensure that all public entities prepare and publish activity reports in a timely manner. - Strengthen protection of whistleblowers by removing criminal liability for filing frivolous, vexatious or malicious complaints under Section 13(3) of the Public Interest Disclosure (Protection of Whistleblower) Act of 2010. - As part of the ongoing Constitutional review process, amend the definition of “public officer” in line with Zambia’s international obligation under UNCAC. - Conflict of interest and asset disclosure: - Introduce and implement a legal framework on comprehensive conflict of interest and asset disclosure system in line with international best practices (G20 HL Principles on Asset Disclosure by Public Officials). In particular ensure that: - All senior officials and others in positions of influence are obliged to disclose upon taking and leaving the office as well as with regular intervals. - Assets, income, fiduciary rights, credits, and debts, in the country and abroad, that are owned directly or beneficially owned, by the obligated public officials their family members and associated, are subject to disclosure. - Work history, activities, membership on boards of directors, representation power granted by or to third parties, creditors, donors, clients, relations, and interests relevant for the detection of conflicts of interest in the exercise of public office are subject to disclosure. - An effective monitoring mechanism is in place and a responsible institution (e.g. ACC) designated. - Proportionate and dissuasive sanctions for non-compliance and false declarations are in place. - Asset disclosure declarations of senior public officials are published (ST). - Beneficial ownership, audits and information sharing: - Operationalize PACRA’s beneficial ownership register, including ensuring availability of accurate, complete and up-to-date beneficial ownership information and imposing effective sanctions on entities for non-compliance. - Bring the Public Audit Act of 2016 and the State Audit Commission Act of 2016 into force by issuing the statutory instrument by MoFNP. - Strengthen anti-corruption information sharing by mandating the Controller of Internal Audit to share findings related to corruption with the ACC. - Prosecution, institutional appointments and capacity: - Adopt and publish guidelines for prioritization and effective investigation and prosecution of corruption and ML cases. - Ensure top anti-corruption and AML officials (Director General of ACC, Director General of DEC, Director General of FIC, DPP) are selected and appointed through transparent, merit-based and participatory processes based on sound fit and proper criteria narrowly tailored to each position. - Prepare, with participation of civil society, academia and legal profession, a comprehensive reform strategy to strengthen independence, professionalism and efficiency of the judiciary and prosecution services, including transparent, participatory and merit-based selection and appointment processes and clear accountability standards and professional ethics for judges, magistrates and prosecutors. - Strengthen institutional, financial and operational autonomy of the ACC by: - Classifying it as a grant-aided institution and removing the consent requirement for donor funding. - Providing ACC with a clear legal mandate for formulation, coordination, monitoring and evaluation of anti-corruption policies and strategies. - Inter-agency cooperation and specialized capacity: - Improve cooperation between anti-corruption and AML investigative agencies (ACC and DEC in particular) and the DPP by: - Introducing and enforcing clear procedures and timeline for the DPP to act on corruption and ML cases. - Creating a consultative process for anti-corruption/AML bodies and DPP to exchange information, identify policy priorities and working methods regularly. - Consolidate the EFCC and strengthen its capacity by: - Preparing and publishing procedures and criteria for selection/assignment of judges to the EFCC. - Providing targeted capacity development opportunities for EFCC judges and personnel. - Enacting legislation that clearly establishes the EFCC’s jurisdiction and facilitates fast-tracking of corruption and ML cases. - Increase resources to FIC to support effective risk-based AML/CFT supervision and consider establishing a dedicated sub-unit focused exclusively on PEP-related intelligence gathering and analysis. - Expedite the appointment of the FIC’s Board of Directors. - Increase investigations, prosecutions, and convictions of corruption-related money laundering in line with identified laundering risks. - Develop a strategy, legal and institutional framework to facilitate management of seized and confiscated assets. ### Fiscal governance — summary of vulnerabilities - Major vulnerabilities identified across: - Public financial management (PFM), public procurement, revenue administration, natural resource management and oversight of SOEs. - Key summarized findings: - Significant corruption vulnerabilities in public investment project management due to lack of compliance, resulting in major inefficiencies. - Governance weaknesses with macro-critical impact in limited ability of Sub-National Governments (SNG) to exercise financial controls, weak expenditure controls, and inadequate utilization of information technology. - Lack of transparency in procurement, over-reliance on manual operations and delays in implementation of e-GP; absence of BO transparency and influence of PEPs create procurement risks. - ZRA resilience against corruption is weak; AML framework shortcomings; VAT refund process has massive backlogs and inefficiency; limited IT, poor compliance risk management and organizational structure increase vulnerabilities. - Mining license allocation and monitoring processes are not well managed; laws on environmental rehabilitation and digitization of regulatory functions would help reduce contingent liabilities and corruption risk. - Weak SOE governance increases risks of political interference, patronage and corruption. ### Public Investment Management (PIM) — weaknesses, data and key figures - Consequences of PIM weaknesses: - Major inefficiency and waste in multi-year infrastructure contracts; several large public projects stalled due to inadequate funding from poor planning and budgeting. - Arrears data: - Roads construction contracts are the largest category in the outstanding stock of arrears: 15.5 billion ZMK as of July 1, 2021. - Arrears related to public investment projects in water, education, health sectors: 2.9 billion ZMK as of July 1, 2021. - PIM legal and institutional context: - Zambia’s PIM Guidelines and the National Planning and Budgeting Act (NPBA) of 2020 provide sound legal basis for PIM but implementation should be accelerated. - MoFNP has been working on a standard methodology for project appraisal expected to be finalized soon. - Lack of capacity in ministries, provinces and spending agencies (MPSAs) to comply with guidelines is a major challenge. - PIM implementation hampered by lack of an available software solution and limited advanced technical skills to use common applications (e.g., MS Project, MS Excel). - IMF PIMA recommendations (Box 2) — nine key actions (as noted by IMF): - Institute an integrated planning and budgeting system across the public sector. - Develop tools to screen proposals for capital projects for relevance, viability and affordability before they are included in the budget. - Prepare regulations to clarify the PPP procurement process and the roles and responsibilities of all parties. - Improve the usefulness of the medium-term expenditure framework as a multi-year budgeting and information tool for capital investments. - Clear arrears and ensure that future arrears are prevented. - Provide funding certainty for capital projects. - Update the procurement legislation and systems to increase transparency. - Strengthen the framework for monitoring the use and maintenance of public assets. - Develop a targeted program to build skills and systems for effective PFM. ### National Planning Directorate (NPD) and project selection - NPD role and gaps: - NPD resumed role as secretariat to the Public Investment Board and central “gateway” of investment projects following merger of Ministry of Finance and Ministry of National Planning. - NPD should advise before major projects are approved (regardless of funding source) and have access to timely, periodically updated information on major capital projects to develop a comprehensive pipeline. - Communication channel between NPD and the Budget Office should be leveraged and ensured. - Project selection guidance: - Project selection should strictly adhere to availability of funding in the annual budget and medium-term budget timeframe. - Selection is mostly guided by NDP and sectoral priorities and an affordability criterion based on sectoral resource envelopes; ministries submit investment project proposals to Cabinet for final decision. - Expenditure control weaknesses: - Weak expenditure controls and persistent accumulation of arrears. - Large number of budget expenditure commitments occur in MPSAs with limited visibility to MoFNP. - Due to acute cash constraints and cash rationing, large portion of government bills remain outstanding. *IMF | Diagnostic Report on Governance and Corruption – Zambia (excerpts from Section 3).* ### Box 3. The key principles of PIM Systems (PIMS) ### Box 3. The key principles of PIM Systems (PIMS) ### Scope and applicability - The guidelines apply to public investment projects finances from the national budgets as well as to projects that impose fiscal costs and fiscal risks to the government, such as public-private partnerships. - The guidelines apply to public investment projects financed from the national budgets as well as projects that impose fiscal costs and fiscal risks to the government such as public private partnerships - The guidelines apply to public investment projects financed from the national budgets as well as projects that impose fiscal costs and fiscal risks to the government such as public private partnerships. ### Institutional roles and initiation - MPSAs are required to initiate projects in line with the government and sectorial policies. - MPSAs are required to carry put feasibility studies and develop a project concept note for the submission to the MoFNP and subsequent to the Public Investment Board for appraisal. - The MoFNP as the secretariat to the Public Investment Board facilitates the technical review and appraisal of projects. ### Project pipeline and implementation - Only projects contained in their product pipeline shall be considered for implementation by government through the national budget or another mode of financing. *IMF | Diagnostic Report on Governance and Corruption – Zambia* ### Box 4. Governance Weaknesses in ZRAError! Bookmark not defined. ### Box 4. Governance Weaknesses in ZRAError! Bookmark not defined. ### ZRA governance weaknesses — information systems and data integrity - Implementation of a comprehensive system that consolidates all sources of information about the wealth and income of each taxpayer will strengthen the ZRA capacity to detect corruption cases and allow monitoring of the increase in the wealth of taxpayers and officials in particular. - Internal findings: - Inaccuracies in the taxpayer register: weak data integrity, incomplete taxpayer information; individuals with multiple national registration cards (NRCs) and business registration numbers. - There is no large-scale automated cross-checking of third-party data from external sources against tax declarations: ZRA does not utilize third-party data to detect under-reporting of core tax declarations from the following sources: financial institutions; stock exchange; employers; real estate property registers; online (internet-based) vendors; and data received from other jurisdictions. - Implementation of the Bulk Intelligence Data Project (BIDA) it is in the right direction but is currently limited to internal tax sources and ZRA’s customs operation data, and data from the road development agency, and Zambia tourism agency. - Lack of consolidated views of all taxpayer information. - External findings: - There is a mismatch between the taxpayer information number (TPIN) handled by ZRA and the information on the NRC that would allow identity theft or make it difficult to identify a specific individual. - The TPIN is not mandatory in all commercial transactions, or it is only required for the seller and not the buyer, which makes it difficult to track transactions. - Although ZRA manages the information electronically, other agencies do it manually, which complicates the exchange of information. - Data and privacy protection issues pose some obstacles that hinder the exchange of information. - The beneficial owners register is not yet operational and will be administered by the Patents and Companies Registration Agency, which would make it difficult to timely identify and prosecute cases of tax evasion and corruption without and effective exchange of information system. ### Transparency in revenue mobilization and tax expenditures - Overall statement: Zambia’s transparency and allocation of responsibilities related to revenue mobilization is generally strong, although there are important areas of weakness. The MoFNP is the primary fiscal policymaker. - Key weakness: lack of information on tax expenditures (TEs). - Findings on TEs: - Zambia does not publish public tax expenditure (TE) reports, nor comprehensively cost TEs for internal purposes. - TE reporting should explicitly state the purpose of a TE and estimate the associated revenue foregone. - As TEs can equal several percentage points of GDP, a lack of reporting and scrutiny can present a key weakness in fiscal transparency and governance. - Authorities acknowledge the presence of TEs and produce internal, monthly reports on TEs related to reduced customs rates, but expanding TE reporting to VAT exemptions and reduced rates (initially) and publishing annual reports would improve fiscal management and policymaking. - Eventually, TE reporting could cover Multi-Facility Economic Zones (MFEZ) and provisions in the income tax codes and accompany any proposed, new TE for budget discussions in Parliament. - Investment incentives: - Investment incentives are granted in a transparent and fair manner. MEFZs are the primary avenue for incentives, with incentives clearly stated in legislation and not provided on a case-by-case basis. - Mining companies are subject to the general fiscal legislation and do not have project-level negotiated terms. - The mission was told that tax incentives are not granted to other groups or individual companies. ### Natural resource management — mining sector governance and regulatory capacity - Importance: - In 2019, the mining sector made large contributions to government revenue (28%) and exports (77% of exports). - There are prospects to expand investment and production significantly, with the new administration aiming to increase production three-fold by 2030. - Governance weaknesses and risks: - Issues raised in AG reports (2014 and 2020), a World Bank project proposal (2016), media reports, and discussions with authorities include: license holders not adhering to reporting, workplan and environmental obligations; many licenses held by a few individuals; potential political interference into the mining license approval process; and the lack of digitalization for regulatory processes. - Recent or ongoing initiatives: conducting a forensic audit (led by the AG), general review of the mining license approval and monitoring process; suspending the issuance of new mining licenses; and establishing the Mining Appeals Tribunal. - Regulatory resourcing: - The MMMD is responsible for overseeing the over 3,000 active mining licenses (3,570 as of 2020, EITI). - MMMD funding of Kwacha 96 million (~USD 5.5 million, or USD 1,600 per active license) contributes to strained resources and governance vulnerabilities: - Rushed regulatory processes (e.g., license applications that are not properly scrutinized). - Environmental and safety risks (e.g., damages highlighted in the 2014 OAG report). - Lack of sectoral expertise that could be shared with other stakeholders (e.g., mineral valuation and engineering expertise). - Inability to ensure license holders adhere to workplans (the 2020 OAG report found that 88 percent of exploration license holders did not submit the required quarterly reports and several sampled license holders had not started mining within 12 months). - Resource strain is exacerbated by a lack of digital, automatized processes and the large number of approved mining licenses annually. - Recommendation priority: increase human and financial capacity of the MMMD while ensuring robust oversight to minimize leakage. - Mining License Committee (MLC) process issues: - 2020 OAG report: the MLC considers “seventy applications within two hours thirty minutes per meeting”, roughly one application every two minutes. - The MLC lacks time and resources to properly scrutinize applicants; the MLC Secretariat also lacks resources to properly audit licensees. - Suggested alleviations: increase resources for screening applications, digitalize the process, and adjust procedures to remove the bottleneck at the MLC level. - License hoarding/speculation: - Evidence of license hoarding by few individuals leading to inefficiencies and reduced mining activity. - Regulatory and legal components: - MMMD does not regularly exercise authority to cancel or suspend licenses for not following workplans. - MMDA limits the number of exploration licenses by “a single entity” (Art. 21.3) but uses an incomplete definition for “a single entity” and provides no limits related to hoarding mining and processing licenses. - Result: mining licenses with no activity, reducing discoveries, investment, and production; both legal and operational aspects should be reviewed and improved. - Application vetting and conflicts of interest: - Criteria to determine whether applicants have local and federal approvals, as well as technical and financial resources, may not be comprehensive. - The 2020 OAG found many licensees did not have necessary permitting from local authorities and ZEMA and/or financial resources to begin mining activities. - No clear criteria for technical capacity assessment for applicants; MMDA does not require transfer applications to go through the MLC. - No process for dealing with conflict of interest in the licensing process or identifying whether a license is held by a PEP; license and transfer applications do not include BO information. - Paper-based process vulnerabilities: - Paper-based licensing creates room for discretion and increases corruption risks: applicants cannot robustly track receipt or status, lack of electronic, time-stamped documentation undermines first-come, first-serve allocation integrity. ### Oversight of state-owned enterprises (SOEs) - Scope and fiscal risk: - Zambia has 34 SOEs, with estimated liabilities of 20 percent of GDP at the time of the latest IMF estimate in 2017 (IMF 2019). - SOEs are primarily owned by the MoFNP through the Industrial Development Corporation (IDC). - The IDC is 100% owned by the MoFNP and acts as a holding company, with shareholdings in 41 entities. - The President has historically been IDC’s chairperson of the board; Parliamentary Committee on Parastatal Bodies recently recommended that the President should not sit on IDC’s board. - IDC-owned SOEs are required to distribute dividends to the IDC, while there is no requirement for the IDC to pay dividends to the MoFNP. - Governance weaknesses and consequences: - Lack of a dedicated SOE legal framework and the President’s position as chairman have facilitated undue political interference in SOEs, negatively impacting performance. - State ownership functions are not regulated, allowing discretionary decisions on appointment and tenure of SOE board members (frequent dissolution of SOE boards). - No fit and proper criteria to select board members based on skills, experience, merits, and independence, nor transparency requirements for appointment and removal. - Accountability for SOE performance is unclear among State House, line ministries, MoFNP and Cabinet Secretary, IDC, boards of directors, and management. - The mission was informed that the MoFNP is developing a new legal framework for SOEs, but there is no clear timeline for adoption. - Financial monitoring and consolidation issues: - MoFNP’s ability to manage fiscal risks is limited due to information gaps and consolidation of SOEs within the IDC. - Some SOEs do not produce audited financial statements (OAG 2021). - Evidence of cross-subsidization within the IDC (dividends from profit-making entities used to subsidize loss-making ones). - MoFNP’s primary mechanism to influence SOEs is through conditions when recapitalizing; cross-subsidization within IDC limits MoFNP’s influence. - Annual budget contains single line items for recapitalization of SOEs (ZMK ~2 billion in 2021, 1.5 percent of total spending), but no information on dividends received from SOEs. - IDC has not recently published financial information (latest annual report is for 2016); published information is aggregated/consolidated, though the 2020 OAG report provides SOE-entity level information. - The mission was told that the MoFNP receives annual reports and financial statements from most SOEs, but the level of detail is unclear. ### Recommendations on fiscal governance (selected actionable items) - Strengthen the role of MoFNP in major project decisions regardless of funding source. - Review financial management capacity of local governments through a rolling review process. - Ensure adequate resources, including at local level to provide the oversight of SNG financial management. - Mandate the use of the FMIS system for all transactions currently able to be undertaken through the system, taking into consideration: - Registering all purchase orders and other financial commitments in the IFMIS - Developing an agreed list of entities to be integrated in the FMIS - Accelerating infrastructure and connectivity development - Addressing the issue of multiple, incompatible software use and explore integration opportunities. - Take concrete measures to ensure implementation of public procurement legal and regulatory framework, including by updating national standard bidding documentation, and strengthening enforcement of BO disclosure. - Mandate the use of E-government procurement for those agencies and Ministries already covered by the system, including by providing system enhancements, user training, communication within government, communication with businesses, and plans for internal oversight and reporting. - Prepare a time-bound action plan and roll-out E-Government Procurement, including by providing system enhancements, user training, communication within government, communication with businesses, and plans for internal oversight and reporting. - Prioritize improvements and development of systems that have large amounts of money at stake, such as the VAT refund process, including the promulgation of mandatory instructions to harmonize treatments for each VAT refund claim. - Increase internal audits in VAT refund process and customs warehouse management, as well as in other processes where IT systems are not fully integrated or are unstable. - Develop a comprehensive institutional framework for compliance risk management in the ZRA. - Implement electronic case management systems for all ZRA units. - Implement large-scale automated cross-checking of third-party data from external sources against tax declarations, with processes to improve data integrity, and strengthen the BIDA project to have a consolidated view of all of taxpayer information, including information of assets. - Revamp the organizational structure of the ZRA: as part of a function-based organization design, introduce a clear separation of duties and appropriate numbers of staff assigned to each function based on workload, with strong headquarter functions providing oversight and uniform operations across the network of stations. - Take measures to raise awareness about means and channels for reporting corruption in the revenue administration and introduce a dedicated channel for reporting. - Mandate regular preparation and external publication of tax expenditure reports on measures expected to result in significant foregone revenue. This could start with evaluating VAT reduced rates and exemptions, and gradually expand the taxes covered for public TE reporting as the MoFNP builds capacity. - Strengthen the MMMD’s capacity to properly scrutinize license and transfer applications, and monitor the associated commitments on safety and environment, work programs, and production. - Require transfers of licenses to go through the Mining License Committee and be evaluated using the same criteria as the initial granting of a license. - Introduce processes to identify and resolve conflicts of interest in the licensing approval process, such as including beneficial ownership information on the license application and automatically cross-checking the beneficial owners against PEPs. - Digitalize the mining license granting, transfer and oversight process so that all aspects of the licensing process and license holder reporting, including case management, are handled electronically. - Align rehabilitation fund payment levels with international best practice—periodic payments (or guarantees) are made to a mine-level escrow account until the account value reaches the full expected value of rehabilitation costs. Consider a one-time third-party audit of each large-scale mine’s expected rehabilitation costs to calibrate future rehabilitation fund payments. - Enact a new SOE law in line with international standards and best practice which includes: - Robust ownership, corporate governance, transparency and accountability frameworks for IDC as the state’s holding company, including (i) a clear mandate for IDC, (ii) a distinct division of roles and responsibilities, particularly vis-a-vis MoF and Line Ministries, (iii) a rationale for state ownership, (iii) introducing safeguards for the appointment and removal of professional and independent board members, and (iv) eliminating the State House membership in the IDC Board. - Strong corporate governance framework for SOEs, including a rationale for state ownership, clear division of roles and responsibilities, and safeguards for independent board members. - The requirement for the government to issue and periodically update a dividend policy covering IDC and SOEs. - Increased transparency standards and accountability mechanisms for SOEs and for the government as owner including on cross-subsidization in IDC. - Strengthened role and powers of MoFNP in monitoring and overseeing IDC and SOEs’ financial performance and fiscal risks. - Ensure that IDC and other SOEs timely prepare and publish pending and future annual audited financial statements and annual reports as required by the Public Financial Management Act. *IMF | Diagnostic Report on Governance and Corruption – Zambia* ### Section IV. Central Bank Governance and Operations ### Section IV. Central Bank Governance and Operations ### Overview: autonomy and governance context - Autonomy of the BoZ is described as a pre-requisite for the central bank to fulfill its mandate and is safeguarded in a context of an enhanced framework for transparency and accountability. - Strong governance arrangements, including a robust system of “checks and balances” to ensure independent oversight of the BoZ in the conduct of its daily operations, are important. ### Legal framework — 2022 BoZ Act: key changes and remaining gaps - The 2022 BoZ Act is substantially in line with IMF recommendations and was adopted following intensive engagement by IMF staff with the BoZ and the Ministry of Finance. - Mandate - Clarified provisions on the “lending of last resort” function to distinguish temporary liquidity assistance to solvent banks from solvency support for financial stability purposes. - Revised provisions on BoZ’s acquisition of shares, establishment of subsidiaries and borrowing in foreign currency to explicitly link such activities to the core objectives of the Bank. - Prohibited the BoZ from issuing guarantees for Government and public institutions’ loans and debts. - Gap: the micro-prudential supervision mandate of the BoZ needs to be further aligned with Basel Core Principles for Effective Supervision (BCP1 EC2) and be enshrined in primary legislation. - Institutional autonomy - The 2022 BoZ Act maintains a representative of the Secretary to the Treasury as an ex-officio director on the Board, entitled to attend and participate in any Board meeting without a right to vote. - The Act includes additional safeguards on a quorum for Board meetings and a prohibition for such a representative to sit on the Audit and Finance Committee (AFC). - Gap: institutional autonomy is not fully safeguarded due to the continued presence of the government representative on the Board. - Personal autonomy - Appointment procedure for Board members and Deputy Governors does not provide for a double veto mechanism. - Positive: personal autonomy for Board members is underpinned by strong eligibility criteria and safeguards against arbitrary dismissal. - Financial autonomy - Provisions on profit distribution now clarify that unrealized gains should be explicitly deducted from the Bank’s net income before distributing profits. - Monetary financing provision provides for monitoring of compliance with the maximum permissible financing (15% of the ordinary Government revenue in the previous financial year), beyond which no further financing is permitted. - Governance and oversight - The 2022 BoZ Act explicitly entrusts the Board with the oversight function. - Gap: the Act does not include an explicit reference to collegial decision-making for BoZ management; collegiality continues to be established in practice through the Executive Committee and a Board-approved delegation framework. - Accountability mechanisms - Audit and financial reporting mechanisms appear well established. - The 2022 BoZ Act does not establish an audit committee (although the AFC exists). - Positive: the Act clarifies that the Board appoints the Head of Internal Audit and adopts the Internal Audit Charter. ### Assessment of governance arrangements and oversight - Board composition and risks - The BoZ is governed by a unitary Board chaired by the Governor and comprising six non-executive Directors, and a government official — alternate to the Secretary to the Treasury — as a non-voting ex-officio member. - The Board is fully constituted and actively engaged in policy decisions, budget approval, and approval of annual accounts/financial statements. - Risk: participation of a government official on the Board departs from central bank governance norms and risks actual or perceived compromise of BoZ autonomy and undue government influence. - Management collegiality and delegation - Executive management is vested in the Governor and two Deputy Governors (Operations and Administration), who collectively form the Executive Committee; the Executive Committee is not formally provided for in the BoZ Act. - Specialized management committees chaired by the Governor or a Deputy Governor assist in daily management. - A Board-approved “delegation of authority” (last revised in 2021) facilitates collegial decision-making and includes terms of reference of all management committees. - Risk: absence of formal enshrinement of collegial decision-making in law creates the possibility that executive powers could become concentrated with the Governor, weakening checks and internal controls. - Audit and Finance Committee (AFC) - The AFC is responsible for oversight of internal and external audit mechanisms, financial reporting, internal controls, and budget performance. - The AFC has requisite capacity and is actively engaged. - At the time of the GDA the AFC included the alternate to the Secretary of the Treasury as a member; the 2022 BoZ Act now prevents this. - Gap: the AFC charter and composition still need revision to include only independent non-executive members of the Board in line with the amended 2022 BoZ Act. ### Assessment of financial autonomy - Monetary financing and statutory limits - As of end-December 2021, the BoZ had total assets of K120 billion (about US$7.2 billion). - Included in total assets: - credit extended to the government and related securities of K 16 billion or 13 percent of total assets; - government securities acquired on the secondary market of K 13 billion or 11 percent of total assets. - The claims on the government include a portfolio of government bonds and treasury bills that is being rolled over in the primary market and may have contributed to the breach of statutory limits on credit to the government. - This portfolio resulted from past debt consolidations through conversions of BoZ’s advances and loans to the government in previous years, indicative of past government pressures on the central bank and weak internal mechanisms to ensure compliance with the law. - Note: the mission team was informed that measurement and compliance issues around credit to government were subsequently addressed. ### Assessment of transparency and accountability: audit and reporting - External audit - External audits have been conducted by PwC Zambia—a full member of the global firm—since FY 2020. - Appointment of external auditors is subject to strong procurement rules and a public tender that sets independence and quality criteria. - The external auditors issued unmodified (clean) audit opinions for FY 2019–2021, stating compliance with International Standards on Auditing. - Internal audit - The internal audit function is provided for in the Act; its independence and authority are well maintained. - The audit approach is comprehensive and risk-based. - An external quality assessment conducted in December 2020 confirmed adherence to the Institute of Internal Auditors (IIA) standards. - Financial reporting - The BoZ applies International Financial Reporting Standards (IFRS), with timely audits and publication of audited financial statements. ### Recommendations on governance and operations of the Bank of Zambia - The Board should revise the composition of the Audit and Finance Committee and approve an amended charter to govern its modalities, ensuring that the committee’s membership comprises non-executive Directors exclusively (i.e., ex-officio government representative does not qualify). *IMF | Diagnostic Report on Governance and Corruption – Zambia — Section IV. Central Bank Governance and Operations* ### Section V. Financial Sector Oversight ### Section V. Financial Sector Oversight ### Overview and key vulnerabilities - Zambia made a good progress in aligning legal and regulatory framework with international standards,111 but remaining constraints limit effective oversight. - Banking and Financial Services Act of 2017 empowers the BoZ to issue regulatory statements; a few supervisory powers remain vested in the Minister of MoFNP. - BoZ needs to revise decision-making framework for licensing, regulatory and supervisory decisions; establishment of the Financial Stability Committee under the 2022 BoZ Act will contribute to collegial decision-making. - A more disciplined approach is needed for enforcing prudential requirements and dealing with exemptions and exceptions. - Limited public accountability and transparency around banking supervision mandate. - Banking supervision is not fully effective due to insufficient human resources in both number and capacity. - Specific risks and challenges exist for banks and specialized financial institutions with Government ownership. - The 2017 FSAP concluded banks had high capital and liquidity buffers; total banking sector assets represented 37 percent of GDP as of December 2021. - The banking sector comprises seventeen banks: ten subsidiaries of foreign banks; three smaller locally owned commercial banks; and four banks, including the country’s largest bank, partially owned by the Government.112 - In 2016 BoZ took possession of an insolvent bank and restructured it, resulting in an increase in number of banks with Government ownership.115 - In 2020, acquisition and merger activity occurred (Access Bank Zambia Limited acquired Cavmont Bank Limited).116 - Government-owned or partially government-owned banks and three specialized non-bank financial institutions pose governance and corruption risks due to political influence and deteriorating financial situations; AG’s annual reports noted worsening financial situation in some non-bank financial institutions.120 ### Governance of the supervisory agency (BoZ) Findings: - 2022 BoZ Act substantially addresses weaknesses in governance legal framework, strengthening BoZ autonomy, Board oversight, and accountability. - Micro-prudential supervision mandate in primary legislation should be further aligned with Basel Core Principles for Effective Supervision (BCPs); current BoZ Act defines mandate as formulation and implementation of supervisory policies and lists functions including licensing, regulation and supervision (section 5 (3) (d) and (i)). - If assigned broader responsibilities (e.g., development objectives, financial inclusion) these should be subordinate to the primary safety and soundness (S&S) objective (BCP1 EC2). - Progress since 2017 FSAP: revised BFSA 2017 aligned many requirements closer to international standards,123 but secondary legislation preparation is still underway.124 - Implementing Basel Framework is a key priority but requires dedicated resources (Appendix VI-2); Banking Supervision Department still operating below agreed staffing level despite recruitment of additional examiners. - Concerns about experience level of supervisors below Principal Examiners; need for capacity building, enhanced integrity framework125 and stronger controls to ensure transparent, merit-based recruitment and reduce political interference. - Multiple channels could compromise BoZ independence; additional legislative changes needed to limit Government interference (examples include Minister involvement in appeals to Tribunal and MoFNP powers over regulations prescribing fees, offences, forms, licenses).126,127,128 - BoZ’s legal protection provisions exist (Section 156 BFSA; Sections 23(2) and 64 of BoZ Act) but primary legislation should protect BoZ and staff against costs of defending actions/omissions made in good faith.129 - Substantial space to enhance public accountability and transparency: Strategic Plan 2020-2023 exists but Annual Reports provide limited detail on prudential supervision actions; website provides limited disclosure; secondary legislation drafts are not subject to public consultation. The accountability framework130 needs clearer prescription and public disclosure; develop a culture encouraging public disclosures131 while protecting confidential information appropriately. - Internal “Delegation of Authority” does not clearly cover all licensing, regulatory and supervisory decisions. Under BFSA 2017 BoZ has significant responsibility for prior approvals, exemptions, corrective and sanctioning measures; Board participates in major supervisory decisions but most licensing, regulatory and supervisory decisions are signed/approved by Deputy Governor-Operations (DGO).133 - Concentration of power (Registrar of banks and financial institutions is the DGO) could lead to decision-making problems; establishment of Financial Stability Committee under 2022 BoZ Act will aid collegial decision-making. BoZ needs comprehensive decision-making framework for all licensing, regulatory and supervisory decisions, taking into account issue significance.135 - Exemptions and exceptions are widespread (Appendix VI-3); BFSA 2017 allows BoZ to exempt any financial service provider but secondary legislation often lacks specific terms, conditions and circumstances; BoZ typically decides case-by-case, creating potential for supervisory forbearance and increased corruption vulnerability.136 - Application mechanism of enforcement measures should be strengthened: many offences in BFSA 2017, but offences often dealt with through agreement and sanctions applied rarely137; lack of structured, rigorous framework of timely supervisory responses (classification of severity, prioritization); new regulations issued in May 2022 (Supervision and Resolution of Problem Institutions Policy; Problem Institutions Indicators and Supervisory Actions) may partially address issues.138 ### Banks’ licensing, corporate governance, fit-and-proper and related-party frameworks Findings: - Formal structure exists for bank licensing but elements need strengthening; no new bank licensed since 2011, one transfer of significant ownership and one acquisition of a small bank approved since 2018. - BFSA 2017 requires beneficial owner be identifiable but does not define ‘ultimate beneficial owner’;139 BoZ faces challenges with ex-post assessments after transfers and needs clear requirements for removing shareholders when ex-post assessment rejects them. - Licensing function under-resourced (currently only four supervisors responsible for research, prudential regulatory policy and licensing). - BoZ Corporate Governance Directive 2016 aligned with Basel Corporate Governance Principles for Banks 2015 and requires annual compliance statements by chairperson and banks’ annual report disclosures; BoZ revising Directive to include gender diversity, financial inclusion, and extension to broader regulated entities.140 - Evidence banks comply with requirements on board composition and disclosure of board/management biographies, but implementation gaps remain in effective Board oversight, conflicts of interest, corporate and risk culture, risk management, disclosure and transparency; BoZ should issue additional guidance and strengthen supervisory capacity and methodologies. - Supervisory framework lacks comprehensive assessment of banks’ corporate governance: BoZ uses CAEL off-site and Management component on-site; Risk-based Examination Manual 2008 not updated to include Corporate Governance Directive 2016 requirements. Need for comprehensive methodology, more governance experts and capacity building for forward-looking assessments. - Fit-and-proper framework: BoZ performs careful security screening on probity, personal integrity and reputation, but assessment criteria for qualifications are too general (‘leadership, enterprise, and judgement’). International standards require competencies commensurate with bank’s size, complexity and risk profile. BoZ requirements lack explicit criteria on (i) potential conflicts of interest (personal, professional, financial and political); (ii) independence of mind for non-executive directors; and (iii) sufficient time availability for board members. BoZ has prepared draft Guidelines for the Fit and Proper Assessment.141 - Related-party transactions: FSAP 2017 recommendations partly addressed in BFSA 2017 and draft Regulations (statutory instruments) 96 and 97. Regulation 97 still uses “substantially” when describing arm’s length requirements, risking misinterpretation and corruption vulnerability. Regulation 97 does not require ‘write-offs’ of related party exposures and other dealings to be subject to prior approval of a bank’s board. Governance requirements for oversight/monitoring related-party transactions should be enhanced: independent credit review or audit process, exposures treated at least as strict as large exposures, identification of UBOs, and supervisory tools expanded to assess service contracts, asset purchases and sales, construction contracts, lease agreements, derivatives transactions, write-offs, and to identify hidden related parties.143,144 - Disclosure and transparency: BFSA 2017 requires banks to publish quarterly and audited annual financial statements in a newspaper of general circulation in Zambia; Corporate Governance Directive adds disclosure requirements. Some banks do not publish financial statements and Annual Reports on their websites, limiting accessibility. Basel Pillar 3 framework has not been implemented though draft Directive on public disclosure of capital and risk exposures prepared. ### Recommendations on financial sector oversight Enhance governance of BoZ as banking supervisor: - Align micro-prudential supervision mandate of the BoZ closer with Basel Core Principles for Effective Supervision (BCP1 EC2) in primary legislation. - Strengthen institutional set up and capacity of the banking supervision function. - Improve accountability and transparency of the banking supervision function through additional disclosures. - Enhance banking supervisory decision-making (including the Financial Stability Committee) and response frameworks; revise the Banking and Financial Service Act in promoting collegial decision making, particularly for licensing function (Registrar of banks and financial institutions). - Ensure secondary legislation includes specific terms and conditions for all exemptions and exceptions with prior approval, prescribed in the Banking and Financial Services Act 2017; conduct a stocktaking exercise for these exemptions and exceptions. - Revise the Banking and Financial Service Act to further limit Ministry of Finance interference. Strengthen governance-related prudential regulatory and supervisory frameworks: - Enhance supervisory oversight to ensure banks properly implement BoZ Corporate Governance Directive’s requirements, particularly effective board oversight, conflicts of interest, corporate and risk culture, and disclosure and transparency; strengthen capacity and supervisory methodologies for comprehensive corporate governance assessments. - Modernize the framework for suitability assessment of board members and senior management. - Enhance regulatory and supervisory framework for transactions with related parties. - Strengthen disclosure and transparency requirements for banks. - Include the definition of the “ultimate beneficial owner” in the Banking and Financial Services Act. Develop and reinforce supervisory processes for banks and non-bank financial institutions with Government ownership to ensure: - Unsafe practices in these banks and non-bank financial institutions are effectively addressed at an early stage. - Specific risks and challenges associated with these special entities are identified and timely addressed. - Fitness and propriety of members of entity’s board and senior management are assessed and ensured. - Comprehensive evaluation of corporate governance is conducted. - Full application of all prudential requirements, including for corporate governance and disclosure. *Section V. Financial Sector Oversight* ### Section VI. Rule of Law – Protection of Property Rights and ### Section VI. Rule of Law – Protection of Property Rights and Contract Enforcement ### Overview - Focuses on efficiency of legal and institutional frameworks (including judiciary) pertinent to protection of property rights and contract enforcement and corruption vulnerabilities therein. - Authorities recognize need to streamline procedures for land alienation, change of status from customary to State land, and improvement of broader land management and dispute resolution, including land tribunals and other courts involved. - Legal framework for recognizing and enforcing contract rights is well developed, but enforcement systems require strengthening. Formal mechanisms (Commercial Courts and Small Claims Courts) lack necessary resources. Alternative Dispute Resolution (ADR) is not effectively used due to legislative shortcomings and low mediator fees. Customary dispute resolution mechanisms are constitutionally recognized but lack support mechanisms. ### Protection of Property Rights — Findings - Zambia ranks high among regional and income-level peers in the CPIA property rights and rule-based governance rating, but elevated corruption risks are present in the process of transforming customary land into State land and in managing State land. - Property rights context: - Existence of customary and State land (art. 254 of the Constitution of Zambia). - All land, customary or State, is held by the President in perpetuity for and on behalf of the people of Zambia. - By estimations, 80% of the land is customary. - The President has power to alienate State land through the Commissioner of Lands (art. 254.2 of the Constitution). - Access routes to land: - State land: application to the Commissioner of Lands through local authorities. - Customary land: access through Chiefs. - Resettlement Schemes administered by the Office of Vice President and/or Farm Blocks under the Ministry of Agriculture. - Characteristics of customary land: - Can be held indefinitely by members of the clan and transferred within the clan through male lineage (with some regional female-lineage exceptions). - Customary land lacks formal documentation and cannot be used as a commodity. - Registries managed by local Chiefs often provide little or no information on size or exact mapping of a plot. - Pilot by the Land Alliance supports Chiefs in issuing an accurate land holding certificate (not a title) used in “village banking.” - State land tenure and leases: - State land can be held for a definite tenure up to 99 years. - Four types of leases for State land: - 10 years through the land record card, - 14-year lease for unsurveyed land, - 25 to 30-year land occupancy licenses for residential settlements, - 99-year lease for surveyed land. - President can lease land for more than 99 years in undefined special circumstances (art. 3 of the Land Act) — discretion that gives rise to corruption opportunities. - Land registration and administration weaknesses: - Registration requires physical filing with the Deeds Registry; system is partially digitalized and digitalization continues. - Registration is overloaded; Certificates of Titles are issued with delays as registration is currently undertaken only in Lusaka and Ndola. - AG reported in 2017 that issuing offer letters and title deeds by the Ministry takes too long and is a source of corruption. - Information on State land subject to alienation is made public by the Ministry of Lands but public awareness of the process is limited. - Applications are lodged in local councils, which do not have uniform standards for selection of candidates. Applicants are required to provide a bank statement, pay slip or proof of residence and demonstrate the ability to develop — criteria that marginalize those without formal employment. - Land dispute resolution: - Poor registration and management contributed to increased number of land disputes. - Land disputes on State land are resolved by Land Tribunals; Chiefs decide on conflicts on customary land applying local traditions. - Land Tribunals are fast-track circuit courts under the Ministry of Land with limited effectiveness: members are part-time, inadequate resources for travel, and insufficient autonomy from the Ministry of Lands. - A Task Force on Illegal Land Allocation chaired by the Ministry of Home Affairs was created to curb illegal land acquisition and allocation. ### Contract Enforcement — Findings - Legal and institutional frameworks for contract enforcement exist, based on common law of contracts, with Commercial Court and Small Claims Court handling disputes; Court of Appeal and Supreme Court serve as appellate bodies. - Court structure and access: - Commercial Court is a fast-track mechanism within the High Court. - Small Claims Courts resolve lower value commercial claims of less than ZMK20,000 and are located in Lusaka, Kitwe and Ndola. - Claimants appear in person in Small Claims Court and are not represented by lawyers; cases decided by part-time Commissioners (usually lawyers with at least five years standing at the bar). - Judicial independence and perception: - According to AfroBarometer survey (2021), 78 percent of sampled respondents believe some elements of the Zambian judiciary are corrupt. - Chief Justice noted shrinking faith in the judiciary among various societal groups. - Many court users view the Commercial Court as independent and professional. - Resource and capacity constraints undermining efficiency: - Limited geographical reach of courts, poor infrastructure (especially lack of courtrooms), high workload, low number of adjudicators, poor data management, lack of technology, inadequate administrative support, limited continuous education and professional development. - With 18 million people in the country of about 752,617 square meters, there are only two Commercial Courts (Lusaka and Kitwe) with 8 judges in total. - Small Claims Courts are operational in 3 locations with 30 commissioners throughout the country. - In order to access a court, physical filing of a complaint is required; remote options are not available in law and practice. - Commercial Court in Lusaka (7 judges) shares premises with the Constitutional Court and the Industrial Relations Court, negatively affecting case disposal rate. - Example workloads: in 2021, 7 judges in the Commercial Court in Lusaka were responsible for 780 cases. - Case disposition time from the final submission date is 180 days in Commercial Court and this timeline is respected through heavy workloads. - Lack of basic technology (scanners, printers) forces manual processes; administrative support beyond registrars is unavailable. - Commercial Court judges examine all kinds of commercial disputes without specialization; specialized trainings are much desired. - ADR and traditional dispute mechanisms — observations: - ADR (arbitration, court-annexed mediation, traditional dispute resolution) are recognized by Constitution and laws; Court Annexed Mediation introduced in 1997. - Statutory Instrument No 72 of 2018 requires judges to refer cases to mediation at scheduling conference except in listed exceptions; parties must be given chance to choose Mediator from list of accredited mediators (Statutory Instruments No. 73 and 72 of 2018). - Use of court-attached mediation is ineffective in practice; one reason is low remuneration of ZMK750 per day for mediators, excluding professional mediators. - Mediation outcomes initiated outside the Court system are not recognized, making enforcement of such outcomes a challenge when a party defaults. - Arbitration governed by Arbitration Act No. 19 of 2000, incorporates UNCITRAL and the New York Convention; applies to domestic and international arbitration; Zambian courts have no jurisdiction if parties have an arbitration clause; arbitration awards are recognized and enforceable in the High Court and can be appealed to the Supreme Court. - Traditional dispute resolution (Chiefs and Local Courts) plays a significant role, especially in rural areas; Article 118 (2) (d) of the Constitution (as amended in 2016) promotes alternative dispute resolution provided it does not contravene the Bill of Rights, is inconsistent with the Constitution and other laws, or is repugnant to justice and morality. - Local Courts apply African Customary Law and examine inheritance claims up to a certain value. ### Key statistics and numeric indicators (preserved) - CPIA Property Rights and Rule-Based Governance rating context shown across a range of scores from 2.2 to 3.2 (source: World Bank chart). - By estimations, 80% of the land is customary. - State land lease types and durations: 10 years; 14-year lease; 25 to 30-year land occupancy licenses; 99-year lease; President may lease more than 99 years (art. 3 of the Land Act). - Small Claims Court threshold: less than ZMK20,000. - Mediator remuneration in court-attached mediation: ZMK750 per day. - Population and territory reference: 18 million people; about 752,617 square meters (as stated in the source). - Commercial Court judges: 8 judges in total; Lusaka Commercial Court: 7 judges. - Small Claims Courts: operational in 3 locations with 30 commissioners. - Judicial Officer per 100,000 population in Zambia in 2020: 5.70 (overall); 2.09 (subtracting local court magistrates). - Workload example: 7 judges in the Commercial Court in Lusaka were responsible for 780 cases in 2021. - Case disposition time from final submission date in Commercial Court: 180 days. ### Recommendations on Protection of Property Rights and Contract Enforcement - Accelerate registration and digitalization of titles on State land to create a reliable database with easily traceable and verifiable information. - Develop detailed procedures and fair and uniform criteria for alienation of State land, with clearly defined roles and responsibilities of central and local authorities. Provide capacity building and resources to local authorities to ensure proper implementation of land alienation rules. - Streamline the procedures and processes for transforming customary land into State land to minimize the risks of abuse and corruption. - Strengthen the capacity and efficiency of the Commercial Court, in particular, by: - Introducing electronic filing of commercial claims, counter claims and other submissions to ensure that citizens outside Lusaka and Kitwe have access to commercial justice. - Adding adjudicators and support staff to manage workload and maintain high quality of judgments. - Develop and implement specialized training programs for Commercial Court judges and personnel. The trainings should include substantive and procedural laws as well as court management. - Strengthen the capacity of Small Claims Courts by expanding to all districts of Zambia, recruitment of additional commissioners, support personnel and allocation of resources for operation. - Strengthen the ADR and traditional dispute resolution mechanisms by: - Allowing competitive remuneration for mediators. - Introducing non-court attached mediation. - Developing a detailed framework for traditional dispute resolution in line with art. 118.2.d. of the Constitution. - Note: Recommendations in Section II related to strengthening judiciary apply to Commercial Courts (CC) and Small Claims Courts (SCC) too. *IMF | Diagnostic Report on Governance and Corruption – Zambia — Section VI. Rule of Law – Protection of Property Rights and Contract Enforcement* ### APPENDIX I: TABLE OF RECOMMENDATIONS ### APPENDIX I: TABLE OF RECOMMENDATIONS ### I. Effectiveness of Anti-Corruption and AML Frameworks — Transparency and Accountability in Public Sector - 1 — Adopt a legal framework that guarantees public access to information (including proactive transparency requirements for government agencies) in line with Zambia’s international obligations and designate an agency responsible of overseeing the implementation of the law. - Authority: MOJ, Ministry of Information, ACC, SH, NA - Objective: Strengthen transparency and accountability in public service - Timeline: ST - 2 — As part of the ongoing Constitutional review process, amend the definition of “public officer” in line with Zambia’s international obligation under UNCAC. - Authority: MOJ, SH, National Assembly - Objective: Strengthen accountability in public service - Timeline: MT - 3 — Ensure that all public entities prepare and publish activity reports in a timely manner. - Authority: All public entities - Objective: Strengthen transparency and accountability in public service - Timeline: ST - 4 — Introduce and implement a comprehensive conflict of interest and asset disclosure system and legal framework in line with international best practices (G20 HL Principles on Asset Disclosure by Public Officials). In particular ensure that: - All senior officials and others in positions of influence are obliged to disclose upon taking and leaving the office as well as with regular intervals. (MT) - Assets, income, fiduciary rights, credits, and debts, in the country and abroad, that are owned directly or beneficially owned, by the obligated public officials their family members and associated, are subject to disclosure. (MT) - Work history, activities, membership on boards of directors, representation power granted by or to third parties, creditors, donors, clients, relations, and interests relevant for the detection of conflicts of interest in the exercise of public office are subject to disclosure. (MT) - An effective monitoring mechanism is in place and a responsible institution (e.g. ACC) designated. (MT) - Proportionate and dissuasive sanctions for non-compliance and false declarations are in place. (MT) - Asset disclosure declarations of senior public officials are published. (ST) - Authority: MOJ, ACC, SH, NA - Objective: Strengthen transparency and accountability in public service - Timeline: ST/MT - 5 — Operationalize PACRA’s beneficial ownership register, including ensuring the availability of accurate, complete and up-to-date beneficial ownership information and imposing effective sanctions on entities for non-compliance. - Authority: PACRA, MoFNP - Objective: Strengthen transparency and accountability in public service, reduce AML/CFT risks - Timeline: Immediate ### I. Effectiveness of Anti-Corruption and AML Frameworks — Oversight Institutions - 6 — Introduce a legal framework to ensure that top anti-corruption and AML officials, such as DG of ACC, DG of DEC, DG of FIC, DPP, are selected and appointed through transparent and participatory processes, based on sound fit and proper criteria that are narrowly tailored to each position and ensure independence, professionalism, capacity and absence of conflicts of interest. - Authority: MOJ, SH, NA - Objective: Strengthen transparency and accountability in public service - Timeline: MT - 7 — Strengthen financial and operational autonomy of the ACC by, inter alia: - Classifying it as a grant-aided institution (like Electoral Commission) and removing the consent requirement for donor funding. (MT) - Providing ACC with a clear mandate for formulation, coordination, monitoring and evaluation of anti-corruption policies and strategies. (ST) - Authority: MOJ, ACC, SH, NA - Objective: Strengthen AC & Oversight institutions - Timeline: ST/MT - 8 — Bring the Public Audit Act of 2016 and the State Audit Commission Act of 2016 into force by issuing the statutory instrument by MoFNP. - Authority: MoFNP - Objective: Strengthen AC & Oversight institutions - Timeline: Immediate - 9 — Strengthen the existing anti-corruption information sharing by mandating the Controller of Internal Audit to share findings related to corruption with the ACC. - Authority: MOJ, MoFNP, SH - Objective: Strengthen AC & Oversight institutions - Timeline: ST ### I. Effectiveness of Anti-Corruption and AML Frameworks — Enforcement of anti-corruption and AML measures - 10 — Strengthen protection of whistleblowers by removing criminal liability for filing frivolous, vexatious or malicious complaints under Section 13(3) of the Public Interest Disclosure (Protection of Whistleblower) Act of 2010. - Authority: MOJ, ACC, State House, National Assembly - Objective: Strengthen corruption and ML detection, investigation and prosecution - Timeline: ST - 11 — Adopt and publish guidelines for the prioritization and effective investigation and prosecution of corruption and ML cases. - Authority: ACC, DEC, NPA - Objective: Strengthen corruption and ML detection, investigation and prosecution - Timeline: ST - 12 — Take measures to improve cooperation between anti-corruption and AML investigative agencies (ACC and DEC) and the DPP by: - Introducing and enforcing clear procedures and timeline for the DPP to act on corruption and ML cases; - Creating a consultative process between anti-corruption/AML bodies and DPP to exchange information, identify policy priorities and working methods on a regular basis. - Authority: ACC, DEC, NPA/DPP - Objective: Strengthen effectiveness of anti-corruption and AML enforcement - Timeline: ST - 13 — Consolidate the EFCC and strengthen its capacity by: - Preparing and publishing the procedures and criteria for selection/assignment of judges to the EFCC; - Providing targeted capacity development opportunities to EFCC judges and personnel; - Enacting legislation that clearly establishes EFCC’s jurisdiction and facilitates fast-tracking of corruption and ML cases. - Authority: Judiciary, MOJ, NA - Objective: Strengthen effectiveness of anti-corruption enforcement - Timeline: ST - 14 — Increase resources to the FIC to support effective risk-based AML/CFT supervision. In line with the identified high risk posed by PEPs across numerous sectors of the economy, the FIC should consider establishing a dedicated sub-unit focused exclusively on PEP-related intelligence gathering and analysis to support LEAs’ investigations and prosecutions. - Authority: BoZ, FIC, MoFNP - Objective: Reduce AML/CFT risks - Timeline: ST - 15 — Expedite the appointment of the FIC’s Board of Directors. - Authority: State House, MoFNP, Secretary of Treasury - Objective: Strengthen core AML/CFT institutional framework - Timeline: ST - 16 — Increase investigations, prosecutions, and convictions of corruption-related money laundering in line with the identified risks of laundering of proceeds of corruption. - Authority: DEC, ACC, NPA - Objective: Strengthen AC by effective AML investigation and prosecution - Timeline: MT - 17 — Develop a strategy, legal and institutional framework to facilitate management of seized and confiscated assets. - Authority: MOJ, SH, NA - Objective: Strengthen corruption and ML detection, investigation and prosecution - Timeline: ST ### I. Effectiveness of Anti-Corruption and AML Frameworks — Strengthening Justice Sector Institutions - 18 — Prepare, with participation of civil society, academia and legal profession, a comprehensive reform strategy to strengthen the independence, professionalism and efficiency of the judiciary and prosecution services, including by introducing transparent, participatory and merit-based selection and appointment processes, clear and robust accountability standards and professional ethics for judges, magistrates and prosecutors. - Authority: MOJ, Judiciary, State House - Objective: Strengthen Judicial independence and efficiency - Timeline: MT ### II. Fiscal Governance — Public Financial Management - 19 — Strengthen the role of MOF in major project decisions regardless of funding source. - Authority: MoFNP - Objective: Strengthen PFM - Timeline: ST - 20 — Review financial management capacity of local governments through a rolling review process. - Authority: MoFNP - Objective: Strengthen PFM - Timeline: ST - 21 — Ensure adequate resources, including at local level to provide the oversight of SNG financial management. - Authority: AG - Objective: Strengthen PFM - Timeline: ST - 22 — Mandate the use of the FMIS system for all transactions currently able to be undertaken through the system, taking into consideration: - Registering all purchase orders and other financial commitments in the FMIS; - Development of an agreed list of entities to be integrated in the FMIS; - Accelerating infrastructure and connectivity development; - Addressing the issue of multiple, incompatible software use and explore integration opportunities. - Authority: MoFNP - Objective: Strengthen PFM - Timeline: Immediate ### II. Fiscal Governance — Public Procurement - 23 — Mandate checking of tax registration of companies prior to awarding procurement contracts and disallow signing of contracts with entities that are not registered. - Authority: ZPPA - Objective: Strengthen PFM - Timeline: ST - 24 — Take concrete measures to ensure implementation of public procurement legal and regulatory framework, including by updating a national standard bidding documentation, and strengthening enforcement of BO disclosure. - Authority: ZPPA - Objective: Strengthen transparency and reduce corruption vulnerabilities in PP - Timeline: ST - 25 — Prepare a time-bound action plan and roll-out E-Government Procurement, including by providing system enhancements, user training, communication within government, communication with businesses, and plans for internal oversight and reporting. - Authority: ZPPA - Objective: Strengthen transparency and reduce corruption vulnerabilities in PP - Timeline: Immediate ### II. Fiscal Governance — Revenue Administration - 26 — Prioritize improvements and development of systems that have large amounts of money at stake, such as the VAT refund process, including the promulgation of mandatory instructions to harmonize treatments for each VAT refund claim. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST - 27 — Increase internal audits in VAT refund process and customs warehouse management, as well as in other processes where IT systems are not fully integrated or are unstable. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST - 28 — Develop a comprehensive institutional framework for compliance risk management. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST - 29 — Implement electronic case management systems for all ZRA units. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST - 30 — Implement large-scale automated cross-checking of third-party data from external sources against tax declarations, with processes to improve data integrity, and strengthen the BIDA project to have a consolidated view of all of taxpayer information, including information of assets. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST - 31 — Revamp the organizational structure of the ZRA. As part of a function-based organization design, introduce a clear separation of duties and appropriate numbers of staff assigned to each function based on workload, with strong headquarter functions providing oversight and uniform operations across the network of stations. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: MT - 32 — Take measures to raise awareness about means and channels for reporting corruption in the revenue administration and introduce a dedicated channel for reporting. - Authority: ZRA - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST - 33 — Mandate regular preparation and external publication of tax expenditure reports on measures expected to result in significant foregone revenue. This could start with evaluating VAT reduced rates and exemptions, gradually expand the taxes covered for the public TA reporting as the MoFNP builds capacity. - Authority: MoFNP - Objective: Strengthen transparency in fiscal governance - Timeline: ST ### II. Fiscal Governance — Natural Resource Management - 34 — Strengthen the MMMD’s capacity to properly scrutinize license and transfer applications, and monitor the associated commitments on safety and environment, work programs, and production. - Authority: MoFNP, SH, MMMD - Objective: Strengthen transparency and efficiency in fiscal governance (revenue mobilization) - Timeline: ST - 35 — Require transfers of licenses to go through the Mining License Committee and be evaluated using the same criteria as the initial granting of a license. - Authority: MMMD - Objective: Strengthen transparency and efficiency in fiscal governance (revenue mobilization) - Timeline: MT - 36 — Introduce processes to identify and resolve conflicts of interest in the licensing approval process, such as including beneficial ownership information on the license application and automatically cross-checking the beneficial owners against PEPs. - Authority: MMMD - Objective: Strengthen transparency and accountability in fiscal governance (revenue mobilization) - Timeline: MT - 37 — Digitalize the mining license granting, transfer and oversight process so that all aspects of the licensing process and license holder reporting, including case management, are handled electronically. - Authority: MMMD - Objective: Strengthen transparency and efficiency in fiscal governance (revenue mobilization) - Timeline: ST - 38 — Align rehabilitation fund payment levels with international best practice—periodic payments (or guarantees) are made to a mine-level escrow account until the account value reaches the full expected value of rehabilitation costs. Consider a one-time third-party audit of each large-scale mine’s expected rehabilitation costs to calibrate future rehabilitation fund payments. - Authority: MMMD - Objective: Strengthen transparency and efficiency in fiscal governance (revenue mobilization) - Timeline: MT ### II. Fiscal Governance — SOE - 39 — Enact a SOE law in line with international standards and best practice which includes: - Robust ownership, corporate governance, transparency and accountability frameworks for IDC as the state’s holding company, including (i) a clear mandate for IDC, (ii) a distinct division of roles and responsibilities, particularly vis-a-vis MoF and Line Ministries, (iii) a rationale for state ownership, (iii) introducing safeguards for the appointment and removal of professional and independent board members, and (iv) eliminating the State House membership in the IDC Board. - Strong corporate governance framework for SOEs, including a rationale for state ownership, clear division of roles and responsibilities, and safeguards for independent board members. - The requirement for the government to issue and periodically update a dividend policy covering IDC and SOEs. - Increased transparency standards and accountability mechanisms for SOEs and for the government as owner including on cross-subsidization in IDC. - Strengthened role and powers of MoFNP in monitoring and overseeing IDC and SOEs’ financial performance and fiscal risks. - Authority: SH, MOJ, MoFNP - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: MT - 40 — Ensure that IDC and other SOEs timely prepare and publish pending and future annual audited financial statements and annual reports as required by the Public Financial Management Act. - Authority: MoFNP, IDC - Objective: Strengthen transparency and efficiency in fiscal governance - Timeline: ST ### III. Protection of Property Rights and Enforcement of Contracts - 41 — Accelerate registration and digitalization of titles on State land to create reliable database with easily traceable verifiable database. - Authority: Ministry of Lands/Commissioner of Lands - Objective: Reduce Corruption vulnerabilities in protection of property rights - Timeline: ST - 42 — Develop a detailed procedures, fair and uniform criteria for alienation of State land, with clearly divided roles and responsibilities between the central and local authorities. Provide capacity building and resources to local authorities to ensure proper implementation of land alienation rules. - Authority: Ministry of Lands/Commissioner of Lands - Objective: Reduce Corruption vulnerabilities in protection of property rights - Timeline: ST - 43 — Streamline the procedures and processes for transforming customary land into State land to minimize the risks of abuse and corruption. - Authority: Ministry of Lands/Commissioner of Lands - Objective: Reduce Corruption vulnerabilities in protection of property rights - Timeline: ST - 44 — Strengthen the capacity and efficiency of Commercial Court, in particular, by: - Introducing electronic filing of commercial claims, counter claims and other submissions to ensure that citizens outside Lusaka and Kitwe have access to commercial justice. (MT) - Adding adjudicators and support staff to manage workload and maintain high quality of judgments. (ST) - Develop and implement specialized training programs for CC judges and personnel. The trainings should include substantive and procedural laws as well as court management. (ST) - Authority: MOJ, Judiciary, MoFNP - Objective: Improve effectiveness of contract enforcement - Timeline: ST/MT - 45 — Strengthen the capacity of Small Claims Courts by expanding to all districts of Zambia, recruitment of additional commissioners, support personnel and allocation of resources for operation. - Authority: Judiciary, MoFNP - Objective: Improve effectiveness of contract enforcement - Timeline: (not specified) - 46 — Strengthen the ADR and traditional dispute resolution mechanisms by: - Allowing competitive remuneration for mediators; - Introduction of non-court attached mediation; - Developing a detailed framework for traditional dispute resolution in line with art. 118.2.d. of the Constitution. - Authority: MOJ, Judiciary - Objective: Improve effectiveness of contract enforcement - Timeline: MT ### IV. Central Bank Governance and Financial Sector Oversight - 47 — The Board should revise the composition of its Audit and Finance Committee and approve an amended charter to govern its modalities, ensuring that the committee’s membership comprises non-executive Directors exclusively (I.e., ex-officio government representative does not qualify). - Authority: BoZ - Objective: Strengthen BoZ’s governance and independent oversight. - Timeline: ST - 48 — Enhance the governance of the BoZ in its role as banking supervisor: - Align the micro-prudential supervision mandate of the BoZ closer with Basel Core Principles for Effective Supervision (BCP1 EC2) in primary legislation. (MT) - Strengthen the institutional set up and capacity of the banking supervision function. (ST) - Improve the accountability and transparency of the banking supervision function through additional disclosures. (ST) - Enhance the banking supervisory decision-making (including the Financial Stability Committee) and response frameworks. (MT) - Revise the Banking and Financial Service Act in promoting collegial decision making, particularly for licensing function (Registrar of banks and financial institutions). (MT) - Ensure that the secondary legislation includes specific terms and conditions for all exemptions and exceptions with prior approval, prescribed in the Banking and Financial Services Act 2017. (ST) - Conduct a stocktaking exercise for these exemptions and exceptions. (MT) - Revise the Banking and Financial Service Act to further limit Ministry of Finance interference. (MT) - Authority: BoZ, MOJ, NA - Objective: Strengthen financial sector oversight - Timeline: ST/MT - 49 — Strengthen the governance-related prudential regulatory and supervisory frameworks by aligning them closer with international standards and good practices: - Enhance supervisory oversight for ensuring that all banks properly implement the BoZ Corporate Governance Directive’s requirements, in particular effective board oversight, conflicts of interest, corporate and risk culture, and disclosure and transparency. The BoZ should strengthen its capacity and supervisory methodologies to enable conducting comprehensive assessments of corporate governance. (MT) - Modernize the framework for the suitability assessment of members of the board of directors and senior management. (MT) - Enhance the regulatory and supervisory framework for transactions with related parties. (ST) - Strengthen disclosure and transparency requirements for banks. (MT) - Include the definition of the “ultimate beneficial owner” in the Banking and Financial Services Act. (MT) - Authority: BoZ - Objective: Strengthen financial sector oversight - Timeline: ST/MT - 50 — Develop and reinforce supervisory processes for banks and other financial institutions with Government ownership to ensure: - Unsafe practices in these banks and non-bank financial institutions are effectively addressed at an early stage. - Specific risks and challenges associated with these special entities are identified and timely addressed. - Fitness and propriety of members of entity’s board and senior management. - Comprehensive evaluation of corporate governance. - Full application of all prudential requirements, including for corporate governance and disclosure. - Authority: BoZ - Objective: Strengthen financial sector oversight - Timeline: MT *IMF | Diagnostic Report on Governance and Corruption – Zambia — APPENDIX I: TABLE OF RECOMMENDATIONS* ### APPENDIX II-1: ANTI-CORRUPTION INSTITUTIONS AND THEIR MANDATES ### APPENDIX II-1: ANTI-CORRUPTION INSTITUTIONS AND THEIR MANDATES ### Institutional mandates and roles - Anti-Corruption Commission (ACC) - Established by an act of Parliament in 1980; since 2016 considered a constitutional investigative commission. - Governed by the Anti-Corruption Commission Act of 2012 and designated as the “lead agency in matters of corruption”. - Responsible for corruption prevention policies (including education and sensitization) and for the investigation and prosecution of corruption offences. - To move forward with corruption prosecutions, the ACC is subject to the direction and consent of the Director of Public Prosecutions. - Board members and Director-General are appointed by the President subject to parliamentary ratification. - Drug Enforcement Commission (DEC) - Independent entity charged with, among other matters, the investigation of money laundering offenses, which are then sent for prosecution to the National Prosecutions Authority. - Constitutional investigative commission; Board and Director-General are direct presidential appointees. - Anti-Money Laundering Investigative Unit (AMLIU) is responsible for all AML investigations. - Director of Public Prosecutions (National Prosecutions Authority, DPP/NPA) - Highest prosecutorial authority in Zambia and head of the National Prosecutions Authority, responsible for prosecuting money laundering offenses. - Has the constitutional power to take over or terminate any criminal investigation, including those conducted by other agencies. - Auditor-General - Zambia’s supreme audit institution, responsible for auditing all government and public agencies, bodies and institutions. - Empowered to carry-out financial, performance, compliance, forensic and special audits. - Appointed by the President subject to parliamentary ratification, from a list of candidates recommended by the State Audit Commission. - Financial Intelligence Centre (FIC) - Zambia’s financial intelligence unit responsible for receiving, analyzing, and disseminating suspicious transaction reports and financial intelligence to law enforcement institutions and other competent authorities. - Supervises regulated entities to monitor and enforce AML/CFT measures. - Headed by a Director-General directly appointed by the President. - Anti-Money Laundering Authority - Collegiate body composed of the Attorney-General as chair, the Auditor-General, the Inspector General of the Police, the Director-General of the DEC, the Director-General of the ACC, the Governor of the Bank of Zambia, the Commissioner-General of the Zambia Revenue Authority and 2 others appointed by the Minister of Justice. - Main function: provide general or specific policy directives and advise government on measures required to prevent and detect money laundering in the Republic of Zambia. - Police - Conduct criminal investigations and collaborate with other law enforcement agencies. - Economic and Financial Crimes Commission - Established as another constitutional investigative commission in 2016. - Has not been formally created; it has no governing law and its mandate and role in the anti-corruption institutional structure is unknown. - Ministry of Justice - Lead agency for the justice sector. - Governance Department responsible for coordinating good governance policies and strategies for the government. - Recently charged by the Secretary of the Cabinet to formulate a new Anti-Corruption National Policy. - Zambia Public Procurement Authority - Government’s procurement regulatory and oversight body responsible for issuing regulations and for overall coordination policies of procurement in Zambia and for carrying out procurement audits. - Board and Director-General are direct presidential appointees. - Entrusted with regulating and putting in operation the electronic procurement portal. - Zambia Revenue Authority - Charged with collecting taxes and enforcing tax laws; part of the Executive. - Controller of Internal Audit - Coordinator of all internal auditors assigned to government ministries, departments and agencies, who undertake financial, performance and compliance audits. - Part of and reports to the Secretary to the Treasury. - Responsible for follow-up of implementation of Auditor-General recommendations (adopted by the Parliament) across government and reporting thereof to the National Assembly, through the Public Accounts Committee. - Economic and Financial Crimes Court - Specialized section of the High Court created in January 2022 to hear appeals of corruption and ML criminal cases. - Joint Investigations Team - Coordination mechanism for high profile corruption and money laundering investigations. - Composed of the ACC, DEC, NPA and the Police. - Heads of these agencies sit on a steering committee for coordination purposes. - Integrity Committees - Every government entity in Zambia is required by law to have an Integrity Committee composed of its public officials. - Responsible for assessing corruption risks, developing and implementing Institutional Annual Corruption Prevention Programs and action plans and receiving and treating complaints. - Public Accounts Committee and the Committee of the Parastatal Bodies of the National Assembly - Receive and analyze the Auditor-General’s reports and prepare their own reports where they endorse the Auditor-General’s recommendations. - Approval of these reports gives full effect to the Auditor-General’s recommendations. - Responsible for monitoring follow-up of implementation of such recommendations. ### Key institutional relationships and procedural notes - ACC prosecutions require the direction and consent of the DPP. - DEC investigations of money laundering are sent for prosecution to the NPA. - FIC disseminates financial intelligence to law enforcement and supervises regulated entities for AML/CFT compliance. - Controller of Internal Audit follows up on implementation of Auditor-General recommendations adopted by Parliament and reports via the Public Accounts Committee. - Joint Investigations Team provides a high-level coordination mechanism for complex corruption and money laundering cases. *IMF | Diagnostic Report on Governance and Corruption – Zambia* ### APPENDIX III-1: PROCEDURES FOR GRANTING LICENSES IN MINING SECTOR IN ZAMBIA ### APPENDIX III-1: PROCEDURES FOR GRANTING LICENSES IN MINING SECTOR IN ZAMBIA ### Licensing governance and process - The Mining Licensing Committee (MLC) approves mining licenses and renewals; the Minister of the MMMD makes decisions on transfer applications. - Mining licenses are awarded on a first-come first-serve basis through the following process: - (i) the Director of the Mining Cadastre receives the initial application, - (ii) the MLC, with the MLC Secretariat’s technical support, recommends whether to award the license based on financial, technical, environmental, and other eligibility criteria (Art. 22.1. and 31.1.), - (iii) the Minister makes a final decision, with a written reason required if the Minister overrules the MLC (Art. 6.7.). - Transfer applications are received and approved by the Minister (the MMDA does not outline the decision-making process on transfers in detail, Art 66). - Licensing procedures are currently mostly paper based, although there are plans to digitalize the process. - Holders of exploration licenses may apply for (and have priority to) a mining license within the exploration area if the application is submitted six months before the exploration license expires. - Footnote details preserved in source: - The MLC includes the Director of Mines, Geological Survey, Mines Safety, the Mining Cadastre (secretary), and representatives from four different ministries (finance, labor, environment, and land), the Attorney General, Zambia Development Agency and Engineering Institution of Zambia. - The Minister can issue an invitation (in a daily newspaper) for bids to mine a specific tract of land, but no licenses have been granted using this process (EITI 2021). - The MLC Secretariat is part of the Mining Cadastre’s office. ### Types of permits and key application/ongoing requirements - Permits available (MMDA 13.1-2): mining rights/licenses (large and small exploration licenses, artisanal mining, small-scale mining, and large-scale mining) and non-mining rights/licenses (mineral processing licenses, mineral trading permits, and gold panning certificates). - Large-scale exploration - Length: 4 years with possibility to renew for two periods of 3 years - Application requirements: - Exploration work program, with expected expenditure, size, and duration - Financial and technical resources to conduct the work program - Adequate environmental and safety protection and approvals - Ongoing requirements: - Meet all components in the work program - For exploration: Report exploration results; Meet expenditure listed in the work program - Large-scale mining - Length: 25 years - Application/ongoing requirements (for large-scale miners only): - Local content plan - Feasibility study - Capital investment forecast - Submit annual mine plans, production, and production costs - Submit updated ore and reserves estimates - Submit annual audited financial statements - Mineral processing - Length: 25 years - Ongoing requirements: - Submit sources, quantities, and grade of inputs/ore - Submit production ### Comparative assessment across Sub-Saharan Africa (license award, transfers, rehabilitation) - General finding: Zambia has similar processes to many comparator countries on technical/financial criteria, transfer approval process, and financial provisioning for mine rehabilitation, but there is room for improvement. - Cross-country highlights from the comparison table: - Botswana (Mines and Minerals Act Cap 66:01) - Technical/financial criteria: No objective definition, except must have relevant mining industry experience and a parent company guarantee (14, 39) - Criteria to approve transfers: Consent by Minister, same criteria as awarding licenses (50) - Rehabilitation: Adequate financial provisions but no clear requirements (65) - DRC (Law 18/001) - Technical/financial criteria: Account with five times surface fee, no objective definition for technical adequacy (41) - Criteria to approve transfers: Consent by the Ministry, no clear criteria (232) - Rehabilitation: Financial guarantee for the full amount (218) - Ghana (Minerals and Mining Act, 2006; Minerals and Mining (Licensing) Regulations 2012) - Technical/financial criteria: Detailed requirements for the reserves estimate, in-house geologist, competency of the management team, etc., bank deposit or guarantee for financial (11) - Criteria to approve transfers: Written consent by the Minister, no clear criteria (14.1.) - Rehabilitation: Periodic payments into an escrow account for rehabilitation required - Kenya (The Mining Act, 2016) - Technical/financial criteria: No objective criteria, except must have mining industry experience (103) - Criteria to approve transfers: Recommendation from technical committee, approval by Minister, clearance of tax and other fees (51) - Rehabilitation: A bond to cover the full rehabilitation costs (181) - South Africa (Mineral and Petroleum Resources Development Act, 2002) - Technical/financial criteria: No objective definition for technical and financial adequacy (14.1., 17.1) - Criteria to approve transfers: Consent by Minister, same criteria as awarding licenses (11) - Rehabilitation: Financial provision at the project onset, with annual adjustments (41) - Tanzania (The Mining Act, 2019) - Technical/financial criteria: No objective definition for technical and financial adequacy (31.c., 50.e.c.) - Criteria to approve transfers: Written consent of the licensing authority, with specific conditions related to reasons for transfer and clearance of tax and other fees (9.3.) - Rehabilitation: Unclear - Zambia (Mines and Minerals Development Act, 2015) - Technical/financial criteria: No objective definition for technical and financial adequacy (22, 31, 39) - Criteria to approve transfers: Approval from Minister, tax clearance certificate, same criteria as awarding licenses (66) - Rehabilitation: Contributions to a rehabilitation fund (86) - Notable comparative observations preserved from source: - Botswana and Ghana have the most robust technical and financial criteria needed to receive a mining license. - Kenya is the only country where transfers explicitly go through a technical committee. - All countries, except Zambia, have explicit requirements for guarantees or bonds to cover rehabilitation. *Source: APPENDIX III-1: PROCEDURES FOR GRANTING LICENSES IN MINING SECTOR IN ZAMBIA.* --- _Source: https://www.imf.org/-/media/files/publications/cr/2023/english/1zmbea2023001.pdf_