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---

### Mission overview and objectives
- Mission by the Fiscal Affairs Department (FAD), through an STX, fielded to Lusaka from January 13 to 24, 2025.
- Purpose: assist the Ministry of Finance and National Planning (MoFNP) in strengthening cash flow forecasting processes and preparing the cash flow forecast for Fiscal Year (FY) 2025.
- Outputs: this report and a cash flow forecast for 2025 prepared using the Cash Flow Forecasting and Analysis Tool (CFAT).

### Main findings on cash management and forecasting
- Effective cash management is critical for ensuring liquidity availability and improving fiscal discipline in Zambia.
- Persistent timing mismatches between revenues and expenditures and deviations between planned and actual numbers undermine reliable cash flow forecasts.
- Establishment of a CMU with multidisciplinary representation is positive, but:
  - Effectiveness constrained by part-time staffing and weak institutional frameworks.
  - CMU lacks necessary technical tools and analytical capabilities to produce reliable, data-driven forecasts.
- Operational challenges:
  - Domestic borrowing decisions are misaligned with cash flow forecasts, leading to inefficiencies and higher costs.
  - Limited use of historical trend analysis and infrequent updates to projections reduce forecast accuracy.
- Banking and TSA issues:
  - Over 21,800 accounts remain operational in commercial banks, undermining efficient cash management and increasing risks.
  - One-time mop-up of Zambia Kwacha (ZMW) 3.9 billion demonstrated progress but accounts continue to function as before.
  - Core TSA accounts (Control 99 account and TSA Payment account) operate as distinct accounts requiring separate procedures.
  - Substantial balances outside the TSA, including proceeds from domestic securities, cause mismatches between IFMIS balances and actual cash availability, contributing to delays and payment denials for MPSAs.
- CFAT adoption and forecast for 2025:
  - CFAT was adopted and populated with real data; training sessions conducted to equip the CMU.
  - Forecast results provide actionable insights for borrowing decisions, debt management and investment planning.
  - Recommendation to update CFAT regularly and analyze forecast deviations systematically.
  - Leverage ZRA detailed daily forecasts based on historical trends and taxpayer insights to refine revenue projections.
  - Assess quality of data in the commitment module to determine reliability for future projections.

### Operational interim measures recommended
- Consolidate data from key accounts into a centralized format (e.g., Excel file or Power BI dashboard) to improve visibility and coordination among BO, Treasury and DMO.
- Improve information exchange with the BoZ and integrate all accounts within the TSA, including the Proceeds Account.

### Key recommendations (summary)
- Recommendation 1: Enhancing the CMU: Institutionalization, Coordination and Analytical Capabilities
  - 1.1 Formalize the organizational placement of the CMU team and transition it into a fully dedicated unit. — Short term
  - 1.2 Structure future securities issuances through coordination between the DMO, OAG and BO to ensure maturity dates that contribute to smoothing cash flows. — Short term
  - 1.3 Maintain and update the CFAT at least monthly to support data-driven decision-making. — Short term
  - 1.4 Assess the quality and reliability of data in the commitment module to evaluate its potential for enhancing discussions on CFAT adjustments. — Short term
  - 1.5 Leverage ZRA's detailed daily forecasts, based on historical trends and large taxpayer communication, to refine and adjust tax forecasts. — Short term
- Recommendation 2: Transitioning Government Funds to the Central Bank
  - 2.1 Finalize the transfer of funds from key GRZ bank accounts holding significant balances in commercial banks to the BoZ. — Short term
- Recommendation 3: Enhancing Cash Management Efficiency Through TSA Integration
  - 3.1 Improve reconciliation across key accounts by centralizing account balance data into a unified format, such as a Power BI dashboard, to enhance coordination and visibility. — Short term
  - 3.2 Prioritize integrating accounts within the TSA to simplify cash management processes, eliminate unnecessary complexity and maintain oversight through sub-accounts for better reconciliation. — Medium term
- Note: “Short term” is 0 to 6 months, and “Medium Term” is 6 months to 2 years.

### Institutional arrangements and process weaknesses
- Committee chaired by the Secretary to the Treasury (ST) approves the quarterly Gameplan, but:
  - Meetings are irregular, often conducted virtually, and decisions are typically made informally.
  - In practice, the BO submits recommendations for approval by the ST.
  - Spending priorities during fiscal constraints are adjusted to focus on salaries, debt interest and statutory transfers.
- Weekly technical meetings involving BO and occasionally IDM, OAG and ZRA are intended to:
  - Review cash forecasts for the week ahead, focusing on payment schedules and cash availability.
- Key process deficiencies:
  - Lack of a formal mandate for information sharing.
  - Absence of detailed procedures, established methodologies, deadlines, or clearly defined information sources for cash forecasting.
  - System vulnerability to disruptions, including staff turnover.
- Deviations between projected and actual cash flows:
  - Actual outturn deviates from projected cash revenue/expenditure.
  - Frequent discrepancies throughout the year; variability and unpredictability in income and spending patterns.
- Cash Management Manual:
  - An 87-page draft Cash Management Manual has been prepared and is undergoing approval.
  - Authorities aim for formal adoption in the coming months.
  - Manual scope: guidance on cash forecasting processes, information exchanges, and policies and procedures for committee meetings.

### Banking arrangements, IFMIS rollout and TSA structure
- Moving government bank accounts from commercial banks to the central bank (BoZ) remains a challenge.
  - 21,800 bank accounts still held at commercial banks as of November 2024.3
  - Authorities conducted a one-time mop-up of ZMW 3.9 billion in account balances from commercial banks to the central bank, but these accounts remain operational.
  - Authorities plan a phased transition of balances to the central bank.
- Service Level Agreements (SLAs):
  - No progress on SLAs with BoZ or commercial banks.
  - Absence of SLA with BoZ on remuneration of government cash balances means funds remain idle.
  - Existing SLAs with commercial banks have not been updated to include fund sweeping or remuneration mechanisms.
- BoZ payment processing hub:
  - BoZ has developed functional specifications for a payment processing hub to replace manual payments outside IFMIS.
  - Targeted completion of development: August 2025.
  - Expected capabilities: real-time access to BoZ account balances and electronic payment processing to facilitate moving government accounts to BoZ.
- IFMIS rollout:
  - IFMIS is live in all 61 MPSAs head-offices, up from 59.
  - In 2024, 23 sub-institutions were brought online.
  - Under Ministry of Education: all 10 District Education Boards (DEBS) in each provincial town integrated.
  - 10 Provincial Agriculture Coordinating Offices (PACO) associated with the Ministry of Agriculture onboarded.
  - Three hospitals under the Ministry of Health were brought onto IFMIS.
  - 2025 plans: Rollout to cover the 10 provincial offices and district offices under the Ministry of Health, accompanied by end-user training.
- TSA fragmentation and liquidity consequences:
  - MoFNP manages two core BoZ accounts: the Control 99 account and the TSA Payment account, which operate as distinct accounts requiring separate procedures.
  - A dedicated Proceeds Account at BoZ outside the TSA holds domestic securities proceeds (T-bills and T-bonds) and is used for principal repayments; transfers to the TSA occur only when due.
  - Separation creates mismatches between IFMIS-recorded balances and actual cash in the TSA, causing payment delays, rejections and accumulation of arrears.
  - 2024 liquidity shock: BoZ increased the statutory reserve ratio in February 2024, tightening market liquidity and leading to undersubscriptions in T-bill and T-bond auctions.

### Key figures and distributions (as presented)
- Total number of accounts: 21 842
- Total Balance: 11.6 Bln ZMW
- Distribution of Total Balance as of November 2024 (figure labels):
  - ZANACO 65%
  - Indo 15%
  - Access 7%
  - ZICB 8%
  - Other 11 banks 8%
- Distribution of Total Number of Accounts (figure labels):
  - ZANACO 54%
  - Access 19%
  - ZICB 12%
  - Indo 10%
  - Other 11 banks 5%

### CFAT adoption, phases and outputs
- Tool adopted: CFAT (Cash Flow Analysis Tool) developed by IMF’s Fiscal Affairs Department (FAD).
- Phases of CFAT adoption in Zambia:
  - Phase 1: Data Compilation and Validation
    - Identified and validated relevant data sources for the past five years' outturns (2020–2024).
    - Key sources: Fiscal Tables, Consolidated Financial Reports, Debt Data (BoZ web-page, last visited on Jan 24, 2024), TSA Data from the AG’s Office.
    - Data cleaning revealed discrepancies (missing months and titles); extensive scrutiny produced credible past outturn data.
  - Phase 2: Customization of Forecast Structure
    - Customized revenue and expenditure breakdowns; adjusted formulas and VBA codes to accommodate the new structure.
    - Revenues: Tax Revenue (Income Taxes, VAT, Customs and Excise Duties, Other Tax Revenue), Non-Tax Revenue (User Fees, Fines and Charges; Mineral Royalty; Other Non-Tax Revenue), Grants.
    - Expenditures: Personal Emoluments (PEs); Use of Goods and Services; Interest Payments: Domestic and External Debt; Transfers and Subsidies; Social Benefits.
  - Phase 3: Preparation of the Original Forecast
    - First forecast developed using 2025 budget figures from the BO.
    - Settings updated with relevant dates and weights; weights prioritized recent years with highest weight to 2024, followed by 2023 and 2022; lower weights to 2020 and 2021.
  - Phase 4: Adjustments and Finalization
    - Adjustments: Tax Revenues (ZRA inputs); Non-Tax Revenues (Gameplans); Expenditures (Gameplans and consultations); Financing (DMO collaboration); Debt Service (DMO inputs); Arrears (AGO and BO inputs).
    - Developed various TSA balance scenarios and potential policy options.
  - Phase 5: Visualization and Auxiliary Tables
    - Customized charts, graphs and auxiliary tables focusing on key revenue and expenditure items and TSA balances.
- Implementation and outputs:
  - Zambia's comprehensive cash flow forecast for FY 2025 developed using CFAT; integrates monthly projections of revenue, expenditure, and financing (adjusted to reflect forecasted TSA flows).
  - Forecast includes hypothetical policy options aimed at smoothing flows.
- Capacity building and governance:
  - Collaborative process executed with the CMU team; comprehensive training sessions conducted on data cleaning, cash flow analysis techniques and tool maintenance.
  - Further support may be required for team changes or significant customizations.
  - Governance recommendation: Tool results and systematic analysis of deviations should be presented to the Cash Management Committee (CMC) as envisioned in the new draft guidelines.

### Policy uses and decision-making contributions from CFAT
- Forecasting results can contribute to:
  - Determining the amount of borrowing to avoid unnecessary debt accumulation.
  - Considering repurchase of outstanding debt when favorable conditions arise.
  - Planning VAT refunds and addressing arrears effectively.
  - Optimizing short-term surpluses through prudent investments.
- Ultimate objective: support data-driven and more informed decision-making to enhance overall efficiency of cash management.

*Source: IMF mission materials (Preface and Executive Summary; sections I–II; CFAT adoption phases and implementation).*

### Preface  ___________________________________________________________________ 5

### Preface

### Mission overview and objectives
- Mission by the Fiscal Affairs Department (FAD), through an STX, fielded to Lusaka from January 13 to 24, 2025.
- Purpose: assist the Ministry of Finance and National Planning (MoFNP) in strengthening cash flow forecasting processes and preparing the cash flow forecast for Fiscal Year (FY) 2025.
- Outputs: this report and a cash flow forecast for 2025 prepared using the Cash Flow Forecasting and Analysis Tool (CFAT).

### Key participants and stakeholders engaged
- IMF: Mr. Davit Gamkrelidze (FAD expert).
- Office of the Accountant General (OAG): Ms. Nsandi Manza (Accountant General); Ms. Emmy S. Chenguluka (Director of Treasury Services); Mr. Brighton Simutowe (Acting Chief Accountant for Treasury Services); Ms. Mundia M. Kayamba and Ms. Dimuna Hamweemba (Senior ICT Officers).
- Budget Office (BO), MoFNP: Mr. Willis Chipango (Director); Mr. Patrick Hara (Senior Budget Analyst); Mr. Robbie Kasuba (Senior Budget Analyst); Mr. Mukoba Mbulakulima (Senior Budget Analyst); Mr. Chilombo Mulima (Economist); Mr. Zakeyo Nyirenda (Budget Analyst).
- Debt Management Office (DMO): Ms. Masitala Mushinga (Director of DMO) and team.
- Cash Management Unit (CMU) members: Ms. Vestina B. Sinkamba (BO, Revenue); Mr. Hillary Mwansa (BO, Expenditure); Ms. Jacqueline M. Lunga (OAG, FRIS); Mr. Harry Mutale (OAG, Revenue Management); Mr. Lewis Samamba (DMO).
- Zambia Revenue Authority (ZRA): Mr. Saviour Lusaya (Economist); Mr. Kennedy Njobvu (Revenue Accountant); Mr. Kangwa Musole (Senior Economist).
- Other ministries: Infrastructure, Lands, Agriculture representatives.
- Bank of Zambia (BoZ): Ms. Angela N. Chileshe (Director of Banking) and multiple senior staff.
- Commercial bank representative: Zanaco Bank (Ms. Mukwandi Chibesakunda, Mr. Kalaluka Itwi, Ms. Sophia Chongo Mudenda).
- Acknowledgements: Ms. Emmy S. Chenguluka, Mr. Brighton Simutowe, Ms. Vestina B. Sinkamba, Mr. Eric Lautier (IMF Resident Representative), and GIZ for meeting venue.

### Executive Summary

### Main findings on cash management and forecasting
- Effective cash management is critical for ensuring liquidity availability and improving fiscal discipline in Zambia.
- Persistent timing mismatches between revenues and expenditures and deviations between planned and actual numbers undermine reliable cash flow forecasts.
- Establishment of a CMU with multidisciplinary representation is positive, but:
  - Effectiveness constrained by part-time staffing and weak institutional frameworks.
  - CMU lacks necessary technical tools and analytical capabilities to produce reliable, data-driven forecasts.
- Operational challenges:
  - Domestic borrowing decisions are misaligned with cash flow forecasts, leading to inefficiencies and higher costs.
  - Limited use of historical trend analysis and infrequent updates to projections reduce forecast accuracy.
- Banking and TSA issues:
  - Over 21,800 accounts remain operational in commercial banks, undermining efficient cash management and increasing risks.
  - One-time mop-up of Zambia Kwacha (ZMW) 3.9 billion demonstrated progress but accounts continue to function as before.
  - Core TSA accounts (Control 99 account and TSA Payment account) operate as distinct accounts requiring separate procedures.
  - Substantial balances outside the TSA, including proceeds from domestic securities, cause mismatches between IFMIS balances and actual cash availability, contributing to delays and payment denials for MPSAs.
- CFAT adoption and forecast for 2025:
  - CFAT was adopted and populated with real data; training sessions conducted to equip the CMU.
  - Forecast results provide actionable insights for borrowing decisions, debt management and investment planning.
  - Recommendation to update CFAT regularly and analyze forecast deviations systematically.
  - Leverage ZRA detailed daily forecasts based on historical trends and taxpayer insights to refine revenue projections.
  - Assess quality of data in the commitment module to determine reliability for future projections.

### Operational interim measures recommended
- Consolidate data from key accounts into a centralized format (e.g., Excel file or Power BI dashboard) to improve visibility and coordination among BO, Treasury and DMO.
- Improve information exchange with the BoZ and integrate all accounts within the TSA, including the Proceeds Account.

### Key recommendations (Table 1: Summary of Key Recommendations)

- Recommendation 1: Enhancing the CMU: Institutionalization, Coordination and Analytical Capabilities
  - 1.1 Formalize the organizational placement of the CMU team and transition it into a fully dedicated unit. — Short term
  - 1.2 Structure future securities issuances through coordination between the DMO, OAG and BO to ensure maturity dates that contribute to smoothing cash flows. — Short term
  - 1.3 Maintain and update the CFAT at least monthly to support data-driven decision-making. — Short term
  - 1.4 Assess the quality and reliability of data in the commitment module to evaluate its potential for enhancing discussions on CFAT adjustments. — Short term
  - 1.5 Leverage ZRA's detailed daily forecasts, based on historical trends and large taxpayer communication, to refine and adjust tax forecasts. — Short term

- Recommendation 2: Transitioning Government Funds to the Central Bank
  - 2.1 Finalize the transfer of funds from key GRZ bank accounts holding significant balances in commercial banks to the BoZ. — Short term

- Recommendation 3: Enhancing Cash Management Efficiency Through TSA Integration
  - 3.1 Improve reconciliation across key accounts by centralizing account balance data into a unified format, such as a Power BI dashboard, to enhance coordination and visibility. — Short term
  - 3.2 Prioritize integrating accounts within the TSA to simplify cash management processes, eliminate unnecessary complexity and maintain oversight through sub-accounts for better reconciliation. — Medium term

Note: “Short term” is 0 to 6 months, and “Medium Term” is 6 months to 2 years.

### I. Introduction

- Strengthening cash management is a critical priority for Zambia amid persistent fiscal pressures.
- Mission assisted authorities in preparing the 2025 cash plan and reviewed progress on prior TA recommendations, with emphasis on cash management, cash flow forecasting, banking arrangements, TSA structure and IFMIS flows.
- Collaborative engagement across OAG, BO, DMO, ZRA, BoZ and selected line ministries.
- CFAT: populated with real data, provides monthly forecasts for FY 2025 and includes hypothetical policy options.

### II. Current situation

### A. Budget credibility
- Timing mismatches between revenues and expenses continued in 2024.
- First half of 2024 shows higher average balances compared to 2023; second half follows a similar pattern with cash balances declining sharply and reaching their minimum in December.
- Improved execution rate attributed to increased revenues from Grants (Bilateral and Multilateral) and Multilateral External Borrowings which outperformed projections.
- Expenditure execution continued to underperform against the original budget.
- Figure referenced: Cash Surplus/Deficit, 2023-2024 (in ZMW million).
- Table referenced: Budget Execution - Statement of Comparison: Budget and Actual Amounts (in ZMW Million).

### B. Cash forecasting
- CMU operationalization:
  - A designated CMU team now assigned, marking improvement from earlier years.
  - Team operates part-time; members balance forecasting with primary roles.
  - Team composition: five members (one from Revenue Management (AG’s Office), one from Financial Reporting Information Systems (AG’s Office), one from the DMO and two from the BO — one specializing in revenue and the other in expenditure issues).
- Current processes and limitations:
  - BO plays primary role in cash planning, focusing on annual budget structuring to guide quarterly budget releases; less emphasis on forward-looking cash inflows and outflows forecasting.
  - BO collects monthly financial projections from spending agencies after budget approval to set quarterly release limits ("Gameplan"); these projections are rarely updated during the year.
  - ZRA sets monthly tax forecasts based on historical trends and taxpayer insights after MoFNP sets annual tax revenue targets.
  - No systematic analysis of past trends is conducted by the CMU yet; discrepancies between Gameplan projections and actual outturns are not systematically analyzed.
- Domestic borrowing:
  - Quarterly borrowing schedules for government securities (T-bills and T-bonds) are prepared without alignment to anticipated cash requirements.
  - Borrowing decisions often driven by market conditions (interest rates and absorption capacity) rather than government cash demand and cash flow profile, leading to borrowing despite sufficient funds and unnecessarily increasing the cost of debt.

*Source: IMF mission materials (Preface and Executive Summary; sections I–II).*

### 12.        Institutional arrangements for cash forecasting lack formalization and institutionalization.

### 12.        Institutional arrangements for cash forecasting lack formalization and institutionalization.

### Institutional arrangements and cash forecasting weaknesses
- Committee chaired by the Secretary to the Treasury (ST) approves the quarterly Gameplan, but:
  - Meetings are irregular, often conducted virtually, and decisions are typically made informally.
  - In practice, the BO submits recommendations for approval by the ST.
  - Spending priorities during fiscal constraints are adjusted to focus on salaries, debt interest and statutory transfers.
- Weekly technical meetings involving BO and occasionally IDM, OAG and ZRA are intended to:
  - Review cash forecasts for the week ahead, focusing on payment schedules and cash availability.
- Key process deficiencies:
  - Lack of a formal mandate for information sharing.
  - Absence of detailed procedures, established methodologies, deadlines, or clearly defined information sources for cash forecasting.
  - System vulnerability to disruptions, including staff turnover.

### Deviations between projected and actual cash flows
- Actual outturn deviates from projected cash revenue/expenditure.
- Figures 2 and 3 (2024 comparisons) show:
  - Frequent discrepancies throughout the year.
  - Variability and unpredictability in income and spending patterns.
- Implication:
  - Need to closely examine drivers of deviations to improve forecast accuracy.

### Cash Management Manual
- An 87-page draft Cash Management Manual has been prepared and is undergoing approval.
- Authorities aim for formal adoption in the coming months.
- Manual scope:
  - Guidance on cash forecasting processes, information exchanges, and policies and procedures for committee meetings.
- Potential impact:
  - If implemented and adhered to, the manual could address many weaknesses in cash forecasting and strengthen institutional arrangements.

### Banking arrangements
- Moving government bank accounts from commercial banks to the central bank (BoZ) remains a challenge.
- Rationale for consolidation:
  - Improved oversight of government balances, minimized credit risk, and increased central bank profits (dividends or balance-sheet strengthening).
- Current status and activity:
  - 21,800 bank accounts still held at commercial banks as of November 2024.3
  - Authorities conducted a one-time mop-up of ZMW 3.9 billion in account balances from commercial banks to the central bank, but these accounts remain operational.
  - Authorities plan a phased transition of balances to the central bank.
- First phase actions:
  - Study nature of existing bank accounts using data from commercial banks to identify accounts for immediate closure or to gather additional details where information is insufficient.
  - Legal and regulatory analysis of fund transfers to the central bank.
- Next phase:
  - Authorities plan to submit a proposal to the ST prioritizing the largest accounts for transfer to the BoZ.
- Service Level Agreements (SLAs):
  - No progress on SLAs with BoZ or commercial banks.
  - Absence of SLA with BoZ on remuneration of government cash balances means funds remain idle.
  - Existing SLAs with commercial banks have not been updated to include fund sweeping or remuneration mechanisms.
- BoZ payment processing hub:
  - BoZ has developed functional specifications for a payment processing hub to replace manual payments outside IFMIS.
  - Targeted completion of development: August 2025.
  - Expected capabilities: real-time access to BoZ account balances and electronic payment processing to facilitate moving government accounts to BoZ.

### IFMIS rollout and impacts
- Rollout progress:
  - IFMIS is live in all 61 MPSAs head-offices, up from 59, completing headquarters-level rollout.4
  - In 2024, 23 sub-institutions were brought online.
  - Under Ministry of Education: all 10 District Education Boards (DEBS) in each provincial town integrated.
  - 10 Provincial Agriculture Coordinating Offices (PACO) associated with the Ministry of Agriculture onboarded.
  - Three hospitals under the Ministry of Health5 were brought onto IFMIS.
- Benefits:
  - Rollout to sub-institutions improves time efficiency in fund disbursement by enabling funds to flow from the TSA directly to beneficiaries rather than sequentially through headquarters and provinces.
- 2025 plans:
  - Rollout to cover the 10 provincial offices and district offices under the Ministry of Health, accompanied by end-user training.

### TSA structure and liquidity challenges
- TSA fragmentation restricts MoFNP's liquidity optimization and complicates daily cash management.
- MoFNP manages two6 core BoZ accounts: the Control 99 account and the TSA Payment account (often misinterpreted as the TSA), which continue to operate as distinct accounts requiring separate procedures.
- Other MoFNP accounts:
  - Sub-Revenue Control 99 Account: collects taxes and some non-tax revenues from commercial banks; Customs duties paid in USD are converted to ZMW and automatically transferred to ZMW Control 99.
  - Non-Tax Revenue Account (USD): used for non-tax collections by specific MPSAs (not ZRA); funds transferred to USD Control 99.
- IFMIS role:
  - IFMIS facilitates fund flows. Treasury releases cash for expenditure guided by BO notifications of daily cash releases based on available funds.
  - Funds moved electronically from Control 99 to TSA Payment Account based on BO instructions; MPSAs commit resources in IFMIS accordingly; AG office processes payments from TSA Payment Account.
- Proceeds Account issue:
  - A dedicated Proceeds Account at BoZ outside the TSA holds domestic securities proceeds (T-bills and T-bonds) and is used for principal repayments; transfers to the TSA occur only when due.
  - Separation creates mismatches between IFMIS-recorded balances and actual cash in the TSA.
  - When domestic securities issuance falls short of planned amounts, shortfalls are financed from TSA balances to meet principal repayments, reducing actual TSA cash despite IFMIS allocations to MPSAs.
- Operational consequences:
  - MPSAs may believe funds are available based on BO releases and IFMIS balances, initiate payments, and then face delays or rejections when TSA cash is insufficient.
  - This process wastes time and contributes to accumulation of arrears and pending transactions, some unresolved for weeks.7
- 2024 liquidity shock:
  - BoZ contractionary monetary policy: in February 2024 BoZ increased the statutory reserve ratio, tightening market liquidity, leading to undersubscriptions in T-bill and T-bond auctions and exacerbating cash alignment challenges.

### Key figures and distributions (as presented)
- Commercial bank account counts and balances:
  - Total number of accounts: 21 842 (figure label).
  - Total Balance: 11.6 Bln ZMW (figure label).
  - Distribution of Total Balance as of November 2024 (figure labels): ZANACO 65%, Indo 15%, Access 7%, ZICB 8%, Other 11 banks 8%.
  - Distribution of Total Number of Accounts (figure labels): ZANACO 54%, Access 19%, ZICB 12%, Indo 10%, Other 11 banks 5%.

### Options for Improvement — summary of recommendations and operational actions
- CMU staffing and formalization:
  - Transition CMU from part-time to a fully dedicated unit as new tools and the Cash Management Manual are enacted.
  - Establish a formal transition plan/timeline for dedicated staffing.
  - Formalize CMU’s organizational placement under the AG’s Office in forthcoming guidelines and allocate dedicated office space.
- Commercial bank account transition:
  - Expedite the first phase study to move to the second phase of actual optimization of government bank accounts.
  - Coordinate carefully with BoZ and commercial banks to minimize disruptions and consider banks’ liquidity constraints.
- Debt management and coordination:
  - Strengthen DMO–CMU coordination: DMO unit participates in CMU; DMO should play an active role in cash management to align borrowing calendar with actual cash requirements.
- Data and IFMIS commitment module:
  - Assess the quality and reliability of commitment module data (incorporated into IFMIS in July 2022) to verify whether “date” and “amount” entries by MPSAs reflect actual spending.
  - Account for any error margins and engage MPSAs to improve data accuracy.
- ZRA collaboration:
  - Leverage ZRA’s capability to provide detailed daily forecasts (currently not utilized) and share ZRA’s internal daily forecasts for the upcoming month to strengthen tax forecasting.
- Reconciliation and short-term integration steps:
  - Improve reconciliation and data-sharing among BO, Treasury and DMO as an interim step prior to full TSA integration.
  - Compile data from Control 99, TSA Payment Account and Proceeds Account into a centralized format (e.g., Excel or Power BI dashboard) to improve visibility and coordination.
- Information exchange with BoZ:
  - Establish two-way information sharing: DMO should provide BoZ with comprehensive debt profiles; BoZ should share quarterly liquidity projections with DMO.
- Full TSA integration roadmap:
  - Conduct legal and operational review for regulatory constraints on integration.
  - Develop a phased migration strategy prioritizing high-impact accounts such as the Proceeds Account.
  - Initiate consultations with BoZ, DMO and commercial banks for smooth transition.
  - Implement technical integration supported by real-time reporting tools and the option of sub-accounts within TSA to preserve oversight.

*IMF Technical Assistance Report | excerpt from the chapter on cash forecasting, banking arrangements, IFMIS rollout, TSA structure, liquidity challenges and options for improvement.*

### 38.        To support the enhancement of the cash forecasting process, the mission facilitated the

### tarea2025061-print-pdf - 38.        To support the enhancement of the cash forecasting process, the mission facilitated the

### Phases of CFAT Adoption in Zambia
- Phase 1: Data Compilation and Validation
  - Identified and validated relevant data sources for the past five years' outturns (2020–2024).
  - Key sources:
    - Fiscal Tables: Annual budget figures broken down into monthly numbers, prepared by the BO in consultation with MPSAs.
    - Consolidated Financial Reports: Include "direct payments" and used to cross-check trends observed in the Fiscal Table data.
    - Debt Data: Accessed from BoZ web-page (last visited on Jan 24, 2024) and validated with the DMO and BoZ.
    - TSA Data: Retrieved from the AG’s Office and validated against data from BoZ.
  - Data cleaning revealed discrepancies (missing months and titles) caused by data fragmentation and limited access to latest versions; extensive scrutiny and validation produced credible past outturn data.
- Phase 2: Customization of Forecast Structure
  - Customized revenue and expenditure breakdown for projections. Agreed structure included:
    - Revenues:
      - Tax Revenue: Income Taxes, VAT, Customs and Excise Duties, Other Tax Revenue.
      - Non-Tax Revenue: User Fees, Fines and Charges; Mineral Royalty; Other Non-Tax Revenue.
      - Grants.
    - Expenditures:
      - Personal Emoluments (PEs); Use of Goods and Services; Interest Payments: Domestic and External Debt.
      - Transfers and Subsidies: Ordinary Grants, CDF, Farmer Input Support Programme, Other Transfers.
      - Social Benefits: Pension Fund Financing, Social Cash Transfer, Other Social Benefits.
  - All relevant formulas and Visual Basic for Applications (VBA) codes in the tool were adjusted to accommodate this new structure.
- Phase 3: Preparation of the Original Forecast
  - First forecast version developed using 2025 budget figures obtained from the BO.
  - The "Settings" section of the tool was updated with relevant dates and weights.
  - Weights assigned to past outturns prioritized recent years, with the highest weight given to 2024, followed by 2023 and 2022. Lower weights were assigned to 2020 and 2021 due to the COVID crisis.
- Phase 4: Adjustments and Finalization
  - Adjustments made to refine the initial forecast:
    - Tax Revenues: Adjusted based on ZRA inputs.
    - Non-Tax Revenues: “Gameplans” data was used, as ZRA forecasts only cover revenues they directly collect.
    - Expenditures: Adjustments relied on “Gameplans” data and consultations with major spending entities; “Gameplans” data only covers one quarter and is conservatively planned.
    - Financing: Net figures in the budget were analyzed as separate line items with DMO collaboration.
    - Debt Service: Adjusted based on DMO inputs.
    - Arrears: Based on the inputs of AGO and BO.
  - Following adjustments, various TSA balance scenarios were developed, summarized and presented with potential policy options.
- Phase 5: Visualization and Auxiliary Tables
  - Customized charts, graphs and auxiliary tables were created, focusing on key revenue and expenditure items as well as TSA balances.
  - (Document lists Phase 5 twice as presented in the source.)

### Implementation and Outputs
- Tool adopted: CFAT (Cash Flow Analysis Tool) developed by IMF’s Fiscal Affairs Department (FAD).
  - Designed for practitioners preparing cash flow forecasts; offers guidance for presenting forecasts and policy advice for high-level decision-makers.
  - Utilizes historical data to identify trends in monthly revenue and expenditure patterns.
  - Allows initial use of basic assumptions and gradual progression to more sophisticated features.
- Zambia's comprehensive cash flow forecast for FY 2025:
  - Developed using the CFAT tool.
  - Integrates monthly projections of revenue, expenditure, and financing (adjusted to reflect forecasted TSA flows).
  - Provides a holistic view of cash movements.
  - Includes hypothetical policy options aimed at smoothing flows; options are flexible and subject to adjustments based on developing real outturns and evolving priorities of the authorities.

### Capacity Building and Governance
- Collaborative process:
  - Each phase executed collaboratively with the CMU team to ensure full understanding of the process.
  - Comprehensive training sessions conducted to equip the team to maintain the CFAT tool and enhance skills in data cleaning, cash flow analysis techniques and related processes.
- Future support and customization:
  - Further support may be required in the event of team changes or the need for significant customizations, especially changes impacting the core logic of the tool.
  - Proper implementation of technical modifications requires a strong understanding of the tool's technical capabilities.
- Governance recommendation:
  - Tool results, along with a systematic analysis of deviations, should be presented to the Cash Management Committee (CMC).
  - The creation of this committee, as envisioned in the new draft guidelines, will provide a forum for discussing and evaluating forecast outcomes.

### Policy uses and decision-making contributions
- Forecasting results can contribute to decision-making including:
  - Determining the amount of borrowing, ensuring that borrowing is undertaken only when necessary to avoid unnecessary debt accumulation.
  - Considering repurchase of outstanding debt when favorable conditions arise.
  - Planning VAT refunds and addressing arrears effectively.
  - Optimizing short-term surpluses through prudent investments.
- Ultimate objective:
  - Support data-driven and more informed decision-making to enhance overall efficiency of cash management.

*Source: IMF Mission*

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_Source: https://www.imf.org/-/media/files/publications/tar/2025/english/tarea2025061-print-pdf.pdf_