## 1. The second Poverty Reduction Strategy Paper (PRSP) Implementation Progress Report and its Addendum

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---

### Overview and scope
- The Second Progress Report and its Addendum review government implementation of the PRSP for the period July 2003–December 2004.
- The Report describes results of implementation and monitoring of the PRSP presented to the Boards of the IMF and IDA on May 29, 2002 and July 19, 2002, respectively.
- The Report incorporates inputs from civil society and the donor community and includes a “Supplement on Policies and Objectives for 2005” prepared by the Ministry of Finance and National Planning in February 2005.
- The PRSP time period (2002-04) was extended by one year to overlap with the TNDP; the next PRSP/TNDP is expected to cover a 5-year period and outline development plans from 2006 onwards.

### Strategy and consultative process
- Government’s poverty reduction strategy focuses on:
  - promoting economic growth through macroeconomic stabilization and diversification;
  - improving the quality of service delivery;
  - addressing cross-cutting issues of governance, HIV/AIDS, gender, and the environment.
- The PRSP remains valid and is a fundamental reference for dialogue between government, civil society, and donors.
- Stakeholder participation:
  - Sectoral Advisory Groups (SAGs) include civil society, private sector, academicians, and donors.
  - SAGs meet monthly and jointly during two annual national conferences to discuss PRSP and TNDP progress.

### Reporting alignment and JSAN organization
- The reporting period of the annual progress report is not aligned with Zambia’s financial year, complicating comprehensive evaluations because much data is reported by calendar year.
- Zambia’s annual Economic Report will be expanded to become the main vehicle to report on PRSP implementation; staffs urge a forward-looking approach in the Economic Report’s PRSP section.
- The Joint Staff Advisory Note (JSAN) is organized into three sections: progress and suggestions for strengthening implementation; risks and issues for Board discussion.

### Macroeconomic performance and structural reforms — Findings
- Real GDP growth: climbed above a rate of 5 percent in 2003; estimated at 5 percent in 2004.
- 2004 marks the fifth consecutive year of solid increase of GDP per capita after more than two decades of decline.
- Staffs note growth still falls short of what is needed to significantly reduce poverty in Zambia: 6-8 percent per year.
- Domestic borrowing: limited to less than 1 percent of GDP in 2004, compared with over 5 percent of GDP in 2003.
- Authorized expenditure of about 1 percent of GDP went unexecuted by end-2004, mainly because disbursements of US$38 million of external budget support came in late December.
- Releases for priority poverty-reduction programs (PRPs): 100 percent of budgeted amounts were released in 2004, up from about 50 percent in 2003.
- Credit for private investment expanded by over 60 percent during the year through December 2004.
- The kwacha appreciated in real terms by about 10 percent in 2004.
- External developments in 2004: merchandise export receipts increased by more than 50 percent.

### Macroeconomic projections and assumptions (Report and Supplement on Policies and Objectives for 2005)
- Significant private investment in mining, agriculture, and tourism in 2004 is expected to help maintain growth of 5 percent in 2005.
- Inflation is expected to decline to 15 percent by the end of the year.
- The 2005 budget aims to limit domestic financing needs of central government to 1.6 percent of GDP.
- Donors’ budgetary support—excluding additional debt relief expected at attainment of the completion point under the enhanced HIPC Initiative—is projected to rise to 2.1 percent of GDP.
- Under expanded classification in the 2005 budget, allocations for poverty reduction programs account for more than 22 percent of domestically financed spending (i.e., almost 5 percent of GDP).
- Over the medium term the Report projects GDP growth at 5 percent and inflation declining to a single digit rate.
- On the fiscal side, domestic financing is assumed to gradually decline to less than 1 percent of GDP, while allocations on poverty-reducing programs are expected to expand on the basis of savings from external and domestic debt service.

### Policy and reform progress
- Public Sector Reform (PSR) revised strategy (June 2004) focuses on:
  - improving public expenditure management and financial accountability (PEMFA);
  - strengthening human resource management and rationalizing civil service size;
  - articulating a decentralization strategy.
- PEMFA program: implementation plan prepared, successfully appraised, and negotiated with cooperating partners; Memorandum of Understanding (MoU) signed between GRZ and cooperating partners, including the EU and IDA.
- Finance Act amended December 2004 to enhance accountability; 2004 budget prepared according to activity-based budgeting.
- Government modified financial management system to track resources flowing to a wider definition of PRPs.
- Payroll Management and Establishment Control (PMEC) system implemented to improve payroll management, establishment control, and budget accuracy.
- Debt management: work underway on a debt strategy with capacity building; MoFNP plans to validate external debt stock data within 45 days from the end of each quarter and to update its 3-year schedule of debt-service obligations falling due.
- Financial Sector Development Plan (FSDP) approved June 2004; priorities include resolution of state-owned non-bank financial institutions, improving Zambia’s credit culture, and strengthening operational independence of the BoZ.
- Private Sector Development (PSD) initiative launched in 2004; staffs recommend:
  - dealing with fragmentation of institutional setup to facilitate interaction with private sector, particularly for new businesses;
  - implementing key priority actions identified with the private sector to establish credibility;
  - setting up institutional framework ensuring private sector participation during implementation and effective delivery of Livingstone consultations’ actions.
- Export promotion and diversification need to be fully incorporated into PRSP, guided by Diagnostic Trade Integration Study (DTIS) findings.
- Utility sectors: attention needed to tariff setting (notably water utilities) to avoid accumulation of arrears; promote private participation in utilities and infrastructure investments.

### Risks and staff recommendations (macro and public sector)
- Further real appreciation of the kwacha could undermine nontraditional exports; fiscal consolidation and enhanced coordination of fiscal and monetary policies are considered critical.
- Accelerate civil service reform planning to align with PEMFA implementation.
- Include a discussion of the new five-year decentralization strategy (to commence in 2005) in the next progress report.
- Implement the PEMFA program vigorously and follow through on debt management improvements to minimize risks to debt sustainability after HIPC completion point.

### Progress in poverty reduction and MDG attainment — Findings
- Updated poverty profile based on the 2002/03 Living Conditions Monitoring Standard Survey (LCMS) shows poverty remains high and largely rural.
- Overall poverty headcount: 67 percent (LCMS 2002/03).
- The Report indicates a subset of the MDGs could be reached by 2015 if two critical conditions are met:
  - average annual growth rates in excess of 8 percent; and
  - better prioritization, scaling up, and stronger effectiveness of PRPs related to the MDGs.
- Staffs note growth rates are not expected to exceed 5 percent over the coming three years and recommend the next Report articulate how MDG attainment could be achieved under realistic growth scenarios.

### Poverty-related policy recommendations
- Use data on expenditure releases for the newly defined PRPs and the updated poverty profiles to evaluate the effectiveness of PRPs.
- Better monitor the impact of PRPs on the poor and prioritize and scale up PRPs that are most effective.

### Progress in sectoral policies and programs — Economic sectors: findings and recommendations
- Future PRSP assessments should give greater weight to identifying bottlenecks to economic growth and provide closer sectoral evaluations beyond budgetary activities.

Agriculture
- Expenditure composition heavily tilted towards recurrent expenditures.
- Actual expenditures: subsidies (for fertilizer, seeds, and maize procured by Food Reserve Agency) accounted for about 70 percent of the total.
- Plan intended to spend over 80 percent of resources on productive investments and service provision.
- Current expenditure pattern is not sustainable and needs review to achieve sector goals of export-orientation, increased household incomes, and food security.

Tourism
- Benefited from improved infrastructure, promotion, and activity diversification.
- Recommendation to extend infrastructure development beyond Livingstone and Kafue National Park to other attractions.
- Publicly-financed Tourism Development Credit Facility is not sustainable and operations are ineffective; focus should be on addressing macroeconomic weaknesses that make bank credit too costly.

Mining
- Private capital has proven more sustainable for financing and servicing the sector.
- Sector’s contribution to growth, employment, and revenues could be strengthened via a more consistent policy, legal, regulatory, and institutional framework.
- Diversification toward precious and semi-precious stones or other minerals should be pursued.
- Attention needed to enhance well-being of communities affected by mining.
- PRSP mining programs received much lower funding than budgeted; staffs recommend fully funding these programs and improving evaluation of mining sector developments.

Energy and telecommunications
- Progress in translating policy into new legal acts and regulations.
- Tariff setting in utility sectors (especially water) requires attention to ensure financial soundness and avoid arrears to suppliers.
- Actively promote private participation in utilities and infrastructure.

### Manufacturing and private sector development
- Mixed record of program implementation in the manufacturing sector.
- High cost from proliferation of publicly funded private sector development institutions.
- Creation of a one-stop private sector development institution, the Zambia Development Agency (amalgamating the Zambia Investment Center, the Export Board of Zambia, and the Zambia Privatization Agency) is an important step to reduce fragmentation.
- Increasing value-added for domestically sourced raw materials and intermediate goods could broaden the manufacturing sector’s impact.

### Energy sector (achievements)
- Significant progress recorded in four areas:
  - (i) commercialization of ZESCO (state-owned electricity utility company);
  - (ii) review of electricity and energy regulations statutes;
  - (iii) creation of the rural electrification authority;
  - (iv) construction of regional inter-connector power lines to extend Zambia’s electricity energy exports to the region.
- High funding for rural electrification and electrification of some farm blocks noted as encouraging for rural quality of life.

### Roads and transport
- Government consolidated roads-development institutions into the Roads Development Agency for a more streamlined approach.
- In 2003, about 74 percent of the planned road maintenance program was implemented.
- Overall road network deteriorated due to poor routine maintenance.
- Establishment (as part of the 2002 review of transport policy) of:
  - the National Road Fund (stable funding for road maintenance through a fuel levy);
  - the Road Transport and Safety Agency (to improve road safety).

### Education
- Budget planning and execution improvements must accompany interventions to increase access, quality, relevance of curriculum, and retention.
- Primary school Gross Enrolment Ratios (GERs) rose by another 5.4 percentage points to 93.1 percent from 87.7 percent in 2003.
- Secondary and tertiary GERs increased by 2.6 and 15 percentage points respectively.
- Improvements in teacher–pupil ratios hampered by budgetary constraints: Ministry of Education had not removed many retired teachers from its sectoral budget, constraining hiring.
- 2005 budget provides for the hiring of 7,000 additional teachers, substantially reducing shortfalls registered in 2004.
- Government needs to strengthen Ministry of Education capacity to plan, monitor, and prioritize scarce resources, and to consider:
  - increasing number of teachers in rural areas;
  - improving gender composition of teaching staff;
  - addressing the impact of HIV/AIDS on teachers and pupils.

### Health
- Budgetary releases to health programs declined to 1.7 percent of GDP in 2004 from 2.1 percent in 2003.
- Notable improvements due to increased timeliness of resource release, reflected in:
  - improved health centre outpatient per capita attendance;
  - general decrease in incidence of major diseases: malaria, non-pneumonia respiratory infections, and diarrhea.
- Drug situation improved: 0.79 kits opened per 1,000 patients in 2004 compared to 0.73 kits opened per 1,000 patients in 2003.
- Percentage of fully immunized children under one year improved from 74 percent in 2003 to 77 percent in 2004.
- Major challenge: increase human capacity to absorb available external project funding; government must account for NGOs offering more attractive remuneration packages.

### Nutrition
- Focus on improving institutional capacity, expanding immunization and fortification of sugar and maize meal with Vitamin A, and scaling up the Infant and Young Child Feeding program.
- Implementation of Integrated Management of Childhood Illness program began during the report period.
- Report shows progress in programs but could benefit from additional information on program impact on outcomes (e.g., stunting).

### Water and sanitation
- PRSP focus: water resource management and provision of water and sanitation services.
- Water Resource Action Plan (WRAP), initiated in early 2003, aims to establish framework for development, management, and use of water resources; WRAP has become operational.
- Evidence of scaling up implementation of Zambia’s Water Resource Infrastructure Development Plan.
- Implementation of several programs (including urban and peri-urban water supply improvements) delayed due to non-release of funds.
- Over 4 million Zambians reside in urban areas; Cholera is endemic in major cities, underscoring criticality of urban and peri-urban water systems.

### Social safety nets
- PRSP social safety nets delivered through Food Security Program (FSP), Peri-Urban Self-Help (PUSH), Public Welfare Assistant Scheme (PWAS), and the National Social Safety Net (NSSN).
- FSP beneficiaries increased from 125,195 during the 2002/03 season to 150,000 during the 2003/04 season.
- PUSH effectiveness hampered by poor release of funds; PWAS and NSSN not affected.
- PWAS extended to cover 72 districts up from 27 districts in 2002.
- Given exposure to natural disasters, HIV/AIDS, and external shocks, staff emphasize the importance of attention to effectiveness of resource allocation to social safety net programs in light of declining allocations over past few years.

### Cross-cutting initiatives: governance, HIV/AIDS, environment, gender
Governance
- Constitutional Review Commission (started 2002) began compiling recommendations; draft expected in the first quarter of 2005.
- PEMFA reforms agreed with cooperating partners will enhance transparency and accountability.
- National Governance Baseline Survey (NGBS) conducted; findings disseminated at a conference chaired by the President in November 2004.
- Main challenges: timely conclusion of constitutional review and translating NGBS findings into tangible anti-corruption actions.

HIV/AIDS
- Government undertook positive steps; most PRSP-supported programs show improvements in outreach, knowledge, counseling and testing, and use of ARV.
- Zambia faces a prevalence rate of 16 percent among the adult population.
- Operational and organizational challenges identified, including need for a system to monitor and track resources for HIV/AIDS programs.
- National Aids Council (NAC) commissioned a functional review in 2004 and has reorganized based on recommendations.

Gender and environment
- Initiatives to improve institutional framework for gender and environmental protection initiated; results limited.
- Government began amending laws in conflict with CEDAW.
- Percentages of women in decision-making positions and representation in Parliament did not change relative to previous report.
- Community Environmental Management Program launched and implementation commenced in 6 of the 8 targeted districts.

### Institutional framework for PRSP implementation, monitoring, and evaluation
- Improvements to monitor budget inputs into PRPs:
  - Introduction of Activity Based Budgeting (ABB) reevaluated PRPs; definition expanded from HIPC-related expenditures to cover all public expenditures related to PRSP implementation.
  - Budget financial management system enhanced to monitor releases against re-defined PRPs; new definition embedded in the 2005 budget.
- Data and monitoring structures:
  - Poverty Monitoring and Analysis (PMA) unit moved from ZAMSIF to Planning and Economic Management Department (PEMD) at MoFNP in January 2004.
  - Monitoring and Evaluation Unit moved from Economic and Technical Cooperation Department at MoFNP to PEMD to integrate planning, monitoring, and evaluation.
  - Monitoring structures showed weaknesses during PRSP monitoring; corrective measure: proposed training program for capacity building among SAG members.
  - Training needs assessment conducted in 2004 and its conclusion to be tabled in early 2005.
  - Staffs urge reducing the number of indicators currently monitored and reported in The Report; recommend a concise list of policy actions with designated annual progress indicators.

### Conclusions, risks, and recommended actions
- Staffs conclude the Report adequately reflects accomplishments and shortcomings in PRSP implementation since adoption.
- Staffs welcome authorities’ restated commitment to the PRSP and concur with priority measures and proposed replacement of the Annual Progress with expanded Annual Economic Report and merger of PRSP with the National Development Plan (to be developed during 2005 and expected to cover PRSP-relevant sectors for the period 2006-10).
- Authorities could use socio-demographic metadata submitted to the IMF Statistics Department to address data constraints.
- Staffs agree with Report’s recommendations for improving timely disbursement of funds to line ministries and implementing agencies and for a comprehensive and timely reporting system of donor disbursements.

Macroeconomic risks identified
- Climatic and terms of trade shocks could jeopardize the projected scenario.
- Several elections scheduled during 2005-2007 (local governments, president, parliament, possibly constitutional assembly) with sizeable costs not accommodated in the medium-term expenditure framework.
- Budgetary discipline could be affected by the electoral cycle and attainment of the HIPC completion point, despite donors’ medium-term commitment to expand budgetary support.

Staffs’ more specific recommendations (paragraph 45)
- (a) Intensify progress on structural reforms identified in the PRSP and preserve domestic financing ceilings approved in the MTEF.
  - To mitigate impact of climatic and terms of trade shocks, staff advise steadfast progress in implementing the FSDP and the PSD Initiative to boost diversification of the Zambian economy.
  - On election-related expenditure, staff urges authorities to ensure funding is provided either through external grants or compensatory measures outside priority areas.
  - On risks indirectly associated with the electoral cycle and attainment of the HIPC completion point, staff recommends, along with steady implementation of the PEMFA program, strict enforcement of public expenditure management procedures, timely reporting on budget execution, and full transparency.
- (b) Enhance monitoring and evaluation capacity to:
  - (i) strengthen links between PRSP programs, the Medium-Term Expenditure Framework, and annual budgets;
  - (ii) improve assessment of PRSP’s impact on poverty reduction and growth.

- Final question posed: Do the respective Executive Directors of the Fund and IDA concur with staffs’ identification of priority areas of action and the related recommendations for strengthening PRSP implementation?

*Source: _cr05195 - 28. The Report shows a mixed record of implementation of the various programs*

### 1. The second Poverty Reduction Strategy Paper (PRSP) Implementation

### 1. The second Poverty Reduction Strategy Paper (PRSP) Implementation Progress Report and its Addendum

### Overview and scope
- The Second Progress Report and its Addendum review government implementation of the PRSP for the period July 2003–December 2004.
- The Report describes results of implementation and monitoring of the PRSP presented to the Boards of the IMF and IDA on May 29, 2002 and July 19, 2002, respectively.
- The Report incorporates inputs from civil society and the donor community and includes a “Supplement on Policies and Objectives for 2005” prepared by the Ministry of Finance and National Planning in February 2005.
- The PRSP time period (2002-04) was extended by one year to overlap with the TNDP; the next PRSP/TNDP is expected to cover a 5-year period and outline development plans from 2006 onwards.

### Strategy and consultative process
- Government’s poverty reduction strategy focuses on:
  - promoting economic growth through macroeconomic stabilization and diversification;
  - improving the quality of service delivery;
  - addressing cross-cutting issues of governance, HIV/AIDS, gender, and the environment.
- The PRSP remains valid and is a fundamental reference for dialogue between government, civil society, and donors.
- Stakeholder participation:
  - Sectoral Advisory Groups (SAGs) include civil society, private sector, academicians, and donors.
  - SAGs meet monthly and jointly during two annual national conferences to discuss PRSP and TNDP progress.

### Reporting alignment and recommendations
- The reporting period of the annual progress report is not aligned with Zambia’s financial year, complicating comprehensive evaluations because much data is reported by calendar year.
- Zambia’s annual Economic Report will be expanded to become the main vehicle to report on PRSP implementation; staffs urge a forward-looking approach in the Economic Report’s PRSP section.
- The Joint Staff Advisory Note (JSAN) is organized into three sections: progress and suggestions for strengthening implementation; risks and issues for Board discussion.

### Macro economic performance and structural reforms
Findings
- Real GDP growth: climbed above a rate of 5 percent in 2003; estimated at 5 percent in 2004.
- 2004 marks the fifth consecutive year of solid increase of GDP per capita after more than two decades of decline.
- Staffs note growth still falls short of what is needed to significantly reduce poverty in Zambia: 6-8 percent per year.
- Domestic borrowing: limited to less than 1 percent of GDP in 2004, compared with over 5 percent of GDP in 2003.
- Authorized expenditure of about 1 percent of GDP went unexecuted by end-2004, mainly because disbursements of US$38 million of external budget support came in late December.
- Releases for priority poverty-reduction programs (PRPs): 100 percent of budgeted amounts were released in 2004, up from about 50 percent in 2003.
- Credit for private investment expanded by over 60 percent during the year through December 2004.
- The kwacha appreciated in real terms by about 10 percent in 2004.
- External developments in 2004: merchandise export receipts increased by more than 50 percent.
- For 2005 and the medium term (Report and Supplement on Policies and Objectives for 2005):
  - Significant private investment in mining, agriculture, and tourism in 2004 is expected to help maintain growth of 5 percent in 2005.
  - Inflation is expected to decline to 15 percent by the end of the year.
  - The 2005 budget aims to limit domestic financing needs of central government to 1.6 percent of GDP.
  - Donors’ budgetary support—excluding additional debt relief expected at attainment of the completion point under the enhanced HIPC Initiative—is projected to rise to 2.1 percent of GDP.
  - Under expanded classification in the 2005 budget, allocations for poverty reduction programs account for more than 22 percent of domestically financed spending (i.e., almost 5 percent of GDP).
  - Over the medium term the Report projects GDP growth at 5 percent and inflation declining to a single digit rate.
  - On the fiscal side, domestic financing is assumed to gradually decline to less than 1 percent of GDP, while allocations on poverty-reducing programs are expected to expand on the basis of savings from external and domestic debt service.

Policy and reform progress
- Public Sector Reform (PSR) revised strategy (June 2004) focuses on:
  - improving public expenditure management and financial accountability (PEMFA);
  - strengthening human resource management and rationalizing civil service size;
  - articulating a decentralization strategy.
- PEMFA program: implementation plan prepared, successfully appraised, and negotiated with cooperating partners; Memorandum of Understanding (MoU) signed between GRZ and cooperating partners, including the EU and IDA.
- Finance Act amended December 2004 to enhance accountability; 2004 budget prepared according to activity-based budgeting.
- Government modified financial management system to track resources flowing to a wider definition of PRPs.
- Payroll Management and Establishment Control (PMEC) system implemented to improve payroll management, establishment control, and budget accuracy.
- Debt management: work underway on a debt strategy with capacity building; MoFNP plans to validate external debt stock data within 45 days from the end of each quarter and to update its 3-year schedule of debt-service obligations falling due.
- Financial Sector Development Plan (FSDP) approved June 2004; priorities include resolution of state-owned non-bank financial institutions, improving Zambia’s credit culture, and strengthening operational independence of the BoZ.
- Private Sector Development (PSD) initiative launched in 2004; staffs recommend:
  - dealing with fragmentation of institutional setup to facilitate interaction with private sector, particularly for new businesses;
  - implementing key priority actions identified with the private sector to establish credibility;
  - setting up institutional framework ensuring private sector participation during implementation and effective delivery of Livingstone consultations’ actions.
- Export promotion and diversification need to be fully incorporated into PRSP, guided by Diagnostic Trade Integration Study (DTIS) findings.
- Utility sectors: attention needed to tariff setting (notably water utilities) to avoid accumulation of arrears; promote private participation in utilities and infrastructure investments.

Risks and staff recommendations
- Further real appreciation of the kwacha could undermine nontraditional exports; fiscal consolidation and enhanced coordination of fiscal and monetary policies are considered critical.
- Accelerate civil service reform planning to align with PEMFA implementation.
- Include a discussion of the new five-year decentralization strategy (to commence in 2005) in the next progress report.
- Implement the PEMFA program vigorously and follow through on debt management improvements to minimize risks to debt sustainability after HIPC completion point.

### Progress in poverty reduction and MDG attainment
Findings
- Updated poverty profile based on the 2002/03 Living Conditions Monitoring Standard Survey (LCMS) shows poverty remains high and largely rural.
- Overall poverty headcount: 67 percent (LCMS 2002/03).
- The Report indicates a subset of the MDGs could be reached by 2015 if two critical conditions are met:
  - average annual growth rates in excess of 8 percent; and
  - better prioritization, scaling up, and stronger effectiveness of PRPs related to the MDGs.
- Staffs note growth rates are not expected to exceed 5 percent over the coming three years and recommend the next Report articulate how MDG attainment could be achieved under realistic growth scenarios.

Policy recommendations
- Use data on expenditure releases for the newly defined PRPs and the updated poverty profiles to evaluate the effectiveness of PRPs.
- Better monitor the impact of PRPs on the poor and prioritize and scale up PRPs that are most effective.

### Progress in sectoral policies and programs
Economic sectors: findings and recommendations
- Future PRSP assessments should give greater weight to identifying bottlenecks to economic growth and provide closer sectoral evaluations beyond budgetary activities.
- Agriculture:
  - Expenditure composition heavily tilted towards recurrent expenditures.
  - Actual expenditures: subsidies (for fertilizer, seeds, and maize procured by Food Reserve Agency) accounted for about 70 percent of the total.
  - Plan intended to spend over 80 percent of resources on productive investments and service provision.
  - Current expenditure pattern is not sustainable and needs review to achieve sector goals of export-orientation, increased household incomes, and food security.
- Tourism:
  - Benefited from improved infrastructure, promotion, and activity diversification.
  - Recommendation to extend infrastructure development beyond Livingstone and Kafue National Park to other attractions.
  - Publicly-financed Tourism Development Credit Facility is not sustainable and operations are ineffective; focus should be on addressing macroeconomic weaknesses that make bank credit too costly.
- Mining:
  - Private capital has proven more sustainable for financing and servicing the sector.
  - Sector’s contribution to growth, employment, and revenues could be strengthened via a more consistent policy, legal, regulatory, and institutional framework.
  - Diversification toward precious and semi-precious stones or other minerals should be pursued.
  - Attention needed to enhance well-being of communities affected by mining.
  - PRSP mining programs received much lower funding than budgeted; staffs recommend fully funding these programs and improving evaluation of mining sector developments.
- Energy and telecommunications:
  - Progress in translating policy into new legal acts and regulations.
  - Tariff setting in utility sectors (especially water) requires attention to ensure financial soundness and avoid arrears to suppliers.
  - Actively promote private participation in utilities and infrastructure.

*International Monetary Fund staff commentary on Republic of Zambia Second PRSP Implementation Progress Report July 2003–December 2004 and Addendum (Supplement on Policies and Objectives for 2005).*

### 28. The Report shows a mixed record of implementation of the various programs

### 28. The Report shows a mixed record of implementation of the various programs

### Manufacturing and private sector development
- Mixed record of program implementation in the manufacturing sector.
- High cost from proliferation of publicly funded private sector development institutions.
- Creation of a one-stop private sector development institution, the Zambia Development Agency (amalgamating the Zambia Investment Center, the Export Board of Zambia, and the Zambia Privatization Agency) is an important step to reduce fragmentation.
- Increasing value-added for domestically sourced raw materials and intermediate goods could broaden the manufacturing sector’s impact.

### Energy sector
- Significant progress recorded in four areas:
  - (i) commercialization of ZESCO (state-owned electricity utility company);
  - (ii) review of electricity and energy regulations statutes;
  - (iii) creation of the rural electrification authority;
  - (iv) construction of regional inter-connector power lines to extend Zambia’s electricity energy exports to the region.
- High funding for rural electrification and electrification of some farm blocks noted as encouraging for rural quality of life.

### Roads and transport
- Government consolidated roads-development institutions into the Roads Development Agency for a more streamlined approach.
- In 2003, about 74 percent of the planned road maintenance program was implemented.
- Overall road network deteriorated due to poor routine maintenance.
- Establishment (as part of the 2002 review of transport policy) of:
  - the National Road Fund (stable funding for road maintenance through a fuel levy);
  - the Road Transport and Safety Agency (to improve road safety).

### Education
- Budget planning and execution improvements must accompany interventions to increase access, quality, relevance of curriculum, and retention.
- Primary school Gross Enrolment Ratios (GERs) rose by another 5.4 percentage points to 93.1 percent from 87.7 percent in 2003.
- Secondary and tertiary GERs increased by 2.6 and 15 percentage points respectively.
- Improvements in teacher–pupil ratios hampered by budgetary constraints: Ministry of Education had not removed many retired teachers from its sectoral budget, constraining hiring.
- 2005 budget provides for the hiring of 7,000 additional teachers, substantially reducing shortfalls registered in 2004.
- Government needs to strengthen Ministry of Education capacity to plan, monitor, and prioritize scarce resources, and to consider:
  - increasing number of teachers in rural areas;
  - improving gender composition of teaching staff;
  - addressing the impact of HIV/AIDS on teachers and pupils.

### Health
- Budgetary releases to health programs declined to 1.7 percent of GDP in 2004 from 2.1 percent in 2003.
- Notable improvements due to increased timeliness of resource release, reflected in:
  - improved health centre outpatient per capita attendance;
  - general decrease in incidence of major diseases: malaria, non-pneumonia respiratory infections, and diarrhea.
- Drug situation improved: 0.79 kits opened per 1,000 patients in 2004 compared to 0.73 kits opened per 1,000 patients in 2003.
- Percentage of fully immunized children under one year improved from 74 percent in 2003 to 77 percent in 2004.
- Major challenge: increase human capacity to absorb available external project funding; government must account for NGOs offering more attractive remuneration packages.

### Nutrition
- Focus on improving institutional capacity, expanding immunization and fortification of sugar and maize meal with Vitamin A, and scaling up the Infant and Young Child Feeding program.
- Implementation of Integrated Management of Childhood Illness program began during the report period.
- Report shows progress in programs but could benefit from additional information on program impact on outcomes (e.g., stunting).

### Water and sanitation
- PRSP focus: water resource management and provision of water and sanitation services.
- Water Resource Action Plan (WRAP), initiated in early 2003, aims to establish framework for development, management, and use of water resources; WRAP has become operational.
- Evidence of scaling up implementation of Zambia’s Water Resource Infrastructure Development Plan.
- Implementation of several programs (including urban and peri-urban water supply improvements) delayed due to non-release of funds.
- Over 4 million Zambians reside in urban areas; Cholera is endemic in major cities, underscoring criticality of urban and peri-urban water systems.

### Social safety nets
- PRSP social safety nets delivered through Food Security Program (FSP), Peri-Urban Self-Help (PUSH), Public Welfare Assistant Scheme (PWAS), and the National Social Safety Net (NSSN).
- FSP beneficiaries increased from 125,195 during the 2002/03 season to 150,000 during the 2003/04 season.
- PUSH effectiveness hampered by poor release of funds; PWAS and NSSN not affected.
- PWAS extended to cover 72 districts up from 27 districts in 2002.
- Given exposure to natural disasters, HIV/AIDS, and external shocks, staff emphasize the importance of attention to effectiveness of resource allocation to social safety net programs in light of declining allocations over past few years.

### Cross-cutting initiatives: governance, HIV/AIDS, environment, gender
- Governance:
  - Constitutional Review Commission (started 2002) began compiling recommendations; draft expected in the first quarter of 2005.
  - PEMFA reforms agreed with cooperating partners will enhance transparency and accountability.
  - National Governance Baseline Survey (NGBS) conducted; findings disseminated at a conference chaired by the President in November 2004.
  - Main challenges: timely conclusion of constitutional review and translating NGBS findings into tangible anti-corruption actions.
- HIV/AIDS:
  - Government undertook positive steps; most PRSP-supported programs show improvements in outreach, knowledge, counseling and testing, and use of ARV.
  - Zambia faces a prevalence rate of 16 percent among the adult population.
  - Operational and organizational challenges identified, including need for a system to monitor and track resources for HIV/AIDS programs.
  - National Aids Council (NAC) commissioned a functional review in 2004 and has reorganized based on recommendations.
- Gender and environment:
  - Initiatives to improve institutional framework for gender and environmental protection initiated; results limited.
  - Government began amending laws in conflict with CEDAW.
  - Percentages of women in decision-making positions and representation in Parliament did not change relative to previous report.
  - Community Environmental Management Program launched and implementation commenced in 6 of the 8 targeted districts.

### Institutional framework for PRSP implementation, monitoring, and evaluation
- Improvements to monitor budget inputs into PRPs:
  - Introduction of Activity Based Budgeting (ABB) reevaluated PRPs; definition expanded from HIPC-related expenditures to cover all public expenditures related to PRSP implementation.
  - Budget financial management system enhanced to monitor releases against re-defined PRPs; new definition embedded in the 2005 budget.
- Data and monitoring structures:
  - Poverty Monitoring and Analysis (PMA) unit moved from ZAMSIF to Planning and Economic Management Department (PEMD) at MoFNP in January 2004.
  - Monitoring and Evaluation Unit moved from Economic and Technical Cooperation Department at MoFNP to PEMD to integrate planning, monitoring, and evaluation.
  - Monitoring structures showed weaknesses during PRSP monitoring; corrective measure: proposed training program for capacity building among SAG members.
  - Training needs assessment conducted in 2004 and its conclusion to be tabled in early 2005.
  - Staffs urge reducing the number of indicators currently monitored and reported in The Report; recommend a concise list of policy actions with designated annual progress indicators.

### Conclusions, risks, and recommended actions
- Staffs conclude the Report adequately reflects accomplishments and shortcomings in PRSP implementation since adoption.
- Staffs welcome authorities’ restated commitment to the PRSP and concur with priority measures and proposed replacement of the Annual Progress with expanded Annual Economic Report and merger of PRSP with the National Development Plan (to be developed during 2005 and expected to cover PRSP-relevant sectors for the period 2006-10).
- Authorities could use socio-demographic metadata submitted to the IMF Statistics Department to address data constraints.
- Staffs agree with Report’s recommendations for improving timely disbursement of funds to line ministries and implementing agencies and for a comprehensive and timely reporting system of donor disbursements.
- Macroeconomic risks identified:
  - Climatic and terms of trade shocks could jeopardize the projected scenario.
  - Several elections scheduled during 2005-2007 (local governments, president, parliament, possibly constitutional assembly) with sizeable costs not accommodated in the medium-term expenditure framework.
  - Budgetary discipline could be affected by the electoral cycle and attainment of the HIPC completion point, despite donors’ medium-term commitment to expand budgetary support.
- Staffs’ more specific recommendations (paragraph 45):
  - (a) Intensify progress on structural reforms identified in the PRSP and preserve domestic financing ceilings approved in the MTEF.
    - To mitigate impact of climatic and terms of trade shocks, staff advise steadfast progress in implementing the FSDP and the PSD Initiative to boost diversification of the Zambian economy.
    - On election-related expenditure, staff urges authorities to ensure funding is provided either through external grants or compensatory measures outside priority areas.
    - On risks indirectly associated with the electoral cycle and attainment of the HIPC completion point, staff recommends, along with steady implementation of the PEMFA program, strict enforcement of public expenditure management procedures, timely reporting on budget execution, and full transparency.
  - (b) Enhance monitoring and evaluation capacity to:
    - (i) strengthen links between PRSP programs, the Medium-Term Expenditure Framework, and annual budgets;
    - (ii) improve assessment of PRSP’s impact on poverty reduction and growth.
- Final question posed: Do the respective Executive Directors of the Fund and IDA concur with staffs’ identification of priority areas of action and the related recommendations for strengthening PRSP implementation?

*Source: _cr05195 - 28. The Report shows a mixed record of implementation of the various programs*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2005/_cr05195.pdf_