PUBLIC FINANCE MANAGEMENT SYSTEM IN ZIMBABWE

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PUBLIC FINANCE MANAGEMENT SYSTEM IN ZIMBABWE Powered By Docstoc
					                          M acr o eco no m ic and Financial M anagem ent
                          Inst it ut e o f East er n and So ut her n A fr ica




  PUBLIC FINANCE MANAGEMENT (PFM) SYSTEM FOR THE
             GOVERNMENT OF ZIMBABWE




               FINAL REPORT



Prepared by:

                DAIMA ASSOCIATES LIMITED
               {Development & Management Consultants}
                  Makumbusho Street, Kijitonyama,
                   P. O. Box 75027, Dar es Salaam
                          T ANZANIA
                    Telephone: +255-22-277 1954
  Daima              Facsimile: +255-22-277 1949
                   e-mail: associates@daima.co.tz




                       20th May, 2009
TABLE OF CONTENTS

TABLE OF CONTENTS ............................................................................................................ i
LIST OF ABBREVIATIONS ...................................................................................................... 1
ACKNOWLEDGEMENTS......................................................................................................... 3
EXECUTIVE SUMMARY................................................................................................. 4
1. BACKGROUND ................................................................................................................ 11
      1.1 The Current Socioeconomic Situation (policy framework, economic crisis,
      resources management.............................................................................................. 11
      1.1.1 Background to Zimbabwe’s Economic Crisis .................................................. 11
      1.1.2 Policy framework ............................................................................................. 12
      1.1.3    Resources Management .............................................................................. 14
      1.3 The objective of consultancy ............................................................................... 15
      1.4 Methodology of the Study.................................................................................... 16
      1.5 The scope of the report ....................................................................................... 16
2. THE EXISTING COUNTRY FINANCIAL MANAGEMENT FRAMEWORK AND SYSTEMS ........ 18
      2.1 Budget management ............................................................................................ 18
      2.1.1 Introduction...................................................................................................... 18
      2.1.2 Budget Preparation and Approval process...................................................... 18
      2.1.3 Observations on the Budget preparation and Approval process ..................... 19
      2.1.4 Budget Accounting ........................................................................................... 22
      2.1.5 Budget monitoring and reporting .................................................................... 22
      2.2 Aid Management and Coordination.................................................................... 23
      2.2.1The status of foreign investment and aid .......................................................... 23
      2.2.2 The debt problem ............................................................................................. 24
      2.2.3 Aid management and coordination .................................................................. 25
      2.3 Accounting systems and financial controls ......................................................... 26
      2.4 External Audit and Accountability ...................................................................... 30
      2.5 Supervision by Parliament (political oversight) ................................................. 35
      2.6 Government Procurement System .................................................................. 37
      2.7.1 Overall Picture................................................................................................. 39
      2.7.2 The Technical Dimension ................................................................................ 40
      2.7.3 Governance Dimension .................................................................................... 40
      2.7.4 Comments on the PFM Bill .............................................................................. 41
3. CROSS- CUTTING ISSUES ................................................................................................ 43
   3.1 Capacity Constraints (Human resources and facilities) .......................................... 43
   3.2 Monitoring and Evaluation ..................................................................................... 46
   3.3 Coordination among Services and Decentralization ............................................... 48
4.0 USER ATTITUDE AND RESPONSE MECHANISMS ........................................................... 50
5.0 FINDINGS AND CHALLENGES ........................................................................................ 54
   5.1 Government‟s Existing Management Framework and Systems ............................. 54
      5.1.1 Budget management ......................................................................................... 54
      5.1.2 Aid management and coordination ................................................................. 54
      5.1.3 Procurement .................................................................................................... 55
      5.1.4 Coordination and Decentralization ................................................................. 56
      5.1.5 Monitoring and Evaluation .............................................................................. 56
     5.1.6 User Attitude and Response Mechanisms ........................................................ 57
  5.2 Overview of the PFM System ................................................................................. 57
6.0 RECOMMENDATIONS .................................................................................................... 59
  6.1 Short term and immediate measures ....................................................................... 59
  6.2 Medium and long term measures ............................................................................ 62
  6.3Implementation of Recommendations of this Report ............................................. 62
REFERENCES ................................................................................................................. 63
APPENDIX I: ZIMBABWE‟S ECONOMIC PLANS SINCE 1997 AND THEIR IMPLEMENTATION .. 64
APPENDIX II: LIST OF NAMES OF PERSONS VISITED/INTERVIEWED .................................... 65
LIST OF ABBREVIATIONS

ACCZ:        Anti-Corruption Commission of Zimbabwe
ACGEN:       Accountant General (in MOF)
AO or NAO:   Audit Office or National Audit Office
BWIs:        Breton Woods Institutions
CAG:         Comptroller and Auditor General
CCS:         Commitment Control System
CIS:         Commodity Import Support
DAC:         Development Assistance Committee (of OECD)
DANIDA:      Danish International Development Agency
DIF:         Domestic and International Finance
DP:          Development Partner or Donor
ESAF:        Enhanced Structural Adjustment Facility
EU:          European Union
GBS:         General Budget Support
GDP:         Gross Domestic Product
GPA:         Global Political Agreement
GRA:         General Resources Account
GTZ:         Germany Technical Assistance
HIPC:        Heavily Indebted Poor Country
HR:          Human Resource
ILO:         International Labour Organisation
IFMS:        Integrated Financial Management System
IFMIS:       Integrated Financial Management Information System
IMF:         International Monetary Fund
JAM:         Joint Assessment Mission
LAN:         Local Area Network
LGA:         Local Government Authority
MDAs:        Ministries, Departments and Agencies (usually includes LGAs)
MDTF:        Multi-Donor Trust Fund
MOF:         Ministry of Finance
MOFED:       Ministry of Finance and Economic Development
MTEF:        Medium Term Expenditure Framework
NDF:         National Development Fund
NGOs:        Non Governmental Organisations
OBL          Organic Budget Law
ODA:         Official Development Assistance
OECD:        Organisation for Economic Cooperation and Development
PAC:         Public Accounts Committee
PAF:         Performance Assessment Framework
PFM:         Public Finance Management
PFMS:        Public Finance Management System
PRGF:        Poverty Reduction and Growth Facility
PRSC:        Poverty Reduction Support Credit
PRSP:     Poverty Reduction Strategy Paper
PSIP:     Public Sector Investment Programme
RBZ:      Reserve Bank of Zimbabwe
STERP:    Short Term Emergency Recovery Programme
TA:       Technical Assistance
UDAF:     United Nations Development Assistance Framework
UN:       United Nations
UNDP:     United Nations Development Programme
UNICEF:   United Nations Children‟s Education Fund
UNFPA:    United Nations Population Fund
VOC:      Vote of Credit
WAN:      Wide Area Network
ZMDTF:    Zimbabwe Multi-Donor Trust Fund
ACKNOWLEDGEMENTS

This study was carried out in response to a request for technical assistance made to
MEFMI by the Minister of Finance of Zimbabwe, Hon Tendai Biti. As a regional
capacity building institute, MEFMI commissioned a team of five consultants led by Prof.
Samuel Wangwe of Daima Associates of Dar es Salaam in Tanzania. The other four
members of the team were Mr. Justice Mahundaza from Rwanda, Mr. Deo Mutalemwa
and Prof. Haidari Amani from Daima Associates and Dr. Daniel Ndlela from Zimconsult
in Zimbabwe. MEFMI sponsored the study and met all the financial obligations relating
to the undertaking of this study.

MEFMI thanks very much the Team of Consultants for adhering to a very tight schedule
and all those who contributed information and views which went into this report. In
particular we would like to acknowledge the contribution of the Minister of Finance Hon.
Tendai Biti, M.P. and his key staff in the Ministry of Finance, staff from RBZ and the
staff from MEFMI‟s Macroeconomic Programme who facilitated the whole assignment.

The views expressed in this report are those of the authors and they do not necessarily
reflect the official position of the MEFMI Board of Governors and its Secretariat.
EXECUTIVE SUMMARY

BACKGROUND AND CONTEXT

Zimbabwe is just emerging from a daunting economic crisis with macroeconomic
instability – hyperinflation, hugely negative real interest rates and a collapsed currency, a
situation that led to the destruction of the domestic savings base, the deterioration of the
physical and socioeconomic infrastructure and increasing poverty and unemployment.
This situation has undermined the competitiveness of the economy and has made
Zimbabwe lose considerable technical and professional capacity. Basically, the economy
of Zimbabwe is under stress characterized by limited resources. However, an Inclusive
Government was formed in February 2009 and is committed to laying the foundations of
a functioning democratic economy. The fundamental task of the new Inclusive
Government therefore was to address the above structural failures and to resuscitate and
rehabilitate the economy while attending to the major imperative of nation building and
national healing.

Aid flows, both multilateral and bilateral, have declined sharply since 2000 when the
IMF imposed sanctions following accumulation of payment arrears.              Development
assistance has generally been withdrawn although donors have continued giving
humanitarian assistance in the form of food and essential drugs. Partly because of the
deteriorated relations with OECD countries and partly due to the lack of trust in the
country PFM systems the ODA has basically been channeled through the UN agencies
and NGOs. The downturn of development assistance to Zimbabwe coincided with the
global initiatives to rethink aid delivery mechanisms with a view to improve aid
effectiveness as captured in the principles of the Paris Declaration of 2005. It is expected
that as Zimbabwe moves to improve aid relations with the donors it will be necessary to
develop institutional structures that are appropriate for improving aid effectiveness.
Public Finance Management Systems including procurement systems and developing the
capacity for aid coordination and management are central in this process.

OBJECTIVES AND METHODOLOGY

The Government of Zimbabwe through the Minister of Finance requested MEFMI as an
organisation with the capacity to provide urgent technical assistance to undertake a
review of Government‟s Aid Management Systems and to recommend appropriate
improvements to strengthen accountability. Against this background, the objective of the
assignment was to review the status of the aid management systems in Zimbabwe with a
view to recommending ways of strengthening the aid management arrangements to
ensure accountability in terms of using resources for intended purposes.
The team of consultants carried out this assignment by collecting information from more
than 40 interviewees and recent documents that are relevant to the subject. At the end of
the field visit the team of consultants held a debriefing session with the key stakeholders
on the client side in which useful points and suggestions were made. All these have
contributed to producing this report.
MAIN FINDINGS

The findings are categorized into three main components:

              (i)     Analysis of the Government’s existing Aid Management
                      Framework and Systems and Review of the system’s
                      responsiveness to user needs and safeguards built into the systems

       The budget outturn significantly differs from the original budget making the
       original budget an unreliable tool.
       Getting rid of existing quasi-fiscal and off budgetary activities has largely been
       achieved. The challenge is to deal with the consequences and implications of
       restoring the system. The task of detailing the extent of the QFA is one that needs
       attention if the full implications are to be fully assessed, some audit of this aspect
       may be in order.
       Internal Audit units exist in line ministries as well at central level (within the
       Accountant General‟s department), but units are now too poorly staffed, resourced
       and trained to perform their function effectively.
       Bank reconciliations and suspense accounts reconciliations are not done
       frequently nor followed up effectively. The fact that financial statements are not
       prepared in line with international accounting standards makes them prone to
       incompleteness. The late submission of financial statements renders them less
       useful.
       The shortcomings inherent in operating outside the PFM system include the fact
       that there was often little coordination between donors operating in the country, as
       well as coordination between the donors and the partner country government in
       terms of prioritisation.
       The manner in which projects are implemented outside the PFM breeds the
       disconnect between sector line ministries and the Ministry of Finance in the areas
       of planning and budgeting. In addition, the Ministry of Finance is deprived of the
       information on implications of various projects on recurrent expenditures, such as
       maintenance costs for infrastructure projects and personnel costs for social service
       delivery projects. Operating outside the PFM has adverse consequences on the
       risk of undermining both the ability and incentives for partner countries to
       perform a number of key government functions, undermines efforts to expand the
       tax base and revenue collection and undermines planning and prioritising through
       the budgetary allocation process, and to implementing, monitoring and evaluating
       programmes.
       Zimbabwe‟s procurement system is long established and operational, but its
       effectiveness is hampered by a number of factors, including: lack of resources,
       a substantial proportion of public sector procurement lies outside the system
       (In particular, most of the procurement under QFA were done outside of
       procurement system).and the fact that the procurement function is not linked
       directly to the PFM system.
Confidence in using country systems is likely to be facilitated by
improvements in country systems of public financial management including
public procurement in the context of a greater transparency and oversight, a
reduction in transaction costs and fiduciary risks.
The use of country systems notably public financial management systems
(PFMs), procurement, auditing and monitoring systems of partner countries
avoids creating parallel structures. The challenge is for the government to
work together with donors to carry out diagnostic reviews of national capacity
in these areas with a view to making strengthening national capacity a joint
venture between them.
Accountability and improvements in the recording of aid flows in national
budgets is particularly important in enabling MOF to present accurate and
realistic budgets to the national parliament as well as more comprehensive and
timely reporting of aid flows by donors.
The Ministry of Finance had historic mechanisms for integrating aid within the
budget (e.g. the Vote of Credit) and aligning aid with government preferences,
before these concepts became common place in aid effectiveness discourse. The
challenge is to appraise and consider them as a vehicle for moving aid on-budget.
After years of isolation from the mainstream of international development
processes, Zimbabwe‟s decision-makers are facing the challenge of familiarizing
themselves with the new aid architecture and mechanisms when it re-engages
with the international community. The first step may be the signing of the Paris
Declaration Principles to assure the donors that Zimbabwe is serious about
adapting and implementing the new principles, structures and process of
international aid delivery and coordination.
A sub-set of considerations underpinning the Paris Agenda concerns the
specificities of aid delivery in „fragile state‟ contexts which characterises a
specific group of countries which merit special treatment in order to address
weaknesses in policies, institutions and governance. It is stressed that there is
need to take this context as a starting point in order to design appropriate
interventions to distinguish between capacity constraints and a lack of political
will, help the country to implement the GPA and build resilient institutions
which can withstand political and economic pressures and assist Zimbabwe to
build capacity to deliver basic public goods for its citizens as well as assist
with building an enabling environment for economic growth in order to
generate employment as well as revenue streams for the state.

       (ii)   The adequacy of the manpower running the system at both
              Ministry of Finance and implementing agencies

There are large capacity gaps across all institutions.
There has been a flight of professional and technical skills due to the economic
environment and extremely low pay affecting all government, including local
authorities and state owned enterprises. The Zimbabwe Revenue Authority
(ZIMRA) and RBZ which had some flexibility in determining terms of
employment were exceptions until recently.
       A comprehensive human resource audit has not been carried out to show gaps in
       numbers and quality. This is a major assignment which should have been carried
       out as a basis for proposing action to be taken in terms of training retention and
       attracting back the Diaspora or designing ways of utilizing them wherever they
       are.

              (iii)   Review the draft Public Finance Management Bill and Audit Office
                      Bill with respect to aid management.

       Although the Government of Zimbabwe has a reasonably strong regulatory
       framework in the form of statutes, enforcement and implementation has often
       lagged behind.
       The draft bills (PFM and Audit) contain many useful improvements. Some
       proposals for improvement have been made in the report. However a major
       concern is in respect of delay in finalizing and approving the PFM and Audit bills.

RECOMMENDATIONS

Recommendations are presented on strengthening the aid management arrangements to
provide the comfort that any resources availed is used for the intended purposes. The
recommendations that are to be implemented in the immediate short term are
distinguished from those recommendations which may be implemented in the medium
term.

(i) Short term and immediate measures

       An effective stabilization programme is contingent upon re-engagement with the
       international community. Some bilateral countries are likely to quickly respond to
       effective stabilization programme and provide quick assistance.
       Top priority should be accorded to ensuring that PFMS is operational and request
       assistance to update existing system, including training and equipment support.
       There is need to change from manual to computerized procurement systems so
       that all functions are linked directly to the PFM system.
       Build the confidence and trust of the donors by holding dialogue with them on
       their needs, informing them about improvements being made on the systems and
       seeking joint action on strengthening the systems where it is deemed necessary
       and appropriate.
       Speed up the completion of legislation of PFMS and AUDIT BILLS to reinforce
       the role Ministry of finance and the Controller and Audit General.
       There is need to operationalise the NDF system and agree with donors what funds
       can pass through the system and other systems e.g. UNDP support funds. The
       experience that has been gained from inter-donor harmonisation in areas such as
       HIV/AIDS and Orphans and Vulnerable Children (OVCs) where the donors were
       able to both engage at a technical level with line ministry staff and channel funds
       through UNICEF, which passed these on to NGO care providers and faith-based
       organizations can be borrowed and up scaled. With appropriate sequencing it is
possible to gradually improve the quality of the relationship between donors and
the new Inclusive Governments while laying the foundations for national
ownership, harmonization, alignment, accountability and a results-focus in the
partnership. In such a transition, sound planning, prioritisation and sequencing of
actions are key to ensuring maximum impact as well as managing expectations on
both sides of the donor-partner country relationship in terms of what can
realistically be achieved.
The pooled funding mechanism, the Multi-Donor Trust Funds (MDTF) that is
currently in place at small scale, offers an opportunity for donors to begin the
process of harmonizing and aligning to national priorities contained in recovery
framework. In this context, MDTF should be structured around national priorities
to ensure that donor assistance reflects these budget priorities, even if funds do
not yet flow directly through national budget system.
As part of managing the transition it is proposed that arrangements be made to
have Joint Assessment Missions (JAMs) and Needs Assessments (NAs) involving
both donor and national technical staff as a basis for providing a factual basis for
dialogue and building a shared understanding of what is required and as a first
step towards joint planning and coordination.
Engage the World Bank and IMF to prepare and agree on 6-month Shadow
Programme (SMP) to be able to regain assistance from them.
There is need to prepare a macroeconomic framework, a prerequisite for macro-
economic management of aid resources and domestic resources to achieve
national objectives.
Seek foreign aid to restructure the domestic debt, while negotiating a debt-
forgiveness package for foreign debt.
Clean up the database on existing stock of debt including outstanding arrears to
provide a basis for seeking relief or additional support.
Reinforce the implementation of the Aid Manual.
Zimbabwe‟s decision-makers need to familiarize themselves with the new aid
architecture and mechanisms as a basis for re-engaging with the international
community. It is recommended that the first step should be taken to sign the Paris
Declaration Principles to assure the donors that Zimbabwe is ready to adopt
measures to strengthen ownership of aid management and to agree with donors on
the implementation of Paris declaration
While selling STERP, there is need to complement it with a medium term national
development framework which will become the centre-piece around which donors
can align and harmonise their own development assistance.
Undertake a comprehensive study on audit of existing manpower in terms of
requirement, source of staff to run the system and funding required.
In the immediate, training should give priority to the updating of the
synchronization of the PFMS and Treasury Instructions; Capacity building &
training for the Public Accounts Systems; Training of staff in the CAG office;
Training of staff in the State Procurement Board (Tender Board) and Training in
the utilization of the Grant Resources and Disbursement methods notably,
Disbursement methods used; Details of disbursements made; assessment of the
efficiency and problems encountered in disbursing; Contribution by co-
       financiers; Detailed categories of expenditure and differences; Annual
       disbursements; and Final special account report.
       Give priority to upgrading of equipment in the Internal Control and Procurement
       systems
       Improve on the timely production of Audit Reports which are currently outdated,
       e.g., the Comptroller and Auditor General Act remains that of 1996, the
       Companies Act is of the 1960s, etc. Engage TA on improving systems of the
       CAG‟s Office link up to the Public Accounts Committee (PAC);
       Engage a joint TA to involve Government and Donors for the assessment of State
       Procurement Board (Zimbabwe Tender Board‟s) procedures and systems so that
       they are adequate for adoption by foreign large tenders.
       Avoid early entry of donors into preferring project over programmatic aid because
       of the greater control over resources and their targeting this offer; press for use of
       government systems or their proxy to ensure progressive alignment of national
       policies and priorities. Aid instruments must be mixed and sequenced in order to
       fix context bearing in mind that a wider range of aid instruments can be used
       successfully in the transition.

(ii) Medium and long term measures

       Put in place a long term vision of Zimbabwe and a medium term strategy to
       implement the vision- the Economic and Poverty Reduction Strategy for
       Zimbabwe (EPRSZ). The process for preparing them should be owned by the
       people of Zimbabwe and all parties; involve development partners to lay firm
       ground for sustainable and successful implementation of the vision and medium
       term EPRS.
       Improve budgeting for domestic and external resources; adopt MTEF budgeting
       approach.
       Prepare Aid policy to improve aid management and coordination and define the
       framework to engage the donors.
       Promote the use of country systems notably public financial management systems
       (PFMs), procurement, auditing and monitoring systems of partner countries to
       avoid creating parallel structures.
       Invite donors to commit themselves to work together with Zimbabwe to carry out
       diagnostic reviews of national capacity in critical areas. Where necessary, donors
       would be requested to assist in strengthening national capacity so that these
       systems meet generally accepted standards through training and the necessary
       technical assistance.
       Review the PFM system and make necessary reforms in budgeting (e.g. prepare
       organic budget law and review of the legislation required) and ensure capacity
       building required by the reforms.

(iii) Implementation of Recommendations of this Report

It is recommended that the Government should make arrangements to go through this
report and formulate an action plan which will indicate what is agreed for
implementation, what is to be implemented by whom and   by when with clear
arrangements for follow up.
 PUBLIC FINANCE MANAGEMENT (PFM) SYSTEM FOR THE GOVERNMENT
                      OF IN ZIMBABWE


1. BACKGROUND


1.1    The Current Socioeconomic Situation (policy framework, economic crisis,
resources management


1.1.1 Background to Zimbabwe’s Economic Crisis

Zimbabwe has just emerged from a daunting economic crisis, in which fiscal space was
created in the form of quasi-fiscal spending that generated macroeconomic instability –
hyperinflation, hugely negative real interest rates and a collapsing currency. This in turn
simultaneously led to the destruction of the domestic savings base, including institutional
savings, household and corporate savings. Zimbabwe has also bled from years of
escalating hyperinflation and the deterioration of the physical infrastructure, especially
the provision of power, water and transport, all of which have undermined the
competitiveness right across the economy. In addition, Zimbabwe has lost considerable
technical and professional capacity not just from the unprecedented exodus of skills but
the simultaneous decline in the education system‟s ability to regenerate skills
domestically (UNDP, 2008).

By November 2008, Zimbabwe had undergone a steep decline in economic activity and
public services. The IMF article 4 consultation mission recently confirmed that “A steep
decline in economic activity and public services contributed to a significant deterioration
in the humanitarian situation in 2008. Poverty and unemployment have risen sharply.”
More than 40 per cent of GDP had been wiped off since 2000. Hyperinflation of over 237
million percent (by mid-2008), driven by the Reserve Bank of Zimbabwe‟s (RBZ) quasi-
fiscal activities, and a further significant deterioration in the business climate all
contributed to an estimated 14 percent fall in real GDP in 2008, on top of the 40 percent
cumulative decline during 2000-07 (IMF, 2009). Unemployment was over 80 percent,
while the formal sector experienced high levels of capacity underutilization. Poverty has
risen, with 70 percent of the population in need of food assistance and the cholera
epidemic claiming more than 4,000 lives (IMF, 2009).



The dramatic depth of the Zimbabwean crisis can be appreciated by the fact that by the
end of 2008, effectively the local currency had collapsed, leading to the inevitable
presentation of the country‟s first dollarized budget by the Acting Minister of Finance in
January 2009. The impact of these events on Zimbabwe businesses, their assets and funds
particularly those denominated in local currency was catastrophic. The currency that had
served as the primary medium of transaction and store of value had by the first week of
January 2009 become worthless.

The fundamental task of the new Inclusive Government therefore was to address the
above structural failures and to resuscitate and rehabilitate the economy. In addition, the
new Government also had to attend to the major imperative of nation building and
national healing.


1.1.2 Policy framework

In the face of the sustained decline in the GDP growth rates: -0.7% in 1999, -4.9% in
2000 and -7.7% by 2001, and 40% cumulative decline in GDP during the 2000 – 2008
period, the Government had reacted haphazardly, by periodically announcing ad-hoc
economic plans or programmes that were never implemented (Appendix I shows that
virtually all Zimbabwe‟s post 1997 economic blue-prints were not implemented).

This is hardly surprising, given the fact that all these economic blue-prints or policy
instruments lacked the government‟s commitment and long-term thrust that goes beyond
the short-term horizon. Even more fundamentally, these economic plans appear to have
lacked the social and political issues such as those envisioned in the Vision 2020. The
plans were thus devoid of the national aspirations to be attained at the end of any plan
period, including:

      Good governance
      Maintenance of political stability
      Diversified economy with high growth rates
      Access to social services by all
      Acceleration of rural development.
      Adequate human capital/skills.

The key lesson to be learnt from all Zimbabwe‟s economic plans since the beginning of
the country‟s deepening economic crisis over the period 1997 - 2008, is that these
government plans / policy statements were invariably or largely ignored by the highest
Authority in government, leading to under achievement of set targets or their complete
abandonment (UNDP 2008).

However, against the background of the Zimbabwe‟s deepening economic and social
crisis, it can be believed that a new beginning or dawn has been ushered in by the signing
of the Global Political Agreement (GPA) on the 15th of September 2008 by the three
Political Parties represented in the Zimbabwean Parliament. Pursuant to this, the new
Inclusive Government took Office in the context of an economy that was in deep crisis
and social services severely crippled.
 The new Inclusive Government has moved quickly to address some of the problems
inherited from the previous era. Under the new dispensation, the new Minister of Finance
has presented a new policy programme called STERP (Short Term Emergency Recovery
Programme) in which there is a bold attempt to address both short-term and medium-term
issues with emphasis on short term issues of stabilization and rehabilitation of the
economy.
The key goals of STERP are to stabilise the macro-economy, recover the levels of
savings, investment and growth, and lay the basis of a more transformative medium-term
to long-term economic programme that should allow the people of Zimbabwe to have
decent incomes and ensure that all social services are once again functioning.

    The key priority areas of STERP include:
      (a) Political and Governance Issues, particularly legislative reforms intended at
             o Strengthening Governance and accountability,
             o Promoting Governance and rule of law, and
             o Promoting equality and fairness, including gender equality.
      (b) Social Protection
             o Food and Humanitarian Assistance
             o Education
             o Health
             o Strategically targeted vulnerable sectors.
      (c) Stabilisation
             o Implementation of a growth oriented recovery programme
             o Increasing capacity utilisation in all sectors of the economy
             o Ensure adequate availability of essential commodities such as food, fuel
                  and electricity
             o Rehabilitation of collapsed social, health and education sectors
             o Ensuring Adequate Water Supply

Through STERP the new government seeks to focus on macroeconomic policy and
supply-side measures aimed at achieving low inflation, arresting economic decline, and
improving social conditions. What is even more critical for the new Inclusive
Government is that in crafting STERP, consultations were made with various
stakeholders in particular labour and business. This was done in order to nurture the basis
of a people driven development agenda. Secondly, the stabilisation programme,
developed under STERP saw it as its anchor - the need to promote production and
increase capacity in key areas of the economy in particular agriculture, mining,
manufacturing and tourism. The programme is therefore expected to lay the foundation
for a broad-based and inclusive development in which the people of Zimbabwe should
have decent incomes and be able to have social security and decent work.1



1
 See, ILO Decent Work Agenda adopted at its 87th session in June 1999 Decent work
which entails productive work where rights are protected, generating adequate income,
with adequate social protection.
1.1.3 Resources Management

It is important to note that with the total collapse of the domestic currency, under the
guidance of the new Finance Minister, the Government accepted as inevitable that the Z$
had become moribund and therefore ceased to exist, until such time as production,
employment, savings and investment levels are restored to operational levels.

The recent Article IV IMF mission welcomed the official adoption of hard currencies for
transactions and this has strengthened the credibility of the government‟s commitment to
fiscal discipline and has already helped stop hyperinflation (IMF, 2009). However, this
also means that the government has had to forego the opportunity for deploying monetary
policy and exchange rate policy instruments. In this context, the IMF has insisted that
there be an improvement of the functioning of the new monetary framework, and an
urgent need to enable the payments system to process transactions in foreign currency
and adapt banking supervision to the risks of operating in foreign currencies.

In terms of the going forward, the Government of Zimbabwe is working to achieve the
strengthening of the country‟s investment climate, ensure protection of property rights,
and maintaining wages at competitive levels as the building blocks for increasing
domestic and foreign investment. Aside, from the normally expected state‟s function of
investing in infrastructure, the Government should urgently push through enabling
environment reforms, and maintain a constant dialogue with private sector entrepreneurs
aimed at identifying bottlenecks and overcoming them. To its credit, the government has
already taken the following steps in the right direction: price liberalization; the removal
of foreign currency surrender requirements and most exchange restrictions on current
account transactions; the imposition of hard budget constraints on parastatal enterprises
and; the elimination of the Grain Marketing Board monopoly.

1.2 An overview of aid inflows and Aid coordination

Aid flows, both multilateral and bilateral, have declined sharply since 2000 when the
World Bank imposed sanctions following accumulation of payment arrears. Since then
all loans and undisbursed commitments on loans and grants have been cancelled: the
World Bank put Zimbabwe on a non-accrual status since October 2000; the EU Country
Strategy programming process which had been agreed in July 2001 was suspended in
February 2002; the IMF closed its office in October 2004 and the bilateral donors
practically wound down their development assistance.

In recent years the World Bank and IMF limited their engagement in Zimbabwe to policy
advice and dialogue with the hope of improving relations and designing a mutually
agreeable arrears clearance plan to facilitate re-engagement. However, re-engagement
has not been realized largely because repayments by the Government of Zimbabwe have
consistently fallen short of agreed repayment schedules. As a result Zimbabwe has lost
its voting rights and eligibility to use the general resources of the IMF. As regards the
OECD bilateral donors, development assistance has generally been withdrawn although
they have continued giving humanitarian assistance in the form of food and essential
drugs. They have also been providing limited funds to support local community-based
recovery initiatives as well as support in the areas of governance, democracy and human
rights. By 2008 the humanitarian assistance had reached US$ 490 million (IMF, 2009).

Partly because of the deteriorated relations with OECD countries and partly due to the
lack of trust in the country‟s PFM systems, ODA has basically been channeled through
the UN agencies and NGOs.

The downturn of development assistance to Zimbabwe coincided with the global
initiatives to rethink aid delivery mechanisms with a view to improve aid effectiveness as
captured in the principles of the Paris Declaration of 2005. As Zimbabwe was not an
active participant in these processes, its institutional memory and aid delivery practices
are still based on older practices dominated by the project-based aid delivery modality. It
is expected that as Zimbabwe moves to improve aid relations with the donors one
challenge that will have to be addressed is to put into practice the principles of the Paris
Declaration, notably, ownership and leadership (involving designing clear development
priorities and designing own development programmes), alignment and harmonization,
management for results and mutual accountability with a view to enhancing transparency
and accountability in the delivery and utilization of aid. Apart from country ownership
and leadership, Zimbabwe is also expected to develop a country-led partnership with
donors; the partnership that would include country-led coordination mechanisms,
alignment of donor support to country development agenda and priorities, and
harmonization of donor practices and procedures. All these will require that Zimbabwe
develops institutional structures that are appropriate for improving aid effectiveness.
Public Finance Management Systems including procurement systems and developing the
capacity for aid coordination and management are central in this process.


1.3 The objective of consultancy

The Zimbabwean Government is facing Donor reluctance to channel resources directly to
the government as it is perceived that the existing Public Finance Management System
(PFMS) does not provide adequate safeguards to ensure resources will be used for the
intended purposes. The Government of Zimbabwe through the Minister of Finance
requested MEFMI as an organisation with the capacity to provide urgent technical
assistance (TA) to undertake a review of Government‟s Aid Management Systems and to
recommend appropriate improvements to strengthen accountability in the area in
question. Against this background, the objective of the assignment was to review the
status of the aid management systems in Zimbabwe with a view to recommending ways
of strengthening the aid management arrangements to ensure accountability in terms of
using resources for intended purposes.

The specific terms of reference indicated that because the Government of Zimbabwe is
facing reluctance by Donors to channel resources directly to the government because of
the perceived quality of country systems, the study was required to cover the following
areas:
a)     Analysis of the Government‟s existing aid management framework and
       systems, including its strengths and weaknesses.

b)     Review the system‟s responsiveness to user needs and safeguards built into the
       systems.

c)     Investigate the adequacy of the manpower running the system at
       both Ministry of Finance and implementing agencies in terms of numbers and
       skills.

d)     Review the draft Public Finance Management Bill and Audit Office Bill with
       respect to aid management;

e)     Present findings and recommendations on strengthening the aid management
       arrangements to provide the comfort that any resources availed are used for the
       intended purposes.


1.4 Methodology of the Study

The team of consultants started the assignment by visiting the Minister of Finance and his
team on 20th April 2009 in order to get a clear understanding of the main concerns of the
client and what needed to be addressed by this study. The consultants then proceeded to
undertake literature review which was complemented by extensive interviews and
dialogue with stakeholders. The main focus of the study was on the Ministry of Finance,
the Ministry of Economic Planning and Development; the Comptroller and Auditor
General, the State Procurement Board; the Reserve Bank of Zimbabwe and the major
donors. At the end of the field visit the team of consultants held a debriefing session with
the key stakeholders on the client side on 24th April 2009 in which a presentation was
made and fruitful discussions ensued. The points and suggestions made at the debriefing
session and comments made by various professional staff at MEFMI were taken into
account in producing this report.


1.5 The scope of the report
The study has set out to examine two components of the PFMS: the existing country
systems of public finance management and the user side of these systems. Under the
first component, the study examines the quality of country systems of public finance
management with a view to having a good understanding of the extent to which they
provide adequate safeguards to give comfort to the users of the systems, which include:.
Budget management, Accounting systems; Internal controls, External audit and
accountability, Supervision by Parliament (political oversight) and Government
procurement systems. The kind of comfort that is sought here is that resources channeled
through those systems will be used prudently for the intended purposes.
Under the second component, the study examines the user side essentially to establish the
level of confidence, understanding and expectations of the users in terms of     the
quality and reliability of country systems of public finance management including:
Budget management; Accounting systems; Internal controls; External audit and
accountability; Oversight by Parliament and Government procurement systems.

The report is structured as follows: Chapter 1 presents the background to the study
covering the socioeconomic situation and the overview of the aid flows and aid
coordination. The objective and methodology of the study are also presented in this
chapter. Chapter 2 examines the existing country finance management framework and
systems covering budget management, aid management and coordination, accounting
systems and financial controls, external audit and accountability, political oversight,
government procurement systems and overview of the public finance management
system. Chapter 3 presents cross cutting issues relating to capacity constraints in respect
of human resources as well as facilities and covers issues of monitoring and evaluation as
well as coordination among services and decentralization. Chapter 4 examines the
attitude and response mechanisms of the users of the country systems notably the donors
and domestic users too. Chapter 5 identifies the key findings and challenges of the study.
These have formed the basis of the recommendations that are presented in chapter 6.
2. THE EXISTING COUNTRY FINANCIAL MANAGEMENT FRAMEWORK AND
SYSTEMS


2.1 Budget management

2.1.1 Introduction
One aspect of Assessment of PFMS is a review of the status of budget management, the
constraints and improvements required to make it effective and contribute to efficient and
effective performance of PFMS. The budget is an important economic tool that the
government uses to implement its policies. The national budget is therefore a tool used by
the government to set levels of revenue collection and allocation of resources to various
sectors to meet its objectives. It directly affects Zimbabwe as a nation and its people
directly as individuals and as members of civil society organizations. It is for this reason
that Budget management becomes an important aspect of PFMS and has to be not only
understood but also to ensure it is effectively done to ensure better planning and use of
scarce resources in order to maximize the well-being of Zimbabweans. The following
section makes a review of important aspects of budget management such as budget
preparation process and the roles of institutions involved and considering issues such
budget transparency,


2.1.2 Budget Preparation and Approval process

The budgeting process in Zimbabwe is governed by county‟s constitution and various
parliamentary acts, namely; the Audit and Exchequer Act (revised in 1996), the
Appropriation and the Finance Act and the State loans and Guarantees Act. The Ministry
of Finance is responsible for formulating the budget while the Ministry of Economic
Planning and Investment Promotion is responsible for the macroeconomic framework
within which the budget is prepared. Zimbabwe used to have a budget process that started
in July and ended in June. However, the financial year was changed in 1999 so the
budgeting period follows the calendar year (January to December).

The consultants observed that the existence of budget law and the aforementioned
regulatory rules that form the framework for budget preparation in Zimbabwe represent
good practice. However, there is some concern that the legislative and regulatory
frameworks are weak, the Audit and Exchequer Act and supporting rules are outdated
and tabling of the revised Audit Bill and the Public Finance Management Bill to
Parliament have been delayed for quite some time now. It is also noted that the regulatory
framework for budgets has not been honoured during budget preparation and execution.
There is concern that Zimbabwe does not have an Organic Budget Law (OBL) that is not
only useful in facilitating budgeting process but also in clearly defining the roles of
institutions in the budgeting process, budget execution, monitoring and control. As
regards the process of developing OBL, Zimbabwe can draw lessons from the experience
from countries in the region.
The budget preparation /formulation process and role of institutions and civil societies is
characterized by the dominance of the executive and little input from the parliament and
the public for the period between 1980 and 2000 when economic crisis became apparent
in Zimbabwe. The members of Parliament and Public remained sidelined and at the
periphery of the budget preparation process. However, the economic crisis between 1990
and 2000 drew public outcry and parliament responded to it by starting parliamentary
reforms that changed the parliamentary process in the country. The reforms involved the
establishment of sector-based budget committees as technical organs of parliamentary
work (oversight, representation, budget and legislating, etc.). The budget meetings do
provide an opportunity for committees and stakeholders to indicate what they consider as
priority areas for inclusion in the budget by ministries before budgets are submitted to the
Ministry of Finance. Zimbabwe budget analysis also involves budget committees formed
from economic ministries and are chaired by the Minister of Finance. The budget
committees assist in reviewing the macro framework and in analysing the budget
estimates to ensure that the budget is in line with the guidelines in the budget circular.
The effectiveness of the committees, however, has been low and limited as the time
available for analysis is inadequate. In addition, there is some concern that their
recommendations have not been sufficiently accommodated at the time of finalizing the
budget. The absence of the macroeconomic framework and the eroded capacities of most
ministries have contributed to weakening the linkage of budget to national and sectoral
policies.

The local government; rural district councils and urban local authorities prepare their own
budgets and the budget process is very similar to that at the national level. They can
charge levies, taxes, user charges, etc and these could make up for more than 80% of
their revenue. The local authorities also receive some grants from central government, for
example to assist in the payment of salaries and allowances for councilors and staff.



2.1.3 Observations on the Budget preparation and Approval process

The foregoing assessment of budget preparation and approval process assumes that all is
well with the capacity of the ministries and parliament to manage the budget preparation
and approval process. There is no doubt that Zimbabwe‟s budget process is elaborate and
the role of institutions is defined in its constitution and elaborated in various Acts. The
process is also participatory in nature. However, the persisting socio-economic crisis and
polarized political situation in the country have constrained the budget preparation
process and prevented the budget from reflecting not only the National/Government
priorities but also the priorities of the people of Zimbabwe. This situation prevailed
especially in the period 1997-2008 when Zimbabwe experienced unexceptional
deepening socio-economic crises. The analysis covers observations in six areas as
follows:
a)     The quasi-fiscal and off budgetary activities.

 Given the shortage of foreign currency and the need to implement priority programmes
of the Government, by the end of 2003 a decision was made to undertake quasi-fiscal
activities on the part of the Reserve Bank of Zimbabwe (RBZ).
Quasi fiscal activities of RBZ have a number of implications for the Government. The
activities included the intermediation of financial resources to finance favoured sectors or
activities and the administration of preferential exchange rates. For example, the RBZ
buys the foreign exchange and gives it to the parastatals, especially to import fuel, grain
and electricity on behalf of the Government. These subsidies in the form of free foreign
exchange to the parastatal sector are a direct loss for the RBZ. The situation has been
made worse by the recent quasi- fiscal activities of the RBZ in respect to financing
agricultural inputs and unplanned borrowing, etc. Those activities lead to
incomprehensive and unrepresentative budget. The budgets presented to and legislated
by parliament were not realistic and did not necessarily respond to peoples‟ priorities.

The quasi- fiscal activities of RBZ compromised the roles of institutions in the budget
process as the roles of Ministry of Finance and Parliament were usurped by RBZ. The
budgets approved by Parliament rarely tallied with the revenues and actual expenditures
due to quasi-fiscal activities but more damagingly, the latter had the effect of rapidly
escalating hyperinflation in the country. Those quasi-fiscal activities have made budget
management and balancing revenue generation with expenditure impossible leading to
ever rising budget deficits and eventual total collapse of the Zimbabwe dollar, the
consequence of which was a recent replacement of the Z$ with a multiple of other
currencies such as the US dollar and the South Africa Rand.



b)     Inadequate human and institutional capacity
The capacity problem cuts across all institutions including ministries and parliament has
emanated from persistent lack of adequate domestic and external resources. Zimbabwe
has had an unprecedented brain–drain to other countries, both in terms of numbers and
quality of human resources. The staff remaining is too few to adequately carry the
responsibilities expected from them. The brain drain has also robed the country of some
of the best skilled personnel. The lack of resources has also made most institutions lad
behind in replenishing equipment, faculties and rehabilitating infrastructure and public
utilities. The challenge, therefore, facing the budget process is that of ensuring once
again adequate availability of skilled staff that is able to formulate the budget and to
effectively participate in the budget consultations in various committees. The problem,
however, has to be solved nationally and in this respect there is need for an audit of staff
across institutions with a view to formulating a strategy for addressing the challenge. In
formulating such a strategy, the government should take account of manpower that is not
fully utilized in the country, options of training and consider options of attracting back
skilled Zimbabweans who left the country.


c)     Inadequate domestic and foreign resources.


The shrinking economy has also led to a decline in revenue collection, although
Zimbabwe is still a high –tax state collecting about 22.7% of GDP compared to 12.9%
for low income countries. This situation limits space for raising taxes and calls for
widening of the tax base and improving tax administration
The incongruence of economic policies between donors and Zimbabwe during the
economic crisis has led to a near decimation of both the multilateral and bilateral aid.
The budget for development through the government investment fund has virtually
ceased. The donors that remain supportive have channeled aid outside government
systems, i.e., either through UN agencies or Non- governmental organizations.
Multilateral and bilateral aid through the budget has virtually stopped but should resume
once donors re-gain confidence in the transparency of budget system.


d)     Hyperinflation situation
Arising from the fiscal deficit, there has been a large annual increase in broad money
(M3), especially after 2000. The growth of broad money rose sharply in 2003 and 2004
owing to a marked expansion in domestic (bank) credit. In 2005 and 2006 broad money
supply grew even more rapidly due to the combined effects of expansion in credit and
quasi-fiscal operations leading to hyperinflation and later total collapse of the Z$ and
legislation of multiple currencies.     The challenge now is to quickly revamp the
economy‟s productive capacity to improve the supply of goods and services.

e) Lack of Macro Economic Framework for budget and Medium Term
   Expenditure Framework

The recent budgets, including one for 2008, lacked a comprehensive macroeconomic
analysis. The UNDP however is in the process of assisting the Ministry of Economic
Planning and Investment to develop it. Nevertheless, the development of the
macroeconomic framework should also involve the Ministry of Finance and the Reserve
Bank in order to enhance ownership of the process.

Zimbabwe has yet to adopt the Medium Term Expenditure Framework (MTEF) in its
budgeting process. The budgeting framework still revolves around annual budgeting and
is unable to predict resource availability and prioritize expenditures in the medium term.
    .
(f) Budget Transparency

Budget transparency is important to ensure the promotion of sound financial management
and accountability and check corruption. Budget/fiscal transparency is beneficial
because it promotes accountability in the use of revenues collected, improves the
government‟s relationship with its people and increases chances for the government to
regain the confidence of development partners, as well as getting credibility from
investors.

The parliamentary reforms that were approved during the economic crisis, as they stand
would theoretically ensure budget transparency. However, in practice, this has not
happened. It has been observed that the budgets have not been comprehensive due to off
budget activities; it has not been quite responsive to national and peoples‟ development
aspirations. The accuracy of budgets has also been compromised by the absence of
macroeconomic framework forecasts as well as sound national and sectoral policies. The
latter has been aggravated by inadequate data and capacity to prepare and analyze
budgets. While the parliamentary reforms had improved participation, budget
transparency has been limited by the deep economic crises, limited capacity, inadequate
budget debates and late auditing and submission of the audit reports. The audited
accounts for 2006 are yet to be submitted to Parliament, while those for 2007 and 2008
are yet to be audited. This limits the effectiveness of parliament in performing its
oversight role. It also undermines the ability of the executive to address any weaknesses
identified in audit reports in a timely manner.



2.1.4 Budget Accounting

Budget accounting is important in budget finance management system. Strong legal
framework and enforcement mechanisms are indispensable for budget accounting while
successful fiscal transparency principles need explicit constitutional, legal and regulatory
backing. Zimbabwe has been developing a legal framework to guide budget accounting.
The existing Audit and Exchequer Act, revised edition, 1996 is to be replaced by a
stronger Audit bill that clearly spells out the role of Comptroller and Auditor General
(CAG); the bill also defines clearly the penalties. However, budget accounting has
negatively been affected by inadequate human resources and capacity, due to brain drain
and late submission of reports from institutions. Budget accounting has also been
weakened by lack of accounting software – the current Management Financial System
has not been enabled and nor has any alternative been sought. The Auditor General and
the Public Accounts Committee are in most cases independent. In practice, the committee
is protected from political interference and when necessary, this committee initiates
independent investigations into financial irregularities. However, there has never been
anyone prosecuted on account of bad reports or investigations of the CAG or Portfolio
Committees.


2.1.5 Budget monitoring and reporting

Budget monitoring is done by ministries, the CAG and through Parliamentary oversight
committees. Ministries follow up budget execution and its accountants do record
financial transactions using the PFMS software and make reports accordingly to the
treasury. However, due to capacity problems the reports have not always been submitted
on time.

The Draft PFMS Bill chapter IV on financial statements lays a firm ground for financial
statements preparation and reporting while the Draft Audit Bill Part III on report by the
CAG gives the type of reports an accountant has to produce and for whom. The CAG
generally prepares audit reports and is supposed to submit reports to the Parliament.
However, as shown above, the audit reports have not been submitted for the last three
years.

Parliament also has a function of budget monitoring through executive oversight- the
executive oversight is done on behalf of the public to ensure that the executive is held
accountable for its governance activities. The parliamentary oversight is done through
portfolio committees. The oversight entails the ministries to submit quarterly budgetary
performance reports to the committees. The reports outline and compare the budget usage
during the quarter period against the set objectives and targets. The portfolio committees
do engage the stakeholders to discuss the reports. The budget monitoring reports get
tabled in the plenary of parliament and the ministers concerned are called upon to
respond and inform the house on the actions to be taken.


2.2 Aid Management and Coordination

2.2.1The status of foreign investment and aid

Zimbabwe received very little new investments between 1980 and 1991 despite steps
taken to liberalize trade and attract foreign investment. The reason was the unattractive
business environment. The situation changed in 1991 when Zimbabwe launched an
Economic Structural Adjustment Program (ESAP) with assistance of the International
Monetary Fund (IMF). However, the economic crisis that deepened after 2000 saw
declining aid from both multilateral and bilateral donors. The failure to carry out public
sector reforms and the inability to undertake fiscal reforms and coupled with indiscipline
in financial and monetary policies both during Economic Structural Adjustment
Programme (ESAP) period 1991-1996 and Zimbabwe Programme for Economic and
Social Transformation (ZIMREST) for the period 1996-2000 made donors, particularly
the ODA countries to stop aid inflows. Financial assistance that has continued has been
delivered off budget, mainly through UN agencies and Non-Governmental Organizations
(NGOs).

There are difficulties in getting recent data on foreign investment and external assistance and the
latest year of available data is 2005. However, this is not surprising as there is little ODA
assistance after 2005 and that was made available by OECD, directly to beneficiaries through UN
agencies or NGOs.
For a number of developing economies, foreign aid is an important source of foreign
exchange. Zimbabwe‟s economy has been characterised by a combination of hyper-
inflation, driven in part by the acute shortage of foreign exchange and an unfavourable
exchange rate, affecting all sectors of the economy. Real GDP growth has remained
negative over the last nine years or so mainly as a result of low capacity utilization of
productive sectors due to the acute shortage of foreign currency, consequent high cost of
production, and persistent droughts.

Foreign currency shortages are also causing a huge threat to the survival of producers
who rely on imported inputs. In addition, due to drought and inadequate and timely
availability of agricultural inputs (especially seed and fertilizer), the agricultural sector
has not been able to produce adequate food to meet the food security need of the country;
this has increased the pressure for foreign currency to import food and other necessities
for the country.

As Zimbabwe braces itself to re-engage with the international community it will need to
address the overarching concerns over economic and governance reform. A Multi-Donor
Trust Fund (MDTF) has already been established to undertake analytical work and
surveys to enable the government and donors to respond quickly to changes in conditions
for reengagement.


2.2.2 The debt problem


The actual status of debt in Zimbabwe is not known for sure due to the poor quality of
data. All that can be said for sure is that the debt burden has deteriorated. World Bank‟s
Statistical Capacity Indicator for Zimbabwe had declined by 15 points between 2005 and
2006 and scores 55% due to inability to update national accounts, failure to collect data
timely, and the extreme volatility of exchange rate. The World Bank estimates that
public and publicly guaranteed debt fluctuated around US$ 3 billion between 1995 and
2005.

The International Monetary Fund (IMF) in its consultation report on Zimbabwe puts the
country‟s debt stock at US$ 5.1 billion in 2008 (IMF, 2009). The rise of debt is mostly
due to accumulated arrears than new debt. The US$ 5.1 billion is made up of multilateral
creditors (US$2 billion) and arrears (US$ 2.7 billion) making 38% of GDP. It is
estimated that the stock of outstanding debt would amount to US$ 7 billion by 2011.2 It is
clear that the debt cannot be sustainable unless the government adopts better fiscal and
monetary policies and complementally prepares to get debt relief from multilateral and
bilateral creditors.



2
    ComprehensiveEconomic Recovery in Zimbabwe;: A Discussion Document , UNDP 2008
Debt management capacity will need to be stepped up along with improvement of debt
data. At present external debt and debt service data are not reconciled with the creditors‟
data and remain incomplete. DSA projections and simulations can at best be considered
as highly indicative. According to the IMF, even under relatively optimistic assumptions
on policies and the external environment, most debt ratios are projected to remain at
unsustainable levels over the medium and long term (IMF, 2009). Local currency
denominated domestic debt was fully repaid in late January 2009. The RBZ‟s foreign
currency-denominated domestic debt is estimated at US$457 million (13 percent of GDP)
at end-December 2008. The initial external public debt overhang and large budget
financing requirements would prevent public external debt ratios from reaching
sustainable levels in the medium and even long term. Public debt is projected to gradually
decline from a peak of over 200 percent of GDP in 2010 to about 150 percent a decade
later. The PV of the public debt-to-revenue ratio remains above 400 percent through
2018; and the debt service-to revenue ratio only falls below 20 percent in 2014 (IMF,
2009).




2.2.3 Aid management and coordination

The Ministry of Finance is responsible for aid management and coordination. The entry
point for aid inflows has been the National Development Fund (NDF) while the
Department of Domestic and International Finance (DIF) under the Ministry of Finance
has been responsible for sourcing funds from donors. The NDF is a fund established in
1981 by the Audit and Exchequer Act (section30, chapter 22:03) to account for the aid
and loans received from development partners. The NDF had to be established because
some donors did not want the resources they gave as assistance to mix with government
money. The NDF is earmarked for funding development programmes and projects. The
DIF and NDF have worked together during negotiations. The NDF is currently not fully
operational, as donor assistance is not passing through the Ministry of Finance but off
budget and through UN agencies and NGOs to the beneficiaries. The little funds passing
through it to beneficiaries is UNICEF funds. The Vote of Credit (VOC) was temporarily
abolished in 2006 with the ceasing of most foreign assistance. The latter means that there
are no funds transferred to the Exchequer and thus making underutilization of NDF.

The DIF department has an Aid Coordination Unit with the responsibility of coordinating
donors. This unit, however, currently reports to the President‟s Office. The funds passing
off budget are coordinated by UNDP and EU who communicate with ministries directly.
In 2007 the UNDP, UNICEF and UNFPA have developed country programmes for
Zimbabwe but they still operate outside the Treasury framework. Although ministry of
finance has aid procedures manual to assist ministries coordinate the foreign inflows and
to report on them, it does not have an aid policy document to galvanize and strengthen
aid management and coordination. Therefore, aid management and coordination is
fragmented and it is donor-driven with little, if any, ownership by Zimbabwe.
It is noted that Zimbabwe has not yet signed the Paris Declaration Principles. This means
that it is not a party to the new principles, structures and process of international aid
delivery and coordination mechanism. The latter also implies that Zimbabwe still
operates within old aid practices mostly based on project approach and donor driven with
little ownership of the government of Zimbabwe. Zimbabwe requires foreign aid to come
out of the economic crisis and will have to operate within the Paris Declaration
framework. In this case, the country needs to prepare and take initiative to define its own
priorities, design its own medium term development programme in the framework of
Economic Development and Poverty Reduction Strategy. It will also have to strengthen
its capacity to coordinate and manage foreign aid to achieve its socio-development
objectives.

Treasury Circulars Number 1 and 5 of 1998 regulate the accounting for aid and
Accounting Officers Instructions framed in terms of Treasury Instruction 0706 give the
NDF and DIF guidance on aid accounting. The NDF keeps accounting for aid in a ledger
form/ card and cash cards for each project. The DIF has an aid coordination unit, which,
besides the coordination of donors, keeps data on aid inflows. Aid accounting in both
cases has been manual and they are not integrated in the PFMS in place at the Treasury.
Most data on projects is not also presently captured and reported by ministries and
projects due lost memory as projects closed but also due to existing projects operating off
budget and the situation is aggravated by inadequate capacity across all institutions in
Zimbabwe.


2.3 Accounting systems and financial controls

A General Review of Status

Efficient management of aid resources can take place if both domestic and external
resources are well managed. The reason is that both types of resources should be handled
through the same accounting systems, as far as the government of Zimbabwe is
concerned.

Therefore an analysis of the Accounting System implies review of all public financial
resources flow and outflow into/from the government system and embraces such
issues as staff and equipment, by which the government produces its accounting
information. It should consider the methods and procedures of tracking the flows using
acceptable standards of accounting and reporting operations. In this context, the standards
should meet regulatory requirements that specify how the accounting system should be
maintained (internal control mechanisms) in order that it can generate information in a
precise and timely manner. At the end of a certain period and from time to time, the
system should be tested, assessed or audited to ascertain that it is working effectively.
The purpose of the Consultants‟ assignment was to analyse the strengths and weaknesses
of this system. During and after the study visit in Zimbabwe, we noted the following
accounting system features:

      (i)      An instruction letter from the Chief Secretary to all ministries emphasizing
               that all aid donations should promptly be reported to the Ministry of Finance
               so that they can be accounted for in the NDF. This was a welcome move given
               uncoordinated commitments made in the past by sector ministries regarding
               this matter.
      (ii)     The pivotal role played by existence of an extensive IFMS system, anchored
               on a centralised Base Data Processing Unit, housed in the new ministry of
               Information and Communication Technology (ICT); with its backup in the
               MOF. This system allows in theory centralised programming and supporting
               services systems based on a wide area network (WAN) scale. But it does not
               operate the way it was envisaged.
      (iii)    Finance management and reporting problems: As reported by the CAG
               (e.g. in the Report ending December 2006) of 6th May 2008, the main
               problems the CAG has encountered in their duties have been failure or late
               submission of financial reports by MDAs to his office, consistent MDA
               overspending against budget. This situation has caused late submission of the
               CAG Report to the Parliamentary Public Accounts Committee (PAC). In that
               Report the CAG said he was forced to publish the “Report without the audited
               Summary of the Transactions on the Consolidated Revenue Fund” 3. Some
               MDAs had not submitted to the CAG accounts statements for more than 4
               years. As noted elsewhere, the RBZ was not a subject of auditing by the
               CAG. Among other things, he also underlined poor control of payroll (and this
               was echoed by one of the donors we met).
      (iv)     The National Development Fund (NDF): We noted that the NDF instrument
               to handle all external assistance is in place. But it is largely dormant.
      (v)      MDTF: Government responsibility to account for the use of such funds is
               quite minimal, and the 1st progress Report of the ZMDTF for the period July-
               December 2008 (dated February 2009) points to marginal donor contacts with
               government in the accounting process related to this fund.

The National Development Fund (NDF)

The NDF was established in 1981 under the umbrella of the Audit and Exchequer Act, so
as to receive and account for aid and loan resources. It helped to separate donor
assistance funds from those of GOZ. The responsibility for negotiating foreign ODA lies
in the Department of Domestic and International Finance (DIF) of the Ministry of
Finance; but the NDF and DIF staff work closely during the negotiations and to a certain
extent thereafter.

Three methods of donor finance have been in operation, namely: (a) advance method of
payment, (b) direct payment and (c) reimbursement. In the advance method, a donor
3
    Report of the Comptroller and Auditor-General for the Financial Year Ending December 31 2006
disburses funds into an NDF account at the RBZ or to an account in a commercial bank
as indicated by a beneficiary government agency. There was use of Vote of Credit (VOC)
to allow an implementing ministry to spend government funds upfront prior to the
spending agency factually receiving the NDF money. The VOC was abolished in 2006
due to inadequate domestic funds being budgeted to support the (VOC) credit system. In
any case, only a trickle of foreign funds is passing through the NDF at the moment (e.g.
UNICEF).

Other donors such as EU and UNDP currently provide support funds to government by
depositing them directly into accounts opened for specific projects or programmes.
Though not all do, the managers of programmes report incurred expense to be posted on
the NDF account. The missing link is for MOF to make continuous monitoring of the
reported information (and if not reported, to request for it) and to compile aggregate
information on all projects (donor and government funded) so as to obtain a fuller
financial picture on the progress of implementation of all programmes and projects in the
country. Shortage of staff prevents undertaking such a gigantic step.

When the direct method of payment is used by donors (so called D-funds), the funds are
paid to an agent bank designated by the funds beneficiary government department and the
donor. Sometimes such arrangements have involved commodity import support (CIS)
programmes. Where the CIS arrangements stipulate that the counterpart funds generated
from CIS be transferred to the exchequer to support the budget, the beneficiary (usually a
private sector operator) pays directly to the Treasury designated bank account. At the
moment, donors are not providing assistance under this method (of CIS). As for the
reimbursement method, it is now no longer applicable.

The Treasury from time to time issues Circulars to accounting officers in MDAs on how
to handle grants and loans in terms of recording and reporting, transfers of funds to the
exchequer and reimbursements. Operational Manuals are also issued and used. Due to
the drying up of donor funds passing through the NDF, the donors have resorted to
issuing their own funds processing guidelines, as evidenced in the use of the Zimbabwe
Multi-Donor Trust Fund (MDTF). The accounting system in the NDF is currently
manual.

Accounting and Working Tool

Due to the volume of paper work and records, the system is overwhelmed and prone to
making errors, let alone forcing delays in making payments and accounting statements
(alluded to frequently by CAG). Nonetheless, the PFMS system which is operationally
coordinated under to the Accountant General has been readying to operate on the IFMIS
to computerize all accounting operations. For lack of a local area network (LAN) to
easily interface with other services in the Ministry, like the departments of Budget,
Finance and Taxation, Directorate of Domestic and International Finance and others,
computerized operations have remained compartmentalized in the different departments
and have thus not yielded the advantages that an integrated system would have achieved 4.
This is not to talk of wider networking to link computers with other accounting areas of
the government, such as in sector ministries, RBZ (on debt management for instance) or
downward towards the LGAs. During the Consultants‟ winding up meeting with
government officials, it was reported that the mainframe (main brain) of the IFMS
procured with a modern accounting package software, is fiber-optic and is one of the best
in the region. It is aimed to install modern integrated operations of accounting, revenue
and expenditure management systems within government ministries for the whole of
government. However at the present moment, the system is facing a host of problems
particularly related to:

         Inadequate peripheral connections for interface between MOF with other MDA
         facilities for networking and reporting as well as exchanging information.
         In fact for the time being, districts are left out since the system has been extended
         only to the level of the provinces.
         The capacity of the peripheral users is also deficient for lack of sufficient work
         stations (to the extent of several staff sharing one computer e.g. in CAG‟s office;
         On top of the above challenges, the system has encountered acute scarcity of staff
         (problem of recruitment and retention) as well as rare training opportunities
         extended to staff that would have been a sort of incentive;
         Lack of updating of the sub-system modules that are necessary for modernizing
         ITC connectivity. Updating can be constrained for lack of adequate funds needed
         to purchase software (in foreign currency). CAG incidentally informed that their
         module was knocked down in 2008.

Internal Controls

The structure of the MOF contains a distinct internal audit department reporting to the
Secretary of the MOF. This visibility is something to be applauded, as in other countries
unsatisfactory reporting hierarchy has been hindering effective performance of internal
auditing units. It is important to observe that the proposed Public Finance Management
Bill (2006) has a distinct Chapter that lays down strong measures aimed at establishing
vigilant Audit Committees in MDAs. Yet, during consultation meetings in the ministries,
concerns were repeatedly expressed regarding staffing in the accounting and internal
audit units, especially about the shortage of staff, their poor grading and little opportunity
being provided for training.

The duties of the internal auditor include helping ACGEN, among others, in the design
and operation of the accounting system and related internal controls pertaining to:

                  Monitoring financial operations and procedures of the respective ministry;



4
  The system was stalled recently because of the Z$ currency turbulence that resulted in many zeroes and
the Z$ eventually was largely abandoned in favour of the US dollar, though the system itself is still handy
in isolated instances like in handling the cash budget operation
              Undertaking prepayment checks to ensure that expenditure is allowed by
              parliament, etc, and there is appropriate backing documentation, and the
              cost is appropriate;
              Financial and operating management information and the methods of
              producing and reporting it;
              Compliance with laws, regulations, policies and procedures to safeguard
              government money and property;
              To prevent operations involving fraud and to investigate such operations;
              Undertaking pre-audit checks.

Nonetheless, during the consultation meetings concerns were raised regarding the
performance of the internal controls along the above idyllic situation, as flaws have been
exposed repeatedly by the CAG in his annual reports.

„

2.4 External Audit and Accountability



Accountability may be viewed from two opposite but related sides, namely: (i)
supply side which centres on installing appropriate regulatory frameworks, making
it easy to access information, enabling effective management of finances, providing
expected public services and opportunities for stakeholder participation; and (ii)
demand side that focuses on the capacity to use and to insist on getting
information as well as possibility for participation. Another general aspect is the
division of responsibilities (and their synergic roles) between the executive, the
legislature and the judiciary in carrying out their accountability functions; and
lastly pattern of accountability relationships established between various layers of
government at national and local levels

It is commonly agreed that one needs to try to balance optimally the mix among
different aspects of accountability in PFM operations. For instance, without strong
demand for information (reports) from the public or the legislature on performance
reports or implementation of CAG‟s recommendations , the capacity of the PFM
system to improve efficiency will remain weak. Vice-versa, a well performing PFMS
will enhance the interest of stakeholders to use the system (e.g. donors) or the
information (e.g. reports) that the system produces.

The balancing approach can be manifested in many forms. For instance it can be in
drawing up laws related to power application between the President and the parliament in
the appointment of the CAG. It can also be in dealing with under- achievers and
offenders and in civil servants‟ performance, so that those who violate financial
regulations are brought before the judicial process to answer.
Accountability in operation of the PFMS can also be gauged from the point of view of
corruption, in connection with any decision or practice which is not evidence based or
transparently made, and hence covers issues like favouritism, or obscure procurement
practices, as well as the straightforward offering or receiving of cash in return for certain
favours. While the consultants‟ mission was in Harare, there were lively debates and
press information on RBZ handling of cars and other financial matters. It is not in the
consultants‟ TOR to assess these allegations but such information calls for strong
response from the Anti-Corruption Commission of Zimbabwe (ACCZ) to act to clarify
the matter so as to instill confidence in potential aid donors. Indeed generally speaking,
the Commission would have to work closely with CAG whenever the latter finds
questionable activities in its audit exercises.

Another important issue of transparency in the PFMS is to provide timely access to
relevant and comprehensive financial information that is in readily understood format,
so long as it is a necessary pre-requisite to useful participation and hence in enhancing
accountability.

The current study did not aim at going into wide issues or comprehensive analysis
of accountability, but we can make quick observations regarding the PFMS in the
following aspects:

       government financial accountability in respect of existence of appropriate
       processes of accountability, instruments and their effectiveness ; and
       governance matters like evaluation, and transparency responsiveness and
       integrity;

The instruments for accountability and the aspects of governance in Zimbabwe related to
the PFM system comprise: (i) relatively inclusive budget process and institutions of
budget approval and budget management; (ii) Medium Term Expenditure Framework
(MTEF) and its twin sister, the Public Expenditure Reviews (PERs); (iii) Performance
budgeting (iv) Internal and external audit ; (v) Debt management (vi) promotion of
Accountability and fighting corruption; (vii) Procurement regulation (viii) Financial
management information systems. We were assured during various consultation meetings
that the above range of accountability instruments exist. But they are rated differently in
terms of effectiveness. In terms of the core objective of our assignment, items (iv) the
Internal and external Audit, (v) Debt management (vi) promotion of Accountability and
fighting corruption; (vii) Procurement regulation and (viii) Financial management
information systems, were our immediate concerns. They have been assessed in
relatively more detail in different sections of this document, with a generalized
conclusion that they present considerable challenges and thus need enhanced attention.
The exception is that it was not possible to get a satisfactory situation regarding debt
management in discussions with RBZ, but it was tempting to conclude roughly that this
could be an area that requires urgent action in order to restart genuine negotiations for
strong donor support of STERP and other subsequent aid programmes.
The Draft Audit Bill

In examining the Audit Bill we have noted the following:
    (a) This Bill is a latest updated version of the Audit and Exchequer Act of the
        Revised Edition5; There has been a series of revisions of the Draft Bill (9 in all
        since 1999);
    (b) In the New Bill, there is a proposal to establish an Audit Commission to deal in
        detail with staff matters of the office of the Comptroller and Auditor General
        (CAG), which in the old Act were handled under the sole authority of CAG in
        general compliance with Public Service Commission regulations.
    (c) Currently the Audit Bill has shed off the Exchequer components that were
        combined in the 1999 Act.

Accordingly we make the following remarks:

Autonomy in performance and security of tenure of CAG: The Current Bill (as
proposed) stipulates that the CAG shall be appointed by the President, but then adds that
this happens after the latter has consulted the Public Service Commission. This is
probably in reference to identifying the right person. But much more pertinent for
promoting greater autonomy and security of tenure for the CAG, it would seem to be
more appropriate that the selection and nomination of the CAG by the President were
subjected to confirmation by the Parliament. This would be compatible with a subsequent
clause in the Bill Part II 4 (i) that requires that CAG‟s removal be affirmed through vote
of Parliament. See also Part II 6 (1) (a) in reference to Parliament.

We cross-checked the experiences of other countries on this matter in an attempt to adopt
a best practice. There was no unanimous trend but the appealing approach would be to
have some role of Parliament in the selection process as done in Nigeria, South Africa,
Denmark UK, Namibia, Uganda, Zambia and to some extent Malawi. The Tanzania
example is not attractive as the procedure there rests the power in the President only.

Staff of the Audit Office: The general responsibility of upgrading and training the cadre
of accountants and auditors would seem to fall under the ambit of the Ministry of Finance
(MOF), and thus MOF would have close knowledge (possibly better than the Public
Service Commission) of such suitable persons to select to employ. Once in the National
Audit Office (AO) employment, promotion of staff would be initiated by the CAG with
prior consultation for approval or objection by the Audit Commission. The installation of
the Audit Commission is a nouvelle provision. It is okay if it does not add on excessive
administrative expenses for a matter that could have been handled adequately by the
Public Service Commission. After all, the Audit Office does not have a large number of
staff to merit a separate Audit Commission compared to teachers or the police (but this
matter is not a critical issue for the PFMS). In other countries, a sub-Committee of the
PAC has been assigned the responsibilities indicated for the Audit Commission.
However, it could also be argued that the idea is to


5
    Both the 1999 and the latest version of the 2006 Draft Bill were given to the consultants
Further enhance the autonomy of the Audit Office so it is not encumbered by the
bureaucracy of the Public Service Commission which in most countries has to deal with
the very large complement of civil service employees. But such an argument has to be
weighed against the benefits of attaining consistency across the public service that is
often facilitated by the Public Service Commission.

Role of MOF: In one clause (Part III 30 – (1) ) there is a paragraph that seems to permit
the Minister (MOF) to give general policy direction to the Audit Commission. This
could probably be clarified that such direction should be emanating from a Finance Bill
or any Act of Parliament that does not contradict the Audit Act, and should be in an area
where the MOF is specifically authorized to carry out a legal responsibility of the
relevant Act. Otherwise, it may introduce haziness in the autonomy of CAG that has been
alluded to above.

Public Entity and Revenues: The proposed Bill clarifies that CAG audits any public
entity or designated corporate body. This is more precise than in the Revised 1996
Edition of the Audit and Exchequer Act. During the consultations under the current
study, some respondents stated for instance that in the past CAG was not auditing the
Reserve Bank of Zimbabwe and we were informed that RBZ was not audited externally as
is usually done for Central Banks. But the restriction as to what CAG may not question
and what is regarded as public money has not been removed (Refer to Article.6). This
Article should have been more transparent to spell out what are referred to as an MDA‟s
“own resources” that may be construed as non-public resources (or money: Art.6 (2).

MDA policies: The article carries another reference to the effect that CAG in auditing
public accounts should not question the policies of such MDAs. It would have been more
understandable that he/she may indeed question such policies and bring them to the
attention of appropriate authorities in case they lead to improper expenditures in terms of
value for money or wasteful expenditure.

Special audits: Article 11 seems to imply that in carrying out special audit CAG would
be solely doing it for the purpose of informing the Parliament. Whereas this would be the
normal end route, there could be occasions when an impromptu or special audit is done,
firstly for the purpose of safeguarding a national patrimony and promoting accountability
during an-ongoing process (e.g. intervening during process of aid/loan negotiations or
programme execution as a preventive measure rather than an after-action inspection
when a resultant damage might already be irreparable). Such intervention if it forestalls
maladministration and is not a big event may not necessarily need to be reported formally
to Parliament, but it could be of good operational use for an accounting officer.

Access to MDA books, records, property, etc6: This should be at any time (as
indicated in the Tanzania Supplementary Audit Act of 2008) but it is not specified.




6
    And computers and any information system, (derived from the Tanzania Audit Act of 2008)
Relationship with the Parliament: this area needs more thought. For example the large
section relating to staff matters (which dominates the Bill) could be modified to give a
role to PAC, including appointment of the Audit Commission, if desired).

Transparency: it would be desirable that after the CAG reports have been tabled in
Parliament they should be accessible to the public. This needs to be provided for in the
Bill unless it is taken to be automatic after approval by Parliament.

During the interviews and meetings in the current study consultation in Harare, we
transmitted a number of the above remarks (not all) and in sum were assured that some of
the above concerns might be factual. Other concerns were added as follows:

     (i)    Delays in submitting CAG‟s report to Parliament: CAG Report for 2006 is
            an example (in fact the 2007 report also not ready). Due to resources
            constraints they cannot even be published.
     (ii)   Ensuring AFROSAI and other international standards and benchmarks are
            kept in view.
     (iii)  Sanctions for offenders should be matched with rewards for good doers.
     (iv)   Failure to audit large parastatals that are consuming large amounts of
            government money.
     (v)    Lack of Accounting manual??
     (vi)   Auditing procurement (bidding) exercises taking place but being
            handicapped by shortage of manpower.
     (vii) Cooperation with Anti-Corruption Commission not assured.
     (viii) The retention of staff is a huge problem
     (ix)   Lack of follow up of PAC recommendations, even missed out in the new
            Audit Bill
     (x)    RBZ not being audited (off-limit)
     (xi)   External debt level being imprecise (at around $5 billion).

We have been able to see a report from Global Integrity's 2006 Country Reports
website (www.GlobalIntegrity.org) of April 27, 2009 on Zimbabwe, which we do not
judge as absolutely objective. Nonetheless, it indicates pointers that are worthy of
attention, like:

   (i)     Zimbabwe assigned a relatively high mark on supreme audit institution‟s
           effectiveness (Scored 84%) but with a comment that “….In law, the supreme
           audit institution is protected from political interference. …..But in practice he
           is generally ignored by politicians except by those in the opposition”.
   (ii)    Though the Auditor General is only accountable to parliament and not anyone
           else and, “… the head of the agency is protected from removal without
           relevant justification, he can be removed if more than half of parliament
           agrees and they feel that he is unable to carry out the functions of his office”.

Transparency: Citizens can access reports of the supreme audit institution and the cost
is affordable when available. But there is a delay in publishing reports; It is worth noting
that the delay is usually caused by the ...”Ministry of Finance failing to submit its
consolidated accounts …” Though the Auditor-General is allowed to publish the report
and point out this anomaly, it argues that no action seriously takes place on culprits. The
Auditor General is supposed to submit it to Parliament for debate; here also follow up is
slack. In any case CAG has a backlog of auditing work so that publishing of the report is
not done on regular basis.


2.5 Supervision by Parliament (political oversight)

Issues like the adequacy of the institutional framework to manage budgetary programmes
protect or promote the public interest, the political sustainability of the public budget, the
roles and responsibility of the legislature, the executive and the technical departments of
the various aspect of budget determination, will always be at the forefront of political and
economic governance. This is because, sound elements of political oversight and the
ideals of good governance are based and derived from the existence of transparent and
democratic political processes, accountability, legal framework, independence of
judiciary, freedom of information, and an administration aimed at efficiency and
effectiveness. These elements recognize the criticality of efficiency of resource
allocations, elimination of corruption, protection of human rights, sustainability of
environment, equitable development, and the like among all institutions.

In the case of Zimbabwe, the past decade saw a situation where the authorities appear to
have lost links with and accountability to stakeholders in the determination of budget
priorities as well as failed to provide meaningful responses to the deepening economic
crisis. What became apparent almost all around was the lack of prudence and good
governance in the area of financial and economic management, the administration of
sound fiscal policies, the management of public expenditures within prescribed limits, the
supervision, management and reform of state enterprises, etc.

But these issues can be tackled through adherence and recourse to constitutionality. For
instance, the Constitution of Zimbabwe has various provisions for the management of
public policy, including the formulation and implementation of fiscal, financial and
economic policies. In the Constitution, the formulation and management of financial and
economic policies is vested in the Minister of Finance. Chapter XI of the national
constitution outlines the principles of management of public finances. In terms of
sections 101 and 102 of the Constitution all public revenues are paid into one
Consolidated Revenue Fund and the payment of moneys from this fund must be
authorized by an Act of Parliament. Through the Appropriation, the Audit and Exchequer
and the Loans and Guarantees Acts, the legislative powers are conferred to authorize the
spending of budgeted estimates, providing for the financial administration of public funds
respectively and the administration of loans and guarantees.

As should be expected, the processes and linkages in fiscal management in Central
Government revolve around the Ministry of Finance, Parliament and its watchdog
committees. The latter are Public Accounts Committee (PAC), Comptroller and Auditor
General (CAG), Treasury, Accounting Officers, Internal Audit, Tender Board, Public
Service Commission, Central Payments Office, National Development Fund (NDF). The
NDF was established in terms of Section 30 of the Audit and Exchequer Act, Chapter
22:03 to account for aid and loans from cooperating partners of the donor community.

The Ministry of Finance: has specific responsibility over financial and economic
policies through the Treasury. Two other government departments with oversight over
similar portfolios are the (PISIP in the Budget Department) and the Implementation and
Control Expenditure Unit also in the Ministry of Finance.

Parliamentary Oversight Committees: As the supreme body with constitutional
oversight over management of public finances Parliament is assisted by watchdog
committees such as PAC, and the Committee on Investments and Parastatals. These
committees are empowered to carry out regular enquiries on the spending activities.
Appointed at the beginning of every session of Parliament according to the Parliament
Standing Order Number 152, the Public Accounts Committee (PAC) is tasked with
investigating and critically examining audit reports by the Comptroller and Auditor
General to Parliament on the use or misuse of public funds by government spending
departments. The PAC has special powers granted by the Privileges Immunities and
Powers of Parliament to call persons for hearing or demand access to specific reports and
documents.

However, over the past decade many systems have not kept up with the operational
requirements on the ground, e.g. the following:
       The synchronization of the PFMS and Treasury Instructions have not been
       updated;

       The CAG‟s recommendations to the Public Accounts Committee (PAC) are
       sometimes not taken up, i.e. at present even if the CAG report raises issues
       against an officer, the matter is sometimes left in abeyance as nothing is done on
       the officer concerned;

       The effectiveness of the PAC is in doubt, as it has recommendation powers only,
       leaving the Executive to take or not take action;

       To be effective the legal status of the CAG must go hand in hand with the PAC
       Bill.

       The issue of penalties which is now embodied in the Public Accounts Bill which
       is still be passed into law.

       There is in some respects a yawning gap between present operations and
       legislation, as vital pieces of legislation remain outdated, e.g., the Comptroller and
       Auditor General Act remains that of 1996, the Companies Act, is of the 1960s,
       etc.
 2.6      Government Procurement System

 Zimbabwe‟s current procurement system is derived from the Zimbabwe Government –
 Treasury Instructions (1st July 1996) which laid the foundations of the Government
 system which consists of the following sections:
     1. Zimbabwe Government Tender Board
       2. Interdepartmental supplies and services
       3. Procurement of management information, technology & service.


Under a new legislation enacted in 1999 and promulgated into law in 2001, the
Zimbabwe Government Tender Board, which was previously appointed by the Minister
of Finance, Economic Planning and Development, is now put under the President‟s
Office.

The functions, duties and powers of the Board and the rules made by the Board now
come under the President Office‟s direction. In practice, this arrangement has worked
well as the earlier forms of interference from the line ministries have now ceased.

The State Procurement Board has 10 members who sit once a week, go through and
finalise whatever work has been put on the table. The Tender Board is able to complete
its work under this arrangement as there are few tenders at the present time. This was
also made possible by increasing the threshold of bids that should come before the
Board. All small tenders were left to the Line Ministries to adjudicate, under the rules
originally set up under Treasury Instructions, such as:
        Except as otherwise provided in this section of the Instructions the Board all
        departments in the purchasing of supplies and the arranging of services shall
        advise the Board when called upon to do so of their estimated requirements of
        any item during a given period.

         No goods or services shall be purchased from public funds except in accordance
         with the Instructions.

         Whenever any power is to be exercised or any duty is to be performed by a
         department in accordance with section of the Instructions, or in terms of rules
         made by the Board such power or duty shall be exercised by the accounting
         officer or by an officer to whom such power or duty has been specifically
         delegated by the Accounting Officer.


 The current procedures of the Tender Procurement Board are as follows:
       All Government, Public Enterprises (Parastatals), Local Authorities are all to
       operate under the rules and procedures under the Tender Board Act.

          All the challenge provisions, which used to go the Minister of Finance, now
          are handled by the Administrative Court and then onwards to the
        Constitutional Court. This has helped to make high standards of adjudication
        adhered to.

        CAG provides the audit for the Tender Board, but the problem is that their
        officers are not trained in the procurement rules (What is preferable is that, the
        Tender Board should have its own auditors who move from ministry to
        ministry to carry out their own audit).


 Guidelines for Procurement of Goods and Services under Donor Assistance
 Tender procedures on procurement of goods and services from donors are provided for
 under the Treasury Circular No. 5 of 1998 (February 26) – Under the Guidelines for
 the Provisions and/or Procurement of Goods and Services under Donor Assistance, the
 provisions include the following:
     1. All requests for donor assistance should be channelled through the Ministry of
        Finance, for consideration and processing and should not be addressed directly
        to the donor;
    2. Only Public Sector projects that have been appraised and approved by the
       National Economic Planning Commission and have been incorporated into the
       Public Sector Investment Programme (PSIP) will be considered for donor
       financing. Such submissions for funding should preferably be made by the
       Accounting Officer to ensure that they reflect priority of the Ministry;
    3. Contracts of supply should not be signed until the Ministry of Finance has
       confirmed in writing that the financing is in place.

Constraints facing Tender Procurement Board
      Because of the inadequacy of skills tenders are not adjudicated adequately,
      hence there is great need for human capacity and training

      There is dearth of both hardware and software to deal with the tenders
      procedures

      The State Procurement Board was also sidelined by activities of RBZ. Although
      it is not the mandate of the central bank, to procure goods on behalf of
      government, by allowing the RBZ to become the procurement agent of the
      government, the effectiveness of the procurement system was substantially
      reduced. The procurement system was made even less effective as internal
      controls within MOF deteriorated and the procurement system across
      government was increasingly undermined by hyperinflation and the fact that the
      State Procurement Board is not adequately resourced.
      There is need for Technical Assistance to make the Tender Board office more
      efficient

      There is a single procurement law supported by the State Procurement Board
      (SPB) responsible for ensuring that the regulations are complied with. However,
      there are four concerns. First, the positioning of the SPB in the President‟s
      Office, an oversight office, is likely to overburden that office with operational
      matters. Second, the separation from MOF may pose coordination challenges
      with the rest of the PFM system. Third, there is no higher point of
      recourse/appeal in the event that this needs to be done. Fourth, the SPB has
      insufficient resources to perform its functions effectively. Its effectiveness was
      reduced even further by rapid inflation and reduction in numbers of adequate
      suppliers.

2.7 An Overview of the PFMS (including review of the PFM Bill)


2.7.1 Overall Picture
The problems with the performance of the PFM system became evident by the early-
1990s characterized by routine overspending by ministries, delays in preparing financial
statements and increased fraud and negative external audit opinions. In response, the
Government of Zimbabwe in 1994 started a range of public financial management and
accountability (PFMA) reforms towards transparency and accountability. The reforms
included drafting of PFM and Audit Acts; professionalisation of government financial
staff; a computerised public financial management system; and embarking on results
based budgeting programme and establishment of the Zimbabwe Revenue Authority
(ZIMRA) in 2001.
However, the reform process slowed markedly from the late-1990s and had completely
stalled by 2005 with political buy-in to carrying through reforms falling to a level too low
to sustain reforms. Hyperinflation and the skills exodus from the public sector and from
Zimbabwe impacted very negatively on the effectiveness of PFM and accountability
systems, threatening day to day operations apart from reforms.

Institutions and Systems for aid management and PFM are in place but have largely been
utilized sub-optimally or have been dormant for quite some time for various reasons:

First, some human resources exist though not adequate in numbers required and quality to
perform some critical functions and optimal utilization largely due to lack of adequate
working facilities and incentives.

Second, processes are largely in place though functioning sub-optimally.

Third, some facilities exist though falling short of requirements in terms of quantity and
quality.

The quality of the country systems of PFM fall below what is required to give comfort
to the users (domestic as well as the donors) to use them. The shortfall has been found to
have two dimensions: the technical dimension and the governance dimension.
2.7.2 The Technical Dimension

First, the effectiveness of the Public financial management system (PFMS), an
investment in modern enterprise-wide management software, has been substantially
reduced due to failure to maintain the system and inability to cope with number of digits
due to hyperinflation. It was found that systems have not been maintained and some have
fallen into disuse or are now outdated. In particular, the software that is used in the
PFMS is outdated and not adequate for carrying out some key functions. The failure of
the system to cope with the “zeros” and the emergence of the quasi-fiscal interventions
by the Reserve Bank of Zimbabwe and other users contributed to making many
operations to be carried outside the PFM system. A large share of expenditures are
incurred and recorded outside of the system. The breakdown of PFMS left the Ministry of
Finance with no alternative but to manually authorise line ministries to access funding
from the Reserve Bank of Zimbabwe (RBZ).

Second, it was found that there is limited interconnectedness and interface among users in
the system. The PFMS does not connect all key users in the same network for ease of
coordination, control and synchronization.

Third, Rollout is limited in that it does not go beyond the provinces

Fourth, there are long delays in the preparation and auditing of financial statements. The
latest published Comptroller and Auditor General‟s report is for 2006. Auditing is
delayed largely due to delayed finalization of accounts and capacity of the audit office in
terms of personnel and working facilities.


2.7.3 Governance Dimension

First, some existing regulations and procedures are not followed to the letter: This
phenomenon points to weaknesses in implementation, monitoring and follow up. In this
context, an overarching governance dimension that has undermined PFM performance as
well as macroeconomic management is the shift in responsibilities from the Ministry of
Finance to the RBZ. The role of the RBZ in raising revenue (primarily from seignorage
through money printing) and spending it, reached 90% of total expenditure by 2008.
Accountability and transparency were compromised during this phase in respect of
decisions on expenditure priorities, financial reporting, procurement or audit for RBZ
activities. The approach that RBZ adopted in managing monetary policy and foreign
exchange management posed a high risk to the users of the PFM system such as banks,
firms, citizens, NGOs and donors. The foreign currency accounts which had been
centralised at the central bank were either released with delays or not at all. The outcome
has been a loss of confidence in the PFM resulting in an increasing volume of
transactions taking place outside the normal PFM system. There is a high risk of financial
mismanagement as funds are not included in the budgetary framework but disbursed by
the RBZ. Real expenditure outside the legislative framework (i.e. Treasury) exceeded that
within it. By end-2008, this had risen to over 90%.


Second, it is apparent that there is weak oversight in terms of demanding procedures to be
followed (e.g. the MPs accepting vehicles given outside legal procedures, Sector
Parliamentary Committees are less effective).

Third, corporate governance was reported to be below the standard required in terms of
handling accounts and managing deficits.

Fourth,
It was reported that there is limited involvement of users and other key stakeholders in
the PFM system. Although in the course of implementation it was discovered that some
users had not been involved and arrangements were made to involve them at a later stage,
there was concern that earlier involvement of all stakeholders would have helped to avoid
some of the design deficiencies that were discovered at the operations stage.

Fifth, the auditing function is rendered less effective because of lack of sanctions, a
situation which is expected to be corrected in the new draft bill.

Sixth, it was found that the regulatory framework/instruments take a long time to be
processed through the system. The failure to enact the Audit Bill and the Public Finance
Management Bill that were first mooted in 1994 are suggestive of low priority accorded
to fiduciary issues. Fiduciary risk increased i.e. the risk that by associating with the
country‟s systems, public funds (aid funds as well as government‟s own resources) will
not be used for the purpose they are intended


2.7.4 Comments on the PFM Bill

We have observed a number of positive attributes in the proposed Bill, namely that:
  (i)    The purpose of Bill is to enhance government effectiveness in economic and
         financial management
  (ii)   Attest to the effect that the Bill is comprehensive and embraces many
         aspirations of objective
  (iii)  An example: it intends to confer to Treasury the management and control of
         public funds and property
  (iv)   However, a number of ambiguities were observed. These are explained below.

Appropriation of Budget Funds. The presidential power that would be exercised through
issuing directive to the Minister of Finance to use public funds under exceptional
circumstances (e.g. in urgent need or in advance of appropriations budget7) is an
uncomplicated way of accessing the Budget, but it could be wrongly applied and the
safest way is to avoid risks. Would it not have been better to rather indicate a
7
    In most countries they refer to circumstances when the approval of the budget is delayed
precondition of Presidential approval of a relevant request to be submitted by the
Minister of Finance in such circumstances? The whole aim is to protect the President
from being blamed as an originator of a particular spending initiative. Example: Ref. Art.
24 and 26&27: the latter do not even mention the Minister. Article 24 on Presidential
directive is similar to that in other countries8 like Zambia, Uganda and Nigeria, but seems
to miss out in Tanzania. In Ghana, Malawi and Kenya Parliament may establish a
contingency fund to cover unexpected expenditures, from which the Parliament or its
committee may authorise urgently required withdrawals. Whatever the version of the
provision, it would be necessary that the Minister of Finance is fully accountable to
Parliament in the administration of public moneys as the President cannot be reached for
questioning in Parliament to answer inquiries on missing or misappropriated funds.

Powers to borrow or commit the state in international financial agreements. It is not
clear that such powers are vested exclusively in the Minister (as is practiced in other
countries) (Art.51). In fact the article refers only to borrowing powers and another article
(Art.7) to coordination of financial relations. Nonetheless, the circular latter from the
Chief Secretary of 1st April 2009 has provided solid clarification that the responsibilities
for sourcing public funds (loans and grants) rests in the Treasury. Also regarding powers
to sign a loan, it would be better to spell out that in case of delegated power to sign an
agreement it can be conferred only to a Zimbabwean public official, and not to any
official.

In this Bill (may be the matter is rectified in other judicial instruments of Zimbabwe!),
the powers of Parliament and especially their respective portfolio committees to oversee
government matters and compliance to decisions passed by Parliament are not made
crystal clear. Yet on the whole it is gratifying to note that Art.95 of the Bill does specify
what happens if a responsible party does not comply with the respective provisions of the
Bill.




8
    Ref. Summaries Of Fiscal Constitutions In Africa by Joachim Wehner IDASA 14 December 2000
3. CROSS- CUTTING ISSUES
3.1 Capacity Constraints (Human resources and facilities)

Though specifically the request to the consultants of this study was to investigate the
adequacy of manpower in running the PFM system, our study found that manpower
capacity in Zimbabwe would be better analyzed if combined together with other factors
that enhance this capacity in a broader context. Thus for PFMS in aid management,
capacity entails many things around the capacity of Zimbabwe through its institutions and
systems to be able to effectively manage aid for development effectiveness. This ability
relates to the following capabilities:
 (i)     Define clearly the development agenda, priorities and aid management policy;
 (ii)    Put in place reliable national PFM systems and processes necessary for aid
         alignment to occur ;
 (iii) Effectively negotiate, record, report, audit and monitor aid flows;
 (iv)    Realize effective coordination of activities among different government agencies
         and donors and harmonization of donor practices (e.g. common arrangements
         such as programme aid and shared analyses);
 (v)     Design and produce transparent and monitorable performance information (e.g.
         PAFs) , and
 (vi)    Develop participatory assessment frameworks to monitor progress.

One must distinguish between genuine capacity constraints and lack of suitable political
environment to make existing capacities effective. In the case of Zimbabwe, the need is
more in building institutions and processes so that they can be more resilient to political
pressure and turbulences, which could be found for instance in how heads of institutions
are chosen, how they act and how funds are procured. We were told frequently
especially by donors that the basic capacity structures in Zimbabwe have not been
destroyed. If donor funding were to become available at an early stage of Zimbabwe‟s
resurgence, as the country is emerging from the current crisis, it would in fact “
immunise” the institutions (e.g. PFMS) from “ cramps” that my still pop up
unexpectedly.

Listening to recurring concerns during consultations for this study, there were sentiments
to the reality that the broader context of capacity for all public resource management,
rather than aid only is necessary, as one takes into account that aid is often a relatively
small part of the country‟s overall resources applied to development and poverty
reduction. But in a situation of acute budgetary constraints, and where the problem has
entrenched over a drawn out period, it is not possible to deal with the whole gamut of
capacity constraints all at once without being overwhelmed by the magnitude of the task.
For this reason, and in the context of our assignment, Zimbabwe may have to initially
concentrate on areas of capacity-related issues around PFM systems, and then expand
progressively to cover other areas of public service. Thus the choice of intervention in
capacity building has to be strategic in prioritization, sequencing and harnessing spill-
over effects from the targeted initiatives that start in the PFM areas. The relevant
 authorities need to start on key areas that will provide foundations for building on other
 follow-up reforms and capacity building.

 Institutions: In Zimbabwe aid coordination and management is led by the Ministry of
 Finance, particularly from the directorate of Domestic and Foreign Finance (principal
 Directorate of Finance and Taxation). Although we were told that in the President‟s
 Office they have established an Aid Coordination Unit, the aid management on day to
 day basis is essentially carried out in the MOF. Under these circumstances, there is risk
 of dissipation of efforts which may not be fully coordinated and harmonised.

 Systems: Though many countries have adopted joint assistance strategies (JAS) worked
 out jointly between the government and the donors (as in Tanzania, Mali, Ghana and
 Zambia), that handle aid issues and arrangements and provide guidance to key aid
 stakeholders and donors, this instrument (the JAS) is still missing in Zimbabwe. Yet
 actually in the present circumstances, it cannot be a priority. But the PFM system has to
 be useful in answering to aspirations of such JAS best practices as : prioritization of
 resource application in the context of the STERP ( and later PRS); rationalisation of DP-
 government contacts and procedures for consultations; integration of external and
 domestic resources; stipulations for proper resources allocations, accounting, reporting
 and auditing; facilities for information management systems and information reporting
 and sharing; M&E, or interface among and with sectors and decentralised economic
 management entities. All these have more or less been mentioned before in respect to the
 general PFM system.

In order for the PFMS to have the required capacity to meet the above objectives, the
Zimbabwe government set up a government-wide information management network
(IFMIS), for the generation , processing and exchange of information on aid and related
statistics. The following areas have been identified as challenging with regard to this
subset of the PFMS complex:

o The link between policies and budgeting frames has been generally fragile.

o The choice of capacity building interventions therefore, cannot be strategic in both
  prioritization and sequencing of spending.

o The limited capacity especially in the ministries coordinating aid is often overstretched
  by numerous pressures for donor satisfaction and stakeholder consultations9. If for
  example greater involvement of parliamentarians and councillors in the policy process
  and the budgets, which is legitimate, were to be maximised, it would add on more
  work burden on government officials. And yet their efforts would be more rewarding if
  the need for strengthening the capacities of these parties (the elected representatives)
  were appreciated and equally addressed thanks to these contacts. That way the elective
  bodies can effectively interface with the government officials to undertake informed
  and productive dialogue and collaboration at the political level. In addition, the new
  donors likely to intervene significantly in Zimbabwe (from the pool of China, S.
 9
     Though this description eschews the current situation where donor funding is almost a trickle
   Africa, India, Korea, Russia, Turkey, Brazil, etc), who may not be members of
   harmonised OECD/DAC or local DAC groupings, would require parallel handling by
   government officials, thus stacking on to an already complicated multi-faceted
   situation inherent in current aid delivery processes (e.g. with new demands for parallel
   requirements for negotiations, conditionality, budgeting process, accounting reporting,
   auditing , etc).

o The basic truth is that sustainable capacity cannot be rebuilt in a single day. Experience
  in countries rising from crises (though as said earlier Zimbabwe is not quite in that
  category) indicate that optimally they should start with simply putting up structures of
  aid management (e.g. Rwanda, and Sierra Leone), then improve them gradually,
  moving step by step to address the quality aspects: i.e. process efficiency,
  harmonization of processes, alignment of donor practices, options on aid modality,
  donor division of labour, etc, and capacity strengthening activities, while taking care
  of the requirements and influence of the public sector as a whole. Donor support should
  therefore be consistent, realistic to the actual country situation and enduring.

o TA is often problematic even in the best of times. It has been proposed to set up a
  pooled fund for financing TAs on untied basis and a start with ZMDTF has been
  mentioned before. If wholesale pooling and untying is too drastic for donors, they could
  start piloting in selected sectors.

Some form of leadership in supporting capacity building should be encouraged. The
goodwill of donors should not result in frantic manoeuvres for each donor to outdo or
ignore one another, which will confuse the Zimbabwe government officials when their
system capacity is still relatively low and could lead to increased transaction costs on its
part. In-country cohesion of local DAC representatives requires recognition of the donors‟
different interests and commitments to assist, comparative advantages and leadership
leverages so as to speak with government with one positive voice. In Zimbabwe, overall
leadership of DP side seems to be emerging from the UNDP and/or World Bank, while
sharing out sectoral/subject leadership with other few active donors based on their
respective comparative advantages is taking shape. The emergency of new donors on the
aid scene is a positive development that the government should use and encourage old
donors to accept. This new aid group should from the beginning be advised to use best
practices in promoting local capacities.

Where some elements of the PFMS system can also generate own revenues, these should
be harnessed: they serve similar values as external aid in reducing central budget
dependency on aid that can sometimes become unpredictable during unexpected crises and
the immediate post-crisis periods.

The key views specifically derived from respondents in the consultations and from other
sources were as follows:
         Basic capacity in Zimbabwe civil service still exist; it will not be a matter of
         starting from zero if aid were to resume in a significant way and the functioning
         of government agencies were to regain some vitality and full normalcy.
           Management of emergency funds and other interim funds directly by donors
           eludes government capacity (especially HR) and might contribute to wearing a
           way of existing capacities as staff work with very little resources or active
           mandate10 .
           Skills gaps are all-pervading, and in the discussions with respondents in the PFM
           areas, they pointed to acute shortages in IT specialized skills such as in
           accountancy and auditing, as well as near absence of strong capacity in debt and
           financial policy analysis.
           Constraints in rolling out the PFMS to regions and especially districts due to
           both manpower constraints and poor communication facilities in outlying areas
           Lack of sufficient equipment and facilities frustrating staff even when they have
           acquired relevant skills (example 3 persons working with one computer terminal
           in the External Audit Office).
           Difficulties in retaining recruited staff and competing for new staff due to low
           salaries and incentives, with particularly more troubling the phenomenon of
           skilled staff in large numbers (all emigrants ranging between 1 to 3 million)
           migrating to other counties (especially South Africa and other SADC counties) in
           the last few years.
            Weak capacity in Parliament, including at the committee level, to exert
           supervision and demand on government for better performing PFMS.

3.2 Monitoring and Evaluation

As a cross cutting issue, monitoring and evaluation of the business of government is
left to all government ministries and departments. But at the central level, the co-
ordination of this is the responsibility of the two key ministries in charge of macro-
economic and resources co-ordination: the Ministry of Finance and the Ministry of
Economic Planning & Development. However, the current situation affecting these
ministries has to be addressed in order to inform on their capability levels.

There was near consensus from the senior civil servants that, over the past 10 years the
fabric of Zimbabwe‟s public finance had collapsed, to the extent that at the macro-
economic level, there is currently no clarity on how much the country owes in terms of
debt, a situation that was exacerbated by the RBZ‟s quasi fiscal activities. The rules
guiding the contraction of public debt were flawed, aid flows collapsed, public
accounting systems collapsed, aid management system and monitoring systems
collapsed. This situation led to a number of donors and or co-operating partners losing
confidence in the system of Zimbabwe government‟s monitoring and evaluation
system. This was even particularly so, in the case of the country‟s central bank. At the
centre of this loss of faith in the system were the following issues:
        Total collapse of the management of political oversight;

           Capacity of Parliament to carry oversight over the Public Accounts System;


10
     This was observed visually at RBZ with empty tellers‟ booths
         Capacity of the central ministries to exercise oversight over Sector Accounts
         Systems;

         The lack of skills in the country‟s State Audit System due largely to inability to
         retain staff leading to brain drain;

         Collapse of Local Authority accounting systems for both Appropriations and
         Aid funds;

         Total loss of accountability in the country‟s Public Enterprises, e.g. under the
         quasi fiscal expenditures by the RBZ, money was received straight from the
         central bank by these entities with little or no accounting;

         Mismanagement of foreign exchange resources under the RBZ;

         Loss of internal controls on procurement systems, as the main agent for
         procurement – the RBZ did not come under the State Tender Board‟s eye view.
Under the conditions spelt above, there is need for strong capacity building enhancement
in Zimbabwe‟s Public Sector Management System. The capacity building measures must,
to a large extent, support policy reforms focusing on the management of internal
monitoring systems as well as external aid resources. In the future, the beneficiaries of
training programmes should include preparing officials dealing with Debt Management to
participate in the HIPC negotiations. In addition, the measures must include an
Institutional Support for Good Governance. The beneficiaries of the proposed initiative
must cover a wide array of state institutions, including:
     Ministry of Finance, and Ministry of Planning & Economic Development,
         focusing on efficiency and effectiveness in the utilisation of resources;
       Auditor General‟s Office;
       The State Procurement & Tender Board;
       Reserve Bank of Zimbabwe
         Ministry of Justice
         Ministry of Local Government focusing on decentralisation processes and need
          for efficient use of resources at the decentralised levels; and
         Office of the Prime Minister focusing on Monitoring & Evaluation of
          government programmes.

To be effective, the system of Monitoring & Evaluation has to include training in the
utilization of Grant Resources and their impact. The efficiency and effectiveness of the
capacity building output should be seen in the manner in which the Grant‟s resources are
used, namely (i) Disbursement methods used; (ii) Details of disbursements made; (iii) An
assessment of the efficiency and problems encountered in disbursing; (iv) Contribution
by co-financiers; (v) Detailed categories of expenditure and differences; (vi) Annual
disbursements; and (vii) Final special account report. The details of these systems should
normally be contained in the PFMS discussed elsewhere in this report.
 With regards to monitoring and evaluation of external aid, the governance and
accountability procedures should be normally reinforced by the establishment of External
Aid Guidelines and Procedures produced, viz:
    Aid Management Manual,
    Aid Accountability Procedures, and
    Monitoring and Evaluation Manual Systems.

In order to instill confidence of donors in the Zimbabwe‟s National Development Fund
(NDF), there has to be developed monitoring and evaluation systems at the centre of
which must be a well conceived Aid Management Manual (AMM) and the respective
sub-manuals for Aid Accountability and Monitoring and Evaluation. The immediate
advantage of such a system is that it will bring positive impact on efficiency of delivery
by providing a “one-stop-centre”, for all stakeholders in the aid management process on
the relevant issues in aid management. But most importantly, the AMM will provide
fiduciary assurance to the donor partners and stakeholders with regard to Government‟s
seriousness of purpose concerning its commitment to prudent programming, monitoring
and evaluation and accountability for aid resources.

The AMM and its sub-components will help the staff of the MOF to understand fully the
aid management processes, and in particular the process for aid acquisition, aid
utilization, monitoring and evaluation, and aid accountability. The Manuals are also
intended to serve as a point of reference for the implementers of donors funded projects
in the important areas of implementation management of aid, and especially issues
concerning the processes for project/programme proposals, appraisal, negotiations
disbursements and procurement.

The issues to be addressed in the AMM centre on the Effective Monitoring and
Evaluation Capacity - through the production and launching of the Monitoring and
Evaluation (M & E) reports and systems design which will be an integrated set of
Monitoring and Evaluation procedures and processes for the budget that harmonizes and
integrates the systems to be put in place, e.g. Poverty Action Plans (PAP), a Commitment
Control System ( CCS ) and any other intervention to be put in place. These procedures
lay good foundation for the fiduciary assurance measures that will become the pillars of
the Budget Support accountability systems, covering the whole budget in a transparent
manner.


3.3 Coordination among Services and Decentralization

Donor coordination and harmonization is better served when the donors undertake joint
financing through general budget support (GBS) or in the least basket funding. Even
when financing emergency or interim operations such as at the moment is Zimbabwe, the
danger of the partner country being swamped with small projects should be avoided. It
was reported that during a certain point in 2008 the health sector was dealing with about
600 projects involving less than EU 1.0 million11. If the volume of aid were to increase,
as expected, such fragmented aid management practices would clog aid management and
government administration and render aid effectiveness to decline even further. Donors
need to learn working together and jointly from the start through common funds.

In the case of Zimbabwe donors can coagulate around the STERP to offer their support
and encourage government leadership to move to more medium term planning with more
or less harmonised support from the donors.
Under the PD alignment principle, which Zimbabwe did not sign, donors committed
themselves to using national systems and procedures. But like an egg and chicken
phenomenon, the PFMS should be effective to a certain degree for donors to agree to
align to it. Otherwise they resort to using parallel systems for aid disbursement, goods
and services procurement, resources expenditure tracking and programme execution
monitoring and auditing. In the circumstance where the donors work through or with the
national system, they appreciate the capacity deficiencies constraining the system and
they are apt to jointly among themselves and with the government to commit to assist in
strengthening the system.

Even when avoiding public systems is inevitable donor harmonization should be
encouraged, even if they are supporting sub-state actors (e.g. at LGA level). Or in other
circumstances, working through UN and other international organizations (e.g. WB or
AfDB) that are acceptable to the government at the moment during a stand-off with some
donors would in the long –term interest of building trust between the donors and the
government.

Sound planning, prioritization and sequencing of actions are key in ensuring maximum
impact in view of high needs and the limited capacity. Allow for sub-optimal operations
to keep the system warming on, do not shut store, otherwise some system parts will rust
and the whole system will be rendered inefficient and difficult to restart.   Although
available data is scarce in such situations, what is available, even for off-system
information, must be processed (even if manually) and ought to be transferred, and
incorporated into mainstream system so that monitoring of whatever progress on
system use and its output can continue. What is important is to balance the aim for
comprehensiveness and sub-optimal ends provided they have value added.




11
  UNDP Draft WP No.6 on International Aid and its Management: Some Insights for Zimbabwe in the
Context of Reengagement. April 2009
4.0 USER ATTITUDE AND RESPONSE MECHANISMS
.
Users of country systems use the systems when they are confident that the systems are
credible in terms of handling their resources. The deterioration of the effectiveness of
PFM system has resulted in reduced confidence in the system. The approach that RBZ
adopted in managing monetary policy and foreign exchange management as well as quasi
fiscal expenditure activities posed a high risk to the users of the PFM system such as
banks, firms, citizens, NGOs and donors. The foreign currency accounts which had been
centralised at the central bank were either released with delays or not at all. The role of
the RBZ in raising revenue (primarily from seignorage through money printing) and
spending it, reached 90% of total expenditure by 2008. Accountability and transparency
were compromised during this phase in respect of decisions on expenditure priorities,
financial reporting, procurement or audit for RBZ activities. The outcome has been a loss
of confidence in the PFM resulting in an increasing volume of transactions taking place
outside the normal PFM system. Domestic as well as foreign users of the PFM are no
longer confident that the resources they place in the system will be used for the intended
purposes.


 Under the Paris Declaration principles the issues of ownership, alignment and
harmonisation have come to the forefront of the donor attitude and response mechanisms,
spelt out as follows:
   1. Ownership – partner countries to develop technically sound national
      development strategies/PRSPs.
   2. Alignment – donors and partner countries to use government systems and to
      align their activities on the basis of partners‟ priorities expressed in a PRSP.
   3. Harmonisation – donor-donor coordination to reduce transaction costs by
      moving towards common donor arrangements for disbursement, reporting, on
      Monitoring & Evaluation (M&E), etc.


The principle of ownership: Under the Paris Declaration partner countries undertake to
exercise effective leadership over their development strategies, and to take the lead in
coordinating development activities in consultation with donors, as well as with their
respective civil societies and the private sector. Donors on the other hand undertake to
respect the leadership of partner countries in terms of their development strategies while
also committing to help them to build their capacity to do so. Under this principle
Zimbabwe will have to take the lead over its „national development strategies‟ which are
seen as overarching development strategies that include poverty reduction strategies and
other sector and thematic strategies‟.

The principle of alignment: Logically flowing from the principle of partner country
ownership, the importance of alignment is based on recognition that parallel donor
systems and processes are, in the long term, both unsustainable and counter-productive,
and that the efficiency and impact of aid flows will be enhanced if aligned to sound
national strategies, systems and processes. Under this principle donors commit
themselves to align their overall support on partner countries‟ national development
strategies, and to tailor their support to the priorities identified in partner countries‟
strategies. Zimbabwe will have to catch up and increase the percentage of aid flows to be
reported in its national budget.

Under the alignment principle, donors also commit to using the systems and procedures
of partner countries. Specifically this will mean that donors will have to use Zimbabwe‟s
public financial management systems, procurement, auditing and monitoring systems in
order to avoid creating parallel structures. The targets are already set for the use of PFMs,
such by 2010, at least 90% of donors will use the partner countries‟ systems, and that as a
percentage of aid flows that there is a reduction by at least one-third in the percentage of
aid to the public sector not going through the PFMs. Similar targets are set in terms of the
use of partner countries procurement systems. Hence the need to strengthen and support
PFMs, procurement, auditing /monitoring systems in Zimbabwe early enough in the
process of her engagement with the donor community.

The principle of harmonization: Based on the objective to ensure that donor assistance
programs are more effective collectively, donors set themselves to make changes
necessary to implement harmonization goals among themselves. This will mean that
donors will make progress on the harmonisation agenda in 3 key areas, namely the
development of common arrangements, the simplification of procedures, and a more
effective division of labour in order to reduce the demands on the capacity of partner
countries. The harmonization principle also obliges donors to set up common
arrangements at country-level in the areas of planning, funding, disbursement, monitoring
and reporting to host governments on their aid activities, and to increase their use of
„programme-based‟ aid modalities.

Even more fundamentally, harmonization reduces one common source of resentment
amongst partner countries, namely multiple, duplicative missions, with a specific target
for this being that 40% of donor missions should be joint missions by 2010. Donors are
thus encouraged to coordinate with partner countries, establish a clear division of labour
amongst themselves based on principle of comparative advantage in both implementation
and execution of their programmes.

Under these conditions, the overall policy thrust under the Paris Club framework is that
(a) both donors and partner countries should seek to move away from stand alone project
aid to programme aid (for a particular sector, or cross-cutting theme, or national
development plan/poverty reduction strategy); (b) seek alignment and harmonisation of
their programmes in order to increase the chances of success in terms of achieving a set
of nationally determined goals. At the same time, the underlying policy shift in donor
funding came from the growing recognition that project-based approaches suffered from
the following flaws, namely:
        There was little coordination (sharing of information, joint planning) between
        donors in-country;
           There was also little coordination with partner country governments and/or
           beneficiary communities in terms of prioritisation;12

           Proliferation of donor-driven projects leads to a brain drain from the public to the
           donor sector;

           Growth in contingent liabilities for Government as they find it increasingly
           difficult to sustain recurrent expenditure once projects had run their course (e.g.
           maintenance costs for infrastructure projects and personnel costs for social service
           delivery projects);

           Project –based aid delivery ultimately undermines the ability/incentives for a
           recipient government to perform a number of key functions e.g. revenue
           collection, planning, prioritising, budgeting, executing, monitoring and
           evaluating.
      In the case of an adverse operational environment such as that obtaining at present in
      Zimbabwe, where the policy framework is weak, debilitated sectoral/national
      institutions and capacity, weak domestic accountability systems and occurrence of
      patronage and corruption, donors often respond by:

               Preferring project over programmatic aid because of the greater control over
               resources and the targeting this offers;

               This leads to multiple projects that avoid government systems and are not
               aligned to national policies and priorities; and

               This in turn leads to project implementation units outside government
               structures.
Instead of strengthening the local systems of accountability, the net effects of this donor
behaviour to the partner country is that: (a) no effort is made domestically to improve
national policies or systems; (b) sectors become accountable to multiple donors and not
central government or Parliament; and (c) the government‟s ability/interest in performing
core functions is undermined.
It is important to note that a major boost to harmonisation and alignment of donor
behavior has taken place as a result of the adoption by the Breton Woods Institutions
(BWIs) of the PRSP as their dominant programming framework since 1999. This action
led to the decision by World Bank and IMF that PRSPs should form the basis for Debt
Relief as well as access to future concessional lending - World Bank‟s IDA credits and




12
     The two first conditions point to extensive duplication, poor targeting and waste.
Poverty Reduction Support Credit (PRSC)13           and the IMF‟s Poverty Reduction and
Growth Facility (PRGF)14.
In order to access debt relief under the Highly Indebted Poor Country (HIPC) initiative,
beneficiary countries are required to produce 4-5 year poverty reduction strategies (Paris
ownership imperative) and donors are expected to rally behind and support the PRSP
(Paris alignment and harmonisation imperatives). In many PRSP countries, donors have
found it easier to align to recipient country priorities because of the BWI‟s technical
requirements for developing PRSPs. These are that PRSPs need to be well designed
multi-sectoral strategies that are clearly prioritised and sequenced, in which roles and
responsibilities are clearly attributed, and linked to a medium-term expenditure
framework (MTEF).


In PRSP countries, donors are able to move away from project aid towards more
upstream modalities such as sector and budget support. There is evidence to date
indicating that PRSPs have helped to:
        Establish joint monitoring frameworks (such as performance assessment
        framework - PAFs), namely multi-annual matrices of priority targets and
        indicators derived from the PRSPs.

       PAFs have in turn led to joint progress review processes whereby donors are
       able to evaluate progress and make funding commitments for the following
       year in a coordinated manner. This has gone some way towards addressing
       problems of aid predictability.

       As single conditionality frameworks, PAFs have helped to reduce bilateral
       conditionality.

       PRSPs have also allowed donors and partner countries to motivate for the
       move to budget support modalities.




       13
          These were introduced in 2001 to provide financial support to a low-income country‟s
       PRSP as concessional loans or grants. These are available as an additional source of
       financing to IDA eligible countries and disbursed as direct budget support.
       14
         This became the IMF‟s equivalent to support PRSPs, replacing the Economic
       Structural Adjustment Facility (ESAF). While set up to help LDCs with “protracted
       balance of payments problems” through concessional loans, smacks of IMF mission
       creep, since PRGF is indistinguishable from general development finance and the
       conditionalities are focused on macro-economic stability, fiscal management, tax policy,
       exchange rate policy and budget execution.
 5.0 FINDINGS AND CHALLENGES

 According to the Terms of Reference, the findings and challenges are categorized into
 four main components: Analysis of the Government‟s existing aid management
 framework and systems; Review the system‟s responsiveness to user needs and
 safeguards built into the systems; the adequacy of the manpower running the system at
 both Ministry of Finance and implementing agencies; Review the draft Public Finance
 Management Bill and Audit Office Bill with respect to aid management.


 5.1 Government’s Existing Management Framework and Systems

  5.1.1 Budget management
The following is a summary of challenges to the improvement of budget management:

 The budget outturn significantly differs from the original budget making the original
 budget an unreliable tool. Supplementary budgets have been a regular feature, but over
 time off-budget expenditure with no parliamentary approval outstripped budgeted
 expenditure. With the breakdown of the PFMS and the hyperinflationary economy,
 expenditure arrears increased as commitment controls became less effective
 Getting rid of existing quasi-fiscal and off budgetary activities has largely been achieved.
 The challenge is to deal with the consequences and implications of restoring the system.
 Large capacity gaps across all institutions, manpower auditing and job creation and
 establishing incentive system
         Mobilization of foreign assistance and improving collection of domestic revenue
         to deal with the limited foreign exchange and domestic resource
         Articulating fiscal and monetary policies to reduce budget deficit while ensuring
         increased investment.
         Macro economic framework for budget and Medium Term Expenditure
         Framework approach (MTEF) for budgeting process.
         Budgeting transparency and reviving donor confidence
         Ensuring effective budget accounting and quick legislation of the PFMS Bill and
         Audit Bill.
         Ensuring and strengthening budget monitoring and reporting in the face of
         capacity constraints and inadequate data and reduced quality of data
         Review and operationalise all modules in PFMS.


 5.1.2 Aid management and coordination

        To obtain TA to audit debt available and conduct debt analysis.
        Sustainability of debt through better fiscal and monetary policies and procurement
        of debt relief from multilateral and bilateral creditors.
       Convincing donors to operate within the treasury framework and within the
       budget. The Ministry of Finance had historic mechanisms for integrating aid
       within the budget (e.g. the Vote of Credit) and aligning aid with government
       preferences, before these concepts became common place in aid effectiveness
       discourse. The challenge is to appraise and consider them as a vehicle for moving
       aid on-budget. For a period, however, donors will need to design aid instruments
       that use government systems with extensive safeguards e.g. donors may need to
       fund parts or the entire wage bill, but this would only be done with improvements
       in the payroll (audit and follow-up).
       Capacitating the NDF and DIF and integrating aid inflows into PFMS
       Institutionalizing and strengthening on-going piece- meal and fragmented donor
       engagement
       Galvanizing aid management and coordination in one unit to strengthen aid
       coordination
       Prioritization needs to be made clearly striking a balance between addressing
       immediate emergency needs at the same time as planning for the longer-term.
       Strategic visioning must therefore run alongside the process of developing short
       term programme to ensure consistency with longer-term, comprehensive and
       sustainable recovery.
       Reviewing the Vision 20/20 document to take account the changing socio-
       economic situation and prepare medium term national development strategy to
       define clearly the objectives, policies and priorities upon which donors will align
       and harmonize their country programmes to ensure ownership of foreign
       assistance.
       Adopting an overarching principle of participatory formulation which is meant to
       inform both the design and implementation processes and to become a means of
       building national (and not just governmental) commitment to the development
       framework with its priorities as well as mutual accountability between national
       partners and the development partners
       Prepare Aid policy to ensure aid management and coordination
       After years of isolation from the mainstream of international development
       processes, Zimbabwe‟s decision-makers are facing the challenge of familiarizing
       themselves with the new aid architecture and mechanisms when it re-engages
       with the international community. The first step may be the signing of the Paris
       Declaration Principles to assure the donors that Zimbabwe is serious to adapt and
       implement the new principles, structures and process of international aid delivery
       and coordination.
       Strengthening aid inflows, accounting and capacity units in the ministry of
       finance


5.1.3 Procurement
As shown above, the general finding is that Zimbabwe‟s procurement system is long
established and operational, but its effectiveness is hampered by a number of factors,
including:
        The effectiveness of the system is low because of lack of resources.
       Substantial proportion of public sector procurement lies outside the system
       (e.g. RBZ and ministries which receive donor funds directly).

       Location of procurement function outside the Ministry of Finance calls for
       extra effort in coordinating it with other components of PFM.

       The procurement function is not linked directly to the PFM system.

       The question of whether the World Bank‟s assessment will lead to the adoption
       of the Zimbabwe Tender Board‟s procedures by foreign large tenders needs to
       be pursued.

       The Tender Board is currently not working closely and in co-operation with
       the Anti – Corruption Commission.

5.1.4 Coordination and Decentralization

Donor coordination and harmonization is better served when the donors undertake joint
financing through general budget support (GBS) or in the least basket funding. Donors
can coagulate around the STERP to offer their support and encourage government
leadership to move to more medium term planning with more or less harmonised support
from the donors. Under the PD alignment principle, which Zimbabwe did not sign,
donors committed themselves to using national systems and procedures. However, the
PFMS should be effective to a certain degree for donors to agree to align to it. Even when
avoiding public systems is inevitable donor harmonization should be encouraged.

Sound planning, prioritization and sequencing of actions are key in ensuring maximum
impact in view of high needs and the limited capacity. Even the operation of sub-optimal
operations can keep the system warming on so it can start with fewer challenges when it
is appropriate. Although available data is scarce and some critical information is found
outside the PFMS, the challenge is to use what is available in the most effective manner.
What is important is to balance the aim for comprehensiveness and sub-optimal ends
provided they have value added.

5.1.5 Monitoring and Evaluation
While monitoring and evaluation of the business of government takes place in each
ministry, this activity is coordinated jointly by the Ministry of Finance and the
Ministry of Economic Planning and Investment Promotion. However, over the past 10
years the fabric of Zimbabwe‟s public finance had collapsed adversely affecting the
monitoring and evaluation systems in government. This situation led to a number of
donors and co-operating partners losing confidence in the system of Zimbabwe
government‟s monitoring and evaluation system in central as well as sector ministries
and local government authorities. Monitoring through accounting, procurement and
auditing systems also deteriorated. The need for strong capacity building enhancement
in Zimbabwe‟s Public Sector Management System and for capacity building measures
to support policy reforms focusing on the management of internal monitoring systems
as well as external aid resources cannot be overemphasized. In addition, the measures
must include an Institutional Support for Good Governance. To be effective, the
system of Monitoring & Evaluation has to include training in the utilization of Grant
Resources and their impact.


5.1.6 User Attitude and Response Mechanisms

Users of country systems use the systems when they are confident that the systems are
credible in terms of handling their resources. The deterioration of the effectiveness of
PFM system has resulted in reduced confidence in the system. The approach that RBZ
adopted in managing monetary policy and foreign exchange management as well as quasi
fiscal expenditure activities posed a high risk to the users of the PFM system.
The challenge is to put in place systems which can commend credibility and respect by
the users. Under the Paris Declaration principles the issues of ownership, alignment and
harmonisation have come to the forefront of the donor attitude and response mechanisms.
In particular, the principle of using country systems is accepted but they have to be raised
to the level of acceptability. In this regard, the Government and donors may join hands to
strengthen and support PFMs, procurement, auditing /monitoring systems in Zimbabwe
early enough in the process of her engagement with the donor community.


5.2 Overview of the PFM System
       The shortcomings inherent in operating outside the PFM system include the fact
       that there was often little coordination between donors operating in the country, as
       well as coordination between the donors and the partner country government in
       terms of prioritisation. The manner in which projects are implemented outside the
       PFM breeds the disconnect between sector line ministries and the Ministry of
       Finance in the areas of planning and budgeting. In addition, the Ministry of
       Finance is deprived of the information on implications of various projects on
       recurrent expenditures, such as maintenance costs for infrastructure projects and
       personnel costs for social service delivery projects.
       Confidence in using country systems is likely to be facilitated by improvements in
       country systems of public financial management including public procurement in
       the context of a greater transparency and oversight, a reduction in transaction
       costs and fiduciary risks.
       Operating outside the PFM has adverse consequences on the risk of undermining
       both the ability and incentives for partner countries to perform a number of key
       government functions, undermines efforts to expand the tax base and revenue
       collection and undermines planning and prioritising through the budgetary
       allocation process, and to implementing, monitoring and evaluating programmes.
       In addition, it undermines central government planning and budgetary processes
       and dilutes accountability for development as it is difficult for Parliamentary
       oversight to be exercised when the flow of such funds is not reported to the
       Ministry of Finance.
       Accountability and improvements in the recording of aid flows in national
       budgets is particularly important in enabling MOF to present accurate and
realistic budgets to the national parliament as well as more comprehensive and
timely reporting of aid flows by donors.
The use of country systems notably public financial management systems
(PFMs), procurement, auditing and monitoring systems of partner countries
avoids creating parallel structures. The challenge is for the government to work
together with donors to carry out diagnostic reviews of national capacity in these
areas with a view to making strengthening national capacity a joint venture
between them.
A sub-set of considerations underpinning the Paris Agenda concerns the
specificities of aid delivery in „fragile state‟ contexts which characterises a
specific group of countries which merit special treatment in order to address
weaknesses in policies, institutions and governance. It is stressed that there is
need to take context as a starting point in order to design appropriate interventions
to distinguish between capacity constraints and a lack of political will, help the
country to implement the GPA and build resilient institutions which can
withstand political and economic pressures and assist Zimbabwe to build capacity
to deliver basic public goods for its citizens as well as assist with building an
enabling environment for economic growth in order to generate employment as
well as revenue streams for the state.
Internal Audit units exist in line ministries as well at central level (within the
Accountant General‟s department), but units are now too poorly staffed, resourced
and trained to perform their function effectively.
The coverage of financial reporting is at best partial not covering activities
undertaken by the RBZ and excludes local authorities and state enterprise
financial performance.          Bank reconciliations and suspense accounts
reconciliations are not done frequently nor followed up effectively.
The fact that financial statements are not prepared in line with international
accounting standards makes them prone to incompleteness. The late submission
of financial statements renders them less useful although the Government of
Zimbabwe has a reasonably strong regulatory framework in the form of statutes,
enforcement and implementation has often lagged behind.

There has been a flight of professional and technical skills due to the economic
environment and extremely low pay affecting all government, including local
authorities and state owned enterprises. Zimbabwe Revenue Authority and RBZ
which had some flexibility in determining terms of employment were exceptions
until recently.

A comprehensive human resource audit has not been carried out to show gaps in
numbers and quality. This is a major assignment which should have been carried
as a basis for proposing action to be taken in terms of retention, training,
attracting back the Diaspora or designing ways of utilizing them wherever they
are.
6.0 RECOMMENDATIONS

This chapter presents recommendations on strengthening the aid management
arrangements to provide the comfort that any resources availed is used for the intended
purposes. The recommendations that are to be implemented in the immediate short term
are distinguished from those recommendations which may be implemented in the
medium term.

6.1 Short term and immediate measures

       An effective stabilization programme is contingent upon re-engagement with the
       international community. Some bilateral countries are likely to quickly respond to
       effective stabilization programme and provide a quick assistance. The bilateral
       donors are therefore indispensable for quick assistance and earlier engagement
       with them is necessarily.
       The pooled funding mechanism, the Multi-Donor Trust Funds (MDTFs) that is
       currently in place at small scale, can offer an opportunity for donors to begin the
       process of harmonizing and aligning to national priorities contained in recovery
       framework. The advantages of MDTFs for donors are that they reduce
       transactions costs through joint planning, prioritisation and the sharing of
       information and coordinated monitoring. MDTFs also help to address the
       fiduciary risk concerns of donors in situations that are often characterised by weak
       public financial management systems whereby donors are unwilling to engage in
       direct budget support by channelling funds through the UN and World Bank until
       their concerns over credibility of the PFM system have been met.
       Operationalise the NDF system and agree with donors what funds can pass
       through the system and other systems e.g. UNDP support funds. UNDP
       coordinating agency for UN agency funding for those donors who cannot
       immediately have confidence in government systems. The experience that has
       been gained from inter-donor harmonisation in areas such as HIV/AIDS and
       Orphans and Vulnerable Children (OVCs) where the donors were able to both
       engage at a technical level with line ministry staff and channel funds through
       UNICEF, which passed these on to NGO care providers and faith-based
       organizations can be borrowed and up scaled. With appropriate sequencing it is
       possible to gradually improve the quality of the relationship between donors and
       the new Inclusive Governments while laying the foundations for national
       ownership, harmonization, alignment, accountability and a results-focus in the
       partnership. In such a transition, sound planning, prioritisation and sequencing of
       actions are key to both ensuring maximum impact, as well as managing
       expectations on both sides of the donor-partner country relationship in terms of
       what can realistically be achieved.
       In cases like Zimbabwe where capacity is constrained MDTFs can facilitate
       interaction with a single, coordinated and harmonized source of external
       assistance thus providing a forum in which donors and partner countries are able
       to discuss priorities and implementation modalities. In this context, MDTFs
       should be structured around national priorities to ensure that donor assistance
reflects these budget priorities, even if funds do not yet flow directly through
national budget system.
As part of managing the transition it is proposed that arrangements be made to
have Joint Assessment Missions (JAMs) and Needs Assessments (NAs) involving
both donor and national technical staff as a basis for providing a factual basis for
dialogue and building shared understanding of what is required and are a first step
towards joint planning and coordination.
Prepare macroeconomic framework, a prerequisite for macro-economic
management of aid resources and domestic resources to achieve national
objectives.
Engage the World Bank and IMF to prepare and agree on 6-month Shadow
Programme (SMP) to be able to get gain assistance from them.
Seek foreign aid to restructure the domestic debt, while negotiating a debt-
forgiveness package for foreign debt.
Ensure PFMS is operational and request assistance to update existing system ,
including training and equipment support
Improve on the fiduciary risk by updating the legislative and regulatory
framework of the Audit and Exchequer Act;
Speed up the completion of legislation of PFMS and AUDIT BILLS to reinforce
the role Ministry of finance and the Controller and Audit General.
Reinforce the implementation of the Aid manual.
Zimbabwe‟s decision-makers need to familiarize themselves with the new aid
architecture and mechanisms as a basis for re-engaging with the international
community. It is recommended that the first step should be taken to sign the Paris
Declaration Principles to assure the donors that Zimbabwe is ready to adopt
measures to strengthen ownership of aid management and to agree with donors on
the implementation of Paris declaration
Sell the STERP to and agree with donors how much of the 8.41 billion dollars to
finance STERP will be financed by donors and by whom. Complement STERP
with a medium term national development framework which will be formulated
through a participatory process involving both government and non-state actors –
the private sector, labour and civil society – placing ownership of the
development process firmly with the partner country. The development
framework then becomes the centre-piece around which donors can align and
harmonise their own development assistance.
Undertake a comprehensive study on audit of existing manpower: in terms of
requirement, source of staff to run the system and funding required.
Put in place capacity building programme; improve incentive system and agree
with capacity building programme.
Training for the updating of the synchronization of the PFMS and Treasury
Instructions; Capacity building & training for the Public Accounts Systems;
Training of staff in the CAG office; Training of staff in the State Procurement
Board (Tender Board) and Training in the utilization of the Grant Resources and
Disbursement methods notably, Disbursement methods used; Details of
disbursements made; assessment of the efficiency and problems encountered in
disbursing; Contribution by co-financiers; Detailed categories of expenditure and
differences; Annual disbursements; and Final special account report.
Upgrading of equipment in the Internal Control and Procurement systems
Improve on the timely production of Audit reports which are currently outdated,
e.g., the Comptroller and Auditor General Act remains that of 1996, the
Companies Act is of the 1960s, etc.
Engage TA on improving systems of the CAG‟s Office link up to the Public
Accounts Committee (PAC);
The effectiveness of the PAC is in doubt, as it has recommendation powers only,
leaving the Executive to take or not take action. To be effective the legal status of
the CAG must go hand in hand with the PAC Bill.
Engage a joint TA to involve Government and Donors for the assessment of State
Procurement Board (Zimbabwe Tender Board‟s) procedures and systems so that
they are adequate for adoption by foreign large tenders.
The Tender Board should preferably work closely and in co-operation with the
Anti – Corruption Commission.
Location of procurement function outside the Ministry of Finance should be
reconsidered with a view to simplifying coordination with other components of
PFM.
Institute the change from manual to computerized procurement systems so that all
functions are linked directly to the PFM system.
Build the confidence and trust of the donors by holding dialogue with them on
their needs, informing them about improvements being made on the systems and
seeking joint action on strengthening the systems where it is deemed necessary
and appropriate.
Avoid early entry of donors into preferring project over programmatic aid because
of the greater control over resources and their targeting this offer; press for use of
government systems or their proxy to ensure progressive alignment national
policies and priorities;
Aid instruments must be mixed and sequenced in order to fix context bearing in
mind that a wider range of aid instruments can be used successfully in widely
differing contexts. While recognizing the attractions of project-based aid delivery
in fragile state situations like Zimbabwe, it is important to think in programmatic
terms right from the outset of engagement. It should be possible to work with
GOZ on the development of the national development framework, with detailed
decisions on the most appropriate aid implementation modality, i.e. whether
through government systems, NGOs, direct donor implementation, on or off-
budget flows or a mixture of all, being decided subsequently. Budget support can
begin to be provided through the World Bank managed Multi-Donor Trust Fund
(MDTF) which would be disbursed to the government on a reimbursement basis.
Ensure the complete implementation of the Global Political Agreement (GPA)
with a view to keep the new inclusive government in focus operating as one
unitary government.
6.2 Medium and long term measures

       Put in place a long term vision of Zimbabwe and a medium term strategy to
       implement the vision- the Economic and Poverty Reduction Strategy for
       Zimbabwe (EPRSZ). The process for preparing them should be owned by the
       people of Zimbabwe and all parties involve development partners to lay firm
       ground for sustainable and successful implementation of the vision and medium
       term EPRS.
       Improve budgeting for domestic and external resources; adopt MTEF budgeting
       approach.
       Prepare Aid policy to improve aid management and coordination. Define the
       framework to engage the donors. As Zimbabwe moves to improve aid relations
       with the donors it is recommended that priority be given to signing the Paris
       Declaration and moving forward with the implementation of the principles of the
       Declaration. This will require that Zimbabwe develops institutional structures
       that are appropriate for improving aid effectiveness.
       Promote the use of country systems notably public financial management systems
       (PFMs), procurement, auditing and monitoring systems of partner countries to
       avoid creating parallel structures.
       Invite donors to commit themselves to work together with Zimbabwe to carry out
       diagnostic reviews of national capacity in critical areas. Where necessary, donors
       would be requested to assist in strengthening national capacity so that these
       systems meet generally accepted standards through training and the necessary
       technical assistance.
       Review the PFM system and make necessary reforms in budgeting (e.g. prepare
       organic budget law and review of the legislation required) and ensure capacity
       building required by the reforms.
       Address the issue of the operations of the RBZ and its relation to the Treasury. A
       return to the traditional role of central banking is absolutely necessary in the new
       dispensation and would provide a lot of comfort to both domestic and external
       stakeholders.

6.3Implementation of Recommendations of this Report
Many times implementation of reports prepared for governments is not followed through
unless appropriate arrangements are made for that purpose. In order to avoid lapse in this
regard, it is recommended that the Government should make arrangements to go through
this report and formulate an action plan which will indicate what is agreed for
implementation, what is to be implemented by whom and by when with clear
arrangements for follow up.
REFERENCES
 1. Accounting for donor funds, Circular No. 1 of 1998
 2. Audit and Exchequer Act, Chapter 22:03, Revised Edition 1996Audit Office Bill,
                     Draft 2009
 3. Comprehensive Economic Recovery in Zimbabwe, a discussion document by
                     UNDP, 2008
 4. Draft Finance Bill
 5. Draft Audit Bill

 6. Guidelines for the provisions and/or procurement of goods and services under
                     donor assistance
 7. IMF Country Report No. 09/139 May 2009.
 8. Memorandum: Overview of the National Development Fund
 9. National Budget of Zimbabwe, 2008
 10. Public Finance Management Bill, Draft 2009
 11. Report By JUDITH MADZORERA ACCOUNTANT GENERAL Windsor Golf
                     & Country Club Resort, Nairobi, Kenya, November 8-12, 2004
                     Government of Zimbabwe IFMIS
 12. Processing and options for Zimbabwe‟s arrears and debt relief, an informal view,
     February 2009
 13. Short term Emergency Recovery Programme(STERP), March 2009

 14. Summaries of fiscal constitutions in africa: Joachim Wehner Institute for
     Democracy in South Africa (Idasa) Budget Information Service 14 December 2000 .

 15. A Report Published by the Commonwealth Parliamentary: Association (CPA)
    Parliamentary Financial Scrutiny Workshop, held from 7 to 15 February 2006 in
    Canberra and Sydney, organized with the World Bank Institute and La Trobe University,
    the following features prevail
 16. International Journal of Government Auditing April 2007 by George Winful
APPENDIX I: ZIMBABWE’S ECONOMIC PLANS SINCE 1997 AND
THEIR IMPLEMENTATION

Year    Economic plan/blueprint                Results / Impact
1997    Vision 2020, 1996-2020                 Failed to achieve virtually all plan targets:
                                                    efficient Public Sector resource management
                                                    industrialisation/ competitiveness
                                                    Infrastructure development
                                                    Privatise & commercialise PEs
                                                    Human resource development
                                                    Better health delivery
1998    The Three-Year Medium Term                  Planned macro-economic indicators not achieved
        Development Plan (TYMTDP)                   Planned growth not achieved
        1998-2000                                   Land reform not achieved
                                                    Infrastructural provision declined
                                                    Human resources & skills develop_ not achieved.
2000    Millennium Economic Recovery                Actual capital budget in the millennium budget
        Programme (MERP) - presented as                was only 8% of total expenditures, down from
        a continuation of the commitments              11% in 1999.
        and targets of ESAP and                     All plan targets remained on paper and ignored
        ZIMPREST                                       by government.
                                                    Under high inflation, heavy distortions –
                                                       adjustment costs inequitably borne by the poor –
                                                       slashed education, health and social welfare
                                                       budgets.
2003    National Economic Recovery                  Never implemented until abandoned without
        Programme (NERP)                               trace.
April   National Economic Development               Ave_real GDP growth -4.1% ( 2004-2005)
2006    Priority Programme (NEDPP)                  Budget deficit peaked from 0.3% in 2003 to
                                                       24.9% of GDP in 2005.
                                                    Interest rates from 500 – 600%
                                                    90% of Manuf- firms unable to cover their costs
                                                       & increase capacity utilization
                                                    Major mines closed down leaving 40,000 people
                                                       on the streets, 3,4 million people have migrated,
                                                    60% of population living below US$1 per day
2007    Zimbabwe             Economic               Still born and never got implemented
        Development Strategy (ZEDS) :               Announced outside framework of the national
        2009-2013                                      budget
Source: Plan documents and estimates of implementation calculated by the Consultant Team.
APPENDIX II: LIST OF NAMES OF PERSONS
VISITED/INTERVIEWED

  1. Hon. Tendai Biti- Minister of Finance
  2. Mrs Judith Madzorera- Accountant General- Ministry of Finance
  3. Mr. Edwin Zvandasara- Deputy Accountant General – Government Accounting Services
      (G.A.S)- Ministry of Finance
  4. Mr. Mutasa Dzinotizei – Principal Director - Finance and Taxation - Ministry of Finance
  5. Mr. John Masiyanise- Deputy Accountant General – Parastatals, Aid Accounting &
      Statutory Funds (N.D.F.)- Ministry of Finance
  6. Mr. Howard Guyo Matimba - Principal Accountant- Parastatals, Aid Accounting &
      Statutory Funds(N.D.F.) - Ministry of Finance
  7. Ms Nomsa Tsweni- Principal Accountant - Parastatals, Aid Accounting & Statutory
      Funds(N.D.F.) - Ministry of Finance
  8. Mr. Dennis Dzimiri - Accountant- Parastatals, Aid Accounting & Statutory Funds
      (N.D.F.) - Ministry of Finance
  9. Mr. Thomson Masvaure- Accountant- Government Accounting Services (G.A.S.) -
      Ministry of Finance
  10. Mr. Pfungwa Kunaka-Principal Director (Budgets) - Ministry of Finance
  11. Ms Makeletso Namasasu- Director Implementation and Control of Expenditure Unit-
      Ministry of Finance
  12. Ms Fidelis Ngorora- Acting. Director Expenditure – (Bydgets/ICEU) Ministry of Finance
  13. Ms Margireta Makuwaza- Director - Domestic and International Finance (DIF) - Ministry
      of Finance.
  14. Ms Martha Mugweni- Deputy Director- DIF (External) - Ministry of Finance
  15. Mr. Sadwell Kanyoza- Deputy Accountant General - PFMS Project Office
  16. Mrs Mabel Zanamwe- ABAP Programmer - PFMS Project Office – Ministry of Finance
  17. Mr Sibanda- Materials Management (M.M.) Consultant - PFMS Project Office –
      Ministry of Finance
  18. Mr Rabson Mupatsi- Sales & Distribution Consultant (S.D.)- PFMS Project Office -
      Ministry of Finance
  19. Mrs Blessing Chitakume- Financial Management (F.I.)- PFMS Project Office - Ministry
      of Finance
  20. Mr Percy Tafadzwa Mahati- ABAP Programmer - PFMS Project Office - Ministry of
      Finance
  21. Mr Munyaradzi Chanakira - Sales & Distribution Consultant (S.D.) - PFMS Project
      Office - Ministry of Finance
  22. Mr. Clive Majengwa- Deputy Auditor General – Office of the Comptroller & Auditor-
      General (OCAG)
  23. Ms Vongai Shiri- Deputy Director Information Technology - Office of the Comptroller &
      Auditor-General (OCAG)
  24. Mr. Gordon kandoro- Director of Audit (Performance) – Office of the Comptroller &
      Auditor-General (OCAG)
25. Mr. Davy Moyo- Acting. Deputy Auditor General - Office of the Comptroller & Auditor-
    General (OCAG)
26. Mrs Emily Dzonouya- Acting. Deputy Auditor General - Office of the Comptroller &
    Auditor-General (OCAG)
27. Mrs Nyasha Magadza- Director Audit - Office of the Comptroller & Auditor-General
    (OCAG)
28. Mr. Boniface Mukwenga- Deputy Auditor - Office of the Comptroller & Auditor-General
    (OCAG)
29. Mr. Desire Sibanda- Permanent Secretary- Ministry of Economic Planning and
    Investment Promotion.
30. Mr. Sifikile Moyo - Economist- Ministry of Economic Planning and Investment
    Promotion.
31. Mr T.A.Ntuli - Economist- Ministry of Economic Planning and Investment Promotion.
32. Mr. Esson Mungani- Senior Foreign Exchange Purchasing Centre- Reserve Bank of
    Zimbabwe (RBZ)
33. Mr. Hudson Kaome -Banking Operations- RBZ
34. Ms Delilah Khupe - Head Retail Banking- RBZ
35. Mr. Goodman T. Musariri- Head Treasury Operations - RBZ
36. Ms Izabella Eriksson- First Secretary/ Deputy head (Development Cooperation)
37. Mr. Mark Simpson- Senior Recovery Adviser, Office of the Resident Coordinator-
    UNDP
38. Mr. Charles Kuwaza- Director General- State Procurement Board
39. Mr. Sam Mutanhaurwa - State Procurement Board
40. Mr. Reinhard Woytek- Senior Operations Officer and Manager Multi-Donor Trust Fund -
    World Bank
41. Mr Marchel L.G. Gerrmann , Deputy Head of Mission -Royal Netherlands Embassy
42. Ms Joylyn Ndoro, Programme Officer - Royal Netherlands Embassy.
43. Mr. Stuart Tibbs – Economist – DFID, Harare.