1. Resource Allocation and Flows, Decentralisation, and Poverty Reduction: The Case of Rural Water Supply and Sanitation in Zambia

2. Research Team: Eric Gutierrez WaterAid, Regional Advocacy and Research Adviser for Southern Africa Webby Wake University Zambia, Acting Chair, Department of Economics Savior Mwumbwa WaterAid, Research Officer

3. Outline of Presentation Brief on the Annual Budget Process Brief on the Annual Budget Process Findings of the study Findings of the study Estimating finances needed to meet MDGs Estimating finances needed to meet MDGs

4. Notes on the Budget

5. Annual Budgets (Parliament) Poverty Reduction Strategy Paper 2002-2004 (Multi-stakeholder consultations) Transitional National Development Programme 2002-2005 (Multi-stakeholder consultations) Medium-Term Expenditure Framework 2003-2005, (Ministry/ Sectoral Advisory Groups) Public Investment Programme 2002-2005 (Ministry of Finance) Tools for shaping and structuring the Annual Budget

6. The Resource Envelope Source Projection (as percentage of GDP) Amount in kwachas (1 = 1 billion) 2002 Tax revenue 18.4% of GDP 2,940 ($588 m) External support External support 5.6% of GDP 891 ($178 m) Deficit Financing Deficit Financing 7.3% of GDP 1,168 ($234 m) Total for 2002 Total for 2002 4,999 ($1000 m) 2003 Tax revenue 18.5% of GDP 3,403 ($681 m) External support External support 5.3% of GDP 986 ($197 m) Deficit Financing Deficit Financing 4.3% of GDP 787 ($157 m) Total for 2003 Total for 2003 5,176 ($1035 m) 2004 Tax revenue 18.6% of GDP 3,782 ($756 m) External support External support 5.1% of GDP 1,043 ($209 m) Deficit Financing Deficit Financing 4.1% of GDP 832 ($166 m) Total for 2004 Total for 2004 5,657 ($1131 m) Source: PRSP, May 2002

7. Finance Ministry calls for budget submissions April Budgets made by all spending bodies May Head offices consolidate budget submissions and sends them to Finance Ministry June-July “Estimates” produced and sent to Parliament for approval August Parliament deliberates on the budget; conducts budget hearings Sept - November Parliament approves the budget for the following year; Appropriation Act December THE BUDGET PROCESS OF ZAMBIA (IN THEORY)

8. Finance Ministry calls for budget submissions April Budgets made by all spending bodies Aug-Sept Head offices consolidate budget submissions and sends them to Finance Ministry December “Estimates” produced and sent to Parliament for approval January Parliament deliberates the budget as ‘committee of the whole’ Jan - March Parliament approves Appropriation Act March THE BUDGET PROCESS OF ZAMBIA (IN PRACTICE) With no legislative authorisation for a budget when the financial year starts, President issues a warrant authorising release of funds from Treasury.

9. Findings

10. 2001 HeadingMinistry Line item in the Budget Authorised provision Actual expenditure 02/03OVP-DORWater Supply and Sanitation 50,000,000 - 13/01MEWDGrants to the Water Board 550,000,000 602,970,213 13/01MEWDGrants to NWASCO 550,000,000 324,037,330 13/03MEWDPoverty Reduction Programme - Rural Water (Boreholes, Wells) 17,873,404,000 5,345,856,860 13/03MEWDStrengthening of Hydrological Stations 450,000,000 551,473,891 13/03MEWDRural Water Development - Eastern Province 200,000,000 118,313,774 13/03MEWDDrought/Flood Mitigation 500,000,000 49,079,881 13/03MEWDZambezi River System 110,000,000 97,936,129 13/03MEWDHydrological Assessment and Strengthening of Network 300,000,000 503,292,132 13/03MEWDRehabilitation/Construction of Earth Dams 593,460,000 765,414,946 13/03MEWDKafue Basin Action Plan 200,000,000 199,510,847 13/03MEWDRural Water Supply Program - Eastern Province 6,600,000,000 839,946,612 13/03MEWDChongwe Multipurpose Dam 185,690,000 167,987,110 13/03MEWDGround Water Monitoring and Exploration 339,790,000 759,293,828 13/03MEWDHydrogeological Mapping 184,800,000 26,252,234 13/03MEWDWater Resources Information Center 33,970,000 45,970,000 13/03MEWDWater Resources Action Programme 235,400,000 220,422,830 13/03MEWDRural Water Supply and Development Support 116,000,000 350,520,316 13/03MEWDRural Water Development for Drought Prone Areas 5,175,000,000 228,662,340 20/01MLGHLivingstone WSS Services 20,300,000,000 6,945,525,023 20/01MLGHSix Townships Water Supply - NW Province 790,000,000 - 20/01MLGHLusaka Water Supply Scheme (Rehabilitation of Distribution System) 10,500,000,000 -

11. 1. Allocations in the Budget are Greater than the Resource Envelope YearWhat the resource envelope provides, if divided equally over three year Capital expenditures budgeted for water and sanitation Actual expenditure 200270.6 billion K ($14.13m)135.7 billion ($27.1m)No figures yet 200370.6 billion ($14.13m)152.1 billion ($30.4m)No figures yet 200470.6 billion ($14.13m)No figures yet Source: PRSP, May 2002 and Estimates of Expenditures, 2002 and 2003.

12. 2. Great variance between provision and actual expenditure YearAuthorised Provision for water and sanitation Actual Expenditure for water and sanitation Expenditure/ Provision 199935,974,179,0103,473,308,9229.65% 200052,213,690,7098,176,348,00115.65% 2001197,587,575,88448,787,082,15424.70% 2002135,696,095,997No figures available- 2003152,107,960,726No figures available- Source: Consolidated from 1999, 2000 and 2001 Financial Reports and 2002, 2003 Estimates of Expenditures. See Annex 1 for breakdown.

13. YearAuthorised Provision for water and sanitation Actual Expenditure for water and sanitation Expenditure/ Provision 199928,220,854,000553,648,1651.96% 200013,591,979,000 614,906,368 4.52% 2001 34,197,514,00011,196,941,27332.74% Source: Consolidated from 1999, 2000 and 2001 Financial Reports and 2002, 2003 Estimates of Expenditures. Table 7 – Comparison of Authorised Provision and Actual Spending on WSS Capital Expenditures, Ministry of Energy and Water Development, 1999-2001

14. 3. Local authorities have little say in the allocation and decision-making on resources Local officials get to know about allocations only if central offices inform them Local government personnel and machinery lie idle for most of the year because no funds are released (even when they are approved) District governments do not have the power to budget for capital expenditures, only salaries and other recurring expenditures.

15. 4. The budget process appears to be unsystematic and unclear Are the tools for the annual budget (PRSP, TNDP, PIP) actually being used as tools? Lack of clarity between the functions of the MEWD and the MLGH. MFNP identified as spending body for WSS capital expenditures; not clear from budget whether this ended up in MEWD Some bodies bid for more money than they can spend, because it will be cut anyway. At the end of the year, unspent sums are transferred to other accounts Parliament does not engage critically in the budget process.

16. 5. WSS financial resources could easily be redirected away from unserved into better-served areas. Urban centres getting the lion’s share of allocations for projects that were not identified as priorities for expenditure under the PRSP. Not clear if poor peri-urban areas are prioritised under these allocations.

17. 6. Donors provide 70-80% of allocations to WSS sector, and are driving much of the process. On-budget donor support up to 70% of total spending; including off-budget, it could reach 80% With this leverage, why have donors not pushed for decentralisation reforms in WSS? Certain donor-supported sectoral reforms are evident, e.g. privatisation of urban water utilities.

18. Table 10: Identified On-budget Donor-Supported Items in the 2001 Zambia National Government Budget Allocations for Water and Sanitation Description of ItemAuthorised provision Donor and amount providedActual Expenditure Livingstone WSS Services 20,300,000,00019,800,000,000 KfW loan 6,945,525,023 Six Townships WSS NW Prov. 790,000,000600,000,000 KfW loan - Lusaka Water Supply Scheme 10,500,000,0009,810,000,000 ADB/AFD loan - Kitwe Water Supply Scheme 1,675,000,0001,225,000,000 ADB/AFD loan 402,854,193 Solwezi WSS System 850,000,000670,000,000 KfW loan - Urban Restructuring & Expansion of Water Supply 2,835,000,0001,800,000,000 IDA grant 1,397,362,981 Improvement of Water Supply of NW side of Lusaka City 7,750,000,0006,500,000,000 EU grant 1,000,012,830 Lusaka Water Supply Rehabilitation Project 31,869,398,00015,304,732,000 ADB loan 2,583,641,500 TOTALS139,974,804,000 99,193,532,000 14,881,980,416 Source: pages 147 to 155 Estimates of Revenue and Expenditure, 2002. Source for column on actual expenditure are pages 168-175 of Financial Report, 2001.

19. 7. The approach to WSS provision is largely an engineering solution. 8. Sanitation is not on the agenda

20. Estimating Finances Needed to Meet MDGs

21. Starting Baseline – 1993-97 Water Point Inventory of Zambia ProvinceDistrictRural PopnNo of WPWP in useWP NIUWPD allWPD IU SouthernChoma 142,596298223752.091.56 SouthernGwembe 41,3267250221.741.21 SouthernKalomo 197,8752991891101.510.96 SouthernMazabuka 136,9183892331562.841.70 SouthernMonze 115,8684543271273.922.82 SouthernNamwala 90,4203902631274.312.91 SouthernSiavonga 30,3958828602.900.92 SouthernSinazongwe 63,79413066642.041.03 WesternKalabo 87,817114101131.301.15 WesternKaoma 135,059178125531.320.93 WesternLukulu 53,355118103152.211.93 WesternMongu 108,7964022961063.692.72 WesternSenanga 136,9125524321204.033.16 WesternSesheke 61,57412498262.011.59

23. Calculate what is needed to bring WPD in each district to 4 water points per thousand Table 5: Projections on the needed growth in number of rural water points in Kaoma District, Western Province, Zambia YearRural Population Estimates (constant growth of 3.3%) New Water Points Added Number of Water Points at the End of the year Water Point Density at end of the year 2003162,7791921.18 2004168,151642561.52 2005173,700643201.84 2006179,432643842.14 2007185,353644482.42 2008191,470645122.67 2009197,788645762.91 2010204,315646403.13 2011211,057647043.34 2012218,022647683.52 2013225,217648323.69 2014232,649648963.85 2015240,327649614.00

24. Make national projections Total number of water points needed each year – 1813 K 45 billion ($9 million) each yearVery rough calculation of cost – K 45 billion ($9 million) each year; reductions can be made if inventory is updated, and lower-cost technology options chosen. This figure looks high but is not unaffordable. This is also high-value investment because of the impact of water provision on economic productivity, health and primary education. Note: Equity in distribution is not shown here Cost of updating inventory -- $1000 per district, at most 1 month work in each district, involving 8-10 local district and D-WASHE personnel; includes local district-level planning workshop

25. Some Recommendations Undertake local level planning that is consolidated at district level Decentralise financial allocation and decision-making through conditional grants from national to district governments (e.g. Uganda experience) Strengthen budgeting mechanisms; non-state actors can lobby for the institutionalisation of budget reforms.