1. Governance and Political Conditionality Case of Zambia Francesca Di Mauro BESA - March 2010, Nairobi

2. Outline PRBS context in Zambia 2009: a difficult year CPs dynamics Lessons learned

3. PRBS context in Zambia PRBS Group: GRZ + nine CPs (Germany, Finland, Netherlands, Norway, Sweden, UK Aid, AfDB, EC and World Bank) PRBS MoU signed in April 2005 – currently being revised since 2008, with 4 UPs: macro, PFM, poverty reduction, good governance 3-years rolling PAF used by all, with 34 indicators covering several areas, but NOT governance/political conditionality in particular PRBS commitments: $240 million for 2010 (20% of ODA)

4. 2009: a difficult year Ministry of Health scandal: funds misappropriated, including donor basket funds; SW and NL suspend funds; audits initiated Ministry of Works and Supply documents show huge over-commitments in the sector; audits initiated Meeting with President and all CPs in May: Governance Matrix highlighting all concerns PRBS CPs launch formal dialogue on UPs in June, will last 6 months; EC chairs the group; use of a Roadmap

5. 2009: a difficult year – cont.d PRBS Roadmap coverage: PFM reforms: procurement, IFMIS, treasury management, budget cycle; Public sector reform: decentralisation, pay policy; Good governance: anti-corruption policy; funding of oversight institutions OAG and ACC, freedom of information Sectoral issues: Health, Roads, Agriculture PRBS dialogue mechanisms: regular update meetings with ST and line ministries

6. CPs dynamics EC as chair tried to keep group together – also under pressure for V-FLEX! Some had already disbursed weaker position, pushing for maintaining in-year disbursements (predictability) Strong pressure back home (SW, DE, NL) Difference in views between policy/political dialogue Little recognition of Art.8 process by EU MS Breaking the ranks by some

7. Lessons learned Thin line between policy and political discussions – when policy reforms stall, political will is lacking EC position not well understood, but do we have one? Need for EU consensus, at least Dialogue intensified with GRZ, and things actually moved: reform by threat? New impetus for revising MoU, PAF and way we dialogue with GZR

8. Annexes Current Underlying Principles in PRBS MoU: GRZs commitments to fight poverty, including through a pattern of public expenditure consistent with poverty reduction priorities as identified in the National Development Plan GRZs commitment to peace, democratic principles, the rule of law, good governance and integrity in public life, including the fight against corruption; GRZs commitment to public financial management reforms; GRZs commitment to pursuing sound macro-economic policies, as evidenced by a positive IMF assessment of overall macro-economic performance.

9. Annexes Proposed revised UPs: The Signatories consider the following commitments of Government with corresponding concrete actions to be the underlying principles for the provision of PRBS: Fight poverty, including through a pattern of public expenditure consistent with poverty reduction priorities as identified in the National Development Plan; Promote peace, human rights, democratic principles, and the rule of law, Enhance good governance and integrity in public life, including the fight against corruption; Pursue public finance management reforms, including progress with the PEMFA programme and any successor programme; Apply sound macro-economic policies. In assessing this commitment, Cooperating Partners will consider a number of factors, including in particular assessments of macroeconomic policy implementation by the IMF.