Office of the Auditor General Zambia 1

Experience and Practices of Public Debt Management in Zambia

Annual Meeting of INTOSAI Working Group on Public Debt-Vilnius, Lithuania 09-10 June 2011

Presenter: R M Chilupula Deputy Auditor General – Audit & Consultancy

Introduction Government/Public debt can be defined as the outstanding

stock of recognized, direct liabilities of the government to the rest of the economy and the world

Debt management is the process of establishing and executing a strategy for managing the public debt in order to raise the required amount of funding at the desired risk and cost level

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Background of Government Debt in Zambia

Debt management in Zambia has been challenged in previous years by: Fiscal requirements Infrastructure Cost of Flooding

This had resulted in:• An increased need for debt financing• Reduced Zambia’s external debt stock by over 80% - from

US$7080 million in 2005 to US$ 1,218.7 million in 2008• However, external debt stock increased by 23.2 percent to US $1,501.5

million at end 2009 from US $1,218.7 million

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Legal Provisions

External Debt Management in Zambia is governed by the following Acts:

• Chapter 366 of the Laws of Zambia (enacted in 1969 and amended in 1972)

• Chapter 353 of the Laws of Zambia (enacted in 1969 and amended in 1991)

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Legal Provisions

Other secondary legislations include the following:a) The Bank of Zambia (BOZ) Act of 1996 – Chapter 360 of

the Laws of Zambiab) The Treasury Bills Act of 1965-Chapter 348 of the Laws

of Zambia-c) The Securities Act- Chapter 354 of the Laws of Zambia-d) Securities and Exchange Commission (SEC) which is a

regulatory bodye) The Public Finance Act No.15 of 2004

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Management of Public Debt

The Investment and Debt Management (IDM) Department in the Ministry of Finance and National Planning is responsible for:

- Effective monitoring and evaluation - Capital markets- Maintains an up-to-date database

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Debt Management Strategy External Debt

- In the Sixth National Development Plan (SNDP), one of the macroeconomic objectives is to maintain

public debt sustainability Domestic

- For domestic debt, Government intends to reduce the stock of domestic debt through the gradual reduction of issuances as well as refinancing maturing government securities

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Management of Public Debt Cont’d…

Disclosure/ApplicationInformation is disclosed in the following reports prepared by the Ministry Of Finance and National Planning:

• Minster’s Budget Speech• Annual Economic Reports

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Management of Public debt Cont’d…

However, the situation has now changed and the users of the reports include:

- Parliament - Government - The general public - Foreign creditors and cooperating partners

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The Role of the Auditor General in the Audit of Public Debt

The mandate of the Auditor General to audit public debt is drawn from:

- Article 121 of the Constitution of Zambia, Public Audit Act of 1980 and Public Finance Act No. 15

of 2004

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The Role of the Auditor General in the Audit of Public Debt Cont’d...

- The Auditor General has no direct role to play in deciding the level or purpose of

public debt management, data disclosure policies and regulatory regimes for the financial sector

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The Role of the Auditor General in the Audit of Public Debt Cont’d...

The primary responsibility is to audit the publicly disclosed debt information

The Auditor General undertakes independent analysis and aims to ensure that:

- Data is disclosed to foster improved management- Reliable information is made to all stakeholders

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The Role of the Auditor General in the Audit of Public Debt

- Full disclosure of complete and among policy makers, markets and the general public- Risk management practices and strategies are

adopted and put in place- Government is encouraged through recommendations- Government is encouraged to make use of debt

ratios/indicators in its reporting and overall debt management

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The Role of the Auditor General in the Audit of Public Debt Cont’d...

- Proper regulatory and supervisory framework are put in place

- Quality of the information on fiscal exposures- Subsidiary Laws are revised- Legal provisions are complied with best practice- Debt ratios/indicators are used

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Experiences in the Audit of Public Debt

The following have been observed from the audits carried out on the public debt in the past six (7) years:

- loans are not subjected to scrutiny of parliament before they are obtained

- Lack of effective high-level coordination

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Experiences in the Audit of Public Debt Cont’d…

- Power to vary loans cap by Minister- Fragmentation- Lack of central depository of original loan

agreements- Copy of agreement is laid before the National

Assembly- Public debt portfolio is still in draft form which

might lead to unsustainable debt as evidence by increment of 23.2% post HIPC

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Experiences in the Audit of Public Debt Cont’d…

- Lack of a complete data base

- Insufficient Loans and Guarantees Act

- Lack of proper guidelines

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Challenges Encountered

some of the challenges encountered during audits include:  

Lack of special knowledge in the field of economics Poor Record keeping Delays/failure to respond to queries Failure to implement audit recommendations Inadequate provisions in the law

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Lessons Learnt

Apart from the obligation to express an annual opinion of the office needs to:

carry out performance audits of public debt

take an active role in ensuring that debt policy and debt management systems are well designed

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Way Forward

a)LegislationsCurrently the legislation is being reviewed to address the following among others:

Include a provision requiring the Minister to obtain approval and authorization of National Assembly and also to report on;

• The source of the loan• The extent of the total indebtedness by way of principal and

accumulated interest20

Way Forward• Provision made for servicing or repayment of the loan• All borrowings by any state institution or authority

annually • Provision requiring debt managers’ strict adherence• Provision for the establishment of a central depository

of original loan agreements• Setting limits to the indicators such as Public

debt/Gross Domestic Product (PD/GDP)

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Way Forward Cont’d…

b)Debt Management Office Continued Strengthening of the institutional framework Ensure compliance with the legal and other requirements Design and maintain the Central Depositing System Revision of subsidiary laws Inclusion of specific reports Development of operational guidelines

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Way Forward Cont’d…

c)Office of the Auditor General

Training of auditors Enhancement of efforts to retain professional staff Employment of other professionals Encourage joint audits with other SAIs Conduct Performance audits on various topics

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CONCLUSION

It is hoped that our involvement with other SAIs will help in building capacity

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CONCLUSION Cont’d… Following The Trans-regional Public Debt Management

Audit training conducted from October to November 2009 followed by the planning meeting in Kenya in 2010 and the review of reports meeting in Zambia 2011,the office greatly benefited in that:

• Auditors are conversant with Public Debt Management related issues

• Public debt audit skills have been acquired• Auditors now have broader public debt audit topics

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Thank You

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