Africa Confidential

Zambia using donor funds to service debt, UK suspends funding to Ministry of Education-Africa Confidential

The Zambian government has allegedly started diverting donor funds meant for social sector spending to make debt repayments, the latest report in the UK based Africa Confidential has shown.

The report says this has forced the UK’s DFID to suspend funding to the Ministry of Education.

Social Cash Transfers to the country’s most poor and vulnerable families have not been paid for over seven months after DFID has also suspended its funding of cash transfers because US$4.7 million is believed to have been diverted at the Zambian post office, which administers the payments.

The report says DFID has even demanded restitution.

Donors agencies provide a third of the total funding.

Africa Confidential also claims that a number of projects have been lined up which could add $1 billion to Zambia’s debt pile if the projects go ahead.

It lists some of the projects as the sophisticated and expensive two modern twin-engined C27-J ‘Spartan’ military transports from Italy’s Leonardo at $95 mn.

The report also says that earlier this year, Zambia arranged deals worth close to $500 mn. for Israeli defence electronics, although they have not been finalised.

Another massive commercial loan is in the pipeline to support the supply by Russia of civilian aircraft to revive Zambia Airways, a deal which may include a presidential jet.

Below is the full report contained in the latest Africa Confidential

Africa Confidential Vol 59 No 18 Published 14th September 2018

ZAMBIA – Graft worsens cash squeeze

14TH SEPTEMBER 2018

Fears that embezzlement has hit government departments have caused donors to suspend payments

Western donor governments have placed key assistance programmes under heavy scrutiny as evidence emerges of wide-scale corruption in three important government departments, Africa Confidential has learned.

Payments by the health, education and local communities departments may have been diverted.

At the same time, the government is plundering social spending so it can meet debt service payments, government sources in Lusaka say.

Current account expenditure, including ministerial trips, is being partly funded by the government pension scheme, we hear, causing delays to pensions contributions and payments to pensioners (AC Vol 59 No 17, Bonds, bills and ever bigger debts).

Civil service salaries were not paid on time in August, in part because a debt repayment had to be made on 3 September, the sources say.

Former finance minister Felix Mutati, now Minister for Works and Supply, is among those who have blamed the government publicly for the liquidity crisis. He said the government was not collecting enough revenue and was guilty of an ‘imprudent use of resources’, according to Zambian media.

The Education Department is undergoing a forensic audit after pressure from Britain’s Department for International Development, AC can reveal. There may have been chronic fraud back to 2012 due to misuse of the Integrated Financial Management Information System, which was adopted by many developing countries to control government payments and procurement, at least in part to prevent fraud.

A report by the Auditor General raised the alarm with DFID last year, but it was not made public.

Payments are understood to have been made to shell companies and the auditors wish to speak to more than 400 individuals, we understand. Until it has some satisfactory answers, DFID has suspended all payments.

DFID has also suspended its funding of cash transfers to poor families because US$4.7 million is believed to have been diverted at the Zambian post office, which administers the payments. DFID has even demanded restitution. Donors provide a third of the total.

The scheme was believed to be a great success and President Edgar Lungu requested the number of recipients be increased from 257,000 households, the figure for 2017, to 700,000 this year. However, the increase was put on hold because enquiries revealed that many of the intended recipients were not paid and that the scheme has been subject to fraud.

Finland, Sweden, Ireland and Unicef have frozen funding and DFID has privately asked for £3 mn. (US$4 mn.) to be returned. DFID officials believe ministers were made aware of the fraud, which Zampost officials used to buy expensive vehicles, but refused to terminate Zampost’s contract.

The Ministry of Health is another area of strong concern to Unicef and others, donor sources told AC. Enormous quantities of drugs have been stolen from government warehouses with suspicion of high-level involvement, and there is concern that fake drugs have been purchased from corrupt suppliers, leaving many parts of the country short of vital drugs and medical cover.

Ambulances were also required at inflated prices (AC Vol 59 No 8, As the debts balloon, Lungu avoids the spotlight).

Expensive

The defence sector is another source of concern, especially as Lusaka concludes deals to buy sophisticated and expensive equipment, such as two modern twin-engined C27-J ‘Spartan’ military transports from Italy’s Leonardo.

The Dubai branch of the Italian bank Intesa San Paolo is lending just over $95 mn. for the deal, we understand.

Earlier this year Zambia arranged deals worth close to $500 mn. for Israeli defence electronics, although they have not been finalised (AC Vol 59 No 7, Into the valley of debt).

Another massive commercial loan is in the pipeline to support the supply by Russia of civilian aircraft to revive Zambia Airways, a deal which may include a presidential jet.

If all these projects go ahead nearly another $1 bn. could be added to the pile of debt in which Chinese-backed projects have played a large part up to now.

The economic picture and the ballooning debt should, pundits say, be a gift to Hakainde Hichilema, leader of the opposition United Party for National Development, but few of his attacks appear to be hitting home. Although senior Patriotic Front figures have been leaving, they have chosen to go their own way and the opposition remains fractured.

2 COMMENTS

  1. I am not surprised…government must stop applying political solutions to economic problems…that is exactly what was happening in Zimbabwe…just see where they are

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