Understanding the usage of Constituency Development Fund (CDF) in Zambia: The Case of Education, Health, Water and Sanitation Projects

Constituency Development Fund (CDF) is a government budget allocation mechanism that channels a specific portion of the national budget to the constituencies to finance development projects such as school facilities, health clinics and water supply systems (International Budget Partnership 2010; Keefer and Khemani 2009; Policy Forum 2009). As a development financing mechanism, CDF is appreciated because it is perceived as an appropriate tool for the effective delivery of projects, direct financing of community development, facilitation of the local population in development as well as responds directly to the concrete development demands of constituencies (Baskin 2010). There are also some criticisms levelled against the CDF mechanism such as it being a quick fix and fiscal illusion, or free money resulting in an increase on long-term expenditure (ibid). In addition, CDF may also have a negative impact on governments' capacity to contribute to service delivery and development, especially at the local government level (ZIPAR 2012).Constituency Development Fund (CDF) is the generic name for a policy tool that dedicates public money to benefit specific political subdivisions through allocations and/or spending decisions influenced by their representatives in the national parliament (Centre for International Development 2009: 8-9).1 Dissimilar to large national development projects, CDF-financed projects are essentially community based and driven with the major aim of bringing facilities and services closer to people for purposes of improving their social economic living conditions, especially reducing poverty. It is in this regard that the Jesuit Centre for Theological Reflection commissioned a study on “Understanding the usage of Constituency Development Fund (CDF) in Zambia: The Case of Education, Health, Water and Sanitation Projects,” in February 2019. The Study was conducted in four constituencies namely Lukasha in KASAMA, Mongu Central in Mongu, Simoonga in Livingstone and Wusakile in Kitwe between February and March 201

Understanding the usage of Constituency Development Fund (CDF) in Zambia: The Case of Education, Health, Water and Sanitation Projects

Constituency Development Fund (CDF) is a government budget allocation mechanism that channels a specific portion of the national budget to the constituencies to finance development projects such as school facilities, health clinics and water supply systems (International Budget Partnership 2010; Keefer and Khemani 2009; Policy Forum 2009). As a development financing mechanism, CDF is appreciated because it is perceived as an appropriate tool for the effective delivery of projects, direct financing of community development, facilitation of the local population in development as well as responds directly to the concrete development demands of constituencies (Baskin 2010). There are also some criticisms levelled against the CDF mechanism such as it being a quick fix and fiscal illusion, or free money resulting in an increase on long-term expenditure (ibid). In addition, CDF may also have a negative impact on governments' capacity to contribute to service delivery and development, especially at the local government level (ZIPAR 2012).Constituency Development Fund (CDF) is the generic name for a policy tool that dedicates public money to benefit specific political subdivisions through allocations and/or spending decisions influenced by their representatives in the national parliament (Centre for International Development 2009: 8-9).1 Dissimilar to large national development projects, CDF-financed projects are essentially community based and driven with the major aim of bringing facilities and services closer to people for purposes of improving their social economic living conditions, especially reducing poverty. It is in this regard that the Jesuit Centre for Theological Reflection commissioned a study on “Understanding the usage of Constituency Development Fund (CDF) in Zambia: The Case of Education, Health, Water and Sanitation Projects,” in February 2019. The Study was conducted in four constituencies namely Lukasha in KASAMA, Mongu Central in Mongu, Simoonga in Livingstone and Wusakile in Kitwe between February and March 201

UNDERSTANDING ZAMBIA’S DEBT AND ITS IMPACT ON SOCIAL DEVELOPMENT

Zambia was already ranked as a “high risk case” in 2015, 2017 and 2019 (IMF 2016, 2018, 2020). The crisis of debt can be traced as far back as 2011 (World Bank, 2017). Initially, the Country’s debts were massively reduced by the 2008 because the country had benefited from debt relief initiatives such as the Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI). The country’s debt stock reduced from US$7.2billion to US$2.5billion as result of the application of these two debt relief initiatives. However, by 2019, the official external debt of Zambia had already shot up to US$10.23 billion in 2019 (GRZ 2020). Presently, it is estimated that overall public debt (external and internal) about seventy one (71) percent of Zambia’s annual GDP up from ten (10) percent in 2011. For example, domestic debt grew by an annual average of 2.3$18.5b is inhibiting Zambia from overcoming the current economic downturn which are running around 2% to 3% and expected to run into negative growth by 2021. The “unattainability” of this debt are well exemplified by unpacking the relation of debt to the following - declining national revenues and high exchange rate coupled with rising debt servicing obligations and domestic expenditures. Second, it is also clear that Zambia is not in a position to borrow as evident in the move by Government to “halt” loans in the pipeline, only spend on projects that are in the completion phase. Third, it is also clear from this study that Zambia has reached a point of incapability to repay or service its debt when repayment fall due. The various calls to the creditors by the national leadership consider Zambia for debt cancellation or relief as well as inability to service the Eurobond payment of US$22.5billion in October this year are points in case. For these reasons, the study contends that it will not be possible for the Government of Zambia to adequately plan and finance national development needs, especially those related to human development and poverty reduction given its incapability to develop the economy, inability to generate adequate services but expected, at the same time, to meet its debt and debt service obligations. It is important to mention that poverty in Zambia is still high. At present, poverty stands at 54%. This means that over half of the total number of eighteen million Zambians are living in poverty. The Country is also one of the most unequal societies in Africa. Currently, inequality stands at 0.56 (Gini coefficient) in the Southern region of Africa.This report was produced with the financial support of the European Union and CAFOD. Its contents are the sole responsibility of the Jesuit Centre for Theological Reflection and do not necessarily reflect the views of the funders."

UNDERSTANDING ZAMBIA’S DEBT AND ITS IMPACT ON SOCIAL DEVELOPMENT

Zambia was already ranked as a “high risk case” in 2015, 2017 and 2019 (IMF 2016, 2018, 2020). The crisis of debt can be traced as far back as 2011 (World Bank, 2017). Initially, the Country’s debts were massively reduced by the 2008 because the country had benefited from debt relief initiatives such as the Heavily Indebted Poor Countries (HIPC) and the Multilateral Debt Relief Initiative (MDRI). The country’s debt stock reduced from US$7.2billion to US$2.5billion as result of the application of these two debt relief initiatives. However, by 2019, the official external debt of Zambia had already shot up to US$10.23 billion in 2019 (GRZ 2020). Presently, it is estimated that overall public debt (external and internal) about seventy one (71) percent of Zambia’s annual GDP up from ten (10) percent in 2011. For example, domestic debt grew by an annual average of 2.3creation, gross national savings, domestic interest rates, gross national investment and gross revenue performances of the central government (World Bank, 2017This report presents the findings, discussions and recommendations of the study in entitled, “Understanding Zambia’s Debt and Its (Social) Impact,” commissioned by the Jesuit Centre for Theological Reflection (JCTR) with support from the Catholic Agency for Oversees Development (CAFOD) in August 2020. The study is divided into five (5) main parts. Part One provides basic information on the Research. Part Two (2) focuses on the Methodology used to conduct the study. Part Three (3) presents the findings and interoperation of the findings of the study while Part Four (4) presents the “Moral Case” for Debt Cancellation for Zambia” and Part five (5) presents the conclusion and recommendation. With regard to the overall findings of this study, there are two major points worthy of note. First and foremost, is Zambia’s current overall debt stock is high and unsustainable. The current debt of US$18.5b is inhibiting Zambia from overcoming the current economic downturn which are running around 2% to 3% and expected to run into negative growth by 2021. The “unattainability” of this debt are well exemplified by unpacking the relation of debt to the following - declining national revenues and high exchange rate coupled with rising debt servicing obligations and domestic expenditures. Second, it is also clear that Zambia is not in a position to borrow as evident in the move by Government to “halt” loans in the pipeline, only spend on projects that are in the completion phase. Third, it is also clear from this study that Zambia has reached a point of incapability to repay or service its debt when repayment fall due. The various calls to the creditors by the national leadership consider Zambia for debt cancellation or relief as well as inability to service the Eurobond payment of US$22.5billon in October this year are points in case. For these reasons, the study contends that it will not be possible for the Government of Zambia to adequately plan and finance national development needs, especially those related to human development and poverty reduction given its incapability to develop the economy, inability to generate adequate services but expected, at the same time, to meet its debt and debt service obligations.CAFO