Public Disclosure Authorized - World Bank · 2017-03-06 · Public Sector Investment Programme Public Service Pension Fund Results-Based Budgeting Results-Based Management ... Consultation

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Glossary

G L O S S A R Y

African Development Bank

African Organization of Supreme Audit Institutions

Assisted Medical Treatment Orders

Association of Rural District Councils of Zimbabwe

Budget Call Circular

Basic Education Assistance Module

Balance of Payments

Budget Strategy Paper

Better Schools Programme-Zimbabwe

Capital Expenditure

Conditional Cash Transfer

Corporate Income Tax

Cultivating New Frontiers in Agriculture

Classification of Functions of Government

Consumer Price Index

Civil Service Commission

Data Envelopment Analysis

Department for International Development (United Kingdom)

Development Policy Operation

Disaster Response and Risk Reduction

Debt Sustainability Analysis

Department of Social Services

Early Childhood Development

Education Development Fund

Education Management Information System

Education Medium Term Plan

Education Transition Fund

United Nations Food and Agriculture Organization

Fiscal Year

Gross Domestic Product

Girls Education Challenge

Government Financial Management Information System

Government Finance Statistics Manual

AfDB

AFROSAI

AMTO

ARDCZ

BCC

BEAM

BOP

BSP

BSP-Z

CAPEX

CCT

CIT

CNFA

COFOG

CPI

CSC

DEA

DFID

DPO

DRRR

DSA

DSS

ECD

EDF

EMIS

EMTP

ETF

FAO

FY

GDP

GEC

GFMIS

GFSM

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Glossary

Government of National Unity

Government of Zimbabwe

Global Partnership for Education

Human Immunodeficiency Virus Infection and Acquired

Immune Deficiency Syndrome

Headquarters

Harmonized Social Cash Transfer System

International Bank for Reconstruction and Development

Information and Communications Technologies

International Development Association

Infrastructure Development Bank of Zimbabwe

International Financial Institutions

Integrated Financial Management Information System

International Financial Reporting Standards

International Monetary Fund

International Organization of Supreme Audit Institutions

Interim Poverty Reduction Strategy Paper

International Public Sector Accounting Standards

Information Technology

Key Performance Area

Local Authority

Local Authorities Pension Fund

Livelihood Empowerment Against Poverty program

Latin American Laboratory for Assessment of the Quality of Education

Ministry of Agriculture, Mechanisation and Irrigation Development

Malawi Social Action Fund

Ministries, Departments, and Agencies

Management Information System

Ministry of Local Government, Public Works, and National Housing

Ministry of Agriculture, Mechanisation and Irrigation Development

Ministry of Finance and Economic Development

Ministry of Health and Child Care

Ministry of Primary and Secondary Education

Ministry of Public Service, Labor and Social Welfare

Ministry of Small and Medium Enterprises and Cooperative Development

Mid-Term Expenditure Framework

Mid-Term Fiscal Framework

Ministry of Women Affairs, Gender and Community Development

Ministry of Youth, Indigenization and Economic Empowerment

Non-Governmental Association

GNU

GoZ

GPE

HIV/AIDS

HQ

HSCT

IBRD

ICT

IDA

IDBZ

IFIs

IFMIS

IFRS

IMF

INTOSAI

I-PRSP

IPSAS

IT

KPA

LA

LAPF

LEAP

LLECE

MAMID

MASAF

MDA

MIS

MLGPWNH

MoAMID

MoFED

MoHCC

MoPSE

MPSLSW

MSMECD

MTEF

MTFF

MWAGCD

MYIEE

NGO

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Non Performing Loan

National Social Security Authority

Office of the Auditor General

Organisation for Economic Co-operation and Development

Office of the President and Cabinet

Open Society Initiative for Southern Africa

Orphans and Vulnerable Children

Public Accounts Committee

Program on the Analysis of Education Systems

Pay-As-You-Go

Public Community Works

Public Expenditure Review

Public Financial Management

Public Finance Management Act

Public Financial Management Enhancement Project

Poverty, Income, Consumption, Expenditure Survey

Public Investment Management

Progress in International Reading Literacy Study

Programme for International Student Assessment

Personal Income Tax

Performance Lag Address Programme

Productive Safety Net Programme

Public-private Partnerships

Public Service Commission

Public Sector Investment Programme

Public Service Pension Fund

Results-Based Budgeting

Results-Based Management

Reserve Bank of Zimbabwe

Southern and Eastern Africa Consortium for Monitoring Educational Quality

Southern African Customs Union

Southern African Development Community

Systems Application Products

School Development Committee

Sustainable Development Goal

Special Drawing Rights

Small Enterprises Development Corporation

Strategic Economic Research and Analysis Program (USAID)

State Enterprises Reform Agency

Stochastic Frontier Analysis

NPL

NSSA

OAG

OECD

OPC

OSISA

OVC

PAC

PASEC

PAYG

PCW

PER

PFM

PFMA

PFMEP

PICES

PIM

PIRLS

PISA

PIT

PLAP

PSNP

PPPs

PSC

PSIP

PSPF

RBB

RBM

RBZ

SACMEQ

SACU

SADC

SAP

SDC

SDG

SDR

SEDCO

SERA - USAID

SERA

SFA

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Small and Medium Enterprises Development Corporation

Staff Monitored Program

State-Owned Enterprises

Social Safety Nets

Seasonal Targeted Assistance Program

Technical Assistance

Total Consumption Poverty Line

Teacher Development Information System

Trends in International Mathematics and Science Study

Teacher Minimum Standards

Urban Councils Association of Zimbabwe

Unconditional Cash Transfer

Institute for Statistics (UNESCO)

United Nations Development Programme

United Nations Educational, Scientific and Cultural Organization

United Nations International Children's Emergency Fund

United States Agency for International Development

United States Dollar

Value-Added Tax

United Nations World Food Program

Zimbabwe Asset Management Company

Zimbabwe Investment Authority

Zimbabwe Agenda for Sustainable Socio-Economic Transformation

Zimbabwe Revenue Authority

Zimbabwe National Statistics Agency

Zimbabwe Vulnerability Assessment Committee

Zimbabwe National Roads Administration

Zimbabwe National Water Authority

SMEDCO

SMP

SEPs

SSN

STAP

TA

TCPL

TDIS

TIMSS

TMS

UCAZ

UCT

UIS

UNDP

UNESCO

UNICEF

USAID

USD

VAT

WFP

ZAMCO

ZIA

ZIMASSET

ZIMRA

ZIMSTAT

ZIMVAC

ZINARA

ZINWA

Glossary

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TA B L E O F C O N T E N T SGlossary ...........................................................................................................................................

Table of Contents ...........................................................................................................................

Acknowledgements ........................................................................................................................

Executive Summary .......................................................................................................................

1. Background and Context .......................................................................................................

2. Governance and Systems of Local Budgeting and Expenditure .......................................... Legal and Institutional Underpinnings ........................................................................................... Governance in Revenue Policy and Administration ..................................................................... Governance in Expenditure Policy and Budget Execution ...........................................................

3. Local Governance Fiscal Trends ............................................................................................. Revenue Trends ................................................................................................................................. Expenditure trends ...........................................................................................................................

4. Local Government Service Delivery - Experiences & Lessons from 8 Urban Authorities .. Overall Allocative Efficiency .............................................................................................................. Analysis of Key Services Delivered by Local Authorities .............................................................. Public Water Supply and Distribution .... Sewerage and Water Sanitation .................................................................................................. Solid Waste Disposal .....................................................................................................................

5. Conclusion and Policy Options .............................................................................................

Annex 1: Local Authorities 2016 Tariff Approval Checklist ....................................................Annex 2: Consultation Meetings Held During June 13-24 Mission .........................................

FiguresFigure 1: Local Government Expenditure and Revenues, 2011-2014 (US$ Millions) ............. Figure 2: Local Government Expenditure and Revenues, 2011-2014 (% GDP) ......................Figure 3: Deficit as Percentage of Total Revenue, 2011-2014 .....................................................Figure 4: Actual Versus Budgeted Revenues (US$ Millions) ..........................................................Figure 5: Salary Arrears, 2015 (US$ Millions) ...................................................................................Figure 6: Debts Across Local Authorities (US$ Millions) ....................................................................Figure 7: Trends in Revenue By Source (2011-2014, millions of US$) .......................................Figure 8: Disaggregated Local Government Revenues (US$ Millions) ...........................................Figure 9: Expenditure Trends (2011-2014, US$ Millions) ................................................................Figure 10: Disaggregated Local Government Expenditure Trends (US$ Millions) .....................Figure 11: Distribution of Budget to Service Delivery Areas (Budgeted 2011-2015) ............. Figure 12: Distribution of Budget to Service Delivery Areas (Actual 2011-2015) ...................Figure 13: Budget Execution by Service Delivery Area ..................................................................Figure 14: Spending on Water Supply and Distribution, Selected Authorities 2012-2015 (US$ Millions) .....................................................................................................................................................Figure 15: Distribution of Water Supply Budget by Economic Classification ..........................Figure 16: Distribution of Water Supply Actual Spending by Economic Classification ..........Figure 17: Relationship of Cost Recovery to Hours of Water Supply (Average 2012-2015) ......Figure 18: Spending on Sewerage and Water Sanitation, Selected Authorities 2012-2015 (US$ Millions) ........................................................................................................................................

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Figure 19: Distribution of Sewerage Budget by Economic Classification ................................Figure 20: Distribution of Sewerage Actual Spending by Economic Classification .................Figure 21: Relationship of Cost Recovery to Coverage of Sewage Network in All Urban Local Authorities (Average 2012-2015) .........................................................................................................Figure 22: Spending on Solid Waste Disposal, Selected Authorities 2012-2015 (US$ Millions) ...Figure 23: Distribution of Solid Waste Budget by Economic Classification ............................Figure 24: Distribution of Solid Waste Actual Spending by Economic Classification .............Figure 25: Relationship of Cost Recovery to Proportion of Waste Collected in All Urban Local Authorities (Average 2012-2015) ...............................................................................................

TablesTable 1: Total Revenue to Total Expenditure .....................................................................................Table 2: Main sources of Revenue (Percentage of Total Revenue) .................................................Table 3: Expenditure Categories (Percentage of Total Expenditure) ...............................................Table 4: Employment Costs to Total Expenditures ...........................................................................Table 5: Description of Sample of Local Authorities .........................................................................Table 6: Distribution of Budget to Service Delivery Areas, (Selected Local Authorities % Total) ..Table 7: Budgeted and Actual Spending on Public Water Provision in Selected Local Authorities (Average 2012-2015) ..............................................................................................................................Table 8: Cost Profile and Water Supply Performance in Selected Local Authorities ....................Table 9: Budgeted and Actual Spending on Water Sanitation and Sewage in Selected Local Authorities (Average 2012-2015) ............................................................................................................Table 10: Cost Profile and Water Treatment Performance in Selected Local Authorities .............Table 11: Budgeted and Actual Spending on Solid Waste Disposal and Environmental Management in Selected Authorities (Average 2012-2015) ............................................................. Table 12: Cost Profile and Solid Waste Disposal Performance in Selected Local Authorities .....Table 13: Poverty Levels and Service Delivery Coverage and Performance ..................................

BoxesBox 1: Constitutional Mandate for Revenue Sharing with Local Authorities ..................................Box 2: International Best Practice for Intergovernmental Transfers ..............................................Box 3: Zimbabwe’s Water Supply Service Pathways and Related Cost Recovery Issues ..............Box 4: Colombia's Traffic Light System to Control Local Borrowing ...............................................

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Acknowledgements

A C K N O W L E D G E M E N T S

This volume is the second in a series of Public Expenditure Reviews (PERs) prepared jointly by the Government of Zimbabwe and the World Bank. Each report benefited from the support of the Honorable Patrick Chinamasa, Minister for Finance and Economic Development and Mr. W. Manungo, Permanent Secretary of this Ministry. Each report further benefited from the guidance of Camille Nuamah, World Bank Country Manager for Zimbabwe; Mark Roland Thomas, Manager, Macroeconomics & Fiscal Management Global Practice and Guang Zhe Chen, World Bank Country Director for Zimbabwe. The joint team was led by Mr. Z.R. Churu, Principal Director, National Budgets at the Ministry of Finance and Economic Development and at the World Bank by co-team leaders, Johannes (Han) Herderschee and Leif Jensen, both Senior Economist, Macroeconomics & Fiscal Management Global Practice supported by Marko Kwaramba, Economist in the same Global Practice. At the Ministry of Finance and Economic Development the team comprised of Fidelis Ngorora, Director, Public Sector Investment Programme; Samuel Phiri, Principal Economist; Marcos Nyaruwanga, Chief Economist and Brian Goredema, Chief Economist. The volumes were edited by Sean Lothrop, Oscar Parlback and Dean Thompson. Cybil Maradza (Design Consultant) prepared the design and typesetting. Nyasha Munditi (Consultant) completed copy editing. Photos presented in the report were taken by Arne Hoel. Farai Sekeramayi-Noble organized the workshops and other communication events and managed all contracts involved.

This volume two of the Public Expenditure Review (PER) series was prepared jointly by the World Bank and Zimbabwe’s Ministry of Local Government, Public Works, and National Housing (MLGPWNH). At the MLGPWNH the team benefited from the support of the Honorable S. Kasukuwere, Minister Local Government, Public Works, and National Housing and Permanent Secretary Engineer G. Mlilo. The MLGPWH team was led by Mr. Tatenda Mandeya (Financial Advisory Unit, MLGPWH) and Alpha Nhamo (Chief Accountant, Financial Advisory Unit, MLGPWH). The World Bank team consisted of Janine Mans (Consultant), Ngoni Mudege (Senior Water and Sanitation Specialist) and Marko Kwaramba (Economist) with input from Johannes (Han) Herderschee (Senior Economist, Macroeconomics & Fiscal Management Global Practice, The World Bank), Leif Jensen (Senior Economist, Macroeconomics & Fiscal Management Global Practice, The World Bank), and Camille Nuamah (Country Manager, Zimbabwe Country Office, The World Bank), and Abha Prasad (Senior Debt Specialist, Macroeconomics & Fiscal Management, The World Bank). The team benefited from peer review comments from Meskerem Brhane (Program Leader, World Bank) and Lili Liu (Lead Economist, World Bank).

The report was finalized in October 2016 and macroeconomic indicators for 2016 were updated on March 6, 2017.

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Local Government Service Delivery

E X E C U T I V E S U M M A R Y

This Local Governance Public Expenditure Review (PER) explores governance structures and trends in local government financing and service delivery. The PER examines: (1) the governance structure and systems in place for managing public expenditures at the local level; (2) recent trends in revenue and expenditure in urban and rural local authorities; (3) the effectiveness, efficiency and equity of local government service delivery in a set of eight local authorities. The PER also synthesizes key lessons learned and policy recommendations.

Local government authorities in Zimbabwe play a crucial role in service delivery. Local government authorities take the lead in providing services for solid waste disposal, public lighting, water provision and sanitation, housing, and local roads, and are involved in delivering basic health and education services. These public services play a crucial role in promoting the economic and social well-being of municipalities, cities, towns, and other categories of local authorities.

K E Y C H A L L E N G E S

1. Many Local Authorities face challenges in meeting their service delivery mandates due to financial, institutional, and capacity constraints.

2. Local authorities charge a range of user fees and rates to cover service delivery costs; changes in rates during the approval processes and low collection rates cause problems in achieving cost recovery. Further, revenues are highly dependent on sales, especially of real estate, which are not a reliable or sustainable source of financing.

3. Debt cancellation in 2013 caused significant disruption to local government finances, both in terms of immediate finances and longer term impacts on ratepayer compliance.

4. Employment costs remain a significant percentage of overall spending, and an even higher percentage of total revenues collected, creating significant fiscal risks.

5. General administrative, finance and management costs represent nearly a quarter of all spending, and are increasing relative to service delivery spending.

6. An analysis of eight local authorities’ service delivery in areas such as water supply, sewerage, and solid waste disposal shows low spending on capital and repairs and maintenance.

P O L I C Y O P T I O N SMost legal and institutional foundations for PFM at the local level are in place, but the Ministry of Local Government and local authorities should strengthen systems and tools to support strong PFM. The Government should prioritize the development of tools and training on basic PFM skills, including by finalizing and rolling out the Local Government Accounting Manual being developed by UCAZ, and expanding investment in local GFMIS systems.

To ensure the sustainability of local finances, local authorities need to develop strategies to improve collection efficiency on fees and tariffs, and move towards more sustainable sources of finances. Given their heavy reliance on sales, especially land sales, to mobilize revenue, local authorities should identify options to improve the performance of other revenues sources. This strategy could

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include implementing pre-paid water meters for water rate recovery, depending on the outcome of initial pilots of such meters in Zimbabwe.

There is also room to improve the effectiveness and efficiency of spending. The Ministry of Local Government, Public Works and National Housing and UCAZ should examine factors for low unit costs of service delivery in certain local authorities to promote increased efficiency, as part of the service level benchmarking process. . They should work with local authorities to improve budget execution for repairs, maintenance, and capital spending, and separate repairs from maintenance. The service level benchmarking process has been an effective tool to promote peer learning between local authorities, and could be expanded to include other local service delivery areas, especially local roads.

The Ministry of Local Government, of Public Works and National Housing and other agencies that manage transfer and lending mechanisms might improve equity by adjusting how funds are targeted. The Government might consider increasing allocations of PSIP, ZINARA, and other funding sources to poorer local authorities with wide service delivery infrastructure gaps, but capacity to manage such funds.

BACKGROUND & CONTEXT1

Local government authorities in Zimbabwe play a crucial role in service delivery in many areas and, following on the 2013 Constitution, have strengthened their roles and responsibilities. Local government authorities take the lead in providing services related to solid waste disposal, public lighting, water and sanitation, housing, local roads, and are involved in delivering basic health and education services at a local level. These public services play a crucial role in promoting the economic and social well-being of municipalities, cities, towns and local boards. The new 2013 Constitution provides for increased devolution of powers and responsibilities to the local level, and sets out the basis for revenue sharing or transfers to provinces and local government for basic service delivery, fiscal capacity and developmental needs, among others.

However, many Local Authorities face challenges in meeting their service delivery mandates due to financial, institutional, and capacity constraints. Results from the annual benchmarking surveys have shown that many local authorities have challenges in consistently providing basic services, such as water supply, solid waste disposal, and sewage treatment. For example, in the 2015 benchmarking survey, only 13 of 32 urban local authorities reporting data could provide 15 or more hours of water supply per day. Though this performance has improved somewhat since 2011, progress has been slow. Some reasons for slow progress include: (i) local authorities have been operating at deficits; (ii) demand has increased for local authority services without matching increases in resources to provide services; (iii) low effectiveness and efficiency (value for money) in most local authorities; and (iv) weak governance systems in some local authorities.

Moreover, recent operating conditions exacerbate the challenges faced by local authorities. The period under analysis for this PER featured a few notable trends and events that significantly affected local government:

• Low levels of investment in maintenance of the local government infrastructure;

• Relatively strong urbanization, especially relative to pre-independence, which has put strains on the aging infrastructure;

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• The 2008 cholera epidemic, which exposed the degradation of the local water and sanitation infrastructure; and

• Hyperinflation and dollarization that contributed to the dissolution of certain transfer and loan facilities that had supported investments at the local level.

Following the cholera outbreak and the stabilization of the economy, the GOZ, local authorities, and donors have made emergency investments in water and sanitation infrastructure, but much more is needed to bring adequate, safe, and reliable access to these services to the population.

In this context, the World Bank worked with the Ministry of Local Government, Public Works, and National Housing (MLGPWNH) to conduct a Local Governance Public Expenditure Review (PER). This PER has four main sections. The first section examines the governance structure and systems in place for managing public expenditures at the local level. The second section reviews recent trends in revenue and expenditure in urban and rural local authorities. The third section examines service delivery in detail in a set of eight local authorities to evaluate the effectiveness, efficiency and equity of key areas of local government service delivery, including solid waste disposal, public water provision, and water sanitation. Survey data is available on these services to support the analyses, which is unfortunately not the case in other core service delivery areas of local governments. The fourth and final section synthesizes a few key lessons learned and identifies policy recommendations to strengthen local government financial management.

Legal and Institutional Underpinnings

The Local Government system in Zimbabwe has several levels, spanning both urban and rural localities. At the National Level, the Ministry of Local Government, Public Works and National Housing (“the Ministry of Local Government”) has purview over Urban Local Authorities. It sets policy, supports capacity building, and provides oversight, especially on financial management and governance issues. The Ministry of Rural Development, Preservation and Promotion of Culture and Heritage (“Ministry of Rural Development”), created in late 2015, plays a similar role for rural local authorities.¹ Splitting oversight of rural and urban local authorities between these ministries can create challenges for policy coordination and effective management. Provincial Administrators are the representatives of the national government at a sub-national level and report to the Ministry of Rural Development, except for the two Provincial Administrators assigned to the Urban Provinces of Harare and Bulawayo, who report to the Ministry of Local Government. Local authorities are composed of publically elected councils (Rural District Councils and Urban Local Authority Councils), whose memberships serve on a voluntary basis. Such councils are supported by secretariats/local administration that run the local government on a day to day basis and

¹ Prior to the creation of the Ministry of Rural Development, Preservation and Promotion of Culture and Heritage, the Ministry of Local Government had jurisdiction over both urban and rural authorities.² Most professional staff of local authorities are hired locally, however the Town Clerk and all Heads of Department are appointed by the Local Government Board, a committee named by the Ministry of Local Government with representatives from UCAZ, town clerks, the municipal workers’ union, and the Public Service Commission, among others.

GOVERNANCE & SYSTEMS OF LOCAL BUDGETING AND EXPENDITURE2

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ensure service delivery.² Each selected councilor represents a ward, and consults with Ward Development Committees representing the interests of the ward. Rural development councils may also include chiefs or headsman as representatives of the traditional leadership.³

There are several different categories of local authorities, which are designated based on the characteristics of the local authority. There are a total of 32 local authorities designated as Urban Local Authorities. Urban authorities may be categorized as Cities, Municipalities, Towns, or Local Boards, which range from more complex urban areas (Cities) to less well developed urban areas (Local Boards). The differences between these designations are not entirely based on population, however, as certain Local Boards have larger populations (i.e., Epworth) than certain cities (i.e., Gweru). For example, an Urban Local Authority cannot “graduate” from being a Local Board to a Town Council without having some basic water sanitation infrastructure in place. There are a total of 60 Rural Authorities, consisting of only Rural District Councils.

Local authorities are supported by a wider eco-system of institutions, including professional networks, community groups, and resident associations. The two main local government professional organizations are the Urban Councils Association of Zimbabwe (UCAZ) and the Association of Rural District Councils of Zimbabwe (ARDCZ). Both are membership organizations representing the interests of local authorities that organize capacity building and information exchange between local authority staff members. At the local level, Resident Associations and Ward Development Committees provide opportunities for residents of a community to engage with local government. Resident Associations, which are mainly in urban areas, are voluntary organizations with mandates to represent the interests or residents within a jurisdiction (e.g., a Municipality).⁴ Ward Development Committees are present in urban and rural areas, and represent the interests of a specific geographical area within a jurisdiction, aligning to the political boundaries for a specific councilor in an urban or rural district council. In some cases, Resident Associations and Ward Development Committees play a service delivery function in partnership with local councils. For example, in Epworth, several Ward Development Committees raised special funds from their residents to partner with the local council to conduct land surveys to formalize the stands of ward residents. Another Ward Development Committee in Epworth partnered with the local authority to grade certain roads in their ward, with the local authority providing equipment and the ward materials.

The legal foundations of PFM at the local level are largely already established, but some foundational elements require update. The major sources of guidance underlying local governance finance include:

³ For more see: Kurebwa, Jeffrey, “A Review of Rural Local Government System in Zimbabwe from 1980 to 2014,” IOSR Journal of Humanities and Social Science (IOSR-JHSS), Volume 20, Issue 2, Ver. V (Feb. 2015), PP 94-108.⁴ For more see Mapuva, Jephias, “Enhancing local governance through local initiatives: Residents’ associations in Zimbabwe.” African Journal of History and Culture, Vol 3(1) pp 1-12, February 2011. Available online at http://www.academicjournals.org/AJHC and Musekiwa, Norbert and Kudzai Chatiza. “Rise in resident associational life in response to service delivery decline by urban councils in Zimbabwe.” Commonwealth Journal of Local Governance, Issue 12/17, June 2015. Available online at http://epress.lib.uts.edu.au/journals/index.php/cjlg

Chapter 14 New 2013 Constitution: This chapter provides for increased devolution of powers and responsibilities to the local level, sets out key principles for governance at the local level, and defines requirements regarding the conduct of employees of provincial and local governments, as well as the composition, powers and general provisions regarding the conduct of provincial and local officials, including procedures for removal from office.

Chapter 17, Section 301 New 2013 Constitution: This section sets out the basis for revenue sharing or transfers to provinces and local government, including the purposes of such transfers (i.e., basic service delivery, fiscal capacity and developmental needs, among others), and requires that “not less than five per cent of the national revenues raised in any financial year must be allocated to the provinces and local authorities as their share in that year.” The Government has not yet fully defined this transfer system, including the criteria used for revenue sharing and the types of revenues for the pool for shared revenues. A discussion of the status of such allocations is provided in Box 1, and international best practice in transfer mechanisms is discussed in Box 2.

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The Urban Councils Act (Chapter 29:15): This Act provides for the establishment of cities, municipalities, towns and local boards, and provides guidance on their structure, administration, powers, and functions. The Act includes a specific guidance on sources of funding, appropriate use of funds, auditing, and restrictions on borrowing.⁵ It also defines the role of the Ministry of Local Government to supervise, monitor and direct local authorities. This Act was updated in September 2016 to comply with provisions of the new Constitution, notably relating to suspension and removal of councilors from office, and procedures for the appointment and conduct of independent tribunals charged with reviewing cases for removing mayors, chairpersons, or councilors.

The Rural Councils Act (Chapter 29:13): This Act provides for the establishment of Rural District Councils and provides guidance on their structure, administration, powers, and functions. The Act includes a specific guidance on the types of levies and charges the Rural District Councils can charge, and provisions on the appropriate use of funds, auditing, and restrictions on borrowing, similar to those in the Urban Councils Act. This Act was also updated in September 2016 in line with the adjustments made to the Urban Councils Act.

Public Finance Management Act (PFMA): The PFMA, enacted in 2009, lays out national standards and requirements for public accounting, financial reporting of government entities, and audit of government accounts. However, the Government has identified several areas for improvement in the Act and its regulations. Draft amendments and regulations are under discussion, including provisions to strengthen the audit function.

Procurement Act: This Act governs the processes and procedures for Public Procurement at the central and sub-national levels. A new version of the Bill is under discussion, and is designed to improve the efficiency, transparency and governance of public procurement through a number of measures, including transforming the State Procurement Board into two separate entities for regulation and oversight.

Directives of the Ministry of Local Government and Ministry of Rural Development: As the designated oversight ministries, the Ministry of Local Government and the Ministry of Rural Development periodically issue directives to local authorities to clarify certain processes, procedures or guidelines. One example of such a directive is the guideline that the Ministry of Local Government provided requiring a 30:70 ratio between employment and non-employment costs in local government budgets.

⁵ The Act defines specific purposes for which borrowing is allowed, and requires that all loans must be: (1) agreed to by a majority of the total membership of the council; (2) public notices will have been made without any opposition from the public; (3) the minister has approved the loan.

Box 1 below discusses Chapter 17, Section 301 of the New Constitution, and provides information about spending incurred by the National Government to support local service delivery in health and education.

Box 1: Constitutional Mandate for Revenue Sharing with Local Authorities

As noted above, section 301 of the new Constitution stipulates that at least five percent of national revenue should be allocated to local government, yet there is no formal system in place to govern the distribution of national revenue among local authorities. The Government has not defined the formula or mechanism used for redistribution, nor the types of revenues to be used for the shared pool to be redistributed. This is party due to extremely constrained macroeconomic conditions, which severely limit the availability of funds to redistribute to local levels. For now, the National Government has relatively limited transfers to local governments (primarily through ZINARA and the PSIP investment program), and more significant payments of local teacher and health service personnel salaries at the local level. The table below provides estimates on the total amounts spent in 2015 towards employment costs, current transfers, capital transfers, and special initiatives to support education and health at sub-national levels.

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Box 2: International Best Practice for Intergovernmental Transfers

Intergovernmental Fiscal Transfer systems are a common tool to facilitate fiscal decentralization, fund priority local service delivery, and promote equalization goals between localities with different levels of average per capita income. Generally speaking, effective intergovernmental transfer systems have the following characteristics:

2015 Estimated Actual % Total Revenue

Health

District Hospitals

Employment Costs

Current Transfers

Capital Transfers

Special Initiatives

Provincial Hospital Services

Employment Costs

Current Transfers

Capital Transfers

Special Initiatives

Education

Primary Education

Employment Costs

Current Transfers

Capital Transfers

Secondary Education

Employment Costs

Current Transfers

Capital Transfers

Total

Total Revenue

$130,728,336.39

$109,147,430.31

$70,122,503.91

$38,309,220.40

$454,000.00

$261,706.00

$21,580,906.08

$19,817,748.48

$1,676,584.93

$0.00

$86,572.67

$888,770,167.32

$583,449,634.35

$580,445,634.35

$1,140,000.00

$1,864,000.00

$305,320,532.97

$303,737,450.30

$406,666.67

$1,176,416.00

$1,019,498,503.70

$3,737,000,000.00

3%

3%

2%

1%

0%

0%

1%

1%

0%

0%

0%

24%

16%

16%

0%

0%

8%

8%

0%

0%

27%

100%

Sources: 2016 Blue Book; Ministry of Public Service; IMF Country Report No. 16/109

The total amounts are equivalent to 27 percent of total revenue, with the majority being spent on costs of employing primary teachers (16 percent) and secondary teachers (eight percent). More details on the Education Wage bill are provided in the Education PER.

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1. Clarity in objectives – the objectives of the transfer system should be clear and precise to guide design and implementation

2. Autonomy and efficiency – the transfer system should maximize the independence and flexibility for subnational governments to use transfer funds in the most efficient way

3. Revenue adequacy – between transferred funds and own revenues, the subnational governments should have sufficient funds to fulfil their designated responsibilities

4. Affordability – the transfer mechanism must recognize the fiscal constraints of the country and not undermine macro-stability objectives

5. Responsiveness – the transfer program should be flexible enough to adapt to unanticipated changes in the fiscal situations of recipients

6. Equity – a higher proportion of funds should be directed to those areas with the highest fiscal need and lowest tax capacity

7. Predictability – the formula used for the transfer mechanism should remain relatively fixed, and the national government should provide five year projections of anticipated funding (including ceilings and floors), to improve the ability of subnational governments to plan

8. Transparency – the formula and allocations should be public and widely disseminated to achieve consensus on the objectives and operation of the system

9. Simplicity – the formula should be clear, objective, and based on factors over which the subnational governments have little control (to avoid gaming the system)

10. Incentive – the design should reinforce incentives for sound financial management and avoid specific transfers to finance subnational deficits, a practice that can discourage fiscal discipline

11. Reach – the design process should examine the winners and losers in the process and consider how this may affect the usefulness and sustainability of the program

12. Accountability for results – the recipient must be accountable to the national government and the country’s citizens for financial integrity and service delivery results

Few transfer systems meet all of the characteristics listed above. There are numerous examples of different countries that have experimented with transfer formulas, each designed with their own goals and objectives. Some countries in the region, such as Uganda, have adopted the use of “performance grants” to complement formula based transfers, which have resulted in improvements in local government performance. Some recent examples of equalization transfer systems, along with their goals and objectives, are provided in the table below:

International examples of transfer mechanism goals and factors

Promote similar levels of service affordability

Expenditure needs indicators (separately or in a combined indicator), or national expenditure standards (i.e. minimum per capita spending on priority services)

India, Italy, Nigeria’s Federation Account, South Africa’s Equitable Shares, Spain, Uganda’s Unconditional Grant

Goals Factors Examples

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Certain countries may employ a formula that weight the above factors (service affordability, fiscal resource availability, level of service, and per capita resources) according to importance, or may employ separate transfers accounting for different goals.⁶

Promote similar levels of fiscal resource availability

Promote similar levels of service at similar levels of taxation

Facilitate distribution on an equal per capita basis

Fiscal capacity indicators or “representative revenue system” (i.e., ensure that each jurisdiction has access to an average level of revenue per taxpayer – through transfers or own source revenue)

Fiscal gap = Expenditure needs – Fiscal capacity, OR Some other combination of need and capacity

Population

Canada’s Equalization Grant

Australia, China Germany, Indonesia, Japan, Korea, Latvia, Netherlands’ Municipal Fund, Russia, Uganda’s Equalization Grant, United Kingdom

Some transfers in Canada, Ecuador, Estonia, Germany, Hungary, and England

Goals Factors Examples

Adapted from: Boadway and Shah (2007) and Boex and Martinez-Vasquez (2007)

The following two sub-sections provide more details on the governance of local governance revenues and expenditures, respectively.

Governance in Revenue Policy and Administration

The local council acts (Urban Councils Act and Rural Council Act) allow councils to raise their own revenues through several sources. The sources of funds for local authorities can be classified into internal and external sources. Internally, local authorities mobilize funds through property rates, levies, sales (for example, of land), fees, fines, permits, and licenses. External sources of funding include additional funds provided by the central government through transfers, grants and loans, or in some cases donor funding. The services for which local authorities charge fees or levies include water for domestic commercial or industrial use, sewerage services, solid waste disposal, and parking, among others. The other main segment of service charges accrue from user fees/rates from hospitals, clinics, ambulances services, schools, libraries, or other community services. Some local authorities also raise funds through income generating activities. The acts give local authorities statutory powers to levy ratepayer user fees, though the yearly tariff adjustments are regulated by central government.

The process of setting rates in councils is provided for in Section 288 of the Urban Councils Act 29:15 and Rural District Councils Act 29:13, which states that:

⁶ A wealth of information on the design of transfer systems can be found in the following sources:Boadway, Robin and Anwar Shah, Intergovernmental Fiscal Transfers: Principles and Practice, Public Sector Accountability Series, The World Bank, 2007.Boex, Jamie and Jorge Martinez-Vasquez, “Chapter 10: Designing Intergovernmental Equalization Transfers with Imperfect Data: Concepts, Practices and Lessons.” In Fiscal Equalization: Challenges in the Design of Intergovernmental Transfers, Springer Science & Business Media, May 16, 2007.

Section 288 Estimates: (1) Before the expiry of any financial year the finance committee shall draw up and present for the approval of the council estimates in such detail as the council may require of the income and expenditure on revenue and capital accounts of the council for the next succeeding financial year.

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The same Act empowers local authorities to fix tariff and charges by resolution:

1. A local authority may, by resolution passed by a majority of the total membership of the local authority—

a) fix tariffs or charges for—i. the supply of electricity or water or of refuse removal services; orii. the conveyance of sewage or trade effluent in public sewers and its treatment at a sewage treatment works; oriii. any other services which a local authority may provide in terms of this Act;

In line with these legal provisions, draft estimates of income and expenditure (budget) are prepared by LA departmental heads and collated into a consolidated council Estimates of Income and Expenditure. The budget is then presented to stakeholders through community outreach (consultation) meetings, whose purpose is to seek residents’ inputs and agreement on the following years’ budgets, including tariffs. These consultations are central to the rate setting process, and are enshrined in the various government directives as well as the Prime Minister’s Directive of 1984. This latter Directive advocates, among other issues, the broad participation and involvement of the grassroots communities in governance and other development programs within their localities. At the grassroots levels these consultations may involve Water Development Committees, Residents Associations and other community based groups.

There is no uniform way of setting and determining water and sewer tariffs. The processes of determining tariff levels vary from local authority to local authority. However, the broad categories of tariff regimes are standardized as follows:

1. Industrial/Commercial tariff structure2. Institutional tariff structure3. Residential Low density tariff structure4. Residential High density tariff structure

Section 47 of the PFMA Chapter 22:19 provides that when estimates presented in terms of subsection (1) have been approved by the council and signed by the mayor or chairman of the council, as the case may be, the council shall ensure that—

• Copies of the estimates are forthwith made available for inspection by the public; and• Three copies of the estimates are forwarded within two months to the Minister for his information.

Tariffs are formally set by passing a Council Resolution, yet in practice are subject to approval by the Ministry of Local Government. The budget together with tariffs are inspected and endorsed by residents and forwarded to the Minister for formal approval, as in PFMA Chapter 22:19 is not legislatively required. The Minister has assumed an approval function, which he has exercised from time to time to set a pro-poor tariff that ensures cost recovery. This has largely been directed at water and wastewater tariffs for consumers resident in high density areas. The Ministry of Local Government has power to refuse approval of a budget where tariff levels are deemed too high or can cause hardships to residents, particularly in high density areas. When tariffs are too high using a cost-build-up method, the Ministry directs a downward revision of the tariff by councils before budget approval. The inability, in some cases, of LAs to provide tariff justification from a proper cost build up analysis, has not helped resolve a perception issue on roles, leaving some to perceive that the Ministry “sets” tariffs, contrary to the provisions of the Act. Notable efforts are being made through the service level benchmarking activities and the Urban Council Association Forums to design a standard cost build up template for water, wastewater and solid waste services.

The Central Government’s role in oversight and approval reveals a tension between ensuring strong PFM practice and allowing for local authority discretion. The Ministry of Local Government now has a relatively strong oversight role. It has the power to approve each local authority’s budget and revenue collection rates⁷ – and to require changes even after the budget and rates have been

⁷ Under section 229 of the Urban Councils Act [Chapter 29:15].

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set by community groups and the local council. In reviewing budgets and proposed tariff levels, the Ministry of Local Government uses a checklist that provides summary information on the budget, budget performance, the proposed tariff changes, the level of creditors and debtors, and verifies that:

• the Chief Executive Officer is using a Performance Contract; • there is no budget deficit;• the local authority has credible strategies in place to liquidate creditors and statutory obligations

(and report on outcomes from previous years’ strategies);• any proposed income generating projects are viable;• the local authority is up to date on its audited accounts;• ratios related to capital spending (about 15 to 25 percent of total expenditure) and employment

costs (<30 percent of total expenditure) are met;• the full council has adopted the budget; and• consultations and public disclosure requirements were met and objections were adequately addressed.

A copy of the checklist used for the review of the 2016 budgets is included as Annex 1.

There are good reasons for this approval process – as evidenced by the low quality of many budgets produced by local authorities – but the approval process can also lead to unanticipated outcomes. In some reported cases, community groups have agreed to increased revenue rates (for example in water provision – see box 3 in the following section) to allow for investment projects to move forward or to meet the costs of providing water purchased through ZINWA. When rates are then disapproved by the ministry, and the budgets remain, the local authority is put in an awkward situation, where it has promised to deliver certain service delivery improvements without being allowed to raise the requisite funds. A more nuanced analysis of rates may be required to balance the desire to minimize burdens on households while allowing local authorities to mobilize revenues to make needed investments.

Governance in Expenditure Policy and Budget Execution

As noted in the introduction, local authorities have a broad mandate for service delivery. Local government authorities lead the provision of services related to solid waste disposal, public lighting, water sanitation, housing, and local roads. These areas do not generally overlap with the mandate of national level agencies, except insofar as local authorities must comply with national regulations or in cases where a national agency (i.e. ZINWA) provides services to local authorities. The service delivery categories with the greatest potential for overlap between local authorities and the national government are basic health and education. In these areas, both local authorities and the national ministries responsible for health and education are involved in funding service delivery at the local level. The most important aspect of national level financing is salaries of teachers and health workers, but these Ministries also provide some limited transfers and grants to local institutions. These issues are discussed in more detail in the Health and Education PERs. As discussed below, fiscal constraints have disrupted the transfer system and reduced transfers from the national government to local authorities, leaving local authorities with less funding despite greater mandates for service delivery.

Local authorities have instituted new systems to strengthen local financial management, though these systems are not yet fully in use. For example, Promun or other GFMIS platforms are present in most local authorities, but not all modules are being used, and not all local authorities have the capacity to use them to reconcile accounts or produce financial reports. Many local authorities lack effective systems within or outside the GFMIS that can appropriately manage assets throughout the full lifecycle – from procuring and registering to valuation and eventually disposal. Some core resources needed to promote effective local financial management (i.e., an accounting manual) are under development only now.

Discussions with stakeholders in local authorities revealed an uneven application of good practices in PFM, partly due to capacity gaps in certain local authorities. There is very uneven capacity to produce financial reports: some local authorities produce financial reports compliant with IPSAS accrual standards, while others are unable to compile basic income statements. There is some inconsistency in applying good practices in procurement and auditing.

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Participatory dialogue mechanisms have been implemented in the past few years to improve the quality and validity of local authority budgets. These mechanisms hold promise, but are not used to full potential. A major weakness is that though the process was designed for residents to provide input in defining priority activities to be implemented in the coming year, some LAs tend to use the process to seek endorsement of what the Council has already planned and costed. The Full Council, however, is responsibility for adopting the final budget through a Council Resolution before submitting it for the Ministry’s approval. During budget execution, feedback meetings with communities are expected to be conducted. Yet in some LAs, such meetings are limited to elected Councilors and other elected leadership, in formal Full Council meetings. Participation in dialogue mechanisms varies among LAs, and this is a major concern of the Ministry for Local Government. In most local authorities, participatory meetings involve less than 0.5 percent of the community population. Local community groups note that meetings are often held at inconvenient times, or are announced with little advanced notice, making it difficult for people to participate. Other groups note that budgets are rarely implemented, due to low revenue collection and other reasons, and thus not credible.⁸

⁹ Based on feedback from Resident Associations and Ward Development Committees during site visits.

L O C A L G O V E R N A N C E F I S C A L T R E N D S3

More stable economic conditions since 2011 enabled local authorities to collect more revenues; however, increases in expenditure have substantially outpaced such increases, contributing to greater deficit spending (see Figure 1 and Figure 2). Total revenue increased by 41 percent from $570 million in 2011 to $804 million in 2014⁹ across the 92 local authorities (32 urban and 60 rural). During the same period, expenditures increased by 132 percent from $556 million to $1.3 billion. The large increase in spending in 2013 is at least partly related to a debt cancellation directive from the Ministry of Local Government, which was recorded as General Expenses in the records of many local authorities (discussed in more detail later in the report).

Figure 1: Local Government Expenditure and Revenues, 2011-2014 (US$ Millions)

Figure 2: Local Government Expenditure and Revenues,

2011-2014 (% GDP)

Source: Local Authorities and Auditor General Source: Local Authorities and Auditor General

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Source: Local Authorities and Auditor General


The rapid escalation of spending by local authorities, especially after 2012, contributed to significant fiscal deficits. The local government fiscal deficit increased from 9.3 percent of total revenue in 2011 to 11.9 percent in 2012—and more dramatically to 69.1 percent in 2013. In 2014, the deficit fell slightly to 60.7 percent of total revenues. To ensure sustainability, local governments should contain fiscal deficits to below 10 percent. Figure 3 shows that the deficit is above this threshold from 2012, thus posing high financial risk.

Figure 3: Deficit As Percentage of Total Revenue, 2011-2014

From 2011 to 2014, city councils ran annual operational deficits, performing worse than other local authorities (see Table 1). Municipalities broke even in 2011, but ran deficits in other years. On average, town councils and local boards satisfied the benchmark and were not in deficit, except in 2013 when the GoZ issued directives to write off all ratepayers’ arrears. Aggregated together, all local authorities ran a sizeable deficit below the benchmark, driven down mainly by city councils.

Table 1: Total Revenue to Total Expenditure

2011 2012 2013 2013 CommentAverage Benchamrk

Municipalities

City councils

Town councils

Local boards

Rural district councils

All local authorities

1.00

0.84

1.14

1.45

1.10

0.92

0.63

0.54

0.87

0.59

0.77

0.59

0.42

0.53

1.62

2.00

1.15

0.62

1+

1+

1+

1+

1+

1+

0.77

0.85

1.30

1.29

1.03

0.90

0.70

0.69

1.23

1.33

1.01

0.76

Deficit

Deficit

Okay

Okay

Okay

Deficit

Underperformance on budgeted revenues is a key source of fiscal deficits. Figure 4 demonstrates that local authorities collected only about 73 percent of budgeted revenues in 2012, falling to 52 percent and 51 percent in 2013 and 2014, respectively. The ratio of actual to budgeted revenues rebounded to about 78 percent by 2015. The gap between budgeted and actual revenues appears to be driven by lack of proper revenue forecasting techniques in some local authorities, and ratepayers’ non-compliance. Site visits conducted to prepare the PER confirmed that budgeting is conducted assuming 100 percent compliance with local fees and tariffs, partly to meet Ministry requirements to submit a budget with no deficit. Yet actual compliance is much lower. For example, all Local Authorities in 2016 budgeted for surpluses, except for Bulawayo and Zvishavane, which neither budgeted for a surplus nor a deficit.

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Figure 4: Actual Versus Budgeted Revenues (US$ Millions)

Source: Ministry of Local Government

The compliance of ratepayers was adversely affected by a Ministry of Local Government directive in 2013. The ministry issued a directive to all local authorities to write off all arrears on outstanding debts for non- commercial and industrial ratepayers, which since July 2013 has eroded performance. In particular, the drop in the ratio of actual to budgeted revenues in 2013 and 2014 reflects this policy. This policy might be leading residents, who may be hoping for further debt relief, to habitually not pay for council services in certain local authorities. From 2011, the difference between actual revenue collected and budgeted revenue was more than 20 percent—reaching the highest in 2013 at 49 percent.

Underperformance in revenue also stems from difficulties in setting rates permitting cost recovery in major services. For example, certain local authorities whose water supply is provided by ZINWA may be charged a higher rate than they are able to pass on to consumers, leading to operating losses. Box 3 provides a summary of the different pathways for water supply, and some cost recovery issues faced by different local authorities. Ten of Zimbabwe’s 32 urban local authorities are piloting pre-paid meters, which should reduce non-revenue water, and reduce costs across the system. In Bindura, the community agreed to pay a portion of water rate arrears along with pre-paid water, demonstrating that this approach can be used to both collect current funds and arrears. It will be important to monitor this innovation to assess whether the approach should be replicated across local authorities.

Box 3: Zimbabwe’s Water Supply Service Pathways and Related Cost Recovery Issues

There are different institutional pathways by which water is supplied to urban residents in Zimbabwe. According to the Water Act, all water belongs to the State, and ZINWA is mandated to develop and supply raw water. However, beyond this premise, there are a variety of different models for water supply and distribution in the country, including the following:

1. ZINWA supplies treated water to the consumer directly, such as for Karoi, Mvurwi, Lupane and Chirundu local authorities. The challenge here is that LAs are denied water sale revenues, and cannot use water disconnections as an instrument to enforce non-payment of other rates.

2. ZINWA sells treated water to a Local Authority for distribution to residents, such as in Beitbridge and Gwanda LAs. A major challenge is slow payments to ZINWA for water. ZINWA has limited options available to enforce payments, as it cannot switch off a whole city. ZINWA tariffs are, however, not subject to same approval processes as the LA, which may cause an LA

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to operate at a loss. Moreover, the LA must receive approval for rates charged to consumers from the Ministry Local Government, which can oblige the LA to charge consumers a rate lower than set by ZINWA, and approved by the Minister of Environment, Water and Climate. For example, Gwanda gets its water at $0.85c/m3 from ZINWA and sells to consumers at a Ministry-approved rate of $0.81c/m3, to cushion low income consumers in high density areas.

3. A local authority treats raw water and supplies directly to customers, such as in Harare, Bindura, Bulawayo, Gweru and Mutare. This is a common arrangement for most major local authorities, including Harare and Bulawayo that partly own supply dams. The LA is accountable for water services, owns water assets, and is responsible for water revenues.

4. A local authority treats water and sells bulk treated water to another local authority for final distribution to residents, such as Harare’s supply of treated water to satellite cities of Chitungwiza, Norton, Ruwa and Epworth local authorities. Challenges in this arrangement include high inter-LA water debt, and limited guaranteed water supply in the receiving LA. For example, satellite cities owe Harare large sums, and do not have a guaranteed water supply.

5. A local authority treats water and sells it to a private company, which sells it to another local authority for distribution to residents. This arrangement applies in Kwekwe and Red Cliff, and Shurugwi. The Red Cliff municipality receives water from Kwekwe—but via Ziscosteel. A challenge has been resolving debt, as there are no formal agreements between cities.

6. A private company treats and distributes water directly to residents, such as the case of Hwange Colliery. Much of Hwange town receives treated water from Hwange Colliery, which is not charged for.

7. A local authority outsources the treatment of water to a private company, which returns treated water to the LA for distribution, such as in Chiredzi LA. A key challenge is without metering, the Chiredzi LA has been charged based on treatment plant design capacity—not on actual costs and volumes.

The financial and operating efficiency of water delivery channels in Zimbabwe can be compared with models in other countries. In Kenya, the Bank has worked with the national regulatory authority to benchmark the financial and operating performance of water utilities owned by local governments. Relevant data is published and updated periodically for the public, contributing to greater transparency and efficiency. In Zimbabwe, the World Bank is supporting the implementation of a peer-reviewed Service level Performance Benchmarking process (SLB) for all 32 urban LAs.

To address revenue shortfalls, some local authorities are accruing significant salary arrears, payment arrears (especially for water), and taking expensive short term bank loans or overdraft facilities to finance recurrent spending. The most common strategy to manage fiscal deficits since 2009 is accumulating salary arrears. Figure 5 shows that most big local authorities (Harare, Bulawayo, Mutare, Gweru and Chitungwiza) had high salary arrears. In 2015, about 66 percent of local authorities had salary arrears. Local authorities have started owing salary arrears since 2010. The only councils without arrears are Beitbridge, Chegutu, Chirundu, Epworth, Lupane, Masvingo, Mvurwi, Rusape, Ruwa, Victoria Falls, and Zvishavane.

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Accumulating debt has also been a means to bridge the financing gap. In 2015, total debt across all local authorities was estimated at about $555 million, representing 105 percent of total revenues collected by local authorities. In this case, debt is defined as the total amount the local authority owes to all creditors, including bank debt, payment arrears, and salary arrears, among others. On average, debt of all local authorities increased by about 21.2 percent between 2014 and 2015. Figure 6 shows debt each local authority owed to all of its creditors in 2014 and 2015. All local authorities increased their debt between 2014 and 2015, save Chirundu, Chipinge, Harare, and Rusape. To curtail excessive borrowing by local governments, the Ministry of Local Government may consider implementing a “traffic light system” similar to a system in Colombia, which regulates the ability of local authorities to assume debt based a transparent and objective evaluation system. Information on how this system works in Colombia is in Box 4.

Figure 6: Debts Across Local Authorities (US$ Millions)

A. Cities B. Municipalities

Figure 5: Salary Arrears, 2015 (US$ millions)


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C. Towns D. Local Boards


Box 4: Colombia’s Traffic Light System to Control Local Borrowing

To shore up local finances, Colombia implemented a “traffic light system” for subnational debt in the 1990s and early 2000s. The adoption of the Traffic Light Law 358-1997 (Ley de Semáforo) was the first major step. This law introduced a system where local governments were classified in three categories – green, yellow and red – based on measures of their liquidity and solvency, as summarized below. Highly indebted local governments were prohibited from borrowing (red light), less extreme cases required prior approval from the Ministry of Finance (yellow light), while low risk cases could take on debt autonomously (green light).

* Operational savings is defined as current income minus operational expenses and transfers paid by the subnational government. Current income mainly includes tax revenue, nontax revenue, royalties and fees, transfers from the central government, national revenue sharing, and interest income. Operational expenses include wages and salaries, honorariums, social welfare benefits, and social security expenditures.

After this system did not prove sufficient to contain local government debt, Colombia passed a subsequent law (Law 617), which served as a sub-national fiscal responsibility law, and introduced the following additional constraints on sub-national borrowing:

• Primary current expenditure cannot exceed non-earmarked current revenues, and cannot exceed a fixed percentage, depending on the category of the state or municipality; governments must make additional cuts when effective non-earmarked current revenues are lower than budgeted;

• States and municipalities cannot make transfers to their public entities;

Indicator Intermediate debt – a yellow light

Autonomous debt – a green light

Critical debt – a red light

Liquidity: interest payments/operational savings*

Solvency: debt/current revenue

40-60%

<80%

<40%

<80%

>60%

>80%

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Figure 7: Trends In Revenue by Source (2011-2014, Millions of US$)


Revenue Trends

Benefitting from economic stability, total revenues have increased since 2011, though much of this is due to growing sales. As noted above, total revenue increased by 41 percent from $570 million in 2011 to $804 million in 2014. From 2011, the main source of funds for local government was sales, which constituted over 40 percent of total revenue. As revenues from sales rose by 73 percent from 2011 to 2014, the contribution of sales to total local revenues rose from 40.4 percent to 44.3 percent (see Table 2). Sales are mainly for residential and industrial stands. The rapid growth in sales is partly due to upward adjustments in prices of residential stands. The second largest source of funding is property rates: the rates paid by owners of fixed property (land, houses, factories, and office blocks) based on property value. Property rates represented more than 20 percent of local revenue, and increased by 54 percent in absolute terms from 2011 to 2014. However, many local authorities do not have functional property registration systems, and suffer from incomplete or outdated valuations. Additional investments in this area could result in better revenue outturn for property rates. The third largest source is fees, fines, permits and licenses, which represented about 15 percent of revenues and rose by about 37 percent in absolute terms over the period (see Figure 7 and Table 2).

• Strict limits apply to creating new municipalities, and non-viable municipalities must be merged with others;

• If a sub-national governments is out of compliance with the law’s fiscal rules, it must adopt a fiscal rescue program to regain viability within two years;

• Expansion of the rules and requirements surrounding the election of governors, mayors, congressmen and their relatives to promote transparency.

These two laws -- and a broader Fiscal Responsibility Law passed in 2003 that among other items eliminated the “yellow light” category – have led to a reduction in fiscal deficits and/or fiscal surpluses in sub-national government balance sheets.

Sources: OECD (2013). “Colombia: Implementing Good Governance.” OECD Public Governance Reviews. OECD Publishing, 2013.World Bank (2002). “Monitoring fiscal risks of subnational governments.” PREM notes. Number 64, Poverty Reduction and Economic Management Network, March 2002.

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Table 2: Main sources of Revenue (Percentage of Total Revenue)

2011 2012 2013 2014

Property taxes

Levies

Sales

Fees, Fines, Permits & Licenses

Rentals

Grants

Other

24.9

5.8

40.4

16.8

2.9

3.0

6.3

22.7

6.4

40.8

17.2

3.4

3.4

6.1

24.0

5.8

44.1

14.1

3.5

1.9

6.6

24.2

4.9

44.3

14.5

3.6

2.0

6.5

Local authorities rely on sources of revenue differently. Cities and town councils rely foremost on sales, while municipalities and local boards rely most on fees, fines, permits and licenses. Towns and city councils rely on property rates as the second largest source of revenue. The second highest revenue source for municipalities is property rates followed by sales, which slumped in 2012. For local boards, sales and property rates contribute almost the same revenue (see Figure 8).Local authorities are permitted to raise revenue from income generating projects, such as beer halls and farming activities. In 2015, about 69 percent of Urban Local Authorities had Income Generating Projects in their books, though most projects are poorly managed and not profitable. Some of the projects also did not have Ministerial approval.

Grant and investment transfer programs funded from the central government contribute little to local government finances, leaving the local authorities reliant on local sources of financing. In 2014, grants accounted for 2 percent of overall funding, and this share has been somewhat flat in recent years. As shown in Table 2, internal sources account for almost all funding for local government. The local authorities, especially urban local authorities, used to receive a larger share of capital finance from the central fiscus through the Public Sector Investment Programme (PSIP) and other grant programs, but due to fiscal constraints this source of revenue has fallen in recent years. Facing fewer government grants and dwindling fiscal resources, local authorities are struggling to provide services to constituencies. As a result, capital development funds are often diverted to fund recurrent expenditures. Sometimes, even donor funds are illegally diverted to cover recurrent expenses.

Local authorities have lost a major source of revenue: issuance of vehicle licenses. Since 2009, local authorities have no longer been responsible for issuing vehicle licenses, which had been the major source of funding for road maintenance projects. Central government took over the collection and distribution of vehicle licensing fees, which is housed under the Ministry of Transport and Infrastructure Development, and managed by Zimbabwe National Road Administration (ZINARA). The funds are disbursed on a quarterly basis, after the council prepares a program of work and submits it to ZINARA for funding. ZINARA officially disburses funds on the basis of the class of roads in an area, traffic levels, road condition, and whether funding is needed for routine or periodic maintenance.¹⁰ In reality, ZINARA funding for local authorities’ road maintenance work is reportedly lower than it had been prior to the transfer of this function to ZINARA, appears to go predominantly to larger urban areas, and is generally considered to be inadequate.

Overall, current collection rates across local authorities are insufficient to cover full service delivery. Local authorities have thus incurred huge debts, and are having difficulties providing services. Key reasons for lower revenues include excessive control by central government over raising fees or rates; declines in grants from central government; adverse macroeconomic conditions; and sometimes lack of financial

¹⁰ See “Allocations to Road Authorities,” ZINARA Website. Available: http://www.zinara.co.zw/index.php/about-zinara/allocations-to-road-authorities. Accessed October 12, 2016.

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Figure 8: Disaggregated Local Government Revenues (US$ Millions)

A. Municipalities B. Town Councils

¹¹ The increase in General Expenses in 2013 is largely due to the directive on debt forgiveness in that year, as debt forgiven was classified as a general expense.¹² The Ministry of Local Government considers non-employment costs to represent “service delivery costs”.


C. City Councils D. Local Boards

Expenditure Trends

Recurrent expenditure dominates local authorities’ expenditure. Employment costs, which have consistently increased, is the largest expenditure category—save in 2013 when general expenses were the highest¹¹ (see Figure 9). Employment costs have dominated local government expenditure, making up more than 40 percent on average since 2011. Because high employment costs have been problematic, the Ministry of Local Government set a criterion to maintain a 30:70 ratio of employment to non-employment costs,¹² with a view to reduce fiscal risks when revenues are lower than budgeted, and increase resources for maintenance and repairs. In addition to instituting controls over employment

management capacity in local authorities. Macroeconomic conditions limit options for raising revenue. One factor exacerbating fiscal constraints is government debt due to local authorities, which was US$36 million in March 2016.

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Figure 9: Expenditure Trends (2011-2014, US$ Millions)


costs, local governments must expand the use of results based management techniques for assessing staff and increasing employee incentives for productivity. High employment costs have left little fiscal space for repairs and maintenance, which comprised only 7.0 percent of local government expenditure from 2011 to 2014, partly explaining dilapidated council roads and other services. In general, capital expenditure for Local Authorities is supposed to range between 15-25 percent of total expenditure. In 2016, about 72 percent of local authorities met this criterion for their budget estimates. Those not meeting this criterion included Bulawayo, Chegutu, Epworth, Gweru, Harare, Lupane, Marondera, Plumtree and Rusape.


Table 3: Expenditure Categories (Percentage of Total Expenditure)

2011 2012 2013 2014

Employment CostsCouncilors ExpensesRepairs and Maintenance General ExpensesOther Expenses

41.70.47.2

35.215.5

42.00.37.1

34.815.9

36.60.26.8

38.418.0

39.10.26.7

36.417.5

From 2011 to 2014, employment costs followed by general expenses represented the two highest expense categories in municipalities, city councils and local boards. Town councils, however, spent the most on general expenses followed by employment costs, which started to decline from 2013 (see Figure 10). The ratio of employment cost to total expenditure breaches the 30 percent benchmark across all local authorities. Municipalities recorded the highest breach, followed by local boards (see Table 4). The average ratio for all local authorities was 40 percent—with the highest ratios in 2011 and 2012.

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Source: Local authorities and Auditor General

Figure 10: Disaggregated Local Government Expenditure Trends (US$ Millions)

A. Municipalities B. Town Councils

C. City Councils D. Local Boards


Table 4: Employment Costs to Total Expenditures

2011 2012 2013 2014 Average % CommentBenchmark

MunicipalitiesTown councilsLocal boardsCity councilsRural district councilsAll local authorities

0.620.420.520.390.390.42

0.630.470.570.380.400.42

0.480.320.480.360.310.37

0.490.340.460.370.410.39

553951383840

highhighhighhighhighhigh

0.30.30.30.30.30.3

22


Source: PICES 2011/12; 2012 Census

The analysis of local government service delivery draws from a sub-set of eight local authorities. The sub-set has detailed, continuous data covering 2012 to 2015 on budgeted and actual expenditures in key service delivery categories. The local authorities include two cities (Kadoma and Mutare), four municipalities (Bindura, Chegutu, Kariba, and Victoria Falls), one town council (Norton), and one local board (Epworth). As these local authorities were selected based on data availability rather than representativeness, care should be taken to not overgeneralize findings. The sample has somewhat higher levels of poverty and smaller populations than average urban areas, largely because the sample

L O C A L G O V E R N M E N T S E R V I C E D E L I V E R Y - E X P E R I E N C E S A N D L E S S O N S F R O M 8 U R B A N A U T H O R I T I E S

4

Table 5: Description of Sample of Local Authorities

Name Classification

MunicipalityMunicipalityLocal BoardMunicipality

CityMunicipality

CityTown Council

Mashonaland West Mashonaland West

Harare ProvinceMashonaland

CentralManicaland

Matabeleland NorthMashonaland WestMashonaland West

26,451 50,590

152,116 46,275

187,621 33,748 92,469 67,591 82,108

113,082

73%68%65%63%61%47%44%39%57%47%

Province PopulationPoverty Rate

KaribaChegutuEpworthBinduraMutare

Victoria FallsKadomaNorton

Group AverageUrban Average

does not include Harare or Bulawayo, which have more people and lower poverty rates. The sample does not cover all provinces.¹³

The following sub-sections discuss how efficiently local authorities balance competing demands for service delivery (allocative efficiency), and explore issues of effectiveness and technical efficiency in select service delivery areas: water provision, waste water treatment, and solid waste disposal. These three areas were selected based on their importance to urban development and data availability. The section concludes by discussing equity of service delivery between more and less well-off local authorities.

Overall Allocative Efficiency

Local Authorities provide diverse services to their communities, including public water provision; waste water treatment; local roads construction and maintenance; solid waste disposal; police, fire, and ambulance services; and maintenance of public spaces and community infrastructure, such as public parks. Local authorities have a role in providing local health and education services, although

¹³ The sample does not include Bulawayo (5 percent of population), Machonaland East (10 percent of population), Matabeleland South (5 percent of population), Midlands (12 percent of population), or Masvingo (11 percent of population).

23


Figure 11: Distribution of Budget to Service Delivery Areas in Selected Local

Authorities (Budgeted 2012-2015)¹⁴

Figure 12: Distribution of Budget to Service Delivery Areas in Selected

Local Authorities (Actual 2012-2015)

Source: Ministry of Local Government Source: Local authorities and Auditor General

¹⁴ Unless otherwise noted, all tables and graphs in this section refer to the 8 local authorities included in the sample.

Administrative, finance, and management costs are the largest category of costs, averaging about 21 percent of budgeted resources and 23 percent of actual spending between 2012 and 2015. Administrative, finance and management costs include cross-cutting administrative costs, and the costs of maintaining the council and managing staff working for the local governments who do not have specific service delivery functions (e.g. housing or health). On a budgeted basis, administrative costs fell from about 30 percent of the overall budget in 2012 ($19.7 million) to about 26 percent of the budget in 2015 ($17.0 million). On an actual basis, however, the share of expenditures spent on administrative costs increased from 21 percent in 2012 ($11.2 million) to 26 percent in 2015 ($16.0 million).

the national government also provides public resources to these services. Figure 11 and Figure 12 show the average distribution of budgeted and actual spending from 2012 to 2015 by category of service delivery, while Table 6 provides annual percentages.

24


Table 6: Distribution of Budget to Service Delivery Areas,(Selected Local Authorities % Total)

2012

2012

Budgeted

Actual

2013

2013

2014

2014

2015

2015

Average

Average

%PT Change

%PT Change

Administrative, Finance, & ManagementHealth and EducationWater ProvisionWater SanitationSolid Waste & Environment ManagementRoads and WorksWelfare, Community Infra., & ParksHousing and Public BuildingsIncome Generating ActivitiesPolice and Emergency ServicesTOTAL

Administrative, Finance, & ManagementHealth and EducationWater ProvisionWater SanitationSolid Waste & Environment ManagementRoads and WorksWelfare, Community Infra., & ParksHousing and Public BuildingsIncome Generating ActivitiesPolice and Emergency ServicesTOTAL

23%7%

12%5%

3%25%3%9%6%6%

100%

21%13%12%4%

5%24%5%4%3%9%

100%

20%7%

15%5%

4%26%5%6%3%8%

100%

18%10%15%7%

6%18%3%

13%2%7%

100%

21%9%

19%4%

5%21%4%8%3%7%

100%

29%12%19%3%

4%11%4%6%2%

10%100%

22%8%

25%7%

4%16%4%6%3%7%

100%

26%11%16%5%

4%16%3%6%3%9%

100%

21%8%

18%5%

4%22%4%7%4%7%

100%

23%11%15%5%

5%17%4%8%3%8%

100%

-1.6%1.3%

12.9%1.9%

0.8%-9.4%0.2%-3.7%-3.2%0.6%0.0%

5.65%-2.7%3.65%1.00%

-0.12%-8.07%-1.93%2.79%-0.25%-0.07%0.00%


The next largest category of spending is Roads and Works, though spending in this area has fallen significantly. From 2012 to 2015, Roads and Works represented on average 22 percent of budgeted expenditures—but dropped annually from 25 percent to 16 percent. Actual expenditures fell from 24 percent in 2012 to 16 percent in 2015. Drops in expenditures may be partly due to ZINARA replacing local governments in collecting vehicle license fees, which are used for road investment and maintenance. Since 2014, ZINARA has been mandated to redistribute funds to local governments, but many local authorities have received comparatively fewer funds, decreasing expenditure and needed investment

25


to maintain roads.¹⁵ Budget execution for Roads and Works was low—averaging 57 percent from 2012 to 2015 (see Figure 13). Factors for low execution partly include un-predictability of ZINARA transfers, and weak capacity in certain local authorities to implement complex roads projects.

Figure 13: Budget Execution by Service Delivery Area in Selected Local Authorities


¹⁵ Discussions at the Ministry of Local Government.

Water provision and water sanitation comprise sizeable shares of public funds at the local level. On average, water provision made up about 18 percent of budgeted expenditures and 15 percent of actual expenditures between 2012 and 2015. Water sanitation represented about 5 percent of the budget and 5 percent of expenditures in the same period. Except in 2013, budget execution in water provision and water sanitation was below 75 percent over the period (65 percent on average). The high budget execution in 2013 was driven by mandated debt forgiveness, which was recorded as an expense under general expenses.

Education and Health are key service delivery areas for local governments, yet much funding is paid through the central fiscus or directly by households to schools. Education and Health together represented on average 7.7 percent of budgeted expenditures and 11.2 percent of actual expenditures from 2012 to 2015. But most of this expenditure was programmed for health initiatives: Health made up about 95 percent of budgeted expenditures for Education and Health; and 98 percent of the combined actual expenditures. Partly, both Education and Health Salaries are paid for by the central fiscus (see Box 1). Household contributions largely fund general expenses, maintenance, and CAPEX. See Volume 4 for more details.

The remaining 26 percent of the budget and 28 percent of actual expenditures were allocated to other local services. The largest shares of this remaining budget were spent on housing and public buildings (7 percent budget/8 percent actual), police and emergency services (7 percent budget/8 percent actual), and solid waste disposal (4 percent budget/5 percent actual). Figure 11, Figure 12, and Table 6 provide more information on relative shares of these service delivery areas. Details are also provided later in this volume on financing issues in solid waste disposal.

Analysis of Key Services Delivered By Local Authorities

Public Water Supply and Distribution

Among the local authorities considered in this analysis, budgeted spending on water supply and distribution rose by 90 percent from 2012 to 2015, and actual spending by 46 percent (see Figure 14). Spending was higher in 2013 and 2014, largely due to the debt forgiveness policy, which covered, among other things,

26


local water charges, and ballooned spending in those years. For example, Mutare forgave more than $3.2 million in outstanding water supply debts in 2013, and Kariba forgave debts of about $3.0 million in 2014.

Figure 14: Spending on Water Supply and Distribution, Selected Authorities 2012-2015 (US$ Millions)


General expenses make up most water supply costs, followed by CAPEX, repairs and maintenance, and employee costs—though budget execution of the capital budget is very low. Public water supply and distribution is highly dependent on general expenses, given needs to purchase bulk water, water treatment chemicals, and electricity and fuel. Between 2012 and 2015, general expense made up on average 43 percent of budgeted expenditure and 74 percent of actual expenditure. Such allocations are distorted, however, by the noted debt forgiveness.¹⁶ Data is not uniformly available across all local authorities on how much debt was forgiven and how this affected annual expenditures. Yet if deductions are made for the combined $6.2 million in debt forgiveness for Mutare and Kariba, goods and services fall to 65 percent of actual expenses. Capital outlays is the next highest share of the water supply budget, representing 27 percent—though capital spending made up less than one percent of actual spending from 2012 to 2015. Repairs and maintenance performed somewhat better,¹⁷ representing 13 percent of the budget and 9 percent of actual spending, while Employee costs represented 11 percent of the budget, and 15 percent of actual spending.

Figure 15: Distribution of Water Supply Budget by Economic Classification

(Selected Local Authorities)

Figure 16: Distribution of Water Supply Actual Spending by Economic

Classification (Selected Local Authorities)

Source: Ministry of Local Government Source: Ministry of Local Government

¹⁶ For example, Mutare’s forgiveness of outstanding water supply debts resulted in 887 percent of the budget for general expenses for water supply to be spent in that year, and Kariba’s debt forgiveness (booked under 2014 expenditures) resulted in a budget execution rate of 448 percent in that year for general expenses.¹⁷ The bulk of this expenditure is on repairs, rather than maintenance. Most local authorities either do not have or do not adhere to planned maintenance plans, resulting in disruptions to service delivery and higher repair costs.

27



As shown in Table 7, actual spending on water provision varied between the eight local authorities in the sample. Total average actual expenditures ranged from a high of $2.4 million in Victoria Falls¹⁸ to a low of $223 thousand in Chegutu.¹⁹ In addition, local authorities have varying capacity to execute their water provision budgets. Budget execution in Kadoma and Kariba averaged above 100 percent and Victoria Falls above 80 percent. Yet execution rates in Bindura, Chegutu and Norton fell below 25 percent.

¹⁸ High investment in Victoria Falls may have been boosted by other government investments to prepare for international Conferences, such as the UN Tourism Conference. ¹⁹ Excepting Epworth that does not have a separate public water supply program.

Table 7: Budgeted and Actual Spending on Public Water Provision in Selected Local Authorities (Average 2012-2015)

Bindura Kariba

Water ProvisionExpenditure by Economic Classification (Average 2012 - 2015)

Budgeted

Actual

Budget Execution

Chegutu MutareEpworth NortonKadoma Vic Falls

Employee Cost

General Expenses

Debt Charges

Repairs & Maintenance

Capital Outlays

TOTAL

Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

248,948

749,167

-

28,320

2,602,879 3,629,314

70%

80%

N/a

70%

0%

22%

175,400

596,267

-

19,763

940

792,371

316,320

788,000

31,800

508,832

23,505

1,668,458

104%

210%

0%

21%

72%

126%

329,644

1,652,409

-

106,627

16,865 2,105,545

120,068

456,326

-

47,600

423,000 1,046,994

67%

27%

N/a

31%

2%

21%

79,888

120,974

-

14,692

7,362 222,916

89,847

344,894

504,702

791,901

873,750

2,605,093

133%

319%

0%

55%

1%

64%

119,336

1,099,475

-

433,920

4,388

1,657,119

N/a

-

N/a

-

N/a

-

116,131

1,222,577

-

205,301

750

1,544,759

105%

14%

N/a

29%

0%

23%

121,561

169,916

-

59,462

-

350,938

413,418

1,228,648

-

228,868

147,748

2,018,681

65%

148%

N/a

66%

12%

112%

269,314

1,818,099

-

151,156

17,828

2,256,396

399,505

1,865,687

407,500

252,586

-

2,925,278

87%

95%

46%

34%

N/a

82%

348,538

1,779,706

187,668

85,009

-

2,400,920

While local authorities that spend more per capita on water supply tend to be high performers, some high performers are able to deliver at lower per capital cost. Kariba and Victoria Falls, which spend more than $70 per capita annually on water supply services, score well on coverage of households, overall liters of water supplied per day, hours of water supplied, and water quality. Though no local

28


Source: Service-level Benchmarking Surveys

Figure 17: Relationship of Cost Recovery to Hours of Water Supply,

All Urban Local Authorities (Average 2012-2015)


Table 8: Cost Profile and Water Supply Performance in Selected Local Authorities

Hours of Water Supply /day

Positive Water Quality Tests

Average Per Capita

Spending

$24.02$8.83

$17.12$4.41

$79.60$71.14$5.19

-

93%90%88%92%96%84%61%13%

229.50 374.00 174.75 140.33 518.75 333.75 88.00 1.75

KadomaMutareBinduraChegutuKaribaVictoria FallsNortonEpworth

AverageHouseholdCoverage

Water Supplied (L/day/cap)

Name

10.25 9.25 10.00 8.33 21.25 21.25 3.50

-

92%100%100%97%91%95%90%47%

There is a positive correlation between maintaining cost recovery for water supply and reliable access to water (see Figure 17). Data from the 2012-2015 Service Level Benchmarking (SLB) Survey reveals that increases in a local authority’s cost recovery for public water supply correlates with an increase in daily hours of pressurized water supply. It is thus important to ensure regular funding for water provision by improving collection rates. Introducing pre-paid meters in local authorities may help improve collection rates. Such meters should be carefully studied so that they can be replicated across the local authorities, if they prove effective.

To maintain their financial viability and improve the efficiency of service delivery, local water utilities should consider structural reforms. In line with the recommendations made in the volume on SOEs (Volume 3), water utilities would benefit from instituting more robust corporate governance practices, such as improving the quality and independence of their boards and the

authority with lower spending does as well on hours of water supply, several moderate spenders, such as Kadoma and Bindura, score well on other measures, while maintaining lower per capita costs. Though costs of water provision vary by local authority based on their capital infrastructure and access to water sources, there may be room for mutual learning on how to improve cost-effectiveness of public water delivery. Costs also vary based on geographic characteristics. Mutare, for example, has access to a clean source of raw water located upstream, and therefore does not incur high pumping costs.

transparency of financial disclosures, and implementing performance contracts at the institutional and management levels.

Sewerage and Sanitation

Budgeted spending on sewerage and water sanitation rose steadily from 2012 to 2015, though actual spending varied substantially between years. Aggregated budgeted expenditure on sewerage

29


Figure 18: Spending on Sewerage and Water Sanitation, Selected Authorities 2012-2015 (US$ Millions)


Though budgeted allocations are reasonably balanced between categories of expenditure, actual spending demonstrates low budget execution in capital spending and repairs and maintenance (See Figure 19 and Figure 20). Budgeted expenditures are well balanced between Employee Costs (31 percent), General Expenses (23 percent), Repairs and Maintenance (25 percent), and Capital Outlays (20 percent)—with a small allocation for Debt Charges (1 percent). Actual spending is much more heavily weighted to General Expenses and Employee Costs, due to the effects of debt forgiveness on General Expenses, and weak budget execution rates of 27 percent in Repairs and Maintenance and 10 percent in Capital Outlays.

Figure 19: Distribution of Sewerage Budget by Economic Classification


Figure 20: Distribution of Sewerage Actual Spending by Economic



among selected local authorities rose from $3.9 million in 2012 to $5.1 million in 2015—an increase of about 31 percent. Actual expenditures rose 42 percent from $2.1 million in 2012 to $3.0 million in 2015. However, spending peaked in 2013 to $5.8 million, before falling to $1.9 million in 2014. Most of this increase is due to large increases in Kadoma and Mutare, which executed large debt write-offs for sewerage customers in 2013 of about $1.6 million and $2.1 million, respectively. In 2014, spending on sewerage fell below the level in 2012 to $1.9 million across local authorities.

To maintain their financial viability, and improve the efficiency of service delivery, local water utilities should also consider more structural reforms. In line with the recommendations made in the following volume on State Owned Enterprises, water utilities would benefit from instituting more robust corporate governance practices, such as improving the quality and independence of their board, improving the transparency of their financial disclosures, and implementing performance contracts at the institutional and management levels. More details are provided in Volume 3.

30



Table 9: Budgeted and Actual Spending on Water Sanitation and Sewage in Selected Local Authorities (Average 2012-2015)

Bindura Kariba

Water SanitationExpenditure by Economic Classification (Average 2012 - 2015)

Budgeted

Actual

Budget Execution


Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

118,410

112,548

-

24,550

280,225

535,734

86%

23%

20%

9%

30%

101,729

26,073

-

4,860

25,550

158,212

255,052

245,942

-

126,091

-

627,084

98%

67%

40%

74%

250,065

165,719

-

50,385

-

466,169

96,044

255,115

-

99,087

295,750

745,995

79%

28%

12%

15%

27%

75,818

70,685

-

12,115

44,478 203,096

201,709

51,283

30,801

436,193

195,000

914,986

136%

1264%

35%

0%

117%

274,868

648,047

-

150,594

-

1,073,509

N/a

-

N/a

-

N/a

-

290,694

114,438

-

126,900

12,500

544,532

96%

47%

45%

0%

71%

277,972

53,327

-

57,206

-

388,505

199,214

86,721

-

207,540

126,274 619,749

22%

597%

6%

14%

95%

44,224

517,499

-

11,851

17,965

591,540

207,114

184,792

-

102,355

-

494,261

84%

51%

17%

58%

173,958

93,581

-

17,892

-

285,431

Local authorities with higher cost recovery and spending per capita generally have better coverage and quality of sewage services. Data from the Service Level Benchmarking survey suggests that cost recovery generally enables wider coverage of sewage services—though some local authorities with high cost recovery did not manage to expand coverage (see Figure 21). Kariba, which spends the most per capita, scores well on access to toilets and coverage of the sewerage network (no data was available on the quality of sewage treatment in Kariba). Other local authorities performed relatively well on access, coverage, and quality measures, with much lower unit costs, such as Bindura. As above, differences in performance may be due to characteristics of local authorities’ infrastructure. In any case, these experiences may provide useful insights on how to improve the cost effectiveness of sewerage services.

31


Figure 21: Relationship of Cost Recovery to Coverage of Sewage Network in All Urban Local Authorities (Average 2012-2015)

Source: Service-level Benchmarking Surveys


Table10: Cost Profile and Water Treatment Performance in Selected Local Authorities

Quality of Sewage

Treatment

Average Per Capita Spending

$6.40$5.72$3.42$4.01

$17.62$8.46$5.75

96%92%80%98%

100%86%72%2%

89%90%65%91%83%80%33%2%


Share of Properties with Access to Toilets

Average Coverage of

Sewage Networks

Name

25%67%

100%33%

42%17%

Solid Waste Disposal

In the eight local authorities, the budgeted and actual spending on solid waste disposal rose slightly between 2012 and 2015, but actual annual spending varied. Across all local authorities, budget allocations rose by about 15 percent from $2.8 million in 2012 to $3.2 million in 2015. Actual spending increased about nine percent from $2.4 million to $2.7 million. Spending spiked to $5.0 million in 2013, then fell dramatically to $2.3 million in 2014. The increase in 2013 was largely due to the debt forgiveness effort, especially in Kadoma and Mutare, which “spent” $1.6 million and $1.0 million on debt forgiveness, respectively, which collectively offset increases in that year.

32


Figure 22: Spending on Solid Waste Disposal, Selected Authorities 2012-2015 (US$ MIllions)


The distribution of budgeted and actual expenditures is heavily weighted towards employment costs and general expenses (See Figure 23 and Figure 24). Employment costs represented 43 percent of budgeted expenditures and 46 percent of actual expenditures—much higher shares than in water provision or sewerage services. The heavy reliance on labor may be appropriate: recent evidence suggests that using more labor, including from the informal sector, is the most cost effective way to provide solid waste management services and increase recycling,²⁰ and can create jobs in local markets. After employment costs, the next largest distribution is General Expenses, which made up 22 percent of budgeted and 37 percent of actual expenditures. Much of the general expenses budget for refuse removal is used to purchase waste receptacles; fuels and oils for machinery and vehicles, and pest control chemicals. Repairs and maintenance represented about 17 percent of the budget and 14 percent of actual spending. Capital outlays represented about 12 percent of the budget, but only three percent of actual spending.

²⁰ For examples, see: Marello, Marta and Ann Helwege, “Solid waste management and social inclusion of waste pickers: opportunities and challenges,” GEGI Working Paper, Boston University Center for Finance Law and Policy, Paper 7, September, 2014, available: www.bu.edu/pardee/files/2014/09/Social-Inclusion-Working-Paper.pdf Da Zhu, P. U. Asnani, et al. Improving Municipal Solid Waste Management in India: A Sourcebook for Policymakers and Practitioners. World Bank Institute, November 2007.Gunsilius, Ellen, et al. “Recovering resources, creating opportunities: Integrating the informal sector into solid waste management,” GIZ, March 2011, available: https://www.giz.de/de/downloads/giz2011-en-recycling-partnerships-informal-sector-final-report.pdf

Figure 23: Distribution of Solid Waste Budget by Economic Classification


Figure 24: Distribution of Solid Waste Actual Spending by Economic



Both total spending and budget execution for solid waste disposal activities vary significantly between local authorities. From 2012 to 2015, budgets for solid waste disposal ranged from $309

33


thousand in Victoria Falls to $1.1 million in Mutare, and actual spending ranged from $215 thousand in Kariba to $1.3 million in Mutare. These figures are somewhat misleading, however, given the size of the two localities. Per capita spending on solid waste disposal was $8.15 in Kariba and $6.69 in Mutare. The lowest per capita spending occurs in Norton and Victoria Falls, which recorded average spending of $3.37 and $2.86, respectively. Budget execution was highest in Kadoma and Mutare, though these rates are affected by their large debt write-offs, which were recorded as spending. Kariba recorded budget execution of 102 percent on average from 2012 to 2015. The lowest rate of budget execution was in Victoria Falls—only about 31 percent. Across local authorities, budget execution was strongest on employee costs and general expenses, and weakest on capital outlays. See Table 11 for more details.


Table 11: Budgeted and Actual Spending on Solid Waste Disposal and Environmental Management in Selected Local Authorities (Average 2012-2015)

Bindura Kariba

Water SanitationExpenditure by Economic Classification (Average 2012 - 2015)

Budgeted

Actual

Budget Execution


Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

Employee Cost

General Expenses

Debt Charges


Capital Outlays

TOTAL

295,795

114,880

-

25,785

74,619 511,079

64%

97%

74%

0%

63%

189,090

111,364

-

19,160

-

319,614

105,840

96,715

-

9,035

-

211,590

119%

74%

73%

102%

125,903

71,750

11,281

6,601

-

215,536

134,184

61,381

-

15,207

195,760

406,532

90%

37%

35%

14%

43%

120,300

22,883

-

5,385

27,629

176,197

462,622

25,633

218,004

391,880

-

1,098,138

126%

1263%

89%

114%

581,544

323,643

82

349,395

-

1,254,664

N/a

-

N/a

-

N/a

-

106,281

144,479

-

70,614

112,500

433,875

106%

46%

15%

34%

53%

112,915

66,487

-

10,562

37,828

227,792

333,524

185,688

-

36,636

46,498 602,345

67%

280%

75%

52%

132%

223,585

519,044

-

27,652

24,363

794,644

107,737

167,372

-

34,000

-

309,108

58%

15%

26%

31%

62,682

24,690

-

8,996

-

96,369

There is generally a positive relationship between cost recovery and coverage of waste collection services, though outliers demonstrate significant inefficiencies in certain local authorities. As shown in Figure 25, local authorities with at least full cost recovery in waste collection tend to collect the majority of waste

34


Figure 25: Relationship of Cost Recovery to Proportion of Waste Collected in All Urban Local Authorities (Average 2012-2015)

Source: Service Level Benchmarking Surveys, 2012-2015

Source: Service Level Benchmarking Surveys, 2012-2015

Table 12: Cost Profile and Solid Waste Disposal Performance in Selected Local Authorities

% Waste Collected

% Properties Using Acceptable

Receptacles

Average Per Capita Spending

$8.59$6.69$6.91$3.48$8.15$2.86$3.37

190%247%120%175%166%206%392%

1%

71%69%83%74%64%81%63%0%


Cost Recovery

% Properties with Collection at Least Weekly

Name

113%²¹ 93%55%85%63%81%59%13%

47%83%52%9%

53%44%23%1%

produced in their communities. Yet numerous outliers with 300 percent or higher cost recovery suggest that waste collection revenue is used to subsidize other activities in many local authorities.

²¹ Includes a value of 221% in 2013; average would be 77% without this outlier value.²² There is a data quality issue with this indicator as early years of measurement may only account for collection for commercial properties, rather than residential properties. Commercial properties tend to receive collection twice a week while residential properties receive collections once per week.

Generally, higher per capita spending on solid waste disposal is associated with better coverage in communities, but this is not universal. Some local authorities, such as Kadoma, with high per capita spending have achieved good coverage by collecting waste twice a week²² and collecting a high share of waste, but other high spenders do less well. Certain moderate spenders, such as Chegutu, do well on coverage, collecting at least once a week and a high share of waste, but do much worse on use of acceptable receptacles (see Table 12).

35


Poorer, recently established local authorities face bigger challenges in providing services given lack of infrastructure. An outlier among all service delivery areas, Epworth has low levels of access in all categories of services, which stem from how Epworth was established. Other local authorities existed at Zimbabwe’s independence, and had already established water and sanitation systems. Such local authorities mainly needed to maintain, expand, or upgrade systems. Epworth, on the other hand, formed from an informal settlement during the independence struggle. Epworth faced three factors making it difficult to establish a strong service delivery system. First, Epworth did not inherit infrastructure at Independence. Second, as Epworth’s residents were largely informal, their settlements need to be formalized before certain investments in properties were possible. Third, Epworth’s population has high poverty rates, making it more difficult for them to shoulder high investment costs to build new systems. The GoZ should consider such situations when designing the transfer system, with a view to helping less developed local authorities address their service delivery infrastructure gaps.

CONCLUSION & POLICY OPTIONS5Summary of Major Findings

The analytical findings presented in previous sections identify several key major findings regarding the public financing of local government service delivery in Zimbabwe. These include:

Employment costs remain a significant share of overall spending, and an even higher share of total revenues collected, creating significant fiscal risks.

General administrative, finance and management costs represent nearly a quarter of all spending, and actual spending on administrative costs increased relative to service delivery costs, even though their share in approved budgets fell over the period.

Source: 2015 Zimbabwe Poverty Atlas using the 2011/12 PICES data and the 2012 National Population Census data

Table 13: Poverty Levels and Service Delivery Coverage and Performance

Properties with Access

to Toilets (%)

Solid Waste Disposal

Properties with

Collection at Least

Weekly (%)

Hours of pressured supply per

day

Properties Using

Acceptable Receptacles

(%)

Average Household Coverage

(%)

21.25 8.33

- 10.00 9.25

21.25 10.25 3.50

53%9%1%

52%83%44%47%23%

96%92%13%88%90%84%93%61%

83%91%2%

65%90%80%89%33%

KaribaChegutuEpworthBinduraMutareVictoria FallsKadomaNorton

Coverage of Sewage Networks

(%)

Name

100%98%2%

80%92%86%96%72%

64%74%0%

83%69%81%71%63%

73%68%65%63%61%47%44%39%

PowerRates

WaterSupply

Water Treatmentand Sewer

Solid WasteDisposal

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In eight local authorities surveyed in key areas such as public water provision, solid waste disposal, and wastewater treatment and sewerage, spending on capital and repairs and maintenance was low, particularly relative budgeted amounts, undermining the longevity and quality of services provided in these areas.

Higher per capita spending on water supply, sewerage, and solid waste disposal is generally associated with better access to and quality of local services, yet some local authorities appear to achieve good performance at a relatively lower cost.

There is no clear correlation between local authorities’ poverty rates and performance on service delivery, except for recently established local authorities with high poverty, which tend to have weak service delivery infrastructure, and difficulties mobilizing needed funds to make investments.

Prioritize the development of tools and training on basic PFM skills – including the Local Government Accounting Manual developed by UCAZ.

Invest in expanding efforts to implement GFMIS systems in local authorities, including reworking training programs to ensure that local authorities are able to use all relevant modules, and produce in-year and end of year financial reports.

Review the types of approvals required by the Ministry of Local Government to approve rates and budgets, especially where reductions in rates mandated by the Ministry reduce cost recovery for service delivery functions.

Clarify the institutional framework for decentralization, to ensure that all local government service delivery mandates are aligned, with no overlap between central and local authorities, and that oversight mechanisms for urban and rural local authorities are well coordinated.

Develop and discuss potential models for a future transfer system, with a view to building consensus on a transparent and equitable formula for distribution.

Identify alternatives to many local authorities’ relying on property sales to generate revenue, as sales of property are not a sustainable source of financing.

Assess the effectiveness of pre-paid meters for improving water rate recovery, and consider replicating pilots in additional local authorities.

Examine factors for low unit costs of service delivery in certain local authorities, to identify ways to increase efficiency across the country as part of the service level benchmarking process.

Identify strategies to improve the execution of budgets for repairs, maintenance, and capital spending, and separate repairs from maintenance, to ensure assets are maintained before they break down.

Expand the use of performance measurement and management systems at the local level, including results based management of personnel, and extend the service level benchmarking mechanism to include other areas of local service delivery, especially local roads.

Increase allocations of PSIP, ZIMRA, and other funding sources to poorer local authorities with a wide infrastructure gaps but with capacity to manage such funds.

Identification of Areas for Further Policy Dialogue

These findings indicate several reforms for further policy dialogue and partnership, including:

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ANNEX 1 : LOCAL AUTHORIT IES 2016 TARIFF APPROVAL CHECKLIST

NAME OF LOCAL AUTHORITY: PROVINCE:

NOTE: Checklist designed to suffice the statutory requirements of Sections 228, 229 of the Urban Councils Act [Cap. 29:15] and 88, 89 and 90 of the Rural District Councils Act [Cap. 29:13] and Public Finance Management Act [Cap. 22:19]

Item [Critical Information Related to the Proposed Budget] Comments

Finance Committee Chairman’s Overview Remarks on the Budget

Current budget performance (figures for budgeted and actuals and percentages for all committees)

Copy of Chief Executive Officer`s Performance contract (signed, aligned with budget, all staff should be on Performance management please attach certificate)

Budget surplus or deficit and implications elaborated (No deficit budget will be considered)

Level of creditors and debtors (should have comparatives)

Strategies to liquidate creditors and statutory obligations (Councils should not submit the same failed interventions year after year. They have to submit a report on impact of strategies employed and new interventions to improve the situation)

Income Generating Projects (viability, must have Ministerial approval)

1

a

b

c

d

e

f

38



Status of audited accounts (submit copy of current audited statements) (Course of action on Audit observations and recommendations)

Proposed Budget Presentation

Projected expenditure

Proportion between recurrent and capital expenditure (15% average capital improvement budget to total budget)

Internal Recapitalisation biased towards service delivery)

1. Maintenance of capital equipment (Repairs) (separation of repairs from maintenance)2. Repairs

Proportion between salaries and total budget (30 % being the standard) (compliance with new salary regime)

Salary Arrears (disaggregated into of net salaries and statutory obligations)

Average Proposed Tariff Increase Percentage

Subsidies (must be disclosed e.g. IGP if loss making, also provide source of subsidy, authority to subsidise and explain need for such subsidy)

Impact of labour costs and other inescapable expenditures on the budget.

Disclosure of outstanding loans (Internal and External, short or long term, repayments to be budgeted for)

Vital statistics (Realistic figures, comparative figures and use of such in budget formulation)

g

2

a

b

c

d

e

3

4

5

6

7

8

39



Water chemicals(Urban LA) (Cost and types of chemicals, payments per month and how many months in arrears)

Donations Received and Made (Cash or kind, give value for donation and how it was spent) Impact of creditors on current budget

Existing Accounts (number of existing bank accounts, include balances for each account)

Presence of Full Council Resolution adopting the proposed budget.

Presentation of the draft statutory instrument(s) for proposed tariff increases.

Availability of proof of advert(press cuttings)

Submission of proof of consultation (consultation certificate, stakeholder meeting’s reports/ minutes) (disaggregated data, attendance against registered voters, if attendance was poor what measures were taken to reach out)

Information regarding objections received and how handled ( together with relevant proof, i.e. minutes of council) (comparative figures)

Date of initial submission

Follow ups made:

Date of compliant submission

Meeting of budget submission deadline; (how many days late, how long it took to be compliant)

9

10

11

12

13

14

15

16

17

18 a

b

c

19

40



Financial Advisory

Signature ………………………………………

Date ……..............................................

Desk Officer’s Remarks:

Deputy Director Rural/Urban Local Authority’s Remarks:

Director Rural/Urban Local Authorities Remarks:

Principal Director Urban/Rural Local Authorities Remarks:

Signature ………………………………………

Date ……..............................................

Secretary’s Remarks:

Signature …………………………….

Date …….....................................

Recommended/ Not recommended


Date …….....................................



Date …….....................................



Date …….....................................



Date …….....................................



Date …….....................................

41



Deputy/Minister’s Remarks:

Minister’s Remarks:



Date …….....................................



Date …….....................................

42


ANNEX 2 : CONSULTATION MEETINGS HELD DURING JUNE 13-24 MISSION

MLGPWNH Principal Director Urban Local Authorities, Erica JonesDirector Urban Local Authorities, N.P Mudzinge Finance Director, T.Chaparadza, Financial Advisory Unit, Tatenda MandeyaChief Internal Auditor, A. Nyoni

Ministry of Finance and Economic DevelopmentPrincipal Economist, Public Sector Investment Programme, Samuel Phiri

Urban Councils Association of Zimbabwe (UCAZ)Secretary General, Livison MutekedeProgramme Manager, Tserayi Machinda

R-DataManaging Director, Rod Dunbar

Development PartnersUNICEF, Urban WASH Manager, Arnold Cole‎UNICEF, Urban WASH Manager, Steven Mudhuviwa GIZ, Senior Institutional and Financial Expert, Michah Majiwa

Local AuthoritiesEpworth Local Authority, Town Secretary, Acting Treasurer, AuditorEpworth Local Authority Council, Audit and Finance CommitteesEpworth Ward Development Committees Epworth Resident AssociationEpworth Resident Trust

Norton Local Authority, Town Secretary, Acting Treasurer, AuditorNorton Local Authority Council, Audit and Finance CommitteesNorton Resident Associations

Municipality of Bindura Town Clerk, Shangwa MaveseraMunicipality of Bindura Treasurer, Auditor, Head of HRMunicipality of Bindura Council, Audit and Finance Committees

Documents

Public Disclosure Authorized - World Bank · 2017-03-06 · Public Sector Investment Programme Public Service Pension Fund Results-Based Budgeting Results-Based Management ... Consultation