Zambia Devolution Program PCN.docx

Feb 22, 2022
FOR OFFICIAL USE ONLY
CONCEPT NOTE
ON A PROPOSED CREDIT
IN THE AMOUNT OF US$100 MILLION
TO THE
REPUBLIC OF ZAMBIA
FOR A
Devolution Support Program (P178492)
Regional Vice President: HafezM.H. Ghanem | Regional Director:AsadAlam|CountryDirector: Mara K.Warwick |
Practice Manager: NicolaJ.Smithers |Task Team Leader(s): RamaKrishnanVenkateswaran
Thisdocumenthasa restricteddistributionandmaybe usedby recipientsonlyinthe performance of their
official duties.Itscontentsmaynototherwise be disclosedwithoutWorldBankauthorization.

The World Bank PROGRAMCONCEPTNOTE
ZambiaDevolutionSupportProgram(P178492)
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BASIC INFORMATION
BASIC_INFO_TABLE
Country(ies) ProjectName
Zambia ZambiaDevolutionSupportProgram
ProjectID FinancingInstrument
Doesthisoperationhave anIPF
component?
Environmental andSocial
RiskClassification(IPF
Component)
P178492
Program-for-Results
Financing
Yes Moderate
Team Leader(s)
Rama KrishnanVenkateswaran
Practice Manager Regional Director CountryDirector Regional Vice President
NicolaJ.Smithers AsadAlam Mara K. Warwick HafezM. H. Ghanem
Financing& ImplementationModalities
[ ] Multiphase ProgramApproach(MPA) [ ] Fragile State(s)
[ ] ContingentEmergencyResponseComponent (CERC) [ ] Fragile withinnon-fragile Country
[ ] Small State(s) [ ] Conflict
[ ] AlternativeProcurementArrangement(s) [ ] RespondingtoNatural orMan-made Disaster
[ ] Hands-onExpandedImplementationSupport(HEIS)
ExpectedApproval Date ExpectedClosingDate
30-May-2022 30-Jun-2027
Bank/IFCCollaboration
No
ProposedProgram DevelopmentObjective(s)
To strengthenthe financing,institutional performanceandaccountabilityof rural local governmentsinZambia.

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Organizations
Borrower: Republicof Zambia
ImplementingAgency: Ministryof Finance andNational Planning
Contact: Mumba Chanda
Title: DirectorLocal GovernmentFinance
Telephone No: 260968486661
Email: mumba.chanda@mof.gov.zm
COST & FINANCING
FIN_TABLE_DATA1
SUMMARY (USD MILLIONS)
Governmentprogram Cost 350.00
Total Operation Cost 100.00
Total ProgramCost 92.00
IPFComponent 8.00
Total Financing 100.00
FinancingGap 0.00
Financing(USD Millions)
International DevelopmentAssociation(IDA) 100.00
IDA Credit 100.00
IDA Resources (inUS$, Millions)
CreditAmount Grant Amount Guarantee Amount Total Amount
Zambia 100.00 0.00 0.00 100.00
National PBA 100.00 0.00 0.00 100.00
Total 100.00 0.00 0.00 100.00

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INSTITUTIONAL DATA
I NSTI TUTI
ONALDAT
ATBL
Practice Area (Lead) ContributingPractice Areas
Governance
Climate Change and DisasterScreening
Thisoperationhasnot beenscreenedfor shortandlong-termclimatechange anddisasterrisks
SYSTEMATIC OPERATIONS RISK- RATING TOOL (SORT)
Risk Category Rating
1. Political andGovernance  Moderate
2. Macroeconomic  Substantial
3. Sector Strategiesand Policies  Moderate
4. Technical Designof Projector Program  Moderate
5. Institutional CapacityforImplementationandSustainability  Substantial
6. Fiduciary
No FiduciaryRiskratinghasbeencompletedtodate  Substantial
7. EnvironmentandSocial
Environmental RiskratingfromSpecialist:
 Moderate as of 24-Feb-2022
Social Riskratingfrom Specialist:
 Moderate as of 24-Feb-2022
 Moderate
8. Stakeholders  Moderate
9. Other
10. Overall  Substantial
PREPARATION SCHEDULE
Preparation Schedule
Milestone Original Revised Actual
AIS Signoff Dec 09, 2021

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ConceptReview Feb16, 2022 Mar 03, 2022
Disclosure of ConceptPID Feb16, 2022 Mar 04, 2022
Disclosure of ConceptESRS Feb10, 2022 Mar 04, 2022
QualityEnhancement
Review(QER)
Mar 14, 2022 Mar 24, 2022
DecisionReview Apr 01, 2022 Apr 01, 2022
Disclosure of Appraisal PID Apr 05, 2022 Apr 05, 2022
Disclosure of Appraisal ESRS Apr 07, 2022 Apr 07, 2022
BeginAppraisal Apr 11, 2022 Apr 11, 2022
Authorize Negotiations Apr 25, 2022 Apr 25, 2022
Approval May 30, 2022 May 30, 2022
Signing Jul 20, 2022 Jul 20, 2022
Effectiveness Aug01, 2022 Aug01, 2022
ProjectClosing/Cancellation
Date
Jun30, 2027 Jun30, 2027
ICR/NCO
Expenditures
Source of Funds Preparation Expensesto Date (USD)
Bank Budget 13,392.08
Team
Bank Staff
Name Role Specialization Unit
Rama Krishnan
Venkateswaran
Team Leader(ADMResponsible)
Governance,
Decentralization
EAEG1
EliotKalinda ProcurementSpecialist(ADMResponsible) Procurement EAERU
IshtiakSiddique ProcurementSpecialist PublicProcurement EAERU
SaiduDani Goje Financial Management Specialist Financial Management EAEG1

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Kudakwashe Dube Social Specialist(ADMResponsible) Social Safeguards SAES2
AngelaNieves Marques
Porto
Team Member Operations EAEG1
BaisonBanda Team Member Financial Management EAEG1
ChristopherMark Ingoe Environmental Specialist EnvironmentSafeguards SAEE2
Eric Chivunga Team Member data collection research EAEG1
Francis Zulu Team Member Financial Management EAEG1
KutembaChililaKambole Team Member OperationsSupport AEMZM
ManvinderMamak Team Member CapacityBuilding ESAG1
SerenaSara Daniela
Cocciolo
Team Member
Economicanalysis,
ResultsFramework
EPSPA
ExtendedTeam
Name Title Organization Location
RenjitCheroorSukumaran Consultant international consultant India

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INTRODUCTION AND CONTEXT
A. Country Context
1. The Zambianeconomywas already at its weakestpointintwo decadesat the onsetofthe COVID-19pandemic.
Growthin 2019 slumpedtoitslowest pointintwodecades(1.4percent),withdroughtconditionsimpactingagriculture,
electricity,andcopperproduction.The expansionaryfiscaloutturnin2019,withanoverall deficitof 13.9percentof gross
domesticproduct(GDP),furtherconstrictedthe country’sfiscal space andcapacitytoswiftlyrespondtoacrisis.Inflation
also began to rise above the Government’s target band of 6-8 percent beginning in June 2019. In addition, the Kwacha
depreciated by 18.3 percent for the year, leading to a tightening of the monetary policy. The 2019 World
Bank/International Monetary Fund (IMF) joint debt sustainability assessment for Zambia concluded that the country’s
debt was at high risk of debt distress and was unsustainable. Taken together, these macroeconomic pressures led to
liquiditychallengesbythe endof 2019, resultingin abuild-up of domestic payment and external debt service arrears.
2. The COVID-19 pandemic considerably worsened Zambia’s macroeconomic imbalances. The economy is
estimatedtohave contractedby2.8 percentin2020, markingZambia’sfirstrecessionsince 1998. Earlierin2020, mining
and servicessufferedfromlowerglobal demand,aswell as social distancingmeasures. Inflationremainedinthe double
digitsthroughout2020 and2021. FallingrevenuesandCOVID-relatedexpenditurepressureswidenedthe fiscaldeficitto
17.4 percentof GDP in2020. The Kwacha depreciatedbyover50 percent,andreservesdeclinedtoUS$1.2 billionatthe
endof 2020 againsta projecteddebtservice of atleastUS$1.3 billionin2021. Although growthisexpectedtorecoverin
2021 and 2022, the underlyingmacroeconomicimbalancesare expectedtoremainstark.A shrinkingfiscal space reduced
the capacity of the Government to make critical investments in health, education, and infrastructure. It also impacted
the Government’s ability to service its large debts, triggering the sovereign debt default in 2020. Recognizing the
unsustainable debt situation, in mid-2020 the Government hired legal and financial advisors to help them with a
comprehensive and orderly debt restructuring. Zambia also applied for debt treatment under the G-20 Common
Framework in January 2021.
3. Zambia’s Vision 2030 sets an ambitious agenda for improvements in the standard of living, targeting middle-
income country (MIC) status by 2030. It calls for sustaining high rates of economic growth and significantly reducing
poverty. The principal policy document for meeting the national aspirations as articulated in the Vision 2030 is the
SeventhNational DevelopmentPlan,2017-2021 (7NDP).It outlinesthe Government’sdesireddevelopmental outcomes
as well as the accompanyingstrategiesandprograms. Like the three national developmentplans(NDPs) thatpreceded
it, the 7th
NDP is aimed at attaining the long-term objectivesof becoming a “prosperous middle-income country” as
outlinedinthe Vision2030 (ZambiareachedLowerMIC statusby 2011). Creatinga conducive governance environment
for a diversifiedandinclusive economyisone of the planned core strategiestoattainthisvision.The 7NDP outlines the
followingdevelopmentoutcomesasitskeyprioritiestostrengthengovernance: (i) improvingthe policyenvironment;(ii)
improvingtransparencyandaccountability; (iii) establishinganinclusive democraticsystemofgovernance; (iv)improving
service delivery; (v) improving the rule of law, human rights and constitutionalism; and (vi) enhancing national values,
principles, and ethics.
4. The newGovernmentledbythe UnitedPartyforNational Development(UPND),which came tooffice inAugust
2021, has emphasizedthe achievementof Zambia’s2030 Vision.Its2021-2026 Manifestoclarifiesitsstrategicapproach
through good governance, macroeconomic stability, strengthened public financial management, and improved service
deliveryandproductivity.Importantly,the Manifestomentionsthatthe hallmarkof the new approachwill be to have a
small, diverse, and efficient government characterized by proper planning, transparency and accountability in the
managementof publicresources.The Governmentiscurrentlyinthe processof preparingthe 8NDP, whichis expected
to addressthe prioritiesof the newadministrationintermsof job creation.It will alsoenhance the performance of the
mainsectorsof the economysuchas health,education,agriculture andtourism.The objectivesof the proposedProgram

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for Results (PforR) are aligned with the broadlines of the 8NDP and its implementation plan, which are expected to be
released later in 2022.
B. Sectoral and Institutional Contextof the Program
5. Zambia’s growth has been spatially unbalanced. Historically growth has been highest in the cities and urban
centers that dot the railway line from Livingstone through Lusaka to the Copperbelt. However other places, especially
the rural areas, have largely remainedexcludedfromeconomicprogress.Urbanizationhasbeenadriverof change over
the past 15 years, and growth has been significantly more focused on the main cities. Yet, rural areas continue to face
significantconstraintsinbothservicedeliveryandeconomicdevelopment. Forexample,althoughthe annualpopulation
growthof Lusaka isovertwice the average for Sub-SaharanAfrica, rural areas are growingslowerthanthe restof Africa
(0.7 percent in Zambia as compared with 1.8 percent elsewhere). These disparities can exacerbate uneven territorial
development, as rural areas play a crucial role in strengthening the links within local, provincial, national, and
international supply chains.
6. Weak institutionsand limitedaccountability have hinderedservice deliveryand growth. Zambiais well known
for being a democracy and one of the most politically stable countries in Africa. However, these features have yet to
translate into stronger governance and better service delivery outcomes. According to the World Bank’s Worldwide
Governance Indicators,between2015 and 2020 , Zambia’srank for the Governance Effectiveness indicatorfell from33
to22.1
Weakpolicycoordinationandimplementationof reforms,aswellas limitedtransparencyandaccountability,have
createdspace for vestedintereststohave a disproportionate influence inpolicymakingandpublicresource allocation,
thereby hinderingpro-poorgrowth.Ithasbeenobservedthat the formsof institutionsinZambia(laws,policies,systems,
and structures) have shifted to mirror global “best practices”. However, their functionality (de facto performance) has
remainedrelativelythe same.Weakcapacityto manage publicexpendituresandimplementprogramshasundermined
service delivery. Evidence suggests that policy implementation has always been weak in Zambia, with 75 percent of
Cabinet decisions never implemented.
7. Decentralization is a core element of the new Government’s strategy to strengthen governance and service
delivery. To counter the historically centralized nature of Zambian political power and institutions being confinedto a
narrow elite in Zambian society, the new Government has made devolution a key piece of its governance strategy2
.
Several policyand institutional initiatives were taken in the past, including the preparation of a Decentralization Policy
(2009) and a Decentralization Implementation Plan (DIP) (2014-2017). However, their ability to achieve development
impact especially in the rural areas has been limited due to implementation failures, low institutional capacities,and
weak incentives for key actors. The new Government is determined to address these binding constraints through a
focusedplanthatwill empowerlocal governmentsthroughresourcesandcapacitybuilding.Thus, localgovernmentswill
be better able to fulfill their mandated roles and responsibilities. In its first budget presented to the Parliament in
December 2021 - and as a signal to indicate its seriousness about strengthening devolution - the new Government
increased the budget allocation to the Constituency Development Fund (CDF). This fund provides resources to fund
community projects in each of the 156 Parliamentary Constituencies. Building upon the existing legal and institutional
frameworkfordevolution,the Government hasformulatedanew DIP for2022-2026. The new plan intendstostrengthen
capacities of local governments and provide them with adequate financial resources. It will also strengthen local
accountability as well as citizen engagement.
8. The Government’s strategy for strengthening devolution revolves around enhancing the institutional
capabilities of local governments to deliver services. Article 147 (2) and Annex C of the Constitution of Zambia (2016)
1 The rating scale is from 0-100, with 0 corresponding to the lowest rank, and 100 corresponding to the highest rank. World Bank Worldwide
Governance Indicators, http://info.worldbank.org/governance/wgi/#home
2 UPND Manifesto August 2021.

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describes the exclusive functions of local governments. These include the provision of standard local services, such as
local infrastructure; street cleaning and drainage; sanitation and solid waste management; the maintenance of parks,
sports, and recreationfacilities;andsoon.However,service deliveryisstill acritical challenge,especiallyinrural areas.3
Indeed,mosttowncouncils(rural local governments) struggletofulfilltheirbasicservice deliverymandates.Nonetheless,
the Government’s Devolution Strategy envisages the transfer of more service delivery responsibilities to local
governments(including agriculture, health, andeducationservice delivery). The previous DIP (2014-2017) had piloteda
new institutional model wherebydistrict officials of key line departments - such as health, education, and agriculture -
became members of the Town Council (TC) management team. This was viewed as the first step toward eventually
transferring the management of service deliveryresponsibilities in these sectors to the local government. The new DIP
envisages the preparation of Sector Devolution Plans. These would provide a roadmap in transferring the powers,
functions, and responsibilities of devolvedsectors to local governments and eventually to introduce sector grants to
finance local service delivery in devolved sectors.
9. Zambia has a functioning system of local governments. Zambia has a three-tiered structure of Government,
includingthe Central Government,the ProvincialGovernment,andthe Local Government.Unlike countrieswithawell-
developed federal system of government, the Provincial Government tier in Zambia does not fully operate as an
intermediate tier.Ithaslimitedfinancial autonomyandactsasan agentof the Central Government.Incontrast,the local
governmentsysteminZambiaiswellestablished.Soonafterachievingindependence in1964, Zambiaenactedthe Local
GovernmentAct(1965), and establishedasystemof local governments (LGs).Theselocal governmentsare comprisedof
CityCouncils(five),Municipal Councils(fifteen),andTown Councils(ninety-six),andare classifiedbasedonpopulation.
Whereas the City Councils and Municipal Councils are classifiedas urban local governments, the Town Councils are
classified as rural local governments. Each Town Council is headed by an elected Council Chairperson and an elected
Council withexecutive supportprovidedbyateam of civil servants ledbythe Council Secretary.PartsIX,Xand XI of the
Constitution(2016) and the Local GovernmentAct (2019) provide the legal frameworkforthe local governmentsystem
and decentralization arrangements in Zambia.
10. Weak institutional capacities of local governments (LG) pose a potential threat to the successful
implementation of the Government’s Devolution Strategy. A key determinant of the success of devolution in Zambia
will be the abilityof the LGsto handle the assignedtasks — aswell asthe effective bridgingof the disparitiesintechnical
andadministrativecapacitybetweenthecentralandthe local governments.4
Previousanalysesofdecentralizationefforts
in Zambia have concluded that the weak technical and administrative capacities of the LGs are a key risk for effective
devolution.Lowlevelsof own-sourcerevenues,weakplanningandfinancialmanagementpracticesandsystems, aswell
as the absence of formal engagementstructuresbetweenlocal governmentsandcitizenshave resultedinpoor service
deliveryoutcomesatthe local governmentallevel.Withthe increaseinflow of resourcesandthetransferof more service
delivery responsibilities to the LGs, there is a concern that their weak capacities will lead to the failure of the
Government’s devolution policy objectives.
11. Strengtheningthe LG’s fiscal and financial capacities and the performance is at the core of the Government’s
Devolution Strategy. As such, it will be necessary to strengthen the LGs’ planning, budgeting, procurement, financial
management, and accountability systems.This will enable the LGs to make full use of the significant expansion in their
mandatedresponsibilitiesaswell asthe increase inthe flow of resourcestothemthroughthe fiscal transfersystem and
the CDF. International experienceinstrengtheningdecentralizationsuggeststhatanincrease inresourceallocationmust
be accompaniedby a varietyof capacities, including properplanning,implementationandcontrol systems;a sufficient
and skilled workforce atthe local governmental level;aswell asa robustpolicy,institutional andmonitoringframework
3 For example, only50 percent ofthe people inrural areashave access tosafe drinking water, whereas onlyabout 35 percent of the rural population
have access to improved sanitation facilities). Zambia Statistics, Central Statistical Office, 2017.
4 Bardhan(2002) quotedin“Decentralizationin Zambia:A comparative analysis of strategies andbarriers to implementation”;Ashraf, Bandier and
Blum; International Growth Centre (2016).

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at the central governmentlevel.Suchsupportwouldfacilitate greaterfunctionalandfiscal devolution,ultimatelyleading
to improved local service delivery.
12. DecentralizationinZambia must increasinglymeetthe dual objectivesofstrengtheningan accountable system
of governance, while also enabling the LGs to meettheir service deliveryresponsibilitiesinan inclusive and efficient
manner. The key to addressingthese objectiveswill be measurestore-orientandenhance the capacity of both central
and local government institutions to play the new roles demanded of them within a decentralized framework for
governance and service delivery. At the local governmental level, the capacity to manage local service delivery in an
inclusive,efficient,accountable,andtransparentmannerwill be of keyimportance.Thiswouldreducethe prospectsfor
elite capture atthe local level andenhance the trustbetweencitizensandtheirelected local government. Atthe central
governmental level, it is critically important that it enhance its ability to set priorities and provide policy and capacity
support. The fiduciary responsibilities of higher-level governments in safeguarding public resources through effective
monitoring and strong anti-corruption measures need to be strengthened and made effective. The Government
recognizes that these critical priorities need to be addressedimmediately so its Devolution Strategy can translate into
better service delivery outcomes. Indeed, it has specifically sought World Bank support to address these priorities.
C. Relationshipto Country PartnershipStrategy (CPS)/CountryPartnership Framework(CPF)
13. Strengthening Institutions at the local level is a priority in World Bank Group’s Zambia CPF for FY2019-FY23.5
The CPFmakesa commitment toensure thatthe WorldBankGroup(WBG) will continue tosupportthe strengtheningof
governance,accountability,andservice deliveryatthe local level.The CPFstatesthat strengtheninglocal-level planning
throughrobustcitizenengagementandimprovingtransparencyandoversightof resource allocationandpublicspending
at the local level will strengthen downward accountability. As such, it will help to enhance the social contract between
citizens and the State. The proposed operation is listed as a key engagement under Focus Area III (Institutions for
Resilience). The objective is to foster fiscal decentralization throughthe combination of capacity-building activitiesand
the development of an incentive framework for better service delivery and budget manage ment at the local
governmental level.
14. Through its focus on improving service delivery systems in rural LGs in Zambia, the proposed operation will
support the achievement of important objectives under Focus Area I (Even Territorial Development). The proposed
operation builds on the observations in the Zambia Systematic Country Diagnostic (SCD), specifically that unbalanced
territorial development has resulted in low growth of secondary and rural towns. As such, the CPF commits to the
strengtheningof rural townstodeliverservices. Thus,the proposedoperationintendstosupportthe CPF’scommitment
to strengthening rural areas, which are at the center of the proposed operation.
D. Rationale for Bank Engagementand Choice of FinancingInstrument
15. World Bank engagement through a country-wide program to strengthen devolution will directly support the
Government’s objective to build local government capacity and facilitate accountable local service delivery. The
proposed operation will address core institutional capacityconstraints.Assuch,itwill enableall rural local governments
in Zambiato achieve theirdevelopmentobjectivesandeffectivelymanage the increasedflow of resourcesthroughthe
CDF and other sector programs. The proposed operation will facilitate an integrated approach to institutional
development, capacity building and service delivery outcomes through: (i) a Performance Grant System that links
budgetary allocations with improved institutional performance, as well as improvements in the quality of planning and
implementation processesand systemsat the local level; (ii) identificationof capacity gaps on an annual basis through
independent performance assessments; and (iii) mobilization of mentoring support to build capacity in the areas of
planning, governance, procurement, financial management, and social and environmental safeguards.
5 “CountryPartnershipFrameworkfor Zambia”.Report No. 128467-ZA (WorldBank,2018).

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16. Program-for-Results (PforR) is the preferred financing instrument. World Bank support to devolution support
programs of this nature has greatly evolved in the last few years, particularly with the development of the PforR
instrument.Use of the PforRinstrumentwill increasethe focusonsystemsdevelopmentandcapacitybuilding.Itwillbe
based on measurable results, specifically by using and strengthening existingGovernment systems, rather than using a
ring-fencedapproach. In addition,by focusing on results and Disbursement Linked Indicators (DLIs), the modalities for
monitoringandverification willbe strengthened. The choice of instrumentalsorespondstothe Government’sintentions
of strengtheningthe institutional systemsrelatingto publicfinancialmanagement(PFM),monitoring, accountability,and
citizenengagement.Thiswillhelptoensure thatthe resources flowingtothe LGsare utilizedinanefficient,accountable,
and transparent manner.
17. The use of the PforR instrumentwill facilitate the expansionand institutionalizationof capacity buildingacross
the TCs in Zambia. The proposed PforRwill follow aresults-focusedapproachthatwill helpthe Governmenttoleverage
the capacity buildingsupportbeingprovidedto TCsinZambiaby variousdonors.Assuch,it isexpectedto translate into
institutional andservice deliveryperformance atthe local level. Suchan approach will ensure thatthe resourcesof the
wider government system provided for local service delivery through the CDF and other sector programs are utilized
effectively,andare inline withlocalpriorities. TheZambiaReview of CountrySystemstoSupporttheUse of PforR(World
Bank,2019) concludes that the PforR instrument can be a potential game changer in the Zambian context.The Review
statesthatthe use of the PforRinstrumentmaynotonly supportthe strengtheningof systems andinstitutional capacity,
as well as incentivize changesinthe behavior,decisionmakingandperformance of variousactors.Thus,it will promote
enhanced coordination/collaboration among the various institutional actors who are part of a multi-level governance
system.
PROGRAM DEVELOPMENT OBJECTIVE AND PDO LEVEL RESULTS INDICATORS
A. Theory of Change
18. The proposed operation builds on a clear theory of change vis-à-vis the project objective of strengthened
financing, institutional performance, and accountability of rural local governments in Zambia. The Government has
undertaken reforms in recent years, including the amendment to the Constitution (2016), amendments to the Public
Finance Management Act (2018), and to the Local Government Act (2019). These reforms have helped to build the
foundationsof decentralizationtodeliverimprovedservicestocitizens.The 7NDPcalls for increasedaccountabilityand
results-oriented public expenditures to promote equity and ensure more balanced socioeconomic development across
the country. The keyinterventions of the proposedoperation builduponthese existingfoundationsof recentreformsto
strengthen institutional intermediate institutional outcomes. These interventions are needed to help the rural local
governments(towncouncils)absorbandutilize theincreasedflowof resourcesthathave beenprovidedtothemthrough
the intergovernmental fiscal transfer systems. It will also provide them with the necessary capabilities to successfully
fulfill the expanded scope of their service delivery responsibilities. These are expected to include key sectors such as
health and education. The introduction of the Performance-based Capital Grant (PBCG) will provide discretionary
resourcestorural local governments.Itwillhelpthem meettheirservice deliveryresponsibilities alongwithintroducing
the principles of transparency and predictability in intergovernmental fiscal transfers.In addition, the allocationof the
capital grant basedon performance indicatorswill incentivize improvedinstitutional performance byparticipatinglocal
governments.
19. The Program will strengthenthe financing through the introduction of a performance-basedcapital grant that
will provide muchneededfinancial resourcesto rural local governments(thatis,the Town Councils),therebyenabling
them to meet their mandated service delivery responsibilities. The proposed PforR Program will enhance the
institutional performance of the TCs in core functional areas. This will be achieved through an Annual Performance
Assessment (APA) and targeted capacity building support. The TCs will be incentivized to improve their institutional

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performance as part of theireligibilitytoreceive the capital grant,which willbe basedontheirAPA scores.The Program
will alsostrengthen the central government’srole inputtinginplace a sustainable financingandmonitoringframework
for local governance and service delivery
20. The proposedoperation will use both results-basedand input-basedfinancingto enable a synchronous mix of
measures to incentivize institutional performance and accountability, with targeted capacity building support. The
DLIs are used to strengthen the core institutional systems for PFM, intergovernmental fiscal relations, performance
management, accountability of local service delivery and monitoring and oversight functions at the central and local
levels.The existingintergovernmental fiscal transfersystemwill be strengthened aswell. Thiswill be done throughthe
introductionof anewcapital grantthatwill providemuchneededresourcesforlocal servicedeliveryaswellasmake the
fiscal transfer system more transparent and predictable. In addition, the proposed program reinforces the critical role
played by the central government in creating the necessary enabling conditions for effective and efficient local
governance and service delivery. This would be achieved through an annual review and reporting of fiscal transfersto
local governments; supporting the design and implementation of a standardized monitoring framework for financial
reportingby the TCs; and institutingmechanismsformonitoring local government debt and strengthening local audit.
21. The capacity buildingsupportisdesignedtohave a strong linkwith the core theme ofincentivizinginstitutional
performance and accountability,as itsupports the TCs through targetedtrainingand mentoringsupport. Suchsupport
wouldhelpthe TownCouncilsto meetthe minimumconditionsandthe enhanced performance measuresthatare part
of a Performance MeasurementFramework.Underthe capacity buildingcomponent,necessarysupport willbe provided
to the Ministryof Local GovernmentsandRural Development (MLGRD) forimprovedoversightandmonitoringof LGs,as
well as managingthe capacity buildingneedswithin the existinggovernmentalsystems. Thissupportwillalsoenablethe
use of digital technologiesforimprovingthe efficiencyof local government procurementand financial management, as
well as local revenue collection. In addition, it is expected to increase the transparency and accountability of local
government functioning. Finally, the support provided will enhance the voice of the people, both as citizens and
consumers of public services.This will be done through increased citizenparticipation and use of beneficiary feedback
mechanisms by the TCs. Thus, it will contribute to strengthening the social contract between the State and its citizens
around local service delivery.
B. Program DevelopmentObjective(s)
22. PDO statement: To strengthen the financing, institutional performance and accountability of rural local
governments in Zambia.
23. The PDO will be measured through the PDO-level indicators. Strengthened financing will be reflectedin the
provision of Performance Based Capital Grants (PBCG) by the Central Government to the TCs on a timely basis.
Institutionalperformance andaccountabilitywill be monitored annually through(i) the Annual PerformanceAssessment
of the TCs,assessingtheirperformanceagainstindicators coveringkey institutional,financial,accountability andservice
delivery performance aspectsand(ii) the successful utilization of the PBCGs for meetinglocal development priorities in
accordance with PBCG management and accountability requirements.
C. PDO Level ResultsIndicators
24. The PDO level indicators for the proposed program are:
a) Percentage of TownCouncils thatmeetthe MinimumConditions(MCs) andExpandedMinimum Conditions
(EMCs) for the Performance BasedCapital Grants,asmeasuredbythe APA.
b) Timely disbursementof the Performance BasedCapitalGrantstoeligibleTCs.
c) The percentage of total Performance-basedCapitalGrantsutilizedby the TCsannually.

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PROPOSED PROGRAM-FOR-RESULTSOPERATION CONTEXT
A. PforR Program Boundary
Governmentprogram
25. The DIP for 2022-2026 takes a programmatic approach, recognizing the multi-sectoral and multi-dimensional
facetsof devolution;assuch, it attemptsto bring togetherthe various stakeholdersthroughan integratedand holistic
program. The DIP recognizes the various dimensions necessary for the successful implementation of decentralization.
Therefore, it encompasses the policy,legal, institutional,administrative, fiscal,financial,implementation as well as the
humanresourcesaspectsof devolution. The DIPrecognizesthe role played by keyactorssuchas the Ministryof Finance
andNational Planning(MoFNP),theMinistryof Local Government andRural Development(MLGRD),the Decentralization
Secretariat,the Office of the AuditorGeneral, the Parliament, andthe LGs themselves.Italsorecognizesthe important
role playedbyCooperatingPartners(CPs)andthe civil societyinimplementingdecentralization.Accordingly,the DIPhas
the followingeightstrategicfocusareas: (i) sectordecentralization;(ii)fiscaldecentralizationandfinancialmanagement;
(iii) human resource management reforms; (iv) policy and legal reforms; (v) governance arrangements; (vi) local
development planning and budgeting; (vii) communication and advocacy; and (viii) program management and
coordination.
26. The Government program supported by this operation focusses on the fiscal and financial aspects of the DIP.
The MoFNP has formulated a program (henceforth called the Government program) that envisages a comprehensive
package of interventions pertainingtothe fiscal and financial aspectsof decentralization,linkingthese withthe related
institutional performance andcapacitybuilding support.The Governmentprogramfocussesonthree pillarsof the DIP;
namely: (i) fiscal decentralization and financial management; (ii) local development planning and budgeting; and (iii)
governance arrangements. These are considered the building blocks necessary for the efficient, accountable, and
transparentexecutionof the DIP.Inaddition,theyare critical foritssustainability.The Governmentprogramisdeveloped
collaboratively by the MoFNP, the Decentralization Secretariat (DS) and the MLGRD.
27. The Governmentprogram intendsto reformthe existingintergovernmental fiscal transfersystem. In 2015, the
Governmentdevelopedan IntergovernmentalFiscal Architecture (IFA)toprovideaframeworkforfiscal decentralization.
Based on the IFA, the Government introduced the Local Government Equalization Fund (LGEF) as the mechanism to
transfer funds from the central government to local governments to address local development priorities. The LGEF
introduced anewsystemof intergovernmental fiscal transfers(knownas“equalization grants”)toLGs. Thoughthe fiscal
transfers throughthe LGEF have continuedsince then, withanallocationof 1,167.3 million Kwacha(approximately US$
58.7 million) in2021 and an average of 1,339.3 millionKwacha(approximatelyUS$67.3 million) peryearforthe period
2022-2024 (Figure 1). However, in practice, the system is not transparent or predictable. Allocations per district are
largelydrivenbypopulationsize butnot byotherfactorsrelatedtothe costsof publicservice provisionsor priorityneeds
such as landsize orpovertylevels.Inaddition, the rulesgoverningthe LGEFprovide that80 percentof the grants are to
be usedformeetingrecurrentcostsand20 percentforcapital investments.However,inpractice mostLGsuse the entire
equalization grant to meet their recurrent costs, leaving almost nothing for their capital investment needs. The
Government program intends to reform the fiscal transfer system by: (i) reforming the allocation formula of fiscal
transfers; (ii) providing direct disbursement of the equalization grants to the LGs; (iii) introducing a capital grant to
complement the equalization grant; and (iv) instituting performance incentives into the fiscal transfer system.

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Figure 1: CDF and LGEF Allocations (US$ millions)
Note: Data for the years 2009-2021 was providedbythe Ministryof Local Government and Rural Development. Data for the years 2022-2024 are
extracted from the Zambia 2022-2024 MediumTerm Budget Framework.
28. The Governmentprogramintendsto put inplace a sustainable fiscal framework for local governmentfinances.
According to the IFA, “The LGEF should provide the necessary core funding which,whencombined with local OSR, will
be able to support the costs for basic service delivery, small capital projects and liquidating accumulated local council
debts”. Thoughthe IFA envisionedakeyroleforOwnSource Revenues(OSR)inensuringlocal servicedelivery,inpractice
the collectionof local revenueshasbeenpoorand not adequate tomeetlocal expenditure requirements. Similarly,the
large debtobligationsof the LGshave reducedtheirfiscal space andprevented themfromachievingfiscal sustainability.
These debtobligationsare essentiallypaymentarrearsandare acarry-overfromthe past.6
Theyconsistmostlyof unpaid
pensionandtax obligationstothe NationalPensionSchemeAuthority(NAPSA)andthe ZambiaRevenueAuthority(ZRA).
The Governmentprogram alsoplacesastrongemphasisonenabling the LGstoincrease theirlocalrevenue collection.In
this context, it will establish a strong capacity building program to strengthen local revenue collection. In addition,the
Governmentprogram intendstoputinplace arobustfinancial andprocedural frameworkfor effectivelocal government
debt management.
29. The Governmentprogram intendsto strengthenPFM at the local governmentlevel. The new Governmenthas
given a strong signal that it is shifting more resourcesfrom the central to the local government level.The DIP lays out
the Government’s vision of introducing sector grants in core sectors such as health and education. This wouldbe done
as part of devolvingservice deliveryresponsibilitiesinthese sectorstolocal governments overthe longrun.Inaddition,
the LG’s execute the CDF. The budget allocation of the CDF component for communityprojects7
increased from 249.6
millionKwacha(approximatelyUS$12.4 million) in2021 to2,543.1 millionKwacha(approximatelyUS$127.8 million) on
average per year for the period 2022-2024.8
The Government seeks to ensure that the utilization of the increased
resourcesflowingtolocal governmentsiscarriedout in an efficient,transparentandaccountable manner,as well as in
accordance withestablishedPFMrulesand practices.Accordingly,the GovernmenthasalreadyformulatedLGfinancial
reportingguidelinesaswell asutilizationrulesforthe CDF. Plansare beingmade to roll out the electronicprocurement
system (e-GP) to LGs.
6 “Closing the LeakingGap”:Composition, Causes andthe Future of CouncilIndebtedness inZambia”, WorldBank(2014).
7 The three components of the CDF are: 1) CommunityProjects, 2) School andskills bursaries, and 3) Youth and WomenEmpowerment Fund.
8 Using the average exchange rate for 2021, 1 USD = 19.9 ZambiaKwacha(ZMW).

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30. Capacity building is a critical element of the Government program. The Government program recognizes that
the strengtheningof institutional systemsandprocesses, as well as humanresource capacities,are critical to achieving
the intended policy and development outcomes of devolution. The Local Government Service Commission (LGSC) is
responsible for the recruitment and deployment of local government staff. Although the LGSC has been successful in
increasingthe recruitmentof staffanddeployingthemacrossthe country,there are still significantmismatchesbetween
the staff complement in the LGs and the competency requirements. Given the increase in scope of local government
functions, as well as increased demands on local government capacities arising from the CDF allocations and sectoral
devolutionin the future,the LGSCisinthe processof reassessingthe humanresource requirementsof local governments
andformulatingamedium-termHumanResource Management(HRM) strategy. Simultaneously, thecapacitybuildingof
staff already in place in the core functional areas of local governance such as planning, financial management,
procurement as well as in emerging areas such as environmental management, must also be undertaken at the local
government level.
31. The GovernmentofZambiahas requestedWorldBanksupport for the implementation of a sub-setofactivities
under the Governmentprogram. The proposedZambiaDevolutionSupportProgram(ZDSP) will assistthe Government
in achieving a set of key results under the Government program. It will do this through financing specific results at the
central and local government levels, leveraging other devolution capacity building resources provided by Government
and cooperatingpartners.Table 1indicatesthe activitiesselectedforsupportunderthe proposed ZDSP. Whilethe DIP is
based on an integrated and comprehensive approach to strengthen decentralization and local service delivery and
includes awiderscopeof servicesasperthe policymandate,the Governmentprogramandthe proposed PforRProgram
will only coverthe activitiesthatare directlyrelatedto the strengtheningof the fiscal andfinancialaspectof devolution.
The institutional strengthening of LGs in related areas that would enable them to manage devolved resources in an
efficient, inclusive and accountable manner and in their delivery of local services.
Table 1. PforR Program Boundary
Key Result Area Government program Supported
by the PforR
Program
Resource allocation for
local service delivery
Review the LGEF allocation formula X
LGEF disbursed to the LGs in a timely and transparentmanner
Develop CDF regulations and guidelines X
Introduce a Performance based Capital Grant X
Develop sector grantingformulae
Develop matching grants to LGs
Financial Management
and Debt Management
Local Government financial reports arecomprehensive and timely X
Annual external auditof LGs are carried outin a regular and timely
manner
X
LG debt management databasedeveloped X
LG debt liquidation plansdeveloped X
Mechanismfor LG debt cancellation,financingand restructuring are
established
X
Local Revenue
Collections
Central Government- LG revenue sharingmethods are assessed X
Local revenue systems digitized X
Local revenue potential assessed
Local tolling programs established
LG Planning, Budgeting,
M&E
LG planning,budgeting, and M&E Systems are established and
rolled out
X
Subnational socio-economicdata sets prepared
Subnational competitiveness enhanced

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LGs designated as planning authorities
LG Governance
structures
Platforms for citizen engagement established X
Provincial and DistrictAdministrationsstrengthened
Intergovernmental coordination arrangements strengthened
LG Capacity Building LG capacity buildingneeds assessmentcarried out X
LG capacity buildingPrograms developed X
Source: Adaptedfrom the DecentralizationImplementationPlan 2022-2026;Decentralization Secretariat, Government of Zambia
Note: CDF= ConstituencyDevelopment Fund;LG= Local Government;LGEF= LocalGovernment EqualizationFund
The PforR Program
32. The proposedZDSP will have a durationof five years(2022-2027) and isestimatedto have a resource envelope
of US$ 350 million,ofwhichUS$ 100 millionwill be fundedfromthe IDA credit. Basedonthe existingfiscal framework
for the LGs, the expenditure frameworkforthe PforR Program will comprise of the following:(i) equalization grantsto
TCs;(ii) estimatedbudgetoutlaysforthe threecomponentsof the Governmentprogram;and(iii) the performance-based
capital grants (PBCG) to the TCs. The firsttwo areaswill be funded fromthe Central Governmentbudgetandare part of
the Medium-Term Expenditure Framework (MTEF). The financing provided by the World Bank will be used to fundthe
performance grants that are being introduced through the Program. While 80% the equalization grants will be utilized
for meeting the recurring costs of the TCs and 20% to meet their capital investment requirements, the PBCGs will be
utilized by TCs to meet their development and capital investment priorities. The expenditure framework of the PforR
Program will be assessed by the World Bank as part of the preparation of the Program.
33. The proposedoperation will be a hybrid PforR. The proposed operation will use acombinationof the PforRand
Investment Project Financing (IPF) instruments. The PforR component will focus on the Key Result Areas, and the IPF
componentwillfocus input-basedcapacitybuildingsupportaswell asforspecificprojectmanagementrelatedactivities.
The hybridapproachis needed due tothe variance inthe capacityof the TCs as well asthe needtoenablethe weakTCs
to achieve eligibilitythroughthe APA and receive the PBCG as earlyas possible.Assuch the IPF basedcapacity support
will focuson targetedtrainingsupportin the firsttwo yearsof the Program witheventual transitioningof the capacity
building support into a fully results based approach.
34. The Governmentof Zambia seeksto enhance the institutional, fiscal,financial,and organizational capacities of
the TCs through an Annual Performance Assessment(APA) andthe introductionof a Performance BasedCapital Grant
(PBCG). The PBCG will be the mainvehicle forprovidingdiscretionaryfundsandincentivizing TownCouncils toimprove
their performance. The grant will be combined with targeted capacity building support and mentoring support for TC
staff. Specifically,itwill helptheminundertakingcore local governmentfunctions andaddressingpriorityservice delivery
gaps. The proposed PBCG intends to fill in a critical gap in the current financing framework for LGs resulting from the
inability of the equalization grants to address the investment and service delivery requirements. The PBCG will
complementthe equalizationgrantand is aimedat strengtheningthe existingintergovernmental fiscal transfersystem
by making it more transparent and predictable. The allocation of the PBCG will be based on the results of the APA,
includingaset of performance criteriathatwill incentivize institutional performance andaccountabilityby the TCs.The
PBCG will be made available to TCs and will exclude the urban LGs based on the stated policy priority of the new
Government to strengthen institutions and service delivery in the rural areas.
35. Strengthening the policy and institutional aspects of fiscal decentralization is a key element of the PforR
Program. The proposed PforR Program intends to support the Government’sagenda to put in place a robust policy,
monitoring and institutional framework for fiscal decentralization and financial management at the local level. In line
with the core objectives of the Government program, the PforR Program will incentivize key results in the areas of
intergovernmental fiscaltransfers, local debtmanagement,and the collectionof local revenues.Withthe increasedflow
of resources to the LGs, the PFM systems and practices need to be made more efficient and accountable, and the
arrangements for monitoring and oversight also need to be made robust and timely.

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PforR Component (US$ 92 million). The proposed PforR Program will provide funding through Disbursement Linked
Indicators (DLIs) aligned with the three result areas as follows:
a) ResultAreaOne:StrengthenedFiscal FrameworkforDevolution.The 2015IFA hadenvisagedafiscal framework
comprisedof fiscal transfers,ownsource revenuesandborrowingtoprovidethe LGswithsustainable sourcesof
financing their service delivery mandates. However, the actual practice of the IFA has shown several gaps and
weaknesses. The DIP observes that “intergovernmental transfers have lacked allocative equity and clarity to
respondto the current demandsof decentralizationandthathighindebtedness,unsustainable managementof
debtanddwindlinglocal ownsource revenueshave equallyaffectedoperationsof local authorities”.Inline with
the priorities of the Government program, this result area will incentivize the Government to achieve a set of
resultsrelatingto the reviewandreformingof theexistingfiscalframework suchas the reviewof the equalization
grant, and a review of the gaps in the existing policy and practice frameworksfor local revenue collection and
local debt management. The DLIs will be formulated and agreed with the Government during preparation.
b) Result Area Two: Performance Based Capital Grants for Town Councils. The Central Government throughthe
MoFNP will introduce anew performance-basedcapital granttofill acritical gap in the intergovernmental fiscal
transfersystem.A two-stage approachtothe introductionof the performance grantsystemis envisaged,taking
intoconsideration the wide variance incapacitiesof rural local governments.Inthe firsttwoyears,abasiccapital
grant will be introduced, and it will be accessible to all Town Councils that comply with a set of Minimum
Conditions (MCs).TheseMCswill includeindictorsrelatingto the basicsof good governance. Inthe secondstage,
whichwill startin the thirdyear of the Program, an enhancedcapital grant will be introducedasa topup to the
basic grant. All Town Councils will be eligible, and access to the enhanced capital grant will be conditional on
participationinthe APA thatwillmeasureasetof ExpandedMinimumConditions(EMCs).TheEMCswill measure
the performance of participating TCs against indicators spanning the core areas of local governance such as
planning, budgeting, financial management, procurement, service delivery and citizen engagement. The two-
stage approach will ensure thatthe capacitybuildingsupportprovidedthroughthe Program willallow the weak
TCs tohave a reasonable chance toachieve the EMCs. The allocationof the performance-basedcapital grantwill
adopt a formula-based approach that will provide transparency and predictability in resource allocation. The
performance grantcan be usedby the recipientLGsat theirdiscretiontomeetlocal service deliveryandcapital
investment requirements, following the local government PFMrules and practices.
c) Result Area Three: Strengthened PFM and Accountability Framework for Local Governments. This result area
focuses on strengthening the budgeting, procurement and contract management, financial reporting, and
auditing systems of the LGs. As such, it will ensure that these processes enhance the efficiency, transparency,
and accountabilityof local governance. Withthe increasedflow of resourcesto LGs andthe increase inscope of
their powers and responsibilities, it is necessary to ensure that LGs carry out their core PFM functions in an
efficient,accountable,andtransparentmanner. Thisresultareawill supportthe Government’sstatedintention
to enhance the use of Information and CommunicationTechnologies (ICT) for PFM and Public Procurement.
These include anincrease in the coverage of the electronicgovernmentprocurement(e-GP) systemin TCs, use
of ICT to strengthenthe monitoringof local governmentfinancesandservice deliveryperformance throughthe
introduction of a Local Government Management Information System (LGMIS) as well as the use of ICT to
strengthen grievance redressal. These aspects of resource utilization and accountability will be incentivized
through specific DLIs.
36. The specific DLIs and Program Action Plans (PAPs) will be determined based on the technical assessments of
the activitiesincludedinthe PforR boundary. It isexpectedthatthere will be about 7to8 DLIsaddressingthe key result

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areas of the Program. The DLIs will draw upon the specific result indicators that are part of the Government program.
The DLIs, their values and verification protocols will be determined based on the technical assessment.
IPFComponent(US$8 million).Thiscomponentwilluse the IPF modality asthe lendinginstrument.It willhave twosub-
components: (i) Capacity building support; and (ii) program management.
Sub-component 2.1. Capacity Building Support (US$6 million)
37. Targetedcapacity buildingsupportiscritical for the successof the PforR Program. The capacitybuildingstrategy
for the program will involve a mix of input-basedcapacity support at the start of the Program and transitioning into a
results-based approach after mid-term. The wide variance in LG capacities and the urgent necessity to enable the
maximum number of Town Councilsto achieve eligibility through the APA and receive the PBCG requires the provision
of targetedcapacitysupportinan intensivemanner initially.Plansare beingmade todothis inthe firsttwoyearsof the
Program through structured training programs focusing on the core functional areas of local governance, such as
planning, budgeting,procurement,financial management,and citizenengagement,all of whichwillbe assessedthrough
the APA.Supportwill alsobe providedtostrengthenboththe institutional systemsrelatingtothese areas as well as to
enhance staff skills and competencies. In addition to formal training courses delivered through the Local Government
TrainingInstitute,Chalimbana,the projectwill introduce a “mentorship”programwhere hands-ontechnical assistance
and capacity buildingsupportwill be deliveredtothe weaker LGs. The input-basedcapacitysupportwill tapertowards
the mid- termof the project,andthe Governmentwill take the lead ininstitutionalizingthe capacitybuildingsupport,as
well as inachievingspecificcapacitybuildingresults.These capacitybuildingresultswill be measuredusing the DLIs. The
capacity buildingactivities will drawsynergies fromthe ongoingcapacity buildingandtechnical assistance interventions
provided by developing partners. This will be done in a complementary manner to avoid duplication of efforts.
Sub-component 2.2. Program Management (US$2 million)
38. This sub-componentwill provide program management support to the MoFNP for implementation,as well as
for regular program evaluations,includingprocurementand safeguardsreviews, and financial reportingand auditing.
The componentwill alsosupportthe hiringof the IndependentVerificationAgent(IVA)aswellasanyresultsmonitoring.
Supportwill alsobe providedfor the designandimplementationof a setof information, educationand communication
(IEC) activities about the Program for all key stakeholders.
39. The Governmenthasdesignatedthe MoFNPas the implementing entityforthe proposedProgram. The MoFNP
has the mandate to coordinate the fiscal and financial aspects of decentralization. Thus, it is responsible for the
formulation and implementation of the Government program. The Director of Local Government Finance has been
designated as the Program Coordinator for the PforR Program. In accordance with the implementing model already in
place for the DIP, the MoFNP will coordinate with the Decentralization Secretariat (DS), and the Ministry of Local
Government and Rural Development (MLGRD) and form a joint implementation team for the execution of the PforR
Program. The program implementation arrangements will be finalized by Appraisal, at the latest.
B. Role of DevelopmentPartners
40. The proposedPforRProgram iscomplementarytothe supportprovidedbydevelopmentpartnerstostrengthen
devolution in Zambia. The German Agency for International Cooperation (GIZ) supported “Decentralization for
Development (DforD) Project” provides capacity building support to strengthen the functional capacities of the LGs in
key areas such as planning, financial management and revenue administration in three provinces as well as to the
DecentralizationSecretariat informulatingsectordevolutionPlans.The GIZ’sGoodFinancialGovernance Project includes
supportto the MoFNP to manage the policyaspectsof fiscal decentralization.Inaddition,the UnitedStatesAgencyfor
International Development(USAID) hasrecentlycommencedthe implementationof theLocal ImpactGovernance Project
where capacity support is being provided to two provinces (with a third province to be added soon) in areas such as

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planning,financialmanagementandlocal revenue mobilization. The PforRProgram willseektobuildsynergiesandavoid
duplication withdevelopmentpartners toensure acoordinated approach to supporting Zambia’s devolution strategy.
PRELIMINARY ASSESSMENTS
A. Technical Aspects
41. Zambia has put in place a strong legal, policy and institutional framework for decentralization; however,
implementationhasbeenweak. Decentralizationhasbeen espousedasapolicyreformbysuccessive governments and
the last tenyearssaw several specificpolicy,legalandinstitutional reforms beingputinplace to strengthendevolution.
However, arecentstudy found that “despite thislongstandingrhetorical commitmenttodecentralization,the country’s
local authoritiesremainconstrainedintheircapacitytodeliverdevelopmentgoodsandservicestothe communitiesthat
they serve”.9
This is not surprising as there are critical performance and capacity gaps both at the central and local
government levels that need immediate attention.
42. The proposed operation will enhance systems and capacities for devolution in Zambia both at the central and
local government levels. At the central level, it aims to support the Government to creating a sustainable fiscal
frameworkfordevolution,while atthe same timeenhancingthepolicyandinstitutionalframeworkforlocal government
PFM and accountability. At the local government level, institutional performance and accountability will be reinforced
through a structured Annual Performance Assessment. It will focus on the key institutional processes underlying
responsive and accountable local governance. The PforR Program will be supported by a targeted capacity building
support program that will help to ensure that capacity building is transformed into results.
43. The PforR Program expenditure frameworkwill furthercomplementgovernmentexpendituresinthe keyresult
areas. The existingintergovernmentalfiscaltransferswillbe strengthened bythe introductionof anew capital grantthat
will provide discretionaryresourcesto the TCs to meettheirdevelopmentpriorities. The capital grantfillsa critical gap
inthe intergovernmental fiscal frameworkasthe equalizationgrantswere notprovidingadequateresourcestomeetthe
investmentandservice delivery demandsof local governments.The capital grantswill be formulabasedand they willbe
disbursed in a transparent and predictable manner,thereby strengtheningthe planning and budgeting processof LGs.
The Program will alsostrengthenthe own-source revenue capacitiesaswell as helpTCs to addressthe persistentissue
of local government debt - both of which help strengthen the sustainability of local government finances. The
strengtheningof the localgovernmentPFMsystems andenhancingthe effectivenessof localgovernmentauditswillhave
a catalyticeffecttoimprove the effectiveness,efficiency andaccountabilityof publicspendingatthe local governmental
level.
44. Economic Analysis.The rationale forthe performance grantsforthe TCs(ResultAreaTwo) isdeeplyrootedinthe
political economyargumentthatdecentralizationleadstobetterservice delivery.10
The rationale forstrengtheningthe
fiscal frameworkfordevolution(ResultAreaOne) andPFMand AccountabilityframeworkforTCs (ResultAreaThree) is
that these core institutional systems support the integrity and efficiency of local government spending. The economic
analysiswill elaborate onthe expected quantifiableandnon-quantifiable benefitsof the proposed operation.Thesewill
be based on the theory of change and the results framework, in particular the DLIs. With respect to the former, the
economic analysis will provide evidence about the expected improvements in local services (for example, health,
education, and local infrastructure) achieved as a result of the increased transfers of resourcesto the TCs through the
performance grants.It will alsodraw evidence fromeconometricanalysis,fiscal multipliersanalysisorliterature review
9 “Deepening DecentralizationinZambia, identifying political economyconstraints to reform”;Danielle Resnickand others, IFPRI andUniversityof
Zambia (2019)
10 For example, see Tiebout (1956), Oates (1972), Cremer et al. (1996), Oates (1997), Raff and Wilson (1997), Bucovestsky et al.
(1998), Oates (1999), and Mueller (2006).

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depending on data availability. The economic analysis will also highlight the additional non-quantifiable expected
benefits, such as improved transparency, increased trust and strengthened social contract.
B. Fiduciary Aspects
PforR Program
45. The preliminaryreviewofthe fiduciaryrisk relatingto the Program fiduciarysystemsis assessedasSubstantial.
Adequate fiduciary systemsare in place, but implementation has lagged in recent years.The key risks include weak LG
capacity in planning and budgeting; weak capacity in financial management and procurement; a lack of transparency
and predictabilityinfiscal transfers;weakenforcementandmonitoringof rules;low use of e-GPsystem;andweakanti-
corruptionsystems. Aspartof the preparationof the PforRProgram,the WorldBankwill undertake aFiduciarySystems
Assessment(FSA),tobe completed byappraisal.The scope of the FSA will be basedonthe operation’sdefinedProgram
expenditure framework,whichwill identifythe implementingagencies,budgetexpendituresandprocurementsthatthe
PforRProgram will support. The FSA will establishthe appropriateriskmitigationmeasuresforthe assessedrisks,andit
will include astrategyforthe implementation of these measures.The mitigationmeasureswillincludepotential DLIsto
incentivize improvements in PFM and public procurement, the Program Action Plan (PAP), and measures to ensure
adherence tothe WorldBankAnti-CorruptionGuidelines. The capacitybuildingcomponentwillcomplementthe existing
capacitybuildingprogramsbythe Governmentand developmentpartnerstostrengthenfiduciarysystems atthe central
and local government levels.Anindependentverificationagent(IVA) will confirmthe achievementof the DLIs. Regular
internal auditsof the PforRProgram will be undertakenbythe office of the Controllerof Internal Auditortoensure that
internal controls are effective and that established procedures and policies are being followed. Further, the PforR
Program will be subject to an external audit to be carried out by the Auditor General of Zambia, based on Terms of
Reference acceptable tothe WorldBank.The WorldBank supervisionwillreview the PAP onaregularbasis andconfirm
the implementation of the agreed actions.
IPF Component
46. Financial Management (FM): The preliminary assessment of the FM system risk of the IPF component is
Moderate. The operation includes anIPFcomponentthatwill supportthe capacity buildingandthe implementationof
the PforR Program. The multiple agencies that are involvedin providing capacity building support to the TCs and their
weakcapacitiespose fiduciaryriskstoimplementation. A FMassessmentwill be conductedinline withthe WorldBank
Directive: Financial Management Manual for World Bank Investment Project Financing Operations (2017). The FM
assessmentcoversthe reviewof planningandbudgeting,accountingandfinancialreporting,internalcontrol andinternal
audit, funds flow, and external auditing arrangements.
47. Procurement: The preliminary assessment of the procurement risk of the IPF component is Substantial.
Procurementsforthe IPFcomponentwill be carriedoutinaccordance withthe followingWorldBankprocedures:(i)the
World Bank Procurement Regulations for IPF Borrowers Fourth Edition, dated November 2020; (ii) Guidelines on
PreventingandCombatingFraudand CorruptioninProjectsFinancedby IBRD Loans and IDA Creditsand Grants, dated
October 15, 2006, and revised in January 2011 and July 1, 2016; and (iii) other provisions stipulated in the Financing
Agreements.The review of the Recipient’s procurement capacity will include the following: (i) the capacity to prepare
the ProjectProcurementStrategyforDevelopment (PPSD),(ii) the capacitytouse the SystematicTrackingof Exchanges
in Procurement (STEP), (iii) the capacity to use standard procurement templates including the World Bank’s Standard
ProcurementDocuments(SPDs),and(iv) the review of the national procurementproceduresasdescribedinthe World
Bank’s Procurement Regulations.
C. Environmental and Social SystemsAspects
48. An Environmental and Social Management Systems Assessment (ESSA) will be carried out for the proposed
PforR operation prior to appraisal. The ESSA will assess the implementation and effectiveness of existing systems to

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ensure consistency with the six core principles outlined in the World Bank’s Operational Policy on the PforR Financing.
The assessment will focus on the review of national legislation and associated guiding instruments that support the
environmental and social impact assessment processesin the MLGRD. Zambia has some 33 pieces of legislation which
are directlyorindirectlyrelatedtoenvironmental managementandsustainability,withthe EnvironmentalManagement
Act No.12 of 2011 serving as the principal law. The existence of multiple environmental and social legislation and
statutory institutions presents a challenge in the management of environmental and social risks. The enforcementof
lawsremainsrelativelyweakdue tolimitedstaff instatutoryinstitutions.The ESSA willalsoreviewsystemsformanaging
environmental and social risks, with a particular focus on local government capacity and systems to manage risks
associatedwiththe implementationof the DIP.Keymeasuresidentifiedbythe assessmentwillbe incorporatedintothe
PAP and may also be reflected in the DLIs.
49. Underthe PforR component, the financingunder the Governmentprogram is likelyto resultin impacts related
to air, soil and water pollution, land clearing, soil erosion, community health and safety, occupational, health and
safety risks, and possible natural habitat and ecosystems disturbance. Local service delivery will include but is not
limited to the funding of standard local services such as providing local infrastructure, street cleaning,maintenance of
water resources and sanitation, solid waste management, maintenance of road infrastructure and local community
facilities. The infrastructure subprojects expected to be financed using the performance grants are small scale
infrastructure within the mandates of Town Councils. No land acquisition or large infrastructure will be covered bythe
PforR activities. There are no category A projects financed under the Program. Certain types of infrastructure will be
consideredineligible andplacedona “negative”(orproscribed) investmentmenu/list.These will include infrastructure
itemsthatare verylikelytohave asignificantnegative social orenvironmentalimpact(s),suchasinvestmentsconsidered
to be substantial or high risk under the ESF.
50. The IPFcomponentwill include Type 3, strengtheningborrowercapacity, activities.Althoughhavingminimalor
noenvironmentalimpacts,the initialscreeningof the Type3activitiesindicatesthat the proposedoperationwillprovide
technical assistance and training to Local Governmentsthat will include specific training and capacity building support
for environmental and social safeguards. In addition, the compliance of the TCs participating in the program with
acceptedsafeguardspolicieswill be measuredthroughthe annual performance assessmenttobe undertakenaspartof
the proposed operation.
51. Citizen Engagement and Gender Issues: Enhancing citizen engagement is central to the program design, theory
of change, and results framework. The results framework will include indicators aimed at strengthening citizen
engagement in local governance and service delivery. The PforR component will support the establishment of gender-
inclusive platformsforcitizenengagementwithin LGgovernance structures.These platformswill helpstrengthenlocal-
level planning such as the development of integrated development plans (IDPs). They will also improve transparency,
oversightof resource allocation,andpublicspendingatthe local level. The IDPdevelopment manualswillbe updatedto
specifically incorporate gender-sensitive standards to promote female participation. This effort is to ensure that issues
raised by women are captured into local development priorities. The manuals will further lay out gender-sensitive
standards for the selection/appraisal of the sub-projects expected to be financed using the performance grant. The
proposed operation will support a range of other interventions that aim to promote citizen engagement such as the
establishmentof agrievance redressmechanismtopromptlyrespond toconcernsandgrievancesfromthecommunities.
52. Climate Change. The proposed operation will seek to mitigate climate change impacts and risks and promote
climate change adaptionthroughenhancedlocalgovernmentservice delivery.Examplescouldinclude butare notlimited
to strengtheninglocal buildingcodes;promotingwaterconservationandclimate resilientinfrastructure;improvinglocal
natural resource management;screeningof local governmentinfrastructure projectsforclimate risksandincorporating
the appropriate level of climate risk mitigation; and seeking opportunities for off grid power solutions in local service
delivery.

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D. Systematic OperationsRisk Rating Tool (SORT)
53. The proposed overall risk is Substantial.
54. Macroeconomic: Substantial. The success of the proposed operation is highly dependent on improved fiscal
credibility and sustainability. However, Zambia’s macro-fiscal challenges have persisted in recent years and were
amplified by the COVID-19 crisis, culminating in the sovereign debt default in 2020. The Government has taken several
actions towards restoring macroeconomic stability and debt sustainability and mitigating the risks of macroeconomic
disruption. The Government reached a Staff Level Agreement with the IMF on an Extended Credit Facility (ECF), which
includes several conditionalities on attaining fiscal sustainability and credibility. Further, to restore fiscal and debt
sustainability, the government applied to the G-20 creditors for debt treatment under the G-20 Common Framework.
World Bank support towards mitigating these macroeconomic risks includes a proposed development policy operation
that includes strengthening fiscal and debt sustainability as a key reform pillar; and technical assistance and advisory
services to improve debt management and transparency. Since FY21, the Government has also been implementing
Performance andPolicyActions(PPAs) toimprove debtsustainabilityunderthe WorldBank’sSustainable Development
Financing Policy (SDFP).
55. Institutional Capacity for Implementation and Sustainability: Substantial. Although the MoFNP has experience
implementingWorldBankprojects,the PforRinstrumentisnewtoZambiaandthere willbe alearningcurve.The varying
degrees of capacity among Local Governments can pose a risk to implementation if not adequately addressed. The
proposed operation will seek to improve these capacities to allow TCs to play the new roles demanded of them in a
decentralizedframework,while bettermanagingthe increasedflow of resources.The proposedoperationwillenablean
integrated approach to institutional development,capacity building and service deliveryoutcomes in support of the
Government program. The PforR instrument focuses results and strengthening of existingGovernment systems.It also
fosterscoordinationamonginstitutionsandlevelsof government,whichare critical forthe success andsustainability of
the Government’s devolution strategy.
56. Fiduciary: Substantial. The FM and procurement risks are rated Substantial prior to risk mitigation due to weak
LG capacity inplanningandbudgeting,lackof transparencyand predictabilityinfiscal transfers,weakenforcementand
monitoring of rules,and weak anti-corruption systems. These riskswill be mitigated in a variety of ways: (1) through a
targeted capacity support in key elements of the Program as well as support for Program implementation; (2) the
potential inclusionof DLIstoincentivizeimprovementsinPFMandpublicprocurement;(3) regularinternalauditsof the
PforR Program; (4) external audits to be carried out by the Auditor General of Zambia; and (5) the use of World Bank
procedures forall procurements underthe IPFcomponent.The Program will alsoenable the use of digital technologies
for improving the efficiency of local government procurement and financial management, thereby increasing the
transparency and accountability in the functioning of local governments.

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Annex1: CDF and LGEF allocations
Year
Allocations (ZMW) Allocations (USD)
CDF LGEF CDF LGEF
2009 90,000,000 4,522,613
2010 99,750,000 5,012,563
2011 108,000,000 5,427,136
2012 150,000,000 7,537,689
2013 195,000,000 9,798,995
2014 210,000,000 10,552,764
2015 210,000,000 584,850,340 10,552,764 29,389,464
2016 210,000,000 723,922,344 10,552,764 36,378,008
2017 218,400,000 889,497,056 10,974,874 44,698,344
2018 249,600,000 1,064,866,123 12,542,714 53,510,860
2019 249,600,000 1,148,655,014 12,542,714 57,721,356
2020 249,600,000 1,163,573,286 12,542,714 58,471,020
2021 249,600,000 1,167,263,352 12,542,714 58,656,448
2022 2,420,115,000 1,339,253,000 121,613,816 67,299,144
2023 2,541,121,000 1,339,320,000 127,694,520 67,302,512
2024 2,668,177,000 1,339,387,000 134,079,248 67,305,880
Note: Data provided by the Ministry of Local Government and Rural Development for the years 2009-2021. Data for the years 2022-2024 are
extracted from the Zambia 2022-2024 MEDIUMTERMBUDGET PLAN. Conversion between ZMW and USD is done using the 2021 annual exchange
rate of 19.9.

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Annex2: Functionsof Local Authoritiesas providedfor inthe first schedule ofthe Local GovernmentAct (No.2of
2019)
Functions Brief Description
General
Administration
Establish and maintain offices and buildings for public meetings and assemblies
Insure against losses, damages, risks and liabilities which the council may incur
Maintain law and order and ensure local security and the good administration of the council
Advertisement Regulate the erection and display of advertisements and advertising devices in, or in view of,
streets and other public places
Agriculture
Establish and maintain farms and allotment gardens
Storage, market, and preservation of agricultural produce
Conservation of natural resources
Prevention of soil erosion, including the prohibition and control of cultivation
Control of grassweedsandwildvegetationandforthe suppressionandcontrolof plantandinsect
pests and diseases
Maintain, protect, and control local forests and wood lands
Control the keeping and movement of livestock
Establish and maintain ponds
Establish and maintain grazing grounds
Take measures for the destruction and control of bees and of dangerous animals and reptiles
Control the slaughtering of animals where the meat is intended for human consumption
Control the sale of meat
Require the disposal of diseased animals and carcasses whose meat is unfit for human
consumption
Establish and maintain abattoirs, cold storage facilities and plans for processing of by-products
from abattoirs
Control the movement of the carcasses of animals
Publicstreet
and street
Establish and maintain roads
Exercise general control, care and maintenance of all public roads, streets, avenues, lanes,
sanitarylanes,and foot walksformingpart thereof,bridges,squares,ferries,andwatercourses
and to remove all obstacles therefrom
Prohibitionandcontrol the erectionof posts,wires,pipes,conduits,cable andotherapparatus,
temporary platforms, seats and other structures and decorations
Control traffic and the parking of vehicles and establish and maintain parking meters and
premises for the parking of vehicles
Take measures for the promotion of road safety
Community
development
Prepare and administer schemes for the encouragement of and participation in community
development
Establish and maintain a system of lighting in street and other public places
Establish and maintain firefighting and prevention services, and take and cause the taking of
measures for protection of life, property, and natural resources from damages by fire
Control persons and premises engaged in or used for the manufacture, preparation, storage,
handling, sale or distribution of items of food or drink
establish and maintain premises for the sale of food and drink, including beer and other
intoxicating liquor for consumption on or off the premises

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Establish and maintain catering services;
Erect, purchase and maintain buildings used as dwellings or clubs and where it in the public
interest, for use for business or professional purposes
Erect, purchase and maintain buildings and facilities and encourage the erection of dwellings
needed for the accommodation of persons residing within the area of the local authority
Prohibitandcontrol the developmentanduse of landand buildingsanderectionof buildings,in
the interestsof publichealth,publicsafety,andthe properandorderlydevelopmentof the area
of the local authority
Control the demolitionandremoval of buildingandrequire the alteringdemolitionandremoval
of buildingswhichdonotconformto the specificationapprovedbythe council andare a danger
to public health or public safety
Require the statutoryleaseholderoroccupierof landtoremove,lowerortrimtothe satisfaction
of the council anytree shruborhedge overhangingorinterferingwithtrafficinanystreetorwith
any wires, or with works of local authority; remove any dilapidated fence or structure abutting
on any public or place; paint; tidy the premises
Remove from the premises any unsightly debris including derelict vehicles
Provide space on which debris and derelict vehicle may be deposited
Prohibit, control, and require the fencing of land to control the use of barbed wire and other
dangerous materials for fencing
Public
amenities
Establish and maintain parks, zoos, gardens, pleasure grounds, camping grounds, caravan sites
and open spaces
Plant, trim and remove trees,shrubs and plants in streets and other public places, and prohibit
andcontrol the planting,destruction andremovalof trees,shrubsandplantsinstreetsandother
public places
Establish and maintain swimming baths and bathing places
Establish and maintain art galleries, libraries, museum, and film services
Establish and maintain social and recreational facilities and public entertainments
Establish and maintain a public transport service
Publichealth Establish and maintain environmental health services
Establish and maintain cemeteries, crematoria and mortuaries, and otherwise provide for and
control of the dead, and destitute persons who die in the area of the local authority
Control the manufacture, storage, sale and use of petroleum, fireworks, gas and other
combustible or dangerous substances, and to establish and maintain magazines and other
facilities for the storage thereof
Take and require the takingof measuresforthe preservationandimprovementof publichealth
and the prevention and abatement of nuisances, including measures for the extermination of
mosquitoes and other insects such as arts, mice and other vermin
Publicorder Control persons,premisesandlandengagedinor usedfor the holdingof any fair circus,fete or
otherentertainment,recreationorassemblytowhichthepublicare entitledorpermittedtohave
access, whether on payment or otherwise
Prohibit or control the collection of money from door to door and in streets and other public
places
Preserve public decency
Prevent damage and trespass to property, whether public or private

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Establish and maintain public information services
Advertise andgive publicity to the advantages and amenities of the area of the local authority
Registration Enumeration and registration of persons or property for any purpose connected with the
administration of the area of the local authority
Register of births, marriages, and deaths
Register of clubs
Registerof transactioninconnectionwithlandchargesthatmaybe prescribedinanywrittenlaw
relating to land charges
Sanitation and
drainages
Establish and maintain sanitary convenience and ablution facilities and require, whenever
necessary, the establishment and maintenance of those facilities
Establishandmaintainsanitaryservicesforthe removal anddestructionof,orotherwisedealing
with, all kinds of refuse and effluent, and compel the use of those services
Establish and maintain drains, sewers and works for the disposal of sewerage and refuse
Take and require the taking of measures for the drainage of water
Require andcontrol the provisionof drainsandsewersandcompel the connectionof anydrains
and sewers established by the local authority
Prohibit and control the carrying on of offensive, unhealthy or dangerous trade
Establish and maintain weighing machines
Sell productsandbyproductsresultingfromthe carryingonofanyof the undertakingsorservices
of the local authority
Establish and maintain the business of manufacture, wholesale and retail
Undertake mining operations and control
Provide andmaintainsuppliesof waterand,forthatpurpose,establishandmaintainwaterworks
and water mains
Take and require the takingof measuresforthe conservationandpreventionof the pollutionof
supplies of water
Additional
devolved
functionsof a
local authority
Carry out communicationserviceswiththe approval of the ZambiaInformationCommunication
Technology Authority
Establish and maintain postal services with the approval of the Director of Postal Services
Establish and maintain twin town contacts
Provide municipal public works only in respect of the needs of municipality in the discharge of
theirresponsibilitiestoadministerfunctionsspecificallyassignedtothe local authorityunderthe
constitution or any other written law
Pontoons,ferries,jetties,piersand harbors,excludingtheregulationof internationalandnational
shipping and matters related thereto
Manage storm water management systems in built up areas
Develop trading regulations
Manage museums
Establish and maintain facilities for the accommodation, care, and burial of animals
Manage refuse removal, refuse dumps and disposal of solid waste

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