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Africa Region Working Paper Series No. 39 The Impact of Cash Budgets on Poverty Reduction in
Zambia:
In the early 1990s, facing runaway inflation and budget discipline problems, the Zambian government introduced the so-called "cash budget," in which government domestic spending is limited to domestic revenue, leaving no room for excess spending. This paper reviews Zambia's experience during the past decade, focusing on the impact of the cash budget on poverty reduction. The conclusion is that after some initial success in reducing hyperinflation, the cash budget has largely failed to keep inflation at low levels, created a false sense of fiscal security, and distracted policymakers from addressing the fundamental issue of fiscal discipline. More important, it has had a deeply pernicious effect on the quality
of service delivery to the poor. Features inherent to the cash budgeting
system facilitated a substantial redirection of resources away from the
intended targets, such as agencies/ministries that provide social and
economic services. The cash budget also eliminated the predictability
of cash releases, making effective planning by line ministries difficult.
Going forward, Zambia must adopt measures that over time will restore
the commitment to budget discipline and shelter budget execution decisions
from the pressures of purely short-term exigencies. Full text of paper. (735KB, In Adobe Acrobat format. Requires Acrobat PDF viewer) |
