Retention Fund was created as a survival tactic during the peak of Government fiscal challenges caused by the Reserve Bank of Zimbabwe (RBZ) printing so much of the local currency in 2007-8 that inflation hit an annual rate of almost 500 billion percent.

Background

Most of the retention funds in Zimbabwe were created as a survival tactic during the peak of Government fiscal challenges. This was to allow government departments to retain part of their revenue to fund critical operations during the hyperinflationary era where a slightest lag in releasing funds from the Consolidated Revenue Fund (CRF) would significantly compromise government operations and service delivery due to the rapid loss of value for money. Treasury authorized, albeit without legal backing (before promulgation of the Public Finance Management Act (PFMA)), certain departments to retain all collected funds to finance critical areas like capitalisation. The proliferation of these funds and reports of lack of transparency in the use of the funds is now a matter of concern. Treasury directed all government departments who collected statutory funds or retain other funds to open accounts with the Central Bank with effect from 31 January 2016 to enhance transparency and accountability, failure of which they threatened to revoke the retention authority. All the concerned departments have complied with this directive. However, it should be noted that this has not addressed the issue of abuse of funds and the constitutional requirements provided for in Section 302.[1]

History of Revenue collected

It was reported that the combined revenues collected by government institutions or departments outside the budget could have well reached over $1 billion in 2016, had they been properly and accurately accounted for. This included revenues from fines and user charges collected by the Zimbabwe Republic Police, ZINARA, Environmental Management Agency (EMA), Judicial Service Commission and the Registrar General’s Office, among many other government agencies. This came at a time when Zimbabwe’s budget had remained static at US$4 billion annually as fiscal revenues continued to dwindle. This situation eroded the stimulus power of the budget to propel the economy and move the country to middle income status.

Summary of some of the 64 Statutory and Retention Funds in Zimbabwe

This is a list of some of the Government departments with respective revenue collected that was not remitted to the Consolidated Revenue Fund (CRF) in 2017.

Name of Fund Responsible Authority Retention Percentage Annual Collection (2017)
Courts and Administration Fund Judicial Services Commission 100% 13 724 800
Strategic Reserves Fund Energy and Power Development 100% 18 044 200
Lands Compensation Fund Lands Resettlement and Rural Resettlement 100% 10 000 000
Standards Development Fund Industry and Commerce 100% 11 860 000
ZRP Revolving Fund Home Affairs 100% 59 391 300
Debt Redemption Fund Energy and Power Development 100% 38 400 000
New Vehicle Security Registration Number Plate Revolving Fund Transport and Infrastructural Development 100% 12 000 000
Aviation Infrastructure Development Fund Transport and Infrastructural Developmen 100% 9 420 300
Government Pool Properties Fund Local Government, Public Works and National Housing 100% 4 000 000
School Services Fund Primary and Secondary Education 100% 31 494 700
Colleges Amenities Fund Higher and Tertiary Education, Science Technology 100% 40 040 000
Tertiary Education and Training Fun Higher and Tertiary Education, Science Technolog 100% 60 060 000
Zimbabwe Manpower Development Fund Higher and Tertiary Education, Science Technology 100% 36 307 000
Registrar General Retention Fund Home Affairs 100% 27 000 000

Appropriation through the Public Financial Management System (PFMS)

Treasury was set to raise $293 million in 2018 when it had moved to compel all Revenue Retention Funds to be appropriated by Parliament, as it moved to halt abuse of funds. The funds were also to be accounted for through the Public Financial Management System (PFMS) and integrated into the Budget documentation, former Finance and Economic Development minister Ignatius Chombo said in 2017.

Government ministries and departments held onto the revenue collected through fees, fines and user charges and would splurge that on trinkets like cars at a time critical sectors like health lacked adequate funding.[2]

Targeted Retension in the 2020 Budget

In 2020, retention funds were projected at ZWL$2.1 billion. With effect from 2018 retentions were subjected to Parliamentary appropriation process to enhance transparency and accountability. The thrust was to ensure that, while the income remained earmarked to address specific objectives specified in each Fund’s constitution, the expenditure estimates were subjected to scrutiny by both the Treasury and Parliament with respect to prioritisation.

To enhance retention funds accountability and transparency and to comply with best practices, Retention Funds will be expected to wind up in 2020, and be part of Consolidated Revenue Fund to Treasury beginning Fiscal Year 2021. Ministries and departments were therefore directed to proceed to ensure that procedures to wind up Retention Funds are implemented by 31 December 2020 with the income streams being directed to the Consolidated Revenue Fund with effect from January 2021.[3]



References

  1. [1], Parliament of Zimbabwe, Accessed: 29 October, 2020
  2. Ndamu Sandu, [2], Newsday, Published: 14 November, 2017, Accessed: 29 October, 2020
  3. [3], Bulawayo 24 News, Accessed: 29 October, 2020