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AbstractThe report follows the diagnostic methodology as outlined in Rajaram et al. The diagnostics is based on interviews, a survey questionnaire with government officials, central statistical office (CSOs), and private sector and desk review of related documents. The paper identifies the weaknesses in processes and institutions that contribute to poor outcomes of public spending. The government has been conducting a number of reforms in this field, such as overarching public financial management and procurement reforms. However, the public investment management (PIM) remains largely inefficient and certain key functions of project evaluation are missing or in rudimentary forms. To succeed, all the pieces of reforms have to be woven into a coherent framework targeting the weakest links in the PIM system. Multiple factors, including the absence of necessary institutions, unclear institutional mandates, weak capacity, lack of vertical and horizontal coordination, and misaligned incentives drive the inefficiency of PIM. This also implies that pure technical solutions do not guarantee success. As a result this paper suggests that strengthening of the challenge function of the ministry of finance in Zambia is critical for better PIM but a gradual, incentive compatible approach is probably necessary in the current context.