Document of The World Bank FOR OFFICIAL USE ONLY Report No. 16554-TA MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT AkSSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE UNITED REPUBLIC OF TA,XNZANIA May 6, 1997 Country Department for Tanzania Macroeconomics II, AFTM2 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. GOVERNNIEN' FISC UI. YEAR July I - June 39 (FY90 or 1995 9(6 - Jukx 1. 1995 to June 30, 1996) CURRENC'\ FQI'IQVALSTS Currency l'nit - I'anzanian Shilling (T Sh) Interbank Market iid-tate t '55I (, I- Sh 095 (February 28, 1997) ACRON NIS AND ABBREIVfATIONS AIDS Acquired Immune Deitu iencv Svndronic APDF African Project Development Facility CAS Country Assistance Stratecy CCM Charma cha %lipinduzi ( Fhe Revolutionary Part') CEvl/PA Country Economic Mvlemorandum,/Poierty Assessment CG Consultative (irouP COMESA Common NlarKet tfor F'astern and Southern A-frica CPPR Country Portfolio Pcrto. mance Review DANIDA Danish Internanional Development Agency EDI Economic Development [nstitute ESAF Enhanced Structural AdLustnent Facility ESW Economic and Sector UN orkl FDI Foreign Direct Investrnvnt HIPC Highlv Indebted Poor C muntries ICR Implementation Cormpietion Report IDA International Developrtmnt Association IFC International Finance Corporation IMF International Mfonetart l'und MIGA Multilateral Investment G uarantee Agency NBC National Bank of Commerce NGO Non-Governmental Org.t,iization O&E Organizational anc Etfic:cncv (Revietv) (&M Operations and Mlainten tnce ODA Overseas Development \gencv (UK) OED Operations Evaluation Department PER Public Expenditure Revt t PEFP Policy Fratnetork Pape PIP Portfolio Impr-oenient l'lan PSRC Parastatal Sector Ref'orti Cornmission SAC Structural AdjustnIC"t (.'ecdit SADC Southern African Develk prmcnt Communitv SIDA Swedish International D)cvelopnient Agency SPA Special Program of Assaitancc SSA Sub-Saharan Africa TRA Tanzania Revenue Authority tNINDP L'nited N'ations Detelopinent Programme UNFPA United Nations Fund for Population Activities UNICEF United Nations International Children's Ernergency Fund USAID United States Agency tor International Development Vice President Callisto Mladavo Director James W Adams Technical Manager Roger Grawe Task Team Leader Shahid Yusuf' Economists Albert Agbonyitor Zafar Ahmed FOR OFFCIAL USE ONLY MEMORANDUM OF THE PRESEDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCLATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THE UNITED REPUBLIC OF TANZANIA CONTENTS 1. BACKGROUND AND RECENT PERFORMANCE .............................................................. I B ackground ................................................1................. Recent Political Developments and Governance ................................................... 2 Macroeconomic Performance and Trends in Poverty ......... . ................................. 3 Economic Reforms and Sectoral Growth ..... ...................................................... 6 External Environment ................................................................. 8 Debt Sustainability ................................................................. 9 II. TANZANIA'S DEVELOPMENT STRATEGY AND POLICY ACTIONS ................................ 10 Govermnent's Short Term Economic Management Priorities .............................. 10 Medium Term Development Strategy: 1997-2000 ............................................. 10 III. FUTURE ROLE OF THE BANK TO MAXIIZE RESIJLTS ON THE GROUND ................... 11 Growth and Poverty Reduction: Government Imperatives and Bank Assistance ................................ .. .................................................... 11 Performance Under the Preceding CAS ........................................................... 13 Portfolio Impact ................................ 14 Lending ................................ 16 Economic and Sector Work ................................ 17 IFC and MIGA ................................ 18 EDI ................................ 19 Coordination, Consultation and Participation ..................................... 20 R isks ..................................... 2 1 IV. AGENDA FOR BOARD DISCUSSION ........2.2....... ................................................ 22 TABLES TABLE 1: TANZANIA: SELECTED MACROECONOMIC INDICATORS .................................. 5 TABLE 2: SELECTED SOCIAL INDICATORS 1991-93 . ...................................................... 5 TABLE 3: TANZANIA: GROWTH 1991-95 ........................................................ 6 TABLE 4: TANZANIA: DEBT INDICATORS ........................................................ 10 TABLE 5: LENDING PROGRAM (FY98-00) ........................................................ 16 FIGURES FIGURE 1: GDP GROWTH 1981-84 ........................................................ 4 FIGURE 2: SOCIAL SERVICES EXPENDITURES FY76-FY95 ....... ........ ......................... 6 FIGURE 3: EXPORTS AND RFAL EFFECTIVE EXCHAN(GE. RATE ................. 7 BOXES Box 1: TANZANIA: GROWTH AND POVERTY ............................................... 11 Box 2: TRIGGERS FOR LENDING PROGRAM SCENARIOS ........................................... ... 17 BOX 3: GENDER ACTION PLAN .........................2..... ............................................. 21 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. ANNEXES ANNEX A 1.1 TANZANIA CAS: FRAMEWORK FOR COUNTRY PROGRAM ANNEX A1.2 SELECTED ECONOMIC INDICATOR TABLE ANNEX A2. I STATUS OF BANK GROUP OPERATIONS IN TANZANIA ANNEX A2.2 TANZANIA: SELECTED INDICATORS OF BANK PORTFOLIO PERFORMANCE AND MANAGEMENT ANNEX A2.3 PORTFOLIO IMPROVEMENT INDICATORS: FY97 TARGETS ANNEX A3. 1 TANZANIA: BANK GROUP FACT SHEET, FY94-FY99 ANNEX A3 .2 TANZANIA: SUMMARY OF ECONOMIC AND SECTOR WORK ANNEX A3.3 TANZANIA: IFC AND MIGA PROGRAM, FY96-FYOO ANNEX A4 TANZANIA: KEY ECONOMIC INDICATORS ANNEX A5 TANZANIA: KEY EXPOSURE INDICATORS ANNEX A6 TANZANIA: SOCIAL INDICATORS ANNEX A7 TANZANIA AT A GLANCE MAP IBRD 27941 MEMORANDUM OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A COUNTRY ASSISTANCE STRATEGY OF THE WORLD BANK GROUP FOR THIE UNITED REPUBLIC OF TANZANIA The last Country Assistance Strategy (CAS) for Tanzania was presented to the Board in April 1994. That CAS pointed to the climate of uncertainty, especially the overhang of macro-fiscal instability and limits on capacity, constraining the Bank's assistance to Tanzania. The subsequent CAS Progress Report, which was presented to the Board in May 1996, noted that while the implementation of liberalization policies continued to advance, limited progress was being made in the macro-fiscal and structural reformn areas. These issues have remained central to our dialogue with the new government that assumed power in Tanzania in late 1995. This FY98-FYOO assistance strategy builds on the new government's commitment to reforms as indicated by concrete actions taken to improve economic management, raise revenues, contain domestic borrowing and reduce public dissavings. These constituted the basis of a Fund staff-monitored programn The Govermnent has also made progress with liberalization policies and structural reforms. The CAS's poverty focus draws on the findings of the recent Country Economic Memorandum/Poverty Assessment. In addition, the CAS was prepared in a participatory manner: it was discussed at meetings with government officials and other stakeholders, including heads of donor agencies, representatives of NGOs and women's groups. The CAS was also the focus of a three- hour exchange with the Foreign Relations Committee of the Parliament. While the Government had some initial reservations about our proposed outreach activities, it soon realized the usefulness of this approach, encouraged us to proceed, and was pleased with the consensus that the meetings helped to build around growth and poverty reduction objectives. The meetings also reinforced our emphasis on augmenting capacit" to implement reforms, and other priorities of our assistance reflected in analytic work and the lending program. S. BACKGROUND AND RECENT PERFORMANCE Background 1. The proposed Tanzania program has a complex history. Tanzania-Bank relations have been punctuated by dramatic shifts over the past 20 years After the Arusha Declaration in 1967 and Tanzania's move to "African socialism", the Bank Group's support for Tanzania expanded rapidly-by the mid-1970s it was the second largest Bank program in Sub-Saharan Africa (SSA). The parallel growth of support from a wide range of other donors made Tanzania increasingly dependent on aid, and, for a time, this obscured the magnitude of the problems accumulating under its program of state-led growth. However, by 1980, the economy was facing a crisis that could not be addressed even with donor support, and it was necessary to break decisively from past economic policies. Although there were a number of attempts at reform over the next five years (with "home grown" programs), these efforts were not significant enough to restart the economy or generate broad donor support. By 1985 the economy was contracting, inflation was high and a large underground economy had materialized. 2. In 1985, after Tanzania underwent its first post-independence change in the head of Government, the Mwinyi Government gave high priority to reaching an agreement with the Bank and the Fund on a more comprehensive program of economic reform. The combination of strong commitment from the new President and a greater willingness to make significant changes in policy 2 Tanzania CAS were critical to the emergence of a Bank-Fund supported Economic Recovery Program in 1986. This was reinforced by the Economic and Social Action Program in 1989. The principal objective of these programs was to improve deteriorating living conditions by: (i) raising the production of food, exports, and industrial goods; (ii) restoring efficiency in the mobilization and utilization of domestic resources; (iii) redressing macroeconomic imbalances and cutting the 30 percent inflation rate by half through prudent fiscal and financial policies; and (iv) rehabilitating social services as well as roads and telecommunications to support directly productive sectors. During the period 1985-90, the program focused on liberalizing markets to restore incentives for production. Price controls were virtually eliminated, food marketing was deregulated and restrictions on imports as well as exchange rates were rolled back. 3. During President Mwinyi's second term (1990-95), the combination of weakened commitment to reform and the emergence of broad management problems in the liberalized economy, led to a deterioration in economic performance. Growth slowed to about 4 percent, fiscal imbalances and inflation resurfaced and corruption began to erode the quality of governance. Yet the reform process continued haltingly in a number of sectors, with support from the Bank. In the financial sector, there was a two-pronged effort to: (i) foster a competitive banking system by abolishing state monopoly and interest rate controls; and (ii) restructure the National Bank of Commerce (NBC) and make it profitable. Private banks are now operating, accompanied by efforts to strengthen bank supervision. However, NBC remains weak financially, though downsizing and a tightening of management has helped to eliminate the losses. A parastatal reform program was initiated in 1993 aimed at improving their performance and limiting the subsidy burden. While about 150 of the 380 odd commercial parastatals have been or will shortly be liquidated or privatized, most of the larger units have yet to be divested. 4. Some progress was also recorded on sectoral programs, particularly in the area of road rehabilitation, but the social sector reform program has still to advance beyond pilot testing. Furthermore, the Government's portfolio is still crowded with too many low priority projects. The implementation performance of Bank projects has been affected by inadequate counterpart funding, procurement problems, and deficient contract management. Portfolio quality as measured by "problem projects" has not been entirely satisfactory, and efforts continue to address this problem. Throughout this period, the IMF and the Bank continued to work with the Government on economic reform, but an agreed Bank/IMF program was elusive. In 1995, the discovery of a massive diversion of resources related to tax exemptions granted by the Minister of Finance, prompted donors to suspend balance of payments support; it also led to the deferment of a new Bank-Fund program until a new government was in place. Recent Political Developments and Governance 5. The election of Benjamin Mkapa as President in November 1995, presented an opportunity for another break with the past. At the very start of his term, President Mkapa took action to establish a "new" government by not reappointing many of the long-standing CCM members from the previous government to his Cabinet. The President then moved quickly to reach agreement with the IMF: his insistence on living within the IMF fiscal program emerged clearly, and the successful implementation of the program led to agreement on an ESAF in November 1996. The mid-term review of the first annual arrangements under the ESAF in March/April 1997 shows continuing satisfactory performance: financial benchmarks were observed with comfortable margins; and the fiscal stance during the first half of FY97 was tighter than programmed, due to higher than expected revenue mobilization and lower recurrent expenditures. Similarly, steady Tanzania CAS 3 progress continued to be made in observing structural benchmarks for parastatal reforms, including for NBC. The President has expressed his determination to ensure clean government and has shown a willingness to let go of ministers whose performance has been questioned. He has publicly revealed the full extent of his assets and will continue to do so on an annual basis, the Vice President has also disclosed his assets and both top officials have called on others in the Government to do likewise. President Mkapa has endorsed the hard-hitting Warioba Commission Report on corruption, had it published in full and handed it over to the judicial organs for further action. His efforts are being reinforced by Tanzania's free and highly vocal press. The press is a good measure of how far things have opened up in Tanzania. In the early 1990s, there was one government-owned daily; today, there are almost 20, predominantly in the private sector. 6. Since 1995, the Government of Tanzania has attempted actively to curb corruption and improve governance. The creation of a National Integrity System, with support from EDI and Transparency International is helping to improve the deliver! of public services and increase levels of accountability and transparency in the use of public resources. The Government is redressing other weaknesses in organizational capacity through various efforts, especially the establishment of the Tanzania Revenue Authority (TRA) with initial support from the Institutional Development Fund, strengthening of budgetary cash management, the hiring of pre-shipment inspection agencies to improve tariff administration, and a broad effort at civil service reform. The Government has announced its intentions to privatize the telecommunications company as well as reorganize and privatize the NBC. The deregulation of the power sector has attracted about US$50 million in foreign equity to develop the Songo Songo gas and electricity generation project. Overall, the Government's efforts, and the support they have enjoyed from the private sector, have raised the prospects for sustained implementation of reforms that should promote economic advance. Macroeconomic Performance and Trends in Poverty 7. The adoption of Tanzania's liberalizing Economic Recovery Program in the mid-1980s raised the annual GDP growth rate from an average of 2 percent in the previous decade to over 4 percent during 1986-95. As a result, the decline in per capita income during the late 1970s and early 1980s was reversed, as shown in Figure 1. During 1996 GDP growth reached ncarly 5 percent. Moreover, since early 1996, the Government has succeeded in arresting slippages in fiscal management. The adoption of a cash budget system, matching expenditures to revenues, and the monitoring of sector spending to enforce adherence to sector budget ceilings and financial rules have helped to restore fiscal discipline. Tax measures and tight expenditurc controls: (i) raised revenue from 14.5 to 15.0 percent of GDP during FY95-96 and to a projcctcd 15.8 percent in FY97; (ii) reduced expenditures from 21.4 to 19.9 percent of GDP and these are projected at 18.1 percent in FY97; and (iii) reduced the deficit before grants from 6.9 to 4.9 percent of GDP in FY95-96, and to a projected 2.3 percent of GDP in FY97 As a result, the growNth of M2 had slowed to 10 percent by end December 1996, and inflation is down from 28 percent at end FY95 to an annualized rate of 14 percent in the first quarter of 1997 Improvement in key fiscal ratios has been matched by a substantial increase in forcign exchange rescrves that reached 16 weeks of imports by end December 1996. 8. Economic growth has raised household expenditures and reduced consumption poverty. The headcount poverty index for the rural areas fcll drastically from 65 pcrcent in 1983 to 51 percent in 1991; but recent (1995) data show that the situation is largely unchanged since then Although reforms contributed to a rapid decline in poverty in the late 1 980s, a wcakening of this reform effort after 1990 was associated with stagnation in the lcvel of poverty Moreover, based 4 Tanzania CAS on household surveys, income distribution worsened during 1993-95, possibly because of drought and economic Figure 1: GDP Growth 1981-94 mismanagement that resulted in the D neglect of social services in some areas, rural marketing and transport infrastructure. This is one of the main . - factors behind the recent stagnation in 2 D '' A poverty. The continuing high rate of xe as v- 8I 86 .9 9 9i S92 =3 population increase is another. The depth 3 of poverty has declined slightly since reform was initiated in the early 1980s; the mean household expenditure for the .l rural poor was 35.8 percent below the GDpAW-d GDPp-epib poverty line in 1983, compared to 34.2 percent in 1991. As can be expected, there are regional and local variations in poverty: a composite welfare index based on economic and social indicators (consumption, literacy, nutrition, access to water, under-five mortality, etc.) shows that the poorest regions are mostly in the central part of the country and include Dodoma, Kigoma, Lindi, Mtwara, Rukwa and Ruvuma. Hence, there is scope for using targeted social sector and infrastructure building programs to reduce poverty. 9. While the decline in poverty after 1985 can be traced to an increase in per capita incomes, growth was more efficient in reducing rural poverty than urban poverty; with a given poverty line and no change in income distribution, a one percent increase in per capita income reduced rural poverty by 2 percent, compared to 0.44 percent for urban poverty outside Dar es Salaam. About 92 percent of the poor are rural residents; while 40 percent of urban dwellers outside Dar es Salaam are poor. Generally, the relatively well-off rural areas include those with the most intensive agricultural systems with road networks of better quality, especially (i) the coffee, maize and legume producing areas of the Southem Highlands, and (ii) the coffee, banana and dairy systems of the North. Generally, cash crop producers, the educated and those in areas where transport provides better access to urban markets, tended to gain the most from the economic growth. Nonagricultural income is prominent for those in the top quintile income group. This points to the need for promoting cash crops and off-farm activities more widely and eliminating restraints on the exports of foodgrains such as maize, that affect the earnings of poorer farmers. 10. Gender and equity. In contrast to experience in most other countries, female-headed households had higher expenditures than male-headed households in rural and some urban areas of Tanzania. Price decontrol, deregulation and abolition of state monopolies helped the small trading enterprises of the type operated by women. Furthermore, women in Tanzania are better protected by laws and policies than in many other African countries. However, there remain disparities between constitutional provisions and customary laws which relate to gender, religion, and locality. These can affect women's access to assets. About 4 percent of female-headed households in rural areas have no land, compared to 1.8 percent of male-headed households. The enrollment of girls is equal to that of boys at the primary school level but they lag in access to and achievement in post primary education. 11. Social indicators and population. Given that the availability of education and other social services are important determinants of household welfare, the stagnation of social indicators Tanzania CAS 5 is a serious concern. Infant mortality and life expectancy have Table 1: Tanzania: Selected Macroeconomic Indicators changed little over the past decade; (percent) primary school enrollment as well as FY88- FY95 FY96\1 access to safe water have diminished 89 since the early 1980s. In part, this GDP Growth 4.0 3.8 4.5 is because the economy was unable Sub-Saharan Africa (SSA) 2.7 - - to sustain the social infrastructure Growth built up in the 1970s. But the SSAHigh GrowthCountries\2 310 34.0 25.7 situation was certainly worsened by Revenue /GDP\3 15.2 14.5 15.0 a weakening of revenue effort and Govt Expenditure /GDP 21.4 21.4 19.9 poor expenditure policies. In the Fiscal Deficit/GDP\3 6.3 6.9 4.9 case of education, the quality of Gross Investment/GDP 31.6 26.6 27.7 instruction has suffered because of Gross Domestic Savings/GDP 9.6 13.2 5.4 deteriorating physical facilities, Current Account Deficit/GDP\3 18.5 20.6 13.1 overcrowding, and inadequate Notes: nonwaminputs. Until recently, Preliminary estimates. nonwage inputs. Until recently, l2 Botswana, C-ape Verde, Lesotho, Mauritius. restrictions on private providers \3 Excluding grants. limited supply of these services. Nevertheless, Tanzania's social indicators still compare favorably with those of neighboring countries Table 2: Selected Social Indicators, 1991-93 and SSA, except, most notably, in (percent) the case of secondary school Tanzania Uganda SSA enrollment (see Table 2). Population growth rate 2.8 2.6 2.9 Per capita income (US$) 140\a 200 450 12. Tanzania's population Adult literacy 68 48 50 growth rate declined from 3.2 Adult female literacy 64 35 38 percent per annum in the 1980s to Life expectancy 52 45 52 2.8 percent in the first half of the Infant morality per 1000 84 114 93 1990s, and is expected to fall Poverty (rural) 51 75 - further in the second half of the Primary enrollment (gross) 74 71 72 1 wu in Secondary enrollment 6 13 24 l990s, with the estimated jump in Secondary enrollment 4 - 14 the contraceptive prevalence rate (girls) from 10 to 18 percent during 1991- Access to safe water, urban 65 45 - 94. IDA's population strategy Access to safe water, rural 46 12 supports the Ministry of Health in la Household surveys suggest afigure closer to US$200. delivering family planning services, which are financed mainly by USAID and UNFPA. In addition, the Bank is investing in girls' education through credits for primary schools and scholarships to girls to attend secondary schools. The Bank is also working with bilateral donors, especially USAID, to combat AIDS. The health sector reform program now being developed also aims to reorient expenditures to manage major killers (malaria, perinatal and maternal death, and AIDS) in a cost-effective way. 13. Considerable efforts have been made to increase financing for the social sectors over the last 2-3 years, and expenditures on education and health are rising (see Figure 2). As this figure clearly demonstrates, the decline in social expenditures began in the late 1970s as the economy was unable to sustain the efforts to provide universal education and health services by the public sector. 6 Tanzania CAS However, it is also true that Figure 2: Soicial Services Expenditures FY76-FY95 increased expenditures did not begin (at FY96 prices) in parallel with early reform efforts, but only after 1990. The recent removal of constraints on the private ,0 sector is increasing secondary school 403 enrollments that are still among the . j ..1.09 lowest in the world (7 percent). Pilot cl 1 programs to target financial support 09 for secondary education for girls 00 from poor families and to improve local level management of service 2C 4o--,,,,----- w. delivery are now under way. If they -. yield desirable results, the Government must move quickly with its efforts to decentralize. In addition, it must begin implementing expenditure reforms that will increase the share of funds devoted to nonwage recurrent costs. Although social indicators for the rural areas are much worse, the scale of migration to towns and cities is placing a heavy burden on services. To prevent rapid deterioration, the social infrastructure in the urban areas will require close attention and increased funding. Economic Reforms and Sectoral Growth 14. Agriculture. Agriculture dominates the Tanzanian economy, and small farmer Table 3: Tanzania Growth 1991-95 agriculture has been the main source of growth (percent) since the mid-1980s. Agricultural growth was Share Growth more than twice the African average at about 5.9 Agriculture 48.7 5.1 percent per annum from the mid-1980s to the Construction 7.5 6.2 early 1990s, and a little over 5 percent since Manufacturing 7.6 3.5 1991 (see Table 3). This accounts for over half Mining 3.0 4.8 the increase in GDP during this period. The Tourism 4.0 5.3 main economic reforms and investments, which Other Services 29.2 3.0 promoted agriculture include exchange rate GDP 100.0 4.4 adjustment, removal of controls on agricultural markets and prices which strengthened incentives for farmers, and the rehabilitation of roads that increased the access of agricultural producers to urban and external markets. Equally important, increased aid flows relaxed the shortages of inputs, implements and consumer goods for agricultural households. (Figure 3 depicts the decline of real effective exchange rates and growth of exports). 15. The increase in agricultural output came mainly from acreage expansion, as yields for all crops remained generally poor and below the modest levels attained in the 1970s. Less than 20 percent of potentially arable land is actually farmed, though there are local and regional variations. Over the medium term, supply elasticity is likely to be higher as farmers adapt more fully to the change in price regime and begin to benefit from an upgrading of marketing and transport service. Growth will be broadbased, driven by food crops, especially grains and pulses; cash crops, such as cotton and tobacco; dairy production; and expansion of high-valued horticulture. The current Tanzania CAS 7 strategy is two-pronged, emphasizing: (i) expansion of acreage supported by a Figure3: ExportsandExch.Rate reform of land tenure arrangements, 1 Exc (%) improved access to markets, and a 250 -Xroth (%) l strengthening of the physical infrastructure; and (ii) raising crop yields, 200 5 by means of farmer-driven research and B \ extension, better access to inputs, and 50 O water resource development. An increase I a in agriculture production and better koo -5t marketing arrangements should also raise x / off-farm employment and stimulate rural 50 -10 industry, including processing activities and the production of light manufactures 0 -15 for daily use. 16. Agro-processing and manufacturing are in transition from past policies of import-substitution and parastatal domination. Reforms, including those relating to investment deregulation and privatization, have improved the policy environment and arrested industrial decline. Current average growth is about 3 percent, and given the small share of industry in GDP, its contribution to overall growth is very small. Future performance in this sector will depend on: (i) the expansion of light manufacturing through aggressive private entrepreneurship; (ii) better access, especially by small and medium sized firms, to adequate and reliable raw material supplies, credit, electricity, water and telecommunication services; (iii) greater collaboration with foreign firms that could provide technology and external marketing support, (iv) continued macroeconomic stability; and (v) actions that improve transport facilities thereby reducing the costs of domestic shipment and overseas sales. 17. Tourism's potential remains underutilized, a heritage of the past state monopoly and related under-investment and poor management. Gross earnings in 1995 were US$90 million, a fraction of those of Kenya. As with manufacturing, the contribution to economic momentum has been meager. However, tourist arrivals have been increasing steadily at 5 percent per annum since 1990; some 250,000 tourists visited Tanzania in 1994. There is significant scope for expansion through a strategy that stresses: (i) foreign tourism during the May-August period; (ii) domestic tourism during the off-peak season for foreigners, and (iii) enclave tourism geared to generating high revenues. Tourist arrivals could rise to over 300,000 by 2000. However, successful expansion will require an effective marketing strategy, appropriate tax policies to promote investments in high-quality hotels; transport, telecommunications and improved services; and environmental management to protect wildlife, forests and wetlands, cultural sites, and marine life. 18. Mining accounted for about 8 percent (US$50 million) of official exports in 1995. However, smuggling is widely prevalent and is estimated at about 3-4 times the value of official exports. The abolition of the state monopoly and privatization of parastatals have raised private investments in the sector from an annual average of US$4 million in 1981-90 to US$33 million during 1990-95. Currently 12 companies, including Ashanti Gold, are prospecting for gold; seven companies, including De Beers, are exploring for diamonds; and one company is searching for nickel deposits. There is also potential in iron, coal, magnesite, and semi-precious stones. Significant production in any of these areas is believed to be 3-4 years away. The incentive system 8 Tanzania CAS and regulatory arrangements are under review to encourage small artisan operators, and to develop an open marketing system. In addition, work is being done to build capacity to monitor and enforce environmental policies for the sector. Revenues from mining have the potential to make significant contribution to financing of needed social and infrastructure investments in rural areas. 19. Informal sector. The urban informal sector accounts for about 15 percent of total GDP; about 51 percent of the value added is in commerce, restaurants, and personal services, which are mainly owner-operated with limited opportunities for further expansion. But informal manufacturing (tailoring, bakery, beverages, pottery, wood products, metal products and jewelry), which accounts for 16 percent of total informal sector value added, could gain from the availability of microfinance, training in business skills, and with basic infrastructure facilities. External Environment 20. Balance of payments. Several significant steps have been taken to liberalize extemal transactions: a market-determined exchange rate system was instituted in June 1994 in place of the auction then in existence; quantitative import controls were removed, except for a few items concemed with public health and national security; and controls on nontraditional exports have been removed. Tanzania accepted the obligations of the IMF's Article VIII in July 1996. These actions are reflected in the 11.3 percent growth of exports during 1996. Both traditional, as well as nontraditional goods contributed to this increase, with traditional exports such as coffee, cotton and cashewnuts registering large gains in volume. With strong performance of exports and decline in imports relative to FY95, the current account deficit (excluding official grants) fell steadily as a percentage of GDP from 30.5 percent in FY94 to 20.6 percent in FY95 to 13.1 percent in FY96; it is projected to fall further in FY97 to 10.3 percent. This performance is substantially better than originally programmed. The reserve stock was equivalent to 8.5 weeks of imports at the end of FY96 up from 8.1 weeks in the preceding year. The Paris Club creditor countnes agreed in January 1997 to provide debt relief to Tanzania on Naples terms, amounting to $1.7 billion of arrears on debt service (principal and interest, including arrears) during FY97-FY99; additional stock relief could be provided at the end of 1999. (See section on debt sustainability paras. 24-28.) 21. The composition of Tanzania's exports remains concentrated with a few cash crops (coffee, cashewnuts and cotton) providing the bulk of earnings. Greater diversification is needed to improve growth prospects and reduce vulnerability to shocks. This calls for policies to encourage sectors such as floriculture, tourism, mining and manufacturing to contribute much more than they have done so far to earning foreign exchange. 22. Tanzania is a member of the Southern African Development Community (SADC) and party to the tariff reductions agreement signed in February 1995 to promote intra-community trade. There are also similar arrangements within the Common Market for Eastern and Southern Africa (COMESA). Tanzania has led the effort to revive the East African Cooperation and is a party to the Cross Border Initiative to promote closer trade ties with Uganda and Kenya. Improved competitiveness would help Tanzania to benefit from expanded regional trade, and an upgrading of its transport infrastructure would increase demand for transport services from the surrounding landlocked countries. 23. For the foreseeable future, the economy will remain highly vulnerable to external shocks. For instance, the Kagera and Kigoma regions have been adversely affected by Rwandan and Tanzania CAS 9 Burundian refugees. Continued consultation with neighbors and regional economic cooperation would reduce some of the potential risks and also advance regional development. Debt Sustainability 24. Tanzania's external debt totaled US$7.3 billion at end 1995. Virtually, all of the debt is owed or guaranteed by the public sector. Bilateral creditors account for 54 percent of external debt, and multilaterals for 43 percent. Private creditors account for the rest. The present value of external debt was equivalent to 636 percent of exports in 1995, and Tanzania is classified as a severely indebted country. External debt service due averaged about 32 percent of exports during 1990-96, while actual payments have averaged only 20 percent owing to debt relief and the accumulation of arrears. IDA/IBRD debt service equaled 6 percent of Tanzania's exports in 1995. 25. An analysis of debt sustainability shows that Tanzania's debt burden will remain heavy into the next decade, even with strong policy performance and highly concessional external debt relief. The current account deficit will improve from 20 to 8 percent of GDP during 1995-2000, based on real growth of 8 percent for exports and 4 percent for imports. The flow rescheduling agreed with Paris Club creditors in early 1997 covers about US$1.7 billion. The expanded relief will provide an estimated savings of approximately US$100 million in 1997, with similar levels of savings anticipated for 1998-99. Table 4 illustrates the impact of a stock of debt operation from Paris Club creditors in January 2000, resulting in a 67 percent reduction in eligible, nonconcessional debt and a rescheduling of concessional debt. It is assumed that: non-Paris Club bilateral creditors provide comparable treatment; commercial debt is repurchased at 10 cents on the dollar; and all new borrowing is on IDA terms. 26. Strong export performance coupled with debt relief will reduce the present value of external debt from 636 percent of exports in 1995 to 222 percent by 2000 and 187 by 2002. The debt service ratio is projected to increase to 24 percent in 1997, which reflects the repayment of arrears accumulated prior to the Paris Club agreement. Once these arrears are settled, debt service declines rapidly, reaching 14 percent of exports by 2000. 27. Debt service would fall relative to revenues, but would remain at very high levels. With debt relief and sustained improvement in fiscal management, total debt service, including interest and amortization on external debt and interest payments on domestic debt-largely Treasury bills, would fall from an estimated 28 percent of revenues in 1996 to 24 percent by 2000 (Table 4). This high level of debt service means that the fiscal program will continue to be subject to significant risks, despite the decline in external debt service relative to exports. 28. Tanzania is potentially eligible for support under the HIPC Initiative and its debt situation will need to be carefully monitored. Assuming continued strong policy performance under Bank and Fund suggested adjustment programs, Tanzania's eligibility for support under the Initiative will be assessed in more detail in 1999. It will be important to work with the authorities to strengthen their ability to manage the external debt burden and to ensure that they are able to participate fully in this assessment. 10 Tanzania CAS Table 4: Tanzania: Debt Indicators (percent) 1995 1996 1997 1998 1999 2000 2001 2002 PV DebtIXGS, before debt relief/a 636 519 462 438 397 354 316 285 PV DebtIXGS, after debt relief /a 636 548 307 302 285 222 203 187 Debt Service/XGS, before debt relief 20 43 33 26 22 20 18 15 Debt servicelXGS, after debt relief 20 16 33 16 13 14 13 12 External debt service/Revenues 27 16 24 18 17 18 na na o/w interest payments 9 4 6 8 8 10 na na Domestic interest/Revenues 17 12 9 9 8 6 na na Total debt service/Revenues 44 28 33 27 25 24 na na /a Present value of debt in year indicated, divided by the average level of exports in that year and the two preceding years. II. TANZANIA'S DEVELOPMENT STRATEGY AND POLICY ACTIONS Government's Short Term Economic Management Priorities 29. The basic objective of the Government is to restart progress in poverty reduction by raising growth performance and extending access to basic social and economic services. As a first order of business, the Government plans to sustain efforts to achieve fiscal stabilization and efficiency goals. Progress in the fiscal area will also be essential for the sustained financing of needed social and economic services for the lowest income groups and for poverty reduction. 30. The Government intends to take fiscal actions that increase revenues to more than 17 percent of GDP by the year 2000 from 15 percent in 1996 (by initially reforming tax administration and, in stages, the tax system), hold expenditure on wages and salaries at about 5 percent (or less) of GDP, ensure that O&M and core development activities are adequately funded and change the composition of social sector spending to improve efficiency. The Government is setting hard targets and committing itself to meeting them both for recurrent activities and in allocating matching funds for donor-financed development activities. It aims to reinforce these fiscal reforms with divestiture and reorganization of parastatals, including financial parastatals, such as NBC. 31. These actions will secure macroeconomic stability and allow the Government to begin implementing its medium term development strategy that seeks to reduce poverty by maximizing growth, drawing initially on the potential of the agriculture sector but also laying the groundwork for an expansion of urban based industries, mining and tourism. The continuation of policies to expand the role of the private sector in providing a wide range of producer and social services is critical for modernizing the economy and lessening the incidence of poverty. The Government's efforts also include implementing the Environmental Action Plan so as to arrest problems of land degradation and pollution, habitat conversion and declining biodiversity. Medium Term Development Strategy: 1997-2000 32. Tanzania's medium term goal is to raise the growth rate to at least 6 percent by the year 2000 and to even higher levels thereafter. This is certainly feasible, but several conditions will need to be met. First, agricultural production must continue expanding at the rate of 5 percent per Tanzania CAS 11 annum through the application of yield Box 1: Tanzania: Growth and Poverty enhancing biological inputs together with some increase in cultivated acreage. High growth is needed to achieve significant Second, as household incomes and demand reduction in poverty. Based on 50 percent poverty for nonfood items grows, efforts must be base line, the current 4 percent growth rate, a made to develop nonfarm activities in the population growth rate of about 2.8 percent and no rural areas; these will include mining and change in income distribution, about 36-40 percent tourism. Third, for sustained high growth, of the population will continue to live in poverty a manufacturing must be encouraged through decade from now. Even if economic growth were 8 competitive policies. Industry can become percent, a child born in Tanzania today would have a leading sector and a source of exports as an average income equivalent to approximately well as employment for the rapidly US$440 on reaching the age of 15 years. This would expanding urban labor force, and the leave about 26 percent of the population in poverty; expanding urband laborlittle difforc,and but the consumption poverty index would be about untaryi itshu shave little dinuffctulty i 32 percent, if the Gini coefficient (reflecting income enlarging itS share of manufactured distribution) were to increase by one percent each exports. Within the next three years, a year during the 15 years. These projections significant acceleration of industrial underscore the magnitude of the challenge facing growth, from 3-4 percent per annum to 6-7 Tanzania and the importance of both high economic percent will be needed in order to achieve growth and lower population growth for reducing the desired rate of GDP growth (see Box poverty. 1). 33. Infrastructure (for example, urban services, utilities and transport) must strongly support the expansion of the productive sectors. Services account for about a quarter of GDP and, except for construction, the volume of output from this sector has been rising slowly. A doubling of the growth rate to 5 percent would be needed to attain the targeted level of performance. Recent trends suggest that this is feasible, especially if privatization spurs investment in utilities and banking reforms promote financial deepening. For example, the telecommunications sector has attracted private investors and more than 10 private banks are now active. Port services are being improved with the planned concessioning of the container terminal and plans to allow free entry into agent and freight handling services. 34. In parallel with the focus on accelerated growth, a more determined effort must be made to improve the performance of social services. First, additional budgetary allocations are key: it is expected that with the recovery of government revenues, more funds will be allocated in the budget to health and education. Second, government efforts to decentralize and increase community participation in the social sectors will be necessary for enhancing performance and efficiency. Finally, the Government should concentrate its financial efforts on basic education and primary health, while ensuring a policy environment which will facilitate greater private sector participation in higher education and curative health services. III. FUTURE ROLE OF THE BANK TO MAXIMIZE RESULTS ON THE GROUND Growth and Poverty Reduction: Government Imperatives and Bank Assistance 35. The Bank is in broad agreement with Tanzania's strategic objectives. Our principal goal will be to help the Government resume the good progress made on poverty reduction in the late 1980s. Specifically, we will focus our efforts on improving fiscal management, raising agricultural 12 Tanzania CAS productivity, promoting off-farm activities, strengthening the environment for private sector growth and facilitating rapid and sustained improvements in the social services. Operations in the rural sector would encompass issues relating to social services and infrastructure building, while attention to the enabling environment would promote the growth of mining, tourism, and manufacturing. The success of our program will depend on the lead taken by the Government in setting development priorities and its ability to coordinate the activities of donors (these points were also emphasized by a report prepared under the direction of G.K. Helleiner and financed by the Danish Government). Accordingly, we are proposing a range of lending and nonlending activities with the following objectives in mind: * Build needed capacity in areas critical for sound economic management. Specific programs now under way focus on: providing the newly established Tanzania Revenue Authority with training, equipment and facilities; building a capacity for policy analysis in the Ministries of Finance and Planning; strengthening the capacity of the Bank of Tanzania in bank supervision; and assisting municipalities through training and TA to improve water and sewerage management. Efforts must continue to reform public administration, limit the size of the civil service, as well as the military, to what is affordable, and provide pay scales that will attract needed skills. The rationalization of technical and higher education is an important element of reforms to develop skills. The recent government review of the sector is an important step and must be followed by actions to assess the market for graduates so as to raise employment, phase out redundant institutions, increase enrollment in areas of skill shortages, and improve cost sharing. In addition, institutions, such as the judiciary, the Auditor General's office, the Accountant General, the anti-corruption bureau and local government bodies must be reinvigorated to improve governance. * Stabilize and then reverse the downward trend in the social indicators through measures that decentralize responsibility, increase local resource mobilization and rationalize expenditures. In the education sector, there is a need for containing expenditure on staff and raising the outlay on other inputs; increasing the efficiency of public sector secondary education; and providing added incentives for greater involvement of the private sector in secondary as well as tertiary education. The target gross enrollment rate for primary education should be at least 85 percent by the year 2000. Rationalizing post-primary education will help to release resources to emphasize primary and secondary schooling. Likewise, the effectiveness of public sector health expenditures should be increased by emphasizing preventive medicine and primary health care. The private sector should be drawn more fully into curative medicine. Introduction of gender sensitive policies should include: (i) targeting secondary school bursary for girls from poor homes; and (ii) emphasizing expenditure shifts to preventive health care, including child health and maternity care, and providing drinking water. Aside from contributing to the welfare of women and children, these would also help to reduce fertility * Enhance economic efficiency and the quality of services by divesting all remaining parastatals on an accelerated schedule. This would include actions aimed at the reorganization and/or divestiture of some public utilities and opening up certain activities to competition from the private sector, such as port services and telecommunications. * Strengthen the basis for growth by: emphasizing agriculture and provision of economic services (research and extension, rural access roads, water resource Tanzania CAS 13 development and links between social and economic services) for small farmers; ensuring to the maximum extent possible that the budgetary changes introduced augment counterpart funds needed to press ahead with donor assisted infrastructure projects, and earmark enough budgetary resources for essential recurrent expenses; emphasizing reforms and selective investments in infrastructure to facilitate private development of tourism, mining and industry; supporting the development of an environment conducive to mineral exploration and private investment in mining, including labor-intensive small scale mining, but with due attention to associated environmental consequences. * Protect environmental quality. The Government should implement the National Environmental Action Plan, and the National Conservation Strategy for Sustainable Development so as to arrest problems of land degradation and pollution, habitat conversion and declining biodiversity. IDA support for the work underway to formulate a legal framework for environmental management in mining is being coordinated with the main environmental management institutions. Other activities to be pursued with determination include health and population policies to limit population growth, monitoring environmental management under the Lake Victoria Project to reverse the sharp deterioration in the lake ecosystem and protect the valuable fishery resources, and a tightening of laws to enhance security of land tenure and sustainable land use. Performance Under the Preceding CAS 36. The CAS prepared in 1994 concentrated on three principal constraints which were limiting the Bank's ability to assist Tanzania: (i) the unstable fiscal environment; (ii) the scope of the Government's development program, inefficient use of public resources and regulatory constraints on private sector expansion; and (iii) weaknesses in implementation capacity. The CAS identified five principal areas of reforms: selective government activities and efficient use of public resources emphasizing reform of the civil service and privatization of parastatals; restructuring to strengthen the financial base of public sector banks; removing government controls on agriculture, trade and investments to encourage private expansion, supporting the development of basic infrastructure; and providing greater support for primary education and primary health care. 37. Assessment. Significant gains were registered in areas that involved liberalization and were administratively less complex. By the time of the CAS Progress Report in May 1996, actions had been taken to remove restrictions on agriculture, investments and external trade. Since then, there has been steady progress in the divestiture of parastatals and in dismantling state monopolies in utilities and strategic sectors and in allowing private investments in these areas. Modest gains have also been made in meeting the needs of primary health care and the development of a national strategy for primary education. 38. Macroeconomic performance was below expectations through 1995, and country performance ratings of inflation, fiscal deficit, savings and expenditure management were poor. OED reviews pointed to difficulties in controlling the budgetary pressures that were fostering inflation. Recent trends are more positive-as noted above, the fiscal situation has improved and inflation has fallen. The new government has established a much stronger basis for sustained economic growth. The issue now is to build on that record. 14 Tanzania CAS 39. Limited progress was made in the implementation of reforms that require significant administrative capacity and continuous monitoring of institutional performance. NBC has remained financially weak, though the Government has now accepted radical reorganization measures, which includes privatization. While civil service staff have been reduced by close to 25 percent, the wage bill is not falling as might be expected; the results of the Organizational and Efficiency (O&E) reviews aimed at developing needed skills and capacity remain to be implemented. The financing of social sectors has risen, but is still not fully adequate. The pilot projects to improve financing, decentralize management and enlist users in managing service delivery have commenced, but it will be some time before lessons can be distilled and applied more broadly. Portfolio performance has improved, but considerable progress is needed. 40. Lessons. The Bank's firm stance on macropolicy and our sustained dialogue with respect to liberalization as well as parastatal divestiture, contributed to the gains in economic performance and to the program of reforms now coming to fruition. However, given the requirements of the country and the stage of the reform effort, our past program did not give adequate attention to reforming public sector institutions and helping build the skills required by a market oriented economy. In retrospect, we also did not work closely enough with the Government and other donors to reduce the number of overlapping projects in the portfolio and focus attention on the core activities. In addition, the Bank was not sufficiently active in involving NGOs, working with local bodies and building institutions that will stimulate decentralized development and strengthen economic management. These are some of the lessons that have informed this CAS. Portfolio Impact 41. Portfolio status and trend The Bank's active portfolio for Tanzania consisted of 21 investment projects with total commitments of US$1.2 billion as of end February 1997. Three projects have been approved this fiscal year for a total Credit amount of US$67.6 million. 42. The number of projects under implementation has remained fairly steady in the 1990s while the average annual commitments have declined from US$75 million to some US$56 million during FY94-FY97; this reflects a trend towards smaller, more focused projects and recent efforts to improve portfolio impact. Disbursements have risen dramatically by about three and a half times to US$166.9 million during FY92-FY96. The aggregate disbursement ratio more than doubled to an average of about 18 percent during the first two months of 1997; this is higher than for the Africa Region (17.3 percent) in FY96, and it compares favorably with the Bank average (18.8 percent). 43. However, portfolio quality as measured by "problem projects" has not been satisfactory. Since FY94, the share of problem projects in the portfolio has increased steadily, due largely to changes in project ratings to improve accuracy. The share of problem projects in the portfolio increased from 14.3 percent in FY95 to 22.7 percent in FY96, despite the closure of one problem project and upgrading of another. Five projects were rated unsatisfactory for "implementation progress" by end February 1997; in addition, five satisfactory projects had been identified as potential problem" projects. Two of the three ICRs planned for FY97 have been completed; one was rated satisfactory and the other rated unsatisfactory; the last one is being finalized. 44. Portfolio improvement efforts. Portfolio management was particularly difficult in FY96, an election year with political uncertainties and delays in the implementation of agreed macroeconomic and sectoral reforms. While the Government is working steadily to introduce Tanzania CAS 15 broad-based improvements on the macro-front, certain carryover issues, such as resource constraints and governance will continue over the medium term to have an impact on the implementation of the Tanzania portfolio. However, the Country Team is making a concerted effort to improve the quality of the portfolio. In addition to the efforts made since FY96 to address the generic portfolio management issues, especially in auditing and accounting, meetings of project coordinators are now held every two months to discuss project issues. 45. In FY96, Tanzania was one of 20 countries selected for a comprehensive Portfolio Improvement Plan (PIP) based on the criteria applied by the Quality Assurance Group and also because of the size of the portfolio. The PIP, which was chosen as one of the two Bank-wide "Best Practices", identified a number of cross-cutting/generic problems as well as project-specific ones. The main objectives of the PIP, which was shared with the Government, are to achieve major improvements in the performance of both problem projects and projects at risk, as well as to further strengthen government ownership of projects. While steady progress is being made towards meeting the targets of the PIP, the results of efforts initiated last year and strengthened through FY97 are yet to be reflected in aggregate performance indicators, such as the number of problem or potential problem projects. However, the continued emphasis on enhanced portfolio management is expected to yield positive results in terms of indicators for FY98. Activities to address the generic portfolio management issues are also being steered by recommendations from the most recent CPPR held in May 1996 and its follow-up in September 1996, which focused on areas such as: availability of counterpart funds; project management, staffing and incentives; and accounting and audit compliance. A concerted effort is now being made to focus the attention of the Government officials on the actions agreed during the CPPR, and on the revised Joint Action Plan of September 1996 (formulated on the basis of comprehensive discussions with the Treasury, the Civil Service Department and project staff). The Resident Mission is playing a significant role in this exercise through close follow-up of implementation issues. 46. In particular, the Tanzania Country Team is working with the Government on: (i) semi- annual in-depth portfolio reviews, with the objective of following up closely on progress; (ii) extensive reviews of projects identified as either problem or at-risk operations with substantial changes in project designs and implementation plans recommended and implemented; (iii) incorporating adequate performance indictors in the existing portfolio to ensure monitoring of project impact; (iv) emphasizing supervision (supervision resources increased steadily from 18.5 staff weeks/project in FY94 to 22.8 in FY96 and more resources were dedicated to problem projects); (iv) making special efforts (in conjunction with the Auditor General, project staff and auditors) to enhance financial accountability of projects, (v) supporting the Government in its recently initiated efforts to define counterpart funding requirements at the project level, thus enhancing the effective use of scarce local funds; (vi) improving project management and staffing practices and procedures; (vii) concerted efforts to raise procurement and disbursement performance through training and Resident Mission follow-up (work on formulating a Capacity Building Action Plan is now underway to assess the scope. quality and impact of these and other capacity strengthening measures under the portfolio); (viii) assisting the Government in addressing the procurement issues (an IDA financed study is looking at the key issues with recommendations for procurement code, regulations, and standard bidding documents); (ix) enhanced management of the large Trust Funds portfolio; and (x) mainstreaming and implementation of the Gender Action Plan (see Box 3). The targets established in the PIP and the actual performnance against these is summarized in the Annex. 16 Tanzania CAS Lending 47. The last CAS prepared in March 1994 Table 5: Lending Program proposed a base case lending scenario of US$230- (FY98-00) US$270 million per annum. Actual commitments Area No. of averaged about US$100 million per annum during Projects FY94-FY96, a low case, reflecting macroeconomic Fiscal and Capacity Building 3 instability and slow absorption of project aid that Infras. & Private Development 3 severely constrained the lending program. The Rural and Agriculture 2 CAS Progress Report which was prepared in May Social Sector 2 1996 envisaged a base case annual lending program Total 10 of around US$200 million, predicated on an effective implementation of a Fund staff-monitored shadow program, and the adoption of an ESAF as well as other triggers. In our view, the recent finalization of the ESAF and progress in the other triggers have now established a reasonable basis for a lending program averaging US$200 million a year. 48. Table 5 summarizes the contents of the lending program for the base case scenario focusing on priority activities that will raise economic growth and reduce poverty. Three major activities (creating a Revenue Authority, TA for the financial sector, and higher education) aim at skill development, institutional reorganization and capacity building directly. These activities also support effective macro-fiscal management. Three activities will help to promote our policy dialogue in key areas: adjustment operations and a power project, which promote the efficient use of public resources while encouraging private sector investment. The power project will expand the base for rural electrification and agro-processing, and would support service delivery for tourism. Two activities (rural water and agriculture) will focus on the rural sector in addition to three agriculture projects which were processed just last year. Our social sector operations in health and education (including the one for higher education noted earlier) will seek to improve the quality and quantity of human resources. 49. The main triggers for the base case include targets for revenues, expenditures and domestic borrowing; intra-sectoral shifts in expenditures within the social sectors so as to improve efficiency; administrative decentralization, continuing implementation of parastatal reforms; reorganization of NBC; and liberalization of the petroleum sector. All these are elements of the proposed SAC operation (see Box 2). 50. Satisfactory and consistent performance under the ESAF and SAC will provide a basis for moving to a high case scenario. It would be signaled by clear leadership on the reform agenda, despite resistance from particular rent-seeking groups; consistent improvement in public sector management; strong fiscal discipline and improved nonwage recurrent financing for social programs; rationalization of the public investment portfolio and reduced delays in project implementation; and a transparent regulatory environment to attract private investments. In the high case, economic growth is expected to be 6 percent by the year 2000, justifying a lending program of US$300 million or more per annum. In addition, FDI, especially private financing for infrastructure, will be expected to pick up. In the unlikely event of a setback in the fiscal reform program, there will be no future adjustment lending, and the program will return to the low case mode with a core lending program averaging US$90-100 million focused on basic social and physical infrastructure. In the low case scenario, economic growth would average about 2-3 percent. Tanzania CAS 17 Box 2: Triggers for Lending Program Scenarios Low Case Base Case High Case * Slippage in macro-fiscal T Tight expenditure Base Case plus: management with rising management, improved * Rapid progress in deficit, failure to contain revenue mobilization and containing administrative money growth and domestic stable macroeconomic expenditures and ability to borrowing (failure to meet policies (meeting ESAF provide counterpart funds ESAF targets). targets). for projects. * Upsurge in discretionary tax * Rationalizing development * Progress in rationalizing exemptions. budget and meeting development expenditure . Laxity in controlling the development budget target. portfolio and reducing costs of public * Implementation of NBC number of projects to 300 administration. reorganization program. that are fully funded. * No progress in reorganizing * Steady progress with social * Concrete actions to widely NBC. sector pilots. apply lessons from social * Parastatal divestiture * Steady progress in sector pilots. stalled. parastatal reforms * Accelerated divestiture of * Liberalization of petroleum parastatals, including sector. public utilities. * Improved governance. 51. Expected SPA-4 support of about US$400 million during FY97-FY99 and expected cofinancing (for example, for the Songo Songo project) will complement IDA's efforts. To maximize the Bank's effectiveness, we will tailor our nonlending and lending activities to support a government-owned and led development strategy that seeks to achieve a pattern of sectoral growth with the greatest impact on poverty. We intend to continue a participatory approach, consult with beneficiaries and stakeholders, and coordinate our activities with those of other donors. Economic and Sector Work 52. Key elements of the current assistance strategy in the areas of growth and poverty, macro- fiscal management, social sector reforms, and reorganization of public institutions have been informed by past ESW, especially the CEM/PA, PER, various reviews of the social sectors, and an Agricultural Sector Memorandum. The lessons have helped to deepen our understanding of incentives and access to markets, household income growth, sustained access to social services and poverty reduction, as indicated in the preceding sections. However, several gaps remain: the quality of data needs to be improved; we need to extend our knowledge about the location of the core poverty areas; and questions remain on various aspects of the rural economy and services that will have wide impact on the lowest income group. In building on recent work, the focus of our analytical work during FY98-00 will be on the following: (i) macroeconomic stability, that is, fiscal management, resource mobilization, and achieving a better allocation of public resources; (ii) improvement of social and producer services in rural areas, where most of the poor reside; and (iii) policies that support rural development and infrastructure. Main issues to be explored are the following: 18 Tanzania CAS * Our efforts to promote growth need to be informed by lessons from Tanzania's neighbors, such as Uganda and Ethiopia, which have shown faster growth, as well as other countries. We plan to undertake a forward looking analysis to support policies that will enable Tanzania to move closer to realizing its growth potential over the decade. This effort will be part of an East African Regional Study that will include Kenya, Ethiopia and Uganda. * Improving rural income growth and the pattern of income distribution, requires better understanding of the rural economy. For instance, we need a clearer sense of production in agriculture: agricultural growth has been driven by acreage expansion, while agricultural productivity scems to havc stagnated. What is happening to agricultural investments, the role of rural financial services, rural access to government and market services? This study will seek to explore ways of exploiting critical rural-urban linkages, the push from producer services and economic infrastructure, especially transport and communications. Also, how do the poor cope with shocks, such as drought and price changes, that affect household incomes? * Given that accelerated growth requires industrial expansion, the current weak performance in manufacturing is a conccrn. The proposed study will document industrial performance and assess the impact of economic reforms on private investment. This will help to shape policies aimed at promoting trade and private investment. * While poverty declined between the early 1980s and the early 1990s, it appears to have stagnated during 1993-95. It is unclear if this is the beginning of a new trend, a reflection of poor statistics or the slow upturn in the delivery of social services. We need to examine this issue and update the poverty assessment for both rural and urban areas. The work will also cover the decentralized delivery of social services. * As part of our annual PER, we will examine plans for improving budgetary management, efforts needed to develop needed skills for the civil service and to build capacity while containing the growth of the wage bill, the size of aid flows and aid utilization, rationalization of the public investment portfolio, and fiscal and cash management issues that have an impact on dcvelopment and recurrent expenditure financing. * The collection of statistics has been weakened by the reform of parastatals, which were major data collection points in the past. Also, trade liberalization has expanded the number of private exporters and importers, much beyond the capacity of the customs department and other institutions, which had been used to handling only a few state monopolies and licensed agents. Our TA and support for capacity building will help reinforce efforts that are underway to improve collection of statistics and the quality of national accounts data. IFC and MIGA 53. IFC's strategy in Tanzania has focused on private sector development through loan and equity investments in large, medium and small scale projects, advisory services, supporting privatization of state-owned enterprises and capital market development. IFC's high priority areas include mining, infrastructure, and small and medium scale enterprises in manufacturing, agri- business and tourism. Support for banking, leasing and venture capital companies is key to deepening financial intermediation and strengthening access to investment resources for private sector expansion. IFC's areas of focus include: Tanzania CAS 19 * Privatization: IFC continues to play an active role in Tanzania's privatization process by working closely with the Parastatal Sector Reform Commission (PSRC) to identify companies slated for privatization where IFC can invest or assist in attracting private investors, * Capital Markets Development: IFC's focus in capital markets activities is to assist in the rebuilding of Tanzania's weak financial sector. Capital markets activities are expected to remain strong while the country undergoes financial restructuring. * Infrastructure: IFC activities in infrastructure, which range from telecommunications and power to office buildings and transportation, will continue. * Advisory Services: IFC is looking for opportunities to assist larger companies in this area. The Africa Project Development Facility (APDF) has been very effective in providing advisory services to small and medium scale projects and has increased its promotion activities. * Small and medium size enterprises: IFC's Africa Enterprise Fund (AEF) have experienced a strong demand from companies in transport, leather, tourism, agri- business and communication. These activities are expected to continue to grow. * Tourism. Building on IFC's investments in both major and small scale tourism projects, IFC will continue to support projects that offer the strongest sustainable impact through sound sponsorship, adequate capitalization and environmentally sensitive design. * Mining. The potential for mining is largely untapped. Preliminary contacts with a numbef of junior mining companies is likely to lead to an IFC investment in the next year or two. As evidenced by the Songo Songo gas field, there is some hydrocarbon potential in the country, and the success of this project may stimulate further exploration in oil and gas. 54. As a member of MIGA, Tanzania has benefited from investment guarantee coverage. Two contracts have been issued to private investors; and 14 applications are outstanding in natural resources, tourism, telecommunications, agri-business, infrastructure and manufacturing. MIGA is working closely with IDA to develop a special trust facility for the Songo Songo Project. Tanzania has also been a beneficiary of MIGA's Investment Marketing Services, particularly in mining; during 1994-96, delegations from Tanzania participated in MIGA's conferences on investment opportunities in the mining sector in Africa. EDI 55. EDI has strongly supported the Region's country strategy through its focus on capacity building in the social and economic sectors. Recent workshops and seminars for senior policymakers and administrators have focused on governance, health financing, improving primary school quality and educating girls, and privatizing and deregulating public entities. EDI's activities in the private sector will stress skills training and in agricultural project design and management, the financial sector and in regulatory reform. In the area of governance, EDI's emphasis is on better public resource use and bureaucratic streamlining to promote private sector development. It is also providing training for journalists and seminars for parliamentarians to raise civic awareness about corruption and to heighten demand for improved service delivery. EDI's governance program is using workshops to underscore public accountability by stressing the role and integrity of basic institutions, especially the offices of the Auditor General, the Accountant General, and law enforcement agencies. 20 Tanzania CAS Coordination, Consultation and Participation 56. Over the past year, relations between donors and the Govermnent of Tanzania have improved following the progress made in governance and economic management matters. These improvements have reversed or contained problems that surfaced in FY94 relating to corruption, lax expenditure control, as well as serious lapses in tax administration and in the collection of counterpart funds for donor import support programs. 57. Over the past two years, a concerted effort has been made to increase collaboration and consultation with the Government and other stakeholders. For example, a team of government officials, bilateral donors (ODA, SIDA, DANIDA, UNICEF, Japan and The Netherlands) and local consultants worked together to prepare the recent Country Economic Memorandum/Poverty Assessment (CEM/PA). We will continue efforts to refine the process of consultation and sharing information through the annual CG, the SPA and the Annual Meetings. Monthly meetings of the local donor group in Dar es Salaam are jointly chaired by the Bank and UNDP. The Bank's program will continue to be coordinated closely with the IMF through joint missions on the PFP and fiscal issues and regular consultations on the PER. In addition, we will: - Build on the collaboration among Government, donors and the Bank in preparing the CEM/PA to maintain a coordinated approach to poverty work. - Continue to work through the Resident Mission to maintain our dialogue with NGOs on rural development and gender issues, and to work with other donors with respect to reforms in public expenditure and revenue administration. - Seek opportunities for private sector support as in the preparation of the Songo Songo power project. * Use the results of the social sector pilots in progress to work with bilateral donors, especially the Nordics, to expand social sector programs emphasizing the role of the beneficiaries and local level agencies in delivering services. * Use more cofinancing opportunities (e.g., with Switzerland in the financial sector, and with Ireland, Germany and Netherlands in the urban sector). 58. The draft CAS was discussed extensively with various government agencies and stakeholders in Tanzania during March 1997. Meetings were held with the Foreign Relations Committee of Parliament; Principal Secretaries of the major line ministries; local consultants; and officials of the Ministry of Finance, Planning Commission, Poverty Alleviation Unit and Bank of Tanzania. The discussions with government officials focused on growth and poverty reduction. On balance, the content of the program was considered appropriate though government officials emphasized the point that a growth target of at least 8 percent was needed to reduce poverty significantly. In order to derive maximum growth benefits from economic liberalization, a focus on human resource development and capacity building was urgently required. They emphasized the need to build technical and managerial skills in areas such as mining, tourism, land survey and land administration, and macro-fiscal management. Members of the Parliamentary Committee probed the idea of subsidy programs for agricultural inputs; however, it was pointed out that such subsidies are likely to be regressive, they would create opportunities for rent-seeking, and would involve trade-offs with priority programs in human resource development. Separate meetings were also held with donors and NGOs. The main questions centered on growth prospects, the need for faster improvement in the investment climate, the external debt scenario relative to the HIPC and governance issues. Within the donor community, there is widespread acceptance of the need to enhance government ownership of the development effort. The NGO discussions were dominated Tanzania CAS 21 Box 3: Gender Action Plan About a year ago a number of NGOs approached the Bank's Resident Mission, criticizing and raising questions about the impact of the IDA program on women in Tanzania. The Mission responded by suggesting a more thorough review of what the Bank is doing and provided full access to information on the IDA program. As a result of this, the NGOs studied the Bank program in detail and made a number of recommendations on how the gender implications of the IDA program could be made more constructive. In a meeting with these NGOs in March 1996, the Bank provided a detailed response to each of the NGO concerns and proposed a Gender Action Plan that would provide the framework for future Bank gender work. The NGOs have expressed a willingness to follow up on the Bank proposal-this work will be overseen by the Resident Mission's new NGO officer who has broad experience with the interested NGOs. by land ownership for women, the need to give more attention to urban poverty issues, Tanzania's debt profile and the need for enhanced accountability of government officials for public procurement. Risks 59. Tanzania has introduced a number of major reforms since the early 1990s, but implementation has not been consistent. In large part, this results from inconsistencies in leadership, lack of ownership, and insufficient administrative and technical capacity. However, the recent political changes, the Government's evident determination to press ahead with some well- targeted reforms, and the steps being taken by President Mkapa to raise the quality of governance, all suggest that Tanzania can regain the momentum it attained during 1985-90 and then move to a higher level of growth. 60. Sustaining success this time around will require leadership by the Government, full ownership of the program, a readiness to take hard political decisions, and strong policy and operational support by the donor community. In some specific areas, such as privatization, success will also depend on the depth of the market. Though about a third of the parastatals have been privatized or liquidated so far, the pace of reforms has been subject in part to response from potential buyers. Similarly, in the social sectors, enhancement of revenues and improved capacity in managing the delivery of services at the local level will be critical for making progress in the decentralization effort. 61. Overall, we view the risk of a major policy reversal in Tanzania as small; there is broad recognition that the socialist policies of the 1960s and 1 970s failed and there is an appreciation of the real progress that has been made over the past decade. But there remains the challenge of sustaining and strengthening the macroeconomic discipline that has reemerged over the past year. In particular, there are two major constraints to more effective implementation of the reform program. First, there are broad capacity constraints-the combination of low incentives, a deterioration in the quality of education and the greater attractiveness of the private sector has led to weaknesses in government capacity. Building capacity in key areas will be a necessary condition for strengthening the reform effort. Second, problems of governance, that worsened in the first half of the 1990s and led to substantial leakages of resources, will have to be removed through administrative vigilance and greater transparency. While these risks are unlikely to undermine the reform program significantly, they could impede progress and act as a drag on policy implementation. We must factor these constraints into our assumptions about the pace of 22 Tanzania CAS reform and be on constant alert to manage them when they arise. We must also reduce their effect over time by increasing government capacity and building stronger teams within the core ministries, a specific focus of the proposed capacity building effort. 62. Other risks relate to external shocks, especially (i) drought and its effects on agriculture, hydropower and industry, and (ii) inflow of refugees from neighboring countries. These will be closely watched during the reform effort. IV. AGENDA FOR BOARD DISCUSSION 63. Overall, the new government has made significant progress in economic reforms. Recent economic and political developments, including improvements in governance and a return to prudent fiscal management, suggest determination to accelerate reforms. Reflecting this, the prospects for raising our level of support have improved. Nevertheless, our program will have to contend with issues of capacity, maintaining a broad national coalition to sustain the reform effort and providing adequate compensation of the civil service within the context of a manageable total wage bill. The Board may want to focus its discussion on the following: * whether the CAS has focused sufficiently on poverty alleviation and has defined adequate lending as well as nonlending activities to support the Government's own efforts; * how to reduce donor dependence and at the same time provide the resources to promote change; and * the role of adjustment lending, the role of donors, and donor assistance to Tanzania. James D. Wolfensohn President by Gautam S. Kaji Managing Director Attachments Washington, D.C. May 6, 1997 Tanzania CAS: Framework For Country Program Development Objectives/Issues Diagnosis Strategy/Actions Adjustment/Benchmark Instruments Instruments I I I I IDA" I | IFC Primary development objective is broad-based economic growth with poverty reduction by about 5 percentage points by 2000. Headcount poverty index nationally was 42 percent in 1993. 1. Growth and Poverty Reduction Ineffective Public Sector Maansement Improve and Stabilize Fiscal Performance Weak fiscal foundation; low revenue . Weak tax administration. * Strengthen Revenue Authority and expand tax * Meet SAC/ESAF conditions. Policy dialogue effort relative to Govemment * Weak public administration (see base through a VAT. * Pass legislation to introduce TRA Project FY98 expenditure; persistent dissavings on IV). * Rationalize public administration and merge VAT. recurrent budget averaging 2.9 % of * Ineffective personnel management ministries. * Raise revenue by 0.7 percentage PPRP (TA) Liaise with GDP in FY95-FY96; elusive with an excessive complement and points of GDP annually. SACI 15 FY97 PSRC to seek macroeconomic stability. low salaries. * Enforce hard budget constraint on parastatals. * Achieve recurrent savings of PER FY98 privatization * Poor expenditure management. * Liquidate or privatize strategic parastatals. 1.5% of GDP by FY98. SAC2 FY99 opportunities * Inefficient loss-making parastatals. * Reform of public for IFC administration. * Privatize parastatals by 1998. Achieve Manageable Debt Service Burden Heavy extemal debt burden and high * Excessive external and intemal * Formulate debt management strategy. * Implement debt management interest payrnents on domestic debt. borrowing to support low quality * Meet conditions to obtain debt relief strategy. expenditures. * Limit access to non-concessionary credit. * Obtain debt relief * Limit domestic borrowing. * Observe moratorium on borrowing and commercial loans. * Reduced domestic debt burden. Strenathen the Base for Growth Give Priority To Rural Sector (see II) Average growth of 4% in 1986-93, * Weak base for sustained high (a) Emphasize small farmer agriculture. * Target 6% growth with reforns. AGRP FY99 Support growth barely above population growth of growth. * Strengthen farmer- driven research and * Emphasize rural roads in Road Road Projects through private 2.8%. GDP growth has risen to 5 % * Agriculture constrained by poor extension. Transport Program. Policy dialogue investment in 1995 and agricultural growth is technology, lack of adequate water * Implement land policy to enhance access. . Meet Road Maintenance Funid CEM FY99 expansion averaging 5%. But this is still for crops and livestock, uncertain * Build roads to access urban and rural markets. target. insufficient. And most agricultural land tenure, gaps in rural * Expand use of water for small and medium * Privatize state farms. ESW GR FY98 growth comes from acreage expansion, infrastructure and weak rural-urban scale irrigation. * Increase area under irrigated rainfed farms with low productivity; linkages. agriculture. minimal manufacturing growth. (b) Exploit linkages to rural income growth. Policy dialogue * Link roads and social service investments. * Promote rural income growth. ESWR FY98 * Electrify rural areas with growth potential. * Expand rural employment ESW AG FY00 * Expand agro-processing and agri-business. oppotrtunities. ESW IN FY00 * Diversify mto nonagriculture. Support Private Sector Invest-ent Private sector inhibited by decades of * Cumbersome permit process for (a) Improve enabling environment for private * Reduced delays in investment Policy dialogue Support socialist controls. Potential in mining, DFI. investment. sanctioning. investments in tourism and manufacturing remain to * Cumbersome pernit process and * Simplify investment sanctioning for FDI. * Simplify the procedures for Regular implementation manufacturing, be harnessed effectively. regulatory frame for private sector * Eliminate barriers to entry. private sector entry into the review mining, and participation in rural sector. provision of rural services. tourism 90 oq r Development Objectives/Issues Diagnosis Strategy/Actions Adjustment/Benchmark Instruments Instruments ________________ ______________________ 1DM9 IFC~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~DA . EF (b) Privatization of Parastatals * Decades of parastatal monopoly and * Accelerate privatization (e.g., mines, state * Implementation of privatization. PRIVP FY98 TA and equity slow privatization. farms, industries). * Liquidation of unviable PPRP (TA) investment * Regularize purchase of minerals. parastatals. * Provide guidelines on sale/lease of land in the privatization of parastatals. * Simplify the process and strengthen institutions for privatization. * Resolve indebtedness of parastatals. (c) Expand Private Sector * Limited private sector base, due to * Promote investment in agro-busmess, mining, * Growth in industrial activities. Policy dialogue Investment past socialist policies. tourism and manufacturing. * Increased exports of tourism, TA in mining Seminar * Work with industry to adopt export support minerals and manufactured Equity services. goods. investment * Expand leasing and private management loan contracts. (d) Build Infrastructure Base * Inadequate infrastructure (roads, * Improve, enlarge and maintain road network. * Increase outlay on road Road subsector project Equity aviation, railway, power, * Expand private role in infrastructure. network. Policy dialogue investment telecommunications & shipping). * Improve regulatory environment of * Expand private role in Songo Songo --FY98 (power, monopolistic sectors. infrastructure. telecom, etc.) Expand Commercdal Banking and Investment Fintance Insolvent banks and inefficient * Political interference in bank * Restructure NBC. * Achieve profitability of NBC by FIDP Equity financial resource mobilization and activities, non-commercial lending * Privatize parts of NBC. end 1997, (TA)\l investment financial intermediation. and bad loans. * Restructure the People's Bank of Zanzibar * Improve profitability of PBZ. SACI\5 Venture (PBZ) * Expanded financial FIN/Plan FY99 Capital * Support private commercial banking. intermediation. Credit line * Expand leasing activities. Term loan Improve Environmental Manareenent Risks to environrnental sustainability. * Gaps in integrating sector policies * Prepare a prioritized program to enable the * Publicize priority environmental Policy dialogue Require Weak scientific data on environmental with environmental policies. implementation of NEAP and NCSSD policies for mining and tourism. EMP FYO I compliance degradation and uiadequate capacity * Inadequately defined and enforced objectives. * Publicize policies for wildlife with to formulate, implement and monitor property nghts and lack of incentives * Prepare legal guidelines for land use (tourism, management and hunting tariffs. environmental environmental policy, especially in for conservation including that of forestry, mining, agriculture, fishing). * Reform land tenure and water standards for mining, tourism and energy. wildlife. * Strengthen water rights. rights. IFC supported * Deficient urban water and sanitation * Strengthen urban water and sanitation services, * Increase access to clean Urban Project with TA projects management, especially for and drainage (see II). drinking water and adequate industrial purposes. waste disposal in urban as well * Inadequate rural water supplies and as rural areas, absence of strategy for wetland * Increase supply of serviced management. urban land. Liberalize Prices and Marketing Deregulation of petroleum pricing, * History of state monopoly and lack * Adopt deregulation with competitive imports * Liberalize petroleum imports imports and distribution. of competition. and flexible pricing system. and pricing. CD __________________________________________________________________ _______________________________6,x, Development Objectives/Issues Diagnosis Strategy/Actions Adjustment/Benchmark Instruments Instruments IDA'. IFC * Build port infrastructure, setup regulatory body SAC 1\5 and decontrol imports and prices. Petroleum Proj. 11. Socio-Econoanic Development Improve Market Inteeration and Access To and Poverty Reduction Productive Assets and Services Rural poverty declined from about * Inequities in access to credit. * Expand land tenure rights for women. * Improve women's right to land Policy dialogue Support 65% to about 51% during 1983-9 1, * Lack of market integration and * Develop rural credit schemes. ownership. RFP FYO0 projects and stagnated in the 1 990s. The isolation from markets for the poor, * Develop rural roads program and target * Improve access to agricultural RWSP FYOO sponsored by average poverty rate for the mainland selected areas with growth potential. inputs. ESW POV FY99 women is 42%, literacy is 68%; primary * Monitor markets of basic agricultural inputs enrollment has diminished; secondary and address input shortage problems. school enrollment is only 6-7% and . Support private sector participation in input infant mortality is high. supply. * Deregulate rural input supply market. Improve Effieney of Social Services and Target Vulnerable Groups (a) Education Sector aloain Shift public resources from tertiary to primary * lIncreasae prienay school gross Policy dialogue * Imbalance in intra-sector allocation. and semondary education enrolmeant to 85% by the year EPRP, HRDPil FY98\6 * Inadequate financing of non-wage * Raise nonwage recurrent cost financing. 2000 from 78% in 1995. SAC I costs. * Target secondary education for poor girls. * Raise girls' share of enrollment . Gendr ineuitiesin acm to Expand day, rather than boarding, schools,.n in Form IV to 30 % (from 41o services. . Increase conunity and school-level and in Form IV to 30 % (from * Limited private seor participation, participation and decision-making. . 27 lo). * Lack of decentralized decision- a Increase lower secondary making and participation by transition rates from 14% to parents/clients 20%. Tertiary education (see Capacity * Pilot project to decentralize Building). primary education and fund girls' secondary scholarships conpleted and evaluated. * Raise life expectancy at birth from 51 to 53 by 2000. * Reduce IMR from 84 to 80. * Reduce malaria deaths by 5%. (b) Health Sector * Shift resources to child and matemity care and * Increased rural access to Policy dialogue preventive health services. prumary health care. HSRP FYOO * Shift authority to local agencies. (c) Urban Sector * Strengthen technical, financial and operational * Extended access to good quality Policy dialogue capacity for water and sewerage management. water in 10 towns. Project with TA\2 * Improve sanitation in i towns. > CD5( Development Objectives/issues Diagnosis Strategy/Actions Adjustment/Benchmark Instruments Instruments IDA'* FC Decentralize * Encouraging community and local level * Progress in decentralizing Policy dialogue involvement in service delivery. service delivery. SACI Enlarge Private Sector Role * Raise more resources from private sector. r Continue encouraging private Policy dialogue institutions in service delivery. ESW * Raise contributions from user fees. 111. Expenditure Management Improve Expenditure Efficiency Elusive expenditure control; failure to * Inadequate private role in sector role * Expand role of beneficiaries in financing and * Meet SAC/ESAF conditions. Policy dialogue establish and enforce budget priorities in service delivery (see 1). managing service delivery. PER FY99 and sector ceilings; inadequate * Failure to establish priorities. * Reduce number of governiment establishments. ESW EX FY98 counterpart funds for projects, and * Weak cash management capacity. * Adopt a priority develop expenditure program. SAC I PER FY00 under-funding of programs. * Shift resources to rural sector. * Limit fund releases to revenue collections. * Payroll auditing. I1'. Institution and Capacity Eliminate Redundancies and Build Needed Building Capacitv Outmoded and centralized structure of * Overlapping government agencies * Use results of organizational and efficiency * Progress in reducing the size of PPRP(TA) public administration; slow evolution and functions, review to reduce/merge agencies. Govemment. of nesv types of regulatory and service * Shortage of high level skills and * Reduce the scale of regional government and institutions needed for a liberalized over-staffing at low level skills. strengthen local government. * Skilled staffing in PER FY99 economy; inadequate data base to * Need to improve wage incentives * Retrenchment, staff training and selective macroeconomic unit in MOF, Policy dialogue support policies and reduce disparities between hiring. improved medium term fiscal CSRP FY01 public and private sectors. * Adjust wages while limiting total wage bill at programming and auditing. an affordable level Technical and higher education * Inefficient system of higher * Undertake tracer studies on market for * Raise enrollments in line with HRDP2 FY00 training is inadequate. education and training (THET). graduates. skill requirements. * Rationalize existing system of about 300 * Improved relevance of institutions of THET. curriculum. * Support open university system. * Reform student loan scheme. Enhance Performance of Rerulatorv Functions * Weak capacity to enforce prudential * Continue strengthening capacity of unit in * Enforcement of prudential FIDP (TA) regulations and supervise financial Central Bank in bank supervision, regulations. sector institutions. * Lack of adequate system of * Review legal, regulatory and institutional * Sustained abolition of state Policy dialogue commercial laws and deficient legal framework for strategic sectors, especially monopolies and enhanced SACI system for de-monopolized telecommunications, power, harbors and competition. industries, shipping. Simplified and trasparen > regulations. Development Objectives/Issues Diagnosis Strategy/Actions Adjustment/Benchmark Instruments Instruments _________________ L~~~~~DA" IFC Improve Information Base * Inadequate collection of economic * Continue work on updating national income. * Timely reportmg and TA data. * Expand information base for industry and improvement in the quality of ESW CAP FY99 expo tn. economic data base. V. Governance Eliminate Opportunities For Rent-Seeldne And Enforce Accountability Need to strengthen civic groups, the * Need to enrhance the capability and * Training and seminars for joumalists. * Progress in eliminating tax Policy dialogue press and local government bodies. credibility of the press. * Strengthen the Prevention of Corruption evasion. TRA Project --FY98 Recurrent problem of questionable * Lack of mecharnisms to enforce Bureau and the Ethics Secretariat. * Single customs union with conduct in revenue administration, government accountability. * Involve beneficiaries in project activities. Zanzibar.\3 facilitated by discretionary tax * Lack of civic awareness. * Administrative decentralization and capacity * TRA in operation. exemptions. * Cumbersome procedures in building at the local level. administering fiscal incentives. * Sustained liberalization and deregulation. * Dissemination of information on * Enforce limits on discretionary fiscal anti-corruption. incentives. * Enhanced beneficiary role in service delivery. Workshops\4 * Stronger, more accountable EWo local govemment.ES * * Instnuments include recently approved projects and TA programs. I Swiss cofmancing 2 Cofsiancing by Germany, Ireland and the Netherlands. 3 IMF TA 4 EDI support. 5 Cofinancing by Norway (SAC FY97). 6 Cofinancing by ODA AGRP Agricultural Research Project ESW POV Poverty PSRC Parastatal Sector Reform Committee CSRP Civil Service Reform Project ESWR ESW on Rural Economy and Poverty RFP Rural Finance Project EPRP Education Planning and Rehabilitation Project FIN/PLAN TA RWSP Rural Water Supply Project EMP Environmental Managemnent Project FIDP Financial Institutions Development Project Songo Songo Power Project ESW CAP Capacity Building HRDPI Human Resource Development Project I TRA Tanzania Revenue Authority ESW AG Agriculture and Growth HSRP Health Sector Reform Project THET Technical and Higher Education Training ESW EX Expenditure and Cash Management. PER Public Expenditure Review ESW GR Sources of Growth PPRP Parastatal and Private Sector Reform Project ESW IN Adjustment and Industry PRIVP Privatization Project >J x .> Selected Economic Indicator Table High Case Scenario Low Case Scenario 1996 1997 1998 1999 2000 2006 1996 1997 1998 1999 2000 2006 Real GDP Growth 4.5% 4.8% 5.0% 5.2% 5.6% 6.3% 4.5% 3.8% 3.5% 3.1% 3.0% 2.5% Inflation (average per annum) 25.7% 15.0% 13.5% 10.0% 7.5% 7.0% 25.7% 15.0% 18.0% 18.5% 19.0% 30.0% Real Per Capita Growth Rates: Gross Domestic Product (GDP) 1.4% 1.6% 2.0% 2.2% 2.6% 3.3% 1.4% 0.7% 0.4% 0.0% -0.1% -0.6% Total Consumption 1.1% 0.7% 1.1% 1.5% 1.7% 0.8% 1.1% 0.6% 0.0% -0.4% -0.4% -1.4% Private Consumption 1.4% 0.6% 1.0% 1.5% 0.6% 0.8% 1.4% 0.5% 0.0% -0.5% -0.5% -1.5% Exportreal growth rate (MERCH FOB) 11.3% 10.5% 9.5% 8.5% 9.7% 12.5% 11.3% 3.3% 3.3% 3.3% 3.4% 3.4% Import real growth rate (MERCH CIF) 6.6% 5.0% 5.0% 5.3% 5.6% 6.4% 6.6% 3.0% 2.7% 2.3% 2.2% 1.9% CAB in percent of GDP LC -17.3% -17.2% -16.0% -15.1% -13.8% -7.7% -17.3% -15.8% -16.8% -17.6% -16.8% -14.0% Non interest current account -8.4% -9.1% -8.5% -8.1% -7.4% -3.1% -8.4% -8.0% -9.4% -10.5% -9.9% -7.5% Debt and Debt Service (LT+ST+IMF): Total DOD (US$M) 7490 9116 8219 8450 8705 10205 7490 8862 8195 8938 9754 16054 Total Debt/GDP 146.4% 167.1% 140.4% 133.7% 126.9% 90.6% 146.4% 163.5% 142.9% 147.4% 151.9% 186.3% Debt Service (US$M) 473 395 361 354 397 721 473 377 340 334 365 640 DebtService/TotalExports 44.9% 33.6% 27.8% 24.7% 24.7% 21.5% 44.9% 33.6% 28.6% 26.3% 26.7% 32% Debt Service / GDP 9.2% 7.2% 6.2% 5.6% 5.8% 6.4% 9.2% 7.0% 5.9% 5.5% 5.7% 7.4% Total Revenues/GDP 16.0% 16.1% 16.4% 16.7% 17.1% 18.5% 16.0% 15.5% 15.4% 15.2% 15.1% 14.8% Total Expenditures/GDP 20.9% 19.8% 19.6% 18.6% 18.7% 18.3% 20.9% 21.4% 21.8% 21.3% 21.5% 28.1% Government Deficit(-)/GDP -4.9% -3.7% -3.1% -1.9% - 1.6% 0.3% -4.9% -5.9% -6.4% -6.2% -6.3% -13.3% Investment/GDP 26.8% 26.9% 27.0% 27.2% 27.2% 28.0% 26.8% 25.0% 24.8% 24.6% 24.2% 24.0% Gross Domestic Savings/GDP 9.7% 11.4% 12.5% 13.4% 14.5% 21.2% 9.7% 9.8% 10.4% 10.9% 11.4% 14.3% 0 > Annex A2.1 Page 1 of 2 Status of Bank Group Operations in Tanzania IBRD Loans and IDA Credits in the Operations Portfolio (as of March 31, 1997) Difjerence Last Amount between supervision rating lb in USS millions actual and Develop- expected ment Implemen- Loan or Fiscal Cancel- Undis- disburse- objec- tation Credit no. year Borrower Purpose IBRD IDA lations bursed ments tives progress Twenty-seven (27) Loans and eighty-one (81) 355.6 1733.5 15.4 Credits closed \a Cr. 19700 1989 Tanzania Nat. Agricultural & Livestock Research 8.3 1.8 1.1 S S Cr. 20950 1990 Tanzania Ports Modernization 37.0 13.3 9.7 S S Cr. 20980 1990 Tanzania Health & Nutrition 47.6 24.3 21.0 S U Cr. 21370 1990 Tanzania Education Planning & Rehabilitation 38.3 7.0 6.6 11.0 S S Cr. 21490 1990 Tanzania Roads 1 180.4 52.2 27.9 S U Cr. 22020 1991 Tanzania Petroleum Rehabilitation 44.0 37.6 34.6 S S Cr. 22670 1991 Tanzania Railways Restructuring 76.0 43.1 19.6 U S Cr. 23350 1992 Tanzania Forest Resources Management 18.3 5.9 -1.8 S S Cr. 24130 1993 Tanzania Financial & Legal Management 20.0 9.6 8.3 S S Cr. 24860 1993 Tanzania Telecommunications III 74.5 50.6 17.5 S U Cr. 24890 1993 Tanzania Power VI 200.0 84.6 -17.1 S S Cr. 25070 1993 Tanzania Private & Public Sector Management 34.9 17.0 4.2 S S Cr. 25370 1994 Tanzania Agricultural Sector Management Project 24.5 13.4 5.1 S S Cr. 25980 1994 Tanzania Roads II 170.2 156.1 71.7 S U Cr. 26480 1995 Tanzania Mineral Sector Development 12.5 8.7 1.8 S HS Cr. 27710 1996 Tanzania Financial Inst. Development 10.9 8.4 2.4 S S Cr.28670 1996 Tanzania Urban Sector Rehab 105.0 100.0 4.2 HS S Cr. 29080 1997 Tanzania Lake Victoria Env 10.1 9.7 0.0 HS S Cr. 29000 1997 Tanzania River Basin Mgmt Sm 26.3 22.5 -1.1 Cr. 28990 1997 Tanzania Nat. Ext. Proj. Ph. II 31.1 28.8 0.7 Total IBRD and IDA 355.6 2903.3 of which repaid 311.9 102.9 Total now held by IBRD and IDA 43.6 2800.4 Amount sold 6.29 of which repaid 6.29 Total undisbursed 694.1 \a Includes East African Community loans. \b Rating scale: HS denotes 'Highly Satisfactory'; S denotes 'Satisfactory'; U denotes 'Unsatisfactory' and HU denotes 'Highly Unsatisfactory' Annex A2.1 Page2 of 2 Tanzania STATEMENTOF IFC's Committed and Disbursed Portfolio As of March 31, 1997 In Millions US Dollars Committed Disbursed ---- ---IFC------------- -------IFC------------- FY Company Loan Equity Quasi Partic Loan Equity Quasi Partic Approval 1989 TASCO .88 0.00 0.00 0.00 .88 0.00 0.00 0.00 1991 Mufindi Tea 1.30 0.00 0.00 0.00 1.30 0.00 0.00 0.00 1991 TPS Zanzibar 1.15 .16 .10 0.00 .86 .16 .10 0.00 1993/96 AEF Tanganyika 0.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 1993 TPS (Tanzania) 7.00 1.06 1.04 0.00 7.00 .87 1.04 0.00 1994 AEF Moshi Lthr 0.00 .25 0.00 0.00 0.00 .19 0.00 0.00 1994 AEF Nomad Safari .12 0.00 0.00 0.00 .12 0.00 0.00 0.00 1994 AEF Raffia Bags .50 0.00 0.00 0.00 .50 0.00 0.00 0.00 1994 Eurafrican Bank 3.00 .73 0.00 0.00 0.00 .73 0.00 0.00 1994 Tanzania Brewery 0.00 6.00 0.00 0.00 0.00 6.00 0.00 0.00 1994 ULC Leasing 3.00 .95 0.00 0.00 1.50 .57 0.00 0.00 1995 AEF MIC Tanzania .80 0.00 0.00 0.00 .80 0.00 0.00 0.00 1995 AEF Tan Leather 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 1995 AEF Tanbreed .90 0.00 0.00 0.00 .90 0.00 0.00 0.00 1996 AEF A&K Tanzania .38 0.00 0.00 0.00 .38 0.00 0.00 0.00 1996 AEF Contiflora .40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 AEF Milcafe .35 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1996 AEF Zainab Grain 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 1997 AEF Aquva Ginner 1.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1997 AEF Hort. Farms .80 0.00 0.00 0.00 .80 0.00 0.00 0.00 1997 AEF Pallsons .55 0.00 0.00 0.00 .55 0.00 0.00 0.00 Total Portfolio: 25.13 9.15 1.14 0.00 18.09 8.52 1.14 0.00 Pending Commitments 1997 * AEF AQUVA 1.50 0.00 0.00 0.00 GINNER 1995 * AEF-ONE EARTH .70 0.00 0.00 0.00 1995 * AEF-TRADECO .93 0.00 0.00 0.00 1996 * IHP LTD. 1.65 .60 0.00 0.00 Total Pending Commitment: 4.78 0.60 0.00 0.00 Annex A2.2 Tanzania - Selected Indicators of Bank Portfolio Performance and Management Indicator FY94 FY95 FY96 FY97 I a Portfolio Performance Number of projects under implementation 23 21 22 22 Average implementation period (years) 3.5 4.0 4.6 4.7 Percent of projects rated U or HU (%) \b Development objectives 8.7 9.5 4.6 4.6 Implementation progress 13.0 9.5 22.7 18.2 Canceled during FY (US$ million) 1.7 3.3 0.0 14.4 Disbursement ratio (%) \c 12.0 12.6 18.4 13.2 Disbursement Lag (%) \d 9.5 23.6 27.9 30.4 Memorandum item: % of completed projects rated unsatisfactory 59.3 53.3 54.1 54.1 Portfolio Management Supervision resources (total in US$ OOOs) 1463.2 1541.6 2158.8 1493.6 Average supervision (US$ 000/project) 63.6 73.4 98.1 67.9 Supervision resources by location (in %) 100.0 100.0 100.0 100.0 Percent headquarters 84.4 72.1 57.45 59.8 Percent resident mission 15.6 27.9 42.55 40.2 Supervision resources by rating category (US$ 000/project) \d Projects rated HS or S \b 63.7 77.1 87.9 59.7 Projects rated U or HU \b 63.4 38.1 132.9 104.9 \a As of March 31, 1997. \b Rating scale: HS denotes 'Highly Satisfactory'; S denotes 'Satisfactory'; U denotes 'Unsatisfactory' and H4U denotes 'Highly Unsatisfactory'. \c For investment projects only. \d For all projects comprising the Bank's country portfolio, the percentage difference between actual cumulaitive disbursements and the cumulative disbursement estimates as given in the 'Original SAR/PR Forecast' or, if the loan amounts have been modified, in the 'Revised Forecast'. The country portfolio disbursement lag is effectively the weighted average of disbursement lags for projects comprising the Bank's country portfolio, where the weights used are the respective project shares in the total cumulative disbursement estimates. Annex A2.3 Portfolio Improvement Indicators: FY97 Targets FY96 Actual FY97 Targets FY97 Actual (as of 6/30/96) Performance as of 2/28/97 1. Project Rating * % of problem projects 22.7 % (5) 9.5% \a (2) 23.8% (5) 2 Disbursement Ratio * aggregate disbursement ratio 18.4 % at least 20.0 % 17.7% * average disbursement ratio 25.0 % at least 25.0 % 32.7% 3. Time blw Board Approval and The portfolio average All new projects 2 of the three new Effectiveness = 7.2 months (6.5 for a become effective projects that became new project) within 6 months. effective this FY met the target; Lake Victoria became effective 8 months after board approval; the hold-up for this regional operation was not due to any issue on the Tanzanian front but rather due to delays in the appointment of Ugandan Project staff. 4. Audit Conpliance * % overdue audits by end FY \b 18.6 % 0.0 % 20.8% \b * % on-time audits \c 48.6 % 70.0 % 52.0% * % qualified audits \c 5.7 % 3.0 % * delays in audits during FY \c 11.4 % of received None of the 0.0 % of the received audits were late by received audits are audits are late by more more than 4 months. late by more than 3 than 3 months. months. Notes: \a Assuming 23 projects in total, the PIP put these targets at 8.7 % and 30.4 %for problem and at risk projects, respectively. These targets have been modified to reflect the 21 active projects in the portfolio. lb Of total audits expected during the fiscal year. 21 audits from a total of 101 were overdue at 2/28/97; of these 21 -- 8 reports (or 40% of the overdue reports) had been submitted to the Auditor General 's office. Xc Of audits which are actually received; however of the overdue audits, three were overdue by 8 months or more and the remaining were overdue by 2 months. Annex A3.1 TANZANIA - Bank Group Fact Sheet, FY94-FY99 IBRD/IDA Lending Program, FY1994-FY2000 Past Current Planned Category FY94 FY95 FY96 FY97 FY98 FY99 FY00 Commitments (US$m) 194.7 12.5 115.9 167.5 [150-300 per year] a/ Sector (%) Agriculture 12.6 40.3 15.2 Mining and other extractive 100.0 Finance 9.4 21.7 Power 84.7 Multisector 59.7 8.5 48.4 34.8 Transportation 87.4 Urban development 90.6 Human resources 6.8 36.4 43.5 Public sector management Environment Other non-sector-specific TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Lending instrument (%) Adjustment loans 0.0 0.0 0.0 59.7 0.0 48.5 27.0 Specific investment loans and others 100.0 100.0 100.0 40.3 100.0 51.5 73.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Disbursements (US$m) 216.8 126.5 166.9 100.0 160.6 107.3 57 Adjustment loans 125.1 7.8 0.0 0.0 0.0 0.0 0.0 Specific investment loans and others 91.7 118.7 166.9 100.0 160.6 107.3 57 Repayments (US$m) 45 42 44 30 39 42 39 Interest (US$m) 26 25 24 20 22 22 22 Sources: IBRD/IDA Lending program; MIS; LOA data as of 03/31/97. a! Average $200 peryear, bwae cave. Annex A3.2 TANZANIA - Summary of Economic and Sector Work (US$ thousands) Category FY95 FY96 FY97 FY98 FY99 FYOO Agriculture -- -- -- --x Industry -- -- 30.1 -- -- x Finance -- 115.0 26.0 x -- -- Water 80.4 10.1 -- -- -- -- Education 108.0 68.0 34.4 -- -- -- Population, health, nutrition -- -- 1.5 -- -- -- Social sectors 40.0 48.0 -- x -- -- Environment -- -- 85.3 -- -- -- Other non-sector-specific 20.0 70.0 119.6 x x -- Other economic work 814.0 533.1 328.7 -- -- -- Poverty Assessment/CEM 394.0 145.0 -- -- x -- Public Expenditure Reviews 160.0 110.0 -- x x x Export Promotion 40.0 99.0 -- -- Policy Framework 80.0 78.1 -- -- General 140.0 101.0 -- -- Total 1062.4 844.2 625.6 Note: Based on Departmental All-in-Cost (including overheads). ESW includes CAS and PFP. "X" indicates ESW work planned for FYs98-00. Annex A3.3 TANZANIA - IFC and MIGA Program, FY96-FYOO FY96 FY97 FY98-00 IFC approvals (US$m) 5.0 9.6 40.0 Sector (%) Agribusiness 35.0 30.0 30.0 Capital markets 20.0 Infrastructure 28.0 30.0 Tourism 9.0 10.0 Transport 10.0 Manufacturing 46. 42 01 Investment instrument (%) Loans 88.0 80.0 70.0 Equity 12.0 20.0 30.0 Quasi-equity .. .. TOTAL 100.0 100.0 100.0 MIGA guarantees (US$m) 8.3 8.3 8.3 MIGA commitments (US$m) .. Annex A4 Page 1 of 3 Tanzania - Key Economic Indicators Actual Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 National accounts (as % GDP at current market prices) Gross domestic product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculturea 49.8 49.9 50.2 50.2 53.0 53.2 53.2 53.0 Industry' 13.5 14.6 15.2 14.8 12.9 11.5 11.4 11.4 Servicesa 25.2 25.7 26.2 26.7 24.9 25.3 25.0 25.2 Total Consumption 90.4 96.0 97.5 98.3 95.8 90.8 90.3 90.1 Gross domestic fixed 29.7 28.9 28.4 25.7 23.9 23.2 22.4 21.7 investment Government investment 3.0 2.8 3.7 4.1 3.8 3.8 3.8 3.8 Private investment 29.6 28.9 27.7 24.6 24.0 23.8 23.4 23.2 (includes increase in stocks) Exports (GNFS)b 12.3 13.6 18.0 23.0 24.0 19.8 19.9 20.4 Imports (GNFS) 35.3 41.3 46.9 50.1 46.3 36.4 35.4 34.9 Gross domestic savings 9.6 4.0 2.5 1.7 4.2 9.2 9.7 9.9 Gross national savingsc 19.4 13.3 11.1 8.0 8.6 8.7 8.1 8.6 Memorandum items Gross domestic product 3644 3415 3153 3280 3974 5134 5431 5773 (US$ million at current prices) Gross national product per 105.0 130.0 155.0 145.0 130.0 130.0 150.0 150.0 capita (US$, Atlas method) Real annual growth rates (%, calculated from 1991 prices) Gross domestic product at 5.7% 3.8% 3.9% 3.5% 4.5% 4.4% 4.0% 4.0% market prices Gross Domestic Income 3.7% 2.9% 5.8% 3.6% 2.4% 4.6% 3.9% 3.9% Real annual per capita growth rates (%, calculated 0.1 from 1991 prices) Gross domestic product at 2.5% 0.7% 0.9% 0.6% 1.5% 1.4% 1.0% 1.1% market prices Total consumption -0.7% 2.0% 2.0% -2.5% -3.4% 0.5% 0.1% 0.1% Private consumption -0.7% 2.3% 2.3% -2.1% -2.8% 0.5% 0.1% 0.1% (continued) Annex A4 Page 2 of 3 Tanzania - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Balance of Payments (US$m) Exports (GNFS)b 528.1 548.6 610.5 848.0 940.5 1017.3 1083.5 1177.0 Merchandise FOB 393.6 414.1 411.4 485.9 592.9 658.0 696.1 757.3 Imports (GNFS)b 1569.3 1885.0 2017.2 2241.7 1817.6 1870.6 1921.3 2014.0 Merchandise FOB 1174.1 1227.7 1250.9 1351.9 1283.2 1317.9 1341.9 1399.3 Resource balance -1041.2 -1336.4 -1406.7 -1393.7 -877.1 -853.4 -837.8 -836.9 Net current transfers 407.7 456.4 463.2 465.0 416.6 443.0 501.7 510.0 (including official current transfers) Current account balance -458.3 -478.8 -621.8 -757.9 -398.7 -371.4 -291.7 -282.7 (after official capital grants) Netprivate foreign direct 10.0 15.0 61.7 63.0 67.3 70.0 75.0 80.0 investment Long-term loans (net) 60.7 45.9 -182.8 -150.7 -50.7 31.8 206.2 192.7 Official 173.4 262.1 95.1 159.5 0.5 46.3 224.8 166.6 Private -112.7 -216.2 -277.9 -310.2 -51.2 -14.5 -18.7 26.1 Other capital (net, including 450.6 520.1 619.9 952.6 428.4 279.1 37.4 71.4 errors and omissions)*** Change in reservesd -63.0 -102.2 123.1 -107.0 -46.3 -9.5 -26.9 -61.4 Memorandum items Resource balance (% of -28.6% -39.1% -44.6% -42.5% -22.1% -16.6% -15.4% -14.5% GDP at current market prices) Real annual growth rates (1991 prices) Merchandise exports 3.2% 5.7% 11.4% 6.0% 24.1% 11.3% 4.7% 7.0% (FOB) Primary 2.6% -14.4% 19.8% -10.2% 5.8% 17.7% 8.0% 12.3% Manufactures -29.9% -18.2% -16.7% -13.0% -9.1% -4.3% 2.5% 2.7% Merchandise imports -0.4% 1.5% 1.5% 23.2% -21.2% 5.3% 3.9% 3.6% (CIF) Public finance (as % of GDP at current market prices)" Current revenues 16.7 17.1 12.8 14.5 14.5 15.0 15.8 16.9 Current expenditures 16.9 16.0 18.8 17.0 17.6 15.8 14.6 15.3 (Continued) Annex A4 Page 3 of 3 Tanzania - Key Economic Indicators (Continued) Actual Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Current account surplus (+) -0.3 1.1 -6.0 -2.5 -3.1 -0.9 1.2 1.6 or deficit (-) Capital expenditure 2.1 3.2 5.1 4.5 3.8 4.0 3.6 3.7 Foreign financing 1.1 2.2 2.3 2.9 5.2 0.3 2.8 4.6 Monetary indicators M2/GDP(atcurrentmarket 19.9 22.0 25.2 28.1 32.8 25.0 23.3 23.3 prices) Growth of M2 (%) 26.9 40.5 43.9 45.9 59.8 0.0 11.3 11.8 Private sector credit growth/ 63.7 -4784.7 49.3 158.8 -53.0 27.2 -55.9 -60.5 total credit growth (%) Price indices( 1991 =100) Merchandise export price 100.0 104.4 103.1 107.4 136.1 105.3 106.4 108.2 index Merchandiseimportprice 100.0 105.6 100.8 88.7 117.8 104.3 102.2 102.9 index Merchandisetermsoftrade 100.0 98.8 102.3 121.1 115.5 101.0 104.1 105.2 index Real exchange rate 100.0 96.6 93.1 76.2 62.3 48.5 48.5 48.5 (US$/LCU), Real interest rates Consumer price index 28.7% 21.8% 25.3% 30.2% 30.3% 19.0% 13.8% 7.2% (% growth rate) GDP deflator 12.6% 22.6% 21.0% 26.4% 30.8% 25.7% 15.0% 7.5% (% growth rate) *** Includes accumulation of arrears. a. If GDP components are estimated at factor cost, a footnoote indicating this fact should be added. b. "GNFS" denotes "goods and nonfactor services." c. Includes net unrequited transfers excluding official capital grants. d. Includes use of IMF resources. e. Central government. f. "LCU" denotes "local currency units." An increase in US$/LCU denotes appreciation. Annex A5 Tanzania - Key Exposure Indicators Actual Estimate Projected Indicator 1991 1992 1993 1994 1995 1996 1997 1998 Total debt outstanding and 6688.6 6781.4 6962.5 7441.5 7428.5 7346.5 7631.2 7883.0 disbursed (TDO) (US$m)' Net disbursements (US$m)' 133.4 283.9 170.2 477.6 29.1 119.2 294.7 250.4 Total debt service(TDS) 207.8 236.9 218.0 168.9 338.9 474.3 381.2 342.7 (US$m)a Debt and debt service indicators (°/e) TDO/XGSb 1253.7 1219.9 1115.2 860.6 775.8 708.2 694.9 661.5 TDO/GDP 183.5 198.6 220.8 226.9 186.9 143.1 140.5 136.6 TDS/XGS 39.0 42.6 34.9 19.5 35.4 45.7 34.7 28.8 ConcessionairDO .. .. .. .. 62.2 63.4 65.5 66.2 IBRD exposure indicators (%) IBRD DS/public DS 27.5 19,5 21.0 25.8 12.4 6.8 6.3 5.3 Preferred creditor DS/public 64.5 43.2 42.2 66.0 34.9 26.1 31.8 42.9 DS IBRD DSIXGS 10.5 8.1 7.2 4.9 4.3 3.1 2.2 1.5 Share of IBRD portfolio IFC (US$m) ** Loans (commitment) 2.5 0.0 7.5 18.5 2.7 2.1 2.9 Equity and quasi-equity /c 0.3 0.0 2.1 7.9 0.0 0.0 0.0 MIGA MIGA guarantees (USSm) .. .. .. .. .. 8.3 8.3 8.3 ** Refers to approval Fiscal Year a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short- term capital. b. "XGS" denotes exports of goods and services, including workers' remittances. c. Includes equity and quasi-equity types of both loan and equity instruments. Annex A6 Tanzania Page I of 2 tete Samte re e ! twp Nx t As_t_ single_year _ree__ Suq rihzer Unlit of enrura,e Saharan Low_ owuome Idicator measure 1970-75 1980485 1989.94 Africa income rvouu Priority Poverty Indicators POVERTY Upper poverty line local curr. .. .. .. Headcount index % of pop. .. .. .. Lower poverty line locaL curr. .. .. .. Headcount index % of pop. .. .. .. GNP per capita USS 170 290 90 500 390 1,670 SHORT TERM INCOME INDICATORS Unskilled urban wages local curr. .. .. .. .. - Unskilled rural wages Rural terms of trade Consumer pnce index 1987= 100 8 58 591 Lower income Food' Urban .. 57 337 Rural SOCIAL INDICATORS Public expenditure on basic social services % of GDP .. Gross enrollment rtios Primary - %school age pop. 53 75 70 71 105 104 Male 62 76 71 77 112 105 Female 44 74 69 64 98 101 Mortaliry Infant mofality per thou. live births 125 98 84 92 58 36 Under 5 mroalty .. .. 134 161 101 47 lmmunizauion Measles % age group .. 66.0 75.0 51.4 86.2 77.4 DPT . 67.0 79.0 53.5 89.1 8120 Child malnutriton (under-5) .. .. 28.0 .. 38.2 Ufe expectancy Tot.a years 46 51 511 52 63 67 Female advantage 3.2 3.5 2.8 3.5 2.4 6.4 Total ferulity rate births per woman 6.8 6.7 5.8 5.9 3.3 2.7 Matemal moraity rate per 100.000 live births .. 370 748 Supplementary Poverty Indicators Expenditures on social secunry % of total gov t exp. 0.5 0.7 *- Social secunry coverage % econ. active pop. .. .. .. Access to safe water total % of pop. 39.0 52.6 52 1 Urban 88.0 88.0 75.0 Rural -36.0 42.0 46.4 Access to health care *- 73.0 93.0 b Population growth rate GNP per capita growth rate Development diamond' I 6~- (averge annual, percent) 1. (averge annual. percent) Lfexcx y : Ii~~~~~~~~ ______ ~~~~~~~~~~~~~~~~~GNP Gross ~~~~~ t ~~~~~~~~~Capita crisllitent 0 2- 1970.75 1980-85 1.989-94 1970-75 1980-85 1989-94 Access; to safe water Tanzania Tanzania - Low-income Low-income . See the technical nots. p.387. b. The development diamond. based on four key indicazmora shows the averge level of development in the o':uury compared with its incomne group. See the inuoduction. Annex A6 Tanzania Page 2 of 2 Most Samu re g n Lrr Ness Latesit single yeat reer.n SU hj hiher unit of -stimate Saharan Low- utcame Indicator mesGure 1970-75 1989045 1989-94 Africa income grom" Resources and Expenditures HUMAN RESOURCES Population (mre=1994) thousandi 15.900 21.797 28.817 571.902 .1E2.221 1.0916.81 Age dependency rauo ratio 1.01 0.98 0.94 0.94 0.66 0.63 Urban %'dfpop. 10.1 17 6 23.7 30.6 28.3 55.9 Pnpulauon growth rate annual % 3.0 3.2 2.9 2.8 1.7 1.3 Urban 10.0 6.5 6.0 4.9 3.2 2.7 Labor force thousands 8.347 11.208 14.796 254.250 1,590.533 488.647 Agncuiture % of labor force 88 85 84 65 67 36 Indusuty 4 5 5 9 14 26 Female 50 S0 49 41 39 40 Labor paricipauon rates Totai %o of pop. 52 51 51 44 50 45 Female 26 26 25 37 41 36 NATURAL RESOURCES Area thou. sq. km 945.09 945.09 945.09 24.273.83 40,391.42 40.594.43 Density pop. per sq. km 16.82 23.06 29.63 22.90 77.44 26.66 Agricultura. land % of land area 42.75 42.90 43.57 50.61 52.42 41.05 Change in agnicultural land annuai % 0.03 0.03 0.00 0.01 0.16 -1.38 Agricultural land under irrigaLion % 0.14 0.34 0.39 0.86 17.84 11.40 Forests and woodland thou. sq. km .. 379.36 335.55 5.323.14 7.632.00 5.969.25 Defores:ation (net) ochange. 1980-90 .. 1.22 INCONIE Housenoid income Share of top 20% of households %7 of income 53 .. 45 Share of bottom 40% of housenoids 14 . 18 Share of bottom 20% of households 5 7 EXPENDITURE Food To of GDP . 55.0 .. Staples .. 27.4 .. Meat. flsh. milk. cheese. eggs .. 9.4 .. Cereal imports thou. metrc tonnes 461 412 215 14,051 36.922 68,936 Food aid in cereals 148 '25 35 5.079 8.516 5,771 Food production per capita 1987 = 100 103 106 86 102 115 102 Fertilizer consumpuon kg/ha 0.8 1.0 1.3 5.3 58.5 46.3 Share of agnculture in GDP, % of GDP . .. 45.9 52.0 19.5 27.6 14.0 Housing % of GDP 6.9 .. Average household size persons per household .. .. .. Urban Fixed investment: housing % of GDP 2.1 1.7 .. Fuel and power 9o of GDP *- 2.2 .. Energy consumpuon per capita kg of oil equiv. 52 35 34 251 373 1.602 Housenoids with electriciry Urban % of househoirs .. .. .. Rural Transport and communication 5 of GDP .. 1.8 .. Fixed investment transport equipment 3.7 2.5 .. Total road length thou. km 40 B2 88 INVESTIMENT IN HUMAN CAPITAL Health Populauon per physician persons 22.540 28.271 .. .. .. 3.064 Population per nurse 3.403 7.988 .. Populauion per hospital bed 768 981 1.316 1.034 592 Oral rehydyrauon therapy (under-5) % of eases .. .. 83 37 38 Education Gross enrollment ratios Secondary % of school age pop. 3 3 5 24 48 63 Female 2 2 5 23 42 62 Pupil-teacher rauo: primary pupils per teacher 54 34 37 40 39 Pupili-eacher rauo: secondary 20 19 19 .. 20 Pupils reaching grade 4 % of cohort 91 89 87 Repeater rate: pnrmary % of total enroll 0 1 5 Illiteracy 9o of pop. (age 15+) .. .. 32 53 35 Female % of fem. (age 15+) .. .. 43 54 46 Newstaoer circulation per thou. pop. 4 5 8 12 .. 236 World Bank International Economics Department. April 1996 'Data cover mainland Tanzania only. Annex A7 Tanzania at a glance Page 1 of 2 Sub- POVERTY and SOCIAL Saharan Low- Tanania Africa Income Devsopme.t diamond Populaton mid-1995 (million) 20.6 5S9 3.168 GNP per capita 1995 (USS) 130 490 460 Life expectancy GNP 1995 (billions USS) 3.8 289 1,466 Avorage annual growth, 1990-9 Population (%) 2.9 2.8 1.8 GNP Gross Labor force (%) 2.8 2.8 1. per primary Most recent estmamt (latest year available since 1989) capita enrollment Poverty: headcount index (% of population) 50 Urban populaton (% of total population) 24 31 29 Life expectancy at birth (years) 51 52 63 Infant mortality (per 1,000 1e births) 83 92 58 Access to safe water Child malnutrition (% of children under 5) 28 .. 38 Access to safe water (% of populaton) 40 47 75 Illiteracy (% of population age 15+) 32 43 34 Tanzania Gross primary enrollment (% of school-age population) 70 71 105 Male 71 77 112 Lowincome group Female 69 64 08 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1975 1986 1994 1995 Economic natlos- GDP (bDlions US$) 2.8 5.5 3.4 4.0 Gross domestc lnvestmenVGDP 21.1 17.7 31.3 31.0 Exports of goods and non-factor services/GDP 19.8 7.7 23.8 28.0 Openness of economy Gross domestic savings/GDP 8.6 8.7 3.3 4.7 Gross natonal savings/GDP .. 9.8 12.0 9.1 Current account balance/GDP -12.4 -9.3 -26.7 -16.2 Interest payments/GDP 0.6 0.5 1.8 1.8 Savings ' Investment Total debt/GDP 49.0 76.1 220.3 196.0 Total debt srice/exports 7.3 38.8 20.4 11.6 Present value of debt/GDP .. .. 160.5 Present value of debtexports .. 634.6 . Indebtedness 197544 1056-94 1994 1995 190B04 (average annual growth) Tanzania GDP 1.7 4.0 3.7 3.9 4.8 GNP per capita . Lowincome grup Exports of goods and nfs .. .. STRUCTURE of the ECONOMY 1975 1985 1994 1995 (% of GDP) Growth rae of output and Investment (%l Agriculture 41.2 52.1 58.9 56.8 s Industry 22.0 12.0 18.8 16.8 Manufacturing 10.4 7.9 7.8 7.8 Services 36.6 35.9 26.3 26.3 2 Private consumpton 74.1 74.9 88.4 85.1 1 go 91 92 93 94 85 General govemment oonsumption 17.2 16.4 8.3 10.3 Imports of goods and non-factor services 32.3 16.8 51.8 54.4 GDI --GDP 197544 1905-94 1994 1995 (average annual growth) Agriculture 2.0 5.4 3.5 4.0 Industry -0.6 6.8 2.9 4.3 Manufacturing -0.8 2.8 -0.9 4.5 Services 2.4 1.3 4.1 4.1 Private consumption .. General govemment consumpton .. Gross domestic investment 4.4 27.3 3.7 2.9 Imports of goods and non-factor services . Gross national product 4.1 4.9 Note: 1995 data are preliminary estimates. The diamonds show four key indicators in the country (In bold) compared with its income-group average. If data are missing, the diamond will be Incomplete. Annex A7 page 2 of 2 Tanzania PRICES and GOVERNMENT FINANCE 1975 1985 1994 1995 Inaln(b Domestic prices Inflation (% change) so00 Consumer prces 26.1 33.3 30.2 34.7 60 Implicit GDP deflator 15.3 22.8 22.8 340 40 Govemment finance a/ 20 (% of GDP) 0DI 9 934_ Current revenue 24.4 18 5 15.0 14.5 90 91 92 93 94 95 Current budget balance -1.2 -2 3 -3.4 -4.3 _GDPdef. ---CPI Overall surplus/deficit -1.6 -7.8 -e.0 -11 5 TRADE 1975 198S 1994 1995 Export and Import levels (mill. US$) (millions US$) Total exports (fob) 379 326 486 600 2.000 Coffee 66 119 90 177 Cotton 43 27 92 85 1.500 Manufactures 74 33 89 79 1 Total imports (cii) 775 999 1,589 980 1.0 Food 137 78 130 1 8 Fuel and energy 92 223 149 157 Capital goods 241 434 729 394 o Export price index (1987=100) 96 126 9a 90 91 02 03 94 9s importpriceindex(1987=100) .. 8S 122 . E Exports tlmpolts Terms of trade (1987=100) .. 114 103 L=_ BALANCE of PAYMENTS 1975 1986 1994 1995 F (millions US$) Currnt account balance to GDP ratlo (-) Exports of goods and non-factor services 482 445 855 1,072 0 Imports of goods and non-factor services 811 1,016 2,068 2,013 99 9o 917 9-2 -93 94 .95 Resource balance -329 -571 -1,213 -941 Net factor income -3 -93 -154 -139 -o1 Net current transfers 12 148 465 437 Current account balance, *20 - before official transfers -321 -516 -902 -644 Financing items (net) 306 531 892 611 Changes in net reserves 15 -14 10 33 -30 Memo: Reserves including gold (mill. US$) 65 16 308 255 Conversion rate (localUS$) 7.4 17.9 477.6 624 1 EXTERNAL DEBT and RESOURCE FLOWS 1975 1986 1994 1995 (millions US$) ComposItlon of total debt, 1995 (mill. USS) Total debt outstanding and disbursed 1,264 4,206 7,442 7,802 A IBRD 80 268 114 87 G 87 IDA 81 568 1,998 2,182 1 061 Totaldlebtservir,e 36 173 174 195 4s4 2182 IBRD 5 40 42 43 IDA 3 7 25 28 Composition of net resource flows Official grants 128 267 564 620 c Official creditors 248 55 160 148 223 Private creditors 5 46 12 51 Foreign direct investment 0 14 0 27 E 504 Portfolio equity 0 0 0 0 3291 World Bank program Commitments 40 45 183 11 A - IBRD E - Bilateral Disbursements 60 46 183 160 fB - DA 0 - Other multilateral F - Private Principal repayments 3 27 44 46 C - IMF G - Short-term Netflows 57 18 139 114 Interest payments 5 20 24 25 Net transfers 52 -1 115 89 International Economics Department and AF2CO staff estimates 8120/96 Note: Economic data refer to mainland Tanzania only. a. Govemment finance fiscal year (July to June). MAP SECTION 6 _3A, , __ -- 362 38 ( RWANDA 1 > KENYA WANZA~~~~~~~~~~~~~~~~~~~~~~~~~~~~NAI AFRICA BURUNDI Ar 0 Tabora S9ngido Z AIRE 70 [ D j - NTERNA11ONAI BO'UReserN;-DA R " INDIAN denominohns ond or ~ - k MeYtat, =. - 42\9 OC,EAN othe inowins;nC /-_> , X1 v IMOROGORO ~ ~ X 'e W orld34. -.t oijaotoo soTANZAN IA Lina --MAIN POADS ()REGION CAPITALS < \t-g > +RAILROADS NATIONAL CAPITAL / - RiVERS P EGION BOUNDARIES t Sne -- M W R > - ~~~~~~INTERNATIONAL BOUNDARIES RUVUMA ii z~~ ~ ~~~~~~ INlo 200 ,r o o rvLo