20319 March 14, 2000 THE INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TANZANIA Assessment of the Interim Poverty Reduction Strategy Paper Prepared by the Staffs of the Intemational Development Association and the International Monetary Fund Approved by Callisto Madavo and Masood Ahmed (IDA) and Anupam Basu and Anthony Boote (IME) March 14, 2000 1 In recent years, the government of Tanzania has been placing more emphasis on measures to directly address poverty and declining social indicators. In 1997, the government developed the National Poverty Eradication Strategy (NPES) through a participatory process; the strategy set out long-term poverty reduction goals. Since then, work has focused on translating these goals into short- and medium-term policies and the preparation of poverty monitoring indicators. The Interim Poverty Reduction Strategy Paper (Interim PRSP) prepared by the Tanzanian authorities reflects the steps taken so far by the government in formulating a comprehensive poverty reduction strategy and describes its plans for preparing a full PRSP. This paper assesses the government's poverty reduction strategy and the process and time frame envisaged for completing the full PRSP. Tanzania's poverty reduction strategy 2. Tanzania's development strategy began focusing on poverty issues immediately after independence in 1961. Under its "self-reliance" and socialism-inspired policies, the social indicators initially improved markedly, to the extent that the country was often held up as a model for its focus on education and health. However, as fiscal pressures began to build, it became clear that the policies were not sustainable, and the quantity and quality of public expenditure in key sectors began to fall in the mid-1980s. 3. The new government that was elected at end- 1995 focused initially on restoring macroeconomic stability and accelerating structural reform, with the aim of increasing economic growth and reducing poverty. More specific poverty reduction measures aimed at a recalibration of the structure and levels of expenditures in the social sectors, in parallel with improvements in the budget management process aimed at giving effect to these changes. Public expenditures on basic education and on the primary health system recovered substantially. - 2 - 4. The NPES identified a number of priority areas, including the social sectors and infrastructure, on which the government's poverty reduction policies have increasingly focused since then. Under the Public Expenditure Reviews (PERs), sectoral studies aimed at establishing goals and expenditure targets in these areas in a medium-term expenditure framework, resulting in higher budgetary allocations for the social sectors. The latter was facilitated by increasingly linking donor program aid through the Multilateral Debt Fund to priority social sector spending. The government intends to further integrate donor assistance in the overall poverty reduction strategy through participatory development of the Tanzania Assistance Strategy (TAS). . 5. Despite the progress in setting targets in individual sectors, the long-term goals formulated in the NPES-which were in line with the International Development Goals- remain to be translated into a comprehensive set of short- and medium-tern poverty reduction policies. The NPES was prepared in a broad-based participatory process, involving consultations with regional and district authorities, nongovernmental organizations, the private sector, and donors, and subjected to intense scrutiny in parliament. While this provided broad support, it also led to a decline in focus as the strategy attempted to respond to a multitude of demands. However, much work has been done since 1997 to realign the strategy with key poverty reduction objectives, and the work program outlined in the Interim PRSP provides for the necessary consultations to complete a comprehensive poverty reduction strategy, and to gain broad-based support for it. 6. The poverty database and the system to monitor progress in poverty and social indicators need to be strengthened. The "Poverty and Welfare Monitoring Indicators," which were also prepared in coordination with stakeholders and were published in June 1999, provided a framework in line with the objectives of the NPES; however, this framnework remains to be quantified, and adequate, updated baselines established. As described in the Interim PRSP, the government's main measures in this area are a household budget survey (which should be as broad as possible), a labor force survey, and a school mapping exercise, which will all be implemented during 2000. However, the results of the two surveys will be available only in early 2001, and thus cannot be included in the preparation of this year's PRSP. Preparation of the PRSP 7. The Interim PRSP sets out the authorities' work program for completing the PRSP and a list of some of the organizations that will be included in the consultation process. The preparation of the paper will be facilitated by deepening the participatory arrangements adopted in the last few years, which have received increased acceptance across a wide range of stakeholders in the country, including annual PERs and the TAS. In consultation with Tanzanian stakeholders and bilateral donors, as well as the multilateral institutions, in October 1999 the authorities began working toward preparation of the PRSP. A high-level - 3 - Cabinet Committee to guide the preparation process was established in October 1999; a technical committee, headed by a Deputy Permanent Secretary of the Ministry of Finance, is coordinating the consultations with stakeholders, using the structures set up in the context of the TAS. The current PER exercise already provides many of the necessary inputs for the PRSP. It should therefore be possible for the govemment to meet its goal of preparing a full PRSP by August 2000, incorporating a diagnosis of the poverty situation, the poverty reduction strategy, the fiscal costs of the program, and arrangements for monitoring progress through a participatory process. The overall process will nonetheless have to be managed very tightly to stay within the planned time frame. 8. World Bank and Fund staffs have provided technical assistance to the authorities in the preparation of the Interim PRSP and will continue to provide such assistance as work on the PRSP continues. Tanzania has requested support for its policies through a new three- year PRGF arrangement from the IMF, and a new Structural Adjustment Credit from the World Bank. In addition, the Bank will provide consultancy services in the drafting of the PRSP, and bilateral donors will assist with the household budget survey and the school mapping exercise. Assessment 9. Overall, the present document meets the requirements for an Interim PRSP. It rightly notes that maintenance of macroeconomic stability is a necessary condition for achieving high economic growth, and that higher growth itself is the key requirement for poverty reduction. It outlines the macroeconomic framework and provides a preliminary matrix of structural reforms and sectoral targets consistent with achieving higher growth and poverty reduction. The PRSP will need to specify the links between the macroeconomic aspects of the growth strategy (such as budgetary expenditure) and poverty reduction programs. 10. The Interim PRSP does not address the risks to Tanzania's poverty reduction policies, although these will be addressed in the full PRSP. Tanzania's poverty reduction policies have, in addition to promoting a stable macroeconomic environment and implementing structural reforms, focused on increasing spending in the social and other priority sectors. However, raising expenditure levels in these areas, while necessary, is not sufficient. Tanzania already spends relatively high levels of resources in the priority poverty reduction areas for a country with its per capita income profile. More important will be the need to ensure that the effectiveness of sectoral policies, particularly in education and health, is enhanced and sustained. There remain urban biases in the expenditure patterns that will need to be addressed. Also, donor funding, on which the government relies to a substantial degree for meeting expenditure requirements in these areas, will need to be increasingly channeled through the government's Medium-Term Expenditure Framework and annual budget- which is not the case at present. Furthermore, implementation capacity constraints, coupled with the fact that 2000 is an election year, will challenge the authorities to retain a focus on the content of the poverty programs rather than leaning toward low-priority investments. -4 - 11. Sufficient groundwork has been laid in Tanzania, and sufficient consultations with civil society conducted and planned, for the PRSP to emerge as a homegrown product, which has broad political support. The government attaches great priority to the timely preparation of a comprehensive PRSP, and has made adequate institutional arrangements in this regard. The database remains weak and results from new surveys will only be ready early next year, but there is an adequate basis for monitoring the proximate results of measures presently contemplated under Tanzania's poverty reduction program. In this context, the Interim PRSP provides an adequate, albeit preliminary, framework for the IMF's Poverty Reduction and Growth Facility and the enhanced H[PC Initiative debt relief decision to be considered by the Boards of the IMF and the World Bank. 12. In summary, govemment efforts aimed at further sharpening its poverty strategy to higher quality levels will need to focus on: (i) strengthening the links between Tanzania's growth and poverty reduction strategies; (ii) enhancing the implementation of sectoral programs to ensure that budgetary expenditures address priority areas-particularly primary education and basic health services; and (iii) ensuring adequate coordination of donor financing, such that more resources channeled to these priority areas reach the poor, particularly in rural areas. UNITED REPUBLIC OF TANZANIA INTERIM POVERTY REDUCTION STRATEGY PAPER (PRSP) 1. The Government of Tanzania is preparing a Poverty Reduction Strategy Paper (PRSP), which is a key requirement for reaching the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and provides background essential to IMF and World Bank lending to Tanzania. The strategy aims at attacking the country's deep and pervasive poverty by raising growth and enhancing the participation of the poor in the development process. Between 15 million and 18 million Tanzanians, half the population live below the poverty line of $0.65 a day. Of these, nearly 12.5 million live in abject poverty, spending less than $0.50 on consumption a day. Poverty incidence has stagnated or worsened during the 1990s. Poverty remains predominantly a rural phenomenon, although the number of poor in urban areas, mainly the unemployed and those engaged in the informal sector, is growing fast. In both rural and urban areas, the poor typically lack capital and human assets: they are less educated, of ill health and have large families. The vulnerability of the poor is increased by preponderance of disease, including the rapid spread of HIV/AIDS. 2. Many social indicators in Tanzania are comparable to or better than those in countries with the same income level. However, there are indications of a high degree of deprivation with respect to health standards, food security and education attainment. The infant and under-five mortality rates are, respectively, 86 and 133 per 1000, while life expectancy is around 49. Malnutrition affects 44 percent of children and access to safe water is around 50 percent. The adult illiteracy rate is 28 percent and the net primary school enrollment rate is about 57 percent. For all indicators, important regional variations, urban-rural differences, and gender differences persist. 3. Since independence in 1961, the Government of Tanzania has had poverty reduction as its main goal. In 1997, the Government adopted the National Poverty Eradication Strategy, which spells out a vision of a society without abject poverty, and with improved social conditions. This vision, which is in line with the International Development Goals, remains a point of reference for current poverty actions. In June 1999, the Government issued "Poverty and Welfare Monitoring Indicators," a document intended to provide the basis for monitoring the implementation and evaluating the impact of poverty eradication programs. The indicators will facilitate the development of baseline data for assessing the status of poverty and welfare, in order to guide policy and programs for reducing poverty. The National Poverty Eradication Strategy and the Poverty and Welfare Monitoring Indicators were developed in collaboration with a wide range of stakeholders. In line with the National Poverty Eradication Strategy, the Government has identified priority areas for public expenditure in the context of the Medium-Term Expenditure Framework (MTEF), whose implementation is monitored under the annual public expenditure review (PER) process, involving a wide range of stakeholders. This process has guided the budget framework for three years. -2 - 4. Consistent with the long-term objective of eradicating poverty, and similar to the HIPC Initiative, the Govemment established (with effect from July 1998) a Multilateral Debt Relief Fund (MDF), to which seven donor countries have contributed. The MDF, which amounted to US$88 million during its first year (1998/99), has assisted in servicing debt to the World Bank, IMF, and African Development Bank. The savings of Government resources were used to provide services to the priority sectors that permitted them to increase their expenditures beyond what was originally envisaged in the budget. In 1999/2000, these donors have pledged to contribute US$81 million to the MLDF. Its progress is monitored in quarterly review meetings between the Government and involved donors. 5. The Government is currently developing the Tanzania Assistance Strategy (TAS), which is intended to be a homegrown strategy to guide external aid to Tanzania. The main objectives of the TAS are to improve ownership, partnership, and the effectiveness of aid. The PRSP, which is an essential component of the TAS, will focus on specific goals for poverty reduction and for the improvement of social indicators and on specific public policies and institutional changes to reach these objectives. 6. Poverty in Tanzania is so widespread that it cannot be eradicated in the short run. It is an objective that will be pursued through a long term strategy aimed at achieving higher growth, improving economic opportunities for the poor, building human capital, and empowering the poor to participate in the development strategy. To move in this direction, in the interim period, up to the HIPC Initiative completion point, the Government will: (a) Prepare a Poverty Reduction Strategy Paper by August 2000. Its preparation will involve consultations with, and the participation of, all stakeholders, including the civil society and development partners. ' The process will mainstream the poverty and welfare monitoring system into the budget instruments, such as the MTEF framework. The PRSP will not substitute for existing sectoral programs but will strengthen the prioritization of actions within and across sectors targeting poverty. It will: * Assemble baseline data on poverty and develop a national poverty line. * Set medium-term poverty reduction targets, including monitorable indicators of main poverty objectives that can be achieved within one to ten years. These indicators will at the minimum cover income poverty, and essential human development. 1 These include, among others, African Development Foundation; Community Development Trust Fund of Tanzania; Concern Worldwide; Economic and Social Research Foundation; Mwalimu Nyerere Foundation; OXFAM; Promotion of Rural Initiative and Development Enterprises; Research and Poverty Alleviation; Tanzania Association of NGOs; Tanzania Council of Social Development; and Tanzania Social and Economic Trust. -3- * Set poverty reduction targets for each of the priority sectors, including primary education and health, rural roads, water, and extension services in agriculture. * Shift budgetary resources to meet specified poverty reduction targets. (b) Conduct 50 percent of district-based school mapping by the end of 2000. This information is a critical requirement for improving the delivery of education. With this, the Government will prepare a report covering the availability and condition of schools, the quality and distribution of teachers, the quality of school management, the enrollment rate, the dropout rate, and key problems in the delivery of primary education. This exercise is a key investment for drawing up district-level education plans aimed at increasing the net enrolment rate and the quality of primary education. (c) Adopt specific short-term actions to improve health outcome. The first is to raise the coverage of children under 2 years immunized against measles and DPT (diphtheria, polio, and tetanus) from the current 71 percent to 75 percent of the eligible population. This will have a major impact on reducing childhood mortality and morbidity. The second is targeted at raising the awareness and combating the denial of the HIV/AIDS pandemic. In this regard, the Government plans to implement national awareness campaigns covering at least 75 percent of all districts in the country. The campaigns will be spearheaded by the National Advisory Committee on HIV/AIDS, working hand in hand with the National AIDS Control Program. (d) Implement a Household Budget Survey and a pilot labor force survey. This information, which will be available during the first half of 2001, will be essential for updating preliminary estimates of poverty that will be compiled in the PRSP and for monitoring the poverty reduction strategy. Subsequently poverty monitoring surveys will be developed for tracking changes in poverty and welfare. 7. The Government attaches great importance to maintaining the gains in macroeconomic stability of recent years. This is a necessary condition for achieving a higher rate of growth and poverty reduction. The Government intends to avoid net domestic financing of the budget, and to follow monetary policies aimed at reducing inflation below 5 percent per year to rates prevailing in Tanzania's trading partners, while allowing adequate growth in credit to the private sector to support investment and growth. The Government has already completed the process of building international reserves to the comfortable level of 4 months of imports of goods and nonfactor services, and intends to maintain them at that level henceforth. The exchange rate will remain market determined, with interventions by the Bank of Tanzania only to smooth seasonal fluctuations. With a stable macroeconomic environment, and with continuing structural reforms, the Government aims to reach an annual real economic growth rate of at least 6 percent by the year 2002. 8. The Government also plans to undertake actions to ensure sustained improvement in economic governance and the environment for robust private sector development. These actions, together with sustained macroeconomic stability, are expected to improve income -4- opportunities through higher growth, thus helping reduce the proportion of Tanzania's population below the poverty line. The details of proposed key structural reforms to be implemented by the WPC completion point are presented in Appendix IL which also includes key actions to strengthen the design and monitoring of anti-poverty efforts. The Government aims at improving accountability and financial management, make the tax regime more transparent, and improve the business environment, so as to enhance private investment and lower the cost of doing business. The major policy measures implemented in recent years are listed in Appendix IL, while Appendix III presents a medium-term policy framework matrix for the next three years. 9. In order to ensure broad-based support, the preparation of the PRSP will draw on the experience of the participatory arrangements adopted in the past four years, such as those used in the preparation of the National Poverty Eradication Strategy, the poverty and welfare monitoring indicators, the MTEF and expenditure review, sector reform programs, and the TAS. These participatory arrangements have received increased acceptance across a wide range of stakeholders in the country. 10. The organization, preparation and consultation process for the PRSP will be as follows: Organization * A Committee of Ministers and the Governor of the Bank of Tanzania has been established to steer the preparation of the PRSP. The Committee began its work in mid- October 1999. e A technical committee representing relevant ministries, chaired by a Deputy Permanent Secretary, has been established in the Ministry of Finance to assist the Committee of Ministers. The technical committee, which is responsible for laying the groundwork of the PRSP, will integrate its work with the macroeconomic subcommittee of the TAS. The technical committee will coordinate consultations with stakeholders such as the donor community, nongovernmental organizations (NGOs), the business community, and academics, in the framework of the TAS setup. Preparation of the PRSP and consultation process (i) Preparation of draft outline: January and February 2000 * The approach to preparation of the PRSP was discussed in January at consultative technical meetings involving central level stakeholders from the donor community and civil society. * A draft outline was prepared by the technical committee and approved by government in early February 2000 (Appendix IV). - 5 - (ii) Consultations to define overall priorities, targets and actions needed for poverty reduction to be inserted in the PRSP: March 2000 * Preparation by the technical committee of a draft prospectus defining strategic directions, poverty reduction priorities, long and short term objectives and targets and actions needed to achieve these goals. Work on the initial draft of the prospectus will commence in February 2000. * Discussion of draft prospectus with all stakeholders through the organization of a national workshop and six zonal workshops covering most regions of the countries. (iii) Preparation of the PRSP: April-June 2000 - Drafting of the PRSP by a core group of specialists under the supervision of the technical committee. I Technical workshops discussing preliminary results with various stakeholders, including the TAS and the Public Expenditure committees. * The technical committee, in cooperation with the Plan and Budget Guidelines Committee and in the framework of the medium-term targets of the MTEF will reflect the priorities for poverty reduction in the 2000/01 budget. • Presentation of strategic directions and preliminary results to CG meeting in May 2000. (iv) Discussion and approval of PRSP: June-August 2000. * National workshop to discuss draft PRSP, by end June 2000. * Presentation for approval to the Cabinet of final draft PRSP incorporating the views of stakeholders, with objectives and program priorities integrated in the budget in July 2000. * Submission of the PRSP document to the IMF and the World Bank by end August 2000, following which it will be widely disseminated. -6- APPENDIX I Tanzania: HIIPC - Proposed Completion Conditions Actions to Be Taken Before Objectives/Sectors Completion Point Indicators Poverty Process and information Reduce poverty incidence Prepare a poverty reduction strategy through a Presentation of a Poverty Reduction Strategy Paper participatoryprocess. (PRSP) Improve information on Implement household budget survey Completion of household budget survey poverty Conduct preliminary analysis of basic Presentation of preliminary analysis on the poverty household data, including poverty hnes, and status and indicators for tracking changes in poverty poverty and social indicators (by gender, region, and socioeconomic characteristics) Agree on a monitoring system for tracking Approval of operational poverty monitoring changes in (i) income poverty; (ii) social indicators and survey methods indicators; and (iii) community needs Improve institutional Define institutional roles in collection, Adoption of a plan for capacity building for poverty capacity for poverty analysis, and monitoring of poverty analysis and monitoring in the two institutions, and monitoring information. Strengthen capacity for poverty allocation of resources to this end in 2000/01 research and analysis in the Vice-President's consistent with well-defined institutional roles Office and in the National Bureau of Statistics Shift budget resources Adopt MTEF incorporating poverty priorities Adoption of MTEF that adheres to prioritization in toward activities in agrculture, education, health, rural roads, line with the PSRP benefiting the poor and water supply Establish intersectoral and intrasectoral Adoption of budget 2000/01 in line with MTEF budgetary allocations in the 2000/01 recurrent priorities and conducting of annual public expendi- and development budget according to poverty ture reviews to confinn adherence to set priorities priorities, including: Rationalize higher education Introduce revolving fund in all hospitals Agree on guidelines on the rationalization of Publication of guidelnes on rationalizing local taxes local taxes and fees and institute central and fees government control mechanisms Primary education Map schools to cover 50 percent of all local Reporting covering availability and condition of authorities to raise net enrollment and enhance schools, quality and distribution of teachers, quality quality of primary education of school management, enrollment rate, dropout rate, and key problems in delivery of education District-based education plans to address key problems emerging from the survey -7 - APPENDIX I Tanzania: HIPC - Proposed Completion Conditions Actions to Be Taken Before Objectives/Sectors Copeto Po. Indicators Completion Point Health Increase percentage of children under 2 years Reports from Ministry of Health immunized against measles and DPTs from 71 percent (1996) to 75 percent Nationally spearhead campaign on HIV/AIDS Visits to 75 percent of districts * National Advisory Commnittee - all regional centers * Other National Leadership - all districts (district meetings to involve all councillors) Structural Issues Governance Improve accountability, Officially adopt, publish and disseminate Dissemination to all district authorities of reduce corruption national action plan for the control of anticorruption plan of Government corruption Workshops with district authorities and civil society Adoption of sector-specific anticorruption plans approved by Government for tax administration, national tender system, judiciary, and works Government fnancial Submit Public Finance Management Bill and Submission to Parliament management Public Audit Bill for parliamentary approval Fully implement Integrated Financial Management of all budgetary votes are through the Management System (I1MIS) IFMS Recording of all expenditure comnmitrnents, payments, and arrears in the system Integration of tax (Tanzania Revenue Authority) and nontax revenue collections into the system Use of IFMS as sole government accounting and fmancial information system (apart from other TRA revenue accounts and debt monitoring, pending necessary software development) Ensure full operation of IFMS Provision of funding through separate vote for Accountant General's Department, which will receive priority status in resource allocation Tax reform Consolidate taxes on petroleum products Application of VAT to petroleum products at standard rate Limiting of other taxes and levies to import duty, product-specific excises, the Energy Fund and the Road Fund - 8 - APPENDIX I Tanzania: HIPC - Proposed Completion Conditions Actions to Be Taken Before Objectives/Sectors Completion Point Indicators Rationalize import taxes Repeal of import-specific partial remissions on customs duties (GN24 1), except for sugar Abstention from imposing minimum dutiable values on any more commodities; for existing list, base minimum dutiable values on international prices, except for sugar Harmonize investment incentives Unification of rates of withholding tax on interest eamings, dividends and royalties (except for mining and infrastructure) Reduce scope of exemptions Repeal of NGO exemption from VAT, except with respect to health, education and water projects Eliminate selected taxes Reduction in number of excises from 52 to 6 Abolition of withholding tax on goods and services Start operation of a unified tax appeals system Public notice Establish a duty drawback system based on Public notice technical assistance recommendations Business environment Enable foreign investors to acquire equities in Development and approval of a proposal to allow the stock market foreign participation in the stock market with appropriate safeguards Transform Tanzania Investment Centre (TIC) Official gazette for legal amendments of the act into an effective service centre for investors governing operations and restructuring of TIC Take any necessary actions to allow the use of Issuing of land regulation to ensure that land can be land as collateral for commercial bank lending used as collateral for commercial transactions Infrastructure Improve management of Assign assets of Dar es Salaam Water and Signed concession agreement water distribution system Sewerage Authority (DAWASA) to private management companies Improve regulatory Initiate process for the unbundling of Appointment of transaction advisers (merchant framework for utilities Tanzania Electric Supply Company Ltd. banks, legal fims) to develop options for (TANESCO) into autonomous commercial unbundling entities Adopt the framework for the establishment of Government approval regulatory authorities for utilities -9 - APPENDIX II Tanzania: Recent Policy Performance Sector Steps Taken Timing 1. External sector a. Trade policy Abolished all trade restrictions except for petroleum products and 1993 goods restricted for health and security reasons Reduced number of nonzero tariffs from seven to four, and top rate June 1997 to 30 percent Eliminated export duty on traditional exports July 1998 In line with Cross-Border Initiative (CBI), implemented a major July 1999 tariff reform with a structure based on the degree of processing and reduced the maximum tariff rate from 30 percent to 25 percent b. External current payments Removed limits on payments and transfers for current international 1994 transactions Accepted the obligations of Article VII of the Fund's Articles of July 1996 Agreement c. International reserves Increased gross international reserves from 1.5 to 3.8 months of 1995-1999 imports d. External debt Negotiated Paris Club flow rescheduling on Naples terms January 1997 Established Multilateral Debt Fund January 1998 Completed preliminary debt sustainability analysis for HIPC 1998/99 Initiative debt relief e. Regional initiatives Endorsed the "road map" for external trade liberalization proposed March 1995 by the Cross-Border Initiative cosponsors, together with 12 other countries from the region Common Market for Eastern & Southem Africa (COMESA) rates 1998/99 reinstated Submitted notice of intention to withdraw from COMESA, with a September 1999 view to streamlining participation in regional economic integration arrangements and eliminating duplication of functions to cut budgetary cost Signed the Treaty for the Establshment of the East African November 30, 1999 Community 2. Fiscal policies Overall Achieved net repayment of domestic financing 1996/97-1998/99 a Revenue Established the Tanzania Revenue Authority (IRA) July 1996 Revised investment act to eliminate tax holidays 1996197 Harmonized duties between Zanzibar and mainland Tanzania on December 1996 five major commodities Implemented new preshipment inspection contract, with sealing of January 1998 containers Adopted narrow definition of capital goods for customs purposes June 1998 -10- APPENDIX II Tanzania: Recent Policy Performance Sector Steps Taken Timing Adopted effective and transparent monitoring system for bonded June 1998 warehouses Introduced VAT and made complementary changes to the tax July 1998 system VAT introduced in Zanzibar with the same rate and coverage as on January 1999 the mainland Limited exemptions on capital goods under the Investment Act, July 1999 using the harmonized tariff system to ensure that investment incentives do not undermine revenue collection Appointed Deputy Commissioner for Customs Reform July 1999 Further simplified and rationalized tax system July 1999 Reactivated appeals mechanism of income tax August 1999 b. Expenditure Introduced stringent expenditure control, based on rigorous cash From second half of management system 1995/96 Fully protected social sectors in implementing cash budget From 1997/98 Rationalized development budget, reducing the number of projects 1996/97-1998/99 to a more manageable level Established subtreasuries 1996/97-1998/99 Completed review of transfers to public institutions December 1998 Introduced an expenditure commitment monitoring system in ten October 1998 key ministries to ran in parallel with the cash management system Instituted comprehensive personnel database December 1998 Started the system for monitoring overall public debt 1998/99 Expenditure commitment monitoring system established in all January 2000 ministries Adopted National External Debt Strategy October 1998 Established and operationalized the Debt Coordination Committee August 1999 (DCC) to control and give gaidance on debt and debt-related issues Installed new payroll system December 1999 3. Monetary policy and financial reform Overall Liberalized interest rates and established competitive treasury bill 1993 auctions Reduced rate of monetary expansion Since 1996/97 a. Banking Began licensing private banks 1992/93 Split National Bank of Commerce (NBC) into NBC (1997) and October 1997 National Microfinance Bank (NMB) Amended (Miscellaneous Amendments), 1998 No.12 relating to the 1998/99 Banking and Financial Institutions Act - 11 - APPENDIX II Tanzania: Recent Policy Performance Sector Steps Taken Timing Signed management contract for NMB August 1999 Operationalized commercial court September 1999 Signed sales agreement with Associated Banks of South Africa December 1999 (ABSA) for NBC (1997) b. Ensurance Liberalized insurance sector May 1998 c. Capital markets Established Dar es Salaam Stock Exchange April 1998 Introduced primary dealer system and mstituted book entry December 1998 4. Public sector reform a. Civil service reform Reduced employment by 87,000 including removal of "ghost 1993-99 workers" from payroll, reducing the workforce to 263,000 Introduced a pay reform program to reduce the number of salary June 1996 scales, included most allowances in the basic wage, and monetized most in-kind benefits Restructured regional administration 1997198 Public service management and employment policy approved May 1998 Public service pay policy approved January 1999 Code of Ethics and Conduct issued June 1999 Compiled ministerial performance objectives and targets and details July 1999 of administrative and technical support requirements of the pilot phase of three ministries Reallocated surplus staff at hospitals and local authorities April 1999 Launched seven executive agencies 1999 Completed all key computer interventions to address Y2K risk December 1999 b. Parastatal reform Removed more than half of parastatals from government control 1994-99 Finalized studies on public enterprise retrenchment compensation September 1999 packages and public enterprise debt treatment Removed monopoly of National Shipping Agencies Corporation February 1999 (NASACO) (amended act to open entry) Reviewed regulatory framework for utilities and infrastructure; September 1999 fmal consultant's report submitted Completed study on economic impacts of privatization program January 2000 Closed bids for Tanzania Telecommunications Company Ltd. December 1999 (TTCL) c. Local govermnent reform Amended legislation to provide for revenue sharing and February 1999 decentralized management of fmances and staff by local authorities Adopted a system to ensure that local authorities design and February 1999 implement programs that are consistent with sector-wide and national policies and priorities -12 - APPENDIX Ii Tanzania: Recent Policy Performance Sector Steps Taken Timing d. Governance Revised anticorruption law December 1998 Adopted the National Anti-Coriuption Strategy and Action Plan for November 1999 Tanzania 5. Sector policies a Investment policy Adopted new investment code August 1997 Reviewed operations of the Tanzania Investment Centre (TIC) and June 1999 prepared a strategy to ensure its efficient operation, emphasizing a shift from regulatory functions to promotional activities, in collaboration with the private sector b. Power Set up a system of direct payment to electricity parastatal Tanzania September 1997 Electric Supply Company Ltd. (TANESCO) from Ministry of Finance to cover bills for customers TANESCO is not allowed to disconnect Approved power sector and electricity industry structure October 1999 c. Petroleum Abolshed monopoly on refmed petroleum product imports April 1997 Assigned collection of petroleum funds to TRA 1997/98 Completed the liberalization of retail (pump) prices June 1999 Promulgated interim regulations December 1999 Decided on the divestiture strategy for Tanzanian-Italian Petroleum September 1999 Refinery (TIPER) Eliminated subsidies to TIPER December 1999 Removed requirement for oil marketing companies to purchase December 1999 some of their needs for refined petroleum from Tanzania Petroleum Development Corporation (TPDC) d. Mining Revised legal framework and enacted new mining legislation 1997/98 e. Land policy Enacted a new law to improve security of tenure and allocation of 1998/99 land f. Agriculture Opened marketing and processing of traditional export crops to the 1994 private sector Adopted agriculture and livestock policy, as well as cooperative 1997 development policy g. Water Set up semiautonomous water boards in regional headquarters 1997/98 Reviewed rural water policy 1997/98 h. Roads Enacted legislation for the road fund such that at least 90 percent of December 1998 the fund is dedicated to maintenance Road Fund Board established September 1999 i. Railways Transferred assets to the newly established Marine Services December 1998 Company -13 - APPENDIX II Tanzania: Recent Policy Performance Sector Steps Taken Timing j. Ports Recruited consultants to assist Tanzania Harbours Authority (THA) September 1998 to prepare bidding documents for the container terminal concession 6. Social sectors a Poverty reduction Adopted and initiated implementation of National Povertv December 1998 Eradication Strategy Prepared and approved project on assessing credit to the poor December 1998 Completed preparation of draft poverty and welfare monitoring December 1998 indicators Prepared poverty data module March 1999 b. Education Completed studies on issues in secondary education June 1998 Maintained basic education recurrent spending share at 65 percent 1998/99 minimum Began implementing Basic Education Master Plan 1998/99 Designed priority programs for facilities, textbooks, school August 1999 management and teacher assignments, adult and complementary studies, inspectorate, and audit Adopted action plan for the reform of technical and higher November 1998 education, including management and financing reforms c. Health Approved a proposal for health sector reform March 1995 Introduced cost sharing at primary care facilities in nine districts 1997/98 Initiated pilot project for drug revolving funds in certain hospitals March 1999 Developed legislation and regulations for health insurance for July 1999 public servants d. Environment Endorsed the National Conservation Strategy for Sustainable 1996 Development Adopted national environmental policy November 1997 e. Nongovernmental Formulated NGO policy to govern NGO operations December 1999 organizations (NGOs) 7. Statistics Published revised national accounts May 1997 Began publication of balance of payments data on basis of Balance December 1997 of Payments Manual (5'ed.) Began monthly publication of trade statistics based on customs data January 1998 National Bureau of Statistics appointed a Coordinator for GDDS November 1998 Began publishing semiannual national accounts August 1999 -14 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing 1. Extermal sector policies Overall Achieve benefits of Continue financial and economic Continuous international integration and reforms and liberalization reduce aid dependency Maintain flexible exchange rate Continuous a. Tariff reform Simplify tariff sttucture and Base minimum dutiable values on July 2000 reduce protection international prices except sugar Eliminate suspended duty and the July 2002 minimum dutiable value on sugar Remove the export duties on scrap July 2000 metal Reduce top rates of customs duty July 2002 further b. Regional integration Enlarge markets and enhance Follow policies set out in CBI policy Continuous cooperation letter Negotiate the protocols on the 2000-02 establishment of customs union involving Tanzania, Kenya, and Uganda, including the elinination of internal tariffs, and other duties and charges; the elimination of nontariff barriers; and the establishment of a common extemal tariff c. Capital controls Enhance efficiency of capital Increase transparency of existing June 2000 markets and promote capital financial regulations inflows Create a framework for monitoring December 2000 capital flows with technical assistance from the IMF Develop and implement a June 2001 comprehensive capital flows monitoring system with donor fimding Carry out an assessment of the capacity December 2000 of the financial system to handle capital flows, including the creation of a strong supervisory system, and its capacity to reduce risks associated with the opening up of banking system to cross-border and foreign currency transactions with technical assistance from the IMF - 15 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing Develop a proposal to relax restrictions June 2001 on foreign portfolio investment in equity instnments (FPI-E) with appropriate safeguards Implement the proposals on January 2002 liberalizing FPI-E Develop a medium-term policy on June 2001 capital account liberalization, including measures to improve transparency with Fund technical assistance d. Foreign reserves Promote external stability Increase gross official reserves to the December 2000 level of four months of imports of goods and non factor services e. External debt Reduce external debt service Maintain Multilateral Debt Fund Continuous to sustainable level Reach decision point under HIPC March 2000 Initiative Maintain macroeconomic stability and Continuous implement structural and social sector reforms with a view to reaching the completion point under the HIPC Initiative Avoid nonconcessional borrowing by Continuous public sector Normalize relations with Complete commercial debt buyback April 2000 external creditors Negotiate Paris Club rescheduling on 2000 Cologne terms Observe revised debt-service schedules Continuous 2. Fiscal policies Overall Maintain fiscal stability and Avoid domestic financing of the 2000-02 increase domestic savings government except for short-term liquidity management needs Take budget decisions in the light of Continuous the medium-term expenditure framework (MTEF) a. Revenue Broaden revenue base and Strengthen customs administration and Continuous improve efficiency continue implementation of the customs reform program Review preshipment inspection (PSI) August 2000 operations and decide whether continuation is necessary -16- APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing Review remaining statutory July 2000 exemptions, with a view to further reducing them Establish a unified tax appeals August 2000 mechanism Introduce unique taxpayer July 2000 identification numbers (TIN) in tax administration beyond VAT operation Introduce TIN registration requirement July 2001 for major economic activities and property ownership Complete a study on the administration July 2000 of nontax revenue sources and implement main recommendations Rationalize taxes on petroleum July 2000 products and eliminate VAT exemptions on these products Harmonize withholding tax rates for July 2000 investors b. Expenditure control Limit expenditures to Strengthen subtreasury system 2000/01 maintain fiscal stability Protect expenditure on social services Continuous in administering the cash management system Conduct public expenditure review Annually Submit Public Finance Management June 2000 Bill and Public Audit Bill for parliamentary approval Replace cash control system with July 2001 efficient expenditure management based on the budget and spending priorities Strengthen the capacity for monitoring Continuous overall public debt c. Development expenditure Reallocate resources to reflect Prioritize development expenditures Continuous management changing roles of government among and within sectors and ensure in economic management and their consistency with the MTEF improve accounting and effi- ciency of public expenditures Work toward full budgeting and Continuous accounting coverage of donor-financed government expenditures in collabor- ation with donors in the context of the public expenditure review -17 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing Integrate fully the recurrent and 2000/01 development budgets to take into account sector priorities and recurrent cost implications Complete first phase of developing the July 2000 Tanzania Assistance Strategy d. Local government finances Ensure viabilitv of local Review block grants, sources of Annually government finances revenues, and mechanisms for sharing of revenue between central and local government 3. Financial reform and monetary policy Overall Reduce inflation, increase Maintain market-oriented policies of Continuous domestic resource mobili- monetary restraint zation, and improve allocation of financial resources Promote and sustain positive real Continuous interest rates a. Inflation Reduce inflation rate to 5 Maintain low rates of monetary December 2000 percent expansion b. Financial markets Deepen markets Support private sector establishment of December 2000 a credit infornation bureau Review the development of the 2000 secondary market for govermment securities c. Financial institutions Improve efficiency of Ensure that NBC (1997) and NM Continuous financial intermediation and comply with memoranda of under- stem losses standing until they are in compliance with regulatory standards Submit Draft National Policy for Rural February 2000 and Microfinance for govermnent consideration Complete study of options for June 2000 restructuring Tanzania Postal Bank (TPB) and pmrvatizing Tanzania Investment Bank (TIB) Revise the Banking and Financial August 2001 Institutions Act to institute legal framework for regulation and supervision of microfinance institutions Issue preliminary regulations for July 2000 microfmance institutions Strengthen banking supervision Continuous -18- APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Tiniing Comnplete revision of prudential December 2000 banking regulations Agree on new business plan and March 2000 establish new supervisory memorandum of understanding for NMB Develop a strategy for recapitalizing June 2000 NMB and transforming it into a microfmance institution Develop and evaluate options for 2000 restructuring/divestiture of People's Bank of Zanzibar (PBZ) d. isurance Complete study to strengthen the December 2000 regulatory mechanism for insurance and pension sectors 4. Public sector reform a. Civil service reform Establish efficient and motiv- Prepare recommendations on the Annually ated civil service and improve affordable size of the civil service, quality and effectiveness of consistent with the MTEF pay targets delivery of public services and efficiency Improve performance Introduce performance management in 2000-04 ministries, departments and agencies (MDA): * 75 percent of MDAs to have 2002 developed a strategic plan * 50 percent of MDAs to show December 2004 results Establish performance improvement January 2000 fund Reform civil service pay Continue rationalization of civil service Continuous structure pay structure with a view to its enhancement Restructure and promote Rationalize civil service employment Continuous private sector participation based on needs for quality, service delivery, efficiency reviews, and wage bill targets Implement "quick wins" service Continuous improvements in all MDAs Commence privatization of low- December 2000 priority functions Implement management Computerize and maintain a central Continuous information systems personnel database - 19- APPENDIX III Tanzania: Policy Matrix, 2000-02 Secter Objectives and Targets Strategies and Measures Timing Strengthen leadership, Establish new Public Service July 2002 management, and governance Commission with sufficient powers and resources to ensure increased transparency in appointments and promotions Restructure civil service training 2000/01 institutions under a public service college Coordinate, monitor, and Complete job evaluation program, with April 2000 evaluate policies the aim of rationalizing the pay structure for professional and technical staff b. Local goveurnent reform Improve the quality of, and Implement the local government access to, public services refonn program: provided through or facilitated . Begin Phase 1 January 2000 by local government a Begin Phase 2 January 2001 i Begin Phase 3 January 2002 Adopt plan for strengthening capacity January 2000 in the 35 local authorities under first phase Adopt transparent systems for January 2000 disbursement and accounting for the block grants c. Governance Improve transparency and Disseminate to all districts the National 2000 accountability of public Anti-Corrnuption Strategy and Action service Plan Adopt sector-specific anticorruption 2000 plans d. Parastatal policy' Improve efficiency and avoid Remove public enterprise (PE) units Amnual targets fiscal and monetary pressures from government control through sales, lease, liquidations, and divestitures Remove at least 2 utilities, I large 2000 entity, and 40 small/medium entities from government control Select winning bidder for DAWASA March 2000 Bring to point of sale Tanzania June 2000 Telecomununications Company Ltd. Deregulate Tanzania Central Freight December 2000 Bureau Adopt comprehensive policy on PE May 2000 retrenchment compensation Adopt comprehensive policy on PE May 2000 debt treatment -20 - APPENDIX Im Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing 5. Sector policies a. Investment policy and private Promote efficient private Streamline regulatory environment and Continuous sector development sector investment by ensure effective application of the providing a level playing field private sector investment code with sustainable tax incentives Strengthen the facilitation of 2000/01 investment b. Power sector Satisfy the economy's needs Charge economic tariffs and strengthen Continuous for electrical power in an revenue collection by electricity efficient and environmentally parastatal Tanzania Electric Supply sound manner Company Ltd. (TANESCO) Revise legislation and prepare March 2001 regulatory framework for the power sector Restncturing power sector Unbundle TANESCO March 2001 c. Petroleum Enhance the capacity and Promulgate new legal and regulatory February 2001 efficiency of the petroleum framework industry, increase private End fmancial support for TPDC June 2000 sector participation in the through earmarking of petroleum sector, and encourage oil and revenues and decide on future role of gas exploration TPDC Complete TPDC restructuring June 2001 d. Mining Establish framework for Divest public mining companies 2000 development by private sector Review and decide on the future role of 2000 the State Mining Corporation (STAMICO) e. Land and human settlement Improve service delivery and Educate public on the new land laws 2000 allocation of land and Complete drawing up implementation 2000/01 encourage greater private plan for the Land Acts sector involvement in the provision of housing Issue the necessary guidelines and July 2000 regulations Establish modalities for assigning 2000 value to land (land valuation manual) Take any necessary action to facilitate July 2001 the use of land as collateral for commercial bank lending Revise policy and development July 2000 strategy for human settlement development Improve information flows Establish a data unit with networks 2000/01 through an appropriate information system -21 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing f Agriculture Improve the incentive frame- Rationalize levies, fees and taxes that July 2000 work for private sector farmers and traders pay. participation Avoid multiple taxation and ensure that uniform fiscal treatment comply with set ceilings Complete privatization of agricultural December 2003 enterprises Provide a regulatory frame- Encourage the formation of industry 2000 work conducive for private associations and create forums for sector involvement private-public sector dialogue Review and publish rules and June 2001 regulations that promote private sector participation involve all export crop industry groups June 2000 in research activities Develop regulatory framework for 2000 urban water supply and sewerage services Consolidate the urban water and 2000 sewerage authorities Restructure urban water supply pricing Continuous policy to address economic, financial, and equity objectives Transfer management of existing rural Continuous water system infrastructure to local communities and introduce a water fund, managed by local authorities Support "Water for Life" campaign Continuous Improve coordination and Improve capacity of 15 districts to 2000 information management collect, analyze, and disseminate system in water and sanitation accurate and reliable infonnation for planning and decision making by designing and developing the district and national databases Strengthen water resources Improve integration of water and 2001/02 management, development, sanitation in a coordinated manner by and water quality monitoring establishing district coordination comnmittees in all districts throughout the country Establish basin boards in all nine water 2000/01 basins. h. Roads Ensure effective and efficient Establish a road agency to be staffed July 2000 management of the country's by personnel engaged on performance road network contract basis -22 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Tiniing i. Railways Concession Tanzania Railways December 2001 Corporation Issue information memorandum for September 2000 Marine Services Company j. Ports Finalize negotiations and takeover of March 2000 the Dar es Salaam container termninal Commission a divestiture study for April 2000 Tanzania Harbour Authority (THA) units Develop aplan for the remaining 2000/01 operations of THA 6. Poverty reduction, social sector policies, and environmental protection a Poverty reduction Institute the poverty-and The proposed poverty-and welfare- January 2000 welfare-monitoring system monitoring indicators Establish a poverty data bank Conduct household budget survey June 2000 (HB S) and operationalize the data bank Initiate preparation of district Conduct zonal workshops to reach April 2000 action plans for poverty consensus for development of district reduction action plans for poverty reduction, using participatory methodologies Make poverty eradication a Review and integrate poverty June 2000 central focus of eradication issues into macroeconomic macroeconomic and sectoral and sectoral policies, and planning and policies and govemment budget preparation guidelines budget Develop a framework for Finalize Poverty Reduction Strategy June 2000 poverty reduction Paper (PRSP) following a consultative process b. Education Improve access to, and quality Maintain basic education recurrent Continuous and cost-effectiveness of basic spending share at 65 percent minimum education and increase nonsalary spending per student by 0.5 percent annually Implement action plan for June 2000 decentralization of education financing and management in 35 phase I local authorities. Rationalize and reallocate teachers in June 2000 35 Phase I local authorities. Adopt action plan for management and June 2000 monitoring system Undertake annual joint Continuous government/donor review to monitor progress in sector development, including basic education -23 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing Complete primary school mapping in December 2000 50 percent of the local authorities to raise net enrollment rate and enhance quality of primary education Improve secondary education, Complete Secondary Education Master January 2000 including broadened public- Plan (SEMP) and adopt a framework private partnership for cost sharing among government, private sector, and local conimunities Begin implementing SEMP 2000/01 c. Health Improve health status by Complete compilation of the national June 2000 increasing the level and health accounts and develop a public improving allocation of sector resource envelope for the health resources for basic health care sector, including all donor resources, within the MTEF Review and improve efficiency of Continuous revenue collection for hospital services Extend cost-sharing to dispensaries and Continuous health centers Introduce national health insurance for 2000/01 civil servants Implement action plan for malaria Continuous control Raise public awareness of HIV/AIDS Continuous epidemic as a national development issue and strengthen political commitment to fight it Set targets for intrasector allocations of July 2000 resources, with priority to basic health services and nonsalary items Increase percentage of children under 2 December 2000 years immunized against measles and DPT from 71% (1996) to 75% to reduce childhood mortality rate d. Employment Establish baseline data on the Conduct a pilot labor force survey December 2000 labor market e. Environment Conserve natural resources for Prepare a biodiversitv conservation April 2000 sustainable growth strategy and action plan Adopt a national action plan to combat April 2000 desertification Present environmental framework 2001 legislation to Parliament -24 - APPENDIX III Tanzania: Policy Matrix, 2000-02 Sector Objectives and Targets Strategies and Measures Timing Finalize environmental irpact December 2000 assessment guidelines Adopt environmental standards 2001 Prepare a National Priority 2000/01 Environmental Management Program f Nongovernmental Create enabling environment Prepare NGO Legislation 2000 Organizations (NGOs) for NGOs to operate efficiently to enable them to play an effective role in the social, political, and economic transformation of the country 7. Statistics Improve economic statistics Strengthen and computerize the Continuous for better monitoring and national accounts compilation system analysis of development Complete review of the statistical March 2000 system in preparation for participation in the General Data Dissemination System (GDDS) Revise the consumer price index (CPI) June 2000 basket on the basis of preliminary results of a new household budget survey Revise the GDP figures on the basis of May 2000 1992 input-output analysis results Revise the CPI basket on the basis of June 2001 final results of the HBS 1/ See also under sector policies. -25 - APPENDIX IV Tanzania: PRSP Outline 1. Poverty and social development in Tanzania - Preparation of a database for quantitative analysis of poverty data. - Quantitative estimates of the level of poverty and poverty incidence (rural-urban, regional) - Analysis of economic characteristics of the poor; human development; access to social services. - Reasons for widespread poverty in the country. 2. A strategy for poverty reduction - Goals: Objectives for key poverty reduction targets and key social indicators. Long term goals will be informed from the Vision 2025 and the Poverty Eradication Strategy (2010). Annual goals for each target will be established. - Intermediate indicators: Selected intermediate indicators to reach the long term goals. - Policies: Discussion of public policies and institutional changes needed to reach the goals - Financing strategy: strategic public expenditure allocation to reach poverty reduction targets; role of external assistance in the context of the Tanzania Assistance Strategy. 3. Monitoring and evaluation Development of a monitoring and evaluation strategy to track changes in poverty and human development 4. The participatory process Description of the participatory process to prepare the strategy.