Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) Report Number : ICRR0020533 1. Project Data Country Practice Area(Lead) Tanzania Macro Economics & Fiscal Management Programmatic DPL Planned Operations: 3 Approved Operations: 3 Operation ID Operation Name P112762 TZ PRSC-9 (1st in a 3rd series) L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IDA-50720 30-Jun-2013 100,000,000.00 Bank Approval Date Closing Date (Actual) 15-Mar-2012 30-Jun-2013 IBRD/IDA (USD) Co-financing (USD) Original Commitment 100,000,000.00 0.00 Revised Commitment 100,000,000.00 0.00 Actual 99,709,260.00 0.00 Prepared by Reviewed by ICR Review Coordinator Group Jorge Garcia-Garcia Clay Wescott Lourdes N. Pagaran IEGEC (Unit 1) PHPROJECTDATATBL Operation ID Operation Name P110836 TZ-PRSC-10 (2nd in a 3rd series) ( P110836 ) Page 1 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IDA-50720,IDA-52100 30-Jun-2014 75,000,000.00 Bank Approval Date Closing Date (Actual) 26-Mar-2013 30-Jun-2014 IBRD/IDA (USD) Co-financing (USD) Original Commitment 75,000,000.00 0.00 Revised Commitment 75,000,000.00 0.00 Actual 73,851,968.00 0.00 PHPROJECTDATATBL Operation ID Operation Name P120536 TZ PRSC-11 (3rd in a 3rd series) ( P120536 ) L/C/TF Number(s) Closing Date (Original) Total Financing (USD) IDA-52100,IDA-53960 31-Aug-2014 85,000,000.00 Bank Approval Date Closing Date (Actual) 27-Mar-2014 30-Jun-2015 IBRD/IDA (USD) Co-financing (USD) Original Commitment 85,000,000.00 0.00 Revised Commitment 85,000,000.00 0.00 Actual 85,488,870.00 0.00 2. Program Objectives and Policy Areas a. Objectives The program development objectives (PDOs) for the series as articulated in the Program Documents are to: (I) improve the investment climate in select strategic areas for competitiveness and shared growth in the country by leveraging its geographical advantage and facilitating agglomeration effects; and (ii) ensure Page 2 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) macroeconomic stability and safeguard shared growth through sound management of public finance (PD, PRSC 9, p. vi; PRSC10, par. 1, and PRSC11, p. v). b. Pillars/Policy Areas Pillar 1: Investment Climate This pillar covered two areas: the regulation and institutional development of special economic zones (SEZs) and the investment climate for Tanzania’s competitiveness as a regional transit hub. The Program Document for PRSC9 defined four areas, but, the PRSC10 dropped two areas (legal framework for business and land laws and policies) because they were covered in other Bank operations. For this objective, eight prior actions were carried out. Seven of them were associated with the special economic zones and the investment climate areas. One prior action was associated with the area of legal framework for business environment area; the action became irrelevant for program results because the legal framework area was dropped in PRSC10. The seven prior actions covered laws and regulations for the Special Economic Zones, establishing single one-stop services center for investors in special economic zones, developing operational guidelines for public private partnership (PPP), taking actions to reduce checkpoints at the border, and streamlining procedures in the port of Dar es Salam. Pillar 2: Public Finance This pillar covered three areas: efficiency and transparency in domestic revenue mobilization, management of public investment inclusive of public private partnerships (PPP), and budgets and public financial management (PFM) systems. For this objective, sixteen prior actions were carried out. They covered (a) enacting laws aimed at improving transparency and efficiency in domestic revenue mobilization, both for general taxes and the extractive industries; (b) taking steps to improve planning and monitoring of public investments, and the management of the PPP policy; (c) taking steps to improve transparency, financial management systems, management of assets and liabilities, accounting and reporting, and control of budget execution. c. Comments on Program Cost, Financing, and Dates Total financing from the program reached US$275 million: PRSC9 ($100 million), PRS10 ($75 million), and PRSC11 ($ 85 million). The credits were approved on March 15, 2012 (PRSC9), March 26, 2013 (PRSC10), and March 27, 2014 (PRSC11), and closed on schedule on June 30, 2013, June 30, 2014, and June 30, 2015, respectively. 3. Relevance of Objectives & Design a. Relevance of Objectives Page 3 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) The program sought to address some of the problems constraining the growth and stability of the economy: inadequate fiscal buffers to manage economic instability and deteriorating economic conditions, deficiencies in infrastructure, regulations hampering trade and high dependence on few exports to earn foreign exchange, and an insufficiently transparent and accountable public sector, despite substantive reforms carried out in the years prior to the program. At appraisal and closing, the program’s objectives were highly relevant. They were consistent with the country’s development priorities, the World Bank Group Country Assistance Strategy (FY12-15), the corporate goals, and the country’s conditions. The development priorities were defined in the government’s 2011 National Strategy for Growth and Reduction of Poverty II (MKUKUTA II) and its five-year development plan. The program supported areas identified in the National Strategy (MKUTUTA) and the development plans: key priority growth and poverty reduction sectors, aligning plans of state organizations (from ministries to local governments) to MKUTUTA, scaling up the role and participation of the private sector in priority areas of growth and poverty reduction, and in improving public finance management systems (National Strategy, p. ix). In the development plans for 2011/12-15/16 and 2016/17-2020/21 they were areas considered as underlying prerequisites for growth, such as governance and macroeconomic stability, or as core priorities, such as infrastructure and trade. The program was consistent with the World Bank Group Country Assistance Strategy (FY12-15), as it supported its objectives of promoting accountability and governance, increasing access to and quality of transport services, and improving management and delivery of urban services. On urban services the CAS emphasized the importance of shifting support to cross-cutting public management systems (especially public financial management and public sector management from the central to the local level. Rating Revised Rating High --- b. Relevance of Design The program defined a set of actions that were likely to deliver the objectives of the program. The objectives were relatively precise and measurable. The actions had substance and sought to solve specific problems. In most instances, the indicators selected were linked to the program objectives. Improving the efficiency of the port of Dar es Salam was essential to reduce trade costs, promote trade, and enhance Tanzania’s place as a regional trading hub; in the same manner, it was equally important to reduce the trade costs associated with crossing borders between Tanzania and its neighboring countries. Lower trade costs translate into lower trade restrictions, more competition, and efficiency gains for the economy. On public financial management, more transparency and accountability on the revenues from the extractive industries were essential to improve the management of public finances and increase the likelihood of having a more stable macroeconomic environment. The new regime for special economic zones sought to reduce the fragmentation of the one in place up to that moment, integrating it with the regime for export processing zones, and improving the investment climate at the zone with, among other incentives, better infrastructure and streamlined regulations. Page 4 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) The design paid little attention on how SEZs work and whether they deliver the services expected from a well- functioning system; instead, it took for granted that more investors in SEZ implied more competitiveness without going deeper into what was the problem, its causes, and the impact of the proposed solutions. For the second objective the actions agreed to were generally appropriate to achieve it, although there were some shortcomings in it. Two prior actions were unlikely to deliver the expected result, as they consisted of drafting a bill to amend the Planning Commission Act and drafting legislation to have a sound framework for the operation of the Extractive Industry Transparency Initiative (EITI). Drafting legislation does not guarantee a decree or a law will be enacted, especially if it is a prior action in PRSC11. Regarding indicators, although all of them were measurable, two did not reflect program results. In one case the result was difficult to attribute solely to the actions of the program (ranking in the Open Budget Initiative Index); in the second case (number of projects appraised using an investment operation manual) the preparation of the manual was started when PRSC 11 was active. A third indicator, (tax revenue)/GDP, was not appropriate to measure the impact of establishing a common tax procedure code for the different taxes collected. The choice of a series of development policy operations was appropriate. The series would ensure sufficient time to carry out the reforms needed to achieve the objectives of the operation and measure their results. Macroeconomic framework. The country’s economic performance was strong during the program. Real GDP grew above 6 percent in 2012-2016 and annual inflation averaged 6 percent. During 2012-2016, total central government expenditure averaged about 18 percent of GDP and total revenue without grants averaged about 13.5 percent of GDP, with an overall deficit (cash basis) of 3.3 percent of GDP. Macroeconomic management delivered fiscal sustainability and macroeconomic stability, but the quality of fiscal management was uneven, deteriorating in some areas, such as the accumulation of domestic arrears which averaged more than one percent of GDP during 2013/14-2015/16. Preserving fiscal and external sustainability while sustaining rapid growth and keeping pace with the development agenda required a broad range of reforms: raising more revenue, streamlining current expenditures, and increasing spending efficiency, especially in public investment. The IMF considers that Tanzania’s low tax-to-GDP ratio creates a revenue gap of about 2-3 percent of GDP that needs to be closed with broad reforms in tax policy and tax administration, some of which the program supported. To help reduce pressures on government expenditure Tanzania can improve spending efficiency, which can come, among others, from strengthening the institutions for public investment management. The program also supported reforms in this area. Rating Revised Rating Modest --- Page 5 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) 4. Achievement of Objectives (Efficacy) PHEFFICACYTBL Objective 1 Objective Improve the investment climate in select strategic areas for competitiveness and shared growth in the country. Rationale The program objectives sought four outcomes that it supported under two policy areas: special economic zones and Tanzania’s competitiveness as a transit hub. Special economic zones (SEZs). The program sought to build an effective special economic zone regime based on a favorable investment climate to attract investors. The ICR reports that at the end of the program there were 140 investors operating in the SEZ (target was 80 investors) and an investor spent an average of 3 days getting a license (target was 3 or fewer days). While the targets were achieved, there is no clear evidence that the special economic zones have broken the bottlenecks that producers face in Tanzania. A recent paper on SEZ in Tanzania (Kinyondo, Newman and Tarp, WIDER working paper 2016/122) reports that they employ about 44,000 people, most of it Tanzanians, but firms still face challenges for operating in them. The paper finds (Table 5) that access to tax benefits was the most important factor to establish in SEZ, followed by access to inputs and customers. The paper also finds (p. 14) that (a) firms benefit generally from better infrastructure but are constrained by the supply of energy and power; (b) the interaction of workers with the local economy presents an opportunity for economic development within the local economy around SEZs; (c) accessing labor with the necessary skills appears problematic for firms located in Tanzania; and (d) the state lacks capacity in the organization and management of SEZs and the export processing zone authority (EPZA, p. 14) does not have a good handle on how the SEZs are functioning in practice. These findings indicate that measuring achievement of the objective by the number of companies established in SEZ is inappropriate. Tanzania’s competitiveness as a regional transit hub. The program sought to improve efficiency in trade- and logistics-related institutions for better economic integration within the country and with its neighboring countries. The ICR reports containers had a dwell time of 4.9 days (target was 5 days or less), ships’ turnaround time was 1.9 days (target was 4 days), and trucks spent one day crossing the main border posts (target was half day). Data from the World Bank’s Logistic Performance Index (2016 report), which measures a country’s efficiency in handling its imports and exports, show a substantial improvement for Tanzania between 2014 and 2016. The country moved up in the overall rank from 138 to 61. In customs it moved from 135 to 60. In infrastructure, it moved from 114 to 60, and in logistics quality and competence from 145 to 58. Such improvements suggest that trade costs fell, facilitating trade; better conditions to trade are likely to encourage competition, reduce overall costs and stimulate growth. The review rates substantial the achievement of this objective based on the substantial improvements in the operation of ports. Page 6 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) Rating Substantial PHREVDELTBL PHEFFICACYTBL Objective 2 Objective Objective 2: Ensure macroeconomic stability and safeguard shared growth. Rationale This objective sought to achieve eight outcomes supported by reforms in the areas of domestic revenue mobilization with transparency, sound public investment management including PPP, and improved quality of budgets and stronger public financial management. Domestic revenue mobilization. The ICR reports that by the end of the program, tax revenue had increased to 20.8 percent of GDP, exceeding the target value of 19 percent of GDP. Although the target for the tax/GDP ratio was achieved and the (tax revenue/GDP) increased 3.2 percentage points, the ICR implicitly attributes the increase to the program, in which case it should have explained why that is the case. Also, the ICR reports that the time to produce a payments reconciliation report for the Extractive Industry Transparency Initiative (EITI) fell to 17 months, falling short of the target (16 months); the one-month shortfall does not seem a major shortcoming, since the ICR notes that the EITI requirement to produce such reports is 18 months. Public investment management and public private partnerships (PPPs). The program sought to establish effective public investment management and PPP institutions within the Government. To achieve the objective the program supported actions to strengthen planning and monitoring of public investment and to improve the management of its PPP policy. Regarding public investment management, the ICR reports that none of the public investment projects proposed by ministries, departments and agencies was prepared following the economic and financial analysis outlined in the manual prepared by the Planning Commission. The target, 50 percent of all proposed projects prepared following the guidelines, was not met. Regarding PPPs, the ICR reports that not a single project was approved. The target of three projects approved was not met. Budgets and public financial management (PFM). The program sought to improve the quality of budgets through budget planning and execution and build a stronger institution of public financial management system with transparency. To achieve the objective the program supported actions that covered aspects of transparency, financial management systems, management of assets and liabilities, accounting and reporting, and control of budget execution. These aspects constitute elements of some pillars of the public expenditure and financial accountability (PEFA) framework used to assess a country’s public financial management. On the results achieved, the ICR reports that (a) about 68 percent of the budget was in line with the priorities at the end of the program; the number indicates a deterioration relative to the baseline value of 75 percent; (b) all ministries, departments and agencies were fully connected to the information system at the beginning and end of the program (i.e., 100 percent); (c) about 80 percent of local government authorities connected to the system during the program, a substantial improvement over its baseline value of zero percent; the remaining 20 percent of local governments (35) were connected after the program ended; (d) Tanzania improved its ranking from 45 to 46 in the Open Budget Initiative Index, but did not reach its target of 55; and (d) 38 percent of local government authorities complied with the internal audit guidelines, Page 7 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) falling short of the target of 70 percent. Rating Modest PHREVDELTBL PHREVISEDTBL 5. Outcome The program selected objectives of high relevance and its design had substantial relevance. Efficacy in achieving the objective of improving the investment climate in selected areas (Objective 1) was substantial, and efficacy in achieving the objective of ensuring macroeconomic stability and safeguarding shared growth (Objective 2) was modest. At the end of the program more enterprises were operating in the economic zones than the number expected; from that number it cannot be concluded that the SEZ operations improved in a significant manner. The investment climate in the special economic zones improved. The time to get a license to operate within them fell to three days, and the number of investors operating in them reached 140, exceeding the program's target of 80. The efficiency in the port of Dar es Salam improve, leading to a reduction in dwell time of containers and of turnaround time of ships. The time to cross a border post fell to one day, an improvement over the past but still short of the half a day target set by the program. On macroeconomic stability, tax revenues increased to about 21 percent of GDP and the time it took to produce a payments reconciliation report for the Extractive Industry Transparency Initiative was within the time required by the Initiative. The program failed to meet its objective in sound public investment management, and fell short on what it was expected to achieve on the quality of budgets and public financial management, where about 70 percent of the budget is in line with the priorities in the government’s development plan. The program fell short of its targets in on compliance with internal audit guidelines and in improving the ranking of the country’s budget institutions in the Open Budget Initiative. a. Outcome Rating Moderately Satisfactory 6. Rationale for Risk to Development Outcome Rating The results achieved by the program could be jeopardized by the management of fiscal policy and by external conditions. On fiscal policy, the government faces the continued challenge of raising the revenues required to sustain the expenditures for its development program, avoid building up its stock of arrears, and using less debt to finance that program. Slowing down reforms could reduce potential growth and affect fiscal performance, as Page 8 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) the expected gains in government revenues and efficiency of expenditure do not materialize. On external conditions, two aspects must be considered. First, tightening global financial conditions raises the cost of borrowing in international markets, shrinking the fiscal space to finance development programs as interest payments and debt repayment may account for a larger proportion of total expenditures. Second, a lower growth of the world economy represents a lower volume of exports of Tanzania and its neighbors, affecting its position as a regional transit hub and reducing the potential gains resulting from agglomeration effects. a. Risk to Development Outcome Rating Substantial 7. Assessment of Bank Performance a. Quality-at-Entry The program addressed relevant economic problems, which had been identified in the Bank’s analytic work and the Country Assistance Strategies, and in the country’s National Strategy for Growth and Reduction of Poverty (2010) and its two National Development Plans (2011, 2016). The program design benefited from the participation of other development partners represented in the General Budget Support (GBS) group and from guidance in the annual Performance Assessment Framework (PAF) agreed between the government and the members of the Budget Support Group. Program objectives were relatively precise and achievable, the prior actions were likely to deliver the objectives sought, and the indicators selected were appropriate to assess achievement of objective. Changes in the scope of the program in PRSC10, covering five policy areas instead of seven and reducing the number of indicators and targets to achieve, sharpened the focus of the program, raising its likelihood of success. The ICR does not report the operation that replaced the PRSC and supported the private sector development agenda. The change in scope did not affect the prior actions envisioned in the five areas the program covered during PRSC10 and PRSC11. The targets for some of the indicators were too optimistic to be achieved during program implementation, a shortcoming that detracts from the overall good quality at entry. Quality-at-Entry Rating Satisfactory b. Quality of supervision General Budget Support provided through a programmatic series tends to be well monitored. Implementation and performance of the operations in the series were assessed under the annual PAF agreed between the GBS donors and the government. Coordination between donors and major development partners was good. Moreover, presence in the field of a senior staff, and sector specialists ensured seamless coordination with development partners and government officials. Three ISRs were prepared for the first two credits (one for PRSC9 and 2 for PRSC10), suggesting a close follow up of program actions and triggers. However, there was no ISR for PRSC11. Page 9 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) Quality of Supervision Rating Moderately Satisfactory Overall Bank Performance Rating Moderately Satisfactory 8. Assessment of Borrower Performance a. Government Performance The government and implementing agencies cannot be distinguished. Therefore, this section covers the performance of both. The government worked well with the Bank and other donors to put in place a sound program of reform embedded in three operations that addressed substantive problems, and carried out the prior actions on time to deliver the program as planned. The program reflected the priorities of the government as well as of other stakeholders in Tanzania and the Bank. Nonetheless, during program implementation the performance assessment framework of the General Budget Support underwent changes that weakened its link with the PRSC results framework. The impact of these changes on the results of the series is unclear. Not all implementing agencies saw the same urgency to carry out the actions of the program, as exemplified by the delays in publishing the EITI report for 2012/13, which led the EITI board in September 2015 to suspend Tanzania because it had missed the deadline of June 30, 2015, for publishing the report. The suspension was lifted in December 2015 as the 2012/13 and 2013/14 were published together. Government Performance Rating Moderately Satisfactory b. Implementing Agency Performance Not applicable Implementing Agency Performance Rating --- Overall Borrower Performance Rating Moderately Satisfactory 9. M&E Design, Implementation, & Utilization a. M&E Design The program specified the objectives clearly and, overall, the indicators reflected the objectives. The indicators were measurable. The program M&E was monitored under the harmonized performance assessment framework for the generalized budget support arrangement between the government and donors. The Page 10 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) indicators were to be compiled into the performance assessment framework developed for each of the three clusters of MKUKUTA II as well as on macroeconomic management and public financial management. All the indicators had their baselines and targets. Some targets were ambitious, in part a result of drawing them from the government’s long-term development plans and strategies. b. M&E Implementation The indicators were collected from three main sources. The first one was the performance assessment framework, but this source became less significant as the framework was revised during the implementation of PRSC9-11, and the link between the two weakened. The second source was the MKUKUTA Secretariat that produced an annual implementation report that consolidated key achievements, lessons, and challenges faced in implementing the plan. That information was uploaded in the Ministry of Finance. Because this information was insufficient to monitor the PRSC program, the government became responsible for collecting the information necessary to monitor the PRSC program. Collecting such information required effort because the data were spread over different government entities. In addition, the ICR reports that supervision missions were programmed to last 3 weeks and to be carried out 4 times per year, but this information implies a more intense supervision than the one revealed in the implementation and status results report (see section on Bank supervision). c. M&E Utilization The government held annual reviews of the general budget support arrangement during the implementation of the PRSC program. The annual review, a dialogue between the government and general budget support partners, helps assess the impact of that support. At the annual reviews, the Bank and the government used the information available to adjust the program under PRSC10, making the program more focused and clarifying the expected outcomes. The reviews, however, were not used to change the target values for some indicators that were unrealistic and would not be achieved at the end of the program. M&E Quality Rating Substantial 10. Other Issues a. Environmental and Social Effects The ICR does not report on environmental and social effects. Page 11 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) b. Fiduciary Compliance The ICR does not report issues on this matter. c. Unintended impacts (Positive or Negative) None d. Other None 11. Ratings Reason for Ratings ICR IEG Disagreements/Comment Moderately Outcome Moderately Satisfactory --- Satisfactory Risk to Development Substantial Substantial --- Outcome Moderately Bank Performance Moderately Satisfactory --- Satisfactory Moderately Borrower Performance Moderately Satisfactory --- Satisfactory Quality of ICR Substantial --- Note When insufficient information is provided by the Bank for IEG to arrive at a clear rating, IEG will downgrade the relevant ratings as warranted beginning July 1, 2006. The "Reason for Disagreement/Comments" column could cross-reference other sections of the ICR Review, as appropriate. 12. Lessons The ICR brings the following lessons, with which the IEG review agrees. • A series of development policy operations that focuses on a limited, well-researched, jointly designed and monitored reform agenda, is likely to have more traction than those with broad and dispersed focus. The PRSC 9-11 series focused on two pillars and five policy areas, in contrast to the two preceding it, which encompassed four pillars and a wide range of reform areas. A smaller and sharper focus made it easier to implement and monitor the program and adjust it in a timely manner as the circumstances demanded it, which was instrumental in achieving the outcomes. The move from broad business environment Page 12 of 13 Independent Evaluation Group (IEG) Implementation Completion Report (ICR) Review TZ PRSC-9 (1st in a 3rd series)(P112762) reforms to streamlining processes in selected areas has yielded better outcomes. • Narrowing the focus facilitated concentrating efforts in fewer areas, but made the program prone to unreachable targets during the duration of the program. The outcome indicator should be achievable both because of the program and as a measure of realism. While the outcome indicators of the PRSC 9-11 program were clear and well-defined, some of the program targets were set too high (share of MKUKUTA to reach 100%), or number of signed PPP project at 4). A key reason for over-ambition was drawing the targets from the government’s long-term development plans and strategies to align them with the government’s objectives, but these targets were somewhat inappropriate for a short-term program more oriented to the budget cycle. IEG adds the following lesson: The experience of the program shows that inadequate indicators and outcome targets can affect the assessment of a program’s actual development outcome. This suggests that close monitoring of program results during implementation is as important for program success as monitoring the implementation of the program’s prior actions and triggers. 13. Assessment Recommended? No 14. Comments on Quality of ICR The ICR assesses well the achievements and shortcomings of the program in a balanced manner. It draws relevant conclusions and lessons from program design and implementation. Overall, the ICR conveys the necessary information to assess the program in a report of reasonable length. a. Quality of ICR Rating Substantial Page 13 of 13