Document of The World Bank Report No: 19216-TA PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 29.9 MILLION (US$41.2 MILLION EQUIVALENT) TO THE UNITED REPUBLIC OF TANZANIA FORA PUBLIC SERVICE REFORM PROJECT IN SUPPORT OF THE FRST PHASE OF THE PUBLIC SERVICE REFORM PROGRAM October 30, 1999 Capacity Building Unit Country Department 4 Africa Region CURRENCY EQUIVALENTS (Exchange Rate Effective October 30, 1999) Currency Unit = TSH TSH = US$.00130 US$1 = TSH775 FISCAL YEAR July 1 - June 30 ABBREVIATIONS AND ACRONYMS AFDB African Development Bank MTEF Medium Term Expenditure Frame,work APL Adaptable Program Lending NGOs Non-Governmental Organ:ization; CAS Country Assistance Strategy NORAD Norwegian Agency for Internatioral CIDA Canadian Intemational Development Agency Development CSD Civil Service Department OCAG Office of the Controller and Auditor- CSRP Civil Service Reform Program General DANIDA Danish Iiternational Development Association PAD Project Appraisal Document DFID Departnent for International Development (UTK) PCU Project Coordinating Unit DLC Distance Leaming Center PER Public Expenditure Revievw EAs Executive Agencies PFP Policy Framework Paper ESAF Enhanced Structural Adjustment Facility PHRD Policy and Human Resources De,, elopment EU European Union Fund (Japan) FINNIDA Finnish International Development Agency PIF Performance Improvement: Fund GADP Government Accounting Development Project PIM Performance Improvement Model GDLN Global Distance Learning Network PMO Prime Minister's Office GDP Gross Domestic Product PMR Project Management Report GOT Government of Tanzania PMU Performance Management Unit FHPC Highly Indebted Poor Countries PPF Project Preparation Facility IDA International Development Association PPRP Parastatal and Public Sector Reformt IProject IEC Information, Education and Communication PREMIS Presidential Management Information. System IFM Institute of Finance Management PSC Public Service Commission IMF International Monetary Fund PSRP Public Service Reform Program IMTC Inter-Ministerial Technical Coordination SAC Structural Adjustment Creclit IT Information Technology SAL Structurl Adjustment Loan IWG Inter-Ministerial Working Group SDC Swiss Development Cooperation LACI Loan Administration Change Initiative SDP Sector Development Program LCC Local Cost Compensation SIDA Swedish Intemational Development, igmcy LGRP Local Government Reform Program SPA Special Program for Africa M&E Monitoring and Evaluation UNDP United Nations Development Program MDAs Ministries, Departnents and Agencies USAID United States Agency for Internati. onal MIS Management Information System Development MOF Ministry of Finance WBI World Bank Institute WHO World Health Organization Vice President Callisto Madavo Country Director James W. Adams Sector Manager Brian D. Levy Team Leader Denyse E. Morin Tanzania Public Service Reform Program (Phase 1) CONTENTS A: Program Purpose and Project Development Objective ........................................................3 1. Program purpose and program phasing .................................................................. 3 2. Program development objective ...... ..................................3.........................3 3. Key perfonnance indicators ..................................................................3 B: Strategic Context ..................................................................A. 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project ........4 2. Main sector issues and Government strategy ................................................................. 6. 3. Sector issues to be addressed by the project and strategic choices .................................9 4. Performance triggers for subsequent credits ................................................................. 12 C: Project Description Summary ................................................................. 13 1. Project components ................................................................. 13. 2. Key policy and institutional reforms supported by the project ..................................... 14 3. Benefits and target population ................................................................. 15 4. Institutional and implementation arrangements .... ....................................................... 15 D: Project Rationale ................................................................. 2i.0 1. Project alternatives considered and reasons for rejection ............................................. 20 2. Major related projects financed by the Bank and/or other development agencies ....... 20 3. Lessons learned and reflected in the project design ...................................................... 21 4. Indications of borrower commitment and ownership ............ ...................................... 24 5. Value added of Bank support in this project ................................................................ 25 E: Summary Project Analysis ................................................................. 25 1.- Economic ...... ........................................................... 25 2. Financial ................................................................. 25 3. Technical ................................................................. 26 4. Institutional .................................................................. 26 5. Social ................................................................. 27 6. Environmental assessment ................................................................. 28 7. Participatory approach ................................................................. 28 F: Sustainability and Risks ................................................................. 28 1. Sustainability ................................................................. 28 2. Critical risks ................................................................. 3.0 3. Possible controversial aspects ................................................................. 32 G: Main Loan Conditions ........................ 32 1. Effectiveness conditions ........................ 32 2. Other ........................ 3.2 H: Readiness for Implementation ........................ 32 I: Compliance with Bank Policies ........................ 32 Annexes Annex 1 Project Design Summary Annex 2 Detailed Program Description Annex 3 Estimated Project Costs Annex 4 Cost Effectiveness Analysis Summary Annex 5A Financial Summary (Part A) Annex 5B Financial Summary (Part B) Annex 5C Financial Management for Part A Annex 6 Procurement and Disbursement Arrangements Table Al Project Costs by Procurement Arrangements (Part A) Table A2 Project Costs by Procurement Arrangements (Part B) Table A3 Consultant Selection Arrangements (Part A) Table B Thresholds for Procurement Methods and Prior Review (Part A) Table C Allocation of Loan Proceeds Annex 7 Project Processing Budget and Schedule Annex 8 Other Documents in the Project File Annex 9 Statement of Loans and Credits Annex 10 Country at a Glance Annex 11 Letter of Development Program from Govemment of Tanzania Annex 12 Decentralization & Institutional Pluralism in Tanzania Annex 13 Performance Improvement Process and Budgeting Mechanism Annex 14 Fiscal Framework for Pay Reform and Feasibility of Program Implementatici: Map IBRD 27941 Tanzania Public Service Reform Program (Phase 1) Project Appraisal Document Africa Regional Office AFC04 Date: October 30, 1999 Team Leader: Denyse Morin Country Manager/Director: James W. Adams Sector Manager/Director: Brian D. Levy Project ID: TZ-PE-60833 Sector: BA - Public Sector Management Lending Instrument: APL Theme(s): Public Sector Reform, Service Inprovement, Performance Management Poverty Targeted Intervention: [X] Yes [ ] No IDA GOT Donors Total Commitment Closing _ ~~~US$ m %/ US $m US $ m US$ m Date Date PSRP I/DLC 41.2 45% 12.5 37.2 91.0 2000 2004 Govt. of Credit Tanzania PSRP II 33.6 48% 17.5 18.9 70.0 2005 2008 Govt. of Credit Tanzania PSRP III 19.2 48% 10.0 10.8 40.0 2009 2011 Govt. of Credit ___Tanzania Total 94.0 47% 40.0 66.9 201.0 Project Financing Data I I Loan [XI Credit [] Grant [I Guarantee [ Other [Specify] For Loans/Credits/Others: Amount (US$m): 41.2 million (phase 1) Proposed terms: [] To be defined [X] Multicurrency [I Single currency [] Standard [XI Fixed [] LIBOR-based Variable Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5% Service charge: 0.75% Government of Tanzania 12.5 - 12.5 IDA 19.0 22.2 41.2 Donors 26.5 10.7 37.2 Total: 58.0 32.9 91.0 OCS APL PAD Form: October 15, 1998 Page 2 Borrower: Government of Tanzania Responsible agency(ies): Ministry of Finance, President's Office, Dar es Salaam, Tanzania Estimated Disbursements (Bank FY/USSM): FYOO FY01 FY02 FY03 FY04 Annual 6.5 9.5 13.2 6.1 6.0 Cumulative 6.5 16.0 29.2 35.3 41.2 Project implementation period: 2000-2004 (5 calendar years) Expected effectiveness date: 2000 Expected closing date: December 31, 2004 Implementing agency: Civil Service Department Contact person: Joseph Rugumyamheto, Permanent Secretary, Civil Service Departnent Address: Kivukoni Front, Dar es Salaam, Tanzania Tel: 255-51-130122 Fax: 255-51-113084 E-mail: ps-csd@intafrica.com Page 3 A: Program Purpose and Project Development Objective 1. Program purpose and program phasing: (see Annex 1) The overall purpose of the Public Service Refonn Program (PSRP) is to support the attainment of a high rate of economic growth and ensure that delivery of quality public services within priority sectors conforms to public expectations for value, satisfaction, and relevance by end 2011. The aims of the program reflect the Government's vision of the future public service as stated in the National Vision 2025. The Public Service will be an institution of excellence playing a pivotal role in achieving sustained economic growth and prosperity. and eradication of poverty in the 21St century. The Adaptable Program Lending (APL) is most appropriate for the sequenced, programmatic and long- term implementation strategy that the Government has adopted. Phase 1 of the program (2000-2004) will: (i) complete and sustain the comprehensive structural and institutional reforms implemented with considerable success in recent years; and (ii) launch a strategic process for progressively transforming the role, capacity and performance of the public service on a sustainable basis. Phase 2 (2005-2008) will institute a performance management culture in the public service. Phase 3 (2009-2011) will bring about quality improvement practices. 2. Program development objective: (see Annex 1) Part A (Public Service Reform Program). The program development objective is to improve accountability, transparency and resource management for service delivery. The public service will deliver efficiently and effectively the Government's economic and social programs on a continuous and sustainable basis. In the medium-term (Phase 1), this development objective will be underpinned by the policy shift to institutional pluralism in service delivery and the strategic theme to deliver quality public services under severe budgetary constraints. Part B (Distance Learning Center). The main objective of the Global Distance Learning Network (GDLN) component is to test the effectiveness and sustainability of a distance leaming center (DLC) as part of a global knowledge-sharing network to strengthen the capacity of public and private decision- makers and implementers to design, plan and manage economic and social development policies. This component is an integral part of the public service reform program since one of its primary aims is to help strengthen performance capacity of government officials and private sector managers. 3. Key performance indicators: (see Annex 1) Key performance indicators of progress towards the program goal will include the following: * the Performance hnprovement Model (PIM) successfully piloted in central government key social sector Ministries, Departments and Agencies (MDAs). Success will be reflected in terms of measurable improvements in the MDAs' redefined roles, decentralized functions and enhanced private sector participation. These will translate into improved quality of services. On the basis of such outcomes, the MDAs will also receive a predictable (budget-based) flow of funds in key sectors. * the "quick win1" service improvement program initiated under the past phase of the program will be completed. * improvements in real wage levels for professional, technical and managerial staff towards levels consistent with incentives for performance and enabling the public service to hire and retain adequate numbers of staff in areas of critical skills, especially in policy and regulatory functions. "'Quick wins" are identified as reform measures that MDAs can effect to improve quality or to deliver services efficiently with zero or minimal requirement of new teclmical or financial resources. Page 4 * demonstrated improvement towards reinstating mentocracy in the public service, i.e., appointments and promotions to the public service carried out on a transparent and competitive basis. * progress in building institutions for safeguarding and sustaining meritocratic practices, as specifically reflected in a legal framework, and a new, independent Public Service Cormmission. * progress in building sustainable capacity for bothk change management as well as service improvements. To this end planning and policy units in MDAs will be properly equipped and staffed with competent policy analysts and in-service training programs will be readily accessible to public servants. * for Part B, sustainability of the DLC measured by demnand for and utilization of the center's services and ability to cover operating expenses through fees. Specific perfomiance indicators that will trigger transition to successive phases of the programn are tabulated in Section B. 4. Indicators for the outputs and outcomes for Phase I components are in Annex 1. B: Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Docunmentnumber: 16554-TA Date of latest CAS discussion: June 20, 1997 The CAS's primry development objective is broad-based economic growth with poverty reduction by about 5 percent by 2000. To realize this development objective, it is planned to (i) improve and stabilize: fiscal performance; (ii) strengthen the base for economic growth by giving a high priority to the rural seetor and facilitating private sector investments; (iii) improve environment management; (iv) liberalize prices and marketing; (v) imnprove market integration and access to productive assets and services; (vi) improve the efficiency of social services and target vulnerable groups; (vii) improve expenditure efficiency; (viii) eliminate redundancies and build capacity; (ix) enhance perfornance of regulatory functions; and (x) eliminate opportunities for rent-seeking and enforce accountability. The PSRP will directly support a number of these objectives by systematically introducing a strategic process that focuses public service managers on: (i) more efficient use of limited public resources through selected decentralization options and enhanced private sector participation in service delivery; and ii) sustainable improvements in capacity and overall perfonnance. The GOT's objective is to "restart progress in poverty reduction by raising growth performance and e:.tending access to basic social and economic services'2. The World Bank and other donors are supporting this o 1jective mainly through sector development programs (SDPs) and other programs aiming at improving the perfo:fnance of the MDAs. From a systems perspective, the PSRP's interventions are critical to effective implementation of the development processes initiated under various SDPs. While the SDPs will mainly provide physicaL, :nterial and sector-specific inputs for the development processes that improve the supply quality and access to basic social services, the PSRP, together with the other main institutional reform programs (Public inmancial Management Reform Program and Local Govermment Reform Program), will provide the "systemic inputs (systems, policies, rules and regulations, and others) to the development processes (see Figure 1 overleaif l. 2 World Bank "Memorandum of the President of the Intenational Development Association on a Country Assistance Strategy of the World Bank Group for the United Republic of Tanzania", (May 6, 1997), p. 10. Page 5 Figure 1: Total System Perspective of PSRP and SDPs Nexus PSRP/Systemic Inputs SDPs Inputs Institutional Infrastructure - Physical Infrastructure * Policy Management - Human Resources * Management Systems - Materials * Decentralization = + * Others - Others Development Processes Monitoring | ServicesDl Evaluation Services Delivered Page 6 2. Main sector issues and Government strategy: Background to Sector Issues. Soon after independence, Tanzania adopted a socialist development strategy. By the late 1980s, after a decade of economic decline and pervasive deterioration in public services, it was clear that the strategy had failed. By then also, the public expenditure framework had expanded far beyond what the Government could afford. The public administration had become characterized by underfunding and overstaffing. Civil servants were increasingly demotivated b,. cause, among other reasons, there was a downward spiral in their real incomes and political interference in appointments and pay decisions. Serious distortions and inequities in promotions and compensation took hold. Consequently, discipline, ethical standards and productivity deteriorated. Further, establishment and payroll controls fell into disuse. The public service wage bill was largely out of control, which significantly contributed to fiscal instability and deficits. Implications of Decentralization and Institutional Pluralism 3. The Government is launching the next, phase of its reform program (PSRP) against the backdrop of on-going decentralization and institutional pluralism to improve the delivery of services. In that context, the design of the PSRP strategy takes into accoumn three key institutional changes launched under the Civil Service Reform Program (CSRP): * Redefined role of the State; • New programs for decentralization to local authorities and executive agencies; and • Promotion and facilitation of private sector participation in the delivery of social services. Redefined Role of the State: This process was started with the ministerial organization and efficiency (O&E) reviews under the CSRP. The Government adopted the policy that, if possible and cost-effective, the roles of the Ministries and central departments would be confined to policy and regulatory functions, and the delivery of essential social services. Significant progress has been made in this area. However, a more critical and in-depth rationalization of the ministerial functions continues to be necessary since the public expenditure framework remains too broad to be affordable. Decentralization: In a phased program, and in accordance with the GOT's new decentralization pc licy, operational responsibilities for service delivery of many public services will be shifted from cl ntral Ministries to district and urban councils. A system of inter-govemmental financial transfers will be put in place. Ministries will retain control for policy, regulatory and strategic functions. In certain cases, however, they might also continue to provide some services. The end result will be institutional plurilism in the delivery of services which until now was the exclusive domain of Ministries. Promoting and Facilitating Private Sector Participation: Following the ideological shift from socialism, the GOT' has, in the 1990s, adopted a private sector-led economic development strategy. The Governmerrt- also recognized the potential role of the private sector in the provision of social goods and services. Thernfore, under the CSRP, measures were initiated to facilitate ernhanced private sector participation in these areas. The CSRP also launched programs to inform and educate public servants, especially those in areas affecting private business investments and operations, to play a positive and facilitating role in their Alimnt relations. The program also laid out plans to solicit private sector support in the delivery of operarional services through contracting-out and similar arrangements. More significantly, through the C Rl"s organizational and efficiency reviews, sector Ministries and departments are encouraged to :.oster partnerships with the NGOs, communities and private sector to expand supply, and enhance accc -s to social services. Despite being relatively small, the private sector is already responding significantly t:) ihe ' Institutional pluralism refers to local authorities, executive agencies and provision of services by the private se A.tor. Private sector broadly defrned includes NGOs and communities. Page 7 opportunities arising in sectors such as education and health. This development will gain momentum as Tanzania's economic growth takes off to higher levels, as expected in the medium-term. The Civil Service Reform Program -- CSRP (1991-1999). In response to that situation, in 1991 the Government launched the CSRP with a series of studies financed by UNDP. However, implementation did not start until 1993 when the Bank provided support through the now-ending Parastatal and Public Sector Reform Project (IDA Cr. 2507). Other donors are also supporting the CSRP mainly, DFID, SIDA, NORAD, FINNIDA, DANIDA, USAID, EU, UNDP, Switzerland and the Netherlands. Some of these donors will also support the next phase of the reforms, the PSRP. The overall objective of the CSRP was to achieve a "smaller, affordable, well compensated, efficient and effectively performing civil service". The program has so far been implemented in two phases: (i) restoration of the structural preconditions to support fiscal stabilization measures, including: the removal of ghost workers, staff retrenchment, rationalization of the pay and grading system, and reinstatement of establishment and payroll controls expected to bring employment and the wage bill under control; and (ii) institutional improvements, including: a redefinition of the role of govemment, restructuring for organizational effectiveness and efficiency, outsourcing certain services, decentralization of service delivery, and managerial capacity building. Specific achievements of the CSRP include: • The role of the Government has been redefined. The GOT has progressively withdrawn from direct production of economic goods and services. * The total number of public service employees has reduced by approximately 27% from about 355,000 in 1992 to approximately 260,000 today. This is a net reduction after selective additional recruitment into the key sectors of education, health and law and order. * Effective controls on employment and the wage bill have been institutionalized. All recruitment and entries into the payroll are controlled. A reliable central personnel database has been established and a computerized payroll system (funded by DFID) will be operational by December 1999. Distortions in the compensation system were solved by combining all ad-hoc and non-transparent allowances into a consolidated basic salary, and by rationalizing salary scales and grades. • The civil service salary structure has been decompressed, from a ratio of about 9 to I in 1992 to about 21 to 1 today. Future changes in pay will be guided by targets specified in a new Public Service Pay Policy that emphasizes for the medium-term a clear enhancement of pay for technical and professional staff. * Programs for devolving non-core and executive functions to autonomous agencies, local authorities, communities, NGOs and the private sector are in place. A program to implement systematically decentralization to autonomous executive agencies is being funded by DFID. * Programs to improve the leadership, management and governance qualities of the public service are being implemented, including training in key areas of leadership and management development. A code of ethics and conduct for public servants has been promulgated. In collaboration with USAID, the training of public servants to adopt a more facilitating approach to private sector operators is underway (Investors Road Map). Gender issues are being mainstreamed into public service management with SIDA's support. * A comprehensive decentralization and local government reform program (LGRP) has been launched. The first phase of the program involving the restructuring of regional administrations has been completed. The establishments in each of the 20 regional administrations units were reduced from an average of about 700 to 83. This program aims at making public services more responsive, as well as increasing citizen participation in decision-making. It is also Page 8 anticipated that the LGRP will facilitate rationalization of recruitment and cormpensation of employees between central government and local authorities, resulting in reduced pressure on the public wage bill. The LGRP is strongly supported by IrishAID, DANIDA, FINNIDA, Netherlands, NORAD, SIDA, DFID, EU and UNDP. The CSRP enjoys strong support of both top political leadership and senior management of the civil service. Nevertheless, in active search of sustainable and better results, an in-depth, broad-based and critical assessment of the program has been carried out over the past year, beginning with a National Symposium on Civil Service Reforms organized by the University of Dar Es Salaam at GOT"s reqi..est. It was followed by a series of inter-ministerial reviews, planning and consultative fora. The reviews, complemented by a logical framework process, concluded that: * Despite the impressive achievements in structural and institutional reforms, much ne.eds to be done to translate these results into improved service delivery to the people of Tanzaria. • The program strategy had to contend with the remaining issues: (a) the vision and goals of the reform program remote to public interest; (b) unaffordable levels of public expectations; (c) limited overt public support for the reforms in the past; (d) weak local ownership of reform goals and inadequate implementation responsibilities in MDAs; (e) significant levels of capacity deficiency in both technical functions and change management; (f) capacity and performance undermined to a certain extent by low pay of public servants: (g) ineffective coordination of all major reform initiatives; and (h) weak monitoring and evaluation for outputs, outcomes and impact. a In terms of impact, it was imperative to steer the future program towards consolidati-ag the gains made under the CSRP. This meant that the next phase of the reforms would support the effort of MDAs to adapt to an evolving pluralistic environment for the delivery of public services (see Annex 12). The Public Service Reform Program - PSRP (2000-2011). Against this background, the Goverrnment opted for a more comprehensive program with a longer-term perspective, the PSRP. The program aims at transforming the public service into a service that has the capacity, systems and culture for Al.ent orientation and continuous improvement of services. This will require more than a decade of sus .ai:ed reform efforts. Therefore, the program will be implemented in three phases (see Annex 2: The Government envisages that the PSRP will deepen the institutional reforms started under the CSRP. It i also planned that the PSRP will support improvements in public services by facilitating public service manal er; to hamess the opportunities arising from the decentralization and institutional pluralism developments The program will support the MDAs through a strategic process that will: (i) engage participants in stn:. tuiml changes; and (ii) reinforce the changes in structure to redefined roles within that management process. This strategic process will be installed through a model (Perforrnance Improvement Model--PIM) developed h:y the Tanzanians. Key features of the PIM include: strategic planning; annual performance plannin,i. and budgeting; systematic execution of plans and budget with focus on services improvenments; and monitoring, evaluation and reporting. Thesefeatures are illustrated in Figure 2 overleaf and in Annex 13 Page 9 Fgure 2: Taania's Perforsmnce Imprvement Model ANNUAL PLAN G S1TRATEGIC PLANNING & ' Srkstvroen PERFORMANCE! -- --------~ -1*ecnolzUn&nat BUDGETI! N1&4on SxctorPNrldpaftPloPaw5 \ ,.hprlnsinrQtgur V"rsion Md.ElliclencyEbpovenlents \ ndDontrasimat of Mitionatl md Sectoral .~ 94W . advdnPin' j Icneerre GolsbandPriorities a ! S- aff------- ---------l Apr \sl Bawhrposas /lorosupport NldiumTernt ------ ---------dgt . _ ___ ...... __ ; Expendtit re kandmwork wh th p f o d a intiuioa t . . \, a r > 8 ~~~~~EVALUATIONS OF - MONITORm c it str l a e EVALUATIONAe ; Renewdand o REPORTING o entporsemerr of ptahn Revi'ewss , ,,ug,, ,, Repeat aient Surveys ! EXECEMONPLAM \ 3..Sectorssuestob addressed by the progra Deploy restratesg omcPoFi .Staff Perfomali Appraisa-s appropriationrs podlvyoT . e at actond atckstatusand fr Governm t dconl reores.T re eing the strategic plmoing phase ofthe Phi, a MDAw ill be challenged to: a Redefine its role and mission within the policy framework of decentmlization and institutional pluralism; r Define the mechanisms by which it will strategically lead the other players in improving services delivery, and * Set key result areas for performance that will be monitored through participatory approaches (service delivery surveys, benchmarldng and others) during implementation as part of the triggers to move from the first phase ofthe program to the next. 3. Sector issues to be addressed by the program and strategic choices: The main issues on which the program will focus are: (i) weak capacity of the public service; and (ii) the poor delivery of public services. The CSRP evaluation and a strategic assessment for the future concl-uded that the PSRP had to address these specific problems. The CSRP's focus was on containing the cost of Government and introducing complementary institational reforms. The reforms in these two areas are not yet completed. TIherefore, one strategic choice was whether to continue with the current program (CSRP) and postpone the launch of performa-nce improvement reforms after the cost-contaimnment and i-nstitutional reforms have been taken to their logical conclusion. This option was abandoned for two reasons: (i) to sustain and advance on the results gained in the CSRP, there was a need to adopt a more strategic approach to cost-containment and institutional reforms; and (ii) there was public and political demand that the reform yield not just pain but actual improvements in the quality of public services. Instead it was decided to adopt a hybrid strategy, whereby improved services and capacity would be realized in a Page IQ framework for sustaining the structural and institutional reforms. This framework is reflected in the Tanzania strategic model for performance improvement -- PIM. The need for a more comprehensive approach for effective and sustainable capacity buildirig was recognized. Capacity building requires a number of systemic and institutional changes to improve basic competencies, incentives and work environment of the public servants. Such changes were launched through the CSRP, including training of public service managers; enhancing, decompressinlg and rationalizing compensation; reinstating merit criteria for appointments; introducing a code of ethics and conduct; and addressing gender issues. The other important part of capacity building requires thai; public servants, especially the managers, are both enabled and held accountable for specified outpuits and outcomes. This aspect is considered to be crucial to sustainabilitv. Phase 1 of the PSRP will introduce in a phased and systematic manner such a management environment through the Performance Improvement Component. Subsequent phases of the program will institutionalize these processes and transformn the public service into a result-oriented management and continuous quality improvement culture (see Figure 3 overleaf). Pay is a critical issue to be tackled by the PSRP if capacity is to be addressed on a sustainable basis. The direction taken by the GOT on pay reforn is detailed in Annex 14. Several steps are being taken to empower public service managers: (i) functions are being decentra..ized in line with the approved Public Service Managemenit and Employment Policy. Presently, the Civil Service Department (CSD) will transfer personnel management to the MDAs; (ii) the "common cadre" approach, i.e., economists reporting to the Planning Commission, accountants under the management of the Accountant General, and others, is being abolished; (iii) the Directorate of Personnel in CSD has also been eliminated; and, with a view to increasing accountability, the Office of the Controller and Auditor General (OCAG) will likely become an executive agency. Through the PSRP (decentralization of authority) and the public finance reform (performance budgeting), line managers will enjoy greater autonomy. Decentralization of public service delivery emanating from the redefinition of the role of Government and Ministries under the CSRP has resulted in institutional pluralism in the delivery of these services This development has been given impetus by the promulgation of the policy for local government reform and the launch of its implementation. In developing the strategy for the PSRP, a conscious choice i; being made to seize these opportunities for improving public service delivery. Page 1 1 Figure 3: Long-Term Perspective of Public Service Reform in Tanzania: Phases of the Program QUALITY IMPROVEMENT CYCLES (5) PERFORMANCE MANAGEMENT CULTURE l__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ (4 ) PERFORMANCE MANAGEMENT SYSTEMS (3) STRUCTURAL REFORMS (INSTITUTIONAL DEVELOPMENT) (2) STRUCTURAL REFORMS (COST CONTAINMENT) (1) ~.1993 ~ .2000 2004 2008 .. 2011 Page 12 4. Performance triggers for subsequent credits: The perfornance triggers for the successive phases of the program are presented below. End of Phase 1: Transition to Phase 2 End of Phase 2: Transition to Phase 3 1. Seventy-five percent of MDAs will have 1. PIM effectively operational in all MDAs developed a strategic plan and fifty percent will MDAs to be regularly disseminating ser, ice show results in line with the agreed standards through social pacts, service delivery performance targets. Results will be linked to surveys and other instruments. Monitoring and improved service delivery that will be known evaluating outcomes and impact of service by the population, and proper mechanisms will improvements will have been institutionalized. be in place to deal with the population's feedback on the services. 2. In the ten Ministries initially targeted for 2. Balance between personnel and O&M strategic planning and performance budgeting, expenditures reflected in MDAs' performance PSs will have been working for the last two budgets. years in keeping with performance agreements linked to results to be achieved. 3. All MDAs will have in place a quick win that 3. Planning and policy units in MDAs properly will demonstrate improvement in service equipped and staffed with competent policy delivery with the same or fewer budgetary analysts. inputs. 4. The real wages of professional and technical 4. In-service training programs readily accessible staff, adjusted for variations in the expected to public servants. GDP growth and revenue collection, will show significant increase as per the medium-term pay policy targets. 5. All the last year's new appointments will have 5. Public service in position to recruit and retain been made by the Public Service Commission critical skills, especially in policy and consistent with the new legislation establishing regulatory functions. its independence. Should the triggers for Phase 1 not be met, the Bank would envisage reassessing the results achiev .d and working with Government to examine how the program would need to be adjusted to reach the original project objectives or to identify relevant objectives that would be more adapted to the emerging situation. A joint (CSD and donors supporting the PSRP) review of the PIM will be carried out at the e,nd of tlie first 24 months of implementation and a mid term review of the PSRP will take place after three yeal s. The overall objective will be to examine the status of the implementation of the PSRP, to come to agrnement on modifications, review financing implications anid agree on the next phase of implementation. Page 13 C: Project Description Summary 1. Phase 1 Program Components: (see Annexes 1 and 2 for a detailed description and Annex 3 for estimated cost). The PSRP will support the consolidation of the on-going cost-containment and institutional reforms initiated under CSRP. The CSRP had a fairly comprehensive program covering the following components: * Restructuring and Private Sector Participation. * Executive Agencies Program. * Management Information System. * Leadership. Management and Governance. The PSRP will retain these components but will shift the focus to: (i) institutionalizing a strategic process to sustain these structural reforms; and (ii) achieving capacity improvement in the quality of public services. To this end, the Phase 1 of the PSRP (2000-2004) will add two components to the ones initiated under CSRP: (i) Performance Improvement; and (ii) Program Coordination, Monitoring and Evaluation. Performance Improvement. This component has been designed to initiate a long-term process of sustainable capacity building and the transformation of the public service to result-oriented management. The component will introduce a simple and feasible management process--the PIM. It focuses public service managers on utilizing strategically the limited public resources towards service improvements in line with the Government's overall policy and public expenditure priorities. These strategic plans will be consistent with sector development strategies, Govemment policy objectives and strategies in the on- going local government reform and the public financial management reform. The strategic plans will also reflect broad consultations with clients and stakeholders. Demonstrated commitment and achievement to improve services will facilitate aMDA's access to other budgetary incentives. Within this framework, the PSRP will support processes to (i) clarify the role of the MDA; (ii) strengthen capacity in key areas identified during the strategic process; and (iii) define appropriate institutional incentives for performance. Program Coordination, Monitoring and Evaluation. CSRP management monitored inputs and outputs well. A comprehensive quarterly progress report was prepared and distributed to all key stakeholders on a timely basis since 1995. Under PSRP, it is planned that monitoring and evaluation (M&E) will cover outcomes and impact assessment in terms of changes in quality of and access to public services, responding to public expectations for value, satisfaction and relevance of services. In this framework, the implementation of the MDAs' strategic and annual plans will be independently monitored and evaluated using participatory approaches. It is also envisaged that information, education and communication activities will involve the public more directly in decisions related to service delivery and give them a voice to report and rate the public service's performance in delivering services. Since the outcomes and impact of this program will be closely linked to the effective implementation of the complementary reform programs, i.e., PSRP, local government, public financial management and sector development, it is foreseen that the PSRP's M&E activities will signal the need and opportunities for strong program coordination. This component will also facilitate the coordination of strategies, policies and implementation among the programs. The GOT recognizes the need to build skills in addition to putting in place a robust M&E system. This component is key to the success of the PSRP and will be given high priority at the outset of Phase 1. The subsequent two phases of the program are a logical development, following a successful completion of Phase 1. After installing the strategic process for sustainable performance improvement, and the new institutional framework for service delivery, the focus of Phase 2 (2005-2008) will be on instituting a Page 14 perfonnance management culture in the public service. Once this has been achieved, then total client orientation through continuous quality cycles (benchmarking, total quality management) will be introduced in Phase 3 (2009-2011). Performance Improvement BI 33.8 3% 19. 7 22i>/o Restructuring and Private Sector BA 10.7 12% 3.3 40% Participation Executive Agencies Program BY 11.0 12% 2.1 2% Management Information Systems BA 5.6 6% 3.0 3%0/ Leadership, Management & BA/BI 16.4 19% 4.7 5% Governance Program Coordination, Monitoring BA/BI 10.4 12% 6.6 8% & Evaluation Total (Part A) 8. 10% 39.4 45% Global Distance Learning Center BI/BY 3.1 100% 1 .8 59 9, Total (Part B) 3.1 100% 1.8 59'M4 2. Key policy and institutional reforms supported by the project: During the CSRP the Government adopted the policy to withdraw from the direct production of econiomic goods and services. It progressively reduced its direct involvement in the delivery of non-core servico. s and facilitated a rapidly enhanced participation of private sector, NGOs, local authorities, other autonomous agencies and communities in the production and delivery of these services. Accordingly, the roles and firictions of Govenmment Ministries would be largely confined to policy-making, regulation, good govemance and the provision of essential public services and infrastructure as necessary to ensure an enabling environmenat for private sector development, economic growth, and poverty reduction. The operationalization of this podicy underpinned the operation and efficiency (O&E) reviews undertaken in the past five years. Nonetheless, as reflected in the Government's medium term PSRP, further reform measures in this direction are necessary. Therefore, this project will support the implementation of such measures as decentralization, contractingli-out, privatization and abolishing of non-core functions of Ministries. A related reform intervention to be supl: oited by the project is the "debureaucratization" of public services under the "quick win" program initiated un1c Jr the CSRP. 4 See Figure 3, page 13. Page 15 Recognizing the need to develop the capacity of the public service while at the same time transfonring it into a results-oriented management culture, Cabinet approved a Public Service Management and Employment Policy in May 1998. This policy spells out the vision, principles, ethos and practices to guide public service reforms. More significantly, it demands performance-orientation of every public service manager and outlines the key features of a perfonnance management system. To that same end, a medium- to long-term Public Service Pay Policy was approved by the Cabinet in January 1999. The policy marks a shift from the past egalitarian and politically-oriented management of public service pay which is the main cause of compressed pay structures in many developing countries. This policy commits GOT to rationalize and significantly enhance public service pay, especially for technical and professional staff, as a crucial factor in ensuring sustainable key capacity in the public service. This policy will form the basis for Government's guidelines on local cost compensation (LCC). These guidelines will ensure that donor remuneration practices are consistent with government policy and medium-term pay targets. 3. Benefits and target population: The PSRP seeks to improve the performance of the Govemnment in service delivery to all citizenry, communities and the private sector. It will benefit all society by improving the quality, efficiency and effectiveness of public services. The project will also benefit private sector operators by improving the policy and regulatory environment, and ensuring efficient use of public resources in promoting and delivering essential social services, including economic infrastructure. Furthermore, the PSRP will ensure that taxpayers receive from the Government value for money, through strategic, transparent and accountable use of resources by public service managers. In addition, the PSRP will promote integrity in the public service. It will also benefit public servants by enhancing their pay to correspond to their competence and perfonnance, promoting meritocracy and fairness in public service appointments, improving their work environment and promoting their public image. 4. Institutional and implementation arrangements: Part A: The institutional and implementation arrangements reflect the GOT's recognition of the importance to ensure complementarity of the public service, public finance, local government reforms and sector development programs through regular sharing of information. Links have already been established at technical level to ensure close working relationships among the officers involved in the reforms. Committee of all Permanent Secretaries to steer program implementation. The overall institutional coordinating mechanism for the public service reform, local government reform, as well as reforms in key sectors, will be the responsibility of the existing Committee of all Permanent Secretaries (Inter-Ministerial Technical Coordination--IMTC) chaired by the Chief Secretary to the President/Secretary to the Cabinet/Head of Public Service. This Committee meets regularly, at least every two weeks. It clears all policy papers before they are forwarded to Cabinet. In the region, this practice is unique to the Tanzania public service. During the CSRP, the IMTC had a nominal role. Coordination was the responsibility of a Steering Committee constituted of Permanent Secretaries (PS) from five central Ministries. This Committee will continue to meet as a sub- committee of the IMTC. The change to transfer the coordination role to the full IMTC will help ensure that Permanent Secretaries share information and are regularly challenged on reform program implementation in their respective Ministries. It will also facilitate effective coordination of the PSRP with sector development programs and other on-going reforms. The IMTC will meet at least once a quarter in a special session to deliberate exclusively on implementation progress and plans in each of the major areas of reforms (particularly public service, public financial management and local government). Inter-Ministerial Working Group to facilitate technical coordination with other programs. An Inter- Ministerial Working Group (IWG) chaired by the PS, CSD will provide technical coordination of all key public Page 16 sector reform programs. Membership of the IWG will include the Deputy PSs in the central Mini stries, the Director of Policy (CSD), the Accountant-General, ancd the Commissioner for Local Govermuent. The IWG will meet at least once a month and its decisions and recommendations will be regularly (at least quarterly) tabled at the IMTC meeting. The Policy Development Directorate (CSD) will give technical and administrative support to the IWG. Primary implementation responsibility and accountability vested in MDAs. Thle program design IlIaces the primary responsibility for reform implementation with the leadership and management of the individual MDA. This is a departure from the CSRP where an enclave reform secretariat had been establishedl. The strategic and technical leadership role and functions of that secretariat have since been mainstreamed intt. CSD, Office of the President, while implementation has been transferred to the management of the M,4DAs. Accordingly, the Permanent Secretaries and chief executives will be required to specify, promulgate and manage public service reform goals and implementation in their respective organizations. The PS CSD will be directly responsible for implementation of all systemic reform measures. In addition, while the central M\/[inistries, and particularly CSD will provide technical leadership and coordination, every chief executive will b-: held individually accountable for progress in reform implementation in his/her organization. A Presidential Management Information System (PREMIS) will inform Ministers, the Chief Secretary and the President on the progress in reform imnplementation. In this regard, a high priority activity will be training top public sarvice managers in change management. Stakeholders and beneficiaries will participate in defining and assessing progress of the PSRP through such instruments as social pacts, service delivery surveys, and benchmarking. The Program Coordination, Monitoring and lEvaluation Component (managed by CSD) will use these instruments to identify progress achieved and necessary public service improvements. The findings will be reported to the leadership of the public service (the Chief Secretary, the IMTC and the President) and stakeholders and action will be taken as necessary. At the same time, political leadership in Ministries will be sensitized to their roles under a new performance management system that stipulates annual performance agreements between the Chief Secretary and their respective Permanent Secretaries Measures will be taken to ensure that these agreements are acdhered to by the incumbents. Furthermore, the implementation of the PIM in MDAs will start with on-the-job training for s, nior management in strategic planning for their Ministries. Another important feature of the MDAs' strategic and annual plans will be other capacity building measures (including contract recruitment to fill key skill gaps. CSD as the lead change agent. To prepare CSD for its new role, a program for its capacity developinnent has already been defined. Capacity gaps in CSD will be filled through short-term training, witi l an emphasis on on-the-job-training and contract employment of both local and international experts. CSD has already recruited international specialists to support the performance improvement process anid the enhancement of private sector participation. Through properly targeted training, CSD will devel:)p sustainable capacity for strategic leadership and management of the reform program in the mediura- to long-term. It is pioneering the implementation of the PIM. This has commenced with the preparatior. of a strategic plan for the Department. The coordination of each of the PSRP components are the c lrect responsibility of specific divisions in CSD. The job descriptions and performance criteria for the I'S,D Directors are being redefined to stipulate effective coordination of the PSRP components. Effective donor coordination. In the area of public service reform, the Government has a proven (rack record of effective donor coordination. Donors to the CSRP have included the World Bank (IDA. Cr. 2507), Denmark, United Kingdom, European Union, Finland, Netherlands, Norway, Switzerland, UNDP and United States. The Joint Govemment-Donors Program Technical Coordination Committee has met Page 17 regularly (at least every quarter) with the Government in the chair since 1995. It is a measure of the effectiveness of this coordination that in 1996 the donors teamed up to establish a Joint Donors Retrenchment Fund, managed by the Government, through which about US$ 100 million has since been paid to the beneficiaries. Strong donor support is indicated for the future program. Part B: Implementing agency. The component will be implemented by the DLC, to be established as an autonomous nonprofit agency, housed in the Institute of Finance Management (IFM). It will be considered a "public interest" organization in recognition of its role in promoting advances in policy, culture and technology among a wide range of actors. The DLC will be governed by a Board, comprising representatives from government Ministries, the private sector, NGOs and civil society. Daily management of the Center will be entrusted to a Director selected on the basis of proven experience in enterprise management or management of similar educational entities. He will be assisted by a team consisting of a technician (computer specialist with telecommunications knowledge), a facilitator/ trainer, IFM's accountant and an office assistant. Component oversight and coordination. CSD will be responsible for coordination and ensuring the participation of the public and private sectors and donor community in monitoring and training development activities (through the DLC Board). The DLC Board will oversee implementation of this component. The Board is charged with monitoring DLC management and deciding DLC development policy, approving the annual business plan and program of activities, assessing the Center's financial statements and providing recommendations to help the Center become financially self-sustaining. Component implementation. The component will be implemented and managed by the DLC. So that distance learning activities can begin as soon as possible after PSRP's effectiveness, project preparation includes establishment of the' DLC (legal procedures, formation of the DLC Board, recruitment of the Director and staff), and preparation including equipment of the site (classrooms, videoconference room, computer room, administrative offices, and others). Project preparation activities are being handled by C SD with support from IFM. Upon taking office, the Director will prepare a business plan based on a survey of training needs from the public and private sectors. The business plan, to be submitted for DLC Board and IDA review and approval, will include: market data, budget and sources of financing, training and other services to be provided (lectures, seminars, and others), source and programming of training, rates for different types of training and financial projections in the form of a budget, operating account and marketing strategy. The business plan will be updated and submitted for DLC Board and IDA review and approval on an annual basis. To this effect, IFM will continue to assess demand for training, identify and program appropriate training courses, market the services of the Center and increase its visibility in Tanzania and abroad. For the first year of project implementation, most training courses will be selected from those offered by the World Bank Institute (WBI) through its GDLN. However, over the first year, the DLC management team will identify and establish contacts with a variety of other training institutions capable of providing training over the GDLN. Over subsequent years, the DLC will match demand for training to the most appropriate supplier institution, both in terms of course content and schedule availability. Page 18 Component financing. To facilitate implementation, a special account will be established by the Borrower in the name of the DLC of Tanzania in a commercial bank on terms and conditions satisfactory to IDA. The DLC will operate this special account. The IDA Credit will finance DLC retrofitting and equipment, consultant services and training related to the DLC start-up. Over the project implementation period, the Credit will also finance, onr a decreasing basis, DLC incremental operating costs. As the market for its services develops, the DLC is to mobilize an increasing share of financing for its operating expenses, to achieve self-sufficiency within the component implementation period. It is expected that the DLC will cover 20% of operating expenses in the first year, 40%/0 in the second year, 60% in the third year, and be completely self-financing in the fourth and final year of implementation. Monitoring and reporting arrangements. The Director will submit an initial business plan (sp ,cified above) for DLC Board and IDA review and approval. An annual business plan will be developed and submitted by November 1 of each subsequent year to the DLC Board for review and approval and to IDA for review. The financial component of the business plan will detail operating expense financing, to specify, among other things, loan fund proceeds and the capital mobilized by the DLC itself. This should accord with the financing plan specified above. The DLC will submit a quarterly activity report to the DLC Board within 30 days of the end of each quarter. At the end of its fiscal year, but no longer than six montlhs after its completion, the 13orrower and DLC will present to IDA financial audit reports of: (i) the Special Account as well a special opinion on the SOEs; and (ii) DLC accounts and financial statements. The DLC will maintain separate accounting records for the components that it manages directly and for its own operations. An accounting and financial management system will be set up in the DLC prior to the PSRP effectiveness. In addition to its financial statements, the Center will submit a quarterfy report, one month after the end of each quarter, presenting a summary of sources and uses of :^nds, procurement/contracts schedule and statement and summary of expenditures by component ar.d by category. Assurance has been obtained from the Borrower that accounts and financial statements, arid the Special Account maintained by the DLC will be audited annually in accordance with international audit standards by experienced and recognized audit finns satisfactory to IDA. Page 19 Figure 4: Overall Institutional Coordinating Mechanism for the PSRP THE CHIEF SECRETARY COMMITTEE OF ALL PERMANENT SECRETARIES (IMTC) PS - Civil Service Department (CSD) Inter-Ministerial Working Group (IWG) on PSRP CD DIRECPOROF CSDDIRECTOROF CSD DIRECrOR OF HUMAN CSD DIRCTOR FOR CSDDIRECTOR CSDINSPECrOR CSD PROJECT MA.4NAGEMENT MIS RESOURCES POLICY OF OF ETHICS ADMINISTRATOR/ SERVICES DEVELOPMENT DEVELOPMENT ESTABLISHMETr ACCOUNTANT CO-OROINATOR FOR COORDINATOR COORDINATOR FOR COORDINATOR COORDINATIOR COORDINATOR PROJECTS PERFORMANCE FOR MANAGEMENT LEADERSHIP AND FOR PROGRAM FOR FOR ETHICS ADMINISTRATION IMPROVEMENT, INFORMATION MANAGEMENT COORDINATION, MERJTOCRACY AND GENDER RESTRUCTURING; SYSTEMS DEVELOPMENT MONITORING AND EXECUTIVE_GENCIS AEVALUATION Page 20 D: Project Rationale 1. Project alternatives considered and reasons for rejection: Narrow and focused vs. comprehensive approach. The Govermnent has already defined and stated the case to proceed with a comprehensive approach to the PSRP. It has determined the need for such an approach on the basis of a serious evaluation of the current CSRP, also a comparatively broad program. The Government has demonstrated the strategic logic and its readiness to proceed with a comprehensive approach. In recent years, it has also showed commitment and results through the CSRP. Therefore, it is considered appropriate that the Bank supports the strategy adopted by the Government5 Adaptable Program Lending (APL) vs. medium-term project approach. The option of a technical assistance project as successor to the current project (PPRP, IDA Cr. 2507) was considered. However, this project approach was seen to be inappropriate given the strategy and content of the proposed program. The PSRP is a comprehensive, long-term program of action for transforming the public service through a combination of horizontal and vertical interventions. The process-orientation of the iraplementation strategy needs to be supported by a long-term commitment of flexible and programmatic funding, such as the APL. The Bank's experience in undertaking reforms in many countries, suggests that a project-based approach for financing capacity building initiatives is: (i) inflexible, and does not encourage sustainability which is crucial if staff are to adjust to changes and develop new skills; (ii) too narrow and lends itself to poor coordination of various reform initiatives; (iii) often donor-driven and also creates enclaves that drain the civil service of its best resources, and devoid of ownership. Furthermore, the guidelinies on donor assistance set by the Special Program of Assistance for Africa (SPA), Working Group on Civil Service Reiform, emphasize that: "Civil service reform is a high-cost, resource-intensive activity which requires a consistently high level of commitment and financing from donors and recipients over an extended period of time. In situations where recipients are meeting program targets, donors should be as flexible and responsive as possible in providing aid". 2. Major related projects financed by the Bank and other development agencies: ~~~~~~~~~ AE Bank-financed: S Civil service reform and Parastatal and Public Sector Reform privatization Accounting/Auditing and Legal Financial and Legal Management S S Upgrading Project Decentralization Urban Sector Rehabilitation Project S S Agriculture National Extension Phase II U U Public Finance Tax Administration Project New New Financial Institutional Dev. Proj. II New New Agriculture Agriculture Research S S Agricultural Sector Management Project S S See the "Public Service Reform Program" (2000-201 1), page 10. Page 21 Health Health & Nutrition S S Education Human Resource Development I S S Energy Petrol Rehabilitation S S Multisector Structural Adjustment Credit I Newv Newv Rural & Micro Finance Other development agencies: Personnel controls & Information 1. Public Service Reform Systems Project (DFID) Records Management Project (DFID) Executive Agencies Development Project (DFID) CSRP Strategic Maniagement Support Project (DFID) Capacity Building Project (UNDP) Organization and Efficiency Reviews Implementation in PMO and CSD (NORAD) Mainstreaming Gender in CSRP (SIDA) Training and Counseling Retrenchees (FINNIDA and EU) Joint Donors Retrenchment Fund (DFID, DANIDA, Netherlands, SDC, EU) Ethics (CIDA) Decentralization and Local Decentralization and Local Government Government Reform Reform, and Restructuring Regional Administration (DANIDA, DFID, Irish Aid, FINNIDA, Netherlands, NORAD, SIDA, SDC, EU, UNDP) Regional Development Program (UNDP) District Development Programs (DFID, FINNIDA. Irish Aid, Netherlands, NORAD) Social Sector Reforms Education Sector Development Program (DFID, EU, FINNIDA, NORAD, SIDA) Health Sector Development Program (DFID, DANIDA, EU, Netherlands, SDC, WHO) Public Finance Management Modernization of the Government Accounting System (DFID, SIDA) Budget Development and Management project (EU, SIDA) IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) 3. Lessons learned and reflected in the program design: The development of the program strategy has drawn heavily on the lessons of experience with the implementation of the nearly completed CSRP including: * Political sponsorship and commitment to the reform was narrow and not sufficiently overt; * Little sense of ownership and commitment to reformns in MDAs: Page 22 * Reform program goals and strategies were either little known, or perceived by key stakeholders, including political leaders, public servanits and opinion leaders, to be negative and/or as having remote consequences; * Limited capacity for change management in MDAs; * No clear incentives for the institutions and individuals achieving reform objectives; * Weak M&E system; * Inadequate coordination with sector development refonms; and . Resources for program implementation not readily available, resulting in disruption in the implementation process. In addition, Tanzanians have also deliberately sought to gain lessons of experience in the implem,ntation of other public service reforms. Teams of senior Government officials and Ministers have undertaken study tours to other African countries (Uganda, Botswana, South Africa and Ghana), South East Asia, Canada, Great Britain and New Zealand. Furthermore, in early 1998, CSD initiated and organized, with DANIDA sponsorship, a week-long regional seminar on public service reforms in East and Southem Africa. Kenya, Uganda, Malawi, Mozambique, Zimbabwe, Zambia and South Africa participated. in this event. On this basis, and in pursuit of a new vision for the public service, the Government detennined that the next phase of the reforn would have the following features: • A strong focus on service improvements; = A performance improvement fund: • Budgetary incentives for performing institutions; = Merit principles and practices in public service appointments; • Enhanced public service pay; - A comprehensive information, education and communication (IEC) program; * Improved institutional mechanisms for program management and coordination; - Contract recruitment to strengthen capacity; and o Strong M&E mechanisms. Strong Focus on Service Improvements: The strong focus on service improvements is reflected in the strategic theme that has guided the PSRP design. Performance improvement is the focal comnponeni: of the program. There is a clear nexus between the effective focus on service improvements and s:rategic imperative for explicit sponsorship of the program by the political leadership in that: * Quality public services are the raison d'etre for government, and it has overniding public interest; and * The severity of resource constraints will persist in the medium-term, and therefo:- will continue to determine the limits of government's capacity to perform. Furthermore, in the evolving governance environment, the Government recognizes the need to be, more accountable to the public in tangible ways. Thus, stakeholders and beneficiaries will participate acti vel.y in shaping the reform and in assessing the perfonnance of the public service. Their views will be taki- n into account through social pacts, service delivery surveys and other participatory approaches. The s:ralegy emphasizes that the challenge for Government and all public service managers is to achieve demons;trable imp:rovements in service delivery under budgetary constraints. The first phase of the PSRP (2.000-21.)04X) is geared towards providing a framework for all to effectively respond to this challenge. Page 23 Performance Improvement Fund: The implementation of the MDAs' strategic plan for performance improvement will be facilitated by resources to be made available under a PIF. It will be a flexible instrument to support MDA-led programs to improve services within budget constraints. The PIF will be managed centrally by CSD. It will provide resources to implement the improvement plans and related key capacity building interventions. Funds for technical assistance and training in strategic planning, operational planning and performance appraisal will be drawn down according to agreed targets and standards for service improvements. Resources for capacity building will be accessed as soon as a ministry has developed a credible strategic plan and has diagnosed its requirements to deliver the strategy. The institutional, administrative and financial management arrangements for the PIF are outlined in Annex 13. Budgetary Incentives for Performing Institutions: A simple, but particularly strategic, budget-based incentive is incorporated into the PSRP design. When a MDA demonstrates commitment to operationalize a services improvement program on the basis of the approved PIM, the MDA will be graduated out of the "cash budgeting" exchequer release mechanism. In other words, the Ministry of Finance (MOF) will, on that basis, commit to fund fully and predictably the approved budget (printed estimates) of the MDA. This measure is also a key indicator of progress in the implementation of the public financial management reform program. Another budget-based incentive for the restructuring of MDAs, already promulgated by MOF, is that MDAs are allowed to retain a significant portion of the cost- savings realized on the implementation of restructuring and private sector participation programns. Merit Principles and Practices in Public Service Appointments: This is a crucial element in restoring the competence, motivation, integrity and accountability of public servants. This objective is prominent in the Public Service Employment and Management Policy. In line with this policy, work has started to transform the existing service commissions to a single, strong and independent Public Service Commission. A draft bill to legislate these changes has been prepared and will be laid before Parliament by July 2000. Enhanced Public Service Pay: Public service pay levels will be improved to enable the Government to recruit and retain competent staff. Towards this end, in January 1999, the Government adopted a comprehensive Public Service Pay Policy. This policy will set clear targets for pay enhancement in the medium-term, based on the macroeconomic and fiscal scenario reflected in the current Policy Framework Paper (PFP). Considering the wage bill constraint and with regard to areas of current and future skill shortages in the public service, the policy stipulates that for the medium-term there will be comparatively more rapid improvement of compensation for technical and professional staff. In that context, a comprehensive job evaluation and re-grading exercise is being implemented, and detailed work to operationalize the pay policy is underway. Comprehensive Information, Education and Communication (IEC) Program: The execution of a focused IEC program is an important feature of the project's implementation strategy. The IEC outputs include: * Political leaders to popularize the strategic theme of the program: "quality public services under severe budgetary constraints"; * Monthly briefs through the print and electronic media on program implementation outputs; * A quarterly newsletter widely distributed to all cadres of the public service; Page 24 • Periodic press briefings by, among others, the Minister for Public Service (President's Office); and • Publicity events to mark major milestones by Ministries in the implementation of their performance improvement programs. Improved Institutional Mechanisms for Program Management and Coordination: The institutional mechanisms for program management are geared to: (i) foster local oNvnership and responsiLility for reform activities in MDAs; and (ii) facilitate effective coordination of the program with other public sector reforms. It is therefore in this context that the institutional arrangements for the p:,ogram's management and coordination have been defined (described in C.4). Contract Recruitment to Strengthen Capacity: In functional areas where MDAs are pariicularly constrained to recruit and retain the necessary skilled personnel, a program coordinatecl by C'SD will enable them to contract-hire skilled Tanzanians at market-based compensation levels. In the meaatime, the program will support the implementation of the medium-term pay policy and a scheme for su,tainable capacity building in the public service. Strong Monitoring and Evaluation Mechanisms: The PSRP specifies performance indicators f r each component and related activities. Through service delivery surveys, benchmarking and other similar instruments, achievements will be monitored, gauged against MDAs' performance plans, targets and social pacts. The results will be widely disseminated to stakeholders who will take an active role in ensuring that plans abd targets are achieved. M&E capacity in CSD and MDAs will need to be developed. M&E will be a vehicle for learning and improving performance in addition to being an accoUnrtability means. The M&E system will provide appropriate checks and balances between the MDAs arid civil society. In addition, to reinforce the M&E mechanisms, a Presidential Management Infonnation System (PREMIS) will be put in place. 4. Indications of borrower commitment and ownership: Gcvernment commitment to the reform program can be discerned from the successful imp]emenlation of the current CSRP, especially in the past three years. It entailed considerable social pain and politic 1 risks. Soon after President Benjamin Mkapa came to office in early 1996, he publicly pledged 1to C"vilrously pursue civil service and other public service reforns". His govemnment has not flinched in suppor irg the reform agenda. More than 70,000 public servants were declared redundant and retrenched, recii inment into the public service was frozen even for those graduating from public service institutions (iri ;,luding technicians and professionals in teaching, health services, agriculture development, and others), th. public service wage bill was effectively controlled while pay structures were rationalized. This res .lt-d in reduced real pay for many senior public service officers, and many senior staff lost their positicns as a result of ministerial restructuring of the regional administrations. Initially, the Government used large surns from its limited budget to finance the expensive retrenchment program. It is through demonstration of its commitment that over the past three years several donors have provided about US$ 1i00 mii lion to support the retrenchments. In the same spirit of commitment, through CSRP, the Governm.nil has successfully launched an anbitious program for decentralization through devolution. The PSRP is part of the on-going, broader public sector refonns. The program strategy is desi K,n-d to facilitate the integration and implementation of the various major reforns taking place across the public service to enhance governance and sector development programs to improve social, econonwic and infrastructure services. As a follow-up to the 1997 recommendations of the Presidential Commi- ;ion of Enquiry Against Corruption (Warioba) the Government has also initiated measures to address issues concerning integrity, transparency and accountability. Another significant and complernentar GOT initiative is the constitutional reform presented to Parliarnent as a policy "White Paper", ainmed at strengthening the national framework for democracy and good governance. Page 25 The Government has been undertaking systematic, in-depth and critical assessments of the CSRP as a basis for initiating the redefinition of the goals and strategies for the future reform program, including a two-day national symposium on Civil Service Refonn (January 1998), in which participants were from academics, private business people, parliamentarians and other political leaders including the opposition and trade unions. Subsequently, the Govemnment established an inter-ministerial task team that defined the long-term program goals and strategies, and documented the comprehensive medium-term program strategy on which this project appraisal document (PAD) is based. Moreover, the Government has commenced piloting the performance improvement model by initiating the strategic planning phase in CSD, and two key sector Ministries, i.e., agriculture and water, and one executive agency, the Water Drilling and Dam Construction Agency. Concurrently, CSD has developed and secured Cabinet approval of key policies that will facilitate and guide the PSRP: the Public Service Management and Employment Policy (May 1998); and the Public Service Pay Policy (January 1999). The Cabinet will, in the coming months, fommally endorse the program strategy and action plan recently approved at a retreat of allPSs. 5. Value-added of Bank support in this project: While several other donors have provided substantially more support than the Bank to the currently ending CSRP, the technical expertise provided by the Bank through the Public and Parastatal Sector Reform Project was very instrumental in ensuring availability of capacity for program implementation and in garnering the participation of other donors. Also, through a PPF and a PHRD grant, the Bank supported the Government's efforts in defining its own strategy and action plan for the next phase. Bank staff have offered much appreciated comparative knowledge and experience to the Government's program managers. This assistance needs to be sustained and is still very much welcomed by the Government as it embarks on this ambitious program. In addition, substantial and flexible funding over a long period, such as the Bank can provide through an APL, is an important feature of the strategy that Tanzania has defined for its reform program. While other donors have committed themselves to support the program, none of them is in a position to earmark any substantial funding beyond the medium-term. Moreover, there are indications that, without Bank participation, some of the other donors would be more reluctant to support the program. E: Summary Project Analysis: (detailed assessments are in the project file, see Annex 4 and 5) 1. Economic: The program assists the country's macro-economic stabilization and growth in several ways. Firstly, as elaborated in E.2 below, the program sustains the stabilization of the fiscal position. Secondly, by retrenching redundant staff (about 10 percent of the current establishment) primarily through outsourcing initiatives and implementing performance improvements, the program enhances efficiency and effectiveness in the use of resources. Thirdly, the program will improve the productivity of the public sector by redressing the current imbalance in allocation of budgeted resources between personnel expenditures and operational and maintenance costs. Fourthly, the PSRP will build the capacity of the public service in policy-making, discharge of the regulatory role and facilitation of private sector participation. One key element in the capacity building effort is to increase the capacity for cost effective training for senior level decision-makers in Govemment, the private sector, and civil society by means of Tanzania's participation in the GDLN. 2. Financial: (see Annexes 4 and 5) Page 26 Fiscal impact: The first phase of the PSRP is expected to have a positive medium- to long-term fiscal irmpact. Initially substantial costs will have to be made to pay for the costs of labor-shedding following rationalization of Government functions and retrenchment by Executive Agencies (EAs) during FY00. 'These include retrenchment benefits and costs of managing the reform program (paying for consultancy services, strengthening management, operating costs, and building information systems). There will be no direct costs to the PSRP of retraining some of the retrenchees to undertake income-generating activities in the pnvate sector because this function has been shifted to the Ministry of Labor and Youth Development. However, the costs of retrenchment will be recouped starting the third year of the program mainly ini form of reduced personal emoluments following retrenchment. It is assumed, to avoid double counting. tiat in the short-term, salary savings realized from retrenchment are not matched by increases in salaries of remaining civil servants. Other savings will be in the form of reduced Government subventions to the Government departments that perform non-core functions and have been earmarked to be transformed into EAs, to be privatized or abolished. Other savings are either hard to quantify for purposes of doin g a cost benefit analysis or are limited by data availability. The latter include savings on the use of differe]nt office facilities such as telephones and Government vehicles or buildings formerly occupied by the retrenchees. Potential savings that elude quantification include improved service delivery and public service management. Furthermore, since there is no detailed action program for the PSRP beyond FY'04, no attempt is made to do a cost-benefit analysis for the whole period of PSRP. 3. Technical: The Government's design for the program is a result of serious efforts in strategic thinking and planning. It reflects lessons learned from the implementation of the CSRP, as well as a clarity of the outcornes and impact to be pursued through the program. In this way, the strategy is homegrown and can be expected to take into account the local conditions. At the same time, the strategy has the generic features of a comprehensive approach to public service reform. Moreover, the program strategy correctly reflects a broad and long-term perspective on the part of the GOT. By placing the focus on improving the quality of public services, the program should have a strong and sustained broad national support and impaict well into the future. 4. Institutional: Executing Agencies. The institutional and management arrangements specified for the program leadership and management as outlined in C.4 are sound. The experience of implementing the CSUP over the past five years has enabled the lead executing agency, CSD, to start developing its capacity and its ability to manage a fairly comprehensive program. Still, the effective implementation of the PS IRf will pose new challenges to CSD who will be steering, supporting and coordinating an increasing number of MDAs to sustain serious efforts in program implementation. For process-oriented inLpleme itation activities envisaged in the PSRP, CSD needs to develop leadership, coordinating, M&E capacity bh.sed on professional and technical excellence. CSD recognized this need and has utilized the PPF and the P.HRD grant to enhance its capacity for program management. Specifically, CSD constituted and trained a.l inter- ministerial task team to guide and support MDAs in the first step of the performance impro- ement process, i.e., strategic planning. Furthernore, a comprehensive program for leadership and. mana ,ement development, beginning with the senior officers of CSD, has been prepared. PSRP Management (Part A). Overall strategic leadership of the program lies with the Chief Sel,:retary, Secretary to the Cabinet and Head of Public Service. He has performed this role with ernthusia,sr. and commitment over the past four years. Overall day-to-day management and coordination of the p-ogram implementation are the responsibility of the PS CSD. The latter is currently performing that role for the CSRP and has lead in defining the program strategy. The program will emphasize implementati em of a capacity building plan that has been prepared for CSD, with a focus on program and projecit management skills. A limited number of specialized project management staff will be recruited to enable the elfective Page 27 implementation of the PSRP. This will be done through a competitive process on the basis of qualifications for the assignment. DLC Management (Part B). The DLC is to be established during project preparation as an autonomous agency, governed by a Board made up of a broad stakeholder representation. Activities of the DLC will be gradually scaled up to allow it time to increase its capacity. The DLC should be operational shortly after effectiveness. Accounting, financial reporting and auditing arrangements (Part A). A financial management assessment of the existing operations of the CSRP under the CSD has been carried out. This has covered the organizational structure, staffing of the accounting unit, arrangements for project financial management, an overview of the accounting systems and controls, and the external audit arrangements. PSRP will ensure that the accounting system fit with Government's integrated financial management and accounting systems based upon the Platinum SQL version 4.2 software package. Arising out of this review a series of recommendations were made and these were considered by the authorities. Actions to develop financial management, in accordance with OP/BP 10.02, are being taken. A financial management consultancy was commissioned to develop the accounting system, prepare a financial procedures manual, develop the budgetary control system, identify the training needs and finalize a time- bound action plan to install the accounting system and the use of the PMR-based disbursements. It is understood that the existing qualified accountant will be available to oversee this work and manage the accounting unit. Disbursements under the proposed Credit will commence under the existing procedures and in the interim PMR statements for sources and uses of funds and procurement monitoring reports will be produced. An action plan has been established and agreed upon for the transfer from the existing disbursement procedures to PMR-based disbursement no later March 31, 2000. A satisfactory assessment of operation of the financial management system will be a condition of effectiveness of the Credit. Accounting, financial reporting and auditing arrangements (Part B).The same accounting principles described above will apply. These principles will ensure that the DLC will be financially independent, so as to ensure long-term financial sustainability. Y2K Compliance. A Steering Committee for the National Y2K Campaign was established in January 1999. The Steering Committee's main objectives are to provide strategic, financial and implementation oversight to the National Y2K Campaign's activities including promotion of awareness of the Y2K problem. The Steering Committee consists of 22 members, including 15PSs. Since the PS CSD is a member of the Steering Committee, the Y2K issue has been adequately addressed in the proposed project. In particular, the computer system that will be utilized to run the accounting system is Y2K compliant. With regards to the broader CSD implications of the Y2K issue, measures are presently being taken to ensure that adequate contingency planning is in place to mitigate critical risk exposures. GOT has also solicited World Bank's assistance through the InfoDev Planning Grant to help implement its action plan for Y2K readiness. 5. Social: It is projected that the implementation of the PSRP and the LGRP will result in loss of jobs for about 27,000 employees on the Government payroll. There is already considerable experience gained through the CSRP in designing and implementing programs to facilitate the redeployment of those retrenched. The CSRP has given rise to mandatory retrenchment of more than 70,000 public servants over the past five years. To support those retrenched to transit to new occupations outside the public service, the program emphasizes fair and timely compensation. Except where problems of poor records have resulted in lengthy delays in payments of statutory retirement dues, the program has run relatively smoothly. The trade unions representativTes participate in the standing task force that oversees retrenchment and redeployment. The CSRP has a training and counseling program which is demand-driven (use of Page 28 vouchers). There is, in addition, a supporting mass media infornation and communication program. A recent FINNIDA evaluation of the redeployment program attested to its cost effectiveness. This entire program had a budget of less than US$ 3 million. FINNIDA has proposed the expansion cf the program to cater for all the unemployed. Program management has moved from CSD to the Ministry of Labor and Youth Development. PSRP will support the execution of the Govemment's social programs by enhancing the capacity of the MDAs to provide strategic and policy leadership in the design and implementation of sucb programs. It will also monitor and evaluate the performance of these programs in terms of changes in the quan.ity and quality of services delivered to the public. The results of such evaluations will inform public service managers on priority areas for enhancing social services. In this way, the PSRP will complerner¢t the Govermment's other programs for improving basic social services. 6. Environmental assessment: Enviromnental Category [] A [] B [X] C 7. Participatory approach: The need for a broad consensus on the future reform of the public service was recognizedi early by the Government. Wide consultations on the program strategy commenced with a National Sympos..um on Civil Service Reforms. It brought together representatives of the civil society and national political leaders in both Govemment and the parliamentary opposition to openly discuss issues and options in public service reform. The proceedings of the symposium were published. At the national level as part of the annual CSD budget speech in July 1998, the Minister of State for Civil Service presented to iParliament for debate a fairly comprehensive statement of the planned strategy and content of the future PS]RP, as defined in the May 1998 Cabinet Paper on Public Service Employment and Management Policy. Moreover, in the near future, Parliament will debate the bill legislating for the safeguarding of meritocracy by establishing an independent and unified Public Service Commission and other changes in the fiture management of the public service. At the public service level, initiation of the new program strategy commenced with inter-miriisi;erial strategy sessions bringing together Deputy PSs, Cabinet Under-Secretaries and Directors from across Ministries to review the CSRP and commence defining the future strategy. The sessions served as technical reviews on the adequacy of the strategy, its responsiveness to key issues and problems, ard its feasibility in terns of timeframe, resources and objectives. Concurrently, development of the strat:.g y has implied the definition of the policy framework for the next phase of reforms, consultations witil: rnany stakeholders in MDAs, various scoping studies, and work by an inter-ministerial sector strategy grc ap. It is also significant that the program strategy has been defined with a view to guarantee that its implementation complements and integrates effectively the on-going sector reforms and th,. local government reform program, through which improvements in primary public services will be re alized. With this perspective, a Sector Strategy Working Group led by CSD, comprising representatives fr om key sector Ministries, was constituted in March 1998 to: (i) link PSRP's design with existing sector strategies; and (ii) identify administrative and technical support requirements for reforms in MDAs. It is in this broad consultative framework that the strategy for this program has evolved over the past year. F: Sustainability and Risks 1. ISustainability: Weak macroeconomic performance and fiscal deficits over extended periods have underpinuiec. the initiative and drive for public service reform in most countries, including Tanzania. Bloated, we ak and Page 29 poorly performing public services have been major issues in economies plagued by fiscal deficits and negative or low growth. The fiscal deficit has significantly undermined the incentives system, capacity and performance of the public service in these countries. When the fiscal situation improves, there is danger to lose focus on the purpose and goals of public service refonn. There is a high risk that the reform implementation effort will slow down, and gains made could be reversed. In this context, critical factors for the sustainability of the Tanzania PSRP include: * Maintaining Government commitment to an affordable public expenditure framework; * Expanding and sustaining private sector participation in delivering basic social services; * Fostering broad-based support for the reform agenda; and * For Part B, generating revenue based on demand for the DLC services. Maintaining Government commitment to an affordable public expenditure framework. The July 1998 Tanzania PER observes that the commitment of the current Govemment to achieving and maintaining macroeconomic stability continues to bear a large measure of success. For many years the overall deficit averaged more than 6 percent of GDP the recurrent budget before grants. However, the 1996/97 budget achieved recurrent budgetary savings of 1.3 percent of GDP. This situation could vastly improve with the anticipated higher rates of economic growth (about 8 per cent) projected in the medium- to long-term. Considering the current wide gap between public expectations and the capacity of Government to deliver, the GOT has to contend with strong political and social pressures to rapidly expand its social programs. The prospect is exacerbated by the pressures for political expenditures likely to be generated by national elections in 2000, and every five years thereafter. The PSRP will mitigate this risk by educating and focusing public service managers, political leaders on strategic management of public resources. The MDAs' strategic planning under the performance improvement model will be linked directly to the annual planning and performance budgeting exercise. Expanding and sustaining private sector participation in delivery of basic social services. The levels of basic social services delivered by the public service in Tanzania today are lower than what they were in the early 1970s in both quantity and quality. The Government and public aspire to revert to the past levels of services in the shortest possible time. In this respect, there is enormous pressure on the Government to expand facilities and the number of workers in such key sectors as education and health at a pace that would derail the medium-term fiscal framework, and thereby the public service pay policy targets. Enhancing private sector (including communities and NGOs) participation is the Government's critical choice to reduce pressures on its capacity. Private sector participation to supply social services is a recent development in Tanzania. In the relatively short period, the potential for the private sector contribution has been demonstrated. The PSRP will train public service managers to formulate sector policies and strategies that facilitate enhanced private sector participation in delivering social services. In addition, the program will assist public service managers to reach out and forge partnerships for sector development with the private sector. Page 30 Fostering broad-based support for the reform agenda. In a democratic political envircinment, such as prevails in Tanzania, there is a high risk of relatively frequent reversal of policies and shifts to major reform programs every time there is change of Government. The next general elections in Tanzania are scheduled for approximately October 2000. Before the end of the program implementation period, 2011, there will have been at least two general elections, in which Govemments with new agenda may come into of fice. There is need to ensure the program benefits beyond its end and throughout these changes. The only way to secure the long-term sustainability of the program is by maintaining broad-based support for the reform agenda. The PSRP strategy incorporates measures geared to building an enduring general support. The program contains information, education and communication (IEC) activihies for progressively empowering the civil society to demand services and accountability from the public service. The Program Coordination, Monitoring and Evaluation component has a strong focus on ways to enlist public support. The need for extensive consultation and support for the program was recognized early in the program formulation stage and a very participatory process was initiated at that time. 2. Critical Risks: The comprehensive approach adopted for the PSRP poses technical, managerial and funding challenges. The lengthy implementation time frame, that cannot be avoided, exposes the program to the risk of interruptions arising from possible social, economic or political shocks. As a change process, the program's effective execution is much dependent on the commitment of the political leadership that is never easy to maintain. Substantial capacity and experience in managing and coordinating a large CSRP has been accumulated in recent years. However, the risk that the capacity deficiency will hamper the smooth implementation of the program at some stages still lingers. From Objective to Purpose . Government commitment to structural reforms, N Maintain high level dialogue with the national good governance and povertv reduction is not political leadership to keep them focused on the maintained. long-term goals and benefits. * Change in Government policies and strategies S Continue to inform fully political leaders on resulting in reduced commitment to the program program strategy and implementation pr ogress, strategy. beginning with a Cabinet retreat, and to be followed by seminars for parliamentarians. From Outputs to Objective . Public service managers lack sufficient capacity S Maintain a program for continuous develcprient and conmmitment to implement effectively the of public service managers in strateg.z and program, or they are not responsive to changes. performance orientation, management, mon toring and evaluation, backed by incentive and sanctions. . Adequate resources are not available for M Sustain donors' interest in the program tlhrough effective implementation of the program, and in effective coordination, full transparencq and particular donors do not replenish the accountability in the use of their resources. retrenchment fund. From Components to Outputs . MDAs do not respond to institttional incentives M Through the planned IEC program, contini-msly, to reform. inform, educate the public servants and the -)ublic on the reform program and involve beneficiaries _________________________________________ - _____ in the assessment of the MDAs' performan . Page 31 * Necessary progress in reform of public financial Sustain dialogue and collaboration with MOF management is not achieved. H with emphasis on how the reforms reinforce each other and establish clear institutional linkages through IMTC and IWG, including close working relationships at technical level. * Capacity building strategy undermined by failure M Ensure that public service pay policy to to implement the medium-term public service prominently feature in high-level policy dialogue, pay policy. and give technical work to design its operationalization given high priority. * Unsatisfactory progress in local government H Strengthen programs' linkages and coordination, reform. through the IMTC and regular formal and informal exchanges of managers and technical personnel. * MDAs lack the capacity and/or commitment to M Emphasize capacity building to support sector support implementation. development programs to deliver quality services through leadership and management development, and IEC programs. * Top management in Ministries fail to support N Initiate, as above, programs to educate with focus and comply with the policy and legislative on agencies' policy and regulatory framework. framework for autonomy of executive agencies. * Management in Executive Agencies fails to give N Monitoring continuously expenditure priorities, priority to services improvements. outputs and outcomes. * Political leaders' commitment to merit principles N Inform and educate political leaders on the and women empowerment wanes. rationale and benefits, and M&E system reporting on achievements, and recommending measures to improve performance. * Parliament declines to legislate for public service N Inform and educate politicians on the role of the transformation. PSC. * Possibly no political and administrative M Extend M&E to reveal the omissions to sanction commitment to rigorously apply sanctions for offenders and measures taken to apply sanctions. non-compliance with Code of Ethics. * Effective coordination mechanisms are not N Introduce system for monitoring closely the maintained. performance of coordinating institutions. * Lower than projected growth in revenue M Emphasize through continuous policy dialogue undermnines commitment to pay enhancement. pay reform as crucial to sustainable capacity building for service delivery and scenarios developed to adjust to growth levels. * Public service managers are not responsive to S Emphasize through leadership and management results of program monitoring and evaluation. development, and IEC programs the need to deliver quality services to the population of Tanzania. * The DLC will not generate enough sources to M Select a host institution (IFM) that has a private cover operating and reinvestment cost. sector orientation and a proven track record for marketing its courses. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) Page 32 3. Possible Controversial Aspects: None. G: Main Credit Conditions 1. Effectiveness Conditions: • The Borrower has prepared detailed guidelines for the operationalization of the perib-mance improvement model and utilization of the performance improvement fimd. * The Borrower has implemented a financial management and accounting system for th. project satisfactory to the Association. * The Borrower will have established the team responsible for program monitoring and evaluation. • The Borrower will have developed guidelines for the implementation of local cost compensation as an element of PIF. 2.. Other: (classify according to covenant types used in the Legal Agreements): H: Readiness for Implementation I] 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [xl l. b) Not applicable. [x] 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. [xl 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactorv quality. [ 1 4. The following items are lacking and are discussed under loan conditions (Section G): I: Compliance with Bank Policies [xI 1. This project complies with all applicable Bank policies. [xi 2. The following exceptions to Bank policies are recommended for approval. The project c: Dmplies with all other applicable Bank policies. [signature] Team Leader: Denyse Morin Vc-j5 Q 83Xe _ [signature] Sector Manager/Director: Brian D. [signature] Country Manager/Director: tames W. Adams7\ Page 33 Annex 1: Project Design Summary for Part A Tanzania: Public Service Reform Program (Phase 1) Ilieraiifiy of Qbjec*hes Xey1 "DeJdieaor Mnion dC'0c~ upi Sutor-rkd CAS iI See dic S n. Improve public expenditure 1. Further downsizing of the 1. Public 1. Sustained efficiency and build capacity to public sector towards Expenditure Government manage for economic growth affordable level and total Reviews. comnntitment to the and poverty reduction. wage bill sustained at levels national vision and consistent with fiscal programs for ltability. achieving a high rate of economic growth, good governance and poverty reduction. 2. MIDAs budgets reflecting 2. Program 2. Absence of major sector priorities and Evaluation external economic or improved allocations to Reports. political shocks. operational and maintenance (O&M) expenditures. 3. Improved accountability 3. Anmual Budgets. 3. Efficient management and reporting on use of of resources. public resources. 4. Reports by Office of the Controller and Auditor General (OCAG). Reports on the Appropriation l Accounts. Prognmt Purpose Fa~zd- f4gam In- WAtr PrgaRetK fomurpset a) Ensure that service delivery 1. Quality of public services 1. Annual surveys of 1. Political will and within priority sectors of the retained by the public sector public services commitment to the public service conforms to improved. delivery. implementation of the public expectations for value, reform program is satisfaction, and relevance by maintained. end-201 1. 2. Participation of private 2. Poverty 2. Sustained sector in delivery of public assessment Government services increased. reports. commitment to reduce the expenditure framework to levels consistent with affordability and quality of services. Page 24 3. Policies and regulations 3. Anmual report by 3. Adequate incentives. necessary for OCAG, the decentralization, private Ombudsman and sector development and the Anti- poverty r eduction ar e Corruption implemented. Bureau. 4. Social pacts reflecting 4. Accountability improved delivery of requested bl, serv"ices produced yearly. legislative and civil a__ __ __ __ __ __ __ __ _____ __ __ __ __ __ society. To improve accountability, 1. Efficient and effectivTe I . Anmual surveys of 1. Committed public transparency and resource delivery of services and public services service managers to management for service peiformance orientation in delivery. implement the delivery in the public service. the Government's key program. economic and social programs imiproved. 2. Strengthened capacily and 2. Reports of annual 2. Continued sufficient performance in the core evaluation of donor support to the functions of Govenmuent. performance by program (including MDAs against US$90 million for their planned and retrenchment in published targets. central Govenment and local authorities in Phase 1). 3. Quarterly and annual program monitoring and e-valuation reports. 0 y!rE¢i C ru1 S 0 0 0 jX=:fur n .JJ:QntnL........................................... ..: O bjeadw e'0000000l;; i,SS000 SStS)0j Component 1: Performance improvement * Performance improvement I . Performance benchmarks 1. Annual PIM 1. MDAs responisive to model institutionalized in established for MIDAs under program the institutior al selected key Ministries. different institutional set- documentation incenlives ax, iilable. ups for service delivery. aiid M&E reports. * Ministerial structures and 2. 75 'Yo of MIDAs producin,g 2. Sector-specific 2. Lack Df sufficient operations reduced to core, qua'lity strategic plans, scrVice delivery complementIry effective and affordable performance budgets ancd surveys progress inb idget levels. annual plans, performance complemented by refortmi and rmlaned agreements and staff baseline data. aspects of public appraisal reports. finance maui. ement. * Strategic plans, 3. At least 50 % of MDAs 3. MDAs printed 3. Government performance budgets and deliver services to `social budgets and conmmitted tci the new targets, annual plans, pact" standards and within annual reports. public servic-. pay performance agreements budget. policy goals. and. new staff performance appraisal reports in Miistris. ___ _ Page 35 * Perfonnance-based 4. Majority of MDAs assured 4. Annual ministerial budgets that of predictable (budget- appropriation reflect decentralized based) funding of annual statements. options, aligned with sector programs. policies and priorities (programs) and consistent with strategic utilization of available scarce resources. * Quick win" service 5. At least 50% improvement 5. Public improvements completed in budget allocations to Expenditure in all Ministries. operational and mainitenance Reviews. expenditures achieved by majority of MDAs. * Real wages of professional 6. Customer time and and technical staff resources saved by the improved. "quick win" changes. * Capacity for policy analysis and fonnulation, and monitoring and evaluation in MIDAs improved. Component 2: Restructuring & Private Sector Participation * Further rationalized and 1. Atleast lO %reductionin 1. Public service 1. Satisfactory progress reduced ministerial current public service payroll and in the programs for functions, structures and employment numbers. personnel data decentralization and staffing levels. base. Local Govemment Reform, and Executive Agencies. * Decentralized, privatized 2. Majority of Ministries to 2. Quarterly and 2. Effective capacity in and divested functions reduce by at least 3(0% their anmual monitoring CSD to lead MDAs accompanied by shift in scope of functions or service and evaluation in the restructuring resources to agencies and delivery centers. i.e.. reports. processes. local authorities. decentralized, privatized or abandoned. * Non-critical operations and 3. At least a 20% reduction in 3. Budget and 3. NVillingness and services contracted out by the public expenditure appropriation ability of MDAs to MDAs. framework. accounts reports. implement activities. 4. Public Expenditure Reviews. Component 3: Executive Agencies Program * A series of autonomous 1. At least 37 executive 1. Govemment 1. Launch and operation agencies launched on the agencies laumched bv 2004. gazette. of executive agencies basis of meeting the criteria in accordance with specified in the Executive the policy and legal Agencies Act of 1997. framework and supported by MDAs. * Improvements in the 2. Target 10% efficiency 2. Program 2. Prioritv given to services provided by improvement during the monitoring and improving services Executive Agencies. first and second year evaluation reports. bv senior following launch. management in Executive Agencies. Page 36 3. Sustained improvements in 3. Service delivery customer satisfaction. surveys, social pacts and others. Component 4: Management Information Systems * Effective controls on pavroll and establishment. 1. Wage bill under control at 1. Monthly payroll 1. Compliance with ino more than 5% of GDP. outtum and wage payroll and bill report by the establishment MIS Directorate controls by M.IDAs. of CSD. * Effectively operating 2. Payroll and persomnel data 2. Program 2. MDA.s capable and integrated personnel and reports circulated to monitoring and committed to payroll data base by 2000. Ministries within two weeks evaluation reports. implement new of the month-end. systems. * Modem infonnation and 3. No incidence of irregular 3. Audit reports by 3. MDAs' with new comnmunication systems and illegitimate positions in OCAG. procedures anid installed in MDAs. the payroll (ghost workers). standards for data and information management. * IT applications standards in 4. Distributed IT-based payroll the public service. and personnel data bases implemented in all MDAs by 2004. * B est practice guidelines 5. Retrieval of fully reliable and. technical support to basic personnel data in MDAs. MDAs reduced to less than a day by 2004. * National Records Center 6. Non-live records from established and MDAs transferred monthly functioning. to the National Records Center to be operational by 2004. * MDAs' registries reorganized and records management modernized. Component 5: Leadership, Management and Governance 1. All top civil servants (about 1. Program 1. Political lead&rship * Leaders and managers with 300) trained in strategic monitoring and remains comi iitted to competency in strategic leadership and change evaluation reports. meritocracy an]ld leadership and change management. empowermenA of management. women. * Public service "college" 2. Every public servant to be 2. Govemment 2. New Public Service established and functional. assessed for relevant skills gazette. Bill passed by,; deficiency and have a Parliarnent. training plan for execution by year 2004. * Single and independent 3 . All new recruits into the 3. Annual reports of Public Service Commission service to receive at least a the PSC. (PSC) established and month of induction training. functional. ____ - Page 37 * New Public Service Act 4. All appointments into the 4. Reports Of the approved by Cabinet. service made by PSC in Permanent accordance with new Commission of legislation by last year of Enquiry. Phase 1. * Appointments in public 5. Steady increase in the 5. New payroll and service based on merit proportion of women personnel data only. executives in the public bases. service beginning 2000. * Gender issues 6. Office of Inspector of Ethics 6. OCAG's reports. mainstreamed in public at CSD effectively service operations. functional. * Enhanced integrity, 7. The Code of Ethics applied 7. Surveys of public 3. Political and discipline, transparency throughout the public observations and administrative will to and accountability in the service. opinions on the apply sanctions for public service. public services. non-compliance with Code of Ethics. * Improved public image of 8. Reduced incidences of the service. misappropriation and fraud of public fiances. 9. Reduced incidence of complaints against public servants reported to the Commission of Enquiry. 10. Government on track in the implementation of the medium term pay targets. Component 6: Program Coordination, Monitoring and Evaluation * Service delivery 1. An effective system in place 1. Program M&E 1. Program management improvements are for monitoring and reports. and coordination monitored and reported evaluating the outcomes and mechanisms regularly to stakeholders. impact of public services on effective. a systematic and continuous basis. * A comprehensive baseline 2. Program coordination issues 2. Minutes of the 2. Growth in public database on public services tabled and dealt with at the IMTC and the revenues to enable is available. meetings of the IMTC and IWG and enhancement of pay the IWG. quarterly progress without adverse reports. impact on the overall fiscal position. * Effective management and 3. Positions filled in the new 3. Information from 3. Public service coordination of policy policy and planning units in personnel managers responsive development and MDAs with qualified database on to M&E feedback. implementation of public personnel trained in policy staffmg in the sector reforms. formulation, monitoring and policy and evaluation. planning units in MDAs, and policy unit briefs. Page 38 . 4. Quality policy papers 4. The public (civil forwarded by MDAs to the society) will react on IMTC. information disseminated. * Regular reports on 4. At least a monthly bulletin 5. Service Delivery independent M&E of on the program in the and other surveys. changes in quality of and popular print mass media. access to public services. 5. Enhanced and incentive- 6. Mass media oriented pay for public reports on the servants benchmarked on program. the medium-term pay targets. 6. Performance agreements and 7. Research reports. assessments introduced for all senior public servants (Chief Executives, Heads of Departnents and Sections/Units). 8. Enhanced information, communication and education on Government policies and reforms. Public informed on government's progress with public service reforms. 9. Medium term pay policy implemented. 10. Public service management and employment policy implemented. Component 1: Performance Tentative budget: Improvement US$ 33.8 million 1.1 Train leaders and managers 1. Quarterly 1. Sufficient rescurces in the key features of the implementation will be availa] le performance improvement progress reports. model. 1.2 Pilot model in 3 Ministries 2. Strategic plans, in year 1. budgets, evaluation reports, "social pacts" prepared by MDAs. 1.3 Instal "Quick win" service 3. Results of improvements in all MDAs. surveys, monitoring and evaluation reports. 1.4 Evaluate results of piloting 4. Ainual progress and modify strategy. reports. Page 39 1.5 Roll out model gradually to targeted MDAs. Component 2: Restructuring Tentative budget: and private sector US$ 10.7 million participation 2.1 Develop and issue 1. Quarterly and 1. See above. guidelines for further annualprogress rationalization of MDAs roles, reports. functions and structures. 2.2 Rationalize further roles, 2. MDA's annual functions and structures of budgets and Ministries. accounts. 2.3 Rationalize and restructure 3. The payroll and non-commercial public personnel institutions to reflect strategic database. and efficient use of public resources. 2.4 Decentralize or contract out 4. Program non-core services. monitoring and l ~~~~~~~~~~~~~~~~~~~evaluation reports. 2.5 Rationalize MDAs staffing and prepare establishment schedules. 2.6 Retrench and compensate on time surplus staff. Component 3: Executive Tentative budget: Agencies US$ 11.0 million 3.1 Prepare agency candidates 1. Quarterly and 1. See above. for launch. annual progress reports. 3.2 Launch and support 2. Government agencies. gazette. 3.3 Build and institutionalize 3. Agency local management capacity. framework documents and ainual reports. 3.4 Introduce new and modem 4. Program M&E information systems in MDAs. reports. Component 4: Management Tentative budget: Information Systems US$ 5.6 million 4.1 Implement integrated 1. Functioning 1. See above. personnel and payroll system. personnel and payroll database. 4.2 Phase improvements in 2. Quarterly and records management in MDAs. amnual progress reports. 4.3 Develop the National 3. Program Records Center. monitoring and evaluation reports. Page 40 4.4 Modernize information and communication systems in the central MDAs. 4.5 Develop standards and local capacity for MIS implementations in MDAs. Component 5: Leadership, Tentative budget: Management and Governance US$ 16.4 million 5.1 Build CSD's capacity for 1. M&E reports. 1. See above. program leadership and management. 5.2 Train leaders and public 2. Program quarterly service managers in leadership and annual and change management skills. progress reports. 5.3 Educate and train public 3. Surveys of servants on facilitating and employees and the promoting private sector. public. 5.4 Restore merit principles 4. Programs and practice in appointments. quarterly and anmual progress reports. 5.5 Reinstate ethical conduct among public servants. 5.6 Mainstream gender issues into public service management. Component 6: Program Tentative budget: Coordination, Monitoring USS 10.4 million and Evaluation 6.1 Establish a robust system 1. M&E reports. 1. See above. for programs M&E, including a baseline survey and regular service delivery surveys. 6.2 Put in place a 2. Budget and other comprehensive information, government education and communication policy (IEC) program. pronouncements. 6.3 Strerngthen the mechanisms 3. Mass media for program coordination. reports and commentaries on the program. 6.4 Strengthen the planning 4. Policy documents. and policy units in MDAs. 6.5 Improve policy development and coordination mechanisms at the center of Government. Page 41 Annex 1: Project Design Summary for Part B Tanzania: Distance Learning Center Component : wxarchy ,of ves - K Perfmia.cei ndiatrs Mnt -nd C a - ......-.-.,. ^.,,-, , -.:, ::- , :,Evakuation - - __--_______ _.-_-_. Setr-relate AS- (ot- . =eto -nat'z S eco 7 C-nr (fo G-a -o Bank Repots Msin Improve the performance of 1. Productivity of senior civil 1. Specific surveys to 1. Access to knowledge private and public sector servants. be conducted every and information is professionals. 2. Quality of policy two years. transformed into formulation and better policies and implementation. improved 3. Timeliness of economic and performance by sector strategy public, private and implementation. community actors 4. Effectiveness of community that has a positive organizations and private impact on poverty firms. alleviation. Follow-on Development Objective: 5. Number of public and 2. DLC Annual 2. Adequate supply, Mainstream the use of distance private professionals Report. quality and relevance learning as an ongoing tool to trained. of training courses. increase access of public and 6. Number and variety of 3. Absorptive capacity private sector professionals to organizations using DLC. of tainees. global innovations and information. 1.'rojct Dei.lopm.n . .Oufcomeo I tdicat Pr o-ct ep - e - Test the effectiveness and 1. Training cost less than I. DLC Annual 1. Trainee organization sustainability of a distance $1 10/day. Report. willingness and learning center as part of a 2. Distance learning facility ability to pay. global knowledge-sharing utilization rate (60% by year 2. Anunual audit. 2. Acceptability of network to build capacity 3). distance learning to amount government officials, 3. DLC operating cost/income public, private and private sector managers and ratio (1.0 at year 4). community trainees. civil society. 4. Number of providers of 3. Regular availability GDLN courses (increase by of relevant courses 5 per year). and convenience of scheduling for trainees. Page 42 Out-put03-0g fro Each Output Iicator0s00000 Project00 Reots00 0 (frome0 Outputs t * Distance learning facilities 1 Distance learning facility 1. DLC Annual 1. Government willing exiensively used to train utilization rate (60% by year Report. to contract mut decision makers, private 3). continuing sector managers and 2. Number and variety of 2. Annual audit report. education. community leaders. organizations using DLC, 2. Technolog, works 3. Number of public and reliably ani: is * Viable cost recovery plan private professionals accepted b, trainees. in place and operational. trained. 3. Willingnes and 4. DLC self-financing by year ability to p;. y by 4. trainee organizations. 4. Relevance of GDLN training to country demand. OMe t3noetsb 333 (ut for' eacht Pr33 ect3230 333 R r (frr Comrpnx 333 ti * DLC retrofitting and USSO.88 million. 1. Quarterly Reports. 1. Donors willing to Equipment. allocate part of training budgets to * Support to DLC Start-up USS2.25 million. DLC. and Operation. 2. Management team is business or6emted. 3. Course contmnt rele'-ant to local needs. 4. Participating instilutions willing to coverparl of training cos ,s. 5. Private sectcr ____________________________________________________________willinig to co opecrate.j Page 43 Annex 2: Detailed Program Description for Part A Tanzania: Public Service Reform Program (Phase 1) By Component Introduction The Government recognizes that attaining thePSRP's goal will be a long-term process. It entails the pursuit of a cultural reorientation of the public servants as well as the public of Tanzania, whereby the public will demand and receive due rights and services. It is recognized that at least a decade of comprehensive and sustained refon-n efforts will be required. Therefore, the program comprises three phases: Phase 1: Installing a Strategic Process for Sustainable Performance Improvement (2000-2004); Phase 2: Instituting a Performance Management Culture (2005-2008); and Phase 3: Establishing Quality Improvement Cycles (2009-2011). The program is explained in detail including costing, in the Govemrnent's medium-term strategy and action plan. A copy is in the project files. Phase 1 (2000-2004): Installing a Strategic Process for Sustainable Performance Improvement Installing a Strategic Process for Sustainable Perfbrmonce Improvement: The central thrust of this phase of the reform program will be the installation of a strategic process for sustainable performance improvement. The strategic process will be put in place in phases through a PIM in all MDAs. It will support public service managers in implementing structural and institutional reformns that will result in service improvement. The scope, clarity and realism of how a MDA's strategic plan reflects role focus, decentralization, private sector participation and appropriate capacity building measures, taking into account budgetary constraints, will be critical for support under the program. The Government will establish a PIF to support the operationalization of the PIM (see Annex 13). Key features of this model include strategic planning; annual performance planning and budgeting linked to the overall government budget process; systematic execution of plans and budget with focus on service improvements; and monitoring, evaluation and reporting. A Performance Management Unit (PMU). to be established in CSD, will provide technical leadership and assistance to the implementation of the PIM. The PMU's management team will need to be strengthened to lead this process. Training programs in policy and results-oriented management skills for MDAs will be designed and launched. Administrative and technical support necessary to institutionalize service improvement processes in MDAs will be provided during this phase. This includes: i) decentralization of service delivery responsibilities to local authorities, ii) privatization and contracting out of non-core functions; iii) transfer of executive functions to executive agencies; iv) reform of CSD's training institutions; v) re-tooling and systems development; vi) regulatory reforms in targeted Ministries: and vii) the provision of client and business surveys. Page 44 Under the program, MDAs will publish service delivery standards (social pacts) to demonstrate their commitment to service improvements and to inform and educate the citizenry on their rights and service levels to be expected. Annual service delivery objectives and key performance indicators, linked to the budget process, will be established by all key MDAs. The indicators will be monitored and adjustments wdill be made accordingly. A program of service improvements ("quick win") introduced in 1998 will be extended throughout the service. Strengthening core capacity: In this phase, the program will also support horizontal interventions crucial in sustaining institutional changes and capacity building. A priority will be to enhance the capacity of CSD and other central MDAs to lead the reform program, and to continue to strengthen the political leadership and officers in the M[DAs to effectively execute the program in their respective organizations. There will also be a focus on incentives: the first phase of the medium-term pay policy, designed to restore the competitiveness of professional, technical and managerial salaries, will be carried through annual pay awards in line with medium-term targets. At the same time, pay will be related to responsibilities through the implementation of the findings of the on-going job evaluation exercise. Contract employment will be introduced systematically in key areas of capacity deficiency, and donor local cost compensation schemes will be aligned with the Government's medium-term pay policy targets. In FY 1997/98, MOF commenced piloting performance budgeting. However, it was felt that a more straltegic and properly resourced initiative was needed. A program to strengthen core financial management systems has been agreed with MOF. Perfornance budgeting in line with sectoral priorities will have been introduced in key Ministries. As part of PSRP, new arrangements to lead and coordinate an integrated public sector reforn program wi.ll be put in place during this phase, i.e., strengthening policy coordination at the "Center of Govemment" (Office of the President, Prime Minister's Office, CSD, MOF and Planning Commission). This phase will also support the modernization of the information and communication systems in these institutions to provide a basis to monitor program performance. Phase 2 (2005-2008): Instituting a Performance Management Culture In this phase transfer of most service delivery responsibilities to local authorities and local communities will be completed. Increasingly, Ministries will delegate their executive functions to agencies. The privatization of commercial functions will be completed. Arrangements to strengthen the Government's regulatory responsibility for privatized industries will be fully introduced. Results-oriented management practices, i.e., strategic planning, performance contracting and appraisal systems will be extended throughout the public service. Greater delegation of responsibility over personnel and financial management issues will be piloted in those Ministries satisfactorily operating a PIM and able to be accountable for outputs. The program to develop a professional core public service will be in progress. There will be significant improvement in management training and policy skills through the delegation of training budgets to Ministries, and also by supporting the effective operation of training programs in local institutions. This phase should see the extension of strategic plans in all Ministries based on national targets and objectives. CSD will actively suplport this process. The program is also geared to strengthen the restoration of effective public financial management practice, particularly by fostering closer linkages between budgets Page 45 and performance objectives. Thus, performance budgeting and strategic management of public resources will be linked and institutionalized. Phase 3 (2009-2011): Establishing Quality Improvement Cycles By the end of the program a new culture in public management practices will have been internalized throughout the public service. Client orientation and accountability for results will be the norm. In addition, measures to increase public and business participation in policy formulation will have been introduced. A review of key civil service processes will have been carried out, and new technology introduced to achieve efficiency and minimize the extent of red tape and bureaucracy. There will be full delegation of authority over the delivery of basic social services to local governments. The civil service will be reduced to a professional core and an increasing proportion of the government workforce will be employed in Executive Agencies. An efficiency review progranm designed to encourage continuous improvements in service delivery will have been extended throughout the service. There will be increased delegation of authority to Ministries over personnel and expenditures. Donor support will largely be provided to sector programs rather than projects in the form of contributions to an integrated budget framework, and the population will demand quality services from the public service. Phase 1 (The Project) This first phase (2000-2004) of the PSRP builds on the on-going structural reforms initiated under the CSRP. Key areas of structural changes include decentralization, restructuring and private sector participation and an Executive Agencies Program. These reforms are on-going and will be supported by the PSRP. However, decentralization has since evolved to a comprehensive local government reform program. An interim enabling policy and regulatory framework has been put in place by the Government. The LGRP is strongly supported by several donors (DFID, DANIDA, FINNIDA, IrishAid, Netherlands, NORAD, SIDA, Swiss, EU and UNDP). Therefore, the local government reform aspects of decentralization will not be directly supported by the PSRP. However, decentralization, together with the other structural reforms, have created a new institutional environment for service delivery to which phase I of the PSRP will respond. In launching the PRSP, the Government has determined the need for a strategic process that will facilitate participation of public service managers to implement structural changes within a framework that supports service improvements. Therefore, installing the strategic process will be at the core of the new program strategy. This will be achieved by adding two new components to the on-going components: i) performance improvement in MDAs; and ii) program coordination, monitoring and evaluation. Under the CSRP, other changes have also been going on in the areas of management infonnation systems (MIS) and leadership, management and govemance. The MIS component remains crucial to sustain the establishment and payroll controls already instituted. The interventions under the leadership, management and govemance areas are critical for developing and maintaining capacity for change management and improved performance of the public service through a more meritocratic approach. It is therefore considered imperative that phase 1 of PSRP continue to support these changes. The six components of the program are: Page 46 Component 1: Performance Improvement Component 2: Restructuring and Private Sector Participation Component 3: Executive Agencies Program Component 4: Management Information Systems Component 5: Leadership, Management and Governance Component 6: Program Coordination, Monitoring and Evaluation The World Bank would provide US$39 million for the six components. Two of the CSRP components (Management Information Systems-MIS--and Executive Agencies Program) are already strongly supported by DFID with a commitment of about US$ 10 million over the next 2-3 years. Other donors have given an indication that they would support the PSRP and an additional US$ 6.5 million-would be allocated to "parallel- finance" Bank-supported components over the next two years: SIDA (US$ 1.7 million for the gender program), CIDA (US$ 1.0 million for ethics and anti-corruption measures), NORAD for capacity building, UNDP (US$0.2 million for leadership management and private sector participation), DANIDA (US$6.0 million towards supporting pay reform) and USAID (US$5.0 million for private sector facilitation). Donors are reacting positively to the implementation of PIM in the MDAs. The strategic process in MDAs is being supported by DANIDA in the Ministry of Health, LGRP in the Ministry of Local Government and Regional Administration, IrishAid in the Ministry of Education, and llNDP in the Planning Commission. PERFORMANCE IMPROVEMENT COMPONENT--US$33.8 MILLION This component is the central feature of the PSRP. Its implementation will support the strategic focus of the program to improve quantity, quality, and access to public services. This will be achieved by putting in place a strategic process that will facilitate MDAs' decentralization and the expansion of the range of institutions for service improvemrtents moving closer to the beneficiaries. Through this component the reform will also support measures for systematic capacity building throughout the public service on a continuous and sustainable basis into the next millennium. The specific objectives of the component are to: a) Advance the redefinition of the role of the government and improvements in service delivery with emphasis on the policy and regulatory functions of the Ministries; and judicious exploitation of opportunities for decentralization and private sector participation to improve service delivery. b) Install PIM for enhanced capacity and management of service delivery. Page 47 c) Promote strategic use of scarce public financial resources through effective operationalization of the PIM in MDAs with a particular attention to core services. d) Facilitate linkages with the various sector reform-s by ensuring that these are factored into the formulation of the MDAs' strategic plans; and e) Empower MDAs to improve their performance by providing incentives, developing their organizational capacity, and making them accountable for implementation of their plans and budgets. The component's implementation strategy will include the following features: a) Operationalizating PIM and PIF, in phases, in key MDAs. b) Strengthening CSD as change agent to provide technical leadership and pilot the operationalization of PIM. c) Establishing a core group of experts in strategic planning and other aspects of PIM in CSD and MDAs. d) Training Ministries on PIM and empowering them to implement their plans. e) Strengthening the MDAs' capacity and performance orientation. f) Providing incentives for performance, at both individual and institutional levels. The PIF is key to this component's approach (see Annex 13). It will be a centrally- managed fund to support the installation of the PIM. In the first instance, for any MDA, PIF support will be available on the basis of strategic plans meeting specified evaluation criteria. Continued assistance will depend on a MDA demonstrating consistent achievement of a set of performance benchmarks. RESTRUCTURING AND PRIVATE SECTOR PARTICIPATION COMPONENT --US$10.7 MILLION This component will complete and consolidate the implementation of reform measures initiated under CSRP's ministerial organization and efficiency reviews. The measures will include: (i) hiving off non-core functions; and (ii) abandoning non-essential functions. Page 48 The basic objective of this component is to support the operationalization of the institutional changes arising from the restructuring and decentralization of MDAs' functions. The component's activities will include: a) Facilitating the transfer of functions. services and operations from one institution to another. b) Contracting out non-critical services. c) Divesting and privatizing services and facilities not needed in the public domain. d) Redeploying surplus staff. EXECUTIVE AGENCIES COMPONENT -- US$1 1.0 MILLION The preparatory stage of a program for systematic development of Executive Agencies began in July 1996. A policy framework to establish agencies was adopted by Cabinet in April 1997. The Executive Agencies Act was passed by Parliament in October 1997' and it received Presidential Assent in December 1997. This component will continue to facilitate the creation and operationalization of Executive Agencies, with significant autonomy from central bureaucracy. The Executive Agencies operate in a more business- like manner leading to greater effectiveness and efficiency, better quality services and greater value for money. They will pioneer result-oriented management of public services. This program facilitates decentralization of those executive non-core functions that, due to strategic or operational considerations, need to remain in the public sphere. The program targets to improve efficiency and effectiveness of public service delivery by: a) Isolating the operation of select non-policy and executing functions from the administrative bureaucracy of ministeriat structures and systems. b) Introducing client orientation and results-oriented management into the new organizations. c) Facilitating clearer accountability for performance of services. The strategy to implement the Executive Agencies Program derives largely from the project launched in May 1997 with DFID funding, whose logical framework is depicted in the Government Strategy and Action Plan. Up to 57 organizations in the Government had so far been placed under the program as agency candidates. However, following a priority option analysis of these candidates, 20 have been targeted for abolition or consolidation with others. On that basis, the program's target is to launch 37 executive agencies in the medium-tern. Seven will have been launched by the end of 1999. MANAGEMENT INFORMATION SYSTEMS (MIS) COMPONENT -- US$5.6 MILLION The MIS component of the CSRP was launched in 1995 to reinstate establishment and payroll control. Since then, DFID has supported two complementary projects: (i) personnel control and information systems; and (ii) records management. This is one of the most successful components of the CSRP. In the PSRP, the MIS component will: a) Sustain the effectiveness of the establishment and payroll controls already in place. Page 49 b) Provide relevant, complete, accurate and timely infornation to public service managers and decision-makers. c) Support the modernization of information and communications systems in govemment offices. d) Improve the quality and availability of information through the development of efficient, effective and sustainable paper-based records management systems in the Ministries. e) Introduce an integrated computerized personnel and payroll system in CSD and reinforce existing controls. The approach includes measures to: a) Install the personnel and payroll system software procured during the last year and train MDAs' staff. b) Develop a policy and legal framework for the management of the increasing number of electronic records and a strategy designed for its implementation. c) Develop and cause to be developed by others, core IT applications and infrastructure on the basis of common standards and strategies. There is a need for a shared and optimized IT infrastructure. It is assumed that it will be established under the Govenmment Accounting Development Project (GADP) at MOF. d) Support public service managers in acquiring core IT competencies so that they are able to understand, plan and manage MIS developments in their organisations. e) Establish a participatory framework in which an MIS and IT policy for the public service will be formulated. LEADERSHIP, MANAGEMENT AND GOVERNANCE COMPONENT -- US$16.4 MILLION The overall objective of this component is to assist the transformation of the public service into a meritocracy. The future public service will be characterized by: a) Public service managers who are empowered through appropriate management systems, leadership and management skills. b) Rigorous application of merit principles in the management of personnel issues. c) Integrity, transparency and accountability in serving the public. d) Gender sensitivity in planning, implementing, monitoring and evaluating public service policies, programs and activities. To achieve these objectives, this program component will have interventions in the following sub-components: a) Leadership and management skills development. b) Restoring meritocracy in the public service. c) Reinstating ethical conduct. d) Mainstreaming gender issues into public service activities. Leadership And Management Skill Development Sub-Component: This sub-component will comprise four key initiatives: Page 50 a) CSD as the leading change agent for the PSRP will make considerable efforts to have in place adequate number of staff to improve its personnel skills, morale, environment, equipment and efficiency culture. b) Strengthen the leadership and management skills of political leaders and senior executives through appropriate training. c) Establish a Public Service College at existing training institutions. The institutions will specialize in management training. The Public Service Co]lege will use a consultancy approach to establish the training needs of all MDAs and from this analysis provide relevant training to address critical skill gaps. d) Training in private sector facilitation. This initiative will build on the work of the "Investor Road Map" project. Focus will be on customer service training and improved communication between the private and public sectors. Restoring Meritocracy Sub-Component: To restore meritocracy in the public service, recruitment and appointments will be made exclusively on the basis of merit. This implies open competition for vacancies; non-discriminatory recruitment and selection criteria, based on merit; and promotion based on open competition and merit. In addition, an open performance appraisal system will be introduced in all MDAs. Improved personnel management practices will be implemented. An important element of the PSRRP is enhanced public service pay levels based on a new public service pay policy ancd an improved retirement benefits scheme. Thlese will be put in place during this phase of the program. Reinstating Ethical Conduct Sub-Component: Reinstating ethical conduct in the public service will be achieved through inculcating values and standards of performance to public servants and the public. This will be done through: a) Implementing the recommendations of the Presidential Commission of Enquiry on Anti-Corruption (Warioba) Report. b) Disseminating a Code of Ethics. The code will provide guidelines on levels and quality of performance, outline ethical principles, create awareness on integrity and inspire voluntary commitment. c) Reviewing laws, regulations and practices to identify where they encourage or abate unethical conduct. d) Disseminating information through public awareness campaigns and puffing in place mechanisms to deal with complaints. Mainstrearming Gender Issues S-ub-Component: Increasing gender sensitivity amongst public servants is one strategy envisaged to eliminate the imbalances between men and women. The activities that will be undertaken by the gender sub-component are to: a) Create gender awareness in all strategically placed personnel (males and females). b) Build the capacity of women public servants to take-up the challenge to compete for upward career mobility. c) Produce various reports and information brochures on gender issues targeting both men and women public servants. Page 51 PROGRAM COORDINATION, MONITORING AND EVALUATION COMPONENT -- US$10.4 MILLION Program coordination, monitoring and evaluation under phase one of CSRP was carried out by its secretariat. In accordance with the redefined program implementation strategy, the CSRP secretariat has been closed and its reform wvork mainstreamed into CSD and MDAs. This marks an important step in re-integrating project-based initiatives into the civil service to ensure long-term sustainability and capacitv building. A key role of CSD in the PSRP will be to provide: (i) technical leadership to reform implementation by Ministries, (ii) active monitoring of reforms, and (iii) coordination with other reform programs especially public financial management reform and local government reform. CSD is the focal point for coordination, monitoring and evaluation. CSD's role will also include informing, educating and communicating with stakeholders on progress of the reform program. The objectives of the component will be to: a) Coordinate the policy formulation and analysis process. b) Facilitate, inspire and support sector reforms. c) Ensure public sector reform coordination. d) Monitor and evaluate the PSRP and related refonrs in addition to the various components of the program. e) Inform, educate and disseminate the message of public service reforms and the results of program monitoring to key stakeholders and ensure that stakeholders' comments are taken into account in the MDAs' strategic planning. f) Support enhancement of the capacity of institutions at thecenter of Government for policy formulation and analysis, strategic leadership and coordination of reforns. Key elements will include: * Monitor the implementation of PIM with an emphasis on decentralization of services. . Collect and analyze infonnation on PSRP components and other reform programs. • Develop MDAs' capacity to fonnulate and evaluate policies. * Establish a baseline to assess progress of the PSRP. * Monitor and evaluate reforn outputs and outcomes through service delivery/client surveys. * Establish a feedback mechanism to take into account results of the consultations with clients. • Report quarterly on progress. * Convene regular monitoring sessions to inform IMTC, IWG anid ad-hoc inter- ministerial sessions on public service reforms. * Inform the formulation of sector strategies with M&E results. * Collect information and monitor trends in public service capacity, motivation and performance. Page 52 Annex 2: Detailed Project Description for Part B Tanzania: Distance Learning Center Component By Sub-Component DISTANCE LEARNING CENTER RETROFITTING -- US$0.88 MILLION This component comprises: a) Ugrading facilities made available by the Institute for Finance Management for establishment of the DLC, including: * A videoconference room with a 30-person capacity. • A computer room outfitted for 30 computer stations (hardware, software and internet hook-up). * A technical and administrative center. * Mechanical outfitting such as installation and/or upgrading of electrical and telephone wiring. b) Equipment of the DLC including: * A Very Small Aperture Terminal--VSAT--(satellite communication terminal). * Video, telecommunications and microprocessor equipment. * Office and classroom furniture. * Various other equipment for DLC operation and security. SUPPORT FOR DLC OPERATION -- US$2.25 million This component aims to assist the DLC begin operation and become financially viable. It includes: a) Financing of DLC operation costs on a decreasing basis over the first 3 years of operation. b) Technical assistance for the training of staff, periodic evaluation of operation and management effectiveness and establishment of financial accounts and their annual audit. c) Purchase of a vehicle to facilitate transport and marketing of DLC services. Page 53 Annex 3: Estimated Project Costs for Part A Tanzania: Public Service Reform Program (Phase 1) US$ Million Project Component Local Foreign Total 1. Performance Improvements in MDAs 24.5 7.9 32.4 2. Restructuring and Private Sector Participation 6.1 4.3 10.4 3. Executive Agencies Programs 6.6 4.0 10.6 4. Management Infonnation Systems 1.0 4.3 5.3 5. Leadership. Management & Govemance 10.2 5.4 15.6 6. Program Management. Monitoring & Evaluation 4.9 5.1 10.0 Total Baseline Cost 53.4 30.9 84.4 Physical & Price Contingency 2.1 1.3 3.4 Total Project Cost (Part A 55.5 32.2 87.8 Disbursement Categories Local Foreigin Totaf Goods 0.0 4.1 4.1 Works 0.2 - 0.2 Sen,ices 7.6 24.0 31.5 Training 24.1 3.3 27.4 Incremental Operating Costs 23.5 - 23.5 Unallocated 0.1 0.9 1.0 Total Project Costs (Part A} 55.5 32.2 87.8 Page 54 Annex 3: Estimated Project Costs for Part B Tanzania: Distance Learning Center Component US$ Million ii2¢ 0-rojectCornpcinent (Pa.3 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~~rot (avnag anua .rwt). -p?':.:t: (Aof GDP) xc AgncutnLre 58.4 47.8 4 26 Industfry .4 9.5 13.9 14.32: Manufacturing .. .1 7.3 T3 r Services .. 32.1 39.5 39.0 Prvate consumption 3075./ 924 775 .221 General govemnent consumption . 15.0 12.2 89 . 9-'-3 94 s op Imports o/goods and serices .. .4 3.2 21 -01 E tI --,-GDP 197696 1897-87 1996 1997 iorowthn rales of exaports and imparts 4%) (average annua/ grow/h) Agilcuttce 3.4 4.8 0 9 no Industry _ 2.4 2.9 3.9 21,; MlanLofaCtring.. . Seovices 124 3 2 39 Private conmplete.i..po3.0 .4 . 3g ? 4,4 General govemment conSUMPtiOn -1.3 -12.2 n4 on ?u n Gross domestic investmvent . -0.7 -91 00 Imports of goods and services 2.4 -1.1 -0.7 _Ecyrp -.,rna Gross national prndict . 4.4 4.8 432 Noe 1997 data are preliminary est/mates. Tt diamonds s fouetsr hey ind/cators in the countly (in bold) compared wdth i/s income-group average. I/ data are missing, the d/amond wr/ Page 83 THE UNITED REPUBLIC OF TANZANIA THE MINISTER FOR FINANCE Telephone: 112854. DiTe TREASURY, Fax: 117790. P.O. Box 9111, In reply please quote: DAR ES SALAAM. TYC/B/40/l 08 28'hOctober, 1999 Ref. No ........... Mr. James D. Wolfensohn, President, The World Bank, 1818 H. Street N.W. WASHINGTON D.C. 20433, U.S.A. Dear Mr. Wolfensohn, RE: PUBLIC SERVICE REFORM PROGRAMME: STATEMENT OF DEVELOPMENT POLICY 1. I am writing to request, on behalf of the Government of the United Republic of Tanzania, a Credit of US $ 41.2 million equivalent from the International Development Association (IDA) in support of the Public Service Reform Programme. The proposed credit will improve efficiency in the management of public expenditures, strengthen public service capacity for the management of economic growth and poverty reduction, improve delivery of services to meet public expectations of value, satisfaction and relevance. Furthermore, the credit will improve accountability, transparency and resource management in service delivery, and will also test the effectiveness and suitability of the Distance Learning Center. The programme is consistent with the Policy Framework Paper (PFP) formulated jointly by the Government with the collaboration of the staffs of the World Bank and the IMF. 2. Tanzania's Civil Service Reform Programme (CSRP) was officially launched in July 1987, but its implementation began in eamest in 1993, with the support of the Word Bank through the Public and Parastatal Sector Reform Project (PPRP). The focus of the CSRP was to support the structural adjustment programme, the thrust of which was to achieve macro economic stability through I Page 84 restructuring of public services, and through undertaking cost contairnment measures. The PPRP will officially come to an end in December 1999. 3. The CSRP helped to redefine the role of the State in Tanzania, leading the Government to withdraw from direct production of goods and provision of services, thus reducing its roles and functions to affordable levels aind leadling to enhanced participation of the private sector and non government organisations (NGO's) in the provision and delivery of goods and services to the Public. Outcomes from these measures show that the Civil Service has since been substantially restructured and employment levels have been reduced by approximately 25 percent. The structures and tiers of government have been rationalised through restructuring of the regional administration and through defining and launching a decentralisation and local government r eform programme. Controls over public expenditure and employment have been restored and significant institutional development initiatives, are well under way which. include staff training and transforming the Civil Service Commissicn into an agency for meritocratic recruitment in the government. 4. Nevertheless, reviews of the Civil Service Reform show that there are still major problems and challenges for the public service today, which include unaffordable public services, poor efficiency of systems, decline in public service capacity to deliver quality services and a general resistance to change. Moreover, on the basis of a number of review and evaluation processes, which included internal retreats and symposia important lessons were learnt. It was fbr example found that the reforms had raised expectations of public servants to unaffordable levels according to budgetary frameworks; reforms had weak local ownership within ministries, departments and individual agencies, reform initiatives were fragmented and the mechanisms for monitoring and evaluation of reform ol: tputs and outcomes were quite weak. Even more significant was that the visionL and goals of the reforms were remote to public interests in the sense that the re oiims did not lead to improved services to the general public. 5. In order to meet the above challenges the government has gone o:n to design a programme for continuation of the reformn process and which woulc. take the country through a second generation reform process. The overall goal of the second phase of reforms is to support the attainment of a high rate of economic growth through delivery of quality public services. The objectives of this programme reflect the Government's vision of the future public servic: as envisaged in the National Vision 2025, and as elaborated in the Public Se:v:.ce Management and Employment Policy. The vision to guide and inspire the relo:m programme is: 2 Page 85 "the Public Service as a national institution of excellence that plays a pivotal role in achieving sustained national economic growth and prosperity, and eradication of poverty in the 21st century" Underlying this vision is the perspective that the transformation of the public service will be a long term process. It entails progress beyond structural and process changes in the operations of the public services, to a cultural re- orientation of the public servants, as well as the public of Tanzania. Public servants will need to adopt a mind-set to serve Tanzanians with efficiency, effectiveness and the highest standards of courtesy and integrity. At the same time the public will be empowered to demand from the public service their due right and services. 6. The goal of the PSRP is to continue reforming the Public Service so that it provides quality services to the public which are delivered efficiently, effectively and economically. However, it will be necessary to continue with the restructuring and institutional development initiatives which were commenced during the first phase reform and are not yet complete. Nevertheless, capacity building and improving the quality of public service delivery will be the major impetus of the second phase reformn. While capacity building is expected to dramatically change the way the public service performs other objectives include implementation of the medium term pay policy and implementing the results of a job evaluation and job grading exercise. The other major policy to be implemented during the reform programme is the public service management and employment policy. The two above policies, recently approved by the government, provide the underpinnings of the PSRP. 7. The Management and Employment Policy sets out the vision, mission, core values and management principles for the public service such as the pursuit of excellence through merit and results oriented management. The strategies for implementing the policy include the decentralisation of personnel management functions from centralised organs to each ministry, department and agency (MDA). Other strategies will entail meritocratic recruitment and selection, annual and medium term human resources plans, simpler grading and employment contracts, as well as annual, results-oriented perfornance appraisals, increased training and human resources development, and merit-based, competitive recruitment and promotions. 8. The second policy, the Public Service Medium Term Pay Policy seeks to significantly enhance public service pay especially in professional and technical grades so as to create incentives for both sustainable capacity building and 3 Page 86 improved service delivery. Considerable progress has been made in rationalising the pay structure and increasing transparency by consolidating all allowances into salaries. However, pay remains low and uncompetitive. Prevailing severe budgetary constraints make options for effective and all encormpassing pay reforn measures to be very limited. Yet, from a strategic perspective it is clear that government has shown commitment to the pay policy by implernenting a pay increase in the 1999/2000 financial year to professional and technical staff of between 45 and 54 percent, and of between 17 and 20 percent to other groups. This indicates clear progress towards effective capacity building which is crucial for achieving real improvements in civil service performance, in policy making, in regulating the private sector and in ensuring delivery of quality public services. 9. The long term reform programme will be operationalized in three phases over 12 years. The first phase programme (1999 - 2004) will install performance improvement systems. Phase two (2004 - 2008) will institute performance management culture in all MDA's, and phase three (2008 - 2012), will install quality improvement cycles. The three phases will overlap, with the end of each phase triggering the onset of the next phase and eventually leading to a transformation of public service in Tanzania. 10. Key features of the PSRP strategy are: o Broadly shared vision; o Articulated values and principles; o Widely shared strategic theme; o Budget incentives for performing institutions; o Capacity building measures undertaken; o Mainstreaming management of the reforms in Ministries, Departments and Agencies (MDAs); o Stronger communications programnmr-e; and o Introducing the Performnance Improvement Fund (PIF) and strategy. 11. The theme of the Medium-Term Strategy and Action Plan is "Qiiality Service Delivery under Service Budgetary Constraints". There is an impe-ative to improve the quality of public Services, despite the prevailing re :urce constraints. It is in this context that the components of the next programme have been defined. The components are: 4 Page 87 12. Performance Improvement Component is the core of the reform strategy. It seeks to implement the perfornance improvement model in Ministries, Departments and Agencies (MDAs) as a strategy to improve quality, efficiency and effectiveness of services and performance throughout the public service on a continuous and sustainable basis. The Performance Improvement Model (PIM) will be linked to the results oriented budgeting process and help determine whether objectives have been achieved when determining new budgets. Also, performance related awards will be established to reinforce improved productivity and effectiveness. Such awards could, for exarnple, entail providing increased autonomy for MDAs achieving improved perforrnance targets. 13. Restructuring and Private Sector Participation will involve further rationalisation of the structure and functions of MDAs. The aim is to reduce operations further to an affordable scale by sub-contracting non-core functions to private sector companies Initially, 16,460 posts will be affected (over a five year period) in such positions as: gardeners, housekeepers, caterers, watchmen, launderers etc. The majority of these posts will likely be retained by the companies engaged to provide services to Government on a contractual basis. The Government has further committed itself to reviewing and reforming all public service institutions in terms of their mandate, approach and scope of activities. New roles and functions of organisations will be defined, the appropriate institutional framework and systems to implement the new roles will be designed and installed, and structures and staffing will be adjusted accordingly. 14. The Executive Agencies Programme aims to facilitate the creation and operationalisation of executive agencies, with significant autonomy from central bureaucracy, enabling them to operate in a more business like manner, thus leading to greater effectiveness and efficiency, better quality services and greater value for money. It is planned to create approximately 38 Executive Agencies which will retain approximately 8370 posts, but will shed approximately 930 positions. An additional 1920 posts are likely to be abolished as some functions are no longer required by Government. 15. The Management Information Systems Component is aimed at ensuring effective information systems are put in place to support management decisions in order to plan, manage and control the operations of the Public Service. The Records Management sub-component aims to improve the quality of management and availability of information within the Public Service through the development of efficient, effective and sustainable, paper-based, record management systems in the ministries. It will also provide a foundation for introducing computerisation. Page 88 16. The Leadership. Management and Governance Component seeks -:o make the Public Service in Tanzania a true meritocracy. The objectives of the component are:- o To strengthen the capacity of the Civil Service Departrnent (CSD), strengthening leadership and management skills, recreating the Public Service College and introducing training for private sector facilitation; o To restore meritocracy through open and competitive recruitment, performance appraisal, improved personnel management and enhanced pay levels; Q To reinstate ethical conduct through inculcation of values and standards of performance to public servants; and o To increase gender awareness and sensitivity to eliminate the imbalances between men and women in the public service and to build capacity of women public servants. 17. The Programme Co-ordination, Monitoring Evaluation Component will put in place a monitoring and evaluation system for all outputs of the PSRP and build capacity in CSD and ministries to monitor progress. Links with other public sector reform prograrnmes such as the Local Governmnent Reform Programme (LGRP), and the Finance Management Reform Programme, (FMRP), will be promoted and sustained. Monitoring of the implementat:ion of the pay policy will be pursued rigorously. The component will also exe -ute a focused programme of information, education and communication jlEC) as an important feature of the programme. The Government is cormitted to inmprove national policy management by enhancing policy analysis capacit, and improving efficiency and transparency of policy design, policy co-orcdinaticrn and policy implementation in the office of the President, the Cabinet Secretari. Lt and in ministries. Guidelines and procedures for effective policy management w;r;ill be reviewed and an effective system for monitoring and tracking the impleemer ation of Cabinet decisions will be introduced. 19. The Public Service Reform Programme design and strategy is underT inned by the realisation of the need for a more strategic approach in the allocatio.l and management of resources. Specifically, to put in place a system that suj: ports results and provides incentives to boost performnance "on an on-going t isis", within the government's medium term expenditure framework (MT EF). The implementation of the strategy will be facilitated by resources to be nade 6 Page 89 available under a Perfonnance Improvement Fund (PIF). PIF will be a flexible instrument to fund MDA led progranmmes to improve services e.g. by providing resources for technical assistance, training in strategic planning, operational planning, performance appraisal and critical retooling. PIF will be managed by CSD with the Ministry of Finance also having a key role. 20. The proposed institutional mechanisms for programme co-ordination are geared to foster local ownership and to facilitate effective co-ordination of the programme in relation to other public sector reforms. The co-ordinating mechanisms are: o Committee of all Perrnanent Secretaries (IMTC) established as the Steering Committee for PSRP, chaired by the Chief Secretary; o An inter-Ministerial Working Group on PSRP chaired by the PS (CSD) composed of DPS's from PMO, MoF, Planning Commission, Chief Medical Officer, Chief Education Officer, Commissioner for Local Governunent, Accountant General and Cabinet Under Secretaries with CSD Directors as Managers of Components: and ensuring that; o Responsibility for implementation rests with each MDA. 21. Reforms are being mainstreamed into government operations. The challenge of providing strategic leadership and effective management of reform implementation activities falls squarely on every Permanent Secretary, Heads of Departments and Heads of Agencies. CSD will continue to play a crucial role in providing MDAs with technical leadership and support, mobilising resources, and ensuring effective co-ordination, monitoring and evaluation. 22. Government will also continue to enact the legal framework necessary to support the successful implementation of the public service reform programme. A new Public Service Act will put in place the legal framework for the establishment of a Public Service Commission. With continued political support it is expected that the PSRP will achieve its objectives. 23. The arrangements will also provide that during the three phases of implementation each phase will trigger the onset of the next phase. Triggers for the onset of phase two of the reform programme will be the demonstrated results of phase one in line with agreed performance targets that will have been determined with the participation of the Civil Society through Service Delivery Surveys (SDS) and through other agreed mechanisms for benchmarking. The Civil Society will provide proper feedback through mechanisms within the SDS Page 90 framework. Permanent Secretaries in the ten ministries initially targ,-ted for strategic planning and performance budgeting will have been working for at least two years with performance agreements that are linked to the results to be achieved. Implementation of "quick-wins" in all MNDAs will have been achieved through performance improvement systems while new appointments wNill have been competitively made by the Public Service Commission that will have been established as an independent body. 24. The Government has demonstrated its commitment to the P'ublic Service Reform Programme through its support for policy and regulation changes, the drafting of a New Public Service Act and by its deployment of human and financial resources to accomplish the objectives of the reform prograrnme. This also indicates the increasing political support for the reform of the Public Service. The previous phase (CSRP) focussed primarily on successfully achieving macro- economic stability which we are pleased to say has been accomplished . The next phase (PSRP) will build on this strong foundation to improve the performance of the delivery of Public Services. I look forward to your support on this programme. Yours sincerely, Daniel N. Yona (MP) MINISTER OF FINANCE 8 Page 91 Annex 12: Decentralization and Institutional Pluralism in Tanzania A Strategy for Improving Delivery of Social Services Tanzania: Public Service Reform Program (Phase 1) Background Shortly after independence in 1961, Tanzania adopted a socialist development strategy that stipulated that the Government would play a dominant and controlling role in the delivery of social and economic goods and services. Consequently, most medium and large private enterprises, as well as all non-governmental centers responsible for the delivery of basic social services, were systematically nationalized. Further, in 1972, the Government announced a program abolishing district and urban-based local government systems inherited from the colonial administration at independence. Until then, the local governments together with religious groups were the major providers of basic social services (education, health, water and minor roads). With the abolition of local governments, the regional administrations, under the direct control of the central government Ministries and departments, became the primary units for planning and controlling economic development, and delivering basic social services in the districts and urban centers. By the early 1980s, it was evident that the country's economic and social development strategy had failed. The economy was on a downward spiral, and the infrastructure for social services delivery was rapidly deteriorating. At that time, the national leadership also acknowledged that the central government was overextended. In 1983, with the launch of a homegrown economic structural adjustment program, the Government reinstated the district and urban local government councils. However, until the recent changes in decentralization and local government policy, the roles of these councils remained nominal. The programs, budgets and staff for the councils' social services remained under the direct control of the central government, through the regional administrations. Structural Reforms and Redefining the Role of the State In the late 1980s, Tanzania implemented far-reaching changes in its development strategy. With Bank-Fund support it implemented programs focusing on liberalizing markets to restore incentives for production. Since the 1990s, programs for structural reforms and redefining the role of the state, i.e., privatization of public enterprises and civil service reform, have been under implementation. Two key policy objectives are behind the structural reform programs and the redefinition of the role of the state: i. To reduce the role and functions of central Government towards a more affordable public expenditure framework. The overextended Government structure evolving out of the socialist era had undermined the fiscal stability and macroeconomic performance. It also required public financing of programs which, given the narrow and low public revenue base, are not consistent with development policy priorities. ii. To improve the quantity and quality of public services by fostering the participation of non- governmental organizations (NGOs), communities and the private sector in the delivery of social services, including infrastructure. While progress in these structural reforms was slow in the early years, rapid improvement has been made in recent years. The implementation of these programs continues with clear and strong commitment of the current Government. The promulgation of a decentralization policy and the launch of a comprehensive local government reform program (LGRP) give a new impetus to these structural and institutional changes. Page 92 Vision, Policy and Strategy for Decentralization The Government envisions decentralization as a strategy for a broader and more effective institutional framework: for mobilizing development resources and participation in economic and social development. In this vision, the institutional framework for delivery of social services will be a partnership of several different actors, in which thle central government Ministries will play a steering role, focusing on policy-making and regulating the environmrrernt (see Figure overleaf). EVOLVING INSTITUTIONAL FRAMEWORK FOR DELIVERY OF PUBLIC SERVICES CENTRALIZED FRAM[EWORK DECENTRALIZED FRAMEWORK CENTRAL I@ '\ d I \ V AJ ~/ \%Ay/\ ' DEVOLVED \/ 'J I \ N \ i ?E X F i'tPwfE 93 The objective in the Government's policy on decentralization is to improve the delivery of public services. It stipulates that the raison d'etre for decentralization of roles, authority and resources by the central government to the local governments is the latter's capacity, efficiency and effectiveness to deliver public services. Therefore, where a local government authority cannot improve on the performance of the central government in tenns of service delivery, there will be no decentralization. The policy and strategy for decentralization to local authorities is supported by the following principles: * A local government system within a unitary state: Tanzania remains a unitary state. Thus, decentralization will give local government councils discretionary powers within a national, legal and regulatory framework. The councils are obliged to follow national policy priorities as defined by the National Assembly (Parliament) and translated into guidelines by the Government. * A unitary local government system: All local government councils will be governed by a uniform policy, legislative and regulatory framework. * Political decentralization: District and urban councils constitute the highest political authority within their area of local government jurisdiction. Leaders of these councils are democratically elected. There will be lower-level local governments, including ward and village councils, whose leaders will also be elected through a universal suffrage system. Lower-level governments will remain subordinated to higher-level local governments regarding development planning, fiscal issues and local legislation of by-laws. * Subsidiarity in sharing roles and functions:The subsidiarity principle underscores the case for multiplicity of service providers. Higher level institutions assume roles and responsibilities only to the extent that the lower level entities do not have the capacity to do so. Thus, the principle of subsidiarity entails a decentralization of public service provision linked to a devolution of political powers to lower levels as far as feasible. Accordingly, after the decentralization of a function to a local government council, it may in turn decentralize further down to wards and village councils, or devolve management responsibilities for a specific function to private contractors, management boards, agencies and user groups. The implementation of the decentralization policy to local authorities constitutes the comprehensive local government reform program (LGRP) launched by GOT in 1997. The initial phase of this program was the restructuring of the regional administrations. This involved stripping the regional administrations (tier of central govermnent) of the powers, responsibilities and resources and transferring these to the local governments. By the time this phase was completed in 1998, the staff establishment in the regional administrations had been reduced from about 14,000 to less than 2,000. The program for decentralization will, over the medium-term, gradually result in the transfer of roles, functions and resources from central government Ministries to local government councils. The program is also restructuring and strengthening the local government councils for the new roles. 94 Private Sector Participation Following the ideological shift from socialism, the Government has, in the 1990s, adopted a private sector-led economic development strategy. The Government also recognized the potential role of the private sector (broadly defined to include NGOs and communities) in the pr ovisioll of social goods and services. Measures have been initiated to facilitate enhanced private seztor participation. Within the CSRP, programs were launched to inform and educate public servants, especially those in areas affecting private business investments and operations, to play a positive and facilitating role in their client relations. Plans to solicit private sector support in the delivery of operational services through contracting-out and similar arrangements were launched. MDAs are encouraged to foster partnerships with NGOs, communities and the private sector to expand supply, and enhance access to social services. Tanzania's private sector remains comparatively small. Nevertheless, it is already responding significantly to the opportunities arising in sectors such as education and health. It is expected that the private sectors interest and participation will increase as Tanzania's economic growth improves over the medium-term. Evolving Public Service Institutional Framework The central Government is gradually withdrawing from direct delivery of social goods and services as the participation of the local governments, communities, NGOs and the private sector expands. In the central Government itself, Ministries will gradually transfer non-core services to executive agencies and, wherever cost-effective, contract-out services to private sector operators. However, for various political, social and governance reasons, it will be a long time be-Fore many functions and services can be fully decentralized from central government Ministries and departnents. Therefore, out of the Govermment's strategy and programs for structural refoims and decentralization, a fairly complex pluralistic institutional structure for delivery of social services is evolving. This new institutional framework poses challenges for the future management of the pub [ic secr.r: a) coordinating a fragmented institutional framework; b) risking the loss and waste of resources through leakage in the system; c) ensuring accountability by agencies; and d) running the risk of local elite muzzling public expression. As envisaged in the Government policy, the framework provides opportunities for a broader U.nC more effective structure to mobilize resources and capacity to provide public services. This is particularly important in a situation whereby the government has limited capacity and resourc-s The institutional pluralism has also profound implications on strategies for improving the quality of public services. Public Service Reform Program Response The PSRP responds to this evolving public service institutional framework by: a) introducing a simple strategic process model that will facilitate public service managers to deal with the opportunities and challenges inherent to the framework; b) initiating, through the same strategic model, a framework for building the capacity and providing incentives to meet the management and performance challenges; and 95 c) launching an information, education and communication (IEC) program that will not only reinforce monitoring and evaluation of the program's outputs and outcomes, but also empower stakeholders to demand quality services and accountability. 96 Annex 13: Performance Improvement Process and Budgeting Mechanism Tanzania: Public Service Reform Program (Phase 1) Introduction The PSRP strongly focuses on achieving sustainable improvements in the capacity ;md performance of the public service. The Tanzanians have developed a process-oriented change management model (Performance hmprovement Model--PIM) to achieve these results. An important feature of the approach is a Performance Improvement Fund that will provide flexible financing to facilitate performance improvements and provide incentives to MDAs. The approach emphasises local ownership and commitment to change management at the individual ministry, department or agency levels. Performance Improvement Process The Performance Improvement Fund (PIF) will be a strategic instrument in the pursuit of sustained improvements in the quality of public services. The PIF will be used to operationalize the PIM. The key features of the PIM include: * Three linked planning processes at the strategic, operational and individual level. • During the strategic planning process each MDA will re-examine its organization's mission and vision (based on its respective extemal and internal environment) together with policies, strategies and associated objectives for achieving them. - MDAs will be required to ascertain critical factors to measure performance to achieve their objectives. They will also identify capacity and ,resources (professional skills, leadership, HRD, management structures, management and operating processes) needed to implement the strategic plan. - Following the strategic planning phase, an operational planning process :at divisional level) will begin. This process should run in tandem with tile Government's existing budget process. At this stage, MDAs will be expected to identify priorities for the next financial year taking into accounl. budget constraints, ceilings and extemal sources available. Therefore outputs will be related to expenditures. Deliverables anticipated from this process includle objectives and targets, outputs, performance indicators, activities and. outp.t- based budgets. * At the individual level, MDA employees, starting at the top, will discuss awd agree on three or more individual objectives that should be linked to the MDA 's targets identified in its operational plan. Development and training needs arisir g from this will also be agreed, prioritized and scheduled. * The strategic and operation plans will form the basis on which each MDA will publish a social pact setting out, among other things, standards of service th;:t the public can expect from the MDA in the short- to medium-term (1-3 years). This pact will also outline the parameters and constraints within which it will I:ze in a position to deliver certain services and not others and will set up a consultation process with stakeholders. 97 It is anticipated that performance reviews of all three plans (strategic, organizational and individual) will be undertaken at least twice a year. This process will include benchmarking of results and service delivery standards. There are five distinct stages of the PIM process to be supported by the PIF: 1 - Strategic planning The MDA will be required to set the direction of their organization for the next three years through a strategic planning process. The MDA management will: * Analyze the external environment in which it operates. * Formulate/clarify their organization's mission and vision, set goals for and agree on changes needed (Key Result Areas) to achieve the vision. * Undertake a ministerial public expenditure review in the context of sector priorities and Key Results Areas. * Assess the extent to which current functions and activities match each MDA's mission, vision and goals; identify poorly perfonming or duplicated functions/activities; agree upon new functions and activities; and which ones should be discontinued. * Define strategic performance indicators ("critical success factors") to monitor progress and for public consultations and reporting purposes. • At the outset, collect baseline data that will provide a basis to set targets and gauge future performance which can be regularly benchmarked. * Draft a strategic plan with an overview of the MDA's mandate, vision and mission; and operating environment. * Communicate plans to stakeholders to ensure a common understanding of the MDA's strategic direction. This would be done through focus groups or section meetings or less formally through newsletters and other means. It will also be published in the form of a social pact that will make clear the standards of service delivery that stakeholders should expect. 2 - Annual planning and performance budgeting On the basis of the strategic planning results, the MDA will: * Project expected outputs to achieve during the year, together with activities required to achieve the outputs. * Prepare budgets for the activities. Priorities will be within the resource envelope available from MOF. * Finalize plans and budget. * Develop in consultation with stakeholders and issue a 'iocial pact". It will also be important at this stage that employees agree on how they will contribute to reaching the objectives. This will be done by setting and agreeing objectives for each individual, based on the Performance Review and Appraisal process whereby individual performance is linked with each MDA's goals and objectives, and development needs and identified and planned for. 98 3 - Evaluation of plans and budgets Plans and budgets, if they need to use PIF resources, will be evaluated by a team witl, the responsibility and expertise to check the requirements. Therefore during this stage, MDAs will submit plans and budgets to a central team responsible for the technical management of the -IF. The evaluation team will develop a set of standard criteria for examining plans and budgets. Once these plans and budgets have been assessed and funding levels approved, MDAs will be required to make the necessary adjustments and prepare a cash flow plan indicating zash requirements from the PIF within the coming year. They may then submit an application for PIF financing. 4 - Execution of plans and budgets During this stage MDAs will execute plans and budgets within the PIM framework. Specific interventions that could be financed by PIF include: • Technical assistance (TA)/Consultancy services at all stages of the PIM process. * A contract recruitment scheme to ensure professional, technical and managerial capacity. * The provision of incentive payments (Local Cost Compensation - LCC) to mid- career technical and professional public servants within the medium-term targets specified in the pay policy document. • The introduction of demand-driven training that focuses on equipping public servants with up-to-date and result-oriented knowledge and skills. The access to the PIF will be linked to the MDA developing a performance improvement plan prior to any requests for capacity building to be considered. Further draw downs will be contingent on clear improved performance against the identified key performance indicators. The improvements will be benchmarked twice annually using an intemationally accepted balan,ed score-card methodology. 5 - Monitoring, evaluation and reporting Both during the year and at year-end, methods used to monitor and evaluate performance cciuld include: * Self-assessment by the senior-management team using a variety of tools. * Monthly review sessions where the MDAs' management provide updates )n implementation actions. • Repeat service delivery surveys and other participatory approaches to ass,. ss customer satisfaction. * Impact assessment studies of new implemented policies and procedures. • Financial and value-for-money audits by the OCAG. • Staff appraisals. MDAs will maintain adequate documentation to support the results of the M&E process. In addition, MDAs will demonstrate commitment and learning through continuous improvement b ': 99 * Reporting to key stakeholders on their performance (success and areas for improvements) with respect to achieving key results highlighted during the annual planning and budget process. * Providing comments and action plans resulting from audits and reviews undertaken during the period. * Disseminating results to the appropriate level within the MDA and outside for follow-up and action. * Recognizing and rewarding individual performance and sanctioning lack of performance. * Improving procedures to accommodate feedback from monitoring functions. * Reviewing plans to ascertain whether decisions made during the previous planning stage are still appropriate, and make adjustments as necessary. Institutional and Implementation Arrangements A Performance Management Unit (PMU) will be established in the Management Services Directorate, Civil Service Department. The primary role of PMU will be to provide technical assistance and guidance to MDAs in the implementation of the PIM. The unit will also support directly the planning and budgetary stages of the PIM process. Specific activities to be undertaken by the PMU will include: * Creating awareness of performance management in Ministries through information sessions and training. * Distributing application forms and guidance needed to lodge requests for financing from the PIF and verifying and processing applications for funding. * Supporting procurement by MDAs. * Developing checklists to guide the IWG in the evaluation of annual plans, applications for financing and performance reports received from MDAs. * Providing operational guidance to MDAs during the implementation of the PIM. * Managing a central contract recruitment payroll, including authorizing monthly additions and deletions of personnel; and disbursements to MDAs. * Authorizing approved disbursements from the PIF. * Providing regular progress reports on MDAs' results with respect to PIF-financed activities to the PS, CSD and the IWG. There will be adequate segregation of duties to counterbalance the centralization of administrative processes in the PMU and ensure the PIF is safeguarded. Therefore, officers involved in verification and procurement activities in the PMU will not manage the fund. A PIF Accounting Unit will be responsible for the following aspects of fund management: * Estimating annual financing needs identified during the annual planning and budgeting process (Stage 2 of the annual PIM process), and matching them against amounts to be made available. * Consolidating cash flow projections received from MDAs at the end of Stage 3 (Evaluations of plans and budgets). * Managing the PIF account including maintaining a cash book and reconciling bank statement against cash book balances. • Maintaining a suitable management information system to allow for recording, tracking, monitoring and evaluating PIF flows. 100 * Making authorized payments from the PIF account to MDAs. * Ensuring that adequate financial controls are in place to maintain propriety and proper accountability for expenditure. * Designing standard formats for filing reporting returns. * Collecting and consolidating returns from MDAs. * Reporting periodically on fund flows for management's use and audit purposes. Development of Forward Budget Ceiling There will be an annual limit on the total funding available from the PIF. This overall ceiling will be communicated to all MDAs and will result in increased competition among MDAs for resources. In this regard, there will be an annual process for setting overall allocations. Once CSD has determined the level of financial support that is likely to be made available to fund the various PIF applications, it will be important to allocate resources against possible uses with a view to setting aggregate amounts to be disbursed for each cycle. This would be within the framework of the annual Government budget. Accounting and Reporting Accounting for the PIF and other PSRP funds will follow eventually the Loan Administration Change Initiative (LACI). The regular accounting reports that will be beneficial to management include the following: * Annual financing requirements by MDA and type of resource. * Deposits received into the PIF by type of donor. * Disbursements made by MDA and type of release. * Allocations utilized during a period or in the year to date. * Stage reached at which MDAs is receiving financing. * Impact of PIF financing on services provided by MDAs (e.g., impr:cved customer satisfaction ratings and processing time). * Schedule of any backlogs, in terms of approved applications for which the ie is no funding available. 101 Annex 14: Fiscal Framework for Pay Reform and Feasibility of Program Implementation Tanzania: Public Service Reform Program (Phase 1) Introduction For most developing countries, the nexus between fiscal instability and weak macroeconomic performance, on one hand, and the relatively high cost of the public service, on the other, is well established. With reference to African economies, Lindauer observes that: politically directed and uncontrolled expansion of the role and functions of governnent and/or public sector employment, giving rise to high wage bill in the public expenditure framework, was a major factor in the large fiscal deficits that characterized the economies in the 1980s6. These fiscal deficits, according to Easterly and Schmidt-Hebbel, received much of the blame for the assorted economic ills that beset these and other developing countries in that period: over-indebtedness and the debt crisis, high inflation, and poor investment perfonnance and growth.7 In this context, it is important to assess the fiscal implications of the PSRP from two perspectives. Firstly, can the program costs be afforded without jeopardizing the government's medium term fiscal and macroeconomic goals? Secondly, what are the prospects for the program sustainability in the long term? These questions are pertinent in the context that PSRP is an expensive undertaking, in terms of both investment and recurrent costs. The program's investment costs in the medium term (five years) are estimated at a total of US$177 million, including US$92 million for compensating retrenched government employees over the period. This level of investment in PSRP is significantly high; calculated at an average of about US$35.4 million over the five years, it amounts to nearly nine percent of the total public investment program (development budget) in FY 1999/2000. However, this annex addresses the fiscal implications and sustainability of the PSRP only with regard to the recurrent costs of the program. The fiscal implications of the investment costs are not pertinent to the discussion in this annex for two reasons. First, the economic and financial justification are discussed elsewhere, in annex 4. Second, a relatively high rate of return to such investnent has been independently demonstrated in the previous phase of the reform program, and, the level of investment in this phase is not significantly higher than that in the previous phase. Since 1996, GOT has expended a total of about US$130 million on the CSRP. The bulk of these funds (about US$100 million) have been utilized for compensating retrenched employees. The retrenchment funds have been readily contributed by a number of bilateral donors on the basis of the demonstrated high financial return on these expenditures, and efficient, transparent and proper accounting for the fimds8. For this purpose, the donors have established a joint retrenchment fuid account, through which the funds 6 Lindauer D.L., "Government pay and employment policies and economic performance " in Lindauer D. L. & Nunberg B. (ed.), "Rehabilitating Government: Pay and Employment Reform in Africa',' The World Bank (1994). 'Easterly W. & Schmidt-Hebbel K., "Fiscal Deficits and Macroeconomic Performance in Developing Countries ", Research Observer, Volume 8, Number 2, The World Bank, (November 1993). 8Department for International Development, "Economic and Financial Assessment of the Tanzania CSRP Retrenchment Program", report by Coopers & Lybrand (1996). 102 are channeled. Therefore the funding of the program investment costs are virtually assured by donors as the Govermment remains committed to the program. Also the economic and financial justification for the program has been amply demonstrated. On the other hand, the recurrent costs of the PSRP are predominantly attributable to the rise in the Government wage bill that will be necessary to implement the public service pay ref:nrm policy. These costs will be substantial and have to be funded from the government's domestic revenue. At the same time, the sustainable funding of these costs is critical to the program success because the implementation of the pay reform policy is a central plank of the PSRP medium-ter.m strategy. For reasons elaborated later in this annex, the main thrust of the new public service pay policy is to focus and commit the Governmuent to rapid enhancement of pay for technical and professional cadres of the civil service. The policy also targets to raise the salary decompression ratio from about 21 today to about 30 by the medium term (about five years) with top pay in the c:ivil service at about US$ 3,000 equivalent. Furthermore, specific targets for medium term pay enhanceraent by grades would be defined on the basis of the on-going job evaluation and grading exercise. The diagnostic phase of this exercise has, for example, confirmed the need to develop a new salary structure with fewer grades9. In this context, the exact costs of pay reform in the medium term have not been confirmed. The ongoing evaluation and regrading exercise will reveal the exact need and scope for enhancing pay for various grades. Nonetheless, in the public service pay policy paper adopted by the Cabinet, it was stipulated that implementation of the policy would require the Government to raise the wage bill share of the GDP from the current 4.4 percent to 4.9 percent, the level it was in FY 1996/97. The requirement to raise the wage bill share of the GDP is against a backdrop of measures by the Government in recent years to control and reduce the share. Until FY1995/96, official statisAics suggested that the wage bill share of the GDP was about 4 percent. The macroeconormiz adjustment programs articulated for maintaining the wage bill at that level. Howeve.r, in :FY 1995/96, the wage bill share of the GDP was allowed to rise to 5.1 percent, and in real terms the total wage bill rose by 12.2 percent (see Table 1). In the following year, there was again a 2.9 percent real increase in the wage bill, but the wage bill share of the GDP dropped to 4.9 perc nit. The relatively high wage bill share of the GDP in FY 1996/97 was explained by the policy objective pursued in those two years to achieve the consolidation of allowances into a ba,ic salary, in which enhancement of salaries and the wage bill were unavoidable. Hence, thereaft er, Government has in fact achieved reductions in the real value of the wage bill (see Table 1). The negative impact of the reductions on real wage bill levels in the last two fiscal years were: in part cushioned by reductions in the Government workforce (see Table 1). But as elaborated in tais annex, the option of downsizing the workforce to facilitate either control of the wage bill level or enhancement of public service pay is closing at the margins. Therefore, as stipulated in the publ ic service pay policy Government will, in the medium term, have to raise the wage bill (as percent of GDP) to implement the public service pay. 'The issues of fiscal implications of the PSRP may therefore be paraphrased in the context of affordability and sustainability of the new public service pay policy. More explicitly, will tfie Government raise the wage bill to 4.9 percent of GDP in the medium tern? Further, does tLe 9 KPMCi Peatmarwick Consultants, "Tanzania Civil Service Job Evaluation and Regrading Study" 'Octob'.r 1998). 103 Government have the political commitment to effect the policy shift so that there will be a more rapid enhancement of pay for technical and professional grades? Moreover, are these policy measures sustainable in the long term? In answering these questions, a historical perspective on fiscal developments and public service employment pay trends has relevance. Table 1: Annual Real Changes in the Government Wage Bill and Employment, FY 1994/95 - 1998/99 Fiscal Year Wage Bill Wage Bill Annual % Annual Annual % Real Change in (in Tshs Share of the Change in the Inflation Change in the Government. B) GDP Nominal Rate Real Wage Bill Employment Wage Bill 1994/95 109.7 4.0% - - - 1995/96 156.1 5.1% 42.3% 29.1% 12.2% -9.6% 1996/97 199.2 4.9% 27.6% 24.7% 2.9% -1.5% 1997/98 218.8 4.6% 9.8% 16.7% -6.9% -3.8% 1998/99 218.0 4.4% 0.0% 14.8% -14.8% -2.3% Source: Civil Service Department, United Republic of Tanzania. A Historical Context The impetus for the public service reform in Tanzania, as has been generally the case elsewhere, was the realization that the country's fiscal crisis was underpinned by excessive expansion of government role, functions and employment. It has been estimated that during the first three decades following independence in 1961, employment in government service recorded an average annual growth rate of 8.6 percent, from nearly 90,000 to about 300,000 employeesI0. Thus, over an extended period (and particularly in the second half of the period) public service employment was expanding at roughly twice the rate the Government's domestic revenues were growing. Had the expansion of the Government's payroll been held to the same rate of growth as the revenue base, instead of reaching 302,000 in 1984, the public service would have employed only 210,000 persons.11 The growth in employment numbers exacerbated severe erosion in real wages and salaries for civil servants when economic decline set in late 1970s and the early 1980s. In constant prices, it is estimated that, on average, direct pay for civil servants in 1990 was only about 25 percent of the levels in 1972 (see Figure 1). 10 S. Odunga et al, "Employment Systems and Need for Policy in the Civil Service", Project on Redeployment of Human Resources in Tanzania (unpublished, p.23) (1992). " The World Bank, "Tanzania Public Expenditure Review" (1991). 104 Figure 1: CHANGES IN MINIMUM WAGE & INCOME FOR GOVERNMENT EMPLOYEES IN TANZANIA, 1969-1993 (SELECT YEARS) 35,000 . . ,. 30,000 Nominal M ge 25,000 -Z.TotlNoiahIcm D 20, X g , ffi Real Income 1994=100 m 10 crO |0g||i 5'000 f f -.- B agaN9yb ,X4>9,OR0>,',a,-PA,9t,.q>9ee vb Year On the other hand, it was never like GOT was spending a disproportionate share of its budgetary resources on the wage bill, compared to, for example, other countries in Sub-Saharan Afiica (SSA). In fact, for most of the 1980s, wages and salaries costs as a percentage of total governnrent expenditure and net lending were for Tanzania (at 18.6 percent in 1980 and 24.8 percent in 1986) considerably lower than the average for all SSA, at 27.8 percent and 26.7 percent in 1980 and 1986 respectively (Table 2). But, these lower budget allocations resulted in the steady decline of the purchasing power of the civil service wages and salaries. The fall in real wages was however more dramatic for Tanzania, which recorded a 60 percent fall, for the first half of 1980s compared to, for example 20 percent for Togo, and 40 percent for Kenyal2. Therefore, in recent years increasing the allocation of budgetary resources to wages and salaries has been a strongly argued option in tackling the problem of erosion of civil service pay in Tanzanial 3. Table 2: Comparison of Civil Service Wages & Salaries As Percentage of Total Governmelit Expenditure and Net Lending for Tanzania and Select SSA Countries, 1980-88 Country 1980 1981 1982 1983 1984 1985 1986 1987 1988 Tanzania 18.6 21.1 20.4 22.9 22.3 25.6 24.8 19.2 1 18.2 SSA 27.4 27.1 26.8 27.6 27.7 27.3 25.3 25.5 N.PX excluding Nigeria _ _l__ll Malawi 12.9 13.9 19.8 19.3 18.2 17.6 17.8 20.7 I)' 8 Zimbabwe 30.7 30.0 25.7 26.1 24.4 24.2 25.3 26.4 32 8 Zambia l 22.4 32.9 29.6 31.4 30.7 25.6 22.3 25.8 222 l Kenya | 25.3 27.2 27.6 31.1 | 31.7 29.7 | 33.7 31.5 32 0 Source: UNDP/The World Bank, Africa Economic & Financial Data 1992 This recent advocacy for raising Government spending on the wage bill is significant against, f6r example, the observations in the public expenditure review (PER) carried out by the World Bark mission in 1989. This PER report emphasized the severity of the limitations on the budgeta:ty 12 Vandemoortele J, "Employment and Civil Service in Africa", The World Bank, (1991). 13 Kiragu K., "Tanzania Civil Service Pay Policy Issues and Options", in National Symposium on Civil Service Reform in Tanzania, (Rugumamu, Ed) University of Dar es Salaam, (January 1998). 105 option to salary enhancement for the civil service. In particular, the PER analysis showed that, "even if the long-term growth of real revenues and expenditures is 5 percent (corresponding to a 4.5 percent trend growth of GDP), the civil service is frozen at its present level, and no further budget restructuring occurs: i) with incremental resources allocated to wages and other charges in the present proportion (i.e., keeping a constant PE ratio) it would take over 35 years to restore public service pay to the level of the mid 1970s; ii) if allocation of additional revenues is biased towards wages until the average PE ratio has risen to 50 percent, it would take 23 years to restore pay" 14. Improved Prospects for Sustainable Public Service Pay Reform In recent years, however, the prospects for sustainable public service pay reform have vastly improved in the context of three major developments: * a much improved fiscal framework; * substantial downsizing of Government workforce; and * progress in pay reform under the civil service reform program. A Much Improved Fiscal Framework in Recent Years Tanzania's fiscal framework has improved considerably in recent years. Until FY 1996/97, fiscal deficits were the norm for a long period extending back to the 1970s. In the previous two FYs, 1994/95 and 1995/96, the overall deficit was at levels of 5.9 percent and 2.2 percent respectively. An overall fiscal surplus of 2 percent of GDP was realized in FY 1996/97 (see Table 3). Surpluses have also been attained in FYs 1997/98 (0.9 percent) and 1998/99 (3.2 percent). The fiscal discipline attained since 1996/97 budget has restored confidence among Tanzania's external development partners and triggered actions such as the approval of an ESAF by IMF, a SAC by IDA, a SAL by AFDB and a fifth debt rescheduling by the Paris Club. Further, as elaborated later in this annex, the fiscal framework should in the next year receive a boost from debt relief under heavily indebted poor countries (HIPC) initiative. 14 The World Bank (1991), ibid. 106 Table 3: Fiscal Developments 1995196 - 2001/02 (Tshs Billion) Fiscal Variable 1995/96 1996197 1997/98 1998/99 Total Domestic Revenue 448.4 572.0 619.1 722.8 Total Expenditure 596.0 638.6 730.3 796.5 Recurrent Expenditure 474.6 528.3 543.8 646.5 Debt Service 112.6 111.0 101.2 118.4 Wages and Salaries 156.1 199.2 218.8 231.6 Other 205.9 218.1 223.8 296.5 Development Expenditure 121.4 110.3 186.6 150.0 Memo Items: Domestic Revenue/GDP (%) 13.2 13.5 12.6 13.0 Total Expenditure/GDP (%) 17.6 15.1 14.8 14.4 Fiscal balance(after grants)/GDP (%) -2.2 2.0 0.9 3.2 GDP-Tshs bn 3394.1 4235.6 4929.5 5532.1 Substantial Downsizing of the Government Workforce The Government has achieved significant reduction in civil service manning levels over the last five years. Compared with employment of 355,000 in 1992, the workforce now stands at about 260,000. To some extent this has occurred through natural attrition. In the main, however, it has been accomplished through retrenchment (68,000) and the elimination of "ghost" workers (20,000) from the payroll. With the notable exception of Uganda, this achievement has no parallel in sub-Saharan Africa. Today, by regional standards Tanzania's public service employmenrt is broadly equivalent to the levels prevailing in Uganda and substantially lower than in Kenya ('see Table 4). Therefore, the scope for downsizing the Government workforce in Tanzania as a policy option to control growth of the wage bill and/or enhance civil service pay has considerN.b1y diminished, although in current FY 1999/2000 has targeted for 7,000 reduction in the workfo:ce. Table 4: Relative Size of the government workforce in East African Countries (Select years, mid-1990s and late 1990s) Country Population General Govt General Govt (million)* Workforce** Workforce to (000) Population (%) Tanzania 29.6 274 0.9 Uganda 19.2 167 0.9 Kenya 26.7 445 1.7 Note: *Mid-1995 estimates ** 1997 estimates. Figures includes the teaching and hospital services. Source: The World Bank Tanzania Public Expenditure Review, May 1998. Progress in Pay Reform under the Civil Service Reform Program Reform of public service pay, in terms of rationalizing and developing a transparent and equitatxle compensation system, enhancing salaries and facilitating wage bill planning and contiol was a specific component of the CSRP when it was launched in FY1993/94. The progress made in these 107 in the pay reform since then has provided a solid basis for launching the new public service pay policy. This progress is significant in the following respects: * substantial increases in real pay for a majority of civil servants between FY1993/94 and FY 1996/97; * rationalization and decompression of the salary structure; and * attaining control of the wage bill. Substantial increases in real pay for a majority of civil servants between 1993194 and 1996/97: Generally, since the onset of economic recovery in the second half of the 1980s, Government has tried to enhance pay for civil servants (see Figure 1 above, and Figure 2 below). The level of increases however substantially raised during the period FY 1993/94-1996/97. In that period, the real average salary for civil servants rose by 75 percent. However, this increase was considerably skewed in favor of the lower salary grades for two reasons. First, since 1960s and until the adoption by Cabinet of the new Medium Term Pay Policy in January 1999, Government pay policy was strongly egalitarian. Second, a significant element of the salary enhancement in FY 1995/96 went into compensating civil servants for consolidation of allowances and in-kind benefits into the salary structure. As a matter of fact, a significant number of senior civil servants who until then were enjoying a disproportionate share of the non- transparent benefits ended with a lower take-home compensation following the consolidation. But the majority of the civil servants gained substantially from the 12.2 percent increase in the wage bill because the impact of the wage bill rise was enhanced by a 9.6 percent reduction in the number of those on the Government payroll in the same year. Thus in the period under discussion, the minimum basic salary for government employees rose by about 40 percent in real terms (see Figure 2 below). Rationalization and decompression of the salary structure: Over the years, the erosion of real pay was more severe for the more senior civil servants because the government's egalitarian policy formulated in 1967 resulted in higher salary adjustments for the lower cadres. There was therefore, progressive compression of the civil service salary scales throughout the 1970s and 1980s15. By mid 1970s, the civil service salary compression ratio for Tanzania, at 10.9, was rather low compared to other SSA countries, at an average of 17.2 (for a sample of seventeen countries), and considerably lower compared to that for neighboring Kenya and Uganda, at 28.0 and 34.2 respectively. Tanzania's ratio further dropped over the next ten years, to 8.9. The SSA ratio had dropped to 13.5 by 1985 (Table 5). Therefore, Tanzania's ratio was still significantly lower than other SAA countries. The ratio had deteriorated to as low as 6.3 at the end of 1991. 16 15 Mushi R. Wangwe S., "Review of Comparative Compensation Policies in Tanzania", report for the World Bank (unpublished) (April 1991) 16 Kiragu K., "Tanzania Civil Service Pay and Employment Issues", consultant report for the World Bank (August 1992). 108 Figure 2: CHANGES IN REAL TERMS OF THE MINIMUM PAY IN TANZANIA FOR GOVERNMENT EMPLOYEES, 25,000 1990 1998 20,000 15,000 5,000 2i YeWr K In terms of real take-home pay, however, the salary compression ratio never changed much for many civil servants who benefited from various non-salary benefits, in the form of allowanices and in-kind benefits. These allowances and benefits were not shared transparently and equii:ably between employees. Besides distorting the salary compensation system, these allowances were a source of many problems, including abating tax evasion and rendering the wage bill out of control1 7. Yet the allowances kept proliferating over the years. It is for these reasons that i]iJ FY 1996/97, 36 inequitably and non-transparently awarded allowances were elirminatedl or consolidated into the revised salary structure. At the same time, the salary structures vere rationalized with 196 grades under 23 scales reduced to 45 grades under four scales, easing; the horizontal and vertical in equities. In the process of consolidating allowances into pay and constructing a more transparent and equitable salary structure, the decline in the sa.Lary compression ratio has been reversed to a level that is more consistent with the goal of compensating employees on the basis of competence and level of responsibility. Today, the il tio stands at about 1:21. 7 Kiragu K. & Mushi R., Tanzania Civil Service Reform Program: "Monetization of Benefits ancl Pay Reform Proposals" report to Civil Service Department and the World Bank (unpublished) (1993). 109 Table 5: Civil Service Salary Compression Ratio (highest to lowest starting salary) for Selected Countries in SSA, 1975 and 1985. Country 1975 1985 % Change Tanzania 10.5 8.9 -18.3% Kenya 28.0 32.4 +15.7% Uganda 34.2 12.0 -64.9% Zimbabwe 41.7 16.1 -61.4% Average for SSA 17.2 13.5 -21.4% Source: Mushi R.& Wangwe S., Review of Comparative Compensation Policies in Tanzania April 1991 (Unpublished). Attaining control of the wage bill: A few years ago, the wage bill was one key fiscal variable which for Tanzania was impossible to reliably forecast, manage and control. However, a combination of three sets of measures under the CSRP has enabled the Government to achieve effective control of the wage bill. The first set of measures may be described generally as establishment and payroll controls that have ensured effective checks against unauthorized changes in personnel numbers and remuneration. The second set is the effective downsizing of the service through retrenchment of redundant personnel. The third set of measures consisted of the elimination of the non-transparent and largely uncontrolled elements of the wage bill, i.e., non- salary allowances and benefits, some of which were consolidated into an enhanced basic salary in FYs 1995/96 and 1996/97. Government Has Embarked on Implementation of the Medium-Term Pay Policy Against the above background, Government has, in FY 1999/2000, embarked on the implementation of the new Medium-Term Pay Policy. This policy measure is significant in two important respects. Firstly, Government has demonstrated a strong commitment to adjust the medium-term fiscal framework to facilitate the implementation of the policy. The Medium-Term Expenditure Framework (MTEF) presented to Cabinet with'the draft budget framework in April 1999 had indicated that the Government would adopt a cautious approach in pursuit of the policy targetsl8. In this framework, the wage bill share of the GDP in FY 1999/2000 would have been 4.4. percent (same level as FY 1998/99) 19 However, in the final budget figures, Government provided fully for effective launch of implementation of the new policy, with a wage bill budgeted at 4.9 percent of the GDP. Secondly, in this policy measure, Government has demonstrated political courage and commitment in shifting from the historical egalitarian and populist policy of favoring higher salary increases for unskilled staff, which compresses the salary structure. As earlier pointed out, the central thrust of the medium term pay reform strategy is to achieve rapid enhancement in pay 18 Valentine, T.R., "Proposals for the Implementation of the Tanzania Public Service Medium Term Pay Reform Policy", report to Civil Service Department (unpublished) (May 1999), 9 Planning CommissionlURT, "Recent Macroeconomic Developments and Outlook for the MTEF Period". An overview, paper presented at the Public Expenditure Review FY 1999 Consultative Meeting, Dar Es Salaam. (unpublished) (April 1999). 110 for the middle salary grade cadres (where the technical and professional staff are) while protecting the purchasing power of the lower cadres on the Government salary structure. In Table 6 below, changes in pay levels following the launch of the policy implementation are illustrated: * salaries for middle to senior grades (TGs 3-12) have been raised by 45-53 percent; * salaries for the lower grades have been raised by 13-17 percent; * salaries for top civil servants have been raised by 34-55 percent; and * the salary compression ratio improves from 15.7 to 20.7. Table 6: Changes in Government of Tanzania Monthly Pay Levels in FY 1999/2000 for Select Grades (Amounts in TShs 000s) Salary Grades Selected 1998199 1999/2000 Percentage Actual MTEFd Increase in Pay based salary Minimum Basic Salary Grade 35.0 41.0 17% Middle Level Grade TGS 9 83.6 126.2 51% Upper Middle Level Grade TGS15 217.2 293.2 35% Top Base Salary TGS23 550.0 850.0 55% Sustainability Prospects The Government's minimum salary has been about twice as high as the statutory minimum salary prescribed for private sector employers. Also, this minimum Government pay in Tanzania happens to be high compared that in most other countries in the SSA region (see Table 7). Therefore, there are good reasons why Government can for the medium tenn maintain salaries at the bottom (unskilled) levels just at about the current real value while pursuing the mecium term policy targets. Then at the current wage bill share of the GDP, it will be readily fi-asible to achieve these targets in the medium term. Table 7: Minimum Government Monthly Pay in Tanzania Compared to Other Select Countries in Sub-Saharan Africa, (end of 1998) Country Local Monthly Local Monthly Note Currency Minimum Pay Currency Minimum Pay in Local Exchange in US Dollar Currency Rate/US Equivalent (December Dollar 1998) Tanzania Shilling 37,500 600 63 . Kenya Shilling 3,100 56 55 ** Uganda Shilling 46,000 1300 35 _ ._ _ ** Note: Monthly minimum pay includes a 20 percent adjustment for possible house amd other non-salary allowances. 111 With regard to sustainability, it is also significant that the current medium-term fiscal framework and pay reform scenarios are considered to be conservative. There are good indications of significantly improved fiscal performance, that would enhance the feasibility of more rapid enhancement and decompression of salaries, in the medium to long term. Firstly, there are good prospects for significant increases in domestic revenue. At present, domestic revenue is about 12- 13 percent of GDP, considerably below that in neighboring Kenya (about 24 percent) and Uganda (about 17 percent). It is therefore noteworthy that the Tanzania Revenue Authority (TRA) has planned to raise the revenue to GDP ratio from 12.7 percent in FY 1999/2000 to 15.8 percent in FY 2004/05. Secondly, Tanzania's fiscal prospects may also receive a boost in the coming years from substantial debt relief. The country is one of the heavily indebted poor countries (HIPC). Its total external debt is estimated at over US$ 7 billion, equivalent to about 120 percent of the Gross National Product (GNP). Debt servicing in FY 1998/99 accounted for 36.7 percent of the total domestic revenue. In 1997, the Paris Club of official bilateral creditors, to which the country owes almost one-third of its external debt, agreed to write off US$ 1 billion of debt falling due in three years to November 1999, and to reschedule the remainder over 23 years. Now Tanzania has high hopes for admission to the World Bank/IMF initiative of debt relief for H[PC that have some three years of track record of implementing rigorously an IMF-backed structural adjustment program. Tanzania has fulfilled that condition. 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