WATER P-NOTES ISSUE 49 JUNE 2010 55281 Tanzania: Public Expenditure Review (PER) of the Water Sector T anzania initiated a forward-looking National lakes, aquifers, and wetlands--to meet all of its Water Policy (NAWAPO-2002) to promote an current water needs, but it faces a complex water integrated approach to water resources manage- sector challenge. The consequences of under-invest- ment and improve water supply and sanitation ser- ment in water resources have compromised its WSS vice (WSS) delivery in both urban and rural areas. and irrigation and hydropower systems. Among the To do this, the Government initiated in 2004 a dou- key constraints to effective sector development are bling of budget allocations to the water sector from the following: $60 million to $120 million. It also has shifted the role of the Ministry of Water and Irrigation (MOWI), · Low and Unreliable Investments in moving from central control of water projects to Infrastructure for other Water Using facilitating and funding projects and strengthen- Sectors. Tanzania has the highest levels of ing sector institutions and capacity at the national, natural water storage capacity per capita in basin, and local government levels. Africa, and yet the country depends on rain-fed agriculture. Much of Tanzania's capital budget goes to fund water supply infrastructure, largely driven by · Weak Water Resources Management the focus on achieving the Millennium Develop- Framework. The current platform for water ment Goals. Donors supply most of the capital resources management (WRM) remains fundingand are coordinating funds through a Sec- inadequate, highly under-funded and under- tor Wide Approach to Planning (SWAp) to maximize resourced and this has a significant conse- effectiveness. quence on key sectors of the economy and on the livelihoods of many people. This Public Expenditure Review focuses on the quantity and quality of Tanzania's public funding · Low Water and Sanitation Services Lev- process to assess how well budget allocations for els. Over 15 million people out of the cur- the water sector actually translate into better water rent population of 35 million are without safe and sanitation service delivery. water supply. Since 1990, there has actually been a decrease in percentage of urban population served because urban population growth outpaced the expansion of WSS. Overview of the Tanzania Water Sector · Inadequate Sector Coordination and Institutional Capacity. The sector still suf- Unlike many of its neighbors, Tanzania is endowed fers from uncoordinated sector-wide and with sufficient freshwater resources--many rivers, cross-sectoral planning and development. The following P-note summarizes key points of Tanzania: Public Expenditure Review of the Water Sector, by Caroline van den Berg, Eileen Burke, Leonard Chacha, and Flora Kessy. Readers may download the complete document from www.worldbank.org/water. WATER P-NOTES The NAWAPO-2002 set the stage to correct these problems in a sustainable and decentralized Figure 1. Access to improved water way. The water sector's contribution to the Tanza- sources nian National Strategy for Growth and Reduction 100% of Poverty (the MKUKUTA objectives) is a three- pronged strategy: (i) scaling up water and sanitation 90% services delivery to achieve the Millennium Devel- 80% opment Goals; (ii) establishment of a sustainable 70% platform for water resources governance and devel- opment; and (iii) strengthening of sector institutions 60% and accelerated capacity building at the national, 50% basin, and local government levels as well as in the 40% public and private sector. 30% To achieve the MKUKUTA and MDG sector 1999­00 2000­01 2001­02 2002­03 2003­04 2004­05 2005­06 2006­07 2007­08 objectives, in 2004, Tanzania initiated the doubling of its budgetary resource allocation to the sec- tor from $60 million annually to the current $120 Total Rural Urban million annually. To support these objectives, the Source: DHS and AIS surveys, various years Government has adopted a National Water Sec- tor Development Strategy (NWSDS-2006) aimed at accelerating the implementation of NAWAPO. Because of the government's policy of decentral- ization and devolvement, an increasingly larger sources has been increasing since FY2004­05, share of the government's budget is now channeled albeit that access in FY2007­08 is still below the through local and regional governments. levels of 2000, especially in urban areas where rapid urbanization has put pressure on utilities to MOWI has moved away from being an imple- improve access (see figure1). menter of projects to become more of a facilita- tor. A larger part of MOWI's budget is used for Despite recent progress, the sector deals with supporting activities such as policy and planning, a number of issues that explain why the goal of coordination, monitoring and evaluation, project improving access to water supply and sanitation preparation, and studies. Most of the investment services is moving slower than expected. Increasing budget is provided through transfers to urban funding resources alone is not enough, and even water authorities and river basin agencies instead though budget allocations have increased rapidly, of Ministry directed project implementation. This budget releases have lagged behind significantly. transformation of MOWI from implementer to Some of these issues are systemic in nature, i.e., they facilitator is far from complete as the changes in are mostly outside the control of the water sector, but roles and responsibilities requires the Ministry to they do influence the progress in the sector. Other improve its capacity to plan, monitor and provide issues are within the direct control of the water sector assistance to utilities and the districts--key ele- and need to be addressed to ensure that the sector ments of this new role. Consequently, there is extra can move more quickly to achieve its goals. value to this PER in helping assess how well MOWI Sector-specific issues play a major role is guiding funds and where strategic improvements in explaining the performance of the sector in can be made. translating funds into actual outcomes. The sector currently requires significant subsidies for rehabilita- tion and operation and maintenance, crowding out Review of Water Sector Spending funding for other priorities such as expanded and improved access to water services. More efficient use The increase in funding is starting to have an impact of funds would improve the absorption capacity of on the access to improved water sources. Prelimi- the sector, increase the efficiency of public expendi- nary data from household surveys conducted in ture, and ensure that access to services is improved. FY2007­08 show that the access to improved water To that effect, the following measures are suggested 2 ISSUE 49 · APRIL 2010 (i) improve sector investment planning, (ii) improve There are three main observations concerning the capacity in the sector to conduct procurement the flow of funds: and disbursement, (iii) a sharper focus on including · Government disbursement procedures of funds incentives in the allocation of funding; (iv) efficiency should be improved, especially to local gov- gains that lower the operating cost and/or capital ernment authorities, which could significantly costs; and (v) promote sustainability in tariff setting benefit when funding is provided to them on while guarding the affordability of access. a more reliable basis. As the sector's depen- Systemic issues must also be addressed dence on donor funds is high, it is important by the government to increase the actual that donors improve their disbursement proce- release of funds allocated to the water sector. dures accordingly to ensure that water agen- cies are better able to plan and implement their investments. Assessment of Funding Flows · Government and donors should also agree on a harmonization of procurement, disburse- The water sector budget is almost entirely made ment and monitoring procedures to reduce the up of development expenditures. Compared to the duplication of effort at both central and local total budget, the water sector has a very specific levels. The recent shift towards a programmatic pattern characterized by low recurrent funding and approach in funding should be accompanied high development funding. In general, 55 percent by measures to ensure that a SWAp can gener- of the total government budget is allocated to the ate economies of scale. When adjusted for the development budget, in the water sector 85 per- local counterpart funding, the disbursement cent of the sector budget is dedicated to develop- rate for foreign funding under the SWAp has ment expenditure. The high level of development been similar to that for the rest of the sector. funding makes the water sector vulnerable in The Water Sector Development Program is the times of macroeconomic stress. In case of budget logical place to start these donor harmonization re-allocations, governments tend to find it easier efforts because of the size of this program in to cut development rather than recurrent budgets relation to overall sector funding and the history (see figure 2). of donor coordination in this program; · Donors should improve the predictability and reliability of their funding to the sector. Although part of the unpredictability of donor funding is Figure 2. Water expenditure (in TzS linked to the procedures and capacity bottle- billion) has increased significantly in necks in Tanzania, there are also donor issues. the past decade. The use of parallel systems as mentioned before is resulting in high transaction costs for the Budget data availability increases implementing agencies. A second relates to 450 administrative bottlenecks in donor countries. 400 A survey of aid donors found that 29 percent 350 MKUKUTA launched of delayed or lost disbursements were due to 300 Fiscal decentralization initiated administrative problems in donor countries. 250 These inefficiencies are heightened by the still 200 high levels of fragmentation of donor funding, 150 which results in high transaction costs for donors 100 and government alike. 50 0 2000­01 2001­02 2002­03 2003­04 2004­05 2005­06 2006­07 2007­08 2008­09 Financing Future Water Investments budget actual expenditure The MKUKUTA and Africa Infrastructure Country Source: Ministry of Finance data and author's calculations. Diagnostic investment requirements far exceed the 3 WATER P-NOTES actual funding for the sector. Though budget allo- 2. Materialize efficiency gains that trans- cations have reached 1.8 percent of GDP recently, late into lower operating and/or capi- actual expenditures have never surpassed 1 per- tal costs. The volume of subsidies that are still . cent of GDP Though household fees can cover the provided to the sector can be used as a proxy cost of operation and maintenance in urban areas, for investment efficiency. The high breakdown the overall sector is faced with a significant invest- rates of rural water supply infrastructure ensure ment gap. that a significant amount of funding in local government authorities is used for rehabilitation Given Tanzania's high unit cost for connect- and maintenance; similarly, operating subsidies ing and servicing households, especially in rural to urban water authorities are not negligible. areas, the level of resources and timing needed to Efficiency gains that can lower operating and/ meet the MDGs are highly sensitive to efficiency or capital costs can be affected by (i) better improvements. Efficiency can be realized in several technology choice; (ii) standardization of tech- different ways: nologies; and (iii) efficiency improvements in 1. Improving the capacity of the Govern- utilities' performance. ment to stretch its funds further by 3. Efficiency in setting and collecting tariff improving sector planning and stream- revenues without disregarding afford- lining procurement and disbursement ability. Tanzania has set up different cost procedures. The PER shows that although recovery policies for different water services. budget allocations have increased rapidly, Urban water authorities are required to meet budget releases have lagged significantly full cost recovery. In the case of rural water sup- behind. This is an issue confronting all agen- ply, communities are required to pay the full cies with responsibilities in the water sector, operation and maintenance costs (and costs especially among local government authorities. for any service levels higher than the standard), To improve the absorption capacity of the sec- while managing their own schemes. A polluter tor, increase the efficiency of public expenditure pays principle is to be applied. Yet, none of and ensure that access to services is improved, these policies is applied consistently, with water the Government will have to (i) improve sector tariffs varying widely. Thus, a relatively large planning and (ii) improve implementation of part of the budget has to be used to pay for procurement, disbursement, auditing, and mon- operation, maintenance, and rehabilitation of itoring arrangements to ensure more efficient existing systems, slowing expansion of WSS ser- use of resources. vices to the unserved. The Water Sector Board Practitioner Notes (P-Notes) series is published by the Water Sector Board of the Sustainable Development Network of the Water World Bank Group. P-Notes are available online at www.worldbank. Sector org/water. P-Notes are a synopsis of larger World Bank documents in Board the water sector. 4 THE WORLD BANK | 1818 H Street, NW | Washington, DC 20433 www.worldbank.org/water | whelpdesk@worldbank.org