1

THE UNITED REPUBLIC OF TANZANIA

GBS Annual Review 2006

Final Report

Ministry of Finance Dar es Salaam 8th December 2006

2

Table of Contents 1. Executive Summary / Joint Statement .................................................................................7

1.1. Overall assessment........................................................................................................7

1.2. Summary findings of TWG assessments ......................................................................9

1.3. Summary findings from GBS Annual Review key issues sessions............................13

2. Introduction........................................................................................................................18

3. Objectives of GBS Annual Review 2006 ..........................................................................19

4. Progress against PAF matrix..............................................................................................20

5. Thematic Working Group (TWG) Reports........................................................................27

5.1. TWG 1: MKUKUTA Cluster 1 - Growth and Reduction of Income Poverty............27

5.2. TWG 2: MKUKUTA Cluster 2 - Improvement of Quality of Life and Social

Well-Being.................................................................................................................34

5.3. TWG 2: MKUKUTA Cluster 3 - Governance and Accountability ............................41

5.4. TWG 4 and 6: Resource Allocation and Budget Consistency &

Macroeconomic Stability ...........................................................................................49

5.5. TWG 5: Public Financial Management ......................................................................62

6. Plenary Session Minutes ....................................................................................................78

6.1. Minutes of the TWG pre-review plenary sessions......................................................78

6.2. Minutes of the GBS Annual Review ..........................................................................95

7. Joint Press Release...........................................................................................................120

8. Outcome of the Review and Appraisal ............................................................................122

9. Annex I – Revised PAF matrix for GBS Annual Review 2007 ............................................

10. Annex II – GBS Annual Review Summary Presentation ......................................................

11. Annex III – List of Participants .............................................................................................

12. Annex IV – Learning Assessment Report .............................................................................

3

Acronyms and Abbreviations ACGEN Accountant General’s Department ACT Artemisinin-based Combination Therapy ADB African Development Bank ALAT Association of Local Authorities of Tanzania AR Annual Review ARV Anti – Retroviral ASDP Agriculture Sector Development Programme BAR Business Activities Registration BEST Business Environment Strengthening for Tanzania BOT Bank of Tanzania BRELA Business Registration and Licensing Agency CAG Controller and Auditor General CBO Community-Based Organisation CCRO Certificates of Customary Rights of Occupancy CIP Capital Investment Plan CPAR Country Procurement Assessment Report CPC Civil Procedure Code CSOs Civil Society Organisations CTI Confederation of Tanzania Industries DAC Development Assistance Committee D-by-D Decentralisation by Devolution DCF Development Co-operation Forum DFID UK Department for International Development DP Development Partners DPG Development Partners Group EAC East Africa Community EC European Commission EMA Environment Management Act EPSP Emergency Power Supply Programme EU European Union EWURA Energy Water Utility and Regulatory Authority FRP Financial Recovery Plan FY Financial Year GBS General Budget Support GDP Gross Domestic Product GFATM Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria GGCU Good Governance Coordination Unit GOT Government of Tanzania GWG Governance Working Group HBS Household Budget Survey HIV/AIDS Human Immune Deficiency Virus/Acquired Immune Deficiency

Syndrome HCMIS Human Capital Management Information System IFMS Integrated Financial Management System IMF International Monetary Fund IMTC Inter-Ministerial Technical Committee IPP Independent Power Project IPTL Independent Power Tanzania Limited

4

JAST Joint Assistance Strategy for Tanzania JSC Joint Steering Committee JIPRC Joint Implementation Programme Review Committee JTC Joint Technical Committee KfW Kreditanstalt für Wiederaufbau LGAs Local Government Authorities LGCDG Local Government Capital Development Grant LGRP Local Government Reform Programme LSRP Legal Sector Reform Programme M&E Monitoring and Evaluation MDAs Ministries, Departments and Agencies MDGs Millennium Development Goals MDRI Multilateral Debt Relief Initiative MIS Management Information System MKUKUTA Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania MKUZA Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Zanzibar MLHSD Ministry of Lands, Housing and Human Settlement Development MLYDS Ministry of Labour, Youth Development and Sports MOEM Ministry of Energy and Minerals MOF Ministry of Finance MOFEA Ministry of Finance and Economic Affairs MOHSW Ministry of Health and Social Welfare MOID Ministry of Infrastructure Development MOJCA Ministry of Justice and Constitutional Affairs MOU Memorandum of Understanding MOW Ministry of Works MPEE Ministry of Planning, Economy and Empowerment MTEF Medium Term Expenditure Framework MTPP Medium Term Pay Policy MTS Medium Term Strategy NACSAP National Anti-Corruption Strategy and Action Plan NAO National Audit Office NBS National Bureau of Statistics NEPAD New Partnership for Africa’s Development NGO Non-Governmental Organisation NSGRP National Strategy for Growth and Reduction of Poverty NMSF National Multi-Sectoral Framework OC Other Charges (non-salary recurrent expenditure) ODA Official Development Assistance PAF Performance Assessment Framework PCB Prevention of Corruption Bureau PEDP Primary Education Development Programme PEFAR Public Expenditure and Financial Accountability Review PEPFAR President's Emergency Plan for AIDS Relief PER Public Expenditure Review PSRP Public Service Reform Programme PEs Personal Emoluments (salaries and related benefits) PFA Public Finance Act PFM Partnership Framework Memorandum PFMRP Public Finance Management Reform Programme

5

PHDR Poverty and Human Development Report Plan Rep Planning and reporting database PMMP Poverty Monitoring Master Plan PMO Prime Minister's Office PMS Poverty Monitoring System PMU Procurement Management Unit PO-PSM President Office Public Service Management PMO-RALG Prime Minister’s Office - Regional Administration and Local

Government PPA Public Procurement Act PPP Public-Private Partnership PPRA Public Procurement Regulatory Authority PCDS Procurement Capacity Development Strategy PRA Procurement Regulatory Authority PRBS Poverty Reduction Budget Support PRGF Poverty Reduction Growth Facility PRSC Poverty Reduction Support Credit PSI Policy Support Instrument PSM Public Service Management PSRP Public Service Reform Programme PWC PriceWaterhouseCoopers RGoZ Revolutionary Government of Zanzibar RIMKU Ripoti ya Utekelezaji wa MKUKUTA SACCOS Savings and Credit Cooperative Societies SADC Southern African Development Community SAL II Structural Adjustment Loan II SBAS Strategic Budget Allocation System SGR Strategic Grain Reserves SME Small and Medium-sized Enterprises SP Sulfadoxine-Pyrimethamine (malaria drug) SPILL Strategic Plan for the Implementation of Land Laws SUMATRA Surface and Marine Transport Regulatory Authority SWAp Sector-Wide Approach TACAIDS Tanzania Commission for AIDS TANESCO Tanzania Electric Supply Company TANROADS Tanzania National Roads Agency TASAF Tanzania Social Action Fund TCC Technical Coordination Committee TENMET Tanzania Education Network /Mtandao wa Elimu THIS Tanzania HIV/AIDS Indicator Survey TMP Tax Modernisation Programme TOR Terms of Reference TPSF Tanzania Private Sector Foundation TRA Tanzania Revenue Authority TShs Tanzania Shillings TSIP Transport Sector Investment Programme TWG Thematic Working Group UCC University of Dar es Salaam Computing Centre UK United Kingdom UN United Nations

6

USD United States Dollars VAT Value Added Tax VFM Value for Money VPO Vice President’s Office

7

1. Executive Summary / Joint Statement 1.1. Overall assessment The GBS Annual Review 2006 was held between the 16th and 20th October 2006 in Dar es Salaam. It was the first to be conducted under the new structure of the Partnership Framework Memorandum (PFM) governing GBS for the implementation of the National Strategy for Growth and Reduction of Poverty (NSGRP) or MKUKUTA (in Kiswahili acronym). The PFM was signed by the Government of Tanzania and the GBS Partners in January 2006. The main objective of the Annual Review 2006 was to jointly assess performance against the commitments made in the PFM and in particular in the Performance Assessment Framework (PAF), which draws on MKUKUTA and other national processes. The review was structured such that there were six Thematic Working Groups (TWGs)1. The TWGs reviewed all areas of the PAF and discussed their findings in TWG pre-review plenary sessions from the 10th to 12th October 2006. For the first time, non-state actors and UN agencies were invited to participate in the review process. The GBS Annual Review focused then on a number of jointly agreed key issues arising from the work of the TWGs. The Annual Review also acknowledged major developments that took place during the review period and which influenced the pace of implementation of reforms. These include the general elections that took place in late 2005 and which saw the election of a new President, followed by the formation of a new structure of Government. During the period under review, Tanzania also suffered from a severe drought which claimed much of Government’s attention in an effort to mitigate its impact on agriculture, food security, and the power supply. Within this context, the assessment of the six TWGs and the Annual Review 2006 concluded that overall progress against the PAF indicators has been generally satisfactory. At the same time, a number of critical issues were highlighted that require attention by the authorities if the implementation of the MUKUKUTA is to remain on track. Areas of particular concern were the energy crisis and slower progress than anticipated in legal sector reform and anti-corruption legislation. The following main findings emerged from the TWG reports and the Annual Review:

(i) The Government has produced three extensive analytical national reports, which provide information on changes in the three MKUKUTA clusters of Growth and Reduction of Income Poverty; Improvement of Quality of Life and Social Well-being; Governance and Accountability. These are the Poverty and Human Development Report 2005, the Status Report 2006 on 86 MKUKUTA indicators, and the zero draft MKUKUTA Annual Implementation Report 2005/06. For future reviews, the commitment in the PFM to provide the final MKUKUTA Annual Implementation Report in sufficient time as a main input into the Annual Review was stressed.

1 TWG 1 – MKUKUTA Cluster 1 (Growth and Reduction of Income Poverty), TWG 2 – MKUKUTA Cluster 2 (Improvement of Quality of Life and Social Well-being), TWG 3 – MKUKUTA Cluster 3 (Governance and Accountability), TWG 4 – Resource Allocation and Budget Consistency, TWG 5 – Public Financial Management, TWG 6 – Macroeconomic Stability

8

(ii) In a rather difficult external environment which included a severe drought and high oil prices, overall macroeconomic management in Tanzania remains consistent with sustaining macroeconomic stability and a supportive environment for Tanzania’s poverty reduction efforts. In addition to the effects of drought on agriculture during 2005, economic growth this year is threatened by a substantial loss of generation capacity in the energy sector, which requires urgent attention by the Government. A regular forum for dialogue on the implementation of the Government’s growth strategy has not yet been established. There is also a need for continued efforts on reforms that remove bottlenecks to growth in the economy, particularly in agriculture, energy, infrastructure and private sector development.

(iii) Notable progress has been made in the social sectors under cluster 2 of the

MKUKUTA, with considerable improvements in outcomes on education, water and health. However, financing and human resource constraints are great impediments to effective service delivery, in particular at local government level. A necessary expansion in frontline service delivery needs to be balanced with considerations of ensuring a sustainable wage bill.

(iv) The Public Service Reform Programme (PSRP) and the Local Government

Reform Programme (LGRP) have been progressing, though continued efforts of the Government are needed to fully implement its public sector pay reform and its policy of Decentralisation by Devolution (D-by-D) across Government. The Legal Sector Reform Programme (LSRP) has still to become fully operational and requires broadened ownership and strengthened dialogue around it. Stakeholder dialogue on governance and anti-corruption and a review mechanism on the soon to be launched second National Anti-Corruption Strategy and Action Plan need to be enhanced. The revised anti-corruption bill, initially expected to be submitted to Parliament in November 2006, is now anticipated to be submitted in April 2007. This legislation will be crucial for making further progress in fighting corruption. Overall, better coordination of the different existing core reforms is needed.

(v) The Government has continued with its effort to maintain macroeconomic

stability, improving the quality of budget formulation, budget implementation as well as the overall expenditure discipline. Budget execution in FY 2005/06 and the budget frame for FY 2006/07 are consistent with the MKUKUTA, with more in-depth assessment to be carried out as part of the regular PEFAR exercise. The Government continued to strengthen the planning and budgeting process and its link to MKUKUTA with the rolling out of the Strategic Budget Allocation System (SBAS) to Regional Secretariats in addition to MDAs, the use of the PlanRep (Planning and Reporting) software by Local Government Authorities (LGAs), and the recent development of RIMKU (Ripoti ya Utekelezaji wa MKUKUTA) - a system to monitor and report on MKUKUTA implementation. The new software enables the linking of planning and budgeting with performance monitoring on MKUKUTA. Further efforts to improve the planning and budgeting process are however needed. First, in line with the introduction of the SBAS system, priority

9

needs to be given to monitoring and reporting of budget outturns in the SBAS format. Other areas of reform include the formulation of an overall strategy for planning and budgeting reforms, strengthening of the PER to function effectively including the PER Secretariat, and increasing the predictability of external resource projections in particular for the outer years of the MTEF period.

(vi) Progress in public financial management has taken place on several issues.

Most notably, the 2004/05 National Audit Report was presented within statutory time limits and operationalisation of the Public Procurement Regulatory Authority (PPRA) has made good progress. A solid underlying process for public financial management review is in place in the form of the Public Expenditure and Financial Accountability Review (PEFAR). The Public Financial Management Reform Programme (PFMRP), however, continues to suffer from weak coordination mechanisms and a lack of strategic framework.

1.2. Summary findings of TWG assessments The six GBS Technical Working Groups and their performance assessment against the PAF are organised around the three MKUKUTA clusters (TWGs 1-3) and the cross-cutting areas of resource allocation and budget consistency, public financial management and macroeconomic stability (TWGs 4-6 respectively). In the Annual Review 2006, the work of TWGs 4 and 6 for resource allocation and budget consistency, and macroeconomic stability was conducted jointly. TWGs assessed performance against the PAF, including underlying processes, temporary process actions, and outcome indicators. TWG 1: MKUKUTA Cluster 1 - Growth and Reduction of Income Poverty TWG 1 demonstrated largely satisfactory progress in the area of growth and income poverty reduction, but also noted several issues that require further action. Among them is the need for Tanzania to develop a regular forum for dialogue on the national growth strategy and its implementation. Achievements were recognised with regards to the underlying processes. Six of the eight agreed review processes took place or were being finalised at the time of the review, including reviews of the agriculture sector, the Business Environment Strengthening for Tanzania (BEST) Programme, the Second Generation Financial Sector Reform Programme, Privatisation, and the Tax Modernisation Programme. An infrastructure review (encompassing roads, communication, energy and transport) was not conducted as planned during 2005/06, due to restructuring of the concerned Ministries following the General Elections conducted towards the end of 2005. The structure of the newly established Ministry of Infrastructure Development was approved in April 2006. Two reviews on energy and infrastructure are therefore planned for 2006/07. Although the infrastructure review has not yet been undertaken, there is progress in sector dialogue, and the currently prepared Transport Sector Investment Programme (TSIP) provides a good basis for an infrastructure review in the coming year. In the roads sector, the Government and Development Partners emphasised the need to balance investment, maintenance and rehabilitation. The target to rehabilitate 3,000 km of rural roads as stipulated in the

10

MKUKUTA was not reached due to insufficient funding from the Government budget. Submission of the draft Roads Act and the draft Electricity Act to Parliament, scheduled for October 2006, have been delayed and are now expected for April/May 2007. No clear timetable has yet been established for the presentation to Parliament of a new Act for TANROADS, which would enhance its autonomy. The operationalisation of SUMATRA (the Surface and Marine Transport Regulatory Authority) has been completed, whereas EWURA (the Energy, Water and Utilities Regulatory Authority) is partially operational. In the energy sector, a major issue of concern was the current power supply crisis, which has been precipitated by a combination of a long non-investment period, a drought-related decline in TANESCO’s hydro-generation capacity and high world fuel prices. The crisis has already adversely affected economic activity. An accelerated implementation of the Emergency Power Supply Programme and Government efforts with the support of Development Partners to implement the financial recovery and capital investment plans of TANESCO are needed to solve the situation. Implementation of the Tax Modernization Programme, the Second Generation Financial Sector Reform Programme, and the BEST Programme were considered to be adequate, including a strengthened business activities registration bill that is expected to be resubmitted to Parliament in November 2006. The outcome targets of an increase in the volume of credit to the private sector by 1% of GDP per annum and of Tanzania’s move up the World Bank’s “Doing Business” ranking have been achieved. In the agriculture sector, a special study on Strategic Grain Reserves has been completed, whereas a study on the effectiveness of Fertilizer Transport Subsidy and an impact assessment of the operations of the Input Trust Fund are expected to be done by December 2006. The review noted progress in the reform of crop boards, with more comprehensive revisions of the legislation for crop boards than originally anticipated, which is now expected to be submitted to Parliament in early 2007. TWG 2: MKUKUTA Cluster 2 - Improvement of Quality of Life and Social Well-being TWG 2 reported on substantial progress in the area of improvement of quality of life and social well-being but also outlined a number of challenges. The underlying process of a comprehensive MKUKUTA cluster review has been extensively and satisfactorily addressed with the publication of the Poverty and Human Development Report 2005, the first Status Report 2006 against the full set of 86 MKUKUTA indicators, and the draft MKUKUTA Annual Implementation Report 2005/06. In addition, education, water, health and HIV/AIDS sector reviews took place in 2006. Remarkable good performance on outcome indicators has been noted at overall enrolment of both girls and boys at primary school level but the short supply of qualified teachers, particularly in rural areas, teaching and learning materials is still a major challenge. Tanzania has also made impressive gains in other Millennium Development Goals (MDGs), on infant mortality, under-five mortality, and malaria. In contrast, over the same period, progress in maternal and reproductive health has been limited. Maternal mortality has not declined. In HIV/AIDS, the review noted

11

acceptable progress against milestones, with increased public awareness, high level commitment, mobilisation of the private sector and mainstreaming into the national budget. Funding and human resource constraints constitute serious challenges to planned further expansion of social services, because of implications on the size and cost of the public service and hence its financial sustainability. In health, there are serious concerns about the long-term predictability of financing to the sector, which need to be explicitly addressed. Large earmarked external funds (for new vaccines and for treatment of AIDS, tuberculosis and malaria) result in expenditure commitments which must be sustained in the long term, well beyond existing funding commitments. It was also stated that dedicated funds have a tendency to crowd out discretionary funding for health. In respect to environment aspects, steps have been taken to initiate the implementation of the National Environmental Management Act. A draft report on the State of Environment has been produced and will be finalised before the end of 2006. Efforts will now move to establishing a State of Environment reporting system. On social protection related aspects, the review noted that resource flows to MDAs responsible for social protection for the most vulnerable and disadvantaged people are very limited. Resources combined with better coordination are needed to ensure a greater impact. It was considered to be important to accelerate progress towards developing a national social protection framework, which would include policy and resource reviews. In order to mitigate its fiscal and social implications, any framework to be developed will need to ensure consistency with the National Social Security Policy which recognises the primary responsibility of the family and community in providing care to the vulnerable and disadvantaged people. It emerged from the review that environment aspects need to be better mainstreamed in the PAF in order to reflect its contribution to growth-oriented sectors, notably in water, energy, agriculture, mining, infrastructure, and also in governance and accountability with respect to revenue collection, resource rents and the participation of poor communities in the management of their natural resources. TWG 3: MKUKUTA Cluster 3 - Governance and Accountability The review under this cluster involved evaluation of performance of the programmes that were designed to improve governance and accountability. These are the Public Service Reform Programme (PSRP), the Local Government Reform Programme (LGRP), the Legal Sector Reform Programme (LSRP), and the National Anti-Corruption Strategy and Action Plan (NACSAP). Although the Public Financial Management Reform Programme (PFMRP) is aimed to improve public financial accountability, it was not reviewed under this cluster because it was placed under the resource allocation framework of the MKUKUTA. Generally the review noted progress both in terms of the underlying processes, and the performance, although the implementation of the Government policy on Decentralization by Devolution was moving at rather low pace. Progress within the LGRP is overall satisfactory although there are differences between the different outcome areas. Restructuring and fiscal decentralisation are progressing as expected. Systems have been developed for fiscal decentralization but are not yet fully implemented. The Government continues with the efforts to increase autonomy at local government level by ensuring that resources are channelled to the lowest possible level of service delivery. Thus, all resources

12

which are budgeted at the sector ministry level will be gradually shifted to the budgets of Local Government Authorities (LGAs). Regarding the PSRP, the review noted satisfactory progress. The Government is committed to broadening the participation of a wide range of stakeholders. The review noted that key activities related to the implementation of the LSRP have been delayed. The programme is complex but dialogue with government has improved. The review concluded that the LSRP was likely to progress after some of the problems have been resolved: The MOU for the basket fund for LSRP had been signed, while the recruitment of critical staff to manage the programme was being completed. This include the recruitment of the Chief Technical Advisor and the M&E officer (who are already on board), and plans to recruitment process of the Programme Coordinator was at an advanced stage. The review noted that the second National Anti-Corruption Strategy and Action Plan (NACSAP II) is close to completion. The Government indicated during the review that the revised anti-corruption legislation would be presented to Parliament by November 2006. The review underscored the need to expedite the revision or the enactment of the new Anti-Corruption Legislation, which has been further delayed and is now expected to be presented to Parliament in April 2007. TWGs 4 and 6: Resource Allocation and Budget Consistency & Macroeconomic Stability The review noted that the Government has continued with efforts to maintain macroeconomic stability and overall expenditure discipline, and to improve the quality of budget formulation and implementation. The underlying processes for the areas covered by the combined TWG 4 and 6, including the Budget Guidelines, PEFAR, PRGF reviews, the MKUKUTA Annual Implementation Report and issuance of quarterly Budget Execution Reports were generally satisfactory. The Government has further strengthened the link between budgetary resource allocation and MKUKUTA priorities through cluster-based expenditure programming and rolling out SBAS to the Regional Secretariats in addition to the MDAs. LGAs were able to link their budgets with MKUKUTA by using a Planning and Reporting (PlanRep) Database. The link between planning and budgeting and performance monitoring against MKUKUTA is expected to be further improved through the newly developed MKUKUTA reporting software RIMKU. The Annual Review also stressed the importance of reporting on budget execution against the SBAS allocations. In order to have a credible MTEF planning framework, there is a need to improve the external financing component of the outer years’ projections. Tanzania’s sustained economic reforms have generated strong macroeconomic performance over the past decade, characterised by accelerating GDP growth and low inflation. The GBS review however expressed concern that the level of domestic revenue remains very low in Tanzania at 14.5% of GDP for 2006/07. In order to address the significant financing gap for implementing MKUKUTA, both domestic and external resources need to be increased, along with efforts to reduce aid dependency in the medium to long term. To increase the level of domestic revenue, the review recommended exploring the potential for increasing revenue collection from non-tax revenue sources and proposed to undertake a PER study for this purpose before the next budget.

13

TWG 5: Public Financial Management The review noted a number of achievements in public financial management. The Audit Report of the Controller and Auditor General (CAG) for FY 2004/05 has been released on time, which marks a significant improvement in public financial management oversight. The National Audit Office (NAO) is in the process of submitting a new Public Audit Act, based on international standards, which will ensure NAO’s independence. The significant progress in the operationalisation of the PPRA was also commended. A system for checking and monitoring procurement activities of procuring entities has now been developed and as soon as PPRA is fully operational, it should be possible for it to carry out procurement audits. At the same time, however, public financial management continues to be faced with significant challenges, in particular the issue of procurement capacity, and local governance, where more leadership of the central government is needed. One of the two underlying processes, the PEFAR, has been satisfactory, though further follow-up on its recommendations is needed. The PFMRP, as a funding and coordination mechanism for public financial management reforms, continues to suffer from weak horizontal and vertical coordination, and from a lack of strategic framework. As such, the PFMRP cannot be considered as satisfactory. Steps will be taken in the immediate future to address these shortcomings in order to ensure continued and well sequenced progress in public financial management. Steps will include rationalisation of PFMRP indicators. 1.3. Summary findings from GBS Annual Review key issues sessions The week of the Annual Review 2006, from 16 to 20th October, was characterised by open, frank and in-depth dialogue involving senior representatives from relevant Government institutions and Development Partners. Rather than reviewing all areas of the PAF, a decision had been made to focus on a number of jointly agreed key issues arising from the work of the TWGs. These key issues were;

(i) domestic accountability; (ii) planning and budgeting, which incorporated issues around resource

predictability and funding gaps for MKUKUTA implementation; (iii) local government; (iv) sustainability of the wage bill and human resources; and (v) energy and infrastructure.

These key issues were chosen by the Government and Development Partners because they either could jeopardise the achievement of the Government's objectives of growth and poverty reduction if not properly addressed; have implications for long term GBS functioning and funding; and/or could not be solved at the TWG level. The assessment of the dialogue on key issues conducted between the Government and Development Partners is largely satisfactory with the Government and Development Partners demonstrating next steps in the commitment towards common goals. Key issue 1: Domestic Accountability Enhanced domestic accountability was jointly recognised by the Government and Development Partners as key to promoting good governance under the MKUKUTA.

14

So far, efforts have mainly been made on the supply-side of accountability, through governance reforms. The Government is now working to address the demand side, among others under NACSAP II and the second phase PSRP, which includes a framework for this. The NEPAD Peer Review Mechanism was recognised as an important instrument for accountability. A Governing Council is to be established soon following the recent completion of stakeholder consultations on candidate nominations. Open discussions also took place on how the Parliament’s role in domestic accountability functions could be strengthened. This includes the need for NAO reports to be followed up. In order to further strengthen existing accountability mechanisms such as the NAO Reports, the Government expressed its commitment to provide a structured response to the NAO Reports. It also agreed to make accounting officers’ responses to the audit queries of the CAG available to Development Partners. Issues raised by the CAG in the NAO Audit Report should furthermore be followed up in the PER and the PFMRP reviews. The Government and Development Partners emphasised the importance of the LSRP to become fully operational and to strengthen dialogue on the Programme. The involvement of non-state actors in the GBS Annual Review was seen as positive. Proposals were made to consider the role of non-state actors in the TWGs and the entire GBS process. To enhance domestic accountability and reduce transaction costs, dialogue between the Government and Development Partners needs to increasingly rely on national processes. The review noted that options for further alignment of the PER and the GBS processes should be assessed. Key Issue 2: Planning and Budgeting Crucial areas to further improve planning and budgeting, such as addressing capacity needs, enhanced cluster and sector coordination, strengthening of the budget guidelines and MTEF and improving linkages with the MKUKUTA Monitoring System were highlighted. The Government indicated that there is a resource gap in MKUKUTA implementation and called for scaling-up of aid, particularly through general budget support, the Government's preferred aid modality, whilst planning to reduce aid dependency in the medium to long term. The lack of predictable domestic and external funds for the three-year MTEF period, in particular the outer years, was highlighted as a challenge, and it was noted that MTEF summaries can only be provided to the public when MTEFs include credible domestic and external resource estimates. Development Partners acknowledged the need to improve the predictability of their MTEF projections and will address the issue in the context of the JAST. The Government agreed to undertake a scenario analysis as part of the Budget Guidelines preparation in order to demonstrate implications of different funding levels for MKUKUTA implementation. For in-year predictability, good progress in performance was noted for GBS, but problems remain for basket and project funds (actual disbursements accounted for in the Exchequer system are consistently less than project/basket funds in budget estimates). To address this problem, among others, Development Partners need to increasingly channel resources through the Exchequer. To further enhance the planning and budgeting process, the Government committed to formulate an overarching strategy for planning and budgeting reforms over the next year building on the work of the Medium Term Strategic Planning and Budgeting

15

Manual, ensuring coherence and coverage between the core reforms, and considering capacity requirements of MDAs. The review noted the need to clarify and further develop the links between SBAS, PlanRep, IFMS and RIMKU, and for the Government to provide expenditure reporting against SBAS. It was recommended that this should be undertaken at the next PEFAR. The new RIMKU reporting system, which is fully compatible with both SBAS and IFMS, is expected to assist with this reporting. The Government and Development Partners emphasised the importance of strengthening coordination between clusters and sectors and to consider an appropriate design of cluster or sector reviews that minimises transaction costs but meets both strategic and annual requirements. The review urged the Satisfactory Sector Review Task Force to finalise its report, which will provide useful recommendations for the conduct of sector reviews. In addition, the review emphasised the need to strengthen the PER process and its Secretariat to facilitate cluster and sector coordination. Key issue 3: Local Government Reform The review noted overall successes of implementing the local government reform as well as challenges in the areas of human resources; public financial management; budget and fiscal decentralisation; and planned amendments to the local government legislation. The Government stressed its commitment to D-by-D, which is demonstrated among others by the Government's initiative to bring sectoral budgets and strategic plans in line with D-by-D. Five sector ministries are working with the Prime Minister’s Office – Regional Administration and Local Government (PMO-RALG) to complete this mandate. Outcomes of their work are expected to be incorporated into the next Budget Guidelines and MTEF. Despite the stated Government commitment to D-by-D and its explanation of its intention to support the strategy with the planned amendments to the local government laws, Development Partners remained concerned about the proposed amendments, noting that they could be seen as attempts of central political control. The Government agreed to keep Development Partners informed on the process of operationalising the amendments, once they come into effect. To address Development Partners’ concern about resource transfers to LGAs, the Government proposed to be more transparent in showing which funds go directly to LGAs. The Government will follow up on the adaptation of the Public Service Act 2004 regulations and related discussions will be initiated between the President’s Office – Public Service Management (PO-PSM) and PMO-RALG. The Government and Development Partners also agreed to follow up on the design of incentive packages for attracting and retaining qualified staff in local government, in particular in peripheral areas. Fragmentation and non-harmonisation of Development Partners’ funding at the local level was highlighted as a serious challenge to LGAs. In this respect, the review acknowledged the need to harmonise multiple funding and reporting arrangements and systems at local government level. It agreed that a Government-Development Partner task force will consider the issue, together with addressing the last PEFAR’s recommendations on fiscal decentralisation. The review also proposed to monitor Development Partners' performance on requirements for multiple reports/audits at LGA level through the PAF.

16

Key issue 4: Sustainability of the Wage Bill and Human Resources The Government and Development Partners recognised the conflicting demands on ensuring a sustainable wage bill and an effective competitively compensated public service with expanded front line service delivery. It was recognised that there is a need to set sustainable and realistic wage bill targets (e.g. as a ratio of GDP, domestic revenue and recurrent and total budget) consistent with the macroeconomic framework and to integrate the wage bill in strategic resource allocation decisions. The review acknowledged the importance of an appropriate structure (including decompression of the pay scale) and size of the public service, in line with D-by-D and social service delivery requirements, whereby special requirements for specific sectors (health, HIV/AIDS) need to be evaluated against the macroeconomic implications of a larger civil service (possibly financed by aid scaling up) and growth-related expenditure requirements. Challenges faced by Government's human resource management through the roll-out of social service delivery to reach MDG targets include the ability to attract and retain qualified personnel at the local level, and investment in social service delivery facilities. Proposals to allow MDAs to determine their wage bill/other charges mix still require further analysis. In order to increase transparency of the wage bill, the review urged the Government to continue with the integration of the remaining remunerative employment allowances into the wage bill and develop tight guidelines for duty facilitation allowances. The use of allowances is addressed by a Government task force, which will inform the Presidential Commission on Public Service Pay. In addition, it was recognised that Development Partners need to harmonise their workshops with Government in order to reduce transaction costs for the Government. Development Partners proposed the formulation of a strategy to reduce Development Partner funded allowances in the context of the JAST. The review also recognised the need to update the Medium-Term Pay Policy in order to take new developments into account. Its appropriateness is to be addressed by the Presidential Commission on Public Service Pay, which is expected to report in December 2006. Recommendations of the Presidential Commission will be followed up in the PSRP II, which will be launched in July 2007, and are expected to influence the MTEF from FY 2007/08. The review also emphasised the importance of continued Development Partner support to the Government in capacity building and efforts to professionalise Tanzania's public sector over the medium term. Key issue 5: Energy and Infrastructure The parties expressed concerns about the impact of the current energy crisis exacerbated by the prolonged drought and high oil prices on economic growth and the possible cost of the crisis on the Government budget. Concerns were also raised on the possible crowding out effect on other poverty-related expenditures in the budget and impact on present and future growth and macroeconomic stability. The parties emphasised the urgency in accelerating the implementation of the Emergency Power Supply Programme. The meeting took note of the fact that, while TANESCO is forced to rely on expensive generation systems following loss of its hydro generation capacity, the current electricity tariffs are insufficient to cover the power delivery costs and that this has precipitated a financial crisis in TANESCO. On the positive

17

side it was noted that work on TANESCO‘s Financial Recovery Plan (FRP) is ongoing and that new generation capacity should be coming on stream from October 2006. Development Partners emphasised the importance of managerial and financial autonomy of TANESCO and of a clear mandate and responsibility for EWURA to set commercially sound tariffs. It is expected that the planned management and financial audit of TANESCO will map out the way forward. It was furthermore noted that the process to finance the FRP and the Capital Investment Plan (CIP) for TANESCO needs to be carried forward. The Government and Development Partners identified scope for updating the FRP in terms of funding sources and mandated a small group of Government, private sector and Development Partners (World Bank, Sweden, UK, IMF) to discuss energy issues, including revisions to the FRP, prior to a resource mobilisation meeting on energy and infrastructure, which will be held soon to address the way forward on the issues. Under transport infrastructure, the Government and Development Partners agreed that there is a need to prioritise proposed interventions under the existing TSIP, create a conducive regulatory framework for private sector investment, apply more resources overall to maintenance and strike a balance between road extension and maintenance. For all transport infrastructure other than roads, the assessment is that revenue from various fees and levies would cover such maintenance costs. In the roads sector, the budget needs to come in to finance maintenance on top of the Roads Fund.

18

2. Introduction The Government of Tanzania together with the 14 Development Partners that provide General Budget Support (GBS) met in Dar es Salaam from 16th to 20th October 2006 to conduct the GBS Annual Review 2006. The Development Partners are the African Development Bank, Canada, Denmark, European Commission, Finland, Germany, Ireland, Japan, Netherlands, Norway, Sweden, Switzerland, United Kingdom, and the World Bank. It was the first Annual Review under the new “Partnership Framework Memorandum Governing GBS for Implementation of MKUKUTA” (PFM) signed by the Government of Tanzania and all GBS Partners in January 2006. The objective of the Annual Review 2006 was to jointly assess progress in implementing their commitments in the Partnership Framework Memorandum, in particular the areas identified in the Performance Assessment Framework (PAF). It drew on the performance assessments that had already been undertaken by each of the six Technical Working Groups (TWGs)2 in preparation of the Annual Review and had been presented and discussed in TWG pre-review plenary sessions from 10th to 12th October 2006. These sessions were for the first time also attended by non-state actors and UN agencies. The week of the GBS Annual Review focused on 5 cross-cutting key issues identified by TWGs as critical in that they could jeopardise the achievement of the Government’s objectives of growth and poverty reduction if not properly addressed and could have negative implications for GBS functioning and funding over the medium term. These were (1) domestic accountability, (2) planning and budgeting, (3) local government, (4) sustainability of the wage bill and human resources, and (5) energy and infrastructure. The Review was characterised by high level participation and quality dialogue and led to a range of joint findings and agreements on the way forward. Overall, the Annual Review 2006 concluded that progress against the PAF has been generally satisfactory. The Annual Review Report 2006 covers the following aspects: After outlining the objectives of the review, the report builds on the six TWG reports which give a detailed assessment of progress against the PAF, highlighting achievements and challenges of each area under review. These reports are complemented by detailed minutes on proceedings of the Annual Review. TWG pre-review plenaries are reflected, giving insights into particular points raised during the discussions. The key issues sessions are covered through detailed outlines of presentations and subsequent discussions. The Report further includes the Joint Press Release and a Chapter on the Outcome of the Review and Appraisal. Attached to the Report is the Learning Assessment which was conducted by two independent consultants based on participation in the pre-review and review meetings, interviews with key stakeholders and questionnaires disseminated during the review.

2 TWG 1 – MKUKUTA Cluster 1 (Growth and Reduction of Income Poverty), TWG 2 – MKUKUTA Cluster 2 (Improvement of Quality of Life and Social Well-being), TWG 3 – MKUKUTA Cluster 3 (Governance and Accountability), TWG 4 – Resource Allocation and Budget Consistency, TWG 5 – Public Financial Management, TWG 6 – Macroeconomic Stability

19

3. Objectives of the GBS Annual Review 2006 As mandated by the Partnership Framework Memorandum (PFM), the GBS Annual Review 2006 was scheduled to take place in October and is meant to contribute to the formulation of Budget Guidelines in December. The Annual Review 2006 was an assessment of progress against the Performance Assessment Framework (PAF). It was the culmination of the annual cycle of GBS events since the Annual Review in October 2005. Following the finalisation of the PAF matrix during the Annual Review 2005, and signature of the new PFM in January 2006, opportunity was taken during the Annual Review 2006 to focus on constructive dialogue on the critical issues concerning the implementation of MKUKUTA and its results, i.e. faster economic growth and poverty reduction. The Annual Review 2006 was an opportunity to:

• Assess and discuss progress against Government priorities (as identified in MKUKUTA) of economic growth and poverty reduction; and

• Advise Development Partners on the impact of their GBS contributions to date and their future potential.

The Annual Review 2006 had two pillars:

• Presentation of successes and challenges over the last twelve months in each Thematic Working Group (TWG) area/cluster; and

• Substantive discussion on a limited list of jointly pre-agreed key issues. Key issues are key in that (i) they could jeopardise the achievement of GOT objectives of growth and poverty reduction and (ii) if not properly addressed could have implications for GBS functioning and funding over the medium term as they a) are sufficiently large in nature to warrant raising to a higher level, or b) are issues that are not able to be resolved at the TWG level.

Objectives for the review were to assess Government and Development Partner performance against the PAF, including underlying processes, temporary process actions, and outcome indicators. This was done by:

• TWG performance assessment reports on their respective areas of the PAF matrix; and

• Progress achieved and next steps identified in each of the key issues discussed.

The Government and GBS Partners also assessed GBS partner performance against commitments outlined in the PFM. GBS Partners give an indication of their disbursement schedule at the end of the Annual Review and provide firm commitments for FY 2007/08 within six weeks following receipt of the Final Report of the GBS Annual Review.

20

4. Progress against PAF matrix

Overall Assessment: GENERALLY SATISFACTORY 1. MKUKUTA Cluster 1 - Growth and Reduction of Income Poverty Overall assessment: LARGELY SATISFACTORY EXCEPT FOR ENERGY Underlying Processes Development of and dialogue on implementation of a growth strategy – UNSATISFACTORY Infrastructure Review – DELAYED Agricultural Sector Review – IN PROGRESS (overall assessment still outstanding during the AR 2006) BEST Programme Review – SATISFACTORY Second Generation Financial Sector Reforms Programme Review – SATISFACTORY PER Macro Group – ON-GOING (see TWG 4 and 6) Privatisation Review – CONDUCTED Tax Modernization Programme (TMP) Review – SATISFACTORY Temporary Process Actions Put in place the agreed sector review processes, ensuring alignment of the next GBS Annual Review Oct 2006 – SATISFACTORY Government amendments to the Civil Procedure Code by October 2006 – NOT ACHIEVED BUT ALSO NOT A REALISTIC ACTION TO ACCOMPLISH IN TIMEFRAME GIVEN Private sector views considered prior to second reading of the Business Activities Registration (BAR) Bill and the Regulatory Licensing Regime reformed – PARTIALLY ACHIEVED Draft Roads Act to be submitted to the Parliament by October 2006 – DELAYED Review of the Electricity Act – DELAYED SUMATRA fully operational and staffed by October 2006 – COMPLETED

21

EWURA operational and staffed – LARGELY COMPLETED Amendment of legislation for at least two Crop Boards by November 2006 – DELAYED Survey of individual farms 11,693 and issue of CCROs – PARTIALLY ACHIEVED Production and distribution of the Strategic Plan for the Implementation of Land Laws – ACHIEVED Special Studies on Strategic Grain Reserves – ACHIEVED Outcome Indicators Increase in credit extended to private sector as % of GDP Baseline (2005): 7.9% of GDP in 2004 Actual (2006): 10.9% of GDP in 2005 Target (annual): Volume of credit to the private sector to increase by 1% of GDP

per annum Enabling environment for private sector growth improved Baseline (2005): Tanzania is ranked 1503 in World Bank “Doing Business” ranking Actual (2006): Tanzania ranked 142 in 2006 up from 150 in 2005 Target (annual): Tanzania steadily moves up the World Bank “Doing Business”

ranking Reduction of income poverty in rural population (measured by annual agricultural GDP growth) Baseline (2005): 5.4% in 2004 Actual (2006): 5.2% in 2005 due to drought Target (2010): 10% Improve rural market access (measured by rehabilitation of rural roads) Baseline (2005): 8,500 km of rural roads rehabilitated in 2004 Actual (2006): 959 km of rural roads rehabilitated in FY 2005/06 Target (2006): Rehabilitation of 3,000 km of rural roads in FY 2005/06 Increase capacity of LGAs to support agricultural development – not assessed (no baseline and target available)

3 Ranking for 2005 is recorded as 142 in PAF 2005. However, all countries’ rankings were rebased in 2006 by the World Bank to adjust for new countries added to the ranking as well as some changes in the methodology. Tanzania’s 2005 ranking was rebased accordingly to 150.

22

2. MKUKUTA Cluster 2 - Improvements of Quality of Life and Social Well-being Overall assessment: SATISFACTORY Underlying Processes Education Sector Review – SATISFACTORY Health Sector Review – SATISFACTORY NMSF Bi-Annual Review (HIV/AIDS) – SATISFACTORY Water Sector Review – SATISFACTORY Implementation of the National Environment Management Act, 2004 – SATISFACTORY Temporary Process Actions Satisfactory joint Water Sector Review held in first quarter FY 2006/07 – ACHIEVED Revised Water Sector Legislations presented to Parliament by April 2006 – DELAYED BUT PROGRESSING WELL National Water Sector Development Strategy presented to the Cabinet by end of February 2006 – DELAYED BUT PROGRESSING WELL Publication of the first State of Environment Report – DELAYED BUT PROGRESSING WELL (draft report is in place) Action Plan for developing a National Social Protection Strategy adopted – DELAYED, APPROACH REVISED (now aiming at adopting a National Social Protection Framework) Outcome Indicators Education Net Enrolment Rate (NER) Primary Education Baseline (2005): Average 94.8% Boys 95.6% Girls 93.9% Actual (2006): Average 96.1%

Boys 96.8% Girls 95.5%

Target (2010): 99%

23

Transition Rate from Standard VII to Form 1 Baseline (2005): Average 36.1% Boys 36.6% Girls 35.6% Actual (2006): Average 39.8%

Boys 40.8% Girls 38.7%

Target (2010): 50% Gross Enrolment Rate (GER) Tertiary Education Baseline (2005): 0.5% Actual (2006): no reliable data available yet Target (2010): 10% Gross Enrolment Rate (GER) Higher Education Baseline (2005): 0.27% Actual (2006): 1.2% Target (2010): 6% Health Proportion of children that receive three doses of vaccine against diphtheria, pertussis, tetanus, and Hepatitis B under two years. Baseline (2005): 71% Actual (2006): 87% (EPI reporting) Target (2010): 90% HIV/AIDS National HIV prevalence in the 15 – 24 years age group Baseline (2005): 7.5% Actual (2006): This is a long term indicator, which can be obtained only every 3

years. According to the Tanzania HIV/AIDS Indicator Survey (THIS) 2003/04, prevalence of HIV for the 15-24 age group is 4% (this does not indicate high impact on HIV but rather a need for revision of the baseline and target). The next survey will be conducted in 2007/08. The revised target will be obtained then.

Target (2010): 6.0% (target to be revised after next THIS in 2007/08) Water Percentage of the population that has access to clean and safe water from a piped or protected source Baseline (2005): Rural 53%

Urban 73.0% Actual (2006): Rural 53.7% Urban 74.0%

24

(Source of data: routine data collection by Ministry of Water; confirmation of figures via national surveys ILFS 2006 and HBS 2007)

Target (2010): Rural 65% Urban 90%

3. MKUKUTA Cluster 3 - Governance and Accountability Overall assessment: PARTLY SATISFACTORY Underlying Processes Public Sector Reform Programme – SATISFACTORY Local Government Reform Programme – SATISFACTORY Legal Sector Reform Programme – DELAYED National Anti-Corruption Strategy and Action Plan – COULD NOT BE ASSESSED AT TIME OF REVIEW Government–Development Partner and other stakeholder consultations on governance – PARTLY SATISFACTORY Temporary Process Actions Revised anti-corruption legislation presented to Parliament by November 2006 – DELAYED Develop review mechanism for NACSAP II – PARTLY ACHIEVED Outcome Indicators Current pay as a proportion of government’s pay targets Baseline (2005): 86% Actual (2006): 90% (depending on groups: lower percentage at higher levels) Target (2010): 100% Percentage of Court cases outstanding for 2 years or more Baseline (2005): 70% Actual (2006): 70% (t.b.c.) Target (2010): 40% Number of strategic plans of central and sector ministries containing a strategic objective to implement decentralization by devolution Baseline (2005): 1 (PO-RALG) Actual (2006): Progress on the indicator not known yet Target (2010): All

25

Quarterly NACSAP Implementation Report published and discussed Baseline (2005): 4 reports Actual (2006): 1 report Target (2010): 4 reports 4. Resource Allocation and Budget Consistency & 6. Macroeconomic Stability Overall assessment: SATISFACTORY Underlying Processes Budget Guidelines for 2006/07 – SATISFACTORY (issued in March 2006 instead of January 2006 owing to the new Government structure that was to be brought on board following the 2005 General Elections) Quarterly Budget Execution Reports – SATISFACTORY (posted on the National and MOF websites, although some have been subject to delays) PEFAR – SATISFACTORY (PEFAR review was done as planned; the issues raised in the review and subsequent Annual Consultative Meeting are being addressed by the Government, as agreed at the PER Consultative Meeting in May 2006) Annual MKUKUTA Progress Report – DELAYED/ PARTLY ACHIEVED (zero draft issued on 9 October 2006, Final Report to be ready in December 2006) PRGF – SATISFACTORY (fifth Review completed in April 2006 as planned; final PRGF and new PSI assessment delayed to allow fuller articulation of policy framework on energy; Board approval expected in December 2006; report on completion of the sixth Review was not available during the review) PER Macro – PARTLY SATISFACTORY (effort will be needed in the next cycle to improve the functioning of the PER Macro Group) Temporary Process Actions - NONE Outcome Indicators Approved budget broadly in line with policy objectives (MKUKUTA, sector policies) Actual (2006): The approved budget for 2006/07 is in line with the MKUKUTA framework. Direct MKUKUTA interventions account for 48 percent of planned expenditure in 2006/07, compared to 47 percent in 2005/06. Expenditure outturn consistent with approved budget (measured as a reduction of recurrent budget deviation) Baseline (2005): 18% budget deviation Actual (2006): 17% Target (2010): 10%

26

Fiscal deficit (after grants) as % of GDP consistent with PRGF targets Baseline (2005): 6% of GDP Actual (2006): 5.5% of GDP Target as per PRGF (2006): 6.3% of GDP Annual inflation rate consistent with PRGF targets Baseline (2005): 4.5% Actual (2006): increasing from 5.0 % at end December 2005 to 6.9 %

at end April 2006, and 7.7% in May 2006; thereafter decreasing to 6.8 % in June 2006, 5.4 % in July 2006, and 4.8% in August 2006.

Target as per PRGF (2006): 6.8% in June 2006 5. Public Financial Management Overall assessment: Progress in public financial management reforms GENERALLY SATISFACTORY but PFMRP as a coordination and funding mechanism NOT SATISFACTORY Underlying Processes PEFAR – SATISFACTORY PFMRP – progress in public financial management reforms GENERALLY SATISFACTORY but PFMRP as a coordination and funding mechanism NOT SATISFACTORY Temporary Process Actions Audit Reform priorities to be reflected fully in PFMRP – ACHIEVED PWC contracted to establish system for monitoring and checking compliance, start November, will end around March 2006 – ACHIEVED BUT WITH DELAY Outcome Indicators NAO Audit Report is of international standard by 2010 and released within 9 months as required by the Public Finance Act 2001 – ACHIEVED Number of Procuring Entities Complying with the Public Procurement Act – CANNOT BE ASSESSED

27

5. Thematic Working Group (TWG) Reports 5.1. TWG 1: MKUKUTA Cluster 1 - Growth and Reduction of

Income Poverty Growth strategy Underlying process: Development of and dialogue on implementation of a growth strategy – UNSATISFACTORY This has not been done and there is very little progress to report in this regard. PER Cluster 1 which should have overseen this work did not meet during the year. There has been some progress in developing a draft private sector strategy. However, a void remains in terms of having an institutional framework for strategic national dialogue, prioritisation and co-ordination of public policy and resource allocation to support the MKUKUTA growth agenda. Temporary process action: Put in place the agreed sector review processes, ensuring alignment of the next PRBS Annual Review Oct 2006 - SATISFACTORY Six of the eight agreed review processes took place or are being finalised at the time of the GBS Annual Review. Infrastructure review Underlying process: Carry out Infrastructure Review – DELAYED This has not been done due to restructuring of the Ministries concerned, though there is some progress in sector dialogue. The Ministry of Infrastructure Development is one of the newly formed Ministries after the Fourth Phase Government came into power and its organisational structure was just approved by the President’s Office - Public Service Management (PO-PSM) in April 2006. Consequently, the implementation of the new structure is just beginning to take shape and it will take time before it becomes fully operational. In this regard, it was premature to undertake an infrastructure review (encompassing roads, energy, communication and transport) in 2005/06. It is intended to conduct the above said review in 2006/07 (encompassing roads, communication and transport but not energy which is in a different ministry) and this will be one year after the original scheduled time. Temporary process action: Draft Roads Act to be submitted to Parliament by October 2006 - DELAYED The Draft Roads Act is ready. However, its appendices including classification and declaration of trunk, regional and feeder roads are still being finalised. At the time of the Annual Review, the inventory of trunk and regional roads was completed but that of roads under the Prime Minister’s Office - Regional Administration and Local Government (PMO-RALG) is yet to be completed and is expected to be ready by mid October 2006. The delay by PMO-RALG notwithstanding, the Ministry of

28

Infrastructure Development has started preparing a Roads Act Cabinet paper to seek Government approval. The Draft Roads Act is to be submitted to Parliament (for first reading) hopefully by February 2007. This is because more time is needed to finalise pending issues mentioned above. Temporary process action: SUMATRA fully operational and staffed by October 2006 - COMPLETED SUMATRA is fully operational and all the posts have been filled already. Outcome indicator: Rehabilitation of 3,000 km of roads annually – NOT ACHIEVED The FY 2005/06 target was to rehabilitate 3,000 km of rural roads as stipulated in the MKUKUTA. The approved budget by the Parliament was just for rehabilitating 1,170 km of rural roads during 2005/06. Out of 1,170km of roads planned for rehabilitation, only 959km were rehabilitated. This is far below the MKUKUTA target of 3,000 km. Energy Sector No underlying process was identified in 2005. Temporary process action: Review of the Electricity Act - DELAYED Draft of the reviewed Electricity Act has been submitted to the Ministry by the Energy Consultants (ECON) from Sweden after having incorporated comments from energy sector stakeholders. The process to prepare a Cabinet paper will be accomplished by October 2006 before tabling the same for approval by the Cabinet and later by the Parliament. Temporary process action: EWURA operational and staffed – LARGELY COMPLETED EWURA Director General and all Directors (with the exception of the Director Economic Regulation) have been recruited. EWURA is fully operational though of course challenges remain in developing this new institution. Agriculture Underlying process: Agricultural Sector Review – In progress – OVERALL ASSESSMENT OUTSTANDING Status: In progress at October 2006. Consultancy Services for undertaking the Agricultural Sector Review have been procured. A Sector Review Reference Group has been constituted composed of senior government officials, private sector and Development Partners to guide the process. As part of this assignment, the Consultant and Agricultural Sector Review Team presented the following reports:

• Inception report presented to key stakeholders in the sector

29

• Draft Agricultural Sector Review Report presented to the Agricultural Sector Reference Group

The final draft Agricultural Sector Review Report will be presented to a high-level stakeholder workshop in the first week of October 2006 before finalisation. The Agricultural Review Report will be submitted to the Government on 26th October 2006 as per contract. Temporary process action: Amendment of Legislation for at least two Crop Boards – DELAYED There has been progress in restructuring discussions on the Crop Boards but at a slower pace than anticipated. Crop Board legislative amendments are in progress and were still in progress by October 2006. The crop board reform processes commenced after the Government issued the Ministerial Circular on the Reform of Crop Boards on 10th March 2006. The thrust of the Government was to amend all Crop Board Legislations based on the crop board reform findings. As part of the process Director Generals for the Crop Boards met in order to set a timetable for stakeholder consultations. By 26th September 2006, stakeholder consultations were completed for cotton, coffee, sugar, tobacco, pyrethrum and cashew nut crop boards. The purpose of the stakeholder consultations was to discuss the Government Circular on Crop Board reforms and seek agreements on how to support shared functions such as research, extension, training and inputs. As a result of these consultations, a Memorandum of Understanding (MOU) for each crop was prepared on how to operationalise the Government Circular on crop board reforms after the removal of the crop levy by 1st July 2006. Short and long term measures and actions plans on how to finance shared functions for the development of individual crops were identified. Stakeholder consultation workshops for tea and sisal are planned for October 2006. Consultancy services have been procured for the preparation of a comprehensive report on stakeholder deliberations, which will act as an input in the review of the crop legislations. A Legal Consultant will be hired to review the Acts establishing the Boards, an assignment to be completed by January 2007. Temporary process action: Special Studies on Strategic Grain Reserves – ACHIEVED The study has been completed. The process to establish a Strategic Grain Reserve Agency, which is part of the findings, has started. Study on the effectiveness of the Fertilizer Transport Subsidy and Impact Assessment of the Operations of the Input Trust Fund in Agriculture: Consultancy Services for these assignments have been procured. Contracts will be awarded after being vetted by the Attorney General’s Office and the tasks will thereafter commence. These studies are expected to be completed by December 2006.

30

Outcome Indicator: The annual agricultural GDP growth decreased from the baseline of 5.4% to 5.2% in 2005 due to drought. BEST Programme Underlying process: BEST programme review – SATISFACTORY The objective of the BEST Programme is to lower the costs of investing in, establishing and operating a business in the country through:

• Eliminating policy, legal, regulatory and institutional constraints that inhibit a growing and competitive private sector; and

• Improving the quality of services provided by the Government to the private sector including expeditious resolution of commercial conflict.

Status: The BEST Programme Review was satisfactory as a process in terms of participation and dialogue being finalized as at October 2006. The BEST Programme received extensive review as part of re-design that took place to enable the World Bank join the four Development Partners who provided initial support. In addition, the BEST Programme has undergone its first annual review in the course of the second half of September 2006. The Review was satisfactory as a process in terms of participation and dialogue. In terms of content, the overall trajectory was judged to be positive but the speed of reform was inadequate. This was largely due to institutional bottlenecks. However the review was satisfied that adequate steps were planned and were being implemented to address these bottlenecks. Accordingly overall the review can be judged to be largely satisfactory. The outcome is to continue with emphasis on seven areas of reforms, three of which have been under implementation during 2005. The seven areas are legal and regulatory reforms in three areas: land laws and land registration, business registration and regulatory licensing; and labour law reforms; commercial justice delivery reforms; National Identity Card project; change of Government culture; strengthening of Tanzania Investment Centre; and BEST component for Zanzibar. The three areas where reforms are already underway and are continuing and are the subject of temporary process actions discussed below are: review of the Civil Procedure Code (CPC); Business Registration; and land reforms. Temporary process action: Review of Civil Procedure Code – NOT ACHIEVED BUT ALSO NOT A REALISTIC ACTION TO ACCOMPLISH IN TIMEFRAME GIVEN This process action was not achieved and was not a realistic target to deliver in a one year time frame given the institutional context of commercial justice reform in Tanzania. Nonetheless there is good evidence of progress albeit at a slower pace than originally envisaged. A technical position paper on Civil Procedure Code reform has been submitted and is undergoing review by legal sector stakeholders. A Technical Working Group to guide the review process has been established and is chaired by the Chairman of the Law Reform Commission. The TWG is commenting on and

31

amending the position paper. A full-scale, nation-wide consultation process is going to be launched between October 2006 and 31st December 2006. This will build consensus on specific actions that should be subject to priority reforms under the CPC as an instrument of addressing the issue of potential resistance to change. Among other things, the CPC review will entail a reform of a series of Acts that include the Advocates Act; Evidence Act; Arbitration Act; Magistrates Court Act; and provisions relating to Alternate Dispute Resolution. Temporary process action: Private sector views considered prior to second reading of the Business Activities Registration (BAR) Bill and the Regulatory Licensing Regime reformed – PARTIALLY ACHIEVED. The Business Activities Registration (BAR) Bill was revised to accommodate private sector views and will be presented to Parliament in November 2006. A report was prepared on regulatory licensing to be taken forward by the Ministry of Planning, Economy and Empowerment (MPEE). It was quite unrealistic to expect delivery of “Regulatory Licensing Regime reformed” within a one year time frame. Accordingly, overall this temporary process action is judged to have been partially achieved. Stakeholder discussions on reforms of the Business Licensing System and the functions currently under BRELA, including the companies and business names registries have led to strong consensus for the establishment of a one-stop shop business registration centre under the mandate of BRELA. The business registry will interface with the Regulatory Licensing Regime, Tanzania Revenue Authority (TRA) and other national registries in the context of prevailing international best practice on the concept of the one-stop shop registration centre. The Ministry of Industry, Trade and Marketing has made amendments to the draft bill on Business Registration to reflect these developments. Regarding other BRELA reforms, a needs assessment study report has been submitted, which recommends the digitization of BRELA’s current paper records as a priority measures and the re-engineering of its operational systems to streamline these functions in line with the single stop registration system. The process includes a search for premises suited to delivery of better public services by BRELA. The foregoing measures will become part of a one-stop business registration concept to be developed as a package comprising of the following:

• Enact legislation on business registration and implement the same through a comprehensive holistic and programmatic approach under the management of BRELA with interface to other national registries including TRA, regulatory licensing etc.;

• Development and adoption of a national policy on business licensing; and • Drafting legislation on a coherent and comprehensive Regulatory Licensing

Regime.

The ultimate outcome will be a simplified registration system leading to a reduction in the number of days that it takes to register a business; lower costs for registration measured as a percentage of GDP and a higher number of businesses registered. In the long term this will lead to rapid formalization of the economy as many Small and Medium-Sized Enterprises (SMEs) emerge from the unofficial economy.

32

Temporary process action: Production and distribution of the Strategic Plan for the Implementation of Land Laws – ACHIEVED

Temporary process action: Survey of individual farms 11,693 and issue of CCROs – PARTIALLY ACHIEVED The Strategic Plan for the Implementation of Land Laws (SPILL) has been accomplished and the computerised land registry has been introduced in one district on a pilot scheme model. In FY 2005/06, the programme provided support to the Ministry of Lands, Housing and Human Settlement Development (MLHSD) for the preparation of the Strategic Plan for Implementation of Land Laws developed in 1999 and for the distribution of the documents produced. The MLHSD has put in place a computerized land title tracking system, which avoids duplication of titles. Next activities include reform of the land registries including modernization of record management systems through computerization. The SPILL has been prepared, published and distributed to stakeholders. A pilot scheme on computerization of land titles has been implemented and a computerized land title tracking system put in place. The outcome of these activities is the emplacement of a secure titling system, which avoids duplication. In addition, there is increased stakeholder awareness of the 1999 Land Laws and increased compliance to the new laws. Some progress has been made on the Survey of individual farms 11,693 and the issue of CCROs. Outcome Indicator: Enabling environment for private sector growth improved - SATISFACTORY Performance on this outcome indicator was satisfactory as Tanzania has moved up in the World Bank’s ease of doing business ranking from 150th in 2005 to 142nd in 2006. Tax Modernization Programme Underlying process: Tax Modernization Programme (TMP) Review - SATISFACTORY A satisfactory review took place in June 2006. The Tax Modernization Programme seeks to achieve a modern tax administration by 2008. Initiatives that have been implemented during 2006 towards achievement of the objective include building an integrated approach to the management of taxes, harmonisation of tax laws and enhancement of taxpayer services. To enhance the efficiency of service delivery at customs, the Automated System of Customs Data (ASYCUDA 2.7) is being updated into ASYCUDA++, currently already in place at Dar es Salaam Customs Service Centre, Dar es Salaam Wharf, Tunduma, Kasumulu and Zanzibar.

33

Development and implementation of the TRA second Corporate Plan 2003/04- 2007/08 and subsequent reviews to incorporate new developments are being done through performance monitoring. The VAT and Income Tax Departments have been integrated into a Domestic Revenue Department and the Large Taxpayers Department is being strengthened. TRA is currently implementing processes for modernization of customs - this include introduction of ASYCUDA ++, oil flow meters, destination inspection, post clearance audit, time release study, direct trader input, mobile scanners, and preparations for ISO certification. As a result of this, the quality management team has documented the necessary processes and procedures for standardization in line with ISO requirements in the Customs and Excise Department. Working tools and systems including ICT systems, rehabilitation of buildings and installation of security surveillance systems have substantially been improved. Arrangements for co-operation with Local Government Authorities (LGAs) to assist them in the administration of taxes and identify areas of co-operation such as common tax bases, unification of taxes, elimination of nuisance taxes etc have been initiated following the joint development of the terms of reference for areas of cooperation. Revenue collection increased from 12.2% of GDP in 2004/05 to 13% of GDP in 2005/06. The cargo clearance time has now been substantially reduced from an average of 3 days to 18 hours at Mwalimu J.K. Nyerere International Airport (MJKNIA) and from 6 days to 9 hours at Dar es Salaam Port. Second generation financial sector reform programme Underlying process: Second Generation Financial Sector Reform Programme Review - SATISFACTORY A satisfactory review took place in June 2006. The programme is in a very early stage of implementation. Formulation was completed in 2006 and funding secured (from Government and Development Partner sources). Outcome Indicator: Volume of credit to the private sector to increase by 1% of GDP per annum - SATISFACTORY The outcome target was achieved with the volume of credit to the private sector at 10.9% of GDP in 2005 up from 7.9% in 2004. Privatisation review A Presidential Commission on Privatisation concluded in early 2006. Its findings were not made public. In retrospect it was unrealistic to presume that the findings would be made public.

34

5.2. TWG 2: MKUKUTA Cluster 2 - Improvement of Quality of Life and Social Well-Being

Underlying processes The PAF 2005/06 specified the need for a comprehensive MKUKUTA review of this cluster as an underlying process. Towards this purpose the Government’s MKUKUTA Monitoring System produced the Poverty and Human Development Report 2005 (PHDR), and the first Status Report 2006. The PHDR 2005 provides for the first time an analysis of a range of human development indicators at district level as an essential contribution to local and national planning processes. The Status Report 2006 provides analysis of progress across the full set of 86 national MKUKUTA indicators. These two reports, combined with the zero draft MKUKUTA Annual Implementation Report (2005/06) provide extensive nationally-produced information about improvements in the quality of life and social well-being in Tanzania, as well as about economic growth and governance/accountability. This underlying process has therefore been extensively and satisfactorily addressed. In addition, considerable progress has been made in the specific sectors of this MKUKUTA cluster which include education, health, water, HIV/AIDS, and environment. The underlying processes for these have included cluster and sector reviews, and implementation of the National Environment Management Act (2004). In addition, the PAF 2005/06 specified a temporary process action on social protection. Overall these underlying processes were judged to be satisfactory, and are summarised as follows:

• The Education Sector Review took place in early 2006 and informed plans of Ministries, Departments and Agencies (MDAs) for the sub-sectors of primary, secondary, vocational and tertiary education within this sector. Remarkably good performance was noted at overall enrolment of both girls and boys at primary level; but shortage of teachers particularly in rural areas, and teaching and learning materials are current key challenges.

• Impressive gains have been made in the health sector with reduced infant

mortality, under-five mortality and malaria. Progress in maternal and reproductive health has however been more limited.

• The first joint Water Sector Review was conducted in mid 2006, and steps

were taken towards revised legislation and improving the sector strategy.

• In HIV/AIDS the PAF review noted that acceptable progress against milestones was made, with increased public awareness, high level commitment, mobilisation of the private sector and mainstreaming into the national budget.

• Steps have been taken to initiate the implementation of the National

Environmental Management Act, but human resources for implementation and awareness amongst MDAs and Local Government Authorities (LGAs) are the main challenges.

35

• Initial steps towards an action plan for developing a national social protection

framework were taken by reaching initial consensus on institutional coordination, and beginning to define social protection in the context of Tanzania with the wide range of diverse stakeholders working in this area. However, further efforts are needed if a well-coordinated framework that delivers effective social protection for the most vulnerable is to emerge.

2006/07 Outcome Indicators There have been six outcome indicators to report on, which include primary enrolment, transition from Standard VII to Form I, tertiary enrolment, immunization rates, access to clean water and HIV prevalence.

1. Net primary school enrolment reached 96.1% on average, close to the 2010 target of 99% and is well on track.

2. Transition rates from Standard VII to Form 1 averaged 39.8%, up from the baseline of 36.1% and on track to the 50% target for 2010.

3. Gross higher education enrolment began at a low baseline of 0.27% but has risen to 1.2%. There is some distance to go to reach the 6% target.

4. The proportion of children that received three doses of vaccine against diphtheria, pertussis, tetanus, and Hepatitis B under two years reached 87%. The PAF target is 90%, and has therefore nearly been met.

5. The target for access to clean and safe water is 65% (rural) and 90% (urban). The baselines were set from Ministry of Water routine data as 53% (rural, 2003) and 73% (urban, 2003). The current status is 53.7% (rural) and 74% (urban) from routine data collection by the Ministry of Water. Data indicating changes will become available from the analysis provided through the ILFS 2006 and HBS 2007.

6. The PAF target for HIV prevalence in 15-24 years of age group was 6%, with a baseline of 7.5%. According to the Tanzania HIV/AIDS Indicator Survey (2003/04) for this age group, prevalence is 4%. This does not indicate high impact but rather a need for revision of the baseline and target. The next survey to provide data will be in 2007/08.

Finally, the Thematic Group agreed on the following six critical factors which affect the potential to improve the quality of life and social well-being in Tanzania:

• Resource allocation, predictability and commitments in the medium term; • Local government capacity (human and financial); • Performance monitoring (M&E) at sector level; • Institutional arrangements, coordination, responsibilities, links to MDAs; • Human resources (quality and quantity); and • Domestic accountability.

Overall assessment STATUS: The overall assessment is satisfactory. The following provides a brief sector-by-sector analysis of areas of good performance, weak performance, and comments on PAF indicators.

36

Education Remarkably good performance was noted of overall enrolment of both girls and boys at primary level. This was noted in the first Education Sector Review which took place in February 2006 involving a number of MDAs and coordinated by the Prime Minister’s Office (PMO). This review highlighted the satisfactory performance overall and gave recognition to several key challenges including the shortage of qualified teachers (especially in rural areas), and the need to improve quality of primary education through provision of teaching and learning materials. Drop-out rates in primary education also remain a challenge and there is need for a multi-sector approach to this particular issue. The review also highlighted the increasing demand for secondary education, and the need to expand gross enrolment in higher education institutions in the near future. The sector is currently implementing the recommendations from the review which were agreed through the Education Sector Review Aide Memoire approved at a high-level meeting in June 2006. Performance in the sector continues to be enhanced through increased collaboration and commitment from all actors: Government, civil society, private sector and Development Partners; and some improvement in the reliable and timely delivery of funds. Yet challenges remain in terms of infrastructure (especially for the growing demand for secondary education) in the form of classrooms, desks, libraries and toilets and in facilities to accommodate the disabled (at both primary and secondary levels). Opportunities for higher education remain extremely limited due to the lack of infrastructure, the quality of human resources, and the need for further grant and loan schemes for students. Addressing these challenges will require improved sector-wide planning and linkages (to contain overlapping efforts); improved resource allocation between sub-sectors within the overall sector; and improved capacity of LGAs to manage education reform processes and resources. Within this, there is also need to strengthen the PMO’s capacity to coordinate this sector. The PAF indicators for this sector are in line with the national MKUKUTA indicators and monitoring system. However, there is need to improve Management Information Systems (MISs) in each of the MDAs. Efforts towards this are being made but a priority focus on Higher Education’s MIS is needed, in order to ensure sound tertiary education figures. Health The seventh joint Health Sector Review took place in 2006 in Tanzania, as did the costing exercise for this sector of MKUKUTA. The review highlighted Tanzania’s impressive gains in addressing infant mortality, under-five mortality, and malaria. Infant mortality rates declined from 100 to 68/1000 live births between 1999 and 2004 and under-five mortality declined from 156 to 112/1000 live births over the same period (DHS 2005). Expansion of IMCI, increased access to pharmaceuticals, improved malaria treatment policies (from chloroquine to SP and now to ACT) and

37

the bed net voucher program have all contributed to progress towards the MKUKUTA targets and the MDGs. In contrast, over the same period, progress in maternal and reproductive health has been limited. Maternal mortality has not declined. Although 90% of pregnant women seek antenatal care, less than half deliver in a health facility, on average 90% in Dar es Salaam and less than 20% in rural areas. Fertility remains high (5.7 live births) and the use of contraceptives low (20%), particularly among poorer and less educated women. Progress in nutrition has also been limited (22% of children are underweight for age). Increasing demand for and access to contraceptives, investing in emergency obstetric care, and strengthening multi-sectoral action in nutrition (health, education and agriculture) will be critical to realizing progress. Budget allocations to the health sector face several challenges: (a) A balanced ratio of inputs (staff to operating costs to infrastructure) is key to effective delivery of services. For FY 2006/07, a welcomed increase in Personal Emoluments (PE) is partially off-set by a decrease in Other Charges (OCs). Empty facilities, staff who lack drugs and supervision budgets or ARVs which lack qualified staff to prescribe them will all result in wasted resources. Without an increase in OCs the sector may not deliver. (b) Large earmarked external funds (for new vaccines and for treatment of AIDS, tuberculosis and malaria) result in commitments which must be sustained in the long term. AIDS patients will be on treatment for 30+ years, tuberculosis patients cannot interrupt treatment, there are new treatment standards for malaria and the commitment to new vaccines cannot be rescinded. Therefore there are serious and growing concerns about the long-term predictability of financing to the sector which need to be explicitly addressed. (c) Some funds crowd out discretionary funding for health. For example, when the sector receives USD 10 million for AIDS treatment, it appears as a budget increase and this influences Ministry of Finance’s allocations to the sector. However, these earmarked funds (particularly for ARVs due to the cost of treatment) do not reduce the sector's existing need to finance service delivery. The Ministry and Development Partners continue to recommend that earmarked funds should be budgeted outside of the Ministry of Health’s Medium Term Expenditure Framework. The lack of resources during the first quarter of each fiscal year, the time required to process simple payments approved in the budget, and the challenges in procuring large consultancy contracts through government, all create disincentives to shift to budget support. These create incentives among Development Partners and the Ministry of Health to maintain special project accounts in order to protect service delivery. The sector will take time to become accustomed to new procedures and responsibilities. In the meantime, without some separate funding streams, critical health activities may suffer. The lack of qualified staff, particularly in rural areas, is a key constraint to service delivery. Without specific strategies (incentives, service requirements) to improve

38

deployment of limited human resources, shortages of staff will further limit access to health care for the rural poor and most vulnerable.

• Public-private partnerships in health remain unclear. Government commitment needs further clarification. New public facilities are sometimes constructed next to existing facilities managed by faith-based providers. Functions which should be outsourced are also sometimes performed by the Government. Progress on service agreements could expand access to services. On a positive note in health, private sector representation is improving in sector dialogue. The National Health Insurance Fund has accredited private providers and private pharmacies are being engaged through new and innovative programmes.

Finally, a joint independent external evaluation to inform performance is being planned in the health sector and will be reported in 2007. Water An overall assessment indicates that this sector is on-track and improving. The Government, through the Water Sector Medium Term Plan (MTP), implemented strategies in accordance with the National Water Sector Policy (2002). This included the first Joint Water Sector Review (September 2006) involving over 180 stakeholders. This review led to the formation of Thematic Groups in Performance Monitoring, Planning and Finance; Institutional Development and Capacity Building; and Sanitation and Hygiene. The review was supplemented by a draft National Water Sector Development Strategy and Programme, preparation of revised legislation (to be tabled in Parliament in early 2007) for the sector, and costing of the water sector within the MKUKUTA. The sector review highlighted the need to improve coordination to include allied Ministries such as PMO-RALG and Ministry of Health, as well as civil society and the private sector. Steps are needed to accelerate capacity building in local authorities and private sector suppliers. Finally, alignment of the Water Sector Development Programme financing plan with the MTEF will be focused on in the future. Performance against the indicators was challenging. National surveys are considered the most reliable source of data in relation to household access to safe and clean water. The Ministry’s routine data system, implemented in collaboration with local authorities is based on service points (not households) and requires improvements. The baseline in relation to household access comes from the routine data source, yet the next figures from national surveys will come from the ILFS 2006 (data available by mid 2007) and the HBS 2007 (data available in mid 2008). HIV/AIDS There was acceptable progress against milestones in HIV/AIDS, with increased public awareness, high level commitment, mobilization of the private sector and mainstreaming into the national budget. In practical terms, Council Multi-Sectoral Aids Committees (CMAC) were established in LGAs and Regional Facilitating Agencies were put in place. Approximately 1050 civil society organisations received

39

funding from the Rapid Funding Envelop, and national care and treatment programmes enrolled over 103,000 patients. The NMSF bi-annual reviews have been satisfactorily held with a wide range of stakeholders and a high degree of ownership of the Government through TACAIDS. Nonetheless, challenges remain including rising concerns about the predictability of funding beyond 2008, and the coordination of some major support such as GFATM and PEPFAR. The human resource crisis in the health sector generally is having a major impact on care and treatment and is reflected through the local capacity at local government level. Enrolment in ART is behind schedule and M&E systems need strengthening. Finally, concerns continue about how to speed-up the education sector’s response to HIV/AIDS. The outcome indicator of national HIV prevalence in the 15-24 years age group originally set a baseline of 7.5% and a target of 6.0%, yet this requires revision as the prevalence rate of this age group has been indicated as 4% (THIS, 2003/04). The next data point for this indicator will become available from the THIS 2007/08. Environment The Department of Environment and the National Environment Management Council initiated implementation of the Environment Management Act by translating it into Kiswahili, issuing 2 regulations and initiating a further six. In addition, six MDAs established environmental sections, and capacity needs assessments were undertaken. A draft State of Environment Report has been produced and will be finalised before the end of 2006, and a strategy for urgent action on land degradation and water catchment areas is under implementation. Challenges remain in terms of building awareness in MDAs as well as LGAs in relation to the Environment Management Act. This is, in part, limited by inadequate human resources. Finally, the selection of a national outcome indicator for environment requires further work on the State of Environment reporting system, targeted to be in place by mid 2007. Recent work on poverty-environment indicators which have been integrated into the MKUKUTA monitoring system provide a useful foundation for the way forward. Social Protection The PAF 2005/06 indicated a temporary process action about social protection focused on developing a national framework. Initial steps towards an action plan for developing this were taken by reaching initial consensus on institutional coordination, and beginning to define social protection in the context of Tanzania with the wide range of diverse stakeholders working in this area. In addition, progress was made on reforming the legislative framework for social security and to begin to extend this to the informal sector. Implementation strategies for Ageing and Disability Policies were developed, and a research agenda on social

40

protection developed with a wide range of stakeholders, facilitated by an independent research institution. Finally, senior officials took part in various international forums focused on social protection. Nonetheless, further progress is needed if a well-coordinated framework that delivers effective social protection for the most vulnerable is to emerge.

41

5.3. TWG 3: MKUKUTA Cluster 3 - Governance and Accountability

According to the Terms of Reference, the GBS Annual Review 2006 would focus on an assessment of the underlying processes, outcome indicators based on the whether pre-set temporary actions have been met, assessment of good and bad performance, tailing on the factors for the success (or failure), and whether there are lessons learned. These are discussed in turn, taking into consideration the following questions, which should guide the GBS review. These are whether good governance and rule of law are being ensured, and whether the Government is accountable to the people. In order to improve good governance and accountability, the Government with support from the Development Partners is implementing the following major programmes: the Public Service Reform Programme (PSRP), the Local Government Reform Programme (LGRP), the Legal Sector Reform Programme (LSRP) and the National Anti-Corruption Strategy and Action Plan (NACSAP). The underlying processes for review, timing, and outcomes, were agreed in the PAF matrix following the GBS Annual Review 2005. The assessment of the underlying processes in each of these programmes produced mixed results, as discussed below, beginning with the PSRP.

Underlying process: Public Sector Reform Programme

The review noted that underlying processes under the PSRP were improving both in terms of the regularity of the reviews, and their inputs into budget preparation. Through established mechanisms, independent reviews take place annually, with the next one scheduled to take place in December 2006.

In addition to the reviews, there has been a regular communication between the Government and Development Partners on issues requiring attention. In preparation for the Joint Implementation Programme Review Committee (JIPRC) reviews, the President’s Office – Public Service Management (PO-PSM) has forwarded detailed quarterly reports. PO-PSM has a monitoring and evaluation (M&E) system through which reports on specifically agreed results and targets are developed. These reports are also publicly available on the PO-PSM website.

The review also noted progress towards design of the next phase of the PSRP, which was at an advanced stage. In the next phase, the Government is committed to broadening the participation of a wide range of stakeholders including Ministries, Departments and Agencies (MDAs). The Government intends to develop mechanisms for demand driven accountability rather than the supply driven accountability that was dominant in the first phase. Performance under this programme is generally considered satisfactory.

Outcome indicator: Current pay as a proportion of Government’s pay targets

The review noted progress towards achieving the medium term pay target as set in the Public Service Medium Term Pay Policy (MTPP) of 1999, the result of which is as follows:

• Baseline (2005): 86% • Actual: (2006): 90% (depending on groups: lower percentage at higher levels).

42

• Target: (2010): 100% However the review raised concerns on the sustainability of the wage bill, given its share in the current budget that stands at 42% of domestic revenue. During the review, it was recommended that, among other things, the Government should seriously consider the possibility of rationalizing allowances, after submission of the report by the Task Force formed to address the allowances regime. The review also underscored the need to revise the MTPP after receiving the recommendations from the Presidential Commission on Public Service Pay when it completes its work in December 2006.

Underlying process: Legal Sector Reform Programme

Although the LSRP Medium Term Strategy (MTS) has the framework for reviews, there has not been any review for the LSRP. Key activities related to the implementation of the LSRP have been delayed and no LSRP review took place in 2005/2006. The complexity of the reform programme, which embraces the work of 5 lead agencies and 15 legal sector institutions, is also a factor explaining the complexities of coordinating inputs and putting in place the mechanisms that would facilitate consultation and broader ownership.

Requirements for harmonisation of Development Partners’ support to the LSRP MTS and the establishment of a joint basket funding arrangement have contributed to delays in the implementation of activities. A Memorandum of Understanding (MOU) regarding this was recently signed. In addition to this, key staffs to manage the programme have been recruited.

Progress is slower than anticipated generally, but Development Partners expressed satisfaction with the improved quality of dialogue with the Government over the past few months.

Outcome indicator: Percentage of court cases outstanding for 2 years or more • Baseline (2005): 70% • Actual (2006): 70% (t.b.c.) • Target (2010): 40%

Both Government and Development Partners have expressed concerns over whether it is possible to collect accurate and meaningful data for the indicator.

Local Government Reform Programme

Underlying process: The LGRP review is planned for early 2007.

Progress within the LGRP overall is satisfactory, although there are differences between the different outcome areas. Restructuring and fiscal decentralization are progressing as expected. Systems have been developed for fiscal decentralization but are not yet fully implemented.

In the field of human resource empowerment of local government, a study for the development of a policy for the retention of staff in disadvantaged areas has been

43

undertaken. However, the study has been assessed as being limited in scope and not addressing the issues adequately. Also, the Public Service Regulations have not yet been amended. Within the legal outcome area, revisions of sector legislation have been proposed to the concerned ministries but so far there has been little progress.

Implementation of D-by-D began in 2000, but progress has been slower than expected. In June 2006, a road map was developed which addresses mainly attitudinal, institutional and legal aspects. There is need for a continued push for the implementation of the decentralization process by the central government in order to assure the application of the principles of D-by-D across Government. Systems are relatively well developed, but implementation lags behind. Some examples are:

• Some sectors are not using the fiscal transfer systems developed for decentralisation (e.g. the Local Government Capital Development Grant (LGCDG) system is in place but not used by most sectors).

• Budget allocations do not reflect the decentralisation policy. • Legal reforms in different sectors to allow D-by-D implementation are pending. • Amendment of the Public Service Regulations to enhance human resource

autonomy is pending. During the review process, it became apparent that the Government proposed amending the local government laws, which proposed among other things to provide the Minister for Local Government with the power to appoint three district councillors. This issue was raised at the final TWG 3 meeting and was subsequently included in the ‘key issues’ discussion. The laws were amended by Parliament on 14th November 2006.

Outcome indicator: Number of strategic plans of central and sector ministries containing a strategic objective to implement decentralization by devolution

• Baseline (2005): 1 (PO-RALG) • Actual (2006): Progress on the indicator not known yet • Target (2010): All

Note: This indicator only measures intentions and not the implementation of the decentralisation policy. It is therefore proposed to change the indicator for the coming years to:

“Percentage of the Government budget allocated on a formula basis to LGAs”. Once a new indicator is agreed, the targets can de developed.

Background

Decentralisation by Devolution - commonly featuring under its abbreviation D-by-D and based on the “Policy Paper on Local Government Reform” from 1998 - is the Government’s policy to give more powers and responsibilities to Local Government Authorities (LGAs). The implementation of this policy is obligatory for all central and sector ministries.

The policy is expected to contribute to poverty reduction and the achievement of the objectives of the MKUKUTA by improving service delivery in key areas such as health, education, agriculture or water. This improvement is to be achieved through

44

the creation of effective and autonomous LGAs. Besides, D-by-D will strengthen democracy as decision-making is brought nearer to the people. Decisions that concern local matters should be made according to own local priorities. In a decentralised government system the role of the central government, including the Regional Secretariats is changed from an implementing and directive authority to that of policy making, regulating, supporting and monitoring to ensure the quality of services in line with national policies and standards.

In order to achieve decentralisation, decision powers have to be devolved to locally elected Councils, who are accountable to their population. Within their pre-defined realm, Local Councils have the exclusive right to decide – of course within the national policy framework. Fiscal decentralisation and human resource autonomy are the two key prerequisites for effective decentralisation. In order to be able to fulfil their responsibilities, LGAs must dispose of the necessary financial means and they have to be fully responsible for all human resource management matters, so that their staff is only accountable to the Council. Key issues Budget allocations and sector budgets do not reflect the D-by-D policy of the Government

• Fiscal decentralisation and human resource management are key areas addressed by the LGRP. Although good progress can be observed in the elaboration of the fiscal decentralisation framework, the use of the framework is still limited, as most central ministries are not abiding by it.

• D-by-D implies that the funding of services like education, health, etc. is done under the LGA budget line, via a formula based allocation mechanism, and not under those of the respective ministries concerned. Though this is generally accepted, the budget clearly shows that the implementation of the Tanzanian decentralisation policy is not yet reflected in the national budget for the coming years.

• Implementation of D-by-D would imply a reduction in the allocations to sector ministries and an increase in those for the LGAs. This is not reflected in the budget and MTEF: the development funding for LGAs is decreasing over the years (until the year 2008/2009) instead of increasing. Also it is observed that Other Charges (OC) are not rising. The OC reflect the possibility to provide services to the people, the major task of the LGAs.

• This is an issue that cannot be resolved by the President’s Office – Regional Administration and Local Government (PMO-RALG) and the Ministry of Finance (MOF) alone. Support and leadership of higher-level government is needed.

Public Services Regulations not amended in line with D-by-D

• The right to plan and manage their own human resources is a key factor to increase LGAs’ accountability for residents and improve the sense of common responsibility of Councillors and staff. The Public Service Act was amended

45

in 2004, but the respective regulations are still contradicting and yet to be amended. There is an urgent need for amendment of the regulations.

• Linked to human resource autonomy is the issue of how peripheral or otherwise disadvantaged councils can attract and retain qualified staff. It is evident that measures are required to stimulate people to accept positions in the disadvantaged areas. Measures could be found for example in salaries, allowances or other incentives.

• Associated with this is the issue of the increase of LGA staff without an accompanying increase of OC: does this reflect a change in the allowance policy of the Government or does it mean that LGAs will have decreasing possibilities to provide services in relation to the staff available?

National Anti-Corruption Strategy and Action Plan

Underlying process: National Anti-Corruption Strategy and Action Plan

The assessment of the underlying process is based mainly on the draft introduction to NACSAP II received by Development Partners on 25th August 2006 and a subsequent discussion between Development Partners and the Good Governance Coordination Unit/Prevention of Corruption Bureau (GGCU/PCB) on 13th September 2006.

The following process has taken place within the Government: Members of MDAs’ Integrity Committees met to work on the updating of individual MDAs’ anti-corruption action plans that are an integral part of the NACSAP. The same process was followed for parastatals. Anti-corruption action plans have also been prepared by LGAs (the latter in Kiswahili only). A plan on how to include civil society and the private sector in the NACSAP II process has been prepared by the GGCU and is currently being considered by the Chief Secretary.

The GGCU reports that consultations within the Government around NACSAP II are close to completion but that NACSAP II is considered to be a “living document”, open to iterative revision based upon analysis and recommendations from stakeholders including civil society, the private sector and Development Partners. The GGCU indicated that civil society will also be included in the anti-corruption process as “watchdogs”, regarding, for example, follow-up on how budgets are spent.

It is difficult at this juncture to assess the underlying processes that produced the current version of NACSAP II since Development Partners and other non-governmental stakeholders have not been involved. Development Partners know little, for example, about the analytical or experiential rationale on which MDAs have based their strategies and action plans for NACSAP II, or what the strategic thrusts of NACSAP II might be with respect to, for example, such key corruption-prone areas as public procurement, public revenue collection, public financial management, licensing, regulations and their administration, and the financing of politics. Government interlocutors have confirmed that the foci of NACSAP II are not based on any scientific or empirical basis such as corruption surveys.

46

Outcome indicator: Quarterly NACSAP Implementation Report published and discussed

• Baseline (2005): 4 reports • Actual (2006): 1 Report • Target (2010): 4 reports

Note: The reports are usually published and provided to the President for follow-up action, but there is not presently any forum in which they can be discussed among the Government, civil society, the private sector and Development Partners. The review underscored the need for timely production of the NACSAP Reports. It also recommended that the reports ought to focus on key issues such as corruption prone areas, and information on administrative or legal sanctions that may have been applied to individuals proven to have been involved in corrupt practice

Temporary process action: Revised anti-corruption legislation presented to Parliament by November 2006

Amendments to the anti-corruption legislation have been drafted and an accompanying Cabinet paper is under preparation. The draft bill, however, is not expected to be presented in the Parliament until 2007 for the first reading.

Temporary process action: Develop review mechanism for NACSAP II

In the draft NACSAP II, the Government proposes to establish a Permanent Forum with representation from the Government, civil society, the private sector and Development Partners. The Government will also establish two committees: one at a technical level and the other at high level. The Government’s technical committee will be chaired by the Deputy Permanent Secretary of PO-PSM and will meet regularly with the Governance Working Group (GWG). The High-Level Governance Team (actually the Development Cooperation Forum) is chaired by the Chief Secretary and is composed of Permanent Secretaries of central government ministries and senior representatives from Development Partners. According to the draft NACSAP II, governance issues will be discussed in all these fora.

In order for the review mechanism to function effectively, the three bodies mentioned above need to be well informed about corruption in Tanzania. This suggests the need for empirical, analytical diagnostic work (a corruption survey) to establish both a baseline and a scientific basis upon which to focus anti-corruption measures. The quarterly reporting process also needs to be strengthened to ensure reports are issued on time and address the weaknesses mentioned above.

Underlying process: Government–Development Partner and other stakeholder consultations on governance

The underlying process of “Government–Development Partner and other stakeholder consultations on governance” differs from the other processes identified under Cluster 3 of the Performance Assessment Framework (PAF) matrix since it is not directly linked to a specific reform process but embraces all underlying processes.

47

Good governance in relation to national dialogue on development processes depends on the readiness of the Government to involve the Parliament, civil society and Development Partners openly in such processes. Consultations are assessed not only in terms of the frequency of opportunities for dialogue, but also in terms of the quality of inputs, and feedback provided openly by the Government on subsequent decision-making, or other processes. Apart from the various sector review processes identified in the PAF matrix, the current structure of dialogue between the Government, Development Partners and other stakeholders in Tanzania includes various fora. The following are some examples of fora used by the Government to consult with Development Partners and other stakeholders.

Forum for Dialogue Comments

Development Cooperation Forum (DCF)

The last meeting took place on 17 October 2005. Therefore, no meeting took place during the period covered by the current GBS review.

Public Expenditure Review (PER)

It was agreed during the 2005 PRBS Annual Review that the main process for discussion and dialogue on macro issues would be the PER Macro Group. The advantage of the PER Macro Group is that it has wider stakeholder involvement. The workings of the PER Macro Group would be to enable discussions on PRGF, PEFAR, Budget Guidelines and fiscal reports in a more open forum. Although the anticipated level of discussion and engagement through the PER Macro Group did not take place, the few meetings that were held did include civil society organisations.

Public Expenditure and Financial Accountability Review (PEFAR)

The PEFAR 2005/06 was led by the World Bank and brought together players from across the Development Partner community and civil society in Tanzania. PEFAR 2005/06 built on and deepened the collaboration and analysis between macro fiscal and core fiduciary issues spanning both financial management and procurement. Preliminary analysis from the PEFAR 2005/06 was presented and discussed at the PER Consultative Meeting in May 2006, which involved wide participation from the Government and Parliamentarians (both CCM and opposition parties), civil society (youth groups, women’s groups, disabled etc.), media and Development Partners.

MKUKUTA Implementation Review

No review is planned for 2006/2007. The 2006/ 2007 MUKUKTA Annual Implementation Report might not be available at the time of the GBS Review contrary to what has been agreed between the

48

Government and its Development Partners.

Outcome indicator: No indicator in current PAF

Note: In the absence of an indicator to assess progress, it is difficult to make a clear judgement on the quality of the consultation process between the Government, Development Partners and other stakeholders. There is therefore the need to establish an indicator for this in the Matrix.

49

5.4. TWGs 4 and 6: Resource Allocation and Budget Consistency & Macroeconomic Stability

Underlying processes The Government has continued with its effort to maintain macroeconomic stability, improving the quality of budget formulation, budget implementation as well as the overall expenditure discipline. The underlying processes for the areas covered by the combined TWG 4 and 6 include the Budget Guidelines, PEFAR Review, Poverty Reduction and Growth Facility (PRGF) reviews, Annual MKUKUTA Progress Report, and issuance of quarterly Budget Execution Reports with the main avenue for discussing issues from these underlying processes being the PER Macro Group. While the overall assessment of the underlying processes is satisfactory, it should be noted that the PER Macro Group has not functioned in the manner envisaged at the last annual review. Effort will be needed in the next cycle to improve the functioning of the PER Macro Group. The Budget Guidelines for 2006/07 were issued in March 2006 instead of January 2006, owing to the new Government structure that was to be brought on board following the 2005 General Elections. The PEFAR review was done as planned. The issues raised in the review and the subsequent Annual Consultative Meeting are being addressed by the Government, as agreed at the PER Consultative Meeting in May 2006. Technical discussions for the 6th and final review of the Poverty Reduction and Growth Facility (PRGF) were successfully concluded in September 2006. It is expected that the review will be approved by the IMF Board in November 2006. At the same time, discussions leading to Tanzania’s migration to a new arrangement with the Fund - the Policy Support Instrument (PSI) - beginning January 2007 were also concluded and the measure is expected to be approved at the same meeting of the IMF Board. Quarterly Budget Execution Reports are posted on the National and MOF websites, although some have been subject to delays. 2006/07 PAF Outcome indicators The TWGs have four outcome indicators to report on, which are the fiscal deficit (after grants as % of GDP); the inflation rate; budget – policy consistency; and expenditure outturn consistent with budget. STATUS: The 2005/06 fiscal deficit after grants was 5.5% of GDP, against a PRGF programme estimate of 6.3%. The PAF indicator in this regard was therefore met. In the 2006/07 programme, the deficit is projected at 5.3% of GDP. After having successfully contained inflation at around 4 % for the past three years, it began inching upward, from 4.2 % in June 2005 to the annual inflation rate of 5.0 %

50

at end December 2005. It increased further to 6.9 % at end April 2006, and 7.7% in May 2006, before easing to 6.8 % in June 2006, 5.4 % in July 2006, and 4.8% in August 2006. The PRGF forecast was a rate of 6.8% by June 2006 implying that the relevant PAF indicator was met. The inflation rate is expected to come down to around 4.5 % by June 2007 owing in part to policy measures and good food harvest during 2006. Implementation of the budget for 2005/06 was on track, despite the adverse effects of drought and rising oil prices. The drought-induced food shortages forced the Government to make internal budget reallocations to cater for the procurement and distribution of emergency food to severely affected areas. Additional financial support was also provided to TANESCO to cover the abnormally higher capacity and energy charges to IPTL and SONGAS on account of high fuel prices and capacity utilisation, and to procure transformers. The approved budget for 2006/07 is in line with the MKUKUTA framework. Direct MKUKUTA interventions account for 48% of planned expenditure in 2006/07, compared to 47 percent in 2005/06. The relevant shares of MKUKUTA clusters are: 46% for Growth and Reduction of Income Poverty; 36% for Improvement of Quality of Life and Social Well-being; and 18% for Governance and Accountability. Overall Assessment: The overall assessment is satisfactory. Macroeconomic developments Tanzania’s sustained economic reforms have generated strong macroeconomic performance over the last ten years or so, characterised by accelerating GDP growth, low inflation, and a comfortable external position. The economy performed well in 2005, with a GDP growth of 6.8 %, despite the experienced drought and the continued increase in fuel prices in the world markets, compared with 6.7 % recorded in 2004. The sectors that have shown strong growth during the year include trade and tourism, manufacturing, mining, construction and communication, which together contributed about 40 % of the GDP. The drought experienced during 2005 adversely affected the subsequent season’s food production and hydropower generation. These developments coupled with the persistent global increases in oil prices exerted upward pressure on inflation. After having successfully contained inflation at around 4 % for the past three years, it began inching upward, from 4.2 % in June 2005 to the annual inflation rate of 5.0 % at end December 2005. It increased further to 6.9 % at end April 2006, and 7.7 % in May 2006, before easing to 6.8 % in June 2006, 5.4 % in July 2006 and 4.8% in August, 2006. The inflation rate is expected to come down to around 4.5 % by June 2007, owing in part to policy measures and good food harvest during 2006. The PRGF forecast was a rate of 6.8% by June 2006. In this regard, the PAF action of containing inflation at the level consistent with PRGF indicators has been achieved. During 2005/06, credit to private sector increased by 35.9 % from the outstanding stock of TShs 1,219.4 billion (10% of GDP) at end June 2005 to TShs 1,656.9 billion

51

or 11% of GDP at end June 2006, thereby meeting the first PAF outcome indicator under Cluster I. The major factors behind the high credit growth include strong credit demand from expanding economic activities in the country supported by a growing number of credit-worthy clients. The credit growth is also assisted by the guarantee schemes for exporters and Small and Medium-Sized Enterprises (SMEs). The strong demand for credit is expected to continue in 2006/07 and over the medium term, in line with the expected economic expansion and the growing role of the private sector in the economy. In this regard, it is projected that during the course of 2006/07, private sector credit will grow by 36 % to TShs 2,254.0 billion or 13.1% of GDP, thereby meeting yet again the PAF target of at least 1% annual increase in the volume of private sector credit as a % of GDP. The current account deficit widened substantially during 2005/06, mainly due to a surge in trade deficit and a shortfall in programme assistance. The current account deficit is now estimated to reach 8.5 % of GDP for the year, compared to 5.3 % in 2004/05. These developments reflect a rapid growth in the cost of petroleum products and food imports, which more than offset the growth in exports of goods and services; and the effect of drought on agricultural exports. Disbursements of external programme and project assistance fell somewhat short of the budgeted amounts, declining to an estimated 10.5 % of GDP in 2005/06, compared to 11.5 % of GDP recorded during the previous year. Balance of payment pressures contributed to a continued depreciation of the shilling during 2005/06. The average shilling exchange rate depreciated by about 11.2 % from an average of TShs 1126.3 per USD at end June 2005, to TShs 1253.1 per USD by end June 2006. As at end June 2006 net official international reserves stood at USD 1,765.2 million, a 32 % increase from their level of USD 1,479.2 million at end June 2005, and equivalent to an estimated 5.1 months of next year’s imports of goods and services. With the high dependence on imported inputs by most productive sectors, the impact of the continued depreciation of the local currency on the country’s export capacity now needs a closer examination. Budget Execution 2005/06 Fiscal developments during 2005/06 were broadly in line with the budget targets. Domestic revenues to end June 2006 were 3 % above projections mainly due to better than expected performance of import duties, corporation tax, and domestic excises. Revenue performance also benefited from the ongoing tax and customs administration reforms implemented by the Tanzania Revenue Authority (TRA). Despite the shocks due to drought, oil prices, and energy crisis during the second half of the year, domestic revenue reached 13.6 % of GDP from 13.3 % recorded in the preceding year. Government expenditure was 96 % of the estimated level due to a cautious stance adopted in budget execution, and delays in the hiring of new staff and in the implementation of some development projects. Expenditure on the goods, services and transfers category was also contained within programme targets. However, expenditure for priority social services and for activities linked to the achievement of the Millennium Development Goals (MDGs) was protected notwithstanding the drought and power load shedding. Domestic financing of the budget for the year was TShs 349 billion, compared with the budget of TShs 373.9 billion. The details are

52

presented in the Budget Execution Report for the fourth quarter as well as full year execution. Budget Outturn Budget implementation as marked by budget outturn showed an improvement on the baseline figure. The percentage deviation of actual recurrent expenditure from budgeted for MDAs amounted to 17%, as compared to 18% in the previous year. This figure reflects a varied performance across the votes, as a result of a range of factors. These include the restructuring of MDAs with the Fourth Phase Government, and some internal budget reallocations that occurred to mitigate drought induced food shortages and the financial costs of the energy crisis. In some instances, as in the case for the Ministry of Health and Social Welfare, delays in procurement during the year result in unspent balances and idle cash balances in the Government system. The Government is determined to improve the existing cash management practice by addressing the credibility of cash flows and to inform release of funds to users under the cash budgeting system. In order for the Government to improve efficiency in resource use, both short and medium term actions have been proposed. These include eliminating the idle balances, and the creation of a cash management committee and unit. The cash management unit would among other things focus on the projection of actual expenditure by using inputs from budget users and monitor actual spending against issues to all MDAs on a monthly basis. This will result in more efficient budget execution as well as strengthening liquidity management. The Government is also keen to strengthen the expenditure tracking and monitoring unit at the Ministry of Finance to further improve the efficiency of resource utilisation. Approved budget 2006/07 Budget revenues in 2006/07 are expected to increase to TShs 2,461 billion (14.4 % of GDP), a 16 % annual increase over 2005/06 revenues primarily on account of policy measures announced in the budget for 2006/07 and continued tax and customs administration reforms, with a discount for a possible effect of possible continued power load shedding. The revenue measures announced in the budget for 2006/07 are expected to contribute 0.7% of GDP to revenues. In the medium term, the revenue effort is expected to benefit from continued improvement of the tax administration (TRA), better contribution by the mining sector following ongoing Government consultations with the respective stakeholders, assessment of the potential contribution of activities that exploit non-mineral natural resources, and a review of tax exemptions. In undertaking initiatives to increase domestic revenue, the Government plans to take cognisance of the need to maintain the hard earned stability of the business climate. The Government has further strengthened the link between budgetary resource allocation and MKUKUTA priorities through cluster-based expenditure programming, and rolling out the Strategic Budget Allocation System (SBAS) to the Regional Secretariats in addition to MDAs that were already using the system. Direct

53

MKUKUTA interventions account for 48% of planned expenditure in 2006/07, compared to 47% in 2005/06. The relevant shares of MKUKUTA clusters are: 46 % for Growth and Reduction of Income Poverty; 36% for Improvement of Quality of Life and Social Well-being; and 18% for Governance and Accountability. Local Government Authorities (LGAs) were able to link their budgets with MKUKUTA by using a Planning and Reporting (PlanRep) Database which was then downloaded to IFMS via SBAS. This is in line with the PAF action on approved budget in line with MKUKUTA and sector policy. The Government is pursuing the achievement of MKUKUTA's vision of broad based economic growth by stimulating private sector investment, particularly through development of infrastructure, building human capacity and a competitive economy. The completion of the ongoing MKUKUTA costing exercise will strengthen further the Government’s effort to prioritise and link the resource allocation with MKUKUTA. The costing of MKUKUTA interventions for roads, water, health and agriculture is already in an advanced stage and will provide input to the next budget cycle. A preliminary investment plan for the energy sector has been developed as part of TANESCO’s Medium Term Financial Recovery Plan (FRP), and an investment plan for the transportation sector is being finalised. The Government plans to use the plans to solicit funding from Development Partners as part of MKUKUTA financing. In this regard, the Government has expressed its invitation to engage in discussions with all relevant parties on the modalities for scaling up of aid with a particular focus on infrastructure investment, and the mechanisms for dealing with the macroeconomic implications. The Government is also establishing an expenditure tracking and monitoring unit at the Ministry of Finance, in order to improve further the efficiency in resource utilisation. Consistent with the Medium Term Pay Reform targets, and new recruitment requirements to implement MKUKUTA priorities, outlays for wages during 2006/07 were increased by 1.6% of GDP, to a projected 5.9% of GDP. The additional resources are to finance a 15 to 50% general wage increase for Government employees in professional grades with scarce skills in order to improve retention of staff in critical areas of the public service, and the recruitment of 24,689 new staff in the health, primary and secondary education, and public safety services. The planned recruitment during 2006/07 caters for the backlog resulting from a slow pace in recruitment over the past three years. Some workers have retired or died, while others have left the Government without replacement. Thus it is high time that the Government fills the posts which have consequentially fallen vacant. The additional resources were obtained by reducing employment allowances in favour of wage increases. During budget scrutinisation, the Budget Committee ensured that the reduced allowances do not hamper operational efficiency of the institution concerned. In addition, some allowances were reduced to a more realistic level as a way to improve expenditure management. Development expenditure is projected to increase by 52% in 2006/07, mainly reflecting the use of IMF Multilateral Debt Relief Initiative (MDRI) resources for investment in the energy sector to diversify TANESCO’s generation sources and applications of savings from restrained other recurrent expenditure for infrastructure investment. Expenditures on goods, services and transfers are projected to increase

54

only modestly (8%) because of the unwinding of one-off spending for last year’s drought, and for payments to the former East Africa Community (EAC) workers. The fiscal deficit after grants is projected at 5.4% of GDP in the 2006/07 budget compared with 5.5 % recorded in 2005/06. This is in line with the PRGF targets, and therefore the PAF indicator in this regard. Taking into account higher foreign financing and grants, net domestic financing during 2006/07 is projected at TShs 163.5 billion, or 1% of GDP compared with 2.3% for 2005/06. Net foreign financing and grants are expected to reach 12.9% of GDP in 2006/07, against 9.7 % in 2005/06, mainly on account of the MDRI resources. Issues Domestic Resource Mobilisation The level of domestic revenue remains very low in Tanzania, at 14.5% of GDP for 2006/07. This results in an overly aid dependent budget, with around 40% of the budget supported by external financing. The budget ratio of recurrent expenditure to domestic revenue in 2006/07 stands at 136%. The Government recognises the need to improve domestic resource mobilisation and has in the recent past implemented policy and administration reforms that spurred a five fold increase in collections over the last 10 years. Planned next steps include a review of the policy and administration of Central Government non-tax revenues, and enhancing the capacity of LGAs to formulate and implement revenue policies. Improved LGAs’ revenue effort and reporting should enable migration to a General Government Fiscal Reporting Framework, reflecting the complete picture of the Government’s resource and expenditure profile. It is proposed that a PER study be undertaken to explore the potential and modalities for increasing revenue collection from non-tax revenue sources, and to consolidate whole Government fiscal reporting. It is aimed to have the study completed in time for the next budget. MTEF Projections In order to have an effective MTEF planning framework, there is a need to improve the external financing component of the outer years’ projections. Further, MTEF projections do not yet show aid flows provided to non-state actors. This could be undertaken within the context of JAST implementation, with the Government and Development Partners agreeing on a framework for ensuring reliability of the outer years’ projections of the budget frame. Additionally, it is recommended that the Government prepares a domestic revenue and ‘first charge expenditures’ forecast for the period to 2010 to facilitate expenditure and macro management planning. Recent analysis of the planning and budgeting system and the PER (2006 PEFAR) has highlighted both the differing quality of PER analysis across the sectors and the

55

different capacities of MDA Directorates of Policy and Planning (DPPs) across the sectors in order to play the challenge function. In particular, timely flow of inputs into the Budget Guidelines appears to be a remaining a challenge. The existing process could be strengthened in ways which would help national planning and budgeting systems, by looking at, among others, the coordination across clusters and sectors, and the linkage between the national planning process and the sector reviews. Aid Scaling Up and Absorption Capacity As it will take a considerable time before domestic revenue can meet the expenditure requirements for meeting both the MKUKUTA targets and the MDGs, it is imperative that higher aid levels be availed to Tanzania if it is to meet the MDGs and sustainably pull itself out of abject poverty. The country needs to develop a strategy for absorbing more aid without affecting the hard earned macro stability or engaging in low yield expenditures. The Government is therefore encouraged to use the undergoing MKUKUTA costing exercise to develop expenditure programme scenarios, and develop a macroeconomic management strategy for mitigating the possible adverse effect of more aid, which may be used in discussions with Development Partners for a possible scaling up of aid. Civil Service Pay Consistent with MKUKUTA implementation priorities, the Government’s Public Service Reform Programme (PSRP), and the Public Service Medium-Term Pay Policy (MTPP), the budget for 2006/07 includes a 46% increase in the Government’s wage bill, from 4.3% of GDP (31% of domestic revenue) to 5.9% of GDP (41% of domestic revenue). The increase is to be in part applied towards recruitment of 24,689 new staff in priority areas, including health workers, teachers, lawyers, accountants and internal auditors. The planned hiring will be implemented with a clear strategic goal to improve the capacity and efficiency of Government operations in line with the PSRP. Furthermore, in order to attract and retain staff in critical areas of public service, a 46–50% wage increase will be implemented with priority given to middle professional cadres. The measure increases the salaries of support and junior and mid-level professional staff to over 90% of their medium term targets. The overall impact of this measure to the budget is partially mitigated by reductions in the allocations for employment allowances that are not part of the wage bill, as well as some other allocations for the running of the Government (including motor vehicle running expenses). The Government recognises that a future increase in the share of personal emoluments in the budget would need to be consistent with medium-term macroeconomic and fiscal sustainability, including domestic revenue developments. In this regard, a comprehensive review of the MTPP is being undertaken by the Presidential Commission on Public Service Pay, which is focusing on implementing the medium term policy in relation to the employment levels for each MDA and their budgetary implications, and on recommendations for an improved implementation plan in the longer term.

56

MKUKUTA – Budget Link While satisfactory effort has been put in linking resource allocation with MKUKUTA at the Budget Guidelines and the budget preparation stages through SBAS, no detailed information is usually available on the individual targets. Moreover, budget execution reports lack the poverty budget analysis that would indicate the extent to which budget execution protects the very clear linkage in the budget. The Government is called upon to include SBAS based analysis in the Budget Execution Reports. The completion of the ongoing MKUKUTA costing exercise will further strengthen the Government’s effort to prioritise and link resource allocation with MKUKUTA. The costing of MKUKUTA interventions for roads, water, health and agriculture is already in an advanced stage and will provide input to the next budget cycle. A preliminary investment plan for the energy sector has been developed as part of TANESCO’s Medium Term Financial Recovery Plan. The Government will use the plans to solicit funding from Development Partners as part of MKUKUTA financing. The Government is in the process of preparing a MKUKUTA Implementation Report which will include the growth and poverty trend as well as an update on MKUKUTA monitoring. An initiative has been undertaken to provide electronically reporting by MDAs through the use of a software known as ‘Ripoti ya Utekelezaji wa MKUKUTA’ (RIMKU). RIMKU is compatible with SBAS and will obtain financial inputs from SBAS, while other non-financial MKUKUTA implementation status will be entered in the system by MDAs themselves. Further, the Government is in the process of establishing an Expenditure Tracking and Monitoring Unit at the Ministry of Finance, in order to enhance the efficiency in resource utilisation. Energy

A combination of a long non-investment period, a drought-related decline in TANESCO’s hydro-generation capacity, and high world fuel prices have precipitated an energy crisis in Tanzania, and a financial crisis in TANESCO. As a result, economic activity has been adversely affected by power shortages while TANESCO has continued to suffer substantial operational losses due to load shedding, dependency on liquid fuel generation, and purchase of more expensive energy from IPPs. The shortage in generation is not only crippling the utility financially, but is also damaging the economy, with an estimated multiplier of ten times the value of unserved electricity. To mitigate the crisis and put TANESCO’s finances on a sound footing, the Government in collaboration with stakeholders has prepared a Medium Term Financial Recovery Plan (FRP) for TANESCO covering the period 2006/07 – 2009/10. The plan indicates that TANESCO will make further operational losses in 2006/07, and that substantial capital investment is required in the medium term to turn the utility around. Critical investment needed will include the Government’s acquisition of the IPTL and its conversion to use cheaper indigenous natural gas

57

instead of imported liquid fuel, installation of new gas fired generators, installation of private owned coal generation capacity, a substantial increase in the utility’s customer base (including particularly connection of the large mining operators to the grid and increasing the population access to electricity from the current 10% to about 25% by 2010), and strengthening the transmission and distribution network. The strategy adopted to improve TANESCO’s financials, to reduce the fiscal burden and the adverse impact on the economy envisages that TANESCO will finance its short term operational deficits through tariff revenues supported by a commercial loan to be repaid over the medium term, with the Government financing the critical investments over the FRP period. Local Government Finances: Progress in Implementing “D-by-D” The central government has continued to collaborate with LGAs in the process of budget formulation in order to strengthen ownership at the local level. A number of initiatives are being implemented in this regard, including the following:

• Representation of LGAs through PMO-RALG: PMO-RALG consolidates and submits budget requests from the local authorities to the Budget Guidelines Committee, and then participates in the development of resource allocation proposals by the Committee. To strengthen further the LGAs’ representation in the budget formulation process, the number of PMO-RALG members of the Budget Guidelines Committee will be increased to three starting in the 2007/08 budget cycle. These are the Director of Local Government, Director of Policy and Planning and the Finance Coordinator - LGRP;

• The central government, through the Ministry of Finance, has spearheaded the

recruitment of Accountants and Auditors for LGAs, and posted them to the respective Councils. This exercise aims at strengthening expenditure management at LGA level;

• The central government (MOF and PMO-RALG) is training LGAs in planning

and budgeting to further build their capacity. The medium term objective of this initiative is to ensure that LGAs officials can effectively prepare their budgets in accordance with the national priorities. Further, the programme entails strengthening their capacity to implement budgets in line with the agreed priorities so as to foster effective implementation of MKUKUTA;

• Efforts are being made to ensure that all councils are linked with IFMS. To

date, IFMS has been rolled out to 86 councils and the exercise will continue for the remaining councils in the medium term;

• Currently, LGAs use PlanRep to prepare their budgets based on the ceilings

set using a formula based allocation system. The software enables them to link the MTEF targets with MKUKUTA, and is compatible with SBAS;

• The Government continues with the efforts to increase autonomy at the LGA

level by ensuring that resources are channelled to the lowest possible level of service delivery. Thus, all resources which are budgeted at the sector ministry level will be gradually shifted to LGAs’ budgets.

58

Proposal to combine TWG 4 and TWG 6 In view of the proximity in the agenda of the Resource Allocation and Budget Consistency TWG (TWG 4) and the Macro TWG (TWG 6), it is recommended that the two groups be merged into one.

59

2006/07

Total Domestic Revenue 2,066.8 2,124.8 2,461.0 Tax Revenue 1,896.0 1,946.4 2,269.6 Taxes on Imports 790.8 819.8 979.8 Taxes on Domestic Sales 466.4 478.4 566.9 Income Tax 549.1 581.2 657.8 Other taxes 157.6 137.0 198.6 Net refunds -67.8 (70.0) (133.5) Non tax revenue 170.8 178.4 191.4

Total Expenditure 4,035.1 3,873.3 4,788.5 Recurrent expenditure (Excl. CFS) 2,262.7 2,216.1 2,848.5 Wages & salaries(Central & Local Gov't) 681.9 656.8 1,003.9 Goods and services and Transfers 1,580.8 1,559.3 1,844.6 TRA 67.7 67.7 76.3 Parastatal wages 100.6 117.5 153.6 Retention scheme 59.6 61.3 63.1 Retrenchment costs 1.5 0.5 50.0 Other goods and services 1,351.5 1,312.5 1,501.6

Development Expenditure 1,385.2 1,211.4 1,734.5 Local 370.0 296.1 641.8 Foreign 1015.1 915.3 1,092.7

Interest payment 174.8 218.9 112.0 Domestic 100.2 163.7 72.0 Foreign 74.6 55.2 40.0 CFS (Other) 212.4 226.9 93.6

Overall Deficit (before grants) -1,968.4 -1,748.4 -2,327.5

Grants 1,011.3 1,043.4 1,438.9 Programme 345.5 331.0 471.0 Project 341.0 418.6 423.0 Basket grants 231.3 217.5 216.0 HIPC Relief 93.6 76.4 N/A

MDRI (IMF) N/A N/A 328.9

Overall Deficit (after grants) -957.0 -705.0 -888.6Expenditure Float 0.0 -157 0.0

Overall balance -957.0 -924.4 -888.6

Financing 957.0 924.4 888.6 Foreign (net) 584.9 561.2 736.2 Programme loans 270.7 257.7 333.5 Project loans 341.6 329.0 362.8 Basket loans 101.3 82.3 90.9 Amortization -129 -108 -51

Domestic (net) 372.1 363.2 152.5 Net domestic financing 374.0 348.9 163.5 Amortisation of contingent debt -12.2 -19.0 (11.0)

Amortisation of Domestic Debt -0.1 0.0 - Privatisation Proceeds 10.4 33.3 -

Source: Ministry of Finance

Actual Budget Estimate

(In billions of Tshs)

2005/06Budget Estimate

60

(In Millions of shillings, unless otherwise indicated)1999/00 2000/01 2001/02 2001/02 2002/03 2003/04 2004/05 2005/06 2006/07

Budget Budget

Total expenditure in priority sectors 418.6 499.7 766.5 761.9 973.7 1,113.5 1,688.2 1,924.0 2,409.7 (in percent of GDP) 6.1 6.4 9.1 8.6 9.7 9.7 12.7 13.3 14.2 (in percent of total expenditure) 35.8 39.3 49.6 52.1 48.9 44.2 51.8 47.7 50.3

Education 218.0 254.9 347.6 344.9 436.2 428.4 707.5 669.5 891.2 Health 81.2 100.7 139.3 142.1 186.7 216.2 315.6 365.8 427.4 Water 14.5 18.3 31.6 32.5 51.9 61.0 143.6 159.9 189.9 Agriculture (research and extension) 21.6 19.1 30.5 31.9 60.2 117.3 123.1 168.7 195.5 Lands 4.2 5.1 8.1 8.1 20.1 6.5 6.4 13.8 18.3 Roads 70.8 92.5 181.2 179.6 190.2 231.0 309.3 375.6 497.8 Judiciary 8.3 9.2 21.0 18.8 23.1 32.7 27.7 51.3 72.6 TACAIDS 0.0 0.0 7.3 4.0 5.3 20.3 61.3 119.5 117.0

Memorandum items: Total expenditure 1,167.5 1,272.8 1,544.8 1,462.8 1,989.5 2,516.9 3,257.6 4,035.1 4,788.5 GDP (market prices) 6,851 7,771 8,402 8,853 10,055 11,522 13,287 14,458 16,918

Source: Ministry of Finance.

Table. 2: Government Expenditure on major sectors, 1999/00-2006/07

Act

61

NSGRP: Cluster Recurent Development TotalI 361,338 711,598 1,072,936 II 418,308 420,287 838,595 III 306,630 126,756 433,386

Total 1,086,277 1,258,641 2,344,918

NON - NSGRP 1,299,559 475,825 1,775,385

TOTAL (Central Government) 2,385,836 1,734,467 4,120,303

Councils 730,285 730,285

GRAND TOTAL 3,116,121 1,734,467 4,850,588

NSGRP: Cluster Recurent Development TotalI 33% 57% 46%II 39% 33% 36%III 28% 10% 18%

Total 100% 100% 100%

NSGRP: Cluster Recurent Development TotalI 9% 17% 26%II 10% 10% 20%III 7% 3% 11%

Sub Total 26% 31% 57%

NON - NSGRP 32% 12% 43%

TOTAL (Central Government) 58% 42% 100%

NSGRP: Cluster Recurent Development TotalI 7% 15% 22%II 9% 9% 17%III 6% 3% 9%

Total 22% 26% 48%

NON - NSGRP 27% 10% 37%

TOTAL (Central Government) 49% 36% 85%

Councils 15% 15%

GRAND TOTAL 64% 36% 100%

Source: Ministry of Finance

% of Total Budget

Table 4. NSGRP Interventions, 2006/07 ('000 Tshs)

% of NSGRP Cluster Budget

% of Total Central Budget

62

5.5. TWG 5: Public Financial Management Underlying processes There are two underlying processes in public financial management: the Public Expenditure and Financial Accountability Review (PEFAR) and the Public Financial Management Reform Programme (PFMRP). The PEFAR 2005/06 can be thought as satisfactory, although a more effective process to ensure proper follow-up of the recommendations should be considered. Regarding the PFMRP, it was also viewed during the Review that there is a need to differentiate the PFMRP as a funding/coordination mechanism and the PFMRP as the overall reforms in public financial management, which is much broader. Whilst the funding/coordination mechanism may not yet be working effectively and can therefore not be considered satisfactory, it cannot be said that public financial management reforms have not been moving forward, as outlined below. The challenge is to adapt the PFMRP coordination mechanism and strategy in order to enhance and better sequence these reforms.

Temporary process actions

The first action “Audit Reform priorities to be reflected fully in PFMRP - see attached table” has been achieved. The second action “PWC contracted to establish system for monitoring and checking compliance, start November, will end around March 2006” has also been achieved, although with some delay.

Outcome indicators

The first indicator “NAO Audit Report is of international standard by 2010 and released within 9 months as required by the Public Finance Act 2001” has been met, while the second “Number of Procuring Entities Complying with the Public Procurement Act” cannot be assessed – no procurement audit was undertaken to assess compliance due to delays in the recruitment process at the Public Procurement Regulatory Authority (PPRA). Such delays, due mostly to a lengthy Government vetting process for senior recruitments in the agency, have resulted in the continued non-operationalisation of PPRA, which constitutes a serious challenge for public financial management. During the GBS Annual Review, the PPRA informed participants that most of the staff of the agency (43 out of 51) had now been recruited and had reported on duty.

Assessment of developments and key challenges

During the period between October 2005 to date, there have been a number of achievements in the public financial management area. Public financial management continues however to be faced with significant challenges, in particular the issue of procurement capacity and local governance, where more leadership of the central government would be needed. The PFMRP, as a funding and coordination mechanism to address these issues, continues to suffer from weak horizontal and vertical coordination and from a lack of strategic framework, two shortcomings that will need to be addressed in the near future. The timely submission of the Audit Report of the Controller and Auditor General (CAG) and its consequence in terms of Parliament follow-up of the audit findings marks a significant improvement in public financial

63

management oversight that should not be underestimated, although major challenges remain for the National Audit Office (NAO).

Overall evaluation of performance

Achievements

• Implementation of the PFMRP was improved by remedying previous procurement planning bottlenecks. Improvements in the production of audit and accounts reports were also noted. An external review of the PFMRP was carried out, and the Government is revising the PFMRP Strategic Plan to reflect the key findings.

• Local governance: Achievements include the successful continued roll-out of IFMS and the accompanying training to LGAs. More and more LGAs are qualifying to benefit from capital development grants. This improvement is also reflected in the number of LGAs receiving clean audits from the Auditor General. The recent posting of 489 accountants and auditors to LGAs will further enhance these developments.

• External audit: For the first time, the CAG’s office was able to produce the Annual Audit Report in a timely manner, with the 2004/05 Report having been submitted by March 2006 and tabled for discussion in Parliament before the June 2006 budget session. This had been a major concern during the PRBS Annual Review in 2005, at the time of which the report for the previous fiscal year was yet to be submitted. The Government of Tanzania has also appointed a new Auditor General, a position that had been vacant for almost a year. The NAO is in the process of submitting a new Public Audit Act, based on international standards.

• Public procurement: The PEFAR 2006 included a comprehensive review of procurement, in which it was noted that the CPAR 2003 recommendations have been taken up and procurement reforms are being addressed particularly with regard to legal and institutional reform at the central government level. During the Review, the PPRA informed participants that most of the staff of the agency (43 out of 51) had now been recruited and had reported on duty.

• Zanzibar: An assessment of the public financial management situation was made and suggestions for improvements formulated. The Revolutionary Government of Zanzibar (RGoZ) reacted very positively to the recommendations and is now in the process of preparing a detailed Action Plan.

Challenges

• Implementation of the PFMRP: Though the Programme is incorporated in the strategic plans of the Ministry of Finance (MOF), reports and reporting still need to be improved. Lack of in time reports leads to difficulty in accessing funds. Efforts shall have to be made in that respect in order to enable component managers use the PFMRP effectively. Improving the horizontal

64

and vertical coordination of the PFMRP and reviewing the strategy should help address some of these issues. The external review also recommended a further broadening of the PFMRP to MDAs and better linkages with the LGRP and PRSP.

• Local Governance: For a real deepening of the decentralisation process, a number of key challenges have to be addressed. These include reduction of the multitude of reporting and audit requirements – in particular by Development Partners, the lack of qualified staff, and the compartmentalising of funds for the different sectors, resulting in large unspent balances at the district level. In addition, budget formulation and its approval process in LGAs continue to be faced with the challenge that Central Government allocations do not reflect these budgets/plans, and thus undermine LGA authority/legislature. To address these challenges, strong leadership from the centre will have to be provided.

• External audit: Due to a continued serious lack of capacity (in particular in terms of skills rather than number of staff), the challenge of improving the quality of the reports should not be underestimated. Focus on Value for Money (VFM) audits will also need to be progressively increased, which will require capacity development for auditors in that area. Whilst the NAO capacity is already stretched for its responsibilities at the federal level, it also faces a serious challenge with regard to the lower tier governments. A new Public Audit Act is critically important, and should also make provisions to create a truly independent position for the NAO.

• Public procurement: The key challenge is to make the new law and the regulatory body work. Whilst the recruitment process at the PPRA nears completion, as PPRA informed the Review, staffing of the PPRA has proven to take much longer than expected. In the absence of a functioning procurement authority, there is insufficient oversight on central government as well as lower tier Government procurement. The Review noted the importance of providing continued and timely financial support to the PPRA, in order to enable it to continue to make progress towards implementing its mandate.

Executive Summary NAO Report Central Government FY 2004-2005

The audit of the Ministries, independent departments and affiliated bodies (MDAs) for the financial year ended 30 June 2005 took place between October and December 2005. This Audit Report is submitted in accordance with Section 35(1) of the Public Finance Act No. 6 of 2001 as a consolidation of the individual audit reports issued to each MDA. This is the first time I am issuing individual audit reports to the MDAs, and that this Statutory Report is being submitted to the Parliament within the statutory due date of March 2006.

The main issues discussed in this report are the extent of compliance with laws and regulations on public financial management and adherence to professional standards and best practices of accounting by the MDAs. As a result of the audit tests carried out, twenty three MDAs are issued with Unqualified (clean) Opinion, forty two MDAs issued with qualified Opinion, and two MDAs are issued with adverse Opinion. The applicable reasons for each opinion issued in each case are discussed in

65

detail both in this report and in the individual audit reports issued directly to the accounting officers.

The audit has revealed significant weaknesses in Government financial management during the year under review. These relate to gaps in the accounting system (including non linkage with the Medium-Term Expenditure Framework (MTEF) processes), inadequate supervision, and failure to observe laws and regulations. The details of these findings are discussed herein and more comprehensively in the individual audit reports issued to each MDA audited.

Notwithstanding the significant gaps revealed by the audit, Government financial management has generally been satisfactory during the year under review. Accounts were submitted to audit on time, and there is major improvement in taking action on previous audit recommendations. However, certain areas require special attention. These include completeness of record keeping of all Government assets based on the Integrated Financial Management System, improving public procurement, and stores management procedures. Further, oversight on the management of public authorities needs to be enhanced.

Lastly, I am presenting a number of recommendations relating to strengthening the Parliamentary oversight, the role of the Paymaster General, and the role of my office. These recommendations are being suggested so as to raise the accountability of the MDAs for the use of public resources.

Dr. Frank M.H. Mhilu

Acting Controller and Auditor General

Underlying processes

There are two underlying processes for the Public Financial Management Group – PEFAR and PFMRP. The PEFAR is an integral part of the Government-led PER process and the principle means for analysing and assessing public financial management performance/ identifying issues for reform. The PFMRP, on the other hand, is the principle reform programme for taking forward many of the reforms.

PEFAR

The Public Expenditure and Financial Accountability Review (PEFAR) is an integral part of the Government-led PER process in Tanzania. The PEFAR combines both PER and public financial management analysis and responds to the Government’s call for ‘One process, One Assessment.’ The PER has a fairly developed history in Tanzania and brings together players from across the Development Partner community and civil society to undertake an independent assessment of public expenditure issues in Tanzania.

The PEFAR 2005/06 was led by the World Bank and brought together players from across the Development Partner community and civil society in Tanzania. PEFAR 2005/06 built on and deepened the collaboration and analysis between macro fiscal and core fiduciary issues spanning both financial management and procurement. Preliminary analysis from the PEFAR 2005/06 was presented and discussed at the

66

PER Consultative Meeting in May 2006, which involved wide participation from the Government, civil society, media and Development Partners.

A remaining challenge is to ensure a more active participation from the Government in the various stages of the process (including the identification of main issues). Of critical importance for future improvements in the quality of overall public finance management is to assure a more effective process for follow-up on the main findings and recommendations.

The text boxes below show the key findings from PEFAR on local governance and procurement.

Underlying process: PEFAR - SATISFACTORY

The PFMRP

Overall observations

The PFMRP is not a typical underlying process in the sense of a sector review. It is narrowly speaking a funding/coordination mechanism for public financial management reforms and broadly speaking all the public financial management reforms, and has thus to be evaluated as such.

The review first noted the fact that whilst the PFMRP as a funding/coordination mechanism (in particular around the basket) is yet to be fully effective, it cannot be said however that public financial management reform activities are not moving forward. It is therefore important to also look at public finance management reforms in its broadest sense rather than only at the specific coordination/basket fund mechanism. Agreement has to be reached by the next JSC on the reporting format for the overall public financial management reforms. The PFMRP Annual Report could be considered, but the PEFAR could be another possibility.

The challenge, as far as the coordination/funding is concerned, is to make sure that it is supporting the PFM reforms. As highlighted by a recent external review of the programme, the PFMRP as a funding/coordination mechanism has not led to additional or different reform activities, nor to an improved integration of the different activities. This stems partly from the horizontal coordination and management of the programme, which, together with the need to broaden the programme beyond MOF and better link it with other reform programmes, was identified as a main weakness of the PFMRP in the external review. It stems also – and perhaps more fundamentally - from the lack of strategic framework of the programme – with the current strategy prepared by PWC considered as inadequate.

Looking at the PFMRP in its broader definition, it should be assessed in light of the main recommendations/findings of the PEFAR over the last two years. With the PEFAR identifying important weaknesses in external audit, budget preparation and procurement, it would seem that the core focus of the programme in the last two years should have been in those areas. Evidence suggests that whilst good progress was made on external audit (thanks to PFMRP basket funding), progress in other financial

67

accountability areas covered by the PEFAR has been more limited (for budget issues, see TWG 4 report). Procurement continues to be a major challenge.

The external review of the programme

The March 2006 external review of the programme was the first comprehensive review of the PFMRP since its launch in 2004. The document that resulted from the exercise is a comprehensive report that makes a series of concrete suggestions as to how to tackle the main challenges around the PFMRP.

Assessment for 2005-06

The October Joint Steering Committee (JSC) of the PFMRP, which has the task of looking at the Annual Report of the PFMRP of the preceding fiscal year, is integral part of the GBS Annual Review Process. This year, however, the JSC was postponed to late November and later on to early December. As a result, it is not possible at this stage, as initially envisaged, to conduct a thorough assessment of the PFMRP for FY2005-06 based on the JSC. In that regard, the assessment is to be based primarily on the Annual Report 2005/06 of the PFMRP. The Report, while acknowledging a series of progress made in public financial management reforms over that fiscal year, points out two significant shortcomings: 1) the lack of strategic orientation of the programme, and 2) the programme underperformance, as reflected by the fact that only 37% of the committed funds were spent. In that respect, and given the weaknesses of the programme in terms of coordination mechanisms and strategic framework, the conclusion is that the PFMRP, as a funding and coordinating mechanism, is not satisfactory. Addressing both these shortcomings will be essential in order to come to a different conclusion at the next GBS Review.

Underlying process: PFMRP - NOT SATISFACTORY

The Zanzibar Public Financial Management Review Process

Subsequent to the publishing of a report reviewing the public financial management situation in Zanzibar, the Ministry of Finance and Economic Affairs (MOFEA) of Zanzibar arranged a two-day seminar in August 2006 to discuss the report and its recommendations. The recommendations of the report, which confirms the fact that Zanzibar lags significantly behind the mainland in terms of public financial management, have now been endorsed by the RGoZ. The RGoZ has also provided a roadmap based on the recommendations of the Report. These developments would suggest that there is a new openness and willingness from the RGoZ and particularly the new Permanent Secretary in MOFEA, to move things forward on public financial management. Development Partners have noted with interest these positive developments in Zanzibar, with the issue being raised on the way such efforts should be funded. The general view was that it would be appropriate to integrate Zanzibar public financial management reforms within the PFMRP, for example through a specifically earmarked fund within the basket. In fact, PFMRP funds are already to be used by the Accountant General’s Department at MOF for the current rolling out of IFMS to Zanzibar.

68

Review of temporary process actions

Audit Reform priorities to be reflected fully in PFMRP - see attached table.

External audit activities have been integrated into the PFMRP since FY 2005/06, as indicated in the draft Annual Report of the PFMRP for that period. As such, it can be considered that the action is achieved although it is unclear to what extent the activities financed have been reform priorities. The new NAO priorities, as defined in the new Corporate Plan, should also be integrated into the Programme and the updated PFMRP Strategic Plan.

Temporary process action: Audit Reform priorities to be reflected fully in PFMRP - ACHIEVED

PWC contracted to establish system for monitoring and checking compliance, start November, will end around March 2006

PPRA, through a consultant “PriceWaterhouseCoopers” (PWC), has prepared a system for checking and monitoring procurement activities in the Procuring Entities (PEs).

The proposed system requires PEs to submit a copy of their Procurement Plans to PPRA at the start of the financial year, and thereafter a report on the implementation of the Procurement Plan. The report shall be submitted initially on a quarterly basis giving information in a form of a checklist of the conduct of each procurement in sufficient details to enable the computation of performance indicators based on the OECD/DAC/World Bank Round Table process. Routine and ad-hoc auditing of the submitted information shall be carried out by the PPRA to ensure its correctness and accuracy.4

The system developed by the consultant is currently under review by a Task Force under PPRA and it shall be implemented by the consultant starting the 2nd quarter of FY 2006/2007 in the Ministry of Works, the Ministry of Agriculture and Food Security, the Ministry of Health and Social Welfare, TANROADS and TANESCO.

This suggests that a system that would ensure that checking and monitoring of procurement activities in the PEs is carried out more effectively and efficiently is about to be in place. In addition, PPRA is considering sending checklists on a random basis to bidders as an additional monitoring mechanism. It should also be noted that the NAO is also considering a checking mechanism for procuring entities. Needless to say, such instruments will have to be closely coordinated to avoid duplication.

To date it has been difficult to carry out Procurement Audits due to staff constraints at the PPRA, as described in the outcome indicators section below. It is envisaged that

4 Section 17 of the Procurement Act 2004 provides remedies to be taken in case of non-compliance. Further, Section 26 of the Act requires the Annual Performance Evaluation Report of PPRA, which includes an evaluation of the operations of PPRA and the Procuring Entities to be submitted to the Controller and Auditor General and to the Minister for Finance, who shall table it to the Parliament.

69

PPRA will be able to carry out its first Procurement Audits in the 3rd quarter of 2006/2007.

All in all, this suggests that the action has been completed, although with delay.

Temporary process action: PWC contracted to establish system for monitoring and checking compliance, start November, will end around March 2006 - ACHIEVED BUT WITH DELAY Review of outcome indicators 1. NAO Audit Report is of international standard by 2010 and released within 9 months as required by the Public Finance Act 2001

The delay in the completion of the NAO Audit Report has been reduced from 10 months in FY 1999/2000 to 0 months5 for FY 2004/05. The Audit Report for FY 2004/05 was tabled with the Parliament in April 2005, allowing according to the NAO a more substantial debate on the key findings of the report and action to be taken if necessary.

The work of the NAO covers the majority of central government entities, but audits comprise primarily of transaction level testing although some significant issues are raised. Whilst six VFM audit projects are ongoing, the NAO still does not have the capacity to carry out VFM audits. Updating the skills of auditors to progressively increase capacity in that area will be important. Its capacity in terms of procurement audits is also hampered by the continued delays in the implementation of the PPRA (details below).

The NAO has already begun to take action to improve audit quality with the support from SIDA and the PFMRP. Looking forward, the following is planned in order to ensure that NAO attains its target of 2010 of having a wholesale adherence to international standards and high quality audit reports:

• Have new financial audit manual in place by 2007;

• Adoption of computer audit packages by 2009;

• Train auditors on tracking expenditure through IFMS by 2009;

• Incorporate matters of quality of audit report in the new Public Audit Act by 2008;

• Continue with the current spirit of timely issuing the audit report;

• To continue issuing translating the NAO Audit Reports into Kiswahili.

5 The completion date for the audit according to the Public Finance Act is 31st March or nine months from the year end.

70

These actions are reflected in a new Corporate Plan being currently finalised by the NAO. The new CAG, Mr. Utouh, has indicated his commitment towards meeting these different deadlines/challenges. A new Public Audit in line with internal standards and which addresses among others the position of the NAO vis-à-vis MOF is also to be tabled soon.

This suggests that whilst the challenges remain enormous given the low capacity (in terms of skills rather than number of staff) of the office, the indicator is on track. The timeliness criteria has been met, and the move towards international standards by 2010 seems on schedule.

It should be noted furthermore that the Government has agreed during the review to provide a structured reply to the NAO Audit Report before the start of the next GBS Annual Review.

From PEFAR 2006 draft report: Integrity of the Public Procurement System

There is a major problem of lack of coordination between overlapping audits by PPRA and NAO that result in different and contradicting recommendations being given thus leading to confusion.

Outcome indicator: NAO Audit Report is of international standard by 2010 and released within 9 months as required by the Public Finance Act 2001 - ON TARGET

2. Number of Procuring Entities Complying with the Public Procurement Act

(The baseline for this indicator was 10% with a target of 80% in year 2010. The baseline target of 10% was arbitrarily fixed, with the intention of reviewing (confirming) it through a conduct of Procurement Audits.)

The implementation of procurement audits which would allow assessing compliance of MDAs was contingent upon PPRA recruiting staff to fill various positions in its structure including those of investigation and the Procurement Audits Section. To date it has been difficult to carry out procurement audits due to severe staff constraints at the PPRA.

At a time of preparing the programme document in late 2005, PPRA was optimistic that it will have in place 36 out of 51 of its staff by July 2006. Interviews were conducted in July 2006 for candidates to fill the Directors and Managers positions. Since then, the names have been submitted for vetting by the relevant Authorities. Feedback was only received in late September, meaning that such positions were able to be filled only recently. During the Review, the PPRA informed participants that most of the staff of the agency (43 out of 51) had now been recruited and had reported on duty.

These delays in the recruitment process of PPRA have posed real challenges in terms of the oversight capacity on procurement. In the absence of a functioning procurement authority, there is no proper oversight on central government as well as lower tier

71

Government procurement. The completion of the recruitment process is thus welcome and is a prerequisite for the new procurement system to start functioning.

The new system to monitor and check compliance prepared by PWC, as well as other checklists considered by the PPRA and the NAO6, is also a welcome and much needed step in terms of bringing this vacuum period to an end. Other actions discussed with the CAG included risk assessments of the procurement in order to focus the limited capacity in procurement audits on those associated with the greatest risks. The Central Payment Office (in the Accountant General's Department) should also be able to call for and check the procurement documentation for large purchases when they record commitments or process payments through the EPICOR system. PPRA is also interested in the idea of establishing a system of comparison between prices of goods produced by the private sector and by the Government as a tool to monitor the effectiveness of the procurement system.

In this context, the issue of division of labour between the NAO and PPRA is of particular importance. It appears that whilst there may be formally a slight overlap, in practice both agencies see themselves as rather complementary (PPRA is to look at the efficiency of the procurement process, whilst the NAO focuses more broadly on performance audits, which includes the need for procurement). Having said that, it is recognised that there is a need for coordination to avoid overlaps, and a welcome step in that regard is the agreement made to have a “coordination” committee between the relevant bodies.

In conclusion, during the period under review, no procurement audit has been carried out. There is therefore no basis to assess progress on the indicator. The recent developments in terms of finalisation of the recruitment process at the PPRA and the setting of the monitoring and checking of compliance system suggest however that such tools should be in place relatively soon, enabling compliance to be properly measured by next year.

During the Review, the PPRA elaborated on what it takes for the 2010 target. In order to achieve the target of 80% of the number of Procuring Entities complying with the Act by 2010, the PPRA has started to implement the following:

• Strengthening its capacity to carry out the oversight functions. This entails filling up of all of its established staff positions, acquisition of adequate working tools and training of staff;

• Preparing proper implementation guidelines including standard Tender Documents, Evaluation Guidelines and Procurement Manuals;

• Enhancing the capacity of Procuring Entities to carry out procurement. This involves implementation of the recently prepared Procurement Capacity Building Strategy which focuses on establishing a procurement cadre and ensuring establishment of proper manned Procurement Management Units and training of procurement staff;

6 The NAO is preparing a procurement checklist for its auditors when visiting audited entities as well as for these entities themselves.

72

• Setting up a system of checking monitoring activities of all Procuring Entities;

• Developing a procurement management information system which shall be used for checking procurement activities and sharing information related to procurement.

Outcome indicator: Number of Procuring Entities complying with the Public Procurement Act - DATA NOT AVAILABLE

From the PEFAR 2006 draft report

Procurement Review

Legislative and Regulatory Framework

The Public Procurement Act (PPA) 2004 complies with applicable obligations deriving from national and international requirements. However, the Zanzibar procurement law (Procurement and Disposal of Public Assets Act 2005) is deficient in a number of areas including inadequate treatment of important institutional issues such as independence of functions and conflict of interest. This is more so in relation to appointment and composition of parastatal and regional tender boards, as well as the limited autonomy of the Department of Stock Verification and Procurement Services. It lacks a section on international obligation. The Zanzibar procurement law also does not cover non-consultant services.

Public procurement rules on Tanzania Mainland apply to procuring entities at all levels, cover all types of procurement and all parastatals. The law also provides for competitive tendering procedures.

One identified weakness of the Public Procurement Act 2004 is that it does not elaborate explicitly the functions of the Chairperson (whether it is executive), members of the Appeals Board (whether they are also members of the Management Board) and the Secretary to the Board.

Although the PPA 2004 applies to both central and local government, the Regulations (2005) have been applied to central government only. The March 2003 Local Government Procurement Regulations are still based on PPA 2001 and the regulations contradict some important provisions of the PPA 2004, including the reporting arrangements for procurement officers as well as the composition of the tender boards.

There are potential conflicts of interest in the current reporting arrangements of procurement officers and the composition of tender boards. Under the present set up, the head of supplies unit reports to the Local Government Treasurer who is also a member of the Tender Board. The accounting officer still chairs the Tender Board. The complaints mechanism under the Local Government Procurement Regulations does not conform to the provisions of the PPA 2004, and makes it difficult for bidders who may choose to appeal against procurement decisions. The Zanzibar law is being implemented through instructions, since Procurement and Disposal Regulations are not yet issued.

Institutional Framework and Management Capacity

CPAR recommendations on establishing an autonomous regulatory body and decentralizing procurement to ministerial level have been implemented. However, capacity to implement procurement procedures is currently low and the situation is worse at LGA level. However, there are ongoing efforts by PPRA to train trainers and staff at central government level. A consultant has also been engaged to develop a capacity building strategy.

73

Under the current setup both in the central and local government, there is a clear problem with regard to the separation of functions and powers. For example, at TANROADS regional offices, members of the Procurement Management Unit (PMU) or of the evaluation committee are also members of the Tender Boards. This does not meet the requirements of the law. Sect. 38 of PPA 2004 stipulates independence in relation to functions and powers.

A key issue arising from the functions of the tender boards is the number of meetings in a procurement cycle of a contract. The amount of funds spent on seating allowances for the Tender Board meetings is significant and the key question is whether all meetings are necessary.

Procurement Operations and Market Practices

Procurement and budgeting are not coordinated. The budget allocation is based on action plans and cash flow plans only. Preparation of procurement plans after approval of the budget has been one of the major causes for many procuring entities being unable to procure on time during the fiscal year. As a result, many contracts, which needed tendering procedures, have suffered from the delay. The other problem is lack of expertise to prepare realistic procurement plans and accurate cash flow forecasts. All these amount to inefficiencies in the use of public funds.

There is need for training and information dissemination as regards the PPA 2004 and corresponding Regulations.

A body that registers and regulates the suppliers of most common goods and non-consultant services compared to Contractors Registration Board does not exist. It is therefore difficult to establish the size of the supply market.

Regarding complaint or protest mechanism, there are several issues yet to be sorted out with the PPRA. Among them is the lack of a grace period between contract award and the contract coming into force. There is also lack of understanding of the complaints mechanism which results in the direct appeal to PPAA instead of first passing through the accounting officers and PPRA. On contract administration and dispute resolution, late contract payment is recognized as a common problem. Another major problem particularly affecting small contractors is that the procedure for claiming VAT from TRA takes very long, thus contributing to their weakness in participating in bidding or executing contracts. There are also problems with regard to contract administration in the districts. Some members of the Tender Boards, Councillors or politicians are unable to distinguish between supervision and oversight responsibilities. Another potential problem is the involvement of the district engineer in supervision of works and endorsement of payment. This does not provide an adequate checks and balances mechanism.

Key Issues

1. Local Government Reform

Background

• Decentralisation by Devolution - commonly featuring under its abbreviation D-by-D and based on the “Policy Paper on Local Government Reform” from 1998 - is the Government’s policy to give more powers and responsibilities to LGAs. The implementation of this policy is obligatory for all central and sector ministries.

• The policy is expected to contribute to poverty reduction and the achievement of the objectives of the MKUKUTA by improving service delivery in key areas such as health, education, agriculture or water. This improvement is to be achieved through the creation of effective and autonomous LGAs. Besides,

74

D-by-D will strengthen democracy as decision-making is brought nearer to the people. Decisions that concern local matters should be done according to own local priorities. In a decentralised government system, the role of the central government, including the Regional Secretariats, is changed from an implementing and directive authority to that of policy making, regulating, supporting and monitoring to ensure the quality of services in line with national policies and standards.

• In order to achieve decentralisation, decision making powers have to be devolved to locally elected Councils, who are accountable to their population. Within their pre-defined realm, Local Councils have the exclusive right to decide – of course within the national policy framework. Fiscal decentralisation and human resource autonomy are the two key prerequisites for effective decentralisation. In order to be able to fulfil their responsibilities, LGAs must dispose of the necessary financial means and they have to be fully responsible for all human resource management matters, so that their staff is only accountable to the Council.

Issues

• Fiscal decentralisation and human resource management are therefore key areas addressed by the LGRP. Although good progress can be observed in the elaboration of the fiscal decentralisation framework, the use of the framework is still limited, as most central ministries are not following. D-by-D implies that the funding of services like education, health, etc. is done under the LGA budget line, via a formula based allocation mechanism, and not under those of the respective ministries concerned. Though this is generally accepted, the budget clearly shows that the implementation of the Tanzanian decentralisation policy is not yet translated in the national budget for the coming years. Implementation of D-by-D would imply a reduction in the allocations to sector ministries and an increase in those for the LGAs.

• This is not reflected in the budget and MTEF. The development funding for LGAs is decreasing over the years (until the year 2008/2009) instead of increasing. Also, it is observed that the OC are not rising. The OC reflect the possibility to provide services to the people, the major task of the LGAs.

• It may be clear that this is an issue that cannot be resolved by PMO-RALG and MOF alone. Support and leadership of higher-level government is needed.

• The right to plan and manage their own human resources is a key factor to increase LGAs’ accountability for residents and improve the sense of common responsibility of Councillors and staff. The Public Service Act was amended in 2004, but the respective regulations are still contradicting and yet to be amended. There is an urgent need for the amendment of the regulations.

• Linked to human resource autonomy is the issue of how peripheral or otherwise disadvantaged councils can attract and retain qualified staff. It is evident that measures are required to stimulate people to accept positions in the disadvantaged areas. Measures could be found for example in salaries, allowances or other incentives.

75

• In this light, the issue of the increase of LGA staff without accompanying increase of OC could also be raised: does this reflect a change in the allowance policy of the government or does it mean that LGAs will have decreasing possibilities to provide services in relation to the staff available?

• The multitude of reporting and audit requirements remains an issue. Whilst both Government and Development Partners are to blame for reporting, Development Partners bear the greatest responsibility for auditing requirements.

From PEFAR 2006 draft report:

Financial Management Practices and Risks at Local Government Level

Local Government Revenue and Expenditure

There has been progress in compiling actual expenditure data for the LGAs. PORALG/LGRP have been able to produce and disseminate a revenue and expenditure data set for 2004/05. This is a commendable step toward strengthening accountability at LGA level but will need to be sustained.

Block grants, basket funds and non-government grants make up 88.7% of LGAs’ total revenue. Of total aggregate expenditure across LGAs in Tanzania, 76% of their expenditure is on recurrent items, whilst 24% is on development expenditure.

Except for health and education, there is no strong relationship found between the block grant and expenditure within the sector. Thus, previous use of block grant transfers from MOF as a proxy for actual LGA expenditure provided a rather blurred picture.

LGAs’ own sources of revenue account for only a small share (11.3%) of total local government revenue. Dar es Salaam alone accounts for 1/3 of LGAs' total own sources of revenue. The main sources of LGAs’ own sources of revenue include produce cess, levies and royalties (these make up 39% of total revenue collections from own sources in all LGAs excluding Dar es Salaam).

Budget Formulation and Approval Process

After the budget is approved by the local Council, it is then revised by MOF without consultation.

Revised budget figures were not always resubmitted to the Full Council for approval – weakening the authority of the legislature.

Budget Execution: Cash Management and Fund Flow Arrangements

• Incorrect bank reconciliations lead to confusion about the availability of funds to support projects.

76

• Presence of overdrawn cash book balances indicate deliberate disregard of financial management practices.

• Individual bank account control total on the daily summary sheet frequently differed from the balances in the cash books indicating weak cash management.

• Huge unspent balances are sitting in bank accounts that are neither used in time nor invested properly.

• Own sources of revenue should be used where possible to cover short term advances to needy sectors.

Accountability Issues: Internal audit and external audit, and legislative oversight

The internal audit function is weak since there is either one or no internal auditor in local Councils. The workload is excessive for one auditor. There are multiple external audits from various actors, which are burdensome and impact on limited capacity. It was reported that follow up from audit queries was undertaken by the finance committee, but there was limited evidence available regarding the impact of follow up on audit observations.

Financial reporting: Multiple donor requirements

It was evident that the variety of reporting formats needed for different projects was highly time consuming imposing an avoidable burden on management time.

Multiple versions of budgetary outlays and budget execution figures

In each local council, there were multiple figures available regarding budgetary outlays as well as expenditure outturns. This is confusing not just from an ex-post perspective, but more so from a reporting and monitoring perspective. It directly impacts all aspects of the Council’s work, including project implementation, transparency and accountability.

2. Viability of PFMRP dependent on proper follow-up of recent External Review

Background

An external review of the PFMRP took place earlier this year, identifying the main challenges in terms of speeding up the implementation of the programme and making a series of concrete recommendations in that respect. The most important of these were the need to strengthen the horizontal coordination and management of the programme, the need to broaden the programme beyond MOF and better link it with other reform programmes.

Implementation of the main recommendations of that review is absolutely key in order for the PFMRP as a funding/coordination mechanism to deliver on its objectives. Half way through the duration of the programme, there is still little evidence of real value added of the PFMRP as a funding/coordination mechanism in terms of implementation of public financial management reforms. As donors are

77

moving progressively towards a more programmatic approach to support public financial management with its common basket as the core funding mechanism, it is absolutely key that such a programmatic approach works in order for progress in public financial management to be sustained.

So far, the Government has made some positive steps in addressing challenges raised in the review, but much more needs to be done, in particular in terms of the coordination of the horizontal and vertical programme and its link with other reform programmes

Why discussing this issue in the Annual Review

With the parallel progressive move by Development Partners towards a programme approach in public financial management and a scaling up of their budget support, the importance of a well-functioning PFMRP should not be underestimated. Against this background, and the fact that the main issues raised in the review (i.e. vertical coordination of the programme and link with other reforms) are by essence cross-cutting and concern about every MDA, it is deemed relevant to discuss this at a higher/non-sector level.

Issues to be raised: Need to strengthen horizontal and vertical coordination of the programme, as well as management of the programme, need to broaden up the programme beyond MOF (i.e. LGAs) and link it with other reform programmes (i.e. LGRP, PSRP).

78

6. Plenary Session Minutes 6.1. Minutes of the TWG pre-review plenary sessions, 10th – 12th

October 2006, Dar es Salaam International Conference Centre TUESDAY, 10TH OCTOBER 2006 Opening

The Chairperson, the Commissioner of the Policy Analysis Department at the Ministry of Finance, Mr. Mugisha Kamugisha, opened the plenary session at 9.20am. He explained that the pre-review plenary sessions would allow Technical Working Groups (TWGs) to present and discuss their performance assessments. This in turn would help TWGs to prepare properly for the Annual Review in the week starting 16 October. The Chairperson furthermore invited comments on the programme for the pre-review plenary sessions. The programme was adopted without any changes. Presentation on TWG 1: Growth and Reduction of Income Poverty Mr Bede Lyimo from the Ministry of Planning, Economy and Empowerment (MPEE) presented a performance assessment in the areas covered by TWG 1, including (1) infrastructure, (2) agriculture, (3) investment climate (BEST), (4) financial sector reforms, and (5) tax regime. He furthermore outlined 3 key issues identified by TWG 1, namely: 1) inadequate resources to finance the power sub-sector and the importance of

maintaining enhanced funding over time; 2) insufficient resources to rehabilitate rural roads and the need to maintain a funding

increase over time; and 3) the importance of an early release of funds for the Agriculture Sector

Development Programme (ASDP). The lead Development Partner of TWG 1 added that it has been difficult to prepare a comprehensive report because of the wide scope of the cluster. The current draft report was thus not yet finalised. Discussion Infrastructure During the discussions, it was noted that the planned infrastructure review had not yet taken place. However, TWG 1 explained that this was due to the complexity of the issue, comprising several sub-sectors (energy, roads, communication). In addition, the merger early January 2006 of the Ministry of Works and the Ministry of Transport and Communication to form the Ministry of Infrastructure Development (MOID) has taken a long time and has delayed the review. There has nevertheless been good overall progress despite the still outstanding review, as shown in the performance report of TWG 1. Dialogue has been moving positively in the sector, and the Transport Sector Investment Programme (TSIP), which is under preparation, provides

79

a good basis for an infrastructure review in the coming year. Also, a medium term investment plan for TANESCO (the dominant player and representative of the energy power sector) had been prepared. It was furthermore noted that, like other sector reviews, an infrastructure review should not be a one-time event, but an adequate process for providing inputs into the budget process as well as stakeholder involvement need to be considered. With regards to roads, it was pointed out that there is a need to balance new investment and maintenance of existing networks. Investment in roads needs to consider both economic returns and social objectives. A discussion on rehabilitation versus maintenance with regards to rural roads needs to rest on adequate consultation with districts, as they are responsible for rural roads. In this respect, the Government was asked whether rural roads would be funded from the national budget or through districts. Development Partners noted with concern that there has not been any direct allocation for road maintenance in the current financial year’s budget. The Road Fund, which is of particular importance for rural roads, is not sufficient to meet maintenance costs, and will not increase because of tax evasion and the insufficient increase in the fuel levy. They furthermore asked the Government why sufficient budget allocations were not made for rehabilitating the targeted 3000 km of rural roads, leading to only 959 km being rehabilitated in 2005/06. In this context, TWG 1 was tasked to come up with a more realistic target on the relevant indicator in the Performance Assessment Framework (PAF). MOID noted that maintenance is considered as more important than rehabilitation, while expansion of the existing roads network is also important. The Chairperson noted that the discussion should not only focus on financing of rural roads but on the entire roads network and the relationship between expansion and maintenance. Development Partners acknowledged good progress in the TSIP, but will continue dialogue with the Government on a better prioritisation of investments, which is not considered to be adequate. Furthermore, the budget of the programme is not seen as realistic by Development Partners. Development Partners asked whether a review of the Programme is intended in light of the perceived weaknesses. MOID informed the meeting that TSIP is currently being discussed by various stakeholders all over the country. A committee with Government and Development Partner representatives is working on the draft. All stakeholder comments will be considered in finalising the TSIP. The Chairperson noted that some activities need to start being implemented before perfecting the document. Energy With regards to the energy sector, the Ministry of Energy and Minerals (MOEM) advised that what was under preparation was not an “Energy Sector Master Plan” but rather a “Power System Master Plan”. Development Partners were concerned about the insufficient adherence to the Master Plan and TANESCO’s capacity to implement it. They also raised concern about the cost effectiveness of relatively low electricity tariffs in Tanzania compared to other African countries. A civil society organisation (CSO) representative expressed concern over the view that energy is under-priced in Tanzania, considering the negative effect of higher prices on the poor, the importance of ensuring energy provision to the poor, and the employment implications of higher

80

energy and production costs in the economy. The representative also emphasised the importance of considering alternative energy sources. The Chairperson reminded participants that energy, including its strategy, financial viability, economic contribution and relation to other sectors will be a key issue for discussion in the following week’s GBS Annual Review. He emphasised, however, that meaningful discussion about the sector needs to consider not only the financial viability of the sector but also the potential benefits and contributions flowing to and from other sectors of the economy. Therefore, it was not discussed in greater depth during the TWG pre-review plenary session. Agriculture The meeting was informed that agriculture sector stakeholders (Government, Development Partners) met one week before the TWG pre-review plenary sessions to discuss the draft agriculture review and draft Public Expenditure Review (PER) report. The work was to be finalised in the next few weeks. The parties reiterated their commitment to a credible process for dialogue on public expenditure, based on a transparent and timely discussion of budgetary allocations. Development Partners noted that the responsible Ministry provided information on the Medium-Term Expenditure Framework (MTEF) for the ASDP late, so that it was not possible to put together a resource framework. They asked for closer integration of the ASDP in the MTEF, i.e. more open discussions with Development Partners, farmer groups and other stakeholders on priorities, expenditure processes and their relation to outputs/service delivery. In terms of funding availability, it was noted that there are substantial amounts in the basket fund. Other funds could be released from area-based programmes into the basket fund. In addition, better integration of the programme would help to attract more Development Partners and thus contribute to closing the financing gap. Delays in the release of funds have occurred due to miscommunication and are being resolved. Investment climate Development Partners noted that it is difficult to arrive at an assessment whether progress in the area was sufficient. Two temporary progress actions that have been in the PAF matrix since 2004 have not yet been completed. It needs to be clearly stated where actions are unrealistic (e.g. amendment of the Civil Procedure Code) and more realistic targets need to be set, in particular with regards to the revision of laws and their implementation. Questions were raised as to whether all reforms in the area will now take place under the umbrella of the Business Environment Strengthening for Tanzania (BEST) programme. MPEE explained that BEST coordinates and keeps oversight over different reforms and provides a one-stop registration centre. Second Generation Financial Sector Reforms The Chairperson informed the meeting that implementation of the second generation of reforms in the financial sector had started, and that the required institutional framework was in place. Government approval, at the Cabinet level, was therefore considered no longer needed. The new Bank of Tanzania and Banking and Financial

81

Institutions Acts had already been enacted as part of the reforms, and another two bills geared towards implementing the reforms were expected to be presented to Parliament for debate in the next session or in February 2007. In addition, other administrative reforms are being implemented. With regards to the legal framework for the provision of SACCOS (Savings and Credit Cooperative Societies), the Chairperson noted that microfinance regulations and a policy are in place under the new Banking and Financial Institutions Act. The Act allows for the establishment of microfinance companies, supervised by the Bank of Tanzania, which uses services of district offices to undertake the work. Work is underway in the office of the registrar to strengthen SACCOS supervision. There is however concern about possible overregulation of SACCOS. Trading blocs Tanzania’s membership in different trading blocs (EAC, SADC) was raised as a concern by Development Partners. The Government noted that Tanzania is consulting regionally on this issue, and cannot take a unilateral decision. Moreover, this was not peculiar to Tanzania, as all of her partners in the two blocs belonged to more than two regional economic integration initiatives. Rather than viewing it as a hindrance to regional integration, the multiple memberships could be a vehicle for accelerated integration. Gender, equity and sustainable livelihoods CSO representatives raised concern that gender equity and gender mainstreaming, questions of equity and inclusion, and sustainable livelihoods have not been considered in the discussions of TWG 1. In addition to the already existing gender code in the budget to track gender-specific budget allocations (similar to the A code for HIV/AIDS), a specific mechanism of affirmative action to promote equity, as well as a strategy for sustainable livelihoods were suggested. The Chairperson asked the CSO representative to prepare a substantive proposal on how to integrate gender into the budget. In relation to the CSO’s call for a social protection framework, it was noted that the issue should be addressed under TWG 2, and that reference will be made to the National Social Security Policy. It was further observed that social protection should involve creating opportunities for people rather than handing out money. Missing temporary process actions It was noted that only 8 out of 10 temporary process actions in the PAF matrix were reported upon by the TWG. PAF matrix The appropriateness of some indicators was discussed, e.g. an indicator on road maintenance was considered as more appropriate than one on road rehabilitation. The Government reminded the meeting of the commitment to use national indicators when they are available. This is now the case and they can be found at the end of the Draft MKUKUTA Status Report for 2006. The TWGs should rely on these indicators, and

82

also use the Poverty and Human Development Report and the annual MKUKUTA Implementation Report. The Chairperson reminded participants that the outcome indicators in the PAF matrix are only a summary. More detailed assessments are undertaken in the MKUKUTA and sector reviews. It was agreed that discussions during the pre-review plenary sessions should address the issue of updating the PAF matrix, where necessary, but it should not mean restarting the work on the PAF matrix, as this was already undertaken in the previous year. Wrap up of discussions on TWG 1 The Chairperson tasked TWGs to review PAF indicators (but not adding any new issues in the PAF) as well as the agenda for the coming year, e.g. TSIP should be a focus of the TWG in the year ahead. Presentation on TWG 2: Quality of life and social well-being TWG 2, led by Anna Mwasha from MPEE (Poverty Eradication Division), presented a joint Government-Development Partner report of performance in the area of quality of life and social well-being (MKUKUTA Cluster 2). Before addressing the relevant areas of the PAF matrix, Ms. Mwasha provided an overview of MKUKUTA implementation, mentioning the development of the MKUKUTA Monitoring Master Plan, the preparation of the MKUKUTA reporting system, the draft annual implementation report, and the ongoing exercise of costing MKUKUTA. Results against the PAF matrix were presented in environment, health, education, HIV/AIDS, water, and social protection. Two changes in the PAF matrix were proposed – one with regards to the temporary process action in environment: instead of “the publication of the first State of the Environment Report”, it should refer to the “establishment of a permanent State of Environment reporting system”, as this will allow for selecting a permanent outcome indicator. In addition, it was proposed to review the target on the HIV/AIDS prevalence rate, as a lower baseline has become available after the conduct of the Tanzania HIV/AIDS Indicator Survey 2003/04. Key issues identified by TWG 2 were:

(1) resource allocation, predictability and commitments; (2) capacity (financial and human resources) to coordinate, monitor and follow

up, plan and budget, and implement to achieve MKUKUTA goals; and (3) effective involvement of key actors including CSOs in implementation

according to MKUKUTA priorities

The lead Development Partner in TWG 2 added to the presentation that, generally, there has been significant progress but some challenges are remaining. Government and Development Partners looked at them jointly, and identified key issues that could affect achievements in Cluster 2 targets. With regards to resource allocation and the predictability of commitments, he noted that earmarked funding in some sectors has been distortive to the budget process. Large earmarked funds in health and HIV/AIDS are questionable in terms of their sustainability (ARV treatment is a life-long requirement, yet only short-term funding is secured). A significant lack of predictability of external resource flows has made planning difficult. Erratic external as well as domestic resource flows through the Exchequer in the first quarter of the

83

financial year, especially at local government level, have made it difficult to execute plans and caused many agencies to look to project and pooled funding to compensate for the lack of Exchequer funding in the first quarter. With regards to capacity constraints, he noted that absorptive capacity at local government level is challenging, as staff (water engineers etc.) and finances are lacking. Monitoring and evaluation at sector level is impeded by weak coordination and a weak link to national processes, which would be important for achieving MKUKUTA outcomes. The Government and Development Partners must work more closely together to track indicators. With regards to stakeholder involvement and institutional arrangements, he emphasised the need to clarify arrangements, responsibilities and linkages between different actors. It needs to be considered how to engage CSOs and the private sector effectively in design and implementation. Discussion on TWG 2: Quality of life and social well-being Financing social services Discussions focused to a great extent on problems of securing sufficient funding to maintain social services, in particular in the health sector and HIV/AIDS, which makes up 50% of spending in the health sector. The Ministry of Health and Social Welfare (MOHSW) reported that unit costs in the health sector are rising (on account of higher prices for drugs needed for the treatment of common illnesses like malaria, the incidence of HIV/AIDS, etc), and expenditures on HIV/AIDS, tuberculosis and malaria are squeezing out routine expenditures in other areas of the sector. In light of increasing health treatment costs, it recommended that more attention should be paid to preventive measures and lifestyle/environment issues. The MOHSW mentioned difficulties of engaging the private sector in health service provision and of building up public-private partnerships (PPP). It also noted that health sector performance is affected by reforms in other sectors. Development Partners noted that health and HIV/AIDS should not only be addressed from a consumption perspective but its effects on productivity should also be taken into account. Due to limited resources, they suggested that the merit of further rolling out of health services infrastructure (e.g. a dispensary in every village and a health centre in every ward) should be reconsidered, and that consideration be given to asking those who can afford services to contribute financially. In addition, they pointed to the need to assess whether international services are in fact appropriate for Tanzania and to discuss this issue with all stakeholders, not only in the health sector. Development Partners also expressed concern that policy discussions are not based on sound budgeting because the costs are not clear. MOHSW responded that the costs are known - the health sector has been costed, and MOHSW has developed a fully costed strategy for HIV/AIDS. A strategy for long-term funding is however missing. A CSO representative emphasised the need for funds to be on-budget and for better tracking and accounting for resources. In addition to the existing resource constraints, MOHSW reported problems of accessing available funds in the first quarter of the financial year. It referred to negative effects of channelling funds through the Exchequer in terms of resource losses due to currency conversion, as funds that are disbursed through the Exchequer

84

are in TShs but need to be converted back into USD for procurement. It also expressed concern about the lengthy national procurement process in line with the Public Procurement Act. It was agreed, however, that national processes and systems ought to be used for accountability purposes, and that this may require double conversion of funds spent on imported inputs. Human resources The discussion also addressed the lack of sufficient human resources in the social sectors and the financial implications of a need for more staff. Development Partners recommended undertaking strategic planning and a demographic analysis that identifies the staff composition, their geographic location and time to retirement. The next phase PSRP could be an opportunity to undertake this exercise. A CSO representative emphasised the need for a concrete strategy to recruit and retain health workers, especially women (e.g. through the provision of housing). The Ministry of Water (MOW) reported that it is addressing the problem of a lack of qualified engineers - interviews have already been conducted to fill posts in local government authorities (LGAs). PAF matrix, HIV/AIDS It was noted that it is difficult to set a target today for the prevalence rate for 2010, as the prevalence rate will increase if the care and treatment plan is implemented well. Environment The Vice President’s Office (VPO) Environment Division informed the meeting that the State of the Environment Report is being finalised. Social protection The Chairperson asked for clarification on the difference between a social protection framework and the already existing social security policy. This policy ascribes the main responsibility for taking care of children, the elderly and disabled to the family. The second tier is the community, and the third tier the Government. MPEE informed the meeting that the idea to establish a framework for social protection has been spearheaded by the World Bank. It revolves around mapping vulnerable people, e.g. the disabled, street children, the homeless etc., and identifying the kind of support that they need. A framework for social protection would help to coordinate the many ongoing activities. CSOs pointed to the need for a national framework to address the provision of basic services to vulnerable groups. Such a framework that recognises the Government’s responsibility to build up social security systems is needed because the traditional social security system based on the household and communities is changing (e.g. 8% of children have no caretaker). In addition, several services, e.g. health and nutrition education, the provision of drugs and equipment, cannot be provided by families. The importance of ensuring equal access to health care, in particular for maternal health, water and sanitation, and quality education, was also emphasised by CSOs. MPEE noted that the Poverty Eradication Division intends to coordinate the process of formulating a social protection framework, and encouraged Development Partners to be part of the process. The Chairperson emphasised the risks

85

associated with a promise of a publicly funded social security system, given its possible adverse effects on the community-based social protection structures, and its fiscal impossibility. Tanzania needs to learn from the experience of developed countries in this regard. Closing The Chairperson closed the meeting at 5pm. WEDNESDAY, 11TH OCTOBER 2006 Opening The Chairperson, the Commissioner of the Policy Analysis Department at the Ministry of Finance, Mr. Mugisha Kamugisha, opened the plenary session at 9.20am. Presentation on TWG 3: Governance and accountability The Government lead of TWG 3, Mr. Mathias Kabunduguru from the President’s Office – Public Service Management (PO-PSM), presented the joint performance assessment of TWG 3. The presentation focused on two main questions: (1) Are good governance and the rule of law ensured? (2) Is the Government accountable to the people? Key issues that TWG 3 identified were:

(1) the need for greater coordination of core reforms and for the Government to build ownership of these across Ministries, Departments and Agencies (MDAs);

(2) the need to strengthen domestic accountability of the Government; (3) allowances and additions of new staff as a remaining challenge for the

Government to be addressed in order to sustain the wage bill and progress on the Medium-Term Pay Policy (MTPP);

(4) the need to improve the quality of dialogue between Government, Development Partners and other stakeholders;

(5) the insufficient legal framework and institutional capacity to deliver effectively on the Government’s commitment to combat corruption;

(6) the need for budget allocation and sector budgets to reflect the decentralisation by devolution (D-by-D) policy of the Government; and

(7) the need to amend public service regulations in line with D-by-D.

The lead Development Partner of TWG 3 thanked the TWG members for the constructive collaboration and noted a marked improvement to previous years in their review work. In response to the presentation, he noted that the Local Government Reform Programme (LGRP) and the Public Service Reform Programme (PSRP) are satisfactory, but the Legal Sector Reform Programme (LSRP) has yet to start. Two main concerns for Development Partners are (1) stakeholder consultations on governance, and (2) the National Anti-Corruption Strategy and Action Plan (NACSAP), for which the second phase is currently being developed. In terms of temporary process actions, he emphasised the importance of a revised anti-corruption legislation, as the current legal framework is a constraint to making progress in the area. A review mechanism for NACSAP has been established but must be acted upon.

86

Only two quarterly NACSAP implementation reports have been prepared (one in draft form) and not all of them are discussed. He welcomed the Government’s pay rise and the establishment of a commission to address the salary issue. He raised however concern about the sustainability of the rise in salary due to the increase in the labour force and the continued use of allowances. He furthermore posed several questions for discussion:

(1) What steps can the Government take to strengthen ownership of LSRP? (2) How can the Government ensure that its wage bill is affordable in the long

term? (3) Given that strategic plans do not reflect the Government’s commitment to D-

by-D, how does the amendment of the local government laws fit in? (4) How to generate transparent and reliable data on corruption? (5) The frequency and quality of dialogue does not meet stakeholder expectations

– consultations are too few and not well organised. How can dialogue be improved?

(6) The coordination of governance efforts, especially of the core reforms, is still not well understood across MDAs and citizens. How can better links be established between core reforms as well as between them and the reform efforts in other clusters?

Discussion on TWG 3: Governance and accountability Coordination The meeting emphasised the importance of coordination of the different existing core reforms in the public sector. Local Government The Prime Minister’s Office – Regional Administration and Local Government (PMO-RALG) noted that implementation of the D-by-D policy is not possible without the participation of other MDAs. For this purpose, the Government is in the process of integrating D-by-D into MDAs. PMO-RALG is currently meeting with five MDAs to identify the status of their implementation of the policy and how to allocate budgets and staff accordingly. The Ministry of Finance will be involved in the discussions. A shift in resources from MDAs to LGAs will become visible very soon. The Chairperson emphasised the importance of performance assessment of public financial management of central and local government in order to ensure that LGAs implement national policies. Development Partners expressed concern about the proposed amendment to the local government legislation. CSOs asked for more efforts to implement the LGRP and noted that village assemblies are being sidelined in favour of regional bureaucracies. Legal sector, PAF matrix Development Partners acknowledged the credible amount of work that has been done by the Government to start the LSRP, involving 5 MDAs and 15 institutions. They referred to some of the critical steps that have been taken towards implementing the programme, i.e. the signing of the Memorandum of Understanding (MOU), staff

87

recruitment, the formulation of work plans. Broadening ownership of the reform within the Government remains however a challenge. Development Partners pointed to the PSRP for valuable lessons in this respect. They also asked for a reiteration of the Government’s political commitment to the reform. The meeting agreed that more ownership and strengthened dialogue around the programme are needed. CSOs called for reforms to laws on marriage and divorce, and for the establishment of strategies to reduce gender based violence. Development Partners asked whether cases handled by quasi-judicial bodies are also included in the PAF indicator on court cases. This would be considered as important. The Ministry of Justice and Constitutional Affairs (MOJCA) could not confirm whether this is the case. Development Partners indicated difficulty with the indicator in this respect but recommended to retain it for the time being and rely on the underlying processes to determine whether the indicator is credible or needs to be replaced. It was however also suggested to draw a court related indicator from the MKUKUTA. In general, it was considered useful to add a compendium that explains how data for the PAF indicators is compiled. Development Partners also recommended a general discussion on the validity of the PAF, focusing on key indicators without increasing their number. A process should be agreed to review the PAF after the GBS Annual Review. Domestic accountability CSOs noted that dialogue on governance and accountability is between the Government and its citizens. As a first step, domestic stakeholders including community-based organisations (CBOs), the chamber of commerce and trade unions must be invited to policy dialogue and decisions. It criticised the JAST and budget support processes as not being inclusive (e.g. national stakeholders were not involved in the formulation of the PAF, even though it is based on national processes) and called for advance information sharing if non-state actors are asked to participate in dialogue. The Chairperson noted that the GBS review has been a process between the Government and Development Partners, as it focuses on GBS as a financing instrument. As it has increasing overlaps with the PER, which is a very open year-long process involving many national stakeholders, domestic stakeholders have an avenue for engagement through the PER. Development Partners added that the GBS Annual Review is to a great extent the result of one year of work and dialogue in other processes which includes domestic stakeholders. The meeting agreed however that, for the next GBS cycle, the quality of dialogue and stakeholder involvement in the GBS process as well as synergies between the GBS and PER process need to be further discussed. Overall, CSO participation in the Annual Review was seen as very positive by the Government and Development Partners. The Association of Local Authorities of Tanzania (ALAT) was also considered as an important institution to attend the review.

88

Anti-corruption The Government informed the meeting that the new anti-corruption legislation was expected to be presented to Parliament in November 2006. Procedures for stakeholder consultation (including publication for 21 days for comments and a public hearing) on the law amendment would be followed. The Government also reported that a stakeholder meeting will soon be held on NACSAP II and that the programme will include a monitoring mechanism. Development Partners asked how to get clear and reliable data on corruption, including from civil society stakeholders or independent sources. The Government noted that civil society organises itself to monitor NACSAP implementation, whereas the Government has its own institutional arrangement (having grown from one focal person to a committee). The Chairperson referred to difficulties in getting primary data on corruption, as only the symptoms are visible. Corruption perception indicators need to be interpreted with caution, as more awareness of corruption in the society does not necessarily mean that corruption has in fact increased. He also informed Development Partners that the Government is undertaking efforts to build capacity of the civil society in monitoring Government performance, e.g. through a training programme in investigative journalism, which was provided by an independent party mandated by the Government. Development Partners demanded a more robust dialogue around NACSAP that helps them to understand Government efforts and to allow them to share ideas. The Development Co-operation Forum was also seen as an important mechanism for dialogue on corruption issues. CSOs informed the meeting of ongoing dialogue between them and the Prevention of Corruption Bureau (PCB). Every last Friday of the month, a meeting is held to debate corruption issues. One concern that has been raised is about the sufficient independence of the PCB. CSOs also pointed out that corruption is not only a problem of the Government but also related to procurement undertaken by Development Partners, big multinational companies and commercial enterprises in general. The Government therefore emphasised that the fight against corruption must be all encompassing, referring to the example of the Tanzania Private Sector Foundation (TPSF) currently looking at a code of ethics. It informed the meeting that a programme to protect whistle blowers is being set up. In the meantime, some senior Government officials have accepted to receive information. With regards to the PCB’s independence, the Government noted that the PCB must belong to one of the three pillars of government (i.e. the executive), as it is a public body. This limits its ‘perceived’ independence, though it can be operationally independent. Wrap up of discussions on TWG 3 The Chairperson summarised the main points of discussion. He noted that NACSAP I is coming to an end, a consultation mechanism on NACSAP has been established, and consultations on NACSAP II are likely to continue. Dialogue mechanisms need to be reviewed in this context in order to assess if they are still valid. With regards to the coordination of cross-cutting reforms, he noted that MOJCA was asked to initiate a learning process for LSRP from PSRP. Harmonisation of processes was considered to

89

be useful. On D-by-D, he confirmed that the Government is undertaking all possible efforts to implement it. The importance of presenting the new anti-corruption bill to Parliament in November 2006 was recognised. Lastly, the Chairperson asked the audience to reflect on the linkages between GBS and the budget/PER process and the scope for rationalising the existing processes. Presentation on TWG 4 and 6: Resource allocation and budget consistency; macroeconomic stability The Commissioner for Budget in the Ministry of Finance, Mr. Nashon Magambo, presented joint findings of TWG 4 and 6 on the areas of resource allocation and budget consistency, and macroeconomic stability. He reported that the underlying processes and outcome indicators have been satisfactory. The fiscal deficit after grants as % of GDP was less than targeted (5.5%), the inflation target for June 2006 was met, and implementation of the budget 2005/06 was on track. He also presented 8 key issues which had been identified by the two TWGs. These are: (1) domestic resource mobilisation, (2) improvement of MTEF projections, (3) improvement of the PER process, (4) aid scaling up and absorption, (5) civil service pay, (6) MKUKUTA – budget link, in particular with regards to performance monitoring, (7) energy, and (8) local government finances. MTEF The parties noted the importance of domestic stakeholders’ access to dialogue on the MTEF. In this respect, a credible MTEF would be needed so that dialogue can focus on a useful product. Development Partners referred to past recommendations to simplify the budget classification framework and the MTEF for public debate. Solid external resource projections were highlighted as another important aspect of making MTEFs credible. Some Development Partners asked the Government to map out implications of different levels of financing and degrees of MKUKUTA implementation, using the MKUKUTA costing, in order to show Development Partners the consequences that a lack of information on external resource projections for the outer years of the MTEF has on Government decisions. Other Development Partners considered it more useful to focus on getting firm five-year commitments for GBS rather than creating funding scenarios. They suggested that, with known triggers for firmer commitments, Development Partners could specify a certain amount that will be forthcoming if the Annual Review is satisfactory until 2010. Development Partners also pointed out that MTEFs have to work in tandem with a credible medium-term investment plan that is in line with MKUKUTA and have to be based on well founded plans at sector level. They asked whether such a plan is in place and how it is linked to sector plans. The Chairperson replied that the Government does not have a credible investment plan because it does not have credible external resource projections, in particular for the outer years of the MTEF. He said that engaging domestic stakeholders, particularly CSOs, in even deeper dialogue on a faulty MTEF would not be very helpful.

90

Capacity development Development Partners noted that capacity building in MDAs, in particular Departments of Policy and Planning, beyond the training that has already been provided to the Budget Guidelines Committee is important. PER Development Partners pointed out that the currently weak Cluster Working Group structure of the PER has to be strengthened and their linkage to the work in sectors as well as the role of sector reviews in the budgeting and planning process need to be clarified. In addition, they referred to the importance of a process for finalising the work of the PER Task Force on Strengthening the PER. Domestic accountability in the budget process It was noted that the production of the quarterly Budget Execution Reports has not been as timely as it used to be. Questions were also asked about the access of the public to the reports. It was further recommended that the Strategic Budget Allocation System (SBAS) be used not only for budget preparation but also for reporting on budget execution, thus allowing stakeholders to see the link between budget execution and MKUKUTA implementation. In addition, Development Partners argued that a more timely availability of budget books would be helpful for public debate. Domestic resource mobilization The meeting acknowledged that domestic revenue as a share of GDP is not satisfactory and expressed concern about the sustainability of an expanded public sector, considering that recurrent expenditures of the Government is already 136% of domestic revenue. Identifying potential revenue levels was seen as a useful exercise. Development Partners pointed to a significant potential of increasing non-tax revenue, e.g. in coal, oil, logging, and recommended a wider study on the issue. The Chairperson mentioned forestry products, land titles and deep sea fishing as possible sources of non-tax revenue to be explored. On tax revenue, the Chairperson noted that there is limited room for reducing tax exemptions, except for the mining contracts that are already being reviewed. Taxation at local level was discussed as another possible source of revenue generation. The Chairperson noted that this would require increasing the capacity of LGAs to formulate and implement tax policies, and asked whether revenue policy formulation should be revised in order to consider this. It was hinted that a study on non-tax revenues is planned this year under the PER process. CSOs questioned the source of local government revenue and emphasised in this context the importance of a strategy for sustainable livelihoods and economic diversification as well as the need to build a domestic export base. They criticised the current primary commodity focus in exports, the liberal fiscal regime and big trade deficit (as not only capital goods are imported). The Chairperson agreed that more productive activities and reinvestment in the economy are crucial for domestic revenue generation. The responsibility of Cluster 1 for increasing domestic revenue through broad-based economic growth was emphasised in this respect. As the

91

potential for revenue generation is small, economic growth is crucial for expanding the domestic revenue base. With regards to measuring domestic revenue, the Chairperson considered a comparison of domestic revenue against expenditure requirements as a better measure than domestic revenue as % of GDP. Civil service pay The recent increase of the wage bill and its percentage compared to domestic revenue raised questions among Development Partners on how to balance it with requirements for MKUKUTA implementation. Further discussions on the issue were postponed to the GBS Annual Review key issues sessions. Local government finances Development Partners expressed concern about the low percentage of the budget being allocated to LGAs (16%), despite the stated Government commitment to D-by-D. The Government informed the meeting that, in addition to the funds directly allocated to the LGAs, substantial amounts budgeted in the MDAs’ votes are usually spent by LGAs in implementing nation-wide programmes like PEDP, ASDP, etc. It was also reported that, beginning 2007/08, these funds would be allocated to the LGAs directly. Moreover, the Government is reviewing, with assistance from Georgia State University, the framework for financing LGAs. Further discussions on the subject were postponed to the relevant key issues session on local government in the GBS Annual Review. Inflation The Government explained that the methodology for computing the inflation rate has been revised so that the rate appears higher than before. Wrap up of discussions on TWG 4 and 6 The Chairperson concluded that the discussions had focused on three main issues: domestic revenue, MTEF projections, and domestic accountability, whereas other issues raised will be further discussed in the key issues sessions of the GBS Annual Review. He then introduced MPEE and consultants from the University of Dar es Salaam Computing Centre (UCC) to give a presentation on the new MKUKUTA reporting software RIMKU (Ripoti ya Utekelezaji wa MKUKUTA). Presentation on RIMKU MPEE together with consultants from UCC presented the new MKUKUTA reporting software RIMKU. They explained that the software allows for tracking of the performance of various actors (Government, Development Partners, non-state actors) in the physical implementation of MKUKUTA. Each actor will input their information in a micro version (CD-Rom or web-based), which will then be synthesised in a macro version. The software can also capture cross-cutting issues. A

92

more detailed presentation of the software was announced to be given at the launch of the GBS Annual Review on 16th October. Closing The Chairperson closed the meeting at 5pm. THURSDAY, 12TH OCTOBER 2006 Opening The Chairperson, the Commissioner of the Policy Analysis Department in the Ministry of Finance, Mr. Mugisha Kamugisha, opened the plenary session at 9.25am. Presentation on TWG 5: Public financial management The Assistant Accountant General from the Ministry of Finance, Mr. Joel Mwanza, presented the performance assessment of TWG 5. He noted that one of the two underlying processes, the Public Expenditure and Financial Accountability Review (PEFAR), has been satisfactory, whereas an assessment of the Public Financial Management Reform Programme (PFMRP) is still outstanding because the Joint Steering Committee (JSC) will meet only after the GBS Review. A satisfactory assessment will depend upon follow up on the findings of the external evaluation of the PFMRP. Recognised areas in need of improvement are reporting, and vertical and horizontal integration of the programme. Mr. Mwanza furthermore reported that temporary process actions have been achieved. With regards to the outcome indicators, he informed the meeting that the National Audit Office’s (NAO) Audit Report has for the first time been released on time and that a first draft of a new Public Audit Act is under preparation. A result on the indicator of the number of procuring entities complying with the Public Procurement Act is not available because procurement audits have not yet been undertaken. Mr. Mwanza also outlined achievements and challenges in local government in terms of public financial management and fiscal decentralisation as well as in extending public financial management reforms to Zanzibar. Mr. Mwanza’s presentation was followed by presentations by the National Audit Office, the Public Procurement Regulatory Authority (PPRA), and the Planning Unit of the Ministry of Finance, which provided more details on auditing, procurement, and PFMRP respectively. It was noted that progress has been made in strengthening the NAO and PPRA, with the support of PFMRP, but more resources are needed to continue capacity building efforts. Discussion on TWG 5: Public financial management PFMRP Discussions on PFMRP focused on questions of extending the programme to other MDAs and issues of public financial management or whether broader public financial

93

management reforms can be undertaken through other measures than the existing programme. The Chairperson noted that PFMRP has been implemented in the entire Government, e.g. through the roll out of the Integrated Financial Management System (IFMS), SBAS and PlanRep. The Ministry of Finance has only been responsible for initiating and coordinating activities and building other agencies’ capacities, which was in line with its mandate as a custodian of public finance management systems in the country. However, following from the suggestions of the recent external evaluation of PFMRP, it is now being considered how to integrate MDAs, Regions and LGAs in the formulation of public financial management reform strategies. On the issue of coordination between PFRMP and other reform programmes, the Chairperson informed the meeting that a framework is already in place – representatives of the different programmes are members of the governance structures of the other programmes. In addition, it is hoped that a national reform conference, which was planned for last year but could not take place due to the election period, will be held this year. Development Partners emphasised the importance of a broader perspective on public financial management reform, not only looking at the basket fund. In this respect, it should be considered how to broaden the review on public financial management. On the other hand, it was noted that the PEFAR assesses public financial management in a broader sense. In addition, the TWG should look at public financial management reforms in general, not only at the basket funded programme. Development Partners encouraged the Government to follow up on the PEFAR recommendations. Given the need for a wider perspective on public financial management reforms, it was questioned whether PFMRP needs to be extended to cover more issues or whether the programme is needed at all. The Chairperson noted that PFMRP consists of activities that the Government would have to undertake even without the programme being in place. The programme was initially established in order to address the different capacities in this area and to have a financing and coordination mechanism that allows for moving forward together. The discussions brought up the need for the PFMRP to consider whether ways of financing and coordinating public financial management reforms other than through the existing programme are preferable. The PFMRP coordinator informed the meeting that issues of reporting, capacity building etc. will be addressed in the Joint Steering Committee meeting in November, and thus should not be further discussed in this meeting. NAO Development Partners raised concern about the independence of NAO and its different reporting obligations. The NAO emphasised the importance of the new Public Audit Act in order to ensure its independence. It informed the meeting on the steps to be taken up for the enactment of the law, including sending a position paper to stakeholders to demonstrate the need for the act, and the preparation of a Cabinet Paper.

94

Development Partners emphasised the importance of computer based audits of IFMS and asked why this cannot be achieved earlier than 2009. PPRA Development Partners asked about next steps to get new structures of the PPRA approved and positions filled. The PPRA informed the meeting that interviews for the Procurement Management Unit and the procurement cadre already started in July. PO-PSM has been contacted and the relevant documents will still be submitted in October. Development Partners recognided their responsibility to support PPRA and noted that progress in strengthening the PPRA should not be hampered by challenges related to PFMRP. The Chairperson noted that the issue of delays of funding for the PPRA will be addressed in the PFMRP JSC meeting. Closing The Chairperson thanked the participants for their attendance throughout the TWG pre-review sessions. He noted growing enthusiasm in the partnership between the Government, domestic stakeholders, and Development Partners. Expressing his hope that Tanzania will remain a positive example for other countries of a good use of aid, he pointed to the importance of more GBS for this purpose. He reminded participants that successes and failures in this respect are a joint responsibility of both Government and Development Partners. Referring to the overall progress reported during the pre-view sessions, he emphasised the importance of improving people’s livelihoods as the ultimate measure of success. Referring to the strength of GBS, he acknowledged that more parties are interested in participating in the process (CSOs, UN, non-GBS partners). He thanked all participants for their very positive contributions and closed the meeting at 12.30pm.

95

6.2. Minutes of the GBS Annual Review, 16th – 20th October 2006, Dar es Salaam International Conference Centre

MONDAY, 16TH OCTOBER 2006 Opening The meeting was opened by the Minister for Finance, Ms Zakia H Meghji (MP). In inviting the Minister, the Permanent Secretary of the Ministry of Finance, Mr Gray S Mgonja, thanked her for having agreed to launch the GBS Annual Review and chair the first session. He also thanked the participants for their attendance. In her opening speech, the Minister emphasised the importance of GBS as the Government’s preferred aid modality, and thanked GBS Partners for their increasing support through this funding instrument. She also noted that ODA still falls short of public investment requirements and needs to be scaled up in order to meet targets of the National Strategy for Growth and Reduction of Poverty (NSGRP or MKUKUTA in Kiswahili). At the same time, strong domestic revenue mobilisation is crucial to reduce aid dependence over the medium term. By 2008/09, the Government aims to increase the domestic revenue to GDP ratio to over 15%. The Minister elaborated on measures to increase domestic revenue, and confirmed the Government’s resolve to address the current energy crisis. She also reassured Development Partners of the Government’s commitment to good governance and to fight against corruption, which are being addressed through NACSAP II, a new anti-corruption legislation, an Anti-Money Laundering bill, which would include the establishment of a Financial Intelligence Unit, capacity building of the NAO and measures to strengthen the Government procurement system by developing a procurement cadre and building capacity of the PPRA and all MDAs. After the Minister for Finance, the Ambassador of Switzerland delivered his opening statement. He noted that Tanzania receives the largest amount of GBS in all developing countries and that the new GBS Partnership Framework Memorandum underlines a new era of development partnership. Considerable efforts have been undertaken to improve the Annual Review by aligning it more with Government processes around MKUKUTA and rationalising it to a single review. The Ambassador also congratulated the Government for the involvement of the media and the invitation of non-state actors (NSAs) to the TWG pre-review. He furthermore acknowledged that progress has in general been satisfactory, though work remains to be done. Referring to the key issues on the agenda of the GBS Annual Review 2006, he expressed his hope of an agreement on next steps, also in the light of the need to define priorities for MKUKUTA implementation. Presentation of a summary of the TWG pre-review plenary sessions The Chairperson of the TWG pre-review sessions, Mr Mugisha G Kamugisha, presented a brief summary of the discussions of the TWG pre-review plenary sessions, which showed that processes and outcomes have overall been satisfactory. Nevertheless, substantial challenges still exist in particular with regards to the availability of adequate, predictable and sustainable funding for implementing

96

MKUKUTA. Other challenges relate to the energy and infrastructure sectors, as well as to dialogue around NACSAP. Adding to the presentation, the Ministry of Health and Social Welfare (MOHSW) appealed to Development Partners to remain together with the Government to continue funding ARV treatment, malaria drugs etc. Sustaining these treatment programmes should be a moral obligation. It also emphasised the importance of finding cheaper alternatives (drugs) and procurement procedures. Presentation of RIMKU The Ministry of Planning, Economy and Empowerment (MPEE) presented the new MKUKUTA reporting software RIMKU (Ripoti ya Utekelezaji wa MKUKUTA) together with the consultants from the University of Dar es Salaam Computing Centre (UCC) that worked on the software. They explained and demonstrated the functioning of the software, which tracks the performance of Government, Development Partners and non-state actors in implementing MKUKUTA and reports on achievements, challenges, lessons learned and next steps for action. It also allows for reporting on vulnerable groups and cross-cutting issues. Each actor enters their data into a micro version, which is then consolidated and analysed by MPEE in a macro version. The Government and Development Partners considered the development of RIMKU as a major achievement, as it allows for linking planning and budgeting to performance monitoring on MKUKUTA. Development Partners raised however several questions about the possibility to download expenditure data from IFMS into SBAS, possible checks and balances in RIMKU to ensure quality information, dealing with conflicting information, reporting incentives and capacity. In response to the questions, the presenters confirmed that SBAS and IFMS are fully compatible with each other and that there is no technical problem to link the two systems. They furthermore explained that quality control is addressed in RIMKU through in-built data checking mechanisms, required management approval on the reporting, and through quality checks before importing data from the micro into the macro version. Training has already started in MDAs, and is expected to be further rolled out to LGAs and non-state actors. With regards to reporting incentives for non-state actors, the consultants informed the meeting that reporting will be voluntary. However, the fact that information on RIMKU will be publicly available on the web is considered as a positive incentive to report. MPEE also proposed that Development Partners might consider making their support to non-state actors depending on the latter’s reporting. Some issues, e.g. the consolidation of contradicting views/information, still remain to be solved as the software is being used – it was pointed out that RIMKU is not static and thus allows for necessary adjustments. One of the changes proposed at the meeting concerned the wording on women, which are currently referred to as ‘vulnerable groups’. In addition to raising several questions and proposing changes, the meeting noted that options for using RIMKU to report on the Zanzibar’s growth and poverty reduction strategy MKUZA need to be explored.

97

Presentations on key issue 1: Domestic accountability

The President’s Office – Public Service Management (POPSM) gave a presentation on the Government perspective on domestic accountability. It emphasised the importance of domestic accountability for promoting good governance and mentioned the various mechanisms in Tanzania to address domestic accountability, which have mainly been on the supply side. Challenges remain in addressing the demand side. This will be taken up in the second phase of the Public Service Reform Programme (PSRP), which contains a demand driven accountability framework, as well as in NACSAP II. Acknowledging the weaknesses of NACSAP I, PO-PSM elaborated on the ways in which NACSAP II will address these, among others by creating an enabling environment for dialogue and consultation involving non-state actors, by introducing good corporate governance in businesses, formulating a code of conduct for non-state actors, protecting whistle blowers, encouraging non-state actors to follow up Government implementation of relevant international conventions, supporting non-state actors to carry out studies, and improving stakeholder participation in the monitoring and evaluation of NACSAP. PO-PSM also informed the meeting that a stakeholder conference on NACSAP II is planned for November 2006. Finland made a presentation on behalf of the Development Partners on the issue. It noted that domestic accountability is critical for GBS, which intends to transfer accountability to domestic stakeholders. Similar to PO-PSM, it acknowledged that a greater focus on the demand side of domestic accountability is needed, among others through improving dialogue. It also asked for more inclusiveness in policy formulation, and welcomed stakeholder involvement in NACSAP II. To facilitate enhanced dialogue between the Government, Development Partners and non-state actors, a joint calendar of events was considered to be useful. Finland also recommended greater efforts to improve statistics, and proposed a domestic accountability and corruption survey for this purpose. Lastly, it emphasised the importance of financial transparency and accountability and proposed to explore more user-friendly formats of information sharing. Fragmented funding flows at local government level were noted as a challenge for accountability. Discussion on key issue 1: domestic accountability Non-state actor involvement It was noted that civil society organisations (CSOs) are a fundamental vehicle for domestic accountability. Some Development Partners expressed a view that, in view of the important role of CSOs in this regard, the exclusion of HakiElimu from the last Education Sector Review was a major backlash. The Government explained that, consistent with the agreed process for the selection of CSO representatives in PER and GBS activities, TENMET was invited to the review as an umbrella body. There is therefore no justification for DPs’ insistence on a specific non-umbrella organisation’s participation in any activity. On the specific issue of HakiElimu, it was reported that the Prime Minister’s Office (PMO) was currently working on it.

98

The meeting noted that ways of involving Parliamentarians in the GBS review should be considered. In addition, a proposal was made to include the private sector and CSOs already in the work of the TWGs, not only during the pre-review sessions. Caution was raised, however, that care should be taken not to make the review process too large as that might affect its effectiveness. Development Partners asked for more constant dialogue with the private sector and pointed to the demolition of small shops as an example of weak dialogue. The Minister for Finance informed them that the private sector is involved in dialogue with the Government in several ways, among others in the budget preparation through a Task Force on Tax Reform, etc., on policy issues through public hearings of Parliamentary Committees, through the National Business Council and Investors’ Roundtables, etc. In addition, PSRP I provided training to the private sector. NAO report The parties considered it as a major achievement that the Audit Report of the Controller and Auditor General (CAG) was published on time for the first time in FY 2005/06. They expressed concern, however, about TShs 100 billion that were noted as unaccounted for in the NAO Report, as well as about the limited follow up on NAO findings in that context. The Ministry of Finance assured Development Partners that the unaccounted TShs 100 billion were not lost money. It was explained that accounting officers must respond to CAG observations and follow up on the investigations. Corrections may however not be incorporated in the NAO Report on time, e.g. if responses to queries are late. The Public Finance Act 2001 sets out clear sanctions for unaccounted funds. The Minister for Finance informed the meeting that it has been decided recently that the CAG should also include recommendations in his report. The meeting agreed that issues raised by auditors should be taken up in PER and PFMRP reviews and that the Government would show accounting officers’ responses to Development Partners. Development Partners asked for NAO Reports and Accounting Officers’ responses to be also included in the GBS Annual Review process. NEPAD peer review mechanism Development Partners expressed concern about the slow implementation of the mechanism in Tanzania. A governing council has yet to be nominated by the President. MPEE informed them that the process has taken a while because the Government had to request all stakeholders to make proposals on candidate nominations. The stakeholder consultation has now been completed and the names will be sent to the President. Quality information Development Partners pointed to the importance of quality of information and timely data release, and in that context to the need to revise national accounts data. They

99

considered a calendar on major data releases as useful for showing the timeframes of major data releases. Use of national processes The meeting emphasised the importance of using (and strengthening) existing national processes rather than creating new processes for exclusive Government-Development Partner dialogue. In that context, proposals were made to merge GBS and PER processes (e.g. by merging GBS Thematic Working Groups and PER Cluster Working Groups) in order to further reduce transaction costs. Closing The meeting was informed that the Attorney General would attend the GBS Annual Review on Tuesday, 17th October 2006, and would then provide more details on the status of the Legal Sector Reform Programme (LSRP). The meeting was closed by the Chairperson, the Minister for Finance, at 3.30pm. After the key issues session, the Minister for Finance, Permanent Secretaries and Heads of Cooperation retreated into a high level closed door meeting. TUESDAY, 17TH OCTOBER 2006 Opening The meeting was opened at 9.25am by the Chairperson, Permanent Secretary Gray Mgonja of the Ministry of Finance. Presentations on key issue 2: Planning and budgeting – (1) inadequate resources, (2) dialogue and PER strengthening MPEE gave a presentation on planning and budgeting and inadequate financial resources. It noted that there is a substantial mismatch between financial requirements and available resources for implementing MKUKUTA. Both domestic and external resources are insufficient to close the financing gap. Actual disbursements have fallen short of the budget and are misaligned with implementation plans, leading to underperformance. MPEE also referred to some measures to address the problem, namely the creation of more fiscal space, scaling up of GBS, and the provision of more space to the private sector through enhanced Public-Private Partnerships (PPPs). In addition, it mentioned programmes with rapid multiplier effects on the expansion of the domestic resource base, i.e. the Property and Business Registration Programme (MKURABITA), the National Registration and Identification System, BEST, and a National Geographical Spatial Data System. The World Bank presented the Development Partner perspective on strengthening planning and budgeting. It acknowledged recent progress made (e.g. through SBAS, the Strategic Planning and Budgeting Manual, the development of RIMKU, the Task Force on Sector Reviews and the strengthening of the PER) and pointed to several ways of further improving planning and budgeting. It referred to the need to streamline Budget Guidelines and MTEFs, to simplify the budget classification

100

system, to prepare a MTEF summary for the public, to integrate the wage bill into SBAS and provide expenditure reporting against SBAS at the next PEFAR. With regards to strengthening the PER, it called for more effective sector, cross-sector and cluster coordination, incentives for MDA participation, as well as for strengthening the PER Secretariat. It questioned whether sector reviews are instruments for Government planning and domestic accountability or are Development Partner driven. It asked to what extent the report of the Satisfactory Sector Review Task Force will represent Government views and when their work will be finalised. It also asked about the Government’s plan to address capacity needs in MDAs, in particular in Departments of Policy and Planning, and how existing Development Partner supported programmes such as PFMRP, PSRP and LGRP can support these efforts. In addition, the World Bank sought clarification on the links between SBAS, IFMS and RIMKU, and between RIMKU, MTEF and strategic plan reporting. The presenter also noted problems of timely release of funds to MDAs from the Ministry of Finance. Lastly, it recommended that the Government updates its overall strategy for budget reforms, and that it challenges Development Partners to provide better and timelier MTEF projections. Discussion on key issue 2: Planning and budgeting – (1) inadequate resources, (2) dialogue and PER strengthening Cluster and sector coordination The meeting confirmed the continued importance of a cluster approach in planning and budgeting as well as the need to maintain both cluster and sector reviews. However, an appropriate design of the reviews (in terms of structure, timing, participation) that reduces transaction costs for the Government yet meets both strategic and annual requirements remains to be found. The Government called for realistic PAF targets with regards to the timing and scope/level of sector reviews (e.g. an infrastructure review has not yet taken place but work was done on the energy and roads sectors). Clarity is also needed on the roles of clusters and sectors. A well functioning PER cluster structure was considered as a prerequisite by Development Partners for merging PER and GBS processes. Sector reviews play a crucial role in this context. The meeting agreed that dialogue on the cluster approach and the role of sectors/sector reviews needs to be continued. It noted that a strengthened PER Secretariat would be particularly useful for identifying sector reviews. The discussions referred to the work of the Satisfactory Sector Review Task Force as providing further recommendations on the issue. With regards to the Development Partners’ question whether the task force report represents the Government position, the Government clarified that the Satisfactory Sector Review Task Force is a joint Government-Development Partner effort at a technical level and has yet to finalise its work. It will produce a joint report with recommendations to be further considered. The Government also informed Development Partners that it internally undertakes quarterly sector reviews on budget execution and intends to review all Development Partner funded projects on a quarterly basis in order to ensure effective sector coordination.

101

Capacity building The Government reported various capacity building initiatives, e.g. tailor-made training provided to members of the Budget Guidelines Committee by the Georgia State University in the USA. It intends to train more staff through Masters programmes and short term courses and called for continued Development Partner support to scale up these efforts. Development Partners noted that PFMRP could be used to support capacity building in this area. It would however require a clear Government vision and link between PFMRP and the budget/PER process. Simplification of the budget classification Development Partners recommended two ways to make the budget clearer to domestic stakeholders: (1) through a strategic classification of MTEFs/budget, and (2) through a summary of the MTEF. The Government pointed out that, in order to be credible, MTEFs need to have reliable resource projections before being made available to the public. In addition, it referred to the responsibility of CSOs to facilitate the general public’s understanding of the national budget by translating and disseminating the relevant information in an appropriate form. The meeting agreed that MTEFs need to be made more robust and realistic in terms of resource predictability, in particular for the outer years. Integrating the wage bill into SBAS Development Partners considered it important to reflect the wage bill in SBAS, even if only at an aggregate level. The Government noted that an integration of the wage bill into SBAS would require authority of MDAs and LGAs to decide over the mix of wages and other charges in the recurrent budget. In addition, it pointed out that it is difficult to integrate the wage bill into SBAS as resource allocation in SBAS is not done by MDA but on a target level. It is not possible to allocate the wage bill on a target basis. The Government thus referred Development Partners to other documents in which the wage bill allocation to MDAs can be seen. Overarching strategy for reforms in planning and budgeting The Government agreed to take up the formulation of an overarching strategy for budget reforms as agenda for the next cycle. This should be done on the basis of the strategic planning and budgeting manual, which focuses on linking strategic plans with MKUKUTA and the budget. Development Partners noted that such a strategy would help them to focus their support on the issue and would allow for identifying to what extent core reforms support the budget reform. Link between SBAS, PlanRep, IFMS and RIMKU The Government noted that SBAS/PlanRep and RIMKU allow for linking strategic resource allocation with results monitoring and evaluation. It confirmed that it will resolve the issue of linking SBAS with IFMS and that SBAS based expenditure reporting will be undertaken in the near future. Development Partners asked how the strategic planning framework fits into RIMKU and whether MTEF will be linked to

102

SBAS. It was agreed that the link between the different systems needs to be further clarified and developed. Dialogue will continue on this issue. Presentation on key issue 2: Planning and budgeting – (3) external resource predictability The Ministry of Finance presented an assessment of external resource predictability. It reported that the recurrent budget is 140% of domestic resources, showing the important role of external resources in the national budget. However, problems of obtaining reliable MTEF projections, in particular for the second and third year of the MTEF period, impair strategic planning. The Ministry also provided an assessment of in-year predictability of different aid modalities, noting good performance of GBS and problems with project and basket funds, for which actual disbursements as recorded in the Exchequer system have always been less than figures in the national budget estimates. It explained the gaps among others by low levels of ownership of Government implementing agencies and lack of disclosure of information by Development Partners on non-cash expenditures resulting in MDAs’ inability to account for the expenditures. The Ministry also presented suggested solutions to persisting problems of aid predictability, including an increasing move to GBS, improved reporting by Development Partners on project funds, greater MDA ownership, dialogue between relevant MDAs and Development Partners on MTEF projections prior to presenting those to the Ministry of Finance, channelling of funds through the Exchequer, and strengthening the PER. Development Partners’ performance in terms of predictability, based on three measures of predictability (timing, front-loading, and amount), was reported as follows:

GBS Partner Performance 2005/06

Timing

Predictability Front-loading

Amount Predictability Score

Total 05/06

Total 04/05

ADB SAL II 1 1 1 3 -

Canada PRBS 5 5 5 15 15 Denmark PRBS 1 1 1 3 4 EU PRBS 1 1 2 4 3 Finland PRBS 1 1 1 3 3 Ireland PRBS 1 1 1 3 5 Japan PRBS 1 1 1 3 3 KfW/Germany PRSC 2 4 1 7 3 Netherlands PRBS 1 2 1 4 4 Norway PRBS 1 1 1 3 3 Sweden PRBS 1 2 1 4 3 Switzerland PRBS 1 1 1 3 9 UK PRBS 2 2 1 5 3 World Bank PRSC 2 2 3 7 3

1 - Early or same

Quarter as committed

1 - Q1 1 - Same amount or more in own currency

103

2- Late by 1Q 2 - Q2 2 - Less (<10%) in own currency

3 - Late by 2Q 3- Q3 3 - Less (>10% in own currency)

4 - Late by 3Q 4 - Q4 4 - Less (>50%) in own currency

5 - Did not pay 5 - Not at all 5 - No disbursement

If had 2 tranches, quarter with main amount was considered

Discussions on key issue 2: Planning and budgeting – (3) external resource predictability Development Partner efforts in predictability Development Partners pointed to their efforts to enhance aid predictability in the context of the Joint Programme Document. This includes the recognition of their collective responsibility for providing reliable and timely MTEF projections, Development Partner efforts to include information on pipeline and unallocated funds in their three-year projections, and proposals to create stabilisation mechanisms in the case of funding shortfalls. It was noted that problems of predictability are even more severe for vertical funds (such as the Millennium Challenge Account, the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria). Scenario planning Development Partners encouraged the Government to map out scenarios of different levels of aid. It could include Government discounting of projections in order to make scenarios more realistic. Such a scenario analysis would help to clarify Government priorities on spending for MKUKUTA implementation with different levels of resources. It would also contribute to better Government planning. As the different scenarios would show implications of funding uncertainty, it would help to focus dialogue on what can be done to address it and would enable Development Partners to convince their headquarters to provide increased and more reliable funding. Development Partners also considered it helpful if the Government could assure them of its understanding that Development Partners cannot provide a legal basis for projections for the outer years of the MTEF. Some Development Partners noted that the Government must come up with a convincing medium-term programme in order to be able to demonstrate a credible financing gap to Development Partners. The Government agreed to undertake scenario planning, but did not consider it as a prerequisite for improving aid predictability. It noted that this should first be undertaken within the Budget Guidelines Committee and then be looked at in the PER Macro Group in the context of discussing the Budget Guidelines. More GBS Whereas the Government intends to continue promoting GBS among non-GBS Partners, Development Partners considered an increase of GBS to come from current non-GBS Partners as unrealistic. They therefore recommended that the Government focuses on addressing constraints and disincentives of GBS Partners to increase GBS.

104

Development Partners’ fear of losing touch of what happens on the ground was mentioned in this context. Conducting project or field visits as part of the GBS Annual Review was proposed to address this concern. Other constraints/disincentives are Development Partners’ fear of a limited access to ministers under GBS, and MDAs’ request to continue project funding. GBS Partner performance Development Partners suggested adding the size of GBS and its percentage in total ODA for each GBS Partner as another dimension of ranking them in their performance. It was also proposed to consider a PAF for GBS Partners. To improve GBS predictability, the Government recommended that funding decisions are based on overall progress and noted negative effects of variable tranches in this respect. Consequences of non-performance should only be considered in the next year in order to enhance in-year predictability. The Government would also welcome if Development Partners could provide multi-year commitments for GBS similar to project funding agreements. Strategic use of aid The meeting agreed that, while more aid is needed, attention must be paid to its strategic use in order to reduce aid dependence over the medium to long term. Timely release of funds to MDAs Development Partners questioned why MDAs reported problems of funding availability in the first quarter, whereas most GBS is disbursed in that quarter. The Ministry of Finance explained that domestic revenue collection is not performing well in the first quarter and funding requirements are large so that available funds must be distributed across the entire Government (disbursements are made on a quarterly basis). At the same time, funds must be distributed evenly across the entire financial year. In addition, the Ministry of Finance informed Development Partners that it allocates funds according to spending agencies’ own cash flow plans, and that funding transfers also depend on the agencies’ procurement plans. Presentation on LSRP Deputy Attorney General and Permanent Secretary of the Ministry of Justice and Constitutional Affairs (MOJCA), Mr. Vincent Lyimo, presented the current status of the LSRP. He underscored the importance of the Legal Sector Reform for all other reform programmes and outlined a number of challenges faced in the implementation of the reform, such as low funding levels of the MOJCA despite consideration as a priority sector in past years and non-forthcoming funds from Development Partners due to delays in the set-up of the reform basket. As reasons for the programme delay, he mentioned the need to harmonise different activities, delays in the procurement process, lengthy stakeholder consultations involving 5 MDAs and 15 institutions, and the time taken to agree on an MOU for the basket funding mechanism that meets different Development Partners’ requirements. He informed the meeting that an MOU was signed in June 2006 and a coordination office has been put in place in MOJCA.

105

Mr. Lyimo also outlined major achievements in the sector, pointing among others to the establishment of the Human Rights and Good Governance Commission, law research, a new companies act, the establishment of commercial courts, updated case law reports, the establishment of district judicial boards, the rehabilitation of the Iringa judicial square, the development of a strategic training programme, and an act to control the conduct of judges which requires them to deal with cases within 60 days (Tanzania is the first African country with such an act). Discussion on LSRP Development Partners emphasised the importance of the legal sector, which has long been characterised by inaction and underfunding. Uncoordinated assistance has been a problem. Questions were also raised with regards to the amount of the local contribution to the reform programme – only USD 11 million have been identified out of the USD 38 million. In order to move forward, basket funding and reliable and credible budgets as well as quality dialogue with strong Government representation, particularly in the Technical Coordination Committee (TCC), are needed. To achieve the latter, Development Partners proposed a joint task force on budget issues. The Deputy Attorney General noted that quality dialogue requires Government availability, which depends on the official. For the future, it is important to ensure the PIU (Coordination Office) is well linked and embedded to coordinate between different stakeholders/officials. To fund the legal sector, MOJCA does not consider project financing as an appropriate modality due to the wide scope of the sector. In addition, project funding would add to the delays in programme implementation, as these have mainly been linked to the procurement of a Programme Management Unit. In this context, the Government asked Development Partners to find ways to rely on national procurement systems. In terms of planning for legal sector reform activities, the Deputy Attorney General explained that the Ministry has hesitated to plan and budget for activities because of experienced funding problems in the past. It was emphasised by both Government and Development Partners that the LSRP must become fully operational. No clear way forward was agreed upon but Development Partners expressed their willingness to go ahead with the basket fund. Dialogue should focus on the speed of moving forward. With regards to the new anti-corruption legislation, the Deputy Attorney General noted that progress in fighting corruption does not only depend on the law being in place but compliance with it is influenced by social and economic factors. Closing The meeting was closed by the Chairperson at 5.35pm.

106

WEDNESDAY, 18TH OCTOBER 2006 Opening The meeting was opened by Permanent Secretary Mgonja, Ministry of Finance, at 9:20am. He welcomed all participants and introduced the first presenter, Permanent Secretary Ms. Tarishi from the Prime Minister’s Office – Regional Administration and Local Government (PMO-RALG). Presentations on key issue 3: Local Government In its presentation, PMO-RALG emphasised the important role of Local Government Authorities (LGAs) for implementing MKUKUTA, as 80% of the outcomes of MKUKUTA are expected to be delivered by them. It reiterated the Government’s commitment to proceed with the implementation of D-by-D in order to improve service delivery at the local level and provided a brief background on the evolution of the D-by-D policy since 1995. It explained that the Local Government Reform Policy, which was endorsed in 1998, spells out decentralisation by devolution as the main strategy for improving service delivery to the public. After implementation of the policy by PMO-RALG alone, it was decided at the Public Service Conference in October 2004 that all central and sector ministries should implement the policy and PMO-RALG would play a facilitating role. At a meeting of Permanent Secretaries and Deputy Permanent Secretaries in April 2006, concrete decisions were taken with regards to the transfer of service delivery responsibilities and resources from central to local government. Since then, the Government has begun to identify the relevant responsibilities and related financial, human and other resources to be transferred and is expected to complete this process by mid November 2006 so that it can feed into the planning and budgeting cycle for 2007/08. At the same meeting in April 2006, decisions were also taken on the harmonisation between the legal framework and D-by-D. Ireland presented the Development Partner perspective on local government reform and D-by-D. It noted several positive developments in the area, i.e. better financial management as demonstrated by an increasing number of districts receiving clean audit reports; restructuring in LGAs and the development of strategic plans; the installation of PlanRep and IFMS; the greater use of the Local Government Capital Development Grant (LGCDG) with an increasing number of councils qualifying for the LGCDG and an increasing number of Development Partners supporting the scheme. Ireland however also reported Development Partners’ concern about the overall support for D-by-D in the Government, which Development Partners perceive to be insufficient, and about the delayed implementation of the Public Service Act regulations. In addition, it pointed to the negative effects of fragmented funding at local level and concerns on proposed amendments to the local government laws. With regards to human resources, it mentioned negative effects of shortages of qualified staff on service delivery, especially in rural areas; slow progress in creating incentives to attract and retain staff; insufficient support of central ministries and regional secretariats to build capacities in LGAs; and the lack of LGA autonomy in staffing decisions.

107

On public financial management, the presentation outlined impediments to local government planning and budget execution relating to changes in budget ceilings, and unannounced, unspecified and late fund transfers from central to local government. It noted problems of public financial management due to numerous bank accounts and multiple reporting requirements by the Government and Development Partners. On budget and fiscal decentralisation, it did not consider budget allocations to adequately reflect the D-by-D policy, as 84% of total expenditures take place at central government level and only 3% of the development budget is allocated to activities at the local level. The planned amendments to the Local Government laws of 1982 were perceived as not being in line with the Government’s D-by-D policy. This relates in particular to the reactivation of central government functions in the local government system, the ability of the Minister to appoint three Councillors into the District Council, the establishment of the District Consultative Committee which is chaired by the District Commissioner and could turn into a decision making forum, as the District Commissioner reports to the Regional Commissioner; dual reporting and accountability for Ward Executive Officers, which under the new bill are required to report to both Divisional Secretary (central government body) and to the District Executive Director (local government). Discussion on key issue 3: Local Government Human resources a) Public Service Act Development Partners noted that the Public Service Act was amended in November 2004 to give LGAs autonomy in staffing decisions, whereas the executive director is to be appointed by central government. The Act still remains to be operationalised, which requires an agreement between PO-PSM and PMO-RALG. Development Partners asked about PO-PSM’s perspective on the delays of the operationalisation of the Act. PO-PSM and PMO-RALG agreed to follow up on the operationalisation of the Public Service Act regulations and to identify any needed improvements in their operationalisation. PO-PSM informed Development Partners that professionals are now being devolved from the central to local government. In addition, the Government is in the process of identifying activities and resources to be transferred to LGAs. PO-PSM reminded Development Partners that the local government system had been abolished long time ago and has only recently been reinstated. It therefore urged for patience, as it will take time to make the system work effectively. b) Incentives Development Partners asked about next steps in creating an incentive package to attract local government staff, noting that studies have already been conducted on the issue in the context of the LGRP. PO-PSM informed them that the difference in pay (and pensions) between central and local government is now being corrected. Furthermore, a team is currently addressing the issue of attracting people to peripheral

108

areas. An appropriate incentive structure must not only consider the salary but the entire work environment. The meeting agreed to follow up on the creation of incentives to attract and retain staff in peripheral locations. c) Optimal size of the public service Development Partners asked about the optimal size of government and whether the central government could be downsized. PO-PSM replied that the Government does have targets for hiring new staff. Recent recruitments have concerned mainly education, health and security personnel. d) Autonomy and domestic accountability Development Partners asked whether people can influence staffing decisions in local councils and hold civil servants in LGAs to account. PO-PSM replied that the Public Service Act regulations make accounting officers accountable for staffing decisions and allow for dismissing people who do not perform. The Public Service Commission monitors compliance with the regulations. However, challenges remain in the enforcement of the regulations. Amendment to the Local Government Laws The Government assured Development Partners of the Government’s commitment to implement D-by-D at all levels and that the amendments of the laws will serve to improve the implementation of the policy. The direct appointment of three Councillors aims to address capacity constraints among elected Councillors as well as conflicts among councils with equal numbers of Councillors from opposing parties. The amendments also enable the division of councils without a bi-election in order to facilitate better access to services. The Government also informed Development Partners that divisional officers are already responsible for wards and report on different issues to Council Directors and District Commissioners. The intention of the District Consultative Committee (DCC) as a multi-stakeholder forum is not to control but to have a coordinating and advisory function and to ensure interaction between the District Executive Director, who will be the secretary of the Committee, and the District Commissioner. Development Partners noted that consultation on the proposed law amendment has not been extensive and has not included external stakeholders, unlike consultations on reform programmes. The Government explained that the proper process of consultation for legal amendments has been followed. A public hearing took place on 17th October 2006, at which civil society organisations were present. Furthermore, members of Parliament and ALAT have had the opportunity to discuss the proposed amendments. Nevertheless, there would still be room to lobby Parliamentarians and non-state actors. Development Partners made however clear that it is not their role to mobilise these stakeholders. Despite the assurance by the Government of the good intentions of the proposed law amendments, Development Partners did not consider them to be in line with the D-by-D policy and cautioned that the bill might be used against D-by-D, as it does not clearly stipulate Government intentions of the amendments. They remained

109

particularly concerned about the direct appointment of Councillors, which they did not regard as a convincing or appropriate measure to address capacity constraints in local Councils and which poses risks in terms of shifting the political balance in decision making. Development Partners interpreted the appointment as a sign of distrust of the central government in local Councillors. An independent commission to oversee Councillors was seen as useful to prevent them from misusing their position. In light of the Development Partner concerns, PMO-RALG acknowledged that the language of the amendments must be clear, unambiguous and not open to interpretation by those who may advocate for a more centralist agenda. PMO-RALG also agreed to keep Development Partners informed on the process of operationalising the amendments, once they come into effect. Budget and fiscal decentralization and public financial management a) Multiple financing and reporting arrangements Government and Development Partners agreed on the need to harmonise the multiple financing and reporting arrangements that exist around projects and programmes at LGA level. Government guidance was required by Development Partners in this process. PMO-RALG recommended that all Development Partners use LGCDG in order to solve the problem of multiple reporting requirements. In addition, it noted that IFMS would help in managing and accounting for the numerous bank accounts at local level. The meeting agreed that a small Government-Development Partner task force that would be assigned to discuss PEFAR recommendations on fiscal decentralisation would also take stock of the multiplicity of funding arrangements and systems at local government level. It was furthermore proposed to have a monitorable benchmark on the multiplicity of funding arrangements in the PAF. In addition, the Government noted that a decentralisation of budgets also requires decentralisation of projects/programmes from their design stage. Many projects/programmes still focus on MDAs. Sector-wide approaches need to be redesigned to be in line with the concept of decentralisation. b) Budget changes The Government informed the meeting that changes take place both in budget guidelines ceilings and budget ceilings. They can be changed during Government budget discussions or in the Parliamentary budget sessions. It is however aimed to keep those changes to a minimum. It also noted that the harmonisation of the budget cycles of central and local government was an important step to increasing budget predictability. c) Fund transfers to LGAs The Government explained that even though 84% of the national budget is allocated to central government agencies, it does not mean that it is actually spent there, e.g. PEDP and TASAF funds are managed at central government level but spent by LGAs; the Ministry of Health procures drugs and supplies them to LGAs. The Government noted that changing these arrangements to direct transfers of funds from the Ministry of Finance to LGAs will take time, as existing contracts with suppliers

110

cannot be changed immediately. The IMTC has however already instructed MDAs to reverse the situation that 84% of the budget goes to central government. A team of 5 major MDAs (mandated by the IMTC) was set up to work with a consultant and PMO-RALG to review their strategic plans and identify which activities and resources to shift to LGAs. The group will report back to the IMTC, and their work is expected to be incorporated in the next Budget Guidelines and MTEF. To address Development Partners’ concern about resource transfers to LGAs, the Ministry of Finance proposed to be more transparent in showing which funds go directly to LGAs at the level of the preparation of budget guidelines and in the budget books. d) Public financial management The Ministry of Finance reported that it has a key interest in strengthening public financial management at local government level. It has recently sent qualified accountants and auditors to LGAs, which receive the same pay as central government staff. e) Follow up on fiscal decentralisation The meeting agreed that all issues raised need to be discussed further. A small Government-Development Partner working group should be set up to discuss PEFAR recommendations on fiscal decentralisation and identify the way forward. The same group would also address the multiplicity of funding arrangements at local government level. Presentations on key issue 4: Sustainability of the wage bill and human resources PO-PSM presented the Government view on the sustainability of the wage bill, which is currently 42% of domestic revenue and 5.9% of GDP. It addressed (1) the transparency of the wage bill, (2) its sustainability, (3) the size and structure of the public service, (4) the proposal to allow MDAs to determine the wage bill/other charges mix, and (5) the need to revise the Medium-Term Pay Policy (MTPP). It explained that the MTPP forms the basis for the transparency of the wage bill and that allowances must be consolidated into the wage bill for it to become more transparent. A detailed analysis of employment allowances, undertaken by a Government task force which will inform the President Commission on Public Service Pay, is expected to be concluded soon. Pay targets have been reached by 90% (it was 85% in the previous year). Addressing the sustainability of the wage bill, it emphasised the importance to remain within the macroeconomic framework and acknowledged the concern about the magnitude of the recent increase. This has however aimed to compensate for low progress in earlier years. The increase in the wage bill was funded through decreasing/restructuring allowances and through a reduction in Government vehicles. Repeating the importance of pay targets to be in line with requirements to maintain macroeconomic stability, it noted that employment and wage bill sustainability are influenced by developments in the productive sectors. For this matter, continued support by Development Partners is needed to MKURABITA and other domestic revenue enhancing initiatives. A revision of the MTPP in terms of pay targets will be

111

dependent on findings and recommendations from the Presidential Commission on Public Service Pay, which in turn is informed by a commission that undertakes a comparative salary survey and by a task force on allowances. On the size and structure of the public service, PO-PSM noted that the Government aims to limit itself to the core functions. D-by-D will determine the structure and size, and all activities that can be carried out by LGAs are to be transferred to them. Employment growth is controlled by the Chief Secretary. New employment in 2006/07 has primarily concentrated on education, health, and public security. PO-PSM furthermore confirmed the Government’s appreciation for the proposal to allow MDAs to determine the wage bill/other charges mix, but also noted that further consultations within the Government are necessary before taking a decision in this respect. This will also be influenced by the rolling out of the Human Capital Management Information System (HCMIS). DFID presented Development Partner concerns on the wage bill and human resources. It emphasised the need for scaling up public service provision and thus to increase capacities at central and local government in order to meet the MDGs and MKUKUTA goals. It expressed concern about the rapid increase in the wage bill compared to the previous year, and in particular about the increase in allowances to 67% of the total wage bill and 40% of the recurrent budget (2005/06). Allowances undermine the transparency of the wage bill, and create adverse incentives. It admitted that Development Partners add to the problem by providing allowances that do not comply with Government regulations, through special projects and PIUs. When reducing allowances, it noted however that attention must be paid to potential negative effects on capacity and service delivery. DFID also expressed Development Partners’ concern about the low decompression ratio. It concluded that an expansion in the public service must be aligned with priorities and a conscious Government strategy that ensures financial sustainability. Questions raised for discussion related to: (1) the need for the Government to review the size and structure of the public service, (2) the need for wage bill targets as % of GDP, domestic revenue, recurrent and total budget, (3) the appropriate mix between MDA and LGA staffing capacity, (4) how to increase supply of teachers and health professionals, retain and incentivise them, (5) whether to roll remunerative allowances into the wage bill, and (6) the need to review MTPP in terms of decompression and MDA authority. Discussion on key issue 4: Sustainability of the wage bill and human resources Size and structure of the public service Development Partners asked whether the Government has a strategy on recruitment and training, given its investment in HCMIS, and whether employment expenses were included in the recent MKUKUTA costing exercise. They also noted that a sustainable public service does not only relate to the wage bill but also requires adequate promotion/career development and capacity building within the Government (e.g. in order to replace retired staff). These need to be supported by Development Partners. In this context, the Government informed Development Partners that there is a current gap in the public service because of an employment freeze in past years. It furthermore noted that the rate of employment is challenged by service delivery needs at local government level. It clarified that decompression has taken place over the past

112

7 years and that the current ratio is 28%. PO-PSM explained that each MDA is responsible for its own personnel decisions – PO-PSM only provides the policy and guidelines. With regards to HCMIS, it reported that the system has been established in 10 MDAs, but needs to be further upgraded. The Ministry of Finance and PO-PSM need to support MDAs in entering their payroll and human resource data into the system. The system will only be rolled out to another 5 MDAs if it is well understood and fully operational in the 10 MDAs in which it has already been installed. The Ministry of Health and Social Welfare (MOHSW) pointed out that there is currently a critical shortage of staff in the health sector – only 35% of the needed qualified staff in local areas is available. A similar problem exists in other social service sectors. The meeting agreed that wage bill and human resource questions must be part of strategic resource allocation decisions, whereby special requirements need to be considered for special sectors (health, HIV/AIDS). Allowances The growing number of allowances is a great concern to both the Government and Development Partners and it was recognised that there is scope for their integration into the wage bill. A Government task force has been set up to address the issue and regulate their use. However, the Government cautioned that one must differentiate between the various categories of allowances (duty related allowances for foreign officers abroad, Parliamentarians and travel must be distinguished from sitting allowances and honoraria). It acknowledged that it needs to present allowances in a better format to reflect the different categories. Development Partners recognised the Government’s need to retain some allowances but emphasised the importance of regulating their use, pointing to the potential for travel allowances to create work disincentives. PO-PSM explained that the task force on allowances will focus on their regulation, but that their enforcement will be the responsibility of accounting officers. It was recognised that Development Partners added to the problem of adverse incentives from allowances by inviting Government officials to numerous workshops and conferences, and that such workshops need to be harmonised. Development Partners proposed that they could take up this issue in the context of JAST and formulate a strategy to reduce Development Partner related allowances. Medium-Term Pay Policy The Government noted that the MTPP needs to be updated to take new developments into account (education needs, HIV/AIDS, increasing demand for health and education staff). The appropriateness of the MTPP and the need for its review will be addressed by the Presidential Commission on Public Service Pay, which will report in December 2006. A revision of targets cannot be expected before March 2007. The issue will also be taken up in the PSRP II starting in July 2007 and is expected to influence the MTEF from 2007/2008 onwards. Closing The Chairperson summarised the discussions, noting that new proposals on the Government wage bill and the MTPP are expected to be seen early next year, that the wage bill needs to be included in strategic resource allocation decisions, and that

113

special requirements for certain social sectors need to be considered. In addition, he noted that the meeting had expressed a general concern about increasing allowances and that changes are expected by the next financial year. The meeting was closed by the Chairperson at 4.30pm. THURSDAY, 19TH OCTOBER 2006 Opening The meeting was opened by the Chairperson, Permanent Secretary Gray Mgonja, Ministry of Finance, at 9.15am. After welcoming all participants, he introduced the Vice Chair of the Tanzania Private Sector Foundation (TPSF) and a representative of the Confederation of Tanzania Industries (CTI). Presentations on key issue 5: Energy and infrastructure The Ministry of Infrastructure Development (MOID) made a presentation on infrastructure. Specifically, it outlined possible solutions to funding infrastructure maintenance, which have been proposed by the Joint Technical Committee (JTC), namely (1) the integration of maintenance funding in the development budget, (2) an increase in the fuel levy, and (3) the introduction of road access fees. It also informed the meeting about the ongoing preparation and consultation on the Transport Sector Investment Programme (TSIP) with a view to prioritising the programme, whereby both maintenance and network expansion are considered as important. A stakeholder workshop will be held on 8-9th November, which will report to a Government/Development Partner Consultative Forum planned for 2nd December 2006. MOID furthermore briefed the meeting on the roadmap for enacting the new Road Act. The draft Act has been circulated to Development Partners and other stakeholders and a Government decision is expected by end November 2006. The bill will then be submitted to Parliament at the earliest in March/April 2007. Lastly, the Ministry explained the Government’s intention to strengthen TANROADS through a specific TANROADS Act. The Act would be different from the Roads Act and would specify the role and mandate of TANROADS, make provisions for an independent Board, provide details on its management, funding, institutional arrangement etc. In a second presentation, the Ministry of Energy and Minerals (MOEM) informed the meeting of the current situation in the power sector and the existing energy crisis. It explained the Emergency Power Supply Programme (EPSP) as a short-term solution, the medium-term Financial Recovery Plan (FRP) of TANESCO, its Capital Investment Plan (CIP), the medium- to long-term Power Sector Reform Strategy, the new electricity legislation currently under preparation, and the Power Sector Master Plan. Before moving on to the next presentation, the Chairperson asked the Vice Chair of TPSF to share his comments, as he had to leave the meeting early. The Vice Chair thanked for the invitation to the GBS Annual Review. He urged the Government to make a decision on the privatisation of railways in Tanzania, as the economy incurs big losses under the current unsettled situation. He furthermore called for a solution to the energy crisis, both in a short-term and long-term perspective, noting that prices are secondary when faced with a situation of no power supply. Both funding and the

114

management of TANESCO need to be resolved. He assured the Government of the private sector’s willingness to participate in providing the necessary funding and supported initiatives to diversify sources of energy generation. The World Bank presented the Development Partners’ perspective on energy and transport. It raised concern about the availability of funding for a very ambitious TSIP and asked for a better prioritisation of the programme and a greater focus on maintenance. In addition, it asked for the inclusion of rural roads in the TSIP, which are managed by local government. The presentation furthermore explored reasons of the current power crisis and pointed to the high and growing costs to the economy and the public sector, urging the Government to address the crisis, which threatens the implementation of the growth agenda and jeopardizes development gains made over the past years. The World Bank assured the Government that financiers of the Tanzanian energy sector and TANESCO’s Capital Investment Plan will be found if the Government implements a new institutional set up (Electricity Act, EWURA, Rural Electrification Agency), adopts the Power System Master Plan, follows transparent procurement procedures in line with the Public Procurement Act, provides commercial independence to TANESCO, and allows EWURA to act independently and set cost reflective tariffs. It noted that the current response to the energy crisis has been too slow and asked the Government how it will address the issue differently in the future. It furthermore noted that some assumptions for the FRP are no longer valid in terms of funding availability, and asked about reasons to use the Government budget to finance the plan. It also asked about the role of TANESCO in the strategic plan. Discussions on key issue 5: Energy and infrastructure TSIP The Government emphasised the importance of balancing road expansion and maintenance. MOID informed the meeting that it is working closely with LGAs to integrate a road investment programme for local governments in the TSIP in the future. Development Partners considered the roadmap for the TSIP and the Road Act including the agenda for the meeting on 8-9th November, as well as the JTC proposals to finance maintenance costs as very ambitious, and encouraged the Government to revise its roadmaps. They also emphasised the importance of TANROADS’ independence. Cost of the energy crisis and crisis management The Government and Development Partners expressed joint concern about the economic impact of the crisis, which is likely to affect growth in the long-term. Development Partners also raised concern about the cost of the crisis to the public sector, in particular the effect of subsidies from the Government budget to the energy sector.

115

MOEM assured Development Partners that the Government is working to solve the current crisis. The Emergency Power Supply Programme is in place and all contracts have been signed. Some procurement has already taken place. It also confirmed that the contract with Richmond is still valid. USD 180 million of debt relief from the IMF through the Multilateral Debt Relief Initiative (MDRI) will be used to buy equipment in the energy sector. The IMF urged the Government to do this immediately. Development Partners raised concerns over the slow procurement processes in the context of the emergency. The Minister for Finance informed the meeting that normal procurement regulations, which can cause procurement delays, are set aside in an emergency situation. Government subsidies to the energy sector Development Partners asked for information on the percentage of the Government budget that was used for investment in the sector and for subsidies on the recurrent budget in 2005/06. The Government responded that TShs 3.4 billion were directly transferred to TANESCO for the purchase of equipment. The remaining amount was indirect transfers in the form of Government guarantees that enabled TANESCO to borrow from the market to settle claims. Challenged by Development Partners on the use of subsidies as opposed to higher user fees, the Government justified its use by pointing to the large capital expenditure requirements to set up the necessary infrastructure. FRP and electricity tariffs Development Partners asked the Government to re-assess the FRP and communicate clear criteria and sources of funding (the use of the budget versus controlled borrowing and increased tariffs) for financing TANESCO. They did not consider the underlying assumptions for financing the programme to be realistic anymore, e.g. the intended increase of electricity tariffs by 6% in January 2007 was not considered to be sufficient. The Government reminded the meeting that the FPR had been prepared in consultation with Development Partners and the private sector. There is however still scope to adjust the underlying assumptions of the FRP and update the programme. It has different components that can compensate each other if one of them fails to be successful. A Cabinet meeting on 27th October will address the FRP. The Government also confirmed that EWURA has the authority to raise tariffs so that FRP is not static but gives powers to the regulatory authority to set cost-effective tariffs. However, the Government also informed Development Partners that the private sector has often complained about higher tariffs, showing that different views exist among investors on the issue. Tariffs should therefore not be the main source of financing in the sector. Development Partners welcomed the stated flexibility in tariff setting but expressed concern over the slow decision making process. The meeting agreed that a small group of Government, Development Partner (World Bank, Sweden, IMF and the UK) and private sector representatives would address the issue of updating the FRP with regards to its funding requirements. This would then enable the Government to identify its own maximum contribution and borrowing requirements.

116

Management of TANESCO Development Partners pointed to the importance of financial and managerial autonomy of TANESCO and asked the Government how it will allow for a smooth transition in the management of TANESCO. They expressed strong interest in providing support, once the role of TANESCO is clear. MOEM informed the meeting that after four years of contracting out the management of TANESCO to Netgroup Solutions, a management and financial audit is planned, which will shed light on the track record of TANESCO and map out a way forward. Advertisement for a new manager has already started. MOEM also confirmed Government commitment to an independent EWURA. Medium- to long-term strategy The Government informed the meeting that public and private sector funding for the USD 1 billion Capital Investment Plan has still to be secured. USD 250 million will be raised from the banking sector, guaranteed by the Government. Development Partners cautioned the Government to balance the envisaged increase in power supply with the absorptive capacity of TANESCO and emphasised the importance of a longer term strategy in addition to the medium-term plan. The meeting also addressed the importance of diversifying energy sources, among others through using gas and bio fuel. Way forward A resource mobilisation meeting between the Government, Development Partners and other stakeholders will be called by the Government very soon and address the way forward on energy and infrastructure. Closing The meeting was closed by the Chairperson at 4pm. High-level representatives of the Government and Development Partners retreated into a closed-door session. FRIDAY, 20TH OCTOBER 2006 Opening The meeting was opened by the Chairperson, Permanent Secretary Gray Mgonja of the Ministry of Finance, at 9.15am. He introduced the Ambassador of Switzerland as his co-chair and outlined the agenda for the wrap-up session. Presentation and discussion on the learning assessment Richard Gerster and Ruta Mutakyahwa, the two consultants that undertook a learning assessment, presented a summary of views which they gathered during the TWG pre-review plenary sessions and the GBS Annual Review from Government,

117

Development Partner and NGO participants of the review. They commended the Government and Development Partners for the high quality dialogue during the review. The Government and Development Partners welcomed the learning assessment and discussed the consultants’ observations. Development Partners noted that the Ministry of Finance and Development Partners must work to increase MDAs’ awareness of the benefits of GBS and create ownership of GBS among all MDAs. Development Partners need to be disciplined in their engagement with MDAs in order to achieve greater sector participation in the GBS process. The meeting emphasised the importance of embedding dialogue with Development Partners into the wider dialogue with domestic stakeholders. Development Partners asked the Government to formulate a clear vision on how to use national processes so that they meet requirements for dialogue with both domestic stakeholders and Development Partners. One way could be to make the information that Development Partners need publicly available. The Government noted that dialogue is important but should not take away attention from action and actual service delivery to the people. Development Partners acknowledged that there is a new interest in conditionality in their home countries, but noted that this could also be seen as an opportunity, if dialogue with domestic stakeholders is strengthened. The Government emphasised the importance of “owning” conditionalities, and also requested that the term ‘conditionality’ should no longer be used – ‘agreed actions’ is more appropriate. The Government recommended considering the proposal coming out of the learning assessment to link the GBS Annual Review with local government processes. Opening up the GBS process to LGA involvement was seen as enriching the process. In general, opening dialogue around GBS to other domestic stakeholders was seen as important. On the learning assessment’s proposal to submit a joint MKUKUTA-Economic Survey document with the annexed PAF matrix to the Parliament, the Government commented that a comprehensive document that covers all issues would be useful, so that there is no need for the PAF to be annexed. It clarified that the MKUKUTA Implementation Report will be submitted to the Parliamentary Finance and Economic Affairs Committee, which decides whether to only inform the Parliament or to table the Report in the Parliament. In addition, the Government asked to correct the observation that no reference was made to the MKUKUTA Implementation Report, as reports on the PAF benchmarks are drawn from the MKUKUTA monitoring and evaluation system. It was also added that more comments are needed to improve the MKUKUTA Implementation Report, which is still a draft. Substantive inputs to the report are expected from the Poverty Policy Week scheduled for late November 2006. The consultants confirmed that they will integrate the comments in their report and emphasised again that the points presented are not the views of the consultants but of individuals that attended the meetings.

118

Presentation and discussion on the summary of the GBS Annual Review and way forward The GBS Secretariat presented a summary of the discussions during the key issues sessions and the proposed way forward. The presentation will serve as the basis for the joint Government-Development Partner statement on the GBS Annual Review. The audience made some comments on the presentation, but also requested more time for their consideration. Development Partners requested to include a commitment on the Government making an official structured response to the recommendations of the NAO Audit Report. They also noted that the way forward in terms of formulating an overall strategy for budget reform should be extended to a wider public financial management strategy and the need for a wider review of activities in these areas. Development Partners also asked to include a timeframe for expenditure reporting on SBAS in the summary – understanding that this should be available in the next PEFAR. In addition, it was requested to include the contribution made by the private sector representative on energy. The private sector should also be included as a member in the task force on energy issues. Development Partners recommended for the task force on energy to meet before the Cabinet meeting on 27th October 2006 and to include TANESCO. Development Partners also requested that reference to an intended “update on the FRP” is included in the summary. The Government requested to rephrase the reference to the draft Road Act Cabinet paper into “Government decision on Road Act expected by end November”, and similarly the reference to the Cabinet meeting on energy into “Government decision on energy by end October”. It also stated that the Emergency Power Supply Programme is already under implementation. The presentation should thus be corrected on this issue. It was suggested to rephrase it in terms of “accelerating the implementation of the EPSP”. In addition, the Government asked not to include “in advance of the Cabinet meeting” in the section on the small task force on energy. For moving forward with the PAF, Development Partners considered the output of the Satisfactory Sector Review Task Force as crucial. Some Development Partners also pointed out that the annualisation of PAF targets was considered appropriate, as MKUKUTA itself uses annual targets and because Development Partner commitment to align their support to MKUKUTA needs annual tracking. The Government noted that an annualisation of targets cannot be completed within the next two weeks, but should be taken up as work for the next GBS cycle. Furthermore, completing the PAF matrix at this stage should not depend on the output of the Satisfactory Sector Review Task Force. The summary should therefore state that “the work is to be completed as soon as possible to facilitate sector review work”. It was highlighted that the work of the TWGs should be recognised in the summary, with a reference to their commitment to follow up on a range of issues. The meeting agreed that recommendations from this Annual Review will set the agenda for the next cycle and are to be addressed by the TWGs throughout the year. At the next Annual Review, the status of implementation of the recommendations presented by the GBS Secretariat will be reported. The GBS Secretariat was tasked to incorporate the comments from the wrap-up session in their presentation.

119

Closing The Ambassador of Switzerland presented a closing statement on behalf of the 14 GBS Partners. He commended the Government’s and Development Partners’ engagement in the Annual Review 2006, expressed his appreciation for an open and critical dialogue throughout the Review, and thanked in particular the Minister for Finance for her chairing of the first day of the Review and her participation in the discussions on energy and infrastructure. He also thanked the Permanent Secretary Mr. Mgonja of the Ministry of Finance for chairing the plenary and high-level sessions. The Ambassador highlighted some of the main achievements and challenges that were noted during the TWG and key issues sessions and urged for timely completion of the review work, so that Development Partners can provide timely GBS commitments for the next MTEF period. The Chairperson thanked all participants for their cooperation and support, for lively dialogue and the high degree of consensus reached. He reminded Development Partners of the Government’s need for their support to solve the energy crisis. He also thanked the TWGs for their work, noted that the TWG arrangement should be maintained, and reminded TWGs of the work that is still ahead to finish the Annual Review. The meeting also acknowledged the work of the Joint GBS Secretariat. The wrap-up session was closed at 11.30am.

120

7. Joint Press Release

JOINT PRESS RELEASE OF THE GOVERNMENT OF THE UNITED REPUBLIC OF TANZANIA AND THE 14 GBS PARTNERS AT THE

CONCLUSION OF THE GBS ANNUAL REVIEW 2006

Government and GBS Partners successfully conclude GBS Annual Review 2006 The Government and the 14 Development Partners that provide aid to Tanzania in the form of General Budget Support (GBS) met from 16 to 20 October 2006 at the Dar es Salaam International Conference Centre for their joint GBS Annual Review. The 14 GBS Partners are the African Development Bank, Canada, Denmark, EU, Finland, Germany, Ireland, Japan, the Netherlands, Norway, Sweden, Switzerland, the UK and the World Bank. GBS is one of the three modalities through which the Government of Tanzania receives development assistance. The other two modalities are project and basket funding. Whereas project and basket funds support specific projects or programmes respectively, GBS is provided directly to the national budget to finance the implementation of Tanzania’s National Strategy for Growth and Reduction of Poverty or MKUKUTA. At the Annual Review, the Government and GBS Partners jointly assessed how well they performed over the past financial year in meeting the commitments that they had agreed in the Partnership Framework Memorandum for GBS signed in January 2006. The results of the Annual Review will be used by GBS Partners to decide on their GBS funding commitments for the next financial year 2007/08. In particular, the Review assessed Government progress in implementing MKUKUTA and achieving outcomes in the three broad clusters of (1) growth and reduction of income poverty, (2) improvement of the quality of life and social wellbeing, and (3) governance and accountability. It also looked at Government performance in resource allocation and budget consistency, public financial management, and macroeconomic stability. In addition, GBS Partner performance in delivering GBS on time and as committed was assessed. The Annual Review and the draft MKUKUTA Annual Implementation Report demonstrated many achievements in these areas. School enrolment rates have increased. More people in rural and in urban areas have access to clean and safe water. Outcomes in the health sector have improved. Macroeconomic stability has been maintained, as indicated by the fiscal deficit after grants standing at 5.5% of GDP in 2005/06, thus outperforming the set target of 6.3%, and an inflation rate as targeted at 6.8% for June 2006. It has since come down to 4.8% in August 2006. Implementation of the budget for 2005/06 was on track, despite adverse effects of drought and rising oil prices. The approved budget for 2006/07 is in line with MKUKUTA. Satisfactory progress has been

121

noted in public sector, local government and public financial management reforms. Efforts are also underway to further enhance Government measures to combat corruption through the planned second phase National Anti-Corruption Strategy and Action Plan and the revision of the national anti-corruption legislation. GBS Partners’ performance in adhering to their GBS funding schedules has been very good. Most GBS Partners have disbursed their funds as committed and in the first quarter of the financial year, which has helped the Government to implement its budget smoothly. In their week-long discussions, the Government and GBS Partners concentrated in particular on challenges and possible ways forward in enhancing domestic accountability and the involvement of civil society and the private sector in policy dialogue; improving Government planning and budgeting including Development Partner funding commitments over a three-year planning and budgeting timeframe; closing the gap between available and required resources to finance the implementation of MKUKUTA; working further on local government reform through implementing the Government policy on decentralization by devolution; ensuring the sustainability of the public sector wage bill; expanding and maintaining infrastructure and solving the current energy crisis. The Annual Review concluded that overall progress has been satisfactory, yet more needs to be done to address capacity and financial constraints and further strengthen ongoing reform programmes. In this respect, the Government encouraged Development Partners to further scale up their aid to Tanzania in order to assist it in meeting the substantial financing needs of the MKUKUTA, while also aiming to reduce aid dependency in the medium to long term. It also reiterated its demand for more aid being delivered in the form of GBS, which is the Government’s preferred aid modality. This is because GBS has demonstrated advantages over other funding instruments in that it gives the Government full ownership over resource allocation in line with national priorities for implementing MKUKUTA and is fully integrated in the national budget and accountability system. It allows the Parliament to hold the Government to account for the proper use of development assistance as it does for local resources. Currently, the share of GBS in total aid to the Government is 42%. GBS as budgeted in 2006/07 stands at USD 660.6 million or TShs 804.5 billion, out of which 80% have already been disbursed by the end of September 2006.

122

8. Outcome of the Review and Appraisal Prior Actions for PRSC-5 and Triggers for PRSC - 6

Review of progress against PRSC-5 triggers and conversion to prior actions 1. The findings of the GBS Annual review suggest that seven of the nine PRSC-5 triggers have been substantially completed by October 2006. The completion of two triggers, namely the submission to Parliament of a draft Roads Act and of Amendments of Legislation for at least two crop Boards by November 2006 is likely to be delayed.

Table 1. PRSC-5 Triggers and Retained Prior Actions

PRSC 5 trigger (agreed upon during PRSC-4 negotiation)

Retained PRSC 5 prior action

Comment

Amendments of Crop Board Legislation for at least two Crop Boards submitted to Parliament

Delayed. Government decided to amend legislation for all crop boards. Government issued a Ministerial Circular on the Reform of Crop Boards on 10th March 2006. By September 26th 2006, stakeholder consultations were completed for cotton, coffee, sugar, tobacco, pyrethrum and cashew nut crop boards. As a result of these consultations Memorandum of Understanding (MOU) for each crop was prepared on how to operationalize the government circular on crop board reforms after the removal of crop levy by 1st July 2006. Short and long term measures were identified and actions plans identified on how to finance shared functions for the development of individual crops. Stakeholder consultation workshops for tea and sisal are planned for October

123

PRSC 5 trigger (agreed upon during PRSC-4 negotiation)

Retained PRSC 5 prior action

Comment

2006. Consultancy services have been procured for the preparation of a comprehensive report on stakeholder deliberations, which will act as an input in the review of the crop legislations. A Legal Consultant will be hired to review the Acts establishing the Boards, an assignment be completed by January 2007.

Progress in the reform of the Business Activities Registration and the Business Regulatory Licensing Regime

Same On track. First reading of the Business Registration Act in Parliament in July, 2005. BAR Bill was revised to accommodate private sector views and will be presented to Parliament in November 2006. A report prepared on regulatory licensing to be taken forward by MPEE.

Roads Bill Submitted to Parliament

Delayed, partly as a consequence of the restructuring of ministries and delays in the preparation of the road inventory. We now have a Road map for the completion of the Roads Act for which a Cabinet Memorandum seeking their approval for the new Act will be presented in Nov 2006 followed by joint DP/GOT review of current draft and stakeholders forum with the intention of submitting the bill to Parliament in the

124

PRSC 5 trigger (agreed upon during PRSC-4 negotiation)

Retained PRSC 5 prior action

Comment

March/April 2007 session for 1st reading. The second reading to be in the Sept parliamentary session with enactment likely in December 2007.

Approved budget for FY07 in line with policy objectives (MKUKUTA)

Same Completed.

Expenditure outturn for FY06 consistent with approved budget

Same Completed.

National Audit Office General Report for FY05 issued by April 2006.

Same Completed

Satisfactory health sector review carried out

Same Completed

Satisfactory education sector review carried out

Same Completed

Satisfactory water sector review carried out

Same Completed.

Proposed PRSC-6 Triggers [to be reviewed upon finalization of PAF update for consistency and confirmed during appraisal/negotiations] 2. The triggers for PRSC-6 focus on reducing income poverty, strengthening public sector financial management, and maintaining effective sector dialogue in the agriculture, education, health, and water sectors while measuring performance. These triggers are drawn from the draft PAF and represent key markers in Tanzania’s progress towards the MKUKUTA objectives of high sustained growth, poverty reduction, and improved public sector service delivery.

i. Amendments of Crop Board Legislation for at least two Crop Boards submitted to Parliament [delayed trigger from PRSC-5]

ii. Progress in implementation of the TANESCO financial recovery plan and governance of the sector

iii. Roads Bill Submitted to Parliament [delayed trigger from PRSC-5]

iv. Transport Sector Investment Plan finalized with adequate provision for maintenance and a framework for PPP.

125

v. Approved budget for FY08 in line with policy objectives (MKUKUTA), including detailed information on expenditure in SBAS format

vi. Expenditure outturn for FY07consistent with approved budget, including assessment of expenditure outturns against allocations in SBAS format

vii. Audit Bill Submitted to Parliament by November 2007

viii. Satisfactory agriculture sector review carried out

ix. Satisfactory health sector review carried out

x. Satisfactory education sector review carried out

xi. Satisfactory water sector review carried out

xii. Submission of Anti-corruption Act to Parliament.

xiii. Effective structure and process established for managing GoT and DP joint support for NACSAP II by April 2007

Funding level for PRSC-5 and disbursement modality 3. The proposed amount for the PRSC-5 is US$ xx million contingent on the completion of all prior actions. The Government opted for a single tranche disbursement based on the provision of satisfactory evidence of the completion of all Prior Actions.

Next Steps in PRSC-5 Process • Based on the agreements reached during the GBS/PRSC annual review, the

Bank team will prepare a draft program document for Bank internal review in December 2006/January 2007. Following the Bank internal review, the Bank will provide a firm indication of the likely amount of PRSC-5. Should the review processes propose changes to the list of prior actions for PRSC-5 and triggers for PRSC-6, the Bank team will discuss with Government and GBS donors possible adjustments to the PAF matrix, PRSC-5 prior actions, and PRSC-6 triggers.

• Government will need to prepare a letter of development policy for PRSC-5.

• Appraisal/Negotiation of the credit planned for January/February

• Board presentation of PRSC-5 is tentatively scheduled for March 2007.

• Disbursement is envisaged for early July 2007.

126

9. Annex I - Revised Performance Assessment Framework (PAF) for GBS Review 20077

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

1

MKUKUTA implementation: Cluster 1 - Growth and Reduction of Income Poverty

(i) Energy Sector Review

including delivery of Power Sector Reform Strategy

(i) Substantial progress in

finalising Power System Master Plan (costed and priortised)

(ii) Progress in

implementation of the TANESCO financial recovery plan and governance of the sector including producing sound financial information

(iii) Carry out

comprehensive tariff study

(iv) Draft Electricity Act to

(i) Total electricity

generating capacity and utilization

(ii) % increase of

number of customers

*Baseline: Installed capacity 889 MW, reliability of supply 60%

Target: Installed capacity 1278 MW, reliability of supply 85%

Baseline: 10% of the population connected to the national

New indicator New Indicator

7 The PAF was revised at the GBS Annual Review 2006. This revised version will be reviewed at the GBS Annual Review 2007.

127

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

Parliament by February 2007

connected to the national grid and off-grid sources of electricity

grid

Target: 20% of the population connected to the national grid.

[* Baseline and targets will be refined during Sector Review 2007]

(ii) Annual Infrastructure

Sector Review (encompassing Roads, Transport and Communications)

(v) Transport Sector

Investment Plan finalized with adequate provision for maintenance and a framework for PPP

(vi) Draft Road Act to be

submitted to Parliament by June 2007

(iii) % of rural

population who live within 2 kms of an all-weather road

(iv) % of national

and regional roads network in good and fair

Baseline and targets to be agreed by start of Sector Review 2007

Ditto

New Indicator

128

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

condition

(iii) Agricultural Sector

Review (incl. PER and performance review of ASDP)

(vii) Amendment of

Legislation for all Crops Boards by October 2007

(viii) Special studies on

SGR, Input Trust Fund and Input Subsidies conducted with Government position on their recommendations by March 2007

(v) Number of

districts qualifying for top up grants (in addition to base grants) according to agreed performance criteria

(vi) Reduction of

income poverty in rural population (measured by annual agriculture GDP growth)

Baseline: 84 (2006)

Target: 122 Baseline: 5.4%

Target: 10%

New indicator 5.2%

129

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

(iv) BEST Programme

Review

(viii) Agreed Issues Paper for reform of Civil Procedure Code and implementation of Business Activities Registration Act by October 2007

(vii) Enabling

environment for private sector led growth improved as reflected in “Doing Business” ranking

Baseline: Tanzania ranked 150

Target: ranking 99

142

(v) Second Generation

Financial Sector Reforms Programme Review

(viii) Increase in

credit extended to private sector

Baseline: TShs 1.2 bn or 10% of GDP (June 2005)

Target: 30% annual increase

Increase from 7.9% of GDP to 10.9% of GDP

(vi) Tax Modernisation

Programme Review

130

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

2

MKUKUTA implementation: Cluster 2 - Improvements of Quality of Life and Social Well being

Is there improved quality of life? Is service delivery improving?

A comprehensive MKUKUTA Cluster Review when developed

MKUKUTA Review

Implementation of the National Environment Management Act, 2004

A preliminary State of Environment reporting system in place by end of 2007

To be identified from the State of the Environment reporting system.

MKUKUTA Review

Draft National Social Protection Framework adopted

To be identified from the Framework

131

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

MKUKUTA Review

Health Sector Review

(i) Proportion of

children that receive three doses of vaccine against diphtheria, pertussis (whopping cough), tetanus, and Hepatitis B under two years.

Baseline: 71% Target: 85%8 (MKUKUTA target)

87% (EPI reporting)

MKUKUTA Review

NMSF Bi-Annual Review

(i) National HIV

prevalence9 in the 15 – 24 years age group (MKUKUTA Indicator)

Baseline: 4% (2003/04) Target: Target to be set based on next THIS to be conducted

Long term indicator measured every 3 years – 2003/04 value is 4%; next survey

8 The target established in 2005 was 90%. It was revised at the GBS Annual Review 2006 in alignment with the MKUKUTA target of 85%. 9 Target to be reviewed to take into account the effect of ARVs

132

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

in 2007/08 to be conducted in 2007/2008 Target to be set then

MKUKUTA Review

Education Sector Review

(i) Net primary

school enrolment

(ii) Transition rate

from Standard VII to Form I

Baseline: Average 94.8% Boys 95.6% Girls 93.9% Target: 99% Baseline: Average 36.1% Boys 36.6% Girls 35.6% Target: 50%

Av. 96.1% Boys 96.8% Girls 95.5% Av. 39.8% Boys 40.8% Girls 38.7%

133

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

(i) Complete survey of all

non-university higher education institutions, to better inform Higher and Tertiary Education statistics

(iii) Gross Higher

Education enrolment10

Baseline: 0.27% (2002) Target: 6%

1.2%

MKUKUTA Review

Water Sector Review

(ii) Revised Water Sector

Legislations presented to the Parliament by January 2007

(iii) The National Water

Sector Development Strategy presented to the Cabinet by December 2006

(i) Percentage of

the population that has access to clean and safe water from a piped or protected source

Baseline: Rural 53% (2003) Urban 73.0% (2003) Targets: Rural 65%

Urban 90%

Rural 53.7% Urban 74.0% (source of data: routine data collection (MoW); Confirmation of figures via national surveys: ILFS 2006;

10 No figures for tertiary education are reliably available yet; therefore only higher education is used.

134

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

and HBS 2007

3

MKUKUTA implementation Cluster 3 - Governance and accountability

Is good governance and the rule of law ensured? Is Government accountable to the people?

MKUKUTA Review

(i) Government-

Development Partner and other stakeholder consultations on governance

(ii) NACSAP (II) (iii) PSRP Review (iv) LSRP Review

(i) Anti-corruption legislation operationalised by end of 1st quarter of next financial year (ii) Effective structure and process established for managing GoT and DP joint support for NACSAP II by August 2007

(i) Quarterly

NACSAP Implementation Report published and discussed

(ii) Current pay as

a proportion of government’s pay target (PSRP)

(iii) Percentage of

Court cases outstanding for 2 years or more

Baseline: 4 reports Target: 4 reports Baseline: 86% Target: 100% Baseline: 70% Target: 40%

1 report 90% 70%

135

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

(v) LGRP Review

(iv) Percentage of

total government budget allocated directly to LGAs, which does not go through ministerial votes and is calculated on a formula basis

Baseline: to be identified Target: to be identified

New Indicator

4

Resource allocation and budget consistency

Does the budget reflect national policy? Does spending reflect the budget? Are budgetary decisions questioned for consistency with policy

PER MACRO Poverty Monitoring System

(i) Budget Guidelines (ii) Fiscal reports (BER,

QDR) (iii) PEFAR Review (iv) Annual MKUKUTA

Progress Report

(i) Approved

budget broadly in line with policy objectives (MKUKUTA, sector policies);

(ii) Expenditure

outturn consistent with approved budget.

Recurrent budget deviation reduced:

136

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

and VFM?

Baseline: 18% Target: 10%

17%

5

Public Financial Management

Are there systems in place within Government to assess the regularity of expenditures? Is the procurement system open and transparent and provide value for money? Are these enforced?

Single PFM Review instrument

(i) PEFAR Review.

(ii) PFMRP Review.

(i) PFMRP Strategic Plan revised by first JSC meeting 2007, reflecting the need to consolidate all PFM reforms into one comprehensive programme (ii) The draft Public Audit Bill will be submitted by Government to Parliament by April 2007 (iii) Government will provide structured reply to NAO report before the start of the next Annual Review (iv) Formulate procurement indicator on the basis of the OECD DAC procurement compliance indicators

(i) NAO Audit

Report is of international standard by 2010 and released within 9 months as required by the Public Finance Act 2001

(ii) Number of

procuring entities

Baseline: NAO starting to introduce Intosai and Isa international standards regarding formats, procedures and reports Target: NAO fully compliant with international standards. Baseline: not yet

NAO Audit Report was released on time as required by the Public Finance Act 2001. Actions to improve quality of Reports are under way. No procurement

137

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

complying with the Public Procurement Act 2004

established (estimate is 10%) Target: 80%

audits to assess compliance conducted

6

Macroeconomic stability

Is the broad macroeconomic environment conducive for budget support?

PER MACRO

(i) Budget Guidelines. (ii) Fiscal reports (BER,

QDR) (iii) PSI (iv) PEFAR Review

Fiscal and monetary stability, reflected by: (i) Fiscal Deficit

(after grants) as % of GDP consistent with PRGF targets.

(ii) Inflation rate

consistent with PRGF targets.

Baseline: 6% Target: per PSI Baseline: 4.5% Target: per PSI

5.5% (PRGF estimate was 6.3%; PRGF estimate for 2006/07 is 5.3%) 6.8% in June 2006 with downward trend (PRGF estimate was 6.8% for

138

INDICATOR VALUES

NO SUBJECT

QUESTIONS/

ISSUE TO MONITOR

MAIN PROCESS

UNDERLYING PROCESSES

TEMPORARY PROCESS ACTIONS

OUTCOME INDICATORS

Baseline (2005) and

Target (2010) Values

Actual This Review Period

(2006)

June 2006)

139

10. Annex II – GBS Annual Review Summary Presentation

20 October 2006 GBS Annual Review 2006 1

GBS Annual Review 2006- Summary and way forward -

Presentation by the Joint GBS Secretariat

20 October 2006 GBS Annual Review 2006 2

Presentation outline

1. Overview of GBS Annual Review

2. Summary of main findings and recommended way forward on 5 key issues

3. PAF matrix

4. Conclusion

140

20 October 2006 GBS Annual Review 2006 3

1. Overview of the GBS Annual ReviewTWG preparations fed into GBS Annual Review and findings were discussed at TWG pre-review plenary sessions, including non-state actors→ noted overall satisfactory progress against PAFGBS Annual Review discussions structured around 5 key issues:1. Domestic accountability2. Planning and budgeting3. Local government 4. Sustainability of wage bill and human resources5. Energy and infrastructureFruitful high-level dialogue between Government and GBS Partners, leading to joint findings and recommendations on way forward

20 October 2006 GBS Annual Review 2006 4

2. Key issue 1: Domestic accountabilityEnhanced domestic accountability is key to promote good governance under the MKUKUTA

Efforts to strengthen domestic accountability have so far mainlyfocused on supply side of accountability

Need to focus more on the demand side → to be addressed under NACSAP II and PSRP II

NEPAD Peer Review Mechanism as important instrument for accountability → governing council to be established soon, stakeholder consultation on nominations has already been completed

Need for better statistics on corruption → proposed domestic accountability and corruption survey

141

20 October 2006 GBS Annual Review 2006 5

2. Key issue 1: Domestic accountability

Proposals on follow up of NAO reports:→ Government makes structured response to comments of NAO

report→ Issues raised by CAG in NAO Report to be followed up in

PER, PFMRP and GBS→ Government makes response of accounting officers to CAG

audit queries available to DPsImportance of LSRP to become fully operational; DPs confirmed commitment to process and welcomed regular high-level dialogueNon-state actor involvement in GBS Annual Review was seen as positive → proposed to involve them in work of TWGs next yearNeed to use national processes for Government-DP dialogue and to rationalise reviews in order to cut transaction costs → assess options for linking GBS and PER cycles

20 October 2006 GBS Annual Review 2006 6

2. Key issue 2: Planning and budgetingMismatch between financing requirements and available resources for implementing MKUKUTA → gap to be addressed through increasing domestic resource base and scaling up of aid,in particular GBS, while planning to reduce aid dependency in medium to long term

Cluster approach of MKUKUTA and coordination between clusters and sectors need to be strengthened → Need to consider design of cluster and sector reviews that

minimises Government work load but meets both strategic and annual requirements

→ Issue is addressed by the Sector Review Task Force – joint report expected soon

→ Need to strengthen PER Secretariat

142

20 October 2006 GBS Annual Review 2006 7

2. Key issue 2: Planning and budgeting

Government to formulate overarching strategy for budget reforms over the next year on the basis of the Medium Term Strategic Planning and Budgeting Manual

Need to clarify and develop further the link between SBAS, PlanRep, IFMS and RIMKU

Need to provide expenditure reporting against SBAS at next PEFAR

Good performance of GBS Partners in in-year predictability, but problems remain for basket and project funds (actual disbursements accounted for in Exchequer system are consistently less than project/basket funds in budget estimates)

20 October 2006 GBS Annual Review 2006 8

2. Key issue 2: Planning and budgeting

DPs need to improve predictability of their MTEF projections, in particular for outer years – weak DP reporting is undermining the MTEF

Need to increase channelling DP funds through the Exchequer system

Government to undertake analysis of different funding scenarios as part of Budget Guidelines preparation

Provision of MTEF summaries to the public requires credible domestic and external resource estimates

143

20 October 2006 GBS Annual Review 2006 9

2. Key issue 3: Local GovernmentGovernment is committed to implement its strategy of decentralisation by devolution – since 2004 recognised as responsibility of all MDAs, not only PMO-RALG

Government is in process of identifying responsibilities and resources to be transferred from central to local government –team of 5 sector MDAs work with PMO-RALG to bring strategic plans in line with D by D – to be transparently incorporated in next Budget Guidelines and MTEF

Government will follow up on the operationalisation of Public Service Act regulations

Need to follow up on design of incentive package to attract and retain staff in local government, in particular in peripheral areas

20 October 2006 GBS Annual Review 2006 10

2. Key issue 3: Local governmentRemaining concern of DPs about amendments of local government laws, despite Government explanation of its intention to support D by D – Government agreed to keep DPsinformed on the issue

Fiscal decentralisation requires decentralisation of projects/ programmes from the design stage

Need to harmonise multiple funding and reporting arrangements and systems at local government level

Government-DP task force will discuss PEFAR recommendations on fiscal decentralisation and take stock of the multiplicity of funding arrangements at LGA level

144

20 October 2006 GBS Annual Review 2006 11

2. Key issue 4: Sustainability of the wage bill and human resources

Need for sustainable and realistic wage bill targets within the macroeconomic framework Need to integrate wage bill in strategic resource allocation Need for appropriate structure (including decompression) and size of the public service – influenced by D by D and social service delivery requirements; need to consider special requirements for specific sectors (health, HIV/AIDS)Government will continue consultations on proposal to allow MDAs to determine wage bill/other charges mixDPs have role to support building capacity and professionalisingTanzania’s public sector

20 October 2006 GBS Annual Review 2006 12

2. Key issue 4: Sustainability of the wage bill and human resources

Shared concern about increasing number of allowances → Use of allowances is addressed by Government task force

which will inform Presidential Commission on Pay Reform (Commission report expected in December 2006)

→ Need to harmonise DP workshops to reduce transaction costs

→ Proposed that DPs formulate strategy to reduce DP funded allowances in the context of JAST

Need to revise Medium-Term Pay Policy in order to take into account new developments in terms of staffing requirements →expected to be addressed by the Presidential Commission –revision of pay targets not before March 2007, recommendations of the Commission to be addressed in PSRP II starting July 2007

145

20 October 2006 GBS Annual Review 2006 13

2. Key issue 5: Energy and infrastructure A. Infrastructure

Need to balance road extension and maintenance

Investment programme of LGAs in rural roads needs to be integrated in Transport Sector Investment Programme (TSIP)

Government-DP workshop on 8-9 November and Government-DP Consultative Forum on 2 December 2006 to address the following:1. Prioritisation of TSIP and integration in MTEF2. JTC proposals on maintenance funding: use of development budget; increase fuel levy; access fees3. Draft Road Act

Government decision on Road Act expected by end November

20 October 2006 GBS Annual Review 2006 14

2. Key issue 5: Energy and infrastructure B. Energy

Joint concern about impact of energy crisis on growth, DP concern about cost to the public sector

Need to accelerate implementation of Emergency Power Supply Programme

DPs welcomed Government consideration of using emergency regulations (procurement) to address energy crisis

Importance of managerial and financial autonomy of TANESCO

Management and financial audit of TANESCO to map out way forward

Resource mobilisation meeting on energy and infrastructure will address way forward

Private sector willing to fill resource gap

146

20 October 2006 GBS Annual Review 2006 15

2. Key issue 5: Energy and infrastructure B. Energy

Scope for updating Financial Recovery Plan (FRP)

Government decision on energy by end October

Small group of Government, private sector and DPs (WB, Sweden, UK, IMF) to discuss energy issues, including revisions to the FRP, and provide inputs into resource mobilisationmeeting

20 October 2006 GBS Annual Review 2006 16

3. PAF matrix Maintain current structure

Need to simplify PAF, if possible

Rely on MKUKUTA indicators

No increase in the number of indicatorsAnnualisation of targets for outcome indicators to be discussed further – for several outcome indicators, annual targets are not considered appropriate by the Government

Work of sector review task force to be completed as soon as possible to facilitate sector review workTWGs have two weeks to prepare inputs on the agreed areas for revision of PAFJoint GBS Secretariat meets within three to four weeks to make aproposal on the revised PAF for endorsement

147

20 October 2006 GBS Annual Review 2006 17

4. Conclusion Discussions have served to reach a common understanding of several issues, share ideas on possible actions to address challenges, and identify next steps

Agreed way forward will be included in GBS Annual Review report and will be addressed over the next cycle up to the GBS Annual Review 2007

Look forward to completing work on PAF within the next three to four weeks in order to allow DPs to make timely funding commitments

Recommendations of the GBS Annual Review set agenda for next cycle of TWG work – TWGs to follow up and report relevant issues at next GBS Annual Review

148

11. Annex III – List of Participants

149

12. Annex IV – Learning Assessment Report