THE UNITED REPUBLIC OF TANZANIA. GBS Annual Review Final Report

Transcription

1 THE UNITED REPUBLIC OF TANZANIA GBS Annual Review 2006 Final Report Ministry of Finance Dar es Salaam 8 th December

2 Table of Contents 1. Executive Summary / Joint Statement Overall assessment Summary findings of TWG assessments Summary findings from GBS Annual Review key issues sessions Introduction Objectives of GBS Annual Review Progress against PAF matrix Thematic Working Group (TWG) Reports 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 2: MKUKUTA Cluster 3 - Governance and Accountability TWG 4 and 6: Resource Allocation and Budget Consistency & Macroeconomic Stability TWG 5: Public Financial Management Plenary Session Minutes Minutes of the TWG pre-review plenary sessions Minutes of the GBS Annual Review Joint Press Release Outcome of the Review and Appraisal Annex I Revised PAF matrix for GBS Annual Review Annex II GBS Annual Review Summary Presentation Annex III List of Participants Annex IV Learning Assessment Report... 2

3 Acronyms and Abbreviations ACGEN ACT ADB ALAT AR ARV ASDP BAR BEST BOT BRELA CAG CBO CCRO CIP CPAR CPC CSOs CTI DAC D-by-D DCF DFID DP DPG EAC EC EMA EPSP EU EWURA FRP FY GBS GDP GFATM GGCU GOT GWG HBS HIV/AIDS HCMIS IFMS IMF IMTC IPP IPTL Accountant General s Department Artemisinin-based Combination Therapy African Development Bank Association of Local Authorities of Tanzania Annual Review Anti Retroviral Agriculture Sector Development Programme Business Activities Registration Business Environment Strengthening for Tanzania Bank of Tanzania Business Registration and Licensing Agency Controller and Auditor General Community-Based Organisation Certificates of Customary Rights of Occupancy Capital Investment Plan Country Procurement Assessment Report Civil Procedure Code Civil Society Organisations Confederation of Tanzania Industries Development Assistance Committee Decentralisation by Devolution Development Co-operation Forum UK Department for International Development Development Partners Development Partners Group East Africa Community European Commission Environment Management Act Emergency Power Supply Programme European Union Energy Water Utility and Regulatory Authority Financial Recovery Plan Financial Year General Budget Support Gross Domestic Product Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria Good Governance Coordination Unit Government of Tanzania Governance Working Group Household Budget Survey Human Immune Deficiency Virus/Acquired Immune Deficiency Syndrome Human Capital Management Information System Integrated Financial Management System International Monetary Fund Inter-Ministerial Technical Committee Independent Power Project Independent Power Tanzania Limited 3

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 4

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 5

6 USD VAT VFM VPO United States Dollars Value Added Tax Value for Money Vice President s Office 6

7 1. Executive Summary / Joint Statement 1.1. Overall assessment The GBS Annual Review 2006 was held between the 16 th and 20 th 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 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 10 th to 12 th October 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 7

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 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 8

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 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 The structure of the newly established Ministry of Infrastructure Development was approved in April 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 9

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 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 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 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 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 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 10

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 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 11

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 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 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. 12

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 Summary findings from GBS Annual Review key issues sessions The week of the Annual Review 2006, from 16 to 20 th 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) (ii) domestic accountability; 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. 13

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 14

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. 15

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 growthrelated 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 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 16

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 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. 17

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 16 th to 20 th October 2006 to conduct the GBS Annual Review 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 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 10 th to 12 th October 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 18

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 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. 19

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 20

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 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 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