THE UNITED REPUBLIC OF TANZANIA 2012 GENERAL BUDGET SUPPORT ANNUAL REVIEW

Transcription

1 THE UNITED REPUBLIC OF TANZANIA 2012 GENERAL BUDGET SUPPORT ANNUAL REVIEW 19 th November 2012

2 TABLE OF CONTENTS TABLE OF CONTENTS... I LIST OF ABBREVIATIONS... II EXECUTIVE SUMMARY... IV 1.0 LAUNCH OF THE 2012 GBS ANNUAL REVIEW INTRODUCTION WELCOMING REMARKS BY THE PERMANENT SECRETARY OF MINISTRY OF FINANCE REMARKS BY GBS CO-CHAIR OPENING REMARKS BY THE MINISTER OF FINANCE PRESENTATIONS AND DELIBERATIONS PAF 2012 IMPLEMENTATION AND 2013 PAF OVERVIEW Presentation: 2012 PAF Implementation and 2013 PAF Overview PLENARY DISCUSSION NEW BUDGET CYCLE AND RAPID BUDGET ANALYSIS Presentation- New Budget Cycle and Rapid Budget Analysis Presentation- New Budget Cycle Presentation - Rapid Budget Analysis Comments by Government Presentation by the Commissioner, Budget Plenary Discussion BIG FAST RESULTS NOW Presentation: Big Fast Results Now Plenary Discussion GBS INDEPENDENT EVALUATION PRELIMINARY FINDINGS Presentation: GBS Preliminary Findings Plenary Discussion CLOSING REMARKS CLOSING REMARKS BY GBS CO-CHAIR CLOSING REMARKS BY MINSTER FOR FOREIGN AFFAIRS AND INTERNATIONAL CO-OPERATION.. 31 ANNEXES i

3 LIST OF ABBREVIATIONS ANPD ASDP BFRN BG BMS CAG CSO CWG DADPs DP EFD FYDP GBS GDP HBS IFMS IPSAS JAST KPA KPI KRA LGAs LGRP LSRP LTPP M&E MDAs MDGs MKUKUTA MKUZA MoF NGO NKRA NPS NSGRP OI PCCB PER PFM Annual National Policy Dialogue Agricultural Sector Development Program Big Fast Results Now Budget Guidelines Block Management System Controller and Auditor General Civil Society Organisation Cluster Working Group District Agricultural Development Plans Development Partner Electronic Fiscal Device Five Year Development Plan General Budget Support Gross Domestic Product Household Budget Survey Integrated Financial Management System International Public Sector Accounting Standards Joint Assistance Strategy for Tanzania Key Policy Area Key Performance Indicators Key Results Area Local Government Authorities Local Government Reform Program Legal Sector Reform Program Long Term Perspective Plan Monitoring and Evaluation Ministries, Departments, and Agencies Millennium Development Goals Mkakati wa Kukuza Uchumi na Kupunguza Umasikini Tanzania Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Zanzibar Ministry of Finance Non-governmental organization National Key Results Areas National Panel Survey National Strategy for Growth and Reduction of Poverty Outcome Indicator Prevention and Combating of Corruption Bureau Public Expenditure Review Public Finance Management ii

4 PFMRP Public Financial Management Reform Program PFMS Public Financial Management System PMO Prime Minister s Office PMO-RALG Prime Minister s Office Regional Administration and Local Government PMS Poverty Monitoring System PSRP Public Service Reform Program RGZ Revolutionary Government of Zanzibar TDV Tanzania Development Vision 2025 TPA Temporary Process Action URT United Republic of Tanzania VAT Value Added Tax iii

5 EXECUTIVE SUMMARY The 2012 General Budget Support (GBS) Annual Review meeting marking the end of the 2012 GBS annual review cycle was on the 19th November, 2012 at the National College of Tourism. The meeting brought together the Government of the United Republic of Tanzania and its 12 Development Partners providing GBS. The Development Partner s GBS Group is made up of 9 Bilateral Development Partners (Canada, Denmark, Finland, Germany, Ireland, Japan, Norway, Sweden and the United Kingdom), and 3 Multilateral Development Partners (African Development Bank, the World Bank and the European Commission). The objective of the annual review is to assess the Government and GBS Partners performance against their respective commitments as agreed in the Partnership Framework Memorandum [ ] and the Performance Assessment Framework (PAF). It provided an opportunity to receive presentations and discuss key issues namely: the New Budget Cycle, Rapid Budget Analysis, Big Fast Results Now initiative and preliminary findings from the GBS Independent Impact Evaluation. The discussion on PAF 2012 results noted achievements and concerns. It was agreed that the lessons from 2012 will be taken up as future actions and targets for PAF 2013 which will focus on fewer strategic and results oriented indicators. Overall PAF performance was considered to be SATISFACTORY. The Government and Development Partners agreed to enhance dialogue on results. The key focus for dialogue next year between Government and development partners will be: sustainable growth (energy and agriculture), quality of social services at local government level, and public financial management and transparency. The meeting also heard about the Government s new Big Fast Results Now! Agenda which will strengthen delivery across six critical areas: Energy, Oil and Gas, Agriculture, Education, Transport, and Revenue collection. In the course of the deliberations it was reconfirmed that GBS remains Tanzania s preferred aid modality. GBS Development Partners were acknowledged for improving their disbursements and for ensuring predictability of GBS in 2012/13 just under half a billion US dollars. They pledged to enhance predictability of GBS disbursements on the basis of reinforced dialogue. In conclusion there was consensus that the continuing challenge for both partners is to support sustainable growth which benefits Tanzanian citizens at large leading to a significant decline in poverty. iv

6 The presentation on the proposed Big Fast Results Now initiative as a new approach to improve implementation and delivery of results was positively received. The initiative recognized the need to make improvements in prioritization, discipline, and efficient public sector, economic and political governance and in addressing key constraints to development. The presentation on the on-going GBS impact evaluation was commended for bringing the GBS partners back to its basic principles: flow of funds, policy dialogue, and technical assistance and capacity building. A joint team will be established to reengineer GBS around the recommendations from the final evaluation due out in March In conclusion there was consensus that both parties (government and development partners) will continue to address the challenges of sustainable and shared growth to ensure that growth benefits the majority of Tanzanian citizens. v

7 1.0 LAUNCH OF THE 2012 GBS ANNUAL REVIEW 1.1 Introduction The 2012 General Budget Support (GBS) Annual Review meeting which marks the end of the 2012 GBS annual review cycle was held for one day (19th November, 2012) at National College of Tourism Bustani Campus. The main objective of the review was to assess the Government and GBS Partners performance against their respective commitments as agreed in the Partnership Framework Memorandum that was signed in May 2011 and the Performance Assessment Framework (PAF) It provided an opportunity to discuss preliminary findings of the GBS Independent Evaluation that is being conducted by FISCUS and REPOA. Against this objective the 2012 GBS annual review had four main agenda items: i. Presentation and discussion of 2012 GBS PAF implementation, including successes and challenges and an overview of the PAF 2013; ii. Presentation and discussions of the New Budget Cycle and Rapid Budget Analysis; iii. Presentation and discussions on the Big Fast Results Now initiative; and iv. Presentation and deliberation on the preliminary findings from the GBS Independent Evaluation. 1.2 Welcoming Remarks by the Permanent Secretary of Ministry of Finance The Permanent Secretary for the Ministry of Finance made a welcoming statement to all participants. In his welcoming remarks, the Permanent Secretary expressed sincere appreciation on behalf of the Government to the GBS Partners for their support during the year under review as most were able to meet their commitments on schedule and provided valuable advice. He appreciated the spirit and cordial relationships during the year with respect to dialogue at various levels (Sector, Cluster and Troika). He assured the Development Partners (DPs) that the Government will continue to fulfill its obligations as agreed in the Partnership Framework Memorandum (PFM) and in the Performance Assessment Framework (PAF). 1.3 Remarks by the Development Partner Chair In his remarks, the Chair of the PRBS Development Partners Group in Tanzania applauded overall PAF 2012 performance. He appreciated the realism of this year s 6

8 budget although implementation remains a challenge in terms of improving public sector finances and expenditure.. He further noted that this year s commitment from the budget support donors remains just under half a billion US dollars - a significant contribution to the budget. He also noted that DPs have provided 68% of their budget support payments $337 million - in the first quarter of this year. He said that there are a large number of other stakeholders who have a legitimate interest in GBS, including Parliamentarians, CSOs and the Tanzanian citizens. Therefore it is essential that the outcome of this review is shared transparently with these other stakeholders. This is an important contribution in the promotion of national accountability. Growth and poverty In his remarks the Chair identified the crisis in the energy sector as one of the critical challenges confronting Tanzania. He further noted that energy is fundamental to growth, and the continuing crisis is a brake on Tanzania s development. Addressing sustainable financing for the energy sector is essential and action is needed urgently. Results and the longer term The Chair applauded the Government for recognizing the need to transform ideas and policy into implementation and results. This commitment is being borne out by the development of a new and exciting approach to the delivery of results drawing lessons from successful approaches adopted in Malaysia. The Chair welcomed the opportunity to align DPs behind a more focused set of Government priorities and focus DP dialogue on the Government s own achievable priorities for implementation and delivery - particularly important as the proportion of assistance subject to performance tranches increases (to as much as 50% in some cases). The Partnership The Chair concluded that dialogue around budget support leaves room for improvement. Removing underlying processes monitored in the PAF and ensuring a 7

9 common assessment of the underlying principles 1 of budget support provide a critical opportunity in the short term. Development partners are also working at the request of Government to harmonise their performance tranche assessments. This should help focus and strengthen dialogue. 1.4 Opening Remarks by the Minister of Finance The 2012 GBS Annual Review was officially opened by the Minister for Finance. In his opening speech, the Hon. Minister said that the GBS annual review event is an important requirement of the Partnership Framework Memorandum. It provides an opportunity for the Government and the GBS partners to assess performance of mutually agreed commitments that are considered essential for Tanzania s growth, development and poverty reduction. The Minister expressed the Government`s commitment to implementing issues agreed in last years` GBS annual review which include; (i) linking tangible results to the GBS s Performance Assessment Framework (PAF), (ii) Reviving the Public Expenditure Review (PER) process as a tool for strengthening budget management and systems that promote accountability and efficiency in the utilization of public resources; (iii) strengthening of public financial management systems. He also noted that the Government and DPs have put in place a results oriented and multi-year Performance Assessment Framework, the assessment of which forms a crucial part of 2012 GBS Annual Review. The Minister commended the good progress made to revitalize the PER process as committed to last year. The Champions Group has been formed consisting of key senior Government and DP officials and the joint permanent PER Secretariat has been reconstituted with a dedicated team to coordinate and ensure delivery of agreed commitments. The Minister emphasized the continuing strengthening of its systems and processes for ensuring that the funds received are effectively allocated, managed and accounted for in support of the country s growth, development and poverty reduction agenda. He noted that the GBS modality is still facing a number of challenges which need to be addressed if it is to remain a long term predictable financing instrument. He expressed concern over signs of non-adherence to the agreed commitments and 1 Underlying principles of GBS for this partnership arrangement:(i) Continuing sound macroeconomic policies and management;(ii) Commitment to achieving MKUKUTA II objectives and Millennium Development Goals;(iii) Continually strengthened budgeting and public financial management systems; (iv) Continuing peace and respect for human rights, the rule of law, democratic principles, and the independence of the judiciary; and (v)good governance, accountability of the Government to the citizenry, and integrity in public life, including the active fight against corruption in accordance with the laws of the United Republic of Tanzania. 8

10 principles as laid out in the Partnership Framework Memorandum (PFM). In the spirit of partnership, there is a need to identify and address the challenges that the GBS modality is facing. The Minister also observed that there is a need to have fewer actions and indicators in order for GBS to deliver more meaningful dialogue. Public Expenditure Review and Public Financial Management The Minister reiterated the importance of the Public Expenditure Review (PER) process as a tool for strengthening budget management and ensuring the efficiency and transparency in the utilisation of public resources. This has been done in the context of MKUKUTA and MKUZA implementation, carried out in a participatory manner, involving all stakeholders in growth, development and poverty reduction issues to effectively engage in open dialogue. The Minister pointed out that over the last year the Government has made efforts to revive and strengthen the PER process and provide space for it to play its role effectively. It is with this understanding that the Government used the work of the Joint (Government and DPs) Task Force and the PER retreat to generate inputs that were fed into the Planning and Budgeting Guidelines Committee. He also noted the Government s commitment to further strengthen the PER process as a basis for effective dialogue on budget issues and broad participation of key stakeholders. The Minister reiterated Government commitment to effectively implement PFMRP Phase IV, launched in June this year. The programme will be implemented over the period of five years, covering revenue management, planning and budget management, budget execution, transparency and accountability, budget control and oversight, change management, and programme monitoring and evaluation. Other 2012 National Issues Progress in several National issues was reported by the Minister as follows: (i) (ii) The population and housing census successfully took place from 26th August to 7th September; The Household Income and Expenditure Survey is in the field and on track to deliver results in mid-2013; 9

11 (iii) (iv) Parliament passed the Public Private Partnership (PPP) Act No. 18 of 2010 in August; The Government has initiated joint venture negotiations with power generation investors for the following projects: - Mtwara 300 MW; - Mpanga 144 MW; - Power transmission projects of 400 KV for Morogoro Tanga Kilimanjaro Arusha (682 kms) and - Expansion of the North West Grid for Kagera, Kigoma and Rukwa Regions (1000 kms). The Chair of the GBS Development Partners asked the Minister and his team for clarification on the issue of adverse effects on the disbursement schedule. He reminded the meeting that DPs have provided 68% of their budget support payments $337 million - in the first quarter of this year, against the target of 55%, and as of November DPs will have made 100% of their disbursements in line with their quarterly commitments. He requested the speech to be amended before being circulated to the press. 10

12 2.0 PRESENTATIONS AND DELIBERATIONS 2.1 PAF 2012 Implementation and 2013 PAF Overview The session on 2012 PAF Implementation and 2013 PAF overview was co-chaired by Mr. Ramadhan Khijjah, the Permanent Secretary, Ministry of Finance, and Mr. Marshall Elliot, Head of DFID Tanzania and Chair of the PRBS Development Partners Group in Tanzania Presentation: 2012 PAF Implementation and 2013 PAF Overview The presentation by Government gave an overview of PAF 2012 implementation and PAF 2013 overview. He presented PAF 2012 implementation following the three structure of the PAF, namely: underlying processes, key policy actions, and outcome indicators. Underlying Processes The Government noted that out of seven (7) underlying processes six (6) were rated as satisfactory and one (1) was unsatisfactory. Key Policy Actions The rating of key policy actions shows seven (7) achieved, and five (5) key policy actions not achieved.; The KPA s not achieved were: 1. Put in place integrated land management information system in Northern and Eastern Zones. This target was missed by 10% due to delays of funding from our Development Partners. Plans to fully install the Northern and Eastern geodetic control system are now delayed by about 6 months. 2. Interface central and local government ICT; 3. Streamline and rationalize national systems and processes for intergovernmental transfers to LGA; 4. The Government enhances domestic tax revenue mobilization with better transparency and business environment ; and 5. Strengthen institutions of public investment management and PPP. Outcome Indicators Out of 37 outcome indicators, 20 indicators were achieved, 13 were not achieved and 4 were not assessed. Outcome Indicators showing good results were: 11

13 (i) (ii) (iii) Enhancement of Cargo Handling at the Port Extractive Industries Transparency Initiatives; good progress towards validation The Public Expenditure Review Process has been revamped, and enhanced Secretariat in place (iv) Maintained sound macroeconomic stability and public financial management; PSI on track (v) (vi) (vii) (viii) Rural roads maintained to good and fair condition Primary schools leaving exam results have improved Increased births taking place at health facilitied Reduced number of legal cases delayed in the judiciary. The outcome indicators not achieved include: (i) (ii) (iii) Proportion of villages with land use plans Electricity plant availability % of trunk and regional roads network in good and fair condition (iv) Proportion of councils in which less than 40% of standard VII pupils passed the PSLE in the previous year (v) (vi) (vii) (viii) (ix) (x) (xi) (xii) Form 4 examination pass rates (Division I-III) national average for the previous year disaggregated by gender Nurses and nurse midwives per 10,000 population by region Proportion of households in rural settlements with access to clean and safe water from improved/ protected sources Proportion of households in regional towns with access to clean and safe water from improved/ protected sources Proportion of households in Dar es Salaam with access to clean and safe water from improved/ protected sources % of under five children receiving birth certificates Reduction in outstanding audit matters Value of tax exemptions as a share of GDP Despite good results shown in PAF 2012, challenges still remain in the areas where achievement was below expectations. In particular, the following areas were singled out: 12

14 (i) Access to clean and safe water slightly missing the targets for 2012, and further work is still needed on the new water MIS system. (ii) Legislation on simplified domestic tax revenue mobilization was delayed. (iii) Delays on revising the institutional changes to manage public investments and public private partnerships better. (iv) Remaining challenges in the energy sector despite achievement of the PAF 2012 action on energy subsidies. (v) Two studies in public financial management are detailed, but the overall PFMRP M&E framework shows a much more positive development. The presentation concluded by drawing lessons learned for PAF 2013: (i) (ii) (iii) Fewer indicators with clear methodologies for monitoring; Actions should be realistic and strategic that demonstrate results on increased growth and poverty reductccvvvcion; and Endorse PAF 2013 by the end of December 2012 to allow ample time for implementation. PAF 2013 proposals were summarized as follows: (i) (ii) (iii) (iv) (v) The Underlying Principles under the Partnership Framework Memorandum will be monitored through a joint assessment to be established by January 2013; Based on (i) above agreed to remove all underlying processes to reduce transaction costs and to be monitored at sector level; GBS Development Partners to harmonize their performance tranches for increased transparency; Opportunity to focus dialogue on sustainable growth, service delivery at the local level, transparency and public financial management; and Agreed to monitor poverty trends more comprehensively going beyond numeric targets. The presentation concluded with the following observations to support GBS dialogue going forwards: Frank dialogue based on mutual trust and focused on substance. Reduce transaction costs by agreeing to fewer meetings that monitor implementation and ensure that dialogue has value added. Less frequent change of leadership from the DP side in order to build stronger sustained dialogue and institutional memory. 13

15 2.1.2 Plenary Discussion In the discussion that followed the presentation, the following points were raised: (i) (ii) (iii) (iv) (v) (vi) (vii) There was an appreciation that this year s PAF performance has slightly improved compared to the previous year. Having set clear assessment criteria for most of the elements measured through the PAF, it is now possible to more clearly demonstrate where action is most needed. While commendable progress was made in launching the new public finance management programme, publishing budget books, and enhancing domestic accountability concern was expressed over the delay of publication of budget information and guidelines that allow citizens access to budget information. Concern was expressed over the constraint the energy sector is having on growth and development. In particular, concern over governance and operationalization of Tanesco (subsidy and cost recovery) was expressed. In this regard, it was pointed out that the Government is working closely with the WB and IMF to address the financial sustainability of Tanesco. Furthermore the Government is ready to work with serious investors in the energy sector and is ready to work with Development Partners. Concern was expressed over the quality and equity of public service delivery especially to poor people and poorly resourced areas. Specifically, the health sector was mentioned as a sector where quality and equity needs to be addressed by allocating more resources to marginalized areas and addressing the shortage of staff and security challenges in rural areas. Efforts being made to include more strategic agriculture indicators in PAF 2013 were welcomed. However, concern was expressed over the effectiveness of the indicators used and the challenges of monitoring; It was suggested that DPs should increase their commitments and disbursements in the first quarter of the financial year. It was noted that this year, the amount released in Quarter 1 was ahead of target. However, there is room for discussion on how to make the targets more stretching for DPs. The Government should back this proposal with more explicit indication of the needs for further frontloading and present the case for discussion with DPs. It was proposed that Government and DPs should identify constraints to further frontloading of disbursements and take action to address those constraints. Use of natural resources in more sustainable ways deserves greater attention and stronger action by Government to curb unsustainable use of natural resources. 14

16 2.2 New Budget Cycle and Rapid Budget Analysis Presentation New Budget Cycle and Rapid Budget Analysis This session was jointly chaired by the, Permanent Secretary, President s Office Public Service Management and the Country Director of the World Bank. The New Budget Cycle was presented by the Deputy Permanent Secretary, Ministry of Finance and the Rapid Budget Analysis was presented on behalf of the DP`s by, the Lead Economist from the World Bank Presentation New Budget Cycle The Government presented the current budget cycle, the challenges it faces and justification for the new budget cycle. The presentation recapped on the importance of the Government budget which serves as a tool for economic and financial management and accountability. Despite the importance of the Government budget, the current budget cycle faces the following challenges (i) Stakeholders less than full involvement in the budget process; (ii) Aligning sectoral priorities to overall national priorities; (iii) Insufficient time for Parliamentary Committees to effectively engage in the scrutiny of the budget proposals (iv) the misalignment of the PER/GBS review process with the budget cycle has resulted in insufficient input into the budget process; (v) delays in firming up development partners support in the government budget renders budgeting for foreign funded projects/activities problematic; (vi) delays in implementation of the new budget by at least two months; and (viii) underestimation of non- tax revenues by MDAs, RSs and LGAs. The new budget cycle will address these challenges. The timing of the new budget cycle will be as follows: i. Preparation of the Plan and Budget Guidelines will commence earlier (in August and end in October); ii. The Planning and Budget Guidelines will be approved by Cabinet by November and will be distributed to MDAs, RS and LGAs immediately; iii. MDAs, RS and LGAs will prepare their budget proposals between November and February; iv. The budget proposals will be submitted to the Ministry of Finance (by MDAs, RS and LGAs) by end of February for scrutiny and consolidation v. Cabinet will approve the budget proposals in April; vi. Budget books will be printed and made available to the Parliamentary Committees beginning May; vii. The Minister of Finance will present the National Budget to Parliament on the second Thursday of June as is currently done; 15

17 viii. ix. Parliament will approve the Finance Bill and the Appropriation Bill by of June to make it possible for budget implementation to commence on 1 st July; and Parliament will continue to debate MDA and regional programmes in the National Budget from June to August. The new budget cycle is expected to give ample time for MDAs, RS and LGAs to make adequate preparations of their budgets and to widen space for Parliamentary Committees and other stakeholders to participate more effectively in the budget process. It is also expected that DPs and other stakeholders will align their activities with the new budget cycle as appropriate Presentation - Rapid Budget Analysis The presentation by the World Bank on the Rapid Budget Analysis reiterated Tanzania s good macroeconomic performance with rapid and constant real GDP growth above 6 percent over the decade. He also noted that the external balance has been under control with stable reserves. The presentation pointed out that there had been significant improvement in fiscal policy management for the year 2011/2012 and a reduction of the deficit from 6.6 per cent to 5.5 percent of GDP. The adjustments made were higher than agreed with the IMF s PSI and represented a first time reduction since 2008/9. The adjustments were driven by significant but unequal cuts in current spending; more revenue collection; and higher execution of development spending than in 2010/11 most of which was directed to roads and energy. In the last review period, however, there have been a number of challenges including growing inflationary pressures, a decline in external reserves from 4.5 to less than 4 months equivalent of non-factor imports, depreciation of the local currency by about 20% in less than 1 year, and higher fiscal deficits. The presentation further pointed out the: i. Increasing gap between planned and executed budget; ii. Shift towards new infrastructure needs to be accompanied by capacity to select and implement investment projects optimally; maintaining the right balance between infrastructure with investments in the social sectors; and paying close attention to maintenance; iii. New sources of funding which include concessional loans and nonconcessional borrowing on both domestic and international market and the associated increase in debt stock and debt servicing with implications on debt management; iv. Increasing off budget expenses; v. Rising tax exemptions despite commitment by Government to reduce them; 16

18 vi. vii. Rising public pension spending in relation to earnings; and Local Government Authorities effectiveness is hampered by allocations not being clearly defined, transfers from Central Government, and inadequate monitoring of expenditures on the ground. The presentation concluded by urging all parties to develop a work programme to ensure a revitalization of the PER process. There was a need for close monitoring: RBA and information sharing along the budget cycle and TA through analytical tools; and joint analytical work to address some emerging issues Comments by Government In discussing the presentation on the Rapid Budget Analysis, the Commissioner for Policy Analysis expressed appreciation on the RBA as a guiding tool for addressing challenges of budget implementation and minimizing the deviation from budget approvals. It was appreciated that the presenter made proposals to address them. It was mentioned that the RBA has been addressing both revenue and expenditure issues which the Government has been considering with great attention as inputs for the next budget process. All challenges and proposals raised through the RBAs have enabled the Government to improve the preparation and execution of plans and budget, service delivery and monitoring and reporting from various stakeholders. The Government indicated willingness to continue providing requisite data and information on a timely basis for this exercise and proceeded to identify several steps that the Government was taking to tackle inflation, reduce tax exemptions, and manage new funding sources. Detailed responses to each issue raised in the RBA included: 1. Inflation: continues to reduce reaching 12.9% in October and the Government is focused on reaching single digit inflation by mid Reducing tax exemptions: the Government welcomed recommendations by the RBA team to address the high level of tax exemptions which contributed almost 4 percent of GDP in tax revenue losses in 2011/12, a situation which is of concern to the Government. A study on managing tax exemptions with recommendations to achieve quick wins in the 2013/14 budget will be presented to the PER Champions group in early New sources of funding: the Government experienced limited availability of aid in-flows including concessional funds, and as a result the Government embarked with non-concessional borrowing for key infrastructure development projects. Government does not assess the fiscal and debt sustainability at risk, has established monitoring systems, and is in the process of establishing a debt management division within MOF to be a one stop centre for debt management issues. 17

19 4. Low execution rate: affecting the implementation of planned activities, shift of the budget to finance infrastructure, off-budget expenses, increased tax exemptions, increased government borrowing from pension funds, inequality in resource allocation among LGAs, as well as monitoring and evaluation of public resources. The government takes these challenges and proposals positively. It was indicated that the Government will take them into account during the preparation and implementation of budget in the medium term. 5. Planning vs. Execution: the Government budget is executed based on resource availability (cash based budgeting). However, release of funds for infrastructure ministries averaged above 80%. The underfunding was caused mainly by low or delayed disbursement of external funds and procurement procedures. 6. Off-budget expenses: The Government has stopped issuance of guarantees for one year to pave the way for detailed evaluation of previous guarantees so as to come up with a more appropriate modality of managing the off-budget expenses. Furthermore the Government will make follow-up on IMF advice of effective management of off-budget expenses. 7. Expenditure cuts in 2011/12: The budget cuts for 2011/12 were necessary in order to comply with IMF and WB advice on reducing budget deficit from 6.5% to 5.5% of GDP for ensuring macro/fiscal sustainability. The budget was affected by the emergence power plan. The Government is taking measures to avoid unnecessary expenditure cuts in future. 8. Delays in release of development as well as built-up of arrears in 2011/12: It was pointed out that sources of development financing include: 5% of domestic revenue; domestic borrowing (1% of GDP); non-concessional borrowing; and external funds (Basket, project funds, D-Funds). It was observed that there have been some challenges in the negotiation process and borrowing procedures for accessing non-concessional loans, which in 2011/12 were accessed during the last quarter. For the case of D-Funds, most of data have been declared during the fourth quarter. As a way forward, it was proposed that the Government will start negotiations early in line with the new budget cycle. On the side of the DPs, those who are yet to abide to AMP requirements are urged to post their support on AMP soon after release of such funds. 9. Infrastructure maintenance: the Government has been allocating resources for maintenance of infrastructure across sectors at different levels; this problem is accentuated by classification challenges in terms of capturing the relevant data. For instance, funds that have been allocated to public institutions and LGAs are classified under line items of transfers which include maintenance budgets. 10. Spending on public debt: it was pointed out that the increases resulted from payment of due debts from previous loans and new government initiative to 18

20 finance infrastructure development projects through non-concessional loans with short maturity period. 11. Available data on actual local government expenditures: since 1st July, 2012, 133 LGAs have adopted the use of Epicor/IFMS for revenue and expenditure. This makes it possible to access data on actual LGAs expenditure and carryover balances are to be entered into the IFMS as part of revenue for new financial year and respective expenditure will be reflected. 12. Inequity in resource allocations among LGAs: it was reaffirmed that the Government is reviewing formulae used in allocation of resources to LGAs. 13. Health sector foreign funding: is highly under-estimated due to large offbudget funding: The gravity of this issue was acknowledged and the Government agreed to continue to address the problem by urging the DPs who have not managed to channel their budget support through the Exchequer system to do so Plenary Discussion Plenary discussion included: (i) (ii) (iii) (iv) (v) (vi) Appreciation was made of the RBA and noted as a good input for stressed that the RBA is to be a guiding tool that requires the Government to stick to the approved budget. It was observed that discussions were in the final stages regarding renewal of the PSI programme, macro-economic performance was still strong, and inflation is coming down. The DP`s welcomed the new budget cycle and are open to provide more support as necessary. An observation was made on the current financing gap that needs to be clearly known with proposals for addressing it; It was observed that budget cuts are painful but necessary. They should be taken as a challenge to making the budget more realistic, a challenge that will be addressed by adopting the new budget cycle; The Ministry of Finance will continue to provide requisite data and information on timely basis. It was suggested by DPs that timely reporting should also include reporting by parastatals; It was observed that the increase in debt should be interpreted with some caution. In particular, the following observations were made: a. The debt stock is cumulative reflecting more of past debts than current over-borrowing; b. The debt ratio is influenced by the use of nominal GDP growth pointing to the need for deflation to present values; DPs were encouraged by Government leadership on an action plan for Tanesco and initial discussions with the WB. However, fiscal monitoring would be facilitated by enforcing timelier parastatal reporting to MoF. This 19

21 (vii) (viii) (ix) would facilitate having a more holistic view, highlighting risks but also a broader view of economic impact of the parastatal sector. From the DP side, concern was expressed over the contribution of parastatals like Tanesco and TPDC to the budget deficit and national debt. The Government side acknowledged these challenges but clarified that Tanesco was also a major concern for the Government and that it was working on its repositioning in the short, medium to long term. The Government is working closely with DP`s to achieve the targets that ensures Tanesco operates effectively and efficiently. It was also pointed out that the magnitude of the deficit due to TPDC could be reduced if the revenue side of TPDC operations was recognised; It was also pointed out that if prioritization and sequencing of projects should fall short, leading to further disruption of works and accumulation of overdue obligations, the Government might have to consider external borrowing to settle the latter. The Minister of Finance promised to look into the matter. It was also observed that large fiscal threats were imminent due to a large backlog of contracts as in the case of Tanroads. The need to prioritise transport in the MTEF was advised. It was observed that a substantial part of tax exemptions are on investment projects. The Ministry of Finance will review this situation with a view to reducing the exemptions to less that 1% of GDP. 2.3 Big Fast Results Now This session was jointly chaired by the Permanent Secretary for the Ministry of Energy and Minerals and H.E, the Ambassador of Sweden in Tanzania. The presentation on the Big Fast Results was made by the Executive Secretary of the Planning Commission Presentation: Big Fast Results Now (BFRN) The government provided the background of the Big Fast Results Now which came as a result of warning lights from a review of the implementation of the Tanzania Development Vision (TDV) 2025 which was carried in 2009/10. The review pointed out four issues that need to be worked on to unleash Tanzania`s growth potential: (a) (b) (c) Prioritisation of actions and strategic resource allocation; Implementation discipline grounded in performance benchmarks; Political and economic governance; and 20

22 (d) Tackling head-on the key constraints such as the infrastructure gap; low agricultural productivity; low industrialization; human capital and skills gap; critical services, tourism, trade and financial. In the case of Tanzania, Big Fast Results Now (BFRN) came as a result of Langkawi International Dialogue held in June 2011 in Malaysia. The President of the United Republic of Tanzania participated in this dialogue where the Prime Minster of Malaysia shared his country`s transformation experience in the spirit of fostering South-South Cooperation and smart partnership. During this retreat the Head of States and Government were exposed to methodology used by Malaysia to score Big Fast Results. This was followed by 4 days BFRN seminar held in November, 2011 in Kuala Lumpur, Malaysia where a Government team led by the Executive Secretary of Planning Commission participated. In the presentation the Government shared the pillars, and other countries experience of the BFRNs approach. The following pillars were presented: (i) (ii) (iii) (iv) (v) Bold leadership committed to change and take the country forward; Ruthless focus on priorities; Selection of drivers and enablers; Discipline of implementation; and Entrenched government accountability. BFRN approach involves the following steps: (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) Set your strategic direction (True North); Conduct labs which facilitate an intense problem solving environment with a dedicated full time working; Run open days to share lab output with the public and solicit inputs; Publish the roadmap, meaning telling the people what they are going to do; Set KPI (key performance indicators) for the whole Cabinet; Implementation; Independent Performance Review and Audit; and Annual report Other experiences of working with the BFRN approach were mentioned including United Kingdom, South Africa, South Korea, Indonesia, Philippines, Bhutan, Kenya Vision 2030 Delivery Secretariat; Ethiopia s Agricultural Transformation Agency and 21

23 South Australian Public Sector Performance Commission (PSPC). The presentation also noted that the BFRNs approach was undergoing the process of domestication in Tanzania. This was being done through Cabinet retreats in August and October In the August 2012 two-day Cabinet retreat the key theme was Transformational leadership for efficient and effective Government delivery on vision The intention was to expose the Government leaders to the methodology used by Malaysia to score BIG FAST RESULTS NOW where key lessons, the missing link, resolutions and catalytic steps were agreed. Among the resolutions for the retreats are: (i) (ii) (iii) Adopt and customize the BFRN model to suit the Tanzanian environment; Improve delivery and accountability by emulating the PEMANDU model of coordination, problem solving and M&E; and Put in place a robust and enforceable M&E system and transparent incentives system for performers and non-performers. The catalytic steps agreed were: (i) Establish a multi-disciplinary team drawing from a wide spectrum of stakeholders to propose and prepare a roadmap for operationalization of an efficient and effective Government delivery unit and the lab approach; and (ii) Within the context of the national development and MKUKUTA and MKUZA, Ministries were tasked to review their strategic and action plans and come up with focused National Key Results Areas (NKRAs) and KPIs. Ministries were also tasked to create respective delivery units that will feed into the national delivery unit. In implementing the retreat resolutions the Government pointed out that a multidisciplinary committee team had been set up; Ministries had prepared action plans to implement ADP 2012/13, FYDP and LTPP; and POPC had conducted training seminars for management teams of MDAs to share the BFR methodology, resolutions of August 2012 Cabinet retreat; build consensus; and get MDAs feedback on its operationalization in the context of Tanzania. The August resolutions were followed by another three day Cabinet retreat in October 2012 which discussed the selected MDA`s action plans to implement TDV 2025; the report of the multi-disciplinary team on the proposed road map to operationalize an efficient Delivery Unit and the Lab approach. 22

24 The presentation touched on the elements of BFRN approach applied in Tanzania. Ministry of Health and Social Welfare; Tanzania Revenue Authority, Road Fund Board; and others like Swissport, Universities promotion system for academic staff, MCC projects; and private sector companies were pointed to have the approach of BFRN. The government provided the road map to improve Government Delivery which includes; (i) (ii) Establishment of the Delivery Unit which will be an independent department under the Presidency. The unit will be known as President`s Delivery Bureau (PDB); and Operationalisation of the Lab approach where NKRAs have been identified: 1. Energy, Oil and Gas 2. Transport (Central transport Corridor) 3. Revenue Collection 4. Water 5. Agriculture 6. Education The presentation was concluded by urging the DPs to strongly support the Government on this important Government led initiative Plenary Discussion In the discussion the following points were raised: (i) (ii) Many of the contributors appreciated these important Government-led initiatives, especially the quest for more results and accountability. A number of DPs expressed willingness to support the initiative. However, DPs proposed that the Government needed to indicate how DPs were expected to participate and to clarify how this initiative related to existing national development programmes and strategies as set in MKUKUTA and Five Year Development Plan; The initiative was commended as a good case of South-South Cooperation. It was also suggested that experiences of Thailand, Vietnam or other Asian countries would be useful too; 23

25 (iii) (iv) (v) (vi) (vii) Support on prioritization was expressed by reiterating the need of having few priorities and to focus on them instead of having a large number of priorities which are not attainable. Some caution was made to the effect that some countries like Indonesia had adopted similar approach but it has taken a long time without seeing results. This implies that measures to transform words and intentions to action and ensure that results are realised. It was suggested one important prerequisite for realisation of results was the need to get this agenda into the minds of the people so that it is understood and owned by the public. It is important that accountability to the people on the ground is facilitated. The Government was encouraged to put a strong emphasis on improved access to information, and to consider value of new technology and the central role of the media. It was suggested that Tanzania may also want to consider development of an information society. ICT, e-governance etc. develop fast, can help to do things faster and more interactively, and enhance transparency. Interest in understanding the potential links between the BFRN lab outputs and GBS going forwards. One commentary suggested that if this succeeds the PAF of tomorrow is already drafted The Executive Secretary concluded that they have chosen 6 areas to start with, and there is still a heated exchange around approaching access of water. He also said that the programme is deliberately ambitious to cover lost ground in meeting Vision It is important to start from the top but inclusivity is central and communication across a range of stakeholders including the media is a key element. 2.4 GBS Independent Evaluation Preliminary Findings The session on GBS preliminary findings was co-chaired by the Permanent Secretary, Ministry of Industry and Trade and H.E, the EU Ambassador to Tanzania. The presentation of the preliminary findings was made by Andrew Lawson on behalf of ITAD, REPOA and FISCUS Presentation: GBS Preliminary Findings Mr. Andrew Lawson started his presentation by making clear that these were preliminary findings of the consultants and are subject to modification and refinement in the light of additional data and analysis in the subsequent stages. His presentation focused on three specific areas i) the flow of funds, with a particular focus on results in the education sector, ii) policy dialogue, iii) technical assistance and capacity building. The presentation includes feedback on the 24

26 consultancy team's preliminary recommendations in relation to the design and management of GBS. Information on the methodology and timeline of the evaluation was also shared. (i) Flow of Funds He noted that the preliminary findings of the consultancy team suggest that GBS has had an important flow of funds effect, which has facilitated the expansion of public spending in the MKUKUTA and MKUZA priority sectors, with consequent benefits for the improved coverage of social services and the improved maintenance of the road network. GBS disbursements during the period were substantial both in fiscal terms, where they represented on average 13.7 % of public spending over the seven year evaluation period, and they comprised an average of 37.5 % of ODA. Secondly, total annual disbursements were predictable; indeed they were generally in excess of the amounts projected by the GBS members at the conclusion of the annual review process. However, although quarterly disbursements were broadly consistent with projections at the beginning of the evaluation period, over 2009/10 and 2010/11, quarterly disbursements have been subject to more substantial delays (of 3-6 months), which may have created problems for Treasury management. In terms of the use of funds, the consultants concluded that given the scale of GBS and its discretion a significant part of the increases evidenced during the evaluation period in respect of non-salary recurrent spending, internally financed Development spending, and in staff numbers within the health and education sectors, were made possible by the GBS transfers. They noted that these increases accrued predominantly to the six priority sectors identified in MKUKUTA and MKUZA. Further analysis in terms of the application of these funds within the priority sectors, suggest that a major expansion in the coverage of primary and secondary education has been achieved, as well as a significant improvement in the size and the quality of the national road network. The Tanzania 2010 Demographic & Health Survey also attests to a range of improvements in the water and health sectors since the 2005 survey. While some of these would seem more obviously related to programmes funded under the Global Fund or GAVI (such as the rise in vaccination coverage, the vast increase in HIV testing, the increased use of insecticide-treated bed nets), the improvement in the proportion of households using a protected water source (from 49% to 57%), the increased coverage of post-natal care, the reduction in respiratory infections in children and their more frequent treatment are all results which are likely to have been significantly supported by the expansion in the GoT budget for these sectors, and thus by GBS. 25

27 The consultants recognise that problems of quality, equity and efficiency in social service delivery remain. However, the consultants did not find anything to suggest that these are any more pronounced than they would be in other countries at a similar stage of development of the network of public service provision. Moreover, the consultants indicate that there are signs at least in the education sector, of appropriate policy responses to such problems. (ii) Policy Dialogue While recognising that good results have been achieved through GBS, the consultancy team identified challenges in the quality of policy dialogue. The evaluators recognise that stakeholders in Tanzania have been aware of these weaknesses for some time and have started to introduce some corrective measures. The evaluation team identified four inter-related weaknesses with the current structures for performance assessment and policy dialogue: - a less than adequate Government ownership and leadership, largely prompted by the DPs increased recourse to the use of GBS as policy leverage ; - high transaction costs; - technical weaknesses in the definition of performance indicators and targets; and - lack of a strategic, problem-solving orientation within the dialogue process. The evaluation report will come up with recommendations on how to address the challenges and make GBS more effective. The following preliminary recommendations are made in light of the observed findings to enable stakeholders to start addressing the weaknesses identified: i. Consider introducing a formal separation between the assessment of the disbursement conditions for the fixed tranches of GBS and the wider assessment of progress with the implementation of MKUKUTA and MKUZA and related sectoral and thematic reforms. The former should depend essentially on fulfilment of minimum conditions related to macro-economic management, commitment to MKUKUTA and MKUZA, implementation of PFM reforms and transparency in budget reporting, as well as respect for the underlying principles agreed in the Partnership Framework Memorandum. ii. In order to avoid conflicts of interest and ensure a more streamlined assessment process, the assessment of the core conditions for the disbursement of the fixed tranche should be undertaken through an annual, independent, professional evaluation/review process whose findings would 26

28 provide the basis for the individual disbursement decisions of each GBS provider. This would be a single unified process, which would draw on the conclusions of the IMF PSI review, as well as the results of PEFA evaluations and other such independent assessments. iii. As part of this process, or in parallel, a formal annual or perhaps two-yearly independent assessment of compliance by DPs with their commitments under the Partnership Framework Memorandum should be undertaken. iv. The Government of Tanzania should take the lead in defining a set of service delivery targets and policy implementation targets for MKUKUTA and MKUZA and for the related sectoral and thematic reforms. The disbursement of the fixed, base tranches of GBS would not depend upon progress in these areas, although the disbursement of performance tranches would. In order to protect Government ownership over these processes, the DPs providing performance tranches would need to commit to make adaptations to the design of these arrangements, where appropriate. v. Support should be provided to Government to help with this reformulation of the assessment and dialogue process. Its precise format would need to be decided by Government but it might conceivably take the form of direct long-term TA support to the GBS secretariat within the Ministry of Finance, combined with high-level intermittent support from short term TA. Training in the design and monitoring of performance indicators should probably be provided too. vi. A formal strategy should be developed to reduce transaction costs and to keep control of them in future. This is likely to mean the elimination of the cluster level from the framework of dialogue. It might also entail a formal examination of the processes and procedures utilised for making assessments, distributing analytical reports, undertaking consultations and reaching decisions, so as to permit some streamlining (or business process re-engineering) of these functions. (iii)technical Assistance and Capacity Building The provision of technical assistance and capacity building is generally perceived as the third element of the Budget Support package. Such inputs would normally be focused on aspects of policy, institutional reform and monitoring linked directly to the Budget Support dialogue - such as support to the monitoring of the PRSP and to the development of statistics, or to PFM reform. In Tanzania, such arrangements are notably absent. There are two principal reasons for this: 27

29 Firstly, GBS is now a mature instrument in Tanzania, having formally started in 2001/02 after several years of programme aid and multilateral debt relief. Secondly, there is a l technical assistance fatigue in Tanzania, which is in part a reaction to the high levels of long-term technical assistance, which were provided in the 1980s and 1990s, and which rightly or wrongly have come to be rather negatively perceived by the Government of Tanzania. Thus, the evaluation team were unable to identify specific technical assistance or capacity building support to Government, which was directly associated with the GBS arrangements, which are the subject of the evaluation although a variety of technical assistance arrangements are in place to provide technical and administrative support to the GBS secretariat and to the various secretariats of the Development Partners Groups for different sectors and thematic areas. These TA support arrangements carry quite a high profile within the policy dialogue process for GBS because they provide significant administrative support to the different tiers of the GBS dialogue, and also provide funding for studies and high-level advisory inputs, aimed at assisting the DPs to carry out their roles within the GBS dialogue. There is some evidence that the extensive support provided through these arrangements may have inadvertently served to undermine Government ownership of the GBS process. Firstly, it seems to be the case that most of the studies and technical outputs generated by these arrangements are made available in the first instance to the DPs, rather than being tabled as independent inputs for the mutual benefit of all parties in the GBS dialogue, including Government and, where appropriate, civil society. Secondly, the volume of this TA support appears to be excessive and, in their efforts to be useful, it appears that some of these staff may have inadvertently taken up administrative and organisational functions, which should more properly be managed by Government staff Plenary Discussion i. In the discussion there were much appreciation from every stakeholder with respect to this study and the request was made to make this report available by early March 2013 to all stakeholders. 28

30 ii. iii. iv. The interim report was discussed actively. It was pointed out that even before the final report is out some improvements were already being made. For instance, partners have started to improve budget support through joint assessment and harmonised tranches and starting to establish key focus areas for dialogue. There is now a need to swiftly agree on an action plan for the way forward. The point about separating policy dialogue from disbursement was particularly appreciated. Time for evaluation will be known in advance so that the substantial time is spent on implementation not derailed by too frequent and sometimes unplanned evaluations. It was observed that transaction costs are still high and that there is still room to reduce the PAF drawing from lessons of the past years. Ensuring that the GBS Chair represents the donor partner group with one voice was stressed. v. The evaluation was commended for taking us back to principles of what is GBS. The 3 areas: the flow of funds, policy dialogue, technical assistance and capacity building for improvement are good. vi. It was proposed that a joint team be set up to focus on process re-engineering the GBS systems in line with what has been recommended. Such a process would need careful management highlighting the size of GBS to Tanzania at half a billion USD. It was proposed to get Lawson to work alongside the GoT to implement the changes that are implied by the proposed recommendations. It was further proposed that by the next GBS annual review a new agreement would be signed that is consistent with the recommendations of the GBS evaluation. 29

31 3.0 CLOSING REMARKS The closing session was officiated by the Minister for Foreign Affairs and International Cooperation, Honourable Bernard K. Membe (MP), on Monday 19 th November, Closing Remarks by GBS co-chair In his closing remark, Mr. Elliot thanked the Government of Tanzania and his GBS colleagues for a positive and constructive GBS annual review. He emphasized the following points: 1. PAF 2012: the Chair highlighted the successes of 2012 such as macroeconomic management, the progress being made on PFM and initial signs of improving quality in primary education; and also the challenges including the urgent need to address financial challenges in the energy sector, and to closely monitor debt sustainability in relation to non-concessional borrowing including by parastatals. 2. Much of the discussion today has been about how we can work together more effectively. We have agreed two new ways of working that will help us finalize PAF 13 in a way that will enhance our dialogue: (a) (b) Move to a shared annual assessment of the underlying principles. Budget support donors aim to harmonize performance tranches and triggers next year and use this to focus our dialogue on three areas for the year ahead. These areas include: - Sustainable growth specifically the energy sector (and possibly agriculture), - Services at the local level looking at quality and equity of service delivery, and - Transparency and public financial management continuing implementation of PFMRP, EITI validation, and implementation of commitments made by Tanzania in the context of the Open Government Partnership. 3. Highlighted the exciting new BIG FAST RESULTS NOW (BFRN) approach, and stressed that enhancing institutional delivery capacity will be fundamental. 30

32 4. Concluded by commending the evaluation session which provided insights into ways to better organize GBS, with policy dialogue that adds value. 3.2 Closing Remarks by Minster for Foreign Affairs and International Co-Operation (i) (ii) Expressed his gratitude for the honor of closing the 2012 General Budget Support (GBS) Annual Review. He thanked the audience for participating and providing insightful contributions. This has been possible due to the high level commitment and participation by the Government and Development Partners. Noted the impressive progress against a number of outcome indicators with many of the agreed actions achieved and rated satisfactory. He also restated the Government`s commitment to ensure the deliberations of this meeting are fruitful. These deliberations are: a) Sustaining GBS as the Government s preferred aid delivery mechanism; b) Enhancing equity and efficiency in service delivery by addressing the remaining challenges in pay reforms, particularly implementation of an incentive policy for the hard to serve areas; c) Sustaining macroeconomic stability and robust public financial management; d) Ensuring effective implementation of the Big Fast Result approach; and e) Adhering to the new Budget Cycle and ensuring enhanced predictability of the medium term framework for both foreign and local funds. (iii) (iv) (v) The Minister reiterated Government's view to take further steps to enhance efficiency in the dialogue including making sure that the next PAF is simplified, implementable and focuses on promoting growth and poverty reduction. The Minister noted the achievement made by Tanzania under the MDGs. It achieved Goal 2: universal primary education; way back in It has registered considerable gains on Goal 3: promoting gender equality and empowerment of women; and Goal 6: combating HIV/AIDS, Malaria and other diseases. Other goals have also achieved moderate results. However, much remains to be done to emancipate our people from poverty. The Minister concluded by urging Development Partners to continue supporting the country and ensuring medium term predictability of aid flows. 31

33 ANNEXES ANNEX 1 GBS ANNUAL REVIEW, 19TH NOVEMBER 2012: PROGRAMME VENUE: NATIONAL COLLEGE OF TOURISM BUSTANI CAMPUS TIME PROGRAMME RESPONSIBLE CO-CHAIRS Registration Secretariat Remarks from the PS MOF PS MOF Facilitator Remarks from the GBS Chair GBS Chair Facilitator Opening Remarks by the Minister for Finance Presentation of 2012 PAF Implementation and 2013 PAF overview DSPFM Discussions on 2012 PAF Implementation and 2013 All PAF overview TEA BREAK All Presentation on New Budget Cycle Presentation on Rapid Budget Analysis Discussion on New Budget Cycle and Rapid Budget Analysis Presentation on Big Fast Results Discussion on Big Fast Results LUNCH BREAK Presentation on GBS Independent Evaluation Preliminary Findings Discussions on GBS Independent Evaluation Preliminary Findings Closing remarks from GBS Chair Closing Statement Press conference Hon. Dr. William A. Mgimwa (MP) Minister for Finance CB World Bank & CB All PO-PC All Consultants from FISCUS and REPOA All GBS Chair Hon. Bernard K. Membe (MP) Minister for Foreign Affairs and International Cooperation) GBS Chair and Minister For Finance PST to Welcome Minister for Finance PST / Head of DFID PST / Head of DFID PS- POPSM/World Bank PS-POPSM/ World Bank PS- POPSM / World Bank ES-POPC / Ambassador of Sweden ES-POPC PS- MIT / EU Ambassador PS- MIT / EU Ambassador 32

34 ANNEX 2 WELCOMING REMARKS BY MR. RAMADHANI KHIJJAH ACTING PERMANENT SECRETARY, MINISTRY OF FINANCE AT THE OPENING OF THE 2012 GENERAL BUDGET SUPPORT ANNUAL REVIEW NOVEMBER 19, 2012 AT THE NATIONAL COLLEGE OF TOURISM, DAR ES SALAAM Hon. Ministers Permanent Secretaries, Excellencies Ambassadors and High Commissioners, Excellencies Resident Representatives, Heads of Development Cooperation, Government Officials, Members of the Media, Invited Guests, Ladies and Gentlemen. It gives me great pleasure to welcome you all to the 2012 General Budget Support (GBS) Annual Review meeting which marks the end of the 2012 GBS annual review cycle. I wish to express sincere appreciations on behalf of the Government to the GBS Partners for their support during the year under review. Most were able to meet their commitments on schedule and whenever necessary, they provided valuable advice. I am optimistic this spirit will be sustained in future. Let me assure you that the Government will continue to fulfill its obligations as agreed in the Partnership Framework Memorandum (PFM) and in the Performance Assessment Framework (PAF). Excellencies, Ladies and Gentlemen, as you will have noted from the program circulated, this year s Annual Review is unique, we have agreed on a one day programme. The main objective of the review is to assess the Government and GBS Partners performance against their respective commitments as agreed in the Partnership Framework Memorandum and the Performance Assessment Framework. Furthermore, it will be an opportunity to discuss preliminary findings of the GBS Independent Evaluation that is being conducted by REPOA and FISCUS. The 2012 GBS annual review will have four main agenda items. First, there will be a presentation and subsequent discussions on the 2012 GBS-PAF implementation, including successes and challenges. There will also be an overview of the PAF Secondly, there will be a presentation and discussions of the New Budget Cycle and Rapid Budget Analysis. Thirdly, there will be a presentation and discussions on the Big Fast Result Programme. Finally, we will have an opportunity to deliberate on the preliminary findings of the GBS Independent Evaluation. As you can see, we have a heavy agenda to be covered in one day. In preceding years, the Annual Review used to take two days but this year, we have agreed to do it in one day. I would therefore like to urge and appeal for your co-operation and commitment to the work ahead of us, in order to be able to achieve the same level of output and outcome. In our deliberations during this Annual Review meeting, Prof. Samuel Wangwe will assist us as facilitator and rapporteur of the 2012 GBS annual review. Excellencies, Ladies and Gentlemen, before I conclude, I want to extend special thanks to my Co-Chair, Mr. Marshall Elliot for his outstanding leadership during the year under review. Under his leadership, the GBS family has become more united, as reflected by the absence 33

35 of incidences of disagreements between Government and GBS Partners; there is also enhanced trust in cooperation between the two Partners. This has made my work as the Co- Chair much easier and effective. I thank you and commend you Mr. Elliot for this outstanding leadership. On the other hand, I want to welcome the incoming Co-Chair. I look forward to another wonderful year of strengthened Partnership under the new leadership. I would also like to take this opportunity to thank the Sector and Cluster Working Groups and the GBS Secretariat for the hard work that they have put in the preparation and facilitation of this year GBS annual review meeting. Please sustain that spirit so that we can be able to achieve even more next year. Excellencies, Ladies and Gentlemen, I would now like to invite my Co-Chair Mr. Elliot make some opening remarks before we welcome the Honourable Minister for Finance to deliver his opening remarks and to officiate the opening of the 2012 GBS annual review meeting. I thank you all for your attention. 34

36 ANNEX 3 Opening Statement at the 2012 GBS Annual Review by Marshall Elliott, Head of the UK s Department for International Development and Chair of the PRBS Group of Development Partners in Tanzania Honorable Minister of Finance Permanent Secretaries Ambassadors Ladies and Gentlemen Introduction Tanzania remains one of, if not the largest recipient of General Budget Support anywhere in the world. This year s commitment from the budget support donors remains just under half a billion US dollars - a significant contribution to the budget. This is a similar level to last year. We have provided 68% of our budget support payments $337 million - in the first quarter of this year. The target was 55%. And as of November we are 100% on track with disbursing in line with our quarterly commitments. We assess Government performance through the Performance Assessment Framework - the PAF. This year s overall assessment is that PAF performance is satisfactory. But with a lower proportion 58% of key policy actions achieved, performance is not as strong as And notwithstanding the satisfactory rating, with overall PAF achievement at only 60% it is clear there is scope to significantly improve performance; particularly as some of the more important performance indicators have not been met. This is reinforced by the lack of any significant reduction in the level of poverty and the persistent levels of inequality. Looking forward, this years budget is more realistic than last, as was recognized by the IMF in the context of the PSI, and we encourage you to implement it as planned. But implementation of the budget remains a challenge and getting quality basic services schools, clinics, water points to Tanzania s citizens, including in remote rural areas, remains a priority for budget support partners. The budget doesn t cover everything. In particular it gives only limited information about parastatals, such as Tanesco, or about major new investments such as the new gas pipeline down to Mtwara. Given their developmental and financial importance we need to expand our dialogue to encompass a broader definition of public sector finance and expenditure. This will be particularly important over the longer term as Tanzania develops its newly discovered gas resources. The Government is leading a revision of the joint assistance strategy for Tanzania the JAST. In this context we hope we can use the evaluation session to think constructively about how we can strengthen the budget support instrument going forward so that it can continue to be relevant for the next decade. Like last year, this annual review meeting is being held as a contractual event between Development Partners and Government. Because of its broad scope, there are a large number of other stakeholders who have a legitimate interest in Budget Support, including Parliamentarians, CSOs and the Tanzanian citizens. Development Partners believe it is essential that the outcome of this review is shared transparently with these other stakeholders. This is an important contribution to promoting accountability and we hope to work together to jointly improve the format of this annual review in the future. We welcome 35

37 the Government s commitment to including a substantive session at the Annual National Policy Dialogue where Government and Development Partners can jointly report back on this annual review. Performance in 2012 based on the PAF So let me turn to 2012 performance. On the positive side: Tanzania has made some progress in addressing the quality of basic services. Standard VII exam pass rate improved, and more people are receiving treatment for HIV. Policy actions on pay and incentives are starting to identify ways of supporting service delivery staff in some hard to reach areas. Investment in infrastructure is showing results: with 59% of rural roads now passable (slightly above target) has seen the welcome launch of a new PFM programme by the Prime Minister and strengthened dialogue. Tanzania is on track to be validated as EITI compliant. Transparency of the budget has improved with more information being published on line and made available to the people of Tanzania, although continued efforts are needed to ensure that information is published in a timely fashion. Dialogue between Development Partners and the Government has improved in some areas: the high level dialogue on anti-corruption has provided a valuable forum for discussing government action on anti-corruption. I would like to take the opportunity to thank the Honorable Minister of Finance for his constructive participation. Tanzania has systems and institutions that are increasingly able to identify and deal with corruption and we have heard about positive progress in this respect. But we are all agreed that much more remains to be done to ensure accountability to taxpayers in Tanzania, and also abroad. Earlier this year we saw the role that accountability institutions, including the media took in identifying allegations of wrongdoing. If these allegations are substantiated it will be important to see due legal process applied expeditiously and transparently. The restarting of the PER process under the supervision of the Champions Group has also been a welcome development. This process is at an early stage but I hope we can all continue to give it the commitment to take it forward. Against this positive picture, progress still remains [too] slow in other areas: The government has been slower than expected in taking forward important new legislation on tax administration and public investment management. Studies on important Public Financial Management issues have been delayed. In the water sector targets have been missed. However, significant improvements in financial management should help to speed up implementation in the sector. This along with improvements in monitoring data should make it possible to set more realistic targets for Significant concerns remain over progress in accountable governance, particularly in the areas of: transparency and access to information, particularly on local level 36

38 expenditure; quality of consultations between government and domestic stakeholders; and the Executive s accountability to Parliament. These issues can be addressed as part of Tanzania s important commitment to the Open Government Partnership. Although the overall rating of the PAF is satisfactory, it is disappointing that after efforts to streamline the PAF there are still so many indicators that are not achieved. This begs the question: Are they not really a high priority for government? Are the timetables unrealistic? Or is it because the capacity to track and measure them remains weak? We need to think how to avoid these problems in the future. Looking beyond the PAF public financial management remains a critical issue for budget support Development Partners. The recent supervision mission concluded that the programme was making good progress. It is frustrating that the key policy actions in the PAF were not able to mirror this has also seen a Budget that is in better shape than it was a year ago and Tanzania seems to have weathered the global economic problems better than many. There has been continued effective dialogue between the GoT and IMF and we welcome the outcome of the PSI/SCF review in July. Its macro-economic and fiscal assessment remains the way we assess one of the most important underlying principles of budget support. Growth and poverty Looking forward, a number of critical challenges confront Tanzania. The PSI review highlighted one of the most immediate: the crisis in the electricity sector. Energy is fundamental to growth, and the continuing crisis is a brake on Tanzania s development. Sorting out sustainable financing for the sector over the longer term is essential and action is needed urgently. Over the long term there are huge opportunities presented by the discovery of gas. Managing this resource effectively for the benefit of all Tanzanians will be critical and will have major implications for the Government s budget. A number of Development Partners are already providing support on these issues and the recent high level mission on Gas sets out some key issues facing the Government and provides an opportunity for all stakeholders, including other Development Partners to provide coherent support to the Government. Poverty in Tanzania remains stubbornly high despite high growth rates. Tackling this challenge will require action in a number of areas: Improving the quality of basic services is an important part of a broad based approach to poverty. There has been some progress but it is still limited. Quality of services is poor across much of the country and systems for managing service delivery are weak and fragmented. In education only 58% pass the primary leaving exam, and only 10% pass the lower secondary exam. Access to water is too low, even in Dar only 51% have access to clean and safe water. Given that 29% of the budget goes on basic services, ensuring they represent good value for money remains central to our dialogue with Government. 74% of Tanzanians live in rural areas and are dependent on agriculture. Agriculture still represents the best opportunity for reducing rural poverty in Tanzania and is one of the Government s top priorities. Increased growth in agriculture is badly needed. Past progress has been slow, but things are starting to change with a new partnership between the State and the private sector. Although still early days we can see the vision in areas like the Kilombero valley where a mixture of public policy, private investment, and diversification are creating jobs for the rural population. 37

39 Getting agriculture more effectively represented in the PAF would help to focus the dialogue on real priorities. Finally, while agriculture remains central to any poverty reduction strategy, urbanization is happening even faster all around us. Dar es Salaam is now one of the fastest growing city in Africa! Effective cities deliver enormous benefits in terms of increased jobs and productivity. Dar es Salaam, Mwanza and others have the potential over the coming decade to boost growth and poverty reduction. But this kind of change requires well thought through public investment decisions. Results and the longer term To meet these challenges the Government recognizes the need to transform ideas and policy into implementation and results. It is committed to developing a new and exciting approach to the delivery of results by learning lessons from successful approaches adopted in Malaysia and other countries. We look forward to hearing more about this Big Fast Results Now! approach later on today. If this new approach enables the Government to sign up to a clear set of sequenced results, with clear accountability to deliver within different parts of Government, then the PAFs of tomorrow are already drafted. We welcome the opportunity to align ourselves behind a more focused set of Government priorities, and focus our dialogue on the Government s own achievable priorities for implementation and delivery - particularly important as the proportion of assistance subject to performance indicators increases (to as much 50% in some cases). The partnership Finally, six months into my role as Chair of the budget support group we are clear that dialogue processes around budget support are not optimal. We have, however, made some progress in bringing about change. We have agreed that we will replace the range of underlying processes monitored in the PAF by a shared assessment of the long established underlying principles 2 of budget support, such as the respect of human rights and the rule of law which are becoming more prominent as a foundation of the budget support partnership. This should reduce transaction costs and increase transparency. Development partners are also working at the request of Government to harmonise their performance tranche assessments. This should help focus and strengthen our dialogue. In addition, we are fortunate that we ll be hearing from the evaluation team later on today interim findings we know but they should nonetheless be able to give us some useful ideas on how to make budget support a stronger instrument. A more effective dialogue is one of the critical areas for change. We are determined that we should build on these lessons and on the opportunity provided by the Government s new delivery approach to improve the way we work together. We hope that this annual review will be able to agree how we can jointly take forward an agenda of radical change over the coming months which will be mutually beneficial. 2 Underlying principles of GBS for this partnership arrangement:(i) Continuing sound macroeconomic policies and management;(ii) Commitment to achieving MKUKUTA II objectives and Millennium Development Goals;(iii) Continually strengthened budgeting and public financial management systems; (iv) Continuing peace and respect for human rights, the rule of law, democratic principles, and the independence of the judiciary; and (v)good governance, accountability of the Government to the citizenry, and integrity in public life, including the active fight against corruption in accordance with the laws of the United Republic of Tanzania. 38

40 ANNEX 4 OPENING SPEECH BY HONOURABLE DR. WILLIAM A. MGIMWA (MP), MINISTER FOR FINANCE, AT 2012 GENERAL BUDGET SUPPORT ANNUAL REVIEW 19 TH NOVEMBER 2012 AT THE NATIONAL COLLEGE OF TOURISM, DAR ES SALAAM Hon. Ministers Permanent Secretaries Excellencies Ambassadors and High Commissioners Excellencies Resident Representatives Heads of Development Cooperation Government Officials Members of the Media Invited Guests Ladies and Gentlemen Introduction 1. We meet here today for the 2012 General Budget Support (GBS) Annual Review, an important event that provides opportunity for the Government and DPs to discuss issues of common interest and cordial for the development of Tanzania. I feel greatly honoured, therefore, to have this opportunity to officiate the opening this year s GBS annual review meeting. I welcome you all. The large number of representatives from the Government and Development Partners present at this annual review is clear testimony of the importance we, as development stakeholders, attach to this event. I am very much encouraged and would like to thank you for your time and presence. 2. Excellencies, Ladies and Gentlemen, the GBS annual review event is an important requirement of the Partnership Framework Memorandum that we signed on in May It is intended to provide an opportunity for the Government and the GBS partners to assess Government and GBS partners performance in implementing our mutually agreed commitments that are considered essential for Tanzania s growth, development and poverty reduction. The experiences of the past years annual reviews have proved to be very beneficial in various aspects. With these reviews, we have been able to assess our performance against the agreed set targets. We have also been able to identify areas of strengths, weaknesses and challenges, thus enabling the Government to take appropriate actions to tackle them. These events have also helped us to strengthen our dialogue in advancing the country s development agenda. 3. Excellencies, Ladies and Gentlemen, Much work has gone has gone into preparations for this event. I would like to take this opportunity to thank all Government officials and Development partners who have worked tirelessly to make this event possible. Let me assure you that the Government and the People of Tanzania value your time and contributions to this country s overall development efforts. 39

41 4. Excellencies, Ladies and Gentlemen, I would like to commend the sector and cluster working groups for their outstanding work during the year. Through this work we have been able to monitor implementation of the 2012 GBS Performance Assessment Framework (PAF). Let me also commend the Joint GBS Secretariat for the support and guidance to the sector and cluster working groups, and for the logistical arrangement of this event. I also wish to commend the good work done by the Troika Plus, under the able leadership of Mr. Ramadhani Khijjah, Permanent Secretary - Ministry of Finance and Mr. Marshall Elliot, Head of DFID in Tanzania and Chairperson of the GBS Donor Group in Tanzania, for guiding the 2012 GBS annual review cycle. I wish to thank them earnestly for their able leadership and demonstrated high level commitment. Last, but not least, I commend the joint strategic PAF team for their work and effort to make the 2013 PAF even more focused, result oriented, and for making it more relevant and better aligned to the country s needs. It is important that we commit ourselves to what is achievable, easy to measure and monitor. 5. Excellencies, Ladies and Gentlemen, among the key issues that were identified and agreed upon at the last year GBS annual review include: linking tangible results to the GBS s Performance Assessment Framework (PAF), reviving the Public Expenditure Review (PER) process as a tool for strengthening budget management and systems that aim at promoting accountability and efficiency in the utilization of public resources; as well as continuing with strengthening of public financial management systems. I am pleased to note that jointly, we were able to put in place the Result oriented and Multi-year Performance Assessment Framework, whose 1 st annual assessment form part of today s discussions, along with emerging issues in response to developments that have evolved since the last annual review. I want these efforts be sustained as we jointly envisage making PAF a powerful instrument to delivering key results in our priority areas. I also understand that commendable progress has been made to revitalize the PER process as committed last year. I am informed that the Champion Group has been formed consisting of Key Senior Government officials and the joint permanent PER secretariat has been reconstituted with a dedicated team to coordinate and ensure delivery of the agreed commitments. I hope that these efforts will be sustained to ensure the PER process becomes our vehicle for key decisions and policy choices for better management of public financial resources. General budget support and performance assessment framework 6. Excellencies, Ladies and Gentlemen, I wish to reiterate my Government s position that General Budget Support is the Government s preferred modality for providing official development assistance to Tanzania. This is because GBS gives the Government full ownership over resource allocation in line with national priorities for the implementation of the MKUKUTA and other national policies, strategies, plans and programmes. Furthermore, GBS is consistent with the Constitution of the United Republic of Tanzania, Chapter 7, Articles 135 and 136, which provides for the control of public finances. The Article states that all Government finances must be deposited into the Consolidated Fund and be appropriated by the Parliament. It is also in line with the Public Finance Act No. 6, 2001, Part II on the control and management of public finance, which states that the Parliament should maintain control over public money. By making full use of the national budget process for resource allocation and spending, as well as the national systems and procedures for procurement, 40

42 accounting and auditing, it contributes to strengthening national capacities. GBS helps also to reduce transaction costs and facilitates harmonization among Development Partners, as all GBS Partners use a single system/ process for dialogue, review and assessment. 7. Excellencies, Ladies and Gentlemen, let me use this opportunity, therefore, to request our Development Partners to continue using the GBS modality and to increase the GBS share in their portfolio. The Government on its part will continue to strengthen its systems and processes for ensuring that the funds received are effectively allocated, managed and accounted for in support of the country s growth, development and poverty reduction efforts. 8. Excellencies, Ladies and Gentlemen, the experience of the last two financial years reveals, however, that the GBS modality is facing some challenges which need to be addressed if it is to remain a long term predictable financing instrument. We are witnessing signs of non-adherence to the agreed commitments and principles as laid out in the Partnership Framework Memorandum (PFM). This has seriously affected the disbursement schedule. Over the past few years our GBS Partners have not met the agreed commitments of frontloading 95% of commitment in the first quarter. This causes a huge challenge on the Government side as far as implementation of the Budget is concerned. I pray that this trend should not be encouraged. As of today, for example, GBS disbursement for FY 2012/13 is only 70% against the agreed target of 95%. In the spirit of partnership, let us identify and address the challenges that the GBS modality is facing Excellencies, Ladies and Gentlemen, as I have stated earlier on, the GBS annual review is intended to provide an opportunity to the Government and GBS-DPs to assess their respective performance in implementing the mutually agreed Performance Assessment Framework. I have been made to understand that the 2012 GBS-PAF performance is encouraging despite the challenges encountered. We have, however, to aim for higher performance as we move forward. Let us take this as a challenge and work to achieve higher result in Excellencies, Ladies and Gentlemen, the message we get is that, we need to undertake sufficient scrutiny of the actions we propose before committing ourselves. Equally important is the need to have a few actions and indicators in order to make meaningful impact. Following the 2010 GBS annual review, the Government and Development Partners agreed to revisit the PAF, in substance and structure, to ensure that the PAF is resultsoriented, and with fewer but strategic actions and performance indicators. The 2011 GBS- PAF was the first such joint output and has shown some success. The Government and its Development Partners should continue to work on the PAF to ensure that the GBS-PAF 2013 is more focused and results-oriented, and better aligned to the country s growth and development agenda. 3 This statement is clarified in the Joint Statement Press Statement - Annex 8 41

43 Public expenditure review and public financial management 11. Excellencies, Ladies and Gentlemen, the Public Expenditure Review has continued to be an important tool for strengthening budget management, and in ensuring efficiency and transparency. This has been done in the context of MKUKUTA implementation, carried out in a participatory manner, involving all stakeholders. The overall objective has been to provide avenue for all relevant stakeholders in growth, development and poverty reduction issues to effectively engage in open dialogue; particularly as we address issues of budget management, control and accountability. It has, therefore, helped Government in identifying priority areas and directing resources towards them. 12. Excellencies, Ladies and Gentlemen, over the last year the Government has undertaken efforts to revive and strengthen the PER process and provide space for it to play its role effectively. A joint task force with membership from Government and Development Partners was constituted. A PER retreat was convened where four analytical papers were presented and discussed. The conclusions reached at the retreat provided some inputs to the Plan and Budget Guidelines Committee. I would like to reiterate the Government s commitment to further strengthen the PER process so that it continues to provide a basis for relevant dialogue on budget issues, involving Government, civil society, academia, private sector, research institutions and DPs; as well as to provide the comfort needed in supporting the GBS as a preferred modality. It should also significantly contribute to the Government s capacity to analyze budget issues, and to strengthening its capacity in budget management. 13. Excellencies, Ladies and Gentlemen, I believe you are aware of the Public Finance Management reforms the Government has undertaken since the mid-1990s. PFM is among the priorities of the Government with the objective to achieve a high level of public service delivery and reduction of poverty. The PFM Reform Program will, therefore, continue to guide the reforms in this area with a view to strengthen the public financial management system in the country. The PFMRP Phase IV, which was launched in June this year, will be implemented in a span of five years, covering revenue management, planning and budget management, budget execution, transparency and accountability, budget control and oversight, change management, and programme monitoring and evaluation. The Government is committed to effectively implement this programme and we thank you for your support. Other national issues 14. Excellencies, Ladies and Gentlemen, since last year s GBS annual review, a number of other issues of national importance have occurred. I would like to share with you some of these political, social and economic developments. First, is the population and housing census which successfully took place from 26 th August to 7 th September The household Income and Expenditure Survey is also on track. The survey started in October 2011, and the report is expected in July This will assist in establishing the status of income poverty. 42

44 15. Excellencies, Ladies and Gentlemen, in August 2010 the parliament passed the Public Private Partnership (PPP) Act No. 18 of 2010 to provide room for private sector participation in public infrastructure investments. With the completion of PPP Regulations, it is expected that some key infrastructure projects will be implemented through Joint Venture arrangements between the Government and Private Sector. The government has already initiated joint venture negotiations with power generation investors for the following projects: Mtwara 300 MW, Mpanga 144 MW, and power transmission projects of 400 KV for Morogoro Tanga Kilimanjaro Arusha (682 kms) and expansion of the North West Grid for Kagera, Kigoma and Rukwa Regions (1000 kms). Similar efforts will be initiated in other sectors. We welcome the private sector from your countries to take advantage of this arrangement and participate in joint ventures in Tanzania. Conclusion 18. Excellencies, Ladies and Gentlemen, after those remarks, let me now take this opportunity to declare the 2012 GBS Annual Review meeting officially opened. I wish you fruitful deliberations. I thank you for your kind attention. 43

45 ANNEX 5 PRESENTATION OF 2012 PAF IMPLEMENTATION AND PAF

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48 ANNEX 6 PRESENTATION ON NEW BUDGET CYCLE 47

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52 ANNEX 7 PRESENTATION ON RAPID BUDGET ANALYSIS 51

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55 ANNEX 7 (Continued) GOVERNMENT RESPONSE TO THE RAPID BUDGET ANALYSIS 54

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57 ANNEX 7 (Continued) GOVERNMENT WRITTEN RESPONSES TO THE RBA 2012 A: GENERAL ISSUES The Government of the United Republic of Tanzania appreciates for commendable analytical work which has been done by the World Bank in collaboration with other development partners since we introduced this consultative process through the Rapid Budget Analysis (RBA). The RBA has been addressing both revenue and expenditure issues which the government has been considering with high attention, as inputs for the next budget process. All challenges and proposals raised through the RBAs from time to time have enabled the government to improve the preparation and execution of plans and budget, service delivery and monitoring and reporting from various stakeholders. In the RBA for 2012, broad issues raised include low execution rate which affected implementation of planned activities, shift of the budget to finance infrastructure, off-budget expenses, increased tax emption, increased government borrowing from pension funds, inequality in resource allocation among LGAs, as well as monitoring and evaluation of public resources. The government takes note these challenges and proposals positively and will continue to consider during the preparation and implementation of budget in the medium term. B: SPECIFIC ISSUES Planning vs. Execution: Over the past few years, the gap between approved and executed expenditures has been increasing, however economic, social, and infrastructure ministries have proportionally suffered more than administrative ministries. Government budget is executed based on resource availability (cash based budget). However, release of funds for infrastructure ministries was on the average of above 80% as shown in table No.12 of the synoptic note. The underfunding was caused mainly by un released foreign funds, especially for Ministry of Water. In 2011/12, the execution of many projects in economic, social and infrastructure ministries were low due to procurement procedures. Off-budget expenses: An increasing share of public money is managed outside of the central government. This issue is noted as attributed by government guarantees. The government has stopped issuance of guarantees for one year to pave the way for detailed evaluation of previous guarantees so as to come up with modality of managing the off-budget expenses. The government will make follow-up of IMF advice of effective management of offbudget expenses. 56

58 Expenditure cuts in 2011/12 affected some sectors including transfers to LGAs which might have impacted services delivery especially education and health. (Para 16-18) The government is implementing PSI programme under the IMF as acknowledged n by the presenter in the recent macro-fiscal developments. The budget cut for 2011/12 was necessary in order to comply with IMF and WB advice on reducing budget deficit from 6.5% to 5.5% of GDP for ensuring macro/fiscal sustainability. Likewise, the budget was affected by addressing unforeseen expenditures mainly on implementing the emergence power plan. The government is taking measures to avoid the unnecessary expenditure cut in future. The level of execution of development expenditure was relatively low as the result of the fiscal adjustment and persistent bottlenecks at different level of chain of public expenditures. (Para 20) This challenge is mainly attributed by foreign inflows which are channeled direct to projects. The government has introduced an Aid Management Platform (AMP), which captures foreign inflows (D-Funds). DPs are advised to honor their commitments, post respective support through AMP and increasing their support through the exchequer system. Delays in release of development as well as built-up of arrears was again experienced in 2011/12. About half of MDAs development funds were released during the last quarter of fiscal year, with more than 36 percent being during the last month of FY (Para 21) Sources of development financing include: 5% of domestic revenue; domestic borrowing (1% of GDP); non-concessional borrowing; and external funds (Basket, project funds, D-Funds). There are some difficulties (i.e, negotiation process and borrowing procedures) to access non-concessional loans, which in 2011/12 were accessed during the last quarter. For the case of D-Funds, most of data have been declared during the fourth quarter. As a way forward, the government will start early the negotiations in line with new budget cycle. Likewise, DPs are urged to post their support on AMP soon after release of such funds. Infrastructure maintenance continues to receive limited attention, except for roads. The share of infrastructure maintenance in the 2012/13 is projected to remain flat at around 3 percent of total budget. While there are some allocations for roads maintenance in the 2012/13 budget there is virally no allocation for maintenance of social infrastructures especially in education health sectors. (Para 31). This issue is noted. The government has been allocating resources for maintenance of infrastructure across sectors at different levels. 57

59 However, there is a challenge of capturing those data due to budget classification at different levels. E.g. Funds that have been allocated to public institutions and LGAs are captured as line item of transfers which includes maintenance budget. Spending on public debt and general services increased significantly in 2011/12. (Para 42) This issue is noted. The increase resulted by payment of due debts from previous loans. New government initiative to finance infrastructure development projects through non-concessional loans with short maturity period which requires government to start repayment of such loans in short period. Available data on actual local government expenditures continues to inhibit detailed analysis of local government expenditures. Transparency of LGAs expenditure continues to be limited for two reasons: (i) inclusion of LGA budgets in regional votes especially with regards to releases and (ii) lack of transparency on the planning and expenditure of carry-overs. (Para 51) With effect from 1st July, 2012, 133 LGAs started to use Epicor/IFMS for revenue and expenditure. Thus, data on actual LGAs expenditure can be accessed. Likewise, carry-over balances will be entered into the IFMS as part of revenue for new financial year and respective expenditure will be reflected. Inequity in resource allocations among LGAs continues and is impacting service delivery. (Para 52).This issue is noted. The government is reviewing formulae used in allocation of resources to LGAs. Health sector foreign funding is highly under estimated due to large off-budget funding (paragraph 85). This issue is noted. The Government will continue to persuade DPs to channel their budget support through the exchequer system. 58

60 ANNEX 8 PRESENTATION ON BIG FAST RESULTS NOW! 59

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65 ANNEX 9 PRESENTATION ON GBS INDEPENDENT EVALUATION PRELIMINARY FINDINGS 64

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