TANZANIA COUNTRY PORTFOLIO PERFORMANCE REVIEW. April 3-4, 2003

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1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized TANZANIA COUNTRY PORTFOLIO PERFORMANCE REVIEW April 3-4, 2003

2 iii The Government of Tanzania The World Bank

3 i Acronyms and Abbreviations APL Adaptable Program Loan/Credit ASMP Agriculture Sector Management Project AWP Annual Work Plan CAS Country Assistance Strategy CO Country Office CPAR Country Procurement Assessment Report CPPR Country Portfolio Performance Review CSD Civil Service Department DCA Development Credit Agreement DO Development Objectives ERR Economic Rate of Return ESSD Environmentally and Socially Sustainable Development Network FIDP II Second Financial Institution Development Project FILMUP Financial and Legal Management Upgrading Project FMS Financial Management Specialist FY Fiscal Year GoT Government of Tanzania HDN Human Development Network HIPC Highly Indebted Poor Countries HNP Health, Nutrition and Population HQ Headquarters HSDP Health Sector Development Project ICR Implementation Completion Report IDA International Development Association IFMS Integrated Financial Management System IMWG Inter-Ministerial Working Group IP Implementation Progress IRP II Second Integrated Roads Project LACI Loan Administration Change Initiative LIL Learning and Innovation Loan/Credit LVEMP Lake Victoria Environmental Management Project M&E Monitoring and Evaluation MDAs Ministries/Departments/Agencies MOF Ministry of Finance MTEF Medium Term Expenditure Framework MTR Mid-term Review NAEP National Agricultural Extension Project OED Operations Evaluation Department PAD PEDP Project Appraisal Document Primary Education Development Program PER Public Expenditure Review PIP Project Implementation Plan PIU Project Implementation Unit PMO Prime Minister s Office PMR Project Management Reports PREM Poverty Reduction and Economic Management PRBS Poverty Reduction Budget Support PRSC Poverty Reduction Support Credit PRSP Poverty Reduction Strategy Paper PSAC 1 Programmatic Structural Adjustment Credit 1

4 ii PSD PSR RBMSIIP SAD SAL SASE SIL SIM SOEs SWAP TAL TAP TARP II TAS TASAF TTLs UNDP WRM WSS Private Sector Development Project Status Report River Basin Management and Smallholder Irrigation Improvement Project Sector Adjustment Loan/Credit Structural Adjustment Loan/Credit Selected Accelerated Salaries Enhancement Specific Investment Loan/Credit Sector Investment and Maintenance Loan/Credit Statement of Expenditures Sector Wide Approaches Technical Assistance Loan/Credit Tax Administration Project Second Tanzania Agricultural Research Project Tanzania Assistance Strategy Tanzania Social Action Fund Task Team Leaders United Nations Development Program Water Resource Management Water Supply and Sanitation

5 iii TABLE OF CONTENTS Page Number Portfolio at a Glance... Portfolio Performance at a Glance... Portfolio Details at a Glance... Portfolio Performance Highlights... Graphical Representation of Portfolio Performance Highlights... vi vii viii ix x-xi Section I CPPR Approach and Objectives... 1 Introduction... 1 CPPR Approach Lessons Learned from Previous CPPR... 2 Objectives of the April 2003 CPPR... 2 Structure of the Report Section II Progress in Implementing the Plan of Action of the September 2000 CPPR... 4 Annual Work Plans and Counterpart Funds... 4 Implementation Lessons Learned Monitoring and Evaluation... 5 Role of the World Bank Country Office in Portfolio Management

6 iv Section III Portfolio Fundamentals... 7 Portfolio Size and Flows... 7 Age and Composition Cancellations Distribution by Sector Section IV Portfolio Performance Timely Project Start-ups/Effectiveness Projects at Risk Proactivity and Realism Disbursements Performance Financial Management Environmental Performance Management of Closing Date Extensions... 18

7 v Page Number Section V Track Record of Bank-assisted Projects in Tanzania ( Exits) Key Indicators Achievement of Development Objectives Prospect for Sustainability Creation of Institutional Capacity Outcome, Sustainability and Institutional Capacity Creation Bank Performance Tanzania s Performance Section VI Key Systemic/Generic Implementation Issues Project Management/Implementation Arrangements Project Implementation Unit Staff Salaries Efficient Management of Project Funds/Resources Portfolio Management Challenges Posed by Decentralization Program IDA s Future Assistance Program Putting Existing Projects to Work to Combat the HIV/AIDS Scourge Section VII Action Plan for Addressing Systemic Portfolio Management Issues ANNEXES: Annex I Annex II Annex III Progress on the 2000 CPPR Agreed Action Plan Project Profiles Profiles of Projects in the FY03 Lending Program TABLES Table 1a Table 1b Table 1c Table 2 Table 3 Table 4a Table 4b Table 5 Table 6 Table 7 Table 8 Portfolio at a Glance Portfolio Performance at a Glance Portfolio Details at a Glance (Projects under implementation as of March 03, 2003) Portfolio Flows Age of the Portfolio Portfolio Distribution by Lending Instrument (Number of Operations) Portfolio Distribution by Lending Instrument (Committed Amount) Project Cancellations Portfolio Distribution by Sector Portfolio Performance Trends (FY98-02) Portfolio Management Indicators (FY98-02)

8 vi Table 9 Table 10 Table 11 Timeliness of Audit Reports Received Number of Projects by Age (FY98-02) Key OED Indicators FIGURES Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Figure 7 Figure 8 Figure 9 Problem Projects, Projects at Risk, and Commitments at Risk Proactivity and Realism Indexes Disbursement Ratio Achievement of Development Objectives Prospect for Sustainability Creation of Institutional Capacity Outcome, Sustainability and Institutional Capacity Creation Bank Performance GoT s Performance BOXES Box 1 Box 2 Portfolio Performance Highlights Graphical Representation of Portfolio Performance Highlights

9 vii ESSD Table 1a: Portfolio at a Glance As of June 30, 2002 Amounts in US$ Million Project Originally FY 02 Undisbursed Committed Disbursement Balance Lake Victoria Environment Project National Agric. Extension Project II River Basin Management Project Tanzania Agric. Research Project II Forest Conservation Managt. Project Lower Kihansi Env. Managt. Project Infrastructure Railways Restructuring Project Second Integrated Roads Project Urban Sector Rehabilitation Project Songo Songo Gas Dev. & Power Gen Rural Water Supply and Sanitation Finance and PSD Financial Institutions Dev. Project II Privatization and PSD Project Public Service Reform Project Rural and Micro-finance Services Proj Tax Administration Project Regional Trade Facilitation HDN Health Sector Development Program Human Resource Development Program Primary Education Dev. Program Tanzania Social Action Fund PREM PSAC TOTAL 1,

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11 ix Table 1b. Portfolio Performance at a Glance FY 98 FY99 FY00 FY01 FY02 Active Portfolio Number of Projects Net Commitments (US$m) 1,298 1,066 1, ,233 New Commitments (US$m) Opening Undisbursed Balance (US$m) Closed Projects Portfolio Performance Problem Projects (#) Problem Projects (%) Projects at Risk (#) 1/ Projects at Risk (%) 1/ Commitments at Risk (US$m) 1/ Commitments at Risk (%) 1/ Total Disbursements (US$m) Disbursement Ratio (%) 2/ Proactivity Index (%) 3/ Realism Index (%) 4/

12 x Development Impact Number of OED evaluated projects Percent rated satisfactory Overdue Audit Reports Percent not received by due date Number of Overaged Projects 5/ Undisbursed Balance for Overage Projects (US$m) Data as of June 30 Definitions: 1/Includes problem projects (i.e. with unsatisfactory Implementation Progress (IP) and/or Development Objective (DO) ratings) and potential problem projects (i.e. at risk of not meeting DO and/or IP). 2/ Ration of the disbursements during the year to the undisbursed balance of the Bank s portfolio at the beginning of the year for investment projects only. 3/ Proactivity is defined as [# of projects that were problem projects 12 months ago, but for which proactive actions have been taken within the year] / [# of projects that were problem projects 12 months ago]. 4/ Realism is defined as [# of Projects rated as problem projects]/[#of Projects rated at Risk]. Problem projects have DO or IP rated unsatisfactory. Projects at risk include both problem projects and potential problem projects. 5/ Investment projects 8 years and older. Adjustment projects 3 years and older.

13 xi Table 1c: Portfolio Details at a Glance IDA Projects Under Supervision (As of March 03, 2003) (Amounts in US$ Million) ESSD Lake Victoria Environment Project 07/30/ /30/ HS HS National Agric. Extension Project II 07/11/ /31/ S S River Basin Management Project 07/11/ /31/ S S Tanzania Agric. Research Project II 01/29/ /30/ S S Forest Conservation Managt. Project 02/26/ /31/ S S Lower Kihansi Management Project 07/03/ /31/ S S Infrastructure Second Integrated Roads Project 04/07/ /30/ S S Urban Sector Rehabilitation Project 05/23/ /30/ S S Songo Songo Gas Dev. & Power Gen. 10/09/ /31/ S S Rural Water Supply Project 03/20/ /30/ S S Finance and PSD Financial Institutions Dev. Project II 08/31/ /31/ S S Privatization and PSD Project 12/14/ /30/ S S Public Service Reform Project 12/02/ /31/ S S Rural and Micro-finance Services 08/26/ /31/ S S Tax Administration Project 03/30/ /31/ S S Regional Trade Facilitation 04/03/ /30/ U U HDN Health Sector Development Program 06/15/ /31/ S S Human Resource Development Program 10/07/ /31/ S HS Primary Education Dev. Program 10/09/ /31/ S S Tanzania Social Action Fund 08/22/ /30/ S S PREM PSAC 1 06/15/ /30/ S S TOTAL 1, DO = Development Objective IP = Implementation Progress S = Satisfactory U = Unsatisfactory HS = Highly Satisfactory

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15 xiii Box 1: Portfolio Performance Highlights The quality of the portfolio is good (95% of the portfolio was rated satisfactory at the end of FY02, down from 100% in FY01). The number of projects in extended problem status declined from 5 in FY98 to zero in FY02. Commitments at risk declined from 55% to 3% of the portfolio between FY98 and FY02. Number of projects at risk declined from 29% to 5% of the portfolio between FY98 and FY00 and has been maintained at that level to date. Proactivity index has been maintained at 100% between FY99 and FY01 while Realism index improved from 50% in FY99 to 100% in FY00. Realism index declined to 0% in FY01and then rose again to 100% in FY02. Total disbursements declined from US$150 million in FY00 to US$93 million in FY01 and then increased to US$166 million in FY02. Disbursements on the investment portfolio declined from US$124 million in FY00 to US$63 million in FY01 and then rose to US$128 million in FY02. Disbursement ratio (ratio of disbursement during the year to the undisbursed balance of the portfolio at the beginning of the year for investment projects only) fell from 28% in FY00 to 19% in FY01. The ratio remained at 19% in FY02. This rate is slightly below that of the Africa Region and Bank average. Two out of the 22 projects in the portfolio have disbursement flags. Tanzania has maintained a notable performance in fiduciary compliance since FY98. The number of audit reports received in the fiscal year in which they were due showed a significant improvement (96% in FY02 up from 92% in FY00 and 69% in FY98). However, a large number of the audit reports received in the fiscal year in which they were due were not received by due date. 29% of the reports were received on time in FY02 (down from 83% in FY99) compared to 46% for the Africa Region. Four projects were closed between FY01 and FY02 and seven new projects were approved during that period. Total commitments against the seven projects were US$ million. A growing number of portfolio functions (procurement approval up to a given threshold, financial management, task responsibility for some projects) are being managed from the Country Office. Regular Country Office meetings with GoT, project coordinators and other project staff are held to discuss project management issues. Significant gains have been made in the share of completed projects with satisfactory outcomes (according to OED ratings). Seventy percent of IDA disbursements to Tanzania in favor of projects that exited the portfolio between 1991 and 2002 met their development objectives. The percentage rated satisfactory in more recent years increased from 75 in FY99 to 100 in FY00 through FY02.

16 xiv Box 2: Graphical Representation of Portfolio Performance Highlights Figure 1: Problem Projects, Projects at Risk, and Commitments at Risk 60% 50% 40% 30% 20% 10% 0% 55% 29% 24% 11% 10% 6% 5% 5% 5% 5% 5% 5% 3% 3% 0% FY98 FY99 FY00 FY01 FY02 Problem Projects (%) Projects at Risk (%) Commitments at Risk (%) Figure 2: Proactivity and Realism Indexes 100% 100% 100%100% 100% 100% 80% 83% 60% 50% 40% 20% 0% 20% FY98 FY99 FY00 FY01 FY02 0% Proactivity Index (%) Realism Index (%) Figure 3: Disbursement Ratio

17 xv Disbursement Ratio (%) 30% 20% 15% 20% 28% 19% 19% 10% 0% FY98 FY99 FY00 FY01 FY02 Disbursement Ratio (%)

18 1 Section I: CPPR Approach and Objectives Introduction 1. The Bank disbursed about US$1,644 million of IDA resources to Tanzania through projects and operations that exited the portfolio between 1991 and It has greatly expanded its support both financial and knowledge sharing to the country. New commitments in the last fiscal year (FY02) amounted to US$396 million. The Bank s net commitment to Tanzania at the beginning of FY03 was US$1,233.0 million (second highest, after Ethiopia, in the Africa Region of the Bank). One of the challenges for both the Government of Tanzania (GoT) and the Bank is to ensure that this momentum is maintained, followed through on project implementation, on disbursements, and on dialogue with all stakeholders. 2. With a total commitment of US$1, million and an undisbursed balance of US$ million of IDA resources in 22 operations/projects spread across many sectors at the close of FY02 (Table 1a), effective implementation of the portfolio remains the Bank s single biggest opportunity to impact the lives of the people in Tanzania. The need for both the GoT and the Bank to manage this portfolio more pro-actively cannot be overemphasized. A number of key systemic portfolio management issues have been identified for discussion during the April 2003 Country Portfolio Performance Review (CPPR) to ensure a successful implementation of the portfolio. These issues have been identified through consultations with officials of Ministry of Finance (MOF), sector ministries, departments and agencies (MDAs), project staff (Project Coordinators, Procurement Officers, and Project Accountants) and Task Team Leaders. 3. The last CPPR was held in September While focusing on key implementation issues, it specifically: (a) assessed the progress made in portfolio management since the previous CPPR and provided details on status of the portfolio; (b) took stock of some current issues affecting project implementation and proposed measures to address them; and (c) sought to reach agreement on a portfolio improvement plan and also proposed measures to improve quality at entry. CPPR Approach 4. Building on the last CPPR, the April 2003 review continues the effort being made at transforming the CPPR to a more open and forward-looking process. Focus on individual projects and their current problems is minimal. Instead, there is a special annex on project profiles (Annex II) with brief write-ups on each project in the portfolio, putting each project in its sectoral context and focusing on the project s development objectives; components and activities; key issues and challenges for the Government, the Bank, and other stakeholders; and the way forward. The CPPR also focuses on GoT and Bank performance in key portfolio management areas. Further, it compares Tanzania s portfolio performance to that of the Africa Region and Bank-wide averages using selected key performance indicators. For the first time in the history of CPPRs in Tanzania, this CPPR includes a review of the track record of Bank-assisted projects in the country, focusing on their outcomes, sustainability, and institutional development impact and assesses Bank and GoT performance. In addition to covering core issues of portfolio performance, the CPPR focuses on sectoral portfolio issues and examines the directions that IDA s future assistance program should take as well as modalities for delivering that program. The discussion document also includes a brief profile of projects in the FY03 lending program (Annex III). As agreed at the last CPPR meeting, other development partners who are also co-financiers in Bank-funded projects will be involved in the April CPPR meeting.

19 2 Lessons Learned from Previous CPPR 5. In the past, emphasis has been on physical implementation of individual projects. While the April 2003 CPPR will continue to review the core area of portfolio implementation performance, it will also attempt to draw closer attention to linkages between project implementation (process and outputs) and expected development impacts/outcomes. In light of ongoing efforts aimed at harmonization of procedures and reducing transaction cost to GoT, a number of other development partners will be invited to this CPPR. Objectives of the April 2003 CPPR 6. The primary objective of the April 2003 CPPR is to identify critical factors constraining a fuller and sustainable achievement of the development impact of IDA s assistance to Tanzania and to agree on a realistic action plan to remove the key constraints. Specifically, the goals of the CPPR are to: (a) assess progress in implementing the plan of action of the September 2000 CPPR; (b) review status of the FY02 portfolio 1 ; (c) review track record of Bank-assisted projects/operations in Tanzania in achieving their intended results on the ground at the country level; (d) discuss key systemic/generic implementation issues including directions of IDA s future assistance program; and (e) agree on an action plan and timetable for resolving identified issues. Structure of the Report 7. The report is divided into seven sections. Section I outlines the CPPR approach and objectives; Section II reviews progress made in implementing the plan of action of the last CPPR; Section III outlines the portfolio fundamentals including size and flows, age and composition, cancellations, and distribution by sector; Section IV assesses the FY02 portfolio performance; Section V reviews track record of Bank-assisted projects in Tanzania that exited the portfolio between 1991 and 2002; Section VI describes selected key systemic portfolio management issues to be discussed during the April 2003 CPPR; and Section VII will outline action plan and timetable for resolving identified issues. Section VII will be completed after the April 2003 CPPR meeting. 1 Portfolio status as indicated by project data, implementation status, performance ratings, and information on compliance with covenants.

20 3 Section II: Progress in Implementing the Plan of Action of the September 2000 CPPR 8. The September 2000 CPPR identified four crosscutting issues constraining portfolio performance. The agreed plan of action focused on the four issues. These were: Annual Work Plans and Counterpart Funds, Implementation Lessons Learned, Monitoring and Evaluation, and Role of the World Bank Country Office in Portfolio Management. Specific actions were agreed on each of the four areas. Both the GoT and the Bank have done considerable work since the September 2000 CPPR in implementing agreed actions. Overall, good progress has been made in implementing the agreed actions. However, there are some areas where the agreed actions were not fully implemented. Progress on the 2000 CPPR action plan is summarized below. Further details are given in Annex I. Annual Work Plans and Counterpart Funds 9. An agreed format for annual work plans (AWPs) was developed with support from the Bank s Country Office staff. AWPs are now prepared for all projects (even though there is variation in quality) before Budget time not only for budget purposes, but also as an implementation tool. GoT now issues budget guidelines by February. 10. A pilot basket fund for counterpart fund requirements was not established to minimize cash-flow constraints imposed by the cash-budgeting system as agreed. However, good progress has been made in providing counterpart funds on a timely basis, especially during this fiscal year (FY03). That not withstanding, there are still some cases where late release of and/or inadequate counterpart funds continue to constrain project implementation. Songo Songo Gas Development and Power Generation Project is an example of a project where lack of Ministry of Energy and Minerals counterpart funding has been a significant unresolved issue despite being addressed by a March 2002 supervision mission. Only Tshs. 25 million, an amount that is significantly below the estimated budgetary requirements, has been made available. Implementation Lessons Learned 11. Actions in this category included sensitizing stakeholders and reviewing/redesigning Project Implementation Plans (PIPs) if necessary, improving knowledge of IDA guidelines, especially procurement and Loan Administration Change Initiative (LACI), and adoption of Integrated Financial Management System (IFMS) in all donor supported projects for reporting and improved governance. Attempts have been made to sensitize stakeholders through workshops and seminars. PIPs have been reviewed and redesigned where necessary. Some projects have been restructured following recommendations of Mid-term Reviews (e.g., Second Integrated Roads Project). Knowledge of IDA guidelines, especially procurement, financial management, and disbursement, has been improved through workshops, seminars, training, and informal interactions between project staff and Bank Country Office staff. LACI has been scrapped. IFMS has been adopted in all Bank-supported projects. It is also being adopted in some donor-supported projects for reporting and improved governance as recommended at the last CPPR. Monitoring and Evaluation

21 4 12. Robust monitoring and evaluation (M&E) capacity is central to allowing the GoT monitor implementation of its poverty reduction programs and tracking progress towards achieving development goals, including the Millennium Development Goals. It is also critical in furnishing Tanzania s development partners with necessary information to improve quality of their operations and manage their portfolio better. Although there has been considerable progress in the last few years in improving overall focus on monitoring and evaluation (M&E), a review of Project Appraisal Documents (PADs), Progress Reports, Supervision Mission Aide Memoires, and Project Status Reports (PSRs) points to continuing deficiencies in the quality of M&E. In a substantial number of cases M&E is not rated in the PSRs and only casually mentioned in the Aide Memoires. M&E is still overly centered on compliance with rules and regulations and tracking inputs/outputs and processes, rather than the poverty outcomes, impacts and results of the policy, program and project efforts. At the project level, the current systems for M&E seem to be predominantly focused on implementation processes and outputs rather than end results of policies, programs and projects. Too many key indicators are shown in the Key Performance Indicators Annex. M&E is often bad because the project objectives are not practically measurable. Outcome and output indicators are expressed in ways that are difficult to quantify. Setting measurable (targets) is the key to achieving good M&E. In some cases, roles and responsibilities for M&E have not been defined as agreed at the last CPPR. Capacity in MOF and some sector ministries has not been strengthened as agreed to fulfill this role. Baseline data has not been established in some Bank-assisted projects/operations. Clarity of objectives at the project level seems to be improving, especially for projects approved in more recent years. Their performance measurement indicators seem to be clear/monitorable. Supervision missions need to focus much more on the appropriate areas, that is, outcomes/impacts of projects. Both project and Bank staff need to do much more in the area of monitoring and evaluating the impacts of projects. There is better coordination of missions by providing tentative calendar to Project Coordinators and line ministries/agencies. In most cases, Bank and project staff jointly formulate supervision mission objectives and terms of reference. Role of the World Bank Country Office in Portfolio Management 13. In order to better support the country program, the World Bank Country Office (CO) has put in place back-up for core functions like procurement, financial management, and disbursement. The Bank has also relocated more of its Headquarters staff to the CO and recruited additional national staff. While there were four HQ staff located in the CO in FY00, the number increased to 9 in FY03. A growing number of portfolio functions are now being managed from the CO. Also, CO staff now manage an increasing number of projects/operations. A procurement hub has also been established in Uganda, thus substantially reducing the number of procurement cases sent to Washington. 14. Project Coordinators and CO staff meet every other month to review the portfolio and discuss project implementation issues. Regular CO meetings with GoT, project coordinators, and other project staff are conducted. In addition, the CO has instituted a more systematic tracking of procurement and use of open houses where projects staff can come and discuss specific issues (procurement, financial management, disbursements, etc) with Bank staff. However, there are still cases where the Government is unhappy with the Bank s response time on procurement requests. Some of the delay in processing replenishment applications and direct payments and getting No Objections from Task Team Leaders (TTLs) is due to incomplete applications from MDAs and/or Project Implementation Units (PIUs). 15. Increased use of modern information technology such as videoconferencing and s between project staff, CO and Washington-based staff is already yielding positive results. In addition, the Bank provides in-country training to project coordinators, accountants, and

22 5 procurement specialists (for example, in quality assurance, procurement, financial management, and disbursement) to allow many project staff to attend.

23 6 Section III: Portfolio Fundamentals Portfolio Size and Flows 16. There were 22 active projects/operations in Tanzania s portfolio as of end June This represented a total commitment of about US$ billion. Total undisbursed balance as of June 30, 2002 was about US$757 million (or 58% of original commitments). About US$166 million was disbursed during FY02 (up from US$93 million in FY01). A brief write-up on each of the 22 projects, focusing on each project s sectoral context; development objectives; components and activities; key issues and challenges for the Government, the Bank, and other stakeholders; and the way forward, is given in Annex II. 17. Four projects have been closed and exited the portfolio between the last CPPR in September 2000 and end of FY02. 2 One more project, Railways Restructuring, closed during FY03. Seven new investment projects/operations 3 totaling US$ million have been added to the portfolio since the last CPPR. Thus, there now 21 projects in the portfolio with a total net commitment of US$1.167 billion of which US$674.4 million was still undisbursed as of March 03, 2003 (Table 1c). Details on portfolio flows over the last five years are given in Table 2. Table 2 : Portfolio Flows (Amounts in US $ Millions) Item FY98 FY99 FY00 FY01 FY02 Number of Projects New Projects Closed Projects New Commitments Closed Projects Disbursement in FY Undisbursed Balances (Beginning of FY) Age and Composition 18. Age of the portfolio. Table 3 summarizes age of the portfolio by project/operation and cluster. With the exception of a few aging projects, most of the projects in the portfolio are fairly young. Two out of the 21 projects (10% of the portfolio) are under one year; nine projects (43% of the portfolio) have been under implementation for less than three years. Thus, 64% of the portfolio was under three years as at March 03, Average age of the portfolio at that time was 3.6 years compared to 4.01 years two years ago. With the closure of Railways Restructuring Project on December 31, 2002, there is left one overage (8+years) project, Second Integrated Roads Project (8.9 years). While the number of overage projects declined to one by the end of 2002, four more projects (Lake Victoria Environment Project, National Agricultural Extension Project II (NAEP II), River Basin Management Project, and Urban Sector Rehabilitation Project) will join the overage category within less than Power VI, Telecom III, Private/Public Sector Management, and Mineral Sector Development. 3 Regional Trade Facilitation, Tanzania Social Action Fund (TASAF), Songo Songo Gas Development and Power Generation, Forest Conservation and Management, Lower Kihansi Environmental Management, Rural Water Supply and Sanitation, and Primary Education Development Program.

24 7 ESSD years from now. Implementation period of infrastructure projects has been the longest. Further details on age and composition of the portfolio and closing date extensions are given in Table 3. Project Table 3: Age of the Portfolio (As at March 03, 2003) Approval Date Closing Date Age (Years) 4.6 Times Extended Lake Victoria Environment Project 07/30/ /30/ National Agric. Extension Project II 07/11/ /31/ River Basin Management Project 07/11/ /31/ Tanzania Agric. Research Project II 01/29/ /30/ Forest Conservation Managt. Project 02/26/ /31/ Lower Kihansi Management Project 07/03/ /31/ Infrastructure 4.5 Second Integrated Roads Project 04/07/ /30/ Urban Sector Rehabilitation Project 05/23/ /30/ Songo Songo Gas Dev. & Power Gen. 10/09/ /31/ Rural Water Supply Project 03/20/ /30/ Finance and PSD 3.2 Financial Institutions Dev. Project II 08/31/ /31/ Privatization and PSD Project 12/14/ /30/ Public Service Reform Project 12/02/ /31/ Rural and Micro-finance Services 08/26/ /31/ Tax Administration Project 03/30/ /31/ Regional Trade Facilitation 04/03/ /30/ HDN 3.0 Health Sector Development Program 06/15/ /31/ /07/ /31/2005 Human Resource Development Program 5.4 Primary Education Dev. Program 10/09/ /31/ Tanzania Social Action Fund 08/22/ /30/ PREM 2.7 PSAC 1 06/15/ /30/ Average Age of Portfolio Lending instruments. The Bank s assistance program to Tanzania is delivered through both Investment Loans/Credits and Adjustment Loans/Credits. The current portfolio is made up of (Table 4a): (a) Five Types of Investment Loans/Credits: Specific Investment Loan/Credit (SIL) 15 projects (or 68% of the number of projects in the portfolio), Sector Investment and Maintenance Loan/Credit (SIM) 1 project, i.e., Human Resource Development Program,

25 8 Adaptable Program Loan/Credit (APL) 2 projects, i.e., Health Sector Development Program and Public Service Reform Program, Learning and Innovation Loan/Credit (LIL) 1 project, i.e., Rural and Micro-finance Services Project, and Technical Assistance Loan/Credit (TAL) 1 project, i.e., Lower Kihansi Environmental Management Project; and (b) Two Types of Adjustment Loans/Credits: Structural Adjustment Loan/Credit (SAL) 1 project, i.e., Programmatic Structural Adjustment Credit 1 (PSAC 1) Sector Adjustment Loan/Credit (SAD) 1 project, i.e., Primary Education Development Program (PEDP). 20. Investment Loans/Credits account for about 75-90% of Bank lending to Tanzania (Table 4b) compared to 75-80% of total Bank lending. Adjustment Loans/Credits account for about 10-25% of Bank lending to Tanzania compared to 20-25% of total Bank lending. Table 4a: Portfolio Distribution by Lending Instruments (Number of Operations) Lending Instruments Inve. Loans/Credits APL LIL SIL SIM TAL Sub-total Adj. Loans/Credits SAD 1 1 SAL Sub-total Total Of which Investment Loans/Credits (%) Adjustment Loans/Credits (%) Table 4b: Portfolio Distribution by Lending Instruments (Committed Amount US$ Million) Lending Instruments Inve. Loans/Credits APL LIL SIL SIM TAL Sub-total Adj. Loans/Credits SAD SAL Sub-total Total Of which

26 9 Investment Loans/Credits (%) Adjustment Loans/Credits (%) Cancellations 21. There were two credit cancellations (undisbursed amounts at the close of ASMP and Telecom III) totaling US$ 0.51 million in FY01 and another 2 cancellations totaling US$ 64.7 million in FY02. The latter was a partial cancellation of IRP II (US$63.5 million) and undisbursed amount at the close of Mineral Sector Development Project (US$1.2 million). A Mid-term Review (MTR) carried out in March 2002 indicated the need to cancel about US$70 million from the IRP II as a result of a substantial delay in design of one of the major components, Singida- Shelui Road rehabilitation. Actual cancellation was US$63.5 million. Other cancellations are given in Table 5. Table 5: Project Cancellations (Amounts in US$ million) Closing Date FY98 FY99 FY00 FY01 FY02 Forest Resource 1 06/30/ Health and Nutrition 1 06/30/ IRP-I 2 06/30/ FILMUP 1 06/30/ Railways Restructuring 2 12/ /31/02 ASMP 1 06/30/ Telecom III 1 12/31/ Mineral Sector Dev. 1 12/31/ Integrated Roads Project II 2 06/30/ Undisbursed balance at closing 2 Restrucutred Distribution by Sector 22. Bank-supported projects are in all major sectors of the economy with the exception of the mining sector where the last operation, Mineral Sector Development Project, closed in FY02. Agriculture, rural development, forestry, and environment (6 projects with a total commitment of US$ million) account for 27% of the total number of projects/operations and 10% of total commitment (Table 1a). Projects in this cluster are relatively small. Infrastructure (5 projects with total commitment US$ million) constitutes 23% of the number of projects/operations but accounts for 43% of total commitment due to the large nature of infrastructure projects. One large infrastructure project, Songo Songo Gas Development and Power Generation, accounted for 24% and 29% of total undisbursed balance and investment operations/projects undisbursed balance, respectively. Finance and private sector development (6 projects with a total commitment US$ million) represents 27% of the number of projects/operations and 13% of total commitment. Health, education, and social (4 projects/operations with a total commitment US$ million) accounts for 18% of the number of projects/operations and 19% of total commitment. The focus has shifted more towards the social sectors since the last CPPR. At the sector level, jointfunding mechanisms, such as in the case of PEDP, have provided an efficient and effective funding mechanism, fully integrated with the Government budgeting system. There is one operation in the poverty reduction and economic management (PREM) cluster with a total commitment US$ million, representing 5% of the number

27 10 of projects/operations and 15% of total commitment. Changes in the composition of credit-undisbursed balances by sector from FY98 to FY02 are given in Table 6. ESSD Table 6: Portfolio Distribution by Sector Undisbursed Balances as of June 30 (Amounts in US$ Million) FY98 FY99 FY00 FY01 FY02 Agriculture Environment Infrastructure Mining Oil & Gas Power Telecommunications Transport Urban Development Finance & Private Sector Finance Private Sector Development HDN Education Health, Nutrition & Population PREM Multi-sector/Economic Policy Timely Project Start-ups/Effectiveness Section IV: Portfolio Performance 23. Even though effectiveness delays have not been a serious problem in Tanzania in recent years, the trend seems to be on the rise. The number of projects/operations with delayed effectiveness as a percentage of total number of projects/operations in the portfolio has ranged from % between FY98 and FY02 (Table 8). Four out of the seven new projects that entered the portfolio since the last CPPR became effective within three months of Board approval date. One of the three exceptions, Regional Trade Facilitation, took 10 months to become effective. Both the GoT and the Bank should strive to eliminate effectiveness delays altogether. Effectiveness delays are usually attributed to project design weaknesses and/or overly ambitious or inappropriate effectiveness conditions. Wherever feasible, all required actions should be taken before Board approval so that receipt of legal opinion becomes the only effectiveness condition. Projects at Risk Both project and Bank staff have paid increased attention to implementation progress (IP) and meeting the development objectives (DO) of IDA-assisted projects in Tanzania over the last several years with good results. In FY02, all the 22 projects in the portfolio had a satisfactory rating for progress towards achieving stated 4 Includes problem projects [i.e., with unsatisfactory Implementation Progress (IP) and/or Development Objectives (DO) ratings] and potential problem projects (i.e., at risk of not meeting DO and/or IP).

28 11 Development Objectives. There was one problem project (Unsatisfactory Implementation Progress) representing 5% of the total number of active projects in the portfolio. The problem project, NAEP II, has since been turned around. However, another project, Railways Restructuring, fell into the problem category during FY03 before it was closed on December 31, Its implementation progress was rated Unsatisfactory. Even though Development Objective was rated Satisfactory, that rating might have been optimistic. Long-term concession was included as a primary project objective when the project was restructured in However, the concession process was not completed prior to project closing. Also, two covenants, i.e., (i) the rate of return on capital and (ii) preparation of plan of action for commercial use of the Railways Land Assets were not complied with. The Technical Assistance component was also rated Unsatisfactory. The project was in problem status for about 3 months before it was closed on December 31, Tax Administration Project (TAP) has been identified as a potential problem project (but not being rated as an actual problem by staff). It had three risk flags (critical risk, management problems, and procurement problems) as at the beginning of FY03. It had no supervision by the Bank between May 2001 and November 2002 due to change in task management arrangements. A new task team leader has been appointed and a supervision mission was concluded in November The project is now rated satisfactory for both DO and IP. The ratio of actual problem projects fell from 5% of the total portfolio in FY00 to 0% in FY01 before going up again to 5% in FY02 (Table 7). 25. Tanzania has registered a significant improvement in the ratio of projects at risk. At the end of FY98, almost 30% of the projects in the portfolio were at risk. This ratio fell to 11% in FY99 and then to 5% in FY00 and was maintained at that level through FY02 (Table 7). Currently there is one problem project, Regional Trade Facilitation, in the portfolio. Tanzania s performance in this area has been above the average for the Africa Region, which rose from 15% in FY01 to 23% in FY02. Significant progress has also been made in reducing the share of IDA commitments at risk. The share of commitments at risk was reduced from 55% in FY98 to only 3% in FY02. Tanzania s performance was better than the average for the Africa Region. Twenty four percent of the Region s commitments were at risk in FY02. Special attention is being paid to problem projects and projects at risk, so as to turn around problem projects and avoid the potential problem projects degenerating into problem projects. The number of projects in extended problem status has declined from five in FY99 to zero in FY02 (Table 8). Table 7: Portfolio Performance Trends FY02 (Amounts in US$ Million) Selected Indicators FY98 FY99 FY00 FY01 FY02 Number of Active Projects IDA Commitments 1,298 1,066 1, ,233 Total Disbursements Of which Investment Operations Disbursement Ratio (%) (Africa Region) (21) (22) (22) (23) (21) (Bank Average) (20) (19) (20) (21) (21) % of Actual Problem Projects (Africa Region) (23) (19) (12) (12) (16) % of Projects at Risk (Africa Region) (31) (27) (14) (15) (23) % of Commitments at Risk % Realism (Africa Region) (73) (68) (88) (83) (71) % Proactivity a/ (Africa Region) (68) (73) (88) (87) (77)

29 12 a/ The 1 problem project was in problem status for less than 12 months during the period under review. Hence proactivity index does not apply since it is a measure of addressing projects that were in problem status 12 months ago. Proactivity and Realism 26. Proactivity is a measure of addressing problem projects within 12 months (including by upgrading, restructuring, closure or partial cancellation). Tanzania has recorded an outstanding achievement with respect to addressing problem projects. Proactivity index 5 for the country improved from 20% in FY98 to 100% in FY99 through FY01 (Table 7) compared to 68%, 73%, 88%, and 87% for the Africa Region during the same years. The one problem project during FY02 was not in that status for 12 months by end of that FY hence proactivity index for FY02 is not shown in Table 7. The one problem project (NAEP II) has been turned around. However, another project (Railways Restructuring) joined problem status in FY03. It was in problem status for three months before it was closed on December 31, Realism measures the candor and accuracy of implementation problems and reflects them in the project ratings, either by downgrading or taking measures to resolve risks. Realism index 6 has been fluctuating. It declined from 83.3% in FY98 to 50% in FY99 and then improved to 100% in FY00 before falling to 0% in FY01 and then improving again to 100% in FY02. The index has been more stable for the Africa Region compared to Tanzania. The average index for Africa declined from 73% in FY98 to 67.6% in FY99, then increased to 88.2% in FY00 and then fell slightly to 83% in FY01 and then declined again to 70.7% in FY A number of factors explain the good performance in proactivity and realism. The Bank s supervision efforts have increased, leading to improvement in the portfolio. All projects under implementation have an annual supervision plan/strategy agreed between the team leaders and their managers. There has also been better coordination in planning and carrying out project supervision. On average, Government project staff and Bank staff jointly supervise each project twice a year. There is also greater continuity of Bank staff working on the portfolio. There is also greater focus on fiduciary (accountability/financial and procurement management) and safeguard functions. Bank and GoT staff are also enhancing their focus on results/impact/outcomes. One area of safeguard responsibility that requires greater attention by supervision as well as preparation missions is in the area of environmental safeguards and management. Proactive steps to identify potential environmental impacts and integrating these into project design will lead to significant savings in ensuring sustainable project outcomes. (See also section on Environmental Performance, para 35-39). Disbursements Performance 29. US$165.8 million was disbursed during FY02 of which US$ million was from investment operations/projects (compared to US$154.4 and US$ 124 million, respectively, during FY00). Disbursement ratio 7 for each of the last five years is shown in Table 7. The ratio rose steadily from 15% in FY98 and reached a peak of 28% in FY00 and then fell to 19% in FY01 and FY02. Tanzania s performance is slightly below that of the Africa Region and Bank average (see Table 7 for details). US$ million has been disbursed during this fiscal year (as of March 05, 2003). 5 Proactivity is defined as [# of projects that were problem projects 12 months ago, but for which proactive actions have been taken within the year]/[# of projects that were problem projects 12 months ago] 6 Realism is defined as [# of projects rated as problem projects]/[# of projects at risk]. Problem projects have DO or IP rated unsatisfactory. Projects at risk include both problem projects and potential problem projects. 7 Ratio of disbursements during the year to the undisbursed balance of the Bank s portfolio at the beginning of the year for investment projects only.

30 There are some projects where disbursements are rather too slow. Two projects, Rural and Micro-finance Services and Privatization and PSD, had disbursement flags in FY02. One more project, Tax Administration, has since joined the slow disbursement category. Rural and Micro-finance Services is a US$2 million LIL that was approved on August 26, US$1.2 million was still undisbursed as of March 03, 2003, after more than three years since Board approval. It seems that some projects are not ready to disburse by the time of Board approval. Bank managers should resist pressure to take projects to the Board before the first year s procurement plan is firmly in place. Undisbursed balances for overage (8 + years) projects declined from US$18.5 million in FY00 to US$8.4 million in FY01. However, the figure rose to US$47.3 million in FY02 as a result of IRP II joining the overage category. Table 8: Portfolio Management Indicators Selected Indicators FY98 FY99 FY00 FY01 FY02 No. of Projects Restructured No. of Mid-term Reviews No. of Projects with Cancellations No. of Projects Closed No. of Overage Projects ( years) Projects in Extended Problem Status Delayed Project Effectiveness (%) Financial Management 31. Tanzania has maintained notable performance in fiduciary compliance since FY98. The Development Credit Agreement (DCA) for IDA financed projects normally establishes the time period for submission of audit reports as six months after the year-end. The number of audit reports received in the fiscal year in which they were due showed a significant improvement (96% in FY02 up from 92% in FY00 and 69% in FY98) compared to Africa Region s performance of 69% in FY02 (down from 72% in FY01). In terms of numbers, 53 out of 55 reports were received in the fiscal year in which they were due. The two that were not received were for two closed projects, Telecommunications III and Private/Public Sector Management. The audit report for Private/Public Sector Reform Project has since been received. Telecommunications III is still pending. 32. However, a large number of the audit reports received in the fiscal year in which they were due were not received by due date, as specified in the relevant DCA. Tanzania s performance in submitting audit reports by due date has declined substantially over time (down from 83% in FY99 to 29% in FY02). Only 16 out of 53 reports due in FY02 were received on time. The FY02 outcome was 29% for Tanzania compared to 46% for the Africa Region and 71% for Uganda. This is one of the areas where Tanzania is not doing well. There is need to examine the root causes of the delays and agree on a plan of action to improve the situation. While there were no old overdue audit reports in FY99 and FY00, the number of such reports increased to 3 in FY01 and then declined to 2 in FY02. Thus, about 4% of audit reports were in the category of old overdue in FY02. The average for the Africa Region was also about 4%. (See Table 9 for more information on timeliness of audit reports). All 8 audit reports for Trust Funds due in FY02 were received in that fiscal year. 33. The overall good performance in financial management can be attributed to the continued Country Office focus, which has been built upon personal efforts to monitor progress and work with project staff, auditors and Task Team Leaders. Fiduciary compliance is fully established at the forefront of the Country Office Financial