Dar es Salaam,October 31, 2007

Poverty Reduction Budget Support for Tanzania

PEFAR UPDATE: RAPID BUDGET ANALYSIS FOR THE 2007 ANNUAL REVIEW

Outline

The Aggregate view

Alignment of budget with MKUKUTA

Execution of expenditures

Local Government expenditures

Value for Money

Transparency of presentation

The Aggregate view: the trend

The last few years have seen a major expansion of public expenditures

As % of GDP

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

00/0

1

01/

0202

/03

03/0

404

/05

05/0

606

/07

07/0

8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

GovernmentExpenditure

Aid (grants &net foreignloans)

DomesticRevenue

Fiscal Deficit(net of Aid)

The Aggregate view: the question

• As public expenditures head towards 30% of GDP in Tanzania, and result in the government growing much faster than the rest of the economy

• Mkukuta is clear that the productive sectors in Tanzania should be private sector driven – the major public spending programmes are supposed to reinforce growth and poverty reduction, not smother it.

• A clear statement of government policy in as to the overall weight of public expenditures in the economy would be highly valuable in informing economic operators about the overall economic context for the next few years.

Budget alignment to MKUKUTA

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Budget Budget Budget

2005/06 2006/07 2007/08

Consolidated FundServices

Productive Services

Economic Services

Social Services

Defence and Security

Administration

MKUKUTA sectors are receiving substantial share of the increase spending, with the social sectors benefiting most

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

Actual Actual

2005/06 2006/07

Budget alignment to MKUKUTA

These trends show the government’s commitment to implement MKUKUTA, and its ability to make good use of foreign aid

MKUKUTA Sectors (Total

Budget)

MKUKUTA Sectors

(Recurrent Budget)

Project+Budget support

Budget support

0

100

200

300

400

500

600

700

Increase from 05/06 to 06/07

Ts

h. m

MKUKUTA Sectors(Total Budget)

MKUKUTA Sectors(Recurrent Budget)

Project+Budgetsupport

Budget support

Budget alignment to MKUKUTA

The SBAS systems does not seem to play a critical role in helping align the budget and the MKUKUTA strategies and goals:•Inconsistent link across sectors to MKUKUTA objective and goals.

•Time consistency

•Large proportions of total resources allocated on a few general categories

suggest that the classification may not be the most useful in directing

resources in a detailed way towards MKUKUTA goals.

•Cross link to key programs is unclear (e.g. in transport, it is not possible to

identify expenditure by trunk, regional and rural roads).

•Very limited consistency across MDAs (Except for HIV Aids)

Budget execution: FY06/07 overall

Execution of the government budget remains weak for the development budget and in terms of within -year disbursement…

-80%

-60%

-40%

-20%

0%

20%

40%

60%

80%

Recurrent Budget Development Budget

ADMINISTRATION

DEFENCE ANDSECURITY

SOCIALSERVICES

ECONOMICSERVICES

PRODUCTIVE

CFS - Statehouse

CFS - PublicDebt andGeneral Services

Deviation Analysis for Central and Regional Votes FY2006/067

Recurrent Budget

Development Budget

0.00%5.00%

10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%

Total Expenditure Deviation

Budget execution: FY06/07 within-year

Underspending in Q1 (on pro-rata basis) was significant for several votes

Some (e.g. Water, Prime Minister) caught up in the following quarters, others – most notably PMO-RALG and to a lesser extent Health –

executed the bulk of their budget in Q4.

0.00%

20.00%

40.00%

60.00%

80.00%

100.00%

120.00%

RegionalAdmin. &

LocalGovt.

Ministryof

LivestockDev.

PrimeMinister’s

Office(vote 37)

TACAIDS Water Energyand

Minerals

Healthand

SocialWelfare

% Pro-rataExpd. Q1

% Pro-rataExpd. Q2

% Pro-rataExpd. Q3

% Pro-rataExpd. Q4

Local Government expenditures

More funding to LGAs over past 2 years..

New budget shows a 2% decline

7%18%% of total LGA budget channelled through central votes

FY 2007/08

Estimates

FY 2006/07

Estimates

7%18%% of total LGA budget channelled through central votes

FY 2007/08

Estimates

FY 2006/07

Estimates

More funds are flowing directly…

% of total GOT Expenditure

0%

5%

10%

15%

20%

25%

2005

/06

Estim

ates

2006

/07

Estim

ates

2007

/08*

Estim

ates

2005

/06

Actu

al

2006

/07

Actu

al

2005/06 Estimates

2006/07 Estimates

2007/08* Estimates

2005/06 Actual

2006/07 Actual

Local Government expenditures

Water Expenditure at LGAs - FY 2006/07

0

1,000,000,000

2,000,000,000

3,000,000,000

4,000,000,000

5,000,000,000

6,000,000,000

7,000,000,000

8,000,000,000

FirstQuarter

SecondQuarter

ThirdQuarter

FourthQuarter

PE Spending

OC Spending

DEV Spending

In year spending still concentrated in last two quarters

Under spending in both recurrent and development sectoral budgets

25% of LGA budget was not spent in 2006/07 compared with 13% for Central GoT

Deviation Analysis for LGA Sub-votes

-70.00%

-60.00%

-50.00%

-40.00%

-30.00%

-20.00%

-10.00%

0.00%

Recurrent Budget Development Budget

D by D Challenges

LG Discretionary budget under pressure…

Secondary Education Budget and LGAs Contributions Tsh Million Type 2005/ 06 2006/ 07 % change FUNDS FROM MINISTRY OF EDUCATION – SECONDARY EDUCATION Recurrent 40,140 62,287 55% Development 64,343 63,035 -2% Total 104,483 125,322 20% FUNDS FROM LOCAL GOVERNMENT LGCDG 17,500

Implementation of D By D policy…

Sector reviews should address D by D compliance to advance implementation

Why Look at Value For Money?

- Sustained rapid expansion of public spending usually create pressure on the quality & efficiency of expenditures;

- Theoretically, sector reviews are supposed to bring together work on value

for money in key pillars of public expenditure, but this year; sector reviews largely fail to relate expenditures to results

- the problem is not so much a lack of data as a failure to analyse it – rapid

budget analysis in the education sector shows it’s feasible to combine some existing expenditure data with performance information.

Example of Education

Spending on education is increasing fast, including spending per pupil – which is what we require to see increased quality as well as access. But…

VFM;

Spending per pupil seems to be rising faster than quality is improving

EQUITY: Variation between districts is very large, questions re efficiency and equity

( variation in district PTR)

QUALITY

Capitation grant is 50% unfunded, despite being highest priority expenditure

LG education spending per capita in top five and bottom five

Districts, 2006/7

0

2000

4000

6000

8000

10000

12000

14000

16000

Recurrent Unit Costs Primary

0

100000

200000

300000

400000

500000

600000

2003/4 2005/6 2006/7

per Std VII entrant

per Std VII passer

020

4060

8010

012

0D

istric

t id

20 40 60 80 100Students per teacher

Transparency

For stakeholder to be able to debate and address some of the challenges:

A more transparent and easily comprehensible budget. Clear presentation of:

•Money to the broad sectors (Ed, health, Infra, etc)•Money to LGA, by district, per-capita•Economic classification of expenditures (invest., wag• Key government programs