MKUKUTA AND MKUZA FINANCING AND STRATEGIC ALLOCATION OF RESOURCES INTO AREAS THAT SUPPORT PRO-POOR GROWTH

Draft Final Presentation at CWG,

Dar es Salaam, February, 25th 2010

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ByProf. A.V.Y.Mbelle

With Dr. A. MkendaMr. W. Ngasa

Mr. I. PantaleoData back up by Mr. N.Yabu

STATUS OF REPORT

DRAFT FINAL REPORT WHICH HAS INCORPORATED COMMENTS RECEIVED ON INTERIM REPORT:

1. DURING PRESENTATION OF INTERIM REPORT AT MOFEA, 25.01.2010

2. WRITTEN SUBMISSIONS BY DPsCOMMENT ON ZANZIBAR SECTIONS TO ENLARGE CONTENT NOT

INCORPORATED PENDING DECISION BY CLIENT, WHETHER TO RETAIN OR HIVE-OFF [PARALLEL PROTOTYPE STUDY COMMISSIONED BY ZANZIBAR]

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LAY OUT OF PRESENTATIONIN FIVE PARTS:I: PREAMBLE [CHAPTER I: INTRODUCTION AND

BACKGROUND + CHAPTER II: OVERALL BUDGETARY ALLOCATION]

II: POTENTIAL OPTIONS FOR FINANCING [CHAPTER III]III: CONTRIBUTION BY NON-STATE ACTORS [CHAPTER

IV: PRIVATE SECTOR CONTRIBUTION + CHAPTER V: ROLE OF COMMUNITY CONTRIBUTION]

IV: MACROECONOMIC FRAMEWORK AND OUTCOMES [CHAPTER VII: FRAMEWORK + CHAPTER VIII OUTCOME]

V: CONCLUDING REMARKS [CHAPTER IX]3

PART I: PREAMBLE INTRODUCTION AND BACKGROUNDKEY MESSAGESTHE MIGRATION FROM PRIORITY SECTOR APPROACH IN

PRSP, TO OUTCOME-BASED APPROACH IN MKUKUTA AND MKUZA, BROUGHT MAIN EXPECTATIONOF SUBSTANTIAL POVERTY REDUCTION OUT OF IMPROVED GROWTH PERFORMANCE

VARIOUS IMPLEMENTATION ASSESSMENTS AND HBS POINT TO A MISMATCH BETWEEN EFFORTS AND OUTCOMES.

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PART I CONT’D• THE STUDY WAS GUIDED BY THE GIVEN TORs,• METHODOLOGYa. METHODS: DESK REVIEW (EXISTING

INFORMATION) COMPLEMENTED WITH INTERVIEWS WITH KEY STAKEHOLDERS/EXPERTS

b. DATA TYPE: SECONDARY DATA/EXISTING INFORMATION, INFORMATION OBTAINED FROM INTERVIEWS WITH KEY STAKEHOLDERS/EXPERTS

c. DATA SOURCES: MOFEA (MAINLAND & ZANZIBAR), BANK OF TANZANIA, SECTOR MINISTRIES AS WELL AS IMF & WORLD BANK

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PART I CONT’D• OVERVIEW OF FINANCING AND RESOURCE

ALLOCATION KEY LESSONS FOR MKUKUTA II AND MKUZA II • FINANCING STRATEGY SHOULD INVIGORATE

PARTICIPATION OF THE PRIVATE SECTOR. • RESOURCE REQUIREMENTS (BOTH PUBLIC AND NSA

FOR IMPLEMENTING MKUKUTA II AND MKUZA II HAVE TO BE ASCERTAINED BEFORE HAND. [OTHERWISE, POTENTIAL FOR :1. BUSINESS AS USUAL ESTIMATION OF FINANCING FRAMEWORK - USING PAST MEDIUM TERM PLAN AND BUDGET FRAMEWORK ; 2: ASSUMPTIONS NOT REVISITED; 3. UNREALISTIC BUDGETING, LOSS OF ALLOCATIVE EFFICIENCY ]

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PART I CONT’D• INTERVENTIONS FOR PRO-POOR GROWTH1.AGRICULTURE – INTERVENTIONS:

IMPROVEMENT OF PRODUCTIVITY AND MARKET ACCESS; PROMOTION OF DIVERSIFIED LIVELIHOODS; REDUCING RISK AND VULNERABILITY; EMPLOYMENT CREATION

2. INFRASTRUCTURE – IMPORTANCE ENHANCES ECONOMIC ACTIVITIES; REMOVES

BOTTLENECKS; GENERATES DISTRIBUTIONAL EFFECTS [INTERVENTIONS: CONSTRUCTING/ STRENGTHENING ROADS, PORTS, AIRPORTS, RURAL ROADS]

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I: CONT’D

3. MANUFACTURING, MINING, TOURISM PRODUCTIVE EMPLOYMENT AND DECENT WORK;

SPECIFIC MEASURES FOR INFORMAL SECTOR; PARTICIPATION OF WOMEN AND YOUNG PEOPLE; LINKS WITH LOCAL ECONOMY

4. PRIVATE SECTOR DEVELOPMENT REMOVING BARRIERS TO FORMALIZATION; COMPETITION

POLICY; SUPPLY SIDE RESPONSE; FINANCIAL SECTOR; WOMEN’S MARKET ACCESS; INCLUSIVE PUBLIC-PRIVATE DIALOGUE

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PART I CONT’DPRO-POOR ALLOCATION TO GROWTH SECTORS?

DEFINITION: GROWTH THAT LEADS TO SIGNIFICANT POVERTY REDUCTION

KEY MESSAGES TO INFORM MKUKUTA/MKUZA II PRIORITIZATION OF INTERVENTIONS: FAVOUR

DIRECT FIRST ROUND EFFECT VERSUS SECOND ROUND EFFECTS IN PRO-POOR GROWTH SECTORS

CREATE MORE EMPLOYMENT IN PRO-POOR GROWTH SECTORS

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PART I CONT’DKEY LESSONS FROM PART I TO INFORM

MKUKUTA II AND MKUZA II:1.IMPROVE PREDICTIVE POWER OF TOOLS THAT

ARE USED TO FORECAST DOMESTIC REVENUE (REVISIT KEY ASSUMPTIONS ANNUALLY….)

2.ASCERTAIN RESOURCE REQUIREMENTS OF MKUKUTA II AND MKUZA II BEFORE FIRMING UP THE FINANCING FRAMEWORK

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Predictability of MACMOD with respect to GDP growth, tax revenue and tax effort

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PART II: OVERALL BUDGETARY ALLOCATION TO MKUKUTA AND MKUZA INTERVENTIONS

• BOTH URT AND RGOZ SPECIFY BUDGET ALLOCATION BY MKUKUTA AND MKUZA AS OPPOSED TO NON- MKUKUTA AND MKUZA

• SALARIES IN ONLY KEY SECTOR MINISTRIES AND CERTAIN ELEMENTS OF CONSOLIDATED FUND SERVICES ARE COUNTED AS MKUKUTA AND MKUZA SPENDING

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Mainland: Budget Allocation to MKUKUTA and non-MKUKUTA Activities, 2008/09

Mkukuta71%

Non-Mkukuta29%

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PART II CONT’DOBSERVATIONS:1. A STEADY INCREASE IN MKUKUTA & MKUZA

FINANCING2. THE RATE OF INCREASE HAS BEEN ERRATIC

WITHIN CLUSTERS3. RESOURCES WERE NOT SUFFICIENT TO COVER

ALL MKUKUTA & MKUZA INTERVENTIONS IN ANY GIVEN YEAR (EXCEPT FOR CLUSTER I IN MKUKUTA DURING LAST TWO YEARS)

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PART II CONT’DKEY LESSONS TO INFORM MKUKUTA II AND

MKUZA II:1. INCLUDE, AS MKUKUTA AND MKUZA SPENDING,

SALARIES IN ALL SECTOR MINISTRIES FOR RELEVANT INTERVENTIONS [HUMAN RESOURCES ARE KEY IN DELIVERY OF MKUKUTA II AND MKUZA II]; AND DEBT SERVICE AND PENSION IN CONSOLIDATED FUND SERVICES

2. SALARIES & WAGES NEEDS IN LGAs SHOULD BE SUBMITTED TO MOFEA EARLY SO THAT THEY ARE CAPTURED/LINKED AT STAGE I OF SBAS/ZBAS

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PART III: POTENTIAL OPTIONS FOR POTENTIAL OPTIONS FOR FINANCINGFINANCING

KEY LESSONS:• THE MAIN PROBLEM OF THESE TRADITIONAL SOURCES

HAS BEEN LOW PREDICTABILITY AND LESS RELIABILITY. • A NUMBER OF SCHEMES THAT HAVE PROVED

SUCCESSFUL IN OTHER COUNTRIES AND SHOULD BE EXPLORED INCLUDE: DOMESTIC,- DOMESTIC: EXPLORING FULL RANGE OF PPPS, ROAD TOLL, PROPERTY TAX, CREDIT/LOAN GUARANTEES TO PRIVATE SECTOR; EXTERNAL: SOVEREIGN BORROWING, BILATERAL FINANCING AND REGIONAL ARRANGEMENTS.

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FINANCING CON’TD

KEY MESSAGES FOR MKUKUTA II AND MKUZA II

1.POTENTIALS EXIST BEYOND TRADITIONAL FUNDING MECHANISMS

2.LEGAL ISSUES SHOULD BE ADDRESSED FOR SOME POTENTIAL SOURCES

3.EFFICIENCY AND EFFECTIVENESS OF SPENDING SHOULD BE ADDRESSED TOO

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PART IV: PRIVATE SECTOR CONTRIBUTION AND ROLE OF COMMUNITY CONTRIBUTION

PRIVATE SECTOR CONTRIBUTIONKEY MESSAGES:1. PRIVATE SECTOR CONTRIBUTION HAS BEEN

EXPANDING DURING IMPLEMENTATION OF BOTH MKUKUTA AND MKUZA

2. PRIVATE SECTOR IN TANZANIA IS PLAYING SIGNIFICANT ROLE IN SECTORS IN CLUSTER I (SUCH AS MANUFACTURING AND AGRICULTURE) AND CLUSTER II (ESPECIALLY IN EDUCATION AND HEALTH)

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Mainland Tanzania: Private Provision of Education, 2005-2009

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2005 2006 2007 2008 2009 Pre-primary Govt 624,204 653,485 775,313 805,407 851,084 Non government 14,367 16,652 19,698 68,574 45,062 % Non-govt 2.2 5.0 Primary Government 7,476,650 7679688 6,235,432 6296608 8,313,080 Non-government 64,558 80,196 81,493 113,486 128,473 % Non-govt. 0.9 1.5 Secondary 1 -4 Government 337,034 462,590 795,637 998,890 1,249,795 Non-government 152,908 167,655 171,450 165,360 151,764 % Non-govt 31.2 12.1 Secondary 5-6 Government 18,154 27,902 33,456 36,983 43,896 Non-government 16,229 17,525 19,966 21,170 20,947 % Non-govt. 89.4 47.7 Source: URT BEST 2009

Zanzibar: Number of Private Schools by Category, 2006 – 2008

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Category 2006 2007 2008

Nursery Schools 160 236 209

Primary Schools 26 27 25

Primary Middle Schools 22 21 20

Secondary Schools 5 6 6

Technical Biased Schools 1 1 1

Universities 2 2 2

Source: Ministry of Education and Vocational Training

PART IV CONT’D• ROLE OF COMMUNITY CONTRIBUTIONS AND ROLE OF COMMUNITY CONTRIBUTIONS AND

SCOPE FOR SCALING-UPSCOPE FOR SCALING-UPKEY MESSAGESKEY MESSAGES1.COMMUNITY CONTRIBUTIONS ARE

IMPORTANT IN CLUSTERS I AND II 2.SCOPE FOR SCALING UP COMMUNITY

CONTRIBUTION EXISTS.

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Mainland Cluster-wise Distribution of TASAF Projects 2006 -2009 (%)

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0%

10%

20%

30%

40%

50%

60%

70%

80%

2006 2007 2008 2009

6%10%

17%

31%

67%71%

65%60%

27%

19% 18%

9%

Cluster I - Growth sectors Cluster II - Social Services Cluster III - Good governance

Zanzibar Cluster-wise Distribution of TASAF Projects 2006 -2009 (%)

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0%10%20%30%40%50%60%70%80%90%

2006 2007 2008 2009

3%

33%

67%

81%81%

59%

29%

17%16%8% 4% 2%

Cluster I - Growth sectors Cluster II - Social Services Cluster III - Good governance

Mainland- TASAF Contribution vs Community Contribution, 2006-2009

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0%10%20%30%40%50%60%70%80%90%

2006 2007 2008 2009

82% 82% 82% 82%

18% 18% 18% 18%

TASAF Contribution Community Contribution

Zanzibar: TASAF Contribution vs Community Contribution, 2006-2009

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0%10%20%30%40%50%60%70%80%90%

100%

2006 2007 2008 2009

87% 86%93% 94%

13% 14%7% 6%

TASAF Contribution Community Contribution

PART IV CONT’D

KEY LESSONS FOR MKUKUTA II AND MKUZA II1. NEED TO ESTIMATE CONTRIBUTION OF NSAs2. NEED TO FOCUS NSAs’ INTERVENTIONS TO

PRO-POOR INTERVENTIONS (SPECIAL INCENTIVES, STRATEGIC PPPs)

3. NEED TO RECOGNIZE THE LIMITATIONS OF COMMUNITY CONTRIBUTION ESPECIALLY LABOUR BY WOMEN

4. NEED TO SUSTAIN NSAs’ EFFORTS

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PART V: MACROECONOMIC FRAMEWORK AND OUTCOMES

ANALYSIS OF MACROECONOMIC FRAMEWORK:ANALYSIS OF MACROECONOMIC FRAMEWORK:• A NUMBER OF EFFORTS HAVE BEEN MADE IN THE

MAINLAND TO ESTABLISH THE MACROECONOMIC FRAMEWORK USING SCIENTIFIC TOOLS SUCH AS MACROECONOMIC MODEL (MACMOD)

• THERE IS NO DEFINITE TOOL USED TO MAKE MACROECONOMIC PROJECTIONS/FORECASTING IN ZANZIBAR. SIGNIFICANT VARIATIONS BETWEEN THE MTEF, BUDGET APPROPRIATIONS AND BUDGET OUT-TURNS. DEVELOPING A FORECASTING MODEL IN ZANZIBAR SHOULD BE A MATTER OF PRIORITY

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PART IV CONT’D• LINKING RESOURCE ALLOCATION AND LINKING RESOURCE ALLOCATION AND

OUTCOMES SO AS TO ESTABLISH A GAPOUTCOMES SO AS TO ESTABLISH A GAPTHE MAIN EXPECTED OUTCOME OF MKUKUTA

AND MKUZA WAS SUBSTANTIAL POVERTY REDUCTION. THIS WAS NOT REALIZED. THE MAIN CAUSE OF THE MISMATCH WAS:

LARGE RESOURCE GAPS [REVEALED THROUGH RESPECTIVE COSTING]

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PART IV CONT’DOTHER CAUSES OF MISMATCH:1. RESOURCE ALLOCATION NOT WELL

TARGETED/PRIORITIZED2. EFFICIENCY AND EFFECTIVENESS OF SPENDING

NOT WELL ADDRESSED3. PROBLEMS WITH EMPLOYMENT CREATION –

(a) IN SECTORS WHERE THE POOR ARE LESS REPRESENTED; (b) DECENT JOBS NOT BOOMING (c) SECTOR INCOMES LOWEST IN AREAS WHERE THE POOR ARE MORE REPRESENTED/HAVE STRONGER LINKS

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PART IV CONT’D

KEY LESSONS FOR MKUKUTA II AND MKUZA II:1.SUSTAINING A CREDIBLE MACROECONOMIC

AND FISCAL FRAMEWORK IS CRITICAL2.ADDRESSING EXPENDITURE SIDE IS AS

CRUCIAL AS REVENUE SIDE3.USE OF CREDIBLE FORECASTING TOOLS (FOR

DOMESTIC REVENUE AND GDP GROWTH IS IMPORTANT)

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NEVERTHERLESS….

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NEVERTHERLESS….

• HDI RANK 151/182; GDI, 125/182; GEM 69/182 ; LIFE EXPECTANCY AT BIRTH, 55 YEARS

• DECOMPOSITION OF HDI: HIGHEST VALUE EDUCATION INDEX (0.673) FOLLOWED BY LIFE EXPECTANCY INDEX (0.500) AND GDP INDEX (0.416).

CHALLENGE: TRANSLATE THE ACHIEVEMENTS IN HUMAN DEVELOPMENT TO IMPROVED INCOMES.

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PART V: CONCLUSIONS AND CONCLUSIONS AND RECOMMENDATIONSRECOMMENDATIONS

KEY RECOMMENDATIONS FOR MKUKUTA II AND MKUZA II

1.ENHANCE DOMESTIC RESOURCE MOBILIZATION TO CLOSE THE RESOURCE GAP IN ORDER TO AVOID PHASING OUT SOME ACTIVITIES AS EXPERIENCED DURING IMPLEMENTATION OF MKUKUTA AND MKUZA

2.SUSTAIN RESPONSE OF NON-STATE ACTORS

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PART V CONT’D

3. IMPROVE BUDGET GUIDELINES IN TERMS OF ASSUMPTIONS – THIS CALLS FOR REENGINEERING OF THE FORECASTING TOOLS AND MODELS

4. IMPROVE MACROECONOMIC INDICATORS FORECASTING

5. CONTINUE PURSUING PRUDENT FISCAL AND MONETARY POLICIES [KEY TO MACROECONOMIC STABILITY

6. TRANSLATE ACHIEVEMENTS IN HUMAN DEVELOPMENT TO IMPROVED INCOMES.

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End of Presentation!Thank you for

your kind attention

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