Document of The World Bank

Report No. 33594

SIMPLIFIED IMPLEMENTATION COMPLETION REPORT

TANZANIA

SECOND POVERTY REDUCTION SUPPORT CREDIT AND GRANT

(Credit No. 3965 and Grant No. H118)

DECEMBER 22, 2005 Poverty Reduction and Economic Management Unit 2 (AFTP2) Tanzania and Uganda Country Management Unit (AFCO4) Africa Region

Simplified Implementation Completion Report For Programmatic Development Policy Lending Operations

Operation ID: Operation Name: Team Leader: Robert Utz TL Unit: AFTP2 Report Date: 12/15/05

1. Program Data

Name: Second Poverty Reduction Support Credit and Grant

L/C Number: Credit No. 3965 Grant No. H118

Country/Department: Tanzania Country Department Unit Region: Africa

Sector/subsector: Central government administration (40%); Sub-national government administration (20%); General agriculture, fishing and forestry sector (20%); Micro and SME finance (10%), Water (10%).

Theme: Public expenditure, financial management, and procurement; Municipal Finance; Rural markets; Tax policy and administration; Environmental policies and institutions.

KEY DATES Original Revised/Actual

PCD/PD: 11/18/2003 Effective: 12/14/2002 11/18/2003 Appraisal: 03/29/2004 MTR: 03/29/04 03/29/04 Approval: 07/29/2004 Closing: 06/30/05 06/30/05

Borrower/Implementing Agency: The United Republic of Tanzania, Ministry of Finance and other Ministries Other Partners: African Development Bank, Canada, Denmark, EU, Finland, Ireland, Japan,

Germany/KfW, The Netherlands, Norway, Sweden, Switzerland, United Kingdom

STAFF Current At Appraisal Vice President: Gobind Nankani Callisto E. Madavo Country Director: Judy O’Connor Judy O’ Connor Sector Manager: Kathie L. Krumm Kathie L. Krumm Team Leader at ICR: Robert Utz Robert Utz ICR Primary Author: Alema Siddiky

2. Principal Performance Ratings (focused on this operation’s contribution toward overall program objectives) (HS=Highly Satisfactory, S=Satisfactory, U=Unsatisfactory, HL=Highly Likely, L=Likely, UN=Unlikely, HUN=Highly Unlikely, HU=Highly Unsatisfactory, H=High, SU=Substantial, M=Modest, N=Negligible)

Outcome: S Sustainability: L

Institutional Development Impact: SU Bank Performance: S

Borrower Performance: S QAG (if available) ICR

Quality at Entry: S Operation at Risk at Any Time: No

3. Program Description

3.a. Description of the Program

1. Tanzania’s first Poverty Reduction Strategy (PRS) was prepared in 2000 and three annual progress reports documented the progress and its implementation. PRS 1 has focused on three main areas of outcomes: (i) reduction in the breadth and depth of income poverty; (ii) improving the quality of life and social well being and (iii) sustaining an environment that is conducive to development which encompasses macro economic stability and good governance. As part of the PRS process government has prepared, realigned and approved sector development programs for health, basic education, agriculture and water. These provide the framework for supporting the implementation of the PRS targets that are specific to these sectors.

3.b. Description of the Operation 2. The above reform program is supported by a series of Poverty Reduction Support Credits (PRSCs) from the Bank and PRSC-1 laid out a three year policy reform framework. PRSC-2 was approved by the Bank’s Board in July, 2004 in a total amount of US$150 million (US$60 million credit and US$90 million grant). PRSC-2 supports the implementation of key priority areas as set out in the Poverty Reduction Strategy (PRS) and reforms supported under PRSC-2 build on reforms implemented under PRSC-1. PRSC-2 focused on cross cutting and institutional issues to foster rural and private sector development, sustain macro economic stability, strengthen public sector performance through public sector and public expenditure reforms, enhance accountability and minimize resource leakages through reforms of financial management, procurement and aid management and foster the sustainability of poverty reduction efforts through reforms of the institutional and policy framework for environmental assessments.

3. Bank’s PRSC support is provided in the context of the multi-donor, Poverty Reduction Budget Support (PRBS) program which provides a common framework for general budget support for the implementation of PRS. Under this facility donors have agreed to seek

improved harmonization of policy dialogue and reporting, enhanced predictability and budgetary integration of aid flows. The government and donors have agreed on an annually reviewed and updated Performance Assessment Framework (PAF) with a three year horizon for monitoring progress in implementing agreed reforms under the PRBS and as the basis for financing decisions. PRSC-2 has been harmonized with PRBS with respect to both substance and process. As part of the support to PRS, PRSC-2 is based on progress reflected in key policy actions summarized in the following table.

Table 1: PRSC-2 Focus Areas and Priorities

PRS Objective/Impact Indicator PRSC/PRS Focus Area PRSC-2 Areas of Dialogue PRS Pillar : Reduce Income Poverty

Breadth-proportion below poverty line Rural Development Private Sector Development

Reform of Crop Boards Enforcement of micro finance legislation and regulations; Monitoring of ASDP implementation; Land and Village Act implementation District roads maintenance and rehabilitation Land market reform Labor market reform PSD and SME strategy development Design of new civil procedure code Strengthening of business environment

PRS Pillar : Achieve and Sustain a Conducive Development Environment Macro Stability Debt contracting and management

Domestic Revenue

Implementation of National Debt Strategy DSA Update Enhanced reporting on debt Inventory and audit of parastatal debt Review of tax exemptions Strengthening of tax administration Rationalization of local taxes

Governance-Improve effectiveness in the delivery of public services and the overall incentive environment

Budget formulation and management Approval and execution of budget consistent with PRS Improvement of budget classification

for central and local government Enhanced budgetary reporting of

LGA’s Completion expenditure tracking

study Introduction of formula based

allocation to districts Governance- Improve the performance of the public sector

Public Service Reform Service delivery surveys Annual plan and performance budget Performance monitoring Pay reform Public Service Act

Governance-Minimize resource leakage and strengthen accountability

Financial management

PFMRP approval and implementation IFMS security Audit committees and internal audit MoF reorganization Strengthening of NAO Local Government Financial

Procurement Anti-Corruption Aid Management

Management LGA tender boards CPAR completed and action plan

endorsed Reporting on anti-corruption activities Capacity enhancement of the central

coordination unit Code of conduct Action plans for LGAs Inclusion of aid in budget Reporting of LGAs on aid Monitoring of TAS implementation

PRS Pillar: Improve Quality of Life and Social Well- being

Environment Environment Framework legislation on environmental management Implementation of institutional

framework for environmental management Capacity building Monitoring indicators Environment PER

Poverty Monitoring and Evaluation

Poverty Monitoring and Evaluation Poverty Monitoring and Evaluation PRS reporting Capacity building MDG integration

4. Achievement of Objectives and Outputs 4. The achievement of the objective and outcome is rated as satisfactory. Tanzania’s overall macroeconomic and growth performance have been strong and significant progress was made in the area of improving budget formulation and execution, improving the performance of the public sector, improving external resource management and enhancing environmental sustainability. Given the comprehensiveness of the country reform agenda, some measures were implemented timely basis while others lagged behind, certain activities were completed successfully whereas others needed further attention.

Results are monitored at two levels – overall outcomes of the PRS implementation against a set of economic and social indicators (Annex 3) and implementation of specific institutional and policy reforms (Annex 1). In addition, the policy dialogue also includes a set of intermediate results indicators, which focus on the immediate impact of the policy actions and institutional changes. (Annex 2). The following provides a brief summary of progress at the two principal levels of monitoring by discussion the implementation of prior actions under PRSC-2 as well as the overall progress on key social and economic indicators.

4.a. Institutional and Policy Reforms - PRSC-2 Prior Actions: Private Sector Development: 5. Drafted Land Act amendments and presented to the parliament. The Land (Amendment) Act 2003 Bill was submitted for the first read in Parliament in November 2003 and was approved in February 2004. Following the approval it was expected that individuals

and businesses will now be able use land as collateral, hence encouraging capital flows and investment.

6. Phase I labor legislation (Employment relations, Collective Labour Relations, Dispute Resolutions and Labor Market Institutions) presented to parliament. This was achieved in November 2003 and the legislation has been approved in April 2004. Preparation of the Phase II of the reform, which includes Occupational Safety and Health, Worker’s Compensation/Social Security and Employment Promotion), is now underway. The task force governing this reform process has ensured that sufficient technical work is carried out in order to guide the preparation.

7. Reviewed the business licensing system after consultations with stakeholders, prepared a position paper on business licensing reforms and submitted to Parliament amendments to the Business Licensing Act, 1972, introducing reforms of the business licensing system. Reform in the business licensing system has been carried out with the aim of reducing the cost of establishment and running of businesses. Two reviews of the current licensing system and it implications were carried out in order to inform the policy reform.

Macroeconomic Stability: 8. Prepared annual borrowing and repayment plan (both concessional and non-concessional loans), inclusive of borrowing limits and presented it to Parliament as part of the annual budget. In light of large stock of parastatal debt, the government has prepared an inventory of parastatal debt contingent liabilities and agreed on a strategy for monitoring their migration to actual debt.

9. Local government taxes and levies rationalized. In the budget for 2003/04, government limited the sources of revenue for local governments to a closed list with a limited number of taxes and levies. The development levy was also abolished.

Governance- Improvement in the Effectiveness of Delivery of Public Services. 10. Approved budget 2003/04 in line with PRS objectives, delineating budget codes for priority sectors and items. The government remains committed to financing and tracking the expenditures for implementation of the Poverty Reduction Strategy. Resources in the PRS sector have increased.

11. Budget execution for 2002/03 and 2003/04 (FQ 1 and FQ 2), in line with the approved budget and in line with PRS priorities, consistently reported as per identified expenditure budget codes for priority sectors and in 2003/04 also by identified codes for priority items. Budget execution in 2002/03 and the first half of 2003/04 had been broadly in line with estimates. The quarterly Budget Execution Reports on fiscal performance continue to be published on the national website in order to ensure transparency on government operations.

Governance- Improve performance of the public sector and the overall incentive environment. 12. Pay enhancement for civil servants in line with the approved budget for FY04. Salaries have been increased between 6 and 10 percent with the minimum wage rising from 35,000 in 1999 to 55,000 which is up by 57 percent.

Public Financial Management:

13. Joint PFMRP Steering Committee reviewed (i) the establishment of a management structure and (ii) the detailed annual work plan and budget for the first phase of implementation of the PFMRP. The government has continued its efforts to secure effective and sustainable financial management arrangements that support an equitable delivery of public services. This support is intended to reduce and minimize resource leakages as well as strengthen accountability of public funds.

14. Local Government Authority Tender Boards constituted and established under the new Regulations. At the local government level, reforms include the issuance of the Local Government Regulations, 2003, following which Local Government Authority Tender Boards have been established in compliance with the Regulations.

Procurement: 15. Prepared a draft bill amending the Public Procurement Act of 2001 reflecting the CPAR recommendations, and submitted a letter from the Attorney General confirming that said bill wil be presented for parliamentary approval during the 2004 budget session. Completion of this action took longer than anticipated due to human resource capacity constraints experienced in the Central Tender Board in preparing this Bill. Progress in this area includes the establishment of the Central Tender Board as an executive agency, appointment of the Executive Secretary to the Board and the establishment of the Procurement Appeals Authority.

Poverty Monitoring and Evaluation: 16. Progress in strengthening and sustaining capacity of the VPO secretariat to support and monitor implementation of the PRS according to an updated action plan to be approved by Government. The Action Plan for Building Capacity in Support of the PRS was presented to the PRS technical Committee in August 2003. A Medium Term Strategic Plan 2004-2007 for VPO has been approved and finalized in February 2004.

17. Progress in strengthening and sustaining capacity of PO-RALG for collecting, collating and analyzing administrative data according to an updated action plan to be approved by government. Achievements in this area include recruitment of a senior programme officer to lead the MIS unit; assignment of two senior staff permanently to the RDS technical working group; completion of a report on MIS strategy for PO-RALG which is now operational; development of a database on the Local Government Authorities (LGAs) Social Economic Profile; installation of a local area network and registration of the domain to facilitate e-communication with Regional Secretariats and LGAs.

4. b. Outcomes Outcomes are monitored against a set of PRS indicators which forms part of the PRBS/PRSC monitoring framework (Annex 3). Overall, these indicators suggest important progress in most areas.

Tanzania’s economy grew by 6.7 percent in 2004 and an estimated 7.2 percent in 2005. Mining and construction continued to be the fastest growing sectors, with growth rates of 15.6 and 11 percent growth in 2004, respectively. However, of particular importance to Tanzania’s poverty reduction efforts is the fact that the agriculture sector grew by 6 percent in

2004. Agriculture contributes about 46 percent of Tanzania’s GDP and about 86 percent of Tanzania’s poor households derive their livelihoods from agriculture and are thus directly affected by faster growth in the sector. The sustained high growth in the manufacturing sectors, averaging 7 percent during the past five years, is a very positive indicator of structural transformation and diversification of the economy taking place.

Financing provided through the PRSC also supported a significant increase of expenditure in the priority sectors and the expansion of public service delivery, including rapidly expanding enrollments at the primary and secondary education level, better provision of health facilities with drugs and other inputs, which results in significantly increased utilization rates of public health facilities, and, higher levels of road maintenance.

In various non-income aspects of well-being, progress has been recorded. Especially in health and education, considerable progress was made. Net primary school enrollment increased from 57% in 2000 to 95% in 2005. Life expectancy increased from 44 years in 1978 to 49 years in 1988 to 54 years for males and 56 years for females in 2002. Infant mortality dropped from 115 per 1000 in 1988 to 95 per 1000 in 2002. The fraction of chronically undernourished or stunted children declined from 44% in 1999 to 38% in 2004. Other indicators recorded less progress. Maternal mortality which was 529 per 100,000 births in 1996 did not decline and may even have increased though the increase to 578 in 2004 is not statistically significant. The proportion of the population with access to piped or protected water as their main source of drinking water remains very low, especially in rural areas where –depending on the source 46% (census) to 56% (HBS) has access.

18. Public expenditure and financial management reforms have resulted in improvements of public financial management. The “Public Expenditure Management Country Assessment and Action Plan (AAP) – Tanzania” prepared in 2004 concluded that over the last three years Tanzania has made significant progress in the PEM reform process and that Tanzania meets 11 of the 16 benchmarks, which places Tanzania’s PEM among the best performing in Sub-Saharan Africa.

19. The governance indicators compiled by Kaufmann et al.1 (Figure 1) suggest improvements on most dimensions of governance in Tanzania between 1996 and 2004. Tanzania’s performance is also significantly better than that of other low income countries (Figure 2) on all dimensions of governance. The most dramatic improvement seems to have occurred with respect to “control of corruption,” where Tanzania has moved from being among the poorest performers to being close to the international average. The main area of concern is “regulatory quality” where Tanzania’s performance seems to have deteriorated continuously since 1998. Tanzania has put in place a new regulatory framework and is currently making a series of regulatory agencies operational, with the decline in regulatory quality likely due to several reasons: First, with the liberalization of the economy and the private sector participation in most utilities, including water, telecommunications, and transport, the quality of regulation has gained in importance and is subject to increased scrutiny by observers and expectations are higher. Second, there have been delays in the implementation of the new regulatory framework, and finally, concerns about the

1 D. Kaufmann, A. Kraay, and M. Mastruzzi (2005). Governance Matters IV: Governance Indicators for 1996–2004. Draft, May 9, 2005.

appropriateness of oversight arrangements of these new regulatory agencies. The governance indicators would suggest that this is a key area for enhanced government attention. A recent World Bank review of the performance of regulatory agencies as well as financial support is designed to enhance the regulatory environment.

Figure 1. Governance Indicators for Tanzania, 2004, 2002, 2000, 1998

Figure 2. Governance Indicators for Tanzania - comparision with low income countries, 2004

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5. Major Factors Affecting Implementation and Outcome 20. The reform supported by PRSC-2 maintained the momentum built up by achievements under PRSC-1 and government’s strong leadership and ownership were critical factors behind the progress. Continued political and macroeconomic stability created a conducive environment for the implementation of PRSC-2.

21. Limited human resource capacity to implement and manage the PRSC reform agenda at the local level might be one of the constraints in the area of public expenditure management, procurement and financial management. Complementary technical assistance was thus important in facilitating the implementation of the reform program, together with efforts to strengthen public sector capacities and incentives.

22. Tanzania program also made great progress in donor harmonization starting from PRSC-1. Achievements include both greater consistencies in the government donor dialogue as well as a reduction in transaction costs which is important given government’s weak capacities.

6. Bank and Borrower Performance 23. Bank’s Performance: Overall the Bank’s performance during the identification, preparation and appraisal of PRSC-2 was satisfactory. PRSC-2 was prepared by the country team with significant contributions from country office staff which played a crucial role in both substance (by providing local knowledge) and contribution (coordination with Government, donors and HQ). Under the direction of a proactive Country Director (based in the country office), the team has continued to strive to support Tanzania in the implementation of its poverty reduction strategy.

24. An important aspect of the preparation and implementation of this operation was the deepening of donor harmonization through collaboration with a group of 12 donors and the use of a common performance assessment framework and a joint review process. In this context, the Bank’s multi-sectoral team sustained a high-level and intense dialogue with the government and other development partners. The operation complied with all relevant Bank environmental and business policies.

25. The interaction with the IMF was also satisfactory, with the Bank complementing the Fund’s Poverty Reduction and Growth Facility. In addition the team also cooperates with multilateral and bilateral donors to ensure an appropriate division of responsibilities in support of the countries PRS.

26. Borrower’s Performance: The Government of the United Republic of Tanzania played an active role in the preparation of the Credit under the direction of the Permanent Secretary of the Ministry of Finance and the sense of program ownership was strong among the government officials. Reflecting this strong ownership, the government implementation of the program was effective and satisfactory. The PRSC group maintained a continuing economic dialogue with Bank and PRBS donors, coordinated and monitored the program under the direction of the Senior Permanent Secretary and helped carry out the policy actions called for in PRSC-2 before Board presentation and

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effectiveness. The Government of Tanzania was proactive in meeting the requirements called for by the Credit.

7. Findings and Implications for Subsequent Operation(s) in Series 27. A stable political environment contributed to the continuing successful implementation of macroeconomic and structural reforms in Tanzania. The presidential and parliamentary elections in Zanzibar and Tanzania were held in October 2005 and December 2005. The ruling CCM remained in power and the presidency of Tanzania passed from President Mkapa to President Kikwete. The new government is expected to continue the reform course followed by the previous government.

28. Development and implementation of a common performance assessment framework and a joint review process, which harmonizes general budget support of 12 donors, is a major achievement. Close donor coordination was critical in avoiding duplication of effort. At the same time, it also poses significant challenges for the Bank to adjust its internal requirements to the government-led harmonization process on the ground.

29. Weaknesses in government process such as the poverty monitoring system or the budget system impact directly on the ability of the PRSC program to present adequate results orientation and monitoring frameworks. It will be important to continue focusing improvements in the underlying government process rather than attempting to circumvent these problems and weaknesses by developing separate PRSC process.

30. Subsequent operations. PRSC-3 is the third in a series of PRSCs designed to support government program as outlined in the NGRSP or MKUKUTA. PRSC-3 was approved by the Bank’s Board of Executive Directors on September 9, 2005 upon completion of all prior actions. Overall progress in the implementation of the PRS and the Performance Assessment Framework remains satisfactory and PRSC-4 is under preparation.

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Annex 1

Table 1: Achievements under PRSC-2 (Triggers and Policy Matrix) PRS/PRSC Objective

Sectors Achievement under PRSC-2 Current Status

PRS Pillar : Reduce Income Poverty Breadth-proportion below poverty line.

Rural Development Private Sector Development

Reviewed the role of Crop Boards to limit their functions to regulataries activities. Prepared the Agriculture Sector

Development Programme (ASDP) Framework and Process Document. Prepared recommendation for legal,

regulatory and supervisory framework for micro-finance. Prepared and issued a prioritized

strategic plan and a corresponding program to strengthen the administrative capacity for implementation of the Land Act and Village Land Act. • Developed proposal to strengthen the institutional arrangements for district road maintenance and rehabilitation. • Drafted amendments to the Land Act and presented them to parliament • Completed preparation of PSD strategy document (which mainstreams SME development).

• The review work is being done in Phases. Initial work on the review process began in Sept 2003 with an institutional mapping exercise of coffee, cotton, cashew and tea followed by funding, institutional and impact evaluation of the four Crop Boards. • Key coordination and monitoring benchmarks have been developed as follows : (i) effective functioning of various coordination for a; (ii) timely reporting and monitoring of the sector in accordance with ASDP M&E framework (iii)share of ASLMs budgets and actual; (iv) expenditures going to ASDP priorities. • Micro-finance regulations were signed by the Governor of BOT on 15th March 2005. Based on the government procedures the regulations were signed and sent to the Attorney General Chambers. Attorney General Chambers have sent the regulations to Government Publishers to gazetting. • This was not achieved during the time of the Negotiations due to delays in securing financial support for the preparation of Land sector strategic plan. As of Mach 2005 this plan has been finalized and the strategic plan for the implementation of Land Laws Draft submitted by consultant to Ministry of Lands and Human Settlements Development for consideration. • A report on strengthening the institutional capacity at district level for the management of district roads was submitted in April 2004 and discussed by stakeholders in August 2004. As of March 2005, Technical Evaluation on Road Inventory was completed. A financial Evaluation of Proposal for undertaking the study being finalized and the inventory is expected to start in May 2005 and to be completed in September 2005. • The Land Act 2003 was submitted for the first reading in November 2003 Parliamentary Session and assented by the President on 30/03/04. • PSD strategy formulation process has been held in abeyance until February 2005 in order to utilize the draft Diagnostic Trade Integration Study (DTIS) as an input and to mobilize more

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• Began implementation of the SME policy. • Better regulation unit (BRU) for the BEST programme in PO-PP staffed, resourced and operational. • Prepared new labor policy and revised Labor Act in consultation with stakeholders and secured Government approval of the same. Phase I legislation (Employment

relations, collective labor relations, dispute resolutions and labor market institutions) presented to Parliament. Reviewed the business licensing

system after consultation with stakeholders, prepared a position paper on business licensing reforms and submitted to Parliament amendments to the Business Licensing Act, 1972, introducing reforms of the business licensing system. New civil procedure code designed.

resources. • Implementation of the SME policy started and some of the activities have already been financed. Priority projects formulated however, resources not yet secured. • BRU is currently working on implementation of the 1st year work plans. This has included work on land and labor reforms, business licenses, regulatory licensing and reform of the agricultural and crop boards and drafting of work plans for the commercial dispute resolution. (CDR) component. More than 50% of the activities under the 1st year work plan have commenced. Formal structure of the BEST programme approved but not yet operational. • Achieved. Phase I legislation was presented to

Parliament for first reading in November 2003. The position paper has been

prepared and approved by the Interministeral Technical Committee and the 2004 Finance Bill abolished licensing fees for small businesses. Completion of the action had/taken more time than initially anticipated due to the need to build stakeholder consensus and support given the concerns regarding revenue loss implications from the introduction of the new system. This was not achieved during the

time of the negotiations. As of March 2005 work plans CDR component approved by TRC in February, 2005. CDR management structures established.

PRS Pillar : Achieve and Sustain a Conducive Development Environment Macro stability Debt contracting

& management

• Presented for Parliament approval the amended Loans, Guarantees and Grants Act No. 30 of 1974 to ensure a prudential debt contracting and management system for government and independent public institutions. • Progress in the implementation of the recommendations of the national debt strategy according to work plan (including activities, timeframe and responsibilities) to be approved by government. • Undertaken annual debt

• Implementation of National Debt Strategy recommendation has been completed. Work plan developed, however, further detail to be added to ensure easier implementation. Completed. Work plan developed,

however further detail to be added to ensure easier implementation. Draft DSA completed and

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Domestic Revenue

sustainability analysis for the period ending June 2002, including both domestic and external debt. • Developed a draft work plan (inclusive of activities, timeframe and responsibilities) for the implementation of all the recommendations of the National Debt Strategy. (NDS) • Prepared annual borrowing plan and repayment plan (both concessional and non concessional loans) inclusive of borrowing limits and presented it to Parliament as part of the annual budget. • Developed a complete inventory of and completed a verification and audit of the parastatal’s contingent liabilities component of domestic debt and harmonized the treasury Resgistar’s and PRSC’s records on them. • Review the tax exemptions regime for investment (Investment Act 1997), proposed options for exemptions on goods imported under donor funded projects and programs and reviewed EPZ’s legislation to limit the scope of exemptions and enable Tanzania to take advantage of export markets under AGOA and EBA initiatives. • Completed preparation of and secured government approval of the new TRA corporate plan. • Local government taxes and levies rationalized.

submitted and comments have been received from the IMF and World Bank. The draft work plan for

implementation of the NDS has been prepared and tabled to the 5th TDMC members for comments before being submitted to NDMC for approval. Completed. Annual borrowing and

repayment plan completed and submitted to parliament as part of Budget Speech. • Completed. Audit of parastatal contingent liabilities undertaken and report shared with PRBS/PRSC donors. • TRA submitted the proposal for amendment of Tax laws (other than Customs Laws) and the MoF conducted consultations with stakeholders and the consultations have been completed. • TRA has continued to implement their corporate plan and has produced their quarterly progress reports in a timely fashion. A number of targets have been achieved. • The 5% Cap on local government tax enforced.

Governance- Improve effectiveness in the delivery of pubic services and the overall incentive environment

Budget formulation & management

• Approved Budget for 2003/04 in line with PRS objectives, delineating budget codes for priority sectors and items. • Budget guidelines for 2004/05-2006/07 consistent with PRS priorities, resource needs identified during PRS review process and sector performance. Guidelines issued to MDAs/LGAs. • All LGA 2003 Budgets prepared using GFS classification. • Cabinet paper on formula based recurrent inter-government transfer system adopted and institutional arrangements in place.

• Priority sectors and items are classified by GFS codes. Budget review joint analysis conducted by Government and donors. With supplementary budget, there is a net increase in allocation to PRS sectors, compared to approved budget, mainly due to need to replenish Strategic Gain Reserve. • Budget Guidelines published in January 2004. PER sector reports prepared more timely. PRS Progress Report III delayed and could therefore not feed into BG preparation. • Completed. Recurrent and Development budget books are available using GFS classification. • Submitted to Cabinet Secretariat in November 2003 and approved. For 2004/05 will be used mainly for health and education.

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Public Service Reform

• Budget Execution for 2002/03 and 2003/04 (FQ1 and FQ 2) in line with the approved budget and with PRS priorities consistently reported as identified expenditure budget codes for priority sectors and in 2003/04 also by identified codes for priority items. • Agreed new format for LGA budget execution reports by MoF and PO-RALG (by June 03). LGAs quarterly budget execution for Q3 submitted to PO-RALG and consolidated information submitted to MoF in agreed format. • • Pay enhancement in line with the approved budget for FY04. • Performance monitoring system rolled out and functioning in all MDAs. • Amendment to Public Service Act No. 2 (2002) concerning management of local government staff prepared for presentation to Parliament.

• Published and available for national website. 2003/04 reports identify actual expenditure by GFS code, using data generated from IFMS. • LGAs submitted first report in an agreed format for fiscal quarterJan-march 2002. Format revision for expenditure was postponed in order to coordinate with the DfID supported Microsoft access based system which is aimed at expenditure planning. Revenue reporting format to be revised in line with the new list of local government taxes. • Completed. Annual operating plans and action plans for 5 ministries and 8 independent departments are finalized based on self-assessment and service delivery surveys. Self assessments have been completed for all MDAs and 29 SDSs have also been completed. The remaining 5 are in draft form and will soon be finalized. • Achieved. A performance monitoring system has been rolled out and implemented in all 34 MDAs. Next step is to ensure these systems are linked to the MTEF process. • Achieved. Amendment of Act was approved by Parliament in November 2004. This reaffirms human resource autonomy for Local government authorities.

Governance – Minimize resource leakage and strengthen accountability

Financial Management

• Joint PFMRP Steering Committee reviews 1) the establishment of a management structures and 2) the detailed annual work plan and budget for the first phase of implementation of the PFMRP. • Review/improve the security of the IFMS system incl: disaster recovery plan/site, access. • Key implementation strategies of PFMRP and PRSP explicitly linked. • Revised MoF organization structure reflecting legislative and technological/system changes, in accordance with the Public Finance Act, submitted to the President’s Office-Public Service Management.

• Action was completed in June 2004. • Currently under implementation involving the establishment of a disaster recovery plan/site. • The strategies are linked and complement each other. • A task force formed for the purpose has prepared draft recommendations on the revised MoF organization structures. However approval for the change in structure is vested with the President’s Office-Public service Management.

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Procurement

• Accounting Officers (AOs) ensure that Audit Committees are operational in all MDAs. • Implement the improved terms and conditions service of staff of National Audit Office (NAO) which at a minimum reduces the disparity between audit and accounting staff. • Review organizational and staff structure of NAO to carry out its statutory obligations. • Preparation of Internal Audit Instructions by Accountant General. • Review internal audit staffing levels and assesses skills and other resource requirements. • Local Government Authority Tender Boards constituted and established under the new Regulations. • CPAR conducted and the Government endorses the action plans. • Prepared a draft bill amending the Public Procurement Act of 2001 reflecting the CPAR recommendations and submitted a letter from the Attorney General confirming that said bill will be presented for parliamentary approval during the 2004 budget session.

• Audit committees have been established in 55 out of 68 MDAs and most are meeting regularly. ACGEN has trained almost all of these committees’ members. The minutes of the audit committees are received and monitored by the Accountant General’s Department, with 95% of MDAs committees meeting quarterly. • Job evaluation exercise conducted in March/April 2002. This equated pay between audit and accounting staff. New pay structure for entire civil service effected from 1st July 03, including for NAO. Full implementation of new policies of rewarding will depend on Public Service Act and Regulations. • Review completed and approved in May 2002. Training workshop conducted by PSM on preparation of job lists in April 2002. Performance Management Systems exercise currently underway in all MDAs in which strategic plans with respect to core functions of departments are being prepared. NAO has prepared and submitted a job list to PSM early in 2004 and is updating the list based on comments received. All key positions have been filled. • The Internal Audit manual has been prepared and circulated to stakeholders for comments. Following approval the Manual has been issued and training will begin to be conducted from July 2004. • Draft staffing report prepared by Internal Audit consultant under the PFMRP. Draft currently under review by the Accountant General’s Department. • Following issuance of the LG Procurement Regulations, 2003 LGA Tender Boards are now established in compliance with Regulations. Manual to assist implementation of Regulations is nearing completion. • Action plan prepared in July 03. • Due to human resource capacity constraints, completion of this action took longer than expected. Central Tender Board (CTB) has received 3 more staff to reinforce its capacity. New CTB has been constituted in line with the existing Act and started its

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Anti corruption Aid management

• Identification of legal inconsistencies between Fin. Regulations (for central govt) and Local Authorities Fin. Memorandum (LAFM). • Central support mechanism for LGAs established to support councils using EPICOR. • Quarterly reports depicting progress made in the implementation of anti-corruption action plan for priority areas available timely for all MDAs. • Finalization of report assessing the human and financial resources necessary for POGGCU to coordinate and implement NACSAP. • Revised code of conduct for public service available. • Anti-corruption action plans for all LGAs included in the 2004 budget. • Consolidate and integrate projections of external resource flows into budget preparation. • Develop a system for LGAs to report to MOF through PORALG on levels of direct external assistance budgeted and disbursed.

operations in January 2004. With the Board being operational CTB will be in a position to make fast decisions. The executive secretary was appointed in August 2003. As an interim measure, CTB has proposed an increase of prior review thresholds for procuring entities. • LAFM review conducted in LGRP Annual Programme. TOR for the review completed. Minister to sign revised LAFM in September 2004. • A programme to support LGAs which are already implementing the Epicor based system and those LGAs to which the system will be rolled out later has been launched. The support will be handled by a strengthened Systems Development Unit within the Accountant General’s Department and it will be zonal based. 25 graduate staff are being recruited. Out of these 13 will be Application Specialists and 12 will be Technical IT specialists. A six month training programme to orientate them in the Epicor-based system has commenced during the first quarter of 2004. • The production of Quarterly Monitoring Reports is progressing but there are problems of late submissions of returns by MDAs. • Report not available. Recruitment of an economist/programme officer and an accountant completed. Under public service reform programme role of GGCU to be expanded and strengthened. To be looked at in the context of the State House Strategic Planning exercise and not separately. • Code of conduct completed for all public servant, including comments from 3 stakeholder workshops. New code will form part of the regulations. Following the design of the new mechanism it will be piloted in some MDAs. • This was delayed. Funding was available in 2004/05 budget. • Completed for Budget 2003/04 and for budget guidelines Dec 2003. • The system for integrating all government donor resources flowing within or outside the government system is already in place. However, capturing

18

• Issued 1st annual TAS implementation report.

the resources that flow directly to projects or programmes implemented by sector ministries and LGAs remains the key challenge for MoF. • The first Annual Implementation Report (FY02/03) was prepared and circulated by MoF following the successful launch of the TAS in June 2002.

PRS Pillar : Improving Quality of Life and Social Well Being

Environmental sustainability

Environment • Completed draft framework legislation on environmental management. • Developed an action plan for implementation of new institutional framework for environment management. • Developed an action plan for building capacity within VPO for poverty-enviornment monitoring, including Division of Enviornment, NEMC and Poverty Eradication Division. • Initiated the development of a framework for mainstreaming EA process into sectoral investment programs and district initiatives. • Initiated mainstreaming of poverty-enviornment indicators into the National Poverty Monitoring System.

• Completed. • Draft action plan developed under ILFEMP II revised. To be completed after the enactment of the Bill. • Action Plan on capacity building under implementation. Coordinator for Programme to integrate environment into PRS engaged; some equipment procured, workshop conducted to commence capacity building component. • Consultant on SEA for PRSC II engaged. Draft inception report prepared • Proposal of poverty-environment indicators has been submitted by the consultants to the Vice President’s Office. The report is being further fine-tuned and will be resubmitted by May 2005. The agreed indicators will be mainstreamed into National Poverty Monitoring System.

Poverty Monitoring and Evaluation Poverty Monitoring and Evaluation

Poverty Monitoring and Evaluation

• Published PRS progress report for FY03 which has been positively reviewed by stakeholders, including achievements toward quantitative targets by November 2003. • Progress in strengthening and sustaining capacity of the VPO secretariat to support and monitor implementation of the PRS according to an updated action plan to be approved by government.

• Final version issued and posted in the Government website. Contains comment against achievement toward quantitative targets. JSA was submitted to the Bank and Fund Board. • The Action Plan for Building Capacity in Support of the PRS was presented to the PRS Technical Committee and approved in August VPO strategic plan has been developed with technical support from PWC and is expected to be finalized by June 2004. Plan is expected to enable VPO to access the SASE scheme, in order to provide the minimum incentive package necessary for sustainability of the growing capacity. A full time poverty monitoring officer has been recruited in the PRS/PMS secretariat and the Poverty Monitoring Adviser has been replaced. Local area network including purchase of new computers and internet services have been upgraded. PO-PSM has approved VPO’s Medium Term Strategic Plan finalized in February

19

2004.

20

Annex 2

PRSC 2 Intermediate Results Indicators

Private Sector Development: In 2002/03 budgetary provisions were made for the surveying of 20,000 new plots in Dar Es

Salam. June 2003, 76,000 new plots were established. Out of this 46,670 were allocated and owners of

36,470 survey plots were issued with title deeds. Rural Development: 3.8 percent of rural households have savings account, 2.8 percent participate in an informal savings

group and 1.3 percent in non-bank formal savings group. Only 0.4 percent took a bank loan in 1999/00. (2000/01 HBS) Direct taxes on agricultural export crops amounted to 20 percent inclusive of local taxes and

levies. Macro Economic Stability: Debt to export ratio is 126 in 2003/04.

Public Expenditure Management: In 2003/04 budget increase in budget allocations to the priority sectors 25 percent compare to

actual spending in 2002/03. Allocation to the priority sectors remained at 46 percent in total government spending. Budget execution: In 2002/03 and first half of 2003/04 it was consistent with approved budget and

PRS. Budget management , key results indicators

2001/02 2002/03 2003/04

Share of priority sector spending in total spending Share of votes with budget deviations HIPC expenditure tracking benchmarks met (out of 15)

46%

35%

8

46%

20%

9

46%

11

Public Service Reform:

Salary increased between 6 and 10 percent with the minimum wage rising from T.Sh 35,000 in 1999 to T Sh, 55,000 (up to 57 percent). Pilot M&E for 8 MDA has been finished and another 19 is in the process.

Management of Development Aid Resources: Integration of ODA in the Government budget 1999/00

FY Aid Flows Database

Budget Estimates

Statement of Development Revenue

% of Aid Reflected in the budget

% of budgeted aid reflected in SDR

21

1999/00 317,231 214,943 67,606 68% 31% 2000/01 457,611 275,476 137,559 60% 50% 2001/02 424,198 302,272 125,010 71% 41% 2002/03 504,054 624,465 328,321 124% 53% 2003/04 622,942 667,349 475,642 107% 71%

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Annex 3: PRSC-2 Outcome Indicators Indicator 1999 2000 2001 2002 2003 2004 Baseline

(2000) Target (2003)

Income Poverty GDP growth per annum GDP growth of agriculture per annum CPI for food items Headcount rate- basic needs poverty line Headcount rate- food poverty line

4.7 4.1 8.8 18.7

4.9 3.4 6.8

5.7 5.5 6.1 35.7 18.7

6.2 5.0 4.1

5.7 4.0 4.6

6.7 6.0 5.9

4.9 3.4 6.8 17.9 9.4

6.0 5.0 4.0

Roads # of kilometers of roads under periodic maintenance in a given year. # of kilometers of roads under routine maintenance in a given year.

378 13220

1106 14899

663 12405

16123

15015

378 13220

Agriculture Proportion of districts reported to be food insecure.

36

26

Education Net primary school enrollment rate:

Male Female

Gross primary school enrollment rate: Male Female

Girls/Boys ratio in primary education (std 1) Girls/Boys ratio in secondary education (form 1) Girls/Boys ratio in secondary education (form 6) Percent of Cohort completing Standard VII : Male Female

Drop out rate in primary school: Male Female

Percent of students passing the primary school leavers exam : Male Female

59 60 79 78 0.94 0.92 0.50 69 70 5.6 5.5 29 15

66 66 86 84 0.93 0.96 0.51 71 76 5.3 4.3 36 21

82 79 101 96 0.94 0.88 0.47 34 20

90 87 109 102 0.94 0.93 0.50 73 72 4.7 4.8 48 33

96 94 112 108 0.96 0.98 0.51 56 42

59 60 79 78 0.94 0.92 0.50 69 70 5.6 5.5 29 15

100 100 100 100 100 0.90 0.90 3.0 3.0 50 50

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Transition rate from Standard VII to Form 1: Male Female

17 15

21 19

22 19

20 18

28 27

17 15

28 28

Human Capabilities: Health Number of outpatient visit per capita per annum DPTHb3 coverage HIV prevalence rate (15-24) Female Male TB treatment completion rate (cure rate)

81 10.8 6.4 76

0.5 79 10.7 6.9 78

86 12.1 8.1 81

89

0.7

1.24 86 6.0%(*) 5.2%(*) 80

0.5 85 10.7 6.9 76

Governance: % of district council with clean audits from the National Audit office # of cases of corruption reported # of convictions for corruption

9 13 9

14 33 6

10 53 0

465 12

1103 11

446 -

14 33 6

Gender: Proportion of women among senior civil servants

24%

24%

24%

24%

(*) This does not reflect a decline. Earlier figures were from (unrepresentative) sentinel sites, These 2004 numbers are from the first nationally representative blood sample.