GOOD GOVERNANCE AND PRIVATE SECTOR DEVELOPMENT …€¦ · GOOD GOVERNANCE AND PRIVATE SECTOR...

AFRICAN DEVELOPMENT FUND

GOOD GOVERNANCE AND PRIVATE SECTOR

DEVELOPMENT PROGRAMME (GGPSDP)

COUNTRY: UNITED REPUBLIC OF TANZANIA

PROGRAMME APPRAISAL REPORT

RDGE/ECGF

June 2018

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TABLE OF CONTENTS

Currency Equivalents ....................................................................................................................... i

Weights and Measures ..................................................................................................................... i

Abbreviations ................................................................................................................................. ii

Loan Information ...........................................................................................................................iii

Programme Executive Summary ....................................................................................................iii

Results Based Logical Framework ................................................................................................. iv

I. THE PROPOSAL ...................................................................................................................... 1

II. COUNTRY AND PROGRAMME CONTEXT .................................................................. 2

2.1 Recent Political and Socio-Economic Developments, Perspectives and Challenges........... 2

2.2 Government Overall Development Strategy and Medium-term Reform Priorities ............. 5

2.3 Governance Sector Review................................................................................................. 6

2.4 Bank Group Portfolio Status ............................................................................................. 6

III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY ................................... 6

3.1 Link with the Country Strategy Paper, Country Readiness Assessment and Analytical

Works Underpinning ........................................................................................................... 7

3.2 Meeting the PBO Eligibility Criteria ................................................................................. 9

3.3 Collaboration and Co-ordination with Other Development Partners .................................. 9

3.4 Outcome of Past and On-going Similar Operations and Lessons ....................................... 9

3.5 Relationship to On-going Bank Operations ..................................................................... 10

3.6 Bank’s Comparative Advantages and Added Value ........................................................ 10

3.7 Application of Good Practice Principles on Conditionality ............................................. 10

IV. THE PROPOSED PROGRAMME ......................................................................................... 11

4.1 Programme’s Goal and Objective ................................................................................... 11

4.2 Programme Components, Operational Objectives and Expected Results ......................... 11

4.3 Financing Needs and Arrangements ................................................................................ 16

4.4 Beneficiaries of the Programme ...................................................................................... 17

4.5 Social and Gender Impact ............................................................................................... 18

4.6 Impact on Environmental and Climate Change .............................................................. 18

4.7 Impact on Governance, Economic Competitiveness and Private Sector Development ..... 18

V. IMPLEMENTATION, MONITORING AND EVALUATION ......................................... 18

5.1 Implementation Arrangements: ....................................................................................... 18

5.2 Monitoring and Evaluation Arrangements ....................................................................... 20

VI. LEGAL DOCUMENTATION AND AUTHORITY.......................................................... 20

6.1 Legal Documentation...................................................................................................... 20

6.2 Conditions Associated with the Bank Group Intervention ............................................... 20

6.3 Compliance with Bank Group Policies ............................................................................ 21

VII. RISK MANAGEMENT .................................................................................................... 21

VIII. RECOMMENDATION ..................................................................................................... 21

Appendices

Appendix 1: Letter of Development Policy

Appendix 2: Assessment of Eligibility Criteria for PBOs

Appendix 3: Risk Management

Appendix 4: IMF Country Relations Note

Appendix 5: Prior Actions and Indicative Triggers

Appendix 6: Operations Policy Matrix

Appendix 7: Comparative Socio-economic Indicators

Appendix 8: Selected Macroeconomic Indicators

Appendix 9: Country Map

i

Currency Equivalents

As of 30th May 2018

UA 1 = US$ 1.44 (United States Dollar0

UA 1 = EUR 1.19 (Euro)

UA 1 = TZS 3,252.86 US$ 1 = TZS 2,261.98

Fiscal Year

July 1st – June 30th

Weights and Measures

1metric tonne = 2204 pounds (lbs)

1 kilogramme (kg) = 2.200 lbs

1 metre (m) = 3.28 feet (ft)

1 millimetre (mm) = 0.03937 inch (“)

1 kilometre (km) = 0.62 mile

1 hectare (ha) = 2.471 acres

ii

Acronyms and Abbreviations

ACGEN Accountant General MDA Ministries, Departments & Agencies

AfDB African Development Bank Group MEM Ministry of Energy and Minerals

ADF African Development Fund MoFP Ministry of Finance and Planning

AEO African Economic Outlook MoU Memorandum of Understanding

MTFF Medium-term Fiscal Framework

BRELA Business Registrations and Licensing Agency MTR Mid-Term Review

CAG Controller & Auditor General NDP National Development Plan

CCM Chama Cha Mapidunzi NPL Non-Performing Loan

CBMS Central Budgeting Management System NPS National Panel Survey

COTZ

CPI

Tanzania Country Office

Corruption Perception Index

PA&OB Public Authorities and Other Bodies

CPIA Country Policy and Institutional Assessment PAF Performance Assessment Framework

CPPR Country Portfolio Performance Review PBO Program Based Operation

CSP Country Strategy Paper PE Public enterprises

DfID Department for International Development PCR Project Completion Report

DB

DPs

World Bank Doing Business Report

Development Partners

PEFA Public Expenditure and Financial

Accountability

EARC East Africa Regional Resource Centre PFM Public Financial Management

EIPC Energy Infrastructure Procurement Coordinator PFMRP Public Financial Management Reform

programme

EPP Emergency Power Plants PPP Public Private Partnerships

EU European Union PPRA Public Procurement Regulatory Authority

EWURA Energy and Water Utilities

Regulatory Authority

PRSP Poverty Reduction Strategy Paper

FDI Foreign Direct Investment PSP Private Sector Participation

FM Financial Management REA Rural Energy Agency

FYDP Five Year Development Plan RMC

Regional Member Countries

GBS General Budget Support SIDA Swedish International Development

Cooperation Agency

GCI Global Competitiveness Index SOE State-Owned Enterprises

GDP Gross Domestic Product STAMICO State Mining Corporation

GECSP Governance and Economic

Competitiveness Support Programme

TANESCO Tanzania l Electric supply Company

GEPG Government Electronic Payment Gateway TYS Ten-Year Strategy (ADB)

GOT Government of Tanzania TZS

Tanzania Shilling

IFMIS Integrated Public Financial Management

Information System

UA Units of Account

IPTL Independent Power Tanzania Limited USAID United States Agency for International

Development

ISPDRM

NRG

Institutional Support Project for Domestic

Resource Mobilisation and Natural Resources

Governance

USD United States Dollars

ISPGG III Institutional Support Project for Good

Governance Phase III

VAT Value Added Tax

JICA Japan International Cooperation Agency WB World Bank

KPIs Key Performance Indicators

LGA Local Government Authorities

iii

Loan Information

BORROWER: United Republic of Tanzania

EXECUTING AGENCY: Ministry of Finance and Planning, in collaboration with Ministry

of Trade, Industry and Investment

FINANCING PLAN

Source Amount Instrument

African Development Fund UA 80 million; UA 40 million for

fiscal year 2017/18 and UA 40

million for 2018/19

Loan

World Bank USD 300 million

(2017/18 – 2018/19

Loan

European Union Euro 200 million

(2017-2020)

Grant

Sweden Euro 22 million Grant

Denmark USD 60 million Grant

ADF key financing information

ADF Loan 40 million Units of Account (UA)

Service Charge 0.75% per annum on amount disbursed

and outstanding

Commitment fee 0.50% per annum on amount undisbursed

Duration 40 years

Grace period 5 years

Timeframe - Main milestones

Program Preparation

Program Appraisal

Programme approval

February 2018

April 2018

July 2018

Loan Effectiveness July 2018

Single Tranche Disbursement July 2018

Completion December 2019

iv

Programme Executive Summary

Programme

Overview

Programme name: Tanzania - Good Governance and Private Sector Development Programme (GGPSDP)

Expected Outputs: The key outputs of the program are (a) improved private sector competiveness; (b)

simplified process for doing business; (c) harmonization of various fees, levies and processes; (d) strengthened

institutional framework for PPPs; (e) improved budget credibility; (f) improved budget execution and reporting;

(g) improved public investment planning; (h) procurement capacity strengthened; and (i) national audit and

internal audit strengthened.

Overall timeframe: 2017/2018 (the first of two operations in a programmatic series covering the period

2017/2018 -2018/19.

Program cost: the program cost for the two-year programmatic operation is UA 80 million split equally into UA 40 million for each year of the operation.

Program

outcomes

Expected outcomes of the programme are: (a) improved business enabling environment; (b) public financial

management strengthened; and (c) Governance oversight function strengthened.

Alignment

with Bank

priorities

The operation is aligned with two of the five operational priorities of the Bank Group’s Ten-Year Strategy

(Private Sector Development, and Governance and Accountability), and the core priorities of the Governance

Strategic Framework and Action Plan and the Private Sector Development Strategy. It is also consistent with

two of the Bank’s High 5s: “Industrialize Africa” and “Improve the quality of life of the people of Africa”.

Further, the operation will support pillar II of the CSP, Strengthening Governance and Accountability which

are critical for formulating a conducive operating environment for the private sector to interface with

Government.

Needs

Assessment

and

Justification

Tanzania’s private sector development has continued to be hampered by several challenges including:

infrastructure gaps especially in transport and energy, low access to finance, skills gaps and mismatch, and lack

of business development support services. In order to address these constraints and challenges in the business

enabling environment, GoT is embarking on a comprehensive program aimed at enhancing the efficiency,

effectiveness, transparency and predictability of the regulatory environment. In the area of PFM, which is critically important for private sector development, GoT over the years has implemented comprehensive

reforms aimed at strengthening its Public Financial Management systems, including the current five-year

Strategic Plan for Public Finance Management Reform (PFMRP) Phase V 2017/2018-2021/222.

Harmonization

The Bank actively participated and coordinates its activities with all major Development Partners (DPs) in

Tanzania including 4 multilaterals, 17 United Nations Agencies, and 17 bilateral donors. This engagement is

within the well-established structure for dialogue, which consists of four clusters, more than 20 thematic

working groups and 7 sector working groups. The Bank is active in all relevant sectors and thematic areas,

including energy, public financial management and GBS. The Bank co-chaired the energy sector donor group

in 2013 and is currently co-chairing the transport sector as well as the poverty monitoring group since 2013.

Bank’s Added

Value

The Bank, through its interventions and operations, has acquired substantial experience in engaging with, and

supporting, African countries in areas such as good governance, infrastructure development and financing,

public finance management and private sector development. The Bank has supported similar reforms in

Tanzania and other RMCs including Egypt, Ghana and Angola; the experience gained from these operations puts the Bank in a strong position to effectively design and manage the proposed operation. In addition, the

program will support the ongoing policy dialogue and advisory services of the Tanzania Country Office

(COTZ), which has been playing a critical and active role in the GOT/DPs policy dialogue process.

Contribution

to Gender

Equality and

Women’s

empowerment

The policy focus of the GGPSDP is to support reforms that aim at addressing reform actions to improve in the

business enabling environment. By supporting these reforms, the program will benefit Tanzanian private sector

organizations which are dominated by many small enterprises, mostly in smallholder agriculture and small

informal non-farm businesses. The 2014 Labour Force Survey shows that 31% of women are employed in the

non-agricultural sector compared to 37% for men. To this end, the essence of the private sector reforms, which

are designed to enhance competitiveness and private sector participation in the economy will help to foster

economic and social inclusion and would therefore positively impact on the women and the youth while

creating employment generation, equal opportunities across age, geography and gender.

Policy dialogue

linked to

technical

assistance

The proposed operation will focus on supporting improvements to enhance the enabling environment for the

private sector as well as contribute to efficiency in the use of scarce public resources thereby creating fiscal space for Government investments in other priority areas, such as education and health. Through the

operation and the on-going Institutional Support Projects, The Bank will continue to encourage best practises

on PFM and private sector reforms in Tanzania. The program will also assist in strengthen ongoing policy

dialogue on governance, business enabling environment and private sector facilitation reforms and related

public finance management issues with COTZ playing a pivotal role.

v

Results Based Logical Framework

Country and project name: United Republic of Tanzania: Good Governance and Private Sector Development

Program

Purpose of the program : Support ongoing reforms to strengthen good governance and promote private sector led

growth and economic development

RESULTS CHAIN

PERFORMANCE INDICATORS

MOV

RISKS/MITI

GATION

MEASURES Indicator (including CSI*) Baseline Target

IMP

AC

T

Increase contribution to

sustainable economic

growth and employment

from the private sector

Global Competitiveness Index 3.71 (2017) 3.90 (2020) MoF, AfDB

(AEO) & WEF

Global

Competitive

Report

i)

Macroeconomic

/Fiscal risks:

Tanzania remains

vulnerable to a

number of

exogenous risks

such as exposure

to variations in

prices on

international

markets.

Mitigation:

Continued

engagement with

GOT through

policy dialogue to

encourage

implementation of

on-going

economic reforms

and promote

diversification;

Also, monitoring

of performance

through

engagement with

IMF.

ii. Fiduciary risk

:

Tanzania has

made good

progress in

strengthening

institutions and

addressing

corruption.

However,

weaknesses still

remain, and these

will continue to

pose a risk.

Mitigation:

Continued

implementation of

the PFM Reform

Program (PFMRP

V), continued

Real GDP growth 7.1 % (2017) Average growth above

7.5% (2020)

OU

TC

OM

E

Outcome1

Improved business

enabling environment

The time to register a business

Private gross fixed capital formation (%

of GDP)

6 days (2016)

30% (2016)

1 day (2020)

32% (2020)

WB Doing

Business

Report &

TNBS

Outcome 2

Public Financial

Management

strengthened

Aggregate expenditure outturn

compared to original approved budget

Score on 0pen budget index improves

Budget variance

(20%)(2016/17)

(10) 2018

Budget variance

reduced to 15%

(2018/19)

(at least 46) (2020)

MoFP budget

speech and

PFMRP reports

Open Budget

Index

OU

PU

TS

Outcome 3: Governance

oversight function

strengthened

Public Procurement compliance rate

71% (2017) (81%) 2020 PPRA Annual

report and IAG

Progress

reports

Improvement in the implementation of

CAG recommendations in central and

local government

(37%) 2015/16 45% (2018/19)

Component 1: Improving the enabling environment for private sector development

Output 1.1 Improved

private sector

competitiveness

1.1.1 Cabinet approval of the blue print

for regulatory reform to improve the

business environment

None (a) the blue print

approved (2018)

(b) Implementation of

key actions related to

quick wins of the blue

print (2019)

MoITI, TRA 1.1.2 Establishment of the one stop shop

center for business registrations

None (2017) One stop shop

established in Dar es

Salaam and Mwanza for

company and license

issuance by (2019)

1 1..3 Amend regulations to enable

TRA rationalize VAT treatment with a

view to promoting domestic industries

VAT regulation

amended (2018/19))

Output 1.2. Simplify the

process of doing

business

1.2.1 Operationalize the online

company registration system (BRELA)

in order to reduce the time for

processing of business registration

Number of days for

company registration

3 days

Time for company

registration reduced to 1

day.

MoITI,

BRELA

1.2.2 Operationalization and roll out of

the Government Electronic Payment

Gateway (GEPG) system

No system in place

(2017)

Government Electronic

payment Gateway

system (GEPG)

operationalized and

rolled out to 30

institutions (2018)

GEPG system

connected to a further

20 institutions (2019)

MOFP

Output 1.3

Harmonization of

various fees, levies and

processes

1.3.1

Reducing regulatory processes in order

to ease the cost of doing business

Multiplicity of

procedures (2017)

Merge the issuance of

TIN & and company

registration (2018)

MOFP (budget

speech), TRA

vi

1.3.2 Unifying identified fees and

levies

Multiplicity of fees

and charges

Reduction of fees &

charges in the

agriculture sector (2019)

strengthening of

anti-corruption

and oversight

institutions

through ongoing

dialogue and

implementation of

ongoing

Institutional

support projects as

well as inclusion

of PFM measures

in the policy

program.

(iii) Risk of policy

uncertainty. The

ongoing reforms

were adopted

through a broad

consultation

process involving

various

stakeholders, and

with continued

dialogue, with

government is

likely to see these

reforms as

appropriate and

continue with

their

implementation.

Output 1.4

Strengthening the

institutional framework

for PPPs

1.4.1 PPP law amendments approved by

Cabinet

PPP Policy (2009),

PPP Amendment Act

(2014) and PPP

Regulations (2015)

are in place

PPP law amendments

approved by Cabinet

(2018)

MOFP 1.4.2 Establishment of PPP guidelines

No Manuals in place

(2017

PPP guidelines

approved (operational,

procurement and fiscal

management

guidelines) (2019)

Component 2: Supporting reforms to improve budget credibility

Output 2.1 Improved the

credibility Budget

2.1.1 Government adopts a central

government expenditure arrears

prevention and clearance strategy

No strategy for

arrears management

Arrears as % of

GDP are 5%

Arrears strategy

approved and

published(2018)

MOFP

2.1.2 Implementation of the arrears

prevention measures, as

articulated in the arrears prevention and

clearance strategy

Implementation of the

arrears prevention

measures as indicated in

the strategy in order to

reduce arrears to 5.1%

of the 2018/19 GoT

expenditure (2019)

2.1.3 Government adopts a central

budgeting management system

Two budget systems,

Strategic Budget

Allocation System

(SBAS) and Active

Planner Applications

operating

Central budgeting

management system in

place and used to

produce the 2018/19

budget (2018)

Output 2.2 Improve

budget reporting and

execution

2.2.1. Publication of annual and

quarterly budget execution report on the

Ministry’s website

Budget execution

report not published

(2016/17) but has

since been published

April 2108

Publication of annual

2017/18 budget

execution report (2018)

Publication of quarterly

2018/19 budget


2.2.2 Operationalization of the Debt

Management Department

Department not fully

functional (2017)

Full operationalization

of the DMD with the

appointment of

Commissioner for the

department and the

appointment of the

Assistant

commissioners (2019)

Output 2.3 Improved

public investment

planning

2.3.1 Government ensures key national

projects selected in the 2018/19 budget

comply with the PIP manual

5 public

investment

projects

prepared in line

with the PIM-

OM (2017/18)

27 public investment

projects prepared in line

with the PIM-OM 5 at

the Central Government

level, 22 at the local

Government level

(2018/19)

MOFP

vii

Component 3: Strengthening Governance oversight Functions

Output 3.1 Procurement

capacity strengthened

3.1.1 Government operationalizes the e-

procurement system

3.1.2 Development of Guidelines for the

procurements in Public Private

Partnership (2019)

3.1.3 Number of procurement bids

awarded to women entrepreneurs

3.1.4 At least 100 female in

procurement entities trained on the e-

procurement system

No registered users of

the system (2017)

(N/A) 2017

Rollout of the e-

procurment system to

the Government

Medical Supplies (2018)

System rolled out to 100

procurement entities

(2019)

50% of Government

procured goods, works

and services processed

through the e-

Procurement system

(2020).

100 bids (2019)

100 female procurement

entities trained

PPRA reports

Output 3.2 National

Audit and Internal Audit

office strengthened

3.2.1 Cabinet approval of the Public

Audit Act Amendments

Public Act (2010)

Amendments of the

Public Audit Act

approved by Cabinet

(2019)

NAO, IAG

reports

3.2.2 Development of an Internal audit

guidelines for oil and Gas

No guidelines in

place

Guidelines for oil and

Gas approved and

operational (2019)

3.2.3 Approval of a Quality assurance

audit manual (NAO)

No manual in place

(2017)

Quality assurance audit

manual developed and

approved (2019)

3.2.4 Public finances are independently

reviewed and there

is external follow-up on the

implementation of audit

recommendations

(PI 30-31)

Audit report

submissions

(2015/16) 352 reports

submitted

(2016/17- 378 reports

submitted

evidence of systematic

management responses

to internal audit

recommendations 55%

(2018/19)

COMPONENTS

1. Improving the enabling environment for private sector development

2. Supporting reforms to improve budget credibility

3. Strengthening Governance oversight functions

Total financing: UA 80 million

- UA 40 million for Phase I and UA 40 million for Phase II

1

REPORT AND RECOMMENDATION OF THE MANAGEMENT OF THE ADB GROUP TO

THE BOARD OF DIRECTORS ON A PROPOSED LOAN TO THE UNITED REPUBLIC OF

TANZANIA FOR THE GOVERNANCE AND PRIVATE SECTOR DEVELOPMENT

PROGRAMME

I. THE PROPOSAL

1.1 Management submits the following Report and Recommendation for a proposed ADF

loan of UA 40 million, to the United Republic of Tanzania, to finance the first phase of the Good

Governance and Private Sector Development Program (GGPSDP) for the fiscal year 2017/18.

The GGPSDP is designed as a programmatic series of two consecutive general budget support

operations (GBS) covering the two-year period 2017/18 and 2018/19, for a total indicative financing

package of UA 80 million. In line with the Bank’s Policy on Program-Based Operations (PBOs), this

intervention is proposed for approval against the achievement of key Prior Actions derived from

Government of Tanzania’s (GOT’s) implementation of reforms to enhance good governance and

promote private sector development. In its design, the GGPSDP presents the two-year overall reforms

framework, including setting out indicative triggers for the second phase (GGPSDP II). This format

is in line with provision of predictable financing within a medium-term framework for engaging GOT

in policy dialogue with the Bank, development partners and major stakeholders, including civil

society and the private sector. The program is a response to a request from GOT, in March 2018, for

the Bank to support its governance, business enabling environment for private sector development

and PFM reform agenda. The operation builds on the Bank’s Governance and Economic

Competitiveness Support Program (GECSP) Supplemental financing operation of 2013, as well as

the programmatic Power Sector Reforms and Governance Support Program implemented during

2015 to 2017. The GGPSDP also has complementarities with the Bank’s Institutional Support

Projects for Good Governance (ISPGGs) and Domestic Resources Mobilization and Natural

Resources Governance Project interventions in Tanzania.

1.2 The operation responds to the need for Tanzania to improve the investment climate and

overall business environment in order to build a strong foundation for the economy’s capacity

to generate inclusive growth. Tanzania’s private sector has a key role to play in supporting

realization of the Vision 2025, through the implementation of the Five Year Development Plan I1

(FYDP II 2016/17-2020/21) focused on “nurturing Industrialization for Economic Transformation

and Human Development”. However, playing this role effectively requires significant improvements

in improving the business enabling environment in Tanzania. The Government has, in response,

embraced on ambitious on-going program of reforms encapsulated in a Roadmap Blueprint for

Regulatory Reform to Improve the Business Environment1, particularly in (i) business registration and

licensing reforms; (ii) tax reforms; and (iii) financial sector reforms. These GOT reform priorities are

highlighted in the Letter of Development Policy (Appendix 1). In addition, the operation will support

targeted PFM reforms that are critical for creating a stable macroeconomic environment for private

sector led growth.The proposed operation will support these reform efforts, and will be complemented

by the technical assistance being provided by the Bank through ongoing Institutional Support Projects

(ISP). Addressing the challenges identified by GOT will improve the business environment, enhance

competitiveness and contribute to inclusive growth.

1.3 The programme is the outcome of effective engagement and sustained dialogue between

the Bank and the EU, the Tanzanian authorities and the development partners, particularly the

World Bank. The dialogue shows that the Government has strong commitment to implementing

reforms in PFM, the business environment and overall private sector promotion. In the area of PFM,

1 Launched in 2017, the Blueprint is a Guide for monitoring and improving the business environment in Tanzania. It is a

document for Regulatory Reforms, whose preparation was subjected to High Level Brainstorming Workshop attended

by government officials, Development Partners, the private sector, researchers and academics.

2

which is critically important for private sector development, the Bank has established a strong track

record, through successive budget support operations, as evident from the recently completed

PSRGSP operation. The proposed operation is well coordinated with the World Bank’s two-year

Development Policy Operation (DPO) for USD 300 million focusing on Growth and Service

Delivery. This will assist to avoid duplication and ensure harmonization.

II. COUNTRY AND PROGRAMME CONTEXT

2.1 Recent Political and Socio-Economic Developments, Perspectives and Challenges

2.1.1 Tanzania has enjoyed considerable political stability since independence in 1961 and the

emergence of multiparty democracy in 1992. Under the multi-party system, Tanzania has held five

peaceful elections,. The last general elections, held in 2015, transferred the mandate from the 4th phase

Government to 5th phase government. Improving economic and financial governance has been a key

focus of the 5th phase Government, since the changeover in 2015. To this end, a number of economic

policies have been launched focusing on increasing revenue collection, prioritising the fight against

corruption, investing in infrastructure and developing and pursuing reforms to improve the business

climate. The country has successfully built, over the years, a strong national identity in the midst of

great ethnic, regional and religious diversity.

2.1.2 Tanzania’s economy has continued to perform sturdily, maintaining a high and steady

growth rate in recent years. Annual real GDP growth, over the past five years, has averaged 6.7%,

the Government has since published in

June, a growth rate of 7.1% for 2017.

The economy has remained resilient to

both external and internal shocks. Strong

growth in recent years has been

supported by stability in power supply,

moderation in oil prices and increase in

public investment. According to the

2018 African Economic Outlook, the leading growth drivers in 2017 have been: information and

communication (17%), construction (14%), trade (8%) and manufacturing (7%). Growth is projected

to remain strong in the medium term, driven by good performance in services and manufacturing

sectors, and supported by strong public investment. Investment in harnessing Tanzania’s natural

endowment has been the driving force for sustainable transformation of the country. In the recent

past, performance of the country has been strong in attracting investments, both local and foreign,

which have averaged 5% of GDP over the past five years. There is potential for increased inflow of

FDI in the medium term, mostly targeting the extractive sectors, including natural gas and minerals.

In the medium to longer-term, Tanzania’s growth prospects will be significantly boosted by the recent

natural gas discoveries – through investment flows, increased government revenues, power

generation, and associated additional benefits to the local economy. However, the challenge remains

the government’s capacity to scale up attracting the amount and quality of investments required to

support its ambitious economic transformation agenda, which would entail outlining a key role for

the private sector. The Government is seeking to entice and attract increasingly private sector

investment flows in new and more productive economic activities. This, however, would only be

possible with a Tanzania business environment that is reliable, secure and predictable for the private

sector to profitably operate and flourish on a long-term sustainable basis.

2.1.3 Private Sector Review: Currently, the private sector’s role as a key driver of inclusive

and green economic growth is yet to be harnessed. The sector is dominated by many small

enterprises (estimated at a ratio of 1 enterprise for every four people2), mostly in smallholder

agriculture and small informal non-farm businesses. Over 90% of the private enterprises are sole

2 World Bank report – the 2014 Country Economic Memorandum (“Productive Jobs wanted”).

3

proprietorships, and only 0.6% employ more than 10 workers. The private sector employs an

estimated 95% of the workforce, and accounts for about 75% of gross fixed capital formation. The

2014 Integrated Labour Force Survey indicates that 65.6% of the workforce is employed in the

agriculture sector, and over 86% in Micro, Small and Medium-Scale Enterprises (MSMEs) –

including activities in agriculture. Untapped private sector investment opportunities exist in

agribusiness, tourism, natural gas and mineral sectors, and associated industries; as well as in real

estate, construction, housing and the financial sector. These sectors have the potential to support the

ambitions of Vision 2025 and FYDP II, in terms of achieving social and economic transformation.

Thus, private sector development has the potential to foster economic inclusion, but is hampered by

several challenges including: infrastructure gaps especially in transport and energy, low access to

finance, skills gaps and mismatch.

2.1.4 Tanzania’s economy is in the process of structural transformation, as demonstrated by

continued decline in the share of agriculture in the economy from about 50% in late 1990s to 23% in

2016; while the share of services has grown to about 49% in 2016, and that of industry has increased

from around 10% to 23% in 2017. The past few years have seen significant expansion in industrial

and construction activities as well as in mining, especially gold. The economy has become more open,

with increasing levels of diversification, both in terms of markets and products. The export structure,

however, faces the challenge of remaining largely dependent on primary commodities, such as

minerals, coffee, tea, cashews and cotton. Despite the ongoing gradual transformation, the agriculture

sector remains the mainstay of the Tanzanian economy, employing about two-thirds of the workforce,

while supporting livelihoods of the three-quarters of the country’s population. But growth of

agriculture sector averaged less than 4% over the past five years – partly explained by poor

infrastructure, lack of storage, and low productivity on account of the continued dependence on rain-

fed agriculture, lack of irrigation and inadequate mechanization. Therefore, Tanzania’s key to

achieving broad based growth still lies in the transformation of the rural economy largely through

significant improvements in agriculture productivity

2.1.5 The Government recognizes the private sector as an engine of growth, and maintains a

favorable attitude towards Foreign Direct Investment (FDI). Thus, the authorities have

undertaken various reform measures since the 1990s to improve the investment climate and overall

business environment, including simplifying the procedures and regulations for business

establishment and exit, and strengthening of necessary framework for market competition. However,

despite these reforms, Tanzania fell to 137th positon in the Doing Business 2018 (DB2018) report,

after having moved up 12 positions to rank 132 in DB2017 from 144 in Doing Business

2016. According to the report, amongst the regional peers in East Africa, Tanzania beats Burundi

(190th) and trails behind Rwanda (41st), Kenya (80th) and Uganda (122th). In light of the challenges

for Tanzania evident from these Doing Business reports, regarding the country’s overall investment

climate, the Government’s ambitious Roadmap Blueprint (see para: 1.2) is an appropriate response

to improving and strengthening the business environment for private sector development.

2.1.6 The challenge is to sustain reforms implemented, supported by a continued stable

macroeconomic environment, in order to promote the private sector-led growth agenda envisioned

in the government’s development plan. Downside risks to economic growth in the short term have

been identified as stemming from slow budget implementation3 and a challenging business

environment. Efforts to address improvements in domestic revenue mobilized through tax policy and

administration reforms have been ongoing, with the new tax measures announced in the last two

budgets. As part of measures to improve the VAT refund process, Government has called for

reverification in order to avoid ineligible claims. The reverification has led to a backlog of audits

resulting in delays in processing of refunds. The 2017 PEFA report notes that the national Public

Investment procedures remain somewhat ‘ad hoc’. Strengthening the use of the Public Investment

3 Budget execution in FY 2016/17 was only about 80%, mainly on account of shortfalls in domestic revenue and

external concessional and non-concessional financing.

4

Manual (PIM) is essential to raise the level of efficiency in the use of public investment resources,

especially as FYDP II envisages implementing several PPP flagship projects.

2.1.7 The Bank of Tanzania has continued to maintain a tight monetary policy, resulting in

low single digit inflation since 2013. In line with objectives of supporting economic growth and

maintaining price stability, the annual growth rate of average reserve money grew from 4.6% in

January, 2017 to 9.5% in January 2018, significantly below the target of 13%. Annual headline

inflation has declined to 4.0% in January, 2018, its lowest level since January 2015 and below the

medium-target of 5.0%. In line with developments in money supply and interest rates, private-sector

credit growth declined significantly from 5.1% in January 2017 to 2.0% in January, 2018. Meanwhile,

the banking sector has been challenged by high and rising Non-Performing Loans (NPLs), combined

with a weak business environment, constraining private sector credit, which increased further to 12.5

% of total loans in September 2017 from 9.1 % in September 2016.

Box 1: The case for Private Sector Development

Tanzania recognises the private sector as an engine of growth and to this end has undertaken reforms dating back to the 1990s in order to

promote investment and improve the business enabling environment. These reforms, including the Business Environment Strengthening

Tanzania Program (BEST) in early 2000, have led to the liberalisation of the economy and given the private sector a key role to play in the economic development of the country. Business licensing in Tanzania has improved significantly over the past decade, but challenges still

remain. Concerns have been raised by private sector organizations about multiplicity of regulatory authorities and duplication of regulations,

which, in some cases, lead to multiple licensing and permits, multiple charges and penalties and high compliance cost negatively impacting

on the time to start, and cost to operate a business.

Tanzania has recognised the role of industrialization for economic transformation under the Tanzania Development Vision 2025 which

aspires to transform the country to middle income status and a semi-industrialized economy by 2025. An attractive Business enabling

environment has been identified as a crucial pre-requisite for the participation of local and foreign investors in the different sectors of the

economy, in order to accelerate and sustain the envisaged industrial transformation. Thus, the Government has outlined the “Blue print” as

a guiding document for implementing general and specific reforms to address challenges and weaknesses in policy regulations, delivery

processes and coordination, with a review to improving the business environment in Tanzania in line with global best practices. The Blue

Print outlines over 388 existing licenses and permits and associated reforms to be implemented by 2020.

Although Tanzania has recorded impressive macroeconomic performance in recent years, another major constraint to growth of the economy and private sector development has been identified as poor infrastructure, especially insufficient power supply, limited transport

facilities as well as inadequate water supply, particularly in rural areas. Tanzania is ranked 113 out 138 countries in the 2017-18 edition of

Global Competitiveness Index, with a score of 3.71 (out of 7) in the infrastructure pillar (ranked 1148 out of 138 countries); and has a score

of 2.8 (out of 7) for overall quality of infrastructure. The 2016 Mo Ibrahim Index of African Governance, ranks Tanzania 36 out of 54

countries on infrastructure, with a score of 31.9 (out of 100). This score is significantly lower than African average of 39.1. In response to

this challenge, government policies and strategies have placed strong emphasis on effective and efficient public infrastructure investments,

especially in energy, transport and water as outlined in the government’s Five Year Development Plan (FYDP II 2016/17 – 2020/21).

Government has formulated new specific policies to guide planning, implementation, and monitoring of infrastructure development in the

country. Several infrastructure development master-plans and programs have been developed including: Transport Sector Investment

Programme, Tanzania Ports Master Plan (2008 – 2028), Civil Aviation Master Plan; and Tanzania Power Sector Master Plan (2006-2031).

However, implementation of these ambitious programs and masterplans has been constrained by lack of financing. Government has identified the need for scaling up efforts to mobilize resources since more than 50% of financing for infrastructure will be through non-

concessional borrowing, as well as concessional financing. Expenditures on infrastructure projects accounted for about 25.4% of the

2016/17 budget. Effective mobilization of resources will also help to improve the implementation of infrastructure budget, whose execution

has averaged only about 70% over the past three fiscal years. To address this, Legislation and Policy for Public-Private Partnership (PPP)

have been put in place to guide the participation of the private sector in infrastructure development.

2.1.8 Tanzania’s macroeconomic management in recent years has been sound and anchored

on the IMF supported Policy Support Instrument (PSI) program. The IMF Executive Board, in

January 2018, concluded the seventh and last review of Tanzania’s economic performance under the

PSI program. The review noted Tanzania’s continued strong macroeconomic performance,

underlined by high real GDP growth, moderate inflation levels and a healthy international reserves

position. However, the review also pointed to some of the emerging risks, suggesting weakening of

economic activity, including lower than expected tax revenue collection and significant slowdown in

growth of credit to the private sector. The review also identified slow budget implementation and

challenging business environment as downside risks to economic growth in short term. The review

underscored the need for concerted efforts to: address the infrastructure gap, improve business

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climate, improve budget credibility, and curb high stock of NPLs to reduce financial vulnerabilities

and revive growth of credit to the private sector.

2.1.9 These important findings notwithstanding, Tanzania’s medium term economic outlook

remains positive. Economic growth is projected to remain stable at around 7%, supported by the

same sectors responsible for the recent growth as well as a rapid increase in public investments. The

current account deficit has significantly improved from 10.7% in 2013/14 to 2.7% of GDP in 2016/17,

mainly due to a decline in oil imports attributed to a shift from imported oil to domestically-produced

gas for electricity generation and a contractionary fiscal stance. Significant FDI resource inflows,

which have averaged 3.8% of GDP between 2014 and 2016, are expected to impact positively on

export earnings. Government’s ongoing steps to review the VAT, and rationalize existing tax

exemption regimes, and control recurrent spending (notably the wage bill), among others, will support

the medium term fiscal policy target of keeping the fiscal deficit below 5% of GDP.

2.1.10 Tanzania’s total public debt stock has increased by about 44.1% over the past five years,

growing from USD 14.77 billion in December 2013 to USD 21.28 billion in December 2017 and is

estimated at around 38% of GDP at end 2016/17. Despite the rise in debt, the 2017 Debt Sustainability

Analysis indicates that Tanzania’s public debt remains sustainable in both short and medium term.

The risk of debt distress remains low due to the structure of debt, which is largely concessional,

coupled with high output growth forecast scenarios and ambitious revenue collection targets. The

country faces low risk of debt distress if fiscal consolidation is sustained. According to the Auditor

General’s report, key challenges for debt management include the fiscal deficits, new borrowings and

foreign exchange loss challenges, as well as, challenges in recording and reporting of Public debt.

Box 2. Financing development while ensuring long term debt sustainability

Total public debt stock has remained low over the years. However, it has risen by about 44.1% over the past five years, growing from

USD 14.77 billion in December 2013 to USD 21.28 billion by December 2017. The recent rise in the debt stock has been attributed to

persistent budget deficits, increased external borrowings to finance development projects, rollover of liquidity papers and foreign exchange loss arising from depreciation of the Tanzanian Shilling. The challenge of debt, arising from fiscal deficits, calls for the need

to improve revenue forecasting based on realistic macroeconomic assumptions, and enhance cash and debt management.

Government’s plan for significant public investment over the coming years calls for prudent debt management. Major investment

projects include the Standard Gauge Railway linking Dar es Salaam with Mwanza and the 2100 MW Stiegler’s Gorge hydro power

project. Public external borrowing, even if mainly concessional, is estimated at USD 15.27 billion as at December 2017, and accounts

for about 72% of the total public debt; it has increased by about 39.6% over the past five years. The possible rise in external debt,

including commercial borrowing, to finance these costly projects calls for the Government to maintain a more cautious and prudent

stance in managing the debt’s growth, with a view to reducing potential liquidity and rollover risks going forward. In addition, Debt

management capacity would need to be strengthened to ensure that debt recording and payments are done in a timely manner,

considering disputed external arrears and potential government guarantees to be provided. There is also a need to address the concerns

of the Auditor General in his 2016/17 report, which identifies debt management deficiencies including inadequate control mechanism over recording of disbursements, inadequate management of loans under on-lending contracts arrangements, and fragmentation of front,

middle and back office operations leading to challenges in recording and reporting of Public Debt.

2.2 Government Overall Development Strategy and Medium-term Reform Priorities

2.2.1 Tanzania’s development strategy and reform priorities are well-articulated in a

comprehensive framework of National Vision and medium term programmes. The country’s

development framework and long-term goals are laid out in the National Development Vision 2025

and Zanzibar Development Vision 2020. The medium-term objectives for Mainland Tanzania and

Zanzibar are guided Five Year Development Plan (FYDP II 2016/17-2020/21) and Zanzibar Strategy

for Growth and Reduction of Poverty (ZSGRP III), respectively 4 The FYDP II which bears the theme

“Nurturing Industrialization for Economic Transformation and Human Development”, focuses on:

(1) growth and industrialization (2) human development and social transformation; (3) business

environment strengthening; and (4) ensuring implementation effectiveness and efficiency. For

Zanzibar, the development strategy focuses on (i)Enabling sustainable and inclusive growth in key

4 The ZSGRP is popularly abbreviated as MKUZA (for “Mkakati wa Kukuza Uchumi na Kuondoa Umaskini Zanzibar”).

6

sectors (ii) Promoting human capital development (iii) Providing quality services for all (iv) Attaining

environmental sustainability and climate resilience and (v) Adhering to good governance principles.

2.2.2 Over the past decade, GOT has implemented numerous reforms towards promoting

good governance and private sector development, but much more remains to be done in these

two areas that are critical priorities for growth and economic transformation. In the area of PFM

reforms, important for governance and private sector development, GOT is currently implementing

the Public Financial Management Reform Programme (PFMRP V 2017/19-2021/22) to support

efforts to realise the national policy objectives of Vision 2025 and FYDP. The PFMRP V is aimed at

enhancing revenue mobilization, improving planning and budgeting, and promoting transparency,

accountability, and efficiency in the use of public resources. The proposed operation will support

GOT’s efforts to implement these ongoing reforms in PFM.

2.3 Governance Sector Review

2.3.1 Tanzania has made some progress in addressing alleged and perceived corruption following

the current government’s crusade to improve the country’s reputation of endemic corruption and poor

services. The sacking of high-level officials in the Tanzania Revenue Authority in 2016, and in the

Prevention and Combating of Corruption Bureau (PCCB Director General), the purge of "ghost

workers through payroll audits, and high-profile investigations on alleged corruption are good

examples of recent anti-corruption initiatives. The Tanzania Parliament also passed, on July 04, 2016,

a law to pave way for establishment of a special high court to fast-track economic crimes and

corruption cases. These actions have led to the country’s ranking on corruption indices improving.

The ranking in the Transparency International Corruption Perception Index, which had deteriorated

from 111th out of 177 countries in 2013 to 119th out of 174 countries in 2014, improved to 116th in

2016 and 103 in 2017. Within the region, only Rwanda (ranked 48th) outperforms Tanzania, the other

neighbours - Kenya (143th), Uganda (151th) and Burundi (157th). Tanzania’s rank in the Mo Ibrahim

Index of African Governance improved slightly from 18th (with a score of 56.5) out of 54 countries

in 2016, to 17th position (with a score of 57.5) in 2017. This performance is higher than the African

average of 50.8, and higher than the regional average for East Africa (45.2). While Tanzania scores

better than the African average on governance and various dimensions of political context, income

inequality and youth unemployment remain key downside risks that require attention. The citizenry’s

perception also saw an improvement according to the 2017 Afro Barometer, which shows that over

70% of Tanzanians believe corruption had decreased “somewhat” or “a lot” in the previous year.

2.4 Bank Group Portfolio Status

2.4.1 The Bank’s portfolio in Tanzania comprises 21 public sector operations, at March 2018,

for a total commitment of UA 1,371.8 million, in infrastructure (energy, transport and water

supply and sanitation), agriculture, human development, private sector and multi sector. In

addition, there are 3 private sector operations with a total value of UA 133 million. Regarding the 21

public sector operations, 16 operations (for UA 1,103.9 million) are national, and the other 5

operations (for UA 187.6 million) are regional operations. The Bank is also supporting capacity

building in enterprise development and policy and strategy development. In collaboration with the

Africa Legal Support Facility (ALSF), the Bank is providing expertise in negotiation of complex

investment transactions. The overall performance of the portfolio is rated as satisfactory, with a score

of 3.1 as at December 2017 compared to 2.5 in 2015. Most key portfolio performance indicators have

shown improvements. These include the disbursement rate, number of aging projects, average project

size, and projects at risk. The portfolio has neither potentially problematic nor problematic projects.

The average age of the ongoing portfolio increased to 3.6 years in 2017 from 3.1 years in 2016,

because only one new project was added to the portfolio while none exited the portfolio in 2017.

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III. RATIONALE, KEY DESIGN ELEMENTS AND SUSTAINABILITY

3.1 Link with the Country Strategy Paper, Country Readiness Assessment and Analytical

Works Underpinning

3.1.1 The proposed operation is aligned with the country’s national development priorities

and the Bank’s Tanzania Country Strategy Paper 2016-2020. It is aligned with the Tanzania

Development Vision 2025 which aspires to transform the country to middle income status and a semi-

industrialized economy by 2025. The operation is also in line with the Government’s medium term

development agenda (FYDP II: 2016/17-2020/21) aimed at “Nurturing Industrialization for

Economic Transformation and Human Development”. Key strategic priorities of FYDP II are: (i)

growth and industrialization; (ii) human development and social transformation; (iii) business

environment strengthening; and (iv) plan implementation effectiveness and efficiency. The program

responds to Country Strategy Paper focus on supporting the Government’s strategies to transform the

economy towards inclusive and green growth, through two pillars: (i) Infrastructure development;

and (ii) Strengthening governance and accountability. Both pillars lend themselves to promoting

private sector development, as envisaged under the proposed operation. This operation is consistent

with the objectives of Pillar II, which aims at supporting (a) Improved financial management and

value for money in public spending; and (b) Improved enabling environment for private sector

investment. The proposed program is also aligned with two of the five operational priorities of the

Bank Group’s Ten-Year Strategy (Private Sector Development, and Governance and Accountability),

and the core priorities of the Governance Strategic Framework and Action Plan5. It is also consistent

with two of the Bank’s High 5s: “Industrialize Africa” and “Improve the quality of life of the people

of Africa”, as well as with the Private Sector Development Strategy.

3.1.2 The proposed operation will support pillar II of the CSP, Strengthening Governance

and Accountability which are critical for private sector development. Through improvements to

the institutional, legal and regulatory framework for business operations in Tanzania, the proposed

operation will contribute to addressing identified weaknesses in the institutional and legal framework

for PPPs, as well as gaps in its operational capacity. Through the second and third components, the

operation will help improve audit functions, debt management and procurement systems, ultimately

contributing to fiscal stability, which is critical for improving the business environment and positively

transforming the investment climate.

3.1.3 Thus, the programme is justified on three grounds: (i) the currently inadequate Doing

Business environment in Tanzania, as highlighted in the DB 2017 report, remains a major

constraint to private sector competitiveness and the economy’s capacity to generate inclusive

growth. Addressing the challenges faced by the private sector is therefore critical to improving

competitiveness and creating an enabling environment for business; (ii) by supporting reforms to

improve budget credibility, the proposed operation will contribute to efficiency in the use of scarce

public resources while at the same time creating fiscal space for Government investments in other

priority areas, such as education and health (refer to technical annex 2), to improve, as per High 5,

the quality of life of the people; and (iii) the operation will create significant opportunity for policy

dialogue with GOT and Development Partners, on governance reforms, private sector issues and PFM

reforms, and provide valuable lessons for similar interventions in other RMCs. As business

environment and private sector development reforms become increasingly important in RMCs,

success of the Bank’s contribution in Tanzania could be replicated elsewhere.

3.1.4 Country Readiness Assessment and Compliance with Bank Group Safeguards Policy:

Tanzania meets the eligibility criteria for General Budget Support in line with the Bank Group Policy

5 Governance Strategic Framework and Action Plan II for 2014-2018 identifies three operational priorities, namely (a)

public sector and economic management, (b) sector governance with emphasis to infrastructure and natural resource

management, and (c) investment and business climate.

8

on Programme-Based Operations. The country has demonstrated strong commitment to poverty

reduction, reform and inclusive growth. Vision 2025 targets economic transformation and

development to achieve Middle Income status, and policies and strategies have been formulated to

achieve inclusive growth. Notwithstanding mixed results in recent economic performance6,

macroeconomic stability prevails and the medium-term macro-economic and financial framework is

viable. The overall conclusion of the assessment of the country’s PFM System is that the system is

reasonably adequate to support the proposed GBS operation. Recent PEFA Assessments show that

the PFM system has been improving. The residual fiduciary risk is moderate, with the overall

trajectory positive since 2010. Tanzania is one of the most stable countries in Africa, with a good

record of political pluralism with elections held every five years. The dialogue between development

partners and the Government, which became strained in the past few years, was mainly fueled by

differences in respective expectations from development cooperation. Through a consultative process

completed in April 2017, recommendations for improving development cooperation were made

around three major issues: (i) establishing effective dialogue; (ii) capacity development and

institution building; and (iii) alternative ways of financing development7. As follow-up to these

findings and recommendations, a new Development Cooperation Framework (DCF) was finalized in

July 2017, outlining the objectives and principles of the development partnerships to be implemented

from 2017/2018 to 2024/2025. In light of these developments, dialogue between the Government and

Development Partners has gradually resumed since the beginning of 2018, starting with a strategic

dialogue session in Dodoma in February 2018. Appendix 2 provides an assessment of the eligibility

criteria for PBO.

3.1.5 Analytical Works Underpinnings. The design of the programme has been guided by various

reports and analytical works including: (a) the 2013 General Budget Support Independent Evaluation;

(b) the Bank’s Independent Development Evaluation (IDEV) Country Strategy and Program

Evaluation; (c) the CSP 2011-15 Completion Report; (d) PEFA (2017); (e) the Development

Cooperation Framework (DCF) July 2017; (f) the PFM Reform Program V and (g) the IDEV Energy

Cluster Evaluation- Tanzania Country Report (March 2018) and (h) the GOT Blueprint for

Regulatory Reform to Improve the Business Environment. While the conclusions and

recommendations of these reports are many and varied, some of the pertinent ones have been taken

on board in designing operation. These include the need to: (i) create an enabling environment for

private sector participation in the economy, particularly in infrastructure; (ii) strengthen procurement

systems to guarantee value for money; and (iii) strengthen budget credibility and reduce fiscal risks

posed by the parastatals’ subsidies and GOT guarantees.

3.2 Meeting the PBO Eligibility Criteria

3.2.1 Tanzania meets the Bank’s Eligibility Criteria for Program Based Operations. In respect of

the criterion requiring Government commitment to poverty reduction and inclusive growth, the

country has a long-term development programme in the FYDP with ambitions to create an enabling

environment for private sector development, sustainable economic growth and employment creation

to reduce poverty. Regarding the political stability criterion, the country continues to enjoy relative

political stability (see para: 2.1.1), in a context of active multi-party politics in which political parties

are committed to expressing their views in the conduct of national affairs.

6 The IMF’s 7th review of Tanzania’s PSI notes the economic program supported by the 2014–18 PSI has been marked

by relatively strong macroeconomic performance, but uneven implementation of

structural reforms 7 Kaberuka Commission: Uongozi Institute, April 2017, “Development Cooperation for an Emerging Tanzania:

Findings, Recommendations and the Road Ahead”. Final Report of the Independent Facilitation Team.

9

3.2.2 Regarding macro-economic stability, the country has enjoyed strong GDP growth in recent

years, with appropriate measures under implementation in its IMF programme to ensure continued

macro-economic stability. Regarding fiduciary risk, the Bank’s 2017 FRA for Tanzania rates the

overall risk as moderate, while also identifying strengths as well as areas for improvement (see para:

5.1.2). Regarding the harmonisation criterion, there is strong DPs’ presence and satisfactory

development assistance harmonization and coordination in Tanzania, notwithstanding the expressed

need, in recent years, for more GOT/DP efforts to re-establish an effective structure for policy

dialogue. The details of how Tanzania meets the PBO eligibility criteria are in Appendix II.

3.3 Collaboration and Co-ordination with Other Development Partners

3.3.1 Tanzania receives budget support from three multilateral DPs (AfDB, the EU and the World

Bank). Eight bilateral DPs (Canada, Finland, Germany, Ireland, Japan, Norway, Switzerland and the

United Kingdom) moved out of providing Budget support after the Partnership Framework

Memorandum for Provision of Budget Support expired in June 2015. Sweden and Denmark have

provided budget support since 2017, focusing, like the EU, on economic and fiscal governance. The

country has a well-established structure for dialogue, which consists of four clusters, more than 20

thematic working groups and 7 sector working groups. The Bank is active in all relevant sectors and

thematic areas, including energy, public financial management and GBS. The Bank co-chaired the

energy sector donor group in 2013 and is currently co-chairing the transport sector group, as well as

the poverty monitoring group- since 2013. The World Bank is providing, for 2017/18 and 2018/19, a

two-year Development Policy Operation (DPO) for USD 300 million, focusing on Growth and

Service Delivery. The AfDB budget support operation team coordinated closely with the World Bank

in order to develop synergies between the two operations, including close harmonisation of the

respective Policy Matrices. In addition, the team held extensive discussions with the EU who has

since 2017 been implementing a Euro 200 million 4-year budget support operation focusing on budget

reform, public finance management, macroeconomic stability, and economic governance and tax

reforms. While regular consultations with all DPs will be the norm, the Bank will also continue to

pay particular attention to coordinating with these two budget support DPs throughout the

implementation of this proposed operation.

3.3.2 Indeed, the proposed operation was prepared in collaboration with these budget support

partners, and in consultations with other DPs whose ongoing projects and programmes are supportive

of good governance and private sector development; particularly the multi-donor PFMPV program.

Important inputs were received from a broad range of national stakeholders, and extensive DP

consultations were held during Appraisal, and partners’ views and perspectives taken into account in

finalising this Appraisal Report. In addition, a colleague at the EU offices in Dar es Salam acted as

one of the peer reviewers of this Appraisal Report. Key stakeholders, such as the private sector and

civil society, were adequately consulted during the appraisal mission and stakeholder workshop.

There is good collaboration among DPs in Tanzania, but there is room for improvement of the aid

coordination mechanism which became strained in recent years. (see para: 3.1.4) The dialogue has

improved and is undergoing some changes following the finalization of a new Development

Cooperation Framework in 2017. In this connection, there has been broad dialogue, national

consultations in preparing the Roadmap Blueprint for improving the Business Environment for

private sector development, with active involvement of the Tanzania Business Council8.

3.4 Outcome of Past and On-going Similar Operations and Lessons

3.4.1 Lessons have been learned from past and ongoing similar operations: The Bank has

implemented several GBS and institutional support operations in Tanzania in recent years.

These include the Governance and Economic Competitiveness Support Programme (GECSP 2011-

2013), the Power Sector Reform and Governance Support Program (PSRGSP) (2015-2017); the

8 The Tanzania National Business Council (TNBN) was set up in 2001 as an institution providing forum for public and

private sector dialogue for change.

10

Institutional Support Project for Good Governance phases II & III (2010-14 and 2016-19) and the

Institutional Support Project for Domestic Resource Mobilization. These programs supported reforms

aimed at (i) improving economic and financial governance through strengthening accountability,

transparency and the oversight of public resources utilisation; improve domestic resource

mobilisation; and ii) improving the business enabling environment in order to accelerate Private

Sector Development. These programs are relevant for consolidating the gains registered under

previous Bank GBS and ISP operations in the country, and assisting GOT address pressing fiscal

challenges at the time. Key lessons learnt from the previous PBO, and how they are incorporated into

the design of this operation, are the following: The first lesson learnt from the previous PBOs is that

effective, success program implementation requires close coordination and parallel support by other

DPs (especially World Bank and IMF). This was particularly evident in the PSRGSP, where the

implementation of the challenging reforms in the energy sector called for a coordinated approach.

The second lesson learnt was that continuous dialogue with GOT, in a context of commitment to

implementing reforms, was critical for implementing difficult reforms, such as the successful tariff

reforms under GECSP and first-phase PSRGSP. The third lesson learnt is that complementary ISPs

can enhance the effectiveness and successful implementation of budget support operations.

3.5 Relationship to On-going Bank Operations

3.5.1 The proposed GGPSDP operation will complement the Bank’s past and ongoing

operations, particularly those in the area of private sector development and PFM (Institutional

Support Project for Good Governance phase III; the Institutional Support Project for Domestic

Resources Mobilization and Natural Resources Governance (ISP DRMN); and the Power Sector

Reform and Governance Support Programme (PSRGSP). Under the PSRGSP, for example, the Bank

supported PFM reforms resulting in the ongoing progress in increasing the level of compliance of

procuring entities with the Procurement Act. This operation would support further reforms to deepen

procurement compliance through the operationalization of MIS e-procurement system, which is

expected to enhance quality and transparency of the procurement process, and also increase the level

of participation of the private sector including emerging domestic enterprises. The operation would

also complement the ongoing capacity development and reforms in audit oversight functions being

supported by the ISPGG III and ISP DRMN as well as support capacity development for oil and gas

audits within the Internal Audit agency. The operation would also continue to pursue the unfinished

business, from PSRGSP, of needed reforms aimed at the creation of a fully-fledged functioning Debt

Management Office at the Ministry of Finance.

3.6 Bank’s Comparative Advantages and Added Value

3.6.1 The Bank has vast experience in engaging with, and supporting African countries, in areas

such as infrastructure development, public finance management and private sector development. The

proposed operation will focus on supporting good governance, private sector development reforms

and improving PFM. The Bank can leverage its unique position, as a reliable and trusted partner of

choice, to engage in dialogue and help influence the implementation of difficult reforms. Consistent

with its operational priorities, the Bank has an important role in the provision of predictable resources

to support implementation of government development programs. The Bank has supported reforms

in Tanzania and other RMCs, and the experience gained from these operations puts the Bank in a

strong position to effectively design and manage the operation, with the Tanzania Country Office

(COTZ) playing a critical and active role in the GOT/DPs policy dialogue process. In addition,

implementation of the proposed program will be supported by the complementary technical assistance

ongoing Institutional Support Project for Good Governance III and the Institutional Support Project

for Domestic Resources Mobilization and Natural Resource Governance.

3.7 Application of Good Practice Principles on Conditionality

3.7.1 The programme design incorporated good practice principles on conditionality. This is

done through: (a) aligning the programme policy matrix with the Blueprint for Regulatory Reforms

11

to Improve the Business Environment and the PFM reform programme; and (b) selecting only a

limited number of critically important robust prior actions and other reforms that are key for achieving

results, as conditions for disbursement. In addition, the Bank is processing this operation, in line with

the need to improve alignment with the country’s budget cycle in order to respond to GOT’s financing

needs in a timely manner collaboration with other DPs supporting the reforms.

3.7.2 Application of Bank Group Policy on Concessional Borrowing: Tanzania is eligible to

borrow from the ADF concessional window and its risk of debt distress remains low. The operation

supports GOT’s plans to mobilize, to the extent possible, concessional resources for its development

needs, including addressing the challenges of business environment and private sector development,

which are critical for competitiveness and inclusive growth. The operation provides fiscal space for

more GOT spending in sectors critical to Tanzania’s development.

IV. THE PROPOSED PROGRAMME

4.1 Programme Goal and Objective

4.1.1 Programme’s Rationale, Goal and Purpose. The Government of Tanzania has made

significant progress in efforts to attain its development objectives. It has remained committed to these

objectives, with the support of development partners. The country has recorded consistently high rates

of economic growth, but sustainability of this growth will largely depend on success in attracting

private investments, improving competitiveness and implementing PFM reforms, among other

measures. The government’s medium term goal, under the FYDP II, is to transform Tanzania into a

strong and competitive economy, underpinned by industrialization that will improve the lives of the

people and reduce poverty. A key focus of this goal is improving governance and the private sector’s

competitiveness in order to reduce poverty and improve livelihoods.

4.1.2 The purpose of the proposed operation is to support ongoing reforms towards creating an

enabling environment for the private sector to grow. Thus the Government has embarked upon an

ambitious program to promote investments, while addressing constraints affecting the business

regulatory regime and service delivery. Engagement with the private sector is integral to GOT’s goal

of achieving an industrialized economy. In addition, mobilization of resources through Public-Private

Partnerships (PPPs) would augment the limited public financial resources9. The operation would also

support efforts to improve the credibility of the budget, in order to ensure macroeconomic stability

while providing a conducive operating environment for the private sector. It would also support the

ongoing reforms aimed at fiscal consolidation, thereby establishing a foundation for inclusive and

resilient private-sector led economic growth. The proposed operation will also support ongoing

reforms to improve public sector oversight, accountability, transparency and institutional capacity to

efficiently and effectively manage public resources. It will build on progress already recorded through

earlier and ongoing Bank support in this area. Particular emphasis is placed on three key areas of

PFM, namely (a) improvements to procurement systems; (b) budget credibility in order to sustain

macroeconomic stability; and (c) the institutional capacity to ensure that potential PPP projects are

rigorously appraised for viability, value for money and the associated fiscal risks monitored and

mitigated.

4.2 Programme Components, Operational Objectives and Expected Results

4.2.1 Operational Objectives: The overarching development objective is to promote Tanzania’s

transition towards inclusive and resilient private sector-led economic growth, supported by improved

economic and financial governance. The proposed program will, in this connection, support

implementation of Tanzania’s Blueprint for Regulatory Reforms to Improve the Business

Environment slated for Cabinet approval and dissemination (Prior Action), as well as targeted PFM

reforms that are critical for creating a stable macroeconomic environment for private sector led

9 The Private sector is expected to contribute investments of $18 billion or 36% of the total implementation cost to

support the implementation of the FYDP II 2016/17-2020/21.

12

growth. More specifically, the key areas of reform supported by the proposed program are as follows:

: (a) Improving the business environment for private sector development; (b) improving public

financial management, with focus on enhancement of budget credibility in order to sustain

macroeconomic stability; and (c) improving oversight functions, with particular emphasis on

strengthening procurement systems and audit services.

Component 1: Improving the Enabling Environment for Private Sector Development

4.2.2 Challenges and Constraints and Recent Government Actions

The challenges and constraints in the private sector business environment in Tanzania have been

identified and well documented by various reports. These challenges and constraints include (i) the

prevalence of high initial compliance financial costs and charges incurred by business operators, and

lengthy, time-consuming requirements for starting and operating the business; (ii) related

cumbersome pre-approval procedures, which create multiple rent-seeking opportunities that often

drive away potential investors; (iii) the presence of a multiplicity and duplicity of processes for

business registration; (iv) business unfriendly detrimental loopholes (which generate lack of

transparency) in some of the laws and regulations that are applied by regulators during the conduct

of inspections; and (v) prevalence of high cost in enforcing implementation of regulations at both

central and local levels.

4.2.3 To address these challenges and constraints, GoT has embarked upon an aggressive and

comprehensive reform plan through the recently developed and launched "Tanzania Blueprint for

Regulatory Reforms to Improve the Business Environment". These reforms aim at enhancing the

efficiency, effectiveness, transparency and predictability of the regulatory environment in order to

reduce unnecessary and preventable burden on businesses. The “Blue print” thus outlines a

comprehensive review of key challenges and constraints affecting the business environment and

proposes Government actions to address them. It is an ambitious Roadmap focusing on: business

registration and licensing reforms; tax reforms; regulatory reforms; and financial sector reforms. The

reform program identifies nine “quick wins” and highlights a plethora of well over 380 licenses and

permits in operation and makes recommendations on their applicability. Hence, the program aims at

rationalising the multiplicity of regulatory authorities, and duplication of regulations, which, in some

cases, lead to multiple licensing and permits, and multiple charges and penalties.

4.2.4 Harmonization of various fees, levies and processes: The multiplicity of taxes, as well as

the cumbersome processes for their payment, have been identified as key challenges hindering the

development of an enabling business environment for attracting investment in key sectors. With a

view to promoting agricultural production, government took action amending the Local

Government Finance Act, CAP 290 to significantly reduce the produce cess charged by Local

Government Authorities from 5% to 3 % for cash crops, and from 5% to 2% for food crops. The cess

on agricultural produce has been a significant charge on the gross value of produce, and has been

identified as resulting in high tax on the net revenue of farmers (who have small net margins), thereby

adversely affecting the incomes of smallholder producers. Thus, these downward cess revisions are

expected to promote smallholder agricultural production. In addition, the Government has taken

significant action in the 2017/18 Finance Bill to eliminate a number of permits, licences and fees to

stimulate agricultural production: 11 fees in the tobacco sector, and 17 fees in the coffee sector have

been eliminated. Furthermore, as part of measures to improve the business enabling environment, the

Government is committed to improving service delivery regarding the process for paying taxes. GOT

will also improve its administrative processes and reduce the time to register a company from 3 days

to one day (Prior Action), as envisaged in operationalising the Business Registration and Licensing

Agency (BRELA).

4.2.5 Strengthening the institutional framework for PPPs: Lack of adequate infrastructure,

especially energy and water supply, ports, aviation facilities and transport network, have been

identified as key challenges and constraints to private sector development. Government has taken

13

action to prepare sound infrastructure development masterplans and implementable programs in these

and other sectors.10 However, implementation of these ambitious programs and masterplans has been

constrained by lack of financing. The Government has, therefore, identified Public Private

Partnerships (PPPs) as a key instrument to attract new investments and deliver infrastructure more

efficiently. The FYDP II 2016/17-2020/21 envisages private investments of around $18 billion, or

36% of the total implementation cost, to close estimates of financial gap of these programs. In order

to facilitate realization of such investments, a Public-Private Partnership (PPP) policy, approved in

2009, was followed by enactment of the related Act in 2010 and passage of supporting Regulations

in 2011. Amendments to the Act were passed in 2014. Since then, GOT has implemented several

actions to strengthen the PPP framework as the main vehicle for attracting investments in public

infrastructure. These recent Government actions include the creation of a Finance Unit at MoFP to

assess, manage and monitor fiscal risks of PPPs, assess affordability of projects, appraise value for

money from PPPs and recommend appropriate projects for approval. However, after

operationalization of the PPP framework, several challenges have now been identified as limiting the

full application of the law. These challenges include (i) need for clarification of the role of the

Minister of Finance and Planning in approving PPP projects; (ii) the effective management of fiscal

risks; (iii) the modalities for provision of guarantees for financing PPP projects and (iv) the facilitation

of engagement of Local Government Authorities in small-scale PPPs11. Hence GOT will approve

Amendments to the PPP Act (Prior Action) to address these challenges and weaknesses in the

institutional and legal framework for PPPs, and in order to strengthen its operational capacity.

4.2.6 Programme Activities:

The proposed program will support measures towards (a) the adoption, and dissemination, of the

Blueprint for Regulatory Reforms to Improve the Business Enabling Environment; (b) improving

private sector competitiveness through reduction in regulatory and administrative costs and

procedures for registering a business; (c) amending tax laws to enable the rationalization of VAT

treatment with a view to promoting domestic industries, especially in the High-5-priority agricultural

sector (phase 2 Trigger); (d) improving the public-private interface for service delivery, and

financing of infrastructure investments. The proposed program will also support the rollout of the

Government Electronic Payment Gateway system (GEPG), aimed at facilitating, not only revenue

collection challenges, but also reduction of the time and processes of payment of fees across the

various Government agencies and institutions. The GEPG will enable the Government capture actual

revenue collected from different sources in real time, and simplify processes for payment of taxes,

levies and various fees as well as contain revenue leakages. It will promote the effective use of

electronic devices and systems in revenue collection.

4.2.7 Expected Results

The effective implementation of these business enabling environment reforms is expected to

rationalize processes, and address identified challenges and constraints, negatively impacting private

sector organizations, including small-holder farmers, SMEs and large-scale businesses; significantly

reducing the time, cost and processes involved in opening and operating businesses in Tanzania.

These reforms have been identified as crucial prerequisites for the participation of local and foreign

investors in the different sectors of the economy, in order to accelerate and sustain Tanzania’s

envisaged industrial transformation.

10 Sector Investment Programme, Tanzania Ports Master Plan (2008 – 2028), Civil Aviation Master Plan; and Tanzania

Power Sector Master Plan (2006-2031). 11 The Bank, in 2012, supported the development of the PPPs framework in Tanzania, promoting developing PPP

manuals; operationalisation of the PPP Unit within MoFP, and supported measures aimed at streamlining institutional

arrangements for PPPs including development of model PPAs for oil and gasunder the GECSP and PSRGSP operations.

14

Component 2: Supporting reforms to improve budget credibility

4.2.8 Challenges and Constraints and Recent Government Actions:

Despite Tanzania’s high and steady economic growth in recent years, some vulnerabilities have been

identified which pose challenges and constraints to ensuring that strong growth translates into

commensurate reduction in poverty, and provide a conducive environment for private sector

development. The FYDP II identifies emerging potential risks to economic growth in periods of

instability in inflation, missed targets in domestic revenue collections, rising national debt, and

volatilities in public expenditure and the resultant budget deficits. In order to address these challenges

and constraints, public financial management programs are being implemented aimed at

strengthening accountability systems and institutions responsible for the management of fiscal policy.

4.2.9 Arrears Clearance Strategy: There are challenges and constraints arising from Government

accumulation of expenditure arrears (for supplies, utilities, office rent, construction works and staff

related cost) estimated at over 12% of original budgeted expenditure as at the end of June 2017. The

high and persistent expenditure arrears have had negative socio-economic effects, including

dampening prospects for growth, increasing non-performing loans, liquidity problems for businesses

resulting from unanticipated borrowings to meet cash needs, and increases in cost of supplies to

government. The accumulation of arrears has occurred despite a concerted effort, since 2013/14, to

verify and repay such expenditure arrears through additional budget allocations. In order to improve

the situation, reduce expenditure arrears to a more sustainable level and improve budget credibility

as well as the predictability of resource flows, the Government has recently taken action and prepared

a draft Strategy for clearance and improved management of expenditure arrears and prevention of

accumulation of new arrears (Prior Action).

4.2.10 Operationalization of the Debt Management Department: GoT’s significant borrowings

for public investment, over the coming years, in order to address urgent infrastructure deficiencies in

key sectors such as transport, energy and water, while also needing to ensure prudent management of

these borrowings. For now, the size of the public debt continues to be manageable, but the envisaged

scaling-up of borrowing, including commercial borrowing and the associated contingent liabilities,

calls for Government to maintain a cautious and prudent stance in debt management, having regard

to the possible fiscal impacts and debt sustainability. The country’s debt management capacity needs

to be strengthened to ensure that borrowing is prudent and debt recording, monitoring, payments and

repayments are done in a timely manner. Hence, GOT will establish and operationalize a full-fledged

Debt Management Department (a second phase Trigger) to address the current fragmentation of front,

middle and back office debt units. The units currently work in a disjointed manner across various

agencies and sections in MoFP- (ACGEN, the policy division and external finance division). This

sub-optimal situation has led to challenges of inadequate management of loans under on-lending

contracts arrangements, as well as challenges in recording and reporting Public Debt. The Bank had

pursued strengthening Tanzania’s debt management capacity through the PSRGSP (in consultations

with the IMF), by supporting debt management related issues and revision of the GOT Loans,

Guarantees and Grants Act. This proposed operation would continue to support debt management

through creating a Debt Management Department in the Ministry of Finance. Creation of this

Department was, in fact, a Prior Action actually achieved under PSRGSP, but GoT reversed this

action in the course of undertaking a review of the MoFP organogram. GOT is now committed, again,

to setting up this department as part of the ongoing restructuring of the ministry. This augurs well for

sound debt management, which has been a recurring area of Bank dialogue with the IMF and the

Tanzania authorities.

4.2.11 Budget Credibility, Transparency and Reporting; Tanzania continues to face challenges

in budget credibility, public access to Government fiscal and budgetary strategy and performance on

budget. The related documents are published with delay and not made publicly available. Hence, the

15

2017 PEFA rates the fiscal transparency dimension at D because only 3 of the 5 elements12 of reports

were made available to the public on timely bases. In addition, Tanzania’s performance score on the

open budget survey, which had improved over the years from 36 in 2008 to 46 in 2015, declined

significantly to 10 in 2017 mainly due to the non-publication of budget information online. The

proposed operation will support t improvement of the public’s access to budget information in order

to enhance their effective understanding of the budget and empower them to contribute to debates on

the use of public funds.

4.2.12 There are also challenges and constraints with the two budget systems, Strategic Budget

Allocation System (SBAS) and Active Planner Applications, being used for preparation of the

government budget. The key challenge with the two systems is reconciliation of information with

each other and with EPICOR. In order to improve the process, GoT will introduce a Central Budgeting

Management System (CBMS) designed as a centralized budgeting tool to manage the budget process

from setting of budgets prior to commencement of the budget cycle, to managing expenditure as

actuals replace budget values (Prior Action). The CBMS will have inbuilt processes that allows

setting of strategic plans, targets and activities, and setting of ceilings. It will allow Ministries,

Departments and Regional Secretariats (Regions) to budget within their funding limits and in

accordance with strategic plans. In addition, linking the CBMS to EPICOR would facilitate tracking

budget execution on a computerized system developed with the same software used for the treasury

and accounting modules, consistent with the requirements of the Budget Manual. This would enable

the CBMS to be used as reporting and analytical tool, and would improve the comprehensiveness of

the budget reports as well as assist in the publication of end-year and in-year budget implementation

reports. This would improve on PEFA PI-22, “Timeliness and regularity of accounts reconciliation”,

where Tanzania has a poor score of “D.” The CBMS has capacity to capture project budgets.

However, this would require improving the accounting procedure manual by making it more elaborate

on projects activities and training of end users.

4.2.13 In the area of public investments, GOT faces the challenge of improving investment

planning and strengthening the linkage between budget planning and execution: The Planning

Commission, which in 2015/16 was brought into the Ministry of Finance to form MoFP, has

responsibility for the overall management of public investment. The Public Investment Management

Operational Manual (PIM-OM) was published in February 2015, to provide a coherent and clear

framework for the management of public investments. However, according to the 2017 PEFA report,

the national PIM procedures remained somewhat ‘ad hoc’ and the weaknesses, which the PIM-OM

was explicitly designed to address, have persisted. Strengthening the deployment of the PIM is

essential to enhancing efficiency in the use of public investment resources, especially as the FYDP II

envisages implementing several flagship economic transformational projects that have a significant

impact on the budget. Hence, GOT is committed to ensuring that critically important national projects

selected for financing in the 2018/19 budget will be in line with criteria and guidelines set in the PIM-

OM (Prior Action).

4.2.14 Programme Activities: The program will support Government efforts to improve public

financial management with a focus on enhancing budget credibility in order to enhance efficiency in

the use of scarce public resources and sustain macroeconomic stability. Ongoing reform measures to

be supported by the programme include: (a) the approval of an Arrears Strategy and its

operationalization; (b) adoption of a Central Budget Management System to improve budget

execution reporting; (c) improved public investment planning and (d) strengthening the linkage

between budget planning and execution

12 The unaudited financial statements of the Central Government, in line with regulations, are not made available to the

general public and in 2015/16 Quarterly Budget Execution reports were not published and made available to the public

within the year. 2017 PEFA

16

4.2.15 Expected Results: The effective implementation of the reforms will positively impact on the

efficiency and effectiveness of Tanzania’s PFM reform program. It would also support the outcomes

expected in the PFMRP Phase V 2017/2018-2021/2022, which aims at strengthening the legal,

policies, systems and institutional capacity. The reforms would also address the challenge of ensuring

that the PFM promotes allocation of resources in line with strategic priorities, facilitate efficient

service delivery, and contribute to improving public access to budget information, enabling the people

contribute to debates on the use of public funds.

Component 3: Strengthening Governance oversight Functions:

4.2.16 Challenges and Constraints and Recent Government Actions:

Tanzania, over the years, has implemented comprehensive PFM reforms aimed at

strengthening its Public Financial Management systems, including the ongoing PFMRP V. The

reforms have led to the internal audit function being institutionalized at all levels of the government,

MDAs, RSs and LGAs. A strong legal and regulatory framework has been developed for public

procurement. These gains notwithstanding, public sector accountability, transparency and

institutional capacity to manage public resources and services remain key challenges. In addition,

other challenges still exist in the important areas of improving the level of compliance with internal

audit recommendations (Prior Action), improving performance and impact of external audit and

improving efficiency and value for money in public procurement. These are critically important areas

where government actions and reform measures are required to improve the utilization and

management of public funds.

4.2.17 The piloting and use of the e-procurement system, supported under PSRGSP, embodies the

streamlining of the procurement processes legislated in the Public Procurement Act 2011 and its

Amendments Act of 2016, and the associated regulations of 2013 and 2016. Despite these gains,

procurement transactions need further improvement to address delays and the reduction of

administrative costs for procurement which are still relatively high, and monitoring is both inaccurate

and time consuming. GOT will, therefore, operationalize a new e-procurement system (Prior Action)

to improve access to information raise transparency in public sector procurement; facilitate

enforcement of standards and rules, thereby resulting in a reduction of the procurement time. The

new e-procurement system will also improve controls in procurement process, resulting in higher

levels of compliance and reduced corrupt practices, as well as improved competition arising from

access to information. These will all lead to improvements in the quality of service and enhance value-

for-money in government spending, as well as improve the quality of audits. In addition, the proposed

operation will support the development of guidelines for procurements in PPPs. This is expected to

assist in the important area of developing an internal audit guidelines for the emergent oil and gas

sector, where there is significant potential for domestic resource mobilization to finance

transformational projects in line with Tanzania’s industrialization ambitions. The strategy will

improve the PPRA’s capacity to monitor PPP transactions and raise transparency in procurements of

PPP projects. This action is a follow up on the reforms aimed at strengthening the institutional

framework for PPPs (refer to paragraph 4.2.2)

4.2.18 The National Audit Office (NAO) is currently implementing a five- year strategic plan aimed

at addressing capacity needs in order to promote accountability and transparency in the collection and

use of public funds. As part of the reform process, NAO intends to amend the Public Audit Act of

2008 amended in 2011 to address shortfall raised by the Independent Quality Assurance Review

(AFROSAI-E, 2014) with regards to compliance with the International Standards of Supreme Audit

Institutions (ISSAIs). The improvement will cover the scope, quality of audit and independence of

the NAO. In addition, the proposed operation will support the objective of having a Quality Assurance

Audit Manual for quality control for audits and review of financial statements, and other quality

assurance and related services as per requirements of the International Standards on Quality Control.

The Manual will provide guidance to auditors on quality control procedures for specific types of

engagements, thereby enabling NAO strengthen its oversight function.

17

4.2.19 As alluded to in para: 4.2.15, Tanzania recently became a new regional hotspot in hydrocarbon

exploration, following the discovery of natural gas both onshore and deep sea in the Indian Ocean.

The discoveries make Tanzania a potential global player/producer in the natural gas sector. Given the

growing importance of the Mining, Oil and Gas Sector, reforms are being implemented to improve

the country’s capacity to develop the natural resources sector. Hence, the Bank through the ongoing

Institutional Support Project for Domestic Resource Mobilization and Natural Resources

Governance, is supporting reforms aimed at (i) Enhancing the legal and institutional framework; (ii)

Strengthening the negotiations capacity; (iii) developing a Local Content Policy in the mining and

gas sectors and (iv) supporting the gas domestication strategy. This proposed operation will

complement and enhance the ongoing work in the project.

4.2.20 Programme Activities:

The proposed program will support a number of key policy measures to improve the oversight

functions in procurement as well as internal and external audit. Specifically, the proposed operation

will support: (a) improving procurement planning and streamlining procurement process; (b)

amendments to the Public Audit Act, in order to improve efficiency and coverage of audits; and (c)

strengthening Internal Audit’s capacity to audit new emerging areas in risk management and oil and

gas. Supporting these reforms will build on the achievements of the recently completed PSRGSP II

and III, as well as complement the ongoing activities under Institutional Support Project for Domestic

Resource Mobilization and Natural Resources Governance and the Institutional Support Project for

Good Governance (ISPGG III).

4.2.21 Expected Results:

Implementation of the reforms will support the ongoing activities under PRFMRP V and assist in

further strengthening PFM practices in general through the establishment of strong internal audit and

procurement functions, and support the institutionalization of internal audit functions in MDAs,

Regional Secretariats, and Local Government Authorities (LGAs). The reforms will also help

enhance the capacity of National Audit Office to perform its functions by enhancing its independence.

4.3 Financing Needs and Arrangements

4.3.1 The resources of the proposed GGPSDP will

contribute to meeting GOT’s external financing

requirements. The table below presents budget estimates

of GOT’s financing needs for 2017/18 and 2018/19 – the

two fiscal years covered by the operation. Total revenues

are projected at TSh. 23,590 billion in 2018/19,

representing an increase of 12.5%. Total expenditure is

projected to growth to about TSh. 29,441billion (28%

increase), and TSh. 31,515 billion (10% increase)

respectively in the same period. This is largely driven by

the heavy investments by GOT to finance public

infrastructure – particularly in energy and transport, within

the framework of the Five Year Development Plan (FYDP

2016/17 – 2020/21). GOT’s continued focus on

infrastructure is meant to address the existing

infrastructure gaps, which constitute a major constraint to private sector development. These

projected revenue and expenditure performance will result in budget deficits amounting to TSh.

4,811billion, and TSh. 5,851 billion in 2017/18 and 2018/19, respectively. This puts the financing

needs during the 2018/19 fiscal year at TSh. 5,851 billion, and the cumulative financing needs for

2017/18 and 2018/19 at TSh. 10,662 billion. The Government of Tanzania intends to finance TSh.

1,453 billion (for 2017/18) and TSh. 792 billion (for the two year period 2017/18 – 2018/19) through

18

programme loans. The proposed GGPSDP loan of UA 40 million is the first in the programmatic

series.

4.4 Beneficiaries of the Programme

4.4.1 The direct beneficiaries of the proposed operation will include the Ministry of Industry, Trade

and Investment, the Ministries of Finance and Planning (Mainland and Zanzibar) (Fiscal Unit,

Budget Unit, and Public-Private Partnership Division), Tanzania Revenue Authority and the Public

Procurement Regulatory Authority. Indirect beneficiaries are the citizens of Tanzania, who will

benefit from the implementation of reforms to enhance competitiveness and private sector

participation in the economy.

4.5 Impact on Gender, the Poor and Vulnerable Groups

4.5.1 The implementation of the programme reforms will help to improve the living conditions

of the poor and vulnerable group, and would lead to positive social as well as gender impacts.

Tanzania’s main development challenge has been to make economic growth more inclusive and

broad-based – involving the translation of the country’s macroeconomic progress into employment

generation, equal opportunities across age, geography and gender as elaborated in technical annex 2.

Tanzania’s private sector is dominated by many small enterprises, mostly in smallholder agriculture

and small informal non-farm businesses. The private sector employs an estimated 95% of the

workforce, with 65.6% of the workforce employed in the agriculture sector and over 86% in Micro,

Small and Medium Scale Enterprises (MSMEs) – including activities in agriculture. The 2014 Labour

Force Survey shows that 31% of women are employed in the non-agricultural sector compared to

37% for men. To this end, the essence of the private sector reforms, which are designed to enhance

competitiveness and private sector participation in the economy, will help to foster economic and

social inclusion. Implementations of the reforms are expected to benefit private sector organizations

including small holder farmers, SME, and large scale businesses.

4.6 Impact on Environment and Climate Change

4.6.1 The GGPSDP is classified under Category III, in line with the Bank’s procedures for

environmental and social impact assessments. The operation focuses on policy and institutional

reforms, with no adverse environmental or climate change impact. As elaborated in Technical Annex 3,

Tanzania supports a number of international agreements mainstreaming sustainable development

issues into government programmes. The country also supports the green economy initiative, which

includes a vision and focus on renewable energy, and increased involvement of the private sector in

renewable energy development. The Environmental Management Act (EMA) 2004 sets out the

Institutional Framework for Environmental Management in the country.

4.7 Impact on Governance, Economic Competitiveness and Private Sector Development

4.7.1 The proposed operation will contribute to improving overall good economic and

financial governance in Tanzania, and have a positive impact on Tanzania’s competitiveness

and private sector development. By strengthening the regulatory framework, the private sector will

have the required incentive to fully participate in the economy, particularly in the growth-enhancing

and transformational investment opportunities in agribusiness, tourism, natural gas, minerals,

financial services and housing and construction. Some of these sectors will attract PPPs, enabling

Tanzania raise the significant resources required for expensive infrastructure projects.

V. IMPLEMENTATION, MONITORING AND EVALUATION

5.1 Implementation Arrangements:

The overall responsibility for the implementation of the programme rests with MoFP,

in close collaboration with MITI. The operation is designed to assist strengthen policy dialogue on

19

governance, business enabling environment and private sector facilitation reforms and related public

finance management issues.

5.1.2 Fiduciary Environment: The conclusion of the Country Fiduciary Risk Assessment

(CFRA) is that the PFM system is reasonably adequate to support the proposed operation. The

overall residual risk is moderate, consistent with the PEFA 2017 that recognized improvements in

PFM systems under the Government’s ongoing PFM reforms. The updated CFRA concurs with the

PEFA 2017, which indicates strength in reporting on Central Government extra-–budget operations,

Fiscal Risk Reporting, Public Asset Management, Debt Management, Budget Preparation Process,

Legal Scrutiny of Budgets, Accounting for Revenue, Payroll Controls and Legislative Scrutiny of

Audit Reports. The CFRA also concurs with the weaknesses observed in budget credibility indicators,

budget documentations, public access to fiscal information, Public Investment Management, Fiscal

Strategy, Medium –Term Perspectives in Expenditure Budgeting, Predictability of in-year Resources

Allocation, Expenditure Arrears, Internal Controls on Non-Salary spending and in-year Budget

Reports. The Government is implementing the Five Year Medium-Term Strategic Plan of the Public

Finance Management Reform Programme (PFMRP) Phase V 2017/2018-2021/2022, aimed at

strengthening the legal, policies, systems and institutional capacity especially on issues raised by

PEFA and CAG Reports. The PFMRP V is supervised annually, with the Bank’s participation. The

PFMRP annual reports are shared with the Bank and used to monitor and report on progress in PFM

reforms. The full FRA report, including risk mitigating measures, is provided as Technical Annex.

5.1.3 Disbursement Arrangements: In line with the Bank’s PBO Policy, disbursement of the

loan amount of UA 40 million, for the proposed operation, will be subject to fulfilment of agreed

prior actions. A Streamlined Appraisal Report for the subsequent operation in the programmatic

series (for 2018/19), together with indicative triggers, will be presented to the Board for approval.

The usage of the funds will be in accordance with GOT procedures, subject to audit by CAG. The

proposed allocation of the resources in the programmatic series is justified on the following grounds:

(i) a number of important reforms have already been implemented by GOT, demonstrating

commitment to, and ownership of, the programme in a context of dialogue with DPs; (ii) additional

critically important programme measures will be implemented in 2017/18, and the two-year spread

responds to the need to contribute to GOT financing requirements during the period. The funds will

be deposited into the foreign currency account designated by the borrower and acceptable to the Bank,

at the Bank of Tanzania (BoT). The equivalent local currency will be transferred to the GOT

Consolidated Fund (CF) used to finance budgeted expenditure. MoFP will confirm to the Bank that

the amount deposited into the foreign currency account has been credited to the CF. In terms of

appropriate safeguards, the IMF November 2012 Safeguards Assessment concluded that BoT had

strengthened its governance and safeguard framework, with provisions for audit committee and a risk

management function. The Assessment also noted the importance of continued strong oversight (by

BoTs’ Board), of remaining non-core functions and compliance with statutory limits on credit to

GOT. Under this favourable environment, the management of the funds will be in accordance with

GOT rules and procedures on budgeting, reporting and auditing.

5.1.4 Financial Management, Audit and Reporting Requirements: In line with the Bank Policy

on PBOs, and the Paris, Accra and Busan declarations on aid effectiveness, the implementation,

monitoring, and evaluation of the Programme will follow the country’s systems, including audit

arrangements. The Bank will rely on the External Audit Report issued by the Supreme Audit

institution (Controller and Auditor General) – Immediately after statutory approval; the Bank will

receive a copy of the Central Government and Local Government.

5.1.5 Procurement: In line with the Bank Policy on PBOs, the procurement under this

programme will be undertaken using country systems. The programme will support and monitor

the implementation of key policy actions, under PFM, that would reduce fiduciary risks related to

procurement. These measures, supporting the strengthening of the procurement function, are

highlighted in paragraph 4.2.13.

20

5.2 Monitoring and Evaluation Arrangements: The PAF indicators agreed between GOT

and DPs will be used to monitor the operation The Bank will coordinate with DPs and Government

to review and monitor program implementation, based on the results-based framework and ongoing

discussions in the PFM and Private Sector Donor Group. In addition, areas of complementarity with

the World Bank operation would be jointly assessed. The Bank will conduct two monitoring and

supervision missions annually, to review implementation progress and agree actions, as necessary, to

address any identified challenges. GOT will provide the Bank quarterly progress reports on the

implementation of the programme, Upon completion of the second phase operation for 2018/19, a

Program Completion Report (PCR) will be prepared to evaluate progress against outputs and

outcomes in the Results-Based Logical Framework and draw lessons for the future.

VI. LEGAL DOCUMENTATION AND AUTHORITY

6.1 Legal Documentation

A Loan Agreement between the African Development Fund and the United Republic of Tanzania.

6.2 Conditions Associated with the Bank Group Intervention

6.2.1 Conditions Precedent to Entry into Force of the Loan Agreement. The entry into force of

the Loan Agreement shall be subject to the fulfilment by the Borrower of the provisions of Section

12.01 of the General Conditions Applicable to Loan Agreements of the Fund.

6.2.2 Prior Actions for 2017/18 and indicative triggers for the subsequent operation: Before

the Loan is presented to the Board for approval, GOT shall provide evidence (Appendix 4) to the

Bank that the following Prior Actions have been achieved.

6.2.3 A Streamlined Appraisal Report (SAR) will be prepared at the end of the first phase of

the programmatic operation (GGPSDP II in 2019) and presented to the Board for approval of

the second phase. The SAR will indicate, inter alia, any applicable prior actions adopted before

Board presentation and/or any conditions precedent to disbursement, in addition to the indicative

triggers provided in Appendix IV for the subsequent operation. A Loan Agreement shall be prepared

for each of the two phases of the GGPSDP.

6.2.4 Conditions Precedent to Disbursement of the funds for the First Phase of the GGPSDP

Programmatic Operation in 2018: Disbursement of the loan amount of UA 40 million shall be

subject to the entry into force of the Loan Agreement and the Borrower providing evidence of

fulfilment of the afore-mentioned Prior Actions (para: 6.2.2) in form and substance satisfactory to the

21

Bank; provision of a duly completed and signed disbursement request in accordance with the

Disbursement Letter; and details of the Bank account into which funds will be disbursed.

6.3 Compliance with Bank Group Policies

6.3.1 The GGPSDP complies with applicable Bank policies and guidelines, including (i) the

Policy and Guidelines on PBOs (2012 and 2013), (ii) the Bank Group TYS (2013-2022), (iii) the

GAP II 2014-2018, (iv) the Private Sector Development Strategy, (v) the Gender Strategy, and (vi)

the Revised Staff Guidance on Quality at Entry Criteria and Standards for Public Sector Operations.

VII. RISK MANAGEMENT

7.1 The risks and mitigation measures for this operation are presented in table 4 below and are

also summarized on the logical framework.

VIII. RECOMMENDATION

Management recommends that the Board of Directors approve an ADF loan not exceeding UA 40

million for the fiscal year 2017/18 to the United Republic of Tanzania for the purposes of, and subject

to, the conditions stipulated in this report. Management invites the Board to note that this operation

is the first part of a 2-year programmatic series, for a total amount of UA 80 million, covering the

fiscal years 2017/18 – 2018/19.

I

APPENDIX 1: Letter of Development Policy

THE UNITED REPUBLIC OF TANZANIA

MINISTRY OF FINANCE AND PLANNING

Telegrams: "TREASURY", Dodoma,

Tel: 0262963110, Fax 0262963109.

Email Address: [email protected]

Website: www.mof.go.tz

(All Official communications should be

addressed to the Permanent Secretary to the Treasury

and NOT to individuals).

In reply please quote:

Treasury Square Building

18 Jakaya Kikwete Road,

P.O. Box 2802,

40468 DODOMA;

Ref. No. CDB441/545/01 13th JUNE, 2018

Dr. Akinwumi A. Adesina,

President,

African Development Bank Group,

01 B.P 1387, Abidjan 1,

COTE D’IVORE.

Dear Dr. Adesina

RE: LETTER OF DEVELOPMENT POLICY FOR THE PROPOSED GOOD

GOVERNANCE AND PRIVATE SECTOR DEVELOPMENT PROGRAM

1. On behalf of the Government of the United Republic of Tanzania, I hereby present a financing

request of UA 80 million for the Good Governance and Private Sector Development Programme

which is expected to help close the financing gap for the Financial Year (FY) 2017/18 and FY

2018/19 and support the Government’s reform efforts. The programme will assist the Government to

implement the Blueprint for regulatory reforms to improve the business environment as well as

targeted areas in Public Financial Management that are critical to the success of the reform

programme.

I. BACKGROUND

A. MACROECONOMIC PERFORMANCE AND PROJECTIONS

GDP growth

2. Real GDP growth for the past decade (2007 – 2017) averaged at 6.7 percent. In 2017, real GDP

grew by 7.1 percent compared to a growth of 7.0 percent registered in 2016. The growth was

attributed to the implementation of infrastructure projects including water, energy, road, railway and

airport infrastructures in conjunction with the increase in production of some minerals such as

diamond and coal, as well as improved agriculture sector performance. Economic activities which

recorded highest growth during the period under review include: mining and quarrying (17.5

percent); water supply (16.7 percent); transport and storage (16.6 percent); information and

communication (14.7 percent); and construction (14.1 percent). In addition, the rate of growth of

agriculture sector which employs about 66.3 percent of the population and account for 20 percent of

export earnings grew by 3.6 percent in 2017 compared to 2.1 percent recorded in 2016. However, the

rate of growth of financial and insurance services decelerated, while that of public administration

contracted.

mailto:[email protected]

II

Inflation

3. Headline inflation remained at single digit for five years consecutively since 2013. In 2017, the

headline inflation averaged at 5.3 percent compared to 5.2 percent in 2016. The marginal increase

was a result of decrease in the supply of food in the domestic market particularly in the first half of

2017, which compelled the Government to impose restriction on food exports. Nonetheless, effective

implementation of the fiscal and monetary policies and stability of the shilling exchange rate against

the US Dollar contributed to the low level of inflation. Particularly core inflation, which account for

54.3 percent in the basket of consumer goods and services remained below 3 percent during this

period. The annual headline inflation rate for the month of April 2018 has decreased to 3.8 percent

from 3.9 percent recorded in March 2018. Inflation is projected to remain stable in the short-term, on

the assumption of continued improvement in domestic power supply, and increased food supply in

the domestic and neighbouring country markets on account of favourable weather condition.

Financial Sector

4. The Government continued to implement the Financial Sector Reforms Programme with the view

to improve access and usage of formal financial services that aims at increasing economic growth

and reducing poverty.

5. During 2017, the Bank of Tanzania implemented an accommodative monetary policy with a view

to provide adequate liquidity to the banks in support of various economic activities. This policy stance

was taken to address the after effects of the general decline in net foreign budgetary inflows, enhanced

revenue mobilization and expenditure management by the government. The Bank injected liquidity

by reducing the statutory minimum reserve (SMR) requirement ratio to 8.0 percent of private sector

deposits from 10.0 percent, and lowering the discount rate to 9.0 percent from 16 percent. The Bank

also injected liquidity to the economy through other monetary policy measures such as reverse repo

operations, purchase of foreign exchange from the domestic market and inward foreign exchange

swaps. Following these measures, liquidity condition in the banking system improved and annual

growth of money supply (M3) increased gradually to 8.0 percent in December 2017, from the

historical low of 1.7 percent recorded in February 2017 and 3.4 percent in December 2016.

6. Credit to the private sector recorded annual growth of 1.7 percent in 2017, much lower than 7.2

percent recorded in 2016. This is equivalent to an annual increase of shilling 274.2 billion, compared

with an increase of shilling 1,116.2 billion recorded in 2016. The pace of the increase in credit to

private sector in 2017 was the lowest since 2009 when credit growth was affected by the global

financial crisis. The slowdown in the growth of credit to private sector might have an impact on

private investment. However, the government continued investment in public infrastructure is

expected to reduce the impact on the slowdown in credit growth by creating conducive environment

for private investment.

7. The Government continues to improve policy and regulatory environment in the Financial Sector

whereby National Microfinance Policy (2017) and its implementation strategy have been prepared

and launched. Moreover, the Housing Microfinance Fund for extending housing loans to the low

income earners has been established. Overall lending rate charged by banks was 18.62 percent in

December 2017, up from 15.66 percent in December 2016, while the overall time deposit rate was

9.62 percent, up from 8.78 percent, over the same period. The increase in interest rate on deposit was

associated with banks’ efforts to mobilize deposit, while the rise in lending rate was largely due to

increased risk premium following a rise in non-performing loans.

8. The value of Tanzanian shilling against the US dollar remained generally stable in 2017,

consistent with the improvement in the current account balance coupled with prudent fiscal and

monetary policies. The shilling traded at an average of TZS 2,228.9 per US dollar in 2017 compared

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with TZS 2,177.9 per US dollar in 2016, equivalent to an annual depreciation of 2.4 percent. The

exchange rate has remained broadly stable in both nominal and real effective terms since early 2016.

Government Budget

9. For the past five years, implementation of the budget was characterized by shortfall in revenue

from all sources by an average of 8 percent per annum. For the period ending March 2018, the

Government continued to implement the 2017/18 budget with the aim of maintaining fiscal deficit

under the program objective of 3.9 percent of GDP. Total domestic revenue collection fell short of

the budget target by 10 percent (1.2 percent of GDP), largely on account of decline in the excise duty.

On the other hand, expenditure was lower than estimate for the period, mainly on account of delays

in the disbursement of foreign funds including realisation of non- concessional loans.

10. The Government has continued to manage Public Debt based on Government Loan, Grants and

Guarantees Act, Cap.134. In addition, the emphasis has been directed to borrow more from

concessional sources rather than commercial sources to ensure sustainability of public debt.

11. Total Government debt has been growing over the past ten years mainly on account of increase

in new disbursements of external debt and issuance of domestic debt to finance infrastructure

projects.

12. Public debt stock increased to USD 22,075.53 million at the end of March 2018 compared with

USD 19,188.15 million recorded at the end of March 2017. Despite the increase, the recent concluded

Debt Sustainability Analysis indicates that, the present value of total public debt to GDP was 34.4

percent against the threshold of 56% percent of GDP, implying that Tanzania’s debt remains at low

risk of debt distress. The Government is implementing the Medium Debt Strategy that guides on

how to raise the appropriate amount of funding at the lowest possible cost consistent with low degree

of risk in managing public debt.

External Sector Development

13. During the year ending December 2017, the current account deficit contracted significantly by

43.8 percent to USD 1,210.5 million compared with a deficit of USD 2,154.6 million in the year

ending December 2016. This development was explained by decline in imports of goods and increase

in net service receipts. Gross official international reserves have remained at comfortable level of

about USD 5.9 billion at the end of December 2017 and USD 5.5 billion at the end of March 2018,

sufficient to cover over five months of import of goods and services.

II. THE GOVERNMENT PROGRAM

A. POLICY OBJECTIVES

14. Recognizing the need to promote inclusive growth and private sector led economic growth; the

Government has adopted a programme of policy reforms to improve economic and financial

governance. The proposed Good Governance and Private Sector Development Programme will

support the implementation of Tanzania’s Blueprint for regulatory reforms to improve the business

environment as well as targeted areas in PFM that are critical to the success of the reform programme.

15. Policy reforms:

Component 1: Improving an enabling environment for private sector development

The actions under this component aim at reducing trading costs, improving the public-private

interface for service delivery to businesses and citizens, and reduce regulatory and administrative

costs for the private sector.

IV

Component 2: Support Reforms to Improve Budget Credibility

The actions under this component aim at reducing Government payment arrears toward the

private sector, improve financing and execution of development budget and operationalisation of

arrears clearance strategy.

Component 3: Strengthening Governance Oversight Functions

The actions under this component aim at improving public procurement planning and streamline

procurement processes, enhance efficiency and effectiveness of audit functions, and improve debt

management.

B. DESCRIPTION OF POLICY AREAS

Improve the business enabling environment

16. Engagement with the private sector is integral to the Government’s Second Five Year

Development Plan (FYDP II 2016/17-2020/21), with private investment sought for USD 18 billion

or 36% of the total implementation cost. Policy documents identify public-private partnerships

(PPPs) as a key instrument to attract new investments and to deliver infrastructure more efficiently.

While achieving concrete results on a timely basis through PPPs is now a priority, doing so is

hampered by weaknesses in the institutional and legal framework and gaps in operational capacity.

The DPO will alleviate these constraints to achieving a sustainable and value-for-money PPP

program.

17. Amendments to the 2010 PPP Act have been prepared to clarify leadership of PPPs and

streamline PPP approvals. The amendments were prepared by the Ministry of Finance and Planning

(MoFP) in consultation with the PPP Node of President’s Office Regional Administration and Local

Government (PO-RALG), other central government agencies, and the private sector. The key

amendment will re-locate the Government’s PPP Centre to MoFP, to implement a 2016 Presidential

Notice that established MoFP as the lead agency on PPPs. The amendment of PPP Act Cap 103 was

approved by the Cabinet on May 18, 2018.

Reduce Government payment arrears to the private sector

18. High and persistent arrears may also imply direct fiscal costs, which reduce the fiscal space for

other priority public expenditures. The stock of outstanding arrears largely reflects two types of

outstanding obligations—long standing obligations to domestic suppliers (greater than one year

outstanding) and shorter-term delays in payment to domestic and foreign contractors (less than one

year outstanding). Combined, these two categories account for more than three-quarters of the total

stock of shilling 3.57 trillion reported as at end-June 2017 (Table 5). Some arrears may carry interest

and penalty clauses, which accumulate and add to the stock of arrears. Construction contracts in

particular may carry such clauses (e.g., in the roads sector).

19. In this context, Government has adopted a central government expenditure arrears prevention and

clearance strategy and has instructed all accounting officers of the MDAs, Regions and LGAs to

implement the strategy through the paymaster general circular number 1 of FY2018/19. The strategy

contains prevention measures aimed at reducing the accumulation of news arrears within the fiscal

year to a maximum of one percent of total expenditure by 2022/23, consistent with Public

Expenditure and Financial Accountability (PEFA) score of ‘A”. Consistent with the Budget Act No.

11 of 2015, the circular has emphasized on the measure to control expenditure and the various

penalties imposed on the Accounting Officers who will violate instructions on the Expenditure of the

Government.

V

Reduce regulatory and administrative costs for the private sector

20. The Government of Tanzania has embarked on an aggressive and comprehensive reform plan

that led to the development of the business environment “Blueprint” which puts forward

comprehensive and relevant recommendations to improve the business environment in Tanzania.

These reforms would enhance the efficiency, effectiveness, transparency and predictability of the

regulatory environment and reduce unnecessary burden on businesses.

21. In this regard, the Cabinet has adopted the Blueprint for Regulatory Reforms to Improve the

Business Environment. Also, as initial step to implement the Blueprint, the Government has

eliminated the VAT on ancillary transport services and licence/fees in the coffee sector. The

Government has designated the Prime Minister’s Office as the primary government body, to

coordinate the implementation of the Blueprint across MDAs with support from Ministry of Industry,

trade and Investment (MITI). The implementation would be supported by robust monitoring and

evaluation functions to track the implementation of reforms and evaluate their efficiency and

effectiveness. An initial set of ‘quick wins’ has been articulated in the Blueprint and will constitute

the first phase of implementation.

22. Through the Business Registration and Licensing Agency (BRELA), Government has recently

launched an online business registration system, which connects BRELA with Tanzania Revenue

Authority (TRA) and National Identification Authority (NIDA). This will allow investors and

entrepreneurs to obtain their Tax payer Identification Number (TIN) during the registration process

without the need to visit TRA. The TIN is used as a unique identifier for businesses which facilitates

search and validation. It is worth noting that personal identification is a prerequisite for business

registration, therefore, NIDA has started the process of issuing national IDs and has established a

fast-track for persons who want to register for a national ID for business purposes. BRELA has

established a link with NIDA to enable real-time and online identity authentication.

Improve the public-private interface for service delivery

23. To have better services delivery, digital technologies need to be accompanied by complementary

organizational changes. One-stop service centers are good examples of complementary reforms the

Government is undertaking to reduce the time spent by businesses and citizens to visit multiple

places, cut cost and improve access.

24. In this regard, as part of the reforms to build government effectiveness, the FYDP II aims at using

information and communication technology to enhance integration of services provision. To provide

integrated public services, Government has approved the initiative of the One-Stop Shops (OSS) and

is committed to allocate funds in the 2018/19 budget to begin its implementation. Initially, the

Government seeks to provide multiple services from a physical centre. Two pilot service centres one

in Dar es Salaam, being the commercial capital and another in Mwanza will be established in 2018/19

starting with company registration and license issuance. Based on the experience of these two pilots,

Government will then scale up the centres to other major urban areas.

Improve public procurement planning and streamline procurement processes

25. Government is implementing an e-procurement system to improve public procurement planning

and execution. The launching and use of the e-procurement system embodies the streamlining of the

procurement processes legislated for in the Public Procurement Act 2011 and its Amendments Act

of 2016 and the associated regulations of 2013 & 2016.

26. The new e-procurement system will: improve access to information, raise transparency in public

sector procurement; facilitate enforcement of standards and rules, resulting into the reduction of

procurement time, hence providing adequate time in implementing government programs; improve

controls in procurement process resulting into higher levels of compliance and reduced corrupt

VI

practices; improve competition arising from access to information which will improve quality of

services and enhance value for money in government spending; and improve the quality of audits.

Specifically, the implementation of e-procurement for Medical Stores Department (MSD) and

Government Procurement Services Agency (GPSA) will substantially reduce transaction costs,

namely administrative costs and those associated with the use of paper and will enhance internal

efficiency resulting into reduced lead-time to procure medicines, medical supplies and common use

items. This will further reduce the lead time for procuring entities to acquire goods and services

centrally procured by MSD and GPSA. This will finally lead to enhance the effectiveness of the

government in the service delivery of medical supplies and general goods and services.

27. The Government is also preparing a Code of Ethics and Conduct for Public Officers engaged in

Public Procurement. The Code of Ethics and Conduct will expand coverage of the existing Code to

all professionals engaging in procurement, beyond those registered with the Procurement and

Supplies Professionals and Technicians Board (PSPTB), to include Accounting Officers, members

of the Tender Boards, Procurement Management Units and User Departments etc.

III. CONCLUSION

28. The Government is committed to implementing the proposed new programme on Governance

and Private Sector Development, as well as on Public Financial Management and is looking forward

to working with the African Development Bank. We believe that the programme will increase the

efficiency and effectiveness in the use of public funds, improving the business environment that

provide a wide range of appropriate incentives and support to unleash creativity of private sector and

other stakeholders in harnessing Tanzania’s comparative advantages. In turn, this will boost

productivity and enhance innovation thereby contributing to the achievement of development goals

set out in the Second Five Year Development Plan.

Thank you for your continued cooperation and support.

Doto M. James

PERMANENT SECRETARY

AND PAYMASTER GENERAL

VII

APPENDIX 2: Assessment of Eligibility Criteria for PBOs

Prerequisite Comments on current situation Government

commitment to poverty

reduction, and

inclusive growth

The government of Tanzania’s commitment to poverty reduction, reform and inclusive growth is

strong. Tanzania has adopted Vision 2025 which targets an unprecedented economic transformation and development to achieve middle-income status; characterised by high levels of

industrialisation, competitiveness, quality livelihood, rule of law and having in place an educated

and pro-learning society. Specifically, the Tanzania Development Vision 2025 outlines the country's social, economic and political aspirations for the first quarter of the 21st century with an

underlying drive to reach the middle-income country (MIC) status, with a per capita income of

USD 3,000 (in nominal terms) by 2025.

Tanzania’s development framework and long-term development goals are laid out in the National

Vision 2025 (TDV 2025), with the aspirations to transform the country into a middle income and

semi-industrialized economy by 2025. The Vision has the following three targets: (i) a high quality

livelihood for all citizens, (ii) good governance and rule of law, and (iii) a strong and competitive

economy, including through the development of infrastructure. Vision 2025 is designed to be

implemented through a series of five year development plans. The Government’s medium term

development agenda is outlined in the Five Year Development Plan (FYDP II: 2016/17-2020/21),

which bears the theme “Nurturing Industrialization for Economic Transformation and Human

Development”. The Plan focuses on: (1) growth and industrialization (2) human development and

social transformation; (3) business environment strengthening; and (4) ensuring implementation

effectiveness and efficiency. Through implementation of FYDP II, Tanzania aspires to raise

annual real GDP growth to 10% by 2021 (from 7% in 2015), per capita income to US$ 1,500 (from

US$ 1,043 in 2014) and reduce poverty rate to 16.7% in 2021 from 28.2% recorded in 2011/12.

The government introduced macro-economic policies and development programs with the aim of

empowering the people and boosting economic growth in the country. Various policies and

strategies were formulated with the aim of economically empowering Tanzanians so that they own,

run and benefit from their economy and achieve Vision 2025. While the structure of the economy

has undergone some changes over the years, progress in poverty reduction remains slow.

Government, however, remains committed to addressing poverty and continue to pursue reform

efforts.

Macroeconomic

stability

Tanzanian authorities have demonstrated strong commitment to policies aimed at containing

demand pressures, strengthening macroeconomic stability, and preserving a sound fiscal position.

The key risks to the outlook stem from pressures to increase spending to finance projects in the

Five Year Development Plan (FYDP II 2016/17 – 2020/21), ambitious revenue targets which are difficult to achieve, and challenges related to the power sector. In January 2018, the IMF

Executive Board concluded the seventh and last review of Tanzania’s economic performance

under the Policy Support Instrument (PSI) program. The IMF noted Tanzania’s continued strong macroeconomic performance, underlined by high real GDP growth, moderate inflation levels and

a healthy international reserve position. However, the review pointed to some of the emerging

risks, suggesting weakening of economic activity, including lower than expected tax revenue

collection, and significant slowdown in growth of credit to private sector. The review identified slow budget implementation and challenging business environment as downside risks to economic

growth in short term. The review underscored the need for concerted efforts to: address the

infrastructure gap; improve business climate; improve budget credibility; and, curb high stock of non-performing loans to reduce financial vulnerabilities and revive growth of credit to private

sector.

The macroeconomic outlook is favorable, but vulnerabilities remain. The economy is projected to grow at an annual pace of about 6.7% in 2017/18 and growth is expected to remain above 6% in

the medium term. Fiscal and monetary policies will continue to be geared towards ensuring that

domestic demand pressures do not become excessive, with further fiscal consolidation and tighter

monetary policy. The external current account deficit is projected to moderate significantly after domestic natural gas replaces expensive liquid fuel as the main source of thermal power

VIII

generation, but will remain large into the medium term. International reserves are targeted to strengthen gradually. Tanzania’s risk of debt distress remains low, but the debt-to-GDP ratio has

risen steadily over the past few years.

Satisfactory

fiduciary risk assessment

The Country Fiduciary Risk Assessment (CFRA) is an update of the CFRA carried out in 2016 to

support Policy Based Operations, and maintain that the country’s PFM system is reasonably adequate to support Bank operations in Tanzania. The assessment covers the main PFM

components of the Government of the United Republic of Tanzania, namely Budget planning and

execution, Treasury management, Accounting and Reporting, Internal Control, procurement and

External Audit. The assessment of the PFM system largely based on the results of Public Expenditure and Financial Accountability Assessment (PEFA) 2017 and 2013 reports, the

Controller and Auditor General’s Audit Report 2016-17, latest report on the Public Finance

Management Reform Program (PFMRP) Phase V, and walk through tests conducted during discussions with Government Officials. The updated assessment retains the overall residual risk

as moderate, which is consistent with the PEFA 2017 that recognized improvement in PFM

systems in line with the Government’s ongoing commitment to PFM reforms.

The updated CFRA concur with the PEFA 2017, which indicates strength in reporting on Central

Government extra –budget operations, Fiscal Risk Reporting, Public Asset Management, Debt

Management, Budget Preparation Process, Legal Scrutiny of Budgets, Accounting for Revenue,

Payroll Controls and Legislative Scrutiny of Audit Reports. The CFRA also concur with the

weaknesses observed in budget credibility indicators, budget documentations, public access to

fiscal information, Public Investment Management, Fiscal Strategy, Medium –Term Perspectives

in Expenditure Budgeting, Predictability of in year Resources Allocation, Expenditure Arrears,

Internal Controls on Non-Salary spending and in year Budget Reports. The Government is

implementing the Five Year Medium Term Strategic Plan for the Public Finance Management

Reform Programme (PFMRP) Phase V 2017/2018-2021/222 aimed at strengthening the legal,

policies, systems and institutional capacity especially on issues raised by PEFA and CAG Reports.

The financing of the Strategy is through the Development Partners (DPs) contribution to the

Basket fund PFMRP V program, the Bank’s Institutional Support for Good Governance Projects,

other donors not contributing to the Basket and the Government. The PFMRP V supervision is

annually with the Bank’s participation. The PFMRP annual reports shared with the Bank is a tool

used to monitor and report on the progress of the PFM reforms.

Summary of the Fiduciary Risk Assessment

Element Initial Risk Residual Risk

1 Budget Substantial(S) Moderate/Mediu

m(M)

2 Treasury S M

3 Accounting Recording and

Reporting

M M

4 Internal Control S M

5 External Scrutiny and Audit M M

6 Procurement

7 Governance M M

OVERALL S M

Political stability Tanzania is a one of the most stable countries in Africa. There has been a gradual increase in

political pluralism. Under the multi-party system, Tanzania held five peaceful elections; The last

general elections, held in 2015, transferred the mandate from the 4th phase Government to

IX

5th phase government. Improving economic and financial governance has been a key focus

of the 5th phase Government the last. The country has enjoyed general political stability and

national unity for over 57 Years. Tanzania is a union formed in 1964 between the mainland—a German colony and later a British protectorate formerly known as Tanganyika—and the islands

of Zanzibar, Pemba, and several smaller islands. According to Transparency International’s

Corruption Perception Index (CPI) 2017, Tanzania’s rank improved significantly, moving up 13

places from rank 116th out of 180 countries in 2016 with a score of 32, to 103rd out of 180 countries in 2017, with a score of 36. And, apart from Rwanda (ranked 48th), Tanzania ranks better that all

of its remaining neighbours - Kenya (143 out of 180 countries), Uganda (151 out of 180 countries)

and Burundi (157 out of 180 countries). Recent gains in the corruption perception index are mainly a result of the ongoing initiatives by the new administration to root out corruption and restore

discipline in the public service sector. Also, Tanzania’s rank and score in the Mo Ibrahim Index

of African Governance improved slightly from 18th n (with a score of 56.5) out of 54 countries in

2016 to 17th position (with a score of 57.5) in 2017. Tanzania’s performance in the Mo Ibrahim index is higher than the African average of 50.8, and also higher than the regional average for East

Africa (45.2). Tanzania has issued a National Framework on Good Governance to elaborate the

priority areas for which deliberate interventions need to be focused on in a continuous but stage by stage approach by each of the key players in the Governance System in the country. The players

are the Central Government (The Executive, the Judiciary and Legislature); Local Government

(and its agencies); Civil Society (and its organizations); Private Sector (and its organisations); and Co-operating Partners in Development. The objective of the framework is to help facilitate

improved co-ordination of the various governance reforms and to identify specific areas for a

targeted approach in supporting Governance initiatives. The framework has also identified

institutions and reforms required in achieving the stated governance goals in the focus areas, including: people's participation in decision making for social, political and economic

development; private sector and regulatory framework; constitutionalism, rule of law,

administration of justice and human rights protection; gender equity and equality; accountability, transparency, and integrity in the management of public affairs; electoral democracy; and public

service. A formal review of the country’s constitution is under way and due to be completed later

in 2014 to be followed by the next Parliamentary and Presidential elections.

Harmonization

Tanzania has maintained a healthy relationship with Donors, and there is well-established aid

coordination architecture to facilitate dialogue. Active Development Partners (DPs) in Tanzania

include 4 multilaterals, 17 United Nations Agencies, and 17 bilateral donors. The dialogue between Donors and the Government became strained in the past few years, mainly fueled by

differences in expectations from development cooperation. The situation is being addressed

through a consultative process that involved a neutral facilitation team to review the causes of the disruption in dialogue and development cooperation, and to recommend ways to strengthen the

relations. The facilitation team was also tasked to suggest changes in development cooperation

that would be consistent with a more mature relationship and Tanzania’s aspirations to attain

middle-income status, its long-term graduation from traditional aid, and the private sector’s prominence in the economy. The process was successfully completed in April 2017, and

recommendations were made around three major issues: namely; establishing effective dialogue;

capacity development and institution building; and alternative ways of financing development. In the follow-up to these findings and recommendations, the preparation of new Development

Cooperation Framework (DCF) was finalized in July 2017, outlining the objectives and principles

of development partnerships, to be implemented from 2017/2018 to 2014/2025. In light of these

developments, dialogue between the Government and Development Partners (DPs) has gradually resumed since the beginning of 2018. A strategic dialogue session was held in Dodoma in February

2018, bringing together high level Government officials and DPs, and another one is scheduled

for November 2018 – which will also involve the participation of non-state actors – including private sector and civil society.

Tanzania had received budget support from three multilateral DPs (AfDB, the EU and the World Bank). The other nine bilateral DPs (Canada, Denmark, Finland, Germany, Ireland, Japan,

Norway, Switzerland and the United Kingdom) moved out of providing Budget support after the

X

Partnership Framework Memorandum for Provision of Budget Support expired in June 2015. Despite this, there is a high level DPG group that has enabled to sharing of GBS information with

other DPs despite their non-involvement in GBS. The country has a well-established structure for

dialogue, which consists of four clusters, more than 20 thematic working groups and 7 sector

working groups. The Bank is active in all relevant sectors and thematic areas, including energy, public financial management and GBS. The Bank co-chaired the energy sector group in 2013 and

is currently co-chairing the transport sector group, as well as the poverty monitoring group- since

2013.

XI

Appendix 3: IMF Country Relations Note

Press Release No.18/01 International Monetary Fund

FOR IMMEDIATE RELEASE Washington, D.C. 20431 USA

January 11, 2018

IMF Executive Board Completes Seventh PSI Review for Tanzania

On January 10, 2018, the Executive Board of the International Monetary Fund completed the seventh

and last review of Tanzania’s economic performance under a program supported by the Policy

Support Instrument (PSI)13. The decision was made without a Board meeting14 and included the

granting of waivers for the non-observance of the end-June 2017 assessment criteria on the floor of

tax revenues and the ceiling of domestic expenditure arrears on the grounds that the slippage was

minor and in light of the articulation of corrective measures, respectively.

The PSI for Tanzania was approved by the Board on July 16, 2014 (see Press Release No.14/350).

The program was subsequently extended to January 15, 2018. Tanzania’s program under the PSI

aims at maintaining macroeconomic stability and promoting a more inclusive growth. It supports the

authorities’ objectives on reforms to strengthen public finance management, improve efficiency and

transparency of public spending, and move to an interest rate-based monetary policy framework.

Tanzania’s recent economic performance has been mixed and the outlook is subject to emerging

risks. Although GDP data point to continued strong growth, other high frequency data suggest a

weakening of economic activity. Tax revenue collections are lower than expected and credit growth

has stagnated reflecting in part banks’ rising nonperforming loans (NPLs). Inflation remains

moderate, and international reserves have increased substantially.

There are downside risks to economic growth in the short term stemming from slow budget

implementation, a challenging business environment, and private sector concerns about authorities’

enforcement of rules. Program performance under the PSI has been broadly satisfactory. Most

quantitative targets for June and September 2017 were met. While progress in structural reforms has

been mostly slow, efforts have been boosted to advance them.

Macroeconomic policies will need to be closely coordinated. After recording a small fiscal surplus

in July-September against a programmed deficit, the government is planning to step up budget

implementation, particularly in development spending. The monetary policy stance and liquidity

forecasting and management will need to be closely coordinated with fiscal developments.

13 The PSI is an instrument of the IMF designed for countries that do not need balance of payments financial

support. The PSI helps countries design effective economic programs that, once approved by the IMF's

Executive Board, signal to donors, multilateral development banks, and markets the Fund's endorsement of a

member's policies (see http://www.imf.org/external/np/exr/facts/psi.htm). Details on Tanzania’s PSI are

available at www.imf.org/tanzania. 14 The Executive Board takes decisions under its lapse-of-time procedure when the Board agrees that a proposal

can be considered without convening formal discussions.

XII

Strong growth and job creation are needed to address high poverty and a large underemployed youth

population. Infrastructure gaps and the business climate have also become increasingly challenging

and require response. Sustained reforms will be needed to achieve the strong private sector-led

growth envisioned by the government’s development plan. Budget credibility and implementation

need to be improved and arrears prevented. Additional domestic revenue needs to be mobilized

through tax policy and administration reforms, while improving the functioning of the VAT refunds

system. Addressing the high stock of NPLs is a priority to reduce financial sector vulnerabilities and

revive credit growth.

XIII

APPENDIX 4: PRIOR ACTIONS AND INDICATIVE TRIGGERS 2018/19

Prior Actions for the First operation in the Programmatic Series (FY2017/18)

Proposed Prior Actions Evidence/Means of Verification

Component 1: Improving the Enabling Environment for Private Sector Development

Prior action 1: Cabinet approval of the blue print for

regulatory reform to improve the business environment

Letter from the Ministry of Industry, Trade and Investments

confirming the Blue print for regulatory reforms to improve the business enabling environment has been approved and copy of the

Blueprint.

Prior action 2: Business registration reduced from 3 days

to One day with the operationalization of the Business

Registration and Licensing Agency (BRELA)

Submission of monthly report from the CEO of BRELA

Prior action 3: Government Electronic Payment Gateway

(GEPG) operationalized

Letter from the Ministry of Finance and Planning submitting a

report from the Commission for policy analysis on the

operationalization of GEPG

Prior action 4: Public-Private Partnership (PPP) Act

amendments approved by Cabinet

Letter from the Ministry of Finance confirming Cabinet approval

of the PPP law amendments

Component 2: Supporting reforms to improve Budget credibility

Prior action 5: Government adopts a Central Government

Arrears Prevention and Clearance Strategy.

Letter from the Ministry of Finance and Planning confirming the

arrears prevention and clearance strategy has been approved and

publication of the strategy by circular

Prior action 6: Government adopts Central Budgeting

Management System (CBMS)


publication of the 4 Budget volumes using the CBMS.

Component 3: strengthening Governance Oversight functions

Prior action 7: Government operationalizes the e-

procurement system

Letter from the Public Procurement Regulatory Authority (PPRA)

CEO confirming the operationalization of the e-procurement system.

Prior action 8: The number of Internal audit reports

submitted is at least 378 for FY 2016/17 in compliance

with the Public Finance Act.

Letter from the Ministry of Finance and Planning providing

evidence that at least 378 internal audit reports have been

submitted

Triggers for the second operation in the Programmatic Series (FY 2018/19)

Triggers Evidence/Means of Verification


Trigger 1:PPP Act amendments submitted to Parliament Submission of a letter confirms the PPP Act amendments have

been submitted to Parliament.

Trigger 2: Establishment of the two Pilot “one stop shop

centers” for business registrations in Dar Es Salaam and

Mwanza for company registration and licensing issuance

The Ministry of Industry, Trade and Investments confirms the

two stop centers have been opened

Trigger 3: Amend regulations to enable Tanzania

Revenue Authority rationalize VAT treatment for with a

view to promoting domestic industries.


amendment of the VAT regulations

Component 2: Supporting reforms to improve Budget credibility

Trigger 4: Implementation of the arrears prevention and

clearance strategy

Letter from the Ministry of Finance and Planning indicating the

stock expenditure arrears have been reduced to 3% of total arrears

Trigger 5: Government ensures key national projects

selected in the 2018/19 budget comply with the Public

Investment Manual (PIM)


compliance of 27 key projects with the PIM

Trigger 6: Operationalization of the Debt Management

Department

Letter from Ministry of Finance and Planning confirming

appointments of the Commissioner for the Department and the

Assistant commissioners for the department

Component 3: Strengthening Governance Oversight Function

Trigger 7: Cabinet approval of the Public Audit Act

amendments

Letter from the Ministry of Finance and Planning confirming

cabinet approval of the Public Audit Amendment Act

Trigger 8: The number of Internal audit reports submitted

increases to at least 450 for FY 2017/18 in compliance

with the Public Finance Act.

Letter from the Ministry of Finance and Planning providing

evidence that at least 450 internal audit reports have been

submitted

XVI

APPENDIX 5: Operations Policy Matrix

TANZANIA: GOOD GOVERNANCE AND PRIVATE SECTOR DEVELOPMENT PROGRAMME

Medium term policy

objectives

Policy measure (2017/2018) Policy measure (2018/2019) Outcome

(monitoring indicators )

CSP goals to which the

program is contributing


Private sector

competitiveness Improves

Cabinet approval of the blue print for

regulatory reform to improve the

business environment

Establishment of the one stop

shop center for business

registrations

Implementation of key actions

related to quick wins of the blue print

including the establishment of the

“one stop shop” in Dar es Salaam

and Mwanza

Pillar II: Strengthening

Governance and

Accountability

Amend regulations to enable TRA

rationalize VAT treatment with a

view to promoting domestic industries

The process of doing business

simplified

The online company registration system

(BRELA) operationalizes in order to

reduce the time for processing of

business registration

Time for company registration

reduced from 6 to 1 day.

The Government Electronic Payment

Gateway (GEPG) system

Operationalization and roll out

GEP system connected to a further

20 institutions (2019)

Government electronic payment

(GEP) system operationalized and

rolled out to 80 institutions

Harmonization of various

fees, levies and processes

Unifying identified fees and levies

Reduction of fees & charges in the

agriculture sector (2019)

Reduce regulatory processes in order to

ease the cost of doing business

Merge the issuance of TIN with

company registration (2018)

Institutional framework for

PPPs strengthened

Establishment of PPP guidelines Increased use of PPPs to finance

infrastructure projects

PPP law amendments approved by

Cabinet

Component II: Supporting reforms to improve budget credibility

Budget credibility Improved

Government adopts a central

government arrears prevention and

clearance strategy

Implementation of the arrears

prevention measures, as

articulated in the arrears

prevention and clearance strategy

Implementation of the arrears

prevention strategy in order to

reduce arrears accumulation

Government adopts a Central Budget

Management system

Budget reporting and

execution improved

Publication of annual budget execution

report (2018)

Publication of quarterly budget


XVII

Debt Management

strengthened

Full operationalization of the

DMD with the appointment of

Commissioner for the department

and the appointment of the

Assistant commissioner for the 3

units

Full operationalization of the DMD

with the appointment of

Commissioner for the department

and the appointment of the Assistant

commissioner for the 3 units


Governance and

Accountability

Public investment planning

improved

Government ensures key national projects selected in the 2018/19 budget

comply with the PIP manual

Government ensures key national projects selected in the 2019/20

budget comply with the PIP

manual

PIP manual in use and forms the bases for the efficiency in the use of

public investment resources for at

least 5 projects

Component 3: Strengthening Governance oversight functions

Procurement capacity

strengthened

Government operationalizes the e-

procurement system

System rolled out to 100

procurement entities (2019)

At least 100 female procurement

entities trained on the e-

procurement system

Rollout of the e-procurement system

to the Government Medical

Supplies (2018)

Government procured goods, works

and services processed through the

e-Procurement system increases to

50

(2020).


Governance and

Accountability

Development of Guidelines for the

procurements in Public Private

Partnership

National Audit and Internal

Audit office strengthened

Development of an Internal audit

guideline for oil and Gas

Cabinet approval of the Public

Audit Act Amendments

National audit office strengthen

Approval of a Quality assurance

audit manual (NAO)

Public finances are

independently reviewed and

there is external follow-up on the

implementation of audit

recommendations

At least 378 Internal audit reports

submitted for FY 2016/17 in

compliance with the Public Finance Act

At least 450 Internal audit reports

submitted for FY 2016/17 in

compliance with the Public Finance Act

XVIII

Appendix 6: Comparative Socio-economic Indicators

Year Tanzania Africa

Develo-

ping

Countries

Develo-

ped

Countries

Basic Indicators

Area ( '000 Km²) 2017 947 30,067 94,716 35,018Total Population (millions) 2017 56.9 1,244.8 6,252.1 1,190.0Urban Population (% of Total) 2017 32.2 40.5 49.2 81.4Population Density (per Km²) 2017 64.2 42.4 66.0 34.0GNI per Capita (US $) 2016 900 1 836 4 442 41 208Labor Force Participation *- Total (%) 2017 78.5 65.8 62.3 60.3Labor Force Participation **- Female (%) 2017 74.0 55.3 47.8 52.5Sex Ratio (per 100 female) 2017 98.9 100.2 107.5 105.3Human Dev elop. Index (Rank among 187 countries) 2015 151 ... … …Popul. Liv ing Below $ 1.90 a Day (% of Population) 2011 49.1 ... 16.3 0.6

Demographic Indicators

Population Grow th Rate - Total (%) 2017 3.1 2.5 1.3 0.6Population Grow th Rate - Urban (%) 2017 5.2 3.5 2.4 0.9Population < 15 y ears (%) 2017 45.0 40.8 27.9 16.6Population 15-24 y ears (%) 2017 19.2 19.2 16.7 11.9Population >= 65 y ears (%) 2017 3.2 3.5 6.8 17.4Dependency Ratio (%) 2017 93.2 79.6 54.6 52.0Female Population 15-49 y ears (% of total population) 2017 23.1 24.0 25.6 22.6Life Ex pectancy at Birth - Total (y ears) 2017 66.4 61.9 70.2 80.7Life Ex pectancy at Birth - Female (y ears) 2017 67.7 63.3 72.3 83.5Crude Birth Rate (per 1,000) 2017 37.6 33.9 20.6 10.9Crude Death Rate (per 1,000) 2017 6.4 9.0 7.5 8.6Infant Mortality Rate (per 1,000) 2016 40.3 49.3 33.1 4.5Child Mortality Rate (per 1,000) 2016 56.7 72.6 44.3 5.3Total Fertility Rate (per w oman) 2017 5.0 4.4 2.6 1.7Maternal Mortality Rate (per 100,000) 2015 398.0 444.1 237.0 10.0Women Using Contraception (%) 2017 40.7 37.6 62.1 …

Health & Nutrition Indicators

Phy sicians (per 100,000 people) 2005-15 3.0 41.6 121.6 293.5Nurses and midw iv es (per 100,000 people) 2005-15 42.8 120.9 211.3 873.4Births attended by Trained Health Personnel (%) 2010-16 63.7 55.9 76.6 98.9Access to Safe Water (% of Population) 2015 55.6 71.6 89.4 99.5Access to Sanitation (% of Population) 2015 15.6 39.4 61.5 99.4Percent. of Adults (aged 15-49) Liv ing w ith HIV/AIDS 2016 4.7 3.6 1.1 …Incidence of Tuberculosis (per 100,000) 2016 287.0 221.7 163.0 12.0Child Immunization Against Tuberculosis (%) 2016 99.0 82.1 84.9 95.8Child Immunization Against Measles (%) 2016 90.0 74.4 84.0 93.7Underw eight Children (% of children under 5 y ears) 2010-15 … 18.1 15.3 0.9Prev alence of stunding 2010-15 34.8 33.3 25.0 2.5Prev alence of undernourishment (% of pop.) 2015 32.3 17.5 12.28 2.66Public Ex penditure on Health (as % of GDP) 2014 2.6 2.6 3.0 7.7

Education Indicators

Gross Enrolment Ratio (%)

Primary School - Total 2010-16 81.7 101.7 103.8 102.6 Primary School - Female 2010-16 82.9 98.8 102.2 101.8 Secondary School - Total 2010-16 32.3 51.8 ... 106.6 Secondary School - Female 2010-16 30.8 49.7 ... 106.4Primary School Female Teaching Staff (% of Total) 2010-16 51.5 46.0 51.3 81.0Adult literacy Rate - Total (%) 2010-16 77.9 68.6 ... ...Adult literacy Rate - Male (%) 2010-16 83.2 76.0 ... ...Adult literacy Rate - Female (%) 2010-16 73.1 61.7 ... ...Percentage of GDP Spent on Education 2010-16 3.5 4.9 4.1 5.2

Environmental Indicators

Land Use (Arable Land as % of Total Land Area) 2015 15.2 8.0 11.3 10.1Agricultural Land (as % of land area) 2015 44.8 37.4 38.1 35.1Forest (As % of Land Area) 2015 52.0 21.0 31.4 28.8Per Capita CO2 Emissions (metric tons) 2014 0.2 1.1 3.5 11.0

Sources : AfDB Statistics Department Databases; World Bank: World Development Indicators; last update :

UNAIDS; UNSD; WHO, UNICEF, UNDP; Country Reports.

Note : n.a. : Not Applicable ; … : Data Not Available. * Labor force participation rate, total (% of total population ages 15+)

** Labor force participation rate, female (% of female population ages 15+)

January 2018

0

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Tanza nia Af r ica

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Tanza nia Af r ica

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Life Expectancy at Birth (years)

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XIX

Appendix 7: Selected Macroeconomic Indicators

Indicators Unit 2000 2013 2014 2015 2016 2017 (e) 2018 (p)

National Accounts

GNI at Current Prices Million US $ 10,050 42,179 47,677 48,658 49,640 ... ...

GNI per Capita US$ 296 840 920 910 900 ... ...

GDP at Current Prices Million US $ 10,186 45,430 47,122 44,823 46,294 53,291 57,310

GDP at 2000 Constant prices Million US $ 10,186 23,868 25,530 27,305 29,204 31,089 33,170

Real GDP Growth Rate % 4.9 7.3 7.0 7.0 7.0 6.5 6.7

Real per Capita GDP Growth Rate % 2.3 3.9 3.6 3.7 3.7 3.2 3.5

Gross Domestic Investment % GDP 16.8 29.6 30.8 27.7 25.4 25.2 27.9

Public Investment % GDP 5.7 5.4 4.9 4.3 5.2 5.0 8.3

Private Investment % GDP 11.2 24.3 26.0 23.4 20.2 20.3 19.5

Gross National Savings % GDP 10.8 14.9 21.8 24.7 23.0 19.7 19.2

Prices and Money

Inflation (CPI) % 6.0 7.9 6.1 5.6 5.2 5.5 5.0

Exchange Rate (Annual Average) local currency/US$ 800.4 1,597.6 1,653.2 1,991.4 2,177.1 2,254.0 2,331.1

Monetary Growth (M2) % 61.1 10.4 16.7 17.9 9.8 ... ...

Money and Quasi Money as % of GDP % 24.1 31.1 33.8 34.8 33.8 ... ...

Government Finance

Total Revenue and Grants % GDP 13.8 15.5 15.1 14.6 15.4 17.2 17.4

Total Expenditure and Net Lending % GDP 15.2 20.3 18.5 17.9 19.1 19.2 21.8

Overall Deficit (-) / Surplus (+) % GDP -1.4 -4.8 -3.4 -3.3 -3.7 -2.1 -4.4

External Sector

Exports Volume Growth (Goods) % 27.5 3.9 10.8 15.0 10.3 5.6 6.8

Imports Volume Growth (Goods) % -3.0 4.1 8.2 1.7 -1.8 4.7 10.6

Terms of Trade Growth % -3.8 -2.7 -3.2 0.0 1.5 -2.9 -0.7

Current Account Balance Million US $ -364 -4,992 -4,692 -3,574 -2,109 -989 -2,365

Current Account Balance % GDP -3.6 -11.0 -10.0 -8.0 -4.6 -1.9 -4.1

External Reserves months of imports 5.5 4.2 3.9 3.9 4.0 ... ...

Debt and Financial Flows

Debt Service % exports 17.4 3.1 4.0 6.4 8.0 9.2 9.6

External Debt % GDP 57.5 26.1 27.3 31.9 32.9 33.1 33.8

Net Total Financial Flows Million US $ 1,229 3,648 3,380 2,776 ... ... ...

Net Official Development Assistance Million US $ 1,064 3,434 2,649 2,580 ... ... ...

Net Foreign Direct Investment Million US $ 282 2,087 2,049 1,532 1,365 ... ...

Source : AfDB Statistics Department; IMF: World Economic Outlook,October 2017 and International Financial Statistics, October 2017;

AfDB Statistics Department: Development Data Portal Database, January 2018. United Nations: OECD, Reporting System Division.

Notes: … Data Not Available ( e ) Estimations ( p ) Projections Last Update: January 2018

0.0

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Real GDP Growth Rate, 2006-2018

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Current Account Balance as % of GDP,

2006-2018

XX

APPENDIX 8: Country Map

GOOD GOVERNANCE AND PRIVATE SECTOR DEVELOPMENT …€¦ · GOOD GOVERNANCE AND PRIVATE SECTOR...

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