September 2010

Document of the World Bank

Report No. 56313-TZ

United Republic of TanzaniaPublic Expenditure and Financial Accountability Review 2009

United Republic of Tanzania: Ministry of Finance and Economic Affairs Development Partners,PER Macro and Public Financial Management (PFM) Groups

Prepared by the Members of Tanzania Public Expenditure Review (PER) Working Group

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ABBREVIATIONS AND ACRONYMS

ACGEN Accountant General bn. billion BoT Bank of Tanzania CA chief accountant CAG Controller and Auditor General CEO Chief Executive Officer CG Central Government CoA chart of accounts D by D Decentralization by Devolution DFID Department for International Development DSA Debt Sustainability Analysis eAP Active Planner EFT electronic funds transfer ERP Enterprise Resource Planning FDI foreign direct investment FY Financial Year GBS general budget support GDP Gross Domestic product GFS Government Finance Statistics HIPC Heavily Indebted Poor Countries IFAC International Federation of Accountants IFMS Integrated Financial Management System IFRS International Financial Reporting Standards IMF International Monetary Fund INTOSAI International Organization of Supreme

Audit Institutions ISA International Standards on Auditing IT Information Technology JAST Joint Assistance Strategy for Tanzania JICA Japan International Cooperation Agency KfW Kreditanstalt fuer Wiederaufbau LAAM Local Authority Accounting Manual LAFM Local Authority Financial Memorandum LGAs Local Government Authorities LGFA Local Government Finance Act LPO local purchase order MACMOD macroeconomic model MCC Millennium Challenge Cooperation MDAs Ministries, Departments and Agencies MDRI Multilateral Debt Relief Initiative MEM Ministry of Energy and Minerals MKUKUTA Mkakati wa Kukuza Uchumi na

Kupunguza Umaskini Tanzania MMAM Mpango Maalumu wa Afya ya Mama na

Mtoto

MoFEA Ministry of Finance and Economic Affairs MoHSW Ministry of Health and Social Welfare MoID Ministry of Infrastructure Development MoWI Ministry of Water and Irrigation MTEF Medium Term Expenditure Framework MTPP Medium Term Pay Policy NAO National Audit Office NBAA National Board of Accountants and

Auditors NGOs Non-Governmental Organisations PAA Public Audit Act PABs Public Authorities and other Bodies PAD Policy Analysis Department PBG Planning and Budget Guidelines PBGs Planning and Budget Guidelines PBGs Planning and Budget Guidelines PE Personnel Emolument PEFAR Public Expenditure and Financial

Accountability Review PER Public Expenditure Review PFM Public Financial Management PGB Plan and Budget Guidelines PMUs Procurement Management Units Policy Analysis Department PPRA Public Procurement Regulatory Authority PV payment voucher RAS Regional and Administrative Secretariats SMEs Small and Medium Enterprises SMW Solid Waste Management SP Strategic Plans SPs strategic plans STCL Soft-Tech Consulting Limited SBA Strategic Budget Allocation TANESCO Tanzania Electricity Supply Company Ltd. Tanzania Civil Aviation Authority TCRA Tanzania Communication Regulatory

Authority TIB Tanzanian Investment Bank TPA Tanzania Ports Authority UN United Nations USD United States dollar VAT Value Added Tax VfM Value for Money WB World Bank

This is a joint work of the Development Partners Macro and PFM Groups, which include WB, IMF, EC, DFID, JICA, AfDB, SDC, CIDA, KFW, The Netherlands, Finland, Norway, Sweden, Ireland and Denmark.

Vice President: Obiageli Ezekwesili Country Director: John McIntire Sector Director: Sudhir Shetty Sector Manager: Kathie Krumm Task Team Leader: Emmanuel Mungunasi

Table of Contents

ACKNOWLEDGMENTS ............................................................................................................................. i

SUMMARY OF FINDINGS AND RECOMMENDATIONS .................................................................... iii

PART I: BUDGET ANALYSIS .................................................................................................................. 1

1. INTRODUCTION ................................................................................................................................ 2

2. THE MEDIUM TERM MACROECONOMIC AND BUDGET FRAMEWORK .............................. 4

MEDIUM TERM MACROECONOMIC OUTLOOK ....................................................................... 4 IMPACT OF THE GLOBAL CRISIS ON THE MACROECONOMIC OUTLOOK FOR TANZANIA ........................................................................................................................................ 7 MEDIUM TERM FISCAL OUTLOOK ............................................................................................. 9 REVENUE AND AID OUTLOOK .................................................................................................. 11 KEY CONCLUSIONS AND RECOMMENDATIONS .................................................................. 13

3. BUDGET ALLOCATION – 2009/10 ................................................................................................ 15

ALLOCATION BY MKUKUTA ..................................................................................................... 15 ALLOCATIONS BY SECTORS ...................................................................................................... 20 IMPLEMENTATION OF D BY D POLICY ................................................................................... 29 WAGE BILL POLICY ..................................................................................................................... 30 INFRASTRUCTURE MAINTENANCE POLICY .......................................................................... 33 KEY CONCLUSIONS AND RECOMMENDATIONS .................................................................. 34

4. SECTOR SPECIFIC ISSUES EMERGING FROM BUDGET ANALYSIS .................................... 36

INTRODUCTION ............................................................................................................................. 36 AGRICULTURE............................................................................................................................... 36 EDUCATION ................................................................................................................................... 37 HEALTH ........................................................................................................................................... 39 WATER ............................................................................................................................................ 40 TRANSPORTATION ....................................................................................................................... 41 ENERGY .......................................................................................................................................... 42 KEY CONCLUSIONS AND RECOMMENDATIONS .................................................................. 43

5. BUDGET AND ACTUAL EXPENDITURE CONSISTENCY – 2008/09 ....................................... 44

RECURRENT BUDGET AND ACTUAL SPENDING DEVIATION ........................................... 44 MDA DEVELOPMENT BUDGET AND ACTAUL SPENDING DEVIATION ........................... 47 KEY CONCLUSIONS AND RECOMMENDATIONS .................................................................. 50

PART II: PFM ASSESSMENT ................................................................................................................. 52

6. NATIONAL AUDIT OFFICE REPORTS: SUMMARY OF FINDINGS ........................................ 53

AUDIT SCOPE, STANDARDS AND LEGAL FRAMEWORK .................................................... 53 CENTRAL GOVERNMENT ........................................................................................................... 54 LOCAL GOVERNMENT AUTHORITIES ..................................................................................... 57 PUBLIC AUTHORITIES AND OTHER BODIES .......................................................................... 60

VFM/PERFOMANCE AUDITS ...................................................................................................... 62 KEY CONCLUSIONS AND RECOMMENDATIONS .................................................................. 63

PART III: PEFAR CAPACITY BUILDING PROGRAM ........................................................................ 65

7. BACKGROUND AND OBJECTIVES OF THE PROGRAM .......................................................... 66

8. MAIN ACCOMPLISHMENTS AND ACHIEVEMENTS OF PROGRAM .................................... 68

MACROECONOMIC MODEL (MACMOD TZ) ............................................................................ 68 MACRO FRAMEWORK POLICY PAPER .................................................................................... 69 MKUKUTA II MACRO FRAMEWORK AND FINANCING CHAPTER .................................... 70 BUDGET BACKGROUND AND MEDIUM TERM FRAMEWORK PAPER .............................. 71 STRENGTHENING THE MTEF ..................................................................................................... 72 BUILDING PROGRAMATIC DIMENSION IN SP AND MTEF .................................................. 73

9. ACTION PLAN FOR THE YEAR 2010 ........................................................................................... 74

MACRO FRAMEWORK (2010/11 – 2012/13) STRENGTHENING ............................................. 74 MACMOD -TZ STRENGTHENING ............................................................................................... 74 MTEF UPGRADES AND SECTOR PROGRAM BUDGETING ................................................... 75

ANNEXES .................................................................................................................................................. 77

List of Annexes

ANNEX 1: REASONS FOR ADVERSE OPINION ON AUDITED ENTITIES ...................................... 78 ANNEX 2: CAG RECOMMENDATIONS ON THE 2007/08 ACCOUNTS ........................................... 79 ANNEX 3: MP PRESENCE IN THE BOARDS OF DIRECTORS - 2007/08 .......................................... 80 ANNEX 4: STATISTICAL TABLES ........................................................................................................ 81

List of Boxes

BOX 1: TANZANIA: ECONOMIC RESCUE PACKAGE ......................................................................... 8 BOX 2: DEFINITION OF THE MAJOR SECTORS................................................................................. 22 BOX 3: BUDGET STRUCTURE AND TREND OF KEY SECTORS ..................................................... 23 BOX 4: METHODOLOGICAL NOTE TO RECLASSIFY BUDGET INTO CONSUMPTION AND

CAPITAL SPENDING .................................................................................................................. 27

List of Figures

FIGURE 1: SECTORAL CONTRIBUTION TO GROWTH ..................................................................... 4 FIGURE 2: INFLATION AND EXCHANGE RATE DEVELOPMENTS ............................................... 5 FIGURE 3: BILATERAL REAL EXCHANGE RATE DEVELOPMENTS ............................................ 5 FIGURE 4: EXTERNAL DEVELOPMENTS ........................................................................................... 6 FIGURE 5: EXTERNAL DEBT DEVELOPMENTS ................................................................................ 7 FIGURE 6: FOREIGN RESERVE DEVELOPMENTS ............................................................................ 7 FIGURE 7: SIZE OF GOVERNMENT DEVELOPMENTS ................................................................... 10 FIGURE 8: PUBLIC DEBT DYNAMICS AND INTEREST PAYMENTS DEVELOPMENTS ........... 10 FIGURE 9: A AND B: PREDICTABILITY OF BUDGET AND PROJECT AID ................................. 13 FIGURE 10: DECOMPOSITION OF THE BUDGET .............................................................................. 25 FIGURE 11: TRENDS IN CONSUMPTION AND CAPITAL SPENDING ............................................ 28 FIGURE 12: TRENDS IN FUNDS TRANSFERRED TO LGAS DEVELOPMENTS ............................ 29 FIGURE 13: TRENDS IN DIRECT TRANSFERS TO LGAS BY SECTOR DEVELOPMENTS .......... 30 FIGURE 14: TRENDS IN TOTAL WAGE BILL COMPONENTS ......................................................... 31 FIGURE 15: TRENDS IN ALLOCATIONS FOR INFRASTRUCTURE MAINTENANCE .................. 34 FIGURE 16: EDUCATION PER CAPITA SPENDING PER DISTRICT (IN TANZANIA SHILLING) 38 FIGURE 17: HEALTH PER CAPITA SPENDING PER DISTRICT (IN TANZANIA SHILLING) ....... 40 FIGURE 18: WATER SECTOR BUDGET COMPOSITION ................................................................... 41 FIGURE 19: MDA DEVELOPMENT BUDGETS, RELEASE AND SPENDING .................................. 49

List of Tables

TABLE 1: DEVELOPMENTS IN GDP COMPOSITION ......................................................................... 4 TABLE 2: FINANCING REQUIREMENTS AND SOURCES ................................................................. 6 TABLE 3: ESTIMATES OF THE IMPACT OF THE GLOBAL FINANCIAL CRISIS ON TANZANIA

MACRO INDICATORS ........................................................................................................... 8 TABLE 4: SOURCES AND USES OF FISCAL SPACE DEVELOPMENTS ........................................ 10 TABLE 5: GOVERNMENT BALANCES DEVELOPMENTS ............................................................... 10 TABLE 6 COMPOSITION OF DOMESTIC TAX REVENUE DEVELOPMENTS ............................. 12 TABLE 7: COMPOSITION OF AID: PROJECT VERSUS BUDGET DEVELOPMENTS ................... 12 TABLE 8: PBGS CLUSTER ALLOCATION .......................................................................................... 16 TABLE 9: PBGS AND APPROVED BUDGET DEVELOPMENTS ...................................................... 17 TABLE 10: MKUKUTA AND NON-MKUKUTA ALLOCATION DEVELOPMENTS ........................ 18 TABLE 11: MKUKUTA ALLOCATIONS (INCL. LGA TRANSFERS AND MDA WAGES)

DEVELOPMENTS ................................................................................................................ 19 TABLE 12: SELECTED NON-MKUKUTA BUDGET ALLOCATION BY VOTES (SHARE OF

TOTAL) .................................................................................................................................. 19 TABLE 13: BROAD FUNCTIONAL ALLOCATIONS (SHARE OF TOTAL) DEVELOPMENTS ...... 21 TABLE 14: DECOMPOSITION OF THE BUDGET DEVELOPMENTS ............................................... 24 TABLE 15: CONSUMPTION AND CAPITAL SPENDING DEVELOPMENTS ................................... 27 TABLE 16: TRENDS IN OVERALL WAGE BILL ................................................................................. 31 TABLE 17: COMPOSITION OF ALLOWANCES ................................................................................... 32 TABLE 18: ALLOWANCES BY PURPOSE ............................................................................................ 32 TABLE 19: KEY RATIOS IN AGRICULTURE SECTOR SPENDING .................................................. 36 TABLE 20: KEY RATIOS IN EDUCATION SECTOR SPENDING ...................................................... 37 TABLE 21: KEY RATIOS IN HEALTH SECTOR SPENDING .............................................................. 39 TABLE 22: KEY RATIOS IN WATER SECTOR SPENDING ................................................................ 41 TABLE 23: KEY RATIOS IN TRANSPORT SECTOR SPENDING ...................................................... 42 TABLE 24: KEY RATIOS IN ENERGY SECTOR SPENDING .............................................................. 43 TABLE 25: RECURRENT BUDGET VARIANCE .................................................................................. 45 TABLE 26: MDAS RECURRENT BUDGET DEVIATION INDEX AT VOTE LEVEL ....................... 45 TABLE 27: OVERSPENDERS AND UNDERSPENDERS ..................................................................... 46 TABLE 28: MDA DEVELOPMENT BUDGET SHARES AND EXECUTION – 2008/09 ..................... 50 TABLE 29: AUDIT OPINIONS ON THE ACCOUNTS OF CG ENTITIES, 2006/07 TO 2007/08 ........ 55 TABLE 30: NCFS, BASIS FOR QUALIFIED OPINION ......................................................................... 57 TABLE 31: AUDIT OPINIONS ON THE ACCOUNTS OF LGAS, 2006/07 TO 2007/08 ...................... 58 TABLE 32: AUDIT OPINIONS ON THE ACCOUNTS OF PABS FOR 2007/08 ................................... 61

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ACKNOWLEDGMENTS

Context The Public Expenditure and Financial Accountability Review (PEFAR) 2009 was coordinated and guided by the Macro Subgroup of the PER Working group, co chaired by Ministry of Finance and Economic Affairs and the World Bank. The Macro Subgroup of the Public Expenditure Review (PER) comprises Government, the World Bank (WB), the International Monetary Fund (IMF), United Nations (UN) agencies, other bilateral and multilateral donors, and Non-Governmental Organizations (NGOs). It approves and supervises implementation of the PER Work program. The two overarching objectives of the PER are to support the budget process and carry out external evaluation of public expenditure and financial management practices in Tanzania.

The 2009 Annual PEFAR/ Mkakati wa Kukuza Uchumi na Kupunguza Umaskini Tanzania (MKUKUTA) Consultative Meeting was an important forum in which findings of the PEFAR 2009 were presented and discussed with Government and other interested stakeholders. There were two follow up events/forums with the Parliament and media/CSOs in which the findings of the report were also presented and feedback received; that feedback is also included in this report.

Team composition The PEFAR 2009 report is based mostly on the analysis of the budget and actual expenditure data provided by the Ministry of Finance and Economic Affairs. In addition, summary of key findings of CAG audit reports and update on the status of the PEFAR capacity building program (geared toward helping Government improve planning and budgeting) forms part of this report. The team from the World Bank, Kreditanstalt fuer Wiederaufbau (KfW), Department for International Development (DFID), Japan International Cooperation Agency (JICA), Canadian High Commission, Embassy of Finland, the Netherlands Embassy, and Ireland Embassy participated in preparation of the report. Independent consultants from the University of San Francisco, University of Dar es Salaam, and Canada also participated in preparation of this report.

The task manager and principal author of the report is Emmanuel Mungunasi. Substantive inputs and background papers were prepared by Paolo Zacchia (rapid budget analysis synoptic note); Jos Verbeek, Denis Biseko, Emmanuel Mungunasi, Gregory Smith and Stevan Lee (aggregate/macro analysis, wage bill analysis, and budget execution analysis); Tomi Sarkioja and Goodluck Mosha (local government); Oyinola Shyllon, Josaphat Kweka and Stevan Lee (education); Goodluck Mosha and Ronald Neuman (health); Caroline van den Berg (water); Alexander Shlyk and Retsu Hagiwara (road/transport); Sergiy Zorya (agriculture); Parminder Brar and Elena Marchieolli (National Audit Office -NAO audit reports); Charles Nchoguie, Leonidas Ruteganya and Emmanuel Mungunasi (PEFAR capacity building work program progress report) and Goodluck Mosha and Leonidas Ruteganya (data).

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The financial support by DFID and the World Bank on the PEFAR capacity building work program is highly appreciated.

The report was written under the general guidance of Paolo Zacchia, Lead Economist, AFTP2. Technical supervision and quality assurance were provided by Kathie Krumm, Sector Manager, AFTP2, and Mr. Lastone Msongole, Deputy Permanent Secretary, Ministry of Finance and Economic Affairs. Robert Utz (AFTP4) and Lars Sondegaard (ECSHD) served as peer reviewers. Mwanaisha Kassanga (AFCE1) and Arlette Sourou (AFTP2) were responsible for the word processing and actual production of the report.

Finally, the team would thank everyone who extended support and assistance during preparation of this report. In particular, the team wants to mention the names of Mrs. Monica Mwamunyange (Commissioner for Budget) and Mr. Bedason Shallanda (Acting Commissioner for Policy Analysis) for the coordination of the whole exercise as the co chairs of the PER Macro Subgroup from Ministry of Finance and Economic Affairs (MoFEA).

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SUMMARY OF FINDINGS AND RECOMMENDATIONS

A Budget Snapshot

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Domestic revenues

Total expenditures

Deficit after grants

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Fiscal trends -Budget Estimates (as % of GDP)

2007/08

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Composition by economic categories (as % tot. expenditures

2007/08

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2009/10

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Medium Term Macro and Budget Framework – 2009/10-2011/12 1. Tanzania’s growth over the last decade has remained robust. Growth over this period has been between 5 and 7 percent annually. The growth outlook, indicated a slowdown (5-6 percent) in 2009 and 2010 due to the global financial crisis, and a return to higher growth (7-8 percent) by 2011 and 2012 will depend critically on the state of the global recovery, and on the overall investment climate in Tanzania. Inflation reached double digit during 2008-09 but with prospects declining to single digit toward the middle of 2010, 2. Tanzania is dealt with the global financial crisis reasonably well. The government pro-actively sought additional resources from the IMF to assure the availability of adequate foreign reserves. The government also prepared a well targeted and time bound rescue package to mitigate the adverse impacts of the global financial crisis, especially in the agriculture, mining and tourism sectors. The authorities were able to do this because of a strong initial macroeconomic position of low indebtedness, low fiscal deficit and relatively low inflation. The government is encouraged to continue implementing prudent policies that will maintain favorable macroeconomic conditions, especially low fiscal deficit and low inflation. 3. The impact of the global financial crisis is projected to affect Tanzania for some time, which indicated the need for a more conservative approach in setting revenue targets. This also calls for more accuracy in determining the resource envelope, as this is the first step to make sure the budget would be aligned to MKUKUTA policy objectives as well as sector objectives. 4. Tanzania has been successful in generating additional resources, in the amount of 9 percent over the last six years, for its expenditure programs. However, the current budget classification used, recurrent versus development expenditures, obscures the ability to analyze the impact on growth and equity. Disaggregation of government spending into various components, including consumption (wages, maintenance, interest payment, other goods and services) as well as capital (investment in education and health, and core infrastructure) will make it easy to analyze the impact of public expenditure on economic growth. 5. The size of Government, as measured by total expenditures in relation to Gross Domestic Product (GDP), has grown rapidly over the last four fiscal years from 22.8 percent of GDP in Financial Year (FY) 05/06 to a planned 28.5 percent for FY09/10. This is well above comparable levels for similar countries in the region. This issue’s significance depends critically on the programs on which the resources are spent. Again, the current budget classification used does not provide the relevant information to make any judgment. An economic and functional classification together would assist such analysis and enable drawing relevant conclusions for further improvement in planning and budgeting in Tanzania. 6. The last few years have seen a significant improvement in domestic revenue collection. Domestic revenue as a percentage of GDP increased from 10.8 percent in 2002/03 to close to 16 percent for 2008/09. Modernization of tax administration and strong macroeconomic performance are the main drivers of this performance. Nonetheless, there is still room for further improvements in domestic revenue collection, both from tax and non tax, through improved tax policy and administration.

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Budget Allocation – 2009/10 7. The Planning and Budget Guidelines (PBG) continue to provide limited guidance to spending agencies to strategically plan and budget over the medium term. This is due to significantly large variations between budget ceilings and the approved budgets, especially the two outer years of the Medium Term Expenditure Framework (MTEF). Thus, it is important that the government put forward a clear strategy for strengthening the PBGs and MTEF, including enhanced multiyear predictability of the resource envelope, to allow spending agencies to plan strategically. 8. Despite the increased domestic revenue mobilization and foreign aid, the share of the total budget allocated for implementing MKUKUTA continues to remain stable at around 70 percent. The increased domestic revenue and foreign aid appears to be shared equally between MKUKUTA and non-MKUKUTA priorities instead of giving priority to poverty reducing expenditures. There is a need for a deliberate decision, as well as guidance to sectors, to prioritize MKUKUTA expenditures as budget space becomes available. 9. The key sectors (namely education, health, water, agriculture, roads, and energy) continue to be prioritized, with about 60 percent of the 2009/10 budget allocated to these sectors. However, compositions of expenditure allocations in these sectors need some further attention. For instance, in education, while secondary education accounts for only 11 percent of education spending, higher education accounts for 24 percent, although the secondary education subsector is a top priority. Furthermore, capitation grant in secondary school remains under funded, although it is known to be a critical input for better learning outcomes. In health, budgetary allocations continue to decline in both per capita terms and as a percent of GDP; at the same time, key programs like maternal and child health remains under funded. 10. In the road sector, a major drop in the development budget of roads for the ministry of infrastructure is observed, which is only minimally offset by a slightly larger allocation for rural roads and a larger MCC road component in the MoFEA. In addition, allocations in FY2009/10 also fall short of TSIP and MTEF projections. Even more worrisome, funds allocated for on-going and newly signed upgrading contracts fall short of requirements of new contracts for upgrading and paving trunk and regional roads that were signed in the summer of 2009, leading to an overall underfunding of the road budget of around US$ 130 million, if no more new projects are signed during the FY. The shortfall could imply cuts to other part of the approved budget, but also raises concern on the effectiveness of the commitment controls procedures. This also weakens meaning of the approved budget and of its allocation choices. 11. The overall economic composition of the budget (such as investment, maintenance, wage bill, and allowances) matters a lot in determining whether it is growth oriented. With a sharp decline in capital investment (infrastructure construction and rehabilitation, and acquisition of equipment) of about 9 percentage point, from 24 percent in 2008/09 to 15 percent in 2009/10, the budget remains limited in its growth orientation. The decline in capital investment in the 2009/10 budget is mostly noted in road and energy sectors. This trend raises concern whether the budget is still committed to implementing MKUKUTA, especially growth and reduction of poverty objectives. Hence, the government needs to provide clear guidance on budget composition by

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economic nature in key sectors to achieve economic growth and reduction of poverty objectives of the MKUKUTA. 12. The government has commendable progress in implementing the Decentralization by Devolution (D by D) policy, with 23 percent of the budget in 2009/10, up from 21 percent in 2008/09, being allocated to Local Government Authorities (LGAs). The recent decentralization of secondary education delivery to LGAs, starting from the 2009/10 budget, is one of the key factors behind increased resources transferred to LGA. Despite the progress, some further efforts are required to ensure that increased resources transferred to LGAs are allocated on formula basis to reduce inequality in per capita resource allocation among districts. 13. The wage bill accounts for 33 percent of the total budget in 2009/10, equivalent to 9.3 percent of GDP. Further, the share of allowances in the wage bill remains high at 18 percent, with limited progress in consolidating these allowances into basic pay, and a lack of an overall framework pending the approval of a new Medium Term Pay Policy (MTPP). With further growth in the wage bill as a result of recruitment in the education and health sectors, especially for underserved areas, the budget space necessary for increased capital investment in order to generate economic growth becomes increasingly limited. The new MTPP III being developed would need to have an explicitly stated objective of keeping the wage bill-to-GDP ratio as well as allowances (especially duty facilitating allowances) consistent with fiscal sustainability and a prioritization of public investment, in the budget. 14. With the exception of roads, infrastructure maintenance continues to receive no attention in the 2009/10 budget allocation. On one hand, allocations for infrastructure in key social sectors (education and health) are less than 1 percent of the total sector’s budget allocation, although significant infrastructure investment has taken place in these two sectors. On the other hand, despite the increased allocations for infrastructure maintenance in the roads and water sectors, allocations remain inadequate due to huge capital investment in the sectors in recent years as well as existing backlog in maintenance requirement. Thus, key sectors should be given guidance on how to allocate adequate resources for infrastructure maintenance. Budget/Actual Expenditure Consistency – 2008/09 15. The Ministries, Departments and Agencies’ (MDAs) recurrent budget deviation index declined to 13.1 percent in 2008/9. However, this decline comes after adjusting for reallocations from contingency to various votes for salary arrears payment, following the government decision to raise the minimum salary of civil servants starting from January 2008 (mid of FY). Further progress in reducing MDAs’ recurrent budget deviation index is important to achieve the Government target of 10 percent in 2010, which will also guarantee availability of adequate resources for delivering key public services, like the capitation grant for improved quality learning outcomes and drugs budget for improved quality of child and maternal health services. 16. The development budget execution continued to struggle in 2008/09, although it showed some slight improvement compared with 2007/08. While about 60 percent of the budgeted MDA development funds were released in 2008/09, only 52 percent of the budgeted funds were spent. The picture looks even worse for LGAs. A combination of late and uncompleted release of funds (both foreign and local) as well as limited capacity in executing large capital intensive projects are among the causes.

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17. It is critically important to strengthen the MTEF, including the public investment planning. The government should adopt a medium term public investment that is consistent with a reliable MTEF. The strengthened and reliable MTEF should provide a significant step forward toward improving predictability of resources, both local and foreign, to spending agencies. 18. Strengthening credibility of the cash flow and procurement plans as well as strengthening the cash management unit at the Treasury is essential to improving timeliness in the release of funds and budget execution. Currently, four pilot MDAs have been trained, and they are in the process of preparing credible cash flow and procurement plans. The MoFEA should strive to implement the strengthened cash flow and procurement plans of the four MDAs. Furthermore, it important that efforts be extended to strengthening capacity to all spending agencies to prepare credible cash flow and procurement plans. 19. Weakness in preparation and implementation of large capital investment projects in some of the MDAs has remained one of the major causes of low execution rates of the development budget. It is therefore important for Government to strengthen capacity to prepare and implement public investment projects. Such capacity should include project designing, planning and implementation, from feasibility and economic evaluation to physical implementation and monitoring. It is also critically important to maintain a database on the status of all ongoing investment projects and those in the pipeline. Projects should be prepared well in advance and put in a project data bank ready for implementation whenever fiscal/budget space is available. 20. Further efforts should also be geared toward improving public financial management to ensure that more donor funds are channeled through the exchequer system. The government and DPs should work closely to address key Public Financial Management (PFM) challenges to ensure that further support follows the preferred Aid Modality (General Budget Support) as stipulated in Joint Assistance Strategy for Tanzania (JAST). National Audit Reports 21. Main findings from the NAO financial audit for FY 2007/2008 reveal serious shortcomings in the current PFM system. The related reports show evidence of low compliance with procurement laws and regulations for central government entities, LGAs, and public bodies. At the central government level, overall procurement irregularities in 2007/2008 amounted to over Tsh 6.6 billion, and the level of compliance to procurement procedures for local government was 45 percent. For public bodies, the NAO found Chief Executive Officer (CEO) interference with tender boards and determined that 13 percent of procurement activities are being awarded without competitive bidding. Especially for MDAs, weaknesses were also found in contract management, resulting in Tsh 11 billion of questionable expenditure. 22. Controls are weak: for payroll, non-salary expenditure, access to the Epicor system (especially at the central and local government levels), and for bank reconciliations, resulting in outstanding bank reconciliations (Tshs. 64 billion for nine MDAs alone) or improper recording of financial transactions, which is also jeopardizing cash management. The lack of supporting documentation or payment vouchers in relation to weak internal controls on expenditure are resulting in a substantial amount of undocumented expenditure (over Tsh 17 billion for MDAs and around Tsh 5 billion for LGAs). Weak controls are also causing poor asset management, and

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a consequent depletion of public resources, at an increasing rate. An internal audit function is still mostly lacking for central government, though less so for public bodies, and is understaffed or under skilled at the local government level. 23. Performance audits issued by the NAO between January 2009 and 2010 corroborate these findings by documenting poor management and record keeping for pension funds; low compliance with procurement procedures; inadequate documentation of processes in the area of solid waste management; and insufficient information on the flow of funds and their use in the area of health service delivery, coupled with a lack of standardized guidelines for their distribution and monitoring. 24. The expenditure analysis presented in the consolidated government accounts, and the audit of the accounts of LGAs, revealed a high level (42 percent compared with the approved budget) of unspent balances for development expenditure, due to delays in the release of funds for donor funded projects. The amount of unspent development expenditure is increasing, resulting in a widening gap between approved and actual expenditure, which, combined with an increased level of commitments compared with FY 2006/2007, is undermining budget credibility. 25. As a result of the shortcomings noted through the audit of the accounts for central government, local government, and public bodies, 71 percent of MDAs received a clear audit opinion, compared with 76 percent for 2006/2007, and 6 percent received an adverse opinion compared with none in the previous year. That said, around 80 percent of LGAs and public bodies received clean audit opinions. The NAO issued a qualified opinion on the consolidated financial statements, as it considered material misstatement to represent 7 percent of total expenditure, substantially above the NAO’s 2 percent threshold. 26. Overall, the loss of public assets was Tsh 3.6 billion for FY 2007/08, compared with Tsh 2.4 billion for FY 2006/07. The noted poor compliance with procurement laws and regulations and the overall inadequacy of internal controls are also jeopardizing public resources by increasing the opportunities for corruption and fraud. NAO findings on the low level of corporate governance for public bodies, including conflict of interest issues created by MPs serving as members of boards of directors, increase concerns on the possible misuse of public money. 27. The NAO has already pointed out the shortcomings of the country’s PFM system in previous reports, yet implementation of recommendations from former audits is particularly inadequate. As a result, there is an impending need to improve many key components of the PFM system (budget credibility, internal controls and internal audit, payroll controls, procurement systems, financial reporting practices and information systems), as well as corporate governance, also by ensuring a more effective follow up on outstanding NAO recommendations. Status of PEFAR Capacity Building Work Program 28. The PEFAR capacity program is in its second year of implementation, with three key priority areas being strengthened to improve planning and budgeting. These areas are (i) macroeconomic model (MACMOD-TZ), to improve its capacity to simulate growth and poverty reduction policies as well as to strengthen macro policy framework for planning and budgeting;

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(ii) the central MTEF, to facilitate and optimize the resource allocation system; and (iii) sector strategic plans (SPs) and sector MTEFs with a programmatic approach, to enhance the linkage between SPs, MKUKUTA, MTEF and results/outcomes. 29. Significant progress has been made in the three key identified priorities, with computer systems being upgraded and key government staff capacity being built in using the upgraded computer systems and model. For instance, the MACMOD-TZ has been upgraded to simulate growth policies, including budgetary policies, sector policies, and exogenous shocks. The upgraded MACMOD-TZ has also been used to develop the Macro and Financing chapter of MKUKUTA II and the Macro Framework Paper 2010/11-2012/13, which have provided critical input for the 2010/11 PBGs. The other big achievement is institutionalization of the Budget Background and Medium Term Paper, which will be published every year to accompany traditional budget books; the second edition was published in December 2009. Another achievement realized is MTEF strengthening, with the development of a simple Excel based MTEF optimization model and the revised SBAS Macro, which provides a stepping stone for a full upgrade of the MTEF. Preparations for building a programmatic dimension in sector SP and the MTEF in health, education, and road are complete, with experimental frameworks developed for the three sectors. 30. Notwithstanding the major progress made in capacity building, key areas of focus in 2010 are also being identified with priority being placed on strengthening sector MTEFs by implementing/introducing a programmatic dimension in sector SP and MTEF. This fosters better links to SPs, MTEFs, and the MKUKUTA II, thereby improving strategic planning and budgeting in Tanzania. Other areas of the program will also receive attention, including continued revision and upgrading of the MACMOD-TZ; Macro Framework Paper 2011/12-113/14 preparation; finalization of Macro Framework and Financing Chapter of MKUKUTA II; and preparation of a third edition of the Budget Background and Medium Term Paper.

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Summary of Key Recommendations

S/N Issue Recommendation

Medium Term Macro and Budget Framework

1. Unreliability of the macro and fiscal framework

Use a more conservative approach in setting revenue target; increase accuracy in determining resource envelope

2. Potential for increased domestic revenue collection

Improve tax policy and administration, including natural resources and exemptions

Budget Allocation

3. Weak PBGs, which do not provide adequate guidance on planning and budgeting

Improve the quality of PBGs and MTEF in order to help sectors have a more predictable resource envelope over the medium term

4. The share of MKUKUTA spending is stagnant at 70 percent despite the increased revenue and aid

Provide guidance to the sectors on how to prioritize MKUKUTA spending as additional budget space become available

5. Weak alignment of sector budgets and MKUKUTA

Provide guidance to sectors on how to align their budget with MKUKUTA, including prioritizing critical spending items like capitation grant

6. Major decline in allocation for “true” capital spending

Provide guidance to sectors, especially infrastructure and energy, on how to prioritize capital spending in their budgets.

7. Inequality in per capital education and health spending across district

Ensure resources transferred to LGAs are allocated on formula basis; also address inequalities in staffing levels – education and health – across districts

8. The share of wage bill and duty facilitating allowances have gone to high

Reduce the share of wage bill and duty facilitating allowances, consistent with fiscal sustainability and prioritization of public investment objectives.

9. Limited allocation for maintenance budget

Provide guidance to sectors on how to prioritize allocation for maintenance in their budgets

Budget-Actual Expenditure Consistency

10. Recurrent deviation index remains high at 13.1 percent

Reduce recurrent budget deviation consistent with 2010 target of 10 percent, as well as ensuring full funding of critical budget items – like capitation grants and drugs

11. Low execution of development budget

Improve development execution by – strengthen the MTEF, cash flow and procurement plans, and capacity to prepare and implement large capital investment projects

12. Large share of donor funds still on direct to project aid modality

Address public financial management challenges consistent with PFMRP objectives to ensure more aid is channeled through preferred aid modality

National Audit Reports

13 Weak controls for payroll, non-salary, and access to IFMS

Improve controls of salary and non-salary expenditures by integrating these elements in IFMS

14. Low compliance with procurement laws and regulations

Improve compliance with procurement laws and procedures, including developing a procurement module in

xi

IFMS 15. Weak contract management Improve contract management by developing adequate

required capacity in key MDAs. 16. Weak internal audit function for

central government Continue to improve internal audit function in MDAs

17. Poor management and record keeping

Improve management and record keeping in all spending units through training

1

PART I: BUDGET ANALYSIS

2

1. INTRODUCTION 1.1 The budget analysis section constitutes the “core analysis” of the PEFAR 2009 report. The Rapid Budget Analysis 2009 and the Budget Execution Analysis 2009 are two key inputs into the report’s core analysis. The report presents an overview of the main findings and key messages of the various sector and thematic reports carried out as part of the Rapid Budget Analysis and Budget Execution Analysis of the 2008/09 cycle. 1.2 The analysis in this part of the report utilizes both budget estimates and actual expenditure data. The budget estimate data used are as originally approved by the Parliament, while the actual expenditure data used are as generated from the IFMS. The actual expenditure data are in some parts complemented by the data downloaded from the “logintanzania” website1, especially data for LGAs. As much as possible, the analysis is cast from a medium term perspective, with both budget estimates and actual spending data giving a three year trend or more in order to make some meaningful comparison. 1.3 The budget analysis part of the budget answers two key questions that are relevant for general budget support (GBS) - (i) whether the approved 2009/10 budget is in line with the MKUKUTA, the National Strategy for Growth and Reduction of Tanzania, priorities; and (ii) whether the actual spending in 2008/09 was in line with approved budget in 2008/09. The answer to these two questions gives an indication of the extent to which the budget is an effective financial instrument of implementing policies and priorities stipulated in the MKUKUTA and sector strategies in order to attain poverty reduction objectives. The alignment analysis is carried out along the three following directions:

1.4 Macroeconomic and Budget Framework: A favorable macroeconomic environment, which supports sustainable economic growth and low inflation, is a key for achieving MKUKUTA objectives. Thus, the report discusses the macroeconomic environment, both internal and external, in which the 2009/10 budget was prepared. In particular, it discusses the growth expectations, the revenue implications, domestic and foreign, and trends in expenditures. In addition, the report discusses the impact of the global financial crisis on Tanzania and its budgetary implications in addressing it.

1.5 Budget Allocations: The budget allocation analysis looks at the entire process, from the PBGs 2009/10 to the approved budget 2009/10. In particular, the section assesses whether PBGs are good predictors of resource allocation across MKUKUTA and key sectors in the final approved budget. Furthermore, in the approved 2009/10 budget, the report assesses how the budget is allocated among different MKUKUTA clusters and sectors as well as the economic composition of the budget in terms of wages, current expenditures, maintenance, and public investment. The main aim is to assess whether cluster, sectoral, and

1 Logintanzania website (logintanzania.com) is administered by the Prime Minister’s Office, Regional Administration and Local Government (PMO-RALG); regularly updated, it contains both budget estimates and actual spending data, by LGA and by sectors.

3

economic compositions of the 2009/10 budget are consistent with MKUKUTA policies and objectives and sector policies. An update of the D by D policy is also given in this part. 1.6 Budget and Spending Consistency: The last stage of the analysis in this part addresses the question of whether actual expenditures in 2008/09 were consistent with the original approved budget. It also examines the question of whether the budget achieves its stated impact on the ground, in terms of providing effective public services to the population in an equitable and efficient manner. In particular, the analysis of the execution of the budget in 2008/09, with a particular focus on the MDA development budget, is presented in this part. The analysis in this section continues by shedding some light on value audits conducted by the NAO in two key sectors, education and health.

4

2. THE MEDIUM TERM MACROECONOMIC AND BUDGET FRAMEWORK

2.1 This section discusses the macroeconomic situation and its budgetary implications as spelled out in the macroeconomic policy framework for the plan/budget 2009/10-2011/12, published by the Ministry of Finance and Economic Affairs. As such, it discusses growth expectations, revenue implications, domestic and foreign financing, and trends in expenditures. In addition, it reviews Government’s response to the global crisis and its budgetary implications.

MEDIUM TERM MACROECONOMIC OUTLOOK 2.2 Growth over the last decade has been robust in Tanzania. Growth over the period 1998-2009 ranged between 5 and7 percent annually. The growth outlook, of the government as expected at the time of the budget presentation in July 2009, indicated a slowdown in 2009 and 2010 due to the global financial crisis, with growth returning to the prior trend in 2011 and 2012. The result is that for the MTEF period FY09/10-FY11/12, growth is projected to average 6.5 percent; construction, manufacturing and services are projected as the sectors growing faster than GDP during this period.

(in 2001 constant prices, sectors at up to GDP growth)

Source: Ministry of Finance and Economic Affairs; NSO and World Bank staff estimates.

2.3 Although Figure 1 does not seem to indicate a major shift in Tanzania’s sources of growth, the relatively small differences in sectoral contributions to GDP growth have had a significant impact on the sectoral composition of GDP. Table 1

Figure 1: Sectoral contribution to growth Table 1: Developments in GDP composition

Sectoral Composition of GDP (in 2001 prices)

% of GDP YR98

YR03 YR08 YR12

GDP at factor cost 94.2

94.4 94.6 94.1 Agriculture 31.3

28.3 24.9 22.8

Mining and quarrying 1.4

2.0 2.5 2.2

Manufacturing 8.4

8.3 9.1 9.8

Electricity, gas, and water 2.7

2.5 2.4 2.2

Construction 5.2

5.7 6.6 6.9

Services 45.2

47.5 49.0 50.1

5

shows the consequences of Tanzania’s growth pattern on its GDP composition. Agriculture as a percentage of GDP declined from 31.3 percent of GDP in 1998 to just below 25 percent in 2008. Expansion took place in all other sectors except in electricity, water, and gas. This trend is expected to continue for the MTEF period 2009-2012, with the agriculture, electricity, water, and gas sectors declining in importance, joined by the mining and quarrying sector, while the services, construction, and manufacturing sectors are expanding as a percentage of GDP. 2.4 Inflation and exchange rate developments over the last twelve months indicate the need for enhanced attention towards macro-stability. Inflation accelerated back into double digits in the second half of 2008, reaching over 13 percent (year on year), before benefitting from reduced international prices for oil and related products (see figure 2). Food price inflation, still clearly in double digits, has decelerated as well. Notwithstanding these trends, inflation stayed into double digits until early 210. It is anticipated that inflation will be in single digits again toward the middle of 2010, on the back of a good agricultural season, and the government target is to see it continue on a downward trend for the remainder of this calendar year. The nominal exchange rate was allowed to depreciate against the United States dollar (USD) in the second half of 2008, when the USD strengthened against other major currencies. While this basically ensured that the real bilateral exchange rate against the USD showed little movement, it did result in a strong real appreciation against most other bilateral exchange rates at the time (see figures 2 and 3). The weakness of the USD in 2009 reversed the appreciating trends against the South African Rand, British Pound and Euro that emerged in 2008.

Figure 2: Inflation and exchange rate

developments

Figure 3: Bilateral real exchange rate

developments

Sources: IMF, Bank of Tanzania (BoT), NSO, US Federal Reserve, and World Bank staff estimates.

2.5 External developments have been adversely affected by the global crisis. Even though gold exports have been strong, tourism revenue and foreign direct investment (FDI) have been particularly negatively impacted by the global downturn (see figures 4, 2,

6

and 3, respectively). However, lower imports, caused in part by lower oil prices, made up for the loss in export revenue and the availability of private external financing (see Table 3). External developments had been quite favorable for Tanzania until the outbreak of the global crisis in autumn 2008. Exports of both goods and services as a percentage of GDP were rising. The result was that by FY2008/09, the current account balance before (all) grants had declined to 12.4 percent of GDP, and FDI was financing close to 25 percent of this financial need (see table 2). However, official inflows, both grants and official loans, remain the largest source of external financing and provided on average two thirds of Tanzania’s external financing needs over the four fiscal years ending FY08/09. Grants provide approximately 58 percent the official inflows; the remainder comes from foreign official loans. There is very little variance in the composition of official inflows over the period analyzed, FY2004/05-FY2008/09. 2.6 Looking forward, it is clear that the global crisis will affect Tanzania for some time to come. For example, net service revenue, which includes tourism revenue, is projected to decline to around 1 percent of GDP by FY2011/12, and FDI is projected to provide less of the external financing needs of Tanzania. Hence, in the coming years, Tanzania will depend to a lager extent on official inflows to finance its current account deficits, which themselves might be affected by budget constraints in OECD countries. The current account balance, however, is projected to improve, mainly due to favorable assumptions on the price movements of oil products, which suppress Tanzania’s overall import bill.

.

-5.8

-8.6 -7.6 -6.9 -7.3 -6.9 -6.2

-11.2-13.2 -14.2

-12.4 -13.0 -12.7 -11.6

12.1 13.6 13.8 13.9 13.1 12.6 12.4

0.92.0 2.1 2.7

1.20.8 1.0

FY05/06 FY06/07 FY07/08 FY08/09 FY09/10 FY10/11 FY11/12

External Developments (% of GDP)

CAB (after all Grants) CAB (before Grants)

Exports of goods Services (net)

FY05/06 FY06/07 FY07/08 FY08/09 FY09/10 FY10/11 FY11/12Financing requirements (% of GDP 13.7 15.6 16.9 11.6 11.8 11.5 11.5Financing requirements (% of tota 100 100 100 100 100 100 100

CAB (before grants) 83 87 83 103 102 101 92Amortization 4 1 1 2 2 2 2Reserves (incl IMF (net)) 13 12 16 -5 -4 -3 5

Financing sources 100 100 100 100 100 100 100Offical inflows 69 56 66 79 77 78 69

Grants 40 30 38 46 45 46 43Loan disbursements 29 26 27 33 33 32 26

Private inflows 31 44 34 21 23 22 31FDI 28 28 22 24 18 19 21Other (incl. E&O) 3 16 13 -3 5 4 10

ProjectedActual Preliminary

Sources: IMF and World Bank staff estimates.

2.7 The impact of these external developments on Tanzania’s external debt has been relatively mild. Heavily Indebted Poor Countries (HIPC) debt relief and Multilateral Debt

Relief Initiative (MDRI) have greatly reduced Tanzania’s external debt and debt service levels (see figure 5). The joint IMF-World Bank Debt Sustainability Analysis (DSA), which was undertaken in first half of 2009, concludes that “sensitivity analysis based on standardized shocks supports the conclusion that the risk of debt distress is low going forward.” The main impact of the global financial crisis was the postponement by GoT of its series of sovereign bonds issues, which were to be used to finance investments in infrastructure planned initially for FY2009/10, to at least FY2010/11 given the unfavorable global financial climate.

Figure 4: External Developments Table 2: Financing requirements and sources

7

2.8 The foreign reserve levels remain relatively comfortable, not in the least because the Bank of Tanzania sought additional resources from the IMF through its Exogenous Shock facility. Consequently, reserve levels rose to well above US$ 3 billion; they provide an estimated import cover of around 5 months for FY2009/10. Nevertheless, upcoming challenges, such as the opening up of the capital account as part of Tanzania’s commitment to the East Africa Community and the duration of the impact of the global financial crisis on tourism revenue and remittances, point to the need to maintain prudent levels of foreign reserves, if not a need to increase them.

Figure 5: External debt developments Figure 6: Foreign Reserve developments

Source: IMF-World Bank Debt Sustainability Analysis, IMF, and World Bank staff estimates.

IMPACT OF THE GLOBAL CRISIS ON THE MACROECONOMIC OUTLOOK FOR TANZANIA

2.9 In the first half of 2009, it became increasingly clear that the global crisis would have a significant impact on Tanzania’s macroeconomic situation and outlook. As a result, the Government, under leadership of the governor of the Bank of Tanzania, prepared a rescue package as a means to compensate for weaker external demand for Tanzania’s exports and a reduction in FDI inflows (see box 1 for an overview of the rescue plan). As a result, the 2009 growth rate was revised upward from 5 percent to a slightly higher target of 5 percent taking into account expected impact of rescue package. Lower profitability in the export sector and a much lower import bill started to show their impact on domestic revenue around the same time. As an emergency measure, GoT resorted to monetary financing of its budget deficit by borrowing approximately 1.2 percent of GDP from the Bank of Tanzania in FY2008/09. Given Government’s intention to conduct countercyclical fiscal policy and the emerging reduction in the availability of domestic resources, Government had to abandon its intention not to borrow domestically for the coming years (see table 3). Consequently, domestic borrowing is anticipated to equal 1.6 percent of GDP in 2009/10.

8

Box 1: Tanzania: Economic Rescue Package

Source: IMF Country Report No. 09/336.

Jan 2009

(I)

June 2009 (II)

Change between

I and II% of GDP

Jan 2009

(I)

June 2009 (II)

Change between

I and II% of GDP

Jan 2009

(I)

June 2009 (II)

Change between

I and II% of GDP

Real GDP Growth 7.3 7.7 7.5 -0.2 8.0 5.0 -3.0 8.0 5.7 -2.3GDP per Capita in USD 478 549 518 -31 592 532 -60 638 561 -77Inflation (p.a.) 8.4 8.3 12.0 3.7 5.4 7.7 2.3 5.0 5.2 0.2

Mil l ions of USD, unless otherwise indicated

Exports 2609 3187 2891 -296 -1.4 3412 2860 -552 -2.5 3575 2961 -614 -2.6Imports 5679 6590 5955 -635 -3.0 7168 5841 -1327 -6.1 7772 6001 -1771 -7.5Current Account Balance -2012 -2240 -1906 334 1.6 -2447 -2108 339 1.6 -2736 -2142 594 2.5FDI 712 802 591 -211 -1.0 890 502 -388 -1.8 988 553 -435 -1.9Gross Reserves 2649 2793 2766 -27 3057 2748 -309 3397 2663 -734 In months of Imports 3.8 3.7 4.4 0.7 3.7 4.2 0.5 3.7 3.9 0.2

Bil l ions of Tanzanian Shil l ing, unless otherwise indicated

Domestic Revenues 3635 4729 4249 -480 -1.8 5540 5096 -444 -1.4 6307 5776 -531 -1.5Total Expenditures 5217 7139 7058 -81 -0.3 8142 8724 582 1.9 9010 9509 499 1.5Deficit, after grants (% of GDP) 1.6 3.7 4.9 1.2 3.2 6.0 2.8 3.2 5.3 2.1

Actual FY07/08

Estimated FY09/10 Projected FY10/11Estimated FY08/09

a/ Estimates and projections in the column labelled 'Jan 2009' are based on the IMF report "Fourth review under the PSI" and the estimates and projections in the column 'June 2009' are based on the Budget speech (June 2009), on the IMF Art. IV document for BoP data, and World Bank staff estimates.

On June 9 2009, a package of measures to cushion the impact of the global crisis was announced to achieve the following key objectives: a) protect employment and income levels; b) ensure food security; c) protect key investments, especially in infrastructure; and d) protect social services programs. The package contains measures to stimulate domestic demand and provide targeted support for affected sectors, especially agriculture. The key components, which were included in the 2009/10 approved budget, include: A cut in the VAT rate from 20 percent to 18 percent (TSh 167 billion – bn; • A two year exemption from royalty payments for diamond and tanzanite miners (TSh 5 bn); • An expanded agricultural input subsidy program (TSh 81 bn); • Clearance of losses incurred by agricultural cooperatives and private companies in traditional cash

crop exports, principally coffee and cotton (TSh 21.9 bn); • Price support in the cotton sector (TSh 20 bn); • Partial government guarantees (70 percent) for restructuring of commercial loans to affected sectors—

manufacturing, tourism, and agriculture. The loans, extended by domestic banks, are being restructured in bilateral negotiation between the concerned commercial banks and the lender. Total debt to be restructured is estimated at TSh 270 bn and is anticipated to cost Government TSh 45 bn;

A capital injection for existing credit guarantee schemes for exporters and Small and Medium Enterprises (SMEs) (TSh 20 bn); • A capital injection to the Tanzania Investment Bank to finance agriculture (TSh 20 bn); • Expanded infrastructure investment, including roads and energy sectors.

Table 3: Estimates of the impact of the global financial crisis on Tanzania macro indicators

9

MEDIUM TERM FISCAL OUTLOOK 2.10 Government has been successful in creating fiscal space over the last six fiscal years. Table 4 shows the sources and uses of fiscal space for the last six financial years, the last three financial years, and the coming three financial years. It is clear from the analysis summarized in table 4 that increases in domestic revenue mobilization have been the main contributor to the creation of fiscal space in each period analyzed. For the period FY2002/03, when sources of fiscal space resulted in an increase of fiscal resources by 9.1 percent of GDP, 56 percent was generated by higher domestic revenue, 18 percent because of domestic borrowing, and the remaining 26 percent through a combination of foreign grants and foreign credits/loans. 2.11 During Y2005/06-FY2008/09, fiscal space was generated through a combination of increased domestic revenue and reduced recurrent spending. Net domestic borrowing during this period was fixed at zero percent of GDP. Going forward, in FY2009/10-FY2011/12, fiscal space is projected to be created through increased domestic revenue mobilization and, borrowing from domestic and external sources. Fiscal projections for FY2010/11 and FY2011/12 include the issuance of a sovereign bond, equivalent to *** over next three years, for increased infrastructure spending. 2.12 Evaluating the uses of fiscal space shows that 45 percent of the additional resources were used for recurrent expenditures and 55 percent for development expenditures, with a large part allocated to wages and salaries during the period FY2002/03-FY2008/09. During the three year period ending in FY2008/09, recurrent expenditures were suppressed (except for wages and salaries) and divided among recurrent and development expenditures, which rose by 3.8 percent. Looking forward to FY2009/10-FY2011/12, the expectations are to contain wage growth and increase further development expenditures and other recurrent expenditures, such as maintenance expenditures for the road sector and agricultural spending. 2.13 The size of Government as measured by total expenditures over GDP has risen noticeably, from 22.8 percent of GDP in FY2005/06 to 24.9 percent for FY2008/09 and a planned 28.5 percent for FY2009/10 (see Figure 7). Contrasting Tanzania with a group of comparable countries in Africa shows that the growth of Government has outpaced by a significant margin the growth of GDP per capita. Part of the growth in FY2009/10 is anticipated to be temporary as a means of dampening the domestic demand impact of the global crisis. However, even if Tanzania returns to an expenditure level of 27.5 percent of GDP in FY2011/12, as is anticipated in its fiscal outlook, the country remains well above the trend line for it comparators, indicating that it may need to rationalize and prioritize expenditure allocations as the expected impact on growth is less than it could or should be (see sections below)2.

2 However, at the same time, governments with a higher level of wealth (as measured by higher GDP per capita) are spending more as a percentage of GDP, given that citizens demand better and more services from their governments when a country becomes richer.

10

(measured by total expenditure as % of GDP (Y-axis) and natural log of GDP per capita (Y-axis))

Δ 02/03-

08/09

Δ 02/03-

08/09

Δ 05/06-

08/09

Δ 05/06-

08/09

Δ 08/09-

11/12

Δ 08/09-

11/12

% of GDP (% of total) % of GDP (% of total) % of GDP (% of total)

Sources of Fiscal space 9.1 100 1.9 100 2.5 100

Domestic Revenues 5.1 56 3.5 189 1.7 68

Domestic Borrowing 1.6 18 -0.5 -29 0.0 2

Grants 0.3 3 -1.3 -70 0.6 24

External financing 2.1 23 0.2 10 0.1 6

Uses of Fiscal space 9.1 100 1.9 100 2.5 100

Recurrent Expenditures 4.1 45 -2.4 -128 0.7 27

o.w. Wages 2.4 27 2.1 114 -0.3 -11

o.w. Other current spending 1.7 18 -4.5 -243 1.0 38

Development Expenditures 5.0 55 3.8 206 1.6 65

Interest payments 0.0 0 0.4 22 0.2 8

Botswana

South Africa

Namibia

Angola

Zambia

Kenia

Ghana

Burkino Faso

TAN (FY11/12)

TAN (FY09/10)

TAN (FY05/06)

Mozambique

Uganda

The Gambia

Rwanda

MadagaskarNiger

Ethiopia

Congo

TAN (FY08/09)

15.0

17.0

19.0

21.0

23.0

25.0

27.0

29.0

31.0

33.0

35.0

4.50 5.50 6.50 7.50 8.50

Sources: MoFEA, IMF, and World Bank staff estimates.

-4.2

-3.8

-0.4

-3.8

-3.6

-3.5

-3.5

-5.5

-4.9

-1.6

-4.7

-4.9

-4.8

-4.6

FY05/06

FY06/07

FY07/08

FY08/09

FY09/10

FY10/11

FY11/12

(FY05/06-FY11/12, % of GDP)

Overall balance Primary balance

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0

10

20

30

40

50

60

70

80

FY05/06FY06/07

FY07/08FY08/09

FY09/10FY10/11

FY11/12

Public sector debt (% of GDP, LHS)

Interest payments (% of GDP, RHS)

Source: MoFEA, IMF, and World Bank staff estimates.

2.14 An important facet of fiscal policy is the sustainability of its fiscal position as measured by its public debt levels and public debt dynamics over time. Public debt as a percentage of of GDP, consisting of domestic and external liabilities, amounted to an estimated 36.6 percent at the end of FY2008/093 (see figure 9). The dynamics of public debt are affected by the level of the primary fiscal deficit as well as assumptions about the level and terms of new debt contracted and the GDP growth.4 While the primary deficit as a percentage of GDP equaled a quite large 3.8 percent of GDP for FY2008/09 (see figure 8),

3 This includes the Tsh323 billion borrowed from the Bank of Tanzania at the end of FY2008/09. 4 The definition of the primary deficit is the overall deficit corrected for interest payments. Hence, if the overall deficit is equal to 5 percent of GDP and interest payments equal 2 percent of GDP, then the primary deficit equals 3 percent of GDP.

Table 4: Sources and uses of fiscal space developments Figure 7: Size of Government developments

Table 5: Government balances developments Figure 8: Public debt dynamics and interest payments developments

11

the effective interest rate on outstanding debt is fairly low, which reflects the high proportion of concessional finance. Overall, the latest Debt Sustainability Analysis suggests a low risk of debt distress, even in scenarios in which there is a modest amount of non concessional borrowing, for example to step up infrastructure investment.5 However, the maintenance of fiscal and debt sustainability depends critically on the existence of a sound debt management strategy, the continued availability of concessional financing sources, and effective project evaluation to ensure an economic rate of return from investment projects.

REVENUE AND AID OUTLOOK 2.15 The last few years have seen a significant improvement in domestic revenue collection. Domestic revenue as a percentage of GDP increased from 10.8 percent FY2002/03 to close to 16 percent for FY2008/09 (see table 5). This has been accomplished to a great extent through the modernization of Tanzania’s tax administration and strong macroeconomic performance. Nevertheless, there is still room for further improvements in domestic tax collection, as a recent study by the IMF Fiscal Affairs Department indicates that the aggregate tax gap (the shortfall in tax revenue due to policy and administrative shortcomings), compared with what the tax authorities could collect, was 5.8 percent for FY2008/09.6 2.16 Due to a combination of factors, domestic revenue performance for FY2008/09 was less stellar than projected. Revenue collection was 90 percent of the original target set for FY2008/09. The targets set for FY2008/09 for revenue relied on a 34 percent increase over the outturns for FY2007/08. As nominal GDP for FY2008/09 was expected to increase at the beginning of that fiscal year by approximately 17 percent, domestic revenue had to basically increase in real terms by around 17 percent as well. This would have to come from changes in tax policy and improvements in tax administration. This target became progressively unrealistic given that GoT did not deliver on a series of tax revenue enhancing policies that had been put forward with the budget in June 2008 and the emerging global economic crisis. Consequently, tax revenue increased by 20 percent in FY2008/09 compared with FY2007/08.

2.17 As can be seen from Table 7, the increases in domestic tax revenue came in particular from better tax administration in the areas of income tax, import and excise duties. Income tax revenue increased from 3 percent of GDP in FY2004/05 to 5 percent in FY2008/09. Over the same period, import and excise duties doubled from 0.7 and 1.6 percent to 1.4 and 3.1 percent, respectively, of GDP. This reduced the heavy dependence on Value Added Tax (VAT) taxes and henceforth led to more diversification of Tanzania’s tax revenue. 2.18 The targets for tax revenue for FY2009/10 were set to increase by 19.9 percent compared with FY2008/09, which was not realistic given the international crisis

5 A Debt Sustainability Analysis was conducted in mid-2009 by the staff of the World Bank and the IMF in conjunction with the MoFEA. The report is available at http://www.imf.org/external/pubs/cat/longres.cfm?sk=23005.0 6 A study by the Tanzania Revenue Authority focusing on administrative shortcomings only put the tax gap at 2.8 percent of GDP. Hence, the difference would be due to policy differences such as tax exemptions.

12

situation. Consequently, the tax revenue collections for the first six months of FY2009/10 show a continuation of the 2008/09 trend, with the overall revenue collection rate at only 91.3 percent, resulting in a tax revenue shortfall of over Tsh 100 billion for the first quarter. It is unlikely, in the remaining 6 months, to see a surge in tax revenue to make up for the shortfall that emerged in the first semester. Clearly, this has the effect of complicating the execution of the cash-based budget in the 2009/10 fiscal year. 2.19 In the current macroeconomic framework, as indicated in the latest IMF ESF publication, the MoFEA anticipates that domestic revenue collections would increase as a percentage of GDP to 16.0 percent and 16.2 percent, respectively, for FY2010/11 and FY2011/12. Given the current difficulty in collecting tax revenue, these targets may turn out to be realistic, but they also indicate a slowdown of the impact on tax revenue from the improvements in tax administration and therefore will lead to a delay in the closing of the tax gap. Table 6 Composition of domestic tax revenue

developments Table 7: Composition of aid: Project versus budget

developments

FY04/05 FY54/06 FY06/07 FY07/08 FY08/09 FY09/10 FY04/05 FY05/06 FY06/07 FY07/08 FY08/09 FY09/10% of total % of GDP

Total 100.0 100.0 100.0 100.0 100.0 100.0 Total 10.2 9.3 8.7 10.3 9.4 10.2Import Duty 6.4 9.8 9.6 8.6 8.8 9.2 Project aid 4.7 3.9 3.5 3.7 4.1 4.1Excise duty 14.7 13.4 20.6 19.7 19.7 20.5 Budget aid 5.4 5.4 5.3 6.6 5.3 6.1VAT 42.2 41.3 32.9 31.0 29.7 28.8 % of Total aid

Income tax 27.7 28.5 28.3 29.3 31.3 30.9 Total 100.0 100.0 100.0 100.0 100.0 100.0other 9.0 7.0 8.6 11.4 10.4 10.6 Project aid 46.5 41.6 39.7 35.9 43.2 40.4% of GDP Budget aid 53.5 58.4 60.3 64.1 56.8 59.6Total 10.8 11.5 13.0 15.0 15.9 15.6 % of total expenditures

Import Duty 0.7 1.1 1.2 1.3 1.4 1.4 Total 48.2 39.1 36.5 42.2 37.2 36.0Excise duty 1.6 1.5 2.7 2.9 3.1 3.2 Project aid 22.4 16.3 14.5 15.1 16.1 14.5VAT 4.5 4.7 4.3 4.6 4.7 4.5 Budget aid 25.8 22.8 22.0 27.1 21.1 21.5Income tax 3.0 3.3 3.7 4.4 5.0 4.8other 1.0 0.8 1.1 1.7 1.7 1.7 Excluding IMF, but incl. HIPC and MDRI Source: MoFEA, IMF, and World Bank staff estimates.

2.20 Foreign aid in the form of grants or foreign credits has financed a significant portion of government expenditures and as such amounts to a considerable percentage of GDP (see table 6). Total aid has hovered for at least the last six years at approximately 10 percent of GDP. With total expenditures averaging around 25 percent for the period, aid has therefore financed on average 40 percent of total outlays by the government of Tanzania. Going forward, it is anticipated that foreign aid will decline to 8 percent by FY2011/12, while the government is planning to borrow up to 1 percent annually on non concessional terms through the issuance of sovereign bonds in FY2010/11 and FY2011/12. 2.21 The composition of aid (project versus budget aid) has hardly changed over the last five to six years. Even though there is clearly some variance from year to year in the composition of aid, on average, budget aid amounts to 60 percent of total aid, with the remaining 40 percent entering Tanzania as project financing.

13

2.22 Although aid pledges are made through well established processes in Tanzania, their predictability is not guaranteed (see figures 9a and 9b). Budget aid is clearly more predictable than project aid, but it also has in 2008/09 shown a high degree of variance. The actual disbursement through this channel is approximately 40 percent higher than indicated at the beginning of the fiscal year. Project aid clearly shows a higher degree of variance, and actual disbursements have been well below expected levels of disbursements during 2007/08 and 2008/09. It is important to understand the delays in project disbursements so that their predictability can be enhanced in the future.

0

200

400

600

800

1000

1200

1400

1600

Proj Act Proj Act Proj Act Proj Act Proj Act

FY04/05 FY05/06 FY06/07 FY07/08 FY08/09

Tsh billions

Predictability of budget aid(actual FY outcome compared to estimate at

begining FY)

0

200

400

600

800

1000

1200

1400

1600

Proj Act Proj Act Proj Act Proj Act Proj Act

FY04/05 FY05/06 FY06/07 FY07/08 FY08/09

Ts

h b

illio

ns

Predictability of project aid(actual FY outcome compared to estimate at

begining FY)

Source: MoFEA, IMF and World Bank staff estimates.

KEY CONCLUSIONS AND RECOMMENDATIONS 2.23 Tanzania is weathering the global financial crisis reasonably well. Government has proactively sought additional resources from the IMF to assure the availability of adequate foreign reserves and provided a “rescue package” of measures to ensure that impact on affected (agricultural) sectors would be manageable. The authorities were able to do this because of a strong initial macroeconomic position of low indebtedness, low fiscal deficit and relatively low inflation. It is important that the Government continue to implement prudent policies designed to maintain favorable macroeconomic conditions. 2.24 The Government of Tanzania has been successful in generating an additional 9 percent of resources for its expenditure programs over the last 6 years. However, the current budget classification used, recurrent versus development expenditures, obscures the ability to analyze the impact on growth and equity. Disaggregation of government spending into various components, including consumption (wages, maintenance, interest payment, other goods and services) as well as capital (investment in education and health, and core infrastructure) will make it easy to analyze the impact of public expenditure on economic growth and facilitate achieving MKUKUTA objectives.

Figure 9: a and b: predictability of budget and project aid

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2.25 The size of Government, as measured by total expenditures as a percentage of GDP, has grown rapidly, from 22.8 percent of GDP in FY2005/06 to a planned 28.5 percent for FY2009/10. This is well above comparable levels for similar countries in the region. The significance of this issue depends critically on the programs to which the resource spending is directed. Again, the current budget classification used does not provide the relevant information to make any judgment. A combined economic and functional classification would assist in conducting such an analysis and drawing relevant conclusions for further improvement in planning and budget preparation in Tanzania.

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3. BUDGET ALLOCATION – 2009/10

3.1 Is the 2009/10 budget allocation strategically aligned? This section tries to answer this question by assessing budget allocation in details. The analysis here builds on the analysis done in the 2008 RBA and goes further to assess:

• Are resources aligned to support implementation of the MKUKUTA cluster strategies and key strategic priorities?

• Are the key priority sectors adequately funded by allocating enough budgetary resources to implement key sectoral programs, like secondary education or preventive health care?

• Is the budget being used strategically to boost economic growth, which is a key for poverty reduction? To that end, is spending focused on production capacity and economic infrastructure construction and rehabilitation rather than consumption spending?

• How is the budget being used to respond to the global economic crisis while preserving key priority expenditures, such as education, health, and water?

• Has Government made further progress in implementing the strategy of Decentralization by Devolution, and has this translated to increased budget allocations to LGAs as compared with the central government structures (MDAs)?

• Is there some effort to preserve the newly constructed and rehabilitated infrastructure by allocating enough resources for infrastructure maintenance?

ALLOCATION BY MKUKUTA

Planning and Budget Guidelines (PBGs7)

3.2 The medium term commitments and interventions focus on scaling up and accelerating economic growth to support social service delivery with a view to reducing poverty (PBG 2009). The government has identified some measures, including enhancing productivity, building productive capacities, generating stimulus to the economy, strengthening economic competitiveness, and reducing cost of doing business at the microeconomic level. This resulted in intention to allocate increased reources for MKUKUTA, especially to target economic growth and reduction of poverty clusters, over the medium term. The PBGs show that more than 50 percent of the budgetary resources will be invested in economic growth and reduction of poverty (table 8). The intended beneficiaries are roads, agriculture and irrigation sectors, although this is not explicitly identified in the PBGs.

7 The Planning and Budget Guidelines is the key document issued by the Ministry of Finance and Economic Affairs, in collaboration with the Planning Commission, to guide MDAs, regions and LGAs during budget preparation. It is issued early in the budget preparation to guide the process. It sets out intended strategic resource allocation of the budget. It is usually discussed in the Parliament and approved by the Cabinet.

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Table 8: PBGs Cluster Allocation8

BG 05/06-

07/08

2005/06 2006/07 2007/08 2008/09 2007/08 2008/09 2009/10 2008/09 2009/10 2010/11 2009/10 2010/11 2011/12

Cluster I 39 43 49 48 42 43 41 48 50 51 51.2 54.6 53.4

Cluster II 43 35 30 31 41 37 39 34 33 31 29.2 29.3 30.4

Cluster III 18 22 21 21 17 20 20 18 17 18 19.5 16.1 16.1

BG 06/07-08/09 BG 07/08-09/10 BG 08/09-10/11 BG 09/10-11/12

Cluster I: Growth of the economy and reduction in economic poverty Cluster II: Improvement of quality of life and social being Cluster III: Governance and accountability

Source: PBGs (various).

3.3 The PBGs remain a generic document, aimed at stimulating discussions in the Parliament and Cabinet along broad strategic interventions. Contrary to the majority expectations that PBGs will prescribe ceilings and proposed allocations for MDAs, regions, and LGAs, the proposed allocations in the PGBs are based on clusters, while the vote level ceilings are communicated separately. This is done deliberately to ensure that discussions among key stakeholders are strategically focused along the MKUKUTA clusters. The PBGs made a clear distinction between MKUKUTA and non MKUKUTA expenditure, and further set priorities and budget ceilings by MKUKUTA clusters for the three year period beginning 2009/10. In so doing, the GoT expects that the budget discussions would gain effectiveness by focusing on these broad strategic tradeoffs at the cluster levels rather than in the more detailed interministerial allocations approach. Although the cluster allocation is good for focusing discussions around broad strategic areas, it is important that sector ministries have a better vision of their projected allocations. This should facilitate their yearly preparation/revision of programs and the quality of their budget submission in support of MKUKUTA implementation. 3.4 The intended priority of Cluster I, economic growth and reduction of poverty, has remained clear over the past four years. Notwithstanding a gain for Cluster II at the expense of Cluster I in FY2007/08 only, clusters have been converging across MKUKUTA on 50:30:20 split compared with a near 40:40:20 split mid decade. According to forward plans in the 2009 PBGs, this may even shift toward 55:30:15 across the three clusters. The projected share of Cluster I oscillated from 48 percent (in 2006/07 PBG) to 41 percent in (2007/08 PBG), then to 48 percent (2008/09 PBG), and 53 percent (2009/10 PBG). The same is true for the 2008/09 share of Cluster II, which fluctuated around 31 percent, 37 percent, and 34 percent over the prior three budget guidelines cycles. Nevertheless, projected resource allocations for Cluster I continued to increase during 200/07–2009/10 period. For instance, proposed resource allocations for Cluster I increased from 39 percent in 2005/06, according to PBG-05/06-07/08, to 53 percent in 2011/12, according to PBG-09/10-11/12. However, cluster allocation in the PBGs includes only non personnel expenses and development expenditures; personnel costs, such wages and salaries, and LGA allocations are not included. 8 The cluster allocations in the PBGs do not include allocation for personnel costs (including wages and salaries) because it is difficult to apportion staff time spent on cluster strategies, especially for MDAs where more than one cluster is covered. The allocations to regions and LGAs are also not included.

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Approved Budget 2009/10

3.5 The approved budget 2009/10 does not present the actual allocation by clusters; this very important strategic dimension of the budget is somehow obscured. This makes it difficult to track inter cluster prioritization in the approved budget and in actual spending patterns, although this is possible. The budget tables in the budget books present MDA, region, and LGA allocations with detailed information on votes, sub votes, programs, projects, and items but fail to aggregate spending within MKUKUTA clusters and non MKUKUTA spending. Several GoT and DP reports have identified this as a key weakness in the reporting system and suggested a review of the links between the Strategic Budget Allocation System (SBAS) and the IFMIS in order to allow facilitate the presentation of the budget and track its execution along MKUKUTA clusters. Furthermore, it is also important to improve classification of the budget according to proper programs to improve the linkage between sector strategic plans/MKUKUTA, MTEF, and outcomes. 3.6 The MKUKUTA cluster allocations in the approved budget 2009/10 deviate from the projected PBG MKUKUTA cluster allocations. The work done in transferring the budget data from the IFMIS to the SBAS to allow presentation of the budget along the clusters dimension shows the budget remained in favor of Cluster I (see table 9), but SBAS figures still exclude LGA transfers and MDA wages, which should be included in MKUKUTA. However, some inconsistency appears between what were projected cluster allocations in the PBG and the approved budget. This is true for all clusters; both Clusters I and III experienced decline in resource allocation in the approved budget compared with projected allocations by the PBGs. The quality of life and social well being, Cluster II, received more resources in the approved budget than projected in the PBG in 2008/09 and 2009/10. This was partly the result of further expansion and need for quality improvement in secondary education and the move to attract staff to underserved areas in public service delivery, especially in education and health, by constructing hostels. The inconsistency in cluster allocations between the PBG (approved in March) and the budget (presented to the Parliament in June) is repeated, as though the effort to prioritize Cluster I over Cluster II is diminished during the planning cycle each year. But over time, the relative priority of Cluster I does still increase.

Budget Guidelines Budget Budget Guidelines Budget

2008/09 2008/09 2009/10 2009/10

Cluster I 48% 47% -1.0% 51% 47% -4.2%

Cluster II 34% 37% 3.0% 29% 37% 7.8%

Cluster III 18% 16% -2.0% 20% 16% -3.5%

CHANGE CHANGE

Cluster I : Growth of the economy and reduction in economic poverty Cluster II : Improvement of quality of life and social being Cluster III : Governance and accountability

Source: MoFEA IFMS Data and author’s computations.

Table 9: PBGs and Approved Budget developments

18

3.7 Overall allocations to MKUKUTA are larger when LGA transfers and MDA wages are included and are stable at 71 percent of the budget in 2008/09 and 2009/10. Further analysis of the 2009/10 approved budget, including personnel costs (wages and salaries) and transfers to LGAs, shows that MKUKUTA allocation is 71.2 percent of the total budget (see table 10). The previous analysis based on MDA level allocation does not tell the full story, because the allocations described in table 9 exclude two major items, wages and salaries and transfers to LGAs. For example, basic salaries and pension paid to teachers, medical staff, and judges are excluded from MKUKUTA, although they clearly are essential for public service delivery and therefore key to attainment of related MKUKUTA sector strategic objectives and goals. On top of this, in 2009/10, nearly 2 percent of the total budget is allocated to Vote 21 (“non MKUKUTA”) for the rescue package interventions, such as compensation of losses by agriculture traders, rescheduling of debts owed by traders to commercial banks, and allocation to SGR for food security. Likewise, transfers to local governments, which represent 23 percent of total budget, are considered non MKUKUTA spending, although in the final analysis, such transfers are reassigned in LGA budgets by strategic destination, such as education, health, water, roads, and agriculture.

2007/08 2008/09 2009/10

Total MKUKUTA 64.5% 62.0% 66.3%

Non-MKUKUTA 35.5% 38.0% 33.7%

Total 100.0% 100.0% 100.0%

Total MKUKUTA 70.6% 70.8% 71.2%

Non-MKUKUTA 29.4% 29.2% 28.8%Total 100.0% 100.0% 100.0%

Incl. LGAs transfers, but excl. MDAs wages

Incl. LGAs transfers and MDAs wages

3.8 With inclusion of relevant LGA transfers and MDA wages, the share of Cluster II rises over Cluster I in the 2008/09 and 2009/10 budgets, although Cluster I has also seen its share of budget allocations increasing in the last two years (see table 11). The inclusion of LGA transfers and MDA wages increases the Cluster II share because a large share of transfers to LGAs are for public service delivery in social services like education, health, and water. It is estimated that 75 percent of transfers to LGAs finance education, health, and water expenditures, all under Cluster II. Cluster III remained broadly stable. Furthermore, an estimated 50 percent share of MDA wages fall under Cluster II. Therefore, reclassifying LGA transfers and MDA wages increases the share Cluster II in MKUKUTA allocations to 43 percent, up from 37 percent when excluding LGA transfers and MDA wages. Despite the increase in share of Cluster II due to inclusion LGA transfers and MDA wages, there is slight decline in the share of Cluster II in the 2009/10 approved budget compared with the 2008/09 approved budget. Looking at sector by sector allocations will shed some light on which sectors have seen their share in the budget allocations decrease or increase.

Table 10: MKUKUTA and non-MKUKUTA allocation developments

19

% of Mkukuta % of Overall % of Mkukuta % of Overall % of Mkukuta % of Overall

Cluster I 33.1% 23.4% 34.1% 24.1% 39.2% 27.9%

cluster II 45.0% 31.8% 45.5% 32.2% 42.7% 30.4%

Cluster III 16.5% 11.7% 16.0% 11.3% 15.0% 10.7%

Cross Cutting 5.4% 3.8% 4.4% 3.1% 3.1% 2.2%

Total MKUKUTA 100.0% 70.6% 100.0% 70.8% 100.0% 71.2%

Non-MKUKUTA 29.4% 29.2% 28.8%

Overall 100.0% 100.0% 100.0%

2008/092007/08 2009/10

Cluster I: Growth of the economy and reduction in economic poverty Cluster II: Improvement of quality of life and social being Cluster III: Governance and accountability

Source: IFMS Data and author’s computations.

3.9 Public debt service continued to remain the largest single item among the non MKUKUTA allocations in the 2009/10 budget. Further, overall share of non MKUKUTA votes in the budget have also remained largely stable. The share of public debt and general service (vote 22) in the budget remain significantly high, at around 10 percent of the total budget over the past three years (see table 12). Debt services occupy about 50 percent of the allocations in vote 22; the other 50 percent is for general services. The two major items that consume about 50 percent of general services in vote 22 are “employer actual contribution to social scheme” and “employer social benefit in cash.” The question remaining unanswered is the appropriateness of budgeting these two items under this vote and not any other. The answer could be that these two items are first charge items, in which case if they are budgeted under vote 22 they are protected from within year cuts, but this should clearly be stated.

Vote code Vote name 2007/08 2008/09 2009/10 Diff. (FY10 & FY09)

22 Public Debt 10.0% 9.4% 10.2% 0.8%

28 Police Force 2.4% 2.1% 2.3% 0.2%

29 Prison Service 1.2% 1.1% 1.2% 0.1%

30 President's Office 3.1% 2.8% 2.2% -0.6%

34 Foreign Affairs 1.0% 1.0% 0.9% -0.1%

38 Defence 3.3% 3.3% 3.5% 0.2%

39 National Service 0.8% 0.8% 0.9% 0.1%

42 Natinal Assebly Fund 0.7% 0.8% 0.7% -0.1%

57 Ministry of Defence 1.0% 1.2% 0.4% -0.8%

21,50 Treasury & MoFEA 4.7% 8.7% 10.1% 1.4%

Sub total 28.3% 31.0% 32.2% 1.2%

Grand Total 100.0% 100.0% 100.0% 100.0% Source: MoFEA IFMS Data.

3.10 The large share of the increase in allocation to the Treasury and MoFEA (votes 21 and 50), among the non-MKUKUTA votes, is ultimately for MKUKUTA

Table 11: MKUKUTA allocations (incl. LGA transfers and MDA wages) developments

Table 12: Selected Non-MKUKUTA budget allocation by votes (share of total)

20

expenditures. The allocations for implementation of most of the “Rescue Package” measures are budgeted under the Treasury (vote 21) in the “non-emergency contingency” item. These allocations were not budgeted under their respective spending agencies because the rescue package was finalized in June 2009, when the budget was being presented to the Parliament. So details of the size and specific agencies responsible for implementing the measures were not known by the time of budget preparation and submission. About 1.5 percent of the total budget is budgeted under the Treasury, in a non emergency contingency, to cater to expenditures associated with rescue package measures, especially in agriculture and infrastructure.

ALLOCATIONS BY SECTORS Broad Functions 3.11 The strategic budget analysis presented in the previous section was organized around MKUKUTA and MKUKUTA clusters classification. MKUKUTA clusters essentially regroup economic and productive services (Cluster I) as well as the social sectors (Cluster II). In this section, the strategic analysis is expanded to cover all main government functions, including general administration, defense, and security, as well as economic, productive and social services, according to the familiar IMF Government Finance Statistics

(GFS)classification9. This analysis is further detailed with an assessment of budget trends by “major sectors,” including education, health, water, agriculture, roads, and energy. 3.12 For FY2009/10, more than one third of the total budget continues to be allocated to social sectors. More than 50 percent of the social sectors’ development expenditures have been financed by foreign funds. Over the previous three years, social sectors received about 38 percent of the total budget annually (see table 13). This is true for both recurrent and development budget; with development budget annual allocations averaging 42 percent over this three year period. Furthermore, the largest share (about 51 percent annually) of foreign funds seems to be financing development expenditures of the social sectors. Administration comes second, while economic services (which include roads and energy) comes third in terms of large recipients of 2009/10 budgetary allocations. 3.13 Allocation of locally funded part of development budget favors economic services, such as roads and energy, to expand production capacity of the economy. More than 50 percent (annual average) of local development funds were directed to economic services over the 3 years period (see table 12). Nonetheless, in the same period, local development funds allocated to economic services declined slightly in favor of an increase in social services. In 2009/10allocations rose to 30 percent, from 22 percent in 2008/09, as a result of increased allocations to LGAs for construction of houses for teachers and health staff in underserved areas as well as construction of hostels for female students in remote areas.

9 Detailed information on this sub classification is provided in Appendix 1.

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3.14 The extent of the decline in allocation for economic services in the 2009/10 budget is somewhat offset by increased allocation for roads and energy budgeted under the Treasury, which is classified as administration. All Millennium Challenge Cooperation (MCC) financed road and energy projects are budgeted under Treasury. Proper reclassification will see the share of economic services rise while administration decline. Furthermore, reclassification of the allocations for agriculture (under the rescue package) budgeted under the Treasury, will see the allocations for administration decrease further at the expense of productions service, including agriculture.

Rec Total Rec Total Rec Total

Local Foreign Total Local Foreign Total Local Foreign Total

Broad Functions

Administration 23.1 15.9 15.3 15.5 20.3 30.7 23 15.8 18.5 26.5 23.0 14.1 25.4 21.5 22.6

CFS 15.9 0 0 0 10.1 14.4 0 0 0 9.4 22.8 0.0 0.0 0.0 16.0

Defense and Security 11.8 1.1 0.2 0.5 7.7 10.7 2.4 0.3 1.1 7.4 10.1 6.9 0.3 2.6 7.9

Economic Services 6.8 57.7 24.9 36 17.4 5.7 48.4 30.2 37 16.5 5.2 45.4 16.9 26.7 11.6

Production Services 3.4 1.4 6.3 4.6 3.9 3.6 3.3 4.8 4.2 3.8 3.7 3.4 7.8 6.3 4.4

Social Services 39 23.9 53.3 43.4 40.6 34.9 22.9 48.9 39.1 36.4 35.2 30.3 49.5 42.9 37.5

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

2009/10

Dev

2007/08 2008/09

Dev Dev

Source: MoFEA IFMS Data and author’s computations.

Major Sectors 3.15 The exact definition of a sector is highly complicated by the fact that a sector cuts across several MDAs, regions and LGAs. This has complicated the exercise of determining the exact allocations for different sectors, with different analyses coming out with different ratios. The problem is more pronounced in education, health, agriculture, and HIV/AIDs while less so in roads and energy. The MoFEA has come out with a definition of the major sectors as well as the ratios of expenditures and allocation across these major sectors. In some sectors, this analysis has agreed with the MoFEA’s definition, while in others it does not. Box 1 gives a clear list of MDAs, regions, LGAs, projects, and other line items in the budget that should be included in defining a specific sector. The box also goes on to explain where the definition used by this analysis differs with the MoFEA definition. 3.16 The analysis of budget allocation by sectors shows that the agriculture sector received the highest increase in resource allocation in the 2009/10 budget. Measures included in the rescue package and possibly some part of the implementation of “Kilimo Kwanza’’ have resulted in increased budgetary allocation to the sector. The share of agriculture budget as a percentage of the total discretionary budget increased by 3 percentage points, from 5.4 percent in 2008/09 to 8.3 percent in 2009/10 (see box 2). The increase is also equivalent to 0.7 percent of GDP. Agriculture’s large increase in allocations is concentrated on agricultural inputs such as fertilizer, seeds, and tractors for agricultural mechanization. The water sector also received an increased budgetary allocation, with a big part of the increase being targeted for rural water supply. Despite the increase in shares of agriculture

Table 13: Broad functional allocations (share of total) developments

22

and water in the budget in 2009/10, allocations to these two sectors have also remained the most volatile over the previous three years.

Box 2: Definition of the major sectors

3.17 Other priority sectors’ spending shares have also slightly increased or remained broadly stable in the 2009/10 budget, with the exception of the health sector, which has declined. Although for some sectors their shares in total budget have declined, their GDP ratios have slightly increased or remained stable. For example, in education, while education sector expenditures have increased from 5.1 to 5.6 percent of GDP during the three year period, it has also declined from 19.4 percent to 18.3 percent of the total budget (see Box

3:). Education sector spending, at 5.6 percent of GDP, is considered reasonable and similar to other countries with the same per capita status. This is also true with roads and water sector. The health sector has experienced a significant decline in budgetary allocation, both as share of total budget and as percent of GDP. The declining share of health budget is primarily driven by the decline in foreign funding to the sector while local funding to the sector remained stagnant in real terms over the past three years. This situation add to the risk of meeting all health MDGs target by 2015. 3.18 Education sector spending continues to receive the highest allocations among the five major sectors. Despite the observed decline in the share of education sector spending, it continues to consume one third of total allocation to the five major sectors. While the shares of budgetary allocations to the education, health, and road sectors have

The sector spending definition used by this analysis aggregate for each sector the following items:

Agriculture: MDA 43 + MDA 44(subvote 4002) + MDA99 + MDA 49 (subvote 2004, irrigation) + MDA 37 (subvote 5001, marketing system)+ MDA 50 (Agr salary adjustment) + PMORALG (PL4486 / PT4486) + Agriculture transfers to LGA

Water: MDA 49 (excl. subvote 2004, irrigation) + MDA 50 (MCC & Water salary adjustment) + PMORALG (PG3280) + Water transfers to LGA

Education 1/ : MDA 46 + MDA 56 (3001, Kibaha educ center) + MDA 53 (2001, training college)+ MDA 94 (subvote 2003, teacher service commission) + MDA 50 (1002& Edu Salary Adjustment) + MDA 69 (4002, college tourism & Project 2227, National College of Tourism) + MDA 44 (subvote 1001, college of business education) +PMORALG (PG3280)+ Education transfers to LGA

Health: MDA 52 + MDA 23 (subvote 3003, health insurance) + MDA 50 (health salary adjustment) + RAS PMORALG (PT5428/PL5428/PT5418) + RA (Subvote 2001/002) + Health transfers to LGA

Roads: MDA 98 + MDA 50 (MCC & Water salary adjustment) + PMORALG (PG4201/PG4202/PT4202)+ Road Transfers to LGA

In some sectors, our definition is more restrictive than the GoT definition. Below are the list of items included in the budget digest but omitted from our sector analysis:

Agriculture: 56 (Rural Roads Maintenance) and LGA (road transfers)

Education: MDA 68 (Communication and Science)

1/ In 2007/08, the education sector perimeter includes MDA46 and MDA68 which were merged in 2008/09, with the exception of the communication and science sub vote.

23

declined, the share of budgetary allocations to the agriculture and water sectors have significantly increased.

Box 3: Budget structure and trend of key sectors

Fiscal Years Education Health Water Agriculture Roads

2007/08 19.4% 10.6% 5.4% 4.6% 12.8%

2008/09 18.5% 10.2% 3.3% 5.0% 12.4%

2009/10 18.3% 8.4% 3.7% 6.1% 11.5%

2007/08 36.3% 19.9% 10.1% 9.7% 24.0%

2008/09 33.5% 17.2% 5.5% 8.2% 21.0%

2009/10 33.0% 15.2% 6.6% 10.6% 20.8%

2007/08 22.4% 11.2% 5.7% 5.1% 13.5%

2008/09 21.9% 11.2% 3.6% 5.8% 13.7%

2009/10 21.8% 10.0% 4.3% 7.2% 13.7%

2007/08 5.1% 2.8% 1.4% 1.2% 3.4%

2008/09 5.3% 2.7% 0.9% 1.3% 3.3%

2009/10 5.6% 2.6% 1.1% 1.9% 3.5%

(Sector Share of Total Spending excl interest)

(Sector Share of Total Spending)

(Sector Share of Total Priority Spending)

(Sector Percent of GDP)

Sectoral allocations as percentage of GDP

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Education Health Water Agriculture Roads

2007/08 2008/09 2009/10

Source: MoFEA and author’s computations.

ALLOCATION BY ECONOMIC NATURE OF SPENDING 3.19 This section complements the strategic allocation analysis of the previous section (by cluster or major sectors) with the traditional economic analysis of resource allocation: what goes to government consumption as opposed to capital investment. The analysis proceeds in two steps: (i) broad trends in the recurrent budget as opposed to the development budget; (ii) detailed analysis of current spending vs. capital spending in the total budget, after clearly identifying the economic nature of spending in both recurrent and development budgets. 3.20 The analysis seeks to address a host of interrelated and critical issues in the overall budget strategy, with the national growth and poverty reduction objectives as a backdrop: (i) with tight fiscal constraints, is recurrent spending crowding out development spending?; (ii) how much of total spending is devoted to actual capital formation (infrastructure construction, infrastructure rehabilitation, acquisition of equipment) as opposed to current consumption (wages, goods and services)?; (iii) is the progression of recurrent spending driven by and consistent with capital spending over time (for example,

24

maintenance relative to infrastructure expenditures, or wages and goods and services expenditures in education and health relative to construction of schools and hospitals)? Recurrent and Development 3.21 The share of recurrent expenditure increases significantly in the 2009/10 budget; this is partly attributable increased allocation for goods and services. The recurrent expenditure is 70 percent of the 2009/10 total budget, equivalent to 21.5 percent of GDP; this is up from 18.5 of GDP in 2008/09 (see table Table 14 and Figure 10). Allocation for implementing rescue package measures are budgeted as recurrent item under contingency pending clear identification of implementing institutions. This takes about half (1.5 percent of GDP) of the increase in recurrent expenditures while the other half is spread across all other items in recurrent budget, including interest payment. 3.22 The share of development spending declines in the 2009/10 budget at the expense of increased recurrent spending. The increased recurrent spending in 2009/10 is financed partly by reducing development spending. Not only does the share of development spending relative to the total budget decline, it also declines relative to GDP, despite the major increase in total spending as percent of GDP in the 2009/10 budget. The share of development expenditure in the budget declines to 29.7 percent in 2009/10 from 34.5 percent in 2008/09 (see Table 14). As a share of GDP, allocations for development expenditures decline to 9.1 percent in 2009/10 from 9.8 percent in 2008/09. Nevertheless, allocations for development expenditures in the 2009/10 budget suggest that there is an absolute increase over the 2008/09 budget.

2009/10

Budget Actual Budget Actual Budget Actual Budget

Prel.

Actual Budget

Recurrent expenditure 65.7% 67.5% 63.8% 70.3% 63.7% 65.6% 65.5% 65.8% 70.3%

Development expenditure 34.3% 32.5% 36.2% 29.7% 36.3% 34.4% 34.5% 34.2% 29.7%

Recurrent expenditure 19.0% 9.0% 26.7% 9.2% 18.9% 38.2% 39.9%

Development expenditure -24.0% -1.5% 108.9% 35.5% 2.3% 37.2% 13.4%

Recurrent expenditure 17.6% 16.4% 18.1% 16.3% 17.2% 15.2% 18.5% 17.7% 21.5%

Development expenditure 9.2% 7.9% 10.3% 6.9% 9.8% 7.9% 9.8% 9.2% 9.1%

2005/06 2006/07 2007/08 2008/209

in percent of total expenditure

percentage change

in percentage of GDP

Source: MoFEA.

3.23 The decline in development expenditure is surprising, as it is inconsistent with the GoT’s stated objective of boosting public investment to support the implementation of MKUKUTA. Decline in allocation for development spending in the 2009/10 budget is inconsistent with MKUKUTA objectives and presents a big challenge in promoting productive capacity of the economy. Even with improved efficiency of spending, sustaining the projected higher level of growth will entail a higher level of total development spending, which will most likely require a relative contraction of recurrent spending over the medium term.

Table 14: Decomposition of the Budget developments

25

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2005/06 2006/07 2007/08 2008/09 2009/10

Personnel Emol. (PE) Other Charges (OC) Debt Service Dev. expenditures

Consumption and Capital Spending 3.24 Aggregate expenditure classification by recurrent and development does not provide adequate insight into the economic nature of spending. While illustrating key policy tradeoffs faced by the GoT in medium term budget strategy, the broad analysis of aggregate expenditure (“recurrent” vs. “development”) does not provide adequate insight into the nature of different expenditure items in the two budgets (such as “wages and salaries” and “other charges”); nor does it provide pertinent intelligence on the medium term dynamics (apparent substitution or complementarities) between the main current expenditure items (wages and goods and services) and the related capital expenditure (infrastructure and equipments) that are combined to deliver services. Current and capital expenditures are found in both the recurrent and the development budget. 3.25 Again, the Personnel Emolument (PE) classification conceals the true extent of the wage bill. The previous RBA have undertaken a thorough analysis of the wage bill, specifically PE), which revealed that a substantial part of wage related expenditure not included in PE were “hidden” in the budget under “other charges.” The note concluded that the PE item should be corrected to provide a more accurate estimation of total “wage and salaries.” Indeed, once total allowances and other hidden costs are added to basic salaries, the budget share of “wages and salaries” rises substantially. For example, in 2007/08, while PE was 24 percent of total budget, actual spending on wage and salaries was 29 percent of the total budget. In 2008/09, actual spending on wages and salaries was 35 percent of total budget, as opposed to PE spending, which was equivalent to 28 percent of total budget. While PE spending is only found in recurrent budget, the “other” wages and salaries related spending is found in both recurrent and development budgets. 3.26 The development budget classification substantially exaggerates the level of capital spending in the budget. The 2008 RBA undertook the analysis of the true economic nature of expenditures in both recurrent and development budgets. The main objective of the analysis was to separate actual investment spending from consumption spending in the

Figure 10: Decomposition of the budget

26

budget and shed light on the issue of inter temporal substitution or complementarities among key current and capital expenditure. This analysis was performed at the aggregate as well as the sector level. This analysis updates the previous year’s analysis by trying to answer the question of what percentage of the budget is geared toward increasing the production capacity of the economy in the long run and what share of the budget is geared toward boosting economic growth in medium term. Box 3 presents the methodology adopted in reclassifying the recurrent and development budgets into true current and capita spending. 3.27 The development budget has become increasingly consumption oriented, with more than 55 percent allocated for consumption spending. The doubling of allocations for goods and services in the development budget made consumption spending in the development budget rise from 42 percent in 2008/9 to 55 percent in 2009/10. The increased allocation for goods and services in the development budget is partly driven by increased allocation for agriculture inputs, such as fertilizer subsidies and seeds, in line with the “Kilimo Kwanza” motto. 3.28 The share of public consumption, consisting of goods and service, and interest payments increases by about one third in the 2009/10 budget (see Table 15]). Within the major increase in goods and services, one half is in MDAs and the other half is in LGAs and public enterprises. The increased allocation for goods and services, particularly in MDAs, is partly on account of increased spending on agriculture inputs, such as fertilizes and seeds. The observed increase in allocation for interest payments is the result of the inclusion of rollover costs of maturing treasury bills and bonds in the recurrent expenditures for the year. The shares of other items in current spending, like maintenance and current transfers, remained broadly stable. The share of wages and salaries and its components, such as PE and allowances, declined in 2009/10 compared with 2008/09. 3.29 The level of true capital spending declined sharply to 15 percent of the total budget in 2009/10 from 24 percent of the 2008/09 total budget. This is equivalent to a one real third cut in the level of planned capital spending. Capital spending declines from 24 percent in 2008/09 to 15 percent in 2009/10 on account of the decline in allocations for infrastructure construction and rehabilitation, acquisition of technical equipment, and other capital, including feasibility studies (see Table 15). The road and energy sectors experienced large decline in capital spending despite the two sectors being key in driving and sustaining long term growth. This decline in capital spending, especially in roads and energy, is inconsistent with Government’s intention of boosting economic growth for poverty reduction over the medium term and in the long run. Given the low accessibility and reliability of roads and energy especially in rural areas where agriculture is taking place, decline capital spending in the two sectors jeopardize MKUKUTA objectives and add to the risk of not achieving MDG goal of having poverty by 2015. This also runs exactly opposite to objectives stated during the preparation of the 2009/10 budget as well as at the 2008 GBS Annual Review.

27

Box 4: Methodological note to reclassify budget into consumption and capital spending

Rec Dev Total Rec Dev Total Rec Dev Total

Current 96.3 37.0 74.8 92.8 41.8 75.2 98.9 55.1 85.0

Wages and salaries 45.1 4.0 30.3 50.4 4.6 34.0 47.5 4.0 32.5

o/w Pers. Emol. (PE) 38.0 0.3 24.4 43.6 1.1 28.3 35.2 0.4 25.5

o/w Allowances 7.1 3.7 5.9 6.8 3.5 5.7 6.5 3.6 5.5

Good and Services 32.2 27.0 30.3 30.4 22.8 27.8 33.2 45.7 38.0

Maintenance 7.0 3.0 5.5 5.6 4.5 5.2 5.3 2.6 5.1

o/w Road maintenance .. .. .. .. .. .. 4.4 0.3 3.2

Current Transfer 4.1 3.1 3.7 1.5 10.0 4.5 4.9 2.8 4.0

Interests 7.9 0.0 5.0 5.7 0.0 3.7 8.0 0.0 5.5

Capital 3.7 63.0 25.2 7.2 58.2 24.8 1.1 44.9 15.0

Infrastructure 2.2 35.3 14.2 3.7 36.4 15.0 0.2 32.5 10.4

Construction 2.1 13.1 6.1 3.1 19.9 8.9 0.0 11.1 3.9

Rehabilitation 0.1 22.2 8.1 0.6 16.4 6.1 0.1 21.4 6.4

Equipment 1.2 15.2 6.2 1.8 7.2 3.7 0.8 5.2 2.2

Other Capital 0.1 12.4 4.6 0.2 14.3 5.0 0.2 7.2 2.4

o/w Feasib. Studies 0.1 12.3 4.5 0.1 13.8 4.8 0.1 6.4 2.1

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

2007/08 2008/09 2009/10

Source: MoFEA and author’s computations.

3.30 Infrastructure construction and rehabilitation continues to be a priority in capital spending, but its share decreases significantly parallel with the decrease in overall capital spending in the 2009/10 budget. Of the 15 percent of the overall budget allocated on capital spending, 10 percent is allocated to infrastructure construction and

Budget expenditure was classified according to the following nomenclature:

Current Spending: Wage and salaries (basic salaries, allowance, pension), Goods and Services (education, health, fuel and oil, and others), Maintenance, Current Transfer (other level of Government, household, enterprise, abroad, NGO) and Interest

Capital Spending: Infrastructure (construction and rehabilitation), Equipment, Household Furniture, Other Capital and Studies.

The following steps were followed:

1. The “6D nomenclature” was coded along the deconstruction presented in detail in appendix 2.

2. Transfers to LGA were also deconstructed along these expenditure categories.

3. Transfers to public enterprises were also disaggregated and reclassified as “wage and services” or “goods and services” categories”

4. Total budget was the sum of the MDAs budget (excluding LGAs and public enterprises transfers) , the LGA budget and public enterprise, all reclassified along the proposed economic classification detailed in appendix 2.

Table 15: Consumption and capital spending developments

28

rehabilitation, with the roads sector consuming about half of the allocations (see Table 15). Allocation for acquisition of equipment declines by almost half, which is also consistent with the significant decline in allocations to the energy sector. Given the importance of expanding accessibility and reliability of electricity for economic growth, the decline in allocations for the energy sector is worrying. 3.31 Recurrent budget is entirely current spending (99 percent), thanks to adoption of the 2001 IMF GFS economic classifications in the 2009/10 budget. The adoption of the 2001 IMF GFS economic classification has made the budget clearer. The recurrent budget in 2009/10 is entirely current spending, with spending on all economic items clearly shown. The adoption of the 2001 IMF GFS function classification would make the budget even clearer, with all expenditures shown across different functional destinations. Further improvement in budget is also needed, especially in presenting the budget along program classifications. These will make the budget clearer and could help facilitate strategic discussion of the budget. It will also make it easy to link outcome indicators to specific programs in the budget and the MTEF.

2008/09

-

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

2007/08 2008/09 2009/10

-6.00 -4.00 -2.00 0.00 2.00 4.00 6.00 8.00 10.00

Wages and salaries

Good and Services

Maintenance

Current Transfer

Interest payment

Infrastructure

Equipment

Other Capital

2009/10 Change over 2008/09

2008/09 Change over 2007/08

Figure 11: Trends in consumption and capital spending

29

IMPLEMENTATION OF D BY D POLICY 3.32 Government continued to implement the D by D policy in the 2009/10 budget, and it is in track to meet the target of transfer 25 percent of budgetary resources to LGAs by 2010. The share of the 2009/10 budget that would directly be transferred to LGAs is 23 percent, up from 21 percent in 2008/09 budget (see Figure 12). This rise reflects LGAs’ increasing role in public service delivery. The recent decentralization of secondary education into LGAs is the main driver of the increased share of LGAs budget in the total budget. The salary and wages as well as goods and services for secondary education delivery are the two main items driving the rise in recurrent budget of LGAs, which in turn reflects an increased overall share of LGAs in the total budget. 3.33 Public provision of education and health services continues to be increasingly decentralized. The 2009/10 budget saw more and more resources transferred to LGAs to provide public services where the majority of the people live. The shares of education and health sector budget transferred to LGAs in the 2009/10 are 63 percent and 44 percent, respectively (see Figure 13). This is equivalent to an increase of 10 and 12 percentage points, respectively, for the two sectors. The rise in the share of education is due to a recent move to decentralize secondary education provision starting from the 2009/10 budget, while the rise in health share is the result of implementation of the “Mpango Maalumu wa Afya ya Mama na Mtoto” (MMAM) program. There is a sizable increase in the share of roads sector budget directly transferred to LGAs (from 11 percent in 2008/09 to 15 percent in 2009/10) on account of improving rural roads in order to increase productivity and profitability of agriculture through better access to the markets.

Recurrent Development Total

2007/08 22.9% 7.9% 18.9%

2008/09 25.0% 10.4% 21.2%

2009/10 29.4% 8.8% 23.3%

2008/09 Change over 2007/08 2.1% 2.5% 2.3%

2009/10 Change over 2008/09 4.4% -1.6% 2.1%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2007/08 2008/09 2009/10

Recurrent Development Total

Source: MoFEA and author’s computations.

Figure 12: Trends in funds transferred to LGAs developments

30

Education Health Water Agriculture Roads Overall

2007/08 44.5% 34.3% 44.6% 25.9% 11.0% 19%

2008/09 53.1% 31.3% 60.4% 38.4% 11.1% 21%

2009/10 62.6% 43.8% 24.8% 21.3% 14.8% 23%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

Education Health Water Agriculture Roads Overall

2007/08 2008/09 2009/10

Source: MoFEA and author’s computations.

3.34 Decentralization in the agriculture and water sectors has taken a step backward in the 2009/10 budget. The shares of the total budget directly transferred to LGAs in the two sectors have declined significantly in 2009/10. This is a step backward, just after a significant step forward in 2008/09. Compared with 2008/09, the two sectors’ budget shares directly transferred to LGAs decline by 36 percentage points (water) and 17 percentage points (agriculture). Nonetheless, a large share of the two sectors’ budgets allocated to the MDAs will eventually finance activities in the LGAs. This, in certain respects, offsets a significant decline in LGA sector shares. For example, allocations for “rural water supply” projects and “urban water supply” projects (equivalent to 74 percent of the development budget of the Ministry of Water and Irrigation) will all finance activities implemented at the LGAs. Again, in the agriculture sector, a large share of funds allocated for financing activities associated with the “rescue package” and “Kilimo Kwanza” are budgeted under MoFEA and MAFS, although most of the activities will take place in the LGAs. Nevertheless, it is important that progress continue in implementation of D by D in these two sectors.

WAGE BILL POLICY 3.35 The overall wage bill, comprised of basic wages, allowances and pensions, is 9.4 percent of GDP in the 2009/10 budget, up from 9.3 percent in 2008/09 (see Table 16). The slight increase in the wage bill is more on account of normal salary adjustment and less on account of new hires. The budget allocation for new hires in the education and health sectors, especially in LGAs, is equivalent to 0.03 percent of GDP. The limited wage bill increase in the 2009/10 budget is the result of Government’s deliberate decision to limit wage bill growth after the huge surge in the 2008/09 budget. The huge wage increase in 2008/09 was the result in the December 2007 Government decision to implement the Presidential Public Pay Commission to raise civil servants’ minimum wage.

Figure 13: Trends in Direct Transfers to LGAs by Sector developments

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3.36 Despite the limited increase in the wage bill in the 2009/10 budget, it remains inconsistent with projections of the MTPP. The optimistic scenario of the Medium Term Pay Policy projected an increase in wage bill to the tune of 5-6 percent in 2009/10. The basic wage bill progression is 7.7 percent of GDP in the 2009/10 budget, up from 7.5 percent in 2008/09. This progression falls far outside medium term pay targets. The picture looks even worse when allowances are added to basic wages; this increases the wage bill to 9.4 percent of GDP, up from 9.3 percent in 2008/09. Nonetheless, there is a huge need for more teachers and health workers, especially in underserved areas, which suggests that the wage bill will continue to rise unless it is managed more efficiently. The new MTPP that is being developed by Government will need to come out with a clear limit beyond which the wage bill should not go but also address inefficiencies in the wage bill management.

Table 16: Trends in overall wage bill

Item 2005/06 2006/07 2007/08 2008/09 2009/10

Basic Wages 5.4% 6.8% 7.4% 7.5% 7.7%

Allowances 1.8% 1.9% 1.4% 1.5% 1.7%

Hidden Wage Costs 0.1% 0.2% 0.3% 0.3% 0.0%

Total wage bill 7.3% 8.8% 9.1% 9.3% 9.4% Source: IFMS data and author’s computations.

3.37 The trends in shares of the wage bill components have remained relatively stable over the past three years, which suggests slow progress in consolidating allowances into basic pay. Notwithstanding Government’s deliberate decision to consolidate allowances into basic pay in accordance with the MTPP, the share of basic wage is about 82 percent of the total wage bill, while that of allowances is about 18 percent (see Figure 14). A notable positive development in the 2009/10 budget is nonexistence of hidden wage related costs, although abolition of this item seems to have increased the share of allowance in the total wage bill by similar amounts.

Figure 14: Trends in total wage bill components

(shares of total wage bill)

3.38 Both recurrent and development budgets continue to have sizable amounts of allowance, although these are declining slightly in development budget (see Table 17). In the 2009/10 budget, about 81 percent of the total allowances are in recurrent budget, while the remaining 19 percent is in development budget. Duty facilitating allowances occupy a

32

large share of development budget and are usually related to development projects that have big component of capacity building activities. Nevertheless, the nominal growth rate of allowances, in both recurrent and development budgets, remains significant in absolute terms (Tsh526 billion) in the 2009/10 budget.

Table 17: Composition of allowances

Item '2005/06 2006/07 2007/08 2008/09 2009/10

Amount in mil. Tsh.

Recurrent budget 169,114 176,302 191,366 308,429 426,557

Development budget 69,058 146,689 57,816 88,601 99,685

Total 238,172 322,991 249,182 397,030 526,242

as % of total

Recurrent budget 71.0 54.6 76.8 77.7 81.1Development budget 29.0 45.4 23.2 22.3 18.9Total 100.0 100.0 100.0 100.0 100.0

% change

Recurrent budget n/a 4.0 9.0 61.2 38.3

Development budget n/a 112.0 -61.0 53.2 12.5

Total n/a 91.0 -23.0 59.3 32.5 Source: IFMS data and author’s computations.

Table 18: Allowances by purpose

MDAs

allowances

LGA

allowances Total

Share of

MDAs

Allowances

Share of

LGAs

Allowances

Share of

Total

Allowances

Share of

Total

Wage Bill

Remunerative 150.5 43.5 193.9 31.6% 87.2% 36.9% 6.7%

Ration Allowance 60.45 1.5 62.0 12.7% 3.1% 11.8% 2.1%

Housing Allowance 21.70 0.1 21.8 4.6% 0.2% 4.1% 0.7%

Foreign Service Allowance 14.05 0.0 14.0 2.9% 0.0% 2.7% 0.5%

Leave Travel 13.17 19.7 32.9 2.8% 39.6% 6.3% 1.1%

Upkeep Allowances 12.14 0.0 12.1 2.5% 0.0% 2.3% 0.4%

Moving Expenses 9.51 19.4 28.9 2.0% 38.8% 5.5% 1.0%

Utilities 7.18 0.7 7.9 1.5% 1.4% 1.5% 0.3%

Medical and Dental Refunds 3.47 1.6 5.1 0.7% 3.2% 1.0% 0.2%

Public Officers 2.51 0.0 2.5 0.5% 0.0% 0.5% 0.1%

Others 6.29 0.4 6.7 1.3% 0.8% 1.3% 0.2%

Duty facilitating 325.9 6.4 332.3 68.4% 12.8% 11.4%

Daily Allowances 149.65 0.0 149.6 31.4% 0.0% 28.4% 5.1%

Training Allowances 43.88 0.0 43.9 9.2% 0.0% 8.3% 1.5%

Extra-Duty 27.08 4.5 31.6 5.7% 9.0% 6.0% 1.1%

Honoraria 21.97 1.6 23.6 4.6% 3.2% 4.5% 0.8%

Sitting Allowance 20.47 0.0 20.5 4.3% 0.0% 3.9% 0.7%

Constituency Allowance 19.96 0.0 20.0 4.2% 0.0% 3.8% 0.7%

Technical Service Feee 13.10 0.0 13.1 2.8% 0.0% 2.5% 0.4%

Per Diem Foreign 5.29 0.0 5.3 1.1% 0.0% 1.0% 0.2%

Internship 4.76 0.0 4.8 1.0% 0.0% 0.9% 0.2%

Education Allowances 3.69 0.0 3.7 0.8% 0.0% 0.7% 0.1%

Entertainment Allowance 3.31 0.0 3.3 0.7% 0.0% 0.6% 0.1%

Others 12.72 0.3 13.0 2.7% 0.5% 2.5% 0.4%

Grand total 476.3 49.9 526.2 100.0% 100.0% 100.0% 18.1%

2009/10

Source: IFMS data and author’s computations.

3.39 The share of duty facilitating allowances in the total allowances is more than twice the share of remunerative (statutory) allowances in the 2009/10 budget (see Table 17). The share of duty facilitating allowances in total allowances is 63 percent in the 2009/10

33

budget, up from 59 percent in the 2008/09 budget. Similarly, while remunerative allowances have grown by 22 percent between 2008/09 and 2009/10, duty facilitating allowances have grown twice as much in the same period. The increase in share and high growth rate of duty facilitating allowances suggests that duty facilitating allowances are used to compensate the low pay in public services. While the amount spent on these allowances is significantly high in absolute term (Tsh332 billion in 2009/10), they also tend to produce negative incentive to staff in delivering service in critical activities, which do not pay allowances. 3.40 Duty facilitating allowances are concentrated at the MDAs and not the LGAs, although most of public service delivery takes place at the LGAs. More than 98 percent of all duty facilitating allowances is in the MDAs. In MDAs, the most prominent duty facilitating allowances are the daily allowance, training allowance, extra duty, honoraria, sitting allowance, and constituency allowance, which jointly constitute nearly 60 percent of total MDA allowances and are equivalent to Tsh289 billion. The MDA remunerative (statutory) allowances equal 32 percent of total MDA allowances and are predominantly the ration allowance, housing allowance, foreign service allowance, and leave travel allowance, which jointly constitute 23 percent of the total MDA allowances and are equivalent to Tsh131 billion.

INFRASTRUCTURE MAINTENANCE POLICY 3.41 Social sectors’ infrastructure maintenance continues to receive less priority in the 2009/10 budget (see Figure 15). Maintenance is important for improved infrastructure performance, underpins service delivery, and will save Government money in the long run. Most often, older infrastructure does not get refurbished and renewed as needed, and there is inadequate planned preventive maintenance on new infrastructure. In addition to older infrastructure in education and health sectors, a massive new investment in infrastructure has taken place over the past few years in the two sectors. This is the situation with the education and health sectors’ infrastructure in Tanzania, where anecdotal evidence and casual observation shows education and health facilities infrastructure (such schools, hospitals, health centers, etc.) which are completely run off. Despite bad condition of these facilities, budgetary allocations for infrastructure maintenance in the two sectors have remained minimal, which suggests that Tanzania will lose its social infrastructure in the long run or will need to again invest massively to recover it. For instance, in the 2009/10 budget, the education infrastructure maintenance share is 1.7 percent; for health, it is 1.5 percent; in the 2008/09 budget, the ratios were 0.9 percent and 1.1 percent, respectively. 3.42 Allocation for maintenance in the road sector is high but inadequate given the lack of regular maintenance on the sector’s older road infrastructure. In the 2009/10 budget, the road maintenance allocation is 52 percent of the allocations for infrastructure construction and rehabilitation in the roads sector, equivalent to 26 percent of the total sector budget (see Figure 15). These allocation levels, which have remained fairly stable over the two years, show commitment to improving roads performance in delivering market access to majority of the people. However, given the increased road construction and decline in the real value of money over time, allocations for roads infrastructure maintenance will have to increase. One option for increasing allocations for roads maintenance is to

34

increase the fuel levy by a nominal10-20 Tanzania shilling per liter on annual basis, since roads maintenance is financed by fuel levy.

Education Health Water Agriculture Roads

Ratio of:

Maintenance to Sector Infrastructure Expenditure 22.7% 14.1% 110.9% 33.6% 46.2%

Maintenance to Total Sector Expenditure 0.9% 1.1% 30.1% 6.3% 25.2%

Ratio of:

Maintenance to Sector Infrastructure Expenditure 38.8% 31.2% 1.6% 85.0% 52.1%

Maintenance to Total Sector Expenditure 1.7% 1.5% 1.0% 2.2% 26.1%

Ratio of:

Maintenance to Sector Infrastructure Expenditure 16.1% 17.1% -109.3% 51.4% 6.0%

Maintenance to Total Sector Expenditure 0.8% 0.4% -29.1% -4.1% 0.9%

2008/09

2009/10

Change

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Education Health Water Agriculture Roads

2008/09 2009/10

Source: MoFEA IFMS Data and author’s computations.

KEY CONCLUSIONS AND RECOMMENDATIONS

3.43 The projected Plan and Budget Guidelines (PGB) cluster/sector allocations turn out to be significantly different from budget ceilings and the approved budget in subsequent years, especially the two outer years of the MTEF. This limits the capacity of the MDAs and LGAs to plan strategically. Thus, it is important that the government put forward a clear strategy for strengthening the MTEF, including enhanced multiyear predictability of resource envelope, to allow spending agencies to plan strategically. 3.44 Despite the increased domestic revenue mobilization and foreign aid, the share of the total budget allocated for implementing MKUKUTA remains stable at around 70 percent. The increased domestic revenue and foreign aid appears to be shared equally between MKUKUTA and non MKUKUTA priorities instead of being prioritized toward poverty reducing expenditures. It therefore important that the government provide clear guidance on how key sectors should continue to prioritize MKUKUTA expenditures as budget space becomes available.

Figure 15: Trends in allocations for infrastructure maintenance

35

3.45 The approved budget in 2009/10 continued to prioritize expenditure allocations toward the key sectors of education, health, water, agriculture, roads, and energy. About 60 percent of the total budget has been allocated to these key sectors. Nonetheless, compositions of expenditure allocations within sectors need some further attention. For instance, in education, while secondary education accounts for only 11 percent of education spending, higher education accounts for 24 percent, although the secondary education subsector is a top priority. In health, the main problem is the declining trend in the budget, both in share of total budget and percent of GDP, over the past three years. It is important that the government continue to protect allocations to key sectors but also pay enough attention to expenditure compositions within key sectors. 3.46 The overall economic composition of the budget (investment, maintenance, wage bill, allowances) is very relevant to achieving a growth-oriented budget. There is a sharp decline (to 15 percent from 24 percent in the previous year, with only 10 percent of the budget allocated to infrastructure construction and rehabilitation) in the allocations for capital investment in the 2009/10 budget. This raises some serious concern about whether the budget still reflects commitment to implementing MKUKUTA, especially its growth and reduction of poverty objectives. Hence, the government needs to provide clear guidance on budget composition by economic nature in key sectors to achieve the MKUKUTA economic growth objective. 3.47 The allocations for infrastructure maintenance in key sectors (roads, water, energy, education, health, agriculture) in the 2009/10 budget continue to be significantly low except for roads. The allocations for maintenance remain inadequate given the huge capital investment in the sectors in recent years as well as the existing backlog in maintenance requirements. Thus, Government should provide some clear guidance to key sectors on how to allocate adequate resources for infrastructure maintenance. 3.48 The wage bill accounts for 33 percent of the total budget in 2009/10, equivalent to 9.3 percent of GDP. Furthermore, the share of allowances in the wage bill remains high and distorts working patterns adversely. At this high wage bill level, it is difficult to generate some budget space, which is necessary for increasing capital investment in the budget to generate the economic growth required for sustainable poverty reduction. It is important, therefore, through the new MTPP III being developed, to set in the budget an explicit objective of reducing the wage bill to GDP ratio as well as allowances (especially duty facilitating allowances). 3.49 Government has continued to make good progress in implementing D by D policy, with 23 percent of budget in 2009/10, up from 21 percent in 2008/09, allocated to LGAs. The decentralization of secondary education delivery to LGAs starting from the 2009/10 budget is the reason behind increased resources transferred to LGAs. Despite this advance, some further progress is required by ensuring that increased resources transferred to LGAs are allocated on formula basis to reduce inequality in per capital resource allocation among districts.

36

4. SECTOR SPECIFIC ISSUES EMERGING FROM BUDGET ANALYSIS

INTRODUCTION

4.1 This section presents the summary of key issues emerging from sector analysis of the 2009/10 budget. This summary draws its inputs from the sector background notes produced as part of the budget analysis in the RBA. The RBA includes sector notes from education, energy, health, transport, and water. These are complemented by “sector public expenditure review” reports in some sectors, notably health; an update on geographical equity from the General Budget Support Annual Review (GBS AR) in 2009; and a new education sector PETS. The main focus areas of the sector notes are sector composition, equity, and sector weight in the total budget. The sector summaries presented in this section cover the areas of strength and weakness and put forward some key recommendations for improving budgeting in the sectors.

AGRICULTURE

4.2 Agriculture has clearly been prioritized in the 2009/10 budget, with its share in the budget at 6.1 percent, up from 5.0 percent in 2008/09 (see Table 19). This major real increase in agriculture expenditures comes with the launch of the “Kilimo Kwanza” slogan in the budget speech. Half the increase was for existing subsectors; the other half was related to the economic rescue package. Targeted expenditures included fertilizers, seeds, and tractors for mechanization. The agriculture sector spending related to the rescue package as a result of global crisis is budgeted under the Treasury and includes spending on (i) loan compensation facility to buyers of cotton, coffee and flowers; (ii) rescheduled loan guarantees for cash commodity sectors’ traders; and (iii) a one year price subsidy to cotton farmers.

Table 19: Key ratios in agriculture sector spending

2007/08 2008/09 2009/10

Agriculture expenditure as a share in total expenditure 4.6% 5.0% 6.1%

Agriculture expenditure as a share of GDP 1.2% 1.3% 1.9%

Agriculture wage bill as a share of the central government wage bill 4.1% 3.8% 4.3%

Agriculture wage bill as share of total agriculture budget 26.2% 26.7% 21.4%

Capital spending as a share of total agriculture budget 39.3% 21.8% 11.2%

Share of decentralized agriculture expenditure 36.7% 29.4% 24.5%

Nominal budget change n/a 29.3% 62.5%

Real budget change n/a 15.6% 51.9%

Source: MoFEA IFMS data and authors’ calculation.

4.3 Despite the increased resource allocation to agriculture, “Kilimo Kwanza” is not thoroughly defined and prioritized policy or plan, and some expenditure increases do not

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seem likely to deliver good value. True capital spending on agriculture falls in real terms in 2009/10. The top capital spending priority for agriculture, feeder roads, falls outside the boundary of the sector, under Transport, and this does not benefit in “Kilimo Kwanza.” Furthermore, the largest component in the agriculture budget is not a capital expenditure but that for “crop development,” which is to say, input subsidies for private farmers. Again, Government operated tractor procurement and hire schemes, which have received increased allocation in the budget, have a poor track record in profitability and sustainability. Similarly, the TSh20 billion allocations for the “agricultural window” in the Tanzanian Investment Bank (TIB) raises concern, given that TIB has 81 percent non performing loans in the agricultural sector and does not have a functioning board. There is a need to improve definition in the Kilimo Kwanza strategy and distinguish clear priorities between input subsidies (“crop development”), feeder road investment, and critical improvements to the business environment in agriculture.

EDUCATION

4.4 Investment in education remains an important national priority, with the sector consuming the largest share of government spending. The share of public spending on the education sector remains higher than any other economic sector, and the level of recurrent spending in secondary education has rebounded from the real cuts made in the 2008/9 budget. Table 20 shows that the share of the total budget directed at education slightly declined but remained above 18 percent in the 2009/10 budget. Despite the slight decline as share of total, education spending increased in real terms and as percent of GDP. 4.5 There is also a significant increase in the share of the education budget directly allocated to local government authorities, which is now more than 60 percent of total education sector spending. The main cause of the shift is the decentralization of secondary education starting in the 2009/10 budget. The financing of secondary education now follows a similar flow of funds to primary education. Therefore, the shift does not imply any altered resource allocation in terms of educational priorities.

Table 20: Key ratios in education sector spending

2007/08 2008/09 2009/10 Education expenditure as a share of the total GoT budget 19.3% 18.7% 18.3% Education expenditure as a share of GDP 5.6% 4.6% 5.5% Education wage bill as a share of total GoT wage bill 33% 31% 30.2% Education wage bill as share of total Education budget 54% 61% 70.2% Capital spending as a share of total Education budget 17% 15% 12% Recurrent spending as a share of total Education budget 83% 85% 88% Share of decentralized Education expenditure 48% 50% 61% Nominal budget increase in expenditure 20% 30% 27% Real budget increase in expenditure 12% 20% 17%

Source: MoFEA IFMS data and authors’ calculation.

4.6 Notwithstanding the large share of education in the Government budget, allocations within the sector are poorly aligned with stated priorities. For example, secondary education accounts for only 11 percent of total education spending despite a policy of

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increasing enrolments very rapidly, over 20 percent in 2008 and 2009. Due to increased enrolment in secondary schools, capitation grants, which carters for learning materials, is seriously underfunded in secondary schools (less so in primary schools). Moreover, the capitation grant is secondary (also in primary) levels is routinely used for informal wage costs, not just “non-salary inputs.” The underfunding of capitation grant in secondary schools and use of allocated capitation grant for informal wages suggest that allocation for secondary education within education sector is not adequate. Resources, especially teachers, for the supposedly universal primary education service remain very unequally distributed across geography (districts). The education PETS confirms that this inequality is built into the budget allocations and shows it is reinforced by local government authorities. 4.7 Primary education provision is highly affected by the geographical inequalities, which also affect some other services in Tanzania. Figure 16 shows that the pattern of primary school spending per pupil changes very little in the 2009/10 allocations compared with 2008/09. There is still a 400 percent difference between the top group of districts and the bottom group. In fact, the standard deviation around the mean reduces from 34 percent to 27 percent of mean. This is due in large part to small reductions in the intensity of spending at the top of the spectrum (left hand side).

Figure 16: Education per capita spending per district (in Tanzania Shilling)

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1 12 23 34 45 56 67 78 89 100 111 122

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4.8 The education spending pattern across districts is heavily driven by the pattern of human resource distribution which is highly uneven, and the gap has widened in recent years. The pattern of human resource distribution is also impacting the levels of welfare, with areas with lowest staffing allocations having highest rates of poverty. For example, in standard VII exam, pass rate in the top 20 percent of LGAs with lowest pupil/teacher ratio is 58 percent, while pas rate in the bottom 20 percent LGAs with highest pupil/teacher ratio is 44 percent. The underlying cause of an even distribution of human resource is difficulties to attract and retain workers in underserved areas. The underserved areas have not been able to utilize the staffing budget (PE) which would have been assigned to them under the formula budget allocation system. At the same time, recruitment and transfer in better served areas have continued, leading to widening of inequality. The situation is complicated further by lack of

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coordination mechanism between key government institutions and administrative processes, like have a limited time allowed for hiring during a financial year. In addressing these challenges, the government has allocated a “special budget” in the 2009/10 budget for hard to reach underserved areas. However, there is no evidence that this special budget will equalize primary education provision in 2009/10 – and there certainly is no impact from the yet to be introduced staff attraction incentives in the new medium term pay policy. The government will need to put some additional measures, including placing a limit on recruitment and transfers to better served areas as well as provide incentives for new recruits in underserved areas.

HEALTH

4.9 Health remains among the top priorities, although the share of health spending in the total government budget continues to decline. On average, over the last three years, 200/06-2008/09, more than 10 percent of the Government budget has been going to the health sector (see Table 21). There is also an increase in the share of health budget directly allocated to local government authorities, since primary healthcare is delivered at that level. However, it is not clear whether increased resources for local government equate to increases for primary health. 4.10 The health budget has been declining for several years, both as a share of GDP and as a share of total expenditure (see Table 21). Per capita health spending declines while the 2009/10 budget increases by 24 percent in real terms. This decline is partly due to a 17 percent real decline in foreign financed spending in the sector, while local financing for the health sector remains stagnant in real terms. Key challenges include an absolute shortage of human resources for health in some districts along with inadequate allocation for maintenance of sector facilities. Unlike in education, administrative classification in the health budget does not provide a meaningful split between types of health service activity.

Table 21: Key ratios in health sector spending

2007/08 2008/09 2009/10

Health budget as a share of total GoT budget 10.6% 10.2% 8.4 % Health budget as a share of total GoT budget (Excl CFS) 11.2% 11.2% 10.0% Per capita health budget in Tshs 15,541/- 18,505/- 18,717/- Health expenditure as a share of GDP 2.7% 2.8% 2.5% Share of health budget through LGAs 28% 28% 41% Budgeted increase (decrease) in expenditure 25% 23% 4%

Source: MoFEA IFMS data and authors’ calculations.

4.11 Like education, the health sector is also affected significantly by the extremely uneven allocation of human resources across geography in Tanzania. It is actually more unequal than education district by district. For instance, in 2007/08, the best served region (Pwani) had twice the number of health workers per 1,000 persons than the worst off region (Kagera). Figure 17 shows that the pattern of inequality is reproduced in 2009/10 allocations, and in fact the standard deviation widens slightly, from 51 percent to 53 percent of mean, indicating that any measures to shift resources to underserved areas incrementally have not

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worked. Again, like in education, the main underlying cause of this pattern is attracting and retaining workers in underserved areas. Thus, additional measures need to be implemented to attract and retain in order for human resources to be distributed according to needs (i.e. a formula based allocation system). The approach could include, like for education, placing a limit on recruitment and transfers to better served areas and also providing attraction incentives for new recruits in underserved areas. Better coordination in government institutions involved in administrative processes of recruiting and transferring staff is important.

Figure 17: Health per capita spending per district (in Tanzania Shilling)

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WATER

4.12 The water sector budget is restored to 1.1 percent of GDP, as in 2006/07 and 2007/08, after the drop in 2008/09 (see Table 22). In real terms, the allocation for water in the 2009/10 budget increased by 38 percent. After agriculture, water is the second fastest growing priority spending sector in 2009/10. The allocation is still well below the peak allocation of 2007/08, but that allocation was never achieved in actual spending. The sector remains highly dominated by development spending at 89.5 percent. However, budget execution is improving significantly, and increased funding is being allocated to the rural subsector (see Figure 18). 4.13 The share of the water budget directed through LGAs decreases in 2009/10, against the general budget trend. However, this masks changes in the way the Ministry of Water and Irrigation (MoWI) is organized. In 2006/07, 84 percent of the MoWI budget was for infrastructure projects managed by the ministry. By 2009/10, only 4 percent of MoWI’s development budget is managed in this way, with 78 percent transferred to urban water authorities and rural LGAs. This “indirect” decentralization is also linked to a switch from new investment to rehabilitation in the water sector, which represents good prioritization.

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Table 22: Key ratios in water sector spending

2006/07 2007/08 2008/09 2009/10

Water budget as share of total GoT budget 4.6% 6.5% 3.1% 3.7% Actual water expenditure as share of total GoT budget 4.0% 3.7% 3.2% Actual water expenditure as a share of GDP 1.1% 1.1% 0.9% Water budget as share of GDP 1.1% Water wage bill as share of total water budget 6.7% 2.4% 5.9% Capital spending as share of total water budget 79% 51% 77% Share of decentralized water expenditure (Regions & LGAs) 12% 31% 27% Budgeted increase (decrease) in expenditure 48% 77% -43% 52%

Source: MoFEA IFMS data and authors’ calculations.

Figure 18: Water sector budget composition

TRANSPORTATION

4.14 The recurrent budget allocation for transportation increased in 2009/10, with a large share of the increase going to maintenance expenditures. Transport recurrent spending increased by 15 percent in real terms in the 2009/10 budget, while overall transport spending declined by 13.5 percent (see Table 24). The roads subsector recurrent spending increased by 18 percent in real terms. Recurrent expenditures channeled through Ministry of Infrastructure Development (MoID) and PMO-RALG originated from the fuel levy revenue collected by the Roads Fund. LGAs and PMO-RALG receive 30 percent of the Roads Fund revenue, which in 2009/10 amounted to Tsh 85 billion, for rural roads maintenance. These funds are combined with the Tsh 199 billion allocated from Roads Fund through MoID for trunk and regional road maintenance, which total Tsh 284 billion. Despite the increased allocation for maintenance, it is still inadequate given the existence of road maintenance backlog and large investment in road construction that have taken place in the recent past.

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Table 23: Key ratios in transport sector spending

2007/08 2008/09 2009/10

Transport sector expenditure as share of total GOT budget 12.8% 12.42% 11.57%

Transport sector budget (as a share of GDP) 3.4% 3.31% 3.54%

Budget increase (decrease) in expenditure 68.37% 24.00% 13.46%

Source: MoFEA IFMS data and authors’ calculations.

4.15 Development spending in roads has declined in the 2009/10 budget, which has also seen a sharp decline in budget allocation for road construction and rehabilitation. There is a 32 percent real term decline in roads development spending. While overall development spending on roads declines, support from development partners continues to be strong, contributing 47 percent of the roads development budget. Further to the decline in the roads development budget, a number of new contracts for road upgrading/paving were signed in 2009 and entered into in 2009/10 for which there is insufficient budgetary allocation and that are inconsistent with economic priorities of the Transport Sector Investment Program (TSIP). The Tsh 75.8 billion allocated to newly signed contracts in 2009/10 fell short of requirements for these projects for this year, as does allocation to other ongoing projects. In addition, funding for the Local Government Transport Programme is below the program framework budget and needs to be addressed, perhaps as part of “Kilimo Kwanza” (cross referencing from agriculture).

ENERGY

4.16 Despite the increased local funding, overall energy sector spending has continued to decline in the 2009/10 budget (see Table 24). Though accessibility and reliability of electricity is a major problem, the energy budget has declined over the last three years both in absolute terms and as a share of Government’s budget (3 percent in 2009/10 compared with close to 6 percent in 2007/08). And in the last two years, the executed budget has not exceeded 35 percent due to erratic, delayed, and incomplete release of funds as well as project implementation and procurement challenges. 4.17 In 2009/10, rural electrification is allocated roughly 50 percent of the available Ministry of Energy and Minerals (MEM) development budget. This focus should be maintained over the medium term alongside efforts to ensure that allocated resources are released and effectively spent. The government should also take measures to ensure that adequate funding to the sector is available for critical investments not available from the private sector. The budget for maintenance and capital acquisitions should be increased to meet the challenges of delivering the needed changes in the sector.

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Table 24: Key Ratios in Energy Sector Spending

2007/08 2008/09 2009/10

Total sector as percent of GoT budget 5.8% 4.3% 3.0% Total sector as percent of GDP 1.6% 1.4% 1.3%

Source: MoFEA IFMS data and authors’ calculations.

KEY CONCLUSIONS AND RECOMMENDATIONS

4.18 Although key sectors are adequately prioritized in budget allocation, compositions of expenditure allocations in within these sectors need some further attention. Priorities with sector are not adequately aligned to MKUKUTA and sector strategies. For instance, in education, while secondary education accounts for only 11 percent of education spending, higher education accounts for 24 percent, although the secondary education subsector is a top priority. Furthermore, capitation grant in secondary school remains under funded, although it is known to be a critical input for better learning outcomes. 4.19 In health, budgetary allocations continue to decline in both per capita terms and as a percent of GDP; at the same time, key programs like maternal and child health remains under funded. The declining funding of this sector, together with lack of adequate health staff especially in underserved, poses serious challenge in reaching the relevant health MDGs. 4.20 There is a major drop in the development budget of roads in the Ministry of Infrastructure Development, which is minimally offset by a slightly larger allocation for rural roads and a larger MCC road component in the MoFEA. In addition, allocations in FY2009/10 also fall short of TSIP and MTEF projections. Even more worrisome, funds allocated for on-going and newly signed upgrading contracts fall short of requirements of new contracts for upgrading and paving trunk and regional roads that were signed in the summer of 2009, leading to an overall underfunding of the road budget of around US$ 130 million, if no more new projects are signed during the FY. The shortfall could imply cuts to other part of the approved budget. This problem needs to be addressed as it put into question the integrity and effectiveness of the commitment controls procedures. This also weakens meaning of the approved budget and of its allocation choices.

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5. BUDGET AND ACTUAL EXPENDITURE CONSISTENCY – 2008/09

5.1 Consistency of policy, planning, budgeting, and actual expenditures is critical to realize policy objectives. Most often, the consistency circle breaks at the point of budget and actual spending in the budget execution stage. The previous assessments of the consistency between budget and actual expenditure have pointed to (i) substantial deviations between the budgeted recurrent expenditure and actual recurrent expenditure, especially at sub vote level, and (ii) very low levels of development budget execution, which is even lower for capital spending intensive sectors. While priority sectors are generally protected from expenditure cuts in the course of budget execution, reallocations within vote still remain – which raises questions of whether critical expenditures within priority sectors are well protected. 5.2 There are many possible reasons for budget deviations. In 2008/09 there were at least two major sources: The first cause refers to reallocation warrants that Government uses to make reallocations across votes if need be. This measure was used mostly with regard to development budget, especially the locally funded projects. Local funds were reallocated from projects that were slow performers to higher performers – energy to roads. The second major source of budget deviation was the provision for contingency, which is a holding item under the Treasury (vote 21) to cater to salary adjustments following implementation of the Presidential Public Service Pay Commission. Substantial amounts of funds were retained in the contingency under the Treasury for paying salary arrears (January-June 2008) and salary adjustments (2008/09) following Presidential announcement of a salary increment for public servants starting from January 2008. Although budget deviations are inevitable, large and widening across the board variances indicate a lack of budget predictability and realism. It undermines the public expenditure management systems and in turn has adverse effects on spending managers when planning and implementing activities.

RECURRENT BUDGET AND ACTUAL SPENDING DEVIATION 5.3 Deviation between approved recurrent budget and actual recurrent spending is mainly driven three major reasons. First, low releases from Treasury compared to budgeted amounts, usually driven low actual overall resource envelope compared to projected overall resource envelope. Second, reallocation between spending agents, and in particular reallocation from the contingency account of the Treasury. Third, under or over spending by agencies which is sometimes driven by absorption capacity.

5.4 Reallocation from the contingency was the main driver of the recurrent budget deviation in 2008/09. Provision for contingency was huge in the 2008/09 budget, purposely for paying salary arrears and salary adjustment following the decision to raise salaries of civil servants in January 2008. Funds were reallocated from the contingency account of the Treasury to other spending agencies for paying salary for 2007/08, and new recruitment and salary increase for 2008/09. The provision for contingency account (vote 21/sub vote 2001) in the 2008/09 budget was 4 percent of the total budget, equivalent to 0.7

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percent of GDP. Compared with 2007/08, this translates into an absolute increase of Tsh .80 billion, equivalent to 0.2 percent of GDP, or 1.2 percent of the total recurrent budget in 2008/09. Most of these funds were used for paying salary arrears, salary adjustment, and some new recruitment, especially for teachers in LGAs.

5.5 At aggregate level, including MDAs, regions and LGAs, deviation between approved recurrent budget and actual expenditure stood at -6.5 percent. The degree of deviation fluctuates substantially, depending on the level of aggregation of the analysis. While MDAs aggregate recurrent expenditure variance was -8.1 percent, regions (including LGAs) aggregate recurrent expenditure variance was -0.3 percent (see Table 25). However, the regions’ recurrent variance is measured on releases and not actual expenditures. The recurrent expenditure variances increase as expenditures are broken down by functional votes and sub votes. The decline in aggregate recurrent expenditure variation suggests some limited variation between project resource envelope and actual resource envelope as well as reduced under spending by MDAs and regions (including LGAs).

Table 25: Recurrent budget variance

2004/05 2005/06 2006/07 2007/08 2008/09

Recurrent -9.2% -5.0% 2.0% -13.1% -6.5%MDAs -12.4% -7.0% 4.8% -15.5% -8.1%Regions+LGAs 4.9% 2.8% -6.1% -5.0% -0.3%

Source: MoF budget books, IFMS, expenditure flash reports and authors’ computations.

5.6 MDAs recurrent budget deviation index10 declined to 13.1 in 2008/09, after adjusting for salary arrears. Following the announcement by the President to raise the salaries of public servants starting from January 2008, salary arrears of about Tsh 112 billion accumulated from January-June 2008. All these arrears were budgeted for in the 2008/09 budget under the contingency item in the Treasury. This constituted the big source of reallocation from the Treasury (vote 21) to other votes, including the regions and LGAs. Adjusting for salary arrears of the regions and LGAs to come out with MDAs recurrent budget deviations index, puts the index at 13.1 percent, a significant decline compared with 2007/08.

Table 26: MDAs recurrent budget deviation index at vote level

2003/04 23.9 2003/04 (excl. ‘force majeur’ items, namely additional spending in votes 43/agriculture and 58/energy)

22.6

2004/05 20.4

2005/06 17.1 2006/07 16.0

2007/08 16.7

2008/09 18.3

2008/09 (excl. ‘force majeur’ items, namely reallocations from contingency for the 2007/08 salary arrears following Presidential decision to raise salaries starting from January 2008)

13.1

Source: MoF budget books, IFMS, expenditure flash reports and authors’ computations.

10 Recurrent budget deviation index is calculated as the sum of absolute differences between the approved recurrent budget and actual recurrent expenditure at vote level expressed as a percentage of the total approved recurrent budget

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5.7 There were limited inter vote reallocations in 2008/09 compared with 2007/08. The above deviation index provides an indication about inter vote reallocations. Taking out the impact of salary arrears, some improvement in limiting inter vote reallocation is noted in 2008/09. More could also been achieved in terms of reducing recurrent deviation index if the salary adjustments and new hires could have been allocated in the respective MDAs’ budgets. For instance, the allocations for the normal salary adjustments, equivalent to Tsh 241 billion, were in the contingency item of the Treasury, while it was already known that salaries would rise following the President’s announcement of January 2008. 5.8 The Treasury (especially the contingency) was the main source of funds reallocated to other MDAs. While Treasury was the main source of reallocations, the Ministry of Education, President’s Office and Cabinet, and Defence were the main recipients of reallocated funds. Since most of the funds were for salary arrears and adjustment, the Ministries of Education, Defence, and Police were the right beneficiaries given their big staff numbers. Table 27 gives the list of top 11 “underspenders” and top 11 “overspenders.”

Table 27: Overspenders and Underspenders11

Vote MDAAmount

(Bill Tsh.)Vote MDA

Amount

(Bill Tsh.)

21 Treasury (457.82) 53 Education and Vacational Training 76.60

56 Regional Admin. and Local Govt. (16.56) 44 President's Office and Cabinet 22.44

43 Agriculture ,Coop And Food Security (5.47) 39 Defence 21.06

69 Tourism and Natural Resourses (4.47) 32 Home Affairs - Police 11.67

40 Judiciary (3.13) 52 Foreign Affairs & International Coop. 10.11

98 Ministry of Infrastructure (2.53) 23 Public Debt and General Services 6.34

66 President Office Planning Commission (2.18) 22 Accountant General's Department 6.09

41 Justice and Constitutional Affairs (1.79) 34 Health and Social Welfare 6.01

97 Min of East African Cooperation (1.25) 28 President's Office-Public Service Mang. 4.88

99 Ministry of Livestock Development (1.14) 38 The National Service 4.22

48 Lands and Human Settlements Dev. (1.07) 30 Industries, Trade and marketing 3.30

Under-spenders Over-spenders

Source: Budget books, expenditure flash reports and authors’ computations.

5.9 In general, although there could be some credible explanations behind a number of the observed deviations, weakness in planning and budgeting remains one of the main causal factors. For example, the seeming under spending in Treasury was due to reallocation of funds under the contingency item (vote21/sub vote 2001) for salary arrears and adjustment following Government’s decision to raise the pay levels of public civil servants. All these funds could have been budgeted under their respective votes, since they were known during the budget preparation process. Thus, improving budget formulation and management to decrease intra year budget reallocations is a critical step forward. Greater Parliamentary scrutiny of the reallocations and enforcement of expenditure controls is also imperative.

11 Under spending and overspending in this case is in reference to actual spending and originally approved budget before taking into account reallocations, which are allowed by law. Reallocation warrants are the instrument used to reallocate funds across or within votes.

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MDA DEVELOPMENT BUDGET AND ACTAUL SPENDING DEVIATION

5.10 MDAs development budget execution remained weak in 2008/09 albeit slightly improved compared to 2007/08. The low execution of development budget is associated with large deviations between approved development budget and actual spending. As pointed out in PEFAR 2008, there are number of underlying causes low execution of development budget and associated large deviation to actual spending. These factors include: under-reporting of direct to project donor funds; delays in release of development funds, both local and donor funds; demanding administrative procedures in releasing funds to suppliers; weak capacity in cash flow and procurement management; overly estimated donor funds which translate to unrealistic budgeting; and overall weak capacity in preparation and physical implementation of large capital investment projects in some key MDAs. 5.11 Although donor projects which utilize direct to project (D-Funds) aid modality are included in the budget, actual release of funds is supposed to be captured in IFMS through dummy exchequer. Most often data on release of direct to project funds is not fully captured in IFMS which result into large deviations between budget and actual spending. This procedure of recording disbursement in IFMS using dummy exchequer results into huge under reporting of actual expenditure. Technically dummy exchequer is good system for capturing data on such expenditures; however, adequate application of the system by main actors is important. This requires a complete and timely recording of the disbursement data of direct to projects funds after a transaction is completed. 5.12 Delayed release of funds is another major reason contributing to large deviation between budgeted and actual development spending. The spending pattern follows release pattern. Most often funds released in the last quarter of financial year are not fully executed or if executed the spending is often inefficient. According to 2008 Budget Execution policy note, LGAs receive most of their development funds from baskets that come during the last quarter of financial year. Experience shows that most of these funds are carried forward to the following financial year. Delays in release of basket funds are linked to requirements for release of funds as set out in memorandums of understanding of those baskets. 5.13 Overly demanding administrative procedures in processing payment to suppliers was also one of the reasons holding back development spending. Too many steps (about 15) which may take up to 14 days in processing a payment. In addition to overly demanding administrative procedures, weak cash flow and procurement management continue to slow development budget execution thereby resulting into a large deviation between budget and actual spending. Monthly cash flow plans are not produced by all spending agencies which makes it difficult to have a full cash flow picture. Furthermore, even for few spending agencies which prepare cash flow plans, they considered not credible enough. In order to address this problem, four ministries were given a technical assistance on how to prepare credible cash flow and procurement plans in 2009/10. The MoFEA will need to commit to implement these cash flow plans. 5.14 The unreliability of the MTEF projections, especially donor project funds, and budget estimates, impact on budget execution as budget remain unrealistic. Most often

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projected disbursements of project funds in the MTEF are lower than actual disbursements. Since foreign funds finances more than 65 percent of development budget its predictability is of uttermost importance. 5.15 In addition to funding patterns and modalities, the PEFAR 2008 pointed out the weak capacity to plan, prepare and physical execute large capital investment projects. Some key sectors lack adequate capacity to design and implement quality projects, from feasibility and economic evaluation to physical implementation and monitoring. All the above reasons have weakened significantly execution of development budget in MDAs and LGAs. This section carries some preliminary analysis of MDA development budget execution in 2008/09 by paying attention to both completeness and timeliness of releases. The section also carries out a preliminary analysis of the development budget’s execution by economic nature of spending. The focus on MDAs is due to availability of preliminary data on actual expenditures, which is not available for LGAs. The objective is to assess whether there is some improvement in development budget execution in 2008/09 compared 2007/08 which will suggest some of the key challenges have been addressed.

Timeliness and completeness

5.16 Late release of MDA development funds persisted in 2008/09. Despite slightly improved execution in 2008/09 compared with 2007/08, the pattern of release of funds was worse in 2008/09 than in 2007/08. About half of the released MDA development funds in 2008/09 were released during the last quarter of fiscal year. Furthermore, less than 10 percent of funds were released in the first quarter. However, absorption capacity was better in 2008/09 compared with 2007/08, as shown in Figure 19.

5.17 Despite some slight improvement, the overall execution of MDA development budgets continued to remain weak in 2008/09. The overall MDAs development execution rate was 52 percent in 2008/09, slightly higher compared with 2007/08 (see Figure 19 and Table 30). While about 60 percent of the budgeted funds were released by end of both 2007/08 and 2008/09, 52 percent were spent in 2008/09, about 7 percent higher than in 2007/8. This suggests that slight improvement in execution in 2008/09 was driven by increased absorption capacity of the MDAs. The release gap contributed to about 87 percent of poor execution, while the spending a gap contributed to about 13 percent in the MDAs in 2008/09. 5.18 Late release and hurried spending in last month(s) of the financial year could lead to inefficiency and loss of quality in expenditures. Overall trends in release of development funds suggest that spending in a hurry in the last month is always inconsistent with budgeted spending schedule. Month by month analysis of release and spending of development funds shows that the bulk of expenditures happen around April-June. Thus, spending agencies, including LGAs, rush to spend the funds before the financial year ends, for which MDAs would be required to remit the funds to Treasury. This hurried spending could lead to some efficiency and quality losses in expenditures.

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Figure 19: MDA development budgets, release and spending

2007/082006/07 2008/09

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Economic Nature and Funding Source

5.19 Locally funded components of the MDA development budgets continued to be better executed than foreign funded components in 2008/09. Execution rates of locally funded components of the development budget performed better than foreign funded components (see Table 28). This is largely true regardless of the nature of spending, whether capital or current. For instance, while execution of locally funded component is 65.4 percent, it is 38.6 percent for the foreign funded component. Since foreign funds finance a larger share (65.5 percent) of the development budget, shortfall in its execution significantly slows down implementation of the overall development programs. 5.20 Regardless of the funding source, capital spending intensive sectors continued to struggle in budget execution. The analysis indicates that irrespective of financing sources, sectors with a large share of capital spending (energy and roads) also tend to have lower execution rate for the development budget. This sector analysis seems to highlight difficulties related to the sector’s capacities for planning and execution of large investment projects, which also play a significant role in slowing down development budget execution. For example, although the bulk of the development budget expenditures in agriculture, health, and water are financed by foreign resources, execution rates in these sectors are relatively high (72, 75, and 85 percent, respectively). By contrast, sectors where the share of foreign funds is less dominant, such as energy and roads, but where capital spending accounts for the bulk of expenditures, have significantly lower execution rates (14 and 60 percent, respectively).

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Table 28: MDA development budget shares and execution – 2008/0912

Sector Item

Foreign Local Total Foreign Local TotalOverall Current 35.5 25.4 61.0 49.1 56.2 52.1

Capital 22.7 16.3 39.0 36.2 76.3 52.9

Total 58.3 41.7 100.0 44.1 64.0 52.4

Agriculture Current 51.3 8.5 59.8 56.3 145.4 69.0

Capital 23.3 16.8 40.2 98.6 42.7 75.2

Total 74.7 25.3 100.0 69.5 77.2 71.5

Education Current 38.4 21.8 60.2 15.0 43.3 25.3

Capital 11.4 28.3 39.8 145.2 136.6 139.0

Total 49.9 50.1 100.0 44.9 96.0 70.5

Health Current 85.7 4.7 90.4 81.5 69.8 80.9

Capital 8.8 0.8 9.6 16.3 100.4 22.9

Total 94.5 5.5 100.0 75.4 74.0 75.3

Energy Current 29.5 19.8 49.3 4.0 9.3 6.1

Capital 39.7 11.0 50.7 16.8 44.2 22.7

Total 69.2 30.8 100.0 11.3 21.8 14.5

Roads Current 7.4 38.8 46.1 23.9 75.1 67.0

Capital 32.9 21.0 53.9 37.7 82.2 55.0

Total 40.3 59.7 100.0 35.2 77.6 60.5

Water Current 46.4 12.5 59.0 87.1 52.0 79.6

Capital 19.9 21.1 41.0 60.5 122.7 92.5

Total 66.3 33.7 100.0 79.1 96.4 84.9

Shares of total Execution rates

Source: Budget books, IFMS and authors’ computations.

5.21 The overall conclusion of the analysis is clear: funding sources matter as well as capacity to plan and physically execute capital intensive investment projects. Weak capacity to execute large capital investment projects may be attributed to inadequate capacity in key sectors to design, plan, and implement quality projects, from feasibility and economic evaluation studies to physical implementation and monitoring. This includes the credibility of the associated procurement and cash flow plans. Weakness in planning and physical implementation reduces capacity to absorb funds and therefore slows down execution of development programs. The problem worsens when releases are untimely and resource levels are unpredictable, a phenomenon noted often in the case of donor funded interventions.

KEY CONCLUSIONS AND RECOMMENDATIONS 5.22 It is critically important to strengthen the MTEF, including the public investment planning. Government should adopt a medium term public investment that is consistent with a reliable MTEF. The strengthened and reliable MTEF should provide a significant step forward toward improving predictability of resources, both local and foreign, to spending agencies. 5.23 Strengthening cash flow credibility and procurement plans and strengthening Treasury’s cash management unit are key steps in improving timeliness in release of funds and budget execution. Currently, four pilot MDAs have been trained, and they are in the process of preparing credible cash flow and procurement plans. The MoFEA should strive to implement the strengthened cash flow and procurement plans of the four MDAs.

12 For sectors only main MDAs are included, and therefore the analysis tends to underestimate the share of the sector, especially in education, health, agriculture, water, and roads. For instance, in agriculture (vote 43 and 49); education (vote 46); health (vote 52); energy (vote 58); roads (vote 98); and water (vote 49).

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Furthermore, it important that efforts be extended to strengthen capacity to all spending agencies to prepare credible cash flow and procurement plans. 5.24 Weakness in preparation and implementation of large capital investment projects in some of the MDAs has remained one of the major causes of low execution rates of development budget. It is therefore important that Government strengthen capacity to prepare and implement public investment projects. Such capacity should include project designing, planning, and implementation, from feasibility and economic evaluation to the physical implementation and monitoring. It is critically important to maintain a database on the status of all ongoing investment projects and those in the pipeline. Projects should be prepared well in advance and put in a project data bank ready for implementation whenever fiscal/budget space is available. 5.25 Further efforts should also be geared toward improving public financial management to ensure more donor funds are channeled through the exchequer system. Government and DPs should work closely in addressing key PFM challenges to ensure that further support follows the preferred aid modality, general budget support (GBS), as stipulated in JAST.

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PART II: PFM ASSESSMENT

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6. NATIONAL AUDIT OFFICE REPORTS: SUMMARY OF FINDINGS

AUDIT SCOPE, STANDARDS AND LEGAL FRAMEWORK

6.1 The external audit function in Tanzania is performed by the NAO, which is headed by the Controller and Auditor General (CAG). The CAG audits the accounts of Central Government (CG), including the National Consolidated Financial Statements (NCFS), the accounts of Local Government Authorities (LGAs) and of PABs, including those receiving funds from the Consolidated Fund. CAG also undertakes Performance or Value for Money (VfM) audits, environmental and special audits. 6.2 The legal framework underlying the appointment of the CAG as the statutory auditor of all revenue and expenditure for CG, LGAs and PABs, is the Constitution of 1997 (revised 2000), Article 143. More recently, the legal framework for the CAG’s mandate has been complemented with the Public Finance Act No. 6 of 2001, revised 2004 (PFA), section 30 (1), and the Public Audit Act (PAA) No.11 of 2008. Moreover, the Constitution and the PAA establish a mandate for the CAG to audit the above mentioned entities on a yearly basis. The legal framework for VfM and special audits has been provided by the PFA under section 33 and, more recently, by the PAA. The PAA also includes provisions for the CAG to undertake forensic and environmental audits. 6.3 In 2009, the NAO issued three CAG reports covering the accounts of CG, LGAs and PABs for the financial year (FY) 2007-2008.13 Between 2009 and January 2010, it has issued two VfM audits (on the Management of Primary Health Care and on the Processing of Terminal Benefits) and one VfM/environmental audit on Solid Waste Management (SWM). Other VfM audits, such as that on School Inspections for Secondary Schools, were issued earlier, in 2008, and relate to even earlier audit periods (2004 – 2006); the one on Floods in Babati was issued in 2007. 6.4 The NAO is a member of the International Organization of Supreme Audit Institutions (INTOSAI). The audits largely adhere to standards of INTOSAI and the International Standards on Auditing (ISA) issued by the International Federation of Accountants (IFAC); though full compliance is expected for 2010. A crucial step closer to full adherence has been taken with the passing of the PAA, as the Act has enhanced NAO’s independence. Besides having broadened the scope of its audit activities beyond financial and compliance audit, to include performance and environmental audit, the NAO is also modernizing audit techniques by moving toward the adoption of risk and IT based audit.

13 National Audit Office, United Republic of Tanzania, Annual General Report of the Controller and Auditor General on the Audit of the Financial Statements of Central Government for the Year ended 30th June 2008, March 2009; National Audit Office, United Republic of Tanzania, Annual General Report of the Controller and Auditor General on the Audit of the Financial Statements of Local Government Authorities for the Year ended 30th June 2008, March 2009; National Audit Office, United Republic of Tanzania, Annual General Report of the Controller and Auditor General on the Audit of the Financial Statements of Public Authorities and other Bodies for the Year ended 30th June 2008, March 2009.

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6.5 This chapter will focus on the findings regarding the financial audit, as these relate to the status of the PFM system as a whole, and underlie key issues for its improvement. It also briefly covers the main findings of the three more current VfM audits. The results of the other two are very specific14 and may be outdated.

CENTRAL GOVERNMENT

Financial Audit of Central Government entities: Key issues

6.6 Central Government (CG), comprises Ministries, Departments and Agencies (MDAs), Regional and Administrative Secretariats (RAS), embassies/missions, and donor funded projects. For FY 2007/2008, the CAG audited 102 CG entities. The results of the audit show a deterioration compared with the previous year, especially for MDAs, as 71 percent received a clear audit opinion compared with 76 percent for 2006/2007, and 6 percent received an adverse opinion compared with none in the previous year. Less so for RAS, for which nonetheless there was a 4 percent increase in qualified opinions compared with the previous year. The status for embassies and missions is almost unchanged, except for one opinion going from unqualified to adverse. Table 29 summarizes overall results and comparisons among financial years for all three categories. The specific MDAs that received an adverse opinion, and related reasons, are detailed in annex 1. The key issues for the deterioration in the audit opinions and generally stemming from the audit are:15 6.7 Weak follow up on previous audit recommendations. The CAG noted a substantial increase in the number of outstanding audit issues: from 17 in 2006/07 (valued at Tsh 64 billion) to 41 in 2007/08 (valued at Tsh 1,036 billion). The entities with the largest outstanding audit issues were Public Debt Service (Tsh 657 billion), followed by the MoFEA (Tsh 267 billion) and the Immigration Service Department (Tsh 49 billion). 6.8 Low compliance with procurement procedures. Almost all MDAs/RAS do not comply with the relative regulatory framework, the 2004 Public Procurement Act No. 21 (PPA) and the related regulations of 2005. Embassies/missions are governed by a different procurement regulatory framework than MDAs/RAS16; this is established by Foreign Service regulations. In the case of embassies/missions, the issue is not only of noncompliance, but also of an outdated regulatory framework in need of immediate revision. Main examples of non compliance are: Procurement Management Units (PMUs) have not been established in most MDAs; MDAs do not prepare Annual Procurement Plans; and most MDAs lack proper filing systems, do not maintain a complete set of records regarding procurement (which is also an internal control issue; see below), and fail to submit tender advertisements to the Public Procurement Regulatory Authority (PPRA). Shortcomings in contracting and contract management were found in 24 MDAs, resulting in a total of Tsh 11 billion in questioned

14 The VfM on education is focused specifically on the extent to which the School Inspectorate addresses the issue of poorly performing students in mathematics and science subjects in secondary schools. 15 The CAG also considers that the upgrading of audit methodologies via risk assessments, as well as the broadening of the scope for the 2007/2008 audit to include IT and payroll audits, could have partly contributed to the decrease of clean opinions. 16 By the Foreign Service Regulations and Circulars issued by the Ministry of Foreign Affairs and International Cooperation on all matters relating to procurement.

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expenditures Overall procurement irregularities found by the CAG amounted to over Tsh 6.6 billion.

Table 29: Audit opinions on the accounts of CG entities, 2006/07 to 2007/08

Unqualified Qualified Adverse Total

(except for)

2006/07 2007/08 2006/07 2007/08 2006/07 2007/08 2006/07 2007/08

MDAs 37 35 12 11 - 3 49 49

RAS 15 14 6 7 - - 21 21

Total MDAs and RAS 52 49 18 18 - 3 70 70

Embassies/missions 21 22 8 8 1 2 30 32

Total audited CG votes 73 71 26 26 1 5 100 102

Percentage for MDAs over total audited MDAs

76% 71% 24% 22% - 6% 100% 100%

Percentage for RAS over audited RAS

71% 67% 29% 33% - 100% 100%

Percentage for MDAs and RAS over total audited MDAs and RAS

74% 70% 26% 26% 0% 4% 100% 100%

Source: NAO, Annual General Report and author calculations.

6.9 Inadequate payroll controls. Considerable amounts of government funds are being lost due to lack of adequate payroll controls. For 2007/08, the CAG identified Tsh1 billion in questionable payments and balances for payroll. A payroll investigation of limited scope,17 issued in January 2008, reported the loss of Tsh 3 billion for the GoT through payments to 1,413 ghost workers in the Ministry of Education and Vocational Training, causing alarming concerns for what the results of a CG-wide investigation could reveal. Moreover, the CAG found unclaimed salaries not surrendered to the Treasury for Tsh 383 million. 6.10 Inadequate internal controls and internal audit functions. In addition to payroll controls, weak internal controls were found for non salary expenditure and asset management. The noted widespread lack of supporting documents is resulting in considerable breaches of internal control and accounting regulations: the CAG found missing payment vouchers for Tsh 250 million of expenditures and improperly vouched expenditures (those for which a payment voucher exists, but is unaccompanied by other necessary supporting documentation (LPOs, invoices)) for almost Tsh 17 billion. Questionable payments for 2007/08 totaled Tsh 10 billion for 14 MDAs/RAS. In addition, the CAG 2007/08 report underlined weak compliance with existing rules for the processing and recording of transactions, which is also causing weak cash management: the audit found

17 The Payroll investigation in question was carried out by the President’s Office-Public Services Management (PO-PSM), and involved the Dar es Salaam region, Coast region, Ministry of Natural Resources and Tourism; RAS Morogoro, Ministry of Health and Social Welfare and Ministry of Education and Vocational Training.

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outstanding bank reconciliation items in nine MDAs (an increase from the eight for 2006/07), for a total of Tsh 64 billion. Regarding noncurrent assets, 31 MDAs/RAS were found not to have proper and updated asset registers. The estimated value of the assets held by the entities in question is Tsh 47 billion. As to internal audit, most MDAs/RAS still lack both a functioning Internal Audit department and Audit Committees. Moreover, the absence of established Audit Committees is contributing to the weak follow up of audit recommendations, as in principle Audit Committees oversee implementation of outstanding recommendations. 6.11 Information Technology and IT related controls. The CAG found that the Epicor system has not been activated to incorporate and process records of fixed assets, inventories, generation of Local LPOs, checks, and generic reports, and that the system has not been sufficiently developed to reliably interface with the mainframe at the MoFEA. In most MDAs, password controls are inadequate; the introduction of the Epicor system has also not been accompanied by the establishment of appropriate accounting procedures and Epicor-related controls to ensure against irregularities. 6.12 Donor funded projects. The CAG underlined the need to improve the implementation and management of donor funded projects. In the Agriculture Sector Development Program alone, the CAG noted anomalies for over Tsh 5 billion. Moreover, the CAG noted a decrease in the release of funds by development partners in 2007/08 compared with 2006/07.

Audit of the National Consolidated Financial Statements

6.13 For the first time this year, the accounts audited have been prepared in accordance with the cash basis IPSAS, though actual compliance is still partial. The CAG audited the NCFS and gave it a qualified opinion. This resulted from the fact that the sum of all misstatements amounted to Tsh 370 billion, compared with a total expenditure of Tsh 5,017 billion, equal to 7 percent of total expenditure (see Table 30). The level is substantially higher than the CAG’s level for material misstatement, which is set at 2 percent. 6.14 Through the examination of the NCFS, the CAG also could detect four key additional issues for CG.18 6.15 Commitment controls. The CAG underscored the need to introduce a system for commitment control, as the consolidated accounts show an increase in commitments from Tsh 132 billion in 2006/2007 to 289 billion in 2007/2008, a rise of 119 percent. 6.16 Unspent balances for development expenditure. Due to the non release of funds by development partners, actual development expenditure was 42 percent less than the approved budget. In addition, the gap between approved budget figures and actual funds released for development expenditure has widened, as the shortfall for 2007/08 equaled Tsh 819 billion, 38 percent more than the Tsh 595 billion shortfall for 2006/07. The increase in the level of commitments, combined with the increased deviation between approved and actual expenditure for development expenditure, undermines budget credibility.

18 Revenue retention also remains a challenge, though total revenue collection increased by 16 percent.

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6.17 Loss of public money. In addition to the losses due to poor payroll controls, weak internal controls over government assets have resulted in a dramatic increase in the deterioration of public assets by 52 percent (loss of public money and stores was found to be Tsh 3.6 billion, compared with 2.37 billion in 2006/07). Moreover, the noted poor compliance with procurement laws and regulations also jeopardizes public resources by increasing corruption, opportunities for misuse of public funds, and the likelihood of losing public money.19

Table 30: NCFS, Basis for Qualified Opinion

Quantitative issues Tshs.

Shortfall between the actual revenue reported to have been collected by the Tanzania Revenue Authority (TRA), compared with the actual collection amount reported by TRA in its financial statements

80,617,298,063

The amount reported as transferred from the TRA to the Exchequer Account as per the consolidated statement was understated

196, 189, 280, 503

In the statement of contingent liabilities, the reported contingent liabilities related to the Local Authority Provident Fund lacked the supporting documentation

1,875,167,000

Three loans taken from the National Social Security Fund and guaranteed by the government were not reflected in the consolidated statement of outstanding government guarantees

20,580,000,000

The statement of outstanding liabilities, equal to Tsh 71,283,761,000, includes an amount for Tsh 16,959, 107 pertaining to goods and services not supported by an analysis to show the type of goods and services provided

71,283,761,000

Total misstatement 370, 545, 506, 566 Total actual expenditure 5,017,378,196,000 Percent of misstated transactions and balances 7%

Source: NAO, Annual General Report and author calculations.

LOCAL GOVERNMENT AUTHORITIES

Financial Audit of LGAs: Key issues

6.18 For 2007/08, the CAG audited 133 LGAs. None received adverse opinions. That said, the 2007/08 audit resulted in a considerable increase of entities receiving qualified opinions: from 24, or 19 percent of total audited LGAs in 2006/07, to 61, or 46 percent of total audited LGAs in 2007/08. The overall increase is mainly due to an increase in qualified opinions for municipal and, to a lesser extent, district councils (see Table 33).

19 Note that 80 percent of the development budget is spent on procurement.

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Table 31: Audit opinions on the accounts of LGAs, 2006/07 to 2007/08

Unqualified Qualified (except for) Adverse Total

Council 2006/07 2007/08 2006/07 2007/08 2006/07 2007/08 2006/07 2007/08City 5 3 - 1 - - 5 4

Municipal 13 7 3 10 - - 16 17

Percentage for Municipal councils over total audited Municipal councils

81% 41% 19% 59%

Town 3 4 1 2 - - 4 6

District 79 58 20 48 - - 99 106

Percentage for Districts over total audited Districts

80% 55% 20% 45%

Total 100 72 24 61 - - 124 133

Percentage for total 81% 54% 19% 46% 100% 100%

Source: NAO, Annual General Report and author calculations.

6.19 In addition to the issue of the regulatory framework and accounting standards, the key issues identified by the CAG from the audit of LGAs, and leading to the qualification of the accounts for 46 percent of LGAs, are essentially the same as those identified for CG, though, for some areas, the magnitude and the specificities vary. 6.20 Outstanding recommendations. Outstanding matters from previous audits, amounting to almost Tsh 33 billion, were found in 112, or 84 percent, of LGAs. In terms of the amounts involved, outstanding matters from previous audits increased by 600 percent compared with 2006/2007. The biggest number of outstanding recommendations was found in Kongwa district, for a total of Tsh 6 billion. 6.21 Insufficient compliance with procurement procedures. The CAG established that the average level of compliance of LGAs to the PPA and related regulations was 41 percent, mostly due to the lack of established or effective PMUs. In turn, ineffectiveness stems from understaffing or absence of appropriate staff qualifications, skills, or training. The CAG also found irregularities in the reporting structure of PMUs, as they are answering to the LGA’s Treasury, rather than to accounting officers as the regulations require. 6.22 Inadequate payroll controls. Overall, the audit of the 133 LGAs, as well as specific payroll audits undertaken in the context of the financial audit of the 2007/08 LGA accounts, revealed irregularities in the payment of salaries and outdated records in the computer payroll. As a consequence, the CAG found salaries amounting to Tsh 178 million paid to retired, former, or deceased employees, and payment of salaries for Tsh 140 million not supported by the information in the computer payroll. The CAG also reported unclaimed salaries not surrendered to the Treasury for Tsh 882 million. 6.23 Weak internal controls on non salary expenditure and Internal Audit. For LGAs, weak internal controls were found in relation to the improper recording of

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transactions: 56 LGAs lack adequate controls on bank reconciliations, resulting in outstanding unreconciled balances for a total of Tsh 4 billion at year end. For 69 LGAs, the CAG reported Tsh 3.6 billion of improperly vouched expenditure, three times the amount for 2006/2007. Expenditure in 45 LGAs even lacked the payment vouchers, resulting in unvouched expenditures of Tsh 1.37 billion. The amount of unvouched expenditure found for FY 2007/08 is 17 times that for FY 2006/2007, an increase of 1585 percent. Though internal audit units have been established, so that internal audit is less of an issue for LGAs than CG, they were found to be understaffed and too narrow in focus, with audit scope limited to transactions audit. 6.24 Weak asset management. The CAG found shortcomings in the recording and management of fixed assets for 39 LGAs. This is also an internal control issue, as weaknesses included loose controls of asset codes as well as lack of ownership certificates. 6.25 Weak accounting practices. In addition to the above mentioned issues of improperly vouched expenditure and missing payment vouchers, the CAG found other irregularities: 115 LGAs with outstanding debtors for a total of Tsh 8.67 billion (a 55 percent increase from the previous year)20 and 17 LGAs with outstanding imprests of Tsh 214 million (60 percent less than in 2006/07). 6.26 Donor funded projects. Lack of supporting documentation regarding expenses was also reported in relation to donor funded projects at the LGA level. Moreover, a review of the Local Government Capital Development Grant found delays in implementation due to delays in the release of funds by development partners. 6.27 Unspent balances for development expenditure. The CAG reported unspent balances for council development projects involving 111 LGAs and amounting to Tsh 99 billion, or approximately 35 percent of the total budgeted. The unspent balances were also not carried forward to the following budget year. Moreover, 28 LGAs overspent their budget by 12 percent on average, and 105 LGAs reported under expenditures by 8 percent. This, combined with the CAG findings on CG and the abovementioned issues for development expenditure and donor funded projects, further undermines budget credibility and the budget preparation and approval process. 6.28 IT and related control environment. Given the shortcomings of the Epicor system noted in section 2.2.1, and discussed at length in chapter 6, LGAs are mostly resorting to manual processes or computer worksheets, which jeopardize the reliability of accounting data. Regulatory and accounting framework

6.29 The CAG report presents nonconformity to the appropriate international accounting standards as an issue of particular relevance for LGAs. The CAG found that LGAs’ financial reports were not in compliance with International Financial Reporting

20 In 2006/2007, 76 LGAs had outstanding debtors for a total of Tsh 5.61 billion.

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Standards (IFRS) or IPSAS, which it considers the standard reference since 2004. Instead, LGAs are preparing the accounts in accordance with the reporting requirements of the Local Authority Financial Memorandum (LAFM)and the Local Authority Accounting Manual (LAAM), which the CAG considers outdated. This shortcoming is also due to an unclear regulatory and reporting framework for LGAs. 6.30 The financial reporting requirements for LGAs are mainly defined under the Local Government Finance Act of 1982 (LGFA) as well as the Constitution. International standards such as the IFRS, the International Accounting Standards (IAS), and IPSAS do apply. However, several other references are also still applicable to LGAs: the Tanzania Standard Statements of Accounting Practice and the Tanzania Statement of Accounting Guidelines issued by the National Board of Accountants and Auditors (NBAA); the Local Authority Accounting Manual issued by the Prime Minister in 1992 (LAAM); the LAFM of 1997; and the Tanzania Financial Accounting Standards. 6.31 Conversely, and in contrast to CG entities, for which the PFA grants the ACGEN the unequivocal mandate to fulfill the finance/accounting function, the LGFA does not establish who will assume the ACGEN role for the LGAs. For LGAs, there is thus a redundancy of references for applicable reporting standards, coupled with a deficient regulatory framework.

PUBLIC AUTHORITIES AND OTHER BODIES

6.32 In the audit of Public Authorities and other Bodies (PABs) for FY 2007/08, the CAG identified 164 entities, compared with 158 the year before. Out of 164, 145 submitted their accounts for audit, and the CAG was able to complete the audit for 101 accounts by the time it had to issue its annual report, with the audit for 44 still ongoing. Almost 80 percent of the accounts audited were issued with unqualified opinions (clean opinions without emphasis of matter), which is almost the same as in 2006/2007, though for PABs the CAG report does not present comparative figures. Table 32 details the results. 6.33 Though the CAG considers the 80 percent figure to indicate a generally satisfactory level of financial reporting by PABs,21 key challenges to sound financial management are nonetheless presented in its report. Several are in common with those highlighted for CG and LGAs, though their severity may vary and at times cannot be determined, as PABs issues are not always quantified in terms of expenditure or value involved. 6.34 Outstanding matters from previous audits: This is an issue, yet the total amount involved is not provided and is given only for certain items. Attention is rather drawn to specific recommendations still outstanding that are considered especially problematic: (i) regarding the distribution of assets and liabilities of the former Tanzania Post and Telecommunications Corporation; (ii) IT issues in the National Insurance Corporation; (iii)

21 PABs are required to prepare financial reports in accordance with IPSAS or IFRS, depending on their nature and objectives. Some PABs are also preparing the accounts on an accrual basis.

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non repayment of loans that total almost Tsh 59 billion to the National Social Security Fund by several corporations, resulting in not yet accounted for non performing assets.

Table 32: Audit opinions on the accounts of PABs for 2007/08

Category of the entity

Unqualified Opinion

Unqualified with

emphasis of matter

Qualified Opinion

Adverse Opinion

Disclaimer Opinion

Total Audited PA&oBs

(Total PA&oBs)

Percent Unqualified(over total audited)

Water Authorities

14 1 3 - - 18 (29) 78%

Regulatory Bodies

16 1 2 - - 19 (25) 84%

Higher Learning Institution

9 - 3 - - 12 (24) 75%

Public Parastatals

22 4 5 - - 31 (42) 71%

Government Institutions

19 - 2 - - 21 (44) 90%

Total 80 6 15 - - 101 (164)

Percent (over total audited)

79% 6% 15% - -

Source: NAO, Annual General Report, and author calculations.

6.35 Issues regarding specific PABs: The CAG report on FY 2007/08 introduces additional new recommendations specific to: the Tanzania Electricity Supply Company Ltd. (TANESCO), the Bank of Tanzania (BoT), and the Tanzania Ports Authority (TPA). Annex 2 lists the recommendations in detail. The CAG also recommends that the Board of Directors of the respective entities introduce or improve internal control systems and ensure that the documentation related to the matters highlighted is preserved for audit. 6.36 Weak internal controls and internal audit departments: As the above specific recommendations suggest, internal controls systems need improvement in PABs. As for CG and LGAs, the CAG noted a widespread lack of supporting documentation, weak audit trail, and poor record keeping involving fixed assets. As with LGAs, the CAG found instances of inadequate bank reconciliations in relation to five PABs: the PPRA itself, TANESCO, the Tanzania Communication Regulatory Authority (TCRA), and the Tanzania Civil Aviation Authority (TCAA). For 16 out of the 101 audited PABs, functioning internal audit departments are not yet in place. 6.37 Inadequate payroll controls and human resource management: Also for PABs, records in the computer payroll are often outdated, and controls on access to the payroll are such that it is vulnerable to fraudulent activities. Recruitment procedures are not sufficiently transparent, and appraisal of employees’ performance is weak; the management of employment contracts is generally poor; some entities are even operating without employment contracts.

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6.38 Low compliance with procurement procedures: Also for PABs, the CAG found several instances of violations to the PPA and related regulations, delays in the establishment of PMUs, and failure to prepare Annual Procurement Plans. In addition, it found evidence of CEO interference with Tender Boards and of the establishment of ad hoc boards for several procurement tenders. The composition and appointment of the members of Evaluation Committees is also not in compliance with PPA requirements. Moreover, around 13 percent of total procurement activities in the PABs sector are being awarded without competitive bidding. 6.39 Weak corporate governance: This issue was particularly highlighted for PABs. In practice, it takes the form of weak governance structures for the Boards of Directors: unregulated remuneration for Directors and lack of power for the Board to appoint and make CEOs accountable for results, as CEOs are often nominated through Presidential appointments. Furthermore, the CAG found that MPs are members of the Boards of 13 of the 101 audited PABs, with the foremost example being the Tanzania Cotton Board, for which 56 percent of Directors are MPs (see annex 3). 6.40 Privatization: An issue relating only to PABs is privatization. The CAG noted that of the 43 entities involved in the privatization process that began in 1993, only 16 (or 37 percent) are back in full operation.

VFM/PERFOMANCE AUDITS

6.41 In January 2010, the NAO published a performance audit on the processing of terminal benefits for retired employees.22 The audit covered three fiscal years—2006/2007, 2007/2008, and 2008/2009—and focused specifically on two Public Pension Funds, the Public Service Pension Fund and the Local Authorities Pension Fund. The two institutions that manage these two funds and generally oversee all pension funds on behalf of the Government are the MoFEA and the PO-PSM. The audit disclosed that these entities are not fulfilling their responsibilities to ensure that payment of terminal benefits to retirees is on time and not without recourse to duress. Furthermore, it confirmed the more general findings from the financial audit: (i) record keeping that is in this case not only poor, but “appallingly inefficient and ineffective” (by Pension Funds, by employers and by the MoFEA and PO-PSM); (ii) weak internal controls and management of supporting documentation to expenditure (in this case, of the documents for the processing of retirement benefits). Overall, poor record keeping and weak controls are causing the overall inefficiency of the system and the delayed processing of pensions. 6.42 In July 2009, the NAO issued a performance audit report on solid waste management.23 The audit focused on six LGAs and found that solid waste is an increasing

22 National Audit Office, United Republic of Tanzania, A Performance Audit Report on the Processing of Terminal Benefits of Retirees from the Central and Local Government of Tanzania, A Report of the Controller and Auditor General of the United Republic of Tanzania, January 2010. 23 National Audit Office, United Republic of Tanzania, A Performance Audit on the Management of Solid Waste in Big Cities and Region(s) in Tanzania, Mbeya, Dar es Salaam, Mwanza and Arusha, A Report of the Controller and Auditor General of the United Republic of Tanzania, July 2009.

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problem as councils are collecting less than half of the waste they generate. The audit confirms some of the issues highlighted in the financial audit reports: inefficient procurement procedures (in this case, of solid waste management contractors), and poor documentation of processes (in this case, of inspections, which are also not adequately planned or evaluated). The audit’s other main findings are that sanctions are rarely applied; national standards and policies on solid waste management have not been developed; CG does not monitor or evaluate LGAs’ activities in relation to solid waste management; the performance of service providers varies by council and provider, but is generally poor. 6.43 In January 2009, the NAO issued a performance audit report on the Management of Primary Health Care, focused on Health Centers (HCs).24 The report concluded that HCs are not efficiently managed, and that the funding from the Ministry of Health and Social Welfare (MoHSW) to HCs is not a function of service demands and performance. Funds are allocated from the MoHSW to the Councils mostly based on demographic criteria. Then the Councils do not use systematic guidelines based on needs and performance to allocate resources between their HCs. As a result, there is little guarantee that available resources are directed effectively and used efficiently. Moreover, no system is in place for monitoring HC spending; many HCs are not even aware of their own budgets, as they do not receive feedback from the Councils on their requests for budget approval. Though a system of supervision of HCs exists, it has failed to identify underperforming HCs and make recommendations for improvement. As a result, the NAO found a weak correlation between supervision and HC performance, and between performance and funding for HCs’ operating costs. The MoHSW itself has not been proactive in trying to introduce a systematic process of monitoring and evaluation of HCs and of the flow of funds, or to take remedial actions to improve the reported situation.

KEY CONCLUSIONS AND RECOMMENDATIONS

6.44 Given the audit standards, tools and scope of the NAO described earlier in section 1, the findings outlined throughout the chapter can be considered an accurate representation of the main features of the PFM system in Tanzania. These are: weak internal controls (for payroll and non salary expenditure); poor asset management; an inadequate internal audit function, especially at the CG level; lack of transparency in procurement processes; an inadequate introduction of the Epicor system; and poor budget credibility. These issues are causing a depletion of government resources and heightening their vulnerability to fraud and corruption. Weak corporate governance in public bodies only reinforces this concern, as do the findings from the VfM audits, which also reveal shortcomings in the flow of funds in the area of service delivery. As a result there is an urgent need to:

• Improve most key components of the PFM system (budget credibility; internal controls and internal audit; payroll controls; procurement systems; and financial reporting practices and information systems);

• Improve corporate governance;

24 NAO, A Performance Audit Report on the Management of Primary Health Care: A Case Study of Health Centers, A Report of the Controller and Auditor General of the United Republic of Tanzania, 2008.

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• Ensure effective implementation of the recommendations of CAG reports. Delaying follow up will only make implementation harder, as outstanding recommendations are accumulating at an alarming pace;

• Promote adherence to the applicable accounting and reporting standards, IPSAS or IFRS;

• Ensure compliance with the existing legal framework in the area of procurement, as defined by the PPA; and

• Revise the regulatory and reporting framework for LGAs to eliminate multiple references and remedy current institutional deficiencies.

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PART III: PEFAR CAPACITY BUILDING PROGRAM

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7. BACKGROUND AND OBJECTIVES OF THE PROGRAM

7.1 This is the second year in implementation of the World Bank led PEFAR Capacity Building Program, which assists Government in strengthening performance based planning and budgeting, the budget-MKUKUTA link, SP, and the MTEF. The program’s broad objective is to strengthen the budget preparation process to more effectively align resource allocation to the priorities of MKUKUTA, thereby enhancing expenditure efficiency as well as growth and social impacts of the budgetary policies. The program serves as a key instrument for implementation of major recommendations of the PEFAR reports.

7.2 The program, which has been supported financially by the World Bank, CIDA, SDC-SECO, and DFID, has identified three priority areas for intervention to improve budget preparation in Tanzania. These key priority areas include:

• Strengthening the MACMOD to enhance its capacity to simulate growth and poverty reduction policies and to strengthen the “Macro Policy Framework for Planning and Budgeting.” This is essential for a reliable budget framework that constitutes a critical input for preparation of the PGB;

• Strengthening the MTEF to facilitate and optimize the budgetary resource allocation system, while taking into account strategic priority choices as well as basic sector needs;

• Strengthening sector SP and sector MTEF with a programmatic approach to enhance the “readability” and strategic focus of the MTEF as well as ensuring consistency between SP/MKUKUTA/MTEF and results/outcome. This is also important to facilitate dialogue between MoFEA and the sector ministries in the interactive inter sectoral resource allocation process.

7.3 The PEFAR capacity building program has been implemented with a team of Government officials with support from the PEFAR capacity building team, which includes consultants and the World Bank staff. Two 12 member teams of key government staff have been formed to implement the activities of the program. Currently, the focus of the program has been on the following activities:

• Upgrading the MACMOD with the construction of an endogenous growth and poverty simulation module and preparing inputs to the macro framework for the PBG.

• Upgrading the MACMOD with the construction of an endogenous growth and poverty simulation module and preparing the “Macro and Financing” chapter of the upcoming new MKUKUTA.

• Preparing an annual “Budget Background and Medium Term Paper” (BBMTP) that explains the macro framework and the strategic and sector specific challenges that determine the medium term budget resource allocations.

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• Proposing and preparing upgrades to the MTEF that could improve the inter sectoral resource allocation process with the Strategic Budget Allocation System (SBAS) and program classification of the budget in order to improve strategic discussion and choices during budget preparation.

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8. MAIN ACCOMPLISHMENTS AND ACHIEVEMENTS OF PROGRAM

MACROECONOMIC MODEL (MACMOD TZ)

Process

8.1 The PEFAR capacity building team has continued to devote time to upgrading and revising the MACMOD-TZ as well as using the model to prepare the macro framework paper for the PBG. The recently prepared macro framework paper has provided critical input for the 2010/11 PBG given the uncertainties that prevail in the global economy. A series of technical meetings, workshops, and onsite training sessions, were used to continue upgrades and prepare the macro framework paper. The key staff members from Government institutions under the leadership of the MoFEA PAD have also continued to form the core macroeconomic modeling group. Other key institutions that have been actively involved in providing resource persons include the President’s Office - Planning Commission, the BoT, the National Bureau of Statistics (NBS), the Tanzania Revenue Authority (TRA), and MoFEA PAD staff. The DP PEFAR capacity building team has also continued to provide required support on a regular basis.

Accomplishments

8.2 Further revision to the MACMOD_TZ. After the initial revision to the original MACMOD, further revisions have continue to be made on the new MACMOD_TZ, including explaining fully the new model to core group in order to enhance its appropriation and also to initiate future upgrades. These sessions involved: (i) revisiting the theoretical underpinnings of the MACMOD_TZ (the IS-LM_BOP/AD-AS framework); (ii) reviewing the main equations and closure of the IS_LM_BOP model; (iii) analyzing the specifications, econometric estimates, and key parameters of the model; (iv) reviewing the database and the computer implementation of the model on Excel (the Data Input, Core Model and Output files). This review has provided the core group with further understanding of the new MACMOD_TZ and how to perform simulation exercises with the model.

8.3 Discussion on further model upgrades. Discussions took place and agreement was reached on further upgrades on the MACMOD_TZ theoretical underpinnings and the specifications with regard to the need to enhance macro policy analysis and MKUKUTA/MTEF based planning and budgeting implications for growth.

8.4 Continued programming MACMOD_TZ on Excel. The work of reorganizing and programming the key components of the model to take into account new upgrades continued, especially to take into account new upgrades. Programming of the Data Input module (MACMOD_TZ_IN), the new Core Model module (MACMOD_TZ_MODEL), and the Output module (MACMOD_TZ_OUT) continued based on new upgrades.

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8.5 Policy simulation and analysis. Several simulations were done by the core group using the upgraded MACMOD_TZ, and scenarios designed that incorporated the impact of the global financial crisis as well as internal policy variables. The analysis of the result of the simulations constituted a major input for the macro policy framework paper.

Achievements

8.6 Further improved macro simulation tool. Using the user friendly MACMOD_TZ, Government’s core macro modeling team has strengthened its capacity to simulate growth policies, (including budgetary policies, sector strategies, investment, as well as exogenous shocks) and better inform the budget preparation process in Tanzania. This is evidenced by the improved macro framework policy paper and budget 2010/11 PBGs.

8.7 Further enhanced human capacities for macro policy simulation and analysis. The series of workshops and the sustained involvement of the core group have contributed to strengthening capacity and bringing the macro group together for substantive technical work leading to the preparation of the macro policy framework paper. The evidence for this is the inclusion of assumptions on the global financial crisis impacts on Tanzania into the baseline scenario in the macro frameworks 2010/11-2012/13.

MACRO FRAMEWORK POLICY PAPER

Process

8.8 The macro modeling work has continued to be essential in preparing the Macro Policy Framework Paper (MPFP), which provided major input for the 2010/11 PBG. The core group was again designated to prepare the draft MPFP, including an analysis of the most recent developments and medium term outlook and targets, as well as simulated macro and budget frames (GDP growth and public revenue and expenditure profile). Technical meetings were held to revise and upgrade the draft, including performing scenario analyses that took into account the impact of the global financial crisis on Tanzania and other policy decisions, like implementation of “Kilimo Kwanza.”

Accomplishments

8.9 Review of recent economic developments: The first part of the MPFP reviewed the 2009 macroeconomic development in Tanzania and assessed the world economic outlook and its implications for Tanzania.

8.10 Design and simulation of a “baseline scenario”: This includes: (i) specifying key macroeconomic and fiscal policy targets (growth, inflation, exchange rates, revenue, and primary deficit targets), and making well informed assumptions on exogenous world developments (world markets trends for Tanzania’s export, FDI, and ODA); (ii) simulating a “baseline scenario” using MACMOD_TZ; (iii) performing risk analysis to develop alternative growth scenarios based on the likely magnitude and impact of the global financial

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crisis, food and energy crisis, and fiscal policy objectives, including financing Kilimo Kwanza.

Achievements

8.11 The MPFP for the 2010/11 PBG. The MPFP was prepared and provided required input to the 2010/11 PBG. The MPFP helped to improve the quality of the 2010/11 PBG by incorporating the impact of the global financial crisis on projections of revenue and expenditure trends over the MTEF period. The projections of revenue (domestic and aid) are conservative in line with current global situation.

8.12 Further strengthened human capacities. The core macro team has continued to strengthen its capacities in producing fairly consistent macro framework tables (real sector, government, trade and BOP, money); as well as simulating policies and performing scenario analysis.

MKUKUTA II MACRO FRAMEWORK AND FINANCING CHAPTER

Process

8.13 Government is in the process of preparing the successor poverty reduction strategy (MKUKUTA II) and a core macro modeling team has been asked to lead preparation of the “Macro Framework and Financing” chapter. In addressing this request, the team has been doing review of macroeconomic, financing, and medium term outlook and targets, as well as simulated macro and budget frames (GDP growth, revenue and expenditure profiles) using the MACMOD_TZ. The team has prepared an initial draft chapter. Technical meetings are being held to revise and upgrade the draft and analyze different scenarios to ensure that they are consistent with intended policy directions and world economic outlook over the five years of the new MKUKUTA implementation.

Accomplishment

8.14 Review of macro and fiscal performance of the MKUKUTA I: This part of the chapter covers and review and assessment of macroeconomic developments and financing performance (both foreign and domestic funding) during the MKUKUTA I implementation period – 2005/06_2009/10.

8.15 Design and simulation of MKUKUTA II scenarios: The baseline scenario is already developed with major assumption being that MKUKUTA II aims at meeting the MDGs. The assumption of macro and financing targets are those which are consistent with meeting the MDGs by the end of MKUKUTA II period, which is 2015. The other two scenarios are (i) an optimistic scenario where assumption is more than MDG targets will be achieved by end of MKUKUTA_II implementation period; and (ii) a pessimistic scenario where assumption is less than MDG targets will be achieved by end of MKUKUTA_II implementation period.

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Achievements

8.16 The MKUKUTA II macro and financing chapter: The first draft of the MKUKUTA II macro and financing chapter has been developed. The chapter is being reviewed and revised along the findings of various MKUKUTA review studies.

8.17 Strengthened human capacities. The core macro team’s capacity has been strengthened to perform long term projections of macroeconomic indicators consistent with different levels of financing and policy directions.

BUDGET BACKGROUND AND MEDIUM TERM FRAMEWORK PAPER

Process

8.18 Like in 2008, enough time was devoted to assist the Budget Department of the MoFEA to prepare the second edition of a “Budget Background and Medium Term Framework Paper” (BBMTF). The paper provides a coherent review of the macroeconomic background as well as the strategic focus of the budget; it also analyzes key trends in budget executions and explains how the medium term expenditure allocations are aligned to the strategic priorities of MKUKUTA and related sector needs. This is a key document in helping the MoFEA make the budget more “readable” and transparent to stakeholders. The second edition of the BBMTF was published in December 2009, and MoFEA is determined to continue producing the BBMTF every year to accompany and explain the traditional budget books.

Accomplishments

8.19 Training on budget data manipulation and budget trends analysis. The government team was further trained, in the course of preparing the BBMTF, to: (i) better organize detailed budget data using the Excel pivot table technique; and (ii) prepare summary tables on budget allocation and execution by clusters, sectors, and economic classification. Budget allocation between central and local government also received significant attention in the analysis, given the importance of implementation of D by D for public service delivery in education and health.

8.20 Drafting the report. The team prepared: (i) the draft outline of the document; and (ii) drafts of different chapters and sections of the report.

8.21 Reviewing and revising the draft report. The team reviewed and revised various drafts of the report through technical meetings, workshop and email exchange.

8.22 Finalizing the draft. At the conclusion of the work, the draft document was submitted to the Commissioner for Budget for validation and finalization. The team received many comments from the internal review process and revised the final document accordingly. The final report was validated by the Deputy Permanent Secretary of the

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MoFEA and thereafter published in December 2009. The published report was well received by stakeholders and demand was exceptionally strong.

Achievements

8.23 Second edition of the budget background document. The BBMTF serves as additional information to supplement the traditional budget books, which put together the macroeconomic environment in which the budget was prepared. It analyzes and explains reasons behind budget allocations to different MKUKUTA clusters, sectors, economic composition, and central and local government splits. The analysis of physical and budget performance is also covered in the document. The MoFEA is determined to institutionalize the document and to prepare it every year as a cover document to the traditional budget books.

8.24 Updated and organized budget database for trends analysis, including key tables of budget allocation and expenditure trends by clusters, by sectors, and by economic classification.

8.25 Budget Data Analysis Tool (BUDATO). The team also developed first edition of a computer-based budget analysis tool (BUDATO), which helps to organize and produce key budget and expenditure tables for the BBMTP. The tool is still being reviewed and revised in order to enhance its capacity to analyze key budget and expenditure trends.

8.26 Further strengthened budget analysis department. In the process of accomplishing the above tasks, the budget team enhanced further its capacity to carry out “in house” analytical work, including public expenditure review and MTEF allocation analysis.

STRENGTHENING THE MTEF

Process

8.27 The core PEFAR capacity building team continued its work of upgrading the MTEF on an exploratory basis in 2009. The team adopted a more cautious approach in strengthening the MTEF by: (i) first developing key upgrades on an experimental basis; (ii) testing their pertinence and usefulness; and (iii) assessing the scope of the programming work needed to upgrade the SBAS, both macro and micro versions. The team expects to test the results of the experimental work with Government, and once the results are accepted the team will roll out the work of strengthening the MTEF, including its computer system (SBAS macro and micro), on six key sectors.

Accomplishments

8.28 Revision Of the simple Excel-based MTEF optimization model. Efforts continued to revise the simple spreadsheet model developed to assist implementing the three step transparent strategic allocation process. The tool distinguishes the budget allocation according to a “baseline budget” that covers basic necessities, a “pipeline budget” that covers

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ongoing investment programs, and a marginal budget allocated to new projects on the basis of performance, MKUKUTA priorities, and the available “budget space.”

8.29 Revision to the new SBAS Macro module. The work here was geared more toward: (i) finalize programming of the three step approach in the SBAS macro; and (ii) testing suitability of the tool by doing allocations analysis with the enhanced MTEF model. All these are still on experimental basis.

Achievements

8.30 The three-step budget allocation approach was tested on the 2008/09 and 2009/10 budgets, and proved to be an effective and transparent tool of allocating budget. The projection of resources over the MTEF period is made simple and transparent using the tool. This is because, on one hand, the baseline budget can be projected with simple and explicit assumptions on the progression of the wage bill and the cost of basic expenditure on goods and services. On the other hand, the “pipeline budget” provides an effective mechanism for keeping track of multiyear investment programs and consistently supporting them over the planning period. However, this is still on experimental basis pending government buy in order to implement in SBAS.

8.31 Experimental revised SBAS_macro is operational. The SBAS_macro is now a more effective tool for optimizing resource allocations on the basis of available “budget space” after basic necessities and pipeline programs have sufficiently been funded.

BUILDING PROGRAMATIC DIMENSION IN SP AND MTEF

8.32 The team is working toward introducing a programmatic approach to sector SPs and MTEF in six key sectors, namely education, health, water, agriculture, infrastructure, and energy. Later, the programmatic approach would be scaled up to all other sectors according to the MoFEA plans. Experimental frameworks have been developed for the education, health and infrastructure sectors. Next steps are: (i) to review and revise the proposed program based frameworks and reconcile them with the sectors’ new priority action plans and the MKUKUTA II strategic priorities, and (ii) to revise the sector MTEFs accordingly. This work is planned to feed into MDAs Implementation Action Plans for the MKUKUTA II.

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9. ACTION PLAN FOR THE YEAR 2010

9.1 The capacity building program will continue to support Government in its efforts to strengthen planning and budget preparation as well as implementation in 2010. The agreed action plan will continue to focus on macro modeling, BBMTF AND MTEF work, as well as inputs into MKUKUTA II preparation. The program will continue to be anchored at the MoFEA, working closely with policy analysis and budget departments. The program will also work with other sector ministries and the President’s Office – Planning Commission, given the importance of all these institutions in MTEF strengthening. The identified and agreed key areas of immediate attention during 2010 are:

MACRO FRAMEWORK (2010/11 – 2012/13) STRENGTHENING

Revising the baseline macroeconomic framework for the budget

9.2 The team will revise the macroeconomic framework in March/April based on new information that will be available and also based on the discussions with the IMF mission of March 2010. The revision of the macroeconomic framework will provide necessary inputs in firming up the budget framework for 2010/11.

9.3 It is important to revise the macroeconomic framework based on the world economic outlook, which suggests that the world financial crisis and the recession may be easing. The real sector data for 2009 will also become available in April 2010, which will necessitate revision of the exogenous assumptions, simulations, and baseline scenario for the budget framework. The revised Macro Framework Paper would be prepared in April 2010.

MACMOD -TZ STRENGTHENING

Developing a simple poverty and social development indicators projection module

9.4 The work of developing a simple poverty module, which was not done in 2009, will now be done in 2010. The aim is to develop a simple poverty module that will enable the model to project key poverty and social indicators, including the income poverty incidence as well as education and health sector MDGS. Econometric techniques will be employed to forecast such indicators on the basis of growth pattern (per capita growth rate and distribution of growth), public spending in social sectors and infrastructure. This technique is similar to the approach used in the MAMS model (Marquette for MDGs Simulation).

Developing a labor market and full poverty and MDG modules

9.5 Again, the work of developing the labor market and full poverty modules that was not done in 2009 will now be done in second half of 2010. The major aim is to strengthen capacity of MACMOD-TZ to carry out Poverty and Social Impacts Analysis (PSIA). To this end, a labor market module will be developed that will allow the model to project trends in

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employment and wages consistent with sector growth. A framework has already been developed by the core macro team since 2009, which will provide a starting point for the labor market module.

9.6 The full Poverty/MDG module will be developed to project poverty incidence and all key MDGs, building on earlier work in developing a simple poverty module. This will provide an important tool for monitoring and evaluating progress in poverty reduction during implementation of new MKUKUTA.

Developing a Debt module and a Flow-of-Fund Module

9.7 A debt module will be added to MACMOD_TZ to permit debt sustainability analysis in the planning process. A detailed RMSM_X type flow-of-funds module will also be added, which will highlight how growth is financed and how this affects macroeconomic stability and fiscal sustainability.

Enhance training component of the capacity building work program

9.8 Further emphasis will also be put on training the larger macro team to facilitate appropriation and exploitation of the model. All aspects will be covered, especially the econometric analysis as well as the modeling of growth and poverty reduction policies, together with simulation of growth and poverty reduction impact from different Government policy choices and directions.

Finalize the MKUKUTA II Macro and Financing Chapter

The core macro model team will work to finalize the chapter by revising the baseline scenario based on new data from the real sector and developments in the world economic outlook. The team will also review and revise the chapter based on the findings of various relevant MKUKUTA studies that have been finalized.

MTEF UPGRADES AND SECTOR PROGRAM BUDGETING

Central level (SBAS_Macro)

9.9 The central MTEF upgrade proposal, including its computer application SBAS macro, was prepared in 2009. The first step to be undertaken in 2010 is to discuss and agree on the proposal with the MoFEA. The second is to agree on a list of baseline expenditure items as well as the nature of the typical “pipeline” programs. The Medium Term Public Investment Plan (MPIP) will be a key input in the process of allocating the budget space. Implementation of the proposal will immediately follow starting by upgrading the computer application SBAS macro.

Strategic Plans and Program Budget

9.10 Introduction of program dimensions in the sector SP and the MTEF will constitute significant progress in bringing strategic dialogue and choices during the budget process. Therefore, in 2010, more work will be directed toward this area, with the aim of guiding

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sectors in planning and budget while allowing sector ministries to carry out scenario analysis based on projected budget ceilings.

9.11 Accordingly, necessary revisions will be implemented in the SBAS_macro consistent with upgrades in sector SPs and MTEF. However, upgrades will start with six key sector ministries.

BUDGET BACKGROUND AND MEDIUM TERM FRAMEWORK

9.12 The Budget Background and Medium Term Framework Paper (BBMTF) is now institutionalized and will be published every year as a cover document to traditional budget books. In 2010, MoFEA wants this document to be completed early so that it can be used as a key Government document in the discussions of budget issues during the 2010 GBS Annual Review. Therefore, the capacity building team will also work to prepare this document, especially during the second half of 2010.

9.13 The capacity building work will put emphasis on the training component to strengthen capacity for analysis of budget execution and strategic budget alignment. This will help the task team as it prepares the third edition of the BBMTF.

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ANNEXES

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ANNEX 1: REASONS FOR ADVERSE OPINION ON AUDITED ENTITIES

The reason for the five adverse opinions on CG audited entities, which also contributed to the qualification of the NCFS, are reported below. The five CG entities in question are the only ones that received an adverse opinion out of the total 336 entities audited by the CAG.

Entities Basis of Qualification Possible amount

1. Vote 60 –Industrial Court of Tanzania

Adverse: Limitation of scope – no supporting documents was made available regarding the Business Sector Program Support.

Pervasive

2. Vote 93 – Immigration Services Department

Adverse: Various specific issues amounting to Tshs.58 billion including unresolved matters of previous years of Tshs.48 billion and outstanding liabilities of Tshs.6.2 billion

Tshs.58 billion

3. Vote 99 – Ministry of Livestock Development

Adverse: Various specific issues showing alarming weakness in internal controls for Tshs.10 billion.

Tshs.10 billion

4. Tanzania High Commission in Abuja, Nigeria

Adverse: Various specific issues showing alarming weakness in internal controls for Tshs.1 billion.

Tshs.1 billion

5. Tanzania Embassy in Rome Italy

Adverse: Various specific issues showing alarming weaknesses in internal controls for Tshs.1.3 billion.

Tshs.1.3 billion

Sources: NAO, Annual General Report of the Controller and Auditor General on the Audit of the Financial Statements of Central Government for the Year ended 30th June 2008, and SIDA report.

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ANNEX 2: CAG RECOMMENDATIONS ON THE 2007/08 ACCOUNTS

TANESCO The management of TANESCO should justify the payment of USD 4,865,000 paid to M/s Dowans in respect of charter aircraft charges for the three shipments of electric power generation equipment, consumables and accessories to Dar es Salaam without proper authority and provision in the contract agreement.

BoT BoT Management should investigate the circumstances in which a sum of Tshs. 7.3 billion was paid to an Insurance Broker in respect of Insurance Premiums of BoT Headquarter Buildings project without sufficient and appropriate supporting documents.

TPA TPA management at Mwanza and Nansio should ensure that the potential loss of the revenue accruing from private Jetties at Lake Ports are charged and collected at South and North port in Mwanza and Nansi.

TPA management at Headquarters Dar es Salaam should ensure that all sources of revenue are identified and revenue due is collected intact.

Source: NAO, Annual General Report of the Controller and Auditor General on the Audit of the Financial Statements of Public Authorities and other Bodies for the Year ended 30th June 2008.

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ANNEX 3: MP PRESENCE IN THE BOARDS OF DIRECTORS - 2007/08

Entity Total Members

of Board of Directors

Number of MPs

Non MPs % of MPs

Tanzania Cotton Board (TCB)

9 5 4 56

Consolidated Holding Corporation

5 2 3 40

Tanzania Tea Board 8 3 5 38

Ngorongoro Conservation Area Authority

14 5 9 36

Cashewnut Board of Tanzania

9 3 6 33

Tanzania Gaming Board 6 2 4 33

Marine services Limited 6 2 4 33

Tanzania Fertilizer Company Limited

7 2 5 29

National Museum 11 3 8 27 Sugar Board of Tanzania 8 2 6 25 TCAA 5 1 4 20

Mzumbe University 17 3 14 18

TCRA 6 1 5 17 Source: staff calculations and NAO, Annual General Report of the Controller and Auditor General on the Audit of the Financial Statements of Public Authorities and other Bodies for the Year ended 30th June 2008.

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ANNEX 4: STATISTICAL TABLES Appendix 1: Tanzania Key Macroeconomic Indicators ......................................................... 82 Appendix 2: Balance of Payments (in millions of US dollar) ................................................ 83 Appendix 3: Budget Frame – Analytical (in Billion Tshs.) .................................................... 84 Appendix 4: Budget Frame – Analytical (in % of GDP) ........................................................ 85 Appendix 5: Budget Frame – Accounting (in Mill Tshs.) ...................................................... 86 Appendix 6: Budget Frame – Accounting (in % of GDP) ...................................................... 87 Appendix 7: Government Expenditure by Strategic Allocation (in Billion Tsh.) .................. 88 Appendix 8: Government Expenditure by Strategic Allocation (in percentage shares) ......... 89 Appendix 9: Government Expenditure by Economic Allocation (in Billion Tsh) ................. 90 Appendix 10: Government Expenditure by Economic Allocation (in shares) ....................... 91 Appendix 11: Government Expenditure – Agriculture Sector ............................................... 92 Appendix 12: Government Expenditure – Road Sector ......................................................... 93 Appendix 13: Government Expenditure – Energy Sector ...................................................... 94 Appendix 14: Government Expenditure – Education Sector .................................................. 95 Appendix 15: Government Expenditure – Health Sector ....................................................... 96 Appendix 16: Government Expenditure – Water Sector ........................................................ 97 Appendix 17: MDAs Budget Estimates and Expenditure (In Billion TShs) .......................... 98 Appendix 18: MDAs Budget Estimates and Expenditure (In Billion TShs) cont’d ............... 99 Appendix 19: Regional Budget Estimates and Expenditure (In Billion Tshs) ..................... 100

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Appendix 1: Tanzania Key Macroeconomic Indicators

Indicator Unit 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Population (Mainland)/2 Millions 31.9 32.9 33.6 34.2 35.3 36.2 37.5 38.3 39.4 40.5

Per capita Income/2 US$ 270.0 270.0 280.0 300.0 320.0 330.0 380.0 450.0 470.0 482.3

GDP Growth/2 % 4.9 6.0 7.2 6.9 7.8 7.4 6.7 7.1 7.0 5.0

Gross Domestic Savings/2 (as a % of GDP) 9.2 8.8 12.9 12.2 13.6 11.7 10.2 10.2 16.2 16.2

Gross Investments/2 (as a % of GDP) 17.6 18.6 20.5 22.7 22.5 23.8 25.0 26.0 27.0 28.4

Inflation/2 (period average) % 6.0 5.2 4.3 5.4 4.7 5.0 7.2 7.0 10.3 11.9

Exchange Rate/1 (period average) TZS/US$ 800.4 876.4 966.6 1038.4 1089.3 1128.9 1251.9 1245.0 1196.3 1320.3

External Sector

Exports - Goods & Services/1 Mil. US$ 1334.0 1525.0 1800.0 2034.1 2310.2 2843.4 3192.5 3750.7 4535.0 4812.9

Imports - Goods & Services/1 Mil. US$ -2154.3 -2113.8 -2185.1 -2279.4 -2991.7 -3852.7 -4679.6 -5684.4 -7191.0 -7601.8

Current Account Balance/1 Mil. US$ -932.1 -480.9 -324.4 -23.9 -296.2 -518.6 -1,065.3 -1,475.0 -2,015.9 -2,116.7

Balance of Payments (Overall balance)/1 Mil. US$ -153.2 -403.5 -481.8 -20.8 -141.8 82.4 342.5 232.6 500.8 8.2

Foreign Reserves/1 Mil. US$ 751.7 982.9 1,229.4 1,689.4 1,889.8 1,977.1 1,869.4 2,161.7 2,664.9 2,918.6

External Debt/2 Bil. US$/1 6.9 6.2 6.8 7.0 7.8 8.3 4.2 5.0 5.1 5.4

Foreign Direct Investment/1 Mil. US$ 411.9 335.4 388.2 347.9 319.4 389.1 540.5 653.4 695.5 764.5

Tourism Earnings/2 Mil. US$ 739.1 725.0 730.0 731.0 746.0 823.6 862.0 1037.0 1198.8 1354.0

Monetary Sector

Average Deposit Rate/1 % 7.1 4.2 3.5 2.5 2.4 2.6 2.5 2.6 2.8 2.6

Average Lending Rate/1 % 19.1 20.9 14.8 16.4 15.7 16.1 15.8 14.0 15.7 14.7

Growth in Money Supply (M2)/1 % 15.1 14.9 21.3 16.9 19.1 27.5 24.5 20.7 24.4 20.8

Government Finance

Total Domestic Revenue/1 (as a % of GDP) 10.5 10.8 10.8 11.1 11.6 11.8 12.5 14.1 16.0 15.9

Tax Revenue/1 (as a % of GDP) 9.3 9.5 9.6 10.0 10.6 10.7 11.4 13.0 14.8 14.9

Non-Tax Revenue/1 (as a % of GDP) 1.2 1.3 1.2 1.1 1.0 1.1 1.1 1.1 1.2 0.9

Total Expenditure/1 (as a % of GDP) 15.2 15.2 16.5 18.6 20.7 21.7 22.8 23.0 23.0 25.5

Recurrent Expenditure/1 (as a % of GDP) 9.9 11.5 13.1 13.6 15.1 14.6 17.2 16.9 15.0 17.3

Development Expenditure/1 (as a % of GDP) 5.3 3.7 3.4 5.0 5.6 7.1 5.6 6.1 8.0 8.2

Grants/1 (as a % of GDP) 4.5 3.7 4.5 6.2 6.1 7.7 5.4 4.9 6.9 4.9

Fiscal Balance/1 (as a % of GDP) -7.3 -5.0 -5.6 -7.7 -9.3 -9.9 -10.3 -8.9 -4.5 -6.1 Note /1 Fiscal Year is used, and it ends in June 30th of the mentioned year /2 Calendar Year is used, and it ends in mentioned year December 31st Source: Tanzania Authorities (MoFEA, BoT, and NBS).

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Appendix 2: Balance of Payments (in millions of US dollar)

Item 2001/02r

2002/03r

2003/04r

2004/05r

2005/06r

2006/07r

2007/08r

2008/09p

A. Current Account -324.4 -23.9 -296.2 -518.6 -1,065.3 -1,475.0 -2,015.9 -2,116.7

Goods -665.4 -541.7 -879.5 -1,124.3 -1,640.5 -2,299.0 -3,085.8 -3,018.0

Exports (f.o.b.) 888.6 1,085.9 1,303.9 1,607.4 1,795.9 2,036.6 2,616.8 2,952.0

Imports (f.o.b.) -1,554.0 -1,627.6 -2,183.4 -2,731.6 -3,436.4 -4,335.6 -5,702.6 -5,970.0

Services 280.2 296.4 198.0 115.0 153.5 365.3 429.8 229.1

Receipts 911.3 948.2 1,006.3 1,236.1 1,396.7 1,714.2 1,918.2 1,860.9

Payments -631.1 -651.8 -808.3 -1,121.0 -1,243.2 -1,348.8 -1,488.4 -1,631.8

Income -108.4 -123.0 -115.6 -120.4 -70.7 -59.0 -44.8 -60.3

Receipts 66.1 73.7 88.9 82.9 74.6 89.0 128.4 122.8

Payments -174.5 -196.7 -204.5 -203.3 -145.3 -148.0 -173.2 -183.0

Transfers 169.2 344.3 500.9 611.0 492.5 517.8 684.9 732.5

Inflows 256.8 407.4 563.4 677.5 559.6 589.9 762.8 800.7

Government 200.9 343.8 483.9 595.6 463.9 496.3 659.3 702.5

Other sectors 55.9 63.6 79.4 81.9 95.7 93.6 103.5 98.1

Outflows -87.6 -63.1 -62.5 -66.5 -67.1 -72.1 -77.9 -68.2

B. Capital Account 376.6 356.2 269.1 301.4 587.9 4,795.3 679.9 379.2

Inflows 376.6 356.2 269.1 301.4 587.9 4,795.3 679.9 379.2

General Government 348.5 322.5 230.5 259.9 542.3 4,746.4 622.4 317.2

Other sectors 28.2 33.7 38.6 41.5 45.6 48.9 57.5 62.0

Outflows 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

C. Financial Account -134.9 156.1 225.9 478.3 510.0 -3,221.8 1,477.6 1,580.5

Direct investment abroad 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Direct investment in Tanzania 388.2 347.9 319.4 389.1 540.5 653.4 695.5 764.5

Portfolio investment 5.2 2.5 2.6 2.5 2.6 2.7 2.8 3.0

Other investment -528.3 -194.3 -96.0 86.7 -33.1 -3,877.9 779.2 813.1

D. Net Errors and Omissions -399.0 -509.0 -340.6 -178.7 309.8 134.1 359.2 165.2

Overall balance -481.8 -20.8 -141.8 82.4 342.5 232.6 500.8 8.2

E. Reserves and Related Items 481.8 20.8 141.8 -82.4 -342.5 -232.6 -500.8 -8.2

Reserve assets -246.4 -460.1 -200.4 -87.3 24.2 -236.8 -502.1 -253.1

Use of Fund credit and loans 20.8 4.6 -3.1 -38.3 -366.7 4.2 1.3 244.9

Exceptional financing 707.4 476.2 345.3 43.2 0.0 0.0 0.0 0.0

Rescheduled debt 70.6 48.3 43.5 0.0 0.0 0.0 0.0 0.0

Debt forgiveness 536.2 382.4 250.4 0.0 0.0 0.0 0.0 0.0

Interest arrears 33.8 32.8 16.2 43.2 0.0 0.0 0.0 0.0

Principal arrears 66.8 12.7 35.3 0.0 0.0 0.0 0.0 0.0

Memorundum items

GDP(mp) Bill.of TZS 9,772.4 11,275.8 13,039.3 14,968.4 16,953.3 19,444.8 22,782.9 26,996.6

GDP(mp) Mill of USD 10,495.0 11,265.7 12,098.7 13,723.1 14,336.4 15,168.8 19,246.0 20,554.0

CAB/GDP -3.1 -0.2 -2.4 -3.8 -7.4 -9.7 -10.5 -10.3CAB/GDP (excl.off.Cur transfers) -5.0 -3.3 -6.4 -8.1 -10.7 -13.0 -13.9 -13.7Gross Official Reserves 1,229.4 1,689.4 1,889.8 1,977.1 1,869.4 2,161.7 2,664.9 2,918.6

Months of Imports 6.8 8.9 7.6 6.2 3.9 4.6 4.4 4.6 Notes: r = Revised p = Provisional Source: Bank of Tanzania

84

Appendix 3: Budget Frame – Analytical (in Billion Tshs.)

2009/10 2009/10 2010/11 2011/12

Ceilings Budget Projections Projections

Domestic Revenue 5,347.1 5,096.0 6,204.2 7,549.3

o/w Fuel Levy and transit fees 235.1 284.1 345.0 419.4

LGAs Own Sources 0.0 138.1 0.0 0.0

Total Expenditure 8,056.3 8,862.3 8,716.7 10,034.5

Recurrent expenditure 5,209.4 6,036.8 6,128.6 6,793.2

Interest on external debt 38.1 52.9 41.9 44.0

Interest on domestic debt 287.8 354.9 362.5 413.5

Wages/salaries 1,774.9 1,766.4 2,103.3 2,385.3

Goods/services/transfers 3,108.6 3,862.6 3,620.9 3,950.4

o/w Fuel Levy and Transit Fee 235.1 284.1 345.0 419.4

Special Expenditure 567.8 176.4 341.6 560.8

CFS (Others) 320.6 463.8 382.8 440.2

Parastatal PE 323.2 327.9 383.0 434.4

Retention Scheme 89.4 103.5 93.9 98.6

Contingency 0.0 166.0 0.0 0.0

LGAs Own Sources 0.0 138.1 0.0 0.0

Other Charges 1,572.4 2,202.9 2,074.6 1,997.1

Development expenditure 2,846.9 2,825.4 2,588.1 3,241.3

Projects 2,846.9 2,825.4 2,588.1 3,241.3

Local 1,046.2 968.0 1,445.6 2,341.8

Foreign 1,800.7 1,857.4 1,142.5 899.6

o/w MCC (MCA-T) 191.4 211.3 320.8 244.2

Overall Deficit - before grants -2,709.2 -3,628.2 -2,512.5 -2,485.1

Grants 2,195.6 2,090.9 1,609.6 1,526.7

Budget Support 561.6 825.4 779.0 812.0

Project grants 1,550.2 1,134.9 830.6 714.7

o/w Development Projects 1,045.6 640.7 295.6 295.6

o/w MCC (MCA-T) 191.4 211.3 320.8 244.2

o/w Basket Support 313.2 282.8 214.2 174.9

MDRI (IMF) 83.8 130.6 0.0 0.0

Overall Deficit - after grants -513.6 -1,537.3 -902.8 -958.5

Financing 513.6 1,537.3 902.8 958.5

Foreign 552.3 1,037.1 574.3 584.1

Budget Support loans 346.1 368.5 308.9 455.5

Project support 250.5 722.5 311.8 184.9

o/w Project Loans 53.0 432.5 178.4 138.8

o/w Basket Support Loans 197.5 290.1 133.4 46.1

Amortization -44.2 -53.9 -46.4 -56.3

Domestic (net) -38.8 500.2 328.5 374.4

Bank (net) 0.0 506.2 350.6 397.5

Non-bank (Rollover) 0.0 576.5 605.3 635.6

Amortization of Contingent Debt -21.0 -21.0 -22.1 -23.2

Domestic Amortization (Rollover) -17.8 -576.5 -605.3 -635.6

Privatisation Funds 0.0 15.0 0.0 0.0

memo:GDPmp 31,448.2 31,108.9 35,055.5 39,754.4

OC for distribution 2,788.0 3,398.8 3,238.1 3,510.2

Primary Deficit(checks issued) -2,383.3 -3,220.4 -2,108.1 -2,027.7

Government Saving(checks issued) 137.8 -802.8 75.6 756.2

% of GDP Saving 0.4% -2.6% 0.2% 1.9% Source: Ministry of Finance and Economic Affairs.

85

Appendix 4: Budget Frame – Analytical (in % of GDP)

2009/10 2009/10 2010/11 2011/12

Ceilings Budget Projections Projections

Domestic Revenue 17.0 16.4 17.7 19.0

o/w Fuel Levy and transit fees 0.7 0.9 1.0 1.1

LGAs Own Sources 0.0 0.4 0.0 0.0

Total Expenditure 25.6 28.5 24.9 25.2

Recurrent expenditure 16.6 19.4 17.5 17.1

Interest on external debt 0.1 0.2 0.1 0.1

Interest on domestic debt 0.9 1.1 1.0 1.0

Wages/salaries 5.6 5.7 6.0 6.0

Goods/services/transfers 9.9 12.4 10.3 9.9

o/w Fuel Levy and Transit Fee 0.7 0.9 1.0 1.1

Special Expenditure 1.8 0.6 1.0 1.4

CFS (Others) 1.0 1.5 1.1 1.1

Parastatal PE 1.0 1.1 1.1 1.1

Retention Scheme 0.3 0.3 0.3 0.2

Contingency 0.0 0.5 0.0 0.0

LGAs Own Sources 0.0 0.4 0.0 0.0

Other Charges 5.0 7.1 5.9 5.0

Development expenditure 9.1 9.1 7.4 8.2

Projects 9.1 9.1 7.4 8.2

Local 3.3 3.1 4.1 5.9

Foreign 5.7 6.0 3.3 2.3

o/w MCC (MCA-T) 0.6 0.7 0.9 0.6

Overall Deficit - before grants -8.6 -11.7 -7.2 -6.3

Grants 7.0 6.7 4.6 3.8

Budget Support 1.8 2.7 2.2 2.0

Project grants 4.9 3.6 2.4 1.8

o/w development projects 3.3 2.1 0.8 0.7

o/w MCC (MCA-T) 0.6 0.7 0.9 0.6

o/w Basket Support 1.0 0.9 0.6 0.4

MDRI (IMF) 0.3 0.4 0.0 0.0

Overall Deficit - after grants -1.6 -4.9 -2.6 -2.4

Financing 1.6 4.9 2.6 2.4

Foreign 1.8 3.3 1.6 1.5

Budget Support loans 1.1 1.2 0.9 1.1

project support 0.8 2.3 0.9 0.5

o/w Project Loans 0.2 1.4 0.5 0.3

o/w Basket Support Loans 0.6 0.9 0.4 0.1

amortization -0.1 -0.2 -0.1 -0.1

Local (net) -0.1 1.6 0.9 0.9

Bank (net) 0.0 1.6 1.0 1.0

Non-bank 0.0 1.9 1.7 1.6

Amortization of Contingent Debt -0.1 -0.1 -0.1 -0.1

memo: 0.0 0.0 0.0 0.0

OC for distribution 8.9 10.9 9.2 8.8

Primary Deficit(checks issued) -7.6 -10.4 -6.0 -5.1

Government Saving(checks issued) 0.4 -2.6 0.2 1.9

Source: Appendix 3.

86

Appendix 5: Budget Frame – Accounting (in Mill Tshs.)

2009/10 2009/10 2010/11 2011/12

Ceilings Budget Projections Projections

I. Total Resources 8,139.3 9,513.7 9,390.5 10,749.5

Domestic revenue 5,347.1 5,096.0 6,204.2 7,549.3

LGAs Own Sources 0.0 138.1 0.0 0.0

Programme loan and grants 907.7 1,193.9 1,087.9 1,267.5

Project loans and grants 1,098.6 1,073.2 474.0 434.5

Basket Support Loans 197.5 290.1 133.4 46.1

Basket Support Grants 313.2 282.8 214.2 174.9

HIPC relief-Multilateral 0.0 0.0 0.0 0.0

MDRI (IMF) 83.8 130.6 0.0 0.0

MCC (MCA-T) 191.4 211.3 320.8 244.2

Non Bank Borrowing (Rollover) 0.0 576.5 605.3 635.6

Bank Borrowing 0.0 506.2 350.6 397.5

Adjustment to cash 0.0 0.0 0.0 0.0

Privatisation Funds 0.0 15.0 0.0 0.0

II. Total Expenditure 8,139.3 9,513.7 9,390.5 10,749.5

Recurrent Expenditure 5,292.3 6,688.3 6,802.4 7,508.2

CFS 729.4 1,523.0 1,460.9 1,612.7

Debt service 408.9 1,059.2 1,078.1 1,172.5

Interest 325.9 407.8 404.4 457.5

Amortization 83.0 651.4 673.8 715.0

Others 320.6 463.8 382.8 440.2

Recurrent Exp (excl. CFS) 4,562.9 5,165.2 5,341.4 5,895.5

o/w Salaries & wages 1,774.9 1,766.4 2,103.3 2,385.3

Designated Items 567.8 176.4 2,896.5 2,949.4

Parastatal PE 323.2 327.9 341.6 560.8

LGAs Own Sources 0.0 138.1 0.0 0.0

Contingency 0.0 166.0 0.0 0.0

Other Charges 1,897.0 2,590.5 0.0 0.0

Development Expenditure 2,846.9 2,825.4 2,588.1 3,241.3

Local 1,046.2 968.0 1,445.6 2,341.8

o/w MDRI 0.0 0.0 0.0 0.0

Foreign 1,800.7 1,857.4 1,142.5 899.6

o/w MCC (MCA-T) 191.4 211.3 320.8 244.2 Source: Ministry of Finance and Economic Affairs.

87

Appendix 6: Budget Frame – Accounting (in % of GDP)

2009/10 2009/10 2010/11 2011/12

Ceilings Budget Projections Projections

I. Total Resources 25.9 30.6 26.8 27.0

Domestic revenue 17.0 16.4 17.7 19.0

LGAs Own Sources 0.0 0.4 3.1 3.2

Programme loan and grants 2.9 3.8 1.4 1.1

Project loans and grants 3.5 3.4 0.4 0.1

Basket Support Loans 0.6 0.9 0.6 0.4

Basket Support Grants 1.0 0.9 0.0 0.0

HIPC relief-Multilateral 0.0 0.0 0.0 0.0

MDRI (IMF) 0.3 0.4 0.9 0.6

MCC (MCA-T) 0.6 0.7 1.7 1.6

Non Bank Borrowing (Rollover) 0.0 1.9 1.0 1.0

Bank Borrowing 0.0 1.6 0.0 0.0

Adjustment to cash 0.0 0.0 0.0 0.0

Privatisation Funds 0.0 0.0 0.0 0.0

II. Total Expenditure 25.9 30.6 26.8 27.0

Recurrent expenditure 16.8 21.5 19.4 18.9

CFS 2.3 4.9 4.2 4.1

Debt service 1.3 3.4 3.1 2.9

Interest 1.0 1.3 1.2 1.2

Amortization 0.3 2.1 1.9 1.8

Others 1.0 1.5 1.1 1.1

Recurrent Exp (excl. CFS) 14.5 16.6 15.2 14.8

o/w Salaries & wages 5.6 5.7 6.0 6.0

Designated Items 1.8 0.6 8.3 7.4

Parastatal PE 1.0 1.1 1.0 1.4

LGAs Own Sources 0.0 0.4 0.0 0.0

Contingency 0.0 0.5 0.0 0.0

Other Charges 6.0 8.3 0.0 0.0

Development expenditure 9.1 9.1 7.4 8.2

Local 3.3 3.1 4.1 5.9

Foreign 5.7 6.0 3.3 2.3

o/w MCC (MCA-T) 0.6 0.7 0.9 0.6 Source: Appendix 5.

88

Appendix 7: Government Expenditure by Strategic Allocation (in Billion Tsh.)

All SectorsRecurrent Total Rec Total

D-L D-F Total D-L D-F Total

A. By Strategic Classification: MKUKUTA (transfer to LGA not included)

MKUKUTA 1,415.7 760.8 1,518.1 2,278.9 3,694.6 1,775.9 778.8 1,634.8 2,405.3 4,234.8 Cluster I 421.7 528.7 689.7 1,218.4 1,640.0 694.3 551.5 737.2 1,279.4 1,862.5 Cluster II 581.1 173.5 518.4 691.9 1,273.1 632.0 173.6 560.0 734.0 1,430.5 Cluster III 412.9 51.8 102.3 154.1 567.0 449.5 49.9 112.0 163.1 644.4 Cross Cutting - 6.8 207.7 214.5 214.5 - 3.8 225.7 228.9 297.4

Non-MKUKUTA 2,417.9 179.8 32.3 212.1 2,630.0 2,675.0 180.3 36.8 226.2 2,846.8 Total 3,833.6 940.6 1,550.4 2,491.0 6,324.6 4,451.0 959.1 1,671.6 2,631.6 7,081.6

B. By Strategic Classification: MKUKUTA (Including transfer to LGAs)

MKUKUTA 2,813.2 767.2 1,524.2 2,291.5 5,104.8 4,465.9 816.0 1,494.1 2,310.1 6,776.0 Cluster I 520.1 529.3 690.3 1,219.6 1,739.8 1,295.0 577.4 782.8 1,360.2 2,655.2 cluster II 1,623.7 179.3 519.1 698.5 2,322.2 2,201.5 211.9 479.7 691.6 2,893.1 Cluster III 662.7 51.8 104.9 156.7 819.4 908.5 26.8 83.1 109.8 1,018.3 Cross Cutting 6.7 6.8 209.9 216.7 223.4 60.9 0.0 148.5 148.5 209.4

Non-MKUKUTA 1,913.3 173.3 26.2 199.5 2,112.8 2,222.7 151.5 366.7 518.2 2,740.9 Total 4,726.5 940.5 1,550.4 2,491.0 7,217.6 6,688.6 967.5 1,860.8 2,828.3 9,516.9

C. By Major Sectors

Education 1,216.4 - - 196.6 1,413.0 1,487.0 - - 229.5 1,716.5 Health 457.0 - - 286.6 743.6 483.7 - - 303.5 787.2 Water 33.8 - - 199.5 233.3 37.7 - - 309.6 347.3 Agriculture 158.9 - - 137.8 296.7 220.3 - - 252.0 472.3 Roads 301.4 - - 668.9 970.3 374.9 - - 721.7 1,096.6 Judiciary 52.6 - - 30.6 83.2 67.1 - - 30.3 97.4 HIV-AIDS 19.1 - - 87.9 107.0 10.7 - - 151.9 162.6 Energy 43.7 - - 335.2 378.8 55.3 - - 230.2 285.5 Others 2,443.8 - - 548.0 2,991.7 3,951.7 - - 599.7 4,551.3 Grand Total 4,726.7 - - 2,491.1 7,217.6 6,688.3 - - 2,828.4 9,516.7

D. By Broad Functions

Administration 1,450.3 215.9 245.5 461.4 1,911.7 1,539.3 136.0 473.1 609.1 2,148.4 CFS 681.9 - - - 681.9 1,523.0 - - - 1,523.0 Defense and Security 503.6 22.9 4.9 27.8 531.4 678.0 66.4 6.0 72.4 750.4 Economic Services 269.5 455.1 467.5 922.6 1,192.1 347.5 439.1 315.1 754.2 1,101.7 Production Services 170.2 30.8 74.7 105.5 275.7 244.4 32.6 145.4 178.0 422.4 Social Services 1,651.1 215.8 757.9 973.7 2,624.8 2,356.3 293.4 921.2 1,214.6 3,571.0

Grand Total 4,726.6 940.5 1,550.5 2,491.0 7,217.6 6,688.6 967.5 1,860.8 2,828.3 9,516.9

2008/09 2009/10DevelopmentDevelopment

Source: Ministry of Finance and Economic Affairs.

89

Appendix 8: Government Expenditure by Strategic Allocation (in percentage shares)

All Sectors

Rec Total Rec Total

D-L D-F Total D-L D-F Total

A. By Strategic Classification: MKUKUTA (transfer to LGA not included)

MKUKUTA 36.9 80.9 97.9 91.5 58.4 39.9 81.2 97.8 91.4 59.8

Cluster I 11.0 56.2 44.5 48.9 25.9 15.6 57.5 44.1 48.6 26.3

Cluster II 15.2 18.4 33.4 27.8 20.1 14.2 18.1 33.5 27.9 20.2

Cluster III 10.8 5.5 6.6 6.2 9.0 10.1 5.2 6.7 6.2 9.1

Cross Cutting - 0.7 13.4 8.6 3.4 - 0.4 13.5 8.7 4.2

Non-MKUKUTA 63.1 19.1 2.1 8.5 41.6 60.1 18.8 2.2 8.6 40.2

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

B. By Strategic Classification: MKUKUTA (including transfer to LGAs)

MKUKUTA 59.5 81.6 98.3 92.0 70.8 66.8 84.3 80.3 81.7 71.2

Cluster I 11.0 56.3 44.5 49.0 24.1 19.4 59.7 42.1 48.1 27.9

Cluster II 34.4 19.1 33.5 28.0 32.2 32.9 21.9 25.8 24.5 30.4

Cluster III 14.0 5.5 6.8 6.3 11.4 13.6 2.8 4.5 3.9 10.7

Cross Cutting 0.1 0.7 13.5 8.7 3.1 0.9 0.0 8.0 5.3 2.2

Non-MKUKUTA 40.5 18.4 1.7 8.0 29.2 33.2 15.7 19.7 18.3 28.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

C. By Major Sectors

Education 25.7 7.9 19.6 22.2 8.1 18.0

Health 9.7 11.5 10.3 7.2 10.7 8.3

Water 0.7 8.0 3.2 0.6 10.9 3.6

Agriculture 3.4 5.5 4.1 3.3 8.9 5.0

Roads 6.4 26.9 13.4 5.6 25.5 11.5

Judiciary 1.1 1.2 1.2 1.0 1.1 1.0

HIV-AIDS 0.4 3.5 1.5 0.2 5.4 1.7

Energy 0.9 13.5 5.2 0.8 8.1 3.0

Other sectors 51.7 22.0 41.5 59.1 21.2 47.8

Grand Total 100.0 100.0 100.0 100.0 100.0 100.0

D. By Broad Functions

Administration 30.7 23.0 15.8 18.5 26.5 23.0 14.1 25.4 21.5 22.6

CFS 14.4 0.0 0.0 0.0 9.4 22.8 0.0 0.0 0.0 16.0

Defense and Security 10.7 2.4 0.3 1.1 7.4 10.1 6.9 0.3 2.6 7.9

Economic Services 5.7 48.4 30.2 37.0 16.5 5.2 45.4 16.9 26.7 11.6

Production Services 3.6 3.3 4.8 4.2 3.8 3.7 3.4 7.8 6.3 4.4

Social Services 34.9 22.9 48.9 39.1 36.4 35.2 30.3 49.5 42.9 37.5

Grand Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0

2008/09 2009/10

Development Development

Source: Ministry of Finance and Economic Affairs.

90

Appendix 9: Government Expenditure by Economic Allocation (in Billion Tsh)

Rec Dev Total Rec Dev Total

Total budget in billions

MDA 3,608.1 2,133.8 5,741.9 4,999.6 2,301.7 7,301.4

LGAs 1,118.5 355.6 1,474.1 1,689.0 526.5 2,215.5

Total 4,726.7 2,491.3 7,218.0 6,688.6 2,828.3 9,516.9

Rec Dev Total Rec Dev Total

Current 4385.0 1042.0 5427.0 6,607.2 1,300.9 7,908.1

PE 1926.0 24.9 1951.0 2,359.8 13.2 2,373.0

Basic Salaries (incl Public Ent.) 1740.3 23.7 1763.9 1,784.7 11.7 1,796.3

Pension 185.8 1.3 187.0 525.3 1.6 526.9

Good and Services (incl. Public Ent.) 1309.6 656.0 1965.6 1,930.8 781.8 2,712.6

o/w Allowances 323.1 88.2 411.3 265.5 60.6 326.1

Maintenance 265.9 111.7 377.7 337.1 142.7 479.8

Current Transfer 614.8 249.3 864.1 940.6 363.2 1,303.8

Interests 268.7 0.0 268.7 1,039.0 - 1,039.0

Capital 341.6 1449.4 1791.0 81.4 1,527.3 1,608.7

Infrastructure 176.6 907.0 1083.6 11.9 1,086.3 1,098.1

Construction 146.9 497.7 644.6 2.3 437.4 439.7

Rehabilitation 29.7 409.3 439.1 9.6 648.9 658.5

Equipment 87.1 179.1 266.2 57.0 172.9 230.0

Other Capital 72.0 19.5 91.5 6.9 32.6 39.5

Studies 5.9 343.7 349.6 5.6 235.6 241.2

Total 4726.7 2491.3 7218.0 6,688.6 2828.3 9,516.9

Rec Dev Total Rec Dev Total

Current 3279.9 859.9 4139.8 4840.2 1031.3 5871.5

PE 1089.7 23.0 1112.7 1207.0 10.3 1217.3

Basic Salaries (incl Public Ent.) 904.0 21.9 925.9 681.9 9.0 690.9

Pension 185.8 1.1 186.8 525.1 1.3 526.4

Good and Services (incl. Public Ent.) 1116.8 528.4 1645.1 1459.9 592.8 2052.7

o/w Allowances 285.7 63.1 348.8 215.6 23.4 239.1

Maintenance 189.9 63.3 253.3 244.5 71.0 315.5

Current Transfer 614.8 245.3 860.1 889.8 357.2 1247.1

Interests 268.7 0.0 268.7 1039.0 0.0 1039.0

Capital 328.3 1273.9 1602.1 74.2 1270.4 1344.6

Infrastructure 175.6 792.7 968.3 10.2 919.9 930.2

Construction 146.6 414.5 559.0 2.2 314.1 316.4

Rehabilitation 29.1 380.2 411.3 8.0 605.8 613.8

Equipment 75.8 161.6 237.3 51.8 146.9 198.7Other Capital 71.4 13.6 84.9 6.8 23.8 30.6Studies 5.5 306.1 311.6 5.4 179.8 185.2

Total 3608.1 2133.8 5741.9 4914.4 2301.7 7216.1

Rec Dev Total Rec Dev Total

Current 1105.2 182.1 1287.2 1767.1 269.6 2036.7

PE 836.3 2.0 838.3 1152.8 2.9 1155.7

Basic Salaries 836.3 1.8 838.1 1102.8 2.6 1105.4

Pension 0.0 0.2 0.2 0.2 0.3 0.5

Good and Services 192.8 127.7 320.5 470.9 189.1 660.0

o/w Allowances 37.4 25.1 62.5 49.9 37.2 87.0

Maintenance 76.0 48.4 124.4 92.6 71.6 164.2

Current Transfer 0.0 4.0 4.1 50.7 6.0 56.7

Capital 13.4 173.5 186.9 7.2 256.9 264.1

Infrastructure 1.0 112.3 113.3 1.6 166.3 168.0

Construction 0.3 83.2 83.5 0.1 123.3 123.3

Rehabilitation 0.7 29.1 29.8 1.6 43.1 44.7

Equipment 11.3 17.5 28.9 5.3 26.0 31.3

Other Capital 0.7 6.0 6.6 0.0 8.8 8.9

Studies 0.3 37.7 38.0 0.2 55.8 56.0Total 1118.5 355.6 1474.1 1774.2 526.5 2300.8

2008/09 2009/10

Overall Government Budget in billions

LGAs : expenditure in billions

2009/102008/09

Overall Government = MDAs + LGAs : expenditure in billions

MDAs : expenditure in billions

PE refers to Public Enterprises. Source: Ministry of Finance and Economic Affairs.

91

Appendix 10: Government Expenditure by Economic Allocation (in shares)

Rec Dev Total Rec Dev Total

MDA 76.3 85.6 79.5 74.8 81.4 76.7

LGAs 23.7 14.3 20.4 25.3 18.6 23.3

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total

Current 92.8 41.8 75.2 98.8 55.1 85.0

PE 40.7 1.0 27.0 41.0 0.4 28.1

Basic Salaries (incl Public Ent.) 36.8 0.9 24.4 37.0 0.3 25.4

Pension 3.9 0.1 2.6 4.0 0.0 2.7

Good and Services (incl. Public Ent.) 27.7 26.3 27.2 39.7 49.3 42.7

o/w Allowances 6.8 3.5 5.7 6.5 0.8 4.7

Maintenance 5.6 4.5 5.2 5.3 2.6 4.4

Current Transfer 13.0 10.0 12.0 4.9 2.8 4.2

Interests 5.7 0.0 3.7 8.0 0.0 11.9

Capital 7.2 58.2 24.8 1.2 44.9 15.0

Infrastructure 3.7 36.4 15.0 0.2 32.5 10.4

Construction 3.1 20.0 8.9 0.0 11.1 3.5

Rehabilitation 0.6 16.4 6.1 0.1 21.4 6.9

Equipment 1.8 7.2 3.7 0.8 5.2 2.2

Other Capital 1.5 0.8 1.3 0.1 0.8 0.3

Studies 0.1 13.8 4.8 0.1 6.4 2.1Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total

Current 90.9 40.3 72.1 98.6 55.1 83.1

PE 30.2 1.1 19.4 23.6 0.4 15.3

Basic Salaries (incl Public Ent.) 25.1 1.0 16.1 13.3 0.3 8.7

Pension 5.1 0.1 3.3 10.3 0.0 6.6

Good and Services (incl. Public Ent.) 31.0 24.8 28.7 30.9 21.0 27.4

o/w Allowances 7.9 3.0 6.1 4.2 0.8 3.0

Maintenance 5.3 3.0 4.4 0.9 2.5 1.5

Current Transfer 17.0 11.5 15.0 22.9 31.2 25.9

Interests 7.4 0.0 4.7 20.3 0.0 13.1

Capital 9.1 59.7 27.9 1.4 44.9 16.9

Infrastructure 4.9 37.1 16.9 0.2 32.5 11.7

Construction 4.1 19.4 9.7 0.0 11.1 4.0

Rehabilitation 0.8 17.8 7.2 0.2 21.4 7.7

Equipment 2.1 7.6 4.1 1.0 5.2 2.5Other Capital 2.0 0.6 1.5 0.1 0.8 0.4Studies 0.2 14.3 5.4 0.1 6.4 2.3

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total

Current 98.8 51.2 87.3 99.5 73.3 99.0

PE 74.8 0.6 56.9 80.7 1.9 79.2

Basic Salaries 74.8 0.5 56.9 77.2 0.5 75.7

Pension 0.0 0.1 0.0 0.0 0.0 0.0

Good and Services 17.2 35.9 21.7 14.7 44.8 15.3

o/w Allowances 3.3 7.1 4.2 3.5 1.5 3.5

Maintenance 6.8 13.6 8.4 0.5 24.1 1.0

Current Transfer 0.0 1.1 0.3 3.6 2.3 3.5

Capital 1.2 48.8 12.7 0.5 26.7 1.0

Infrastructure 0.1 31.6 7.7 0.1 21.1 0.5

Construction 0.0 23.4 5.7 0.0 1.9 0.0

Rehabilitation 0.1 8.2 2.0 0.1 19.2 0.5

Equipment 1.0 4.9 2.0 0.4 2.4 0.4

Other Capital 0.1 1.7 0.5 0.0 2.3 0.0

Studies 0.0 10.6 2.6 0.0 0.8 0.0Total 100.0 100.0 100.0 100.0 100.0 100.0

2008/09 2009/10

Overall Government Budget % shares

LGAs : expenditure in % shares

2009/102008/09

Overall Government = MDAs + LGAs : expenditure in % shares

MDAs : expenditure in % shares

92

Appendix 11: Government Expenditure – Agriculture Sector

Rec Dev Total Rec Dev Total Change

Sector share in total budget 3.2 5.4 4.0 5.0 11.7 7.0 3.0

Shares of Sectoral budget

MDA 79.3 41.8 61.8 63.8 68.1 65.9 4.2

LGAs 20.7 58.2 38.2 36.2 31.9 34.1 -4.2Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 80.3 48.0 65.2 97.2 87.3 91.9 26.7PE 41.8 1.3 22.8 33.2 0.2 20.4 -2.4

Basic Salaries (incl Public Ent.) 41.8 1.0 22.7 9.2 0.2 4.4Pension 0.0 0.2 0.1 0.0 0.0 0.0

Good and Services (incl. Public Ent.) 35.1 30.9 33.1 40.1 57.8 44.7 11.6o/w Allowances 5.8 12.6 9.0 2.0 4.0 3.1o/w National Food Security and

Fertilizer

15.5 0.1 8.3 23.0 10.4 16.2 7.9

Maintenance 1.2 12.0 6.3 23.1 26.0 24.6 18.4Current Transfer 2.3 3.8 3.0 0.8 3.3 2.1 -0.9

Capital 19.7 52.0 34.8 2.8 12.7 8.1 -26.7Infrastructure 15.7 21.9 18.6 0.2 4.6 2.6 -16.0

Construction 0.0 15.7 7.4 0.0 2.3 1.3Rehabilitation 15.7 6.2 11.3 0.2 2.3 1.3

Equipment 1.0 9.8 5.1 0.7 2.9 1.9 -3.2Other Capital 2.6 2.6 2.6 1.4 3.1 2.3 -0.3Studies 0.4 17.7 8.5 0.4 2.1 1.3 -7.2

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 75.4 60.6 70.7 83.2 88.0 85.6 14.9PE 22.5 2.5 16.1 13.2 0.3 6.6 -9.5

Basic Salaries (incl Public Ent.) 22.5 2.0 16.0 13.2 0.3 6.6Pension 0.0 0.6 0.2 0.0 0.0 0.0

Good and Services (incl. Public Ent.) 21.9 42.4 28.4 51.2 40.6 45.8 17.4o/w Allowances 5.8 16.5 9.2 2.9 6.4 4.7o/w National Food Security and

Fertilizer

19.5 0.3 13.4 32.8 16.8 24.6 11.2

Maintenance 1.2 7.5 3.2 1.1 41.7 3.2 0.1Current Transfer 29.9 8.2 23.0 17.8 5.3 30.0 7.0

Capital 24.6 39.4 29.3 16.8 12.0 14.4 -14.9Infrastructure 19.8 8.7 16.3 0.0 3.8 1.9 -14.4

Construction 0.0 0.0 0.0 0.3 3.7 2.0Rehabilitation 19.8 8.7 16.3 1.1 4.7 2.9

Equipment 1.1 6.3 2.7 2.1 4.9 3.5 0.8Other Capital 3.2 1.7 2.7 0.5 3.3 2.0 -0.7Studies 0.5 22.7 7.6 14.1 0.0 6.9 -0.6

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 99.6 38.9 56.3 99.9 38.9 71.7 15.4PE 48.9 0.4 24.8 14.7 0.4 8.1 -16.7

Basic Salaries 48.9 0.4 24.8 14.7 0.4 8.1Pension 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services 49.9 22.7 19.7 84.9 22.7 56.1 36.4o/w Allowances 3.5 9.7 8.7 1.1 9.7 5.1o/w National Food Security and

Fertilizer

42.8 0.2 21.7 12.9 0.2 7.1 -14.7

Maintenance 0.8 15.3 11.3 0.2 15.3 7.2 -4.1Current Transfer 0.0 0.6 0.5 0.0 0.6 0.3 -0.2

Capital 0.4 61.1 43.7 0.1 61.1 28.3 -15.4Infrastructure 0.0 31.4 22.4 0.0 31.4 14.5 -7.9

Construction 0.0 27.0 19.3 0.0 27.0 12.5Rehabilitation 0.0 4.4 3.2 0.0 4.4 2.0

Equipment 0.3 12.3 8.9 0.1 12.3 5.7 -3.2Other Capital 0.1 3.3 2.4 0.0 3.3 1.6 -0.9Studies 0.0 14.1 10.1 0.0 14.1 6.5 -3.5

Total 100.0 100.0 100.0 100.0 100.0 100.0

Agriculture Sector = MDAs + LGAs : Share of total sector expenditure

2008/09 2009/10

Agriculture Sector Budget Shares

2009/102008/09

LGAs : Share of total sector expenditure

MDAs: Share of total sector expenditure

Source: Ministry of Finance and Economic Affairs.

93

Appendix 12: Government Expenditure – Road Sector

Rec Dev Total Rec Dev Total ChangeSector share in total budget 6.2 26.2 13.1 5.6 25.5 11.5 -1.6Shares of Sectoral budget

MDA 73.2 141.7 120.4 72.2 92.0 85.2 -35.2LGAs 27.0 3.4 10.7 27.8 8.0 14.8 4.1Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 99.7 14.4 40.9 99.5 18.8 49.5 8.6PE 10.6 0.0 3.3 4.4 0.0 1.5 -1.8

Basic Salaries (incl Public 10.6 0.0 3.3 0.9 0.0 0.3 -3.0Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services (incl. Public 13.3 11.8 12.2 14.1 17.9 15.9 3.7o/w Allowances 1.3 0.7 0.9 0.6 0.4 0.5 -0.4

Maintenance 75.8 2.4 25.2 79.2 0.9 26.6 1.4Current Transfer 0.0 0.2 0.2 1.8 0.0 5.4 5.3

Capital 0.3 85.6 59.1 0.5 81.2 51.5 -7.6Infrastructure 0.1 79.3 54.7 0.1 78.8 46.8 -7.9

Construction 0.0 32.2 22.2 0.0 26.5 17.4 -4.7Rehabilitation 0.1 47.2 32.5 0.1 52.2 29.4 -3.1

Equipment 0.2 0.5 0.4 0.3 1.4 1.0 0.6Other Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0Studies 0.0 5.7 4.0 0.0 1.0 3.6 -0.4

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Change

Current 99.7 14.5 36.2 99.7 20.1 37.0 0.8PE 4.0 0.0 1.0 3.7 0.0 0.3 -0.7

Basic Salaries (incl Public 4.0 0.0 1.0 3.7 0.0 0.3 -0.7Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services (incl. Public 2.5 12.2 9.7 2.9 17.3 15.4 5.7o/w Allowances 1.3 0.7 0.9 0.9 0.4 0.5 -0.4

Maintenance 71.3 2.1 19.7 73.8 2.8 21.4 1.7Current Transfer (incl PE) 21.9 0.2 5.7 19.3 0.0 6.4 0.6

Capital 0.3 85.5 63.8 0.3 71.1 53.0 -10.8Infrastructure 0.1 79.2 59.1 0.1 68.9 51.5 -7.6

Construction 0.0 32.9 24.5 0.0 28.2 20.1 -4.5Rehabilitation 0.1 46.1 34.4 0.1 40.7 31.4 -3.0

Equipment 0.1 0.5 0.4 0.1 1.4 1.1 0.7Other Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0Studies 0.0 5.8 4.3 0.0 0.7 0.5 -3.8

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Change

Current 99.4 11.1 80.1 99.0 11.1 67.5 -12.6PE 8.8 0.1 6.9 12.8 0.1 8.3 1.4

Basic Salaries 8.8 0.1 6.9 0.0 0.1 0.0 -6.8Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services 2.6 1.1 2.3 3.6 1.1 2.7 0.4o/w Allowances 1.2 0.4 1.0 0.0 0.4 0.1 -0.9

Maintenance 88.0 9.8 71.0 82.6 9.8 56.5 -14.4Current Transfer 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital 0.6 88.9 19.9 1.0 88.9 32.5 12.6Infrastructure 0.1 83.2 18.2 0.2 83.2 29.9 11.7

Construction 0.0 6.7 1.5 0.0 6.7 2.4 0.9Rehabilitation 0.1 76.5 16.8 0.0 76.5 27.4 10.6

Equipment 0.3 0.8 0.4 0.8 0.8 0.8 0.4Other Capital 0.1 0.4 0.1 0.0 0.4 0.1 0.0Studies 0.2 4.6 1.1 0.0 4.6 1.7 0.5

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

2008/09 2009/10

Roads Sector Budget in Shares

LGAs : Sector expenditure in Shares

2009/102008/09

Roads Sector = MDAs + LGAs : Sector expenditure in Shares

MDAs : Sector expenditure in Shares

Source: Ministry of Finance and Economic Affairs.

94

Appendix 13: Government Expenditure – Energy Sector

Rec Dev Total Rec Dev Total ChangeSector share in total budget 0.9 12.8 5.0 0.8 6.1 2.4 4.0

MDA 100.0 100.0 100.0 100.0 100.0 100.0 0.0LGAs 0.0 0.0 0.0 0.0 0.0 0.0 0.0Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Shares of Sectoral budget

Rec Dev Total Rec Dev Total Change

Current 97.1 27.0 35.3 95.7 27.7 44.3 9.0PE 10.6 0.2 1.4 9.4 0.2 2.4 1.0

Basic Salaries (incl Public Enterprises) 10.6 0.2 1.4 0.0 0.0 0.0 -1.4Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services 12.6 15.9 15.5 49.2 9.0 18.8 3.3o/w Allowances 5.9 0.5 1.2 0.0 0.0 0.0 -1.2

Maintenance 0.9 7.8 7.0 1.5 1.3 1.4 -5.6Current Transfer (incl Public Enterprises) 72.9 3.1 11.4 35.6 17.2 21.7 10.3

Capital 2.9 73.0 64.7 4.3 72.3 55.7 -9.0Infrastructure 1.1 7.0 6.3 0.3 3.2 2.5 -3.8

Construction 0.0 7.0 6.2 0.0 0.0 0.0 -6.2Rehabilitation 1.1 0.0 0.1 0.0 0.0 0.0 -0.1

Equipment 1.6 12.9 11.6 3.4 32.7 25.6 14.0Other Capital 0.1 0.1 0.1 0.0 0.4 0.3 0.2Studies 0.0 52.9 46.7 0.6 36.0 27.4 -19.3

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Energy Sector = MDAs : Sector expenditure in shares

2008/09 2009/10

Energy Sector Budget shares

2009/102008/09

Source: Ministry of Finance and Economic Affairs.

95

Appendix 14: Government Expenditure – Education Sector

Rec Dev Total Rec Dev Total TotalSector share in total budget 26.8 6.5 19.8 22.6 8.8 18.5 4.0Shares of Sectoral budget

MDA 38.8 85.8 44.1 33.2 59.8 36.9 -7.2LGAs 61.2 14.2 55.9 66.8 40.2 63.1 7.2Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 99.6 40.3 92.9 99.6 43.1 91.7 -1.2PE 75.0 6.3 67.2 64.8 0.0 55.7 -11.6

Basic Salaries (incl Public Ent.) 74.8 6.3 67.0 63.3 0.0 54.4 -12.6Pension 0.2 0.0 0.2 0.0 0.0 0.0 -0.2

Good and Services (incl. Public 22.7 14.2 21.7 31.4 21.9 30.1 8.4o/w Allowances 2.0 0.5 1.8 4.8 4.7 4.8 3.0o/w Education materials 6.8 4.7 6.6 13.4 11.6 13.1 6.5

Maintenance 0.2 6.5 0.9 0.3 15.5 2.4 1.5Current Transfer 1.7 13.4 3.0 3.1 5.6 3.5 0.5

Capital 0.4 59.7 7.1 0.4 56.9 8.3 1.2Infrastructure 0.0 34.3 3.9 0.0 48.5 6.8 2.9

Construction 0.0 28.8 3.3 0.0 20.3 2.9 -0.4Rehabilitation 0.0 5.5 0.6 0.0 28.2 4.0 3.4

Equipment 0.4 3.7 0.8 0.3 1.6 0.5 -0.2Other Capital 0.0 3.9 0.5 0.0 2.5 0.3 -0.1Studies 0.0 17.8 2.0 0.0 4.4 0.6 -1.4

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Change

Current 99.6 39.0 86.2 99.3 39.6 85.7 -0.5PE 58.3 7.4 47.1 36.9 0.0 28.5 -18.6

Basic Salaries (incl Public Ent.) 57.7 7.4 46.6 32.4 0.0 25.0 -21.6Pension 0.6 0.0 0.5 0.0 0.0 0.0 -0.5Good and Services (Public 36.8 10.7 31.0 52.4 13.0 43.4 12.4o/w Allowances 0.5 0.1 0.4 6.9 5.6 6.6 6.1o/w Education materials 2.0 0.9 1.8 9.3 1.0 7.4 5.6

Maintenance 0.2 5.4 1.3 0.5 17.3 4.4 3.0Current Transfer 4.4 15.6 6.8 9.5 9.3 9.4 2.6

Capital 0.4 61.0 13.8 0.7 60.4 14.3 0.5Infrastructure 0.0 33.0 7.3 0.0 52.5 12.0 4.7

Construction 0.0 26.9 5.9 0.0 6.6 1.5 -4.4Rehabilitation 0.0 6.1 1.3 0.0 45.9 10.5 9.1

Equipment 0.3 4.3 1.2 0.7 2.7 1.1 -0.1Other Capital 0.1 3.6 0.8 0.0 0.0 0.0 -0.8Studies 0.0 20.2 4.4 0.0 5.2 1.2 -3.3

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Change

Current 99.5 48.2 98.1 99.8 48.2 95.2 -2.9PE 85.6 0.0 83.1 88.6 0.0 86.5 3.4

Basic Salaries 85.6 0.0 83.1 88.6 0.0 86.5 3.4Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services 13.8 35.2 14.4 11.0 35.2 12.2 -2.2o/w Allowances 2.9 3.4 2.9 3.8 3.4 3.7 0.8o/w Education materials 9.9 27.3 10.4 7.2 27.3 8.5 -1.9

Maintenance 0.2 12.9 0.5 0.1 12.9 1.3 0.8Current Transfer 0.0 0.1 0.0 0.0 0.1 0.0 0.0

Capital 0.5 51.8 1.9 0.2 51.8 4.8 2.9Infrastructure 0.0 42.4 1.2 0.0 42.4 3.8 2.6

Construction 0.0 40.5 1.2 0.0 40.5 3.6 2.5Rehabilitation 0.0 1.9 0.1 0.0 1.9 0.2 0.1

Equipment 0.4 0.0 0.4 0.2 0.0 0.2 -0.2Other Capital 0.0 6.1 0.2 0.0 6.1 0.6 0.4Studies 0.0 3.2 0.1 0.0 3.2 0.3 0.2

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

2008/09 2009/10

Education Sector Budget Shares

LGAs : Sector expenditure in Shares

2009/102008/09

Education Sector = MDAs + LGAs : Sector expenditure in Shares

MDAs : Sector expenditure in Shares

Source: Ministry of Finance and Economic Affairs.

96

Appendix 15: Government Expenditure – Health Sector

Rec Dev Total Rec Dev Total ChangeSector share in total budget 9.2 14.2 10.9 7.4 10.7 8.4 4.0Shares of Sectoral budget

MDA 60.4 79.1 68.8 50.1 51.9 50.7 -18.1LGAs 39.6 20.9 31.2 49.9 48.1 49.3 18.1Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 98.6 79.0 89.8 98.2 80.5 91.5 1.7PE 64.9 0.2 35.8 54.1 0.3 33.7 -2.1

Basic Salaries (incl Public Ent.) 58.0 0.1 31.9 18.4 0.3 11.5 -20.4Pension 7.0 0.1 3.9 7.5 0.2 4.7 0.9

Good and Services (incl. Public Ent.) 32.1 71.2 49.7 28.5 55.8 38.9 -10.8o/w Allowances 6.7 1.8 4.5 2.9 2.5 2.7 -1.8o/w Medical supplies 14.3 65.8 37.5 9.4 47.1 23.7 -13.8

Maintenance 1.5 0.7 1.1 1.2 3.2 2.0 0.8Current Transfer 0.1 6.9 3.2 14.3 21.2 16.9 13.8

Capital 1.4 21.0 10.2 1.8 19.5 8.5 -1.7Infrastructure 0.1 17.8 8.1 0.1 15.5 6.0 -2.1

Construction 0.0 11.7 5.3 0.0 6.4 2.4 -2.8Rehabilitation 0.0 6.2 2.8 0.1 9.1 3.5 0.7

Equipment 1.1 2.6 1.8 1.6 2.9 2.1 0.3Other Capital 0.1 0.2 0.2 0.1 0.3 0.2 0.0Studies 0.1 0.3 0.2 0.1 0.8 0.3 0.2

Total 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 99.0 75.8 86.2 97.4 70.7 44.2 -42.0PE 28.7 0.2 14.8 36.7 0.4 11.5 -3.3

Basic Salaries (incl Public Ent.) 17.1 0.1 8.8 36.7 0.4 11.5 2.7Pension 11.5 0.2 6.0 15.0 0.4 4.7 -1.3

Good and Services (incl. Public Ent.) 35.5 66.7 54.8 30.6 25.9 14.6 -40.2o/w Allowances 7.7 1.1 4.5 3.2 0.4 1.1 -3.5o/w Medical supplies 21.0 62.0 44.8 17.2 16.1 8.5 -36.3

Maintenance 1.6 0.2 0.9 1.6 3.6 1.2 0.3Current Transfer (incl PE) 33.2 8.7 15.6 28.5 40.8 16.9 1.3

Capital 1.0 24.2 13.8 2.6 29.3 6.6 -7.2Infrastructure 0.0 20.8 11.4 0.0 23.8 4.7 -6.7

Construction 0.0 13.5 7.4 0.0 8.0 1.6 -5.9Rehabilitation 0.0 7.3 4.0 0.0 15.9 3.1 -0.9

Equipment 0.8 2.9 2.0 2.4 4.2 1.6 -0.4Other Capital 0.2 0.2 0.2 0.1 0.4 0.1 -0.1Studies 0.0 0.3 0.2 0.1 0.9 0.2 0.1

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Change

Current 98.1 91.0 96.0 99.0 91.0 96.0 0.1PE 81.8 0.2 57.2 71.6 0.2 45.1 -12.1

Basic Salaries 81.8 0.2 57.2 0.0 0.2 0.1 -57.1Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services 15.0 88.0 37.1 26.5 88.0 49.3 12.2o/w Allowances 5.3 4.7 5.1 2.6 4.7 3.4 -1.7o/w Medical supplies 4.1 80.5 27.1 1.5 80.5 30.8 3.7

Maintenance 1.2 2.7 1.7 0.9 2.7 1.6 -0.1Current Transfer 0.0 0.1 0.0 0.0 0.1 0.1 0.0

Capital 1.9 9.0 4.0 1.0 9.0 4.0 -0.1Infrastructure 0.1 6.6 2.1 0.2 6.6 2.6 0.5

Construction 0.0 4.7 1.4 0.0 4.7 1.8 0.3Rehabilitation 0.1 1.8 0.6 0.2 1.8 0.8 0.2

Equipment 1.6 1.5 1.6 0.8 1.5 1.1 -0.5Other Capital 0.1 0.2 0.1 0.0 0.2 0.1 -0.1Studies 0.1 0.7 0.3 0.0 0.7 0.3 0.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

2008/09 2009/10

Health Sector Budget Shares

Health Sector = LGAs : Sector expenditure in Shares

2009/102008/09

Health Sector = MDAs + LGAs : Sector expenditure in Shares

Health Sector = MDAs : Sector expenditure in Shares

Source: Ministry of Finance and Economic Affairs.

97

Appendix 16: Government Expenditure – Water Sector

Rec Dev Total Rec Dev Total ChangeSector share in total budget 0.9 8.3 3.4 0.6 10.9 3.6 0.2Shares of Sectoral budget

MDA 53.7 41.2 43.3 44.4 78.7 75.0 31.7LGAs 46.3 58.8 56.7 55.6 21.3 25.0 -31.7Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Rec Dev Total Rec Dev Total Change

Current 95.0 53.4 60.3 96.0 79.9 81.7 21.4PE 51.4 3.6 11.5 46.7 0.4 5.4 -6.0

Basic Salaries (incl Public Ent.) 38.0 1.1 7.2 23.4 0.0 2.6 -4.6Pension 0.0 0.0 0.0 3.2 0.0 0.3 0.3

Good and Services (incl. Public Ent.) 34.9 12.9 16.5 38.5 6.3 9.8 -6.8o/w Allowances 13.4 2.5 4.3 0.0 0.4 0.3 -3.9

Maintenance 7.6 33.1 28.9 7.4 11.9 11.4 -17.5Current Transfer 1.2 3.9 3.4 3.3 61.3 55.1 51.6

Capital 5.0 46.6 39.7 4.0 20.1 18.3 -21.4Infrastructure 1.5 30.9 26.0 1.5 9.4 8.5 -17.5

Construction 0.7 27.5 23.0 0.0 4.9 4.3 -18.7Rehabilitation 0.8 3.4 3.0 0.0 0.5 0.5 -2.5

Equipment 2.2 6.3 5.6 1.8 5.2 4.9 -0.8Other Capital 0.9 0.3 0.4 0.0 0.2 0.2 -0.2Studies 0.4 9.1 7.7 0.7 5.2 4.7 -3.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Total

Current 97.0 36.9 49.2 97.6 84.0 84.9 35.7PE 53.9 5.9 15.7 47.8 0.0 3.1 -12.7

Basic Salaries (incl Public Ent.) 38.1 2.4 9.7 0.0 0.0 0.0 -9.7Pension 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Good and Services (incl. Public Ent.) 38.0 19.3 23.1 41.0 5.7 8.0 -15.2o/w Allowances 15.8 3.5 6.0 0.0 0.0 0.0 -6.0

Maintenance 2.9 2.3 2.4 1.7 0.3 0.4 -2.0Current Transfer (incl PE) 2.2 9.3 7.9 7.2 78.0 73.4 65.6

Capital 3.0 63.1 50.8 2.4 16.0 15.1 -35.7Infrastructure 0.0 38.7 30.8 0.0 5.0 4.7 -26.1

Construction 0.0 34.0 27.1 0.0 0.0 0.0 -27.1Rehabilitation 0.0 4.7 3.7 0.0 0.0 0.0 -3.7

Equipment 1.5 14.2 11.6 1.0 6.5 6.1 -5.5Other Capital 1.0 0.6 0.7 0.0 0.3 0.3 -0.4Studies 0.5 9.6 7.7 1.3 4.2 4.0 -3.7

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

Rec Dev Total Rec Dev Total Total

Current 92.8 65.0 68.8 94.7 65.0 72.2 3.4PE 48.5 2.0 8.2 45.9 2.0 12.5 4.3

Basic Salaries 37.9 0.2 5.3 42.1 0.2 10.3 5.0Pension 0.0 0.0 0.0 5.7 0.0 1.4 1.4

Good and Services 31.3 8.4 11.5 36.5 8.4 15.2 3.7o/w Allowances 10.6 1.8 3.0 0.0 1.8 1.3 -1.6

Maintenance 13.0 54.6 49.0 12.0 54.6 44.3 -4.7Current Transfer 0.0 0.0 0.0 0.2 0.0 0.1 0.0

Capital 7.2 35.0 31.2 5.3 35.0 27.8 -3.4Infrastructure 3.1 25.4 22.4 2.7 25.4 19.9 -2.5

Construction 1.5 22.8 20.0 0.0 22.8 17.3 -2.6Rehabilitation 1.6 2.5 2.4 0.0 2.5 1.9 -0.5

Equipment 3.0 0.7 1.1 2.3 0.7 1.1 0.1Other Capital 0.8 0.1 0.2 0.0 0.1 0.1 -0.1Studies 0.3 8.8 7.6 0.3 8.8 6.7 -0.9

Total 100.0 100.0 100.0 100.0 100.0 100.0 0.0

2008/09 2009/10

Water Sector Budget share

Water Sector = LGAs : Sector expenditure in share

2009/102008/09

Water Sector = MDAs + LGAs : Sector expenditure in share

Water Sector = MDAs : Sector expenditure in share

Source: Ministry of Finance and Economic Affairs.

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airs

.

MAP SECTION

KilimanjaroKilimanjaro(5895 m)(5895 m)

Iwem

bere

Ste

ppe

Nguru M

ts.

Mbeya Range

A R U S H AA R U S H A

M A R AM A R A

R U V U M AR U V U M A MTWARAMTWARA

I R I N G AI R I N G A

L I N D IL I N D I

D O D O M AD O D O M A

K I G O M AK I G O M A

M WA N Z AM WA N Z A

S H I N YA N G AS H I N YA N G A

R U K W AR U K W A

M B E Y AM B E Y AP WA N IP WA N I

TA B O R ATA B O R A

KAGERAKAGERA

SINGIDASINGIDATA N G ATA N G A

MOROGOROMOROGORO

Mbemkur

u

Matandu

Rufiji

Great Ruaha

Rungwa

Wam

iW

ami

Simiyu

Ruvuma

Mara

Kagera

Moyow

osi

Ugalla

Pangani

Kilo

mbe

ro

YalovaYalova

KaliuaKaliua

KasuluKasuluKondoaKondoa

ManyoniManyoni

KibondoKibondoKahamaKahama

NzegaNzega

BuoenBuoen

NjombeNjombe

MpuiMpui

MpandaMpanda

TundumaTunduma

SameSame

TunduruTunduru

MasasiMasasi

UteteUtete

MbeyaMbeya

MoshiMoshi

SongeaSongea

IringaIringa

KibahaKibaha

DODOMADODOMA

TaboraTaboraKigomaKigoma

ArushaArusha

MwanzaMwanza

SingidaSingida

MorogoroMorogoro

ZanzibarZanzibar

ShinyangaShinyanga

Kipengere Range

BabatiBabati

MANYARAMANYARA

MasaiMasaiSteppeSteppe

K E N Y AK E N Y A

UGANDAUGANDA

ZAMBIAZAMBIA

MOZAMBIQUEMOZAMBIQUE

RWANDARWANDA

BURUNDIBURUNDI

DEM

. R

EP.

OF

CO

NG

OD

EM.

REP

. O

F C

ON

GO

To To NakuruNakuru

To To MalindiMalindi

To To KasamaKasama

To To KasamaKasama

To To KasunguKasungu

To To LichingaLichinga

To To MarrupaMarrupa

To To ChiúreChiúre

To To NakuruNakuru

To To TororoTororo

To To KampalaKampala

To To KampalaKampala

To Kama

To Kama

Yalova

Kaliua

KasuluKondoa

Manyoni

KibondoKahama

Nzega

Buoen

Njombe

Mpui

Mpanda

Tunduma

Same

Tunduru

Masasi

Utete

KilwaKivinje

Wete

Lindi

Mbeya

Koani

Tanga

Moshi

Songea

Mtwara

Iringa

Kibaha

DODOMA

Mkoani

TaboraKigoma

Arusha

Mwanza

MusomaBukoba

Singida

Morogoro

Zanzibar

Mkokotoni

Shinyanga

Sumbawanga

Babati

Dar es Salaam

K E N Y A

UGANDA

ZAMBIA

MOZAMBIQUE

RWANDA

BURUNDI

DEM

. R

EP.

OF

CO

NG

O

A R U S H A

MANYARA

M A R A

R U V U M A MTWARA

KILIMANJARO

I R I N G A

L I N D I

D O D O M A

K I G O M A

M WA N Z A

S H I N YA N G A

R U K W A

M B E Y AP WA N I

TA B O R A ZANZIBARNORTH

PEMBANORTH

PEMBASOUTH

ZANZIBARSOUTH &CENTRALZANZIBARWEST

DAR ES SALAAM

KAGERA

SINGIDATA N G A

MOROGORO

Mbemkur

u

Matandu

Rufiji

Great Ruaha

Rungwa

Wam

i

Simiyu

Ruvuma

Mara

Kagera

Moyow

osi

Ugalla

Pangani

Kilo

mbe

ro INDIAN

OCEAN

Lake

Victor ia

LakeTanganyika

LakeMalawi

LakeRukwa

LakeNatron

LakeEyasi Lake

Manyara

To Nakuru

To Malindi

To Kasama

To Kasama

To Kasungu

To Lichinga

To Marrupa

To Chiúre

To Nakuru

To Tororo

To Kampala

To Kampala

To Kama

Iwem

bere

Ste

ppe

MasaiSteppe

Nguru M

ts.

Mbeya Range

Kipengere Range

Kilimanjaro(5895 m)

30°E

0°

2°S

8°S

10°S

0°

2°S

4°S

8°S

10°S

12°S

32°E 34°E 36°E

32°E 34°E 36°E 40°E

TANZANIA

This map was produced by the Map Design Unit of The World Bank. The boundaries, colors, denominations and any other informationshown on this map do not imply, on the part of The World BankGroup, any judgment on the legal status of any territory, or anyendorsement or acceptance of such boundaries.

0 50 100 150

0 50 100 150 Miles

200 Kilometers

IBRD 33494R1

NOVEMBER 2007

TANZANIAMAIN ROADS

RAILROADS

PROVINCE BOUNDARIES

INTERNATIONAL BOUNDARIES

SELECTED CITIES AND TOWNS

PROVINCE CAPITALS

NATIONAL CAPITAL

RIVERS