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Brief for the DPG March 15, 2006

Tanzania: Public Expenditure and Financial Accountability Review Mission 2006 -----------------------------------------------. Brief for the DPG March 15, 2006. CONTEXT. PEFAR 2006: 2 nd integrated external (to Govt) review of PE + PFM + PP (“One process, One assessment”).

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Brief for the DPG March 15, 2006

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  1. Tanzania: Public Expenditure and Financial Accountability Review Mission 2006----------------------------------------------- Brief for the DPG March 15, 2006

  2. CONTEXT • PEFAR 2006: 2ndintegrated external (to Govt) review of PE + PFM+ PP (“One process, One assessment”). • Joint exercise => WB, IMF/East AFRITAC, DFID, KfW, EU, Finland, Ireland, Canada, NGOs – Haki Elimu, Water Aid, NPF, REPOA + consultancy support (NB: synergy; resources –manpower + financial; minimized overlap & duplication of effort; lower transaction costs to Govt) • FY06 is year 1 of MKUKUTA implementation => Support to strengthen MKUKUTA-Budget links • General elections & New Government • Election-related expenditure pressures • Budget implications of new structure of ministries • Budget response to the priorities of the new Govt • Emergency: Drought-related expenditure pressures

  3. COMPONENTS OF PEFAR 2006 • Evaluation of spending (FY05 & ½ FY06) (Overall; economic & functional composition; some recent events) • Fiscal Space for Infrastructure (I: Key bottlenecks; prioritization; institutional framework; additional fiscal space II: Funding needs for scaling-up & macro implications) • MKUKUTA – Budget Links (Lessons from Sector expenditure analysis; bdgt process & stakeholder consultations; cross-country study; NGO views) • PFM (+PP) (Update of PEFA indicators; FM practices & risks at LG level; cash/fund flow arrangements; accountability system; progress on procurement reforms) • Allowances and W-bill Allocation (use of allowances; W allocation process & strategies) • Zanzibar

  4. SOME KEY ISSUES COMING OUT OF THE PEFAR MISSION PRELIMINARY !!

  5. (1)EVALUATION OF PUBLIC SPENDING • Aggregate fiscals are on track (FD =4.4% of GDP) • Domestic revenue effort has improved (from 13% in FY04 to 13.6% of GDP in FY05 ) but remains low (Total expenditure = 25% of GDP; Others in the region doing better). There is potential for more revenue. • Revenue foregone through exemptions (VAT, donor-funded projects) on the increase • More tax expenditures envisaged under EPZs and SEZs draft legislation

  6. (1)EVALUATION OF PUBLIC SPENDING(cont.) • Donor-dependency remains high (42% of total expenditure in FY05) • Unpredictability of donor support & timing of disbursements. • Development Budget: Foreign resources account for 75% of the devt budget but only 67% of actual devt expenditure • Drought-related increase in spending (Estim. 1.2% of GDP) • Budget deviations: One-off Vs systemic over/under-spending • Large under-spending for foreign financed devt expenditure (Works -Tshs.56; Labor & Youth Devt – Tshs.40bn; President’s Office – Tshs.23 bn; Education – Tshs.21 bn; Health – Tshs.19bn)

  7. (2) INFRASTRUCTURE • Lack of an objective project selection process • Coordination of investments between infrastructure sectors is weak or lacking • Major bottlenecks: (i) Run down state of TRC causing serious take-off problems at Dar port (ii) Energy crisis/load shedding

  8. (2) INFRASTRUCTURE (cont) • Potential areas for additional fiscal space: curbing tax evasion; better cost recovery in water & electricity; improving technical and operational performance of PEs; Data quality. • Financing of infrastructure has increased recently but less compared to social sectors • Experience with private sector participation is mixed

  9. (3) PUBLIC FINANCIAL MANAGEMENT - LG • Value of Multi-year dialogue: Data on LG revenue & expenditure is now available. Moving forward with analysis of the data, checking quality + Visits to select LGAs to assess actual FM practices. • PFM systems are weak across LGAs (=> Need to improve bank reconciliation, documentation - asset & imprest registers, procurement contracts; frequency of internal audit etc.) • Very erratic funds flow to LGAs (CDG, OC) + Funds transferred without instructions on what they are for + Large sums sitting in LG accounts earning interest but no instructions on how the interest should be spent. • Transfers for school construction biased against remote LGAs/schools • Too many uncoordinated donor funding sources (24 to 28 different bank accounts for each LGA!!)

  10. (4) Public Procurement • LG has yet to implement the new PP law (Regulations still under preparation) • Capacity is weak across all levels of govt • Dissemination of the PP law not adequate • No established procurement cadre • Zanzibar: (i) No regulations & the law needs to be amended (ii) No independent regulatory authority (DPG push under PFMRP, PRBS/PRSC ?)

  11. (5) Allowances and W-bill Allocation • Work still going on (Questionnaire on PIUs) (6) Zanzibar • Work on fiscals, PFM planned for next week

  12. 7. MKUKUTA – BUDGET LINKAGES • Multi-country case study : a comparative framework on PRS/budget linkages • Preliminary views : Tz one of the most comprehensive effort to redesign instruments of PRS as well as policy content (cf draft JSAN) • Positive assessment of innovations (SBAS year 2, harmonisation group agenda, Strategic Planning and Budget Manual, ..) • Need for consolidation and simplification of existing instruments, tailoring highly ambitious agenda to capacity constraints

  13. EXTERNAL FINANCING • Key gap in budget process : effective review of external financing projections • Previously, MTEF projections used as base for checking only aggregate finance and level of budget support, not composition • Need to look at (1) adequacy as MTEF projections (2) fit with Mkukuta requirements (3) consistency with JAS principles • Next steps :Preliminary PEFAR team analysis > GoT dialogue with DPs > consultation on financing strategy in May consultations

  14. SECTOR REVIEWS • PEFAR: looking at sector reviews through the lens of institutional assessment of public resource management • Realistic assessment of multiple objectives: instrument of sector planning, enhancing domestic accountability, integrating external financing (PRBS + sector) • Clarifying principles developed in outline in the PRBS/PAF redesign

  15. ‘ONE PROCESS, ONE ASSESSMENT’ • GoT challenge to carry out budget analysis/ fiduciary assessment within one process for combined Budget, PFM review • PEFA indicators as internationally agreed minimum base for comparative assessment • Complementarity with PEFAR process: (1) broader analytic frame as context and evidence base for indicators summary indicators, (2) PEFAR provides frame for TZ specific analysis beyond minimum PEFA (3) PER/PEFAR process provides for dialogue (Wg, May consultations) • Current PEFAR cycle : technical team to complete 05/6 indicators, review by full PEFAR team, dialogue with GoT in PEFAR WG, May consultations…..

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