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ANNUAL NATIONAL POLICY ANNUAL NATIONAL POLICY DIALOGUEDIALOGUE

PUBLIC EXPENDITURE PUBLIC EXPENDITURE REVIEWREVIEW

MEDIUM TERM STRATEGY MEDIUM TERM STRATEGY

AND CROSS CLUSTER MTEFAND CROSS CLUSTER MTEF

November 20, 2009

Outline Overview of PEREconomic performance and outlook Public financial managementBudget strategy and the Medium Term

Expenditure FrameworkAid management and effectivenessConcluding Remark

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Overview of PER PER is a forum between Government, DPs,

Private sector, CSO, NGOs, Research institutions and Academia to deliberate various policy intents and progress in implementing public sector reforms

Government takes the lead in the PER process, and implements a set of agreed indicators

Indicators are in line with overall MKUKUTA objective of:

Accelerated economic growth Improve quality of life and social well-being Good governance and accountability

Overview of PER Cont’d...PER dialogue is organised under four cluster

working groups, the first three being MKUKUTA clusters, and fourth-the Macro and PFM Group.

The PER Main is the umbrella working group which overseas the four cluster working groups and is chaired by the Deputy Permanent Secretary.

Most of analytic work is undertaken in the Cluster Working Groups, with guidance from the PER Main Group

Challenge: The PER dialogue for 2009 has been less effective in informing budget process. Discussions are ongoing to revive PER process.

Economic Performance and Outlook

Tanzania has continued to record robust economic growth, averaging 7.0 percent per annum over almost a decade.

GDP growth for 2008 was 7.4% compared to 7.1% in 2007.

The projections have been revised downward to 5.0% in 2009 due to the impact of global financial crisis.

The economy experienced inflationary pressures, raising to double digit level.

The Annual Headline Inflation rate for the year ended October 2009 was 12.7%.

Food inflation rate has increased to 18.1% in October from 17.3% in September 2009.

Non food inflation increased to 4.4% in October 2009 from 4.0% in September 2009.

Economic Performance and Outlook Cont’d...

Over years, domestic revenue exceeded projections, however, in 2008/09 revenue collection was 18% above the levels in 2007/08, but 10% below the target for the year.

This performance was primarily due to the impact of global financial crisis resulting in slowdown in the growth of economic activities.

Some revenue measures which did not materialise.

The Government budget has continued to benefit from external inflows from Development partners

Expenditure for FY 2008/09 was broadly in line with resource envelope

PUBLIC FINANCIAL MANAGEMENTProgress:

CAG report - general improvement in the management and control of public finances in MDAs

There has been significant improvement in bank reconciliation

The recruitment of a new PFMRP coordination secretariat

Ongoing review of Public Finance Act 2001: provide for the establishment of the new internal audit

dept. introduction of electronic funds transfer (EFT) taking out sections on CAG following the enactment of the

Public Audit Act in August, 2008 and give more powers to the PMG and the ACGEN to oversee

and monitor LGA finances.

PFM progress Cont’d…Migration from Govt Finance Statistics (GFS)

system 1986 to the GFS 2001 economic classification.Budget books for 2009/10 prepared in line with

GFS 20012010/11 budget will be prepared in accordance

with GFS 2001 functional classification. Connection of all sub-treasuries and RSs to

the main IFMS database in Dar es SalaamFacilitates better expenditure control Enables timely production and consolidation of

systems generated reports

PFM Cont’d…Challenges include:

fully integration of the IFMS with other systems such as the payroll system and the debt and cash management systems;

strengthening predictability and availability of funds to MDAs and other spending agencies;

further reduction in the number of bank accounts at the commercial banks;

ensure that EFT system is fully operational;streamlining fund flows and multiple

reporting systems in LGAs.

BUDGET STRATEGY AND THE MTEF

Budget: an instrument that implements various national policy decisions aiming at realizing Vision 2025

Budget trendGovernment budget has grown from 22.9% of

GDP in 2007/08 to 25.3% in 2008/09 and then 30.6 % in 2009/10.

Notable increase in domestic resources mobilization

Increase in external assistancerecurrent spending increase faster than

development spendingNB: key expenditures on social service delivery

are budgeted under recurrent spending

Budget Strategy Cont’d...A need for balance between recurrent and

development spendingthe country aims for higher economic growth

which requires investment in physical infrastructure

Limit the growth of recurrent expendituresScale up capital investment to accelerate

economic growth in line with the Vision 2025. Improve supportive transport and communication

infrastructure -roads, railway, ports and telecommunication;

irrigational infrastructure; and ensuring availability of reliable and affordable power

supply

Budget Strategy Cont’d...

Enhance resource mobilisation both, from domestic and external sources

Improve expenditure management to enhance efficiency

Promote Public Private Partnerships (PPPs in infrastructure development to complement existing financing arrangements This will reduce fiscal burden Empower and promote private sector led

growth

Medium Term Expenditure Framework

Domestic revenue of 16.4% of GDP percent in 2009/10 and up to 17.0% in 2011/12

Expenditure is estimated at 30.6% in 2009/10 and a gradual decline to 26.8% by 2011/12

External assistance of 10.2% in 2009/10 and will level around 7.0% in the medium term.

Domestic borrowing of 1.6% of GDP as part of fiscal stimulus in 2009/10 and 1.0% in the medium term.

MKUKUTA financing for 2009/10 accounts for 71.2% of total budget and is expected to remain around this level in the medium term.

Resource Allocation across MKUKUTA Clusters

2007/08 2008/09 2009/10

% 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%

2006/07 2007/08 2008/09 2009/10 2010/11 2011/12Actual Actual Actual Budget Projections Projections

I. TOTAL RESOURCES 23.2% 23.1% 25.4% 30.6% 27.3% 26.8%Domestic revenue 14.1% 16.0% 15.9% 16.4% 16.6% 17.0%LGAs Own Sources 0.0% 0.0% 0.0% 0.4% 0.4% 0.4%Programme loans and grants 3.8% 4.3% 3.5% 3.8% 3.8% 3.3%Project loans and grants 3.5% 3.7% 3.0% 3.4% 2.2% 2.2%Basket support Loans 0.2% 0.9% 0.6% 0.9% 0.4% 0.4%Basket support Grants 0.6% 0.9% 1.0% 0.9% 0.6% 0.4%HIPC relief - Multilateral 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%MDRI (IMF) 0.6% 0.5% 0.3% 0.4% 0.0% 0.0%MCA (T) USA 0.0% 0.0% 0.0% 0.7% 0.6% 0.6%Non-Bank Borrowing 1.1% -0.1% 0.0% 1.9% 1.7% 1.5%Bank Borrowing 0.1% -1.4% 0.8% 1.6% 1.0% 1.0%Adjustment to Cash -0.9% -1.7% 0.2% 0.0% 0.0% 0.0%Privatisation Funds 0.0% 0.0% 0.2% 0.0% 0.0% 0.0%

II. TOTAL EXPENDITURE 23.2% 23.1% 25.4% 30.6% 27.3% 26.8%

RECURRENT EXPENDITURE 16.3% 15.2% 17.5% 21.5% 17.9% 17.4%

CFS 2.4% 2.6% 2.5% 4.9% 4.8% 4.5%Debt service 1.3% 1.4% 1.0% 3.4% 3.1% 2.8%

Interest 1.1% 1.2% 0.9% 1.3% 1.2% 1.1%Amortisation 0.2% 0.3% 0.1% 2.1% 1.9% 1.7%

Others 1.2% 1.1% 1.5% 1.5% 1.7% 1.7%

Recurrent Exp. (excl. CFS) 13.9% 12.6% 14.9% 16.6% 13.1% 12.9%o/w Salaris and wages 5.0% 5.0% 6.0% 5.7% 5.7% 5.7%Designated 0.0% 0.0% 0.0% 1.1% 0.0% 0.0%LGAs Own Sources 0.0% 0.0% 0.0% 0.4% 0.4% 0.4%Other Charges 8.9% 7.6% 9.0% 9.4% 7.0% 6.8%

DEVELOPMENT EXPENDITURE 6.9% 8.0% 7.9% 9.1% 9.4% 9.5%Local 2.6% 2.5% 3.4% 3.1% 5.5% 5.8%Foreign 4.3% 5.5% 4.5% 6.0% 3.9% 3.6%

Budget Frame for 2006/07 - 2011/12(As a percent of GDP)

AID MANAGEMENT AND EFFECTIVENESSTransparency and accountability are essential

elements for development results in line with:Paris Declaration, Accra Agenda for Action JAST PrinciplesUnder JAST, the GoT and DPs agreed to become

more accountable to each other and to their citizens.

Aid Management Platform (AMP) System has been installed in MoFEA

Is a web based application tool designed for better management and coordination of external resources.

The Technical Assistance Policy has been developed in consultations with key stakeholders. Once approved, the Policy will guide the selection, management, monitoring and evaluation of TA.

GBS performance (in USD mn)

DPs’ Aid PerformanceGBS Partner

GBS Partner performance 2008/ 09 Total 2008/09

Total 2007/08

Total 2006/07

Total 2005/06

Timing

Predictability Front-loading

Amount Predictability Score

ADB SAL II 0 0 0 4 0 5 3

CIDA PRBS 0 0 0 9 0 8 15

Denmark PRBS 1 1 1 3 3 4 3

EU PRBS 1 2 2 7 5 4 4

Finland PRBS 1 2 1 3 4 3 3

Ireland PRBS 1 1 1 3 3 3 3

Japan PRBS 2 3 1 8 6 3 3

KfW PRSC 4 4 1 7 9 8 7

Netherlands PRBS 1 1 1 3 3 4 4

Norway PRBS 1 1 1 3 3 3 3

Sweden PRBS 1 1 1 3 3 4 4

Switzerland PRBS 1 1 1 5 3 3 3

UK PRBS 1 1 1 3 3 3 4

World Bank PRSC 1 2 1 4 4 3 6

KEY

1 - Early or same Q as committed 1 - Q1

1 - Same amount or more

2- Late by 1Q 2 - Q2 2 - Less than 10%

3 - Late by 2Q 3- Q3

3 - More than 10% but less than 50%

4 - Late by 3Q 4 - Q4

4 - More than 50%

5 - Did not pay 5 - Not at all

5 - No disbursement

The amount is in own currency If had 2 tranches, quarter with large amount was considered

ConclusionThe budget strategy seeks to guide policy

implementation while consolidating the achievements made in various programmes.

The strategy needs to refocus primarily on promoting economic growth, reduce poverty in a supportive good governance and accountability environment

Accord high priority on infrastructure development consistent with the declaration of Kilimo Kwanza

Addressing key challenges in public financial management

Strengthening the strategic alignment of expenditure consistent with the growth agenda.

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THANK YOU

AHSANTENI