Tanzania - Structural Adjustment Credit I

Report No. PIC1420 Project Name Tanzania-Structural Adjustment Credit I(@) Region Africa Sector Public Sector Management Project ID TZPE2821 Borrower Government of the United Republic of Tanzania Implementing Agencies Ministry of Finance; Bank of Tanzania; and Planning Commission Dar es Salaam, Tanzania Date of Initial PID December 1994 Date This PID Prepared March 1997 Environmental Category U Project Appraisal Date March 1997 Projected Board Date May 1997 Background 1. Tanzania's macroeconomic performance during the past decade has been uneven. Growth, driven largely by recovery in agriculture, has averaged close to 4 percent per annum but inflation has been high and, since 1992, the increase in budgetary deficits has made it even more difficult to achieve stability. After declining in the second half of the 1980s, the incidence of poverty stabilized in the early 1990s with about 53 percent of the population still below the poverty line. This indicates that the first round of liberalization and adjustment launched in 1986 must now be pushed to the next stage. To raise growth above the 4 percent p.a. average of the past decade, bring inflation down to single digit levels and reduce the level of poverty calls for a second generation of reforms that continue and extend efforts to improve fiscal management, liberalize the economy and privatize banks and parastatals. 2. Over the past year significant progress has been made with the new government showing a readiness to introduce far reaching policy measures and to engage with the Bank on a serious dialogue regarding future measures. The Government's resolve has been underscored by the successful completion of an IMF-supervised Shadow Program in June 1996 and the agreement with the Fund on an ESAF on November 8, 1996. Project Objectives 3. The proposed Structural Adjustment Credit is based upon the  Government's Policy Framework Paper, distributed to the Board in November 1996, and the related Letter of Development Policy which set out the Government's medium term strategy. This strategy aims to reduce poverty through macroeconomic stabilization and the acceleration of economic growth. The principal objectives of the SAC are to support this strategy by inducing greater efficiency in the use of fiscal resources, focusing the activities of the state while enlarging the role of the private sector, decentralizing the financing and the delivery of social services and continuing the process of market liberalization. This strategy is in line with IDA's Country Assistance Strategy Update presented to the Board on May 16, 1996 and also with the full CAS to be submitted to the Board with this operation. Project Description 4. The SAC would support the efforts of the government elected in November 1995 to achieve macrostability, growth and poverty reduction through a reform of public expenditure policies, accelerated privatization of parastatals, a resolution of the problems facing the National Bank of Commerce (NBC), which dominates the banking sector, and measures to remove distortions in the pricing and marketing of petroleum. These actions, once they are fully implemented, could result in budgetary savings, a sharp reduction in inflation, an acceleration in the growth to more than 6 percent per annum over a four-year period, and as a result of faster growth and improved delivery of social services, a substantial decline in poverty. Project Financing 5. The Credit is expected to be for an amount of SDR 70 Million (US$100 million equivalent). The proposed Credit will be disbursed through the Central Bank of Tanzania as Balance of Payments support. The initial tranche of US$40 million equivalent, including the allocation from the IDA reflows, will be available upon Credit effectiveness upon completion of specified actions. The Credit will be on standard IDA terms with 40 years maturity with a 10-year grace period. Links to IDA's Lending Program 6. The SAC addresses policy areas that build on intensive operational and analytical work done in the context of several recent operations such as the Financial Institutions Development Project and the Parastatal and Public Sector Reform Project. The SAC will capitalize upon and extend the agreements reached through the PFP/ESAF negotiations. The SAC emphasizes policies, while the complementary work of capacity building and detailed institutional engineering is being done as a part of several other ongoing operations. Project Benefits 7. Implementation of the reform program will permit an increase - 2 -  in real growth to 5-6 percent a year, by improving macrostability, resource mobilization and allocative efficiency. These will set the stage for a further reduction of poverty. By increasing expenditures on programs which benefit the poor, it will also improve the situation of the disadvantaged directly. Project Risks 8. The chief risk with the program is a failure of government commitment and the inability to implement the program fully. Contact Point: Public Information Center The World Bank 1818 H Street N.W. Washington, D.C. 20433 Telephone No.: (202) 458-5454 Fax No.: (202) 522-1500 Note: This is information on an evolving project. Certain components may not necessarily be included in the final project. Processed by the Public Information Center week ending April 4,1997 - 3 -