Statement by Jan Piercy at the meeting of June 15, 2000

86912 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-184 June 15, 2000 09:40:57 AM Statement by Jan Piercy Date of Meeting: June 15, 2000 Tanzania: Country Assistance Strategy, PSAC and Health Sector Reform Program 1. We commend staff for a well-written and particularly candid set of documents -- the CAS, the PSAC and the Health Sector Development Project. We are particularly pleased with the introduction of some selectivity both in terms of sectors of concentration and in terms of focus within individual operations. We welcome progress and commitment to increasing participation by civil society in the preparation of the Government of Tanzania's strategies and projects. We are, however, concerned with the plan to move to full-scale budget support in year three. CAS General: 2. We agree with the CAS's priority on reducing poverty through higher growth. In this respect, we welcome the emphasis on increasing agricultural and labor-intensive manufacturing production, enhancing the role of the private sector, and improving infrastructure (including rural feeder roads). We also appreciate the CAS's heavy emphasis on budget and expenditure composition and transparency, and note the government's progress on conducting annual public expenditure reviews, establishing a medium-term expenditure framework to better manage allocations to priority development needs, and implementing performance management through the Integrated Financial Management System. While the Government of Tanzania is making strides in budget management, action is still required on priority allocation to poverty reduction sectors, corruption, post-expenditure accountability and national procurement. Until a good track record on these fronts is demonstrated, we would find it very difficult to support moving Bank lending to budget support, particularly if it is for sectoral reform. Indeed, we regret that neither a CFAA nor an updated CPAR were done as precursors to this CAS, particularly given the large concentration of adjustment operations. Strategy for Broad-based Growth: 3. While we share fully staff's emphasis on growth as central to poverty reduction, we want to see CASs provide more clarity on the sources of growth, the distribution of growth, and how Bank engagement plans to effect labor-intensive, broad-based growth. In Tanzania, efforts must focus on rural agricultural and manufacturing sectors to create jobs, reduce marketing and production costs, increase investment, reduce export obstacles, all of which will have large impact on poverty reduction. Completion of the privatization/divestiture program is key in terms of increasing the role of the private sector and providing additional revenue to fund development objectives. Does the government have a plan for dedicating a portion of privatization revenues as well as other domestic revenue (e.g. tax gains) to social sector budgets? 4. We support the PSAC's focus on public sector management, enhancing private investment and continuing the divestiture program, we can support it. We are particularly pleased with its attention to addressing constraints to growth in the agricultural sector which will facilitate more broad-based growth. We welcome the inclusion of key procurement reforms but regret that many of these reforms were unimplemented recommendations from the 1996 CPAR. Given the number of concessions to be undertaken in this operation, we would be interested in a staff review of current national requirements on concessions, with a view to strengthening good governance and public sector management of concession issues. It is widely acknowledged that an international competitive bidding (ICB) is the "best practice" method for awarding concessions, given its transparency and likelihood of political and economic risk reduction. As concessions and public sector contracting out become more common options in Africa, it is important know what the existing requirements are and then to move to adopt a best-practice approach. Governance/Corruption: 5. As candidly noted in the CAS, governance and corruption issues remain formidable risks to lending effectiveness. We commend the government on the steps it has taken to date; notably, the development of an anti-corruption strategy, prosecutions of corrupt civil servants, establishment of a Prevention of Corruption Bureau, initial steps in increasing civil services wages and introduction of the IFMS to improve expenditure management and accountability. Governance and anti-corruption measures as triggers for lending scenarios in this CAS are welcome; we urge staff to add governance/anti-corruption measures to the list of outcome indicators in paragraph 65 to be used to measure performance over the CAS period. Tanzania's participation in WBI's integrated anti-corruption/governance learning program is likely to anchor this work and we look forward to following results of this approach. Social Sectors: 6. AIDS poses perhaps the greatest development challenge to Tanzania. With a prevalence rate of 9.4 percent in 1997 which may be as high as 20 percent in many parts of Tanzania, it is projected to increase so that by 2010 life expectancy at birth in Tanzania is expected to drop from 61 years to 46 due to the AIDS epidemic. Given this, we are pleased that this CAS includes the first of a series of HIV/AIDS-specific projects as well as the fact that the Health Sector Development Program presented to the Board along with this CAS includes a component on HIV/AIDS prevention. 7. The health sector in Tanzania has been underfunded and underperforming for years. In addition to AIDS, malaria, child mortality and maternal health are serious challenges. Appropriate budgetary allocations and management of the health infrastructure are the primary elements of the proposed Health Sector Development Project being considered alongside the CAS. We support this loan but have several concerns. First, we urge close monitoring to ensure supervision and number of local and district health and local government officials is increased with expanded decentralization of health services. Second, at present the health infrastructure network is too large to be financed. An inventory and mapping of health facilities, services, and functions is being proposed under this loan and a plan to restructure the health system, especially hospital services is to be undertaken. We urge the Bank to strongly advocate increased funding of basic health services under the Medium-Term Expenditure Framework as total domestic funds for health (government and non-government funds) only amount to $6 to $7 (compared to the $12 the WDR '93 assessed as minimum for an essential public and clinical services package). Additional funds being made available ($4.50 from external donors) need to be spent on cost- effective interventions for the essential package. Lastly, we would have preferred that this loan's presentation to the Board follow the assessment of the ministry's procurement system and capacity and the joint procurement manual [estimated completion date for both is June 30th]. Given the Government of Tanzania's rejection of a procurement agent in favor of building internal capacity, how is the loan structured to build this capacity while simultaneously safeguarding project resources? 8. Tanzania needs systematic reform of basic education focused on improving quality and learning performance, especially for girls. Given the low net enrollment rates for primary education of 57 percent and the secondary enrollment rate of 5% percent (the lowest in Africa), and the decline of the education sector over the last two decades, we appreciate the CAS's focus (including outcome indicators) on primary and secondary education. Labor Issues: 9. The CAS includes, for the first time, an analysis of core labor standards. We welcome this and hope to see it replicated in other CASs. We note that the inclusion of primary education as a Government/Bank benchmark would have an obvious impact on the incidence of child labor. 10. The CAS acknowledges the inadequacy of Tanzanian labor law and practice to efficiently handle industrial relations and resolve labor disputes. This will assume growing importance as the Government advances its privatization programs and efforts to attract foreign investment. We encourage the Bank to collaborate with the ILO since it is providing technical assistance in the area of labor law, labor relations, and disputes settlement, precisely the areas that the Bank found to be lacking in the CAS. We ask that CAS Progress Reports provide updates in this area. Link Between CAS, PRSP and TAS: 11. The CAS would benefit from a more explicit description of the links between the PRSP/TAS and the CAS. For example, do the benchmarks for Government/Bank outlined in paragraph 65 correspond to the indicators to be tracked in the PRSP? While these outcome indicators will be used to gauge success of the CAS, will they be translated into conditionality in loans? 12. Staff have acknowledged that lack of good data in a critical issue. Yet it is unclear from the CAS how the World Bank plans to address this problem in sufficient time to feed into the PRSP process. Similarly, it is unclear what ex-ante social assessments will be done to inform benchmarks in the PRGF that are appropriately tailored to broad-based growth and poverty reduction. The Poverty Assessment Report, the Household Survey and the Rural Development Strategy will be critical diagnostic building blocks to a credible poverty reduction strategy, but are sequenced late in the program.