Tanzania - Health Sector Development Program Project

Document of The World Bank Report No: 20337 - TA PROJECT APPRAISAL DOCUMENT ON A PROPOSED CREDIT IN THE AMOUNT OF SDR16.2 MILLION (US$ 22 MILLION EQUIVALENT) TO THE GOVERNMENT OF THE UNITED REPUBLIC OF TANZANIA FOR THE FIRST PHASE OF THE HEALTH SECTOR DEVELOPMENT PROGRAM MAY 10, 2000 Human Development 1 Country Department 1 Africa Region  CURRENCY EQUIVALENTS (Exchange Rate Effective 05/03/2000) Currency Unit = Tanzanian Shilling Tshs. 1.00 = US$ 0.00125 US$ 1.00 = Tshs. 799.9 FISCAL YEAR July 1 June 30 ABBREVIATIONS AND ACRONYMS APL Adaptable Program Loan LGR Local Government Reform AG Accountant General LIL Learning and Innovation Loan BFC Basket Financing Committee MCH Maternal and Child Health CAS Country Assistance Strategy MMC Muhimbili Medical Center CHF Community Health Fund MOF Ministry of Finance CIDA Canadian International Development Agency MOH Ministry of Health CMO Chief Medical Officer MRALG Ministry of Regional Administration & Local Government CSP Cost Sharing Programn MSD Medical Stores Department CSR Civil Service Reform MTB Medical Tender Board DCP Drug Capitalization Program MTEF Medium-Term Expenditure Framework DDH Designated District Hospitals NABA National Advisory Board for AIDS DFID Department for International Development NAC National AIDS Counsil DHB District Health Board NACP National AIDS Control Program DHP District Health Plan NCB National Competitive Bidding DHS Demographic and Health Survey NHIF National Health Insurance Fund DHMT District Health Management Team PHC Primary Health Care EHP Essential Health Package PIU Project Implementation Unit FMU Financial Management Unit PMR Project Management Report FY Fiscal Year POA Plan of Action GDP Gross Domestic Products POW Program of Work GNP Gross National Products PS Permanent Secretary GOT Govemment of Tanzania R&D Research and Development H&NP Health and Nutrition Project (Credit 2098-TA) RHMT Regional Health Management Team HMIS Health Management Information System SDC Swiss Agency for Development and Cooperation HSDP Health Sector Development Program SSR Social Sector Review HSR Health Sector Reform STD Sexually Transmitted Disease ICB International Competitive Bidding TB Tuberculosis IEC Information, Education and Communication TBA Traditional Birth Attendant IMCI Integrated Management of Childhood Illness UUNFPA United Nations Population Fund JICA Japan International Cooperation Agency UNICEF United Nations Children's Fund IDA International Development Association USAID U.S. Agency for Interr.ational Development IFMAS Integrated Financical Management & Accounting WDR World Development Report System WHO World Health Organization LACI Loan Administration Change Initiative Vice President: Callisto Madavo Country Director: James W. Adams Sector Manager: Dzingai Mutumbuka Team Leader/Task Manager: Philip R. Gowers/Chiyo Kanda  TANZANIA HEALTH SECTOR DEVELOPMENT PROGRAM CONTENTS A. Program Purpose and Project Development Objective Page 1. Program purpose and program phasing 3 2. Project development objective 3 3. Key performance indicators 4 B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project 4 2. Main sector issues and Government strategy 5 3. Sector issues to be addressed by the project and strategic choices 7 4. Program description and performance triggers for subsequent loans 8 C. Program and Project Description Summary 1. Project components 10 2. Key policy and institutional reforms supported by the project 11 3. Benefits and target population 11 4. Institutional and implementation arrangements 11 D. Project Rationale 1. Project alternatives considered and reasons for rejection 13 2. Major related projects financed by the Bank and other development agencies 15 3. Lessons learned and reflected in proposed project design 16 4. Indications of borrower commitment and ownership 16 5. Value added of Bank support in this project 16 E. Summary Project Analysis 1. Economic 17 2. Financial 17 3. Technical 18 4. Institutional 18 5. Environment 20 6. Social 21 7. Safeguard Policies 22 F. Sustainability and Risks 1. Sustainability 22  2. Critical risks 24 3. Possible controversial aspects 26 G. Main Credit Conditions 1. Effectiveness Condition 26 2. Other 26 H. Readiness for Implementation 27 I. Compliance with Bank Policies 27 Annexes Annex 1: Project Design Summary 28 Annex 2: Project Description 40 Annex 3: Estimated Project Costs 48 Annex 4: Economic Analysis 49 Annex 5: Financial Summary -Financial Analysis 58 Annex 6: Procurement and Disbursement Arrangements 69 Annex 7: Project Processing Schedule 78 Annex 8: Documents in the Project File 79 Annex 9: Statement of Loans and Credits 80 Annex 10: Country at a Glance 82 Annex 11: Letter of Sector Development Program 84 MAP(S) IBRD 27941  TANZANIA Health Sector Development Program Project Appraisal Document Africa Regional Office AFTH1 Date: May 10, 2000 Team Leader: Philip R. Gowers Country Manager/Director: James W. Adams Sector Manager/Director: Dzingai B. Mutumbuka Project ID: P058627 Sector(s): HY - Other Population, Health & Nutrition Lending Instrument: Adaptable Program Loan (APL) Theme(s): Health/Nutrition/Population Poverty Targeted Intervention: N Program Financing Data Estimated. APL Indicative Financing Plan Implementation Period Borrower; :: .. . I<v;--- . . x$ < - (BankFY F _ _ _ _ _ _ _ _ _ IDA Others Total Commitment Closing US$ m % US$ m US$ m Date Date APL 1 22.00 3.4 632.00 654.00 07/01/2000 12/31/2003 Government of Tanzania Loan/ Credit APL 2 40.00 07/01/2003 12/31/2007 Government of Tanzania Loan/ Credit APL 3 40.00 07/01/2007 12/31/2011 Government of Tanzania Loan/ Credit APL 4 Loan/ Credit Total 102.00 632.00 654.00 Project Financing Data El Loan X Credit El Grant El Guarantee El Other (Specify) For LoansJCreditslOthers: Amount (US$m): 22.0 Proposed Terms: Standard Credit Grace period (years): 10 Years to maturity: 40 Commitment fee: 0.5% Service charge: 0.75% Piniancing Plant Sou'rceLoaTtl GOVERNMENT 350.71 18.43 369.14 IDA 8.80 13.20 22.00 DANISH INTERNATIONAL DEVELOPMENT ASSOCIATION 23.50 23.60 47.10 BRITISH DEPARTMENT FOR INTERNATIONAL 31.11 13.30 44.41 DEVELOPMENT GOVERNMENT OF IRELAND 7.00 3.00 10.00 GOVERNMENT OF THE NETHERLANDS 14.70 6.30 21.00  NORWEGIAN AGENCY FOR INTERNATIONAL 4.20 1.80 6.00 DEVELOPMENT SWISS DEVELOPMENT COOPERATION 15.75 6.75 22.50 BENEFICIARIES 17.45 0.00 17.45 BILATERAL AGENCIES (UNIDENTIFIED) 13.30 31.10 44.40 MULTILATERAL INSTITUTIONS (UNIDENTIFIED) 15.00 35.00 50.00 Total: 501.52 152.48 654.00 Borrower: UNITED REPUBLIC OF TANZANIA Responsible agency: MINISTRY OF HEALTH & MIN. OF REGIONAL ADMIN. AND LOCAL GOVT Ministry of Health Address: P.O. Box 9083, Dar es Salaam, Tanzania Contact Person: Ms. M.J. Mwaffisi, Permanent Secretary, MOH Tel: +255-51-116684 Fax: +255-51-139951 Email: Other Agency(ies): Ministry of Regional Administration and Local Government Address: P.O. Box 1923, Dodoma, Tanzania Contact Person: Ms. S. Sijaona, Permanent Secretazy, MRALG Tel: +255-61-22848 Fax: +255-61-322116 Email: Estimated disbursements (Bank FY/US$M): Annual 2.0 l 5. . . Cumulative 2.0 7.5 15.0 22.0 Project implementation period: 3 years Expected effectiveness date: 07/01/2000 Expected closing date: 12/31/2003 OS APL PAD F- R.v Mdh -2-  A. Program Purpose and Project Development Objective 1. Program purpose and program phasing: The Government of Tanzania (GOT) has embarked on health sector reform to substantially shift roles and responsibilities within the sector, change the ways the sector is managed and financed, and lead to more efficient and effective health care systems. A three-year Program of Work (POW) 1999-2002 has been developed to guide the implementation of the sector strategies, and a growing 'sector-wide approach' will help streamline implementation arrangements and coordinate inputs from development partners (donors). The three-phased Health Sector Development Program (HSDP) will support, together with other development partners, the government's health sector reform and development effort over the next 10-12 years, summarized in the government letter to the World Bank (Annex 11). The overall purpose of the Program (2000-2011) is to improve access, utilization, quality, and financing of health services through increased efficiency and effectiveness in use and allocation of resources, to maximize impacts on health outcomes, especially among the poor, women, and children. The long-term vision is that the government will develop the full capacity and reliable systems to implement a comprehensive sector program that includes resources from all sources, with full accountability and transparency. Development partners will provide financial support based on shared goals and priorities. In the short- to medium-term it is envisaged that: (i) much work is required in developing local capacity and systems over several years to attain, such goals; (ii) although a good number of donors have already shown commitment to sector financing some donors will continue project financing in the first years; and (iii) common implementation arrangements can only be found through gradual, incremental changes, to meet donor agencies' individual institutional needs. Using an Adaptable Program Loan (APL) as a lending instrument, the Bank will support this process over a period of about 10- 12 years in a phased and flexible manner in order to respond to the dynamic, evolving process of the sector reforms. Phase I of the Program or the "Project" (2000-2003) will accelerate the reforms and emphasize institutional capacity development. It will focus on: (i) strengthening human resource capacity (particularly at local levels) to manage and adapt to changing roles and responsibilities; (ii) developing and piloting systems to improve quality and delivery of services to improve health status; and (iii) improving resource mobilization and management through increased coordination and strengthening of support systems. Based on the experience and lessons learned in Phase I, Phase II (2003-2007) will expand the reforms and svstems/capacitv development for better management of resources and quality improvements, with a view to institutionalizing decentralized management of health services and shifting from the input-oriented culture towards outputloutcome-based planning and performance management. Phase m (2007-2011) will institutionalize output-based management. and institute improved systems that will ensure high quality health care to the Tanzanians and raise their health status. Depending on the lessons learned from preceding phases, the strategies, approaches and the pace of reforms and sector development in Phase II and III will be adjusted, refined and/or redesigned. 2. Project development objective: (see Annex 1) The development objective of the Project (i.e., Phase I of the Program) is to improve resource management and quality of health services through sector reforms and institutional capacity building. -3 -  3. Key performance indicators: (see Annex 1) The following end-of-Program indicators related to health outcomes (disaggregated by urban/rural and gender) will measure impact of the whole Program: * Total fertility rate reduced from 5.8 (1996) to 4.8 (2011). * Percent (%) of children under one year old receiving DPT3 increased from 71.0% (1996) to 80.0% (2011). * Contraceptive prevalence rate for modem methods increased from 16.0% (1996) to 28.0% (2011). * Percent (%) of pregnant women delivered in a health facility increased from 50.0% (1997) to 70.0% (2011). * Percent (%) of HIV seropositive pregnant women contained from 5.5-23% (1996) to 6-27% (2011). * Average out-patient attendance per capita per annum increased from 1.5-2 (1999) to 2.5 (2011). * Percent (%) of population satisfied with quality, quantity, access, affordability and availability of preventive, curative and referral health services (baseline and target figures to be established). * Percent (%) of health center/dispensary staffed by minimum number of qualified providers increased from 60% (1999 est.) to 80% (2011) (baseline to be established). * Malaria in-patient Case Fatality Rate for under-five children decreased from 12.8% (1997) to 8% (2011). * Reported number of measles cases reduced from 5,887 (1999) to 1,000 (2011). The corresponding key performance indicators for the Project (Phase I: 2000-2003) reflect improved resource management at the central and district level, and quality of care. Some of these indicators (*) are also used as performance triggers leading to APL Phase II (see Attachment to Annex 1). * A health sector program integrated in GOTs Medium-Term Expenditure Framework (MTEF), with at least 50% of donor resources for the sector reflected in the MTEF.* * Performance-based budgeting and monitoring at the central level introduced and tested. * District-based health planning and management system and its financing through block grants, that are linked to outputs/outcomes and performance, operational and tested in at least 30% of the 114 districts.* * National guidelines for an Essential Health package completed, costed, district management teams trained for its use, and quality assurance program in place.* * For HIV/AIDS, high level national bodies (NABA, NAC, NACP) to oversee the multi-sectoral response, strengthened in staff and fully functional.* * Percent (%) of children under one year old receiving DPT3 is increased from 71% (1996) to 75% (2003). * Percent (%) of population satisfied with quality, quantity, access, affordability and availability of preventive, curative, and referral health services (baseline and target figures to be established). B. Strategic Context 1. Sector-related Country Assistance Strategy (CAS) goal supported by the project: (see Annex 1) Document number: 16554-TA Date of latest CAS discussion: 06/20/97 The principal goal of the 1997 CAS was to help the Government resume the good progress made on poverty reduction in the late 1980s, with one main focus - facilitating rapid and sustained improvements in the social services - that directly pertains to the health sector. The CAS aimed at stabilizing and then reversing the downward trend in the social indicators through measures that this Project undertakes - decentralize responsibility, increase local resource mobilization and rationalize expenditures. - 4 -  Health-specific objectives addressed in the CAS, also supported by the Project, were to increase effectiveness of public sector health expenditures by shifting resources to preventive and primary care, including maternal and child health care. Furthermore, the CAS's emphasis on the government's role in leading the priority setting and coordination of donor activities is underpinned by the Program's sector-wide approach. The Project is also fully in line with the new CAS to be presented to the Board together with this Project on June 8, 2000. The new CAS focuses on growth, poverty reduction and institutional reforms to improve governance and service delivery. Like this Project, it supports the Government's increased leadership and ownership of the development agenda, as well as its desire to re-design partnership relationships for more effective and efficient use of aid resources, moving towards budget support. 2. Main sector issues and Government strategy: Backeround and Main Sector Issues With an estimated GNP per capita of about US$ 210 in 1998 (World Development Report 1999/2000, World Bank), Tanzania is one of the poorest countries in the world. It has a population of about 31 million with a high annual growth rate at 2.8 percent, and WHV prevalence levels ranging 10-14% among adults. After a severe economic downturn in the early 1980s, GDP has grown at an average of about 4 percent per annum since the mid-1980s as a series of reform measures were introduced. Despite the progress achieved since independence and the recent favorable growth experience, Tanzania's social indicators still present a dismal picture. The infant mortality rate of 86 per 1,000 live births and the child mortality rate of 144 per 1,000 live births near the average for Sub-Saharan Africa (91 and 147 respectively). Average life expectancy is estimated at 52 years and the total fertility rate is 5.8. Since independence, the government has recognized the importance of health and given it a high priority. In the 1970s and 1980s, the government adopted a Primary Health Care Approach, and expanded rapidly the number of facilities and staff under an extensive referral pyramid. Universal and free access to public health facilities had been maintained until early 1990s when financial pressures, expanded demand for services, and declining service quality forced policy change. The government has been a major provider and financier of health services, running 41% of hospitals and 73% of primary health facilities (including parastatals). Voluntary organizations or NGOs (mostly religious) have been an important partner, especially in rural areas; 19 NGO hospitals (out of 114 districts) operate as Designated District Hospitals (DDH) in the districts where there are no public hospitals. The government has for long been providing support to NGO facilities through financial and human resources, especially to the DDHs, though support to non-DDH facilities has been declining. The role of for-profit private providers is still limited, but has been growing rapidly (particularly in the urban areas) since re-legalization of private practice in 1991. At present, about 40% of health services are estimated to be provided by non-governmental providers. Issue 1: Lowering High Rates of Fertility, HIV, Malaria and Diarrhea Episodes and Perinatal/Maternal Conditions. Well over 70 percent of life years lost in Tanzania are due to ten major preventable diseases and infections (i.e., malaria, diarrhea, AIDS, and perinatal/maternal conditions), with malaria and perinatal/maternal conditions alone claiming more than 40 percent. (World Bank, Health Policy in Eastern Africa: A Structured Approach to Resource Allocation, 1995, Report No. 14040 AFR). Changes in sexual and reproductive health behavior required to lower the 5.8 fertility and 10% WHV prevalence rates have yet to occur. Concomitantly, the public and personal health interventions (including vector control, immunization, and environmental health) required to control malaria and diarrhea, and to manage perinatal/matemal conditions have yet to reach reasonable levels of effectiveness. Excellent - 5 -  national plans on what to do and existence of several successful pilots in community based peer education, condom promotion, STD care, community-based distribution of family planning services and immunization coverage suggest problems lie in the capacity to finance, manage and deliver the resources and services to the priority beneficiaries nationwide. Issue 2: Buildine Capacity to Manaze Resources. a) Limitations of the Public Sector - Although Tanzania created an extensive network of health facilities that provides 90% of the population with at least one health facility within 10 km, shortage of funds and weak management have plagued many public facilities with lack of essential drugs and supplies as well as deteriorating infrastructure. The existing network is obviously beyond the ability of the government to maintain to acceptable standards. The POW points out that the government provides only 29% of the finances required to maintain the public health facilities. Some users opt to use NGO or private facilities, when available, even at much higher costs. The government is therefore faced with a challenging question of how to define its medium-to-long-term role in health service delivery vis-a-vis the NGO/private sector. There is a need to reprioritize the use of its finite resources, and search for options such as rationalization of the public systems, and shifting its role from a direct provider to a financier, to create greater NGO/private sector participation. b) Minimal Government Investment in Preventive Services and Primary Care - While Tanzania allocates a relatively high proportion of its budget to the health sector compared to neighboring countries (12.5% of total expenditures or 1.2% of GDP in 1996/97), half of its recurrent budget is allocated to hospitals despite the government's emphasis on primary health care. Donors have mostly concentrated their resources on preventive and primary health care (over 80% allocated for preventive/primary services in 1996/97). Personnel emolument consumes most of the government resources, leaving only 30% of the recurrent budget for non-salary items. The situation is further worsened by the weak execution of the budget; in 1996/97, only 60% of MOH's non-salary recurrent budget was released as opposed to over 100% of personnel emolument. c) Fragmentation Through Multiple Projects and Lack of Integrated Planning and Evaluation - Parallel implementation arrangements (e.g., separate accounts, disbursement and reporting systems) and duplication of generic functions (e.g., logistics and drugs/supplies distribution, information systems) exist to support the separate, mostly donor-funded projects that address priority public health issues (e.g., child immunization, maternal/child health, family planning, HIV/AIDS, malaria, tuberculosis, leprosy -- (see Section D.2). Such complex arrangements have led to inefficiency, and poor coordination has resulted in fragmented planning in generic areas such as training, health education, and evaluation. Furthermore, a number of projects have opted for district-based support, which achieves integrated support but balkanizes regions. Inadequate information sharing and coordination among these different district-based initiatives have created fragmentation and inequalities. All in all, planning in the sector has been ad hoc, driven by the availability of funds for certain areas, and there exists no integrated sector planning or prioritization. d) Unclear Accountability and Inadequate Delegation of Authority - Due to the complex system of administering different levels of public health care services, the system has unclear lines of authority and accountability for outputs. Currently, regional and district hospitals are administered by the Ministry of Regional Administration and Local Government (MRALG), while each local authority (district councils, municipalities) is responsible for the running of health centers and dispensaries in its own district/municipality, using subventions from the central government (through the MRALG) and their own revenues (e.g., local taxes). The MOH is directly responsible only for the national/referral or specialized hospitals, various medical training schools, and national health programs (so-called "vertical programs"). -6 -  However, it is still the MOH that has the overall technical responsibility on health matters. The Regional/District Health Management Teams (RHMTs and DHMTs), though they are administratively under the MRALG, are "technically answerable" to the MOH, which is responsible for training, appointments, and transfers of medical officers and other specialized personnel. This system has resulted in dual responsibilities at the district-level, and thus unclear lines of authority and accountability. Moreover, the past "decentralization" efforts did not provide real decision-making authority over use and allocation of resources to the districts, which limits the districts' ability to manage their day-to-day affairs and be accountable for their outputs. Government Strate2v To tackle these high rates of preventable diseases and conditions, and to build the needed capacity to manage the required resources, the government proposed ambitious reforms in the sector to focus on implementing the essential and most cost-effective interventions (essential health package, (EHP)) and drastically transform financing, management and delivery roles by emphasizing quality, empowerment of local authorities and the beneficiary, and greater use of non-government agents. (See, The Social Sector Strategy, October 1994 and Proposals for Health Sector Reform, December 1994). The efforts required to achieve the sector vision are set out in the Program of Work (POW): July 1999-June 2002, in which the government laid out strategies to address the issues described above, i.e.,: (I) providing prioritized, accessible, quality, well-supported, cost-effective district health services in the form of essential clinical and public health packages; (2) providing back-up secondary and tertiary level referral hospital services to support primary health care; (3) redefining the role of the central Ministry of Health as a facilitator of health services, providing policy leadership and a normative and standard-setting role; (4) defining the appropriate role and mix of public and private health care services and creating an enabling environment for sound development of private health services; (5) addressing the challenges of human resource development to ensure well-trained and motivated staff, deployed at the appropriate health service level; (6) strengthening the required central support systems such as personnel, accounting and auditing drugs and supplies, medical equipment, physical infrastructure, transportation and communication; (7) developing health care financing which is sustainable, involves both public and private funds as well as donor resources, and explores a broader mix of options such as health insurance, community financing and user fees; and (8) within the sector-wide approach, restructuring the relationship between the government and donors, develop and implement common systems for planning, implementation, monitoring and evaluation, that will streamline and harmonize activities funded by the government and donors/financiers. The Plan of Action (POA) for FYI 999/2000 takes these objectives described in the POW, and provides further detail as to activities, indicators and funding levels. From FY2000/01, the GOT's annual budget will serve as an annual POA. 3. Sector issues to be addressed by the project and strategic choices: Under the broad policy framework for health sector reformn and improvement, the Project will support the government's reform and sector development program, together with other development partners. This collaboration will be guided by the POW and an annual POA or GOT's budget, to ensure coherence and consistency within the sector based on agreed objectives and priorities. The most important aim of the Project will be to lower the high rates of preventable diseases and conditions by strengthening institutional capacity and systems to provide basic, cost-effective health care services and interventions at quality standards. Interventions to rlow the spread of IV will be intensified. - 7 -  A major emphasis on promoting healthy sexual and reproductive practices and expanding the involvement of community workers will also aid in lowering high fertility. Interventions to prevent and control malaria as well as maternal and childhood illnesses will also be intensified. Investing in human resource development will be a priority. Changes in incentive mechanisms to enhance efficiency, service quality, and responsiveness to users will be explored. Since more management autonomy and decision making is to be granted to districts and facilities, with greater participation of and accountability to the community, capacity to assume these skills and responsibilities will need to be strengthened. The supply-driven, inputs-based planning and reporting system will gradually be shifted towards a results-oriented, outcome/outputs-based performance management approach. These changes are expected to create an environment where managers have more control and discretion in their day-to-day management for which they are accountable, and good performance and outcomes are rewarded. Shortcomings of the "project approach" will be addressed through gradual streamlining of implementation arrangements and the establishment of common mechanisms in a phased manner; such areas will include planning, financial management, disbursement, accounting, reporting, auditing, procurement, and monitoring and evaluation. External resources will increasingly be channeled through national systems, and be consolidated into joint accounts or finance a jointly agreed plan of action under the MTEF. The Project will help strengthen the government capacity in budgeting and expenditure tracking in the sector. Consolidation of all the resources in the sector under the MTEF will facilitate the government effort to prioritize its resource allocation according to the emphasis on cost-effective, essential health services. The Project will also assist the government in exploring options to rationalize the public health systems based on available resources and priorities. Financing reforms are intended to improve effectiveness and equity in resource allocation and distribution, as well as to introduce risk-pooling mechanisms, so as to: (i) mobilize more resources; (ii) increase cross-subsidization between the rich and the poor, and between the healthy and the sick; and (iii) move more public resources to primary health services. 4. Program description and performance triggers for subsequent loans: Phase I of the Program (July 2000- December 2003) will be a preparatory phase for a broader scale sector-wide program, in which the reform process will be accelerated and internalized nationally under the leadership of the Government. Main emphasis will be on capacity building and systems development to improve the ability of the MOH to 'steer' or direct the sector, and the regions/districts to 'row' or implement the activities. Main activities will include: strategy development; resource reallocation towards PHC and non-salary recurrent costs; partner development of programs for the prevention and control of HIV, TB, malaria, and childhood illnesses; piloting and/or phased implementation of new financing and delivery systems; and decentralization of health services. Based on the expectations that overall strategy framework of the POW 1999-2002 will remain valid during the Project period, activities will fall under four broad categories: service delivery, MOH/Central support systems, health financing and national HIV/AIDS funds, and will include the following: Service Delivery - (a) Phased decentralization of management of health services to local authorities, starting with 37 districts, including establishment of District Health Boards (DHBs), provision of block - 8 -  grants against District Health Plans, and capacity building of district management and health workers; (b) Completion of development and costing of essential clinical and public health packages, and their phased implementation and financing; (c) Initiation of reforms of the selected referral/consultant hospitals and regional hospitals to provide greater autonomy and to strengthen their managerial capacity; and (d) Integration and coordination of selected vertical programs/projects. MOH/Central Support Systems - (a) Strengthening of the planning and budgeting capacity at the central level to consolidate information of external resources, streamline the budget structure, introduce performance-based budgeting, and improve expenditure tracking; (b) Development of an appropriate legal and regulatory framework for decentralization and private practice; (c) Strategies to rationalize training institutions developed and implementation started to improve efficiency and quality of human resources for health, with appropriate skills mix; (d) Further strengthening of the capacity of pharmaceutical procurement, management and distribution; (e) Assessment of the network of health facilities and development of a realistic, and affordable infrastructure development, rationalization and maintenance strategy/plans; and (f) Development and piloting of common implementation systems, including the establishment of a joint account, disbursement/reporting mechanisms, and joint monitoring and evaluation systems. Health Financing - (a) Alternative health financing schemes introduced (e.g., a national health insurance), tested (e.g., Community Health Fund), or refined and expanded (e.g., Cost Sharing Program); and (b) Strengthening of the financing and management of pharmaceuticals and medical supplies at the facility level through piloting of drug revolving funds at hospitals and an indent system at primary health facilities. National HIV/AIlDS Fund - Establishment of a multi-sectoral, national H1V/AIDS fund to finance high impact activities to mitigate the impact of HIV/AIDS to be implemented by government and non-governmental entities. Phase II (tentatively July 2003- December 2007) will be the stage where the reforms will be expanded based on the experience and lessons learned in Phase I, and development of systems/capacity will be advanced to the next stage and strengthened. By the end of Phase II, it is envisaged that all districts will have been given full decision-making authority with hire-and-fire authority (with DHBs established and operational if so decided by district councils), receiving central government subsidies in the form of block grants. Resource generation capacity at the local level will have increased to make a higher contribution to the financing of district health services. Performance of the districts will be being monitored based on their achievements against district health plans and health outcomes. Management capacity at the facility level will have been significantly strengthened with greater involvement of the local community in the day-to-day management. Management capacity at the reformed referral/consultant and regional hospitals will have been strengthened in some areas, and some improvements will have started showing in quality of their services. Their self-generated incomes will have proportionally increased, while the government subsidies will be being reduced on a sliding scale. Responsibilities to identify and finance training of health personnel in the districts will have been gradually shifted to the district management. Management of pharmaceuticals and supplies at facilities will have been improved with drug revolving funds established in all hospitals and the indent system introduced in all primary care facilities. More funds will be channeled through joint accounts to finance the health sector program. Implementation arrangements will have been further streamlined and standardized. Phase III (tentatively July 2007-December 2011) will consolidate the reform results and institutionalize performance-based systems and culture that measure achievements against agreed outputs and impact on -9-  health outcomes. During this phase, improved capacity and systems will have resulted in improved health status. The Ministry of Health will act as a policy maker, regulator, and facilitator that will allocate resources based on performance and outcomes. Districts and facilities will have full management responsibility, and have fully accountable and transparent systems that are responsive to users. National capacity and systems will have been well developed, and the health sector program will be elaborated within the MTEF, through which most of the funds to the sector will be channeled. Subsequent credits - APL II and APL III for the subsequent phases II and III - will be approved based on the assessment of achievements in each preceding phase. See Attachment to Annex 1 for suggested triggers for subsequent phases. C. Program and Project Description Summary 1. Project components (see Annex 2 for a detailed description and Annex 3 for a detailed cost breakdown): 1. Strengthening Service Delivery Health 520.00 79.5 12.90 58.6 (a) District Health Services (b) Level 2 and 3 Hospitals (c) Public/Private Mix 2. Strengthening the MOH & Central Other Population, 100.17 15.3 4.70 21.4 Support Systems Health & (a) Role of Central MOH & Nutrition Sector-wide Management (b) Central Support Systems (c) Human Resource Development & Management 3. Health Financing Other Population, 27.18 4.2 2.40 10.9 Health & Nutrition 4. National HIV/AIDS Fund AIDS, STDs 6.65 1.0 2.00 9.1 Total Project Costs 654.00 100.0 22.00 100.0 Total Financing Required 654.00 100.0 22.00 100.0 Note: The above figures are only indicative and the actual allocation will be agreed annually based on the annual plan. -1 0 -  2. Key policy and institutional reforms supported by the project: (a) Essential health services: The Project will support GOT efforts to focus public financing on cost-effective PHC interventions that address diseases posing the greatest burden; (b) Decentralization: The Project will support GOT policy to devolve health services to local authorities. Both Local Government Reform and Health Sector Reform aim at increased management authority, decision-making power, and accountability of the districts and facilities so that the decisions are made according to local needs; (c) Budgetary reform: The Project will support GOTs intention to achieve more rational budgetary allocation (curative vs. preventive care; salary vs. non-salary expenditures; central vs. peripheral units) following the MTEF. It will also strengthen budget execution and monitoring especially at the district level. Orientation towards an output-based public expenditure system will be initiated through annual reviews of performance; (d) Diversified financing of health services: The Project will strengthen proven health financing modalities (e.g., user fees, community health funds, drug revolving funds, and national health insurance) in order to generate more resources in the health sector and to improve efficiency; (e) Hospital reforms: The Project will assist the GOT to implement mechanisms for making higher-level facilities achieve greater autonomy, obtain more sustainable revenues, and have better management and accountability; and (f) Public/private mix: The project will support GOT to promote synergy between public and private providers and financiers of care. Attention will be focused on identifying and implementing innovative mechanisms, such as contracting, performance-based grants to NGOs, and enhanced regulation of private providers. 3. Benefits and target population: By improving the health status of the population, the program will assist in alleviating poverty, particularly that of women, children, and other vulnerable groups (persons affected by AIDS), and will contribute to higher productivity and economic growth. It is aimed to maximize the impact of each dollar spent on health, and result in improvement of life expectancy and gains in individual health status for all age groups. Underlying the objectives of the program is the recognition that investments must support decentralized management and decision-making processes, harness the participation and involvement of the community in meeting their own needs, and improve quality of care delivered to beneficiaries. 4. Institutional and implementation arrangements: Implementation will emphasize the development of national systems and capacity through a sector-wide approach. Common procedures and implementation mechanisms will progressively be established and adopted moving toward program support, whereby extemal funds will be channeled, to the extent possible, through the existing but enhanced GOT mechanism to support the Government's sector program mainly as budgetary support. The MOH and MRALG will coordinate sector-wide planning and performance evaluation. Service delivery and implementation at district levels are the responsibility of the district management and facility managers, who are accountable to Local Authorities (and administratively under MRALG). Each district will develop a District Health Plan based on local needs and priorities. To that end, pooled financing (or "basket financing") mechanisms will be used at both the central and district levels. Partners (donors) will provide funds through a joint account) and finance a percentage of the total expenditures for common programs. The Project (APL Phase I) will establish and refine joint disbursement, financial management, reporting, auditing, and procurement systems at a pace and scale that are feasible. Several donors will participate in joint financing (Danida, DFID, GTZ, Ireland Aid, Netherlands, NORAD, SDC and IDA). - 11 -  While the operation of the pooled funds is refined and will grow in size over time, IDA will also finance some of the activities in the POA outside the pooled funds (e.g., large procurement not financed by the pool, the activities not yet incorporated into the pooled funds such as the National Health Insurance and the Community Health Fund). The management of the IDA funds outside the pool will follow the conventional method through a Special Account. A local currency account will be opened for the government's counterpart funds. Project Oversigvht and Coordination To facilitate sustainable institutional development, there will not be a project unit. Instead, existing structures will be developed and strengthened. Responsibility for oversight and coordination of program implementation rests with the Permanent Secretary of the MOH (PS/MOH), in close collaboration with the Permanent Secretary, Ministry of Regional Administration and Local Government (PS/MRALG). The Director of Health Policy and Planning (DHHP) of the MOH will be responsible for day-to-day coordination and monitoring of the Project, closely cooperating with the MOWs Chief Medical Officer (CMO) and MRALG's Director of Local Government. For quality assurance, the CMO will take responsibility for quantity and quality of the outputs. The reinforced Primary Health Care (PHC) Secretariat will play the role of a secretariat. The Chief Accountant of the MOH will be in charge of overseeing all accounting and financial management under the program, and the Director for Administration and Personnel for reviewing the procurement of goods, works, and services. The DHPP will also oversee the management of IDA funds outside the pooled funds, for which the PHC Secretariat will coordinate the day-to-day operation. The MOH will appoint a contact person within the Secretariat for the implementation for IDA-funded activities, and assign one accountant to handle the financial operations and reporting of the Special Account. A Sector-Wide Approach Committee, chaired by the PS/MOH, will provide a forum for coordination of all the donor-assisted activities/programs (both joint and parallel financing) in the health sector. A Basket Financing Committee (BFC) has been established, and will meet quarterly to review the implementation progress and expenditures, monitor achievements against performance indicators, review and approve workplans and budget, and approve release of funds for the next quarter. The committee, co-chaired by the PS/MOH and the PS/MRALG, consists of senior officials from MOF, MOH, and MRALG, as well as one representative from each donor contributing to the pool of funds. A joint annual review in March, preceded by a technical review, will assess actual expenditures and achievements over the year against the plans, and review and agree on the POA for the coming fiscal year, including a procurement plan and a financing plan. The timing of the annual review will allow the review team to take into account indicative GOT allocation to the sector for the next three years under the MTEF, and enable the GOT to program confirmed donor support in the GOT's budget cycle. Financial Manaeement and Procurement: (see also Section E 4.3 & 4.4, Annex 5 Section C, and Annex 6): At the central level and the district sub-treasury level, the Integrated Financial Management and Accounting System (IFMAS) developed on 'Platinum' software can technically accommodate the needs of the proposed joint disbursement system. On the basis of the POA, partners would annually declare their agreed level of funding to the Government's consolidated fund through the Treasury. So far, a financing system for the pooled funds for the central level has been developed and some bilateral donors already released funds to a joint account (a "US Dollar Holding Account") to finance activities in FY99/00. In the case of IDA, this would occur by advancing funds from a Special Account to the US Dollar Holding Account, triggered by agreement of the BFC. Subsequent disbursement will be made against quarterly reports for the total expenditures, of which IDA will disburse a portion at a pre-determined percentage (to be set annually based on each donor's commitment). The details of the operation of the joint disbursement - 12 -  system and the financial management arrangements at the central level are set out in an accounting manual, reviewed during the appraisal. This manual has been adopted, by all parties concemed, at the first BFC meeting in October 1999. To move the process to PMR-based disbursements by December 31, 2001, an action plan has been developed and was agreed upon during negotiations. It is expected that, until a joint procurement mechanism is established and agreed upon by all parties concerned, this central pool will cover only items that are under the prior review thresholds, and procurement above thresholds will be earmarked and the existing procurement arrangements will be used. This will be revised as agreements are reached between the govemment, IDA, and other financing partners on the procurement management arrangements and procedures (including thresholds for procurement methods and prior review requirements) to carry out procurement of larger values. A short-term consultant is currently assisting the govemment in developing a joint procurement manual, a draft of which is expected by May 30, 2000. The target date to reach agreements on the manual is June 30, 2000. Work to operationalize the joint financing system for districts has recently been completed, and a procedural manual has been developed. Implementation is expected to commence from FYOO/0 1. The manual provides an acceptable basis for moving ahead, but the success will depend on how the implementation and capacity issues will be addressed through a concrete action plan to resolve the issues and strengthen the process. Further work is ongoing and will be assessed by the Country Office during project implementation. Participation by IDA in the district pool will be subject to satisfactory capacity assessments on financial management and procurement at the district level, which was agreed at negotiations as a condition for disbursement. External audit arrangements will be made for a joint financial audit mechanism of the Office of the Auditor General and a private firm. The Auditor General would be the signatory to the report. As part of the contract, the private firm would be required to provide on-the-job training, especially in the audit of computerized accounting. The modus operandi for the joint audit have to be established and cleared with the Auditor General. Monitoring and Evaluation: A set of performance indicators have been developed for strategies, activities, and outputs for medium-term objectives, and impact/outcomes for the long term. While performance will be monitored at all levels, the initial period will emphasize input and process indicators. (See Annex I for key performance indicators). The Bank will carry out formal supervision twice a year, in line with the joint review cycle (at the time of the joint annual review in March and a smaller scale review around September, coinciding with a quarterly BFC meeting). A mid-term review will be carried out in March 2002 in conjunction with the joint annual review. A performance review for Phase I against triggers for Phase II is tentatively scheduled for March 2003. D. Project Rationale 1. Project alternatives considered and reasons for rejection: Traditional Focused Investment Project: Such a project focusing on a single or group of disease interventions is deemed to intensify the fragmentation in Tanzania's health sector. Moreover, this type of project tends to be supply-driven (commodities procured, infrastructure constructed) and leaves little innovation on the demand side of the health care market. An investment project focusing on health care financing including fiscal decentralization held promise, but was rejected. Such a focus often evolves into a research and development endeavor, producing many studies but unlikely to influence policy decisions. - 13 -  Moreover, the high HIV and fertility rates in the country require a strong technical focus. Learning and Innovation Loan (LIL): A LIL was deemed inappropriate because much had been learned and initiated under the H&N Project and other donor-supported projects. What needs to be done to change systems for higher impact on health is to accelerate the reforms and to bring the successful pilots to scale, requiring a larger magnitude of resources than those available in a LIL. Adaptable Program Lending: The HSR strategy envisions substantial changes in the ways health services are managed and financed, and requires a long-term commitment to achieve its goals. Moreover, while the sector goals and end-product are clearly defined under the HSR strategy, uncertainty in the impact and practical implications of various reform measures entail constant reviews and adjustments of strategies against the intended goals and benefits. An APL provides the needed flexibility to manage the disparate activities in the reforn program, and to allow necessary policy, technical, administrative, or financial adjustments without losing sight of the end-goal. In addition to a shared vision and strategy for the sector, there is an increasing acceptance of output orientation as a standard for measuring progress (in lieu of the traditional input accounting approach). An APL is suitable for the expected mode of operation that aims at providing financial support contingent upon an annual review of sector performance. - 14 -  2. Major related projects financed by the Bank and/or other development agencies (completed, ongoing and planned). Latest Supervision, Sectr Issue Project - (PSR) Ratings .______________________________I . (Bank-financed projects only) Implementation Development Bank-financed Progress (IP) Objective (DO) Health, Nutrition & Population Health & Nutrition Project S S Cr. 2098-TA (closed 06/30/99) Public Service Reform Public Service Reform Project S S (Approved in 12/99) Social Fund Tanzania Social Action Fund Project (Appraisal in 04/00) Water and Sanitation Rural Water Supply & Sanitation Project (Appraisal in FY01 2Q) Dar es Salaam Water Supply & Sanitation Project (Appraisal in FY01 3Q) Other development agencies Danida, DFID, GTZ, Ireland Aid, Health sector program support Netherlands, NORAD, SDC African Development Bank Health Rehabilitation Project European Union STD Control Project Netherlands, NORAD, USAID, WHO, National AIDS Control USAID Program/Support to NGOs GRA, GTZ, Ireland Aid, Netherlands, TB/Leprosy Control Program SDC, WHO Africare, GDS, GTZ, TEHIP, Integrated Management of UNICEF, WHO Childhood Illness DFID, UNICEF, WHO National Malaria Control Danida, JICA, UNICEF, USAID Enhanced Program for Immunizations DFID, GTZ, NORAD, UNFPA, Reproductive health, maternal UNICEF, USAID, WHO & child health, family planning CIDA/TEHIP, DFID, GTZ, Ireland District-level support projects Aid, Netherlands, SDC IP/DO Ratings: HS (Highly Satisfactory), S (Satisfactory), U (Unsatisfactory), HU (Highly Unsatisfactory) - 15 -  3. Lessons learned and reflected in the project design: Need for a comprehensive approach - Governments and donors have recognized the limitations of conventional projects to make a sustainable impact. Discrete projects exist in isolation, often lack government ownership, and impose an undue management burden on the government because of their multiplicity. Fungibility of resources also implies that because donors usually focus on primary care, government resources are then redirected to less cost-effective interventions. In lieu of piecemeal projects, a more comprehensive approach is called for, relying on a sector strategy and program, and an agreed upon financing framework. Findings on ways to streamline donor procedural and administrative arrangements emanating from the Special Program for Africa (SPA) donor group's review of sectoral programs are incorporated into this project design. Importance of demand - Tanzania learned quite painfully that top-down provision of health supplies and inputs does not, in and of itself, ensure improved access to care, that the budgetary resources are not sufficient to fund health services, and that households and communities do have an important role to play in funding services, signaling their preferences, and thereby improving access and quality of care. The project's design has taken account of these lessons learned from successful H&NP-supported health financing initiatives of a cost sharing program and community health funds. These interventions will be further replicated or strengthened under the HSDP. Focusing on the core functions of government - Worldwide experience has shown that no country can commit to providing universal access to all health services to its people. Attempting to do so results in too few resources too thinly scattered nationwide with poor quality and sustainability of services. World Development Report 1993 introduced cost-effectiveness and burden of disease analyses as tools to reconfigure the financing and delivery of health services, especially in countries with limited resources. This project will support the investment in those health interventions that are demonstrably cost-effective and address the highest disease burden. 4. Indications of borrower commitment and ownership: The Program is supporting GOT's sector strategy and reforn initiatives already approved by the Cabinet. MOH has taken the lead in program development and implementation and has developed the 3 year Health Sector Reform POW and a I -year POA. MOH has taken a progressively active role in coordinating donor activities; organizing a series of joint missions to review GOT's reform strategies and work programs; and holding quarterly meetings to brief donors on the progress of HSR implementation. Decentralization, one of the core thrusts of HSR, is also a major agenda under the Local Govemment Reform which is led by the MRALG. 5. Value added of Bank support in this project: The Bank's sector-wide orientation, focusing on policy reform, provides synergy with the activities of bilateral donors who have traditionally focused on service delivery. Being a multilateral organization, the Bank has a comparative advantage in facilitating the process of sector programs and systems development, and also can act as a financier of last resort to fill any financing gap. The Bank has built experience in sector programs in other countries and will bring lessons learned and technical support in carrying out policy dialogue and operationalization of the sector program. -16-  E. Summary Project Analysis (Detailed assessments are in the project file, see Annex 8) 1. Economic (see Annex 4): O Cost benefit NPV=US$ million; ERR= % (see Annex 4) O Cost effectiveness * Other (sp&ify) The Project's economic soundness was analyzed in terms of the following. (a) Cost-effectiveness of health interventions: GOT has adopted the policy of financing and providing an essential package of health services. The MOH is refining the package of essential health services and updating the cost estimates. The criteria for inclusion into the package are demonstrated cost-effectiveness, affordability, and public-goods character; (b) Affordability of project health interventions: Although the country falls short of the requirement of US$12 per capita (WDR 1993), it could potentially use its available resources of US$7.34 to purchase all of the estimated US$4.42 requirement for public health if it reallocated its available resources towards more cost-effective health interventions. The combined government and donor spending of US$4.45, more than covers the funding requirements for public health; (c) Public sector involvement: The rationale for GOT involvement in Tanzania's health sector continues to be strong owing to the magnitude and pattern of its disease burden, continuing poverty, inequity of access to health services, and the need to correct sector distortions through better policy making and; (d) Cost-effectiveness of the project approach: Support to a sector-wide approach over 10-12 years using an APL was assessed to be more cost-effective than other project design options, such as a vertical project (see Section D. 1). 2. Financial (see Annex 5): NPV=US$ million; FRR = % (see Annex 4) The financial soundness of the Project will be enhanced through: adherence to the budget ceilings and ratios under the MTEF; support to the implementation of a consolidated budget under a sector-wide approach involving both government and donors; continuous strengthening of GOT's Platinum system to accommodate the needs of pooled and jointly disbursed funds; and non-expansion of the existing infrastructure network in order not to worsen the recurrent cost problem. Fiscal sustainability will be enhanced through efforts to increase fiscal prudence through: (i) budgetary ceilings and ratios under the MTEF; (ii) a stated priority of balancing the distribution of budget resources between central HQ and regions/districts and between salary and non-salary recurrent costs; (iii) refocusing the budget towards primary care; (iv) increasing the pluralism in the financing of health services through user fees, community prepayment schemes; and (v) a donor-endorsed moratorium on expansion of infrastructure pending the completion of a proposed inventory and mapping of health facilities, services and functions, and a plan for restructuring the health system, especially of hospital services. Fiscal Impact: The Project supports wide-ranging resource-mobilizing programs such as user fees, prepayments and fees from the community health funds (CHF), drug revolving funds, and National Health Insurance Fund (NHIF) for civil servants. However, two of these initiatives entail incremental subsidies: the matching grant component of the CHF and government contribution to the NHIF. The GOT is preparing a bill to establish a CHF Act, which will enable the GOT to start financing the matching grant. For affordability and sustainability, GOT is considering to devise a mechanism to phase out the matching grant as a CIF in each district becomes self-sustaining. The current estimate for GOT contributions to the NHIF is Tshs. 1.4 billion, which will be included in FYOO/OI budget under MOF. Thus it is not included in the MTEF for the health sector that estimates the increase of about Tshs. 10 billion for recurrent health expenditures in the next FY. Prospects for increasing the financing of recurrent costs will be improved under the project. The first phase of the APL is not envisioned to finance health infrastructure expansion; thus, recurrent - 17 -  expenditures are not expected to rise significantly from their current levels. The full-scale adoption of revenue generating mechanisms is expected to improve the flow of resources for recurrent expenditures including those from user fees, community health funds, revenues from drug revolving funds, and hospital reimbursements from the planned NHI for civil servants. The Project will also assist the government to prioritize its resource use and rationalize the current public health network. Prioritization will help reallocate funds within the sector in favor of high priority areas, e.g., the essential health package. 3. Technical: The HSDP seeks to address major public health issues and equity concerns in Tanzania. It will support the whole health sector with priority being given to the implementation of an Essential Health Package (EHP) of cost effective interventions. The EHP is being costed and prioritized, based on the burden of disease. The GOT is giving priority to Immunization, Malaria control, HIV/AIDS, TB, Integrated Management of Child Care (IMCI) and Reproductive Health. The project will rely on widely known, available, and cost-effective techniques (DOTS for TB, IMCI for child care, new drug policy and use of insecticide treated materials for malaria etc.), with consensus among stakeholders regarding implementation mechanisms. The design takes into account lessons learned from other health projects in Tanzania. Over the life of the project the integration of the "vertical" programs into the decentralized services will be an important issue. Reforms are designed to improve the quality and accessibility of health services through decentralization, to be implemented in a phased manner. District Health Boards are being established to involve the community leaders in health management and an assessment of community initiatives has been undertaken with UNICEF assistance. Based on this, guidelines for the District Health Management Teams on involving communities in their health care are being developed. The GOT is aware of the importance of addressing the HIV/AIDS epidemic as a national crisis and is establishing mechanisms to implement its well prepared three year plan across all sectors. An AIDS advisory Board and National AIDS Council have been established and sector ministries have prepared separate plans to counter the epidemic. Management and funding mechanisms have yet to be finalized. Hospital care has not been neglected and TA is being used to design hospital reforms, with a regional hospital having been identified to pilot autonomous management arrangements. Finally, the GOT has established and agreed on useful indicators for monitoring the overall program. 4. Institutional: 4.1 Executing agencies: Ministry of Health - Under the ongoing Civil Service Reform, a thorough Organization and Management Review has been carried out, culminating with the restructuring of the MOH. The size of the MOH has been slightly reduced and functions streamlined. The recent capacity building effort, increased the number of staff trained in specialized areas (e.g., policy development, human resource development, pharmaceutical management) and strengthened the capacity of some sections of the MOH. Overall, however, the MOH's capacity is limited and over-stretched, due to the shortage of staff with relevant skills and experience as well as the workloads from fragmented tasks. Some staff (e.g., accountants, economists) belong to a group of special job categories, and decisions on transfers or promotion of such staff are determined within their respective group, thus undermining the Ministry's effort for capacity building and resulted in unclear accountability of these staff. Management of a sector program will entail new skills and mode of operation. The Project (or Phase I) recognizes such changes will require gradual changes and continuous capacity building effort, which are built in the project design. Various training, consultancy, and technical - 18 -  assistance will be provided under the Project. Districts - Districts are expected to implement critical activities financed by the Project, in particular under the District Health Services sub-component. While intensive capacity building and supervision/monitoring are ongoing or planned under both LGR and HSR, the present staffing level and their capacity are severely limited. Guidelines for district health planning should clearly indicate what is expected and required for a satisfactory District Health Plan, including how progress and achievements will be monitored. There is also a need to gradually introduce new tasks and responsibilities as districts develop capacity and gain experience, by ensuring basic financial management systems in place, defining simple accounting procedures and reporting requirements, and limiting the value, types and methods of procurement allowed at the district level. As part of the effort under the Local Government Reform to define new working modalities and procedures, the MRALG has prepared (i) financial regulations for local councils and; (ii) management of staff under decentralization, and is working on; (iii) code of conduct for council staff; (iv) code of conduct for councilors; and (v) model standing orders for running council affairs. These documents are expected to be approved by the Ministry once all of them are completed (expected by end June, 2000). 4.2 Project management: In order to avoid parallel systems and foster national capacity and systems, the Project will not establish a special Project Implementation Unit and existing structures and staff will be utilized to the extent possible. However, the current capacity is limited at all levels. Training and technical assistance, including consultants/advisers as needed, will be provided to reinforce the existing capacity that is currently inadequate to carry out expected functions. Several fora will be used to oversee and manage and monitor Project implementation, e.g.: monthly management meetings at MOH; a Basket Financing Committee that will involve senior management from MOH and MRALG, as well as donor representatives channeling funds through joint accounts; and a Sector-Wide Approach committee (see Section C.4). The DHPP will be in charge of overall coordination and planning, while the CMO will take responsibility for quantity and quality of outputs. The PHC Secretariat will day-to-day provide logistics support ordination, and the MOH will appoint a contact person for the HSDP. It is expected that implementation of a sector program will not only increase the volume and scale of tasks that have been handled by the accounts and procurement staff of the MOH, but also require novel ways to manage, monitor, and report their daily activities. In order to manage a multi-faceted sector program, involving a number of implementing units and financiers, the PHC Secretariat will be reinforced. Moreover, the MOH's capacity in disbursement, accounting, financial management, and procurement will be strengthened. Through the implementation of the H&N Project, MOH has gained experience in project implementation, including accounting, disbursement and procurement. The MOH is considering utilizing such skills and experience obtained by engaging some of the former PIU staff in implementation of this Project. (See also 4.3 and 4.4 below.) 4.3 Procurement issues: A procurement capacity assessment indicates relatively high risks at the central MOH. While the MOH has built up a limited capacity and experience in procurement through the implementation of the previous IDA project, the capacity concentrated in the Project Implementation Unit (PIU). Under this credit, all the procurement will be handled by the MOH and the MRALG, using the existing structure and systems. The MOH did not endorse a recommendation to appoint a procurement agent, but instead, agreed to assess the procurement system and capacity, and address any weaknesses and long-term needs in procurement management. The assessment and the resultant recommendations are expected to be completed by June 2000. As part of the effort to strengthen procurement capacity, the MOH appointed a three-person team to coordinate procurement. One of the procurement team members was previously part of the just closed Health and Nutrition Project (H&NP), and is well versed in the Bank procurement procedures. - 19 -  Risks for the procurement at the district level are also considered to be high. The existing regulations for procurement require cumbersome procedures and involve many layers of people who are not conversant in procurement tasks. Capacity in the procurement at the district level is generally weak. However, the volume of procurement that districts are expected to handle under the Project is relatively small, and its types of goods and services will be very limited. Under the proposed credit, a cumulative threshold per quarter per district will be stated. Procurement risks of pharmaceuticals and medical supplies, handled by the Medical Tender Board (MTB) and the semi-autonomous Medical Stores Department (MSD), is considered to be average. Over the past 5-6 years, the MSD has strengthened its procurement capacity, and gained experience including several ICB tenders under the previous IDA credit. (Refer to Annex 6 for further details.) 4.4 Financial management issues: The joint disbursement system for donors to channel their funds at the central level has been developed and is closely integrated with the GOT's integrated financial management and accounting system (IFMAS). The US Dollar Holding Account has been opened and some bilateral donors have deposited funds. The first release of funds to the Treasury's account was made in early 2000. Training of the MOH staff in the new system is ongoing. A memorandum of understanding between the parties was agreed upon for FYOO/0 1. To reflect new contributions and other changes agreed upon as a result of experience from early operations, appropriate revisions will be made to the manual as required. Work on the procedures manual to establish a joint disbursement system for the district level has recently been completed. The manual provides an acceptable basis for moving ahead, but the success will depend on how the implementation and capacity issues will be addressed through a concrete action plan to resolve these issues and strengthen the process. All donors have acknowledged the need for a risk management approach in view of the newness of this joint mechanism. While the operation of the pooled funds is refined and will grow in size over time, IDA will also finance some of the activities in the POA outside the pooled funds. The management of the IDA funds outside the pool will follow the conventional method through a Special Account. In addition, an assessment of the MOH Accounts Department's capacity to manage the system has been carried out. The assessment identifies weaknesses in staffing and the need to have in place qualified and experienced accounting staff with higher accounting qualifications, preferably CPA, and with computer skills. Staff training programs on computer operations and procedures related to the utilization and reporting of the program funds are being formalized. Job descriptions for the key positions in the accounting unit do not as yet indicate required duties and responsibilities, skills and qualifications. The Office of the Accountant General has agreed to update the job description of the accounting staff at the MOH and provide the names and qualifications of the holders of the posts. While the current arrangements meet the Bank's minimum financial management requirements, further time is needed to assess the operations of the basket and enhancing the MOH accounting staff capacity. A satisfactory accounting and financial management is a condition for effectiveness. This will be verified by the Country Office Financial Management Specialist. (Refer to Annex 5, Section C for further details.) 5. Environmental: Environmental Category: C (Not Required) 5.1 Summarize the steps undertaken for environmental assessment and EMP preparation (including consultation and disclosure) and the significant issues and their treatment emerging from this analysis. The program will mostly involve activities such as: policy and institutional reforms; financing reforms; strengthening human and institutional capacity; support to priority health programs to control major diseases or to address health issues; and community involvement in local health service management and - 20 -  support to community-based health activities. Civil works involved will be mostly rehabilitation of existing health facilities. No negative environmental impact is envisaged in the proposed program. A family planning component is expected to contribute to the reduction of the population growth rate (currently 2.8%), which will in turn mitigate pressures on environment. Present practices in medical waste management will be assessed. 5.2 What are the main features of the EMP and are they adequate? N/A 5.3 For Category A and B projects, timeline and status of EA: Date of receipt of final draft: N/A 5.4 How have stakeholders been consulted at the stage of (a) environmental screening and (b) draft EA report on the environmental impacts and proposed environment management plan? Describe mechanisms of consultation that were used and which groups were consulted? N/A 5.5 What mechanisms have been established to monitor and evaluate the impact of the project on the environment? Do the indicators reflect the objectives and results of the EMP? N/A 6. Social: 6.1 Summarize key social issues relevant to the project objectives, and specify the project's social development outcomes. The positive social impact of the project is enhanced by: its focus on women, children, and other vulnerable groups who are the intended beneficiaries of health services to be supported; its orientation towards the financing and strengthening of district and other peripheral health services; its framework of periodic stakeholder consultations, to be realized in the proposed annual review of sector performance. As cost sharing and contributions of the community increase, the need to protect the vulnerable group would become critical so that they will not be denied from health services. Exemption mechanisms and means testing under the Cost Sharing Program and the Community Health Funds need to be strengthened, including the process of community-based identification of the poor. Social costs of HIV/AIDS such as AIDS orphans will need special attention, which the National HEV/AIDS Fund will support mitigation effort including that by NGOs or community organizations. 6.2 Participatory Approach: How are key stakeholders participating in the project? Program design was developed intensively with representatives of the Government, NGOs, and other donors in order to be sure that the program is adapted to, and consistent with, the needs of those who will be responsible for implementing it, especially the MOH line directors and MRALG. To better understand the status of the primary beneficiaries i.e., Tanzania households, especially women, children and other vulnerable persons, a large-scale household survey was conducted in the mid- l990s under the Tanzania Social Sector Review which informed the formulation of Tanzania's Social Sector Strategy. In addition, several intervention-specific household evaluation and rapid rural appraisals were undertaken over the past two years to generate beneficiary preferences on health service delivery and financing to be supported by this Project. These include: (a) an evaluation of the Cost Sharing Program based on a survey of households and facility managers on how to strengthen the fee program, including tightening the waiver and exemption policy in order to protect the most vulnerable households; (b) two rapid rural appraisals and one quantitative assessment for the CHF, which analyzed its impact and problems, and provided recommendations on how to improve CHF management; and (c) a series of consultations and sensitization - 21 -  in 1997-99 by the Health Insurance Implementation Team with representatives of employees, employers, trade unions, and providers on their willingness to participate and other specific design elements of the proposed NHIF. 6.3 How does the project involve consultations or collaboration with NGOs or other civil society organizations? In addition to the involvement of the local NGOs/religious groups in the development of the reform strategies and a sector program, the Project has collaborated with the World Faith Development Dialogue (WFDD), an initiative to enhance the partnership between the faith groups, the Bank and the government in the delivery of social services. The Tanzania Inter-Faith Forum (TIFF) has been established, and dialogue between the government and the TIFF is ongoing to identify specific areas for further collaboration. One area initially proposed is to the updating of the inventory of health network for both public and private sector in order to formulate a sound strategy and development plan for health infrastructure. 6.4 What institutional arrangements have been provided to ensure the project achieves its social development outcomes? N/A 6.5 How will the project monitor performnance in terms of social development outcomes? N/A 7. Safeguard Policies 7.1 Do any of the following safeguard policies apply to the project? :3~~~~~~~~~~~~~~~~~~~~~~~~~~0 Li Environmental Assessment (OP 4.01. BP 4.01 GP 4.01) El Yes 1 No lO Natural habitats (OP 4.04, BP 4.04, GP 4.04) El Yes IZ No lE Forestry (OP 4.36, GP 4.36) El Yes No | Pest Management (OP 4.09) _] Yes Z No Li Cultural Property -OPN 1o103 Yes 1 No O Indigenous Peoples (OD 4.20) El Yes E No O Involuntary Resettlement (ODQp 4.30 l Yes IZ No l Safety of Dams (OP 4.37, P 4.37) i Yes 0 No O Projects in International Waters (OP 7.50, BP 7.50, GP 7.50) L Yes Z No El Projects in Disputed Areas (OP 7.60. BP 7.60, GP 7.60) El Yes Z No 7.2 Describe provisions made by the project to ensure compliance with applicable safeguard policies. N/A F. Sustainability and Risks 1. Sustainability: There are three critical areas that will affect the sustainability of the Project: Project approach to a sector-wide approach - By promoting a sector-wide approach in the planning and financing of the sector, the HSDP signals both the government and donors to do away with the fragmented approach prevalent under the traditional verticalized or balkanized projects, which has been shown to be unsustainable in the long run and to distort sector allocation priorities. As more donors contribute to the pooled funding or at least participate in sector-wide planning, the distortionery effects of the past - 22 -  fragmented approach are expected to be reduced and sustainability enhanced. However, such effort might face resistance by those who prefer the old arrangements or by the existence of institutional rules and regulations that are not easily compatible with the new approach. Or some may fear such shift would reduce effectiveness and impact of health interventions. Measures to aid the process towards a sector-wide response include: (i) emphasizing capacity building and systems development, and pursuing gradual and incremental changes as capacity builds up among each implementor/manager to take new and/or greater responsibilities; (ii) making service delivery and quality of care as an important performance criteria for monitoring and evaluation; and (iii) taking a pragmatic approach in addressing institutional constraints of each donor agency (e.g., use of both pooled and parallel financing -- rather than insisting on entirely replacing "projects" with "pooled funds" or budgetary support -- as long as activities fall under the overall sector goals and strategies). Budgetary reform, prioritization and rationalization - The HSDP will also support the budgetary reform initiatives under the Medium-Term Expenditure Framework (MTEF) and will use the allocation ceilings and ratios under the MTEF as performance benchmarks that will be reviewed annually with the government and with other donors. External resources for the health sector, most of which are currently extra-budgetary, will gradually be incorporated in the MTEF; this will help clarify the real resource envelope for the sector. Such budgetary reform and technical/analytical work to be supported by the HSDP will facilitate the planning and prioritization process, including the rationalization of the public health systems that are in its present form deemed unaffordable. These reform initiatives (see Annex S for further discussion) are oriented at enhancing fiscal predictability and sustainability as well as allocation efficiency in the health sector. Performance based management - The HSDP intends to contribute to changing the current input-based planning and monitoring into an output-based performance management system. This coincides with the introduction of performance-based budgeting led by MOF (in which MOH is one of the pilot ministries from FYOO/01), as well as the shift towards the performance-based management envisaged under the Civil Service Reform. However, this would entail not only the change in the entire incentive and reward systems, but also the culture of the institution and civil servants including work ethics. Such changes will require time and continuous effort, which will be dealt with throughout the three phases of the Program. - 23 -  2. Critical Risks (reflecting assumptions in the fourth column of Annex 1): RRisk Rs :Rati - = RiskMinimization Masure From Outputs to Objective The Local Government Reform not S Close collaboration with the MRALG; Intensify implemented as planned, and/or capacity training programs for districts; Revise project building of districts (e.g. in planning, pace to match slower reform pace. procurement, and financial management) not carried out or not sufficient to build needed capacity. Hospital reforms would not lead to M Close monitoring of resource allocation; financial viability in the reformed Continuous dialogue with the government. hospitals, and/or to allocation of more pubic resources to primary health care. AIDS cases would overwhelm health M Intensify campaign against AIDS emphasizing facilities. prevention, e.g., through a National HIV/AID Fund; Redesign 'continuum of care' & referral system; Increase drug quantities. Harmonization of implementation S Simplification of procedures; Streamlining of arrangements and/or management of communication and decision-making process. pooled funds would become burdensome due to the unduly difficulties posed by or significant time spent for negotiations and consultations. GOTs commitment to the health sector M Continuous high-level policy dialogue. will change, or not reflected in resource allocation. Some donors would not be willing to M Continuous dialogue; Establishment of and/or able to integrate their aid to the systematic data collection mechanisms for donor sector program and to the MTEF. resource data. From Components to Outputs Civil Service Reform and Local H Consultations with CSD and MRALG; Possible Government Reform will fail to provide introduction of (monetary or non-monetary) adequate terms and conditions for incentives for district staff and health workers. employment to the staff and health workers (at the center and districts). Oppositions from special interest groups M IEC campaign and continuous consultations to or politicians would undermines/blocks build consensus & 'air' stakeholders' concerns. hospital reform. Corruption or thefts of pharmaceuticals M Open, competitive bidding process; Systematic and medical supplies would become a reviews of the procurement process; major problem. Strengthening of management and inventory control. -24 -  Plans for infrastructure development M Development of good quality TOR for the based on input-based planning or political assessment, with technical criteria. considerations, rather than on sound technical and financial assessment (e.g. utilization patterns, affordability for recurrent and maintenance costs). Leakage in user fee collection would be M Emphasis on improved administrative controls, substantial. incentives for the staff, and better management and revenue targeting. Moral hazard by NHI/CHF members M Systematic monitoring on utilization; would lead to excessive over-utilization of Adjustment in design to curtail over-utilization; health services and escalate costs. Client education. There would be little/inadequate openness, M recognition of the reality of the fHV/AIDS issues, and willingness to tackle the problem among political leaders, senior GOT officials, and the civil society. Overall Risk Rating S Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N(Negligible or Low Risk) - 25 -  3. Possible Controversial Aspects: While the concept of cost sharing for health services has now been accepted by the general public in Tanzania, charging for basic health services could arouse public debates or criticisms, depending on the levels of fees or insurance premiums vis-a-vis the ability to pay of the potential users of services. The government has established exemption mechanisms to subsidize priority services (e.g., maternal and child health) and to protect the vulnerable groups (e.g., the indigent, AIDS patients). It is important to ascertain the impact of user fees/premiums, especially on the poor, women and children, through continuous monitoring and evaluation. G. Main Credit Conditions 1. Effectiveness Conditions * An accounting and financial management system satisfactory to IDA. * Independent auditors appointed under terms and conditions satisfactory to IDA. * A Project Implementation Plan submitted to IDA. * An annual work plan for FY2000/01 submitted, satisfactory to IDA. 2. Other [classify according to covenant types used in the Legal Agreements.] Disbursement = Disbursement for the central level programs (i.e., Disbursement Category I (a) and (b)) will be made only if annual plans for the central level is agreed upon. * Disbursement for district block grants (i.e., Disbursement Category 2) shall not be made until the disbursement and procurement arrangements at the districts that will receive funds are developed satisfactory to IDA. * Disbursement for the National HIV/AIDS funds (i.e., Disbursement Category 3) shall not be made until the modality of the fund's operation and management is agreed with IDA. Implementation * The government will carry out by December 31, 2001, under terms and conditions satisfactory to IDA and Partners, an assessment of the health facility network, and based on the results, develop a realistic and affordable strategy for health infrastructure development and maintenance. * The government will provide the BFC for its approval, within 6 weeks after each quarter, plans of activities to be financed through pooled funds in the following quarter. * The government will organize a joint annual review in March to review the progress of implementation as well as a plan and budget for the subsequent year. A mid-term review of the Project will be carried out in conjunction of the joint annual review in March 2002. * The government will submit to IDA and other development partners at least 3 weeks before each annual joint review: (a) an annual report on implementation progress, expenditures, and results of any technical reviews; and (b) a plan of action for subsequent year. * The government will submit to IDA and other development partners quarterly reports on implementation progress and expenditures, not later than 6 weeks at the end of each quarter, and organize basket financing committee meetings on a quarterly basis. - 26 -  * Annual financial audit reports, carried out jointly by the Auditor-General and an independent, external auditor, submitted to IDA and other development partners within six months after each financial year. * Annual external procurement audit reports submitted to IDA and other participating partners after each financial year. In addition to the formal annual audits, ad-hoc procurement reviews may be conducted periodically. H. Readiness for Implementation O 1. a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. 1 1. b) Not applicable. O 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. Z 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. OI 4. The following items are lacking and are discussed under loan conditions (Section G): I. Compliance with Bank Policies 1 1. This project complies with all applicable Bank policies. El 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. ip . Gowers Dzingai B. Mutumbuka James W. Adams Team Leader Sector ManagerlDirector Country ManagerlDirector - 27 -  Annex 1: Project Design Summary TANZANIA: Health Sector Development Program HI~rarch ofQb"'ct~ves Sector-related CAS Goal: Sector Indicators: Sector/ country reports: (from Goal to Bank Mission) Contribute to poverty reduction Percent (%) of the population Household income and Sound economic growth and and increased productivity below the poverty line. expenditure surveys; poverty external environment. through improved health status. assessments. Life expectancy at birth (LEB). National Census. Other sector programs contribute to poverty reduction. Annual population growth rate. National Census. Infant mortality rate. National Census; Demographic and Health Survey (DHS). Percent (%/.) of under-five TFNC nutrition surveillance. children severely stunted. Note: Long-term development indicators are being agreed under the Tanzania Assistance Strategy and the Poverty Reduction Strategy Paper. - 28 -  HI~~~rar~~hy ~~~ KeyPere tance 15 _Indicators M & Evaluatfon: ctics Program Purpose: End-of-Program Indicators: Program reports: (from Purpose to Goal) (For Phase I through III: (at the end of Phase III) 2000-2011) Improve access, utilization, quality, and financing Total fertility rate is reduced from National Census; DHS. Other factors affecting health of healti services through 5.8 (1996) to 4.8 (2011). status will improve or at least not increased efficiency and adversely affect health (e.g., effectiveness in use and % of children under one year old Health Management Information famine, bad weather, adverse allocation of resources to receiving DPT3 is increased from System (HMIS). macroeconomic conditions, maximize its impacts on health 71.0% (1996) to 80.0% (2011). unemployment, etc.). outcomes, especially among the poor, women, and children. Contraceptive prevalence rate for DHS; Sample surveys. modem methods among women of reproductive age is increased from 16.0% (1996) to 28.0% (201 1). Phasing within the Program is % of pregnant women delivered DHS asfollows: in a health facility is increased from 50.0% (1997) to 70.0% Phase 1(2000-2003): (2011). Acceleration of reforms, capacity building and systems development % of HIV seropositive pregnant HIV surveillance data; PPI study. for improvement of resource women (age less than 25) is management and quality of contained from 5.5-23% (1996) to services. 6-27% (2011). Phase 11(2003-2007): Expansion Average out-patient attendance HMIS of reforms and strengthening of jper capita per annum increased capacity and systems for from 1.5-2 (1999) to 2.5 (2011). decentralized health service I management and % of population satisfied Client/customer satisfaction output/outcome-based |with quality, quantity, access, surveys; Household surveys. performance management. affordability and availability of preventive, curative and referral Phase III (2007-2011): health services (baseline and Consolidation of reform results target figures to be established). and institutionalization of systems andaper iorn % of health center/dispensary HMIS; Human Resource data management for sustainasility. staffed by minimum number of base. qualified providers increased from 60% (1999 est.) to 80% (2011) (baseline to be established). HMIS Malaria inmpatient Case Fatality Rate for under-five children decreased from 12.8% (1997) to 8% (2011). EPI Program Reports. Reported number of measles cases reduced from 5,887 (1999) to 1,000 (201 1). - 29 -  Project Development Outcome IImpact Project reports: (from Objective to Purpose) Objective: Indicators: (for Phase I: 2000-2003) A health sector program GOT budgetlMTEF; Sector The programs/projects outside the Improve resource management integrated in GOT's program documents. pooled funds will be well and quality of services through Medium-Term Expenditure coordinated and integrated within sector reforms and institutional Framework (MTEF), with at least the sector program and district capacity building. 50%/o of donor resources for the planning. sector reflected in the MTEF. Note: The indicators with District-based health planning District Health Plans; Quarterly Support of donors to a asterisks (*) are also used as and management system and its financial and physical progress sector-wide approach will triggers for Phase I. financing through block grants, reports from districts; Audit continue. that are linked to outputs, reports. outcomes and performance, tested and operational in at least 30% of the 114 districts.* National guidelines for an Guidelines, training report, Essential Health Package quality assurance report. completed, costed, district management teams trained for its use, and quality assurance program in place.* Performnance-based budgeting and Government budget; Annual monitoring at the central level plans; Quarterly and annual introduced and tested. reports. For HIV/AIDS, high level Quarterly and annual reports; national bodies (NABA, NAC, Supervision reports. NACP) to oversee the multi-sectoral response, strengthened in staff and fully functional.* % of children under one year old HfMIS receiving DPT3 is increased from 71.0% in 1996 to 75% in 2003. % of population satisfied with Client/customer satisfaction quality, quantity, access, surveys; Household surveys. affordability and availability of preventive, curative and referral health services (baseline and target figures to be established). - 30 -  Kon~~~~~~~veeto fE.~rh yof Obectives y ind(catoiF- - -n4o*gr ~& Evauaio CAtef Output from each Output Indicators: Project reports: (from Outputs to Objective) component: 1. Strenethenine Service Deliverv (a) District Health Services: No. of districts trained in Training reports; quarterly and The Local Government Reform Institutional and human capacity district-based planning and annual progress reports. implemented as planned and for decentralized planning and management. capacity building of districts (e.g. management of district-based in planning, procurement, and primary health services improved No. of districts with approved District health plans. financial management) carried in at least one third of the 114 health plans. out. districts. No. of districts producing Quarterly financial and physical quarterly financial and physical progress reports from districts. progress reports in a timely manner with satisfactory quality. (b) Level 2 and 3 Hospital Legislation and regulation for the Gazetted new legislation and Reforms will lead to financial Services: Reforms and capacity restructuring of MMC approved. regulation for MMC. viability in the reformed building of the Muhimbili hospitals, allowing more pubic Medical Center (MMC) and MMC management restructured A new MMC board and resources to be allocated to selected tertiary/regional and new management in place. management appointed. primary health care. hospitals initiated. Capacity building for MMC Training reports; quarterly AIDS cased will not overwhelm implemented according to the reports; hospital reports. health facilities. action plan (e.g., accounting and financial management, quality assurance, revenue generating measures). Reform strategies and action Strategies and action plans for plans for selected reform hospitals. tertiary/regional hospitals developed and approved. New management structure Hospital reports. (hospital boards) in place and functioning in "reform" hospitals. (c) Public/Private Mix: A policy/strategy for private A private sector policy/strategy; Policy/strategy for the private sector collaboration drafted in a activity reports. sector involvement in health consultative manner. service delivery developed. -31 -  2. Strenwhenin2 the MOH and Central SUDDOrt Systems (a) Role of Central MOH and MOH produces a resource Sector program documents; GOT Negotiations to harmonize Sector-wide Management: envelope for the sector including budget/MTEF. implementation arrangements Improved capacity of MOH in all government and donor will not pose unduly difficulties, policy formulation, planning and resources, and prepares a sector and management of pooled funds budgeting, regulatory functions program integrated in the MTEF. through consultations and and quality assurance, monitoring consensus building between the and evaluation, and sector-wide Reform strategy for the new role Reform strategy paper. government and participating management. of central MOH developed. partners will be done smoothly within a reasonable amount of Legislation and regulation in the New or revised health-related time. sector reviewed, revised, and legislation and regulation. issued in line with the reform agenda. Guidelines for quality assurance Various guidelines for quality developed and issued. assurance. Progress and achievements of Records from financial sector program implementation management system; quarterly reported at least annually. financial reports; annual reports. Annual joint reviews carried out. HMIS; quarterly/annual report. (b) Central Support Systems: Stock-out rates of (selected) HMIS Strengthened national support essential drugs and supplies at systems for drugs and medical hospitals, rural health centers, supplies, medical equipment, and dispensaries is decreased. physical infrastructure, health management information systems, Assessment of the network of Assessment report(s); and transport management. public health facilities carried out rehabilitation, investment and by June 2001, and realistic and rationalization plan(s). affordable rehabilitation and rationalization plans developed and adopted by June 2002. HMIS for hospitals finalized and HMIS installed in all hospitals; operational in all regions. annual reports and statistics from HMIS. - 32 -  (c) Human Resource Data base for human resource for Human Resource data base. Development and Management: health developed. Improved management of human resources for the health sector. Five-year plan for Human Revised five-year plan; Quarterly Resources for Health reviewed and annual reports; Annual joint and updated by end of 2000, reviews. followed by implementation according to the plan. Remuneration and incentive New policy/guidelines on packages for health workers remuneration and incentive reviewed and revised. packages for health workers. Curricula for all cadres reviewed New/revised curricula approved and revised as needed. and in use. Zonal continuing education Training center records; Annual centers strengthened and and quarterly reports; Training providing in-service training to reports. health workers in regions/districts (e.g., no. of trainers trained, no. of training modules in use, no. of people trained at each center). - 33 -  3. Health Financing: Improved % of recurrent GOT budget GOT budget/MTEF; public GOT's commitment to the health financing of the sector through: devoted to the health sector is expenditure reviews. sector will continue, and reflected e.g., resource allocation according increased from 10.0% in FY98/99 in resource allocation. to priorities and to 11.0% in FY01/02 and to 12.0 cost-effectiveness, sustainable % in FY02/03. financing of the sector with increased self-generated resource. % of user fees generated from the Cost Sharing Program records. More donors will be willing to Cost Sharing Program to total and able to integrate their aid to non-salary recurrent expenditures the sector program and to the in health increases from 13% in MTEF. FY97/98 to 15% in FY01/02 and to 17% in FY02/03. The National Health Insurance NHIF financial records; annual Fund (NHIF) established in a reports. financially sustainable manner. Administrative costs of National NHIF financial records. Health Insurance Fund does not go beyond 15% of total membership and government contributions. Community Health Funds (CHF) CHF monitoring and evaluation are replicated in at least 10 reports. additional districts. CHF start-up and maintenance CHF monitoring and evaluation costs in the 10 additional districts reports. are less than those reported in the 6 pre-test districts, and show declining trend over a 3-year period until 2003. Hospital drug revolving funds are Drug capitalization program operated in a financially monitoring and evaluation sustainable manner in at least 20 reports. hospitals. 4. National HIV/AIDS Fund: A multi-sectoral national Operational national HIV/AIDS Responses to the HIV/AIDS HIV/AIDS fund established and fund epidemic scaled up with stronger operational. leadership and intensified effort by multi-sectoral, public and Enhanced, more visible No. of districts/localities visited private agents at all levels. leadership and advocacy to tackle by national-level leaders to the HIV/AIDS epidemic. campaign against AIDS; No. of public speeches/statement made by high-level leaders/government officials on HIV/AIDS issues. No. of high-impact, innovative, Reports from the national and/or community-based HIV/AIDS fund. AIDS-related programs financed and implemented. National AIDS strategy AIDS strategy paper. developed. - 34 -  f ectives - . I n. & tvaatlon =i Project Components I Inputs: (budget for each Project reports: (from Components to Sub-components: component) Outputs) 1. Stren2thenin-e Service US$ 520.01 million. Delivery. (a) District Health Services (US$ 330.34 million). Quarterly and annual physical Civil Service Reform and Local and financial reports; Various Government Reform will provide (i) Structural reforms to devolve activity reports; Evaluation adequate terms and conditions for authority to districts and capacity reports; Joint annual reviews. employment to the district staff building in district-based health and health workers. planning, implementation and resource management, starting with 35 districts. (ii) Training of district staff and health workers in essential health packages. (iii) Provision of block grants to the reform districts. (iv) Involvement of community members in planning and management of district health services. (v) Rehabilitating and improvement of maintenance of health facilities. (vi) Technical support, monitoring and supervision by regions and the center to districts to ensure sound management and quality assurance based on the essential health package defined. - 35 -  (b) Level 2 and 3 Hospital (US$ 189.08 million). Oppositions from special interest Services. groups or politicians will not underminePblock hospital (i) Reforms initiated for the reforms. Muhimbili Medical Centre for greater autonomy, improved management capacity, accountability and quality of services. (ii) Reforms of selected referral and regional hospitals initiated. (iii) Introduction of the revised Health Management Information System for hospitals. (iv) Improvement of the referral system by (redefinition of roles of hospitals and changes in policy/guidelines (e.g., introduction of bypass fees). (c) Public/Private Mix. (US$ 0.59 million). (i) Situation analysis of health service delivery in the private sector. (ii) Consultations with the private sector in a participatory manner, and a systematic consultative mechanism established. (iii) Review and revision of funding levels and mechanisms to voluntary (NGO) hospitals. (iv) Development and introduction of an accreditation system for health facilities. - 36-  2. Strenatheninf the MOH and US$ 100.17 million. Central Support Systems. (a) Role of Central MOH and (US$ 60.73 million). CSR will implement satisfactory Sector-wide Management. pay reform to provide adequate incentives to the MOH staff. (i) Development of various guidelines (e.g., for decentralized management, essential health package, supervision, quality assurance). (ii) Finalization and costing of essential health package, and subsequent operationalization and financing. (iii) Integration and increased coordination of vertical programs. (iv) Technical support to and supervision of regions and districts, monitoring and evaluation for quality assurance. (v) Review and revision of legislation and regulations. (vi) Capacity building by in-service training and systems development in planning, budgeting, monitoring and evaluation, as well as in other relevant areas to assume changing roles of the MOH. (b) Central Support Systems. (US$ 22.50 million) There will be no major problems of corruption or thefts of (i) Updating of the pharmaceuticals and medical Pharmaceutical Master Plan, and supplies. lists of essential drugs and medical supplies. Plans for infrastructure developed based on sound technical and (ii) Piloting and expansion of an financial assessment (e.g. indent system at primary care utilization patterns, affordability facilities. for recurrent and maintenance costs), rather than from (iii) Assessment of the network input-based planning or political of public health facilities, and considerations irrespective of the realistic and affordable cost implications. rehabilitation and rationalization plans. (iv) Finalization and introduction of HMIS for hospitals in all regions. -37 -  (c) Human Resource (US$ 16.94 million). Development and Management. (i) Development of a data base on human resources for health. (ii) Review and updating of the five-year plan for Human Resources for Health. (iii) Review and revision of the remuneration and incentive packages for health workers. (iv) Review of curricula for all cadres. (v) Capacity building and financial support to the zonal continuing education centers to provide in-service training to health workers in regions/districts on a continuous basis. 3. Health Financing. US$ 27.18 million. Leakage in user fee collection is minimized. (i) Strengthening of the Cost Sharing Program. Moral hazard by NHI/CHF members will not lead to (ii) Establishment and initiation excessive over-utilization of of a NHIF for central government health services and escalate costs. staff. (iii) Expansion of the CHF to the reform districts. (iv) Piloting of drug revolving funds in 3 regions and its expansion to the reform districts. 4. National HIV/AIDS Fund US$ 6.65 million. There will be openness, recognition of the reality of the (i) Establishment of a multi- HIV/AIDS issues, and sectoral fund with adequate willingness to tackle the problem operational framework and among political leaders, senior procedures. GOT officials, and the civil society. (ii) Strengthening of the institutional framework and human resource capacity for coordination, monitoring and evaluation of AIDS-related activities. (iii) Financing of high-impact interventions by various agents to mitigate the impact of HIVIAIDS. - 38 -  Attachment to Annex 1 Performance Triggers for Successive Phases Program Phases. Performance lrggers Means of VeIf a | Phase I to Phase II 1. A health sector program integrated in GOT's GOT budget/MTEF; Sector program (to be evaluated by Medium-Term Expenditure Framework (MTEF), documents. appraisal for Phase 11, with at least 500/o of donor resources for the sector tentatively planned for reflected in the MTEF. March 2003). 2. District-based health planning and management District health plans; Quarterly financial system and its financing through block grants, that and physical progress reports from districts; are linked to outputs/outcomes and performance, Audit reports. operational and tested in at least 30% of the 114 districts. 3. National guidelines for an Essential Health Guidelines for essential health package; package completed, costed, district management Training report. teams trained fro its use, and quality assurance program for basic services in place. 4. For HIV/AIDS, high level national bodies (NABA, National HIV/AIDS Fund established and NAC, NACP) to oversee the multi-sectoral operational. response, strengthened in staff and fully functional. 5. Common disbursement, reporting, monitoring and Successful implementation of pilot joint evaluation systems developed and tested. disbursement through GOT systems; Quarterly reports. 6. At least 75% of the Phase I credit disbursed or Quarterly financial and physical reports. committed. Phase 11 to Phase III I. A health sector program integrated in GOT's GOT budget/MTEF; Sector program (to be evaluated by MTEF, which includes at least 75% of donor documents. appraisal for Phase III, resources for health. tentatively planned for March 2007). 2. Performance-based budgeting for a health sector GOT budget/MTEF; Annual reviews; program instituted and operational. Quarterly reports. *The list is indicative, and will be reviewed and may 3. All districts and all hospitals have full District health plans; Quarterly financial be modified at the time of decision-making authority on resource use and and physical progress reports from districts; appraisal for Phase II. management of their programs, and are Audit reports; Annual joint reviews. accountable for their outputs and outcomes. 4. Cost-effective essential package of basis health District health plans; Proportion of services adequately financed and implemented. resources allocated to the essential health package in the MTEF; facility attendance records. 5. All essential drugs and supplies available at all Resources allocated to essential drugs and public facilities. supplies; Stock-out rates for selected essential drugs and supplies. 6. At least 75% of the Phase I credit disbursed or Quarterly financial and physical reports. committed. - 39 -  Annex 2: Project Description TANZANIA: Health Sector Development Program By Component: Project Component I - US$520.01 million Strenathenin! Service Deliverv a) District Health Services Background: District-level primary health care services provide basic clinical and public health services through three layers of facilities: dispensaries, rural health centers, and district hospitals (Level I). A dispensary is usually located at the ward level, each serving 3-5 villages or 6,000-8,000 people. A rural health center is to provide a slightly broader range of services than dispensaries, including in-patient care, and covers an average population of between 50,000 and 80,000. However, in effect, health centers often fail to serve as a referral center for dispensaries, and most of them are operating like dispensaries but at a higher cost. District hospitals are located at the district centers and each serves an average of 250,000 people. In some districts where there are no government hospitals, mission hospitals act as designated district hospitals (DDHs) based on agreements with the government, which provides staff and essential supplies such as pharmaceuticals. Currently, there are 19 DDHs in operational. Tanzania has placed importance on decentralized management of basic services for many years. When local governments were reinstated in mid 1980s responsibility of basic services, including health, had been transferred to each local government. However, local authorities have so far not been able to sufficiently exercise its authority in management of these services due to lack of critical decision making power (e.g., on allocation of the central government subvention, hiring and firing of staff) as well as inadequate resources available beyond staff salaries. Although most of the health workers at primary care facilities are already local government employees, key staff such as doctors, hospital nurses, District Health Management Teams (DHMTs) are still employed by the central government and have dual responsibilities both to the district authorities and to the Ministry of Health (MOH). Moreover, many programs and projects are planned and coordinated by the MOH, and DHMTs need to request for approvals or actions from the center even for issues concerned with day-to-day management. Health Sector Reforn addresses these problems and intends to devolve greater management authority and decision making power to the districts so that they have the overall responsibility and accountability for health matters at the district level. By allowing local decision making and quick actions based on the needs and priorities in each district, such decentralization is expected to result in improved management and quality of district health services that are more responsive to users. This is totally consistent with the Local Government Reform (LGR) that plans to devolve more power to the local level, including provision of block grants to districts instead of subventions with itemized budget lines, and management of all the personnel in the districts including hire-and-fire authority. Major causes of illness in Tanzania are due to infectious diseases or preventable causes, which can be dealt with by a well-functioning primary and preventive health care. The World Development Report 1993 (WDR 1993) claimed that well functioning primary health care units combined with the first-referral hospitals (district hospitals) could meet up to 90% of health demands. This sub-component will contribute to structural and system changes to facilitate decentralized management, strengthening of planning, management and implementation capacity of the districts, and improving service quality and its impact by -40 -  ensuring the delivery of cost-effective essential health package. Objective: This sub-component will aim at improving access, quality, and efficiency of district-based primary health care services. Main emphasis of Phase I is on devolution of decision-making authority to the district management, development of decentralized management systems, strengthening of district capacity in planning, management and implementation of district-based health services. Activities: The sub-component will strengthen the districts' ability to plan, implement, manage resources for, monitor and evaluate district health services. Starting with the 35 districts that were selected for Phase I of the LGR, District Health Boards (DHBs) will be established (as so decided by District Councils) to oversee all the health matters in the district. Block grants will be provided to these districts against approved District Health Plans, and the implementation will be monitored based on their performance against planned outputs and achievements. District management will be trained in planning, budgeting, financial management, supervision, monitoring and evaluation. In addition, DHMTs and health workers will be trained and re-oriented to prioritize and provide health services based on the essential health package. Other activities will include: ensuring availability of essential drugs and medical supplies and equiprr.;nt; enabling and facilitating effective technical support and supervision from the Regional Health Management Teams (RIIMT) to the districts; strengthening referral systems; instituting quality assurance measures; rehabilitating and improving maintenance of health facilities; strengthening linkages with other sectors on inter-sectoral issues; and enhancing collaboration with private health providers and alternative/traditional health system. Participation of the community members will actively be sought in planning, implementation, monitoring and evaluation of health services. (b) Level 2 and 3 Hospitals Background: A Level II referral hospital, usually called a regional hospital, serves a catchment population of about I million people as a secondary referral facility to the districts. In addition to the services provided by Level I district hospitals, Level II hospitals offer more specialized services in medicine, psychiatry, oral health, surgery, child health, obstetrics and gynecology. At present there are 17 regional hospitals in the mainland Tanzania (except Mbeya, Pwani, and Dar es Salaam). Highly specialized services are provided by Level III (tertiary) referral hospitals, and there are currently 4 of such hospitals (Muhimbili, Mbeya, Kilimanjaro, Bugando) and two others that are specialized in psychiatry and tuberculosis. Although Level II and III hospitals consume high proportion of resources, the quality and availability of services are seriously compromised due to the financial constraints and inefficient management. Not only they often lack essential medical equipment, drugs and supplies and suffer from deteriorating infrastructure, inadequate working conditions have contributed to the loss of specialists and skilled staff to the private sector. In addition, they provide a substantial amount of primary care services which could be dealt with by lower-level facilities. This often leads to overcrowding, as well as inefficient use of resources. Hospital reforms are intended to change the current status by enabling the Level II/III hospitals to have devolved and decentralized management authority, broadened financing options, and strengthened management in resource utilization (financial, human, and infrastructure). By the end of the reforms, it is envisaged that the MOH will move away from instructing, controlling and supervising day-to-day management of the hospitals, and instead will establish policies, goals, and targets for hospital services. The MOH will mainly influence hospital services through the process of payment of services. Hospital -41 -  management will have maximum control and decision-making authority over its resources with greater flexibility and discretion. Modem management practice will be introduced such as strategic and business planning, commercial-style financial management, and independent extemal auditing. Internal management structure will also be strengthened by establishing cost-center budgeting and accounting, giving increased authority over resources to each service unit, and increasing each unit's accountability for performance and outputs. Hospitals will know the real cost of their services to allow management decisions based on cost-effectiveness. Transparent key performance targets that are responsive to users will be set to increase accountability, and customer satisfaction will become an important performance measure. More effective revenue-generating activities to increase financial self-sufficiency, while ensuring adequate protection to the poor. Objectives: The objective of this sub-component is to improve quality, efficiency, and financial viability of secondary and tertiary referral hospital services to support primary level curative services. Phase I will focus on initiating reforms of selected tertiary and regional hospitals. Activities: Hospital reforms will start with the national apex referral hospital, the Muhimbili Medical Centre (MMC). During the project, reforms will be extended to selected other tertiary and regional hospitals. Activities will include: situation analyses of target hospitals; revisions of relevant legislation and regulations for hospitals; provision of technical assistance, as well as in-service or short-term training for strategic planning, strengthening of management capacity of target hospitals, and performance evaluations; strengthening of the referral system including the introduction of by-pass fees; and rehabilitation of infrastructure and provision of medical equipment in a selective manner in accordance with the hospital sector strategy and rationalization for the medium-term. (c) Public/Private Mix Background: Voluntary organizations and health facilities (mission hospitals, NGOs) have been an important partner in providing health care in Tanzania. They own as many hospitals as the government, and have served especially the rural population. Quality services provided by these organizations attracted many patients, even at higher costs. The introduction of the Private Hospitals (Regulation) Act in 1977 had restricted the practice of health care services for profit until 1991, when the Act was amended to reflect the policy change that allowed for-profit health services in Tanzania. Since then, there has been mushrooming of private health facilities, with concentration in urban areas. At present, up to 40% of health care services are said to be provided by the private or voluntary sector. Despite its importance, the private sector involvement in national health policy formulation has been hardly adequate, and there has been little cooperation and coordination of planning and delivery of health services among public, private, and voluntary agency providers. There exist no inspection mechanisms for private providers to ensure quality; since 1991, very little inspection of private facilities has taken place. The government needs to re-examine the relationship with the private sector, and create environment that will promote sound development of the private sector while adequate quality assurance and regulatory mechanisms are in place. Currently, there are no reliable quality control mechanisms in place for private pharmacies, nor regulations for traditional medical practice. The Pharmaceutical and Poisons Act (1978) is outdated and needs to be reviewed in order to cater for reforms and liberalization of trade that are taking place. The Pharmacy Board has been empowered by the Act of Parliament to control importation, distribution, and sales of pharmaceuticals in country. Nonetheless, it does not have adequate mandates nor capacity to execute its duties effectively. Drugs are imported through various entry points that are not well controlled, and the -42 -  quality of some products in the market are questionable. While traditional medicine practices are officially recognized, there is no legislation or mechanisms to control undesirable practices that may cause risks to patients' health. Many traditional medicine practitioners and their clients operate in secrecy and fear due to the current ambiguous legal and medical status. This has hampered the advancement of traditional medical practices. Objectives: This sub-component will help promote private sector involvement in delivery of health services. The Phase I will mainly focus on strengthening systematic dialogue and consultations between public and private sectors, and renew policy/strategy for sound private sector development and collaboration. Activities: This sub-component will finance activities that include: situation analyses of health service delivery in the private sector; consultations with the private sector in a participatory manner, and establishment of a systematic consultative mechanism; review and revision of funding levels and mechanisms to voluntary/NGO hospitals; development and introduction of an accreditation system for health facilities; development of policy/strategies and/or guidelines to strengthen the private sector involvement in health service delivery; strengthening the regulatory framework and quality assurance for private practices and private pharmacies. Project Component 2 - US$100.17 million Strenirthenine the MOH and Central Sunport Systems (a) Role of Central Ministry of Health and Sector-wide Management Background: Despite the administrative decentralization of district health services that took place in the 1980s, the MOH has been playing a central role in planning, coordinating, implementing, supervising, monitoring and evaluating various health programs/projects as well as the delivery and day-to-day management of health services. The government budget for health is largely consumed to cover staff salaries (about 60% of the recurrent budget), leaving very little to cover day-to-day operation costs. If drugs and medical supplies are excluded (which is deposited directly to the Medical Stores Department), resources made available to districts and facilities are very limited. Moreover, its release from the Treasury is unreliable and inadequate, and its use is highly restricted by itemized budget lines. The responsibility of training all cadres of health workers rests with the MOH, which is also in charge of staff deployment and transfers. Under the reform strategy, most of the decision-making authority and responsibilities for day-to-day management will be given to the districts and management teams at the facility level. The MOH will shift its role from a direct provider or implementor to a facilitator, whose mandates will be: policy development and analyses; quality assurance through appropriate legislation and regulations, as well as setting up of standards; and monitoring and evaluation. The MOH will exercise its influence over health service providers mainly through provision of finance against agreed outputs or milestones. This will entail redefinition of the roles and responsibilities of the MOH, and will require realignment and adjustment of the structure, functioning, and business practice of the MOH. Another challenge is the streamlining of implementation mechanisms in the sector. The past project approach has led to complex, fragmented planning and implementation arrangements with many parallel systems co-existing to serve multiple projects and programs. Not only has this posed significant administrative burdens on the government and caused inefficiency and duplication, it has failed to strengthen national capacity and create sustainable systems. The MOH intends to move away from such -43-  fragmentation, and coordinate all activities in the sector under one common program and harmonize planning and implementation arrangements, using the government systems as much as possible. The concept has gradually gained enough support and commitment among the donor community in Tanzania, and the government and donors have begun process of gradual shift toward a sector-wide approach. Objectives: This sub-component will help improve MOH's capacity and systems for: policy development, analysis and national planning; development of guidelines for national policy implementation; performance monitoring and evaluation; development and enforcement of legislation and regulations of service delivery and practice; and sector-wide program implementation and management. Activities: The activities under this sub-component will include: development of policies and guidelines; institutional capacity review and assessments; technical assistance and training of key staff in relevant areas such as policy analysis, planning, budgeting, accounting, financial management, procurement, quality assurance, monitoring and evaluation; strengthening of capacity and systems for sector-wide management and coordination; development and piloting of ajoint financing system (disbursement, accounting, financial management, and reporting); development of joint monitoring and evaluation mechanisms; and strengthening and coordination of procurement systems. (b) Central Support Systems Background: For effective and efficient service delivery, there has to be reliable support systems in place to ensure provision and management of pharmaceuticals, medical supplies and equipment, transport, physical infrastructure, and information systems. Problems facing health care in Tanzania are clearly reflected in the poor state of service delivery throughout the country, mainly due to under-funding and inadequate capacity. Limited services are being offered without supporting systems, such as monitoring and supervision, communication and consultations, and logistic support. Progress has been made in strengthening the central support systems. Procurement and management of pharmaceuticals and medical supplies at the central level has been completely restructured and strengthened by transforming the Central Medical Stores to a semi-autonomous Medical Stores Department (MSD). Integration of storage and distribution of drugs and supplies of vertical programs into the MSD is being carried out in phases, with some of them already completed or at an advance stage. To strengthen drug and supply management at facilities, the MOH is testing an indent system to replace drug kits at primary care facilities, and piloting drug revolving funds at the hospital level. The MOH has developed guidelines for laboratory policy as well as to facilitate standardization of equipment, techniques and implementation of quality assurance schemes. Each district now have two vehicles -- one for supervision activities and the other for distribution of vaccines, drugs and other medical supplies, and manage the utilization of these vehicles using a district transport matrix system. The Central Transport Unit (CTU), established at the MOH, provides technical support and supervision to the districts. A Health Management Information System (HMIS) has been developed and introduced in all districts, and the staff has been trained to collect and monitor key data and information for primary health services. Capacity of managers at the districts and facilities to analyze and utilize the data collected in their own management and decision making need to be strengthened. Currently, development of hospital HMIS is under way. Objectives: The objective of this sub-component is to strengthen the national support systems for: drugs and medical supplies; medical equipment; physical infrastructure; health management information system; and transport management. -44 -  Activities: This sub-component will include the following activities. Pharmaceuticals and medical supplies - updating of the Pharmnaceutical Sector Master Plan; further strengthening of capacity in procurement, storage, and distribution at the MSD; integration of the supply systems of vertical programs into the MSD; piloting and gradual expansion of an indent system at primary care facilities; monitoring and supervision of the drug revolving fund pilot (see also Strategy 6); updating of essential lists for drugs and medical supplies. Medical equipment - updating and enforcing of guidelines for medical equipment; establishment of effective maintenance systems for medical equipment. Physical infrastructure - assessment of the network of public health facilities; development of realistic and affordable rehabilitation and rationalization plans. Transport management - updating of guidelines for transport management; strengthening of the CTU; review of transport policy and strategy in light of the LGR. HMIS - finalization and introduction of the HMIS for hospitals; training/orientation of RHMTs and DHMTs in data analysis, presentation and use in planning and decision making. (c) Human Resource Development and Management Background: The government's objective since independence has been self-sufficiency of human resources for health. In line with the rapid expansion of health facility network in the 1 970s, a number of training schools were established and production of a large number of health workers was emphasized. Currently, more than 30 cadres of health personnel are being trained by the MOH. However, performance of these health workers and quality of services offered are generally poor. Weak management of health personnel has led to inadequate deployment of workforce, creating serious imbalances and mal-distribution of skilled staff with heavy bias toward urban areas and large referral hospitals. The levels of education of many health workers are low (e.g., the largest cadres such as Nurse B, Rural Medical Assistants, MCH Aides, and Medical Attendants recruited at the standard seven level), and the inadequate curricula and the limited opportunities for skills development hinder development or upgrading of necessary skills for career development. Objectives: This component will aim at developing human resources for health to implement health reforms effectively by improving skills and building management capacity at all levels of the health system. Activities: Activities for this component will include: review and updating of the five-year plan for Human Resources for Health; implementation of the five-year plan according to the time table; review and revision of the remuneration and incentive packages for health workers; review of the curricula for all cadres; training of trainers; development of health learning materials (HLM) and their provision to training institutions; and capacity building and financial support to the zonal continuing training centers to provide in-service training to health workers in regions/districts on a continuous basis. Project Component 3 - US$ 27.18 million Health Financing Background: Along with economic downturns in the 1980s, rapid population growth, declining budget allocation to the sector (7.5% to 4% between 1977 and 1992), and weak management capacity had led to the deterioration of service quality across the board in the country. Since then, the government reversed the trend and increased its budget allocation to the sector (12.5% in 1996/97), and changed the policy of free health care for all to introduce user fees at public health facilities. Despite such effort, the current spending level for health ($3.46/capita with government and donor expenditures combined (POW)) is far short of the estimated levels required to provide a basic package of health services ($12 per capita in WDR 1993; $8.46 for Tanzania in BOD/CE study). However, if one takes into account private spending, Tanzania - 45 -  could potentially use its available resources of US$7.34 (government, donors and private spending) to purchase all of US$4.42 for public health part of the required package of $8.46 (BOD/CE study), leaving the residual amount for basic clinical services. The government's HSR strategy has additional resource mobilization and strengthening the financing mechanisms as major priorities in ensuring sustainable financing for the health sector. In order to narrow the financing gap by diversifying the resource base and to develop more sustainable financing mechanisms, alternative ways of financing health care are being explored and tested, including: (i) cost sharing through user fees at public hospitals since 1993; (ii) pre-testing of a community-based prepayment scheme (Community Health Fund) in Igunga district since 1996, rolled out to 9 more districts to date; (iii) preparations to introduce a National Health Insurance Fund (NHIF) for civil servants, for which a NHIF bill passed parliament in April 1999; and (iv) piloting of drug revolving funds at hospitals. Objectives: This component will aim at broadening financing options and improving financial management for increased financial self-sufficiency and sustainability. Phase I will help develop and refine alternative financing mechanisms further, and assist. Activities: Under this component, the Cost Sharing Program will be strengthened by improving fee collections, record keeping, and internal controls in order to minimize wastage and leakage. A revenue targeting system will be developed and introduced so that hospital managers can analyze actual revenues vis-a-vis predetermined targets. The NHIF will be operationalized by completing the development of, among others, regulations, management structures, an accreditation system, fee schedules, contracting arrangements for claim processing, and provider payment mechanisms. The scheme will be first introduced only to central government employees and their families, and its performance and impact will be carefully monitored. The operation of the Community Health Fund (CHF) will be improved, taking into account the lessons learned so far and recommendations from recent assessments. It will be introduced to the 35 districts where both LGR and HSR will start implementing reforms in the initial phase. The hospital drug revolving funds pilot will continue in 4 regions, and the next phase will be determined based on the results of an evaluation planned. If successful, the pilot will be expanded to other districts. The project will finance, among others: technical assistance to establish/strengthen or evaluate these programs; a start-up investment to establish NHIF and to expand the CHF; purchase of drugs and medical supplies as part of the "seed stock" for drug revolving funds; short-term or in-service training; and incremental operational costs including supervision of activities. Other important activities, which are dealt with by other components, include: strengthening of the government capacity in planning and budgeting of resources; integration of the health sector program in the MTEF; promotion of private sector participation, including the creation of conducive environment and incentives for private/voluntary providers. Project Component 4 - US$6.65 million National HIV/AIDS Fund Background: Since 1983 when the first 3 AIDS cases were reported in Tanzania, the epidemic has spread rapidly among various population groups. The MIV prevalence rate was estimated at 9.4% among adults of reproductive age (age 15-49) in 1997, but some studies indicate possibly higher rates (10-14%). The situation analysis conducted in 1997 has revealed that the rural population is increasingly affected. Youth and women have been among the most affected groups, in addition to the groups that are traditionally identified as vulnerable due to their high-risk sexual behaviors (e.g., commercial sex workers, traders, migrant workers, military personnel, and long-distance truck drivers). Mother-to-child transmission appears to be on the increase, as more women become infected and pregnant; HIV prevalence among antenatal clinic attendees tested increased from 4% in 1986 to 14% in 1995/96. Another vulnerable group -46 -  is the poor, who are more likely to be less educated and unemployed, lack access to information, and might be forced to seek risky sexual behaviors to earn a living. The economic and social consequences of the epidemic are significant, and will be increasingly so, as it affects the population of productive age and leaves a growing number of AIDS orphans. It is well recognized that a national, multi-sectoral response is needed to tackle the epidemic. Although there are some good examples and lessons in their impact, the past effort was sporadic, not comprehensive, and lacked scale. Also, stronger leadership is required in order to bring up HIV/AIDS as a national development issue, rather than simply a health issue. The National AIDS Council (NAC), comprising the Permanent Secretaries (PS)of all the relevant ministries and chaired by PS of the Prime Minister's Office, is charged with coordinating all the AIDS-related activities across the sector. Currently, the National AIDS Control Program staff under the MOH is acting as a secretariat for the NAC. The government has also established a National AIDS Advisory Board to intensify effort to involve people from the private sector, intellectuals, and religious groups. Nonetheless, capacity is limited to manage and coordinate multi-sectoral responses involving both the public and private sectors, and the magnitude of the problem will require more resources to bring the effort to scale. There is a need to strengthen the institutional framework for more effective coordination and leadership, encourage broader participation in the effort, and inject more funds to implement comprehensive programs by both the public and private sectors. Objectives: The objective of this sub-component is to intensify national effort to prevent FIV infection and mitigate the adverse effects of AIDS in a multi-sectoral manner. Activities: The project will support the government in strengthening the institutional framework and capacity to manage and coordinate the national, multi-sectoral responses to HIV/AIDS. It will provide technical assistance and financial resources to set up a modality for effective coordination and advocacy, and technical leadership to identify best practices to minimize the negative impact of the epidemic. A National HIV/AIDS Fund will be set up to finance AIDS-related programs proposed and implemented by various agents with proven records or credentials (e.g., line ministries, local govemments, NGOs, religious groups, academic or research institutions). Disbursement of this component is subject to submission of the institutional and managzement arranaements and as an operational strateav, satisfactory to IDA. -47 -  Annex 3: Estimated Project Costs TANZANIA: Health Sector Development Program Compone Indicative Costs % of Tbotl :(1US$million) 1. Strengthening Service Delivery (a) District health services 330.34 50.5 (b) Level 2 and 3 hospitals 189.08 28.9 (c) Public/private mix 0.59 0.1 2. Strengthening the MOH & Central Support Systems (a) Role of central MOH & sector-wide management 60.73 9.3 (b) Central support systems 22.50 3.4 (c) Human Resource Development & Management 16.94 2.6 3. Health Financing 27.18 4.2 4. National HIV/AIDS Fund 6.65 1.0 Total Project Costs 654.00 100.0 Total Financing Required 654.00 100.0 - 48 -  Annex 4 TANZANIA: Health Sector Development Program Economic Analysis 1. Summary - The Health Sector Development Project (HSDP) was analyzed in terms of its rationale, the cost-effectiveness of project approach, and the cost-effectiveness of health interventions that it will support. Public sector involvement in the sector is justified, and existing sector constraints call for a comprehensive approach of health sector reform under a sector-wide mode of program planning and financing (Section A). Given this context, the project analysis indicates the appropriateness of an Adaptable Program Lending (APL) instrument; alternative designs were found to be inferior and less cost effective. The analysis also indicates that project risks are within manageable limits (Section B). The health interventions to be supported are found to be cost-effective and affordable given the level of resources (Section C). The existing data are dated and the Government of Tanzania (GOT) is currently at work to refine the package of health services that will receive project support. A. Project Rationale 2. Macroeconomic Context - Tanzania has made substantial progress in economic stabilization and movement away from state controls and ownership of the means of production toward a market-based economy. Recent achievements include fiscal consolidation, streamlining of the civil service, privatization of about half of the parastatal enterprises, and restructuring of the financial system. The foundation for higher economic growth is being laid and policies are being developed to alleviate poverty and reverse the deterioration of social indicators. The economy posted decent expansion in recent years and is expected to grow over 3% annually over the next three years. Real per capita GDP has also increased modestly. However, Tanzania remains poor with per capita income among the lowest in the world. Bad weather over the past two years damaged the transport infrastructure that disrupted access to external markets, reduced the export of key commodities (coffee and tea), and dampened tourism - all major foreign exchange earners. Thus, household incomes, though likely to grow, are not expected to dramatically increase. The adverse impact of the weather on the health infrastructure and on health status, especially the incidence of malaria, must also be noted. 3. The economic liberalization has also profoundly influenced the health sector. From its socialist beginnings at independence, Tanzania legalized private medical practice in 1991, has phased-in fees at government facilities since 1993, and is pilot-testing alternative mechanisms for the financing of services towards a more pluralistic health care market. The devolution of health services to districts has begun. 4. Links to Economic and Sector Work and the CAS - The Tanzania Social Sector Review (SSR) provided the early underpinning for the preparation of the HSDP. GOT together with donors, NGOs and other experts conducted the SSR in 1995 to analyze social sector outcomes from a human capital perspective, focusing on the household as a producer and consumer of social services. The SSR concluded that the public system is far more extensive than the budget can fund under almost any reasoDable scenario; that despite the government's emphasis on basic health services, the commitment to comprehensive, highly subsidized services results in actual expenditures that have a different emphasis; that high-cost institutions crowd out low-cost basic services; that high personnel costs from a large bureaucracy crowd out all other inputs so that basic health services function poorly; and that in general, substantial claims on the budget are made by activities with very low investment payoffs to the economy. On the basis of these findings, GOT adopted the Social Sector Strategy in the mid 1990s to arrest further decline in health status. The strategy paper recognized the failures of earlier policy regimes and proposed a framework for future government -49 -  and private involvement in the sector. The six strategies are: to concentrate public sector resources on core activities of the government; to strike a better balance between personnel and other inputs within the social sectors; to decentralize authority to the local level; to relax constraints to private sector provision of social services; to promote high quality standards; and to promote household investment in human capital. These strategies have been translated into the HSR Program of Work (POW) which the HSDP intends to support. 5. HSDP fits the country priorities outlined in the CAS and the SSR, which both recognize the serious stagnation of social services over the past two decades. Health indicators were virtually unchanged well into the mid 1 990s due to a weakening revenue effort, poor expenditure policies especially the limited funds devoted to non-wage recurrent costs, and a very highly centralized structure of service management. Accordingly, the CAS proposed a more determined effort to improve the perfornance of social services through additional budgetary allocations to health and education; decentralization and increased community participation in the social sector; and concentration of fiscal resources on primary health care while ensuring a policy environment that facilitates greater private participation in curative services. The CAS- proposed lending activities in the social sector were aimed at stabilizing and then reversing the downward trend in social indicators through measures that decentralize responsibility, increase local resource mobilization, and rationalize expenditures. The HSDP is specifically mentioned in the CAS under its older name, Health Sector Reform Project, due to begin in FY99/00. CAS strategies in the health sector are to shift resources to child and matemity care and preventive health services, and to shift authority to local agencies. The proposed benchmark is increased rural access to primary health care. The CAS recognizes that the Health Sector Reform (HSR) program aims to reorient expenditures to manage major diseases in a cost-effective way. 6. Justification for Public Sector Involvement - The rationale for government involvement in Tanzania's health sector continues to be strong owing to the magnitude and pattern of its disease burden, continuing poverty, inequity of access to health services, and the need to correct sector distortions through better policymaking and administrative restructuring - aspects which are discussed in detail below. 7. (a) Public-health justification: Most of the diseases in Tanzania remain within the compass of government provision or financing either because of their high infectivity or because of their burden on children and women. It is estimated that AIDS epidemic has already infected 9.4 percent of Tanzanians of reproductive age. The economic externalities of this epidemic cannot be overemphasized. Cases of malaria, tuberculosis, and other highly infectious and communicable diseases also continue to rise while cholera has been intermittent. Although slightly lower-than-average for sub-Saharan Africa, Tanzania's infant mortality rate of 86 per 1,000 live births and the child mortality rate of 144 per 1,000 births continue to be unacceptably high. Maternal diseases also persist in claiming significant number of lives. Further government investments to contain infectious diseases (with extremely serious economic consequences, especially HIV infection) and to provide matemal and child health services are clearly warranted. However, these public-goods arguments do not preclude private-sector provision of health services. In fact, mission and non-denominational NGO health service providers play a key role in Tanzania and have been tapped, through subvention and official district-designation, by government in the pursuit of public health goals. 8. (b) Poverty justification: By African standards, Tanzanian households live within relatively close proximity to health facilities but the quality of services especially at primary care clinics has seriously declined, leaving most poor rural households with little real access to care. Long-term economic forecasts indicate that even under the most optimistic scenarios, Tanzania is still likely to be a low-income country in the next generation. Thus, ensuring access to better quality health services, especially among the poor, is a - 50-  social imperative that Tanzania and its donor-partners are committed to achieve. 9. (c) Justification based on the need to correct financing distortions: The HSR Program, which the HSDP will support, is intended to correct existing distortions in health delivery and financing by focusing on the funding and provision of an essential package of health services and thereby improving the progressivity of government health expenditures. Past GOT health expenditures did not necessarily lead to equity. The incidence of government health expenditures in Tanzania, based on the Tanzania Human Resource Development Survey, shows that "at no level of care are these expenditures progressive. Overall, government expenditures was regressive, with 51% of expenditures captured by the top 40% of the income distribution, versus only 34% by the poorest 40% of the population. However, the poorest 20% of the population do obtain about 21 % of government expenditures, indicating that it is lower-middle income families who benefit the least from government services." A similar regressive pattern was found in the study of Castro-Leal, et al. (1997) where as much as 42% of those reporting ill did not seek care at all. The regressive incidence of government expenditures in Tanzania is itself driven by the highly regressive nature of hospital spending and hospitals' importance in the government health budget. Up until the mid 1990s hospitals accounted for 65% of government health care spending. In contrast, income-neutral community and preventive-health interventions accounted for only 21% of that spending. HSDP will attempt to correct this distortion by focusing on more cost-effective health interventions in primary care. 10. (d) Regulatory justification: Tanzania's health sector is at an early stage of private-sector development. A burgeoning private sector needs urgent regulation as indications of poor services are already legion. The envisioned decentralization of health services also requires a strong central-government mandate to establish the administrative framework and to monitor performance of peripheral units and district councils. Finally, health financing innovations such as the impending launching of a health insurance program for civil servants as well as the possible entry of private insurers, would necessitate state development of appropriate regulations. The HSR program recognizes this regulatory thrust and provides a specific strategy to deal with it. 11. (e) Justification to reformulate public/private roles in the sector: Although GOT continues to have a considerable role in Tanzania's health sector, there is a growing consensus within GOT and its donor-partners to redefine the role and scope of the public sector in health care. The socialist paradigm has been replaced effective with the reopening of private medical practice and government official adoption of a policy of greater household financing of care through fees, contributions, or premia. There is recognition that management of health services should be brought as close to the communities as possible. All these is an endorsement of a more demand-driven system where patients vote with their shillings and communities are allowed to articulate their priorities, in lieu of the historic supply-driven model where everything is centrally determined, budget-allocated, procured, and distributed. Given these changes, HSDP will look for ways of assisting the GOT find its proper scope and role in the health sector. The core functions of the Tanzanian government in the health sector will be explored during the life of the project, including but not limited to: delimiting national and local governments' role in health care through greater focus on an essential package of services; possible right-sizing of the health network; increased private financing of inpatient care through cost-sharing fees, insurance, and community health funds; and widening the role of private providers. - 51 -  12. Sector Constraints - The chart below summarizes the sector distortions and how the HSR Program and the HSDP will attempt to correct them. Program Approaches to Address Them Sector Distortions and Constraints Budget unsustainability and Budget reform through better resource allocation (ceiling and ratios under distortion. MTEF); improved public expenditure management; and focus on cost-effective package of health services; right-sizing options will be explored in the medium-term. Fragmentation of donor support. A sector-wide approach leading eventually to a budget or expenditure support program in health; use of POW to set parameters for government and donor activities in the sector. Overcentralized management of Decentralization of appropriate management and financing of health health services. services to district authorities under the Local Government Reform Program. Lack of alternative Roll-out of alternative financing mechanisms (community health funds, extra-budgetary resources. drug capitalization); improvement and expansion of user fee program; and launching of the health insurance program for civil servants. 13. (a) Budget unsustainability: Policy and institutional factors contributed to the unsustainability and distortion of the Tanzanian government budget. First, the health system has evolved more extensively than what existing resources could reasonably maintain. By African standards, the health infrastructure is quite extensive and evenly distributed but the economic crises of the 1980s and 1990s left health budget severely constricted that the system deteriorated. Second, this has been worsened by the lack of focus on demonstrated cost-effective health interventions. Two-thirds of the health budget is allocated to hospitals and drugs, leaving a marginal share to more cost-effective preventive services which are mostly funded by donors. Only recently has the concept of cost-effectiveness been adopted. Third, multi-tiered funding has made it impossible to calculate the exact annual resource requirements of each facility or cost center, has made facility management difficult, and has perpetuated their weak performance orientation. Fourth, the budget process has been bifurcated, with the development budget being the purview of Economic Planning Commission and the recurrent budget being under the MOF. This separation has led to undue system expansion, with little regard for the recurrent-cost sustainability of investments. 14. (b) Fragmentation of donor support: About half of resources in the sector are from donors but the effectiveness of these resources is being reduced by a combination of factors. First, health interventions have been compartmentalized through donor vertical projects implemented in isolation with little regard for the wider sector. There are as many as 89 separate projects, each with its own budget, often with its dedicated vehicles and staff. Second, donor support has been geographically fragmented with each sponsor staking its claim on its assigned district(s). This arrangement has prevented the development of national standards (for quality of care, monitoring, information systems, accounting and auditing requirements), caused severe district inequalities, and has been unsustainable with health services collapsing as soon as the donor leaves. Third, there is little consistency and coordination of health programs. Some health interventions are well-funded, others are starving of support. Finally, the multiplicity of discrete donor projects has exacted an onerous burden on MOH program managers and staff. The time devoted to project preparation, logistics and procurement, accounting and auditing, and monitoring gets scaled up with the introduction of a new discrete project. - 52 -  15. (c) Overcentralized management of health services: GOT has been heavily centralized, more so in the health sector. Centralization hampers local initiative in the identification of health needs, planning of local services, mobilization of local revenues, management of resources, and deployment and monitoring of staff. Also, because of item-by-item budget allocation from central HQ, local program managers do not enjoy funds fungibility which makes them unable to address pressing health needs, especially emergencies. Lack of autonomy and decentralized authority has limited their ability to manage resources more effectively. 16. (d) Lack of alternative financing sources: Historically, Tanzania's premise of providing free-care to its citizens has stunted the development of other options of financing health care. The budget crises over the past decade underscored the government's inability to finance health services from tax revenues alone. The Tanzanian paradigm is changing, and there is better appreciation of the inability of the budget to provide for everything. Similarly, there is an increasing understanding of the adverse impact of free-care policy on the demand, availability, quality, and sustainability of budget-funded services, especially in a budget-constrained economy like Tanzania. 17. Fit Between HSDP and HSR and Other IDA Initiatives - The HSDP is consistent with the proposed HSR approach as well as with the other IDA-funded initiatives outside of the health sector. The project builds on achievements made in the previous H&N Project such as the scaling-up of health financing schemes pre-tested during that project. The project relies on other IDA-funded initiatives on the resolution of issues beyond the health sector; reforms in the following areas will be critical in determining the outcome of the HSDP: (a) Medium-Term Expenditure Framework (MTEF) - The HSDP will benefit from MTEF initiatives in identifying the governments core functions in the health sector, providing a solid and predictable budget constraint on an annual basis, tracking sector expenditures, and sector performance measurement; (b) Civil Service Reform - The HSDP will benefit from administrative right-sizing and pay reform under this program which is expected to increase the non-salary recurrent budget available to health facilities; and (c) Local Government Reform - The establishment of the legal and policy framework for the administrative and fiscal decentralization of health services to district authorities should support HSDP work in this area. B. Overall Project Analysis 18. The goal-oriented and flexible nature of APL makes it an appropriate lending instrument to support the GOT's HSR Program. The HSR strategy envisions substantial changes in the way health services are managed and financed, and requires a long-term commitment to achieve goals. Moreover, while the sector-goals and end-products are clearly defined under the HSR strategy, uncertainty in the impact and practical implications of various reform measures would entail constant reviews and adjustments of strategies against the intended goals and benefits. An APL provides the needed flexibility to manage the disparate activities in the HSR program, and to make the necessary policy, technical, administrative or financial adjustments without losing sight of the end-goal. In addition to a shared vision and strategy for the sector, there is an increasing acceptance of output orientation as a standard for measuring progress (in lieu of the traditional input accounting approach). An APL is suitable for the expected mode of operation that aims at providing financial support contingent upon an annual review of sector performance. 19. The following alternative options were considered and were found unsuitable to achieve the stated sector aims: (a) A traditional vertical project focusing on a single or group of disease interventions is deemed to intensify the fragmentation in Tanzania's health sector. Moreover, this type of project tends to be supply-driven (commodities procured, infrastructure constructed) and leaves little innovation on the - 53 -  demand side of the health care market; (b) A project focusing on one or a group of districts that provides a specified menu of health services - as most donors are doing - was also discarded as it tends to balkanize the health sector, with serious repercussions on equity, development of national standards, and management burden; (c) A project focusing on health care financing including fiscal decentralization held promise, but it was also found unsuitable. This type of project is likely to evolve into an R&D endeavor, producing many studies but unable to influence the government to demonstrate through policy implementation the results of the studies. Moreover, a health financing project tends to ignore the technical side of health service provision; (d) Finally, projects of the above types generally cannot provide the recurrent budget that Tanzania desperately needs to maintain the most critical backbone of its health infrastructure; and (e) The project design team also considered a Learning and Innovation Loan, but a LIL tends to be small and in the context of Tanzanian health-sector requirements, would be of limited impact. Moreover, much has been learned and major innovations have been made during the H&N Project; what needs to be done is to bring them to scale, requiring a larger magnitude of resources than what can be availed of in a LIL. 20. Project risks are summarized in the chart below. Risks Assessment Borrower Low risk - Government at the helm of the HSR program since 1995. Countervailing power ownership of historically large donors being diluted by SWAp. Health Low risk - All health interventions to be supported under HSSP (e.g., immunization, family technology planning) are of proven technology. No new, unproven health technologies will be introduced. Information Medium risk - No large-scale information systems development and installation is technology envisioned. "Platinum" system already developed. Small-scale financial applications systems, mostly off-the-shelf, are likely to be used (e.g., for community health funds, health insurance, drug capitalization). Lack of accountants, financial management, and IT specialists should be addressed. Economic and Medium risk - Robust budget needed to underpin health reforms. Economic contraction may financial place budget in jeopardy and will reduce households' ability to pay for health services, but in the short-run, economic growth has been forecast to be positive. Social Low risk - Focus on women, children and other vulnerable groups makes project socially acceptable. However, urban middle class affected by fee programs may become vociferous. Bureaucratic right-sizing under civil service reforrn may also cause disruptions. Information and education campaign for health reforms being considered to inform public. Institutional Medium risk - Sector-wide expenditure support program is novel. Decentralization may proceed more rapidly than the pace of capacity building at districts. Innovative health financing schemes (health insurance, drug capitalization) require skilled staff in short supply locally. Low salary level of civil servants may also inhibit HSR pace and progress. Right-sizing initiatives need to be planned well. C. Analysis of Burden of Disease, Cost-Effective Interventions, and Affordability 21. Burden of Disease - Based on data generated in the East Africa cost effectiveness and burden of disease (CE/BOD) study (World Bank: 1997a), in the mid 1990s around 77% of Tanzanian life-years lost is accounted for by just 10 disease conditions, and of these, the major contributors are those related to maternal conditions, childhood illnesses, and infectious diseases including malaria, HtV/AIDS, TB, and measles - all preventable. The country's most vulnerable population are pregnant women and children under 5 years; life-years lost for this group alone accounts for 38% of the country's total burden of disease. Given this picture, govemment health expenditures ought to focus on those few interventions that address the few diseases taking a large toll on Tanzanian lives. This is equivalent to the economists' prescription of - 54 -  limiting the government to its core functions in health. Historically, however, this has not been the case, with the Tanzanian government opting to provide a broad range of health services intended to reach as many people as possible. The effect has been to stretch a very limited budget on a large infrastructure providing a wide, albeit uniforrnly ill-funded, menu of services. 22. Underfunding is compounded by the fact that health expenditures have been largely devoted to hospital care as a result of institutional inertia, political influence, doctors' professional lobbying, or a combination of reasons. Until the mid 1990s as much as 57% of total Tanzanian health expenditures was spent on curative care, with only 11% devoted to community and 32% to preventive care (World Bank: 1 997a). Government health expenditures are even more skewed, with as much as 78% devoted to curative and only 7% to community and 15% to preventive care. The mismatch between spending patterns and epidemiological needs implies the overall cost-ineffectiveness of the Tanzanian health system. 23. Affordability - GOT has adopted the principle of focusing on those health interventions that generate the largest benefit in terms of life-years saved per shilling of health expenditures (i.e., cost-effective interventions). The results of the East Africa CE/BOD exercise shows that even among diseases with high burden, there is a need to focus on those interventions that are least costly and at the same time most effective, for there is a wide variety of interventions in a given disease. Analysis of resource availability in Tanzania indicates that even with the country's extremely limited resources, so much more life-years can be saved if public expenditures are appropriately reallocated towards more cost-effective interventions, i.e., a basic package of clinical and public health services. The World Development Report (WDR) in 1993 estimated that US$12.00 per capita is needed by a typical developing country to deliver an essential package of health services consisting of public health interventions and basic clinical care. Similar estimates made in mid 1990s in the East Africa BOD/CE study showed an amount of US$9.01, and for Tanzania, US$8.46 of which, US$4.42 should be devoted to public health and US$4.04 for basic clinical services (see table below). 24. Comparing the required level of funding with actual spending in Tanzania (as analyzed in the East Africa BOD/CE study) shows that although the country falls short of the total per capita requirement, it could potentially use its available resources of US$7.34 to purchase all of US$4.42 for public health, leaving the residual amount for basic clinical services. Available per-capita cost data from the Community Health Fund pretest in Igunga District also show that US$4.06 is all that is required to meet basic dispensary services. Thus, the combined government and donor spending of US$4.45 more than covers the funding requirement for public health, assuming that these are dedicated funds. This, of course, is much easier said than done. Although all of public health services and some basic clinical services are in theory affordable - i.e., within Tanzania's resource envelop - in practice, the existing pattern of allocation prevents this from happening. The national challenge, then, is to how to change allocation priorities towards those services that are cost-effective and will lead a to a dramatic decline in mortality and morbidity. The HSR Program, and the HSDP, are oriented to achieving better allocation of resources. - 55 -  Required Spending Per Public Health Services Basic Clinical Services Total Capita WDR 1993: poor countries US$ 4.00 US$ 8.00 US$12.00 East Africa: 1994 US$ 3.49 US$ 5.51 US$ 9.01 Tanzania: 1994 US$ 4.42 US$ 4.04 US$ 8.46 CHF Required Spending Dispensary First-Referral Hospitals Total Recurrent Costs Per Capita Services Services Igunga District: 1997 US$ 4.06 US$ 6.00 US$10.06 Tanzania Health Community & Preventive Curative Total Spending Per Capita Services Services Spending from all sources: US$ 3.15 US$ 4.19 US$ 7.34 1994 __ _ _ __ _ _ _ __ _ _ _ __ _ _ __ _ _ _ __ _ _ _ Spending from GOT + n.a. n.a. US$ 6.00 donors: 1999 _ _ 1 Sources: World Bank, World Development Report 1993; World Bank, Health Policy in Eastern Africa: A Structured Approach to Resource Allocation; Mkusa, E., Cost Breakdown and Analysis for a Basic Health Services Package for Igunga District; Resource Envelop Table, this report. 25. MOH is finalizing the package of essential services; it has adopted the following criteria for selection: burden of disease; cost-effectiveness; affordability; public-goods and externality character of interventions; and sustaining of existing public health programns. The draft package consists of treatment of common diseases; maternal and child health/family planning; treatment and prevention of TB and leprosy; school-based, youth and adolescent health services; prevention and treatment of STDs and HIVIAIDS; control and treatment of malaria; prevention and treatment of emergency and trauma patients; and improvement of the household environment. The immediate analytical and program tasks involve the following: (a) Identification of specific interventions (community, preventive, curative) within each disease or condition covered in the package, leading to greater specificity in the definition of proposed health interventions; (b) Conduct of cost-effectiveness assessment of the identified alternative interventions within each disease; choosing which should be included; and defining prototype programs (including program activities, costs, and partners) in consultation with program managers; (c) Adding up all the resource requirements of priority health programs covered in the package and translating these into budgetary terms and then adjusting the priorities based on available resource envelop; (d) Translating the program budgets into resource allocations and disbursements to district councils which will deliver the package; and (e) Development of performance indicators, both at the central and peripheral units, for the financing and delivery of the essential package, and monitoring of performance. - 56 -  References 1. Bevan, David (1999). Public Expenditure Review: Recurrent Cost Issues in Education and Health. 2. Cashin, John (1997). Towards a Sector-Wide Approach to Health Improvement in Tanzania. Report submitted to the Ministry of Health. 3. Castro-Leal, Florencia, Julia Dayton, Lionel Demery, and Kalpana Mehra (1997). Public Social Spending in Africa: Do the Poor Benefit? The World Bank, Poverty Anchor. 4. Mallya, Joseph N. (1998). Local Government Reform Programme and Sectoral Reforms: Key Issues. Ministry of Regional Administration and Local Government. Presentation made during the Health Sector Reform Dissemination Meeting, Dar Es Salaam, October 20-23. 5. Ministry of Health (1998). Proposed National Package of Essential Health Interventions in Tanzania. 6. Mkusa, Emmanuel (February 1996). Cost Breakdown and Analysis for a Basic Health Services Package for Igunga District. Report submitted to the Health and Nutrition Project. 7. Pavignani, Enrico (1998). Recurrent Costs in the Tanzanian Health Sector, 1998-2009: An Exploratory Analysis. Report produced under the auspices of the Tanzania Public Expenditure Review. 8. Price Waterhouse Coopers Tanzania (1999). Tanzania Public Expenditure Review: Health and Education Financial Tracking Study. 9. United Republic of Tanzania (1998a). The Health Sector Reform Programme of Work, July 1999-June 2002. Dar Es Salaam: Ministry of Health. 10. (1998b). Local Government Reform Programme: Policy Paper on Local Government Reform. Dar Es Salaam: Ministry of Regional Administration and Local Government. 11. United Republic of Tanzania (n.d.). Social Sector Strategy. Prepared for the Consultative Group Meeting. 12. Walford, Veronica. and Fabrice Sergent (1997). Tanzanian Public Expenditure Review in the Health Sector. Report submitted to the World Bank. 13. The World Bank (1999). Tanzania Social Sector Review. Human Development Technical Group 1, Africa Region. Report No. 14039-TA. 14. (1997a). Health Policy in Eastern Africa: A Structured Approach to Resource Allocation. Human Development Technical Group 1, Africa Region. Report No. 14040 AFR. 15. (1998). Tanzania Public Expenditure Review, Vols. 1&2. - 57 -  Annex 5: Financial Summary TANZANIA: Health Sector Development Program Financial Analysis I. Summary - The financial soundness of the project is enhanced through the following mechanisms: First, HSDP adheres to the budget ceilings and ratios established under the Medium-Term Expenditure Framework (MTEF) for the next three years as defined under the Government of Tanzania's (GOT) agreements in the Expanded Structural Adjustment Program. The project will utilize these established ceilings and ratios to monitor annual sector performance (see Section A). Second, HSDP is intended to support, in the long term, the development and implementation of a unified and consolidated budget under a sector-wide approach (SWAp) in which both GOT and its donor partners are involved. The basis for such budget is being established by fully costing the existing Plan of Action (POA) and Program of Work (POW), by identifying the sources of financing for activities included in the POA/POW, and mainstreaming this into the regular government budget process (Section B). Third, a review of financial management indicates that GOT's Platinum software can accommodate the needs of pooled/jointly disbursed funds under a sector-wide approach, though donors acknowledge the need for risk management in view of Swap's novelty (Section C). Fourth, HSDP does not promote expansion of the existing infrastructure network and is therefore not expected to worsen the existing recurrent cost problem. During the first phase of the APL, studies will be conducted to assist the GOT analyze the state of the health infrastructure and staffing, assess the cost of maintaining such network, and provide recommendations for rationalizing and right-sizing the network in light of the forecast of available resources. Fifth, HSDP supports various cost recovery programs which promote resource mobilization and efficiency improvement (Section D). A. Fiscal Situation and Sustainabilits 2. GOT spending pattern in health is typical of poor countries: a capital stock that grew faster than the budget's ability to provide recurrent expenditure support; a large bureaucracy whose costs constrain the government from allocating sufficient resources for complementary inputs; and an allocation process biased in favor of hospital rather than primary care services. The MTEF which the government is undertaking for FYOOI/O to FY02103 corrects some of these distortions through budget ceilings and allocation ratios. Table I shows GOT's recurrent budget for the next three fiscal years. The health sector is expected to account for 10%-I1 % of the recurrent budget, and the sector's allocation is expected to grow at a faster pace (62.1% between FY99/00 and FY02/03) than recurrent allocations as a whole (49.8%), a pattern reflective of Tanzania's long-standing support to the social sector. Per capita allocation, however, is likely to increase only slightly. 3. GOT is attempting to promote efficiency in the allocation of resources with personal emoluments (excluding salary adjustments) declining in relative terms from 51.6% in FY99/00 to 34.9% in FY02/03 and a corresponding increase in the share of other costs, though this excludes the planned salary increase (see note (d) of Table 1). GOT is also attempting to provide a better balance in the distribution of budgetary resources between the central MOH and regions/local governments. MTEF figures, however, show that the annual allocation for central MOH is expected to rise from 45.8% in FY99/00 to 47. 1% in FY02/03, with a corresponding decline in the rest of the sector, though the cut will mostly be from the regions. To be sure, with the devolution of health services, a greater proportion of government resources going to peripheral areas should increasingly be reflected under the Ministry of Regional Administration - 58 -  and Local Government (MRALG), not in the MOH budget. 4. GOT is also trying to refocus the budget towards primary care. The four apex hospitals received 27.6% of the MOH budget for FY98/99, which is not as skewed as other African countries' allocation to central hospitals. Fees generated from the Cost Sharing Program can also cushion the impact of reduction in the allocation to these hospitals when the government decides to reallocate these to primary care. The problem seems to be the extensive network of hospitals, both government (78) and mission facilities (19) receiving subvention, which is necessitated by the country's vast geography. GOT has to choose whether to retain such a large network of facilities at the risk of ill-funding all of them, or to restructure the network to an affordable size. Table 1: GOT Budget for the Health Sector Under the MTEF: FYOO/O1 - FY02/03 /(a) (In Tshs. billions unless otherwise specified) Recurrent Budget - All Sectors 660.04 774.88 884.71 988.72 49.8% Health Sector Rec. Budget 68.90 77.41 92.99 111.66 62.1% of which: Central MOH/(b) 31.58 31.66 41.74 52.64 66.7% Regions 9.24 11.15 11.77 13.27 43.7% Local govermnent/(c) 28.08 34.60 39.49 45.75 62.9% Share of Personal Emoluments/(d) . Total health recurrent budget 51.6% 50.3% 41.9% 34.9% - Central MOH/(b) 7.3% 12.9% 9.8% 7.7% - Regions 92.3% 80.3% 76.1% 67.5% - Local govermrentl(c) 88.0% 75.0% 65.7% 56.7% - Health Development Budget 3.42 4.42 4.38 4.38 28.3% Health Recurrent+Dev't 72.31 81.38 97.37 116.04 60.5% Budget I__I_ _I__I Source of basic data: Ministry of Finance and Ministry of Health (May 2000). Notes: (a) The figures include only GOT resources, and exclude donor funds and other dornestic resources such as user fees, and contributions for CHF and NHIF. (b) "Central MOH" includes HQ, referral hospitals, and training institutions. (c) "Local government" refers to districts and urban councils. (d) Personal emoluments in this table excludes the upward salary adjustments planned for FYO 1/02 and FY02/03, which are lurnped together as one macro item and cannot be readily disaggregated across sectors. 5. Tanzania is enhancing fiscal prudence in the health sector through budgetary ceilings and ratios under the MTEF, and increasing pluralism in the financing of health services through user fees, community prepayment schemes, and a planned health insurance program. However, analyses undertaken to support the public expenditure review show that budgetary as well as internally-generated fees, now and in the foreseeable future, are insufficient to run the government's health network given its existing size. The POW echoes this concern, noting that the government can only finance 29% of the financial requirements of the government health system. Under the MTEF, GOT is not expected to expand the current size of the health infrastructure, but donor-partners unanimously endorsed a more explicit government moratorium on expansion of infrastructure pending the completion of a proposed inventory and mapping of health facilities, services and functions, and a plan for restructuring the health system, especially of hospital services. - 59 -  B. Resource Envelop and Fiscal Impact of the Proiect 6. Resources for the health sector from the government budget, user fees, and external donor assistance for the FYOO/01 to FY02/03 are expected to total US$ 654 million (Tables 2). Around 56% of these resources will be borne by GOT, 41% by donors, and close to 3% by user fees and contributions to insurance/prepayment schemes. The level of resources imply a per capita health expenditure of around US$6-7. Government resources are expected to increase slightly in share over the next three FYs. 7. Analysis of the project's fiscal impact indicates the following: First, no incremental taxes are envisioned under the project, but the Local Government Reform Program authorizes local governments (districts and city councils) to engage in local taxation, proceeds of which may be used by devolved local authorities for health services. Second, the project supports wide-ranging cost-recovery programs such as user fees, prepayments and fees from the community health funds (CHF), drug revolving funds for hospitals, and health insurance for civil servants. However, two of these initiatives entail incremental subsidies: the matching grant component of CHF to be funded by GOT or by donors; and the GOT contribution to the proposed national health insurance program for civil servants is estimated to be Tsh 116.7 million per month (see Section D.) Third, since project resources will be disbursed according to the priorities specified in the POW/POA, its budget allocation distortions are non-existent (unlike a stand-alone vertical project). Table 2: Estimated Resource Envelop for the Health Sector: FYDO/Ol - FY02/03 (In Million US Dollars) GOT (from domestic resources) 102.3 (53.3%) 121.7 (55.8%) 145.1 (59.5%) 369.1 (56.4%) User Fees 5.5 (2.9%) 5.8 (2.7%) 6.2 (2.5%) 17.5 (2.7%) Donors 84.1 (43.8%) 90.7 (41.6%) 92.6 (38.0%) 267.5 (40.9%) of which pooledfunds 20.0 (10.4%) 35.0 (16.0%) 50.0 (20.5%) 105.0 (16.1%/) Total 191.9 218.3 243.8 654.0 (100.0%) _________ ___________________ (100.0%) (100.0%) (100.0%) Notes: (a) Figures may not add up due to rounding. (b) The donor resource flows for FY01/02 and FY02/03 are at best indicative and may be underestimated. 8. Ex-ante, the project's focus on the financing of cost-effective health service interventions provides assurance that benefits will accrue largely to the poorer segments of the Tanzanian population. The sector-wide approach, however, enhances fungibility of funds and introduces the risk that GOT funds may flow to less cost-effective (especially hospital) interventions with concomitant regressive incidence. This risk argues for closer monitoring, through the proposed annual GOT-donors meetings, of the agreed upon MTEF budgetary ratios between hospital and non-hospital services, between central and district/peripheral units, and between salary and non-salary expenditures. Annual review of the POA/POW, and the more restricted Priority Activities to be Implemented by Directorates in MOH should be conducted to ensure that they are consistent with the MTEF budgetary ratios. C. Financial Manazement Arraneements 9. As part of the sector reform program, GOT proposed to pursue a sector-wide approach to coordinate planning and implementation of all the activities in the sector, including financial management. The approach envisages that all projects and programs will eventually be subsumed under a common - 60 -  mechanism and within the Government system. During the joint GOT/partner appraisal in March 1999, agreement was reached that the background studies carried out in 1998/99 (PWC: 1999; Crown Agents: 1999; and NGG: 1999) provided a good basis to further develop the details of joint financing arrangements, which would follow as closely as possible the Government accounting system. Building upon this work, consultants were commissioned to operationalize the financial management system at the central level (PWC and Soft-Tech: 1999) and at the district level (PWC 2000 - two reports). The draft accounting manual for the central level was reviewed at appraisal, and later adopted by the Basket Financing Committee (BFC) at its the meeting on October 29, 1999. For the district level, the draft accounting manual was recently completed and adopted at the BFC. To date, eight partners (Danida, DFID, GTZ, Ireland Aid, Netherlands, NORAD, SDC and IDA) have either started or committed to contribute to the pooled funds. 10. At the central level and district at the sub-treasury level the Platinum system can technically accommodate the needs of pooled and jointly disbursed funds. However, at levels below the district, manual accounting systems will remain as a possible impediment to identification of the source of funding of individual expenditures. All donors have acknowledged the need for a risk management approach in view of the newness of the joint disbursement systems. 11. Central Level - GOT's integrated financial management and accounting system (IFMAS) has been developed using the Platinum SQL version 4.2 software package, and in FY99 the payments module has been rolled out to nearly all Ministries. The full package provides for: a new chart of accounts/budget system, budgetary control and financial reporting, cash management, procurement, and has interface potential with other systems. The account codes within the Platinum system are split into a number of fields which allow data to be analyzed according to user needs. Fields are in-built in the system, which allow the tracking of payments against specific programs or activities. A relational data base is therefore possible, and could potentially accommodate an analysis of proportional spending according to source of funds within each program budget line. 12. The accounting manual details the operation of the accounting system using IFMAS and incorporates the main elements of how the joint disbursement system can be merged within IFMAS. The manual covers an outline of the system; chart of accounts; accounting for funds received; operation of joint donor fund holding account; payment system; preparation of annual budget; management information reports; and, examples of the various forms and reports. The POA has been incorporated within the chart of accounts and aligned with the platinum systems framework. 13. On the basis of the MOH's POW/POA, partners would make available its agreed level of funding to the GOT's consolidated fund. It is expected that individual donor contributions to the pooled funds will be based on the annual commitment agreed prior to the commencement of the progra,m year. The accounting manual has set out procedures for control of the contributions through a joint donor fund holding account denominated in US dollars ("US Dollar Holding Account"). IDA would operate through a Special Account, and disbursements would be triggered by the quarterly approval mechanism under the control of the BFC. More specifically, IDA funds will be advanced initially from a Special Account to the US Dollar Holding Account, triggered by agreement of the BFC. Subsequent disbursement will be made against quarterly reports for the total expenditures, of which IDA will disburse a portion at a pre-determined percentage (to be set annually based on each donor's commitment). Release of funds from the US Dollar Holding Account to the MOF's Ex-chequer Account will be done quarterly, triggered by clear evidence of monthly releases of government funds for the POA. MOF will release funds to the MOH based on the agreed plan and budget on a monthly basis, using GOT's normal procedures. The first release of funds by donors would need to be for two quarters due to the time lag in reporting (i.e., funds for first - 61 -  two quarters will be released without reports and the release of the third quarter's allocation will be triggered by a report for the first quarter). The reporting formats for quarterly and annual reporting have been developed and included in the accounting manual; a report on the procurement status is still under development. These formats will be refined/modified as the system is implemented. The formats for Project Management Reports (PMRs) as used under the Loan Administration Change Initiative (LACI) are being examined as part of this process. 14. Non-pooled Financing - While the operation of the pooled funds is refined and will grow in size over time, IDA will also finance some of the activities in the POA outside the pooled funds (e.g., large procurement not financed by the pool, the activities not yet incorporated into the pooled funds such as the National Health Insurance and the Community Health Fund). The management of the IDA funds outside the pool will follow the conventional method through a Special Account. A local currency account will be opened for the government's counterpart funds. The DHPP will also oversee the management of IDA funds outside the pooled funds, for which the PHC Secretariat will coordinate the day-to-day operation. The MOH will appoint a contact person within the Secretariat for the implementation for IDA-funded activities, and assign one accountant to handle the financial operations and reporting of the Special Account. 15. An assessment of the MOH accounts department's capacity to manage the system has been carried out, and a summary of the current organizational and functional arrangements is described below: (a) Organization: The Chief Accountant heads the accounting department. The Chief Accountant is assisted by: Assistant Chief Accountant who is also responsible for the main accounts section; head of salaries section; head of cash office section; and head of finance section. (b) Staffing of Accounting Unit: Chief Accountant and all heads of the above sections are qualified accountants with minimum qualification of National Diploma in Accountancy with more than 5 years experience in the accounting profession. Heads of the sections are assisted by accountants and accounts assistants who have semi-professional qualifications in accounting, Advanced Diploma in Government Accounting, and National Bookkeeping respectively. Apart from the above staff who assists the Chief Accountant, each other department in the ministry (which is the warrant holder of Government funds) is assisted with an accountant responsible for the payments in each department. Currently, there are about 33 accountants: 7 qualified accountants with Advanced Diploma in Accountancy; 7 accountants with National Diploma; and the rest with National Bookkeeping Certificates (NABOCE). Job descriptions for the key positions in the accounting unit do not indicate required duties & responsibilities, skills and qualifications. The Office of the Accountant General has agreed to update the job description of the accounting staff at the MOH. Taking into account that the accounting unit of the MOH will be responsible for ensuring that financial management and reporting procedures for the health sector program, it is important that relevant qualified, experience accounting support staff need to be in place in order to equip the accounting unit. to handle the joint donor funding. This will require recruitment of qualified and experience accounting staff with higher qualifications preferably CPA and computer skills. At the same time, varying levels of staff training will be identified especially in the financial management, procurement computer applications, and procedures relating to utilization & reporting of the program funds. Initial training on new government computerized accounting system is ongoing. On-the-job training in accounting and financial management will be provided by a private consulting firm over a six-month period. The accountants in the MOH are under the supervision of the Accountant General's (AG) departrnent, Ministry of Finance. It is well recognized by the office of the Accountant General, that financial -62 -  management accounting capacity at the MOH is weak, as with other ministries. In order to ensure the integrity and sustainability of the recently computerized government financial management and accounting system, the AG's office, with the assistance from EU, is in the process of setting up a Financial Management Unit (FMU) at the MOF as part of ongoing restructuring of the AG department. The FMU will be headed by the Financial Controller with support of about 70 professional accountants (mostly CPAs and graduates). The FMU will assign adequate professionals (in accounting, internal auditing, budget & planning) to each sector ministry. These professionals will provide quality control services to the ministries and sectors. It is expected that, the MOH will be among the first ministries to get support from the FMU. (c) Internal Audit Section: Internal Audit Section is an independent unit reporting directly to the Accountant General. Currently, the MOH has only four internal auditors. All of them have Advanced Diploma in Accountancy and more than five years of experience in auditing government accounts. This unit is under-staffed and requires strengthening in terms of additional internal auditors with skills especially in computer and performance audit. Four internal auditors are not sufficient to handle internal audit activities of the whole ministry, which comprises of departments, training institutions, and regional hospitals. The Internal Audit Unit will be strengthened with additional qualified internal auditors. 16. District Level - A consultancy on the joint disbursement system to the district level has recently been completed, and an accounting manual has been developed. The manual provides an acceptable basis for moving ahead, but the success will depend on how the implementation issues will be addressed through a concrete action plan to resolve the issues and strengthen the process. There are plans to incorporate some 28 districts to the centralized computerized accounting system. The system proposed is based on block grants (recurrent expenditures only) in which funds would be disbursed for the achievement of national minimum standards of service at district level, in accordance with objectives of a decentralized government. The district health plans, agreed at the council level, would be the guiding instrument for planning and the allocation of resources. On the basis that the IFMAS would be available by that date at the district level and on review of what part of the platinum program roll-out is to be established, it should be feasible for the system to be operated at the district level. 17. The reporting mechanism is similar to those to be adopted for the central level but would in addition be consolidated. The instrument of accountability is the plan itself and the pooled funds would be accounted for against the plan. They would not be identified and accounted for against specific expenditures. The level of funding in the initial stages would be relatively small and not expected to be above a certain specified limit per donor per district (initial calculation placed this as a top figure of $20,000 per annum). For IDA participation, this would therefore require an acceptance that the plan and its implementation for health sector development at the district level become the accountability instrument for the certification of the use of funds for the purpose intended. 18. Audit - Arrangements are to made for a joint financial audit mechanism of both the Auditor General and a sub-contracted commercial audit firm to be involved. The Auditor General would be the signatory to the report. The private firm would provide as part of the contract on the job training, especially in the field of computerized accounting audit work. The modus operandi for the joint audit have to be established and cleared with the Auditor General. Initial terms of reference for the annual audit has been compiled. Consideration would also be given to some form of performance audit mechanism, especially as it impacts on the district level. The annual audit will be made available within six months of the end of each financial year. In addition to the audit report, a detailed management letter assessing the internal controls and accounting systems would be made available and a follow up mechanism -63 -  implemented. During the negotiations, it was agreed that the government would explore with the Auditor-General's office the best option to carry out semi-annual audits during the first two years of the Project. 19. Other Issues - (a) To operationalize the use of pooled resources, procurement systems need to be harmonized based upon generally agreed principles of open competitive tender and transparency. Short-term consultants are assisting the GOT in developing a joint procurement manual, a draft of which is expected by May 30, 2000 (see Annex 6 for more details); and (b) Currently district plans contain both recurrent and development expenditures. Block grants would only include recurrent expenditures and development expenditures would still be controlled at the central level. A process for the devolution of the development budget needs to designed and agreed in the context and timing of the Local Government Reform Program. 20. Conclusions and Next Steps - IDA would intend to participate with the other donors in the central system. It would operate through the use of a special account and use a modified version of the PMRs (based on the agreed format for Government reporting) as the means of disbursement. Financial management assessments so far carried out have given a positive assessment on the use of the Platinum. The financial management assessment has been completed and discussed with the MOH and MOF. 21. At the district level, the current schedule is, in line with the local government reform, to commence the block grant mechanism in FY0O/0 1. IDA participation would be dependent on satisfactory capacity assessments on financial management and procurement at the district level. Further discussion and agreement is needed on this issue, including evaluation of the block grant system and capacity to implement. In addition, the Government has prepared the financial regulations and these will be published with the other instructions on staff code of conduct and model standing orders for running council affairs. This is expected to be completed by end of June 2000. 22. For the central level, the accounting manual provides a satisfactory basis to move the process forward to establish the joint disbursement system. Remaining issues identified during the appraisal have now mainly been addressed and resolved. These include: (a) incorporation of the POA within the chart of accounts and aligned with the platinum systems framework; (b) opening of the joint donor holding account; (c) reporting formats (except for procurement); (d) agreement on the capacity assessment; and (e) preparation of an action plan for PMR-based disbursements and agreement on it at the negotiation. A few remaining issues that are ongoing or planned (e.g., finalization of TOR fro annual audits) need to be completed as soon as possible. A satisfactory accounting and financial management is a condition for effectiveness. This will be verified by the Country Office Financial Management Specialist. -64 -  D. Cost Recovery Programs 23. Cost Sharing Program (CSP) - In August 1993, the Tanzanian Parliament passed the national policy that established the CSP at government health facilities. The fee policy saw a gradual period of program implementation, starting with referral then regional then district hospitals, and lately with health centers and clinics. CSP is still a young program; HSDP will support its further institutionalization as it is a key strategy to the budget reform program that shifts the burden of curative care to households so that the government can focus the budget on preventive care. Fees now contribute 5.8% of total government recurrent resources in the health sector, and 13.4% of total government non-salary recurrent expenditures in health in FY97/98 (Table 3). CSP revenues have grown nine-fold since its introduction in FY93/94, but even with these levels of fee revenues, most government facilities continue to be ill-funded, implying that the funding situation would have been much worse without CSP. 24. Collection efficiency remains a major problem. with varying hospital compliance to the CSP guidelines. According to a study by Musau, Munga and Ilomo (1998), actual collections only represented 35% of revenue that could have been earned among the sample hospitals in FY97/98. The other 30% represented the value of waivers and exemptions (itself subject to much abuse) while the other 35% was considered lost. Losses occurred through possible fraud in so-called "Corridor Clinics" where patients get treatment without going through the official system; poor accounting, non-reporting, or outright theft of money already collected; and provision of free services to patients who are neither exempted nor waived. Without any change in fee levels, government hospitals could raise their revenue collections by recovering the 35% currently being lost through leakage (valued at Tsh 157.7 million in the sample hospitals) and tightening the waiver and exemption system so that only valid cases are allowed. To enhance collection, the study conducted a revenue targeting exercise (given the existing fee schedule and the exemption and waiver system) to set benchmarks against which hospital performance can be measured. The exercise showed that the sample hospitals actually collected only 48% of what they could have potentially generated, a strong indication of the need to improve collection. Much can be done in this area through simple actions like deploying trained staff; effective linkage between CSP and the hospital MIS; improved record keeping and more frequent supervision; and provision of incentives to good performing hospitals. Table 3: Performance of the Tanzanian Cost Sharing Program: FY93/94 and FY97/98 FY93/94 260.9 0.9 % 1.9 % FY97/98 2,435.2 5.8 % 13.4 % Source: Peter Ilomo, Cost Sharing Implementation Team. 25. Drug Capitalization Program (DCP) - Under this program, the Medical Stores Department procures drugs for government health facilities and supplies hospital pharmacies with drugs that they manage as revolving funds based on patient fees. One referral, 12 regional, and 17 district hospitals in four regions have been selected as pretest sites and capitalized with an initial stock of 4-months' supply of drugs, which they then are expected to sell at cost and the revenues used to replenish the stocks. Referral hospitals received Tsh 100 million worth of drugs; regional hospitals, Tsh 40 million; and district hospitals, Tsh 17 million. The fee and demand-driven elements of DCP are intended to provide a more sustainable -65 -  arrangement and to inculcate discipline among hospital managers who are now mandated to determine, manage, and take risks of maintaining stocks to meet their patients needs, and not reduced to being passive recipients of supplies. A major constraint of DCP is the current government policy limiting drug cost recovery to 50%. In addition, there is currently no mechanism by which the Treasury reimburses hospitals for the value of drugs dispensed to waived and exempted patients. A DCP evaluation is slated to be conducted soon which should provide policy recommendations to address these issues. 26. Community Health Funds (CHRF) - CHFs are a village prepayment scheme for health services with a matching-grant subsidy element from the Tanzanian government. CHF has been undergoing pre-testing in Igunga District since mid-1996. By 1999, the pre-testing was expanded to 9 other districts. It is expected that CHF will be introduced to the 37 districts that are planned to be devolved under Phase I of the Local Government Reform program. A cabinet paper on the CHE was approved in October 1999, and the government is currently preparing a bill to establish a CHF Act, which will enable the GOT to start financing the matching grant. 27. Under CHF, a participating household voluntarily prepays a certain amount per year defined by the community (Tsh 5,000-20,000) for the benefit of health services (consultations and drugs) provided at the dispensary/health center and the district hospital Outpatient Department. Non-participating members pay a pre-determined fixed rate of user fees at each incidence of illness. The poor, elderly and unemployed are protected through informal and community-determined waivers and exemptions. As of November 1998, the CHF in the pretest sites already cover roughly 267,000 prepaying household members. In Igunga, the number of prepaid members has remained steady over the past two years. Three subsequent districts that followed the CHF model already have memberships exceeding that of the Igunga CHF. 28. CHF prepayments have exceeded fee revenues in most pretest sites, which indicates that households view the contribution rates a better deal than the fees, given their own calculation of their health risks. A key sustainability issue is the level of matching-grant subsidy that will be provided to new and existing CHF schemes. At present, the amount the community generates is matched 1: I by a grant from the government. For a typical district with 50,000 households, the matching grant entails a subsidy of US$31,250 per year. Meanwhile, all inputs provided by the government and donor-funded vertical projects are supplied to the CHF clinics as usual. In addition to the matching grant, the CHF also involves considerable startup costs (at present, around US$105,000 per new CHF district) and maintenance costs (around US$50,000 per old CHF district per year). It may well be that the level of subsidy will be reduced gradually over a 3- to 5-year period, and that the startup and maintenance costs will be dramatically reduced as the districts go through a "learning" stage, but the GOT and donors need to find the resources for the transition period until such time that CHF sustainability is ensured. For the future, GOT plans to utilize zonal training centers in the initial orientation and continuous training of districts, which are expected to reduce the start-up costs. The GOT is also considering to devise a mechanism to phase out the matching grant as a CIHF in each district becomes self-sustaining. 29. Health Insurance - The Tanzanian Parliament passed the act establishing the National Health Insurance Fund (NHIF) in October 1999, providing for mandatory contributions from, and payment of health care benefits to, civil servants. Initially, the program is expected to cover 46,756 employees or a population of 233,780 including spouses and dependents, and generate Tsh 2.8 billion (US$4.3 million) annually in contributions from employees and the government. GOT views health insurance as a more cost-effective and equitable mechanism of financing civil-servants' health care relative to the existing direct, fully-subsidized financing through the budget. The annual government contribution of Tsh 1.4 billion (US$1.75 million) to the NHIF will be included in FYOO/01 budget under MOF. Thus it is not included in the MTEF for the health sector that estimates the increase of over Tshs. 50 billion for recurrent -66 -  health expenditures in the next three FYs. Administrative costs for the NH[F are estimated to be within 15% of the total revenue. 30. Many of the technical analyses for the NHIE have been completed (actuarial analysis, provider payment system, accreditation system, fee schedules) but further discussion is warranted on the following issues: (a) Administrative services: The intention is to contract out claims processing and other non-fiduciary functions to a third party administrator under an "administrative services only" arrangement. The key issues have to do with contract design, contract implementation, and the rules of the game and the regulatory environment, which is critical in view of the absence of legal precedents for such a contract in Tanzania; (b) Provider accreditation: The accreditation level is linked to the reimbursement rate; thus care should be made so that the undue growth of tertiary/high-tech facilities is not encouraged; and (c) Provider payment system: A fee-for-service payment system is provided for under the act, but benefits also include outpatient services. Traditionally, the high administrative cost of the large volume of small claims inhibits insurers from covering outpatient care under a fee-for-service arrangement, but Tanzanian civil servants were adamant in having outpatient care as a covered benefit. The NHIF program must formulate a creative way of covering this service, perhaps through monthly reimbursement to a provider that keeps a daily log of its patients. -67-  References 1. Community Health Fund (n.d.). Community Health Fund Pretesting: Progress of CHF Activities. Report submitted to the MOH. 2. Cost Sharing Implementation Team (1996). Implementation of Health Services User Fees in Tanzania: An Evaluation of Progress and Potential Impact. MOH. August. 3. Crown Agents (1999). Health Sector Financial Systems Consultancy. March. 4. Esguerra, Octaviano (1999). Actuarial Analysis of the National Health Insurance Program. Management Sciences for Health. Report submitted to the MOH. 5. Health Insurance Implementation Team (1998). Report of the Consultative Meeting Between the MOH and Representatives of Employers, Employee Trade Unions, and Health Care Providers. Report submitted to the MOH. March. 6. Ilomo, Peter (1999). Tanzania Cost Sharing Programme: Performance and Prospects. MOH, Cost Sharing Implementation Team. Draft in process, January. 7. Kraushaar, Daniel (1999). Alternative Provider Payment and Management Information System for Outpatient Care. Management Sciences for Health. Report submitted to MOH. 8. Mallya, Joseph N. (1998). Local Government Reform Programme and Sectoral Reforms: Key Issues. Ministry of Regional Administration and Local Government. Presentation made during the Health Sector Reform Dissemination Meeting, Dar Es Salaam, October 20-23. 9. MOH (1999). Joint Disbursement System for the Health Sector: Accounting Manual. November 2000. 10. _ (1998). Contract Form for the Capitalisation Program Credit Line. Medical Stores Department. July 30. 11. Musau, Stephen, Samuel Munga, and Peter Ilomo (1998). Setting Revenue Targets for the Cost Sharing Program in Public Hospitals. Study funded by USAID under the BASICS Project. 12. Newbrander, William (1999). Accreditation of Providers for the National Health Insurance Fund of Tanzania. Management Sciences for Health. Report submitted to the MOH. 13. and Stephen Sacca (1996). Cost Sharing and Access to Health Care for the Poor: Equity Experiences in Tanzania. Study funded by USAID under the BASICS Project. 14. NGG (1999). Review of Health Sector Financial Management and Development of a Joint Disbursement System in Tanzania. March. 15. Njau, F.N. and Shirima, R.M. (1997). CHF Pretesting in Igunga district: Process, Outputs, Achievements and Their Policy Implications. Health and Nutrition Project. April. 16. PriceWaterhouseCoopers (2000). Ministry of Regional Administration and Local Government: Joint Disbursement System for Council Health Basket Funds. Draft final report. February. 17. _ (2000). Ministry of Regional Administration and Local Government: Joint Disbursement System for Council Health Basket Funds - Final Draft Accounting Manual. February. 18. _ (1999). Tanzania Public Expenditure Review: Health and Education. Financial Tracking Study. March. 19. PriceWaterhouseCoopers and Soft-Tech (n.d.). Joint Disbursement System for the Health Sector. Draft Accounting Manual. Report submitted to the MOH. 20. Reverente, Benito and Ma. Cristina Bautista (1999). Development of Fee Schedules and Payments System Proposal. Management Sciences for Health. Report submitted to the MOH. 21. Robles, Andrea, Rogatian Shirima, et al. (1999). Community Acceptability of the CHF and its Potential for Improving the Health Services and Health Situation in Madamigha Village, Singida District, Tanzania. Health and Nutrition Project, Ministry of Health. January. 22. United Republic of Tanzania (1999). The National Health Insurance Fund Act, 1999. Bill Supplement No. 4. Gazette of the United Republic of Tanzania, No. 3, Vol. 80, 15th January. -68 -  Annex 6: Procurement and Disbursement Arrangements TANZANIA: Health Sector Development Program Procurement General: It is not possible to determine the exact mix of goods and services to be procured under the Project due to the adaptable feature of an APL. Details of procurement and sources of funds for each procurement will be agreed annually through a joint review between the government and a group of donors in March, based on the needs identified in the government's three-year rolling plan, Program of Work (POW), and the one-year Plan of Action (POA). The procurement plan for the first year was prepared based on the POW and the POA. Costs for the subsequent years are only indicative at the time of project preparation. The exact mix of procurement will be determined on an annual basis during annual joint reviews in March, where a draft procurement plan for the following financial year will be presented and agreed upon. IDA will finance goods, civil works, consultancy, training, and other local activities necessary to implement part of the activities in the POA. Procurement for all IDA financed activities will be carried out in accordance with the Bank's Guidelines for Procurement under IBRD Loans and IDA Credits (January 1995 and revised in January and August 1996, September 1997, and January 1999), in particular, Section 3.15 Community Participation in Procurement. Consulting services by firms or individuals financed by IDA will be awarded in accordance with the Bank's Guidelines: Selection and Employment of Consultants by World Bank Borrowers (January 1997, revised in September 1997 and January 1999). Until a joint procurement mechanism is established and agreed upon by all parties concerned, joint financing at the central level through the US Dollar Holding Account will cover only items which are under the prior review thresholds. Procurement above thresholds will be earmarked and the existing procurement arrangements will be used. This will be revised as agreements are reached between the government, IDA, and other financing partners on the procurement management arrangements and procedures (including thresholds for procurement methods and prior review requirements) to carry out procurement of larger values. A short-term consultant is currently assisting the government in developing a joint procurement manual, a draft of which is expected by May 30, 2000. The target date to reach agreements on the manual is June 30, 2000. IDA's participation in the joint financing for districts will be dependent upon satisfactory results from a capacity assessment of procurement and financial management systems at the district level. Procurement performance (including MSD's procurement activities) will be assessed on an annual basis (in the form of procurement audits by an external agency), and the threshold levels for various methods of procurement and for prior reviews may be revised based on the assessment results. In addition to the formal annual audits, ad-hoc procurement reviews will be conducted periodically. -69 -  Institutional Arrangement: The overall coordination of the program implementation will be done by the MOH in collaboration with the MRALG, but each component/sub-component will be implemented by relevant departments of the MOHIMRALG, the Medical Stores Department (MSD), and district management. In order to kick start the procurement activities under the program, the MOH has assigned a three-person team to coordinate procurement under the Director of Administration and Personnel. One of the procurement team members was previously part of the just closed Health and Nutrition Project (H&NP), and is well versed in the Bank procurement procedures. Procurement of pharmaceuticals and medical supplies is currently being managed by the MSD under the supervision of the Medical Tender Board (MTB), and this is expected to continue under the program. One of the important activities of the Project is to strengthen the national system and capacity for procurement, and develop common procurement mechanisms for the activities financed by pooled fund. Short-term procurement consultants have been recruited for the period of 6 months under the DFID financing. They will assist the govemment in developing a procurement manual, and recommend actions to establish a common procurement mechanisms, strengthen the capacity to manage procurement, and assess the need to address any weaknesses. Procurement Capacity Assessment: An assessment of procurement capacity of the MOH, MSD, and some of the districts has been carried out, and a report has been prepared. The report indicates relatively high risks at the central MOH. While the MOH has built up a limited capacity and experience in procurement through the implementation of the Health and Nutrition Project (H&NP) Cr. 2098-TA (IDA's first health project in Tanzania), the capacity concentrated in the Project Implementation Unit (PIU) that was created under the project. Under the new credit, management of all the procurement will be handled by the MOH and the MRALG, using the existing structure and systems. At present, the overall procurement administration at the MOH is supervised by the Director of Administration and Personnel, who is also the Chairman of the Tender Committee. At the MOH's headquarters, currently procurements for all the directorate in the MOH is being handled by a supplies officer in-charge. The current capacity of the MOH without the PIU is likely to be inadequate to handle increased workloads under the Program, with a substantially increased number of procurement including those with much higher value. During the appraisal, further assessments on the procurement capacity of the MOH was done and a recommendation was made to appoint a procurement agent to handle all key procurement activities (excluding pharmaceuticals and medical supplies). This was supported by all the cooperating partners (donors) to the program. The rationale for this recommendation, as communicated to the MOH, is as follows: * The concept of outsourcing procurement is not new to the Ministry. Pharmaceuticals and medical supplies are currently being procured and managed by the MSD which is supervised by the MTB. This system of outsourced procurement is working satisfactorily. * In addition to the outsourced MSD procurement, the MOH has been using several parallel outsourced procurements by various donor agencies who had used procurement agents to fulfill the MOH's medical and non-medical requirements. The proposal is to use one procurement agent (for non-medical supplies) under the supervision of the MOH. * MOH outsourcing of procurement facilitation will enable the Ministry to devote its existing resources towards policy reviews, enhancements and implementation. Contrary to some beliefs, outsourcing will not take away the primary responsibilities of the Ministry with regard to equipment specification, needs assessment, design specification etc. which form a key part of procurement activities. - 70 -  * Existing resources are not adequate to carry out the entire procurement activities for the program. Moreover, with the impending decentralization and transfer of responsibilities to the Ministry of Regional Administration and Local Government (MRALG), there is no real reason to put in additional/enhanced resources within the MOH. It was suggested that the selection and appointment of the procurement agent would be done by the MOH by a competitive process assisted by the cooperating partners, and that the contract would be between the MOH and the procurement agent whose performance will be monitored by the Ministry. The MOH did not endorse the recommendation to appoint a procurement agent, but agreed to assess the procurement system and capacity, and address any weaknesses and long-term needs of the MOH and the MRALG. The assessment and the resultant recommendations are expected to be completed by June 2000. Risks for the procurement at the district level are also considered to be high. The existing regulations for procurement require cumbersome procedures and involve many layers of people who are not conversant in procurement tasks. Capacity in the procurement at the district level is generally weak. However, the volume of procurement that districts are expected to handle under the Project is relatively small, and its types of goods and services will be very limited. Districts will mostly deal with minor civil works, or small procurement of goods and supplies of mainly the recurrent nature through shopping. Large equipment and goods with a value above US$ 50,000 per contract (Regional Tender Boards have authority limits up to TShs. 40 million (equiv. US$ 50,000)) will be procured by the center through pooling requests from the districts. Under the proposed credit, a cumulative threshold per quarter per district will be agreed on an annual basis. Procurement of pharmaceuticals and medical supplies is done by the Medical Tender Board (MTB), with the semi-autonomous MSD handling all the administrative process and technical work involved in the procurement. Procurement risks at the MTB/MSD is considered to be average. Over the past 5-6 years, the MSD has strengthened its procurement capacity, and gained experience including several ICB tenders under the H&NP. Although the primary procurement method for pharmaceuticals and medical supplies is ICB, the MSD's regulations allow emergency procurement up to US$ 100,000 without prior review by the MTB. Previous studies conducted by an independent auditor reveal that in the past two years, the emergency procurements did not exceed 10% of the total purchases. During the appraisal, it was found that procurement of pharmaceuticals could pose a problem due to the drug registration system introduced in July 1999. However, this aspect was discussed during the negotiations, and the borrower has confirmed by the letter Ref. No. HEU/20/1 l/VOL/II/1 lI of April 14, 2000 that: * the bidders whose drugs are not yet registered will be allowed to participate in all the tenders issued by the GOT (i.e. registration would be a condition of contract award, not bidding); * the registration forms would accompany the bidding documents and bidders encouraged to apply even prior to their submission of bids; and * within the bid validity, the MOH will facilitate the registration of the product(s) offered by the lowest evaluated bidders who submitted complete and satisfactory registration forms. With this agreement from the Borrower, the above envisaged problem is not likely to arise. - 71 -  Procurement Methods Civil Works: The initial phase of the Project will support the government to take the inventory of the existing network of health facilities, and develop a strategy for health infrastructure development as well as a realistic and affordable plan for rehabilitation, maintenance and rationalization of the network. Major financing for civil works will be agreed only after such overall strategy and a development plan are agreed between the government and development partners. It is expected that civil works under the Project will include rehabilitation of priority health facilities, as well as small construction and minor rehabilitation/repairs at the community level. International Competitive Bidding (ICB) procedures will be used for civil works, fully or partially financed by IDA, estimated to cost US$ 500,000 or more per contract. The large majority of works under the Project is expected to cost less than US$ 500,000 equivalent per contract, and will be procured through National Competitive Bidding (NCB) procedures. Small works costing less than US$ 50,000 per contract, up to an aggregate amount not exceeding US$ 2.0 million for the Phase I of the APL, will be procured under lump-sum, fixed price contracts on the basis of quotations obtained from three qualified domestic contractors invited in writing to bid. The invitation shall include a detailed description of the works, including basic specifications, the required completion date, a basic form of agreement acceptable to IDA, and relevant drawings where applicable. The awards will be made to the contractor who offer the lowest price quotation for the required work, provided they demonstrate to have the experience and the resources to complete the contract successfully. To community participation in primary health service management, use of community labor and labor-intensive methods are encouraged. Goods: Procurement of goods will include: pharmaceuticals, medical equipment and supplies, vehicles, office equipment and furniture. Contracts of US$100,000 or more will be procured through ICB and those below $100,000 may be awarded through NCB. Drugs and pharmaceuticals estimated to cost less than $ 30,000 equivalent per contract, up to an aggregate amount not to exceed $300,000 may be procured from UNICEF, WHO, and other specialized agencies of the United Nations. Goods estimated to cost less than $30,000 equivalent per contract, up to an aggregate amount not to exceed $300,000 may be procured from IAPSO in accordance with the provisions of paragraph 3.9 of the Guidelines. Shopping (international or national), with price quotations from 3 or more qualified suppliers, may be used for individual contracts less than $30,000, up to an aggregate amount of US$ 1.0 million for the Phase I of the APL. Grants to Community-Based Health Services: The Project will support a community-based prepayment scheme for basic health services, the Community Health Fund (CHF), which was piloted in 10 districts under the Health and Nutrition Project. Matching grants will be provided to the community contribution collected for the scheme on a one-to-one basis in order to encourage participation to the scheme as well as to subsidize essential health services and programs at the community level. The Project will provide matching grants to the participating districts based on the evidence to show the community contributions collected during the preceding period (normally a report on the total contributions and a copy of the bank statement of the CHF account where contributions are deposited). The CHF will only finance small-scale, community-based health activities, including minor repairs or works, purchase of drugs and supplies in small quantities, and health promotion and interventions at the community level. All procurements under this category will be by Community Participation method. An operational manual for the establishment and management of the CHF has been developed. Simplified procurement and disbursement procedures for community based programs will be developed by the MOH/MRALG. and approved by IDA. - 72 -  Consulting Services: The consultancy services required would be mostly in the areas of specialized health systems management, health economics and financing, monitoring and evaluation, financial management and accounting, architectural and engineering. The exact mix (types of consultancy, budgets, procurement methods) will be discussed and agreed annually during joint reviews. At this point, it is expected that financing of consultancy will be earmarked, and not financed through pooled resources. The mechanism to bring in the consultancy to the pooled fund is being worked out. Before implementation, this will be reviewed by the Bank and other cooperating partners, and agreed with the Government. The Project will encourage, to the extent possible, engagement of national consultants in order to develop local capacity, in accordance with the Bank's Guidelines. This may be done through short-listing of national consultants for contracts of small value (below US$ 100,000) or by setting selection criteria which provides higher weights to national consultants when candidates have similar qualifications and experience. Foreign firms/consultants will probably be used for more complex assignments or for areas where local expertise is not sufficiently available. However, foreign firms will not be excluded from the selection process for small value contracts if they expressed interest. Various selection methods will be used to recruit consultants depending on the type and size of contract. For contracts with firms, Quality- and Cost-based Selection method according to the Bank guidelines (Section II, para. 2.1-2.28 of the Consultant Guidelines) will be used except as provided otherwise. Contracts with firms estimated to cost less than $100,000 may be awarded on the basis of the Consultant Qualification selection method (para. 3.1 and 3.7). Assignments that are simple and can be precisely defined, selection under a Fixed Budget may be used in accordance with para. 3.1 and 3.5 of the Consultant Guidelines. Small contracts (less than $100,000 per contract) of a standard or routine nature (e.g., audits, engineering design of non-complex works) may be procured using a Least-Cost Selection method (para. 3.1 and 3.6). Selection of individual consultants will be done based on the qualifications and experience of individuals (Section V. para. 5.1-5.3). For both firms and individual contracts, single source selection may be awarded only on an exceptional basis, with prior agreement by IDA, in accordance with the provision of para. 3.8 through 3. 11 of the consultants. All terms of reference are subject to prior agreements with IDA. Training, Workshops and Study Tours: Training abroad and in-country, workshops and study tours will be carried out on the basis of approved annual programs that would identify the general framework of training activities for the year, including the nature of training/study tours/workshops, the number of trainees, and cost estimates. Post-review will be conducted from time to time to review the selection of institutions/course contents/trainees and justifications thereof, and costs incurred. - 73 -  Procurement methods (Table A) Annex 6, Table A: Costs to be Financed from the Credit for the Year 1 /a by Procurement Arrangements (in US$ million equivalent) I. Civil Works 0.05 0.03 0.08 2. Goods and Equipment 2.30 0.50 0.20 3.00 3. Consultant Services _ _- 0.84 0.84 4. Training, workshops, study tours O_- 0.95 0.95 5. CHF grants _ _- 0.25 0.25 6. Incremental operating costs - 0.20 0.20 Total 2.30 0.55 2.47 5.32 a/ Includes all items that are expected to be financed by IDA, partially or entirely, during the first year. b/ Includes: civil works and goods to be procured through international/national shopping, or Community Participation method; consulting services; training; and incremental operating costs. - 74 -  Prior review thresholds (Table B) Annex 6, Table B: Thresholds for Procurement Methods and Prior Review Type oEpenditure Catrsc -- Procurement Cutsnita S ; l4t. 1. Civil Works < $50,000 Community participation, Post-Review and/or minor works (three quotations) $50,000 or more, NCB First 3 contracts & < $500,000 irrespective of value and all contracts above $300,000. $500,000 or more ICB All 3. Goods <$30,000 Shopping/lAPSO Post-Review (Drugs, Vehicles, $30,000 or more, NCB First 3 contracts Equipment, Furniture, & < $100,000 irrespective of value. Supplies) All others: Post-Review $100,000 or more ICB All 4. Consultant Services < $200,000 Various Methods (to be All Contracts >$50,000 for agreed annually based on individual consultants, and the Annual Work Program) all contracts >$100,000 for firms $200,000 or more QCBS All 5. Training, workshops, All Values ---- Post-Review study tours N.B. (i) All terms of reference for consulting services will be subject to IDA's prior review. (ii) The above thresholds apply to all the expenditures financed, partially or entirely, by IDA. Procurement performance (including MSD's procurement activities) will be assessed on an annual basis (in the form of procurement audits by an external agency), and the threshold levels for various methods of procurement may be revised based on the assessment results. In addition, ad hoc procurement reviews may be carried out from time to time. Overall Procurement Risk Assessment High* *For findings and action plans, refer to the paragraphs on the procurement capacity assessment (pp. 70-71). Frequency of procurement supervision mission proposed: One every 4 months (includes special procurement supervision for post review/audit and those done by Country Office Procurement Analyst). - 75 -  Disbursement Allocation of credit proceeds (Table C) The allocation of Credit proceeds will be reviewed and reallocated annually when decision is reached on the annual work plans and budgets between the government and development partners, including a procurement plan and on a financing plan. The percentage of IDA financing for the items funded by the pooled funds will be determined and agreed annually as annual budgets and sources of funds are agreed, or as deemed necessary (e.g. in case of new entry or exit by development partners). The intention is that funds will be channeled increasingly through the pooled funds, as the government implementation capacity increases and further agreements are reached among the government and partners on implementation arrangements. For expenditures financed by pooled funds, the disbursement of the IDA Credit would be made in accordance with the operational procedures of the joint disbursement system. For items financed solely by IDA, the Credit will be disbursed against 90% of eligible expenditures under the Central Subprogram, and against 100% of the amounts disbursed for CHF grants. As projected by Bank's standard disbursement profile, disbursement would be completed by four months after project closure. Disbursement would be made against standard IDA documentation requirements. Annex 6, Table C: Allocation of Credit Proceeds /a 1. Central sub-programs /b (a) Pooled Funds financing expenditures Up to 2.0 in total for 50% of eligible expenditures under /c FY2000/01 the Central sub-programs or such and thereafter, such amount as other percentage as IDA may agreed for each FY determine from time to time (b) IDA financing expenditures /c Up to 4.5 in total for 90% of eligible expenditures under FY2000/01 the Central sub-programs or such and thereafter, such amount as other percentage as IDA may agreed for each FY determine from time to time (c) CHF grants Up to 0.5 in total for 100% of amounts disbursed FY2000/01 and thereafter, such amount as agreed for each FY 2. Local authority grants /d Up to 0.15 in total for 100% of amounts disbursed FY2000/01 and thereafter, such amount as agreed for each FY 3. HIV/AIDS Fund grants /e 2.00 100% of amounts disbursed 4. Refinancing of PPF Advance 1.35 As in the PPF Agreement 5. Unallocated 11.50 Total 22.00 a/ The allocation of proceeds will be revised at least every year as annual programs including procurement and financing plans are agreed. b/ Include the activities under all the components financed with other partners through a joint account for the central government. c/ Include: civil works, drugs, equipment, vehicles, training materials, consultants' services, studies, training, and incremental operating costs (which is defined as incremental expenses incurred related to Project implementation, management and monitoring, including office supplies, vehicle and equipment operation and maintenance, travel, per diem, and supervision costs, but excluding salaries of civil and public servants of Tanzania.). d/ Disbursement from this category is subject to the establishment of disbursement and procurement arrangements at districts receiving funds, satisfactory to IDA. e/ Disbursement from this category is subject to an agreement on the modality of the fund's operation and management. - 76 -  Use of statements of expenditures (SOEs): Disbursements may be made on the basis of statements of expenditure to replenish the special account for expenditures for (i) goods under contracts costing less than $100,000 equivalent each; (ii) civil works under contracts costing less than $300,000 equivalent each; (iii) consultants' services (firms) under contracts costing less than $100,000 equivalent each; (iv) consultants' services (individuals) under contracts costing less than $50,000 equivalent each; and (v) operating costs and training under contracts costing less than $50,000 equivalent each. For the expenditures funded by pooled funds, disbursements would be made against quarterly reports for total expenditures. IDA will be provided with the fixed percentage for IDAs share of the pooled funds. This will be determined annually at the March reviews when donor commitment for the next FY is known and will be based on the proportion of funds committed by each partner. This agreement will be confirtned each year by a letter from the Tanzania Country Director to the Ministry of Finance. Special account: In order to ensure timely provision of funds for the operation of the joint disbursement system, Government will establish a Special Account in the amount of US$ 1,000,000, in a commercial bank. Funds from this special account would be transferred in accordance with the procedures as agreed to in the accounting manual. For pooled financing, IDA will operate through a Special Account, and disbursements would be triggered by the quarterly approval mechanism under the control of the Basket Financing Committee. More specifically, IDA funds will be advanced initially from a Special Account to the US Dollar Holding Account, triggered by agreement of the BFC. Subsequent disbursement will be made against quarterly reports for the total expenditures, of which IDA will disburse a portion at a pre-determined percentage (to be set annually based on each donor's commitment). Release of funds from the US Dollar Holding Account to the MOF's Ex-chequer Account will also be done quarterly. However, so as to be aligned with Government's own procedures, disbursement from the MOF to the MOH would be on a monthly basis along with Government issue of warrants. The first release from Treasury to the MOH is expected to be for two months so as to avoid any delays in the monthly issue of the warrants. IDA proceeds would be used only to finance eligible expenditures under the Project. - 77 -  Annex 7: Project Processing Schedule TANZANIA: Health Sector Development Program Projc Shedule^^X Planned1 Acitu' E =al Time taken to prepare the project (months) 29 First Bank mission (identification) 01/12/98 Appraisal mission departure 08/21/99 08/21/99 Negotiations 1 02/22/2000 02/28/2000 Planned Date of Effectiveness 07/01/2000 07/01/2000 Prepared by: Ministry of Health, in close collaboration with Ministry of Regional Administration and Local Government. Preparation assistance: Japanese PHRD Grants No. 29145 (US$ 625,000 equivalent) and No. 25923 (US$ 270,000 equivalent); Project Preparation Facility (US$ 855,000 and US$ 500,000 equivalent); Donor/Partner agencies (various mission/consultancy/technical assistance costs). Bank staff who worked on the project included: Name Sp iality Philip Gowers Principal Health Specialist, Team Leader (AFTH1) Chiyo Kanda Economist, Task Manager (AFTH1) Emmanuel Malangalila Sr. Operations Officer - Health (AFMTZ) Oscar Picazo Economist - Health (AFTH 1) Brian Falconer Financial Management Specialist (AFTKQ) Mercy Sabai Financial Management Specialist (AFMTZ) V.S. Krishnakumar Procurement Specialist (AFTKQ) Pascal Tegwa Procurement Analyst (AFMTZ) Wendy Roseberry Sr. Health Specialist (AFTH I) Hovsep Melkonian Disbursement Officer (LOAAF) Pascale Dubois Legal Counsel (LEGAF) -78 -  Annex 8: Documents in the Project File* TANZANIA: Health Sector Development Program A. Project Implementation Plan 1. Proposals for Health Sector Reform (December 1994) 2. Health Sector Reform Programme of Work: July 1999-June 2002 (June 1999) 3. Health Sector Reform Plan of Action: July 1999-June 2000 (June 1999) 4. Letter of Sector Development Policy and Program (February 25, 2000) 5. Joint Disbursement System for the Health Sector: Accounting Manual (November 1999) 6. Joint Disbursement System for Council Health Basket Funds - Draft final report (February 2000) 7. Joint Disbursement System for Council Health Basket Funds - Final draft accounting manual (February 2000) 8. Planning Guide for Local Authorities regarding Utilization of the Health Basket Grant for the Year 2000 (January 2000) 9. Termns of Reference for the Basket Financing Committee 10. Terms of Reference for the Sector-wide Approach Committee 11. Memorandum of Understanding between the Ministry of Health and Development Partners 12. Side-Agreement between GOT and Pooled Fund Partners (March 24, 2000) 13. Third Medium Term Plan (MTP-I1I) for Prevention and Control of HIV/AIDS/STDs: 1998-2002 (July 1998) B. Bank Staff Assessments I. MOH/Partner Pre-Appraisal Mission: Joint Aide Memoire (December 1998) 2. MOH/Partner Joint Appraisal: Aide Memoire (March 1999) 3. World Bank Appraisal: Aide Memoire (September 1999) C. Other *lncluding electronic files - 79 -  Annex 9: Statement of Loans and Credits TANZANIA: Health Sector Development Program Difference between expected and actual Original Amount in US$ Millions disbursements Project ID FY Borrower Purpose IBRD IDA Cancel. Undisb. Orig Frm Rev'd TZ-PE-47761 1999 GOVT TAXADMINISTRATION 0.00 40.00 0.00 38.27 0.00 0.00 TZ-PE-2789 1998 GOVT HUMAN RESOURCE DEV 1 0.00 20.90 0.00 14.68 1.50 0.00 TZ-PE-2804 1998 GOVT AGRIC RESEARCH 0.00 21.80 0.00 18.94 0.63 0.00 TZ-PE-2753 1997 GOVERNMENT NATEXTPROJPH.II 0.00 31.10 0.00 18.82 7.42 0.00 TZ-PE-2821 1997 GOVT OF TANZANIA SAC I 0.00 131.50 0.00 24.15 24.98 27.46 TZ-PE-38570 1997 GOVT RIVER BASIN MGM.SMAL 0.00 26.30 0.00 17.41 4.39 0.00 TZ-PE-46837 1997 GOVERNMENT LAKE VICTORIA ENV. 0.00 10.10 0.00 6.96 1.57 0.00 TZ-PE-2758 1996 GOT URBAN SECTOR REHAB 0.00 105.00 0.00 76.50 16.21 0.00 TZ-PE-2812 1995 MINISTRY OF ENERGY MINERAL SECTOR DEV. 0.00 12.50 0.00 2.97 1.41 0.00 TZ-PE-2770 1994 GOVT OF TANZANIA ROADSII 0.00 170.20 0.00 146.15 142.95 0.00 TZ-PE-2801 1994 GOVT OF TANZANIA ASMP 0.00 24.50 2.48 5.87 5.70 0.00 TZ-PE-2756 1993 GOVT. POWER VI 0.00 200.00 0.00 37.48 15.32 0.00 TZ-PE-2780 1993 GOVT TELECOM III 0.00 74.45 0.00 15.57 16.15 16.07 TZ-PE-2788 1993 PRIV. PUB. SECT. MGT 0.00 34.90 0.00 2.73 0.66 0.00 TZ-PE-2817 1993 FIN.&LEGALMGTPROJ 0.00 20.00 0.68 3.87 4.07 2.58 TZ-PE-2757 1991 RAILWAYS RESTRUCTURI 0.00 76.00 10.97 18.33 25.43 -1.80 TZ-PE-2786 1991 PETROL REHAB 0.00 44.00 0.00 14.77 12.60 12.29 Total: 0.00 1043.25 14.13 463.49 280.99 56.60 80 -  TANZANIA STATEMENT OF IFC's Held and Disbursed Portfolio 3 1-Jul- 1999 In Millions US Dollars Committed Disbursed IFC IFC FY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic 1989 TASCO 0.88 0.00 0.00 0.00 0.88 0.00 0.00 0.00 1991 Mufindi Tea 0.43 0.00 0.00 0.00 0.43 0.00 0.00 0.00 1991/97 TPS Zanzibar 1.01 0.10 0.19 0.00 1.01 0.10 0.19 0.00 1993 TPS (Tanzania) 7.00 1.04 0.87 0.00 7.00 1.04 0.87 0.00 1993/96 AEF Tanganyika 0.19 0.00 0.00 0.00 0.19 0.00 0.00 0.00 1994 AEF Moshi Lthr 0.00 0.00 0.25 0.00 0.00 0.00 0.19 0.00 1994 AEF Nomad Safari 0.05 0.00 0.00 0.00 0.05 0.00 0.00 0.00 1994 AEF Raffia Bags 0.33 0.00 0.00 0.00 0.33 0.00 0.00 0.00 1994 Eurafrican Bank 0.00 0.00 0.73 0.00 0.00 0.00 0.73 0.00 1994 Tanzania Brewery 0.00 0.00 6.00 0.00 0.00 0.00 6.00 0.00 1994 ULC Leasing 1.88 0.00 0.95 0.00 1.88 0.00 0.76 0.00 1995 AEF MIC Tanzania 0.30 0.00 0.00 0.00 0.30 0.00 0.00 0.00 1995 AEF Tanbreed 0.70 0.00 0.00 0.00 0.70 0.00 0.00 0.00 1996 AEF Contiflora 0.35 0.00 0.00 0.00 0.35 0.00 0.00 0.00 1996 AEF Milcafe 0.21 0.00 0.00 0.00 0.21 0.00 0.00 0.00 1996 AEF Zainab Grain 0.80 0.00 0.00 0.00 0.80 0.00 0.00 0.00 1996 IHP 1.41 0.00 0.60 0.00 1.41 0.00 0.60 0.00 1997 AEF Aquva Ginner 0.68 0.00 0.00 0.00 0.68 0.00 0.00 0.00 1997 AEF Hort. Farms 0.70 0.00 0.00 0.00 0.70 0.00 0.00 0.00 1997 DATEL 2.25 0.00 0.51 0.00 1.35 0.00 0.48 0.00 1997/99 AEF Pallsons 0.78 0.00 0.00 0.00 0.78 0.00 0.00 0.00 1998 AEF Blue Bay 1.50 0.00 0.00 0.00 0.50 0.00 0.00 0.00 1998 AEF Drop Zanziba 0.32 0.00 0.00 0.00 0.32 0.00 0.00 0.00 1998 AEF Maji Masafi 1.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 1998 Tanzania Jubilee 0.00 0.00 0.29 0.00 0.00 0.00 0.29 0.00 Total Portfolio: 22.77 1.14 10.39 0.00 20.87 1.14 10.11 0.00 Approvals Pending Commitment FY Approval Company Loan Equity Quasi Partic Total Pending Commitment: 0.00 0.00 0.00 0.00 - 81 -  Annex 10: Country at a Glance TANZANIA: Health Sector Development Program Sub- 9122/99 POVERTY and SOCIAL Sahaian Low- Tanzania Africa income Development dlamond 1998 Ponulation. mid-vear (millions) 32.1 828 3.S15 Life expectancy GNP ner caoita (Atlas method. USS) 210 480 520 (GNP (Atlas method. USS billions) 6 7 904 1.R44 Averaae annual orowth. 1992-98 Pooulation (%J 2.8 2.6 1.7 Labor force (%) 1.9 2.6 1.9 GNP Gross Most recent estimate llatest vear available. 1992-98) per \ .. primary i capita e / nrlilment Povertv (9% of DoDulation below national oovertv line) -. . Urban ooDulation (% of total DoDulation) 26 33 31 Life exoectancv at birth (vears) 48 51 63 Infant mortalitv (oer 1.000 live births) 8S 91 69 Child malnitritirn (9 of children under 5) 31 Access to safe water Access to safe water (% of DoOulation) 49 47 74 Illiteracv (% of DoDulation aae 15+) 28 42 32 Gross orimarv enrollment (% of school-aoe oooulationl 686 77 108 Tanzania Male 67 84A 113 Low-income group Female 66 69 103 KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1977 1987 1997 1998 Economic ratios' GDP (US5 billions) ..: 3.8 7.1 7.9 Gross domestic investment/GDP 39.8 16.3 16.0 F.norts of nnods and servinP./GDP iln 2 176 1 R Trade Gross domestic savinoslGDP .. 20.1 5.4 6.0 Gross national savinos/GDP . 16.2 4.3 4.4 Cu,rrent arcotint balanre/GDP -2 7 -11.9 -14 1 Interest oavments/GDP . 1,2 0.6 0.5 Domesbc Investment Total debt/GDP .. 146.0 101.6 89.4 Savings Total debt servicelexoorts 8.3 35 4 12.0 13.5 Present value of debt/GDP . 75.3 Present value of debtl/exDorts .. .. 405.0 Indebtedness 1877-87 1988-98 1997 1998 1999-03 laveraae annualarowth) GDP .. 2.9 4.0 3.4 5.3 Tanzania GNP ner canita .. 0.1 1.4 0.2 2.6 Low-income group Exnorts of ooods and services .. 10.3 -12.3 -12.8 5.4 STRUCTURE of the ECONOMY 1977 1987 1997 1998 Growth rates of output and investment (%) i% of GDP) Aoriculture .. 59.2 47.3 46.3 20 . Industrv . 11.9 14.3 14.1 10 Manufacturina . 8 7.1 6.9 0 Services 28.9 38.4 39.5 -10 93 D1__ 7 S Private consumDtion 67.2 84.6 85.2 -20 General oovernment consumotion .. 12.7 10.0 8.8 GDI -OGDP Imnorts of ooods and services 30.0 28.5 25.7 faveraae annual orowthl 1977-87 1988-98 1997 1998 Growth rates of exports and imports (%6 Aoriculture 3.5 3.1 2.7 60 Industrv - 2.1 6.7 6.8 40 Manufacturino - 1.7 4.9 4.9 20 Services .. 2.3 3.4 2.3 Private consumotion .. 2.8 2.6 2.1 93 94 -20 9 General oovernment consumotion .. -5.0 -18.3 -9.8 Gross domestic investment .. -0.2 -1.1 1.9 40 Imoorts of aoods and services .. 0.2 -17.7 -15.0 - EEports - mports Gross national oroduct .. 3.1 4.2 2.9 Note: 1998 data are preliminary estimates. The diamonds show foujr kpv indicators in tha cou,ntrv rin hold) nomnared with its innome-aroln averanA If data are mission the diamond wilt ha. in.omplet8 - 82 -  Tanzania PRICES and GOVERNMENT FINANCE 1977 1987 1997 1998 Inflation [%) Domestic prices (% change) 40 Consumer prices 11.6 29.9 16.1 10.4 30 Implicit GDP deflator 20.0 15.3 20 Government finance 10 (% of GDP, includes current grants) 0 Current revenue 16.1 13.5 12.3 93 94 95 99 97 98 Current budget balance -2.1 1.0 1.5 GDP deflator CPI Overall surplus/deficit -8.5 -1.6 -2.2 TRADE 1977 1987 1997 1998 Export and import levels (USS millions) (US$ millions) Total exports (fob) 426 794 645 1,600 Coffee 147 118 111 Cotton 36 138 91 1,200 Manufactures 51 102 68 6 * * * Total imports (cif) 1,099 1,388 1,402 Food 86 57 84 400 Fuel and energy 157 194 138 Capital goods 552 503 551 o 92 03 94 95 go 97 9o Exsort Drice index 11995= 100. Imnort orice index (f995=1001 , |Exports H Imports Terms of trnd. (1f995= 1001 BALANCE of PAYMENTS 1 977 1 987 1 997 1 998 1977 1987l 1997 1998 Current account balance to GDP ratio (%) (US$ mnillions) Exports of goods and services 645 442 1,274 1,125 0 Imports of goods and services 811 1,277 2,040 2,118 Resource balance -165 -834 -767 -993 t fl Net income -21 -149 -101 -156 Net current transfers 116 26 30 j* l Current account balance -70 -102 -842 -1,120 2c Financing items (net) 230 97 1,114 1,120 25 Changes in net reserves -160 5 -272 -1 .3 Memo: Reserves includino oold (USS millions) . 460 502 Conversion rate (DEC. local/USS) 51.2 599.5 637.8 EXTERNAL DEBT and RESOURCE FLOWS 1977 1987 1997 1998 (USS millionsl Composition of total debt, 1998 (USS millions) Total debt outstanding and disbursed 3,527 5,508 7,177 7,077 IBRD 113 325 34 34 A:34 IDA 145 801 2,306 2,306 G:5s7 Total debt service 55 157 15 156 F: 289 e:2,306 IBRD 9 47 24 24 Composition of net resource flows Official grants 135 481 434 Official creditors 189 140 189 189 Private creditors 30 38 -15 -15 c 24s Foreign direct investment 0 -1 158 E: 2,866 Portfolio equity 0 0 0 0: 499 World Bank program Commitments 102 23 150 150 A - IBRD E- Bilateral Disbursements 63 95 183 183 8-IDA 0- Other multilateral F - Private Principal repayments 4 28 36 36 C - IMF G - Short-term Net flows 59 67 147 147 Interest payments 9 29 20 20 Net transfers 50 38 127 127 Development Economics 9/22/99 - 83 -  Additional Annex No.: 11 Letter of Sector Policy - 84 -  ANNEX 11 TillE UNITED REPUBLIC OF TANZATNIA MINLSTRY OF FNANCE Telegrams: "TRrASLRY", DAR ES SAL.AA. P.O. BOX 9111, Tel.: 111174/6, FaX: 110326, TolOx: 41329. DAR ES SALAAM. (ARl Official Comlmunicatioas should be addressed to the Permiianent Secretary to the Troasury and NOT to individuals). In roply please quote: TYC/B/40/33/01 25th February, 2000 Ref. No . Mr. James D. Wolfensohn, President, The World Bank, 1818 H Street, N.W. WASHINGTON, D.C. 20433, U.S.A. Dear Mr. President, Re: TANZANIA HEALTH SECTOR DEVELOPMENT: STATEMENT OF DEVELOPMENT POLICY 1. I am writing to request, on behalf of the Government of the United Republic of Tanzania, a Credit of US$ 22 million equivalent, from the International Development Association (IDA) as Phase I of the three- phased Credit of $ 102 million in support of the Health Sector Development Program (HSDP). The proposed credit will improve the health services through the provision of equitable and affordable essential health services to people and support sector reform policies for 10-12 years in a phased manner. The Credit will further improve access, utilisation, quality and financing of health services through increased efficiency and effectiveness in the allocation and use of resources, maximise impact on health outcomes, especially among the poor, women and children. The programme is consistent with the Policy Framework Paper (PFP) formulated jointly by the Government in collaboration with the World Bank and the IMF (which is being transformed into Poverty Reduction Stategy Paper (PRSP).  2. The Government has developed a three-year Programme of Work (POW) 1999/2002 and is implementing a one-year Plan of Action (POA), 1999/2000. The HSDP will, through its 8 strategies in the (POW) and (POA), address major constraints in the sector and target the rural poor through provision of basic district health services. The proposed credit for the HSDP will finance, the agreed sector programme as elaborated in the POW and POA, and endeavour to achieve the long-term sector/goals through phased reforms in a flexible manner using a sector-wide approach. 3. The health sector is faced with a number of challenges. First, most of the major health problems in Tanzania can be attributed to infectious or communicable diseases, many of which are preventable and/or controllable, such as perinatal/maternal conditions, malaria, diarrhoea and HIV/AIDS. In particular, the HIV/AIDS is posing a serious problem on the country's economy and development, with the epidemic spreading rapidly among different population groups. The magnitude of the problem as well as the need for behavioural changes call for an urgent, more intensified response in a nation-wide, and multi-sectoral manner. 4. Second, resources are seriously constrained to address all competing needs. The Government has placed high priority to the health sector, however, due to budgetary constraints, it has managed to allocate 10.1 % of its budgetary resources to the sector in FY 1999/2000. This is far from sufficient to finance the extensive network of health facilities.. Also, the allocation within the sector is skewed, with half of the resources allocated to hospitals and personal emoluments taking almost 70% of the recurrent budget. As a result, most of the facilities suffer from shortage of essential drugs and supplies as well as deteriorating infrastructure due to 'lack of adequate financing and weak management. 5. Third, lack of accountability and unclear lines of authority pose problems. The past decentralisation effort only de-concentrated administrative functions to regions and districts, without providing real decision making power over allocation and use of resources. The centre- lead the planning and implementation of health programs, with the regions and districts playing more passive roles than desired. District Medical Officers have dual responsibilities to the MOH and to the local authorities/MORALG. Performance is monitored by expenditures on inputs and by health indicators. A system to link expenditures to outputs or health outcomes is desirable. 2  6. Fourth, the past fragmented project approach has led to inefficiency with uncoordinated activities and duplication, and created implementation arrangements parallel to the government system. This led to the uneven allocation of resources across priorities or geographical areas, hindering sector-wide prioritisation and strategy setting. In order to solve these problems the Government proposed comprehensive reforms in the sector to drastically transform roles and responsibilities in the provision and financing of the health care services, and to ensure cost-effective use of existing resources and emphasise outcomes or performance. 7. In order to meet the above challenges the Government's vision for reforming the sector is elaborated in the Health Sector Reform of 1996. To realise this vision, the Government developed a three-year strategy document, the Health Sector Programme of Work (POW), and a one-year implementation plan, Plan of Action (POA). Furthermore, the Ministry of Health has prepared Priority Activities to be implemented by Directorates (PAID) to detail the immediate activities to be undertaken towards a sector- wide approach, putting in place the necessary building blocks, systems, institutional framework and benchmarks for operationalisation of the reforms. To implement this programme, the Government has signed a Memorandum of Understanding (MOU) with the partners to start implementing the proposed reforms through annual plans. 8. The proposed reforms will require changes in institutional and financial arrangements in the public sector and donors to facilitate transfer of resources and responsibility to the local councils and the district health boards. Relevant studies have been contracted out to develop new arrangements, including financial management and accounting systems, costing of essential health packages, conducting situation analysis in the pilot 35 districts, management capacity assessment, and monitoring and evaluation system. Monitoring and Evaluation indicators have jointly been developed to establish a system of measuring progress, in terms of the process, outputs, outcomes and impact of the health services in the reformed sector. 9. The overall objective of the health policy in Tanzania is to improve the health and well being of all Tanzanians, with a focus on those most at risk, and encourage the health systems to be more responsive to the needs of the people. Specifically the policy addresses: reduction of infant and maternal morbidity and mortality, and increase in life expectancy 3  through provision of basic health care packages. The services will need to be equitably distributed and accessible by both the urban and rural populations. The community will be made more aware of health hazards. A greater role of the private sector in service delivery and cost sharing issues have been addressed in the Health Sector Reform to allow better targeting of the government resources to the indigent and the vulnerable groups. This policy framework augurs well with the Government's more general framework for social sectors as it appears in the Social Sector Strategy of 1994. 10. To address Tanzania's major causes of mortality and morbidity as well as to maximise impact of the limited resources, the Govemment will emphasise and ensure the delivery of Essential Health Package (EHP). The government budget will be targeted more to the primary health care services and the essential package so that it finances priority initiatives to tackle major causes of mortality and morbidity. 11. The Government has formed a National AIDS Advisory Board; A multi-sectoral strategic plan and plan of operation are being developed to address the epidemic nationally. Given the magnitude of the problem, the top Government leadership has initiated action to spearhead the control of the epidemic. 12. The Government intends to achieve the stated sector goals through eight strategies, elaborated in the POW. These are: * devolving its authority and mandate to the local level in line with the ongoing Local Government Reforms; * restructuring the secondary and tertiary health care; . strengthening the central-level capacity for the health sector for policy development and implementation; * developing human resources at all levels to deliver health services with a right skill mix; * strengthening the central support systems such as management of pharmaceuticals, medical supplies and equipment; * addressing sustainability in financing the health sector; * pursuing an appropriate public/private mix in service delivery; and * strengthening the sector-wide management capacity and systems. 4  13. The Government will strengthen the delivery of basic health services at the district level. Starting with the 38 districts under the LGR Phase I, District Health Boards will be formed to take responsibility for making overall policy decisions for district health services, and be made accountable for their outputs and outcomes, ensuring that communities are fully involved. 14. It is envisaged that the role of the central ministries will change to that addressing issues of good governance, regulations, legislation and technical support, including policy formulation, analysis and quality assurance. Authority to implement will be devolved to the local level. The centre will be strengthened to be able to carry out its new role and responsibilities. Appropriate planning, effective targeting, community involvement and a realistic financing framework will be addressed. The government will maximise impact of the resource base and technical assistance, the issues of sector-wide management and co-ordination will be focused. 15. Well functioning central support systems will be crucial for effective management at the district-level and hospitals. The government will continue its effort in strengthening procurement and management of pharmaceuticals and medical supplies, standardisation of equipment, devising quality assurance schemes, management of transport, and strengthening of the Health Management Information System, including its extension to hospitals, as well as an assessment of existing infrastructure, and development of realistic plans and strategies for rationalisation and development of health infrastructure. 16. The government will address primary concerns in the area of human resource development including right-sizing the workforce, quality 'of training, balanced allocation of human resources across service levels and geographical areas, and incentives and remuneration packages. Human resources for health will be addressed involving the key actors. Changes will be instituted to move away from input-based planning and evaluation and shift towards output-based or performance-based budgeting, planning, and evaluation systems. The Government recognises that such a change will need some time to bear fruits, as it requires changes in behaviours and organisational culture. 17. The fundamental issue of sustainable financing of the health care delivery system will be addressed with full involvement of communities. 5  The strategy will be in line with the policy of sharing costs in the sector, but with due regard to ensuring that those who cannot afford to pay are targeted for exemptions and or public subsidies. 18. As stated in the recent Policy Framework Paper (PFP), the Government is committed to increase spending in the Health Sector to 14% of its budget annually, targeting resource allocation to district level services where the majority of the population and more disadvantaged groups live. Global and sectorally earmarked budgets are proposed for districts, and mechanisms for disbursing the funds are being worked out jointly with the donors. Additional grants of US$ 0.5 per capita have been suggested for recurrent expenditures for the health sector, and will be provided to the districts where the Local Government Reform is being implemented in phases. 19. The Government has already initiated mechanisms to broaden the resource base and enhance financial sustainability through the introduction of user fees, the National Health Insurance Fund, Community Health Fund (CHF), and Drug Revolving Funds at hospitals. The aim is to make the services available, affordable, equitable, and of acceptable quality to all the needy population, focussing more on the vulnerable groups. Therefore, distribution effects and the protection of the poor and vulnerable groups have received special attention in designing these schemes. 20. The reform process will be flexible and be able to accommodate new and innovative ways of managing the sector. The adaptable nature of the proposed credit would serve well for this purpose. The long-term goal is that the government will have full capacity and reliable systems to develop a comprehensive sector program and annual budgets, as well as to implement it with full accountability and transparency. In the short to medium term, it is recognised that: i. Capacity building and systems development to attain this long-term goal will take many years. ii. The current project financing arrangements will continue for a while, whilst donors will increasingly support the process by adjusting their programs design and their country policies in line with a sector-wide approach. 6  iii. Common implementing arrangements will be gradually developed, tested and adjusted through a series of incremental changes as soon as concrete information and methods are agreed. iv. The policy of the government is to use its local capacity and skills as much as possible, rather than to rely on long-term foreign technical assistance, which is unsustainable and expensive. Short-term technical assistance will be requested on terms and conditions agreed to by the government and its development partners. 21. Finally, in order to address the HIV/AIDS issues, the government intends to intensify national effort to respond to the situation and proactively tackle with future challenges posed by the epidemic. The institutional framework to spearhead and co-ordinate AIDS-related activities will be strengthened, and a National HIV/AIDS Fund will be set up to provide funds to various implementing agents - both public and private - for high-impact programs and innovative interventions to tackle the epidemic. The Fund will be managed as a multi-sectoral fund, outside the health sector. Implementation modalities and strategies are being worked out . 22. Government efforts have been directed towards rapidly reducing the levels of poverty of Tanzania citizens through the pursuit of broad based and sustainable growth policies. The Government believes this growth can only be achieved if the population is healthy and well educated. The main role of the government includes creating and maintaining stable economic, physical and social infrastructures, including a macroeconomic environment conducive to private sector participation. Investing equitably and effectively in our people is the most important complement to the market-based approach in development. 23. The Government has demonstrated its commitment.to strengthen and accelerate these processes of change within the economy and in the health sector in particular. The governrment views the partnership with IDA as crucial in implementing policy changes and reforms and in developing a sector-wide approach. Transforming policies to reality in order to achieve a desired process, health outcomes, and positive impact on the health of the population is one of our highest priorities. 24. The Government has demonstrated its commitment to the Health Sector Reform Programme through its support for policy and regulation 7  changes, and the deployment of human and financial resources to accomplish the objectives of the reform programme. This also indicates the increasing political support for the reform of the Health Sector. If accomplished, the first phase of the reform will build the foundation for subsequent phases with the overall aim to improve performance in the delivery of Health Services in the Country. I look forward to your support on this programme. Yours sincerely, PERMAN TSECRETARY N.O.O. cc: Ms. M.J. Mwaffisi, Permanent Secretary, Ministry of Health, DAR ES SALAAM. cc: Mrs. S. Sijaona, Permanent Secretary, Ministry of Regional Administration and Local Government, DODOMA. cc: Mr. C. Mutalemwa, Permanent Secretary and Secretary to the Planning Commission, DAR ES SALAAM. 8  MAP SECTION   ' 30 UG4UD . 3WI L Lake coI ( RWANDA 0 KENYA ke Natron Arusha Mosh7'\ Bt URtJNDIg a : D . f. \; nyOflgo Lake 0 Lake any jadgmeat on tIle u Eyasi Manyo 10~~~~~~~~~~~~~~T LakeENA IALNOUDAIE .O. (k oa = - -M 000 w this mp do1 O . ...... . . E _- Poo ofosi > 1r- g v 4St f : hew fila.1 Gr. . . .~sy b_, Osy o port of;a _. - . gg sus of ony chrrSr.\ -.,{fMS> ointttSso,rTANZANIA >^<- M sAIN ROAM s i REGION CAPITALS \' + RAILROADS NATIONAL CAPITAL >>',s;> } _ RIVERS REGION BOUNDARIES tone , r Afs : 2:; ~~~~- INTERNATIONALEBOUNDAPIES t.V /A j g qO0 KILOMiERSv ' . - j OA BIQUE: 10 ,36,, \ _