Tanzania - Poverty Reduction Strategy Paper Progress Report and joint assessment

Document of The World Bank FOR OFFICIAL USE ONLY Report No.: 23039-TA THE UNITED REPUBLIC OF TANZANIA POVERTY REDUCTION STRATEGY PAPER PROGRESS REPORT AND JOINT IDA-IMF STAFF ASSESSMENT November 1, 2001 Macroeconomics 2 Africa Region This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   iNTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TANZANIA Poverty Reduction Strategy Paper-Progress Report Joint Staff Assessment Prepared by the Staffs of the IMF and IDA Approved by Jtirgen T. Reitmaier and Michael Hadjimichael (IMF) and Callisto Madavo and Gobind Nankani (IDA) November 1, 2001 I. INTRODUCTION 1. The government of Tanzania has prepared a Poverty Reduction Strategy Paper Progress Report 2000/01 (PRSP Progress Report), which outlines the progress made in implementing Tanzania's poverty reduction strategy during fiscal year 2000/01 (July-June) and updates the Poverty Reduction Strategy Paper (PRSP) of October 2000. The latter document was endorsed by the Boards of the IDA and the IMF on November 30 and December 1, 2000, respectively. The authorities have also prepared an additional short update note on further developments with respect to the PRSP since the transmission of the PRSP Progress Report. 2. The PRSP Progress Report and the additional update note demonstrate significant achievements-not only with respect to the substance of the program, but also with respect to the impact of the process, in terms of shifting public policy toward a greater poverty focus, and of creating a more open and consultative environment for the discussion of policy. 3. The Joint Staff Assessment (JSA) of last year's full PRSP recommended that this year's Progress Report fill a number of gaps in the original PRSP. These gaps consisted of four specific items: (i) the development of updated strategies for education, agriculture, and the rural sector; (ii) costing of priority programs discussed in the PRSP; (iii) establishment of a poverty monitoring and evaluation system; and (iv) undertaking a new household budget survey and updating the poverty analysis. Of these, all except finalization of the poverty analysis have been successfully completed within the first year. 4. In preparation for the Progress Report, the authorities held several zonal and national workshops on key sectoral strategies, and a national consultative workshop in July 2001 on the entire document, involving civil society, the private sector, donors, and NGOs. As described in the authorities' update note, the finished Report was reviewed by a wide range of stakeholders, including civil society representatives, during the Consultative Group meeting  in September 2001 in Dar es Salaam; a joint statement by the donor cormmunity to this meeting strongly endorsed the Report. I1. PROGRESS IN POLICY REFORM 5. The Progress Report documents the implementation of a wide-ranging reform program. In education, the government, along with several donor partners, has articulated a comprehensive basic education strategy that addresses most of the systemic issues needed to improve service delivery and quality over the medium term. During 2000O01 it has also abolished school fees at the primary level, increased significantly the budgel allocation for education, introduced capitation grants and an investment fund to directly support schools at the local level, and established an education fund to support children from very poor families. 6. In agriculture, the government has tabled a new national agricultural strategy emphasizing the role of the government in creating an enabling environment as opposed to direct intervention in agricultural markets. This represents a major redirection in stated policy. The strategy focuses on overall growth in agricultural productivity. -Ihe agricultural growth rates targeted by the government (5-6 percent per annum) are ambitious, but achievable, provided the reform agenda is actively pursued. Further develbpment of the strategy is needed to take into account the impact of agricultural growlh on poverty, including the differences in regional conditions, between small and largc farmers, and between subsistence and cash crops. As the strategy represents a major departure from previous direction, it is to be followed by development of an implementation plan (the Agricultural Sector Development Program) in the coming months. Simultaneously, the government is developing a Rural Development Strategy to address complementary problems of off-farm employment, infrastructure, and diversification. 7. Continued progress has been made, as documented in the report, in expanding the coverage of primary health services and immunization, and in increasing public spending on health from US$5.50 to US$6 per capita. A roads program has been formulated that gives priority to selected areas of high potential for reducing poverty, and to upgrading rural roads in the twelve poorest areas. 8. In the area of governance, the Progress Report documents wide-ranging institutional reforms, including adoption of a national plan against corruption; expansion oi the operations of the Prevention of Corruption Bureau; establishment of an Ethics Secretariat; and establishment of a Human Rights and Good Governance Commission. Despite these developments, corruption remains a significant concern, and aggressive imrlementation of the new institutional arrangements will be essential. While significant progress has been made on decentralization, there is a gap between good policy measures under the local government reform program, and the implementation of these reforms on the ground. Given the increasing role of local government in delivering pro-poor services, it is important that these bottlenecks be resolved in the coming year.  -3 - 9. The Progress Report pays more attention to the issues of HIV/AIDS, and of gender, than did the original PRSP. During the past year the government has mounted a significant campaign directed towards public awareness and behavior change with respect to AIDS. The Tanzania Council on AIDS (TACAIDS) is being established; the national AIDS program through 2003 has been formulated; and costing and financing details are now being completed.' With respect to gender, the government has promulgated the Land and Villages Act, providing for land ownership by women; increased the proportion of women in parliament to 20 percent through the provision of reserved seats; and enacted the Sexual Offences Act to protect women. It should be noted that there is substantially more documentation available on both gender aspects of the poverty reduction strategy and on HIV/AIDS than could be incorporated in the Report itself. 10. In the area of poverty monitoring, the government has undertaken large-scale household budget and labor force surveys. It has developed a comprehensive poverty monitoring master plan, costed and arranged financing for the plan, and established the institutional mechanisms in the Vice-President's office to implement it. The challenge will be to ensure effective implementation of the system over the coming two years, and to start to take the next step toward a focus on evaluation. III. PROGRESS IN PUBLIC EXPENDITURE MANAGEMENT AND ALLOCATION TO PRIORITY SECTORS 11. Public expenditure management has been strengthened in several respects. A new Public Finance Act and accompanying regulations came into effect in July 2001, which enhance transparency and accountability in public expenditure management. Budget formulation has been strengthened through a medium-term expenditure framework (MTEF), and an annual cycle of public expenditure reviews (PER), involving donors and civil society. These initiatives help ensure that policy priorities, especially in poverty reducing areas, are appropriately reflected in the budget. 12. The continuation of responsible fiscal management and large and steady foreign assistance has enabled the government to effect a substantial increase in the budget allocations and actual expenditures in priority areas of the PRSP. Overall spending in such areas is budgeted to increase from 6.5 percent of GDP in 2000/01 to above 9 percent in 2001/02, consistent with the ambitious expenditure targets of the original PRSP. This expansion of priority expenditures is being achieved without compromising the overall prudent fiscal policy stance. 13. A substantial effort has also been undertaken in the past year to improve the costing of PRSP programs. The education, health, water, and AIDS programs have been effectively I Data on AIDS expenditure shown in the Progress Report (Table 3) is somewhat misleading, because spending was directed through line ministry budgets.  - 4 - costed. Work is still proceeding on the roads program, while the new agricultura strategy can only be costed once a detailed implementation plan has been developed in the coming year. Not surprisingly, spending needs in priority sectors remain very large. However, an attempt has been made to harmonize the cost estimates developed for these programs with available resources as identified under the MTEF. Core requirements for the first year have been funded in the budget for 2001/02; for future years, there are still gaps in some sectors. especially in the areas of roads and judicial reform, between the line ministries' requirements and resources likely to be available under the MTEF. The government recognizes this, and is following a rational strategy to close these gaps by reviewing the targets and costs of PRSP programs through the MTEF process, and using the PRSP as a framework for e>.ploring areas where additional donor funding could be mobilized. Meanwhile. some in:erventions in priority areas are directly funded by donors, remaining largely outside the budgetary process. The authorities' efforts to bring these interventions into the budget are welcome, and the next progress report should include information on the budgetary recording of donor-funded projects. 14. With respect to the utilization of funds, the government has recently completed an expenditure tracking study that points to a number of areas where resources fail, to flow down to their intended end uses. Remedial steps include the publication of the amount and timing of central government transfers to local governments and the reporting of. revenue and expenditure of local governments on a quarterly basis, as envisaged under the PRGF- supported program. In addition, a recent Country Financial Accountability Assessment (CFAA) has concluded that although encouraging steps are under way to improve financial management under the on-going Public Financial Management Reform Program (PFMRP), there remain gaps, and speedy implementation of the Integrated Financial Management Systems (IFMS) and some legislative changes are important to maintain the momentum of the reforms. The staffs recommend that the next progress report include a discussion of progress in the area of expenditure tracking. IV. PROGRESS AGAINST THE PRSP T ARGETS 15. There are essentially two types of targets set in the PRSP, those for inputs or intermediate outputs (such as expenditure allocations or school enrollments) and those for outcomes (for example health status, or poverty). While it is relatively easier to measure the first, it is more difficult to assess progress against the second, as data systems are still in the nascent stages of development, and when the timeframe being observed---one vear-is relatively short. Within the confines of these constraints, the report does an acceptable job of trying to assess, and report on, the progress made. 16. Progress with respect to service delivery has generally been encouraging: increases in enrollment rates, in the proportion of children passing from primary to secondary school, and in immunization coverage suggest that the government is on track to meet the goals it set for 2003. In some other areas, performance has lagged, for example in reducing drop-out rates and increasing the standard 7 pass rate, and the Progress Report ackncowledges these need further attention.  - 5 - 17. Progress on social outcomes-to the extent that change can be measured over a short time-is less encouraging. There is little sign of improvement in nutritional status or infant mortality revealed by the preliminary data cited in the report, and initial findings on asset ownership, demographics, and the labor force point to greater urban-rural inequality, an increase in the share of female-headed households, and rising youth unemployment. More explicit measures of income and consumption will only be available when the full household budget survey data are processed (see Section VI below). V. MACROECONOMIC FRAMEWORK 18. Tanzania's economic policies are aimed at increasing growth, enhancing market efficiency, and reducing poverty in an environment of macroeconomic stability. The sound performance described in the Progress Report is an accurate representation of recent developments. However, the Progress Report does not bring out the major linkages between macroeconomic policies, structural reforms, and poverty reduction, as had been suggested in the Joint Staff Assessment of the full PRSP. Exploring these linkages remains an important task for the next progress report. In this context, the next report should provide a more thorough discussion of monetary and external sector policies, as well as of the role of the financial sector in the poverty reduction strategy. 19. The medium-term macroeconomic framework presented in the Progress Report also underlies Tanzania's current PRGF-supported program. A future update will need to take account of the weaker-than-expected global economy. Regarding the government budget, the Progress Report envisages an increase in total expenditure favoring poverty reduction priority sectors, to be financed by a substantial increase in international financial support, including assistance under the enhanced HIPC Initiative. Discussion of the authorities' effort to mobilize fiscal revenue is limited in the Progress Report to the expectation that the revenue-to-GDP ratio would increase slightly. In the view of the staffs, the next PRSP Progress Report will need to contain a more explicit discussion of resource constraints and ways of mobilizing domestic resources in a manner compatible with the poverty reduction strategy. Meanwhile, the staffs welcome the principle of fiscal caution espoused by the Progress Report, whereby the government will first complete an inventory of its domestic debt and contingent liabilities before planning any new domestic debt for budget financing. VI. PROGRESS IN FILLING GAPS LEFT AT THE TIME OF THE ORIGINAL PRSP 20. As mentioned in the introduction, a number of gaps in the full PRSP were to be filled by the time of the first progress report. In the view of the staffs, all but one have been satisfactorily fulfilled, the exception being completion of the updated poverty analysis. 21. The education sector strategy was completed on time; in line with the expectation in the first round of the process, it focuses on basic education. The agricultural strategy has been completed and is now being followed by the articulation of a detailed implementation plan. The rural development strategy exists in draft form, and is on track to be completed  -6 - as originally scheduled by December 2001. The poverty monitoring system has been developed and is proceeding well towards implementation. 22. The costing of PRSP programs has been largely completed, with the exceptions of agriculture, for which the staffs agree that costing must await formulation of the detailed action plan, and of roads, where the initial work has been done to identify requirements but prioritization of the program for outer years is still going on. As mentioned above, the government is engaged in an iterative process of refining these costings throagh the PER and the MTEF. 23. With respect to the updated poverty analysis, the household budget survey (HBS) has been completed and data is now in the final stages of being cleaned and processed. It was originally hoped to use 6,000 households, representing those to be enumerated in the first three months of the survey, as the basis for an interim analysis. However, because of the need to stagger the start of fieldwork in order to monitor quality of the enumeration, just over 1,300 households were enumerated in the first quarter, and data from those households were used for a preliminary analysis. Unfortunately, because of the small sample size and problems of seasonality, the preliminary findings on household expenditure and poverty measures proved not statistically reliable and the government decided that it would be premature to publish these findings. 24. Discussion of the results of the initial poverty analysis in the Progress Report is therefore limited to those items believed to be unaffected by seasonal variation, along with data from the demographic and health surveys. While these data, presented in the Progress Report, tell only a very partial story, the picture that emerges is one of limited change in household welfare. Among other things, the preliminary results point to increases in the share of female-headed households, and in unemployment and informal employment; these trends, and their policy implications, need to be examined in more depth in the full analysis. The full results from the HBS (expected by February 2002) will provide the basis for a detailed new poverty analysis, including the first ever regional breakdown, and measures of changes in inequality. It does not appear, on the basis of the preliminary finrdings, that the results will dramatically change the approach to the PRSP, although it remains possible that the full data set might reveal changes in welfare since 1991/92 that would warrant revision of some elements of the strategy in the next progress report. The staffs concur with the government's view that the poverty analysis in the Progress Report, while partial, is all that is possible with the limited new data presently available, and look forward to a more extensive analysis prior to the next progress report. 25. Tanzania has also put in place an institutional framework to ensure continuity of efforts in the area of poverty monitoring and analysis. A poverty monitoring master plan has been prepared and four poverty monitoring groups have been set up, covering the areas of censuses and surveys, research and analysis, administrative data, and dissemination and sensitization. Local research institutes, the University of Dar es Salaam, donors, and other stakeholders have been given a role in poverty monitoring and analysis through participation in the newly-formed working groups.  -7 - VII. CONCLUSION 26. The government of Tanzania has made significant progress in the implementation of the PRSP, and the policy measures of the past year represent an appropriate and credible series of pro-poor structural reforms, most of which are directly attributable to the PRSP process. Furthermore, the PRSP process is strongly owned domestically and has markedly accelerated the focus on poverty-reducing policies. In particular it has: (1) resulted in a move forward on the national educational program-both in terms of developing an agreed-upon strategy and in terms of specific interventions, such as the abolition of school fees-that would not have otherwise taken place; (2) focused attention on the public expenditure process and added greater weight to both the PER and the MTEF; and (3) added impetus to the very impressive effort on poverty monitoring. 27. The Progress Report does, nonetheless, suggest a few areas where there remain gaps in the strategy, and these form an agenda for further work. It is recommended that the next progress report include the following: (i) a complete poverty analysis on the basis of the full HBS sample, along with an analysis of the implications for Tanzania's poverty strategy; (ii) an examination of the linkages between macroeconomic policies, structural reforms, and poverty; (iii) further refinement of the costings of the PRSP programs, especially for the outer years, and rationalization between unconstrained program costs and available financing; (iv) the rural development strategy; and (v) articulation of the implementation plan for the agricultural development strategy, that takes into account the poverty and distributional aspects of agricultural development. 28. In conclusion, the staffs of the World Bank and the IMF consider that, based on this PRSP Progress Report and the authorities' additional update note, Tanzania's poverty reduction strategy remains a sound basis for Bank and Fund concessional assistance. The staffs recommend that the Executive Directors of the World Bank and the IMF reach the same conclusion.   TANZANIA: FURTHER UPDATE ON THE IMPLEMENTATION OF THE POVERTY REDUCTION STRATEGY (PRSP) (October 27, 2001) Tanzania's first annual progress report on the implementation of the PRSP was transmitted to the Fund and the World Bank on August 13, 2001. Since then, the Government of Tanzania has continued to implement tenaciously the programs and initiatives envisaged under the PRSP, though in a context of heightened uncertainty, following the September 11, 2001 developments in the United States. 1. Consultative Group (CG) meeting during September 7-11, 2001 The recent CG (the third held in Tanzania) was attended by a wide range of stakeholders, including civil society representatives. Following the initial meeting (which was chaired by the President of the Republic of Tanzania) and the ensuing plenary discussions, working sessions were held on September 10-11, to review the PRSP progress report; the development strategies for agricultural, health, education, and roads sectors; and programs in the areas of HIV/AIDS and governance. During the CG meeting, donors and civil society representatives welcomed the Government's ownership and management of the PRSP process, including the active involvement of the poor and other stakeholders in preparing the progress report. The CG participants also commended the Government for the progress that had been achieved in restoring macroeconomic stability, and encouraged the authorities to continue their efforts to accelerate the rate of economic growth, reduce poverty, and promote good governance. In this connection, they noted the substantial work that had been done to elaborate development strategies and programs for most of the priority sectors and welcomed the ongoing efforts to strengthen public sector resource management, including through the Medium-Term Expenditure Framework, annual Public Expenditure Reviews, and the introduction of the Integrated Financial Management System. During the technical sessions, the CG participants were broadly supportive of the Government's initiatives in the priority sectors and in the important areas of HIV/AIDS and governance. At the same time, the participants called on the Government to intensify the struggle against corruption by strengthening the legal and judicial system, and accelerate the preparation of programs and action plans for the agricultural sector. Moreover, they underscored the need to strengthen the focus of the poverty reduction efforts, including through collaborative support of an independent poverty monitoring mechanism and, if necessary, through the adoption of additional well-conceived safety nets to assist the vulnerable groups. All the CG participants concurred on the importance of redoubling the struggle against HIV/AIDS. Accordingly, the Government has since intensified substantially the sensitization campaign against this pandemic, and a Bill to establish TACAIDS has already been prepared for submission to Parliament during the October-November session, commencing October 29, 2001. 1329253vl-Tanzania update on implementat October 30, 2001 (4:39 PM)  In support of the Government's efforts toward poverty reduction, donors pledged US$ 1,100 million of "fresh" money for programs and projects in FY2001/02. The CG participants were also hopeful that Tanzania would reach soon the HIPC Completion Point. 2. The political situation in Zanzibar During the CG meeting, the President of the United Republic of Tanzania outlined the then ongoing initiatives to find a lasting solution to the political situation in Zanzibar. On October 10, 2001 the leaderships of the ruling political party, CCM, and the main opposition political party in Zanzibar, CUF, signed an agreement providing for a mutually acceptable and time- bound framework for resolving the hitherto contentious issues. This development has paved the way for more forceful interventions by the Government, jointly with the development partners, to address poverty concerns in Zanzibar. 3. Alacroeconomic developments Based on information through end-September 2001, the Government has continued to pursue prudent macroeconomic policies. Accordingly, headline inflation has been contained below 51/4 percent, and gross official international reserves have been maintained at the: equivalent of some five months of imports of goods and services, with the exchange rate remnaining relatively firm, around TSh. 890-895 per US dollar. Meanwhile, fiscal performance has been favorable, with budgetary revenue and current expenditure conforming broadly to the programmed targets. More recently, the export prices of the leading export crops, notably coffee and cashew nuts. have remained at the substantially depressed levels realized during the first eight months of 2001. This development has tended to compound the poverty situation in the rural sector, thereby giving rise to pressure for additional intervention, including through safety nets, to contain the deepening of income poverty. So far, the Tanzania Social Action Furnd has constituted the primary vehicle for supporting the welfare of some of the more vulnerable groups, but initiatives in other areas, including the abolition of primary school fees (starting July 1, 2001), have also provided welcome relief. 4. Impact of the recent terrorist incidents in the United States Following the tragic events on September 11, 2001, the economy of Tanzania has experienced various adverse shocks. The purchase of tanzanite gemstones, over 80 percent of which is marketed in the United States, declined sharply, and prices in the weeks immediately following terrorist incidents plummeted by as much as 77 percent. The tourism sector, especially in the northern circuit, was also severely affected, following the cancellation of bookings (mainly by potential visitors from the United States and Europe). Beyond these immediate effects, there is concern that the flow of foreign direct investment into Tanzania could fall, and that the country's already depressed prices could ccme under renewed pressure.  THE UNITED REPUBLIC OF TANZANIA POVERTY REDUCTION STRATEGY PAPER PROGRESS REPORT 2000/01 DAR ES SALAAM 14 August 2001   UNITED REPUBLIC OF TANZANIA POVERTY REDUCTION STRATEGY PAPER PROGRESS REPORT 2000/01 1. INTRODUCTION 1.1 Objectives of the paper 1. The objectives of this paper are to outline the progress that was made in implementing Tanzania's poverty reduction strategy during FY 2000/01 (July-June), and "update" the Poverty Reduction Strategy Paper (PRSP) that was prepared by the Government in 2000, and reviewed by the Executive Boards of the Bretton Woods Institutions toward the end of the same year. More specifically the paper seeks to: * report on the status of outstanding work, as indicated in the PRSP, notably in regard to the conduct of the 2000/01 Household Budget Survey (HBS) and the Integrated Labour Force Survey (ILFS), the elaboration of poverty-oriented strategies for the priority areas, and the costing of key interventions; * provide an update of the poverty status on the basis of available information, including preliminary results of the HBS and ILFS and other data collected as part of the ongoing efforts to monitor the status of poverty; * outline related progress in the macroeconomic and structural reforms, as well as in regard to the specific prerequisites for the Highly Indebted Poor Countries (HIPC) Completion Point; and * provide a rolling perspective of the Government's poverty reduction efforts through 2003/2004, together with the financial requirements. 1.2 Overview 1.2.1 Process of updating the PRSP 2. Henceforth the process of updating the PRSP will be carried out annually in order to ensure that the PRSP is an effective instrument for guiding the national poverty reduction efforts. Such exercises will help anchor consultations under the Tanzania Assistance Strategy (TAS), between the Tanzanian authorities and the international partners; provide a basis for elaborating programmes and operations that are supported by international development partners; and provide a major input into the Consultative Group (CG) meetings. The annual process of updating the PRSP will also provide opportunity for periodic consultations with a wide range of domestic stakeholders, especially the poor, to obtain needed feedback and foster ownership. I  3. In particular, the process of updating the PRSP will continue to involve all stakeholders through clearly specified roles (Box 1). This initial update of the PRSP is based on the assumption that the concerns and views of the poor have not changed significantly from those documented recently in the zonal workshops and described in the original PRSP. Further more, the processes of formulating strategies and action p.lans for the education, agricultural and health sectors; the containment of HIV/AIDS; the poverty monitoring system; and the ongoing preparation of the rural development strategy have entailed wide consultations, including zonal and national workshops. The process of integrating gender and environmental concerns into the poverty reduction strategy has also involved consultations with national and international stakeholders through nmeetings and workshops. Box 1: Envisaged Participatory Process in Updating the PRSP Stakeholders Specific roles International stakeholders . Ongoing discussions and consultations under the T-AS, in time for the updating of the PRS1'. * Preparation and monitoring of poverty-rehlted programmes and operations supported by bilateral and multilateral organizations. * Discussions relating to the PRSP during the CG meetings. a Review of PRSP drafts, as well as participation in related meetings in zonal and national workshops with domestic stakeholders. Domestic stakeholders * Implementation and monitoring of sector- (representatives of the poor, civil specific strategies. society and private sector) * Zonal workshops and participatory poverly assessment exercises, to revalidate and, if necessary re-orient, the focus of the PRSE' * Review of preliminary drafts of the PRSP and participation in related workshops. * Participation in CG meetings held in the country. The Government * Quarterly Cabinet reviews of the implementation of the PRSP, based on reports submitted by the PRSP Ministerial Steering Committee. . Parliamentary review of the implementatic-n of the PRSP during the annual budget discussions. 2.  4. This document has also benefited from comments by the World Bank and IMF missions, Parliamentarians, and a broad range of stakeholders during a national workshop that was held in early July 2001. These consultations have confirmed further the importance of the priority activities that were identified in the original PRSP. During the more recent consultations with Parliamentarians and stakeholders (at the national workshop), views converged on the importance of effective implementation and monitoring of interventions in rural and other pro-poor sectors. The participants at the national workshop also underscored the importance of increasing employment opportunities for youths and women, as well as mainstreaming gender, environment and HIV/AIDS concerns in line ministries and other areas of the poverty reduction program. 1.2.2 Principal interventions in 2000/01 5. During 2000/01, the implementation of the poverty reduction programme focused on initiatives to strengthen growth prospects, especially in the pro-poor sectors; increase material and other forms of support for the priority sectors; develop an effective framework for monitoring poverty; and elaborate strategies and cost interventions for the key sectors. More specifically, these initiatives included: * Continued consolidation of the macroeconomic situation through prudent monetary and fiscal policies, in the context of substantially enhanced budgetary support for education, health, and other priority areas, and guided by the Medium-Term Expenditure Framework (MTEF) and the Public Expenditure Review (PER) yearly exercises (Chart I). * Efforts to ensure effective use of the resources allocated to the priority sectors, including adoption of increased flexibility in managing the cash budget; promulgation of Public Finance Act, and the Public Procurement Act; rolling out of the Integrated Financial Management System (IFMS); and other measures to strength budgetary control and accountability. * Development of a comprehensive framework for monitoring poverty. * Carrying out a new Household Budget Survey (HBS) and an Integrated Labour Force Survey (ILFS), as part of a broader ongoing effort to improve understanding of the status of poverty in Tanzania. * Tracking of the income and social indicators of poverty, and adoption of measures, including in the context of the Tanzania Social Action Fund (TASAF), to alleviate rural income poverty and provide relief to vulnerable groups. * Elaboration of development strategies for the education and agricultural sectors; amplification of strategies for other sectors and cross-cutting areas (HIV/AIDs, governance, environment, gender and employment); and costing of interventions, notably those for FY 2001/02. 3  * Implementation of a broad agenda of reforms mainly in the context of programmes supported by the IMF under the Poverty Reduction and Growth Facility (PRGF), and the World Bank under the Programmatic Structural Adjustment Credit (PSAC.-I), and other international partners. The reforms were aimed mainly at strengthening further the macroeconomic situation, bolstering efficiency of the financial and goods markets, supporting the development of the rural sector, improving performance of utilities, and creating an enabling environment for private investment. Moreover, the refo'rms included the conditions for the HIPC-Completion Point, virtually all of which were carried out as planned. * The Budget for FY 2001/02 has provided for continued strong support for the priority sectors, as well as comprehensive fiscal initiatives. It includes measures directed at promoting private sector-led economic growth, and strengthening performance of the pro- poor sectors. * Establishment of a Good Governance Coordination Unit; extending the cjffices of the Prevention of Corruption Bureau to the districts; * Promotion of an enabling environment for private investment, including through enactment of new land legislation, restructuring of the Tanzania Investment Centre, estal-lishment of a unified tax appeal mechanism, and a strengthening of the Commercial Court. * Launching of the Tanzania National Business Council - under the chairmanship of the President- to provide an avenue for regular consultation between the Government and representatives of the private sector. * Establishment of the Education Fund, to support children from very poor famni ies. - Abolition of primary school fees and other enrolment related contributions. * The amendment to the Land and Village Act to provide for land ownership by women. * Preparation of the action plan for elimination of child labour. * Increase in the number of seats reserved for women in Parliament. * Establishment of Ethics Board and the Human Rights Commission. * Establishment of Tanzania Commission on AIDS (TACAIDS) 6. The principal achievements during the first year (that is FY 2000/01) of the PRSP are summarized in Box 2. In brief, determined efforts were made to implement the envisaged action programme. As a result, the macroeconomic situation improved further, and the economy continued to grow at an accelerated pace. However, in agriculture - a key sector for the poor - performance lagged behind expectation, owing to adverse weather and the collapse of export prices. In other areas, the elapsed time is too short to allow definitive conclusions. 4  Nonetheless, there have been encouraging developments in regard to education (increased gross primary school enrolment); health (expanded management of child illnesses and strengthening of maternity service); judiciary (strong performance of the commercial court); financial management and accountability (rolling out of the IFMS); and empowerment of the poor (continued progress in local government reform and operations at the community level). Chart 1. Priority Sector Expenditures, 1998/99 - 2001/02 (July - June) (As percent of GDP) (As percent of total expenditure) Education UHealth 50 10 Water Others _ 6 40 ~30 4~~ 2- O0_ , C20 1998/99 1999/00 2000/01* 2001/02** Source: Ministry of Finance. * Preliminary out-turn. ** Budget estimates. 11. STATUS OF POVERTY 2.1 Progress with collection and analysis of poverty data 7. In 2000/01, the National Bureau of Statistics (NBS) covered a substantial number of PRSP-related activities, in addition to its functions in other areas. These activities involved: * Dissemination (through a workshop) of the results of the 1999 Tanzania Reproductive and Child Health Survey (TRCHS). * Planning, execution and processing of data for the HBS (spanning May 2000 - April 2001; and covering 22584 households), and the ILFS (April 2000 - March 2001; 11660 households). 5  * Preliminary analysis (completed in April 2001) of data, covering 1308 households during the first 3 months of the HBS, as well data for 2861 households, also dur:ing the first quarter of the ILES. * Reassessment (completed in April 2001) of the results of the 1991/92 HBS, using implicit price data from that survey, to allow trend comparison with the 2000/01 HBS. * Production (in April 2001) of comprehensive data on poverty, based on the 1991/92 HBS and the preliminary results of the 2000/01 HBS. * Planning and execution of cartographic work for the 2002 Population and Housing Census. * Launching of the Tanzania Socio-Economic Database (TSED); the database s currently disseminated through a designated website. 2.2 Assessment ofthe poverty situation 8. It is not yet possible to make definitive statements about the level of the poverty headcount ratio or poverty depth in 2000, because of the limitations of the consumption expenditure data in the FIBS preliminary analysis. The size of the sub-sample (1308 households) on which these results are based is very small. thus raising concerns of sampling error. Moreover. since the data for the sub-sample are drawn from only one quarter of the year, they are subject to seasonalitv bias. Nonetheless, on the basis of selected information from the HBS and other poverty indicators (notably the series of Demographic and Health Surveys carried out in the nineties), it is possible to identify some changes and trends in poverty. More specifically, this data suggests that important changes have taken place in the demographic structure of households. The number of households headed by females increased significantly from about 17 percent in 1991, to about 25 per cent in 2000. This change seems to underscore the importance of gender in the assessment of poverty (Table 1 (a)). 9. While the average household size does not seem to have changed significanrly, there is some indication that the dependency ratio has increased among households in rural areas. Since households with higher levels of dependency are more likely to be poor, this -hange, if it is confirned from the full IIBS data and results from the forthcoming census, is of concern (Tables 1(b) and l(c)). IDependency ratio has been defined as the ratio ofthe number ofpersons aged 0-14 and 65 years and above divided by the nilmber ofpersons aged 15-64 years 6  Box 2: Principal Achievements in 2000/01 Sector Targets/Outcome Indicators for Performance during 2000/01 2002/03 I Education Increase gross enrolment from 77 percent to 85 Based on the 2000/01 HBS, gross primary school enrolment is estimated percent. at 83.2, suggesting that the target for 2003 will be met. Increase net primary enrolment from 57 percent The net enrolment in 2000/01 increased rapidly from 57 percent to to 70 percent. around 65 percent following abolition of school fees and other enrolment related contributions. Increase progression rate of primary to Performance is quite encouraging, as the current rate is estimated at 19.5 secondary level from 15 percent to 21 percent. - 20 percent, following increased number of Govemment - aided community, and non-government secondary schools. Reduce the drop-out rate in primary schools Situation has not changed signficantly; however, it is expected to - from 6.6 percent to 3 percent improve following implementation of planned measures to improve the teaching and learning environment, as well as the abolition of school fees and other enrolment related contributions. Increase pass rate in standard 7 examination The pass rate has increased to 22 percent in 2000/01. The benchmark of- from 20 percent to 50 percent. 50 percent is considered ambitious and the medium-term target will be reviewed downwards in due course. Health Increase the number of children under 2 years Performance has improved to 78 percent, following increased coverage | immunized against measles and DPT from 71 of the Integrated Management of Child Illness (IMCI) in health facilities percent to 85 percent. from 17 to 31 districts 75 percent of districts covered by an active All districts are covered following preparation of HIV/AIDS plans for all HIV/AIDS awareness campaign. districts Increase coverage of births by trained personnel Performance has not changed substantially; however, it is expected to from 50 percent to 80 percent. accelerate following adoption of District Health Plans that currently cover 82 out of 114 districts. Implement a fuli malaria control programme. 1 New guidelines have been developed and distributed, training of trainers has been completed, and drugs have been ordered. Agricuiture Attain growth rate of 5 percent . Overall growth was 3.5 percent during 2000, down from 4.1 percent during 1999, owing partly to adverse weather conditions. Forestry and fishery sub-sectors recorded growth rates of 5.0 percent and 7.2 percent respectively Rural roads Rehabilitate of 4500 km rural roads under the Detaiied costing of needed interventions has been developed. Urgent Roads Rehabilitation Programme, upgrade 7,000 km of rural roads, carry out spot and emergency repairs over 50,000 km. Water rFully implement the 2000 Water Policy. The policy has been reviewed by the Ministry of Water and Livestock Development, to take into account the PRSP objectives. Legal and Speed up primary court decisions, raise the ratio The available information by districts shows uneven performance. ! Judicial System of decided filed cases from 63 percent to 80 percent. Improve performance of the judicial system. Introduction of the Independent Judicial Ethical Committee; Establishment of Judicial Administration Institute; approved recruitment of 36 State Attomeys, 6 Resident Magistrates, 13 Primary Court Magistrate and 11 Law Research Officers Reduce average time taken to settle commercial| There has been significant improvement, as judged from the increase in disputes to 18 months. cases disposed, from 53 cases in 1999/00 to 78 cases in 2000/01. Moreover, the average time taken to settle commercial disputes has been reduced to less than 6 months. Establishment of Land division of the High Court. Raise coverage of actual allocation for | There was a significant increase in the allocation of OC from TShs. 3.9 legitimate Other Charges (OC) requirement of billion during 1999/00, to TShs. 5.7 billion during 2000/01, representing the Judiciary from 50 percent to 100 percent. 100 percent budgeted of OC. Local Implement full Local Government reform. Phase I has been completed, and phase 11 is on course. Govemment Govemance Fully implement the Integrated Financial All central govemment operations. including 16 revenue station of the Management System (IFMS). TRA in Dar-es- Salaam, are covered by the IFMS Macroeconomic Attain real GDP growth rate of 6.0 percent. During 2000, real GDP grew by 4 9 percent (compared to 4.7 percent in stability 1999), and is projected to grow by 5.9 percent in 2001. Reduce inflation rate to 4.0 percent. Inflation rate was 5.1 percent as of June 2001, compared to 5.9 percent in the same period in 2000 iFMaintain foreign exchange reserves sufficient to By end December 2000, foreign exchange reserves were equivalent to 5.5 finance four months of imports of goods and months of imports of goods and non-factor services, and were at about non-factor services. the same level at end-June 2001. 7  11. The reported ownership of consumer durables conveys a mixed picture. On the basis of an overall index of ownership, it would appear that urban households on balance owned slightly more consumer durables in 2000 than in 1991, while the opposite was irue for households in rural areas (Table l(f)). In the country as a whole, the ownership of consumer durables may have fallen slightly since 1991/92. However, given the likelihood Df sampling errors in these numbers, it is difficult to draw definite conclusions in this regard. At hest. the data seem to suggest that household welfare, as measured by the ownership cf ccrnsumer durables, may not have changed significantly during the nineties. 12. This picture of minimal change, if any, in poverty or welfare, is also supported by the DHS data on the nutritional status of children. There is considerable evidence from Ianzania and elsewhere that child nutritional status is a good general indicator of the standard o - living. The data from 1991/92, 1996 and 1999 surveys show very little change in the overall levels of either stunting or underweight (Table 1(g)). Given the margin of sampling error, trends cannot be inferred from these indicators. 13. Similar conclusions also seem to emerge from the time series data tha: was made available recently by UNICEF, on infant and under-five mortality rates (Table 1 (h >). The data suggest that there has been little change in the infant mortality rates and the morta itv rates for children under five years of age during the 1990s. The recent levelling off ol these rates reflects the impact of HIV/AIDS. 14. Based on data from the HBS as well as the preliminary results from tl, IIALS. one indicator of welfare that seems to point to the possibility of significant change is cmp,oyment (Table l(i)). Both surveys indicate that there has been a decrease in formal employment and increased reliance on the informal sector (outside agriculture). This is likely to be of concern. because the 1991/92 data indicated that households whose heads worked in the inf)rmal sector are more likely to be poorer than those with heads engaged in formal employment. 15. Overall, therefore, the picture of welfare and poverty in Tanzania in 2001. while still sketchy, is generally one of limited change from the baseline of 1991. A mrDre detailed analysis will only be possible when the data from the full 2000/01 HBS (expected by }- ebruary 2002) become available. The data currently available suggest that there has been ittle, if anv. variation in the overall poverty levels since 1991, although there are underlying changes that would need to be investigated further. This picture is consistent with the modest growth in real GDP per capita that was registered over the decade. More specifically, the silnificarnt improvement in economic growth during the second half of the 1990s barely corn pensated for the poor performance in the first half of the decade. 2.3 Next steps 16. The next PRSP progress report will contain a detailed poverty analysis based on the full sample of the 2000/01 HBS. The report will also include regional estimates of inc. mc poverty and proxy indicators of income poverty for use in annual poverty monitoring. Moreover, 8  once the results of the 2002 Population and Housing Census are available, the Government will develop disaggregated spatial mapping of poverty. Table 1: Selected Indicators of Poverty I(a) Percentage ofhouseholds with female heads DHS HBS' 1991/92 1996 1999 1991/92 2000 Urban 18 23 27 20 29 Rural 17 21 22 17 22 Mainland 17 22 23 18 24 1 (b) Household size DHS HBS' 1991/92 1996 1999 1991/92 2000 Urban 5.4 4.3 4.3 4.9 4.9 Rural 4.4 5.1 5.3 5.9 5.5 Mainland 4.9 4.9 5.0 5.7 5.4 1 (c) Dependency ratio DHS HBS' 1991/92 1996 1999 1991/92 2000 Urban 0.81 0.79 0.72 0.75 0.81 Rural 1.10 1.14 1.15 0.95 1.02 Mainland 1.03 1.06 1.04 0.89 0.97 1 (d) Access to safe water (percentage of households with access to safe water) DHS HBS' 1991/92 1996 1999 1991/92 2000 Urban 92 93 95 89 89 Rural 57 60 56 34 47 Mainland 64 68 66 50 56 I (e) Mean distance to water in the dry season (km) HBS' 1991/92 2000 Urban 0.4 0.9 Rural 1.5 1.3 Mainland 1.2 1.2 1(9 Overall index of ownership ofconsumer durable goods HBS' 1991/92 2000 Dar es Salaam 93.7 108.5 Other urban 82.5 88.0 Rural 55.0 51.4 Mainland 64.1 60.6 9  I (g) Nutritional status of children in Tanzania based on the DHS (Percentage less than 2 standard deviations below the median) Height for age 1991/92 1996 1999 Urban 28 33 26 Rural 48 46 48 Mainland 47 44 44 Under - weight 1991/92 1996 1999 Urban 24 20 21 Rural 29 33 31 Mainland 28 30 30 1(h) Infant and under-five mortality rates in Tanzania, 1990 - 2000 DHS 1990 1995 2000 Infant mortality rate 102 103 104 Under five mortality rate 163 164 165 1 (i) Employment status of heads of households (percentage of households with heads employed in the informal sector, outside agriculture) HBS' 1991/92 2000 Dar es Salaam 30 43 Other urban 23 29 Rural 4 9 Mainland 9 14 I The Household Budget Survey data for 2000 are provisional based on preliminary analysis. III. SOCIO-ECONOMIC REFORMS IN 2000/01 3.1 Macroeconomic and structural reforms 17. The Goverrnent has continued to implement tenaciously a wide range oif policies and reforms in the context of programmes supported by the IMF (under the PRGF), World Bank (PSAC-I), and other international partners. In 2000/01, the reforms included the conditions for the HIPC-Completion Point, virtually all of which were carried out as agreed. 3.1.1. Macroeconomic policies and reforms 18. During 2000/01, the focus of macroeconomic policies and reforms was on:: 10  * Continuation of prudent monetary and fiscal policies, in order to lower the rate of inflation and maintain a strong external position in a context of a market-determined exchange rate and an adequate level of international reserves (Table 2). * Improvement of public expenditure planning, execution and control, including through quarterly cash releases for the priority sectors; assessment of expenditure requirement guided by the MTEF and PER exercises; the implementation of a plan to eliminate domestic arrears; and the roll-out of the IFMS to all central government expenditure and the Dar-es-Salaam-based revenue offices of the Tanzania Revenue Authority (TRA). * Rationalization of the tax system to, among other things, strengthen the profitability of agricultural production. * Strengthening prudential regulation of the banking sector, as well as elaboration and adoption of a micro-finance policy. Table 2: Selected Macroeconomic Indicators 1991-93 1994-96 1997-99 2000 2001 Preliminar Estimates (In percent) Out-tum Real GDP growth rate 1.7 3.1 4.0 4.9 5.9 Per capita GDP growth rate -1.1 0.2 1.0 1.8 3.0 Inflation rate 24.8 27.3 12.3 6.0 5.0 Budget Deficit/GDP' Before grants 5.6 3.9 4.0 4.8 6.0 After grants 2.2 1.3 0.3 0.2 0.7 Investment/GDP 26.3 20.5 18.5 18.9 19.0 Source: Ministry of Finance, and National Bureau of Statistics. 'Refers to fiscal years (July - June), beginning in the years indicated in the column header. 3.1.2 Structural reforms 19. Other structural reforms that were implemented in 2000/01 included: * Comprehensive initiatives aimed at fostering good governance, notably preparation of the National Anti-Corruption Strategy and Action Plan and its publicization throughout the country; establishment of the Good Governance Coordination Unit; extending the offices of the Prevention of Corruption Bureau to the districts; establishment of a Human Rights and Good Governance Commission (following a constitutional amendment and enactment of an enabling legislation); amendment of the Public Leadership Code of Ethics; and complementary reforms for the civil service and the system of local government. 11  * Support of the rural sector, through facilitation of crop credit, intensified sea-ch for export markets, revival of agro-processing plants, rationalization of local government taxation of crops and livestock, further liberalization of internal and cross-border agricultural trade, and distribution of disease-resistant seedlings. * Formulation of a micro-finance policy and promotion of savings and credit schemes, to promote income-generating activities of the poor population in rural and urban areas. * Continued efforts to strengthen the economic infrastructure, including through privatization of utilities and transport services and approval of related regulatory frameworks, and the establishment of a roads agency (TANROADS) to manage trunk and regional roads. * Promotion of an enabling environment for private investment, including throUgh enactment of new land legislation, restructuring of the Tanzania Investment Centre, establishment of a unified tax appeal mechanism, and a strengthening of the Commercial Court. 3.1.3 Impact on poverty 20. It is difficult at this stage to determine the full impact on poverty of the macroeconomic and structural policies and reforms that were carried out in 2000/01. Nev ertheless, the Government is convinced that the continuing consolidation of the macroeconcmic situation lays good ground for an effective struggle against poverty. Real GDP has continued to increase at an accelerated pace, reaching 4.9 per cent in 2000 and a projected .5.9 per cent in 2001, largely on the strength of performance in the non-agricultural sectors. At only 3.5 per cent, the growth of real valued-added of agriculture in 2000 was, however, lower than expected, reflecting the impact of adverse weather and underlying structural problems in the sector. The relatively weak growth performance of the agricultural sector, coupled with the collapse of export prices for cashewnuts, coffee, and cotton, pose a major challenge for the poverty reduction strategy. To cope with this problem, in 2000/01 the Government intensified efforts to expand domestic and external markets for the cash crops, and improve financial returns to the farmers. In particular, attempts were made to find new export markets, revive agro-processing activities, improve the quality of the crops, and distribute disease-resistant seedlings. In the period ahead, these efforts will be continued and reinforced with other measures aimed at addressing gaps that have emerged in the aftermath of the liberalization of the agricultural sector. Such gaps include uneven availability of inputs and market information, shortage of credit, and the decline in the quality of cash crops. 21. The Government intends to provide a comprehensive response to the problem of the rural poor in the context of action plans for the Agricultural Sector Strategy (already formulated) and the Rural Development Strategy (being finalized). This response will include, in addition to the interventions noted above, sustained strong support of social services for the poor and diversification of income sources. To this end, the Government, guidecl by the results of a recently completed expenditure tracking study, will seek to ensure that ielated budget resources will benefit the poor. Specifically, administrative and institutional steps will be taken to accelerate the release of funds, avoid deflection of funds for administrative purposes, and strengthen financial reporting and accountability. 12  22. Additionally, the Government has put in place safety-nets directed at protecting the incomes of the poor. One important initiative in this area, the Tanzania Social Action Fund (TASAF), is aimed at generating cash incomes directly to vulnerable groups that are involved in carrying out projects chosen and managed by communities. In addition to the monetary benefits, the TASAF process has also helped to strengthen the technical and managerial capacity of the poor, as well as participatory approaches in planning and implementing poverty-oriented interventions at the community level. Other initiatives include: Small Entrepreneurs Loan Facility; Poverty Eradication Initiatives; Community Based Initiatives Trust; National Income Generation Programme; Agricultural Input Fund; and Youth and Women Development Funds. In reflection of similar concerns, the Government will shortly develop, together with some international partners, a special programme aimed at providing support (such as credit and improved inputs) for the rural poor. Although prompted by essentially different considerations, the recent abolition of primary school fees and other enrolment-related contributions is expected to provide relief for many vulnerable households. 3.2 Conditions for the HIPC-Completion Point 23. The conditions for the HIPC completion point have been implemented as integral parts of the programmes that are being supported by the Bretton Woods Institutions under the PRGF and PSAC-1, as well as other international donors. All the conditions have been implemented as planned, except for a delay in the privatization programme for Dar es Salaam Water and Sewage Authority (DAWASA). Indeed, most of the actions were achieved well ahead of the Government's own schedule, except for a few relatively difficult measures that were completed toward the end of FY 2000/01, notably: (1) the preparation of district education plans, building on the results of the district school mapping and previous studies, and (2) the rolling out of the IFMS to 19 sub-treasuries and 16 revenue centers in Dar es Salaam. Other measures which the Government had wished, on its own, to complete earlier but were delayed until toward the end of the fiscal year were the preparation and costing of a poverty Monitoring Master Plan, and the elaboration of detailed and carefully costed interventions in the education sector. 24. The delay in the privatization schedule for DAWASA was attributable to a technical problem that was largely beyond Government control, notably the absence of responses conforming to the stipulated conditions in the Government's invitation for bids on the private management of DAWASA. In the circumstance, and following close consultation with the World Bank staff, the Government decided in April 2000 to re-launch another round of invitation for bids on the DAWASA lease. A private firm was re-engaged immediately to prepare new bidding documents, and bid invitations are now expected to be issued by end- September, 2001, with the intention of selecting the winning bidder before end-March, 2002. 13  3.3 Institutional and organizational reforms 25. In the course of FY 2000/01, various institutional and organizational reforms were made, in order to strengthen the implementation of the poverty reduction strateg:,: * The ministry of agriculture was split, to enable three constituent ministries to focus on rural income poverty through (a) diversified expansion of crop production and enhanced food security, (b) accelerated development of livestock and water resources, and (c) prudent support of the collective efforts of the rural population in improving t]he quality and marketing of crops, as well as the availability of agricultural credit and inputs. * Two key institutions, TACAIDS and TANROADS, were launched to spearhead needed interventions in regard to the containment of HIV/AIDS and the development of the road sector, respectively. * The Tanzania National Business Council-under the chairmanship of the 11"resident-was launched, to provide an avenue for regular consultation between the Government and representatives of the private sector. * Various capacity building initiatives, including those relating TASAF, have been mounted, with a view to fostering broad participation and ownership of key poverty-reducing interventions. * A robust framework (discussed below) for monitoring and evaluating the implementation of the poverty reduction strategy was elaborated in close consultation with the international development partners and domestic stakeholders. 3.4 Poverty orientation of the 2001/02 Budget 26. The 2001/02 budget is a key instrument in the Government's ongoing efforts to consolidate further the macroeconomic situation and provide an environment conducive to poverty alleviation (Box 3). A number of taxes and levies including school fees, have been abolished, reduced or rationalized, to support access to essential services. and promote agricultural production as well as employment and investment in the private sector. On the expenditure side, the budget provides for a substantial increase in resources for the priority sectors, in line with the guidelines of the annual PER and MTEF exercises. The 2001/02 budget also provides for continued civil service reform and other initiatives directed at strengthening the effectiveness of the public sector, including accountability for resources aimed at assisting the poor. 14  Box 3: The 2001/02 Budget Education * Abolition of VAT on investments relating to education. * Establishment of the Education Fund, to support children from very poor families. * Abolition of primary school fees and other enrolment related contributions. Health * Abolition of VAT on hospital equipment and all taxes for drugs and preventive materials against TB, HIV/AIDS and Malaria. Agriculture and livestock * Removal of stamp duty on farm produce sales. * Reduction of tax on milk packaging material. * Imposition of suspended duty on imported milk, to protect livestock keepers from unfair competition. * Re-affirmation of the 5 percent cap on produce and livestock cess levied by local governments. Private sector investment and * Rationalization of licensing procedures. development * Removal of advance payment of income tax prior to commencement of business. Employment * Abolition of VAT on locally produced yarn. * Rationalization of payroll levies. Priority sector expenditures * Substantially increased allocation of resources for these sectors, in line with MTEF and PER, and taking into account the PRSP objectives. The allocations provide for, among other things, the abolition of school fees, capitalization grants for primary schools, reinforced initiatives to contain HIV/AIDS, and raising the Essential Health Package to US$6 per capita, compared to US$5.5 in the preceding year. Roads * Increased budgetary allocation for investment and maintenance of roads, with specific focus on rural roads. Governance * Further rolling out of the IFMS to local government finances, and stricter enforcement of financial management and control, in keeping with the Public Finance Act, 2001 and the Public Procurement Act, 2001. * Effort to improve the effectiveness of resources allocated to the poor (the Agricultural Input Fund, the Youth Fund, and the Women's Fund) by entrusting their management to domestic banks (on behalf of the government). * Continued progress in Civil Service Reform, including better remuneration, and intensified preparations towards a performance based system. 15  IV. POVERTY MONITORING AND EVALUATION 4.1 Overview 27. The government attached great importance to the development of comprehensive poverty monitoring and evaluation system in 2000/01. This work was achieved through a consultative process involving many stakeholders including government (central and local), research and higher learning institutions, civil society, and the donor community. These efforts were directed towards: * Defining an institutional framework and responsibilities for collecting, using, storing and disseminating disaggregated data on poverty. * Developing indicators to monitor progress towards medium and long-term targets. * Ensuring continued involvement of the stakeholders in poverty monitoring. * Securing funding for poverty monitoring activities. 28. Substantial progress has been made in developing a consolidated institutional framework for monitoring poverty at the national level, a poverty monitoring master plan, and funding arrangements. 4.2 The Institutional Framework 29. The institutional framework that has been established (Appendix II) is under the oversight of the Vice President's Office (VPO), and overseen technically by a National Poverty Monitoring Steering Committee. Functionally, the established framework is oriented towards four distinct tasks, namely: 30. Surveys and censuses: The major task in this area is to conduct pertinent surveys and the national censuses. This task is coordinated by the National Bureau of Statistics and is currently designed to include completion of the latest Household Budget Survey and Labour Force Survey (carried out during 2000 to 2001); national census (2002); agricultural survey (2003); demographic and health survey (2004); Labour Force Survey (2005); Household Budget Survey (2006); agricultural survey (2008); DHS (2009); LFS (2010); HBS (2011), and national census (2012). 31. Administrative data: A group coordinated by the President's Office, Regional Administration and Local Government is working on the enhancement of administrative data within ministries. The group will also collect data at the local government and community levels. Substantial work has already been done to establish a monitoring and evaluation system for local government service delivery. 32. Research and analysis: The major task in this area is to strengthen poverty-related research and analysis, with gender focus. This task is overseen by the President's Office, Planning and Privatisation, and will work in close collaboration with Research on Poverty Alleviation (REPOA) and other quasi-autonomous and private research instiitutions. This group will also coordinate participatory poverty assessments. 16  33. Dissemination and sensitisation: The major task in this area is to develop a programme for the dissemination of data and information generated by the poverty monitoring systems, and raise awareness on poverty trends for men and women. The group will also support advocacy of issues relating to poverty. The group responsible for this work is being coordinated by the Vice President's Office. 4.3 Progress towards developing the poverty monitoring master plan 34. The poverty monitoring master plan, which was completed in June 2001, will be an important tool to foster a coherent approach to the monitoring of poverty in Tanzania. The master plan outlines a programme of work for the next three years, provides a detailed costing of activities, and outlines capacity building efforts that will be needed. 35. The poverty monitoring master plan reflects the agreement reached through a series of consultations on the following key elements: * priority indicators; * frequency and level of disaggregation of data for these indicators; * data sources (including surveys, censuses, administrative data, qualitative and quantitative sources, and participatory assessments); - priorities to guide research and analysis; - database; - dissemination channels; - institutional framework (including a division of labour, flow of information between different institutions, and management of the system); * procedures for the review of progress under the PRSP; * involvement of civil society organizations in the monitoring process; - capacity constraints and plans to address them; and - cost of the poverty monitoring system, as well as resource mobilization and funding arrangements. 4.4 Progress to date 36. The surveys and censuses group: This group benefited from a consultancy, in January 2001, to help the National Bureau of Statistics draw up a multi-year survey programme. As the key data collection agency in Tanzania, the National Bureau of Statistics will play a pivotal role in ensuring that the PRSP data requirements are met. The NBS has many other roles to play, apart from its role as a central data collection agency for the PRSP. Therefore, it was felt that a strategic, long-term plan was required to manage the many competing and sometimes conflicting demands that are placed on the NBS. To ensure that the agency adequately responds to national data requirements within the constraints of its available resources, the ten- year work programme noted above was developed. The programme includes a detailed costing and capacity building requirements. 17  37. The group on administrative data: The group benefited from the work that has been done under the Local Government Reform Programme in developing a framework for monitoring and evaluating progress at the local government level. 38 The research and analysis group: The group has identified research priorities along the following lines: * Research that tests the assumptions underlying the PRSP. * Detailed studies on the impact of policies and strategies on poverty. * Research that addresses the knowledge gaps that were identified in the original PRSP. * Further research to deepen understanding of data (sex disaggregated) emerging from the monitoring system. 39. The dissemination group: This group has identified target audiences for the data and required channels for the flow of inforrnation. Following a three-day retreat in March 2001, a dissemination work plan, indicating tasks and institutional responsibilities, has been developed. 40. In addition, several tools are already in existence for the dissemination of data and inforrnation on poverty. These are the Tanzania Socio-Economic Database and the Tanzania Online. The group is also planning to produce an Annual Status Report On! Poverty In Tanzania which will describe the current status of the PRSP indicators and compare the current values of the indicators against the PRSP targets. 4.5 Financing of the Poverty Monitoring Master Plan 41. The total cost for activities envisaged under the Master Plan (excluding its administration) is estimated at Tsh. 7.5 billion (US$8.6 million) for the three-year period through 2003/042. Of this total, the Research and Analysis group will need TSh. 4.1 billion; the surveys and censuses group, TSh. 1.3 billion (excluding the cost of the 2002 census); administrative data collection group, TSh. 1.5 billion; and the dissemination grcup, TSh. 0.6 billion. An additional budget is being prepared for administrative expenses. Following a recent meeting with development partners on the Master Plan, it was agreed that donors could use one of three options to contribute to the poverty monitoring system: (i) contribute to the overall poverty monitoring fund without earmarking for a particular working group; (ii) contribute to particular individual budget(s) of working group(s) without earmarking for a parlicular budget line; (iii) contribute to a particular budget line of a particular working group. This funding modality will be further elaborated shortly. V. ELABORATION OF STRATEGIES AND COSTING FOR KEY SECTORS 5.1 Methodological and conceptual issues 42. During 2000/01, the government prepared sector developmenit strateglies for basic education and agriculture, and also reviewed the strategies for the other priority sectors. The purpose of this exercise was to identify action plans for pursuing the PRSP objectives. 2 The exchange rate for the Tanzania shilling at end-June 2001 was Tsh. 876=US$ I 18  So far, the interventions for all sectors (except agriculture) have been costed, as have the interventions for some crosscutting areas, notably HIV/AIDS and employment (Table 3). The development strategy for the agricultural sector was completed only toward the end of FY 2000/01, and the government intends to proceed quickly toward the elaboration of a fully costed programme for the sector, for implementation starting in FY 2002/03. Until now, the costing of interventions for the priority sectors has concentrated on FY 2001/02. Cost estimates for the outer years are largely tentative, pending a more careful assessment of requisite interventions, prospective resources, and absorptive capacity. 43. In costing the action programmes for the priority sectors, two distinct exercises were carried out. First, an attempt was made to estimate total resource requirements (that is current and development outlays), based on PER and MTEF efficiency and value-for-money criteria and considerations of budget expenditure priorities and constraints, taking into account the PRSP targets. In summary, the estimated resource requirements for the priority sectors reveal the following features: * For basic education, health and water sectors, resource requirements for 2001/02 are covered almost fully under the budget. * The estimated resources (needed to meet the PRSP targets) in the Roads as well as the Legal and Judicial System exceed substantially the amounts appropriated under the 2001/02 budget. The implication of the resulting financing gaps is discussed below in the respective sectors and the final chapter of this paper. * For agriculture, the costing of programmes aimed at meeting the PRSP targets is now being carried out. Hence, the resources appropriated for this sector under the 2001/02 budget cover only the basic activities and programmes determined in the context of the MTEF. 44. During the review of this paper, stakeholders called for supplementary programmes, to be developed jointly by the Government and international and other stakeholders, to address the urgent problems of: (a) rural income poverty; (b) unemployment among youths and women; (c) poor rural roads, impeding access to farms and markets; and (d) child labour and out-of-school children aged eleven years and above. The government intends to develop the supplementary programme over the coming months, to respond to these pressing problems. 45. Second, in assessing their resource requirements, the priority sectors paid special attention to non-wage current outlays (that is "other charges") and development expenditure for key interventions needed to attain the PRSP objectives. For basic education, the cost of hiring new teachers and redeploying teachers was also examined. The detailed technical material resulting from this work has proven helpful in assessing the submitted cost estimates. This material will be retained by the Government, to facilitate monitoring of the respective 19  Table 3: Resource Allocations and Estimated Requirements for Priority Sectors FY 1999/00 - 2003/04 (July - June)' 1999/00 2000/01 2001/02 .002/03 2003/04 Actual PRSP Preliminary Budget Estimates Estimates Target Out-turn (In billions of Tanzania shillings) Education 162.2 247.8 247.8 347.6 432.6 486.9 basic education 96.3 141.3 141.3 182.8 208.3 224.1 Health 56.7 96.7 96.7 139.3 202.5 224.6 primary health 28.8 42.3 42.3 101.0 100' 32 1 10.82 Water 8.0 17.1 17.1 31.6 50.1 54.1 Agriculture 14.3 18.9 18.9 30.5 research and extension 4.8 6.9 6.9 8.1 ... ... Roads 51.3 91.4 86.8 181.2 2601.1 287.3 rural roads 15.6 28.8 18.2 24.1 69.53 76.53 Judiciary 8.3 13.8 13.8 21.0 80.64 83.64 HIV/AIDS5 0.0 4.8 0.0 7.3 8.3 9.1 Total6 300.8 490.6 481.2 758.5 1.034.2 1,145.6 Total (priority sectors) as percent of aggregate budgetary expenditure excluding CFS7 51.8 67.3 60.9 78.0 0.0 0.0 Total (priority sectors) as percent of GDP 4.4 6.4 6.3 9.0 11.0 11.1 Memorandum Items: Aggregate budgetary expenditure (excluding CFS7) 580.8 728.9 790.0 966.8 ... ... GDP at current market prices 6,884.9 7,664.2 7,664.2 8,482.2 9,352.0 10,311.0 Source: Ministry of Finance 'In this table the indicated resource requirements include recurrent and development expenditure. 'Expected to be revised upwards upon confirmation of external financial support. 3The substantially increased amounts compared to the budgeted resources in 2001/02 reflect the estimaled cost of carrying out (over the medium term) needed repairs and rehabilitation on the bulk of rural and district roads. 4The substantially increased amounts compared to the budgeted measures in 2001/02, reflect the extra -osts of rehabilitating the primary courts (over the medium term). 5Expenditure on HIV/AIDS (including only minimal provision of drugs for HIV/AIDS patients) are mostly incorporated in appropriations for individual ministries and departments. The amounts reflected here are for additional interventions. which henceforth will be carried out primarily by TACAIDS. 6 Consists of Personnel Emolument, Other Charges and Development Expenditure. 7Consolidated Fund Service. 20  programmes. The summary results of the arduous costing exercise are selectively reported below. 5.2 Education 46. Progress and achievements: During 2000/0 1, the government carried out a number of activities: * School mapping was completed relatively quickly in the course of 2000/01 for 63 districts (compared to the target of 50) out of 113 districts in the Mainland. Based on the results of this exercise, and guidelines provided by the Ministry of Education and Culture (MOEC), the districts with completed school maps embarked on the preparation (still ongoing) of plans for pursuing the PRSP targets and objectives. * A PER exercise for the education sector, was completed in February 2001, in time for the PER and the 2001/02 budget. * The MOEC developed an Education Sector Development Programme (ESDP), encompassing pre-primary, primary, adult and secondary education, teacher training, and school-based programmes. Under the ESDP, the PRSP objectives are being pursued through interventions aimed mainly at (a) improving quality, (b) raising enrolment, (c) optimising effective use of available resources, (d) reinforcing capacity to manage schools at grass-root level, and (e) addressing gender, environment and HIV/AIDS concerns. The strategy was developed on an elaborate participatory approach involving a wide range of stakeholders, including development partners, education administrators, parents, teachers, academic institutions, and other civil society organizations. * Specific initiatives already implemented under ESDP include: abolition of primary school fees and all other enrollment related contributions; introduction of capitation grant of US$ 10 per student (compared to US$ I hitherto) per annum; and introduction of an investment grant to finance the construction of new classrooms, teachers houses, toilet facilities and rainwater harvesting tanks. 47. An important objective under the ESPD is to have all 7-10 year old children in school by 2004. To this end, an additional 1 million children are expected to be enrolled by 2003. Another major objective is to improve efficiency in the school system and raise the quality of education. In pursuit of these objectives, the following specific initiatives are envisaged: * Complete school mapping and micro-planning for the remaining districts. * Expand enrolment substantially in standard one, especially in the poor regions, in the new school year starting January 2002. * Improve teacher management at the school level, in order to increase instructional hours. * Secure a more even allocation of teachers across schools and regions, by raising average number of pupils per teacher from 38 at present, to 45 by 2004. 21  * Upgrade teachers' qualification through on-the-job training (2/3 of the teachers are expected to have grade "A" certificate by 2008). Table 4: Estimated Financing Requirements for the Education Sector Development Programme (ESDP), 2001/02 - 2003-04 (July - June) 2001/02 2002/03 2003/04 Budget Projection Projection (In billions of Tanzan ia shillings) 1. Primary schools 173.3 198.3 215.5 Capitation grant 48.6 73.7 83.5 Construction of new classrooms 60.3 56.2 58.5 Investment grant 24.3 33.9 35.8 Primary school fees (cost of abolition) 11.0 Classroom rehabilitation 3.6 4.3 5.0 Recruitment of new teachers 6.0 7.7 7.0 Supply of text books and other 19.5 22.5 25.7 learning materials 2. Secondary schools 8.4 5.5 2.6 Construct and furnish new classrooms and laboratories 3.4 2.6 0.7 Supply textbooks and other teaching and learning materials 2.2 1.1 0.4 Science teaching equipment for secondary schools 2.0 1.0 1.0 Rehabilitate secondary school physical facilities 0.8 0.8 0.5 3. Teacher training 0.1 0.1 0.] 4. Control of HIV/AIDS 1.0 4.4 5.9 Total expenditure - Basic Education 182.8 208.3 224.1 Source: Ministry of Education and Culture 22  * Improve the quality and availability of textbooks and other school supplies, through decentralized procurement. * Extend the system of double-shift. * Introduce a system of teacher resource centres, to increase the effectiveness of teachers and raise education standards. * Strengthen the capacity of the authorities at the district and community levels to manage schools. 48. Costing of interventions: In order to achieve the PRSP objectives, the financing of basic education is budgeted to increase by 29.4 percent in FY 2001/02 to Tsh. 183 billion, or 2.2 percent of GDP (compared to 1.8 percent of GDP in 2000/01). The required resources for basic education are expected to continue to increase over the medium term, to reflect the impact of the planned expansion in enrolment and initiatives aimed at bolstering the quality of education. 49. Viewed in terms of the ESDP, as much as 96 percent of the estimated financial resources (costed in Table 3) will be absorbed in primary education (mainly as capitation and investment grants to finance non-salary outlays for the construction of classrooms and other facilities, recruitment of new teachers, textbooks and other learning materials, and rehabilitation of classrooms). 5.3 Health 50. Progress and achievements: During 2000/01, the government continued to implement the health sector programmes taking into account the PRSP targets. Special attention was given to gender and vulnerable groups, including the poor in the rural areas. A health sector PER carried out in January 2001 revealed that per capita public health spending had continued to increase to nearly US$6, compared to US$5.5 in 1999/2000. The share of budget resources devoted to health also increased further to 14 percent, from 12 percent in 1999/2000. Moreover, the allocation of resources in the health sector was guided increasingly by per capita considerations, rather than the number of beds and health facilities (practiced previously). 51. Some progress appears to have been made towards improving survival prospects. The coverage of the Integrated Management of Child Illness (IMCI) increased as planned, from 17 districts in 1999/00 to 31 districts in 2000/01. The utilization of Maternal and Child Health (MCH) services, including reproductive health and family planning, also increased. Moreover, following intensified preparation and adoption of District Health Plans (now covering about 70 percent of the districts), the percentage of births assisted by trained personnel is expected to pick up substantially. In reflection of these developments, the government is optimistic that the original PRSP targets in regard to infant, "under-five", and maternal mortality will be met. These targets, together with those for nutrition and the sero-positive rate in pregnant women, will be revised during the next updating of the PRSP using more definitive information. 52. Costing of interventions: In 2000/01, resources for priority activities in the health sector increased sharply to the equivalent of 1.3 per cent of GDP, compared to 0.8 percent in the preceding year. The 2001/02 budget provides for a further boost in the resources for these activities, to the equivalent of approximately 1.8 percent of GDP. Under the 2001/02 budget, the appropriations for the health sector include a boost in resources for primary health for rehabilitation of health care facilities, 23  drugs, immunisation of children, and strengthening of referral functions of secondary and tertiary services (Table 5). Table 5: Financing of Primary health, 2001/02 - 2003/04 (July - June) 2001/02 2002/03 2003/04 Budget Projection Projection (In millions of Tanzania shillings) I. Drugs 9,962.7 20,857.8 20,625.2 2. Essential medical supplies 2,063.5 4,320.0 5,184.0 3. Essential hospital equipment and 2,550.7 4,940.0 5,184.0 reagents 4. EPI-Kerosene 485.5 870.0 7,528.0 5. Utilities 86.0 156.0 197.4 6. Strengthen secondary and tertiary service delivery 1,805.3 3,264.6 4,655.6 7. Strengthen referral functions of secondary and tertiary curative services 5,156.0 10,095.0 12,463.2 8. Provision of counterpart funds for the introduction of community health funds 1,663.1 1,834.8 1,463.2 9. Malaria prevention and control 1,039.8 2,004.5 1,886.3 10. Human resource development 2,259.5 4,148.9 4,435.0 11. Immunisation of children 2-years and below' 6,626.2 12,307.2 8,783.6 12. HIV/AIDS awareness programme 2,826.4 5,921.2 7,105.4 13. Environmental health 245.9 1,372.5 974.6 14. Total recurrent expenditure 36,770.4 72,092.4 84,889.5 15. Development expenditure (rehabilitation of facilities) 64,218.6 28,196.62 25,91 9.52 Total expenditure - Primary Health 100,989.0 100,289.0 110,809.0 Source: Ministry of Health To meet the PRSP target of increasing such immunization from 71 percent to 75 percent and more. 2 Expected to be revised upwards upon confirmation of extemal financial support. 24  53. Following a review by stakeholders, of the health sector performance in March 2001, the participating international partners agreed to continue to support the health sector through the mechanism of "basket" funding, and pledged Tsh. 86.5 billion for 2001/02. These pledges were largely targeted at district health services, including interventions relating to the containment of malaria, childhood diseases, HIV/AIDS, TB, leprosy, and malnutrition. 54. The govermment has already prepared a detailed health sector plan for the three- year period through 2003/04. According to the plan, financial resource requirements for priority activities in the sector will continue to increase, in order to provide for a strengthening of the basic health care package, rehabilitation of health centres, and improved access to basic health care. 5.4 Water 55. Progress and achievements: In 2000/01, the Ministry of Water and Livestock Development (MWLD) has revised the National Water Policy and developed a vision building on the goals of the original PRSP. The revised policy provides for the following specific targets: - Raising the proportion of the rural population that has access to safe and clean water from 48.5 percent in 2000, to 53 percent in 2004. - Increasing, over the same period, the corresponding ratio for the urban population from 68 percent to 78 percent. - Reinforcing involvement of local communities and the private sector in developing water resources. 56. Costing of interventions: In 2000/01, the resources allocated to the water sector increased sharply, in relation to GDP, to the equivalent of 0.2 percent, or nearly double the level of the preceding year. The 2001/02 budget provides for a further substantial increase in the appropriations for this sector, to nearly 0.4 percent of GDP. Investment projects are estimated to account for about three-fifths (Tsh. 34.4 billion) of total resources for the sector in FY 2001/02, with urban water and sewerage absorbing over 60 percent of the investment, compared to 17 percent for the infrastructure relating to rural water supply (Table 6). Over the Medium term, the government intends to continue to increase the relative share of resources for the development of such infrastructure, to nearly 30 percent by 2004. 25  Table 6: Financing of the Water sector programme, 2001/02 - 2003/04 (July - June) 2001/02 2002/03 2003/04 Budget Projection Projection (In billions of Tanzanian Shillings) Recurrent expenditure 10.3 14.0 16.2 Salaries and wages 2.2 3.7 4.6 Other charges 8.1 10.3 11.6 Administration 1.1 1.6 2.5 Electricity 5.0 5.3 4.2 Operation and maintenance 1.1 1.9 3.0 Capacity building 0.9 1.5 1.9 Investment 21.3 36.1 37.9 Rural water supply infrastructure 6.0 8.7 10.5 Urban wvater and sewerage 7.7 21.4 22.5 Water resources management 3.9 2.1 0.9 Others 3.7 3.9 4.0 Total expenditure - Water Sector 31.6 50.1 54.1 Source. Ministry of Water and Livestock Development 5.5 Agricultural sector Introduction 57. Agriculture is critical to Tanzania's economic and social development goals that are espoused in the Tanzania Development Vision, 2025 for three reasons. First, improvements in farm incomes of the majority of the rural population is a precondition to the reduction of rural poverty. Second, any strategy for addressing food security must involve actions to improve agricultural and livestock production and farm incomes to ensure availability and access to food. Third, agriculture, as the single major contributor to GDP, is key to the country's overall economic development now and in the near future. Its potential in this regard is substantial. 58. The Government has prepared Agricultural Sector Development Strategy i'ASDS) as an instrument for stimulating growth and reducing poverty. The strategy document is the product of a participatory consultative process at the national and grassroots levels, encompassing farmers organizations, agribusiness representatives and development partners. The process also benefited from inputs provided by the Special Advisory Committee on Agriculture set up by the Prime Minister in September 1999 and the Task Force on Cooperatives appointed by the President in April 2000. The draft AS'DS was vigorously discussed at four zonal workshops, involving grassroots participarits from different regions of mainland Tanzania. A total of 167 stakeholders participated in the workshops; 53 percent of the participants were farmers and 40 percent Women. 26  59. Due to diversity of the agricultural sector, there are many actors playing various roles in the sector. The main actors comprise public institutions (including the central government, ministries, regional secretariats, local government authorities, research and training institutions; the private sector (farmers, agribusiness, financial institutions); the civil society; and development partners. The success of the ASDS will depend on the ability of each of the major actors to play their roles effectively, and the establishment of effective institutional mechanism for coordinating and linking the activities of the actors. The ASDS clearly identifies the role of the actors and the coordination mechanisms to facilitate the participation and linkages of the actors. 60. Together with the formulation of the ASDS, the government has embarked on the preparation of a Rural Development Strategy (RDS) that is aimed at providing a coherent framework for addressing issues (such as rural unemployment, environmental degradation, HIV/AIDS, gender, youth, infrastructural development, governance, and capacity building) that bear heavily on rural poverty. An initial draft of the RDS, incorporating findings from a zonal workshop, has been prepared. This draft being refined further, will be completed in the course of 2001. 61. The ASDS is built upon a number of critical assumptions, including the ability to capitalise on the inherent strengths and comparative advantages of the agricultural sector. Under the Strategy it is assumed that Tanzania will maintain: (a) a comparative advantage in the production of major food and export commodities; (b) substantial population engaged in agriculture and livestock keeping; (c) underused and unused abundant natural resource base; (d) strong political commitment to improve policy environment through adjustments and structural reforms; (e) appropriate incentives to attract and retain private investments in agriculture; (f) domestic and international trading opportunities through membership to regional and international trade groupings and protocols; (g) opportunities for forging strategic partnership between agro-industries and smallholder farmers through out-growers/contract farming models; and (h) decentralised structures at the district level for agricultural and livestock development planning, implementation, monitoring and evaluation. Agricultural sector growth targets 62. The Government recognises that stronger performance of the agricultural sector will be key in realising the intended acceleration in real GDP growth and the needed reduction in poverty. Accordingly, the following growth targets have been established for the coming five years:- * increasing real annual agricultural GDP growth from about 3.6 percent at present to 5 percent by 2003, and 6 percent by 2005; 27  * raising of the corresponding rate for the livestock sub-sector from 2.7 percent to 5 percent by 2005; and * increasing real annual growth rate for export crops over the same period from 6.8 percent to 9 percent. Box 4. Features of the Agricultural Sector Development Strategy (ASDS, The ASDS has been designed with the objectives of increasing profitability and productivity of agriculture and livestock as a means to reducing rural poverty through improvement of farmers' incomes and promotion of food security. The Government has included a set of innovative approaches in the ASDS, whiclh are considered critical to agricultural development in Tanzania. The new features include: * focusing on agricultural profitability, by creating a conducive policy environment that will attract investments in the agricultural sector,; * producing for targeted markets and diversification of products; * adding value through domestic processing and reducing post-harvest losses: * building private and public sector partnership, to enable greater private sector involvement in the provision of support services, input and output marketing, and investments in the agricultural sector infrastructure; * focusing on partnership between agro-industries and contract growers, to provide strategic vertical linkages that will ensure access to inputs, credit, and output market for smallholders, as well as steady supply of raw materials to agro-industries; * focusing responsibility for implementing the ASDS at the sub-national level district agricultural development programmes, in order to empower the local communities and ensure sustainability; * strengthening markets for agricultural inputs and outputs through promotion of cross-border trade, formulation and implementation of a sound policy on food security, promotion of agro-processing, improvement of roads and other rural infrastructure, development of autonomous and efficient farmers' organizations, and collection and dissemination of market information; * creating a conducive administrative and legal environment for the sector, by reviewing and harmonizing agricultural legislation, streamlining procedures for land acquisition, and facilitating stakeholders' participation over commodity boards; and * implementing tax reforms and pursuing exchange rate and other macroeconomic policies aimed at ensuring regional and international competitiveness of the sector. 28  Strategic Priority Areas for Agricultural Sector 63. The achievement of the overall strategic objective will require hard choices to be made regarding strategic options guided by financial and human resource constraints. Therefore the ASDS will focus on the following interventions: (i) Strengthening capacity of actors and their coordination. (ii) Improving support services (agricultural research, extension, training, regulatory services, promotion of farmers' organizations, animal health and crop protection services and agricultural information services). (iii) Facilitating investment and financing in agriculture and livestock, with focus on the development of micro-finance, partnerships between smallholders and agri-business, and the development of sector specific incentive packages. (iv) Strengthening agriculture and livestock market efficiency for inputs and outputs, including legalisation and promotion of cross border trade, updating and enforcing input and output marketing legislation, improvement of rural infrastructure, establishment of Private Agribusiness Sector Support (PASS) units, and promotion of the use of input voucher system. (v) Creating a conducive administrative and legal environment (vi) Mainstreaming planning for agricultural development in other sectors. Effective agricultural sector development requires participation of many actors over and above the Ministries directly responsible for the agriculture and livestock sector. The Government therefore plans to integrate the vision for agricultural sector across all ministries, as well as in conjunction with the private sector. Key areas to benefit from greater cross-government planning include improved utilization and management of land and water resources, enhanced rural infrastructure, fight against HIV/AIDS, environmental management, increased use of labour saving technology, gender, and sustained development of human resource base for agriculture. (vii) Sustaining macroeconomic stability. The profitability of agriculture is affected by changes in macroeconomic conditions, such as levels and trends in the inflation rate, interest rates and exchange rate regimes. In this respect, the Government will strive to sustain and improve the existing macro-economic stability as a pre-requisite to agricultural profitability and growth, especially under the private sector-led agriculture. 64. Costing of interventions: Following the finalization of the ASDS, the government intends to prepare quickly an action programme for the agricultural sector, together with the costing of needed interventions, for implementation starting in FY 2002/03. The preparation of the programme will involve the participation of stakeholders, including smallholder farmers, livestock keepers, farmers' organizations and others. 29  65. Meanwhile, the Government has embarked on measures for improving the policy and institutional environment to promote private investment and improve the pro itability of agriculture. These measures were elaborated above in Box 4. The MCM, MAFS, and local governments are operating on the basis of budget resources allocated according tc the MTEF guidelines. These allocations cover only a part of the interventions that would be required to achieve the PRSP objectives. Accordingly, during the review of this report, the stakeholders called for the elaboration quickly of short-term supplementary interventions in the agricultural sector to alleviate income poverty. The Government, in consultation with the stakeholders, intends to embark promptly on the preparation of such interventions, and secure necessary financing. This may entail some reallocation of external project funds. 5.6. Local Government Reform 66. The Government is implementing Local Government Reform Programme (LGRP) with the objective of improving service delivery to the public. Actual phased implementation of LGRP was launched in 38 councils in January 2000. The launching of implementation of the reform programme was preceded by the following policy, legal and strategic interventions: * Endorsement of a policy paper on Local Government Reform by the Government. * Enacting Regional Administration Act No.19 of 1997, which paved the way for the restructuring of Regional Administration, so as to become an important government arm for advisory and backstopping support to the Local Government Authoities. - Amendments of local government laws by Act No.6 of 1999 to provide enabling provisions for implementation of the Local Government Reform. * Adoption of Action Plan and Budget for the period July 1999 to December 2004, paving the way for sequencing of implementation of the local government reform programme. 67. Steps have been taken to prepare the ground for promoting principles of democracy, transparency, accountability, integrity and the rule of law at the local level. In particular, progress has been made in sensitising and educating the general public through a xveekly radio programme. Codes of conduct for councillors and staff have been published and issued for enhancing accountability, transparency and integrity on the part councillors and staffs. An encouraging move has been made in the development of participatory planning framework at the local level. 68. All Phase-I councils have formed Council Reform Teams which are spearheading the reform process. As part of capacity building, training in financial managemenlt has been undertaken on in-house basis through the Zonal Reform Teams. Measures aimed at strengthening decentralized management of staff by local government authorities have also been taken. 30  69. Preparation of the Monitoring and Evaluation (M&E) system for the LGRP to monitor service delivery at local government level is at its final stage. Implementation of the system is planned for the second half of 2001. Activities so far completed include:- * Designing and testing of a prototype of the M&E system in selected local authorities. * Assessment of the test results and specification of a manageable number of sector indicators that will be used during the initial period of the implementation of the system. * Design of a database that will be used to manage data when the system comes into operation. * Preparation of a manual that will be used to guide users on how to implement the system. 70. A joint Government-Donor review of the LGRP was undertaken in May/June 2001. The review team endorsed the local government reform policy, the implementation strategies, and the manner the reform is being managed. The team provided a valuable snapshot of where the reforms are currently succeeding and failing. It also identified blockages that need to be addressed both administratively and as a matter of policy. 71. Capacity building aimed at improving financial management at local government level continued throughout the year 2000/01. This was largely done through in-house training provided to the relevant staff of the Phase I local government authorities. A computerized system of financial management and accounting (also known as Platinum Epicor) which was introduced in 28 councils at the beginning of 2000, continued to be implemented throughout the financial year as part of capacity building. Implementation of the system aims particularly at enhancing financial accountability in the local government authorities especially in ensuring that funds allocated to pro-poor sectors are not diverted to other unintended purposes. The plan is to roll out the implementation of the Integrated Financial Management System (IFMS) to another batch of 29 councils during the year 2001/02. 5.7. Roads 72. Progress and achievements: During 2000, the government conducted comprehensive studies on the road network which showed that: * Virtually all feeder roads (27,550 kilometres) are earth tracks or gravel roads in poor condition, requiring rehabilitation or spot improvement, in order to restore access to productive agricultural regions and markets. * Only 8 percent of the district road network (20,000 kilometres) is in good condition (that is, requiring recurrent expenditure for maintenance); the remaining 92 percent is in fair and poor condition (requiring rehabilitation). * Only 20 percent of the regional road network (24,700 kilometres) is in good condition. The rest is either fair (40 percent) or poor (40 percent). 31  73. These findings underscore the importance of continuing to improve the road neltvork, in order to provide access to regions with good agricultural potential and markets. For the medium-term period through 2004, the government will be seeking to: * Rehabilitate about 4,500 kilometres of feeder, district and regional roads in the poorest 8 regions. * Upgrade (from poor to fair quality) about 7,000 kilometres of such roads. In carrying out this work, emphasis will continue to be placed on the 12 poorest regions. * Carryout spot and emergency repairs over an estimated 50,000 kilometres of roads in all districts, to ensure uninterrupted use of the roads. Pilot programmes in these areas are under way. The experience gained from these programmes will be used to mount expanded interventions, with particular emphasis on the community welfare. 74. In addition to the emphasis on community roads, the government intends to pay special attention to footpaths, tracks and trails, and to mobilize communities in carrying out needed improvements. Moreover, studies will be carried on the modality of travel and transport at the grass root level, with a view to developing effective programmes to support the welfare of women. 75. Costing of interventions: Under the 2001/02 budget, the Government has allccated Tsh. 24 billion for rural roads (Table 6). This amount compares with an estimated Tsh. 44.3 billion for an annual road programme which, if sustained over the medium term, would ensure adequate improvement of the rural road network and attainment of the PRSP objectives. The road programme for the rural sector will be reviewed with the stakeholders shortly, with a view to mobilizing additional support for urgent road improvement at the community level. Table 7: Costing of the Roads Programme, 2001/02 - 2003/04 2001/02 2002/03 2003/04 Budget Projection Projection (In billions of Tanzania shillings) Trunk Roads 157.1 190.6 210.8 Construction 112.2 114.9 138.7 Maintenance 44.9 75.7 72.1 Rural Roads 24.1 69.5' 76.5l Construction 3.8 Maintenance 20.3 ... ... Total Expenditure - Roads 181.2 260.1 287.3 Source: Ministry of Works The substantially increased amounts compared to the budgeted resources in 2001/02 reflect the estimated cost of carrying out (over the medium term) needed repairs and rehabilitation on the bulk of rural and district roads 32  5.8 Legal and Judicial System 76. Progress and achievements: Recent developments following the launch in December 1999 of the Legal Sector Reform Programme (LSRP) and the associated action plan include: * Substantial improvement in the adjudication of the commercial disputes, following establishment of the Commercial Court in September 1999. In 2000/01 (July - June) 78 commercial cases were resolved, compared with 53 cases in 1999/2000. * Launching of the Alternative Dispute Resolution (ADR) system, resulting in a significant reduction in the backlog of pending cases in the high court and resident magistrate courts. The government intends to extend this system to district and primary courts by September 2001. * Establishment in the regions and districts of Independent Judicial Ethical Committees to watch over the integrity of judicial officers. * Establishment of Land Division in the High Court from May 1, 2001. * Establishment of Human Rights and Good Governance Commission from July 1, 2001. * Establishment of the Institute of Administrative Justice in Lushoto, to train primary court magistrates and administrative support for the Judiciary institutions. * Improvement of the staffing situation through the recruitment of more state attorneys and magistrates, as well as judges for the High Court. 77. These encouraging developments notwithstanding, there appears to have been limited progress in achieving other sector targets under the PRSP, notably those relating to the speeding up of case settlements in primar-y courts, increasing the frequency of Court of Appeal sessions, rehabilitation of buildings and facilities of the primary courts, and the promotion of community-based security arrangements. The planned interventions during 2001/02 are aimed at improving performance in these areas. 78. Costing of interventions: In 2001/02, budgetary allocation (for recurrent outlays) for the Judiciary will be increased by nearly 40 percent to about Tsh. 11.4 billion. The government intends to continue to raise substantially appropriations for the Judiciary over the Medium term. Unfortunately, development expenditure in the Legal and Judicial Sector was negligible in FY 2000/01, owing to unforeseen delays in finalizing arrangements for international support. The government intends to review further (in the light of the LSRP action programme) the available costing of interventions for this sector, in order to unblock quickly the pledged international support for the rehabilitation of the primary courts. CROSSCUTTING ISSUES 6.1. Overview 79. During 2000/01, the Government monitored progress in the main crosscutting areas of the poverty struggle, notably governance, gender, environment, HIV/AIDS, employment and urban poverty. For the most part, the interventions needed in these areas have been costed 33  under the respective priority sectors of the PRSP or the line Ministries. Accordingly, the discussion below will focus mainly on the description of progress to date. and the: identification of follow-up steps. 6.2 Governance 80. During 2000/01, the government implemented various measures aimed. at fostering good governance. In particular, emphasis was placed on limiting corruption, strengthening financial management and control, and strengthening the justice system. Among, the measures implemented so far are: * Adoption of a national plan against corruption, together with detailed plans for individual ministries and key public agencies. * Extension of the operations of the Prevention of Corruption Bureau through establishment of offices in all regions of Mainland Tanzania. Efforts are underway to consolidate these offices and establish district offices. The Government has also embarked on a countrywide dissemination of the plans, including through the encouragement of campligns against corruption by political, religious and other leaders. * The mass media has been encouraged to assume an active role in the impleme -tation of the Anti-Corruption Strategy and action plans. * An Ethics Secretariat was established under Article 32 of the Constitution and charged with enforcing ethics by public leaders, including ensuring that they do not use their official positions for private gain. In February 2001, Parliament amended the 1995 Public Leadership Code of Ethics, to authorize the Secretariat to conduct proactive investigations against leaders suspected of breaching the Code. 81. In 2000, the Parliament also passed a constitutional amendment to establiSh the Human Rights and Good Governance Commission. This amendment has paved the way for the promulgation of Human Rights and Good governance Act, 2001, as well as the establishment of the Commission. 82. In the financial field, the Government proceeded with the rolling out of the IFMS and enactment of the Public Finance Act and the Public Procurement Act. The Office of the Controller and Auditor General (CAG) is currently preparing a new scheme of service which will be accompanied by internal regulation in conformity with the new Public Finance Act, 20001. The Act empowers the CAG to appoint, manage, control and enforce staff discipline in his office. The Act, together with the Public Procurement Act 2001, will help foster sound financial management, and reduce doubtful procurement deals and contracts. Further, a Country Financial Accountability Assessment (CFAA) was recently carried out with involvement development partners. 83. The judiciary is an important pillar of good governance. The Department has taken disciplinary actions against employees involved in corrupt practices. Moreover, a Judicial 34  Ethics Committee has been set up at the national and zonal levels. The Commercial Court also commenced operation, and personnel and other measures have been implemented to strengthen the institutions and agencies entrusted with the administration and enforcement of justice. 6.3 Gender 84. In 2000/01, the government continued to implement initiatives aimed at reducing income and non-income poverty among women, and strengthening their position in the country's development. Following the adoption (in 2000) of the Policy on Women's Development and Gender, all government ministries are now required to mainstream gender considerations into their operations. Moreover, the Sub-programme on Women and Gender Advancement has been developed. The programme places special emphasis on enhancement of women's legal capacity; economic empowerment and poverty eradication; women political empowerment and decision making; and access to education, training and employment. So far, progress has been made in several areas: * The Land and Village Acts (providing for land ownership by women) have been promulgated. * The Sexual Offences Act (protecting women's integrity) has been enacted. * The number of women in Parliament has been increased (though provision of special seats) to 20 percent of the total number of Parliamentarians, and women representation at the local government level and is now estimated at about one-third. * The principle of equal opportunity, employment and meritocracy has been adopted in the civil service. 85. Despite these developments, the government recognizes that further progress is needed to narrow gender gaps, such as those noted earlier, in income and non-income poverty and vulnerability. 86. Accordingly, over the medium term actions will be taken to update further and incorporate gender concerns systematically into the PRSP, thereby making it an effective tool for poverty reduction. Such actions, which will build on the outcomes of the poverty-gender analysis (which was carried in the first half of 2001), will include: * Strengthening the poverty monitoring master plan, to focus on gender. This will be done through the National Poverty Monitoring Steering Committee and relevant Working Groups. * More careful analysis of the existing data, to highlight the link between gender and poverty. * Stricter enforcement of the Policy on Women's Development and Gender, through a national strategy and action plan, to mainstream gender into the priority sectors. 35  * Reviewing, from a gender perspective, all new national policies and striategies before approval and implementation. * Strengthening the mandate and capacity of ministerial gender units in the priority sectors. 6.4 Environment 87. In 2000/01, the government's environmental concerns continued to focus, on six major problem areas: * Land degradation. * Lack of accessible, good quality water for urban and rural inhabitants. * Environmental pollution. * Loss of wildlife habitats and biodiversity. * Deterioration of aquatic systems. * Deforestation. 88. For the most part, the interventions aimed at addressing these problems were incorporated in the work programmes for the respective line ministries. Additionally, the government continued to support community based efforts to improve the enviroinment through the sharing of revenue from forestry, game reserves, and other natural resource,. Moreover, the government cooperated closely with the private sector in carrying out tree planting programmes, control of industrial effluents, as well as awareness campaigns. 89. A workshop was held at the beginning of June 2001, with participation of key stakeholders., to explore effective ways to integrate environment into the PRSP process. The main priorities identified at the workshop included the need to: * Include environment experts in the technical working groups for the poverty monitoring system. * Undertake analysis of existing data, including the HBS, to capture poverty-environment linkages. * Include an environmental module in the Tanzania Social and Economic Data system. * Provide technical support and build capacity for integrating environment into District Authority Development Plans, and support the work of Local Environment Committees. * Undertake an assessment of the various community-based environmental management projects and programmes, to identify good practices * Strengthen the institutional and legal framework for environmental management activities. 36  90. The government intends to review these recommendations, in order to identify concrete measures that will be implemented promptly starting in FY 2001/02. 6.5 HIVWAIDS 91. During FY2000/01, Tanzania's struggle against this pandemic was focused mainly on "awareness" campaigns by political, religious and civic leaders at all levels. Public media (notably newspapers, radio and television) were used intensively; school curricula were modified, to include coverage of HIV/AIDS; and theatrical presentations encompassed skits on AIDS. The government, assisted by domestic and international partners, encouraged and supported (financially) general use of condoms. Special efforts were also made to discourage traditional and cultural practices that compound the problems of HIV/AIDS. 92. On the institutional side, the Government established TACAIDS, as a quasi-autonomous agency, to coordinate all interventions related to AIDS, including the mobilization of resources from domestic and external sources. More specially, the responsibilities of TACAIDS will also cover policy formulation, strategic planning, advocacy, monitoring and evaluation, and the public dissemination of information on HIV/AIDS. 93. The interventions in these areas will be guided by the strategic multi-sectoral medium-term plan (MTP III Plan 1998-2002), which places emphasis on: * Provision of nation wide Voluntary Counselling and Testing (VCT) facilities. - Ensuring availability of safe blood in all transfusion sites. P Provision of adequate Sexually Transmitted Infectious (STI) services. - Promotion of condom use. - Introduction of HIV/AIDS education in all schools. - Activation of public education programs. - Strengthening coordination for a multi-sectoral response to the epidemic. - Active implementation of HIV/AIDS programs that are community based in all districts - Establishment of a strong monitoring and evaluation system. 94. Table 7 provides a comprehensive picture of the cost of HIV/AIDS priority interventions over the medium term. For FY 2001/02, most of the costed items are already included in the budget appropriation for the respective line Ministries. At this stage, the envisaged HIV/AIDS interventions include only a minimal provision for drugs to persons affected by the disease 6.6 Employment 95. The ongoing work to monitor the implementation of the poverty reduction programme has, as noted earlier, highlighted the gravity of under-employment and unemployment, especially among youths and women in urban as well as rural areas. The government believes that a durable solution to this problem requires sustained efforts to strengthen the performance of the agricultural and private sectors. Accordingly, the government is resolved to proceed forcefully with the reforms aimed at supporting these key sectors. In addition to such reforms, the government has also implemented specific measures to improve employment prospects: 37  * The National Employment Promotion Services Act has been enacted, paving the way for establishment of a pilot labour exchange office in Dar es Salaam. Similar offices w ill be opened in other urban areas in 2001/02. * The government (through Vocational Education Training Authority) has taken steps to strengthen skills training by introducing competence-based education and training, which stre,ses trainees' experience as well as academic qualifications. To reinforce the ongoing efforts in this area, the Government intends to embark on a review of the role of Folk Development and Community Development Colleges. * In collaboration with international partners under the National Aids Control programme, HIV/AIDS seminars on guidance and counselling were given to youths in various work places and locations in the country. These efforts will be continued over the medium term. Table 8: Cost of HIV/AIDS Priority Interventions, 2001/02 - 2003/04 (July -- June) 2001/02 2002/03 2003!04 Budget Projection lProjection (In billions of Tanzania shillings) I Provide appropriate STI case management services 10.2 10.2 11.3 2. Reduce unsafe sexual behaviour among highly mobile population groups 1.2 1.2 13 3. Reduce HIV transmission among commercial sex workers 0.2 0.2 02 4. Prevent unprotected sexual activity among the civil military alliance 1.4 1.4 1.5 S. Reduce vulnerability of youths to HlIl!AIDS 0.7 0.8 0.8 6. Maintain safe blood transfusion services 0.9 0.7 0.9 7. Reduce poverty leading to sexual survival 0.1 0.1 0.1 8. Promote acceptance of people living with AIDS 3.8 6.6 7.3 9. Reduce unprotected sex among men with multiple partners 0.6 0.6 0.7 10 Improve education opportunities especially for girls 0.2 0.2 0.2 11. Promote cultural norms and valties and encourage positive altitude and decision making about sex 0.1 0.1 0. 12 Programme management monitoring and evaluation 1.7 1.7 1.8 13. Other activities 0.5 0.5 0 5 14. Research 0.7 0.7 0.7 15. NGO management support 1.1 1.0 1.0 16. Care and support (Orphans) 0.4 0.3 0.4 17 Operationalise public education programme 1.0 0.7 0 7 18. Print and distribution text books 5.5 0.5 19. Maintain TACAIDS 0.6 0.4 0.4 Total expenditure' 30.8 27.7 29.8 Source; TACAIDS 38  'Includes only minimal provision for drugs of HIV/AIDS patients. Expenditures on HIV/AIDS are incorporated in appropriations for individual ministries and departments. * A time-bound programme for eliminating child labour has been prepared and will be adopted soon. * A National Youth Council has been established as an autonomous statutory body to advise government on matters relating to youth development. * The government has embarked on various initiatives aimed at increasing financial support for small employment-creating business. These include an ongoing review (to be completed before the end of 2001) of micro-credit schemes for the youth, women, and other groups, with a view to rationalizing them and increasing their effectiveness. * The government, in collaboration with ILO, has prepared a Country Action Programme for Employment Promotion. This programme will be implemented in collaboration with the private sector. * In order to increase employment opportunities for the poor and help enhance their productivity and competitiveness in the rural and urban areas, the Government intends to develop programmes for the promotion of small scale industry in the formal and informal sectors as well as other types of micro enterprises. To this end, it has designed a demand- driven district-based skills training programme for employment promotion. The programme will be implemented in various sectors under the coordination of the Ministry of Labour, Youth Development and Sports, and in collaboration with other ministries as well as public and private training institutions across the country. The budget allocation for this programme is TSh. 100 million in FY 2001/02, and will be reviewed in the context of sector MTEF for the subsequent years. 6.7 Urban poverty 96. Together with the initiatives directed at strengthening employment prospects, the government intends to conduct a comprehensive study on poverty reduction in urban areas. This study, essentially similar to the Rural Development Study, will be key in developing a coherent and effective response to the worrisome problem of urban poverty. Among the issues that will be examined in the study are (a) basic infrastructure and services in low-income urban areas, (b) financial and other problems of the informal sector, and (c) land and housing problems of low-income households. The Government will be consulting shortly with donors on the modality and timeframe for the study. VII. BUDGET FRAMEWORK FOR POVERTY REDUCTION PROGRAMMES 7.1 Procedural issues 97. The assessment of financial resources required for the poverty reduction programme during FY 2001/04 - 2003/04 involved three distinct processes. First, an MTEF exercise was carried out during the last quarter of 2000 by line Ministries, assisted by local and foreign 39  experts and consultants. The focus of this work was on developing a sound assessment ol expenditure requirements, given the budget resource constraint. The MTEF provided inputs into the guidelines (issued toward the end of the year) for ministerial appropri;tion requests under the 2001/02 budget. 98. Second, a PER National Consultative Meeting was held in May 2001. The PER exercise took into account results from the MTEF, and involved a wide range of stakeholders. including representatives of the poor and the international community. The results of the MTEF and PER, including indications of international financial support b . the donor representatives, provided a key input into the 2001/02 budget. 99. Third, the preparation of resource requirements for the poverty reductioll programme commenced toward the end of 2000 and continued through July 2001. This process was started by requesting the Ministries to submit, in addition to the above-noted appropriation requests, the estimated cost of interventions needed to attain the PRSP targets. 100. A special effort was made to examine the consistency between the PEI, and MTEF work and the costing of interventions for the poverty reduction programme. As a result of this work, the interventions for education, health and HIV/AIDS (except drugs) arc almost adequately covered under the 2001/02 budget allocations. 101. In the case of the Roads and the Legal and Judicial sectors, the estimated cost o' interventions starting in FY 2001/02 exceeds by large margins the envisaged budg2et r,-sources for these sectors. The budgeted resources in FY 2001/02 will, however, enable these s_ctors to continue to carry out a reasonable level of interventions under the poverry reduction programme, pending a further review, with the stakeholders, of the financino gaps. This review, which will be carried out shortly, will take into account the sectors absorptive capacity, the implications (for the poverty programme) of the ongoing operations, and the possibility of mobilizing additional resources. 7.2 Resource envelope: a macroeconomic perspective 102. Budgetary projections (Appendix I-Table 1) over the PRSP horizon were hDased on the following macroeconomic baseline scenario: * Real GDP will continue to grow at an annual rate of 5-6 percent, on the strength of increased market efficiency (because of ongoing structural reforms), ris:ng capacity utilization in tourism and other sectors, and recent substantial investment in mining. This economic perspective is consistent with the envisaged relative>v low. but increasing, rate of investment (in relation to GDP). * Domestic inflation (average consumer price index) will decline further to about 4 percent, starting in 2002. * In line with these assumptions, the government will continue to mainlain prident monetary and fiscal policies. In relation to GDP, domestic revenue is expected to 40  increase slightly, while domestically financed budgetary expenditure is also projected to rise modestly, with allocations for the priority sectors increasing considerably at the expense of the other sectors. * International financial support (budgeted loans and grants), including assistance under HIPC, will increase noticeably, compared to the average level of support in recent years. * Gross official international reserves will be maintained at the equivalent of 4