Tanzania - Structural adjustment credit I

 ICRR 11010 Report Number : ICRR11010 ICR Review Operations Evaluation Department 1. Project Data: Date Posted : 08/02/2001 PROJ ID : P002821 Appraisal Actual Project Name : SAC I Project Costs 100 128.9 US$M ) (US$M) Country : Tanzania Loan/ US$M ) 100 Loan /Credit (US$M) 128.9 Sector (s): Board: EP - General Cofinancing 7.7 7.7 education sector (22%), US$M ) (US$M) Banking (22%), Health (22%), Ports waterways and shipping (22%), Central government administration (12%) L/C Number : C2967 Board Approval 97 FY ) (FY) Partners involved : Kingdom of Norway, Closing Date 12/31/1998 06/30/2000 Switzerland Prepared by : Reviewed by : Group Manager : Group : Poonam Gupta John H. Johnson Ruben Lamdany OEDCR 2. Project Objectives and Components a. Objectives The SAC supported macroeconomic stability, growth and poverty reduction through a reform of public expenditure policies, more efficient provision of social services, accelerated privatization of parastatals, solving the problems of the National Bank of Commerce (NBC), and removal of distortions in the pricing and marketing of petroleum . b. Components The original SAC components were: (i) macroeconomic management; (ii) public resource management; (iii) social sector reform; (iv) parastatal reform; (v) banking sector reform; (vi) petroleum marketing and pricing reform .Two components were modified during implementation . The decentralization of social services at the level of ministries was modified to allow for the transfer of the management of major services to the local level .The number of local administrative areas covered under the first phase was raised from 20 in the initial design to 38. In banking, two banks, rather than the three initially envisaged, were created from the split of NBC under a Parliamentary Act in October 1997. c. Comments on Project Cost, Financing and Dates The initial SAC amount of SDR 93.2 million ($128.9 million), including IDA reflow allocations (SDR 2.8 million), was approved by the Bank Board on May 7, 1997. Subsequently, three additional IDA reflow allocations amounting to SDR 3.7 million were approved. The SAC was to be released in five tranches . The first tranche of SDR 36.15 million together with IDA reflows of SDR 2.8 million was released on credit effectiveness ( October 1, 1997). The remaining four floating tranches were linked to specific monitorable indicators . These were (i) development expenditures in the social sector program (SDR 18.1 million); (ii) divestiture of NBC (SDR 18.1 million); (iii) parastatal reform (SDR 10.85 million) and (iv) petroleum sector liberalization (SDR 7.2 million). Technical assistance was provided to redesign several components, after the Government decided to undertake stronger decentralization than had been originally envisaged . 3. Achievement of Relevant Objectives: (i) Macroeconomic stability : The overall level of fiscal balance, including grants, showed a small surplus during the three year period, FY97-99 from a deficit of almost 3 percent in FY93-96. Inflation decelerated to 7 percent by end 1999, compared to over 15 percent at end of 1997. But the trade balance did not show much improvement and external reserves rose from 3.5 months of imports in FY97 to 4.1 months of imports in FY99. (ii) Public Resource Management : The public investment program (PIP) was reviewed and the number of projects was reduced from 1400 to less than 800 in FY98, and to 540 by FY99. Development expenditures rose from 2.6 percent of GDP to 4 percent in FY97-00. A medium-expenditure-framework (MTEF) was implemented and the Public Expenditure Review (PER) helped strengthen expenditure prioritization . (iii) Social Sector Reforms : Social expenditures received priority . Recurrent social expenditures as a percent of discretionary expenditure rose from 8.9 percent in FY97 to 10.6 percent in FY99. Health sector reforms including the transformation of the central medical stores department, the creation and capitalization of a revolving drug fund, and the preparation of a Malaria Action Plan were carried out . Emphasis on primary education increased . Other education sector reforms, including training, upgrading and redeployment of teachers, and measures to reform technical and higher education were initiated . The original design of social sector reforms was adapted to accommodate the later decision to decentralize the delivery of all major services (education, health, water, agriculture, roads). Recruitment of education officers, teachers, and staff in district hospitals was transferred to the Council. Conditional and unconditional block grants transfers to local government were introduced in the FY 01 budget. (iv) Parastatal reforms : The reforms were initiated in the early 1990s. Prior to the SAC, 150 of the 395 parastatals had already been privatized or liquidated . By end June 2000, this increased to 200. The SACI sought to bring to the point of sale seven large parastatals . Varying degrees of success was achieved in these . In three, parts of the parastatals for which successful bids were received were divested . Three were sold/divested. For another offers were made repeatedly without success . The SACI also targeted public utilities . The sale of 35 percent of Tanzania Telecommunication Company Limited was completed in December 7, 2000. The monopoly of the National Shipping Agencies Corporation was terminated . The monopoly of Tanzania Central Freight Bureau in negotiating and allocating cargo was abolished . The Dar es Salaam Container terminal operated by the Tanzania Harbor Authority was leased to a consortium of two private firms . A renewable performance contract was signed with the Tanzania Railway Corporation. (v) Banking Reforms : Two banks rather than three were created from the split of NBC . One bank, NBC limited, has been successfully privatized . National Microfinance Bank (NMB) has presence in over 95 percent of the districts, and services mainly the lower-end, smaller-scale rural and urban clients . No bids have been received for NMB . As an interim measure, NMB is being managed by a private management team . (vi) Petroleum Marketing and Pricing : The Miscellaneous Amendments Act of 1999 gave the Government authority to reform oil policy. Oil retail prices were fully liberalized in July 1999 and petroleum product imports in January 2000. 4. Significant Outcomes/Impacts: Development expenditures increased, the PIP was consolidated, and the share of primary school spending increased. A hospital-based drug revolving fund was piloted in 20 districts. Malaria Action Plan is being implemented. A framework was put in place for decentralized management of staff and finances . New regulations for the management of staff by local authorities became operative in December 2000. Regulations for management of block grants to local administrations became effective in July 2000. 5. Significant Shortcomings (including non-compliance with safeguard policies): Along with primary education spending, secondary education spending should also have been targeted because secondary school enrollment rates are only 5-6 percent. In the early 1990, increase in primary school allocations occurred at the expense of secondary school allocations . In addition to recurrent spending, non -personal spending should have been monitored. In the past, the share of non -personal expenditures in recurrent spending was falling . Finally, the focus of many of the SAC I conditions was on inputs not outputs . For instance, in social sectors, of the seven social sector tranche conditions, four asked for the preparation of action plans and two for ministerial circulars . Moreover conditionality was based on budgetary allocations which was not very meaningful not only because it does not capture results but also because in Tanzania the deviations between actual and budgeted allocations is very large. 6. Ratings : ICR OED Review Reason for Disagreement /Comments Outcome : Satisfactory Satisfactory Institutional Dev .: Substantial Substantial Sustainability : Likely Likely Bank Performance : Satisfactory Satisfactory Borrower Perf .: Satisfactory Satisfactory Quality of ICR : Satisfactory NOTE: NOTE ICR rating values flagged with ' * ' don't comply with OP/BP 13.55, but are listed for completeness. 7. Lessons of Broad Applicability: 1. Project objectives should be results -oriented with goals expressed in terms of reduction in the life years lost to malaria, actual rather than budgeted allocations, measurement of teacher performance and so on . 2. Reliable information is needed on economic and social indicators and on poverty . Without data, the Bank and the Government cannot assess outcomes . 2. Forging a strong working relationship with the Government and supporting capacity building and design changes can lead to successful implementation of an operation that is broad in scope and complexity. 8. Assessment Recommended? Yes No 9. Comments on Quality of ICR: The ICR is of satisfactory quality but would have benefited from consistency in the presentation of data . In section C on the achievement of objectives, tax revenues are given for FY 97-FY99, then FY00, FY01, development expenditures for FY97-99 and overall fiscal balance for FY 98 -FY99. External reserves as percent of imports are presented as an average for FY 97-00. Average growth is for period "since the mid-1990s". Statistics are presented for recurrent expenditure on health for FY 97-99 but similar statistics for education are not presented .