Tanzania - Public expenditure review (Vol. 3 of 3) : Annexes and statistical appendix

Report No. 7559-TA Tanzania Public Expenditure Review (In Three Volumes) Volume Ill: Annexes and Statistical Appendix May 22, 1989 Country Operations Division Southem Africa Department FOR OFFICIAL USE ONLY .~~~~~~~~~~~~~~~~~~~~~~ .) .2 . O22 ' :2'o 0~~~~~~~~~~~~~~~~~~~ Document of the W o.;B-nk This document has a restricted disrbution and may be used by recipients only in the proanefthirofficial duties. Its contents may not otherwise 'be disclosed w'ithout World Bank authorization.  CURRENCY RQUIVALENTS Currency Unit The Tanzanian Shilling (Tsh) Exchange Rates 1960 - 1974 US$1 = Tsh 7 1975 - 1981 US$1 = Tsh 8 December 1983 US$l = Tsh 12 December 1985 US$1 = Tsh 17 June 1986 US$1 = Toh 40 December 1986 US$1 = Tsh 52 December 1987 US$1 Tsh 84 December 1988 US$1 = Tsb 120 April 1989 US$l = Tsh 132 Fiscal Year July 1 - June 30 This joint World Bank/Government of Tanzania Report is based on the findings of a mission to Tanzania in October-November 1987. The Bank mission comprised Mike Stevens (mission chief and principal author), Guttorm Schelderup, Maria-Theresa Benito of AF6CO, and Andrew Bird, Stephen Lister and Ron Vogel (consultants). On the Tanzania side counterpart staff from the Ministry of Finance, Economic Affairs and Planning (MFEAP) were led by Mr. Solomon Odunga and Mr. Raphael Mlolwa. A special study on the standard costs of key Government programs was prepared by Dr. Nathaniel Osoro of the University of Dar-es-Salaam, and the mission also drew on valuable contributions from Professor Wangve and other members of the Department of Economics. The initial draft of this report was discussed with MFEAP colleagues in May - June 1988, and the final draft in March- , ~~April 1989.  FOR OFFICIAL USE ONLY TANZANIA: PUBLIC EXPENDITURE REVIEW VOLUME III TABLE OF CONTENTS Page No. ANNEXS ANNEX I - Decentralization .. . . . . . . . . . . . . . . . . . 1 ANNME II - Pay Differentials ...... .. .. . . .... .. 17 ANNEX III - Pay Adjustment Strategies . . . . . . . . . . . . . . 21 AwaEX IV - Recurrent Arising from the Development Budget . . . . 27 4NNEX V - Budget Restructuring Scenarios . . . . . . . . . . . . 33 STATISTICAL APPENDIX A - Macroeconomic Tables ........ . . . . . . . . . . . . 44 B - Public Ezpenditure Tables ........ . . . . . . . . . 47 C - Emtpoyment Tables . . . . . . . . . . . . . . . . . . . . . . 82 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwie be disclosed without World Bankc authoiaon.  ANNEX I GOVEBNHIZFT DECENTULISATION A. INTRODUCTION 1. Tanzania has a strong policy commitment to rural development and a widely scattered population. It is not surprising therefore that decentralisatior of the planning and provision of government services has been an important element of Tanzania's development policy since Independence. There have been two distinct phases of decentralisation policy: (a) The 1972 Government Decentralisation which devolved considerable autonomy to the Regional Administrations. (b) The 1983 Local Government Reforms reestablishing District and Urban Councils which were given responsibilities for public services in a number of areas most notably primary education, primary health care, water supplies and rural roads. 2. The present situation remains one of transition with the regional structure created by the 1972 reforms remaining alongside the more recently established Councils. Together the Regions and Councils account for almost 20Z of Tanzania's Recurrent and Development Budgets. However the importance of regional and local government is much greater in the social sectors where Government is the prime provider of services. In the economic crisis that Tanzania has faced during the 1980s these services have come under increasing strain. 3. This annex considers a number of issues relating to regional and local government in Tanzania. It starts by discussing the development of the regional and local government structure and then considers the funding of the Regions and Councils. Finally it draws conclusions and makes recommendations for the possible future direction of the decentralisation process in Tanzania. 4. In the subsequent sections the term *Regions has been used to refer to the Regional Adminisu..rations and structures created under the 1972 decentralisation reforms, and 'Councils to refer to the District and Urban Councils reestablished under the more recent local government reforms.  - 2 - B. TEE REGIONAL AND LOCAL GOVERNMENT STRUCTURE The 1972 Decentralisation 5. Administratively Tanzania is divided into 20 Regions and over 100 DI,,tricts. The 1972 Government Decentralisation, which took place dv.rJng a period of expansion in the role of Government, granted n enhanced status and much greater autonomy to the Regions which became administratively responsible for a range of services which had been previously handled by central government ministries, and by the former district and urban councils (which were abolished under the same reforms). The Regions were also responsible for preparing and negotiating their budgets with the Prime Minister's Office (PHO), whlch held ministerial responsiLility for regional matters, and with Treasury. The budgets for each Region were subsequently tabulated separately in the Estimates. 6. Although the reforms greatly increased the volume of public sector resources coming under regional control, 1/ the Regions were essentially an extension of national government. Thus the Regions followed Central Government budgeting and accounting practices. They were not expected to raise revenue on their own behalf: the revenue they collected was credited to General Revenue and they were financed by central Aovernment allocations. Regional establishments were set by the same process applied to central Ministries. 7. Decentralisation also brought an enhanced status for regional officials. The Regional Commissioner, a Party appointee, sat in the National Assembly and had Cabinet rank, and the new post of Regional Development Director (RDD) was created which carried Principal Secretary status. Government departments, at. the regional level, operated with considerable independence from their parent ministries whose role was limited to providing technical advice and support, and the training and inter-regional posting of staff. Regional heads of government departments formed the Regional Management Team, chaired by the RDD, which was the formal body responsible for planning and management of government activities in the Region. The Regional Management Team itself reported to 1/ Between 1972/73 and 1980/81 the Regional Supply vote was on average half the size of the (central) Ministerial Supply vote. (Thereafter, Regional Supply diminished in favour of subventions to Councils: see Table 1 below.) Data from the Establishment Directorate, Miristry of Labour and Manpower Development, indicate that government employees at Regional level outnumibered those at central level by almost two to one until 1984/85, after which most Regional employees were transferred to Councils. Regional employment peaked at about 177 000 in 1983/84. Details of available data on public employment data can be found in thE, Statistical Annex of the main report.  - 3 - tue Regional Development Committee which also involved politicians and party officials and had responsibility for approving regional programmes. 8. The administrative structure at the district level essentially mirrored that of the regional level with the District headed by an Area Commlssioner (now redesignated District Commissioner) and a District Development Director to whom heads of government departments were -espoinsible. The District authorities were however subotdinate to the -glan which was iesponsible for overall coordination and control of gowfernment services and the intra-regional allocation of resources. The Region also provided the link with the central ministries. The 1983 Reinstatement of Local Government 9. In contrast to the 1972 decentralisation, the reinstatement of local government unde. zhe 1983 Local Government Act was undertaken at a time when it had become clear that Government had become severely overextended in the services that it was trying to provide. Thus the public sector was facing the double squeeze of severe resource constraints and increasing demand, generated by population growth, for basic services such as education, health care and water supply. In this situation, reestablishment of local authorities was a way of distancing the Government from the funding of these services, as well as providing opportunities for raising revenues locally and achieving a greater degree of community participation in the provision of services as a way of reducing their budgetary cost. 10. The 1983 reforms transferred responsibility from the Regions to Councils for the four key areas of primary education, primary health care, district roads and watar supplies. In these areas Government provides subventions to the Councils to meet basic operating costs. The reforms also transferred responsibility for other smaller departments (such as trade, cooperatives, forestry, fisheries and wildlife but excluding agriculture and livestock services) to the Councils, but the costs of these departments have to be met from the Councils' own revenues. Government subventions also cover half of the salary costs of certain key officials of the District Councils including the District Executive Director, the District Planning Officer, the District Accountant and the Council Treasurer.  11. The reestablishment of the Councils considerably riduced the authority and responsibilities of the Regions. While the District Commissioner remained the Government representative at the District level, the District Administrations were effectively transformed into District Councils with the DDD being redesignated as District Executive Director (DED) and administrative head of the Council. The DED reports to an elected Council Chairman. The technical departments at the District level in most cases became departments of the Council and their staff Council employees, thus severing the formal link with their respective ministries. 21 The Regions were given a role in coordinating Council activities, but this appears not to have been clearly spelt out and was anyway undermined by allocation of ministerial responsibility for Coun_ils to the new Ministry of Local Government and Cooperatives (MLGC) while the Regions continued to be under the Prime Minister's Office (PNO). 12. An exception to the decentralisation process was she transfer in 1982 of agricultural and livestock development services which had been under the Regions to the direct central control of the Ministry of Agriculture and Livestock Development (MALD). This was in response to the argument that separation of extension services from the technical ministry had made them subject to local political interference and se'verely reduced thcir effectiveness. A number of other ministries, such as Lands, Natural Resources and Tourism, and Communications and Works have expressed similar concerns to have more effective control over their regional and district departments, but the MALD example appears to be regarded as an exception rather than a precedent. 13. Despite the loss of large areas of responsibility to the Councils, and two thirds of its budget, the regionr.l level of government has remained intact. There has been no change in the status of the Regional Commissioner and RDD and the budgetary system for the Regions remains unchanged. Consequently the Regions now have planning and administrative staffs which are too large for their reduced role. This is wasteful, particularly when there is such a need fo.. staff to stzengthen the relatively weak planning and management capacities of the Ct-uncils. 2/ A Local Government Service Commission (LGSC) was set up in 1983 under the Unified Local Government Service Act. It is responsible for the appointment, training, promotion and transfer of the more senior local government cadres. (The LGSC is responsible for grades HS3 and above, which contain about 2 000 of an estimated 163 000 local government employees.) The present Chairman of the LGSC also chairs the Public Service Commission.  - 5 - 14. One of the consequences of the a.983 local government reforms is that the responsibilities of the government departments at the regional level now vary greatly. For example the Regional Education Officer has only a small staff operating as an inspectorate with primary education falling under the Councils and secondary and tertiary education under the national authorities. In health, while primary health care facilities are now under the Councils, hospitals other than the four national referral hospitals fall under the regional budget rather than the Ministry of Health. Consequently health now has the largest budget of any Regional department. Roads are split three ways: trunk roads are the responsibility of the Ministry of Comuwnications and Works, regional roads fall under the Region, and District roads under the Councils, making it possible to have three maintenance organisations represented within one district. 15. The larger departments at the Regional level generally have technical responsibilities and requirements that are considered beyond the capacities of Councils to handle (for example the running of hospital services or heavy plant and equipment). This however raises the question of whether the departments concerned might be more effective if they were more fully integrated into their respective ministries. C. THE FUNDING OF REGIONAL AdD LOCAL GOVERHNMNT Funding from Central Government 16. Table 1 shows Government budget allocations for the U.gions and Councils for 1980/81 to 1987188 and also for 1975/76. For the Recurrent Budget the extent of the transfer of responsibilities from the Regions to the Districts is well illustrated by the growing share of the budget allocated to the Councils, which for 1987188 was almost twice the allocation to the Regions. 17. Table 1 (which is in current prices) has to be assessed against a background of rapid inflation in Tanzania. To give an approximate idea of the real value of recurrent allocations to Regions and Councils, the PER applied the GDP deflator to the recurrent budget figures for 1980181 - 1985/86. This suggests that the recurrent funding of Regions and Councils taken together was roughly constant in real terms between 1980181 and 1983184 but then fell sharply. The real allocation in 1985186 was not more than three fi.ths of its former level. The transfer of responsibilities to Councils was not accompanied by a commensurate transfer of resources. 18. The Development Budget for the District Councils was separated from the Regional Development Budget for the first time in 1987188 and is less than half the allocation to the Regions. While th. Councils are likely to have a more important role in the development and rehabilitation of facilities, by convention all aid funding (which accounts for over 602 of the Regional Development Budget) has been considered as a regional  allocation. It is understood that in future aid funds will also be channelled directly to the District Councils and Council budgets can therefore be expected to increase significantly. 19. As already noted (paragraph 17 above), the recurrent funding for Regions and Councils shown in Table 1 represents a substantial decline in real levels of resources. Total government recurrent expenditure has been declining in real terms (see the main report Chapter 2, Section B). However, the Regions and Councils have taken a disproportionate share of the cut in real government recurrent expenditure. Table 2 shows the allocations to the Regions and Councils as a proportion of the total Recurrent and Development Budgets for 1980/81 to 1987188 and for 1975/76. The proportion of the recurrent budget allocated to the Regions and Districts has declined f.om over 30Z in 1975/76 to around 202 at the present time. Thus regional and local government budgets have been even more tightly squeezed than the central ministries'. 3/ TABLE l: REGIONAL AND LOCAL GOVERNMENT BUDGETS Tsh million