Statement by Khalid Al-Saad at the meeting of June 15, 2000

86904 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-170 June 14, 2000 12:32:51 PM Statement by Khalid Al-Saad Date of Meeting: June 15, 2000 TANZANIA: CAS, Programmatic and Health Sector Credits I commend the Tanzanian authorities and the Bank team for this CAS. It is well- grounded on the country experience and the policies that have been taken in recent years. Policy actions have yielded good results, specially in stabilization, but the underlying situation remains far from satisfactory with many key indicators still below Sub-Saharan standards. The prospects, however, are promising enhanced by a reform-oriented government, internal stability, and the willingness of development partners to participate actively. I wish to underscore a couple of points: Government policy in the past four years adhered to macroeconomic stabilization and structural and institutional reform. It succeeded in achieving stability and maintaining output growth at a reasonable level. This is commendable, but daunting tasks still remain. First and foremost Tanzania remains one of the poorest countries, with per capita GNP less than one half of Sub-Saharan Africa and one half of the population are poor and much higher in rural areas. Social indicators have deteriorated, education is in crisis, AIDS inflicts nearly one tenth of the population and corruption increased with liberalization. This is what the CAS candidly conveys. Current government strategy is being constructed on the basis of the long-term horizon in the Development Vision 2025, on the Tanzania Assistance Strategy that seeks to organize donor assistance, and on the PRSP. The strategy covers all the key priorities and objectives and serves as a good basis for the Bank's Country Assistance Strategy. As we are told, the CAS also benefited from consultation with civil society, the lessons of experience and the work of OED and OEG. Judging from all this, the process of preparing the CAS seems to have been the right one. Some interesting points come out of this process. Consultation with civil society, for example, revealed that most people believe, not surprisingly, that reforms exacerbated inequities further marginalizing the rural poor. The Bank's lessons of experience also confirm this belief, attributing the cause to inadequate dialogue with the government and other stakeholders on the social consequences of adjustment. On some specific points, people in civil society also believe that cost-sharing in education imposes hardships on the poor and that the root causes of corruption have not been adequately addressed. One lesson of experience that still seems with us is that the Bank over-estimated implementation capacity. This is not a thing of the past. The last page of the CAS reminds us that "for the Bank Group, the greatest risk is that of overestimating the Government's implementation capacity". This implies that despite the decades of experience with Tanzania, the Bank is still not sure of the implementation capacity of the country. On a related and rather sobering aspect of Bank experience, the OED tells us that four decades of Bank assistance to Tanzania have had only limited impact on growth and poverty reduction. The OED, however, is more optimistic about the impact of Bank strategy since 1996 on which much of the proposed CAS is constructed. There are indeed good grounds for optimism. The proposed CAS is a realistic approach that seeks to build on the achievements of the past few years. I am in broad agreement with it and find some aspects of it quite interesting, including the focus on private sector development and the phased switching from projects to programs. It appropriately seeks to take into account government priorities, Bank Group comparative advantage and the potential impact of Bank interventions. The four areas of focus are also appropriate: private sector and infrastructure development, rural development, social infrastructure and public sector reform. This looks quite an extensive agenda but selectivity is planned and clearly explained in para. 47. One area where I am not sure of in this respect is whether it is realistic to leave provision of credit largely to the private sector. As we are told in para. 5, in spite of privatization of the financial sector, the credit ratio to GDP is still nearly one third that of Sub-Saharan Africa. Is it realistic to expect the private sector to provide the needed credit. I am also not sure adequate attention has been given in the CAS to the AIDS epidemic. Paragraph 11 underscores the implications of the epidemic for future development by indicating that without adequate policy actions GDP could be 15-20 % lower by 2015 due to AIDS. I am not sure if adequate resources have been allocated for this. I also note that, according to the chart on page 18, the government allocates only "some focus" to HIV/AIDS. I hope there is something wrong with the shading of the chart! On a final point on the CAS, I endorse the suggested approach for setting the benchmarks. The kind of reforms which Tanzania is embarking on can best be judged by mainly qualitative benchmarks rather than quantitative benchmarks that require a high level of data-base capability. Finally, I endorse the two projects submitted for our consideration today. The Programmatic Structural Adjustment Credit addresses the key area of private sector development and seeks to raise output growth from 4% to more than 6% with promising impact on poverty. The project is built on thorough diagnostic of constraints to private sector development, and is designed on flexible medium term horizon with cautious floating disbursement tranches. The risks are by no means negligible but worth taking given the track record of the country. The Health Sector Credit also follows a sector- wide reform with medium-term horizon using the adaptable lending instrument. IDA contribution in this case is only a modest share of a large program well-funded by other donors. This is an example of letting other partners take the funding lead when they are prepared to do so.