Statement by Balmiki Prasad Singh at the meeting of June 15, 2000

86911 International Bank for Reconstruction and Development International Development Association International Finance Corporation Multilateral Investment Guarantee Agency FOR OFFICIAL USE ONLY CONFIDENTIAL EDS2000-181 June 14, 2000 07:15:44 PM Statement by Balmiki Prasad Singh Date of Meeting: June 15, 2000 Tanzania: Country Assistance Strategy We welcome the discussion on the Country Assistance Strategy of Tanzania. We compliment the Staff for this well documented report, vividly explaining the present political and economic situation in Tanzania. We also congratulate the Government of Tanzania for their commitment to reform and their success in stabilizing the macro-economy. 2. The Tanzanian economy has a history of cyclical fluctuations. The robust economic conditions that prevailed in 1992 - the fruits of economic reforms started in 1986 - quickly melted away by mid-1990s. However, the Government and people of Tanzania have commendably put the economy back on the rails. 3. The CAS document has correctly diagnosed the current weaknesses in the economy. However, the problems like poor infrastructure, high cost of doing business, lack of adequately trained managerial personnel, inadequate water, etc. - are deep-rooted and it will take a number of years to overcome these barriers. It is really a challenge both to the Government and to the international donor community. Aid is not a problem for Tanzania. Even today aid constitutes 14 percent of GDP. It is the problem of coordination, fixing priorities, sequencing the programs and efficient implementation. How we are going to address these problems? CAS seems to be silent on this issue. 4. Tanzania is undergoing a painful transformation from the state-controlled economy towards market driven reforms. Though the initial results are significant, the pains are likely to continue for some more time. Bloated bureaucracy and widespread corruption are further scarring away the potential investors. We appreciate that the CAS is going to address these problems. But the question is do we have the capacity, political will and support of the society to implement these far-reaching reforms at a very short period? People are bound to revolt when they are not able to meet their basic needs, particularly food. Environmental degradation, flood and drought have forced Tanzania to import food products heavily. The widespread unemployment is another menacing problem. Unless the Government addresses these problems quickly and effectively, support for reforms will not be forthcoming. 5. The high import value, coupled with heavy debt servicing are major issues. The growing trade deficit which has doubled during the last three years will further make the economy vulnerable. The only way for Tanzania to come out of this fragile external situation is to diversify its exports, attract more foreign investment and work for quick debt relief. Since Tanzania’s debt servicing is more than its exports, relief under HIPC needs to be expedited. We have recently approved the interim PRSP for Tanzania. Since the Government’s commitment for reforms seems to be tangible, and they have prepared their own Tanzanian Assistance Strategy Paper (TASP), we think full-fledged PRSP should be prepared and the debt relief be addressed at the earliest. This will release the pressure on the Tanzanian Government in the external sector. 6. In the meantime, the Government needs to take steps to widen the tax base. We are distressed to note that the collection of revenue is going down. Discretionary powers available in the hands of bureaucrats and ministers to provide exemptions for customs and income tax will only spread corruption and work as a disincentive for competition and efficiency. Tax reforms have to be quickly implemented; the CAS does not address this issue. 7. We welcome the priority given to education in the CAS. In a country where literacy is less than 30 percent and paucity of educated and trained manpower is the biggest constraint to growth, sizeable amount of spending on education is justified. However, we have to ensure that this spending leads to equal access to all sections of the population. What policy measures we are going to undertake to ensure this? We would like to have Staff’s comments on this. 8. There is need to address the culture of dependency on the State. Changing this culture is a challenge. Our World Bank Institute and the PACT (Project for African Capacity Building and Training) can possibly do substantial job in this regard. Are these two institutions geared up to meet this challenge? 9. CAS can be effective in poverty reduction only if the Poverty Reduction Strategy Paper (PRSP) is finalized and made part of CAS. Since the PRSP is under preparation, how it is going to dovetail with CAS? We would like Staff’s comments on this. 10. We are happy to note the consistent improvement in the portfolio management. To ensure success, continuous monitoring and supervision is needed. Donor coordination is another need of the hour. 11. On the whole, we are satisfied with the proposed strategy and extend our support for the same.