Tanzania - Interim poverty reduction strategy paper and assessment

20319 March 14, 2000 THE INTERNATIONAL MONETARY FUND AND THE INTERNATIONAL DEVELOPMENT ASSOCIATION TANZANIA Assessment of the Interim Poverty Reduction Strategy Paper Prepared by the Staffs of the Intemational Development Association and the International Monetary Fund Approved by Callisto Madavo and Masood Ahmed (IDA) and Anupam Basu and Anthony Boote (IME) March 14, 2000 1 In recent years, the government of Tanzania has been placing more emphasis on measures to directly address poverty and declining social indicators. In 1997, the government developed the National Poverty Eradication Strategy (NPES) through a participatory process; the strategy set out long-term poverty reduction goals. Since then, work has focused on translating these goals into short- and medium-term policies and the preparation of poverty monitoring indicators. The Interim Poverty Reduction Strategy Paper (Interim PRSP) prepared by the Tanzanian authorities reflects the steps taken so far by the government in formulating a comprehensive poverty reduction strategy and describes its plans for preparing a full PRSP. This paper assesses the government's poverty reduction strategy and the process and time frame envisaged for completing the full PRSP. Tanzania's poverty reduction strategy 2. Tanzania's development strategy began focusing on poverty issues immediately after independence in 1961. Under its "self-reliance" and socialism-inspired policies, the social indicators initially improved markedly, to the extent that the country was often held up as a model for its focus on education and health. However, as fiscal pressures began to build, it became clear that the policies were not sustainable, and the quantity and quality of public expenditure in key sectors began to fall in the mid-1980s. 3. The new government that was elected at end- 1995 focused initially on restoring macroeconomic stability and accelerating structural reform, with the aim of increasing economic growth and reducing poverty. More specific poverty reduction measures aimed at a recalibration of the structure and levels of expenditures in the social sectors, in parallel with improvements in the budget management process aimed at giving effect to these changes. Public expenditures on basic education and on the primary health system recovered substantially.  - 2 - 4. The NPES identified a number of priority areas, including the social sectors and infrastructure, on which the government's poverty reduction policies have increasingly focused since then. Under the Public Expenditure Reviews (PERs), sectoral studies aimed at establishing goals and expenditure targets in these areas in a medium-term expenditure framework, resulting in higher budgetary allocations for the social sectors. The latter was facilitated by increasingly linking donor program aid through the Multilateral Debt Fund to priority social sector spending. The government intends to further integrate donor assistance in the overall poverty reduction strategy through participatory development of the Tanzania Assistance Strategy (TAS). . 5. Despite the progress in setting targets in individual sectors, the long-term goals formulated in the NPES-which were in line with the International Development Goals- remain to be translated into a comprehensive set of short- and medium-tern poverty reduction policies. The NPES was prepared in a broad-based participatory process, involving consultations with regional and district authorities, nongovernmental organizations, the private sector, and donors, and subjected to intense scrutiny in parliament. While this provided broad support, it also led to a decline in focus as the strategy attempted to respond to a multitude of demands. However, much work has been done since 1997 to realign the strategy with key poverty reduction objectives, and the work program outlined in the Interim PRSP provides for the necessary consultations to complete a comprehensive poverty reduction strategy, and to gain broad-based support for it. 6. The poverty database and the system to monitor progress in poverty and social indicators need to be strengthened. The "Poverty and Welfare Monitoring Indicators," which were also prepared in coordination with stakeholders and were published in June 1999, provided a framework in line with the objectives of the NPES; however, this framnework remains to be quantified, and adequate, updated baselines established. As described in the Interim PRSP, the government's main measures in this area are a household budget survey (which should be as broad as possible), a labor force survey, and a school mapping exercise, which will all be implemented during 2000. However, the results of the two surveys will be available only in early 2001, and thus cannot be included in the preparation of this year's PRSP. Preparation of the PRSP 7. The Interim PRSP sets out the authorities' work program for completing the PRSP and a list of some of the organizations that will be included in the consultation process. The preparation of the paper will be facilitated by deepening the participatory arrangements adopted in the last few years, which have received increased acceptance across a wide range of stakeholders in the country, including annual PERs and the TAS. In consultation with Tanzanian stakeholders and bilateral donors, as well as the multilateral institutions, in October 1999 the authorities began working toward preparation of the PRSP. A high-level  - 3 - Cabinet Committee to guide the preparation process was established in October 1999; a technical committee, headed by a Deputy Permanent Secretary of the Ministry of Finance, is coordinating the consultations with stakeholders, using the structures set up in the context of the TAS. The current PER exercise already provides many of the necessary inputs for the PRSP. It should therefore be possible for the govemment to meet its goal of preparing a full PRSP by August 2000, incorporating a diagnosis of the poverty situation, the poverty reduction strategy, the fiscal costs of the program, and arrangements for monitoring progress through a participatory process. The overall process will nonetheless have to be managed very tightly to stay within the planned time frame. 8. World Bank and Fund staffs have provided technical assistance to the authorities in the preparation of the Interim PRSP and will continue to provide such assistance as work on the PRSP continues. Tanzania has requested support for its policies through a new three- year PRGF arrangement from the IMF, and a new Structural Adjustment Credit from the World Bank. In addition, the Bank will provide consultancy services in the drafting of the PRSP, and bilateral donors will assist with the household budget survey and the school mapping exercise. Assessment 9. Overall, the present document meets the requirements for an Interim PRSP. It rightly notes that maintenance of macroeconomic stability is a necessary condition for achieving high economic growth, and that higher growth itself is the key requirement for poverty reduction. It outlines the macroeconomic framework and provides a preliminary matrix of structural reforms and sectoral targets consistent with achieving higher growth and poverty reduction. The PRSP will need to specify the links between the macroeconomic aspects of the growth strategy (such as budgetary expenditure) and poverty reduction programs. 10. The Interim PRSP does not address the risks to Tanzania's poverty reduction policies, although these will be addressed in the full PRSP. Tanzania's poverty reduction policies have, in addition to promoting a stable macroeconomic environment and implementing structural reforms, focused on increasing spending in the social and other priority sectors. However, raising expenditure levels in these areas, while necessary, is not sufficient. Tanzania already spends relatively high levels of resources in the priority poverty reduction areas for a country with its per capita income profile. More important will be the need to ensure that the effectiveness of sectoral policies, particularly in education and health, is enhanced and sustained. There remain urban biases in the expenditure patterns that will need to be addressed. Also, donor funding, on which the government relies to a substantial degree for meeting expenditure requirements in these areas, will need to be increasingly channeled through the government's Medium-Term Expenditure Framework and annual budget- which is not the case at present. Furthermore, implementation capacity constraints, coupled with the fact that 2000 is an election year, will challenge the authorities to retain a focus on the content of the poverty programs rather than leaning toward low-priority investments.  -4 - 11. Sufficient groundwork has been laid in Tanzania, and sufficient consultations with civil society conducted and planned, for the PRSP to emerge as a homegrown product, which has broad political support. The government attaches great priority to the timely preparation of a comprehensive PRSP, and has made adequate institutional arrangements in this regard. The database remains weak and results from new surveys will only be ready early next year, but there is an adequate basis for monitoring the proximate results of measures presently contemplated under Tanzania's poverty reduction program. In this context, the Interim PRSP provides an adequate, albeit preliminary, framework for the IMF's Poverty Reduction and Growth Facility and the enhanced H[PC Initiative debt relief decision to be considered by the Boards of the IMF and the World Bank. 12. In summary, govemment efforts aimed at further sharpening its poverty strategy to higher quality levels will need to focus on: (i) strengthening the links between Tanzania's growth and poverty reduction strategies; (ii) enhancing the implementation of sectoral programs to ensure that budgetary expenditures address priority areas-particularly primary education and basic health services; and (iii) ensuring adequate coordination of donor financing, such that more resources channeled to these priority areas reach the poor, particularly in rural areas.  UNITED REPUBLIC OF TANZANIA INTERIM POVERTY REDUCTION STRATEGY PAPER (PRSP) 1. The Government of Tanzania is preparing a Poverty Reduction Strategy Paper (PRSP), which is a key requirement for reaching the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and provides background essential to IMF and World Bank lending to Tanzania. The strategy aims at attacking the country's deep and pervasive poverty by raising growth and enhancing the participation of the poor in the development process. Between 15 million and 18 million Tanzanians, half the population live below the poverty line of $0.65 a day. Of these, nearly 12.5 million live in abject poverty, spending less than $0.50 on consumption a day. Poverty incidence has stagnated or worsened during the 1990s. Poverty remains predominantly a rural phenomenon, although the number of poor in urban areas, mainly the unemployed and those engaged in the informal sector, is growing fast. In both rural and urban areas, the poor typically lack capital and human assets: they are less educated, of ill health and have large families. The vulnerability of the poor is increased by preponderance of disease, including the rapid spread of HIV/AIDS. 2. Many social indicators in Tanzania are comparable to or better than those in countries with the same income level. However, there are indications of a high degree of deprivation with respect to health standards, food security and education attainment. The infant and under-five mortality rates are, respectively, 86 and 133 per 1000, while life expectancy is around 49. Malnutrition affects 44 percent of children and access to safe water is around 50 percent. The adult illiteracy rate is 28 percent and the net primary school enrollment rate is about 57 percent. For all indicators, important regional variations, urban-rural differences, and gender differences persist. 3. Since independence in 1961, the Government of Tanzania has had poverty reduction as its main goal. In 1997, the Government adopted the National Poverty Eradication Strategy, which spells out a vision of a society without abject poverty, and with improved social conditions. This vision, which is in line with the International Development Goals, remains a point of reference for current poverty actions. In June 1999, the Government issued "Poverty and Welfare Monitoring Indicators," a document intended to provide the basis for monitoring the implementation and evaluating the impact of poverty eradication programs. The indicators will facilitate the development of baseline data for assessing the status of poverty and welfare, in order to guide policy and programs for reducing poverty. The National Poverty Eradication Strategy and the Poverty and Welfare Monitoring Indicators were developed in collaboration with a wide range of stakeholders. In line with the National Poverty Eradication Strategy, the Government has identified priority areas for public expenditure in the context of the Medium-Term Expenditure Framework (MTEF), whose implementation is monitored under the annual public expenditure review (PER) process, involving a wide range of stakeholders. This process has guided the budget framework for three years.  -2 - 4. Consistent with the long-term objective of eradicating poverty, and similar to the HIPC Initiative, the Govemment established (with effect from July 1998) a Multilateral Debt Relief Fund (MDF), to which seven donor countries have contributed. The MDF, which amounted to US$88 million during its first year (1998/99), has assisted in servicing debt to the World Bank, IMF, and African Development Bank. The savings of Government resources were used to provide services to the priority sectors that permitted them to increase their expenditures beyond what was originally envisaged in the budget. In 1999/2000, these donors have pledged to contribute US$81 million to the MLDF. Its progress is monitored in quarterly review meetings between the Government and involved donors. 5. The Government is currently developing the Tanzania Assistance Strategy (TAS), which is intended to be a homegrown strategy to guide external aid to Tanzania. The main objectives of the TAS are to improve ownership, partnership, and the effectiveness of aid. The PRSP, which is an essential component of the TAS, will focus on specific goals for poverty reduction and for the improvement of social indicators and on specific public policies and institutional changes to reach these objectives. 6. Poverty in Tanzania is so widespread that it cannot be eradicated in the short run. It is an objective that will be pursued through a long term strategy aimed at achieving higher growth, improving economic opportunities for the poor, building human capital, and empowering the poor to participate in the development strategy. To move in this direction, in the interim period, up to the HIPC Initiative completion point, the Government will: (a) Prepare a Poverty Reduction Strategy Paper by August 2000. Its preparation will involve consultations with, and the participation of, all stakeholders, including the civil society and development partners. ' The process will mainstream the poverty and welfare monitoring system into the budget instruments, such as the MTEF framework. The PRSP will not substitute for existing sectoral programs but will strengthen the prioritization of actions within and across sectors targeting poverty. It will: * Assemble baseline data on poverty and develop a national poverty line. * Set medium-term poverty reduction targets, including monitorable indicators of main poverty objectives that can be achieved within one to ten years. These indicators will at the minimum cover income poverty, and essential human development. 1 These include, among others, African Development Foundation; Community Development Trust Fund of Tanzania; Concern Worldwide; Economic and Social Research Foundation; Mwalimu Nyerere Foundation; OXFAM; Promotion of Rural Initiative and Development Enterprises; Research and Poverty Alleviation; Tanzania Association of NGOs; Tanzania Council of Social Development; and Tanzania Social and Economic Trust.  -3- * Set poverty reduction targets for each of the priority sectors, including primary education and health, rural roads, water, and extension services in agriculture. * Shift budgetary resources to meet specified poverty reduction targets. (b) Conduct 50 percent of district-based school mapping by the end of 2000. This information is a critical requirement for improving the delivery of education. With this, the Government will prepare a report covering the availability and condition of schools, the quality and distribution of teachers, the quality of school management, the enrollment rate, the dropout rate, and key problems in the delivery of primary education. This exercise is a key investment for drawing up district-level education plans aimed at increasing the net enrolment rate and the quality of primary education. (c) Adopt specific short-term actions to improve health outcome. The first is to raise the coverage of children under 2 years immunized against measles and DPT (diphtheria, polio, and tetanus) from the current 71 percent to 75 percent of the eligible population. This will have a major impact on reducing childhood mortality and morbidity. The second is targeted at raising the awareness and combating the denial of the HIV/AIDS pandemic. In this regard, the Government plans to implement national awareness campaigns covering at least 75 percent of all districts in the country. The campaigns will be spearheaded by the National Advisory Committee on HIV/AIDS, working hand in hand with the National AIDS Control Program. (d) Implement a Household Budget Survey and a pilot labor force survey. This information, which will be available during the first half of 2001, will be essential for updating preliminary estimates of poverty that will be compiled in the PRSP and for monitoring the poverty reduction strategy. Subsequently poverty monitoring surveys will be developed for tracking changes in poverty and welfare. 7. The Government attaches great importance to maintaining the gains in macroeconomic stability of recent years. This is a necessary condition for achieving a higher rate of growth and poverty reduction. The Government intends to avoid net domestic financing of the budget, and to follow monetary policies aimed at reducing inflation below 5 percent per year to rates prevailing in Tanzania's trading partners, while allowing adequate growth in credit to the private sector to support investment and growth. The Government has already completed the process of building international reserves to the comfortable level of 4 months of imports of goods and nonfactor services, and intends to maintain them at that level henceforth. The exchange rate will remain market determined, with interventions by the Bank of Tanzania only to smooth seasonal fluctuations. With a stable macroeconomic environment, and with continuing structural reforms, the Government aims to reach an annual real economic growth rate of at least 6 percent by the year 2002. 8. The Government also plans to undertake actions to ensure sustained improvement in economic governance and the environment for robust private sector development. These actions, together with sustained macroeconomic stability, are expected to improve income  -4- opportunities through higher growth, thus helping reduce the proportion of Tanzania's population below the poverty line. The details of proposed key structural reforms to be implemented by the WPC completion point are presented in Appendix IL which also includes key actions to strengthen the design and monitoring of anti-poverty efforts. The Government aims at improving accountability and financial management, make the tax regime more transparent, and improve the business environment, so as to enhance private investment and lower the cost of doing business. The major policy measures implemented in recent years are listed in Appendix IL, while Appendix III presents a medium-term policy framework matrix for the next three years. 9. In order to ensure broad-based support, the preparation of the PRSP will draw on the experience of the participatory arrangements adopted in the past four years, such as those used in the preparation of the National Poverty Eradication Strategy, the poverty and welfare monitoring indicators, the MTEF and expenditure review, sector reform programs, and the TAS. These participatory arrangements have received increased acceptance across a wide range of stakeholders in the country. 10. The organization, preparation and consultation process for the PRSP will be as follows: Organization * A Committee of Ministers and the Governor of the Bank of Tanzania has been established to steer the preparation of the PRSP. The Committee began its work in mid- October 1999. e A technical committee representing relevant ministries, chaired by a Deputy Permanent Secretary, has been established in the Ministry of Finance to assist the Committee of Ministers. The technical committee, which is responsible for laying the groundwork of the PRSP, will integrate its work with the macroeconomic subcommittee of the TAS. The technical committee will coordinate consultations with stakeholders such as the donor community, nongovernmental organizations (NGOs), the business community, and academics, in the framework of the TAS setup. Preparation of the PRSP and consultation process (i) Preparation of draft outline: January and February 2000 * The approach to preparation of the PRSP was discussed in January at consultative technical meetings involving central level stakeholders from the donor community and civil society. * A draft outline was prepared by the technical committee and approved by government in early February 2000 (Appendix IV).  - 5 - (ii) Consultations to define overall priorities, targets and actions needed for poverty reduction to be inserted in the PRSP: March 2000 * Preparation by the technical committee of a draft prospectus defining strategic directions, poverty reduction priorities, long and short term objectives and targets and actions needed to achieve these goals. Work on the initial draft of the prospectus will commence in February 2000. * Discussion of draft prospectus with all stakeholders through the organization of a national workshop and six zonal workshops covering most regions of the countries. (iii) Preparation of the PRSP: April-June 2000 - Drafting of the PRSP by a core group of specialists under the supervision of the technical committee. I Technical workshops discussing preliminary results with various stakeholders, including the TAS and the Public Expenditure committees. * The technical committee, in cooperation with the Plan and Budget Guidelines Committee and in the framework of the medium-term targets of the MTEF will reflect the priorities for poverty reduction in the 2000/01 budget.