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Tanzania and the IMF
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Tanzania
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I. Recent Economic Performance
1. The past three years have witnessed major progress toward achieving Tanzania's stabilization objectives, and there has also been substantial further progress toward a market-based economy and movement away from the previous reliance on control mechanisms and government ownership of the means of production. Recent achievements have included fiscal consolidation and streamlining of the civil service, privatization of about half the parastatal enterprises (and initiation of the process for most of the remainder), and a far-reaching restructuring of the financial system. Overall, much of the foundation for higher economic growth has been laid, and policies have been developed to alleviate poverty and reverse the deterioration of social indicators and the delivery of social services.
2. Structural reforms undertaken in the last few years are summarized in Table 1, a matrix of plans for reform in the coming three years is provided in Table 2, Tables 3 and 4 give an overview of developments in economic and social indicators, and Tables 5 and 6 deal with external financing and debt.
3. Recent macroeconomic performance has been adversely influenced by climatic conditions. In 1996/97 (July-June), drought affected most crops, and the shortage of water led to electricity load shedding and declines in industrial production. The drought was followed by heavy El Niņo rains in 1997/98 that seriously damaged the transportation infrastructure, as well as some crops. Despite these setbacks, economic growth has remained positive, with continued improvement in real per capita incomes. Moreover, inflation has declined sharply, and the external position has continued to strengthen.
4. The key to the stabilization effort has been fiscal consolidation. After several years of government dissaving, government current savings turned positive in 1996/97 and remained at 1 percent of GDP in 1997/98. Government revenue in 1997/98 was adversely affected by the El Niņo disruptions; the revenue-to-GDP ratio fell to 12.3 percent of GDP, 1.2 percentage points below the previous year. With the implementation of the budgetary cash management system, the revenue shortfall was offset by the continuing compression of expenditures on other goods and services; however, the severity of this compression was exacerbated by unprogrammed extrabudgetary expenditures. The cautious budgetary stance released substantial financial resources to the private sector in the context of a strict monetary policy that brought inflation down to 12 percent in the year ended June 1998, the lowest rate in 20 years.
5. Export earnings fell significantly in 1997/98, reflecting the weather-induced decline in the output of export crops and the damage to transport infrastructure that disrupted access to external markets and to tourism. The external current account deficit increased but was broadly in line with program projections, as the growth of imports was less than had been projected. International reserves increased to the targeted level of the equivalent of three months of imports of goods and nonfactor services. The shilling depreciated by 7 percent against the U.S. dollar, with some appreciation in real terms. By June 1998, bilateral agreements had been signed with most Paris Club creditors under the January 1997 Naples terms rescheduling.
6. Most structural reforms envisaged for 1997/98 have been implemented, although in some cases only after some delay, mainly for technical reasons. Reforms focused particularly on the restructuring and privatization of public enterprises. Fifty-two parastatal entities were divested in 1997/98, and, overall, about half of the more than 400 entities that existed in 1993 have now been divested. Privatization of the major parastatal monopolies gathered momentum during the year, with financial and legal advisers engaged in developing strategies for the sectors of water, telecommunications, and harbors. Mining is the most rapidly growing sector of the economy, and its growth is being enhanced through divestiture and reorganization of the state mining companies.
7. The most far-reaching restructuring exercise related to the state-owned National Bank of Commerce (NBC), which at the beginning of the fiscal year still accounted for over half of the banking system deposits. In 1997, it was decided to privatize the bank. To that end, it was split in September 1997 into the NBC (1997) and the National Microfinance Bank (NMB), and preparations began for the privatization of the two new institutions. The Dar es Salaam Stock Exchange became operational in April 1998, and by July 1998 two newly privatized companies had floated shares on it. A liberalized insurance regime took effect in May 1998 with the establishment of the National Insurance Board, and a number of private companies received licenses.
8. Since the beginning of civil service reform, overall government employment has been reduced from 355,000 to 270,000. In 1997/98, retrenchment slowed, pending completion of an audit of the use of donor funds for retrenchment. Restructuring of the regional administrations and prioritization of functions in key ministries (Planning Commission, Ministry of Finance, Ministry of Civil Service, and the Prime Ministers Office) were finalized.
9. In June 1997, the government finalized the National Poverty Eradication Strategy (NPES). The strategy will guide efforts to reduce poverty, including specific sectoral interventions. During 1997/98, the government continued its work on developing indicators for monitoring poverty and welfare, and subjected the results to an intensive peer review.
10. Cost sharing was introduced in dispensaries and health centers in nine districts during 1997/98. Most of these districts are involved in the implementation of the Community Health Fund (CHF) (the three districts in the Dar es Salaam region introduced fees at the primary level but are not yet implementing the CHF). A study on the regulatory and institutional framework for introducing health insurance for public/civil servants was completed. A strategic plan for malaria control has been put in place.
11. The Basic Education Master Plan (BEMP) was adopted in February 1997. The BEMP provided the framework for the subsequent design of programs to improve school facilities, textbooks, school management, and the quality of teaching. Studies on issues related to the quality of, access to, and institutional arrangements for, secondary education were completed in 1997/98. The results of these studies will be used to prepare a Secondary Education Master Plan (SEMP) for adoption in 1998/99.
12. Semi-autonomous water boards have been set up in all 20 regional headquarters. Water user associations and the regulatory framework for urban water supply and sewerage services were established in these regional headquarters during 1997/98.
13. A national environmental policy was adopted by the government in November 1997. Reviews of sectoral policies for minerals, wildlife, fisheries, forestry, and land reflected environmental concerns. The aim is to conserve depletable natural resources on which the poor depend for their livelihood.
II. Objectives and Policies for 1998/99–2000/01
14. Over the next three years, Tanzania intends to continue with the stabilization effort, reducing inflation to minimal levels, and increasing foreign exchange reserves to a level sufficient to provide good protection against external shocks. Attaining these objectives will facilitate the maintenance of a growth-oriented economic environment, and the continuing structural reforms and infrastructure development are expected to sustain high growth rates. The human aspect of development will also be addressed through policies aimed at eradicating poverty and enhancing access to social services.
15. Perseverance with strong macroeconomic policies and structural reforms will be crucial in the attainment of stability and higher growth rates. The government will continue to center macroeconomic policies on rigorous fiscal management and a prudent monetary policy. Although food shortages in 1998/99 and the economic crisis in Asia may lead to temporary setbacks, the broad economic targets for 1998/99-2000/01 are:
16. The strategy for equitable growth will focus on strengthening the environment for private investment, supported by a government emphasis on developing and maintaining infrastructure and improving the delivery of social services. There will be a continuing shift of functions from the central government and the parastatal sector to local administrations and the private sector. Fiscal and monetary policies will aim to complete the achievement of macroeconomic stability, and will be supported by structural reforms promoting the efficient mobilization and utilization of public resources and those intermediated by the financial system. External debt reduction and rescheduling will aim to reduce the burden of external debt service, while the cost of domestic debt service will fall as declining inflation brings down interest rates and the stock of domestic debt declines. The strategy for eradicating poverty and enhancing access to social services will focus on decentralizing the delivery of larger amounts of resources.
17. The financial strategy envisaged to achieve these objectives includes the continuation of fiscal consolidation focusing on tax reforms, particularly with respect to broadening the tax base, as well as firm control of government expenditure and improvements in its composition. Building on recent performance, the government will maintain a high level of recurrent savings. The targeted improvement in the government's savings will reduce aid dependency, allow for clearance of domestic arrears, and permit substantial repayment of domestic debt in the medium term, thus lowering the cost of borrowing and increasing investment. Monetary policy will ensure that the prudent fiscal policy brings about declining inflation in a context of ample credit for the private sector. External viability will be sought through the maintenance of external competitiveness and a cautious liberalization of the capital account of the balance of payments, as well as through continuing external assistance, including concessional debt relief.
18. Intermediate financial targets include:
External sector policies
19. The balance of payments remains vulnerable to weather-related disruptions and fluctuations in commodity prices. Such an uncertain external environment puts a premium on the maintenance of a market-determined exchange rate and a high level of external reserves. High rates of economic growth will require rapidly growing imports, part of the financing for which will come from the maintenance of a welcoming environment for direct investment, as well as a prudent enlargement of the scope for portfolio investment: government borrowing on commercial terms will, however, be avoided.
20. Over the medium term, export growth and the efficient use of imports will be promoted through reductions in tariff and nontariff barriers and greater regional integration. To that end, the 1998/99 budget has eliminated the duty on traditional exports and has reinstated preferential duties with respect to the Common Market for Eastern and Southern Africa (COMESA). Moreover, the authorities intend to undertake a comprehensive tariff reform by June 1999, simplifying the tariff structure, reducing tariff rates, and eliminating most exemptions. In the course of 1998/99, the government will study options for further liberalization of long-term capital flows, taking into account the experience of other countries, with a view to increasing resources for investment and deepening and strengthening Tanzanian financial and capital markets.
21. Tanzania will remain current on its external debt-service obligations. It will continue to seek donor contributions to help meet multilateral debt-service payments, with a view to ensuring the availability of adequate budgetary resources for social sector expenditures. Tanzania expects to complete the signing of all bilateral agreements with Paris Club creditors during 1998/99; it will also be seeking relief on comparable terms from all other bilateral creditors and expects to implement a buyback of commercial debt supported by the World Bank and bilateral donors by February 1999. The government intends to seek a new three-year arrangement under the Enhanced Structural Adjustment Facility (ESAF) after the completion of the current one, and in that context will request a new rescheduling agreement from Paris Club creditors on highly concessional terms. During 1999, Tanzania's external debt will be analyzed on a loan-by-loan basis, and Tanzania's possible eligibility for assistance under the Heavily Indebted Poor Countries (HIPC) Initiative will be considered.
22. The tax reform strategy aims at broadening the tax base, reducing reliance on foreign trade taxes, and improving the transparency and efficiency of the tax system. At the beginning of 1998/99, the sales tax was replaced by the value-added tax (VAT), and tariff exemptions for capital goods imports were streamlined through adopting a tariff classification based on the Harmonized System of Customs Classification. Further tax reform will focus on continuing to reduce the number of taxes and their complexity and reducing statutory exemptions to a minimum throughout the tax system, with major steps envisaged for the 1999/2000 budget. The gradual increase in the revenue-to-GDP ratio, together with declining government debt service, will permit decisions to be taken over the medium term on how to use the growing pool of resources to best promote equitable growth. Tax harmonization between the mainland and Zanzibar will continue with the latter's implementation of the VAT and its preshipment inspection of imports.
23. As in the past, the overall objective of expenditure control is fiscal stability, achieved by keeping government expenditure within the limits of available resources. The budgetary cash management system will remain a key safeguard for ensuring that expenditures do not exceed available resources and will be adapted to make it operate more smoothly. Moreover, the priority sectors of education, health, water, and roads will receive their full monthly allocations. Over the medium term, the strengthening of budget formulation and development of commitment monitoring will facilitate more efficiency and predictability in day-to-day government operations. As a step toward that objective, ten key ministries have been required, as of 1998/99, to file regular reports on expenditure commitments, and the monitoring system will be extended to other ministries in 1999/2000. The government will further develop the commitment monitoring system with the help of a resident advisor, who will build on previous technical assistance on expenditure control by offering general support and training. The improved commitment monitoring system is expected to substantially reduce the incidence of domestic arrears.
24. The annual public expenditure review exercise will promote improvements in the composition and efficiency of government expenditures, and it will increasingly provide a forward-looking approach, with the full integration of donor-financed government expenditures. This approach will particularly facilitate the prioritizing of development expenditures between and within sectors, as well as ensuring their consistency with the medium-term expenditure framework. By 2000/01, the government plans to fully integrate the recurrent and development budgets, taking into account sector priorities and recurrent cost implications of public investment. In the meantime, the rationalization and prioritization of development projects continues: in 1998/99, the development budget focuses on 439 projects, down from about 1,300 in 1996/97.
Monetary policy and financial sector reform
25. Monetary and credit policies will continue to aim at achieving and sustaining a low rate of inflation. To this end, the Bank of Tanzania (BoT) will continue to follow a prudent market-based monetary policy, which will imply, inter alia, maintenance of positive real interest rates. Steps are being taken to encourage the development of interbank and secondary markets for treasury bills and other securities, with a view to developing further the market for financial paper in Tanzania and providing liquidity for Tanzania's nascent capital market. The BoT has started using repurchase transactions in government paper for monetary policy purposes and has recently introduced a special facility for collateralized lending to banks to meet seasonal demand for credit. A book-entry system for treasury bills has recently been introduced.
26. Financial sector reform will continue, with the aim of fostering competition and efficiency in the supply of financial services, narrowing the spread between lending and deposit interest rates, and strengthening the mobilization and allocation of financial resources. A principal focus of financial sector reform in 1998/99 will be the privatization of the NBC (1997) and the NMB. In July 1998, a general invitation to bid was issued. The deadline for submission of bids has been twice extended, most recently to January 29, 1999. In February 1999 successful bidders will be evaluated prior to entering into negotiations. The bank is expected to be privatized by April 1999. The BoT and the Ministry of Finance will ensure that the banks implement the memoranda of understanding under which they are required to operate until they are in compliance with banking regulations. Meanwhile, a manager was selected in November 1998 and will be engaged in January 1999 to assist in the transformation of the NMB into a microfinance bank. Next on the restructuring and privatization agenda are the remaining state-owned financial institutions: the Tanzania Investment Bank, and the Tanzania Postal Bank. Moreover, the government of Zanzibar has requested the assistance of the Union Government in restructuring and privatizing the People's Bank of Zanzibar.
27. In order to improve the quality of bank lending, the BoT has encouraged private institutions to establish a credit information bureau. A report on the commercial viability of such a bureau will be ready by end-1998. In addition, commercial courts, which are to address commercial and banking claims, are expected to become operational in mid-1999. A program to improve the national payments system, with the aim of reducing delays in the clearing of payments, is under development.
28. The BoT's regulatory and supervisory capabilities are being further enhanced in order to meet the challenges created by the ongoing reforms and the rapidly expanding number of financial institutions. Off-site surveillance has already been computerized, and the BoT is continuing to recruit and train additional staff, with a view to intensifying on-site surveillance. The BoT will review the Banking and Financial Institutions Act in the course of this fiscal year, with the aim of instituting the legal framework for the regulation and supervision of microfinance institutions.
Civil service
29. The government has developed a Medium-Term Strategy for Public Service Reform whose theme is "quality public services under severe budgetary constraints." Government resources will remain highly constrained in the medium term, but there is an imperative to improve the quality of public services. The components of the program will be performance improvement, restructuring and private sector participation, executive agencies, management information systems, leadership, management and governance, and policy coordination, monitoring, and evaluation. Key features of the program will include a strong focus on service improvements, information, education, and communications program, institutional mechanisms for program management and coordination, budgetary incentives for performing institutions, contract recruitment to strengthen capacity, strong evaluation and monitoring mechanisms, and coordination with other public sector reforms.
30. The performance improvement model will be implemented in phases, starting with three ministries in 1999. Efforts to reduce the scope and size of government structures will involve the redefinition of government functions and encouragement of private sector participation. Three executive agencies will be launched by February 1999, and more will follow. Further cost savings are expected from restructuring employment in ministries and local authorities, and from maintaining an overall employment freeze, except in those areas critical for accelerating economic growth and improving service delivery. These savings will enable the government to free resources for nonwage recurrent expenditures, especially office and maintenance expenses.
31. A new pay structure incorporating the results of the job evaluation and regrading exercise will be in place by July 1999. A central personnel database and a new payroll system will be established by June and December 1999, respectively. A Public Service Commission will be set up, and capacity-building initiatives in leadership skills, and policy development will be undertaken. In order to increase the competitiveness of the pay structure, the government will target civil service pay increases to professional and technical staff. Medium-term pay targets for the civil service will be approved by the government by April 1999. A review of the institutional structure will be undertaken by March 1999, aimed at strengthening the decision-making and oversight functions of the central government. Noncore activities will be either transferred to agencies, privatized, or abolished. Ways will be found to introduce new public/private partnerships to improve service delivery.
32. The government will prepare a national strategy for capacity building during 1998/99 to address the problem of coordinating donor activities in this area. The implementation of this strategy will be included in the next phase of the civil service reform program. The focus will be on strengthening the capacity for developing strategies and policies, accountability, and control.
Local government
33. A fundamental change was recently adopted by the government in the form of budget support to local governments. Funds will no longer be channeled through the sectoral ministries; instead, they will be transferred entirely and directly to the local authorities and cover the full range of activities. Conditional and unconditional grants to 35 local authorities under phase 1 of the Local Government Reform (LGR) program will commence in January 1999. The Prime Minister's Office has already issued a circular notifying the 35 selected local authorities about this change. Subsequently, responsibility for regional and local authorities was shifted to a newly created Ministry of Regional Administration and Local Government.
34. A primary concern in the LGR program is that weaknesses in capacity at the local authority level might affect the effectiveness of the decentralization process. More specifically, the local authorities lack adequate capacity for designing multisectoral programs. Also, there is a serious dearth of competence in implementing accounting, procurement, and appropriate financial reporting systems, which may compromise the integrity of the devolution of responsibilities. Finally, mechanisms for ensuring consistency between national priorities and local programs are not fully in place.
35. The empowering legislation is expected to be passed prior to the commencement of the implementation of phase 1 in January 1999. Phases 2 and 3 of the LGR program, each covering 35 districts/local authorities, will be implemented in turn in the subsequent two years. The government will address capacity weaknesses at the local authority level through the following actions:
Parastatal policy
36. Reform of the parastatal sector is a key element of the government's economic reform program. The government is instituting a framework for each sector that will allow for a coherent and organized approach to privatizing key infrastructural sectors and utilities. By ensuring interministerial and interagency coordination, the government seeks to facilitate the kind of cooperation that will be critical to implementing the policy changes and regulatory reforms needed to attract private participation to these sectors. The government will set the key dimensions of sector strategies and policies and determine key policy parameters of the divestiture process to guide detailed operations of the Parastatal Sector Reform Commission (PSRC). Furthermore, the government approval process will be streamlined to provide a fast track arrangement for handling the less strategic or sensitive agencies and facilitate the implementation work of the privatization agency, whose activities will be regularly monitored. In addition to these changes, the PSRC is seeking ways to streamline the privatization process and competitively recruit the highest-quality advisors, so that Tanzania will have the best advice and assistance available for such important transactions.
37. Over the next year, the restructuring and privatization of the public utilities will be accorded the highest priority. Work is ongoing in the Tanzania Telecommunications Company (TTCL) and the Dar es Salaam Water and Sewerage Authority (DAWASA), while consultants are carrying out a study for the divestiture of the port operations under the Tanzania Harbours Authority (THA). The government has also committed itself to liberalizing related shipping services currently under the National Shipping Agencies Corporation (NASACO) and the Tanzania Central Freight Bureau (TCFB). The government will adopt policies to enhance private participation and move toward a full concessioning agreement for the Tanzania Railways Corporation (TRC), including the divestiture of TRC's marine services division. Finally, the government will also give special attention to stimulating private commercial farming and divesting the remaining agricultural parastatals.
Investment policy and private sector development
38. The government is committed to making major improvements in the business environment for private investment, so as to stimulate a more rapid expansion in local and foreign private investment and, hence, growth. To this end, policies affecting price signals to private operators are in the process of review, including tariff and taxation policies aimed at creating a lower and more uniform structure of taxation; meanwhile, exemptions and differentials will be phased out and, where necessary, replaced with tax credits. In line with this approach, the Tanzania Investment Centre's (TIC) operations are being reviewed, with the aim of shifting its role away from approving regulations and investment and toward promoting investment. The center will closely collaborate with the private sector and adopt a market- oriented approach to its work. To encourage and facilitate entry of new private operators, the current framework of business regulations is being assessed, based upon the diagnosis in the "investor road map" study. Already, 13 government approval processes are being streamlined. Others will be streamlined or abolished, on the principle that where a regulation serves no identifiable public policy purpose (e.g., safety, health, or environment), it should be removed. Policies and administrative systems governing access to land by private investors are being taken into account in the preparation of the new Land Act, in order to ensure transparent, timely, and secure access to property titles with mortgage and transfer rights. The government's policy will also be to level the playing field for foreign and local private investors.
Power
39. In recent years, the economy has suffered from power shortages and blackouts, owing to load shedding by the electricity parastatal, Tanzania Electric Supply Company Ltd. (TANESCO), during the dry season. These interruptions have a high cost in terms of forgone output and incomes. The current drive to address these problems will require further investments by TANESCO. To this end, concerted efforts will be made to solve the problems of long lags in electricity billings, customers' nonpayment for services, and delays in adjusting tariffs by the government.
40. Tanzania's power system has been increasingly unable to meet the rapidly expanding power demand of a growing economy. The government has decided, as part of an action plan to improve the security, reliability, and efficiency of power supply, to make every effort to complete the 180-megawatt Kihansi Hydropower Project by the year 2000; to implement the Songo Songo gas-to-electricity project as early as possible; to rehabilitate hydropower plants throughout the country; to develop the most cost-effective new sources of power under the power sector master plan, which aims to interconnect the TANESCO system with those of neighboring countries; and to rationalize TANESCO's operations and introduce private operation and ownership into these operations, beginning with power distribution. Other measures include developing a power sector regulatory policy and plan, which is expected to be in place in June 1999. Under this plan, foremost priority will be given to promoting private sector entry based on competitive bidding and autonomous regulatory arrangements. The power system under TANESCO will be unbundled into generation, transmission, and distribution segments, and privatized distribution will be in place by end-2000, followed by the generation and transmission segments. A simple but effective regulatory framework will be put in place by December 1999.
Petroleum sector liberalization
41. In view of the losses to the economy owing to the operation of the Tanzanian Italian Petroleum Refinery (TIPER), the government has prepared a study of options with respect to the future of the refinery, and it will decide by December 1998 on the strategy to be followed. Should the preferred option entail converting TIPER into an import depot, the implementation of this option will go hand in hand with the installation of necessary facilities, including a new jetty, repair of the existing tank farm, and replacement of underwater lines to the Kurasini Oil Jetty (KOJ). Pending completion of the KOJ in November 1999, a transitional arrangement will entail continued oil refining by TIPER, and the government will subsidize refinery operations in a transparent manner through transfer of funds from the Treasury instead of through the TPDC, and it will end subsidies once the refinery is divested. Given the importance of creating incentives for competition among the oil companies, the government will develop and institute a petroleum sector regulatory framework and will liberalize petroleum retail prices in February 1999.
Mining
42. The divestiture of the State Mining Corporation is expected to be completed by June 2000. Preparation of environmental regulation and standards, together with guidelines for the mining sector, will be in place by December 1998. The government's vision is to develop over the next 10 to 30 years a strong, vibrant, well-organized mining industry led by the private sector. Small- and large-scale mining will be conducted in a safe and environmentally sound manner. The target is for mining to contribute not less than 10 percent to the GDP (compared with the present 1.7 percent share).
43. The government recognizes the importance of enhancing incentives to small-scale miners and providing them with technical assistance to upgrade their skills. A long-term strategy to develop small-scale mining has been prepared, and, accordingly, programs, including improvements in technology, are being developed.
44. It is recognized that the smuggling of gold and gemstones undermines the collection of tax revenues and leads to underreporting of mineral exports. Priority will be given to undertaking new initiatives to curb such smuggling. These will include licensing private mineral traders, simplifying mineral export procedures, and promoting transparent mineral trading.
Land and human settlement development
45. Land is a fixed resource (and a diminishing one if ill utilized), while demand for it is ever increasing, with the increase of population and its multifaceted needs. This situation calls for priority to be given to surveying the land, planning its optimal use, managing it prudently, and placing registration and valuation on a sound and sustainable basis.
46. The new land policy (1995) will be supported by a new Land Act, expected to be effected in 1999. The Ministry of Lands and Human Settlement will continue to improve service delivery, promote prudent land use practices by rural and urban land users, strengthen and clearly define tenure rights, and provide a coordinated national approach to sustainable land use planning. The intended strategies and measures to attain the above objectives are as follows:
Agriculture
47. There is a noticeable increase in the production of traditional and nontraditional export crops, reflecting a positive supply response of agriculture to policy reforms in the past decade. However, the response is slower than desired and varies from one subsector to another. The supply response of major food crops appears to be particularly less than satisfactory. Since the food crops and livestock subsectors account for more than 85 percent of the agricultural GDP, it is essential to achieve significant improvement in these areas in order to attain high growth in the agricultural sector.
48. There are several reasons for the slow supply response. One is the decline in the use of agricultural inputs, as the impact of the reform on the prices of imported agricultural inputs curtailed widespread use. A second reason is weak output markets. Limited participation and slow entry of private enterprises into output marketing has limited the potential gains from competition in the sector, preventing farmers from getting the full benefit that was expected. One aspect of this problem is that in some cases procurement of produce has been tied to sales of input, limiting the choices available to the farmer in selling produce and buying inputs separately. A third reason for the slow supply response is some residual institutional impediments to marketing of crops and inputs which hamper efficient operations of agricultural markets. Fourth, poor infrastructure, particularly feeder roads, has also contributed to the weak supply response.
49. The government will take appropriate measures that will assist in redressing these problems. Most importantly, alternative strategies and measures will be devised and implemented to assist efficient and widespread use of agricultural inputs among smallholders. Where applicable, the experiences of other countries will be carefully reviewed in adopting new strategies/approaches to solve this problem. A regulatory framework that protects both private sector participants and the small farmers, as well as a framework that sets the rules governing the provision of goods and services in the sector, will be adequately articulated. Appropriate institutions, both private and public, will be set up to implement key regulatory functions. To this effect, a study to determine regulatory services and how they will be provided in the present liberalized environment (which includes scrutinizing present crop board laws) will be carried out and acted upon before June 1999. Furthermore, the regulatory framework will benefit from the findings of a study to review the marketing of crops. This study is expected to be completed by March 1999. The government will also take appropriate measures to remove remaining impediments to the marketing of food and cash crops.
50. Substantial progress has been made in the divestiture of agricultural parastatals and the contracting out or implementation of private-public sector joint venture arrangements for certain functions. However, there are still areas where preparatory work has not advanced far enough and where accelerated implementation is necessary. The divestiture program for the sector will be accelerated and a Private Sector Development Initiative for agriculture will be developed, spanning across large and small farms.
51. Government efforts will also be directed at assuring basic food security and developing sustainable agriculture and livestock production. This will be pursued by supporting attainment of increased productivity through greater participation of the private sector and improved efficiency in marketing and processing of agricultural products. Strategies for development and dissemination of technologies, aimed at increased productivity in smallholder agriculture, will be reviewed and implemented. The interventions in this area will focus on integration of agricultural research and extension functions, improved access to credit and rural infrastructure, and facilitating the internal flow of commodities.
Water
52. Following the extreme water shortages experienced in past years, particularly in the 1997 drought, the government is giving priority to early and rapid improvement of both rural and urban water supply systems. For smooth operation and maintenance of the systems, priority is being given to the following:
53. In the past, water resources development in the country has been managed and developed according to sectoral, regional, or district interests, making it difficult to assess the availability of water resources. Emphasis is now being shifted toward a comprehensive approach to river basin management.
54. In providing water to rural areas, the government will opt for cost-effective and efficient measures to serve larger groups of people, like villages or groups of villages. This strategy will require rehabilitating the existing equipment and buying new machinery for rainwater harvesting and groundwater exploitation in semiarid regions.
55. Given the public sector resource constraints, the government has decided to call for private sector participation in rural and urban water management and investment. In the urban areas, private partnership will be encouraged to supply water and dispose of sewerage. The review of the 1991 Water Policy by the government will be completed, and the new water sector regulatory framework and investment regime will be adopted in 1998/99. This action will go together with the consolidation of the urban water and sewerage authorities. In the rural areas, operation of the existing water supply systems will be transferred to local communities, and water funds will be introduced for expansion and improvement of water schemes. Government contribution will be demand driven to reflect a full participatory role for beneficiary communities
Roads
56. Since 1990, the government has, through the Ministry of Works, been implementing a ten-year Integrated Road Project (IRP), financed by multiple donors. The main objectives of the IRP have been to restore Tanzania's trunk and regional rural network and to develop the ministry's capacity to properly manage the road network.
57. While some progress has been made in the rehabilitation of the paved rural network and local contracting capacity has developed greatly, road management capacity has not been as effective. This shortcoming has been manifested in long procurement delays or cost overruns on the development side and in deferred maintenance of existing roads owing to a lack of financing and technical management. Deferred maintenance eventually results in a need for rehabilitation and repair interventions whose cost far outweighs the cumulative costs of regular programmed maintenance.
58. To improve the effectiveness of the management of the road network, the government will in the course of 1998/99 put in place legislation for the road fund such that at least 90 percent of the resources will be used for maintenance; the remainder will be used for development expenditure. In addition, an autonomous road agency (TANROADS) will be established in 1998/99 and become operational in 1999/2000. It will be staffed by personnel engaged on a performance-contract basis on attractive terms.
Railways
59. Since 1992, the TRC has been implementing a restructuring project, with an outlay of US$212 million funded by the World Bank and several other development agencies. The main objective is to attain commercial viability through strengthening the organization, eliminating regulatory bottlenecks to effective operations, and limiting investments to enhance capacity. The TRC now enjoys commercial autonomy; it has shed its noncore business and is concentrating only on railways.
60. In July 1997, the PSRC engaged a consultant to advise on measures that could be taken with respect to the TRC and the Tanzania-Zambia Railway Authority for introducing private capital and management. The consultant concluded that privatization through long-term concessioning of the TRC should be pursued vigorously. The government accepted this recommendation.
61. The PSRC is commissioning a study that will recommend the strategy for the concessioning, and designing a package that would be used for the invitation and evaluation of bids, and the implementation of the concession. A Divestiture Committee consisting of the Ministry of Civil Transport, the Ministry of Finance, the PSRC, the TRC, and the Planning Commission has been formed to oversee the privatization of the TRC. The Divestiture Committee has produced a program to finalize the concessioning process in April 2000.
62. A marine services company has been established. The process of transferring assets to the company has started and is expected to be completed in December 1999. The information memorandum for the company is expected to be issued in May 1999.
Ports
63. The government has agreed to the concessioning of the Dar es Salaam container terminal. Currently, the consultant, M/S CPCS Transcom Ltd. of Canada, is evaluating its assets, working on legal aspects of concessioning the terminal, and drafting the concessioning agreement and arrangements for the bidding process. The consultant has already submitted an initial report for comments by the government. The government registered its comments and feedback on the consultant's progress as per the terms of reference. The concessioning process is planned to be finalized in June 1999. As for the remaining operations of the THA, a study will be commissioned for each operation, outlining the modes of privatization. The recommendations of this study are expected to be ready in the year 1999/2000.
Poverty reduction, social sector policies, and environmental protection
Poverty reduction
64. The government will during 1998/99 finalize the preparation of guidelines to lead the implementation of the National Poverty Eradication Strategy (NPES). The initial draft of the National Action Plan has already been formulated. This will guide preparation of sectoral action plans to implement the NPES. The government will also establish a poverty data bank for the country, based on the indicators for monitoring poverty and welfare that are being finalized and will be published.
65. The government will initiate measures to reflect poverty issues in the guidelines for the rolling plan and forward budget, beginning in 1999/2000. This will be an ongoing exercise and will aim at sectors addressing priority areas, as identified in the NPES. Thereafter, implementation reports will be prepared by sectors and submitted to the Planning Commission and the Vice-President's Office.
Social sector policies
66. The government is implementing a policy-based sector development approach (SDP), which was initiated in mid-1996. The key SDP characteristics include an approved policy/ strategic framework and targets, and agreement on a medium-term financing framework for 1998/2003 showing the priorities for public spending. The programs will be implemented through agreed common management and monitoring systems, both technical and financial, alongside an annual joint review by the government and donors, and an appraisal process. The process was initiated through a consultative meeting in February 1997, and a joint SDP preappraisal was made in March 1998. For the health sector, recent developments include a joint review of the reform program in January 1998 and consultative meetings in March and thereafter; a joint preappraisal took place in December 1998.
67. The social sector pilot projects under implementation involve a shift in emphasis to the fostering of local level management in service delivery and the mobilization of more resources for the sector. The Ministry of Education and Culture and the Ministry of Health will encourage the development of capacity to deliver these services at the local level.
Education
68. The government has completed a Basic Education Master Plan (BEMP) that takes education and training policy forward to the implementation stage. The implementation of the BEMP requires a change in the institutional and financial arrangements in the public sector, and the transfer of more resources and responsibility to the district and school levels. As indicated in Table 2, key features include:
69. The government accords the highest priority to securing an 85 percent gross enrollment rate for primary schooling, an 80 percent primary school completion rate, and the completion of institutional reforms by 2002. It is committed to increasing spending on primary education so that recurrent expenditures per pupil rise by 0.5 percent a year during each of the next three years, relative to the budgetary allocations in 1996/97. Despite the resource constraints, the government has raised the primary education share of the total recurrent budget for education from 64 percent to 65.6 percent in 1998/99. In addition to increased spending per primary pupil, the government's budget will reflect adequate resources to steadily increase the gross enrollment ratio from its current level (Table 4).
70. At the secondary level, the government completed a master plan in December 1998. The government's goal is to increase the transition rate from primary to secondary schools from the current level of about 15 percent to at least 20 percent by 2001, and to address serious income and gender equity issues at the secondary level. As with primary education, the government has developed a general outline of a two-stage approach to reform in secondary education. The government will also make additional outlays so that it can finance higher enrollments in government secondary schools, with the new students to be drawn from districts that do not have government secondary schools (or, have only one); special emphasis will be placed on eliminating the underutilization of government school buildings. Recurrent expenditures per student are to rise by 0.5 percent a year. In addition, spending on government secondary schools will be shifted toward instructional purposes, so that student board and welfare consume progressively a smaller share of the secondary school budget by 1999/2000. To the extent that equity considerations and national priorities permit, the government will increase the cost-effectiveness of its subsidies to secondary education and target them more toward the poor and other disadvantaged groups, such as girls from poor homes. Responsibility for management at the secondary level in the public sector will devolve to the school itself, with greater participation by teachers and the community.
71. Tanzania faces a genuine crisis at the tertiary education level. Enrollment rates are just 1 percent, unit costs are extremely high, and the operations of public training institutions are not well coordinated. The institutions are spread out among more than a dozen ministries and several parastatals, and they are run independently of each other. The government's recent review of this sector recommended the following:
Realizing that the underutilization and duplication of resources cannot continue, the government is exploring more cost-effective ways to finance training and tertiary education to enhance the efficiency of resource use in the subsector. It recognizes the merits of acting in partnership with the private sector and of expanding access to technical and higher education and training opportunities, while putting the sector on a firmer financial footing. Accordingly, during 1998/99 the government will begin the task of restructuring this sector.
Health
72. The government will continue focusing on three major challenges in the health sector, namely, (i) to improve the efficiency in the allocation and use of available resources; (ii) to broaden the resource base for financing health services while providing adequate protection to the most vulnerable population groups; and (iii) to increase the impact of health services, even within the existing resources, by focusing on the most cost-effective interventions and improving the management and delivery mechanisms. In pursuing the above objectives, the government will undertake the following actions:
The environment
73. Tanzania has shown continued determination to manage the environment effectively through the Vice President's Office, which has the overall mandate for environmental policy, planning, and implementation. Relevant sectoral ministries have played an increasing role in environmental management in their areas of competence.
74. The National Environmental Policy (NEP) was finalized and adopted by the government in December 1997. A number of key sector policies have recently been revised to reflect the increasing emphasis on attaining environmental quality objectives. The NEP calls for greater accountability and control in managing the environment and for the pursuit of clear objectives with effective instruments. It recognizes sector ministries and other institutions as critical constituencies of the Vice President's Office, and local authorities as the most powerful tier of government for managing the environment in their areas of jurisdiction. Among the most important tools for effective environmental management, the policy identifies environmental impact assessments, environmental legislation, environmental standards and indicators, and economic instruments.
75. Some of these tools are currently on the drawing board. The draft Environmental Impact Assessment Guidelines are being finalized; preparation of a framework for environmental law has been initiated; the Minerals Act has been reviewed and other sectoral laws are being reviewed; and comprehensive environmental standards are being drafted.
76. An institutional options study has been initiated to facilitate the determination of an institutional framework that harmonizes the actions bearing on the environment of all governmental authorities. A diagnostic analysis of the areas of environmental jurisdiction of existing institutions will be undertaken. A clear definition of the scope of supervisory powers and answerability of the different authorities will be mapped. Institutional options will be developed for consideration and adoption, and the output of this study will facilitate finalization of a framework environmental law.
77. Tanzania ratified the Convention on Biological Diversity in 1996; its objective is to advance the conservation and sustainable utilization of biological diversity, as well as the fair and equitable sharing of the benefits arising from the commercialization and use of its genetic resources. In compliance with Articles 6 and 8 of the Convention, the government has initiated preparation of a National Biodiversity Strategy and Action Plan. The project objective is to define, through cross-sectoral consultations, priority actions for the conservation and utilization of biodiversity within the context of sustainable development. It is a 12-month project, to be finalized in 1998/99.
78. Pursuant to Decision II/17 adopted by the second meeting of the Conference of the Parties to this Convention, the government has undertaken preparation of a National Report to the Convention on Biological Diversity in order to meet its obligations stipulated under Article 26 of the Convention, which requires national reporting on measures taken for its implementation. The draft report has been completed and is being fine-tuned.
79. The coverage, reliability, and currentness of economic statistics will be developed further over the program period. Following the publication of a revised set of national accounts on both the production and expenditure sides in 1996/97, the national accounts compilation system will be strengthened and modernized, permitting a regular and reliable update of the national accounts data; semiannual publication of the national accounts will begin in January 1999. Further improvements will also be made to the consumer price index, particularly in revising the basket by 1999/2000, based on the results of a new household budget survey. The publication of foreign trade statistics based on customs data began in June 1997, and these statistics have been produced on a monthly basis since January 1998. The scope for improvements in other components of the balance of payments will also be explored. Balance of payments statistics based on the fifth edition of the Balance of Payments Manual have been published since December 1997. In the fiscal area, statistical arrangements will be strengthened with respect to the accounting of arrears and domestic debt. More broadly, a regular program of economic surveys of the private sector will be developed by the government and maintained as a foundation for ensuring the quality and timeliness of the economic database.
III. External Financing Requirements
80. Tanzania continues to face large external imbalances over the medium term, and exceptional financing will therefore be required. Taking into account the policies described above, as well as the liberalized external trade and payments system, commodity export volume is expected to grow annually by about 12 percent in the period 1998/99-2000/01; commodity import volume is projected to grow annually by about 6 percent over the same period, responding to the more efficient utilization of imported investment goods and inputs stemming from the structural reforms and the maintenance of external competitiveness. Receipts from tourism are expected to rise, while payments of interest on official debt will remain stable for the next two years.
81. Based on these projections, the current account deficit (excluding official grants) is projected to average about US$1.3 billion in the period 1998/99-2000/01 (Table 5). Taking into account scheduled amortization, repayments to the IMF, and achievement of the gross official reserves target, the financing requirement over this period is projected to total US$6.1 billion (for 1998/99, the requirement amounts to US$3.2 billion) (Table 5); after allowing for projected official transfers and loans, and debt relief and rescheduling, there are small residual financing gaps.
IV. External Debt Sustainability
82. Tanzania's medium- and long-term external debt is estimated at about US$7.4 billion, equivalent to about 94 percent of GDP at end-June 1998 (Table 6). About 40 percent of this debt is owed to multilateral creditors (excluding the Fund), and another 40 percent to bilateral creditors. Given the burden of servicing such a large amount of debt, Tanzania has benefited from five reschedulings from Paris Club creditors since 1986, the most recent of which was a flow rescheduling on Naples terms in January 1997. Tanzania follows a policy of borrowing only on highly concessional terms.
83. Assuming that Tanzania obtains Naples terms debt relief from non-Paris Club bilateral creditors and benefits from a donor-financed buyback of commercial debt, as well as a Naples terms stock-of-debt operation at the end of the current Paris Club agreement, the public debt-service ratio, which was estimated at about 23 percent of exports of goods and services in 1997/98, is projected to decline to about 14 percent of exports of goods and services by 2000/01, with the external debt-to-GDP ratio declining from 94 percent in 1997/98 to 83 percent in 2000/01. In net present value (NPV) terms, Tanzania's external debt, equivalent to 316 percent of exports of goods and services in 1997/98, is projected to decline to 225 percent by 2000/01. In the long term, as Tanzania is expected to borrow on highly concessional terms, the projections indicate that the external debt-service ratio would fall further to an average of 9 percent during 2006/07-2015/16, and that the external debt-to-GDP ratio would decline to an average of 62 percent; the NPV of external debt-to-exports ratio is also projected to decline to an average of about 131 percent during 2006/07-2015/16. A more detailed debt sustainability analysis, based on loan-by-loan data, will be carried out in 1999 preliminary to consideration of possible HIPC Initiative debt relief. Tanzania's ability to sustain its external debt-service burden in the medium and longer term will also be strongly influenced by its implementation of sound macroeconomic, structural, and external debt policies, as well as by donor support that, although declining relative to exports and GDP, will be sustained and adequate.