Public Disclosure Authorized
Documentof THE WORLDBANK FOR OFFICIAL USE ONLY
Public Disclosure Authorized
Report No: 22150
IMPLEMENTATIONCOMPLETIONREPORT
Public Disclosure Authorized
Public Disclosure Authorized
THE UNITEDREPUBLICOF TANZANIA STRUCTURALADJUSTMENTCREDIT
May 2, 2001 CREDIT NO: 2967
Africa TechnicalMacroeconomicsII Country Department for Tanzania Africa Region
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.
GOVERNMENT FISCAL YEAR July 1 - June 30
CURRENCY EQUIVALENTS Currency Unit = Tanzania Shillings (TSh.) Inter-bank rate: US$ = TSh 880 (April 2001) ACRONYMS AND ABBREVIATIONS BOT CAS CRDB DEO DMO EDB ESAF IMF KOJ MTEF NASACO NBC Ltd. NBC NMB PFP PIP PSAC PSRC SAC SDR SPM SUDECO TCFB THA TICTS TIPER TOR TPC TPDC TRC TTCL
Bank of Tanzania Country Assistance Strategy Cooperative and Rural Development Bank District Education Officer District Medical Officer European Development Bank Enhanced Structural Adjustment Facility International Monetary Fund Kurasini Oil Jetty Medium-Term Expenditure Framework National Shipping Agencies Corporation National Bank of Commerce Limited National Bank of Commerce National Micro-finance Bank Policy Framework Paper Public Investment Program Programmatic Structural Adjustment Credit Parastatal Sector Reform Commission Structural Adjustment Credit Special Drawing Rights Southern paper Mill Sugar Development Corporation Tanzania Cargo and Freight Bureau Tanzania Harbor Authority The Tanzania International Container Terminal Services Limited. Tanzania Italian Petroleum Refinery Company Terms of Reference Tanzania Paper Mill Tanzania Petroleum Development Corporation Tanzania Railways Corporation Tanzania Telecommunication Company Limited
VicePresident: CountiyDirector: SectorManager: ClusterLeader: Task TeamLeader:
CallistoMadavo JamesAdams FrederickKilby BennoNdulu AlbertoAgbonyitor
FOR OFFICIAL USE ONLY IMPLEMENTATION COMPLETIONREPORT THE UNITED REPUBLIC OF TANZANIA STRUCTURALADJUSTMENTCREDIT Contents PREFACE ...................................................
I
EVALUATION SUMMARY ..................................................
I i ii iv v
Introduction ..................................................... Implementation Experience and Results.................................................... Assessment of Outcome .................................................... The Main Lessons Learned .................................................... PART I: PROGRAM IMPLEMENTATION AND ASSESSMENT ..................................................
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A. Introduction ..................................................... B. Statement and Evaluation of Objectives..................................................... C. Achievement of Objectives ..................................................... D. Sustainability of Reforms ..................................................... E. Bank Performance ..................................................... F. Borrower Performance .................................................... G. Assessment of Outcome..................................................... H. Follow-up Activities ..................................................... I. Key Lessons Learned .....................................................
I I 3 6 6 6 7 7 8
PART II: ATTACHMENT TABLES..................................................
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Table 1: Sunmary ofAssessment ..................................................... Table 2: Related Bank Operations .................................... . .............. Table 3: Project Preparation Timetable.................................................... Table 4: Credit Disbursements: Cumulative Estimated andActual ................................................. .............................. Table 5: Key Indicators of Program Implementation ...................... Table 6: Key Performance Indicators .................................................... Table 7: Major Studies Included in Project.................................................... Table 8a: Project Costs ..................................................... Table 8b: Project Financing .................................................... Table 9: Economic Costs and Benefits .................................................... Table 10:Status of Particular Covenants.................................................... Table 11: Compliance with OperatioonalManual..................................................... Table 12: Bank Resource- Stafflnputs .................................................... Table 13: Bank Resources- Missions .................................................... Appendix I.......... ................ ....... ......._........... ..... .
0 II 12 13 14 19 20 21 21 21 22 22 23 24 25
Aide Memoire of Preparation Mission...........................
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Appendix 11.................................. BORROWER CONTRIBUTION TO THE ICR .................................. Background .................................. Execution.................................. Alid-term Review .................................. Social Sector Tranche .................................. Banking Sector Tranche .................................. PetroleumnSector Tranche.................................. Parastatal Sector Tranche.................................. Lessons Learned ................................... Conclusion:..................................
... 26 2.....................6..................... 26 28 28 29 29 31 32 33 3 36
This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not be otherwise disclosed without World Bank authorization.
IMPLEMENTATION COMPLETION REPORT TBE UNITED REPUBLIC OF TANZANIA STRUCTURAL ADJUSTMENT CREDIT Credit NO: 2967 PREFACE This is the Implementation Completion Report (ICR) of the Structural Adjustment Credit for the United Republic of Tanzania for which a credit amount of SDR 93.2 million (US$128.9 million), including IDA reflows allocations of SDR 2.8 million, was approved by the Bank Board on May 7 1997. Three additional IDA reflows allocations amounting to US$3.7 million were subsequently approved. The first tranche of SDR 36.15 million, together with the IDA reflows of SDR 2.8 million, was released when the Credit became effective on October 1 1997. The SAC was closed on June 30 2000, after satisfactoryimplementationand release of the final tranche. The Government of the Kingdom of Norway co-financedthe Credit with a grant amount of NOK 25 million (US$ 2.8 million). The Government of Switzerland contributed a Trust Fund amounting to CHF 12million (US$ 7.7 million). The ICR was prepared by a team comprising T. Tinnes (Royal Norwegian Embassy in Dar es Salaam) B. Tarimo, P. Mpango and V. Rwechungura (AFMTZ) and A. Agbonyitor (AFTM2), Task Team Leader. B. Ndulu, Cluster Leader, provided helpful comments on the ICR and led the mission team in discussing an initial draft with the authorities. The discussions focused on implementation experience and lessons for future operations, factors that account for the satisfactory execution of the program and achievement of objectives. The ICR was reviewed by J. Adams, Country Director, and F. Kilby, Sector Manager. N. Zingg (EDS24) coordinated comments on the ICR from The State Secretariat for Economy of Switzerland. Other comments were received from sector specialists and Bank staff involved in the SAC or in parallel activities: S. Yusuf, Task Team Leader for the SAC, and L. Haggarty (DECRG), C. Kanda (AFTHI); S. Dhar (AFTM2); G. Byam (AFTPF); and S. Thomas (AFTTR). A. Siddiky (AFTM2) assisted with the preparation of the attachment tables. The staff assistants for the task were M. Mwakangale (AFMTZ) and P. Mamboleo (AFTM2). The ICR was reviewed at a Country Team meeting chaired by R. Brigish, Country Program Coordinator for Tanzania, on April 17 2001; the draft was revised based on the comments of the review meeting. The preparation of the ICR was initiated during two missions to the East Africa Region, which included visits to Tanzania during September 24 to October 1 and December 10 to the 15th 2000. The borrower made arrangements for the mission to meet with all units of the Government and to assist in data preparation. The borrower provided data, documents and written papers for preparing the ICR. In addition, the borrower contributed its own evaluation, which is attached as Appendix II. The mission included a visit to the National Oil (Tanzania) Limited, a beneficiary of the Petroleum Sector Rehabilitation Project and the oil sector reform component of the SAC.
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IMPLEMENTATIONCOMPLETIONREPORT THE UNITED REPUBLIC OF TANZANIA STRUCTURALADJUSTMENTCREDIT EVALUATION SUMMARY Introduction The Govermnent'smain objectiveof the StructuralAdjustmentCredit(SAC)was to fosterfaster economicgrowthand improvelivingconditionsby advancingthe economicreformsinitiatedin the mid-1980s. The SAC was presentedto the Board in parallel with the TanzaniaCountry AssistanceStrategy(CAS) for FY98-00. In additionto being in conformitywith the CAS, the SAC capitalizedon and extendedreformsagreedunder the PolicyFrameworkPaper (PFP) for FY97-FY99,whichwas preparedin collaborationwith the Bankand the IMF. The Government's commitmentwas underlined by prior actions, including financial sector reforms promoting privatebanking,parastatalreformand civil servicereform. Thesuccessfulcompletionof an IMF staff-monitoredprogramin June 1996and the IMF Boardapprovalof an ESAFarrangementin November1996furthersignaledthe Government'scommitmentto the reformprogram. The SAC amountof SDR 93.2 million (US$128.9million),of which IDA reflowsallocations amountedto SDR2.8 million,was approvedby the BankBoardon May 7 1997.TheCreditwas to be released in five tranches,includingfour floatingtranches linkedto specificmonitorable indicators. Three additional IDA reflows allocations amountingto SDR3.7 million were subsequentlyapproved.Thefirst trancheof SDR 36.15million,togetherwith the IDA reflowsof SDR 2.8 million,was releasedwhenthe Creditbecameeffectiveon October 1 1997.The SAC was closedon June 30 2000afterthe fifthand finaltranchehadbeen released. TlheGovernmentof the Kingdomof Norwayco-financedthe Creditwitha grantamountof NOK reforms. TheGovernmentof Switzerland 25 million(US$2.8 million)linkedto macroeconomic contributeda Trust Fundof CHF 12million(US$ 7.7million)linkedto bankingsectorreforms. Theprincipalreformssupportedbythe SACwerefocusedon the followingareas: * Consolidatemacroeconomicstability,emphasizingimprovedtax administrationand greater revenuecollection,prudentexpendituresand generationof surplusesto financedevelopment; * Improvepublic expendituremanagementand basic servicesby adoptingreforms,involving the implementationof a medium-termexpenditureframework,shiftingthe structureand level of expendituresto favor criticalservices,and trimmingthe over-extendedpublicinvestment programin line withpublicpolicyand priorities; * Decentralizeand strengthenthe managementand financingof social servicesat the local level, and continuethe policyof allowingprivateprovisionof theseservicesso as to increase access,especiallyto basic educationand basichealthservices; * Liberalizeoil import,marketingandprices,and privatizethe petroleumrefinery; * Restructure and privatize targeted parastatal entities to reduce subsidies and free up underutilizedassets to be used more efficientlyto improve services, with emphasison telecommunication, railways,shipping,the portsand selectedsmallerenterprises;and
ii *
Resolve the problems of the National Bank of Commerce (NBC), the most dominant commercial bank, accounting for 63 percent of deposits. NBC was to be dissolved and its assets transferred to three new banks created from the dissolution, followed by privatization.
Each component of the SAC was substantive and focused on a core issue to build on past reform efforts and to begin removing obstacles to efficient resource use and growth. Tanzania had made limited progress in attracting private investments, and in reforming public institutions and effectively utilizing public resources in the past. Despite the Government's commitment to the reforms, the Bank was aware that the Credit might falter from various risks, including capacity constraints, and the likely short-term adverse political effects of the parastatal reforms and abolition of price controls. However, the new Governmentwas prepared to act on the momentum of the political will coming from the elections and to strengthen its position with good results. The political leadership and the open decision process being used by the Government to enlist public support for the reforms were favorable ingredientsthat could facilitate implementation. Implementation Experience and Results The overall implementation was satisfactory, and the reforms were deepened on all the major fronts. Government commitment remained strong and a consensus for change was maintained as the program advanced. Some components of the program, such as the decentralization of social services and banking reforms, were modified; this resulted in a stronger reform program than the initial design at entry. The modifications and the need to complete essential technical work to inform reform decisions led to delayed action on some measures. The delays did not result from a softening of Government commitment. The direction of Government policy was steady, and the development objectives underlying the SAC remained valid and achievable. Thus, the SAC was extended to close on June 30 2000, rather than the original date of December 31 1998. Macroeconomic management was prudent. Expenditures were restrained, and limits on domestic borrowing were maintained. Tax revenues fell temporarily in proportion to GDP from 11.9 to 10.3 percent during FY97-FY99, reflecting tax reforms that reduced the top import duty rate and adjusted the intermediate rates, and eliminated nuisance taxes on private investments. As the reduced tax rate and elimination of exemptions broadened the tax base, tax revenues recovered to 10.5 percent of GDP in FYOOand are expected at 11.7 percent of GDP in FYOI, based on mid-FYOI outcomes. The fiscal surplus (after grants) was 0.2 percent of GDP in FY98 and 0.5 percent of GDP in FY99. Inflation and Treasury bill rates declined. Foreign direct investments averaged over US$160 million a year in 1997-99,compared to US$46 million in the first half of the decade. Economic growth was strengthenedby the investments and expansion in mining, tourism and manufacturing. The GDP growth rate stabilized more firmly around a 4 percent growth path through the mid-1990s, compared to the stagnation of the earlier decade. Public resource management improved. Limits on the wage bill and reduced interest payments on debt service led recurrent expenditures to fall by 2 percent of GDP to 10.9 percent of GDP during 1997-99. Development expenditures rose by 1.4 percent of GDP, while the number of projects in the public investment program was pruned. A medium-term expenditure framework (MTEF) was implemented during FYOOto extend the horizon for expenditure planning and service delivery. The public expenditure review and resource assessment processes of the MTEF helped to strengthen expenditure prioritization. Social expenditures received greater funding and priority with support from the Multilateral Debt Fund created by donors. Health sector recurrent expenditure rose from 8.9 percent to 10.6 percent of total discretionary spending during FY97FY99. Education's share of public resources remained more or less stable, equivalent to some 26 percent of discretionary spending, with emphasis on primary schools, which accounted for 62 percent in FY99, compared to about 50 percent in most countries. Non-salary expenditures per
iii pupil rose by 8 percent in constant price terms during 1997-99. The share of secondary schools from education expenditure remained low at 7 percent in FY99; limited access to secondary education remains a serious concern. Raising the low tax effort and limiting domestic arrears are essential to relax the stringent cash budget system and enhance the effectiveness of the MTEF. The program to decentralize service delivery in education and health in order to improve their management and financing and, thereby, services was modified to fit into a broader national program of local government decentralization. The modified design involved making fundamental changes in the relationship between local administration and other levels of Government, and strengthening local level management authority for education, health, water, agriculture and roads. The redesigned program included building capacity at the local level to facilitate implementation and results. The first phase of the decentralization program currently under implementation covers 38 out of 113 local administration areas, instead of the 20 that was to be piloted in the original program. Conditional and unconditional block grant transfers to local level authorities were introduced in principle in the FY01 budget. However, the implementation is emphasizing only conditional grants budgeted mainly for specified activities, to be released on the basis of appropriate spending plans. Recruitment of education officers and teachers, and staff in district hospitals has been transferred to the Council. Required actions on other education reforms covering training and redeployment of teachers, and reform of technical and higher education were taken. For health, the implementation of a hospital-based drug revolving fund pilot and the preparation of an Action Plan to combat Malaria were carried out. In the area of parastatal reforms, approximately 150 of the existing 395 parastatals had been privatized or liquidated prior to the SAC, and this number increased to over 200 by the end of June, 2000. The significance of privatizing such large numbers of small public enterprises was that it reinforced new policies and signals on the welcome attitude towards private investments. In the case of the strategic parastatals, after a transparent and competitive bid process, the sale of 35 percent of TTCL for US$120 million to a consortium of Detecon, an affiliate of Deustche Telekom, and MSI was initialed on December 7 2000. Government relinquished management control, while retaining 36 percent of the shares and reserving the rest for transfer to other private investors and employees of TTCL. The monopoly of TCFB in negotiating and allocating cargo was abolished. NASACO's de facto monopoly status was terminated; twenty five local and foreign firms have been licensed to compete with NASACO. The Dar es Salaam Container terminal, formerly operated by THA, was leased to The Tanzania International Container Terminal Services Limited, a consortium of two private firms, the International Container Terminal Services Incorporated of the Philippines (75 percent) and a Tanzanian finance company (25 percent). A renewable Performance Contract was signed for TRC, however, the contract has yet to be implemented. A waiver was agreed on the divestiture of the Marine Services Division of TRC, because the transaction required complex corporate and financial restructuring that had not been anticipated. To revamp the regulatory framework for the utilities, a draft bill on multisector regulatory framework has been prepared and discussed with concerned stakeholders. Sector regulatory laws have to be amendedto strengthenthe multi-sector regulatory framework. The banking sector reforms were implemented with a minor modification. Two banks (NBC 1997, and The National Micro-finance Bank Ltd. - NMB), rather than three, were created from the split of NBC. NBC Ltd., has been successfully privatized. No bids have been received for NMB. As an interim measure, NMB is being managed by a private management team, The Development Alternative Incorporated, under a two-year contract that commenced in August 1999. The management contract is expected to enhance the chances for privatizing NMB. The banking reforms, including the emergence of private banks, have facilitated the growth of a more diversified and competitive banking system, eliminated state-directed lending and improved the collection of NBC's non-performing loans. Various initiatives are under way to strengthen micro-
iv finance. The Bank of Tanzania has created a micro-finance directorate; and it is developing the necessary policy framework to support micro-financingactivities. Four community banks have been licensed. A European Development Bank program is being developed to provide resources for on-lending to small investors. Participants in the program include Standard Chartered Bank, Cooperative and Rural Development Bank, and Stanbic Bank. Petroleum import and marketing was fully liberalized. The Miscellaneous Amendments Act (1999) gave the Government authority to reform oil policy. Oil retail prices were fully liberalized in July 1999 and cross-subsidies were removed. Petroleum product imports were fully liberalized in January 2000, making oil companies responsible for ensuring adequate supply of petroleum products. The petroleum refinery was not attractive to the private sector once the subsidies were removed; thus, it remains partially state-owned entity. It has been closed down for use as a storage facility. The reforms contributed to the realization of an oil import and marketing system under private sector management. Private investments in the sector have increased along with the adoption of improved technologies to increase oil supply, especially in the urban areas. The passage of the Petroleum Supply Bill is essential to firm up the policy framework and strengthen the guidelines for product quality, safety and environmental standards for the industry. Interim Petroleum Regulations were gazetted on September 1 2000, pending the enactment of the Bill. Assessment of Outcome It is difficult to disentangle the direct contribution of the SAC to the goals it supported, given the mutually reinforcing contribution of the Government and other donors. Clearly, however, the SAC played a positive and catalytic role in broadening donor support, including coordinated donor funding for social services, through the Multilateral Debt Fund. The structural and institutional elements of the SAC require sustained effort to get lasting results. In the interim, the reforms have assisted to improve basic economic and social services and to launch a decentralization program to sustain the effort. In education, the downward trend in absolute primary school enrollments is being reversed. In health, anecdotal evidence indicates that the emergence of private pharmacies has contributedto improving drug supplies in some areas. The privatization effort gained credibility, and private investments rose, especially in mining, petroleum, tourism, banking and manufacturing. Private investments remain minimal in agriculture. Total investments averaged about US$160 million a year during 1997-99, compared to US$46 million a year in the first half of the 1990s. There has been response from nontraditional exports, such as manufacturing, gold, diamond, handicrafts and horticulture. Overall, GDP is more firmly on a stable growth path, averaging 4 percent for most of the 1990s, better than the lack of consistent performance of the preceding decade. The recent upward trajectory of the GDP growth path - 4 percent in 1998, 4.7 percent in 1999 and a provisional estimate of 5.2 percent in 2000 - suggests that the higher growth rate anticipated by the SAC is achievable. Judged on the basis of the implementation of the program and progress on the policy objectives, one could imagine that an overall desirable poverty outcome has been realized. The sustained implementation of the reforms, consolidation of macroeconomic stability and movement to a more steady economic growth path, together with improved support for social services, should raise living conditions or at least strengthen the basis for reducing poverty. Yet, there is no reliable information to indicate what actually happened to poverty. The analytical work that can provide concrete insight on the evolution of poverty and social outcomes is under way.
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The Main Lessons Learned Political Commitment: Government commitment has been key to the progress made in implementing the SAC, especially given its broad scope and complexity. This commitment helped to strengthen cooperation between the Government and the Bank, and provided a basis to focus Bank assistance on redressing technical and capacity constraints. For example, the modification of the social sector reforms noted earlier was feasible because the Government had already made a political decision and was initiating actions to undertake a much stronger decentralizationthan initially envisaged under the program. With such Government commitment, technical assistance (TA) served to redesign the program accordingly and to adopt a phased implementation plan, taking into account local level capacity constraints. Given Government commitment, the framework of the SAC facilitated the role of the top political leadership and central policy organs, such as the Ministry of Finance, in monitoring the implementation of the reforms by concerned sector departments. A reform program needs not falter because of its scope and complexity, if there is Government commitment to play a lead role, and Bank flexibility to assist in mitigating capacity and other technical factors constraining implementation. Sequencing. With hindsight, the sequencing of actions and time frame envisaged for implementing the SAC was optimistic, although it may have served a useful purpose in conveying a sense of urgency and a need to act sooner rather than later. The institutional and structural measures to be taken by the Government had a medium-term perspective, while the horizon of the SAC was much shorter. The Bank took this factor into account by being flexible, including using floating tranches to give the Government a measure of control in timing its actions. Yet, from the Government's experience, there was uncertainty about the timing of tranche releases, which are linked directly to the financing of the budget. The follow-up Programmatic Structural Adjustment Credit currently under implementation seeks to provide a more realistic time frame for completing its implementation by building on the medium-term perspective of the government's program. Realistic sequencing has also been an issue with regard to the privatization of the large infrastructure public enterprises. The creation of necessary multi-sector regulatory regimes for the infrastructure entities (marine services, aviation, road transport and railways) and the utilities took more time than expected. In some instances, sequencing the due diligence process for units being privatized to take place after the bids led to reopening of the bids as new pertinent data became available. The new privatization process approved by the Government involves sequencing the bid process to take place after due diligence. In other areas, some officials pointed to the salutary role of co-financing, especially in a large reform program. Co-financing has been helpful to limit duplicative preparation of documents and to optimize the use of government capacity.
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PART I: PROGRAM IMPLEMENTATIONAND ASSESSMENT A. Introduction 1. The Structural Adjustment Credit (SAC) was prepared by the Government that came to power following the elections in November 1995 to build on reforms initiated in the mid-1980s, and to pave the way for faster economic growth and better living conditions. The SAC was presented to the Board in May 1997 in parallel with the Tanzania Country Assistance Strategy (CAS) of FY98-FYO0.In addition to being in conformity with the CAS, the SAC capitalized on and extended reforms agreed under the PFP (FY97-FY99), which was prepared in collaboration with the Bank and the IMF. The Govemment demonstrated its commitment to reforms through various actions, including a program of parastatal divestiture, civil service reform and deregulation of the financial sector to allow private banks. The Government's Letter of Development Policy of May 1997 reaffirmed commitment to the SAC. The successful completion of an IMF staff-monitored program in June 1996 and the IMF Board approval of an ESAF arrangement in November 1996 further signaled the Government's commitment to reforms. 2. The SAC amount of SDR 93.2 million (US$128.9 million), of which IDA reflows allocations amounted to SDR 2.8 million, was approvedby the Bank Board on May 7 1997 to be released in five tranches. Subsequently, three additional IDA reflows allocations (SDR 1.8 million for FY98, SDR 1.1 million for FY99 and SDR 0.8 million for FY00) were approved. The first tranche of SDR 36.15 million, together with the IDA reflows of SDR 2.8 million, was released when the Credit became effective on October 1 1997. The remaining four floating tranches were linked to specific monitorable indicators. These were: (i) development expenditures and the social sector program (SDR 18.1 million); (ii) divestiture of NBC (SDR 18.1 million); (iii) parastatal reform (SDR 10.85 million) and (iv) petroleum sector liberalization (SDR 7.2 million). The SAC closed on June 30 2000 after the fifth and final tranche had been disbursed. 3. The Government of the Kingdom of Norway and the Government of Switzerland cofinanced the project. Norway co-financed the Credit with a grant amount of NOK 25 million (US$ 2.8 million) linked to macroeconomic reforms. Switzerland contributed a Trust Fund amounting to CHF 12 million (US$ 7.7 million) linked to the banking sector reforms.
B. Statement and Evaluation of Objectives 4. The main goal of the SAC was to improve the outlook for accelerated economic growth, based on using Government resources more effectively and attracting private investments, and to create the scope for marked poverty reduction. The main policies were focused on: sustained macroeconomic stability; improved public resource management, including the rationalization of the level and composition of sector expenditures; decentralized delivery of social services; parastatal reforms; banking reforms; and reform of pricing and marketing of petroleum. The reforms aimed to reduce the large public sector while giving priority to improving selected public services, remove the state from managing commercial concerns, facilitate private investments and promote outward-oriented productive activities. 5. Macroeconomic Framework: Government, aided by a stringent cash budget system, sought to consolidate macroeconomic stability, and to generate budgetary surpluses for development financing. There were measuresto strengthenthe capacity of the Tanzania Revenue Authority and the administration of the VAT so as to raise revenues. Domestic borrowing and monetary restraint were emphasized to stabilize prices and interest rates. These measures,
2 together with better expenditure management, parastatal divestiture and banking sector reforms, would establish a sound basis for faster economicgrowth and improvement in living conditions. 6. Public Resource Management: Public expenditure reforms sought to reinforce fiscal discipline by limiting aggregate expenditures while reallocating resources selectively to priority sectors. Priority economic and social services were to be improved through reforms, involving the implementation of a medium-term expenditure framework, shifting the structure and level of expenditures in line with public expenditure policy. The over-extended public investment program (PIP) was to be reviewed and paired down from 1400 to 800 projects in FY98. 7. Social Sector Reforms: The delivery of social services was to be decentralized to the district/local level, in order to improve their management and financing and, thus, access. Twenty districts were to be piloted in the first phase of the decentralization. Since user contribution to cost was to rise, the reforms required giving users more say in the provision of services, and giving facility level managers authority and flexibility to be responsive to users. Regional level administrative infrastructures were to be scaled back. There was emphasis on raising the efficiency of Government-owned and operated schools and health facilities; and on reallocating budgetary funds towards activities that benefit the poor most. In health, for example, poor access to drugs and equipment was a major concem, affecting services and staff morale. The policy adopted earlier to allow private sector provision of social services was to continue. 8. Parastatal Reforms: The main instruments for reform were privatization, liquidation, divestiture, abolition of state monopolies and a framework for regulatory and competitive policies. These reforms were to help limit subsidies to the parastatals and free up underutilized assets to be employed productively. The privatization of specific small enterprises was to be monitored under the SAC. These were: Mbeya Cement; Sugar Development Corporation; Southern Paper Mills; Morogoro Polyester; all mills of the National Milling Corporation; all commercial activities of the Tanzania Tea Authority and all commercial activities of the Tanzania Sisal Authority. The program targeted major infrastructure parastatals for reform. These were the Tanzania Telecommunication Company Limited (TTCL), National Shipping Agencies Corporation (NASACO), Tanzania Harbor Authority (THA), Tanzania Central Freight Bureau (TCFB) and marine services of the Tanzania Railways Corporation (TRC). 9. Banking Sector Reforms: The National Bank of Commerce (NBC) was the most dominant commercial bank with 63 percent of deposits and 60 percent of total commercial bank lending. NBC had a poor portfolio and was financially weak even after capital infusion to strengthen its financial base. Thus, more far-reaching reforms were decided upon to restore its viability. NBC was to be dissolved and its assets transferred to the three new banks created out of the dissolution or their holding company. This would be followed by privatization. 10. Petroleum Marketing and Pricing Reform: Petroleum import and marketing were to be fully liberalized. Oil companies would import freely to meet their marketing requirements. Differential pricing of petroleum products would be abolished to allow prices to be in line with import costs and other costs. The Tanzania Italian Petroleum Refinery Company (TIPER) would be privatized. 11. The components of the SAC were substantive and focused on removing structural obstacles to the efficient use of both public and private investments. Tanzania's socialist legacy hindered private investments in the past, and there had been limited progress in the reform of public institutions and effective utilization of public resources to improve basic services. Despite the Government's commitment to the SAC, there were risks. The reforms might falter because of political resistance arising from the short-term adverse effects of privatization policies and
3 abolition of price controls. The parastatal reforms required detailed technical preparation and suitable buyers to ensure that transactions were completed. Administrative shortcomings as well as lack of technical skills could limit the pace of implementation, especially considering the complexity of the actions to be taken. While there was possibility of slippage or slow implementation, the commitment of the top political leadership and the open decision process being used to enlist support for the reforms were favorable ingredients that could facilitate progress. The new Government was prepared to act on the momentum of the political will coming from the elections and to strengthen its position with results. In addition to providing technical assistance to overcome capacity constraints, a floating tranche mechanism was adopted to give flexibility to the Government in preparing and implementing the program.
C. Achievement of Objectives 12. The implementation of the SAC was satisfactory, with the reforms advancing along all fronts. As noted earlier, some components of the program were modified and strengthened. The development objectives of the large utility and infrastructure units being privatized were reinforced with appropriate regulatory reforms. The privatization of marine services division of TRC was waived as it turned out to be more complex and required more time than envisaged originally. The complexity of the program and the modifications also led to delayed action on some measures. But the delays did not result from a softening of Government commitment or reversal of the thrust of the reforms, and they did not aggravate the problems being addressed so as to undercut the achievement of the development objectives of the SAC. The direction of the policy reforms was steady, and the development objectives remained valid. Thus, the SAC was extended for 18 months to close on June 30 2000 after the final tranche had been released. 13. Macroeconomic Management: Macroeconomic management remained stable, though revenues declined. Tax revenues declined in proportion to GDP from 11.9 percent to 10.3 percent during FY97-FY99, reflecting tax reforms that reduced the top import duty rate and adjusted the intermediate rates, and eliminated nuisance taxes on private investments. Tax revenues recovered to 10.5 percent of GDP in FYOOand are expected at 11.7 percent of GDP in FYO1, based on the outcome in the first half of the fiscal year; the reduced tax rates and elimination of exemptions have helped to broaden the tax base. Tax revenue performance is expected to improve further as the growth activities, such as mining, tourism and the oil sector, are brought more firmly into the tax base. Expenditure discipline, aided by stringent cash budgeting and limits on domestic borrowing, helped to achieve a fiscal surplus (after grants) of 0.2 and 0.5 percent of GDP in each of FY98 and FY99. Inflation decelerated to single digits and was 7 percent by the end of 1999, compared to 15.4 percent at the end of 1997. Exchange and interest rates stabilized somewhat. The external accounts remained fragile, as the trade balance improved only slightly in the year ending June 2000. External reserves coverage for imports rose from 2.8 to 4.1 months during FY97-FYOO.The outlook for economic growth was strengthened by increased investment and production in mining, tourism and manufacturing. The average GDP growth rate stabilized around a growth path of about 4 percent since the mid-1990s, compared to the wide fluctuations in growth performance of the earlier decade. 14. Public Resource Management:Limits on the wage bill and decline in interest payments on debt service led to a fall in recurrent expenditures relative to GDP from 12.9 percent to 10.9 percent. The reduced recurrent outlays made it possible to raise development expenditures in percent of GDP from 2.6 to 4.0 during FY97-FY99. The PIP was streamlined and number of projects pruned from 1400 to less than a thousand during FY97-FY98. A medium-term expenditure framework (MTEF) was implemented in an effort to provide a longer-term homizon for planning and improving services. The public expenditure review and resource assessment processes of the MTEF helped to strengthen expenditure prioritization. Sustained improvement
4 in the revenue effort and redressing the problem of domestic arrears are critical for relaxing the stringent cash budget system and enhancing the effectiveness of the MTEF. 15. Social expenditures received priority in allocations as well as greater funding, with support from the Multilateral Debt Fund created by donors. Recurrent expenditure on health rose at an average annual rate of 33.7 percent during FY97-FY99, and were equivalent to 10.6 percent of discretionary expenditure in FY99, compared to 8.9 percent in FY97; purchase of drugs received top priority. The health sector reforms covering transformation of the central medical stores department, the creation and capitalization of a revolving drug fund, and preparation of an Action Plan to reduce life years lost to Malaria were carried out. There were exemptions to contributing to the revolving fund, based on age, ability to pay and sicknesses which have high public health risk. Adequate and sustainable funding of services remains a serious concern, as the central ministry absorbed most of the health sector budget. Education remained a top priority, absorbing about 26 percent of discretionary spending, with emphasis on primary schools, which accounted for 62 percent in FY99, compared to about 50 percent in most countries. There were efforts to raise the quality of instruction by raising non-salary spending per pupil by 8 percent in constant price terms during the period. Private expenditure on secondary education increased, accompanied by improved school test results. Actions on other education sector reforms have been taken, and some of these are continuing. These include training, upgrading and redeployment of teachers, and measuresto reform technical and higher education. 16. Social Sector Reforms. The initial program to decentralizethe delivery of selected social services at the ministry level was overtaken by a national program for local govemment reform to transfer the management of the delivery of major services to the local level. The Regional Administration Act (Number 19) of 1997 redefined the role of regional administrators relative to local government authorities. A new legal framework of relations between the central government and local level governments has been put in place covering the areas of autonomy, shared responsibilities, monitoring and accountability. The local level structure is being revised to redefine its functions relative to community organizations and private sector entities. Small regional secretariats were established to provide technical support to local councils. The Miscellaneous Amendments Act (Number 6) of 1999 provided for, among other things, a decentralized management of staff and finances. New regulations on the management of staff by local authorities became operative in December 2000. In addition, regulations for the management of block grants to local administrations became effective in July 2000, with implementation to be phased in gradually. 17. The original design of the social sector reforms was modified in line with this broader local government reform program and to cover all major services, such as education, health, water, agriculture and roads. Recruitment of education officers and teachers, and staff in district hospitals has been transferred to the Council. Conditional and unconditional block grant transfers to local level authorities have been introduced in principle in the FY01 budget. However, virtually all the block grants in the initial phase are the conditional type, budgeted mainly for personal emoluments and other specific activities, and would be released on the basis of appropriate spending plans. The number of local administration areas covered in the first phase of the program currently under implementationhas been raised from 20 in the initial SAC design to 38, about a third of the country. The existence of adequate capacity at the local level was a major factor in selecting the local areas included in the first phase, which is to be completed in December 2001. In addition, the Government adopted an in-house training scheme to strengthen local level capacity, emphasizing financial planning and management. 18. Parastatal Reforms. The privatization transactions covered under the SAC constituted only a small part of a larger reform program initiated in the early 1990s under the coordination of
5 the Presidential Parastatal Reform Commission, with the objective of limiting the Government as owner and manager of commercial enterprises. Approximately 150 of the existing 395 parastatals had been privatized or liquidated prior to the SAC, and this number was estimated to have increased to over 200 by the end of June, 20001. All the non-strategic parastatals monitored under the SAC were liquidated or sold except for a few that did not receive successful bids (Table 5). The main significance of privatizing these numerous small enterprises was to convey consistent signals to the private sector on the new policies and to attract private investments. 19. After transparent and competitive bids, the sale of 35 percent of TTCL for US$120 million to a consortium of Detecon, an affiliate of Deustche Telekom, and MSI was initialed on December 7, 2000. Government relinquished management control, while retaining 36 percent of the shares and reserving the rest for transfer to other private investors and employees of TTCL. The monopoly of TCFB in negotiating and allocating cargo was abolished. The Dar es Salaam Container terminal, formerly operated by THA, was leased to The Tanzania International Container Terminal Services Limited (TICTS). TICTS is a consortium of two private firms, the International Container Terminal Services Incorporated of the Philippines (75 percent) and a Tanzanian finance company (25 percent). NASACO's de facto monopoly state was terminated by licensing twenty five local and foreign firms to compete with it. NASACO had not been a monopolist by law, but had a monopoly position as a sole operator. A renewable Performance Contract was signed with TRC; the contract has yet to be implemented and is expected to expire in December 2001. A waiver was agreed on the divestiture of the Marine Services Division of TRC; the transactions involved complex corporate and financial restructuring that had not been anticipated. The regulatory regime is also being revamped. A draft multi-sector regulatory bill has been discussed with stakeholders. Specific sector regulatory laws will have to be amended to strengthen the multi-sector regulatory framework. 20. Banking Reforms. The reforms were implemented with some modification. Two banks (NBC Ltd., now renamed NBC-1997 and The National Micro-finance Bank Ltd. - NMB), rather than three, were created from the split of NBC under an Act of Parliament in October 1997. NBC Ltd., has been successfully privatized. NMB has presence in over 95 percent of the districts, and is to focus on serving the lower-end, smaller scale rural and urban clients. No bids have been received for NMB. As an interim measure, NBM is being managed by a private management team, The Development Alternative Incorporated, under a two-year contract that commenced in August 1999. The management contract is expected to enhance the chances for privatizing NMB eventually. The overall banking reforms, including the emergence of private banks, have led to a more diversified and competitive banking system, the elimination of state-directed lending and an improved collection of NBC's non-performing loans. Various other initiatives are under way in the area of micro-finance. The Bank of Tanzania has created a micro-finance directorate, and it is developing the necessary policy framework to support micro-financing activities. Four community banks have been licensed. The Government of Switzerland and the European Development Bank (EDB) supported the banking sector reforms. An EDB program to provide resources for on-lending to small investors is being developed with participation from Standard Chartered Bank, Cooperativeand Rural DevelopmentBank, and Stanbic Bank. 21. Petroleum Marketing and Pricing: The Miscellaneous Amendments Act (1999) gave the Government authority to reform oil policy. Oil retail prices were fully liberalized in July 1999. Petroleum product imports were fully liberalized in January 2000, making oil companies responsible for ensuring the adequate supply of petroleum products. The cross-subsidy element of the prices was removed. The petroleum refinery was not attractive for divestiture once the It is difficult to establish the precise number of enterprises privatized separately from liquidations and closures. In some cases, subsidiariesand divisions of enterprises were counted as separate units. In other cases, the final transactions fell through after the bid had been completed, and the process was restarted and counted again.
6 subsidies were removed; thus, it was closed down and turned into a storage facility, pending private sector interest and takeover. The reforms fostered the evolution of an oil import and marketing system led by private investment and management. Oil supply has improved, especially for the urban areas. The Petroleum Supply Bill is essential to firm up the policy framework as well as quality assurance and safety guidelines. As a temporary safeguard, Interim Petroleum Regulations were gazetted on September 1, 2000 pending (i) the finalization of the multi-sector regulatory framework and (ii) enactment of the Petroleum Supply Bill.
D. Sustainabilityof Reforms 22. The SAC advanced the reforms broadly and substantively and arguably marked a turning point from Tanzania's socialist legacy. Thorny issues, such as opening the economy for broader private sector participation, divesting the utilities and diversifying the sources of social service delivery to include private financing, had been resisted by various constituencies and vested interests in the past. The sustained implementation of the reforms even after the closure of the SAC means that the policies are not likely to be reversed. Based on the results of a recent survey in Tanzania, some 75 percent of respondents hold the view that the reforms might slow down in absence of external support. Broad improvementsin living conditions are necessary to strengthen consensus for the reform process. However, given that the kinds of structural and institutional reforms being undertaken typically need nurturing to generate significant and lasting benefits, external assistance will remain important for keeping up the pace of the reforms. The Bank is supporting the next cycle of reforms under a Programmatic SAC currently under implementation.
E. Bank Performance 23. Bank performance evolved over the life of the project. The Bank was effective in working with the Government to identify the substantive reform areas, while respecting the lead role of the Government. A "Rapid Quality At Entry Assessment" of the SAC undertaken in early 1998 noted that, while some aspects of the SAC, such as the use of floating tranches, were innovative, it was "doubtful that the institutional capacity to carry out the program is there". The assessment expressed concerns about the complexity of the reform program, and it gave an overall rating of "marginally satisfactory." The Bank took these concerns into account in supervising the project and was effective in forging a strong working relationship with the Government and supporting capacity building and necessary design changes, which have been noted earlier. The floating tranche instrument gave the Government flexibility to disentangle the implementation of the various components of the program, and enabled the Bank to channel assistance to support progress on each front. The Bank realized the need for an appropriate regulatory environment for the divestiture of the large-scale utility and infrastructure parastatals and rightly supported the establishment of regulatory bodies as necessary to achieve the objectives of the reform. In view of the Government's concern that the initial time frame of the credit was optimistic, the Bank's willingness to extend the closing date of the Credit was sensible, since the Government had been making steady implementationprogress.
F. Borrower Performance 24. The borrower's performance in preparing the program was satisfactory. During implementation, the borrower took the lead in seeking to deepen some aspects of the reforms beyond the initial design; this effort enriched the reform agenda. The borrower's commitment made it feasible for the Bank to assist in framing the core reform issues coherently in context of the SAC so that key policy decisions could be made at the very highest levels of the Government.
7 The borrower recognized the need to support in-house capacity training at the local level to make the implementation of the program feasible. The Government's continuing actions in support of the reforms even after the closure of the SAC are reassuring in terms of completing the implementation of the subsequent phases of the program and realizing the expected outcomes.
G. Assessment of Outcome 25. It is difficult to disentangle the direct contribution of the SAC to the goals it supported, given the mutually reinforcing contribution of the Government and other donors. Clearly however, the SAC played a positive and catalytic role in broadening donor support, including coordinated donor funding for social services, through the Multilateral Debt Fund. In education, the downward trend in absolute primary school enrollments is being reversed. The numbers of primary school enrolments improved, though the change in the gross enrollment ratio was marginal at about 79 percent. Secondary school enrolment rose marginally as a proportion of primary school cohorts from 5.2 to 5.6 between 1993-97 and 1998. In health, anecdotal evidence indicates that the sector reforms and the emergence of private pharmaceutical stores contributed to eliminating drug supply shortages in some areas. While these results are encouraging, the structural and institutional contents of the SAC have multi-year dimensions, and these require that the Government sustain the implementation effort in order to yield lasting outcomes. 26. The credibility of the privatization program has also given impetus to private investments in mining, petroleum, tourism, banking and manufacturing. Foreign private investments averaged over US$160 million a year during 1997-99, compared to US$46 million a year in the first half of the 1990s. The economy is on a more stable growth path, due to hamessing existing potential in the sectors that are attracting private investments. The declining trend of the manufacturing sector in the early 1990s is being reversed gradually. Non-traditional exports are beginning to show response, for example, fish and fish products, handicrafts, manufacturing, horticulture, gold, and diamond. The average GDP growth rate of the past four years of approximately 4 percent is more steady than the inconsistent performance of the earlier decades. The outlook for achieving the higher economic growth rate anticipated by the SAC remains very promising as indicated by the upward trajectory of the GDP growth path at 4 percent in 1998, 4.7 percent in 1999 and a provisional estimate of 5.2 percent in 2000. 27. Assessing the poverty impact of the SAC and the coordinated effort of the donors is not easy. One could imagine that an overall desirable poverty outcome has been realized, based on the satisfactory implementation of the program and the substantial progress made on the policy objectives. In other words one would expect the consolidation of macroeconomic stability, the movement to a more steady economic growth path and opening of job opportunities in the growing sectors, together with improved support for social services, to raise living conditions or at least strengthen the basis for tackling poverty reduction more effectively. However, there is no independent and reliable information to indicate what actually happened to poverty. The analytical work that can provide concrete insight on the evolution of poverty and social outcomes is currently under way. H. Follow-up Activities 28. The reform program enabled Tanzania to establish a track record, which aided her readiness for participation in the HIPC. Various follow-up issues are being taken up in the Programmatic Structural Adjustment Credit, which went to Board on June 15, 2000 along with the CAS for FY01-FY03, and is currently being implemented. A central issue is the slow response of the private sector in taking advantage of investment opportunities, especially in
8 agriculture. Exploiting linkages among agriculture, mining, tourism and manufacturing is essential to achieve the broad-based economic growth that can reduce poverty significantly. There is a need to tackle bottlenecks in the agricultural sector, including the infusion of new technologies, establishing boundaries for land titles, land survey and registration, and land valuation. Equally important are measures that can relax limits on internal trade and provide access to credit for farmers. It has been noted that opening up more areas with significant growth potential by linking the road networks with the ports, shipping and rail is critical to exploit potential gains from the reform of these infrastructure parastatals. 29. The final phase of the decentralization program is to be completed by December, 2003. The authority of local level agencies to make spending decisions in line with broad national goals as well as local level priorities has to evolve, and the relations between regional, district and local level staff and committees have to be clarified. Other emerging concerns include the roles and authority of the various professional commissions (such as the Teachers Service Commission) and local level institutions, appropriate training to fill skill gaps at the local level, identifying vertical programnsthat can be integrated without undermining the delivery of critical services; and coordinated "basket financing" by donors to help strengthenlocal level authorities. 30. In the area of parastatal reform and petroleum marketing, the regulatory framework and institutions need strengthening to function in promoting private investment while safeguarding competition, quality and safety standards. The risks related to new entrants into the oil industry, who have no skills in oil hazard management and quality assurance, need to be managed. The Petroleum Supply Bill aimed at establishing the rules of the game and performance standards, including risks related, for example, to quality and fire safety, provides a start. A draft of the bill to set a multi-sector regulatory body for the utilities has been discussed openly with stakeholders. Specific sector regulatory laws will have to be amended to strengthen the multi-sector framework. Passage of necessary legislation, an operational legal framework, skilled staff, competition policy, procedures and facilities are essential for the regulatory institutions to achieve the reform objectives of delivering high quality services at competitiveprices to households and businesses. 31. Investment in administrative capacity is critical to shift the role and functions of the line ministries from involvement in managing commercial concerns and project execution to policy making, monitoring and facilitating private investments. In other areas, it has been noted that putting new investments on hold during the divestiture process for some utilities, with the expectation that such investments will be undertaken by the new owners, may have accentuated capacity constraints. A tracking study of foreign investments being undertaken by the BOT and Tanzania Investment Center will throw light on this issue and how to respond to it effectively.
I. Key Lessons Learned 32. Political Commitment: Government commitment has been key to the progress made in implementing the SAC, especially given its broad scope and complexity. This commitment helped to strengthen cooperation between the Bank and the Government and provided a basis to focus Bank assistance on redressing technical and capacity constraints. For example, the modification of the social sector reforms noted earlier was feasible because the Government had already made a political decision and was initiating actions to undertake a much stronger decentralization than initially envisaged under the program. With such Government commitment, technical assistance (TA) served to redesign the program accordingly and to adopt a phased implementation plan, taking into account local level capacity constraints. A reform program needs not falter simply because of its ambitious scope and complexity, if there is Government commitment and willingness to play a lead role, and Bank flexibility to assist in mitigating capacity and other technical factors constraining effective implementation.
9 33. Providing a TA or project lending in an environment of fast changes in technology and without the context of a clear framework for sector policy reform turned out to have drawbacks in terms of limiting the progress of some of the reform actions for the utilities. Earlier Bank support in the development of the utilities, for example, was aimed at enhancing the efficiency of enterprises envisaged to remain in the public domain in the foreseeable future; the policy content of Bank support was most often minimal, and the TA and investment projects were often seen as supporting the entrenchment of the existing system of management of the public entities. On the other hand, with the advances in technology, privatization policies being advocated and pursued sought to withdraw the state from managing the same commercial concerns. This lack of clarity aided resistance to the reforms. The adjustment program helped to frame these conflicting issues coherently and moved them to a level where political consensus on sector policy and measures could be reached. The adjustment program has been instrumental for focusing attention on generic and multi-sector policy issues that circumscribe the effectiveness of each individual project or TA program. In addition, the over-arching framework of the SAC facilitated the role of the top political leadership and central policy organs, such as the Ministry of Finance, in monitoring the implementation of agreed policies by sector departments. 34. Sequencing. With hindsight, the sequencing of actions and the initial time frame envisaged for implementing the SAC was optimistic, although it may have served a useful purpose in conveying a sense of urgency within the Government and a need to act sooner rather than later. The institutional and structural measures to be taken by the Government had a medium-term perspective, while the horizon of the SAC was much shorter. The Bank took this factor into account by being flexible, including using floating tranches to give the Government a measure of control in timing its actions. Yet, from the Government's experience, there was uncertainty about the timing of tranche releases, which were linked directly to the financing of the budget. The follow-up Programmatic Structural Adjustment Credit currently under implementation seeks to provide a more realistic time frame for implementation by building on the medium-term frame of the government's program. Realistic sequencing has also been an issue with regard to the privatization of the large infrastructure public enterprises. For example, the creation of necessary multi-sector regulatory regimes for the infrastructure entities (marine services, aviation, road transport and railways) and the utilities took more time than expected. In some instances, sequencing the due diligence process for the parastatals to take place after the bids led to reopening the bids as new pertinent data became available. The new privatization process approved by the Government involves sequencing the bids to take place after due diligence. In other areas, some officials noted that a more selective emphasis on those actions that have potential to confer significant impact could encourage timely action. The officials pointed to the salutary role of co-financing, especially in a large reform program. Exploiting opportunities for co-financing among donors has been helpful to limit duplicative preparation of documents and to optimize the use of government capacity.
10
PART Il: ATTACHEMENT TABLES Table 1: Summary of Assessment Table 2: Related Bank Operations Table 3: Project Preparation Timetable Table 4: Credit Disbursements: Cumulative Estimated and Actual Table 5: Key Indicators of Program Implementation Table 6: Key Performance Indicators Table 7: Major Studies Included in the Project Table 8a: Project Cost Table 8b: Project Financing Table 9: Economic Costs and Benefits Table 10: Status of Particular Covenants Table 1 1: Compliance with Operational Manual Table 12: Bank Resources: Staff Inputs Table 13: Bank Resources: Missions Tables 9 and 11 are not applicable
11
Table 1: Summary of Assessment A. Achievement of objectives
Substantial
Macro policies
z
Partial
XZ
Financial objectives
|
I XL
Institutional development Physical objectives
i
Poverty reduction
Z
|
X
|1IIr1I
I
IX
X
.ZI
I
Gender issues
.IIIl
Environmental objectives
I
Public sector management
|IXil
l L
ZiX
Private sector development
_i
Likely
Highly satisfactory
L
I
L
Uncertain
Satisfactory
Deficient
i Z
Supervision D. Borrower performance
|
L
i
L
LIIZ
Highly satisfactory
i
Satisfactory
Deficient
x
i L
,
X
X
Highly satisfactory
1
X1| X
i
Implementation
Unlikely
l
Appraisal
I
I
Lfl
C. Bank performance
E. Assessment of outcome
E
1
B. Project sustainability
Preparation assistance
X
|I
L
Other (specify)
Covenant compliance
X
I
Other social objectives
Preparation
Not applicable
X
Sector policies
Identification
Negligible
W l
Satisfactory
W XIZ
x Unsatisfactory
IL
Highly Unsatisfactory
IE
12 Table 2: Related Bank Operations Credit Title
Purpose as it relates to SAC
Fiscal Year
Status
Ports Modernization Project
Liberalization of shipping and freight policy and privatization
199(
Closed
Petroleum Rehabilitation Project
Liberalization of petroleum marketing and privatization of TIPER
1991
Closed
Railways Restructuring Project
Restructuring and privatization of the railways
1991
Closed
Financial Institution Development Project
Restructuring and privatization of NBC and improving financial services
1996
Closed
Private and Public Sector Management Project
Banking reform and establishment of regulatory framework for privatized utilities and infrastructure entities
1993
Closed
Telekom III Project
Restructuring and privatization of Telekom
1993
On-going
Health and Nutrition Project
Improve health service delivery by supporting the supply of pharmaceutics
1990
Closed
Private and Public Sector Reform Project
Privatization and private sector development
2000
On-going
13 Table 3: Project Preparation Timetable Steps in Project Cycle
Date Planned
Actual Date
Identification (executive project summary)
01/31/93
04114/94
Preparation
08/11/94
08111194
Appraisal
03/17/97
03/17/97
Negotiations
04/28/97
04/28/97
Letter of development policy
05/02/97
05/02/97
Board presentation
06/20/97
06/20/97
Signing
09/12/97
09/12/97
Effectiveness
10/101/97
10/01/97
First floating tranche release
12/31/98
10/01/97
Second floating tranche release
12/31/98
04/15/99
Third Floating tranche release
12/31/98
06//22/99
Fourth floating tranche release
12/31/98
12/14/99
Loan closing
12/31/98
06/30/2000
14
Table 4: Credit Disbursements: Cumulative Estimated and Actual (SDR million) FY97
FY98
FY99
FY00
Appraisal Estimates First tranche
36.15
Social sector tranche
18.1
Parastatal reform tranche
10.85
Banking Reform tranche
18.1
Petroleum reform tranche
7.2
Actual
36.15
0.0
36.2
18.05
Actual as % of estimate
100%
0.0
67.0/1
33.0/1
04/14/99 and 06/25/99
12/20/99 and 06/23/00
Date of disbursement
Disbursement reflows
10/01/97
of IDA
Date of Disbursement
2.8
1.8
1.9
10/01/97
12/21/98
08/24/99 and 12/28/99
Date of closing
/I Note: Percent of floating tranches
6/30/00
15
Table 5: Key Indicators of Program Implementation Expected Action
Actual Action/Timing
A. PUBLIC EXPENDITURE MANAGEMENT a. Achievean overall fiscal balance consistent with program.
(a) The overall fiscal balance, including grants, averaged a small surplus (0.03 percent of GDP) during the three year period FY97-FY99.
b. Rationalize developmentspending and ensure adequate financingof priority projects. (i) The PIP was reviewed and number of projects consolidated to less than 800 in FY98 and to 540 by FY99.
(i)
Screen development project portfolio and reduce the number of projects from 1400to 800 or less for FY98;
(ii)
Make adequate provision in the cabinet approved proposals for development (ii) Requiredallocation provided in FY98 budget prior to Credit effectiveness spending in the FY98 budget.
B. SOCIAL SECTOR REFORMS 1. Education a. Increase share of primary school spending from 60.4 percent in FY96 to 64 percent in FY98.
(a) Share of primary school spending rose from 60.4 percent in FY96 to 64 percent in FY98 prior to Credit effectiveness. Share estimated at 65.6percent in FY00.
b. Adopt a time bound action plan for implementation, addressing recruitment, training, (b)Teacher audit (including headcount and skill profile) essential to undertake deployment/redeploymenthas been completed; data being processed. Upgrading program deployment,redeployment, upgrading and incentive for primary school teachers. for 33,500 grade C-B teachers is being implemented. Training of Head teachers, School Committees,and District Education Board is in progress. c. Decentralize the primary school systemin the interest of efficiency. (i)
Prepare an action plan for the transfer of the management of primary schools to the local school committees;
(i) An Action plan has been prepared. The Miscellaneous Amendment Act (1999), which amends the Local Governments Act (1982) put in place a framework for decentralization Central and Local Government and provides for decentralized management of staff and finances.
(ii)
Issue a ministerial circular providing for District Education Officers and teachers to be recruited and hired (subject, in the case of District Education Officers, to approval by the ministry responsible for education) by the District Councils in at
(ii) A circular issued from the Prime Minister's Office in January. 1999 shifting responsibilities for recruitment of District Education Officers and teachers to District Councils in 38 local authorities. Concurrently, circulars were issued by the Civil Service Department to the Regional Administrative Secretaries, local authorities and relevant
16
Expected Action
Actual Action/Timing
least 20 pilot districts.
commissions instructing them to issue individual letters of reassignment for these employees of local authorities.
Issue a circular transferring all subsidies for primary education in pilot districts to the District Councils as block grants to cover salaries and other expenses based on a formula agreed upon between the Governmentand IDA.
(iii) The FY01 budget made provisions for conditional and unconditional block grants for education, health water and roads. The budget allocations were guided by service standards. Fund release from block grant requires the submission of a work plan. (Reference: Local GovernmentAmendment Act. No 6, 1999).
d. Reform technical and higher education. Prepare an action plan for the reform and rationalization of higher education and technical training.
(d) Cabinet Policy Paper was prepared in February, 1999, and an Action Plan for the rationalization of higher education was approved by Cabinet. A survey of tertiary institutionsto inform the rationalization process is in progress.
(iii)
11. Health e. Improve health sector planning and financing. (i)
Implement a program to finance the full cost of pharmaceuticals delivered to (i) Implementationto pilot a hospital-based drug revolving fund was carried out in 20 hospitals within the framework of a hospital-basedrevolving fund, which involves districts to: ensure continuos supply of essential drugs and medical supplies at hospitals, cost-sharingand subsidies, with patients coveringat least 50 percent of the costs. train and improve managementof hospital pharmnaciesand enhance financial sustainability and autonomy for hospital drug management. The program was aimed to finance the full cost of pharmaceuticalsat hospitals through cost-sharing and government subsidies, with communities covering 50 percent of costs. Operational procedures and accounting guidelines are in place. Extemal evaluation of the pilot was carried out, which is under the Govemment's review.
(ii)
Issue a ministerial circular providing for District Medical Officers and district- (ii) All staff working in the District Hospitals have been transferred to the respective level health staff to be recruited and hired (subject, in the case of District Medical C District s w e d theC c to thenregulationseissuedtby Officers, to approval by the Ministry of Health) by the District Councils in at least thOffice of Prise Minister in January, 1999 emCouncisthrough the regulations issued b 20 districts. teOfc fPieMnse nJnay 99epwrn 5lclatoiist eri and hire health officers. Concurrently, circulars were issued by the Civil Service Department to the Regional Administrative Secretaries, local authorities and relevant commissionsas mentioned earlier (See c (ii)).
(iii)
Issue circular transferring the budget for health centers and dispensaries in such districts to the District Councils as block grants to cover salaries and other expenses.
(iv)
Prepare an Action Plan to reduce the life years lost to malaria.
(iii) Under the local Govemment Act of February, 1999, the Govemment issued conditional and unconditional grants (in the FY01 budget) directly to local authorities for four activities, includinghealth. (See c(iii)). (iv) Malaria Action Plan is being implemented, with emphasis on growing problem of parasite resistance to first line drug, chloroquine. This involves reviewing existing protocols for treatment and more expensive first line drugs and treatment costs. New I policies for treating malaria include information/education,community funding to provide
17
Expected Action
Actual Action/Timing access to services and expanded use of treated mosquito nets. The Government is in the process of training staff on the new treatment protocols.
C. PARASTATAL SECTORREFORMS a. Take all steps within the control of the Government to bring the following parastatals to the point of sale: (i)
Mbeya Cement.
(i) Taken over by CDC in August, 1998.
(ii)
Sugar Development Corporation.
(ii) Subsidiary assets sold except Kagera Sugar, which had no successful bids. SDC to be rounded up after all subsidiaryassets have been sold.
(iii)
Southern Paper Mill.
(iii) Offers made repeatedly, without success. Prospective investors demanded concessions and subsidies that have been acceptable.
(iv)
Morogoro Polyester.
(iv) Sold to Mohamed Enterprises.
(v)
National Milling Corporation/all mills to be sold.
(v) Seven core assets and 98 non-core assets have been offered for sale. All mills sold, except Mtwara; Arusha and parts of Iringa and Dar, which had no successful bids.
(vi)
Tanzania Tea Authority all commercialactivities to be sold.
(vi) Divestiture of commercial assets completed,except Tanzania Tea Blending, which has had no successful bids.
(vii)
Tanzania Sisal Authority-all commercial concerns to be sold.
(vii) All commercial processing plants have been divested.
b. THA Concession of container terminal. (i) Enter into a contract with consultants to prepare detailed proposals on the different concession arrangements,including their duration; (ii)
Award a concession for the container terminal to a private enterprise for the management of the containerterminal at Dar es Salaam Port.
(i) TOR for privatization study of Container Terminal and Grain Terminal finalized in October 1997and Agreement on the study signed in December, 1997. (ii) Lease agreement for container terminal signed on May 5, 2000 for a period of 10years with a consortium comprising The International Container Terminal Services Incorporated of Philippines and Tanzania International Container Terminal Services Limited. Operator took over on September 10, 2000.
18
Expected Action
Actual Action/Timing
c. NASACO Revoke the current monopoly and entry licensing restrictions for shipping agency services and allow these services to be open to intemationalcompetition.
d. TCFB Amend the Tanzania Central Freight Bureau Act so as to revoke the authority of the TCFB or any other agency to exclusively negotiatefreight rates.
e. TRC Sign performance contract with TRC which will include compensationto TRC for (i) unprofitable branch lines, passengersservices and marine services and an explicit agreement to allow TRC to close any or all other unprofitable services.
(c) NASACO's monopoly has been terminated. Six local and foreign firms have been licensed to operate along side NASACO.
(d) TCFB EstablishmentAct (1981) was amended in January 2000 and becamneeffective on July 1, 2000. TCFB no longer has exclusive authority to negotiate or allocate cargo. Study is under way on a regulatory framework and future role of the public sector in the marine industry and the role of TFCB. (i) Current PerformanceContract to end in December 2001 and is renewable. Road Marineservices made in to corporate entity. Closure of unprofitableservices agreed. Road services closed; non-core services, such as Eatery, divested.
(ii)
Take all steps to bring to the point of sale the Marine Services Division, (including all maintenance and repair shop), which is a separate autonomous entity with its own financial statement. [Bring to the point of sale means: carried out a valuation of the enterprise or division as the case may be; prepared an information memorandum for the enterprise or division in question as the case may be; solicited offers directly or through advertisement(s) in appropriate newspapers; evaluated any offers and selected successful bidder(s); and invited the successful bidder(s) to enter into good faith negotiations].
(ii) The privatization process for the Marine services division is taking more time than originally envisaged because it involves first incorporating the unit. The Government has requested a waiver on this condition, because of the time needed to prepare and act on reforms. Marine services have been constituted into a corporate entity; a study to develop options for divestiture has been completed; a Cabinet Paper is being prepared on parameters of the specific option to be implemented.
(iii)
Reach an agreement with Parastatal Sector reform Commission and call for bids.
(iii) Bids to be called in January, 2001. (Waiver on this condition)
f TFICL Prepare a comprehensive competitionpolicy for the telecommunicationsector. (i)
(i) Competitive policy prepared prior to effectiveness.
(ii)
Complete consultations necessary to privatize TTCL, including those with the Japanese and Swedish donor agencies that have provided assistance to the telecommunicationsector.
(ii) Consultation with concemed donors held. No objections were officially expressed. Japan has endorsed Govemment majority share ownership.
(iii)
Select key advisors to carry out the divestitureoperation.
(iii) Rothschild was selected as an advisor.
19
ExpectedAction (iv)
Prepare and distribute informationMemorandum and offer for sale. Call for a first round of bids and enter intogood faith negotiations.
Actual Action/Timing (iv) Call for bids was successful. Cabinet approved the consortium of Detecon and MSI, both affiliates of Deustche Telekom of Germany to acquire 35 percent equity in TTCL for $120 million. On September 21, 2000, the Government submitted for registration the 35 percent shares for transfer to the successful bidder. The transfer is to be effective one month after the submission (2 15' October, 2000). Sixteen percent of shares have been transferred to other private investors. Government has retained 49 percent shares.
D. FINANCIALSECTOR REFORM Restructure and divest NBC (i)
Publish NBC's audited FY95-96 Financial Statement(Board).
(i) The requiredaudited accounts published prior to Board.
(ii)
Dissolve NBC and transfer its assets to the three new banks created out of NBC or their holding company (effectiveness).
(ii) Two banks, rather than three, were created out of NBC: NBC Ltd., and NMB.
(iii)
Prepare and distribute investment memoranda for each of the three banks; solicit offers directly or through advertisements in appropriate newspapers, from commercial banks meeting agreed criteria; evaluate offers and select successful bidder(s), if any, and invite successful bidders to enter into good faith negotiations.
(iii) The banks were offered for sale in two rounds in July and December, 1998. Four offers were received for NBC Ltd., from Stanbic South Africa, First Adili Bank Tanzania Ltd.; Allied Banks of South Africa (ABSA) and Barclays of London. Negotiations with the successful bidder, ABSA, were concluded in March, 1999. ABSA has taken control over NBC Ltd. No offers were received for NMB. GOT contracted with a qualified firm to manage the Bank, to continue enforcement of MOU to sustain prudential management and organize investor's conference to promote the Bank.
E. PETROLEUMSECTOR REFORM Import and price liberalization (i)
Abolish all prices and import controls (in line with Finance Act of 1998).
(ii)
Remove tax differentials between differentpetroleum products.
(i) Miscellaneous Amendments Act (1999) gave the minister the authority to reform
oil
policy. Retail prices fully liberalized in July, 1999. Petroleum product imports were fully liberalized in January, 2000. Oil companies are now responsible for ensuring the adequate supply of petroleum products. (ii) Oil tax structure was simplified; the number of taxes imposed for revenue purposes and for the Road Fund were reduced from 10 to 5. The cross-subsidy element of the prices was removed.
20
Table 6: Key Performance Indicators Expected FY97
Actual FY97
FY98
Increase Increase average 0.9 decrease decrease increase increase increase 64 increase increase
13.5 11.9 2.0 12.5 4.7 2.6 26.2 21.1 8.9
12.0 11.0 0.2 11.0 4.2 3.8 27.6 22.1 62 10.5
11.5 10.3 0.5 10.9 3.7 4.0 29.5 18.9 62 10.6
decrease decrease increase increase increase increase
16.1 10.3 14.7 11.8 6.2 42.2
12.8 13.2 15.6 12.4 6.4 39.7
7.9 11.0 15.2 12.1 6.2 48.5
average 4.0 2.3 8.0 50.5 79
4.2 3.6 -------
FY98
FY99
FY99
Indicator Intermediate Public Resource Management Domestic Revenue (% of GDP) Tax Revenue (% of GDP) Fiscal balance (+ surplus) (% of GDP) Recurrent Expenditure (% of GDP) Wages & salaries (% of GDP) Development expenditure % of GDP Social sector (% of recur expenditures) Education (% of discretionary expend) Primary education (% of education) Health (% of discretionary expenditure) Drugs (% of health expenditure) Financial Peraornance Inflation rate 'Treasurybill rate (weighted average)/ Gross fixed capital formation Private investments (% of GDP) Gross domestic savings Non-traditional exports (% of total exports) Outcome Indicator GDP Growth rate Agricultural growth rate) Manufacturing growth rate Incidence of headcount poverty Gross Primary school enrollment Primary enrollment for girls Infant mortality(under 5) Incidence of malaria
average 4.0 increase increase decrease increase increase decrease decrease
1.5 5.0
------
85 per 1000 ----
--N/A
21
Table 7: Major Studies Included in Project Study TIPER Study
Purposeof Study
Status
To assess the commercial viabilityof the TIPER and prospectsfor privatization
Completed
Impactof Study Closureof TIPER
Study of the To informthe designof the Privatization of concession of Dar es ContainerTerminaland salaamport. GrainTerminal
TORagreedin October1997and completedin 1999.
Used to assess different concessionarrangementsfor the Dar es salaamport.
To prepare competition policy for the Competitionpolicy for telecommunicationsector Telecommunication sector study To.prepare action plan for training, upgrading and deploymentof teachers
Completed
Informed the design of regulatory framework for telecommunication sector.
Completed
Upgrading, training and deploymentof teachers
To support rationalization program for technical and highereducation
Completed
Preparationof Action Plan to rationalize higher and technicaleducation
Surveyof tertiary institutions
To develop options for divestiture
Completed
PreparingCabinet Paper on divestiture options for marine services
Studyof Marine servicesdivision
Budgetary management and rationalization of expenditures
On-goingon an annualbasis
Expenditure prioritization and resource shifts to prioritysocial sectors.
Publicexpenditure Reviews
Budget preparation and implementation
On-going
Surveyof profileand headcountof teachers
Annualbudgetpreparation
22 Table 8a: Project Costs Appraisal Estimate (US $ million) Local Cost
Actual (US$ million)
Foreign Costs
Total
100
Local Costs
100
Foreign Costs
128.90
Total
128.90
Table 8b: Project Financing AppraisalEstimate (USS Million) Source IDA
Local Costs
Foreign Costs 100
Actual (US $ Million) Total
Local Costs
100
Foreign Costs 128.90
Table 9: Economic Costs and Benefits Not Applicable
Total 128.90
23 Table 10: Status of Particular Covenants LoanAgreement Section Schedule 2.02d (ii)
Schedule 3.01 (a) (b)
(c)
Schedule 3.02 (a) (b)
(c)
Descriptionof Covenant
Comments
The borrower's macroeconomic policy framework is consistent with the objectives of the program
Condition met
The borrower and association shall, from time to time, at the request of either party, exchange views on the progress achieved in carrying out the Program and the actions specified in Schedule 2 of this Agreement Prior to each such exchange of views, the Borrower shall furnish to the Association for its review and comment a report on the progress achieved in carrying out the Program, in such detail as the Association shall reasonably request. Without limitation upon the provisions of paragraph (a) of this Section, the Borrower shall exchange views with the Association on any proposed action to be taken after the disbursement of the Credit which would have the effect of materially reversing the objectives of the Program, or any action taken under the Program, including any action specified in Schedule 2 to this Agreement.
Condition met
Upon the Association's request, the Borrower shall: Have the Deposit Account audited in accordance with appropriate auditing principles consistently applied by independent auditors acceptable to the Association; Furnish to the Association as soon as available, but in any case not later than four months after the date of the Association's request for such audit, a certified copy of the report of such audit by said auditors, of such scope and in such detail as the Association shall have reasonably requested; and Furnish to the Association such other information concerning the Deposit Account and the audit thereof as the Association shall have reasonably requested.
Audit not requested
_______
Table 11: Compliance with Operational manual Not Applicable
Condition met
Condition met
No request made
No request made
24
Table 12: Bank Resource- Staff Inputs Stage of Project Cycle I__________________
Actual _Weeks
Actual US$000
Preparation to Appraisal
107.3
289.9
Appraisal
53.8
167.0
Negotiations through Board Approval Supervision
40.4
118.24
2
10.00
203.5
585.1
Completion Total
25
Table 13: Bank Resources-Missions Stage of Project Cycle
Month/ year
Number of persons
Days in Field
Specialized Staff skills
Through Appraisal
Jan 93Aug 96 Mar 97Dec 97
14
73
Econ/AII
8
30
Econ/AII
Appraisal & Negotiations through Board Approval Supervision(Initial Project summary) Supervision
Completion
2 Aug 98Jun 00
Oct 00 & DecO0
5
5
Supervisi on leader in Resident mission
10
Econ/All
Performance Implementation Status
Rating Development Objective
S
s
Extensionof closing date
Capacity problems requiring TA S
S
Type of Problems
S
26
Appendix I
Tanzania: Aide Memoire of Preparation Mission for SAC I. December 15, 2000 A World Bank mission visited the United Republic of Tanzania during December 10 to the 1 5 th to work with the authorities to prepare the Implementation Completion Report for SAC I. Participants in the mission were: Ms. Tone Tinnes (Resident Economist, Royal Norwegian Embassy), representing the Norwegian Government, which co-financed the SAC; Ms. M Mwakangale (Visiting Missions' Staff Assistant) B. Tarimo (Senior Economist); P. Mpango (Economist), V. Rwechungura (Program Officer) and A. Agbonyitor (Task Coordinator). B. Ndulu (Lead Economist) is the cluster leader. The mission paid a visit to the National Oil (Tanzania) Ltd., a beneficiary of the Petroleum Sector Rehabilitation Project and oil sector reform component of the SAC. The mission wishes to acknowledge its appreciation for the effective way the authorities organized discussion meetings, and provided documentation to prepare the ICR. In addition, the Government prepared an independent assessment of the implementation of the SAC, which will constitute a section of the final ICR. A preliminary draft of the mission papers is attached. This note highlights a few issues. The mission's assessment, including findings in the attached documents, are preliminary, subject to review by Bank Management. Based on the preliminary assessment, the overall implementation experience of the SAC is satisfactory. The SAC was based on a reform program that is owned by the Government. This Government ownership and demonstrated commitment to implementing the SAC at the time of its design was sustained in its execution phase. In addition, both the authorities and Bank exercised flexibility in modifying some aspects of the program as necessary and, thereby, strengthening the program as its implementation evolved. The Government's program supported by the SAC involved macroeconomic stabilization objectives and restructuring of specific public institutions, including financial and non-financial public enterprises, as well as a program of decentralization to improve local level services. It is difficult to evaluate the reform's impact on living conditions. The preliminary assessment indicates that recent economic developments, for example, in investments and growth are in the right direction. Sustained macroeconomic stability, enlistment of private sector management and capital to improve the performance of major public investment assets, and the new legal framework being used to reorganize services at the local level stand to improve the prospects for economic and social growth. The authorities are aware that the implementation of the key reforms that need to be phased, for example, the decentralization program, privatization transactions, and strengthening of sector policy and institutional framework for privatized entities have to be followed through to yield lasting results. Some officials noted that emphasis on selective conditionalities that have potential to confer significant impact is essential. In addition, realistic sequencing and timing of the completion of reform actions and exploitation of opportunities for co-financing among donors could limit demands on government capacity and enhance effective implementation.
27
Appendix II
BORROWER CONTRIBUTION TO THE ICR
28
THE UNITED REPUBLIC OF TANZANIA
STRUCTURAL ADJUSMENT CREDIT I Implementation Completion Report
External Finance Department Ministry of Finance, P.O. Box 9111, Dar es Salaam. December, 2000
29
Background: 1.
The Structural Adjustment Credit (SACI) was premised on the Government's strong commitment to continue with the economic adjustment measures so as to boost economic performance. Specifically, the government endeavored to restate the macroeconomic stability through focussing on enhancing efficient use of capital so as to accelerate economic growth.
2.
To this end, the government promised to continue to withdraw its direct involvement in productive activities, improve domestic and external competitiveness, accelerate export diversification and enhance efficiency in the use of public resources. Against this economic objective, SACI was formulated in line with the following Government medium term (1996/97 - 1998/99) overall macroeconomic objectives: (i) attain real GDP growth of 5 percent in 1996/97 rising to 6 percent by the end of the program period in 1998/99; (ii) reduce the average rate of inflation to 15 percent in 1996/97 and to 5 percent in 1998/99; (iii) achieve government savings of 1.1 percent of GDP in 1996/97 with further improvement to 2.5 percent of GDP in 1998/99; (iv) reduce the external current deficit (excluding grants) to 15.1 percent of GDP in 1996/97 and to 13.2 percent of GDP in 1998/99; and (v) maintain a stable and competitive exchange rate, while increasing gross official reserves to the equivalent of at least four months of imports.
3.
Negotiations for SAC I were held in Washington D.C. from 28 April to May 2, 1997 between the representatives of the Government of the United Republic of Tanzania (URT) and the International Development Association (IDA). On September 12, 1997 the Development Credit Agreement was signed. The adjustment credit amounting to SDR 93 million (US$ 133 million) included floating tranches in four areas i.e. Social Sector Tranche, Parastatal Reform Tranche, Banking Sector Tranche, and Petroleum Sector Tranche. The Government of the Kingdom of Norway also cofinanced a grant amounting to twenty five million Norwegian Kroner, while the Government of Switzerland contributed a Trust Fund amounting to CHF 12 million (US$ 7.7 million) which was administered and disbursed with the credit.
4.
SAC I included a comprehensive package of policies aimed at reducing the budget deficit and improving monetary control, liberalizing the trade regime, removing most price controls, easing restrictions on the marketing of agricultural products and liberalizing interest rates. The programme underpinned policy reforms in four main areas:- i.e. improvement in the delivery of social services, scaling back the involvement of Government in commercial activities through the privatization of public enterprises, including seven large parastatals, concession of port and railway infrastructure for improved delivery of services, liberalization of the petroleum sector, communication and shipping services, and the privatization of the financial sector.
Execution: 5.
The implementation of SAC I involved all key ministries/sectors i.e. Finance, Planning Commission, Education, Health, Higher Education, Regional Administration and Local Government, Civil Service Department, Communications and Transport, Industries and Trade, PSRC, BOT, TRC, TTCL, THA and NASACO. There were broad consultations first on defining responsibilities, and second on the strategies and means of achieving the objectives of the programme.
30 6.
The first tranche, together with Tanzania's FY 97 IDA re-flow allocation of SDR 38.95 million, was released on 1" October, 1997 when the cross-sector effectiveness conditions were met. IDA reflows allocation for FY98 of SDR 1.8 million was added to the credit and disbursed through an amendment of the Credit Agreement.
Mid term Review: 7.
The mid-term review of SAC I was undertaken in August 1998 to assess the overall implementation of the credit. Though generally satisfactory, the assessment led to a recommendation to extend the credit closing date to December 1999 as a result of unforeseen technical conditions and procedural issues. These constraints included:*
Under the social sector tranche, a primary risk in the Local Government Reform Programme adopted by the Government was the weakness in design in the initial phase, that might have affected the effectiveness of the decentralization process. More specifically, the local authorities lacked adequate capacity for designing multi-sector programmes. Generally, mechanisms for ensuring consistency between national priorities and local programmes were not fully in place.
e
Under the petroleum sector tranche, there were a number of critical constraints which hindered a timely implementation of the required condition for liberalizing the sub-sector. The modernization of the Kurasini Oil Jetty (KOJ) was at that time scheduled to be completed in November, 1999, and a complete liberalization of oil imports could not be accomplished before then due to off-loading capacity constraints at the port.
-
Under the parastatal sector tranche, three cases faced technical and political constraints which needed to be addressed separately. The sale of SPM did not materialize in spite of repeated offers for sale. The main issues were the uneconomic scale of operations, the accumulated arrears of electricity bills and non-competitive energy costs, and the political constraint of abandoning the township which depended on the paper mill's existence. In the case of two sugar factories under SUDECO - TPC and Kagera - similar technical constraints were encountered. These included uneconomic scale, high debt burden of the enterprises and prevalence of sugarcane plant disease in the case of TPC. Although additional land was secured to enable the expansion of the scale of operations for TPC, the other constraints continued to deter potential investors.
Social Sector Tranche 8.
The floating tranche for the Social Sector Reform was released in April 15, 1999 upon full compliance with the agreed conditions laid down in the credit agreement, that is:
9.
During the mid - term review, it was found that the condition relating to theissuing of block grants to 20 pilot districts for both education and health could not proceed as originally envisaged as a result of fundamental change in the approach to decentralization under the Local Government Reform Programme. The Government decided to issue conditional and unconditional grants directly to local authorities for all activities rather than through sector ministries as in the past.
31
10.
11.
In order to accommodatethe change,the tranche release conditionput emphasison setting up necessaryarrangementsfor ensuring effectivenessunder the new set up. Morespecifically,the Governmentundertookto: *
Prepareand adoptan action plan for determiningpriorityareas for strengthening capacity in the 38 local authorities, instead of 20 pilot districts, including a financingplan, insteadof 20 pilotsdistricts;
*
Set up and adopt transparent systems for disbursementand accountingfor the blockgrants;and
*
Develop and adopt a system for ensuring consistency between district programmesand sector- wide/nationalpolicypriorities.
The Governmentaddressedthe aboveundertakingsas follows: * All the 38 local authorities in phase I were appraised in order to identify problemsfacingeach of them;
12.
-
A work plan and budgetfor the reform were preparedcoveringthe programme period 1999 - 2002. This covered capacitybuilding to address weaknessesin financialmanagement;
*
A training programme and training materials were developed to address weaknessesidentifiedby the appraisalmissionand this was accomplishedbefore July, 1999as envisaged;and
*
A Reformteam was formedat the local authoritiesto monitor the reformprocess at that level.
Otherbenchmarkson socialsectorwerealso adoptedas follows:(i)
The Government adopted an action plan for training, upgrading, recruitment, deployment and redeployment of teachers. Training/upgradingof head teachersas well as school committeeand District Education Board members were conducted and are ongoing to cover the whole country. The Teachers' head count was done in 1999. The deployment and redeployment of teachers started immediately after the completionof the head countexercise.
(ii)
A decisionwas made to shift responsibilityfor recruitmentof DEO and teaching staff and DMO and health staff to District Councils. Circular letters from the Prime Minister's Office informingthe 38 (phase 1) local authoritiesof the decisionwere issued in January, 1999. In additionto these letters,the Civil ServiceDepartmentconcurrentlyissuedcircularlettersto the RegionalAdministrativeSecretaries(RAS)to effectthe samearrangement.
(iii)
In fulfilling the condition related to the preparationof an action plan for transferringresponsibilityfor school managementto legally constituted schoolcommittee,May, 1999- June 1999was set to be the appropriatetime for the establishmentof the said committees.
(iv)
A programmeto finance the full cost of pharmaceuticalsdelivered to hospitalswithinthe frameworkof a hospitalbasedrevolvingfund,which
32 involves cost sharing and subsidies, witb patients covering at least 50 percent of the costs was implemented accordingly. It is worth noting that all the selected regions received the relevant training for implementation of the drug revolving fund. Operational guidelines and accounting procedures were prepared and disseminated. (v)
An action plan to reduce the life lost due to malaria was prepared and is being implemented smoothly since 1998.
(vi)
The government in collaboration with the World Bank Mission prepared an action plan for the reform of higher education and technical training. In line with various reforms at macro level which have been carried out to date, the higher and technical education sub-sectors have carried-out reforms with respect to Public Services Reform Programme.
(vii)
On February 12, 1999 Parliament passed the bill amending the Local Government Act of 1982 and related legislation to provide for a developed system of local government reflecting the changes in central-local government relations.
Impact of Social Sector Reforms 13.
Implementation of SAC I and in particular the social sector tranche facilitated achievement of the following:*
Transfer of teachers and medical personnel from the Central Government to Local Authorities became possible.
*
Local authorities are now more empowered and most decisions are made at that level.
*
There has been some capacity improvement in financial management and accountability.
Banking Sector Tranche 14.
Starting in 1991 the Government of Tanzania introduced a number of reforms in the banking sector, including liberalization of interest rates; passage of Banking and Financial Institutions Act which permitted the entry of private banks; introduction of a treasury bill auction as part of BOT's efforts to control growth of the money supply through the use of indirect monetary instruments; and creation of a mechanism for expeditiously recovering overdue debts. In this regard, the following actions were implemented under the Structural Adjustment Credit I:(i)
The government distributed the Investment Memorandum (IM) for the two subsidiaries of NBC holding company. Twenty three investors showed interest in the acquisition of Government shares in NBC (1997) Limited by obtaining copies of the Investment Memorandum as soon as they were made available.
(ii)
The government issued a call for bids for sale of up to 70% of Government shares in NBC (1997) LTD. The call was published in both international and local papers from I August, 1998 to 30 November, 1998.
33 (iii)
To the effect that the bids submitted on November 30, 1998 did not adhere to bidding conditions, four bidders were invited to resubmit bids by January 29, 1999. Other potential bidders were also invited to submit their bids. On January 29, 1999 bids were received from the following institutions: * * * *
ABSA Group (South Africa); Barclays Bank PLC (UK); First Adili Bancorp/Tanzania Consortium (Tanzania) and Stanbic (T) Limited (Tanzania).
(iv)
The government, carried out an evaluation using its Divestiture Technical Support Committee (DTSC) composed of members from the President's Office, Ministry of Finance, Parastatal Sector Reform Commission, Attorney General's Chambers and the Planning Commission. Evaluation was undertaken in accordance with the agreed criteria provided for in the Investment Memorandum.
(v)
Finally, ABSA won the deal and was, therefore, invited for negotiations. The MOU was signed on July 22, 1999.
(vi)
On the other hand, privatization of National Micro-finance Bank (NMB) LTD is in its advanced stage. Engagement of a Management Contractor to help turn around the Bank before embarking fully on its privatization is in place. Other relevant measures are being undertaken to facilitate the creation of a good track record for the Bank. The World Bank agreed to provide a credit of approximately US$ 2.0 million to facilitate the process of privatization of NMB.
Impact of Banking Reforms * * * *
Banking Sector is now more competitive and efficient. Discipline in credit management has increased. Government interference with banking system no longer exists. Some of the NBC non-performing assets have been collected and some have changed status to performing assets.
Petroleum Sector Tranche 15.
Tanzania was annually importing about 530,000 metric tons (MT) of crude petroleum and 435,000 metric tons of white petroleum products. Imported crude oil was being refined at the Tanzanian Italian Petroleum Refinery Company (TIPER), owned jointly by the Tanzania Petroleum Development Corporation (TPDC), a government parastatal, and AGIP (50/50 percent). TIPER's production meets about 50 percent of the market demand of petroleum products.
16.
The Government was fixing the retail prices of petroleum products. There was no price competition and, because of infrequent adjustment of the pricing formula, the prices did not fully reflect changes in international prices or exchange rate movements. The private oil marketing companies were not permitted to import directly to meet their market requirements. These arrangements have allowed the operation of TIPER to continue, which, because of its small size, old age, simple technical structure and operational inefficiencies, was not competitive with imports. The subsidization of the refinery amounts to about US$ 15-25 million annually (more in some years, depending on the number of days the refinery was not operating and
34 on international petroleum prices and margins). following was done:-
To improve the situation the
(i)
During the mid-term review, it was found that the condition relating to the issuing of Ministerial orders so as to permit the full liberalization of petroleum product imports could not proceed as originally envisaged due to inadequate capacity for off-loading white products. During that time the government had only implemented partial liberalization as it was found feasible to exercise the option of full liberalizing petroleum imports after the expansion and modernization of KOJ facility has been completed. With the completion of upgrading of the harbour facilities in December 1999, Tanzania now can meet all of its needs for refined petroleum products through imports. Accordingly, the government informed the Tanzania Petroleum Development Corporation (TPDC) and the private oil marketing companies and the general public that all imports of petroleum products are fully liberalized.
(ii)
Regarding the condition relating to issuing of Ministerial orders so as to permit the full liberalization of petroleum prices the government decided to liberalize pump prices of petroleum products on June 2, 1999 and implementation of the decision became effective July 1, 1999.
(iii)
The government also decided that as of January 1, 2000, all revenue from taxes and other levies on petroleum products, except for the charges for the TPDC overhead cost and the TPDC margin, would accrue to the budget and that the latter would accrue to the budget from July 1, 2000. Since that date, TPDC has not received any payments from the budget, except for tasks it performs on behalf of the government, such as acquisition and management of data and information on Tanzania's petroleum potential.
17.
The mid-term review of the ESAF came with a three-option strategy with regard b TIPER, namely: TIPER would either be privatized as a refinery without government subsidies or privatized as a storage depot; or if neither of the options is feasible, be closed. The government negotiated with a private investor M/S ADDAX who showed keen interest to turn TIPER into a modern and competitive refinery.
18.
As regards the condition that the government has to remove the tax differentials between various petroleum products, Tanzania had adopted in June, 1999 farreaching reform of tax system, including change in petroleum tax regime, import duties and exemptions, and simplification and rationalization of the remaining taxes. Since July 1999, there is no cross-subsidy on various petroleum products. Moreover, the windfall tax had been fixed by the Parliament approval in April 1999 and as amended by the GN No. 236/1999 published on August 6, 1999. Impact of Petroleum Reforms
19.
Fuel prices are now more competitive and reflective of world market prices.
Parastatal Sector Tranche (i)
Under this tranche, the Government was required to take all steps within its control to bring 7 large production parastatals to the point of sale. Most of the assets of the 7 large production PEs have been divested and only a few assets are yet to find buyers even after repeated calls for bids. For the assets
35 that have found buyers production has either resumed after stalling, or expanded. (ii)
As regards the National Shipping Agencies Company Limited and shipping agency services, the government had terminated NASACO's monopolistic practices by allowing other firms (local and international) to operate alongside NASACO. This did not require legal amendments as earlier envisaged since there was no law in the first place specifically granting NASACO the said monopoly. This was the basis for Government to issue licenses to 25 other operators.
(iii)
Regarding the condition related to the Container Terminal at the Dar es Salaam Port, the government received bids in October 1999 and evaluated them. The preferred bidder, M/S International Container Terminal Services Inc. (ICTSI) of Philippines was approved by the government on April 12, 2000. Following that approval, a 10-year lease agreement was signed on 5h May, 2000.
(iv)
The condition attached to amendment of TCFB (Establishment) Act (Act No.3 of 1981) to revoke the authority of the TCFB or any other agency to exclusively negotiate rates, was fulfilled as evidenced by the regulations signed on March 23, 2000 by the Minister of Communications and Transport. These regulations put into effect an amendment to the TCFB 1981 Act, passed by Parliament in February, 2000 and assented to by the President of United Republic of Tanzania. The regulations also clarify the exclusion of the said monopoly/exclusivity of TCFB to negotiate rates. According to these amendments the overall functions of the TCFB will be to promote, facilitate and regulate shipping services. Changes have been introduced to put in place a completely new environment conducive to the growth of the sector.
(v)
The government was required to take all steps within its control to bring the Marine Services Division of TRC to the point of sale. The privatisation of the newly set-up TRC Marine suffered from technical misjudgement about the time required to hive it off from TRC, corporatize and then privatize it (within a period of 2 years in all). Due to this misjudgement, the government requested IDA to consider and approve a waiver on this condition as the same would not be fulfilled within the envisaged time frame. The World Bank granted the waiver and this was the sole waiver for SAC I implementation.
(vi)
The condition related to TTCL was agreed under the old privatization process where negotiations and due diligence would occur after evaluating technical and price bids in quick succession (the two-envelope system) and then invite any successful bidder to good faith negotiations. Under the new privatization process, negotiations and due diligence are front-loaded, i.e. prior to inviting price bids. The Government issued an IM for prequalification and subsequently received and evaluated six proposals. Based on the evaluation, the Government selected four qualified candidates and invited them to undertake due diligence. However, two out of the four candidates chose not to participate in the due diligence. The other two were unable to complete their due diligence within the stipulated period. It was therefore decided, with the concurrence of the Bank, to extend and partially reopen the same process in the interest of better results and faster outcomes. Under normal circumstances the process would have been completed by April 2000 as previously envisaged. At that point the Government had done
36 ''everything in its control" and acted in good faith to implement the stipulated conditions under SAC 1. Moreover, the Government consulted with the Bank at all critical stages of the process and acted in concurrence with the Bank in extending the process. (vii)
The process of divestiture of TTCL through to the point of sale under the Manual for Privatization Procedures Guidelines, November 1999 (the Guidelines) was completed soon after the closure of SAC 1 (June, 2000).
Impact of Privatization Reforms *
The privatized PEs have improved competitiveness in terms of increased efficiency and productivity comparable to international standards.
*
Contribution to the Government revenue in the form of dividends and taxes has increased substantially.
*
The private sector is increasingly becoming an engine of growth in Tanzania.
*
Prospects for sustainability of investments by strategic investors have improved.
*
Performance of the Tanzania Investment Centre as one stop centre has improved significantly.
-
Some privatized PEs have expanded their operation with an increased level of employment.
Lessons Learned *
It is important to have the design stage properly done through a broad-based consultative process to avoid misjudgment.
*
The Government budget was not very predictable due to uncertainties associated with the timely completion of the set of conditions for some of the floating tranches.
*
In some cases the timetable for the implementation of the conditions was overambitious and unrealistic.
*
The continuous dialogue (formal and informal) between the Government and the World Bank was very instrumental in making the SAC a success and this should be encouraged.
*
The Bank's flexibility should be sustained to enhance Government ownership and partnership.
*
The existing TRUST between the Government and Bank should be enhanced.
37
Conclusion: 20.
The credit was very useful as it supported the government's efforts to maintain macro economic stability, enhance efficient use of public resources, encouraged private sector participation and support the development of human and physical infrastructure needed for growth and poverty reduction.
21.
Generally, Tanzania's macroeconomic situation has continued to strengthen. Despite unfavourable weather conditions, GDP growth in 1999 was 4.7 percent in real terms. Inflation has continued its downward trend from a double digit when the SAC was negotiated, and has remained below 6 percent since May 2000. Foreign exchange reserves have improved steadily and cover over four months of imports of goods and non- factor services. The exchange rate has remained fairly stable and competitive at around TSh 880 per US dollar. In addition to the macro economic stabilization achievements, structural and many other reforms were also carried out to improve the functioning of the economy, and are going on smoothly. The structural reforms have also focused on realigning the public service structure towards efficient use of scarce resources and allocating resources to priority sectors, namely infrastructure and social sectors, providing a special attention to priorities in social sectors and infrastructure with a major target on poverty reduction.
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