## _cr12118

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---

### Overview and strategic design
- MKUKUTA II covers 2010/11–2014/15 and was made public on December 2, 2010.
- Builds on MKUKUTA I and adopts a result-based approach focused on three clusters:
  - Cluster I: Raising economic growth for reducing income poverty.
  - Cluster II: Improving the quality of life and social well-being.
  - Cluster III: Improving governance and accountability.
- Emphasis on enhancing productivity and growth through selected “growth drivers” (e.g., agriculture), sectoral strategies, and a greater role for the private sector.
- Five overarching themes: strengthening/establishing well functioning institutions and markets; efficient use and development of factors of production; provision of infrastructure; ensuring good economic governance; resource mobilization and financing.
- Developed through broad consultations with MDAs, LGAs, Parliament, civil society, academia, and the private sector.
- Formally endorsed after elections on October 31, 2010; costing, implementation plan, and monitoring arrangements remain to be specified.
- Many MKUKUTA II expenditures already incorporated into the Government’s current fiscal year budget.

### Macroeconomic performance and fiscal context — findings and key statistics
- Growth acceleration: from 3.5 percent on average in the 1990s to around 7 percent over the past decade.
- Public spending increase: from less than 16 percent of GDP in 2000 to almost 28 percent in 2009.
- Primary school enrollment (mainland): from 59 percent in 2000/01 to 95.4 percent in 2010; Zanzibar: from 75.7 percent in 2006 to 81.4 percent in 2010.
- Under-five mortality (mainland): from 112 per 1000 live births in 2004/05 to 81 in 2009/10; Zanzibar: from 101 in 2004/05 to 79 in 2007/08.
- HIV/AIDS prevalence: from 7.0 percent in 2003 to 5.7 percent in 2007/08.
- Malaria reported cases: 27 reported cases of malaria per 1000 persons in 2007/08.
- Poverty incidence (mainland): 33.6 percent in 2007, down slightly from 35.6 percent in 2000/01.
- Poverty incidence (Zanzibar): projected decline from 49 percent in 2004/05 to 40 percent in 2009 (missed MKUZA I target of 25 percent by 2010).
- Rural poverty (mainland): 37.6 percent in 2007 (only 1.1 percent below 2001 level); Dar es Salaam: 16.4 percent; other urban areas: 24.1 percent in 2007.
- Poverty incidence among those reporting agriculture as main income source: 38.7 percent.
- Private sector credit stock: 16–17 percent of GDP.
- Less than 17 percent of formal businesses reported borrowing from financial institutions.
- Less than 30 percent of total non-agriculture employment was registered as private wage employment in 2006.
- World Bank Doing Business ranking: 125 in 2009 to 128 in 2010.
- Absolute number of poor increased by 1.3 million between 2001 and 2007 despite a decline in the poverty rate.

### Macroeconomic performance — implications and risks
- Despite progress in education and health MDGs, income poverty reduction has been marginal, particularly in rural areas.
- Agricultural sector underperformance: growth driven by expanded land rather than productivity, hampered by underdeveloped rural infrastructure and distortive taxes/regulations by Crop Boards, LGAs, and cooperatives.
- Serious supply constraints (high costs of power, water, transport, legal protection), inefficient factor markets, regulatory burdens, and limited access to financial services constrain private-sector-led poverty reduction.

### Macroeconomic framework and fiscal choices (priorities and risks)
- MKUKUTA II growth projection: 8.5 percent annually—requires multiple policy interventions and clearer specification.
- Public investment program needs focus on high-return infrastructure to reduce input costs (transport, power, water, telecommunication).
- Revenue projections and budget framework:
  - Assumes domestic revenues rising from current level of 15 percent of GDP to 19 percent of GDP for FY10/11–FY14/15.
  - MKUKUTA II to absorb 84 percent of domestic revenue versus 60 percent under MKUKUTA I.
- Staffs’ cautions:
  - Revenue projections likely optimistic; proposed tax administration measures unlikely to achieve projected gains and exceed PSI-agreed projections.
  - Substantial financing gap acknowledged; options explored include PPPs and higher net domestic financing (NDF), but both have limits.
  - Need to align external borrowing choices (concessional and nonconcessional) with debt-servicing implications and investment return maturities; strengthen debt management capacity.
  - Expand fiscal space through spending rationalization, improving spending efficiency, and reducing tax exemptions.
- Exchange rate and monetary policy:
  - Staffs strongly advise maintaining the floating exchange rate policy.
  - Structural reforms preferred to exchange-rate manipulation for improving competitiveness.
  - Monitor capital flows to inform future capital account liberalization consistent with EAC monetary integration.
  - Monetary policy should remain accommodative to boost private sector credit while inflationary pressures remain low; inflation projections in MKUKUTA II are considered reasonable and feasible.

### Structural reforms and sectoral policies — priority actions
- Staffs view inadequate structural reform to address supply constraints as a major implementation risk.
- Concern that some sector strategies rely on direct public interventions that may crowd out private sector activity.
- Recommendation to articulate the government’s private sector development vision in more detail (roles/responsibilities, concrete steps, timelines, measurable outputs). The Roadmap for Improvement of Tanzania’s Investment Climate should include timelines and precise measurable outputs.
- Strengthen competition legislation in view of high market concentration in manufacturing.

Targeted factor-market reforms (priority measures):
- Financial sector and legal reforms:
  - Judicial reform for contract enforcement.
  - Establishment of a credit registry and a national identification card.
  - Develop a regulatory framework for mobile banking based on banking and telecommunication laws.
  - Enhance financial literacy.
  - Strengthen supervision of pensions and insurance.
  - Target small-scale development financing in rural areas to those lacking credit and operate on a commercial basis.
- Labor reforms:
  - Balance worker protection with labor market flexibility.
  - Monitor compliance-cost impacts of Employment and Labor Relationship Act and Labor Institution Act to avoid hindering job creation and formalization.
- Land reforms:
  - Implement the Land Act and Village Land Act and improve coordination among government offices.
  - Accelerate land surveying and titling to reduce overlap and illegal land sales.
  - Design mechanisms to protect weaker social groups and prevent land grabbing.

### Infrastructure project appraisal and financing
- Need for a systematic and consistent approach to appraisal of infrastructure projects to determine those with the highest returns to growth and fiscal revenues, and to develop realistic, phased implementation plans.
- Invest in systematic processes for project assessment and selection to accompany borrowing choices, including partly non-concessional terms, while ensuring new debt accrual remains sustainable.
- The recently adopted Public Private Partnership (PPP) Act provides an important legal framework for private sector participation in public goods provisions; sectoral policies need to be prepared to support implementation, taking lessons from past PPP experiences.

### Transport
- The Transport Strategy Implementation Plan Phase II should be aligned with MKUKUTA II and ensure more focus on maintenance and rehabilitation of existing infrastructure.
- Insufficient periodic maintenance has resulted in more expensive rehabilitation, and current trends indicate a decline in budget allocation for road maintenance.
- Better maintenance is essential for sustaining existing road infrastructure; additional budget will be required to extend the network to remote areas.
- Government needs to spell out feasible plans, particularly financing options, for proposed rural road development and to improve management of railways and ports.

### Energy
- A more strategic plan should be laid out in support of MKUKUTA II.
- The proposed operational target for electricity generation should be more clearly specified; it is currently vague and not based on adequate analysis of feasibility and affordability.
- Financing arrangements for both domestic and regional master plans (e.g. Power System Master Plan, Southern African Power Pool) must be clarified.

### Water
- Address capacity constraints in systematic planning, budgeting, monitoring, and reporting, including fiduciary and safeguard aspects.
- Delivery of water supply and sanitation services is decentralized.
- The plan should:
  - use appropriate unit costs and technology options to maximize benefits to the most people;
  - improve sustainability from the point of view of water resource management; and
  - ensure affordability with respect to operation, maintenance, and renewal.
- Footnote: The delivery of WSS relies on Urban Water Supply and Sewerage Authorities, other district / small town utilities and LGAs.

### Agriculture
- Staffs strongly support MKUKUTA II’s focus on the agriculture sector.
- Existing frameworks: Agriculture Sector Development Strategy 2001 (ASDS), Agriculture Sector Investment Program 2005, and “Agriculture First” (Kilimo Kwanza) policy.
- Main problems hampering progress:
  - underdeveloped rural infrastructure;
  - market distortions through crop boards and primary societies/cooperatives;
  - export bans;
  - the preference for subsidies over research, extension, and irrigation;
  - a complex maze of local taxes, levies, and exceptions; and
  - excessive transportation costs associated with the port system and border posts.
- The proposed 6 percent growth rate for the agriculture sector will be hard to achieve without consistent and determined policy reforms.
- MDAs and LGAs should collaborate to strengthen the institutional framework, create a favorable climate for commercial activities, and invest in core public goods.

### Natural resources and NRM governance
- MKUKUTA II targets sustainable utilization of natural resources.
- Weaknesses in governance are the main constraint: lack of transparency and accountability, inequitable sharing of benefits with local communities, and weak monitoring and surveillance of stocks, especially forestry and wildlife resources.
- Progress through legislation for commercial natural resources management exists, but weak law enforcement and regulatory capacity continue to threaten sustainability.
- Staffs encourage focusing on:
  - improving revenue collection systems through decentralization;
  - raising the ability of local communities to benefit from revenue collection;
  - promoting market-based principles; and
  - strengthening capacity for data collection, monitoring, and surveillance.

### Human development and social wellbeing
- MKUKUTA II emphasizes investing in people and sustaining socio-economic progress, given challenging demographic trends.
- Key constraints to social service delivery capacity:
  - continuing shortages of qualified staff;
  - problematic flows of funds to service delivery units at local levels (timing and transparency);
  - inequitable distribution of resources across districts and regions, resulting in significant differences in access to services and to health and education outcomes; and
  - inadequate information on procedures to access different social services.
- Strategy provides disjointed interventions for service delivery; a multi-sectoral approach focusing on strengthening service delivery capacity and linking investments to labor market issues is recommended.

Education
- MKUKUTA II focuses on quality of schooling and efficiency of resource allocation.
- Notes declines in quality due to rapid expansion in enrollment and unequal distribution of education services; points to regressive nature of heavy subsidy to tertiary education.
- Strategy aims at more rapid growth in all school sectors and commits to existing model of tertiary expansion.
- Recommendation: in-depth analysis of inefficiencies, measures to improve quality, performance and accountability, and modalities of private investment; identify options to shift the education budget away from subsidies to higher education towards primary and secondary education.

Health and social protection
- Priority given to improving survival, health, nutrition and well being, especially for children, women, and vulnerable groups.
- Emphasis on maternal, newborn, and child health; reducing fertility; improving nutrition; and addressing HIV/AIDS and tuberculosis.
- Health sector finance needs more policy focus to establish a cohesive, equitable, and sustainable health financing system.
- Staffs support MKUKUTA II’s emphasis on social safety nets and social protection.
- Government developed a National Social Protection Framework (NSPF), but current fiscal budget does not provide financing for the NSPF or any of its pilots.
- The Social Security Regulatory Act (2008) is in place and the Social Security Regulatory Agency has been formed recently.
- Although Tanzania’s six pension schemes are considered sustainable now, pension fund practices could be significantly improved to increase efficiency and avoid accumulating contingent liabilities for the Government.

### Governance and public sector management
- MKUKUTA II acknowledges need to accelerate implementation of public financial management reforms to ensure increased spending under MKUKUTA II can be executed, and executed well.
- Tanzania’s public financial management (PFM) system is more solid than most in Africa, but recent performance has been mixed.
- For the first time in three years, the General Budget Support Annual Review rated progress on PFM reform satisfactory.
- Controller and Auditor General reports still identified weaknesses with the Integrated Financial Management Information System, and problems reconciling accounts.
- An effective anti-corruption program requires enhanced institutional capacity and resource allocation; MKUKUTA II lacks specificity on concrete measures and institutional arrangements for anti-corruption and oversight.
- Staffs encourage the Government to take a firmer stance on managing the public service on the basis of performance, including implementing accountability and performance monitoring systems, and reviewing the remuneration system and incentive structure for public servants.
- Greater transparency and better provision of information would strengthen the demand side for good governance.

### Implementation framework, monitoring and evaluation
- MKUKUTA II sets out operational targets and outlines corresponding intervention packages supported by a Result Matrix, but does not fully clarify linkages between operational targets and suggested intervention packages, the relationship between priority areas and intervention packages, and consistency across sectoral plans.
- Staffs urge the Government to complete the implementation plan; the Implementation Plan should present costed sectoral programs to drive a prioritized public investment framework.
- Efficient implementation will require continued improvements in public expenditure management; spending efficiency needs to be increased, particularly regarding recurrent spending, to make fiscal space for higher development spending.
- Alignment between MKUKUTA II targets, the medium term expenditure framework (MTEF), and annual budget allocations will need to be strengthened.
- Staffs support Government efforts in reforming the Strategic Budget Allocation System and the proposal for mandatory public expenditure review by MDAs.
- Government needs to ensure consistency between budget allocation and execution; staffs welcome efforts to better manage cash payments through use of the payment settlements system, and regular monitoring of outstanding payment claims.
- Staffs urge the Government to strengthen the results framework and complete the MKUKUTA II Monitoring Master Plan, which includes defined institutional responsibilities, a survey calendar, a calendar of planning, budgeting and reporting, and a funding mechanism.

### Staffs’ core recommendations to strengthen MKUKUTA II implementation
- Expand fiscal space by:
  - Improving spending efficiency.
  - Enhancing domestic revenue mobilization in line with potential.
  - Reducing tax exemptions and rationalizing spending.
- Take decisive actions to improve the investment climate and remove supply-side bottlenecks to private-sector-led growth.
- Develop a well-considered plan for addressing infrastructure gaps with priority for high-return projects.
- Better prioritize MKUKUTA II objectives and specify realistic sectoral costing and financing; finalize implementation and monitoring plans.
- Strengthen debt management capacity and carefully choose external financing to align maturities with project returns and limit debt-servicing pressures.
- Maintain floating exchange rate policy and accommodative monetary policy while monitoring inflation and capital flows.

### Conclusions and key recommendations
- Staffs endorse the reorientation in MKUKUTA II to hasten progress to reduce income poverty and to scale up private sector participation in growth and employment generation, improve quality of life and social wellbeing, and ensure good governance and accountability.
- Risks that could adversely affect implementation include low domestic revenue expansion, inadequate structural reform, and lack of prioritization.
- Staffs recommend special attention be given to the following issues as authorities implement MKUKUTA II:
  - Improve spending efficiency and mobilize domestic revenues by reducing exemptions and other measures to expand the tax base;
  - Decisively carry out structural reforms to improve the investment climate; in particular, follow the Roadmap to bring about demonstrable results, improve factor market efficiency, and address infrastructure bottlenecks;
  - Strengthen public service delivery capacity through a multi-sectoral approach;
  - Speed up public financial management reform; and
  - Improve prioritization in implementation.

*Joint Staff Advisory Note on Tanzania’s Second National Strategy for Growth and Reduction of Poverty (MKUKUTA II), covering 2010/11–2014/15.*

### 1. This Joint Staff Advisory Note (JSAN) reviews Tanzania’s Second National Strategy

### This Joint Staff Advisory Note (JSAN) reviews Tanzania’s Second National Strategy for Growth and Reduction of Poverty (NSGRP--MKUKUTA II) (2010/11–2014/15)

### Overview and strategic design
- MKUKUTA II covers 2010/11–2014/15 and was made public on December 2, 2010.  
- Builds on MKUKUTA I and adopts a result-based approach focused on three clusters:
  - Cluster I: Raising economic growth for reducing income poverty.
  - Cluster II: Improving the quality of life and social well-being.
  - Cluster III: Improving governance and accountability.
- Emphasis on enhancing productivity and growth through selected “growth drivers” (e.g., agriculture), sectoral strategies, and a greater role for the private sector.
- Five overarching themes: strengthening/establishing well functioning institutions and markets; efficient use and development of factors of production; provision of infrastructure; ensuring good economic governance; resource mobilization and financing.
- Developed through broad consultations with MDAs, LGAs, Parliament, civil society, academia, and the private sector.
- Formally endorsed after elections on October 31, 2010; costing, implementation plan, and monitoring arrangements remain to be specified. Many MKUKUTA II expenditures already incorporated into the Government’s current fiscal year budget.

### Macroeconomic performance and fiscal context
Findings and key statistics:
- Growth acceleration: from 3.5 percent on average in the 1990s to around 7 percent over the past decade.
- Public spending increase: from less than 16 percent of GDP in 2000 to almost 28 percent in 2009.
- Primary school enrollment (mainland): from 59 percent in 2000/01 to 95.4 percent in 2010; Zanzibar: from 75.7 percent in 2006 to 81.4 percent in 2010.
- Under-five mortality (mainland): from 112 per 1000 live births in 2004/05 to 81 in 2009/10; Zanzibar: from 101 in 2004/05 to 79 in 2007/08.
- HIV/AIDS prevalence: from 7.0 percent in 2003 to 5.7 percent in 2007/08.
- Malaria reported cases: 27 reported cases of malaria per 1000 persons in 2007/08.
- Poverty incidence (mainland): 33.6 percent in 2007, down slightly from 35.6 percent in 2000/01.
- Poverty incidence (Zanzibar): projected decline from 49 percent in 2004/05 to 40 percent in 2009 (missed MKUZA I target of 25 percent by 2010).
- Rural poverty (mainland): 37.6 percent in 2007 (only 1.1 percent below 2001 level); Dar es Salaam: 16.4 percent; other urban areas: 24.1 percent in 2007.
- Poverty incidence among those reporting agriculture as main income source: 38.7 percent.
- Private sector credit stock: 16–17 percent of GDP.
- Less than 17 percent of formal businesses reported borrowing from financial institutions.
- Less than 30 percent of total non-agriculture employment was registered as private wage employment in 2006.
- World Bank Doing Business ranking: 125 in 2009 to 128 in 2010.
- Absolute number of poor increased by 1.3 million between 2001 and 2007 despite a decline in the poverty rate.

Implications and risks:
- Despite progress in education and health MDGs, income poverty reduction has been marginal, particularly in rural areas.
- Agricultural sector underperformance: growth driven by expanded land rather than productivity, hampered by underdeveloped rural infrastructure and distortive taxes/regulations by Crop Boards, LGAs, and cooperatives.
- Serious supply constraints (high costs of power, water, transport, legal protection), inefficient factor markets, regulatory burdens, and limited access to financial services constrain private-sector-led poverty reduction.

### Macroeconomic framework and fiscal choices (priorities and risks)
- MKUKUTA II growth projection: 8.5 percent annually—requires multiple policy interventions and clearer specification.
- Public investment program needs focus on high-return infrastructure to reduce input costs (transport, power, water, telecommunication).
- Revenue projections and budget framework:
  - Assumes domestic revenues rising from current level of 15 percent of GDP to 19 percent of GDP for FY10/11–FY14/15.
  - MKUKUTA II to absorb 84 percent of domestic revenue versus 60 percent under MKUKUTA I.
- Staffs’ cautions:
  - Revenue projections likely optimistic; proposed tax administration measures unlikely to achieve projected gains and exceed PSI-agreed projections.
  - Substantial financing gap acknowledged; options explored include PPPs and higher net domestic financing (NDF), but both have limits.
  - Need to align external borrowing choices (concessional and nonconcessional) with debt-servicing implications and investment return maturities; strengthen debt management capacity.
  - Expand fiscal space through spending rationalization, improving spending efficiency, and reducing tax exemptions.
- Exchange rate and monetary policy:
  - Staffs strongly advise maintaining the floating exchange rate policy.
  - Structural reforms preferred to exchange-rate manipulation for improving competitiveness.
  - Monitor capital flows to inform future capital account liberalization consistent with EAC monetary integration.
  - Monetary policy should remain accommodative to boost private sector credit while inflationary pressures remain low; inflation projections in MKUKUTA II are considered reasonable and feasible.

### Structural reforms and sectoral policies (priority actions)
- Staffs view inadequate structural reform to address supply constraints as a major implementation risk.
- Concern that some sector strategies rely on direct public interventions that may crowd out private sector activity.
- Recommendation to articulate the government’s private sector development vision in more detail (roles/responsibilities, concrete steps, timelines, measurable outputs). The Roadmap for Improvement of Tanzania’s Investment Climate should include timelines and precise measurable outputs.
- Strengthen competition legislation in view of high market concentration in manufacturing.

Targeted factor-market reforms (priority measures):
- Financial sector and legal reforms:
  - Judicial reform for contract enforcement.
  - Establishment of a credit registry and a national identification card.
  - Develop a regulatory framework for mobile banking based on banking and telecommunication laws.
  - Enhance financial literacy.
  - Strengthen supervision of pensions and insurance.
  - Target small-scale development financing in rural areas to those lacking credit and operate on a commercial basis.
- Labor reforms:
  - Balance worker protection with labor market flexibility.
  - Monitor compliance-cost impacts of Employment and Labor Relationship Act and Labor Institution Act to avoid hindering job creation and formalization.
- Land reforms:
  - Implement the Land Act and Village Land Act and improve coordination among government offices.
  - Accelerate land surveying and titling to reduce overlap and illegal land sales.
  - Design mechanisms to protect weaker social groups and prevent land grabbing.

### Staffs’ core recommendations (to strengthen MKUKUTA II implementation)
- Expand fiscal space by:
  - Improving spending efficiency.
  - Enhancing domestic revenue mobilization in line with potential.
  - Reducing tax exemptions and rationalizing spending.
- Take decisive actions to improve the investment climate and remove supply-side bottlenecks to private-sector-led growth.
- Develop a well-considered plan for addressing infrastructure gaps with priority for high-return projects.
- Better prioritize MKUKUTA II objectives and specify realistic sectoral costing and financing; finalize implementation and monitoring plans.
- Strengthen debt management capacity and carefully choose external financing to align maturities with project returns and limit debt-servicing pressures.
- Maintain floating exchange rate policy and accommodative monetary policy while monitoring inflation and capital flows.

*Joint Staff Advisory Note on Tanzania’s Second National Strategy for Growth and Reduction of Poverty (MKUKUTA II), covering 2010/11–2014/15.*

### 21. Additional focus is needed on prioritizing infrastructure projects most pivotal for

### 21. Additional focus is needed on prioritizing infrastructure projects most pivotal for

### Infrastructure project appraisal and financing
- More focus is needed on a systematic and consistent approach to appraisal of infrastructure projects to determine those with the highest returns to growth, both in terms of growth and fiscal revenues, and to develop realistic, phased implementation plans.
- Investing in systematic processes for project assessment and selection should accompany making wise choices for new borrowing, including partly on non-concessional terms, and ensuring that new debt accrual remains sustainable.
- The recently adopted Public Private Partnership (PPP) Act provides an important legal framework for private sector participation in public goods provisions. Sectoral level policies need to be prepared to support the implementation of the Act, taking lessons from past experiences with PPPs.

### Transport
- The Transport Strategy Implementation Plan Phase II, in preparation, should be aligned with MKUKUTA II and ensure more focus on the maintenance and rehabilitation of existing infrastructure.
- Insufficient periodic maintenance has resulted in more expensive rehabilitation, and current trends indicate a decline in budget allocation for road maintenance.
- Better maintenance is essential for sustaining existing road infrastructure, but additional budget will be required to extend the network to remote areas.
- The government will need to spell out feasible plans, particularly financing options, to achieve the proposed rural road development as well as to improve the management of railways and ports.

### Energy
- A more strategic plan should be laid out in support of MKUKUTA II.
- The proposed operational target for electricity generation should be more clearly specified as it is currently vague and is not based on adequate analysis of feasibility and affordability.
- Financing arrangements for both domestic and regional master plans (e.g. Power System Master Plan, Southern African Power Pool) must be clarified.

### Water
- The Government needs to address the capacity constraints in systematic planning, budgeting, monitoring, and reporting, including fiduciary and safeguard aspects.
- The delivery of water supply and sanitation services is decentralized.
- The plan should:
  - use appropriate unit costs and technology options to maximize benefits to the most people;
  - improve sustainability from the point of view of water resource management; and
  - ensure affordability with respect to operation, maintenance, and renewal.
- Footnote: The delivery of WSS relies on Urban Water Supply and Sewerage Authorities, other district / small town utilities and LGAs.

### Agriculture
- The staffs strongly support MKUKUTA II’s focus on the agriculture sector.
- The Government established a policy framework via the Agriculture Sector Development Strategy 2001 (ASDS) and the Agriculture Sector Investment Program 2005, and more recently the “Agriculture First” (Kilimo Kwanza) policy.
- Main problems hampering progress:
  - underdeveloped rural infrastructure;
  - market distortions through crop boards and primary societies/cooperatives;
  - export bans;
  - the preference for subsidies over research, extension, and irrigation;
  - a complex maze of local taxes, levies, and exceptions; and
  - excessive transportation costs associated with the port system and border posts.
- The proposed 6 percent growth rate for the agriculture sector will be hard to achieve without consistent and determined policy reforms.
- MDAs and LGAs should collaborate to strengthen the institutional framework, create a favorable climate for commercial activities, and invest in core public goods.

### Natural resources and NRM governance
- MKUKUTA II targets sustainable utilization of natural resources.
- Weaknesses in governance are the main constraint, especially lack of transparency and accountability, inequitable sharing of benefits with local communities, and weak monitoring and surveillance of stocks, especially of forestry and wildlife resources.
- Progress has been made through legislation for commercial natural resources management (NRM), but weak law enforcement and regulatory capacity continue to threaten sustainability.
- Staffs encourage the Government to focus on:
  - improving revenue collection systems through decentralization;
  - raising the ability of local communities to benefit from revenue collection;
  - promoting market-based principles; and
  - strengthening capacity for data collection, monitoring, and surveillance.

### Human development and social wellbeing
- MKUKUTA II emphasizes investing in people and sustaining socio-economic progress, particularly given challenging demographic trends.
- Key constraints to social service delivery capacity:
  - continuing shortages of qualified staff;
  - problematic flows of funds to service delivery units at the local levels, both in terms of timing and transparency;
  - inequitable distribution of resources, including both funding and human resources, across districts and regions, resulting in significant differences in access to services and to health and education outcomes; and
  - inadequate information on procedures to access different social services.
- The current strategy provides disjointed interventions for service delivery; a multi-sectoral approach focusing on strengthening service delivery capacity and linking investments to labor market issues is recommended.
- Education:
  - MKUKUTA II focuses on quality of schooling and efficiency of resource allocation.
  - It notes declines in quality due to rapid expansion in enrollment and unequal distribution of education services; it also points to the regressive nature of the heavy subsidy to tertiary education.
  - The strategy nevertheless aims at more rapid growth in all school sectors and commits to the existing model of tertiary expansion.
  - Recommendation: in-depth analysis of inefficiencies, measures to improve quality, performance and accountability, and modalities of private investment; identify options to shift the education budget away from subsidies to higher education towards primary and secondary education.
- Health and social protection:
  - Priority given to improving survival, health, nutrition and well being, especially for children, women, and vulnerable groups.
  - Emphasis on maternal, newborn, and child health; reducing fertility; improving nutrition; and addressing HIV/AIDS and tuberculosis.
  - Health sector finance needs more policy focus to establish a cohesive, equitable, and sustainable health financing system.
  - Staffs support MKUKUTA II’s emphasis on social safety nets and social protection.
  - The government developed a National Social Protection Framework (NSPF), but the current fiscal budget does not provide financing for the NSPF or any of its pilots.
  - The Social Security Regulatory Act (2008) is in place and the Social Security Regulatory Agency has been formed recently.
  - Although Tanzania’s six pension schemes are considered sustainable now, pension fund practices could be significantly improved to increase efficiency and avoid accumulating contingent liabilities for the Government.

### Governance and public sector management
- MKUKUTA II acknowledges the need to accelerate implementation of public financial management reforms to ensure increased spending under MKUKUTA II can be executed, and executed well.
- Tanzania’s public financial management (PFM) system is more solid than most in Africa, but recent performance has been mixed.
- For the first time in three years, the General Budget Support Annual Review rated progress on PFM reform satisfactory.
- Controller and Auditor General reports still identified weaknesses with the Integrated Financial Management Information System, and problems reconciling accounts.
- An effective anti-corruption program requires enhanced institutional capacity and resource allocation; MKUKUTA II lacks specificity on concrete measures and institutional arrangements for anti-corruption and oversight.
- The staffs encourage the Government to take a firmer stance on managing the public service on the basis of performance, including implementing accountability and performance monitoring systems, and reviewing the remuneration system and incentive structure for public servants.
- Greater transparency and better provision of information would strengthen the demand side for good governance.

### Implementation framework, monitoring and evaluation
- MKUKUTA II sets out operational targets and outlines corresponding intervention packages supported by a Result Matrix, but does not fully clarify linkages between operational targets and suggested intervention packages, the relationship between priority areas and intervention packages, and consistency across sectoral plans.
- The staffs urge the Government to complete the implementation plan envisaged to address these issues; the Implementation Plan should present costed sectoral programs to drive a prioritized public investment framework.
- Efficient implementation will require continued improvements in public expenditure management; spending efficiency needs to be increased, particularly regarding recurrent spending, to make fiscal space for higher development spending.
- Alignment between MKUKUTA II targets, the medium term expenditure framework (MTEF), and annual budget allocations will need to be strengthened.
- Staffs support Government efforts in reforming the Strategic Budget Allocation System and the proposal for mandatory public expenditure review by MDAs.
- Government needs to ensure consistency between budget allocation and execution; staffs welcome efforts to better manage cash payments through use of the payment settlements system, and regular monitoring of outstanding payment claims.
- The staffs urge the Government to strengthen the results framework and complete the MKUKUTA II Monitoring Master Plan, which includes defined institutional responsibilities, a survey calendar, a calendar of planning, budgeting and reporting, and a funding mechanism. The challenge is to finish the revisions in time to effectively monitor implementation.

### Conclusions and key recommendations
- The staffs endorse the reorientation in MKUKUTA II to hasten progress to reduce income poverty and to scale up private sector participation in growth and employment generation, improve quality of life and social wellbeing, and ensure good governance and accountability.
- Risks identified that could adversely affect implementation include low domestic revenue expansion, inadequate structural reform, and lack of prioritization.
- Staffs recommend special attention be given to the following issues as authorities implement MKUKUTA II:
  - Improve spending efficiency and mobilize domestic revenues by reducing exemptions and other measures to expand the tax base;
  - Decisively carry out structural reforms to improve the investment climate; in particular, follow the Roadmap to bring about demonstrable results, improve factor market efficiency, and address infrastructure bottlenecks;
  - Strengthen public service delivery capacity through a multi-sectoral approach;
  - Speed up public financial management reform; and
  - Improve prioritization in implementation.

*IMF staff report excerpt.*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/scr/2012/_cr12118.pdf_