Public Expenditure Review For Tanzania Prepared by The World Bank

PUBLIC EXPENDITURE REVIEW FY04
Report on Fiscal Developments and Budget Management Issues

FY03-FY04
June 14, 2004

TABLE OF CONTENTS
BOXES..............................................................................................................................iv
FIGURES......................................................................................................iv
..........................................................................................................................................vi
Introduction.........................................................................................................................i
1. Overall Fiscal Performance.......................................................................................1
Aggregate Fiscal Discipline...........................................................................1
Domestic Revenue.........................................................................................3
Findings from the Investment Climate Survey on the Tax System ..............4
Donor Assistance...........................................................................................6
Government Expenditures.............................................................................6
1.2 Strategic Resource Allocation.................................................................................9
Use of the Contingency under Vote 50........................................................14
1.3 Priority Sector Expenditures.................................................................................15
Priority sector trends 1999/2000 – 2003/04.................................................15
Actual expenditures on the priority sectors during the first half of FY04...17
2. Consistency in budget planning and execution.......................................................19
3. Strengthening budget process.................................................................................21
Strengthening the Budget Guidelines..........................................................22
Implications for other planning instruments ...............................................24
Implications for donor consultations on the budget.....................................24
4. Strengthening a result-based approach in policy making and budgeting...............25
Introduction..................................................................................................25
Monitoring systems......................................................................................25
Developing a Result-Based Tanzania PRS .................................................27
Performance-compatible incentive structures..............................................29
5. Public Expenditure Management Issues at Local Government Level....................30
Recurrent vis-vis Development Expenditure...............................................34
Expenditure on Personal Emoluments and Other Charges at LG level.......36
Emerging Issues from the preliminary analysis of actual LG expenditure .38
ANNEX 1 ...............................................................................................................40
Preliminary review of Sector PERs............................................................................40
A.1 ENVIRONMENT................................................................................................40
Review of environment policies and programs
........................................................................................................................40
Revenue from environmental resources
........................................................................................................................41
Environmental expenditure in Tanzania
........................................................................................................................41
Capacity building for environmental management
The PER found that there is need for capacity building for the National
Environmental Management Council (NEMC) as it will be charged with the
responsibility of implementing the Environmental Management Act of 2004.
The current staffing pattern shows a high ratio of supporting staff to
technical staff. Additional staff may be needed for environmental and
poverty monitoring at the district and ward levels, environmental law and
inspection at the district and regional levels, project management and
environmental sanitation, logistical planning and wildlife management. ....42
Summary recommendations for improvement
........................................................................................................................43
A2 ROADS.................................................................................................................43
Major findings of the 2003 PER and action taken and pending issues
The major findings of the last PER, the actions taken on the
recommendations and the pending issues are presented below:....................43
Road network in Tanzania
The actual length of the road network in Tanzania is not known. Three
systems are being developed to capture the road condition under
TRANROADS and LGAs. The first is the Road Maintenance Management
System (RMMS), which will be fully operational by 2004, will give more
realistic information for budgeting and decision-making on the trunk and
regional roads. The second is the District Road Maintenance Management
System (DROMAS) being developed by the PO-RLAG which is a
comprehensive data management application to assist engineers at the
district council and road fund management unit in managing district roads
maintenance works. The third system is the RMMS for urban council
funded by the IDA.........................................................................................44
Road sector revenue and expenditures...........................................................44

Institutional reforms.....................................................................................45
Cross cutting issues......................................................................................46
A.3 AGRICULTURE.................................................................................................47
Implementation of recommendations of the last PER ................................48
Sector performance......................................................................................49
Constraints to sectoral performance.............................................................50
Service delivery...........................................................................................50
Sector Budget performance..........................................................................51
Policy interventions in agricultural sector...................................................53
Summary of major observations and recommendations of the PER.............55

A.4 EDUCATION......................................................................................................56
Developments since the last PER................................................................56
Review of sector plans, strategies and performance....................................56
Sector policies, performance indicators and PRS targets............................57
Review of Education Budget and Expenditure............................................58
Recurrent expenditure..................................................................................59
Development expenditure............................................................................59
PEDP expenditure analysis..........................................................................60
Financial management and role of local government authorities................61
Cross cutting issues......................................................................................61
HIV/AIDS and education sector..................................................................61
Gender and education..................................................................................62
Table 4: Gender disaggregated performance indicators at the primary level............62
Costing of interventions...............................................................................63
Secondary Education Development Plan (SEDP).......................................63
AVAILABLE RESOURCES.......................................................................64
Adult and Non Formal Education (AE/NFE)..............................................65
HIV/AIDS related interventions..................................................................65
Main findings and recommendations...........................................................65
II: Education Expenditure: In terms of funding, the areas that need
improvement are: containing expansion of administration component,
improving predictability of (donor) development funding, and increasing
government component of development budget. In order to avoid double
budgeting for some activities, a mechanism to capture flow of funds to
schools should be developed. ........................................................................67
A.5 HEALTH..............................................................................................................67
Review of the findings of the last PER and actions taken...........................68
Trends in budget performance and expenditure Overall budget performance
........................................................................................................................70
Trends in expenditure..................................................................................70
Recurrent and development expenditures....................................................71
On-versus off budget expenditures: ...........................................................72
Analysis of spending ...................................................................................72
Local government budget and spending in relation to PRS objectives.......73
Fiscal decentralization and allocation..........................................................74
Health sector performance...........................................................................74
Spending on priority items...........................................................................74
Financing performance..................................................................................75
Future costs and revenues............................................................................76
Key issues and recommendations................................................................76
Immediate steps...........................................................................................78
HIV/AIDS Expenditure Review..................................................................78
Review of recommendations and actions taken...........................................79
Expenditure on HIV/AIDS..........................................................................79
HIV/AIDS expenditure plans.......................................................................79
Role of NGOs..............................................................................................81
Sectoral analysis of actual and planned HIV/AIDS spending.....................81
Health...........................................................................................................81
Education.....................................................................................................81
TACIDS.......................................................................................................82
Local Government Authorities....................................................................83
Budget process for HIV/AIDS.....................................................................84
Budget guidelines.........................................................................................84
Role of TACIDS in budget process.............................................................84
Accounting and data management on HIV/AIDS.......................................84
ANNEX 2
Consistency between Policy, Planning, and Budgeting.................................................86
A.1 Introduction..........................................................................................................86
A.2 The Evolution of Planning, Programming, and Execution..................................86
A.3 Defining the Budget Data....................................................................................88
A.4 Overall Budget Trends ........................................................................................89
Data Sources and Definitions.......................................................................89
Within-Year Consistency of Aggregate Expenditure Estimates (Budget
Guidelines – MTEF – Budget – Actual Expenditures)..................................90
Aggregate Resource and Expenditure Estimates.........................................90
Assessment of Outer Year Estimates...........................................................93
Overall Trends.............................................................................................93
Recurrent Expenditure Sub-Trends .............................................................96
Analysis of budget deviation at sub vote level............................................99
A.5 Trends in the Priority Sectors.............................................................................100
Data Sources and Definitions.....................................................................100
Overall Trends...........................................................................................100
Sector Trends.............................................................................................102
A.6 Conclusion.........................................................................................................104
BOXES
Box 1: Supplementary Budget and Additional Expenditure Needs in FY04...................13
FIGURES
Figure 1: Ability to Finance Recurrent Expenditure from Domestic Revenue..................2
Figure 2: Share of Development Expenditure Financed from Non-Project Support
Resources.............................................................................................................................3
Figure 3: Percent of enterprises rating tax rates and administration as major or very
severe obstacles...................................................................................................................5
Figure 4: LGAs – Sectoral Shares of Recurrent Expenditure 2001..................................35
Figure 5: LGAs – Sectoral Shares of Recurrent Expenditure 2003..................................36
Figure 6: LGAs – Sectoral Shares of Exchequer Issues to OC 2003...............................37
Figure 7: LGAs – Sectoral Development Expenditure 2001............................................37
Figure 8: LGAs – Sectoral Development Expenditure 2003............................................38
Figure 9: Differences in Total Resource Estimates..........................................................90
Figure 10: Domestic Revenue, Program Grants and Loans, and Project Grants and
Loans, Difference between Budget and Budget Guidelines, FY00 – FY04......................91
Figure 11: Total, Recurrent and Development Expenditure, Difference Between Budget
and Budget Guidelines Estimates, FY00 – FY04..............................................................91
Figure 12: Wages and Salaries, Operations and Maintenance, and Debt Service,
Difference between Budget and Budget Guidelines, FY00 – FY04.................................92
Figure 13: Total Expenditure, Budget Guidelines, Annual Budget, and Actual
Expenditure, FY00 – FY07................................................................................................93
Figure 14: Recurrent Expenditure, Budget Guidelines, Annual Budget, and Actual
Outturn, FY00 – FY07.......................................................................................................94
Figure 15: Development Expenditure, Budget Guidelines, Annual Budget, and Actual
Outturn, FY00 – FY07.......................................................................................................96
Figure 16: OC Expenditure, Budget Guidelines (BG), Annual Budget, and Actual
Figure 17: PE Expenditure, Budget Guidelines (BG), Annual Budget, and Actual
Figure 18: CFS Expenditures, Budget Guidelines (BG), Annual Budget, and Actual
Figure 19: Recurrent Expenditure of Selected Priority Sectors (Education, Health, Water,
and Roads), Budet Guidelines, MTEF, Annual Budget, and Actual Expenditures, FY00 –
FY04................................................................................................................................101
Figure 20: Selected Priority Sector Expenditures, Difference between 1st Year Budget
Guidelines, 1st Year MTEF, Annual Budget, and Actual Outturn, FY00 – FY04.........101
Figure 21: Recurrent Expenditure on Education, 1st Year Budget Guidelines, 1st Year
MTEF, Annual Budget, and Actual Outturn, FY00 – FY04...........................................102
Figure 22: Recurrent Expenditure on Health, 1st Year Budget Guidelines, 1st Year
Figure 23: Recurrent Expenditure on Water, 1st Year Budget Guidelines, 1st Year
Figure 24: Recurrent Expenditure on Roads, 1st Year Budget Guidelines, 1st Year
TABLES
Table 1: Financing of the Fiscal Deficit (% of GDP), FY98-FY04....................................1
Table 2: Revenue Performance (% of GDP) FY98-04.......................................................3
Table 3: Composition of External Assistance (% of GDP), FY98-04................................6
Table 4: Government Expenditure (% of GDP), FY98-04.................................................7
Table 5: Civil Service Employment FY99-FY04 (December of each year)......................8
Table 6: Civil Service Average Salaries, FY98-FY04.......................................................8
Table 7: Composition of Public Expenditures as % of GDP, FY96-FY04........................9
Table 8: Functional Allocation of Recurrent Expenditure (actuals, % of GDP), FY96-
FY04..................................................................................................................................10
Table 9: Social Sector Recurrent Expenditures (actuals, % of GDP), FY96-FY04.........11
Table 10: Sectoral Development Expenditures (actuals, % of GDP), FY96-FY04.........12
Table 11: Utilization of the Contingency Under Vote 50, FY03.....................................14
Table 12: Utilization of the Contingency Under Vote 50, July-December 2003.............14
Table 13: Trend on Priority Sectors (RE + DEV) in Absolute and Relative Terms Over
the Years............................................................................................................................15
Table 14: Budget Deviation at Sub-Vote Level (average as % original budget).............21
Table 15: Summary of CAG Reports on Local Authority Accounts 1999 – 2002............32
Table 16: Indicators of Weak Public Financial Management in LGAs 1999 - 2002........33
Table 17: Total Local Government Expenditure (T.Shs.).................................................34
Table 18: Total Local Government Expenditure (%)........................................................34
Table 19: Local Government Recurrent and Development Expenditure.........................35
Table 20: The Budget Preparation Process.......................................................................88
Table 21: Composition of Recurrent Expenditure............................................................97
Table 22: Budget Deviation at Sub-Vote Level (average as % original budget).............99
INTRODUCTION
.1 Since 1998, public expenditure reviews in Tanzania have been conducted on an
annual basis, closely aligned with Government’s budget cycle and carried out under the
direction of the Public Expenditure review (PER) working group, chaired by the Ministry
of Finance (MoF) and including in its membership a wide range of stakeholders from
Government, development partners and Tanzanian civil society. This approach has been
consistent with the series of initiatives in Tanzania aiming at developing an open process
of formulation of policy and budget strategy.
.2 Without departing from the broad objectives of this approach, there are several
recent developments, or emerging concerns, which present a new context for approaching
the PER process and new questions on how it can best support national policy objectives.
These developments suggest the need to look again at how the PER process works, how it
relates to other processes in the policy and budget cycle, and in the interface between
development partners and domestic stakeholders. Some of these factors may be briefly
discussed here as background to the current year’s PER external evaluation, as described
below.
• Approaching a new PRS cycle: Review of the Poverty Reduction Strategy entails
also taking a fresh look at the role of the PRS in the process of national policy
formulation and its linkage with budget process. Government’s guidelines on
preparation for the new PRS recognize the need to develop the role of the PER
process as a means of interface with domestic stakeholders. In parallel with these
institutional issues, the new PRS cycle calls for review of the public expenditure
strategy and performance over the past few years and a contribution to a vision for
the next cycle
• Multiplication of processes: Since development of the annual PER process, a

wide range of broad processes have been developed, engaging many of the same
players on similar issues, including the PRBS, PRSC, and PRS processes.
Processes have accumulated without adequately integrating requirements or
streamlining the cumulative burden on transaction costs. Managing these multiple
processes imposes severe demands on government, which may have diluted the
quality of interaction, leading to a sense of frustration. Development partners have
recognized the need for harmonization of procedures to reduce transaction costs
and net burden on Government of donor procedures.
• Developing accountability to domestic stakeholders: There is growing

recognition of the risks that procedures, which support Government accountability
to donors, can undermine the growth of accountability to domestic stakeholders.
i
This raises the question whether processes of consultation between Government
and development partners can be designed, or redesigned, to meet the dual
objective of fostering accountability to domestic stakeholders while also meeting
development partner concerns.
• Defining priorities: Both Government and development partners have expressed

interest in moving beyond a definition of priorities in terms of ‘priority sectors’, a
designation which has been highly influential in the PRS, in the budget process
and in the focus of attention within PER work. Blanket definition of ‘priority
sectors’ can tend to create disincentives for a strong focus on results and
efficiency on both side of the dividing line between priority and non priority
sectors: if priority areas are predefined with respect to inputs, incentives for
‘priority sectors’ are weakened, while non priority sectors consider their activities
unrecognized. Focusing dialogue on the net movement in allocations to priority
sectors may also distract from broader problems, including the important issue of
consistency between policy and resource allocations across the whole of
government. While the category of priority expenditures may be a necessary
interim tool for purposes of monitoring and dialogue, there is a need to develop
alternative approaches, which shift attention to priority objectives at the level of
results, and aim to ensure that all government expenditure contributes to priority
objectives.
• Consistency through the policy and budget cycle: Rationalizing the process of
consultation requires on the part of all stakeholders a high level of trust in the
consistency of the process. A simpler less demanding interface with external
stakeholders may be easier if participants have a high level of confidence that
what is agreed at the level of policy will be carried through into budgets, that
budgets will be implemented fully as approved and that monitoring and
evaluation will provide clear accountability for results Stakeholders need to know
that the framework discussed at one stage in the process will remain the basis for
subsequent stages, with clear information on what has changed and why. A clear
demonstration of consistency in the chain of steps between PRS, Budget
Guidelines, MTEF, annual budgets, actual expenditure and subsequent results, is
not only desirable in terms of transparency and accountability – it is also an
important precondition for developing processes of consultation which are less
demanding and more effective, both for development partners and domestic
stakeholders.
.3 Following review of these issues with Government and the PER working group, it
was agreed that a work program should be developed which, while meeting the normal
objectives of the review of fiscal performance in the period, would also provide the basis
for tackling these longer term concerns with public expenditure management and the
institutions for donor interface with the budget process. The work program was expected
to cover a set of interrelated areas, including: analysis of problems in consistency
between public expenditure planning, budget preparation and execution, institutional
analysis of the existing budget process, including the role of donors, civil society and the
legislature, M&E systems, sectoral public expenditure analysis, the strengthening of
ii
treasury systems, and local government expenditure. It was recognized that the required
work program would extend beyond the current year’s exercise. The present report is
therefore an interim report on work completed so far: some of the topics are the subject of
ongoing work and others will be carried through in the next cycle.
.4 First, a core concern was the analysis of the recent record on consistency through
the budget process, including consistency between the PRS, Budget Guidelines/MTEF,
annual budget and its implementation. Given the overlap between this analysis and the
overview of fiscal performance normally carried in the external evaluation, these two
topics form the first two sections of the report below. An annex is also included giving
more detailed analysis of the issues of consistency.
.5 A key area is institutional analysis of the budget process. Work is ongoing in this
area, but preliminary conclusions and recommendations are included in section 3. Further
work in this area is also ongoing on the specific topics of the role of civil society and the
legislature in budget process and the integration of human resource planning in budget
formulation.
.6 In section 4, the report reviews issues in shifting towards a greater focus on

outputs and current status and plans development of M&E functions. As noted in the last
PER report, a large number of monitoring processes exist: the main task is of
rationalization and strengthening systematic linkages to PRS objectives and to the budget
.7 The final section reports on local government expenditure and development of

capacity for public expenditure management at local level.
iii
1. OVERALL FISCAL PERFORMANCE
Aggregate Fiscal Discipline
1.1 In recent years, expenditures have been rising faster than domestic revenues leading
to a higher fiscal deficit before grants, which is projected to rise to 10.5 percent of GDP in
FY04. The increases in expenditures were made possible by increased availability of
development assistance and, until recently, government refrained entirely from domestic
borrowing in line with the objective of sustaining macro-economic stability. However, in
FY03 and FY04, government had to supplement financing from foreign sources with
domestic borrowing to close the gap between expenditures and domestic revenue. In
FY03, domestic financing came to 0.4 percent of GDP and is likely to increase to 0.8
percent in FY04. While such limited access to domestic borrowing is unlikely to have any
significant impact on macro-economic stability, it will nonetheless be necessary to monitor
closely government access to domestic credit in order to avoid strangling the slowly re-
emerging private sector demand for credit.
Table 1: Financing of the Fiscal Deficit (% of GDP), FY98-FY04
Central Government Operations FY98 FY00 FY02 FY03 FY04 FY04

Actual Actual Actual Actual Budget. Proj.
Total Revenue 12.0 11.3 12.1 12.8 13.1 13.2
Total Expenditure 15.7 17.4* 17.6 20.8 22.5 23.7
Balance before Grants -3.7 -6.2 -5.6 -8.2 -9.3 -10.5
Grants 3.0 4.5 4.5 6.5 6.3 6.5
Balance after Grants -0.7 -1.7 -1.1 -1.7 -3.1 -4.0
Foreign Loans (net) 1.0 1.5 1.4 2.1 2.6 3.2
Balance After Grants and Foreign 0.3 -0.3 0.3 0.4 -0.5 -0.8
Financing
Domestic (net) -0.3 0.3 -0.3 -0.4 0.4 0.8
Bank -0.9 -0.4 -0.7 -0.1 0.4 0.4
Non-bank (net of amortization) 0.5 0.5 0.4 -0.3 0.0 0.3
Privatization Funds 0.1 0.2 0.0 0.2 0.1 0.0
* Net of parastatal recapitalization
Source: IMF and Tanzanian authorities
1.2 The primary macro-economic concerns arising from Tanzania’s fiscal situation
relate to the effects of increased aid flows. These are in two areas. Firstly, increased aid
inflows bear the risk of leading to Dutch disease effects, which could hamper the
competitiveness of the Tanzanian economy. Both international evidence as well as real
effective exchange rate developments in Tanzania indicates that it is unlikely that on
aggregate aid inflows have caused a real appreciation of the exchange rate of the Tanzanian
Shilling.
1.3 Second, the share of public expenditures financed through foreign aid has increased
from around 25 percent in FY98 to more than 40 percent in FY04. Even taking into account
that part of this increase reflects better capture of aid rather than additional aid flows, it
nonetheless highlights the aid dependency of Tanzania’s public sector and the related risk
to the sustainability of current expenditure levels. While recent work on the cost of
achieving the MDGs indicates that current MDG related public expenditures are still
1
insufficient, sustaining or expanding current levels of foreign aid will require a clear
demonstration that both domestic and foreign funds are effectively used and tangible
progress is made in moving towards the MDG targets.
1.4 A specific facet of the increasing degree of aid dependency is illustrated by Figure 1,
which shows Tanzania’s ability to finance recurrent expenditure from domestic revenue.
Until FY99, domestic revenue exceeded recurrent expenditure. However, since FY00,
domestic revenue was insufficient to finance recurrent expenditure and the coverage has
indeed been declining. In FY04, more than 20 percent of recurrent expenditure are foreign
financed through budget support. The significance of this is that the ability of Tanzania’s
government to carry out its ongoing business is now significantly exposed to fluctuations in
budget support provided by donors. One the one hand, donor financing of recurrent
expenditures reflects one of the benefits of budget support which is precisely to allow
government to make decisions as to whether support should be used to enhance development
or recurrent spending. In the past, the limitation of using donor support for development
expenditures has often led to imbalances between recurrent and development expenditures
and under-funding of recurrent expenditures necessary to maintain and operate investments
in development projects. Nonetheless, the fact that more than 20 percent of recurrent
expenditures are dependent on donor support underlines the need to raise domestic revenue.
It also underlines a point raised in previous PERs, i.e., Government needs to carefully
consider the use of budget support and refrain from automatically using budget support
primarily for recurrent expenditures while relying on the financing of development
expenditures primarily on project support.
Figure 1: Ability to Finance Recurrent Expenditure from Domestic Revenue

(Domestic Revenue as a percentage of Recurrent Expenditure)
120%
100%
80%
60%
40%
20%
0%
FY98 FY99 FY00 FY01 FY02 FY03 FY04
1.5 The development budget has traditionally been financed through donor-supported
projects. A positive development is that the share of development expenditures finance
from domestic revenue and budget support has indeed been increasing since FY00,
reflecting the increased availability of program support and debt relief.
2
Figure 2: Share of Development Expenditure Financed from Non-Project Support Resources
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Domestic Revenue
1.6 Improvements in tax administration lead to an increase in the revenue to GDP

ratio. Improvements in tax administration such as the set up of a large tax payers
department, curbing tax evasion related to the import of petroleum products, and reducing
the opportunities for the abuse of tax exemptions through the use of voucher schemes have
led to substantial increases in the revenue to GDP ratio. The introduction of a new income
tax act in 2004 is expected to lead to further increases in the revenue to GDP ratio. TRA
aims at increasing the revenue to GDP ratio to the range of 15 to 16 percent in the medium
term.
Table 2: Revenue Performance (% of GDP) FY98-04

Item FY98 FY00 FY02 FY03 FY04 FY04
Actual Actual Actual Actual. Budget Proj.
Total Revenue 12.0 11.3 12.1 12.8 13.1 13.2
Tax Revenue 11.0 10.1 10.9 11.6 12.0 12.0
Taxes on Imports and Exports 3.5 3.2 4.7 5.0
VAT and Excise on Local Goods 2.7 2.6 2.5 2.4
Refunds 0.0 0.1 0.4 0.0
Income Taxes 2.9 3.0 2.6 2.9 3.0 2.9
Other taxes 1.9 1.3 1.1 1.2 1.3 1.1
Non- tax Revenue 1.0 1.2 1.2 1.2 1.1 1.2
1.7 While increasing domestic revenue is important to reduce Tanzania’s aid

dependency, it is also important to keep the impact of Tanzania’s tax regime on growth and
3
investment in focus. A recently completed Investment Climate Assessment highlights
potential constraints imposed by the current tax regime.
Findings from the Investment Climate Survey on the Tax System1
1.8 Almost 73 percent of enterprises in Tanzania rated tax rates as a major or very
severe constraint on enterprise performance and growth – considerably more than rated any
other obstacle as a major constraint. Although tax rates are rated as a major constraint on
operations and growth in many countries – for example, enterprises were more likely to
rate high tax rates as a major problem than any of eight other constraints in almost two-
thirds of the countries in the 1999 World Business Environment Survey – enterprises
appear to be especially concerned about high tax rates in Tanzania.2 Among the 35
countries for which investment climate assessments had been completed by mid-2003,
enterprises were more likely to rate tax rates as a serious obstacle in only one country
(Ethiopia).
1.9 Although many enterprises rate tax rates as a major problem, this does not imply
that tax rates on businesses should necessarily be reduced. On average, rates for individual
taxes in Tanzania do not appear to be significantly out-of-line with rates in other
developing countries. For example, corporate tax rates are 30 percent in Tanzania, China,
Kenya and Uganda and 40 percent in India. The base rate for the VAT is slightly higher in
Tanzania than it is in the other countries (20 percent in Tanzania compared to between 14
and 18 percent in China, Kenya and Uganda), but is not far out of line with the comparator
countries.
1.10 It does, however, stress the need for broadening the tax base so that the burden on
formal enterprises can be reduced without compromising fiscal stability. For example, the
VAT efficiency ratio (the ratio of VAT revenues to GDP divided by that VAT rate) is
lower in Tanzania (0.20) than it is in other countries in sub-Saharan Africa (0.27).
Although the benefits of some recent reforms in tax administration (e.g., the establishment
of the Large Taxpayer Unit in 2001 and the introduction of taxpayer identification numbers
in 2000) are likely to be felt in the future, continued improvement could reduce the burden
of taxation on formal enterprises. A second related issue is that tax exemptions and
incentives in some important sectors of the economy have taken a toll on tax revenues.
1
From “Investment Climate Assessment: Constraints on Enterprise Performance and Growth in Tanzania”
RPED, The World Bank, preliminary draft, February 7, 2004
2
From “Investment Climate Assessment: Constraints on Enterprise Performance and Growth in Tanzania”
RPED, The World Bank, preliminary draft, February 7, 2004
4
Figure 3: Percent of enterprises rating tax rates and administration
as major or very severe obstacles
73% 74%
80% 68%
60%
56%
60% 46%
46% 48% 51%
34% 36%
40%
24%
20%
0%
Tanzania China Pakistan Uganda Kenya Ethiopia
Tax Rates Tax Administration
Source: Investment Climate Assessments
1.11 Despite the recent reforms intended to improve tax administration (see above),
results from the Investment Climate Survey suggest that tax administration remained a
serious problem even in mid-2003. Enterprises in Tanzania were more likely to rate tax
administration as a major or severe problem (56 percent of enterprises) than enterprises in
Kenya (51 percent), Uganda (36 percent), China (24 percent) or Pakistan (46 percent) (see
Figure 3) – although enterprises in Ethiopia were more likely to rate it as a major or very
severe obstacle.
1.12 Quantitative data from the Investment Climate Survey also supports the idea that
tax administration is particularly burdensome in Tanzania. Enterprise managers in
Tanzania reported that they spent about seven days dealing with inspections or required
meetings with officials from the tax inspectorate in 2002/03. In comparison, enterprise
managers in Kenya, Uganda, and China reported only spending 2-3 days in meetings. In
general, Tanzanian firms that are more productive spend more time meeting tax officials
and with tax inspections. Although this might seem puzzling, one reasonable explanation
for this is that officials target enterprises that are more productive. Despite the reforms in
tax administration, enterprise managers did not generally report any improvement in 2002 –
although 36 managers reported fewer meetings with tax officials in 2002 than in 2001, 59
managers reported more meetings and 149 reported the same number.
1.13 Corruption in tax administration is a problem in Tanzania. Despite recent reforms –

including the reforms when the Tanzania Revenue Authority (TRA) was formed in 1996
that were intended to reduce corruption in tax administration – 21 percent of enterprises
that had required meetings with tax inspectors reported that gifts or informal payments
were expected or requested during the meetings.3 In comparison, 7 percent of enterprises
that had required meetings in Uganda, 21 percent of enterprises in China and 38 percent of
enterprises in Kenya reported that gifts or informal payments were requested. The median
3
Reforms included reforms designed to limit political interference in tax administration and to allow the
authority to pay salaries that were higher than they could if the agency remained part of the civil service (see
Fjeldstad, 2002)
5
value of the gift/informal payment was T.Shs. 400,000 (about US$400 in mid-2003) in
Tanzania.
1.14 Although it is difficult to draw strong conclusions about tax evasion from
investment climate surveys – enterprise managers are unlikely to be especially forthcoming
with respect to tax evasion – tax evasion appears to be a more serious problem in Tanzania
than in the other comparator countries despite the greater number of inspections and
required meetings in Tanzania. To try to estimate the extent of tax evasion, the investment
climate surveys asks enterprise managers ‘what percentage of total sales would you
estimate the typical firm in your area of activity would report for tax purposes.’ The
median estimate in Tanzania was 80 percent of sales. This was lower than in Uganda (90
percent), China (100 percent) or Kenya (100 percent).
Donor Assistance
1.15 Donor assistance to the Government of Tanzania in the form of grants and loans has
been on the rise since the mid 1990s. FY03 and FY04 saw significant further inflows of
aid, which are now estimated at around 9.7 percent of GDP and finance more than forty
percent of Tanzania’s budget. The most significant development has been the increase in
general budget support provided by a group of 13 donors which now accounts for more
than 50 percent of development assistance received by Tanzania.
Table 3: Composition of External Assistance (% of GDP), FY98-04

FY98 FY00 FY02 FY03 FY04 FY04
Actual Actual Actual Actual. Budget Proj.
Grants and Loans 4.0 6.0 5.9 8.6 8.9 9.7
Grants 3.0 4.5 4.5 6.5 6.3 6.5
Program 0.7 1.4 2.2 3.1 3.4 3.6
Project 2.3 3.0 1.6 2.7 2.1 2.1
HIPC debt relief 0.0 0.1 0.7 0.8 0.8 0.8
Loans (net) 1.0 1.5 1.4 2.1 2.6 3.2
Loans 2.1 2.8 2.2 3.2 3.9 4.2
Program 1.3 0.9 1.0 1.6 1.8 2.1
Project 0.8 1.9 1.2 1.6 2.0 2.1
Amortization -1.1 -1.3 -0.8 -1.1 -1.2 -1.0
Government Expenditures
1.16 Government expenditure has risen dramatically since the late 1990s. FY03 and
FY04 saw further increases in government expenditure, which now stands at an estimated
23.7 percent of GDP. Most of these increases have been devoted to enhancing funding of
operations and maintenance, which increased from a meager 4.5 percent of GDP in FY98
to 12.3 percent of GDP in FY04. While in the late 1990s and early 2000s operations and
maintenance had been severely under-funded and increasing allocations to this area was the
top priority, current expenditure levels require closer attention to the structure and
efficiency of public expenditures.
1.17 With respect to the structure of expenditures, strategic decisions are required with
respect to the appropriate distribution of funds between wages and salaries, operations and
6
maintenance, and (locally funded) development expenditures. Concerning wages and
salaries, current expenditure levels should provide scope for the accelerated
implementation of the medium term wage policy. It is also of concern that with respect to
the development budget government continues to rely primarily on foreign donor
financing, while locally financed development expenditures have increased at a rather slow
pace.
1.18 Concerning the efficiency of spending on operations and maintenance, it would be

useful to review management practices for key expenditure components such as wage
related expenditures, training, government assets (such as buildings and vehicles), or the
rental of office space.
Table 4: Government Expenditure (% of GDP), FY98-04

FY98 FY00 FY02 FY03 FY04 FY04
Actual Actual Actual Actual Budget Proj.
Total expenditure and net lending 15.7 18.9 17.6 20.8 22.5 23.7
Recurrent expenditure 11.0 11.8 13.6 15.6 17.0 18.1
Wages and salaries 4.3 4.2 4.0 4.2 4.4 4.4
Interest payments 2.3 1.9 1.4 1.0 1.4 1.4
Domestic 1.0 1.2 0.7 0.6 0.7 0.7
Foreign 1.3 0.7 0.7 0.4 0.7 0.7
Other goods, services & transfers 4.5 5.8 8.2 10.4 11.2 12.3
Clearance of domestic arrears 0.8 0.1 0.7 0.0 0.0 0.0
Bank and parastatal recapitalization 0.0 1.5 0.0 0.0 0.0 0.0
Dev. expenditure and net lending 3.8 5.3 3.4 5.2 5.5 5.5
Domestically financed 0.5 0.3 0.6 1.0 1.3 1.3
Foreign-financed 3.4 5.0 2.8 4.2 4.2 4.2
Net lending 0.0 0.0 0.0 0.0 0.0 0.0
Expenditure float 0.0 0.3 0.0 0.1 0.0 0.0
1.19 The wage bill increased to 4.4 percent of the GDP in FY04 reflecting the continued
implementation of the medium term pay policy. Average salaries increased by about 25
percent in FY03 and by 18 percent in FY04.
1.20 After declining until FY02, public sector employment has started to increase since
FY03. Some of the increases in staffing such as the hiring of additional teachers is directly
related to the implementation of the PRS. However, since the implementation of the
medium term pay policy is predicated on a tight control of civil service employment, it will
be crucial to closely monitor and control employment levels in the public sector. In
particular, the widening gap between employment targets under the medium-term pay
reform strategy and actual employment numbers is of concern.
7
Table 5: Civil Service Employment FY99-FY04 (December of each year)
Salary Scale FY99 FY00 FY01 FY02 FY03 FY04
Staff in absolute numbers
TGOS 35651 34806 35001 37530 38829 40288
TGS 63787 63310 59994 56838 57095 58651
TGTS 122215 118868 119566 122148 130158 134498
TPSW + TGPSW 36190 34821 36448 39823 38208 38983
OTHERS 12785 11381 8837 772 775 58
TOTAL 270628 263186 259846 257111 265065 272478
Target under Medium-term 258543 249,000 240,943 234,655
Pay Reform Strategy
Percentage change
TGOS -2.40% 0.60% 7.20% 3.50% 3.76%
TGS -0.70% -5.20% -5.30% 0.50% 2.73%
TGTS -2.70% 0.60% 2.20% 6.60% 3.33%
TPSW + TGPSW -3.80% 4.70% 9.30% -4.10% 2.03%
OTHERS -11.00% -22.40% -91.30% 0.40% -92.52%
TOTAL -2.70% -1.30% -1.10% 3.10% 2.80%
Note: Employment numbers are as of December 31 of the fiscal year, e.g. data for FY04 are as of
December 2003.
Source: CSD
Table 6: Civil Service Average Salaries, FY98-FY04

Salary Scale FY99 FY00 FY01 FY02 FY03 FY04
Average monthly salary (T.Shs.)
TGOS 37703 38212 47220 56633 65265 74116
TGS 57313 57625 78067 85267 100817 127681
TGTS 56314 57073 80162 92670 108844 127959
TPSW + TGPSW 60506 61400 70925 75669 85830 93091
OTHERS 11587 108011 167861 84149 483285 222155
8
TOTAL 54684 55387 74143 78878 98560 116484
Percentage Change
TGOS 1.4% 23.6% 19.9% 15.4% 13.5%
TGS 0.5% 35.5% 9.2% 18.2% 26.6%
TGTS 1.3% 40.5% 15.6% 17.5% 17.5%
TPSW + TGPSW 1.5% 15.5% 6.7% 13.4% 8.4%
OTHERS -6.8% 55.4% -49.9% 474.3% -54.0%
TOTAL 1.3% 33.9% 6.4% 24.9% 18.1%
Source: CSD
8
1.2 STRATEGIC RESOURCE ALLOCATION
1.21 This section reviews developments in the allocation of resources in FY04 as well
as actual expenditures during FY03.
Table 7: Composition of Public Expenditures as % of GDP, FY96-FY04

VOTE HOLDER FY96 FY98 FY00 FY02 FY03 FY04
Actual Actual Actual Actual Actual Budget
Recurrent Expenditures 12.5 13.1 12.8 14.9 14.9 17.1
Debt Service 3.7 4.9 4.2 3.2 2.8 3.9
Supply Votes 8.8 8.3 8.6 11.7 12.2 13.3
Recurrent Central 6.5 6 6.3 8.8 9.0 10.2
Recurrent Regions and
Districts* 2.3 2.3 2.3 2.9 3.2 3.1
Development Expenditure 0.5 1.6 1.5 2.7 4.7 7.7
Total Expenditure 13 14.7 14.3 17.6 19.6 24.8
* Transfers from the central government to the regions and local authorities.
Source: Appropriation Accounts (FY96-FY03), Budget Books for FY04
1.22 The appropriation accounts show an increase in total expenditure (including debt
service) from 17.6 percent of GDP in FY02 to 19.6 percent of GDP in FY03.4 Higher
development expenditure accounts for this increase in spending, while recurrent
expenditure remained at the same level as in FY02. The budget for FY04 projects a
further increase in overall spending to 24.8 percent of GDP with development spending
increasing from 4.7 to 7.7 percent of GDP and recurrent expenditure increasing from 14.9
to 17.1 percent of GDP. The increase in development expenditure witnessed since FY02
reflects both improved capture of ongoing assistance in the budget but also the scaling up
of activities, especially in the infrastructure and energy sectors.
1.23 The share of recurrent expenditures used for debt service payments declined from
about 3.2 percent of GDP in FY02 to 2.8 percent in FY03, reflecting debt relief received
under the HIPC initiative. The budget for FY04 projects an increase in debt service
payments to3.9 percent of GDP, partly reflecting provisions for the servicing of non-Paris
Club debt. By February 2004, spending on debt services was significantly less than
budgeted and about 25 percent of the original allocation (or about one percent of GDP)
has been reallocated to other uses. The increase in recurrent expenditures was fairly
evenly divided between spending at the central level and transfers to the local level
(regions and districts). Spending at the central level increased by 0.2 percentage points to
9.0 percent of GDP, while transfers to the local level increased by 0.3 percent to 3.2
percent of GDP. The budgeted increase in recurrent expenditure for FY04 is focused on
central government expenditures, while allocations to regions and districts decline by 0.1
4
The definition of recurrent expenditure in this section uses the government of Tanzania classification,
which includes total debt service payments as part of Consolidated Fund Services, while the classification
used in the previous section includes only interest payments but not amortization as part of recurrent
expenditures. Expenditures funded from the education and health sector baskets are included under
recurrent expenditure in the CGO tables but under development in the appropriation accounts. There is are
also significant differences between the estimates of development expenditure in the CGO and
development expenditure recorded in the appropriation accounts. While the figure for development
expenditure shown in the CGO is an estimate based on commitments, the appropriation accounts only show
development assistance which is actually recorded in the government books.
9
percent of GDP. Since transfers to local authorities provide resources for the delivery of
decentralized services in the priority sectors covering education, health, water, and
agriculture, the fact that these expenditures have increased at a much slower pace than
expenditures by the central government is of concern. Starting in FY05, Government has
decided to adopt a formula based approach to distributing resources for health and
education to the district. An important provision of the introduction of the formula based
approach is that no district should receive fewer transfers than under the previous system.
In order to support service delivery at the local level, Government is encouraged to give
appropriate priority to resource allocations to service delivery units as compared to the
funding of central administrative structures.
Table 8: Functional Allocation of Recurrent Expenditure (actuals, % of GDP), FY96-FY04

Sector FY96 FY98 FY00 FY02 FY03 FY04
Administration 2.1 1.6 2.1 3.5 3.0 3.9
Defense and Security 2.4 2.2 2.0 2.1 2.3 2.4
Social Services 3.5 3.6 3.6 4.7 5.1 5.3
Economic Services 0.2 0.4 0.7 1.0 1.2 1.1
Productive Services 0.5 0.3 0.3 0.4 0.5 0.6
Supply Votes 8.7 8.2 8.6 11.7 12.1 13.2
Consolidated Fund Services 3.7 4.9 4.2 3.2 2.8 3.9
Total Recurrent Expenditures 12.5 13.1 12.8 14.9 14.9 17.1
1.24 Table 8 presents the functional classification of recurrent expenditures funded

from the central government budget for the period FY96-FY04. Expenditures on the
social sectors had remained fairly constant at around 3.6 percent of GDP over the period
FY96 to FY00. In response to enhanced HIPC debt relief and the introduction of the
PRSP supported by budget support from the PRBS/PRSC facility, spending in the social
sectors has increased in the following years reaching 5.1 percent of GDP in FY03 and is
budgeted to increase further to 5.3 percent of GDP in FY04. It is also important to note
that the appropriation accounts capture basket funded expenditures in the health and
education sectors in the development budget rather than in the recurrent budget, which is
likely to result in a quite substantial underestimation of recurrent spending on the social
sectors. The increase in spending on the social sectors was facilitated by the overall
increase in recurrent expenditure. As a share of spending on the supply votes, social
spending has fluctuated between 40 and 44 percent in recent years. As spending on other
sectors is rising faster than in the social sectors, the share of social services is budgeted to
fall to 40 percent in FY04 after reaching 42 percent in FY03.
1.25 Expenditures on administration have fallen from 3.5 percent of GDP in FY02 to
3.0 percent in FY03. Spending in FY02 had been exceptionally high as it covered
liabilities and the clearance of arrears to suppliers incurred by all ministries. The
budgeted increase in spending on administration to 3.9 percent in FY04 is partly due to
the introduction of the Treasury voucher scheme, were T.Shs. 31 billion (or 0.3 percent of
GDP) have been set aside for tax expenditures. Administration also includes the vote for
the President’s Office – Regional Administration and Local Authorities which in FY02
and FY03 contains large amounts (T.Shs. 14 and 20 billion, respectively) for transfers to
the local authorities for the funding of capitation grants in primary education. In
10
addition, administration also includes expenditures for priority areas related to
accountability in the public sector such as the OCAG, the Judiciary, the Civil Service
Reform Department, and the Ministry of Lands.
1.26 Expenditures on defense and security have declined from 2.4 percent of GDP in
FY96 to 2.0 percent in FY00. Since then, expenditures on defense and security have been
on a steady increase and are projected to reach again 2.4 percent of GDP in FY04.
Government justifies these increases in security related expenditures as a result of
insecurity in the region and rising crime in Tanzania. As such, enhanced security is
considered to be a pre-condition for sustaining economic growth and reducing poverty.
1.27 Expenditures on economic services, which include works, energy and mining,
lands, housing, and urban development, and communications and transport, increased
from 1.0 percent of GDP in FY02 to 1.2 percent in FY03, attributable to increased
spending by the Ministry of Transport and communications of about T. Shs. 25.8 billion.
1.28 Expenditure on the productive services, which include agriculture and food
security, cooperatives and marketing, industry and trade, and tourism, natural resources,
and environment, has been increasing steadily during the recent years from 0.3 percent in
FY00 to a budgeted 0.6 percent in FY04. Agriculture and food security as well as
tourism, natural resources, and environment were the primary beneficiaries of these
increases.
Table 9: Social Sector Recurrent Expenditures (actuals, % of GDP), FY96-FY04

Education 0.3 0.4 0.3 0.4 0.4 0.4
Health 0.3 0.5 0.5 0.6 0.6 0.8
Water 0 0 0 0.1 0.2 0.1
Science, Technology & Higher Education 0.5 0.4 0.4 0.6 0.7 0.7
Regions 2.3 2.3 2.3 2.9 3.2 3.1
Total Social Services 3.5 3.6 3.6 4.7 5.1 5.3
1.29 Recurrent expenditures in the social sectors have increased from 4.7 percent of
GDP in FY02 to 5.1 percent of GDP in FY03. The budget for FY04 provides for a
further increase in social spending to 5.3 percent of GDP. Most of the increase in social
spending occurs at the regional and district level, where the responsibility for the delivery
of basic services such as primary education and health care lies. At the central level,
funding for tertiary education going through the Ministry of Science, Technology and
Higher Education has been the primary beneficiary of spending increases.
11
Table 10: Sectoral Development Expenditures (actuals, % of GDP), FY96-FY04
Administration 0.1 0.4 0.3 0.9 1.5 2.6
Defense and Security 0.0 0.0 0.0 0.0 0.1 0.1
Social Services 0.2 0.4 0.5 0.9 1.7 2.0
Economic Services 0.1 0.6 0.6 0.7 1.2 2.4
Productive Services 0.1 0.2 0.2 0.2 0.2 0.6
Total Development Expenditures 0.5 1.6 1.5 2.7 4.7 7.7
1.30 Recorded development expenditures show a continuous upward trend increasing

from 0.5 percent of GDP in FY96 to 4.7 percent of GDP in FY02. This increase in
development expenditures is partly due to a greater share of donor-funded expenditures
being captured in the appropriation accounts, but also to improvements in project
implementation performance. The budget for FY04 projects a further significant jump in
development spending to 7.7 percent of GDP. The increase in FY03 is primarily due to
increased spending under the sector development programs for health and education (an
important share of resources provided for health and education is shown under
administration, as they are included in the budget of the President’s Office – Regional
Administration and Local Authorities). Important contributors to the increase in FY04
are higher spending on infrastructure, especially roads and power and further increases in
spending under the sector development programs for health and education captured under
administration – PO-RALG.
12
Box 1: Supplementary Budget and Additional Expenditure Needs in FY04
In February 2004, Government identified a range of emerging expenditure needs (8 items, amounting in total to TZS 157,260 mill., which were not
(or not adequately) provided for in the approved 2003/04 budget estimates. These additional expenditures will be financed partly through draw
down of reserves and partly through reallocation.
Additional Expenditure Needs identified during FY04
Estimates in TZS bill Sub-vote / Sub-item Originally Approved Additional Expenditure
Estimates Needs
Vote 50 MOF Contingency
(a) parastatal wages (and related pension contributions) 3,617 2,600
(b) anti-corruption campaign 857
(c) local government subventions 4,000 18,900
(d) retrenchment 4,000
(e) government wages (and related pension contributions) 34,516 12,990
(f) contingent proper 8,686 12,200
Sub-total 2001/261132 55,676
Vote 43 MAFS
strategic grain reserve, grain 5002/320103 2,210 15,000
Vote 58 MoEM
Energy & Petroleum, misc. grants & subsidies 3001/280714 20,087 41,300
Vote 61 Electoral Commission

voters' register not specified not specified 14,270
Vote 62 MoTC
Tanzania Aircraft Auth. Transfers & subsidy 2001/280571 4,868 40,000
Total 157,260
Subsequently, in February 2004, a supplementary estimate of expenditure (No.1 2003/04) was approved by Parliament, as follows:
• The supplementary budget is for an increase in budgetary expenditure of TZS 87.25 bill;
• Only 3 items of additional expenditure are mentioned, including strategic grain reserve, TANESCO subsidy and Government aircraft (i.e. 5
items listed in the Note are not included).
• Financing of the additional expenditure is composed of (i) additional domestic revenue: TZS 7.58 bill (ii) Budget support from PRBS5 and
ADB SAL6: TZS 39.67 bill and (iii) draw down of government reserves with BoT: TZS 40.0 bill.
This leaves TZS 60.0 bill of the additional expenditure needs to be funded from reallocations within the original budget.
TZS 53.5 billion is being reallocated from amortization of public debt to recurrent expenditure. Secondly, an amount of TZS 36.0 billion has been
mobilized as savings from most MDA votes. Combined with the increased resource envelope of the Supplementary Budget, this allows new
allocations of TZS 176.7 billion. This amount exceeds the originally identified additional expenditure needs by TZS 19.4 billion 7. Of this amount,
TZS 3.5 billion will be allocated to MAFS in addition to the TZS 15.0 for the SGR. No information has yet been received on the use of the
remaining TZS 15.9.
These budget enhancements and reallocations are quite substantial, representing 12% of total discretionary recurrent expenditure as originally
approved. The budget reallocations are primarily targeted at Other Charges, where they constitute 18% of the originally approved estimates, and
only about one third of the value of those amendments concern the drought related expenditure for the Strategic Grain Reserve and TANESCO.
The impact of these reallocations on the PRS priority sectors’ share of total discretionary recurrent expenditure is a decline from 46.4% (based on
the originally approved budget including planned PE adjustments) to 43.1%. If the emergency related expenditures to SGR and TANESCO are
excluded from the calculation, the PRS priority sectors’ share becomes 43.7%.
MoF has indicated that the cuts in allocations for the PRS priority sectors will affect only lower-priority items such as workshops, seminars and
overseas travel. The question is whether this is realistic in view of the amounts involved (e.g. TZS 3.6 billion for Ministry of health) and the in-year
budgetary adjustment where some of the original budget allocations may already have been spent. It is recommended that implementation of these
expenditure cuts in the PRS priority sectors should be closely monitored.
The substantial additional expenditure needs related to the drought (at least TZS 56 bill8) compared to the ‘real’ contingency of only TZS 8.7 bill,
raises the issue of how the government should plan to finance substantial emergency requirements as a result of external shocks. It is suggested that
this could be done from domestic borrowing as long as the annually programmed level of such borrowing is kept at a very modest level, e.g. at the
0.5% of GDP which has been the standard in the past. The agreement with the IMF under the PRGF reviews during FY04 has led to an increase in
the domestic financing of about TZS 40 billion, which is not far short of the emergency requirements. However, the budget frame for FY05 to
FY07 count on steady increases in domestic borrowing. If that approach is taken, the scope for funding budget implications of external shocks from
additional domestic borrowing without negative impact on macro-stability will be constrained.
5
Impact of actual average exchange rate being different from budgeted average exchange rate.
6
Disbursement of one tranche of SAL in FY04, which was originally expected in FY03.
7
Total funds mobilized TZS 176.7 billion less additional expenditure needs of TZS 157.3 billion.
8
SGR TZS 15 billion, TANESCO TZS 41 billion).
13
Use of the Contingency under Vote 50
1.31 In the budget for FY03, the Ministry of Finance retained T.Shs. 75 billion under
vote 50 for reallocation to spending units during budget implementation. The bulk of this
amount (T.Shs. 41 billion) was retained for salary adjustments). Other indicative uses
include parastatal wage increases, debt swaps, the voucher system for non-religious
NGOs, the anti-corruption campaign, and a HIPC relief adjustment. Table 11 shows the
indicative and actual use of this retained amount [Analysis to be completed based on
reallocation warrants].
Table 11: Utilization of the Contingency Under Vote 50, FY03

Intended Use T.Shs. Billion Actual Use T.Shs. Billion
Parastatal wage increase 6.0
Contingency proper 8.0
Debt Swaps 4.0
Voucher system for non religious NGOs 13.2
Salary Adjustment 41.3
Anti-Corruption Campaign 0.8
HIPC Relief Adjustment 1.7
Total 75.0
1.32 For FY04, the Contingency voted under Ministry of Finance amounts to TZS 55.7
billions. Most of the contingency (TZS 47.0 bill for FY04) is in fact provisionally
allocated for ‘Special Expenditure’ during the budget formulation process, but allocated
to the executing MDAs into the budget year when details for final estimates have been
obtained (Table 12).
1.33 Although the quarterly budget execution reports (BER) do not give
comprehensive data for the use of the Contingency during quarters 1 & 2, the combined
information from the BER Q2 and the Reallocation Warrant no. 1 for 2002/03 allows an
(not necessarily complete) assessment to be made.
Table 12: Utilization of the Contingency Under Vote 50, July-December 2003
TZS billion Planned as per Budget Reallocations July-December 2003
Speech June 2003 (*)
Special Expenditure 95.380
Parastatal Wages 3.617 3.600
Anti Corruption Campaign 0.857 0.857
Local Government subvention 4.000 4.000
Joint Finance Commission 0.700 -
Retrenchment 4.000 -
Government wages 34.516 34.500
Contingent Proper 8.686
Allowances to MPs 3.924
Election of Ward Officers 0.778
Transport of food to deficit areas 0.693
Pension contributions 0.500
Student allowances, higher education 0.425
Miscellaneous allocations 0.405
Total 56.376 49.682
(*) Assessment based on Reallocation Warrant no. 1 and PE budget 2003/04 as per Budget Guidelines tables (January 2004) plus the
(confirmed) assumption that special expenditure allocations for wages has indeed been used for that purpose, although this is not
included in Reallocation Warrant no.1.
14
1.34 Among the Special Expenditure, the allocation for Retrenchment and the Joint
Finance Commission (between Zanzibar and the Mainland) has not yet been utilized.
According to the BER for Q2, the retrenchment expenditure for Q1&2 is nil. The
commentary does not offer any explanation why no progress has been made in this area.
With no reallocation towards the JFC it must also be assumed that little if any progress
has taken place in the work of the JFC.
1.35 Some 77% of the Contingency Proper has been allocated for specific purposes. Of
those reallocations about half went to allowances for MPs. The use of the Contingency
proper for drought related expenditure has been very modest (10% of the allocations
made.
1.36 It is reported that TZS 10.5 bill was spent on the Population Census in Q1, but not
clear from what vote/sub-vote funds were allocated for that purpose. There is only a
reference in a footnote to item reclassification.
1.3 PRIORITY SECTOR EXPENDITURES
Priority sector trends 1999/2000 – 2003/04
1.37 Tanzania’s PRSP identifies several sectors as priority sectors that would be the
focus of budgetary allocations for poverty reduction. These sectors include (i) education
(notably at primary school level), (ii) health (primary health care), (iii) agriculture
(research and extension), (iv) roads (in the rural areas), (v) water, (vi) judiciary, and (vii)
HIV/AIDS. Subsequently, lands has been added as another priority sector given the
critical role of land for the agriculture sector and for income generation. Since
1999/2000 and in the budget for 2003/04 (see Table 13), expenditures in these sectors
have seen significant absolute increases.
Table 13: Trend on Priority Sectors (RE + DEV) in Absolute and Relative Terms Over the Years
TZS bl and % 99/00 00/01 01/02 02/03 ¾
Priority sectors (RE + 414.4 494.6 753.7 953.6 (+200 1,122
DEV) (excl. Lands) bn or 26.5%) (+ 168 bn
or 18 %)
Priority sectors, share of 44.8% 51.8% 58.1% 53.3% 52.1%
total discretionary budget
(excl CFS*)
Priority sectors, share of 34.7% 39.3% 46.3% 45.6% 43.03 %
total budget (incl. CFS)
Non-priority sectors (RE 44% 37% 34% 40% 41%
+ DEV – including (+ 291.5 bl or (+ 242.8
Lands), share of total +53.7%) bn or +
budget (incl. CFS) 29%)
(Source: Ministry of Finance, Central Government Expenditure, 1998/99 – 2003/04)
* Total discretionary budget in FY 2002/03 (in bn TZS): (total expenditure: 2,091.1) – (Consolidated Fund
Services: 303.7) = 1,787.4.
1.38 Until FY02, the share of priority sector expenditures in both total discretionary
expenditure (from 44.8 percent in FY00 to 58.1 percent in FY02) and total expenditure
(from 34.7 percent in FY00 to 46.3 percent in FY02) has been on the increase. However,
subsequently the expenditure shares of the priority sectors declined to 52.1 percent and
43.0 percent respectively. There are two complementary reasons for these recent
15
developments. Firstly, government claims rightly that the priority sector defined in the
PRSP are primarily focused on the social sectors and give insufficient weight to public
expenditures that are supportive of economic growth such as infrastructure expenditures.
1.39 The Songo Songo gas development project was a large part of foreign
development expenditure and T.Shs 67 billion was recorded as total project loans. So
while there was a 38 percent year on year rise in foreign development expenditure, 17
percent of total foreign development expenditure (T.Shs 405.2 billion) in 2002/03 was
Songo Songo project loans. This represents 3 percent of total expenditure (including
CFS) in 2002/03. Since this comes under the energy sector, and hence is not captured in
priority sector outturn, the relative share of priorities in total expenditure is lower in
2002/03. The exclusion of the Songo Songo project from the outturn of 2002/03
expenditure reveals that the priority sector share of total expenditure including CFS is 46
percent, hence there would be no relative decline compared to 2001/02.
1.40 Secondly, after the rapid increase in spending on the priority sectors until FY02, it
was considered necessary to enhance funding for other sectors, which, even though their
activities are not directly linked to poverty reduction, are nonetheless critical to a
functioning government. The new PRSP, which is currently under preparation, is
expected to revisit the definition of the priority sectors and to move from a rather
mechanic link between defined priority sectors and budgetary allocation to a system that
pays greater attention to poverty reduction results and outcomes.
1.41 The primary causes for the decline in the share of priority sector expenditures in
the total budget (incl. CFS) between 2002/03 and 2003/04 from 45.6 % to 43.03 % are
the following:
• Wage reallocation. Priority sector expenditure in the approved budget does not
include the amounts of T.Shs 34 billion for civil servant wages and T.Shs 3.6
billion for parastatal wages, which are currently under the Ministry of Finance
vote 50 contingency. These will be reallocated across Government during the
course of the fiscal year. It is estimated that the reallocations to priority sectors
will amount to T.Shs 24.95 billion. This represents 1 percent of total expenditure
(incl. CFS).
• Foreign development reallocation. The approved budget overestimated the
amount of foreign development expenditure to the energy sector by T.Shs 40
billion. This will be reallocated to the health sector (T.Shs 17 billion) and roads
sector (T.Shs 23 billion). This represents 1.5 percent of total expenditure (incl.
CFS).
• Contingency. A contingent amount of T.Shs 8.7 billion has been kept aside under
Ministry of Finance, vote 50 for unforeseen circumstances eg. food procurement
in the event that the drought will affect food supplies in the country. When
reallocated, it will raise the agriculture sector estimate. This represents 0.33
percent of total expenditure (incl. CFS).
1.42 In total, these items which will increase priority sector estimates relative to non-
priorities, amount to 2.8% of total expenditure budget (incl. CFS), which when compared
to the relative decline of 2.6% indicated in Table 13, it shows that the Government has
not placed a declining importance to priority sectors. In addition, there is an 18 percent
16
rise in absolute terms in approved budget priority sector allocations between the two
years. The increase for PRS priority sectors between 2002/03 and 2003/04 is somehow
muted to accommodate the need for increased allocations to security agencies such as the
police due to the rising crime experienced in the country.
1.43 There has been a rise in allocations to regions and local governments in the
priority sectors from T.Shs 327.3 billion in 2002/03 to T.Shs 448.6 billion (37 percent
increase) in 2003/04. The policy strategy is to fund priority programs, and to devolve
expenditure as much as possible from MDAs and sector programs to local government
authority and district-based programs. This shift in allocations is progressing.
Actual expenditures on the priority sectors during the first half of FY04
1.44 Starting in FY04, PRS priority sector expenditure is included in the budget
execution report (BER) with full details according to GFS codes (in annexes E, F, G and
H). This change of format greatly improves the usefulness of the BER as a monitoring
tool in relation to PRS implementation for the development partners and the Tanzanian
civil society at large (at least as far as the direction of the original PRSP was concerned).
1.45 Nonetheless, the assessment of expenditure performance is made difficult for two
reasons:
• Compatibility problems between the BER format and the budget estimates
books. The presentation of recurrent expenditure break-down in the BER (Annexes
A and C) does not match well with the structure of the budget estimates books,
except for the priority sector expenditure (this is discussed in more detail in section
2.4 below); and
• Assessment of performance on the development budget during the year
before the annual appropriation accounts is not very meaningful as most
donor-funded expenditure is typically only reported in the form of dummy
vouchers at the end of the fiscal year. The performance of development
expenditure during the first half of FY04 is thus not reviewed.
1.46 Salaries and Wages. The implementation of personnel expenditure is very much
on track at 99% of estimates for the six months. It is worth noting that personnel
expenditure for PRS priority sectors is ahead of estimates, mainly because PE releases to
LGAs for basic education (i.e. primary school teachers) are 11% above estimates. This
indicates strong commitment to implementing the programmed increase in the teaching
staff under PEDP. The commentary of the BER needs to elaborate further on the
developments in salaries and wages e.g. to which extent the year-on-year or quarter-to-
quarter changes are caused by changes in remuneration rates or in staff numbers. This is
particularly important for the education (priority) sector in order to follow the provision
of primary school teachers, which constitute some 40% of government employees, a third
of the consolidated government payroll and more than half of all subventions to LGAs.
1.47 Other Charges for Priority Sectors. The overall execution of OC expenditure in
the priority sectors has made substantial progress compared to the rate of progress made
for the corresponding period in FY03. Expenditure in Q2 was almost on target (at 99% of
half-year estimates, after 75% achievement in Q1). As in the case of salaries and wages,
17
PRS priority sectors are more than fully funded in accordance with estimates for the six
months and have received about 55% of the annual estimates. It is again the PEDP related
subventions to LGAs that contribute to this picture. This is a positive development that
indicates that procurement planning and implementation is improving, but perhaps also
that the aggregate increase in budget allocations for OC in the priority sectors, compared
to the previous year, has been less than in Other Sectors. However, the additional
resources transferred to LGAs do not necessarily correspond to actual expenditure at
LGA level (no consolidated LGA reports are available) and the shifting of SWAP basket
funding and associated expenditure from the recurrent to the development budget
classification further blurs the picture (and illustrates why a unification of the budget
would be beneficial to budget formulation and execution monitoring).
1.48 Substantial differences in sector performance are noted among priority sectors and
items, around the average expenditure of 47.5% of annual estimates. Within the priority
items, education and water have achieved 59% and 57% respectively of the annual
estimates, while HIV/AIDS is at the bottom with 26%. All other sectors have achieved
43-47%.
1.49 The BER mentions that additional funding of emergency expenditures related to
drought is required and that some such allocations already have been made. This includes
the Strategic Grain Reserve replenishment and procurement of fertilizers. The SGR actual
expenditure (a priority item) for the six months is about TZS 0.9 bill above the budgeted
six months estimate, while for the entire MAFS (vote 43), including non-priority items,
the expenditure is about TZS 5.0 bill above six months estimate. This suggests that
fertilizer procurement was been given top priority during those six months.
1.50 It is indicated that funding of the emergency needs has been made available by a
(TZS 14 bill) reallocation from local development expenditure to recurrent Other
Charges. About TZS 6 billion of this originates from planned allocations to development
projects in the priority sectors. Whether there is an aggregate reallocation away from or
into the priority sectors during Q1&2 is not possible to establish in detail, but the figures
mentioned suggest that this reallocation has been fairly neutral for the priority sectors in
general (though probably not for priority items).
1.51 Sectors other than PRS priorities. Overall, the expenditure performance was
122% of the half-year estimates. No breakdown is provided in the BER on the execution
in these sectors, apart from an aggregate for all such votes. Earlier BERs included such a
breakdown, which is important for monitoring when developments outside the priority
sectors threaten to impact the execution of priority sector expenditure. This may be the
case this year due to the large (more than 200%9) increase in subsidies to TANESCO as
part of the emerging expenditure needs based on below average rainfall in 2003.10 The
BER for Q2 highlights the changing expenditure needs, but is unspecific as to the
financing of this expenditure, and particularly the potential for reallocations from priority
expenditure votes and items (see further on budget revision in section 2.3 below).
9
According to the MoF Brief Note for PRBS Partners, January 2004.
10
The purchase of a new government aircraft will be financed from additional resources through a
supplementary budget and should therefore not affect priority sector expenditure in the current year, though
the issue of amortization and interest charges for the additional debt in future years remain an issue.
18
1.52 The BER Q2 mentions that some of the new expenditure needs have already been
partly catered for during the first six months of the year, but lack of details on ‘non-
priority’ expenditure lines and the MoF contingency in text and tables (with the exception
of the agricultural sector items) leaves an incomplete picture.
2. CONSISTENCY IN BUDGET PLANNING AND EXECUTION
1.53 A key objective of this year’s external evaluation is to assess the consistency of
policy, planning, and budgeting in Tanzania. In particular, the mission focused on the
consistency between the PRS, budget guidelines, the MTEF, the budget, and actual
expenditure. Preliminary findings of this analysis are as follows:
1.54 The PRS (2000) contains explicit statements on areas of priority spending and
expected expenditure trends. The FY03 PER carried out a detailed assessment of the
consistency between the PRS and budgetary developments and found that spending
trends are broadly consistent with the PRS. Subsequently, analysis carried out in the
context of the PRBS/PRSC Annual Review raised concerns about Government’s
continued commitment and the implementation of the PRS, as spending estimates for the
priority sectors and areas in the FY04 budget suggested a stagnation or even decline of
the share of spending going to these areas. Similarly, projections for FY05 and FY06
show no increase in the share of spending going to the priority sectors. Concerns about
government’s commitment to the PRS have also been fueled by discussions on actual or
considered large expenditure commitments that seem to lie clearly outside the PRS, such
as the purchase of government aircraft, or the construction of a new Parliament building
and a new Sports Stadium (which is expected to be financed through a grant from China).
1.55 A key element in the discussion of the consistency between the PRS and
budgetary developments is the definition of priority sectors and items, which was
provided in the PRS and subsequently refined. The usefulness of assessing current
budgetary developments in relation to the priority sectors and items identified in the PRS
has come under attack from two sides. Firstly, there is an increasing realization that
specific areas of expenditures, which are not included in the PRS priority sector
definitions, especially those related to infrastructure, are critical to growth and poverty
reduction. Secondly, there is also the argument that rather than focusing on expenditure
shares the focus needs to be much more on results. Indeed, a overly strong focus on
expenditure shares may indeed undermine the budget process and incentives for effective
and efficient service delivery. While such a results focus is clearly desirable, it is also
recognized that at present a clear statement by government (in the form of a credible
MTEF) on how the PRS will be translated into public expenditures would still be the
most meaningful benchmark against which domestic stakeholders and donors can assess
the consistency of public resource use with the PRS. This should thus be a priority in the
preparation of the new PRS currently underway.
1.56 The review of the consistency between expenditure estimates in the budget
guidelines and the budget indicates that at the aggregate level, consistency has increased
until very recently. However, more severe consistency issues arise with respect to
expenditure allocations within sectors and votes. The analysis focused first on the
consistency of various statements on revenue and expenditure for a given budget year and
subsequently focuses on the consistency and quality of outer year projections.
19
1.57 Resource estimates contained in the budget guidelines typically underestimate
resources actually allocated in the budget, however, the difference has become smaller in
recent years declining from 12 percent in FY02 to 6 percent in FY06. An underestimate
of around 6 percent is most likely indicative of conservative budgeting rather than severe
problems in preparing accurate resource projections at the time of the budget guidelines.
1.58 The main contributing factor is an underestimation of the amount of forthcoming

program support in the budget guidelines. However, while in FY00 the underestimation
of program resources was about 60 percent, it has decline to the range of 10 to 20 percent
in recent years, which is attributable to the combined efforts of government and budget
support donors to enhance the predictability of support. Underestimation of domestic
revenue has been in the range of five percent in recent years.
1.59 On the expenditure side, the underestimates of resource availability are primarily
reflected in under-estimates of allocations to operations and maintenance (Other
Charges). In FY00, OC estimates in the budget were about 20 percent higher than the
estimate in the budget guidelines. In FY04, the difference was less than 10 percent.
1.60 The consistency between budget execution and the budget suffers from two
weaknesses in the budget process. Firstly, while estimates of domestic revenue are fairly
accurate, the are still significant differences between the budgeted and actual amounts of
budget support. In FY02 actual budget support was 20 percent below the budgeted
amount while in FY03 it was 40 percent above the budgeted amount. For FY04 it is
expected that the difference is less due to the development of the PRBS/PRSC modality.
Another source for budget deviations is the practice of retaining a fairly large amount in
the budget of the Ministry of Finance for reallocations during the budget year. However,
in recent years this source of uncertainty has diminished and retained amounts are now
primarily for salary adjustments and true contingencies. On the positive side,
government has consistently protected expenditure allocations to the priority sectors from
cuts during budget execution. The possibility that this protection of priority sector
expenditures might not be maintained in FY04 is thus of particular concern.
1.61 Projections of resources and expenditures for the outer years have tended to be
relatively conservative and discussions during the mission suggested that the preparation
of the outer year estimates is generally seen as a bureaucratic rather than a strategic
exercise. Given the continuously expanding resource envelope in recent years, overall
resource allocations as well as allocations to the priority sectors typically exceeded
significantly the amounts that were indicated in the MTEFs one or two years before.
1.62 In looking at the degree of consistency between approved budgets and actual
expenditure, it is important to note that the level deviation observed varies greatly with
the level of aggregation of the analysis. Many of the sharpest concerns on effective
implementation of the budget concern expenditure at the level of individual programs
rather than broad sector aggregates. Performance on implementation of individual
programs can be examined, but it is valuable to draw these results into a more general
picture of how well the budget predicts actual expenditure at this level of detail. What is
needed is analysis which draws on a lower level of aggregation and yet provides a picture
of what is happening in terms of overall budget implementation, rather than a
commentary on individual programs or sub votes.
20
1.63 For a preliminary analysis of budget execution at lower levels of aggregation, it
seemed most useful to focus on expenditure data by sub vote. Data are available for three
years from FY01 to FY03. An index of budget deviation was calculated as the sum of
absolute differences between approved budget and actual expenditure at the sub vote
level, expressed as a percentage of the total budget. For each subvote the budget figure
under reference is from the budget, book as approved by parliament, taking no account of
any reallocations subsequent to parliamentary approval. The table below shows
preliminary summary results for these years, for central government recurrent
expenditure.
Table 14: Budget Deviation at Sub-Vote Level (average as % original budget)

Percentage deviation
FY01 22.6
FY02 26.3
FY03 12.3
1.64 Some observations can be made on these preliminary results. First, it is important
to consider the implications of the degree of deviation observed. Deviation at subvote
level of the order reported is clearly a significant problem for effective management of
resources. Given that the level of analysis is still fairly aggregate, it must be assumed that
deviations at the level of individual spending units are even higher, implying a serious
problem for spending managers in planning activities. Variances can arise from a wide
range of possible sources and it should not be assumed that deviations should optimally
be reduced to zero. Nevertheless, deviations of the order observed imply reallocation at a
level, which must be expected to have adverse effects on the efficiency of expenditure.
1.65 Secondly, there appears to be a significant improvement in performance during

FY03. Tracing through the potential causes of the pattern in observed deviation will
require further analysis, but there seem to be good grounds for associating the
improvement with a tightening of the approval process for reallocations within year,
starting FY03. Performance may also have been assisted by the reform of budget
classification in the previous year, allowing better alignment between expenditure
classification and the organizational structure.
3. STRENGTHENING BUDGET PROCESS
1.66 One of the central concerns of the FY04 PER is the need to enhance consistency
within the budget process, between the broad policy statements such as the PRS and
Government’s translation of these commitments into expenditure plans, annual budgets
and actual expenditure. A key element of this process of translation must be a budget
strategy, which should have the following characteristics:
• Clear linkage to policy: Sufficiently detailed to capture the key elements of

Government’s principal policy commitments in the PRS and other major policy
statements (including core elements of MDA Strategic Plans and performance
agreements). This implies a multi year horizon and allocations disaggregated
sufficiently to establish the link to program objectives and targets, and related
monitoring systems.
21
• Consistent with aggregate resource framework Rolled over annually and adjusted
to reflect changes in the aggregate resource framework over the planning horizon.
• Prepared and approved with the full engagement of policy makers: Approved by
Cabinet, and prepared according to a timetable allowing policy makers to
establish consensus that the strategy adequately translates existing policy
commitments within the constraints imposed by aggregate resource availability.
• Binding for the annual budget Decisions taken by Cabinet on strategic allocations
are binding for the subsequent stage of detailed budget preparation.
• Integrated within a realistic timetable for the policy/budget cycle Prepared
sufficiently early in the budget cycle to allow for subsequent preparation of
detailed annual budgets.
1.67 Among the various planning instruments prepared in the Tanzanian policy and
budget cycle, none exactly fit this description, although the Budget Guidelines comes
closest. In principle, the Budget Guidelines meets criteria 2-5 above. However, it does
not in present form adequately meet the first criterion, and in practice there are some
significant issues with the other criteria, as discussed further below. Nevertheless, as a
development of the existing system, strengthening the Budget Guidelines would probably
be the easiest way for Government to build a stronger formulation of budget strategy.
Strengthening the Budget Guidelines
1.68 Suggestions on key areas for strengthening the Budget Guidelines can be grouped
under the headings of the five criteria above.
1.69 Linkage to policy Currently the Budget Guidelines does not provide a clear
translation of policy commitments in the PRS and other statements of Government
policy. The degree of disaggregation in the Guidelines needs to be sufficient to capture
the critical policy commitments in the PRS and other policy documents, and to make it
possible over time to link budget allocations with agreed program targets and related
monitoring systems. This implies bringing forward some of the sector analysis currently
carried out under the MTEF and incorporating it within the Budget Guidelines – this will
also require timely completion of the sector PER work. The Guidelines also needs to
have a more credible framework for the medium term, though not at the same level of
detail, allowing a realistic expectation that year 2 numbers will be the starting point for
budget preparation in the next cycle and a useful focus for consultation in the current
cycle.
1.70 Aggregate resource framework: Adequate forecasting of external financing is one

of the key problems in this area. This year’s Guidelines has shown some deterioration in
this respect, in that the estimates of future donor support are based on information
received on confirmed financing, rather than as in the past, a central estimate of likely
aggregate financing. The Macro working group was in the past instrumental in assisting
to compile such estimates and it may be that revival of the functioning of this group could
help to address this problem in future. As noted further below in comments on the donor
interface with budget, Government could respond proactively to incomplete forward
information on donor financing with its own plan for external financing, as a routine
22
annex to the annual Budget Guidelines, for consolidation in subsequent annual
consultations.
1.71 Cabinet approval process: While the Budget Guidelines is submitted to Cabinet,
the document is frequently issued before Cabinet have discussed and made revisions to
the document. It may be useful in future to allow space in the timetable to complete
revision of the document prior to the next stage of budget preparation, making a clear
distinction between the Guidelines as draft proposal and the final approved version, with
the latter providing the basis for both external consultation and the parallel process of
detailed budget preparation. (As a matter of terminology it may also be helpful to
distinguish between the budget framework itself – which is in practice the core of the
MTEF – and specific directions for MDA submissions for the detailed annual budget, as
budget guidelines).
1.72 For the Budget Guidelines to play the role in budget strategy envisaged above, it
is very important that Cabinet review of the Guidelines is adequately informed and that
policy makers are deeply engaged in the lead up to the Cabinet review of the Guidelines.
This reinforces the point above on greater clarity on policy linkages and also underlines
the importance of redesigning the budget cycle to ensure that sector inputs are used
effectively in Guidelines preparation.
1.73 Link to subsequent budget preparation: In the current year’s Guidelines, there are
several factors, which imply that key framework numbers will require modification prior
to finalizing the annual budget. There is a significant volume of unallocated expenditure
(in part covering potential wage increases, which might more appropriately be decided
directly in the context of overall budget decisions). The majority of PE and OC
allocations have been derived by uniform changes based on the previous year’s
allocations, and it seems implausible that these allocations will not need to be adjusted if
the final budget is responsive to policy priorities and varying scope for efficiency gains.
Estimates of project financing show major increases which may not be realized: given
that this financing is included within sector envelopes, there must be some uncertainty on
the impact of adjustments in this area on sector financing.
1.74 Budget timetable: Key inputs at sector level, particularly the sector PERs and
sector reviews, have mostly not been completed in time to inform preparation of the
Guidelines. This has obviously reduced the potential effectiveness of the exercise.
Getting these elements of the budget cycle better aligned is an important component of
strengthening the Guidelines. However, it should also be recognized that several sector
PERs are now recurrent annual exercises and past work on the sector can still provide
useful material for Guidelines preparation.
1.75 If the Budget Guidelines are strengthened by bringing forward some work now
covered in the later MTEF preparation, (as suggested above and discussed further below)
the implication for the budget timetable may be that the remaining work within the cycle
is restricted more to fairly mechanical preparation of the detailed annual budget. This
might open the possibility of the Guidelines being finalized a little later, giving longer
lead times for preparation of sector inputs to the Guidelines.
23
Implications for other planning instruments
1.76 MTEF. Strengthening the Budget Guidelines along the lines suggested above
amounts in practice to bringing forward the more strategic aspects of the work on the
MTEF, which is currently carried out in the later stages of the budget cycle. Terminology
is perhaps a little confusing here: in principle the Budget Guidelines is already the core of
an MTEF and the strengthening proposed above would do more to translate that into
practice. With this development, there could also be savings in the work done in the later
stages MTEF preparation. The present level of detail in forward budgeting through the
later stages of MTEF preparation does not appear to be very useful and does not in
practice seem to provide a reliable base for the following year’s budget preparation.
1.77 Medium term plan for Growth and Poverty Reduction: PRS. The Budget
Guidelines as a statement of Government budget strategy should be a combined
translation of all core Government policy statements into the form of coherent sustainable
expenditure plans, reconciled as required with the aggregate resource constraint. It should
be clear that the Guidelines provide the final reconciliation prior to detailed budget
preparation, even though policy documents may also include a perspective on the link
between policies and resource constraints. This is true of both the PRS and recently
produced Medium term plan for Growth and Poverty reduction (which covers a wider
spectrum of Government policy than the PRS).
1.78 Strategic Plans, annual performance agreements: An increasing number of

MDAs have prepared Strategic Plans and annual performance agreements under the
ongoing public service reform program. Currently, the linkage between these activities
and the budget process has not been developed to ensure that these plans are strongly
linked to resource constraints approved without lo to the budget process. A strengthened
Budget Guidelines exercise could support a means of reconciling key features of MDA
strategic plans and performance agreements with proposed expenditure plans.
Implications for donor consultations on the budget
1.79 A budget strategy document strengthened along the lines described above, could
make a very significant contribution to improving the quality of dialogue on public
expenditure issues between Government and the donors. Earlier work on harmonization
of donor procedures in this area has essentially assumed Government’s core budget
process to be unchanged. With the strengthening proposed, there may be much greater
scope for rationalization of donor procedures.
1.80 First, the Budget Guidelines could play an effective role as the single focal point
of donor dialogue, allowing donors interface with the overall budget process to be
streamlined around discussion of one core document. To the extent that the strategy is
firmly linked to Government policy commitments and binding for the subsequent annual
budget, the present concerns on consistency through the budget process would be
alleviated and the focus on a single overall budget strategy would provide the basis for
rationalizing donor interface with the budget. Specifically, it may provide the basis for
consolidating the dual processes of PRBS budget review and the PER process.
24
1.81 Second, as the authoritative translation of Government policy into public
expenditure plans, the Budget Guidelines would become a key reference point for the
donor community in establishing whether subsequent budgets and actual expenditure are
indeed in line with Government’s prior commitments. At present, budgets and actual
expenditure in individual sectors may be interpreted as inconsistent with PRS
commitments, but it is in practice very difficult to establish this in the absence of a single
approved expenditure framework for the whole of Government, which credibly
represents Government’s three year expenditure plans.
1.82 Third, a more effective Budget Guidelines document could provide the basis for
Government to develop a more proactive role with respect to coordination of external
financing. The Budget Guidelines could itself include in addition to the budget strategy,
an outline plan for external financing in support of the strategy. This could be developed
in subsequent cycles to provide guidance to the donor community on the level and mode
of financing required to meet the objectives of the strategy. Such a financing plan would
provide a very specific focus for consultation and a significant contribution to the
development of coordinated assistance strategy.
4. STRENGTHENING A RESULT-BASED APPROACH IN POLICY MAKING AND BUDGETING
Introduction
1.83 Tanzania has several parallel and complementary monitoring systems that, while
providing a wealth of information, fail to provide a framework for policy and budgetary
choices. The government is taking steps to strengthen the result-based approach for
policy-making and budgeting. This includes the shift from a sector-based to an outcome-
based PRS. The next PRS would identify the combination of activities, inputs and outputs
required to achieve desired objectives and spell out underlying assumptions; and develop
a plan to align monitoring and evaluation efforts to the needs of a result-based
framework. The shift from sector-based to outcome-based PRS will provide the necessary
basis for strengthening the result-based approach. This will need to be accompanied by
greater program orientation in the budgeting process to facilitate the translation of the
outcome-based PRS into budgetary allocations. In addition, the government is
strengthening performance-compatible incentives structures and performance monitoring
within the context of the civil service reform. Further efforts will need to be made to link
these efforts to more result-oriented budgeting.
Monitoring systems
1.84 Tanzania has a large number of parallel systems to monitor government policies
and programs, but their capacity to deliver outputs that are useful for improving budget
allocations and policy effectiveness is weak.
1.85 The Poverty Monitoring System (PMS) is aimed at generating usable data over
the short term to inform policy-making and budgeting in real time; and assessing the
effectiveness of policies and programs on poverty reduction (see box). But while the
PMS is relatively effective in generating data to monitor inputs, implementation
processes, and outcomes, it is less effective at feeding the budgeting process with usable
analysis of which policies and programs are most cost effective in achieving outcomes.
25
Its routine data component, which should provide policy makers with a source of data
that integrates financial and sector data, has so far failed to come up with an overall
strategy to generate and feed routine data through the planning and budgeting cycles. And
while survey data have been addressing reviewing, planning and budgeting needs, they
can only do so at a frequency that is not consistent with annual planning and budgeting
processes.
1.86 Annual public expenditure reviews by the Ministry of Finance and annual sector
public expenditure reviews by line ministries in priority sectors have served several
purposes: i) to analyze past expenditures, ii) to assess sector performance in delivering
outputs, and iii) estimate spending requirements for the next budget cycle. Sector-based
PER, however, seldom provide the Ministry of Finance with a menu of choices to inform
budgetary allocations.
1.87 Public Expenditure Tracking Surveys (PETS) are used to establish the
relationship between budget allocations and actual expenditures and determine how much
of the allocations actually reach the intended beneficiaries. PETS have been undertaken
in Tanzania since 1999 in the education and health sectors (three completed and one
ongoing). They find that significant amounts of funds are diverted or misappropriated,
and that compliance with policies and regulations is weak. They estimate for example
that about 57% of “other charges” in education and 88% in health were diverted (1999)
and that available receipts underreported “other charges” by councils by 4-36% (2001)
(Sundet 2004). The findings prompted the government to advertise in the media central
government transfers to the districts. They have not, however, been incorporated into the
policy dialogue or impacted significantly on the level of transparency and accountability.
1.88 Service delivery surveys are being used to obtain feedback from users of public
services. The exercises are being carried out as part of Public Service Management’s
performance agreements with MDAs. Eleven MDAs completed 29 service delivery
surveys, which they used as a basis for developing their performance agreements. They
also started rolling out their performance monitoring systems (URT 2003a). Several other
service delivery assessments are being undertaken by various NGOs to, among others,
evaluate progress in PRS implementation, monitor standard of service in the health and
education sectors, monitor budget, and evaluate projects financed by the Tanzania Social
Action Fund. Because of subject specificity and lack of uniformity in methodological
approach, this body of data does not result in clear recommendations of universal
validity. The impact of these initiative is yet small. Efforts to standardize methodology to
improve comparability, and to compile and disseminate results would go some way to
increase these initiatives’ impact on public discourse.
1.89 Finally, the medium term expenditure framework, which provides an estimate of
resource allocations in the medium term, also includes quarterly monitoring of budget
execution, and progress in delivering outputs. Quarterly monitoring has been used as a
mechanism for mid-course resource reallocation.
1.90 The outputs of these monitoring initiatives include routine, survey and census
data, the Annual Report on Poverty and Human Development, an annual public
expenditure review, annual priority sector public expenditure reviews and at least one
non-priority sector PER, several expenditure tracking exercises particularly in education
26
and health, several service delivery surveys, a plethora of reports, and analytical studies
and policy briefings.
1.91 The capacity of these outputs to affect policy-making and budgeting is weak. The
factors that contribute to it include capacity to extract and operationalize
recommendations, and the emphasis placed on adding processes and producing reports
rather than providing tailored and useful information to the users. The Ministry of
Education and Culture, for example, complains that too much attention is placed in
having consultants complete annual education sector PER rather than building analytical
capacity in the ministry and affording the ministry sufficient time to incorporate results in
their sector strategy by lowering the frequency of the PER exercise.
1.92 Monitoring outputs tend to track inputs and processes or outputs or outcomes,
seldom drawing the link between them to measure efficiency or attribute causality.
Measures of relative efficiency and effectiveness would be most useful for budgeting and
policy-making purposes.
Developing a Result-Based Tanzania PRS
1.93 The Poverty Eradication Division (PED) in the Vice President’s Office is in the
process of coordinating the preparation of the new Poverty Reduction Strategy (PRS),
which will validate poverty reduction objectives and update the strategies for their
achievement. This is the policy document that is somewhat removed from the constraints
of MDA-specific and priority sector budget politics, and can provide an integrated vision
of how cross-sectoral reforms and programs contribute to the achievement of growth and
poverty reduction objectives.
1.94 Current discussions in PED are leaning towards modifying the priority sector-
based approach of the previous PRS into a priority outcome-based approach for the next
PRS. Such a shift would have the PRS focus on achieving priority objectives in the most
feasible and cost-efficient manner, while keeping open the possibility that sectors that
were not previously identified as priority may be critical to improve the returns of priority
sector investments. Instead of assigning responsibility for poverty reduction to priority
sectors, it would invite all sectors to strengthen their contribution to poverty reduction.
1.95 Policy discussions also lean toward expanding the understanding of poverty
reduction outcomes to include, in addition to the current focus on social services, more
economic measures of wellbeing such as pro-poor employment generation and economic
growth.
1.96 The inter-sectoral and strategic vision embedded in such PRS would need to be
translated into a monitorable result-based framework that specifies the linkages between
policies and programs and the stated objectives. A result-based framework would lay out
the developmental priors and assumptions of the strategy. Its principal objective would
not be to champion specific approaches to development but to validate the effectiveness
of those approaches through the use of information and analysis, and modify them over
time to improve the overall effectiveness of the strategy.
1.97 The framework would reduce long-term MDG commitments to yearly and
medium-term achievable targets, to both measure progress overtime with respect to those
27
long-term commitments and make explicit the level of resources required for their
achievement. For this task, PRS preparation would need to work interactively with the
sectors to estimate the expected contributions of each sector activities to developmental
outcomes and make assumptions on the synergies of combined inter-sectoral activities in
the achievement of each specific objective.
1.98 PED is considering the implications of shifting from a sector-based to an

outcome-based PRS. These would need to be thought through and incorporated in the
strategy. They might include implications for PRS preparation, monitoring and
evaluation, and implementation.
1.99 PRS preparation: Preparing a sector-based PRS could be easily accomplished.

Sector-based strategies, studies, PER, PETS and service delivery surveys would offer a
ready array of inputs into its preparation. Preparing an outcome-based PRS requires: i)
clarity on priority outcomes; ii) comparative analysis of results from different sectors in
reaching common outcomes; iii) significant cross sectoral collaboration; iv)
understanding of developmental model and efforts to isolate the inter-sectoral synergies
and linkages as well as identifying the missing links; and v) significant effort in costing
targets in a cross-sectoral setting.
1.100 PRS monitoring and Evaluation: In the current monitoring systems, as laid out
above, most monitoring is done at the sector level. While sector-based monitoring will
continue to be required to measure the efficiency of MDAs in delivering outputs and
services, an outcome-based PRS requires a certain capacity to monitor and evaluate the
combination of cross-sectoral activities that contribute to a specific outcome. Two
specific implications can be derived: i) the need to develop an integrated management
information system that combines financial data with core routine data from all sectors
for day-to day monitoring; and ii) the need to redirect a medium-term research agenda to
evaluate the impact of policies and programs on desired outcomes.
1.101 Routine data: The routine data component of the Poverty Monitoring System has
encounter serious implementation difficulties. It has failed to build public sector capacity
for the generation of consistent data required for annual monitoring needs of the PRS.
Furthermore, the component has not succeeded in developing a consistent strategy for
providing the government with functioning and shared management information systems.
Week implementation capacity, lack of coordination between different initiatives across
sectors and levels of government (IFMIS, PlanRep, LGMD, etc.), and lack of incentives
and capacity for collecting quality data have contributed to this failure. There is a clear
need to simplify the approach and consolidate efforts with the aim to develop one
integrated routine data system for use across sectors and levels of government.
1.102 A consolidated initiative would focus on developing a management information

system that would: i) integrate financial as well as sector information for a well defined
set of core output and outcome indicators; ii) establish data collection formats and
information sharing protocols as well as improved incentives, iii) eliminate duplication in
the demands for information, clarify the flows of information from the locality to the
central government and from the central to the local governments; and iv) focus on
building data collection capacity at the local authorities and data processing capacity at
the finance and line ministries level to improve data quality and analysis.
28
1.103 An integrated management information system would provide PED and MoF with
day-to-day cross-sectoral information required to monitor progress of the PRS and the
budget. It would significantly diminish the need or the frequency for ad hoc studies, such
as sector PER and PETS.
1.104 Evaluate impact: To improve result-orientation, the PRS review process would
focus on measuring the effectiveness of selected programs in achieving their targets,
instead of attempting to ascertain on an annual basis the effectiveness of the overall
government program.
1.105 To do this, the PRS preparation would tailor the PSM medium-term research
agenda to the need to build knowledge on the effectiveness of key PRS programs. The
agenda would identify the key programs to be evaluated, establish a timeframe for
evaluation, coordinate with data producers to match studies data requirements with the
timing of survey, and build technical capacity for the analysis. Logical candidates for
evaluation would be large programs that absorb significant fiscal resources (e.g. UPE,
agricultural extension) as well as smaller programs targeted for future expansion (e.g.
microfinance).
1.106 Results from this analysis would form the basis for: i) estimating a program cost-
effectiveness in meeting specified targets, and ii) recommending shifts in resource
allocation toward highly effective programs and away from programs with low cost
effectiveness. As such, the result-based framework would be the living part of the PRS
that would provide for an update of yearly targets and programmatic shifts in the strategy.
1.107 PRS Implementation: The greatest difficulty in an outcome-based PRS is in

coordinating the implementation of cross-sectoral initiatives to maximize
complementarities and synergies. Specifically, the lack of incentives for working in a
collaborative manner across MDAs must be recognized. It would be thus necessary to
carefully consider options to increase incentives for collaboration.
1.108 No less difficult will be translating cross-sectoral approaches into MDA-specific

performance agreements and budgets, and into MTEF/budget guidelines. The
programmatic nature of an outcome-based strategy need to be recognized. The sector
overhead component in the national budget, for instance, is not reflected in an outcome-
based PRS. This means that the costing of targets in an outcome-based framework will be
an estimate of the marginal cost of affecting a certain change in an indicator, but will not
be reflective of the overall budgetary effort. Strengthening budget classification along
programmatic lines will be required to operationalize the translation of the outcome based
approach into the planning and budgeting stages. A program-based budget will also
facilitate the monitoring of consistency between the budget and PRS policies.
Performance-compatible incentive structures
1.109 A growing number of MDAs have prepared strategic plans and performance
agreements within the context of the civil service reform. Performance agreements are
informed by service delivery surveys that measure levels and changes in satisfaction with
services delivery. By 2003, eleven MDAs had completed service delivery surveys (SDS),
and prepared annual plans and performance agreements. The quality, usefulness and
29
comparability of these service delivery surveys will need to be reviewed. By 2004, 42
MDAs had prepared performance agreements. The remaining 144 “vote holders”
(including local government authorities) are expected to come on performance
agreements in the next two years. For now, these performance agreements are linked to
human resource management and incentives systems and are not linked to a system to
provide budgetary incentives for achieving results.
1.110 Strengthening performance-compatible incentives will require the alignment of

performance agreements with budgetary resource envelop constraints; the establishment
of performance-compatible incentive systems for budgetary allocation, including greater
decentralization of budget execution; and MDA reporting focused on measuring the
efficiency of operations (input to output) rather and solely based on tracking use of
inputs.
5. PUBLIC EXPENDITURE MANAGEMENT ISSUES AT LOCAL GOVERNMENT LEVEL
1.111 Status of Public Expenditure Management at Local Level: Overall, government

has continued to implement comprehensive reforms at local government level with some
improvement in budgeting, public financial management and accountability. However, a
number of concerns remain.
1.112 PER and budget preparation for local government: So far the PER process for
local government covers only PO-RALG. The main constraint to the roll-out has been
capacity limits in LGAs, Regional Secretariats and PO-RALG. In this regard, GoT is
encouraged to explore the possibility of using the recently introduced zoning system to
undertake PER for LGAs by zone. The use of GFS codes in the preparation of LGA
budgets is also a welcome development. PO-RALG in collaboration with PO-PSM is also
developing a planning and reporting manual (‘Plan-Rep’) to bring together strategic
planning and budgeting. Other notable recent developments include the implementation
of harmonization of fiscal year of the local authorities with that of the central government
from July 2004. The newly approved population-based formula for allocation of grants to
local authorities is also due to start from FY04/05 for sectors of education and health,
followed by other sectors in the coming years. Although these developments are
generally welcomed, it is suggested that capacity for planning and budgeting need to be
strengthened for harmonization of the two levels of processes as well as financial
management in the local level. In order that this happens, the Budget Guidelines for the
central and local levels would need to be unified. The Government is commended for
continuing with the practice of putting quarterly allocations to LGAs in the public
domain via local news papers, national website and public notice boards. However, there
is still room and need to make the information more widely available and accessible at
local level so as to further enhance transparency and accountability.
1.113 Status of IFMS in LGAs: During 2002 and 2003 the local government reform
program focused attention on getting the first 32 LGAs to reach the final stage of IFMS
instead of rolling out the IFMS to more LGAs. Currently 28 out of the 32 are fully using
IFMS as of January 2004. All the 32 councils have been instructed to stop using the
manual system come December 31, 2004. With regard to preparation for eventual roll-out
of IFMS to other LGAs, the Accountant General’s Department has begun training of
fresh graduates on the IFMS, and sponsored some in the areas of information technology,
30
accounting and materials management in various institutions in and outside the country to
those earmarked for posting in LGAs. Increased effort has also been put on strengthening
support systems to implement IFMS. A Systems Development Unit for LGAs housed in
ACGEN is now in place. 25 specialists are being trained in the EPICOR software and are
to be deployed to the zones from July 01, 2004. Other support by ACGEN include,
defining a chart of accounts for LGAs, and supervision of 5 LGAs support zones. LGRP
is also in the process of identifying an additional 24 LGAs to start implementing IFMS.
1.114 The Government is commended for the effort made so far and is encouraged to
work further toward making all LGAs to operate on IFMS in due course so as to improve
public financial management at the local government level. This is now being given high
priority under the LGRP. Although a significant effort is being made to train local
government staff, there is need to improve coordination of the training supported by
ACGEN with that done or planned under the LGSP/LGRP. With regard to recruitment of
certified accountants and systems development specialists to beef-up necessary
competencies of LGA staff, GoT is encouraged to intensify training of LGA staff,
undertake staff rationalization and also focus on making local government a good
employer, which attracts and retains qualified staff. Provision of the requisite working
tools (especially PC facilities) and physical conditions, as electricity is also key. There is
also need to carry out systematic training, taking into account both levels of technical
staff and geographical equity. Government is also encouraged to contain/limit political
pressure to transfer council directors at will.
1.115 Financial reporting: To-date there is no mechanism/procedure for collection,

collating and analysis of local government revenue and expenditure to arrive at a general
view of government operations. This situation has constrained government ability to
monitor/track expenditure in the PRS sectors and ensure that LGAs are fully accountable
for spending at the local level. Under the circumstances, it is also not possible to analyze
the consistency between policy, budgets and implementation.
1.116 Nevertheless, there exists some fragmented data in various reports - scattered in
different MDAs (Councils, RAS, PO-RALG, sector ministries, ACGEN, and Budget
Department in MoF). The range, quality and scope of the data/reports also differ quite
substantially. A government initiative to obtain and consolidate revenue and expenditure
data using a common reporting format has apparently stalled partly because of the
excessive level of detail demanded, the shear large number of LGAs, frequency of
reporting (monthly, quarterly, semi-annual, and annual), and capacity limits in the RAS
offices/PO-RALG. There were also delays in submission of the reports from LGAs.
There are two sets of bottlenecks in this regard. One has to do generally with weak
capacity (lack of skilled personnel and equipment) in LGAs/RAS/PO-RALG to undertake
timely preparation and compilation of data and reports. It was noted that LGAs that are
already using IFMS are able to produce better and more timely reports than those that are
not on IFMS. The other problem seems to be the lack of a central focal point in MoF
where all reports from LGAs are submitted. Currently reports from LGAs go unilaterally
to the PS, ACGEN, CPAD, and Budget department in MoF and even to sector ministries
and PMO. Each council prepares and submits separate implementation reports to the
various sector ministry (education, agriculture and health) for a particular sector program
and utilization of related baskets fund. To deal with the latter problem the GoT could
consider issuing a circular or make it explicitly in the financial regulations that no
31
releases will be done for any quarter to any council before an expenditure report for the
quarter preceding the previous quarter is received by the Commissioner for Budget (e.g.
exchequer release for the third quarter to be issued only after the first quarter report is
received by CB). But equally important, is the need to finalize the development of the
planning and reporting manual (‘Plan-Rep’) to facilitate consolidation. As regards weak
capacity, the longer term solution is capacity building for LGAs/RAS/PO-RALG.
However, in the interim GoT could consider compilation of LGA data by zones to reduce
overload on the Regional Secretariats.
1.117 Reporting of direct donor support at local government level: Although there was
an initiative in PO-RALG to solicit and compile data on direct donor support to LGAs, it
was noted that it has become an exceedingly difficult endeavor on the side of PO-RALG
particularly in the case of area-based programs. In such cases quite often the magnitude
and direction of support is not disclosed/revealed, more so when the support is channeled
through private agents and NGOs. This has made planning and reporting on such support
very problematic. The donors and NGOs are therefore encouraged to make information
on donor support more transparent to inform Government planning and targeting of
interventions. Harmonization of donor support and reporting mechanism at local
government level is also important.
1.118 Auditing: There has been a steady improvement in this area in the last three years.
Based on the Report of the Controller and Auditor General on Local Government
Authority Accounts for the Year ended 31st December 2002, all local government
authorities (LGAs) were able to submit their final accounts for audit. The total number of
LGAs awarded a Clean Certificate amounted 17 (equivalent to 15% of all LGAs)
compared with only 12 LGAs (out of 114 that submitted final accounts) in 2001. The
number of qualified reports increased by 17% from 59 to 69, while the number of adverse
reports declined by about 33% from 43 to 29 (Table 15). Improvements are also reported
in the categories of revenues not accounted for and reduction in revenues collected not
banked.
Table 15: Summary of CAG Reports on Local Authority Accounts 1999 – 2002
Year Adverse Qualified Clean Not Submitted No Certificate Total
1999 51 46% 51 46% 10 9% 0 0% 0% 112
2000 75 65% 23 20% 16 14% 1 1% 0 0% 115
2001 43 37% 59 50% 12 10% 3 3% 0% 117
2002 29 25% 69 59% 17 15% 0 0% 2 2% 117
Source: LGRP
1.119 The improvements summarized in Table 15 above are attributed to ongoing local
government financial management reforms, improved accounting particularly in the 32
councils that are now fully running on IFMS, training of Council Directors and
Treasurers, as well as stricter supervision and monitoring of LGAs by PO-RALG made
possible by the zoning system.
1.120 However, all is not rosy. The CAG report still points to weak budget discipline
and control in LGAs as evidenced by losses of cash, questionable payments, stores losses,
and unsatisfactory accounting and banking of revenues (Table 16). These weaknesses are
partly on account of low capacity in LGAs particularly in terms of finance and
accounting skills to carry out appropriate accounting and financial management, lack of
32
equipment and possibly outright theft of public resources/fraud. Most of the LGAs also
lack effective internal audit units. LGRP is encouraged to complete the production of an
internal audit manual as soon as possible. It was also noted that audit work by CAG has
so far focused almost exclusively on councils’ own revenues and not on subventions from
central government, which constitute the biggest share of total LGA resources. This
therefore requires immediate attention given the significant increase in subventions to
LGAs. More also needs to be done to further improve on dissemination and follow-up of
the CAG report recommendations.
Table 16: Indicators of Weak Public Financial Management in LGAs 1999 - 2002
Problem 1999 2000 2001 2002
(T.Shs. Mill.) (T.Shs. Mill.) (T.Shs. Mill.) (T.Shs. Mill.)
Revenue not accounted for 516 372 162 1033
Revenue collected but not banked 208 212 97 500
Short falls in revenue collection 18,639 12,602 9,569 49,172
Unauthorized expenditure 745 0 0 505
Unvoutchered expenditure 2,257 1,335 1,661 4,345
Improperly voutchered expenditure 3,864 5,337 3,335 9,293
Irregular payments 240 401 321 713
Source: CAG Reports for 1999 - 2002
1.121 Sustainable local Government financing: The abolition of nuisance taxes

(including development levy) in the 2003/04 budget, has proved a challenge for LGAs
(many of which were receiving over 50% of their revenues from development levy) in
spite of the toping-up provided by MoF. It is therefore key that an overall strategic frame
is developed to guide future decisions on specific local taxes and inter-governmental
transfer arrangements. In this regard, government is urged to move ahead with the
proposed study on local government revenue and fiscal decentralization issues being
coordinated by the Policy Analysis Division in MoF.
1.122 Consultation on Local Government Issues: Two main options for undertaking
consultations on local government issues at the national level have been suggested. One
is simply to expand LGA representation during the annual PER national consultative
meeting. The idea would be to have more participants from across the LGAs, Association
of Local Authorities of Tanzania (ALAT) and other stakeholders so as to obtain feedback
from best and worst performing councils, rural and urban councils, some average
performing councils, and those that are/not fully running on IFMS. However, this would
entail having a special session focusing on local government issues. The other option
could be to organize separate PER consultations for LGAs by zone OR make use of the
annual meeting of local governments organized by ALAT annually to include
deliberations on burning public financial management issues at the local level. GoT
should consider implementing the first option this year.
1.123 Review of Actual Local Government Expenditures: Preliminary Findings 11

Table 17summarizes total expenditure by LGAs for 2001 - 2003. The information
indicates that the bulk (61.5%) of total annual expenditure by LGAs goes to finance
education, followed by administration (14%)! Other social sectors (health and water)
11
The actual expenditure data used here is as reported by individual local government authorities (LGAs) to
the Local Government Reform Program (LGRP) Secretariat and consolidated by The World Bank. The data
is for 108 LGAs, which is about 93% of the 116 LGAs. However, there are still gaps in the data,
particularly for development expenditure. As such, the emerging picture should be interpreted with caution.
33
receive 12% and 3.7% respectively. Average annual expenditure on roads is also
relatively small, amounting to about 5.5% while expenditure on agriculture claims a mere
3.5%.
1.124 Table 18 also shows that total expenditure (nominal) at the local government level
has been increasing over the past three years. The increase was highest for education
(274%) reflecting implementation of the PEDP, followed by health (46%), roads (41%),
and administration (19%). The only exception was spending on agriculture, which
declined by 73% over the same period. Increased spending for the social sectors most
likely reflects the poverty reduction strategy (PRS) focus.
Table 17: Total Local Government Expenditure (T.Shs.)

2001 2002 2003
Education 128,165,484,577 193,704,882,413 479,182,152,569
Health 35,924,648,180 43,741,029,752 52,393,382,860
Roads 17,071,470,428 20,100,494,209 24,098,140,809
Water 10,133,566,755 8,685,664,140 27,967,159,317
Agriculture 20,860,665,912 4,829,684,946 5,546,423,836
Administration 44,859,526,919 51,111,640,269 53,192,204,876
Total 257,015,362,771 322,173,395,729 642,379,464,267
Table 18: Total Local Government Expenditure (%)

2001 2002 2003 Average
Education 49.9 60.1 74.6 61.5
Health 14.0 13.6 8.2 11.9
Roads 6.6 6.2 3.8 5.5
Water 3.9 2.7 4.4 3.7
Agriculture 8.1 1.5 0.9 3.5
Administration 17.5 15.9 8.3 13.9
Total 100.0 100.0 100.0
Recurrent vis-vis Development Expenditure
1.125 A comparison of annual recurrent and development expenditure categories over

the period 2001 to 2003 shows that recurrent expenditure claims about 85.5% of total
expenditure compared to only 14.5% for development activities. A decomposition of
annual recurrent expenditure suggests that about 65% is spent on education compared to
only 12% for health. By contrast, administration accounts for as much as 14%. Other
sectors receive only between 2% to 3.5% of total recurrent expenditure. The data also
indicates that with the exception of education (whose share increased by 50%), all other
sector shares in total recurrent expenditure declined by between 41% and 93% between
2001 and 2003. Analogously, data on development expenditure at the local government
level indicates that an annual average of 41.3% is spent on education followed by roads
(18.6%). Administration and water each claim about 12% of annual development
expenditure ahead of health (10.8%) and agriculture (4.9%). Except for education and
water sectors, the share of other sectors in development expenditure has declined since
2001 particularly for agriculture (67%), and roads (59%).
34
Table 19: Local Government Recurrent and Development Expenditure
2001 2002 2003
Recurrent Development Recurrent Development Recurrent Development
Education 119,257,933,121 8,907,551,456 163,927,156,640 29,777,725,773 441,508,665,751 37,673,486,818
Health 31,993,980,517 3,930,667,663 38,368,242,615 5,372,787,137 43,193,142,040 9,200,240,820
Roads 8,799,308,353 8,272,162,075 10,478,782,985 9,621,711,224 12,674,921,103 11,423,219,706
Water 7,773,894,802 2,359,671,953 6,080,478,323 2,605,185,817 6,415,380,027 21,551,779,290
Agriculture 18,220,694,296 2,639,971,616 2,738,317,994 2,091,366,952 3,110,971,838 2,435,451,998
Administration 38,785,250,406 6,074,276,513 45,305,305,668 5,806,334,601 46,308,616,955 6,883,587,921
Total 224,831,061,495 32,184,301,276 266,898,284,225 55,275,111,504 553,211,697,714 89,167,766,553
Figure 4: LGAs – Sectoral Shares of Recurrent Expenditure 2001
Fig. 1a: LGAs - Sectoral Shares of Recurrent Expenditure

2001
Administration
17%
Agriculture
8%
Water Education
3% 54%
Roads
4%
Health
14%
35
Figure 5: LGAs – Sectoral Shares of Recurrent Expenditure 2003
Fig. 1b: LGAs - Sectoral Shares of Recurrent Expenditure

2003
Administration
8%
Agriculture
1%
Water
1%
Roads
2%
Health
8%
Education
80%
Expenditure on Personal Emoluments and Other Charges at LG level
1.126 Based on exchequer issues for 2003 where data is available (Fig. 6), expenditure
on personal emoluments (PE) accounted for about 78% and the remainder 22% was for
other charges (OC). A further decomposition of the 2003 exchequer issues for OC
indicate that about 50% went to cater for education, followed by health (19%), toping-up
local government revenue (16%) occasioned by the abolition of nuisance taxes in the
FY04 budget, and water (7%). Exchequer issues to OC for agriculture, administration and
roads were in the range of 2 to 3 percent.
36
Figure 6: LGAs – Sectoral Shares of Exchequer Issues to OC 2003
Fig.2: LGAs - Sectoral Shares of Exchequer Issues to OC 2003
Agriculture
Toping LG Revenue 3%
16%
Administration
3%
Water
7%
Education
Roads
50%
2%
Health
19%
Figure 7: LGAs – Sectoral Development Expenditure 2001
Fig. 3a: LGAs - Sectoral Development Expenditure 2001
Administration
19% Education
28%
Agriculture
8%
Water Health
7% 12%
Roads
26%
37
Figure 8: LGAs – Sectoral Development Expenditure 2003
Fig.3b: LGAs - Sectoral Development Expenditure 2003
Administration
8%
Agriculture
3%
Education
Water
42%
24%
Roads Health
13%
10%
Emerging Issues from the preliminary analysis of actual LG expenditure
• Dominance of education in local government spending: Education claims the

largest share of both recurrent and development expenditure, more so following
implementation of the Primary Education Development Program (PEDP).
• Relatively large expenditure on administration: Recurrent spending on
administration is the second largest after education, exceeding recurrent
expenditure on health! Administration is also the third largest component of
development expenditure – a level that is at par with the water sector. This raises
the issue of consistency and adherence to PRS priorities at local and central
government levels.
• Limited infrastructure maintenance at local level: Recurrent expenditure on
roads, water is quite low (less than 3.5%) which suggest that only minimal
infrastructural maintenance takes place. The decline in development expenditure
on roads is of concern given the PRS focus on rural roads.
• Negligible and declining spending on agriculture: Recurrent and development
expenditure on agriculture is lowest and declining. This could be pointing to very
limited focus on key services (especially extension services) necessary for
agriculture to grow.
• Wide disparities in recurrent spending across local government authorities: The
data exhibits very wide variations in recurrent spending across LGAs most likely
driven by physical facilities (number of schools, health centers/ dispensaries etc.)
available in a particular local government authority. Other factors - historical,
political, cultural may also have a role. This situation provides support to the
proposed introduction of a formula-based system of allocating grants to local
government authorities so as to foster transparency in grant allocation and equity
across LGAs.
38
• High volatility of development expenditure by sector: Except for education and
water sectors whose shares in LGAs development expenditure rose markedly
between 2001 and 2003, sector shares for the remainder of the sectors declined
sharply. The observed high volatility of development spending is likely to be due
to the practice of treating this component as a residual, making it to suffer heavily
in the event of a resource crunch.
• Need for further work: As already alluded to, the actual expenditure data used
here is still partial and therefore needs to be completed and validated so as to
obtain a more robust picture of the status of public expenditure management at the
local government level.
39
ANNEX 1
PRELIMINARY REVIEW OF SECTOR PERS
As in previous years the PER process has included extensive work at sector level in the
form of sector PERs. This annex provides a brief summary issues identified in the sector
PERs carried out this year for the environment, roads, education, health, HIV/Aids, and
agriculture. The current round of sector PERs will be used as preliminary input for the
next Budget Guidelines exercise.
A.1 ENVIRONMENT
The intention of the environment sector PER is to review the policies and programs in the
sector, the levels and distribution of environmental expenditure and revenue, assess the
level of expenditure required in relation to the country’s environmental priorities and
poverty reduction strategies and make recommendations to improve the overall
performance of the sector. This is the first PER on the environment sector in Tanzania
and has been constrained by limited availability of data.
Review of environment policies and programs
The National Environment Policy (NEP), 1997 is the main policy document addressing
environmental issues in Tanzania. The main roles of the NEP are to promote sustainable
development, develop integrated multisectoral policies and to integrate environmental
concerns in sectoral policies and investment decisions. NEP identified six major
environmental problems in the country: land degradation, lack of access to improved
water sources, environmental pollution, loss of wildlife habitats and biodiversity, and
deterioration of aquatic systems and deforestation. In order to combat the above
problems the following plans and programs are being implemented at the national level:
National Conservation Strategy for Sustainable Development (1988), National
Environment Action Plan, National Action Program to combat Desertification (1999) and
other programs like Biodiversity Conservation, program to phase out ozone depleting
substances and National action plan on climate change. In addition to the above national
plans the country is also implementing sector strategies and programs like National Land
policy, wildlife policy, Tourism policy, Mining policy, Forestry policy, Fisheries policy
and water policy. At the local level the environmental improvement programs include
Land management program and Participatory forest management program.
The national PRS recognizes the important linkage between poverty and environment as
about 50% of the cash income in rural areas comes from the sale of forest products like
charcoal, honey, wild fruits and firewood.
Although the Government has been implementing a number of policies at the national,
sectoral and local government levels, the PER found a few weaknesses/gaps. These
include lack of an environment module in Tanzania Social and Economic data system,
inadequate technical support and capacity building for integrating environment into local
40
and regional development plans, lack of plans or strategies to monitor and assess various
community based environmental management projects, lack of programs to strengthen
institutional and legal framework for environmental management activities in rural and
urban areas and lack of institutional framework for environmental monitoring.
Revenue from environmental resources
Revenues from environmental resources come from taxes on hunting activities, sales of
charcoal, sales of drinking water, sales of gemstones, etc. Although the contribution of
environmental resources to the national and sectoral revenues is high, under the current
system of accounting and tax collection in the country it is almost impossible to identify
the revenues at the national level.
At the sectoral level revenues came from wildlife, fisheries, forestry, tourism, water and
lands. Among the above sectors, revenues were the highest in the wildlife sector, the
main sources of revenues being hunting and exports of live animals (animals and birds,
export of Hippo teeth, live tortoises and crocodiles). The revenue from wildlife sector
increased by about 9.9 percent in the year 2002/03. However, the limited capacity to
collect revenues has prevented it from realizing the full potential.
Among the environmental resource sectors, the fisheries sector is number two in revenue
collection. Royalties from fish sales, licenses from fishing vessels/vehicles and export
licenses are the main sources of revenue in the fisheries sector. Fisheries sector revenue
increased by about 10.5% in year2001/02. Tourism is another sector, which has
significant potential for revenues. Most of the income from tourism is from the national
parks. The Serengeti national park and Ngorao Park together contributed most of the
earnings from tourism. The most important sources of revenue in the forestry sector are
timber/logs, flooring wood, Ebony wood, bee wax, semi finished sown timber, carving
and arts, honey, tree seeds and licensing. Revenue from forestry increased by about
30.9% in 2002/03 compared to that in 2001/02. In the water sector the main sources of
revenues are fee for water rights and fees for construction of wells and sewage disposal.
In the livestock sector, sales of cattle and goat hides generated most of the revenues. The
environmental sector PER however found that government has not been able to realize
significant revenues from fisheries, forestry, tourism and wildlife sectors. There is scope
to increase revenues significantly through better pricing that reflect the true economic
costs.
Environmental expenditure in Tanzania
The PER found that with the exception of donor funded projects, money allocated by the
government and the actual expenditure for environmental improvement projects has been
inadequate. Donor funding plays an important role in environmental management in
Tanzania. Any expenditure that addresses any one of the key environmental problem
areas identified in the country is defined as an environmental expenditure. We do not
have accurate data on the allocations and actual spending in the different sectors.
41
In the fisheries sector, expenditure covered activities like surveillance and control of
marine and aquatic ecosystems, creation of marine reserves or marine national parks,
management of aquatic ecosystems and tourist attractions, community fish farming or
aquaculture, research and training organization of sector consultative forums and review
of fisheries policy and legislation. The government programs in the forestry sector
include forest administration, operationalization of forest and bee keeping policies,
conservation and management of natural forests, implementation of afforestation
measures, management of forest plantations, capacity building, involvement and
participation of community in the management of natural forest and community based
organization and participatory forest management. In the wildlife and tourism sectors,
the government expenditures addressed loss of wildlife habitats and biodiversity. In the
water sector the government programs addressed the lack of accessible good quality
water. The programs include surveillance of water quality, provision of water supply to
domestic and industrial uses, and to ensure water supply for hydroelectric power.
The PER found that there are significant resource gaps for financing environmental
expenditure over the medium term. The MTEF projections for the three years from
2004/05 to 2006/07 shows resource requirements of about 3 billion Tsh for the VPO-
DOE and 12 billion Tsh for the NEMC. The spending in relation to the revenues from
the environmental sector is inadequate for sustainable use of these resources. Most
projects that address key environmental problems are donor driven.
Capacity building for environmental management
The PER found that there is need for capacity building for the National Environmental
Management Council (NEMC) as it will be charged with the responsibility of
implementing the Environmental Management Act of 2004. The current staffing pattern
shows a high ratio of supporting staff to technical staff. Additional staff may be needed
for environmental and poverty monitoring at the district and ward levels, environmental
law and inspection at the district and regional levels, project management and
environmental sanitation, logistical planning and wildlife management.
In addition to the NEMC, the Department of Environment (DoE) under the Vice-
Presidents office and headed by the Director of Environment also addresses
environmental issues. Under the director of environment there are three assistant
directors with responsibilities for environmental pollution and control, policy planning
and research and environmental impact assessment. The PER found that there is some
duplication of effort between the DoE and NEMC. Although DoE and NEMC has been
undertaking some initiatives for capacity building, it is found to be grossly insufficient in
relation to the demands. Additional capacity may be developed through recruiting
additional staff, imparting management development training and through short-term
contractors with an estimated expenditure of Tsh. 91.5 million, Tsh. 96 million and Tsh.
30 million respectively. Low levels of staff remuneration in the sector, low morale, lack
42
of good working environment and long and slow recruitment process are some of the
constraints in human capacity building.
Summary recommendations for improvement
In the light of the above findings, the PER made the following recommendations for
better performance of the environmental sector.
1. Since the environmental issues are cross cutting, there is a need for all other
sectors to address environmental issues in their policies, strategies, guidelines and
programs.
2. In order to ensure sustainable utilization of environmental resources, the
government may put in a pricing mechanism that reflects the true economic costs.
3. Given the significance of the role of environmental resources for poverty
reduction, the future policies for exploitation should put in place mechanisms for
their sustainability.
4. The government should invest more resources in environmental management as it
reaps revenue from this sector. Such investments should be in proportion to the
revenue. A database on all the environmental issues, revenues and expenditure in
all sectors need to be developed.
5. Better coordination and eventual merger of NEMC and DOE will avoid
duplication of efforts.
6. The PER also recommended reform of the salary structure, recruitment process,
retirement plans and ratio of technical to supporting staff. In order to retain and
attract better staff incentives to increase morale of the staff may also be provided.
A2 ROADS
The road sector is an important area of focus in Tanzania to achieve the long-term
objectives set out in the vision 2025 and the short to medium term targets in the PRSP.
The objectives of the current PER are to review the actions taken on the
recommendations of the last PER, analyze the budget performance on different kinds of
roads, analyze the institutional reforms in the sector and identify key performance
indicators of MTEF and to review the progress in dealing with cross cutting issues in the
road sector.
Major findings of the 2003 PER and action taken and pending issues
The major findings of the last PER, the actions taken on the recommendations and the
pending issues are presented below:
Actual road network length and condition: As noted in the last PER, the actual road
network in Tanzania is not known. Efforts have been made to establishing the actual
length of TANROADS. But there is no clear record and inventory yet on the exact length
of roads and the condition of the network with the PO-RALG.
43
Establish criteria for identifying the roads for maintenance: Consistent with the
recommendations of the last PER, a roads maintenance management system is being put
in place as is expected to address the issue of criteria of identifying the roads for
maintenance.
Time lag before the Performance Agreement (PA) between RFB and the agencies: The
PER identified this problem of time lag. An interim Performance Agreement is now
signed to allow better flow of funds.
Mismatch between timing of funds release and the best time for carrying out roadwork:
The above problem identified in the last PER still persists although the RFB is
considering the possibility of having pre-financing agreements with the banks.
Problems related to Procurement Act and Procurement Expertise: The problem of delay
in procurement process caused by the requirements of procurement Act No.3 of 2001 and
New Regulations of march 2003 have been partly resolved through decentralization of
tendering activities. However there still are concerns on thresholds for procurement.
VAT on road works: The VAT on road works has been affecting progress. This has
partly been resolved but there are still problems resulting from interpretation of the
government decision to abolish VAT on road equipments with effect from July 1, 2003.
Road network in Tanzania
The actual length of the road network in Tanzania is not known. Three systems are being
developed to capture the road condition under TRANROADS and LGAs. The first is the
Road Maintenance Management System (RMMS), which will be fully operational by
2004, will give more realistic information for budgeting and decision-making on the
trunk and regional roads. The second is the District Road Maintenance Management
System (DROMAS) being developed by the PO-RLAG which is a comprehensive data
management application to assist engineers at the district council and road fund
management unit in managing district roads maintenance works. The third system is the
RMMS for urban council funded by the IDA.
The government is making efforts to identify new low cost technologies that can improve
road conditions. Use of Otta seal, material mixtures and natural pozzolana are some of
the low cost technologies tried.
Road sector revenue and expenditures
The main sources of funds for development and maintenance of trunk and regional roads
are the Road Fund Board (RFB) fund, treasury and donor funds. The revenue for the
RFB comprises four road user charges- fuel charges, transit charges, overloading fees and
heavy vehicle license fees. Of the above four user charges, fuel levy accounts for 94
percent of the total revenue collection in the year 2002/03 followed by overloading fees,
transit charges and then heavy vehicle licensing fees at 3.1, 2.5 and 0.2 percent
respectively. Over the years revenue from all the above four sources have been
increasing. While the transit charges are collected at eight entry points, the overload
fines are collected at weighbridge stations located along the trunk roads. In addition to
44
the above four sources, the development partners have also been providing resources
targeted at trunk and regional roads development. These are meant to support
development and maintenance activities. The projected receipts in 2003/04 will meet
only 49 percent of the expenditure for road maintenance and spot improvement. Hence
there are substantial financing gaps in the road sector.
Sector performance
The overall physical and financial performance for the financial year 2002/03 under
TANROADS has been impressive. In the case of trunk roads the physical performance
was 105 percent and financial performance 63 percent. In the case of regional roads the
physical and financial performance were 71 and 75 percent respectively. However the
LGA performance in the road sector has been quite unimpressive, physical performance
at 51 percent of the planned activities and financial performance was only 63 percent of
the planned budget. But the periodic maintenance of district roads has been quite
impressive at about 83 percent.
The PRS outlined two targets to improve the rural road network in Tanzania. The first
was to rehabilitate 4500 km of rural roads under the Urgent Roads Rehabilitation
Program (URRP) in 12 most poor regions by 2003. The second target was to undertake
routine and periodic maintenance promptly on all rural road networks. As the system of
accounting does not define clearly the regions where the roadwork is done, it has been
difficult to evaluate the progress in relation to the above targets. There has been only a
slight increase in the proportion of the total Road Fund allocations to the identified poor
regions, from 43 percent in 2000/01 to 45 percent in 2002/03. The Village Travel and
Transport Pilot Program (VTTP), under the PO-RALG, a key element of Integrated
Roads Project II (IRP) have been implemented in seven districts. Under this project, the
districts have implemented a number roads related activities and the financial progress
has been impressive.
Institutional reforms
The PER reviewed the progress in firming up institutional framework, establishment and
reorganization of specific road sector institutions and capacity building including staffing
and equipment services.
(a) Firming up the institutional framework: Although progress has been made by the
road sector to firm up institutional framework through drafting Roads Act in 2003, the
PER found the following three major issues, which need to be addressed:
1. Autonomy of the TANROADS: The PER recommended that autonomy of
TANROADS with a Board of Directors who can make decisions may be needed
2. The PER recommended better division of responsibilities between road sector
institutions, specifically separation of policymaking and regulatory functions from
those of implementation among MOW, TANROADS and PO-RALG.
45
3. Separation of urban, district and feeder roads from regional roads will have the
advantage of addressing problems of coordination and management.
(b) Establishment or reorganization of road sector institutions: The PER found that
the road sector has made significant progress in institutional reforms relating to
establishment and reorganization of priority institutions like Road Fund Board,
TANROADS, MOW and PO-RALG. Further, the Road Fund Board with a wider
representation of the stakeholders in the Board of Directors and an internal auditor as
recommended by the last PER is in place. However, the PER found that there still are
issues relating to the establishment of a sustainable funding mechanism, performance
agreement and more efficient collection and flow of RFB revenues. The growth in road
fund revenues is low compared to the maintenance requirements, which is an issue that
needs to be corrected. In order to increase performance and monitoring, it is
recommended that a list of performance indicators be included in the performance
agreements. The PER further recommended the formation of a task force comprising of
TRA, RFB and treasury to explore the feasibility of resolving problems of delays and
inefficiencies in collection and flow of RFB revenues.
As regards TANROADS the PER reports that TANROADS has been reorganized and has
adopted a lean structure, which gives greater autonomy to the regions. However, this
agency face problems of absorption capacity largely due to inadequate procurement
expertise and delayed disbursement of funds from RFB. Problems arising from delays in
procurement of goods and services reported in the last PER have been addressed by the
current amendment of the procurement act that promotes decentralization.
MOW, another agency involved in the road sector, has reorganized its structure with
fewer staff. But, the PER reports that it still has to revisit its organization to ensure
appropriate balance between core staff and supporting staff. The PO-RALG also faces
problems with regard to staffing and institutional capacity. Overlapping and unclear
mandates between PO-RALG and MOW, absence of a single comprehensive framework
for rural roads, absence of a rural roads agency to coordinate implementation of district
and other rural roads, lack of transparency in allocation of road funds, cumbersome
procurement procedures and LGAS absorption capacity, and lack of donor coordination
are other institutional problems identified by the PER.
Cross cutting issues
The PER reviewed sector performance in mainstreaming cross cutting issues including
gender, HIV and AIDS, environment and Labor Based Technology (LBT) based on
planned targets for FY2002/03.
(a) Gender: On gender issues, the following recommendations were made:
a. Revisit performance agreement of RFB to capture information that will indicate
the extent to which road sector expenditure has impacted women
b. Strengthen monitoring and reporting on gender performance by sector institutions.
c. RFB may allocate resources specifically aimed at capacity building targeting
gender
46
d. Establish road sector database containing information relevant to measure sector
performance on gender and encourage learning on good practices in integrating
gender in road works
e. MOW set targets to ensure at least 30 percent women’s representation in decision-
making body of sector institutions.
(b) HIV and AIDS: The last PER found that HIV and AIDS issues were accorded very
low priority in the road sector programs. The current PER does not report any significant
progress on specific HIV and AIDS related activities. Since HIV/AIDS is an important
issue, the PER makes the following recommendations on HIV and AIDS issues:
a. MOW should concentrate on policy related responsibility for combating HIV and
AIDS and capacity strengthening activities including awareness raising
workshops be left to PO RALG and other regional and district level institutions
b. Stakeholders in the sector should come up with an agreed set of indicators to
monitor HIV and AIDS activities in the sector and an HIV/AIDS monitoring
system should be developed.
(c) Environment: There is no information on the progress made in mainstreaming

environmental issues in the road sector. The PER recommended that efforts should be
made to finalize the establishment of a sound sector environment management and
monitoring system and to ensure that adequate resources are allocated for the proposed
targets for environmental management in the road sector.
(d) Labor Based Technology (LBT): LBT envisages use of low cost locally available
technologies and inputs (including labor) to reduce costs of roadwork. Although the last
PER reported that there were numerous intended road projects and interventions to
support use of LBT, there is not enough information on actual implementation of LBT for
roadwork. In the light of the above observations the PER recommended to promote the
use of LBT by LGAs and TANROADS through improved PA. The immediate task
should be to revise the RFB performance agreement to contain an addendum of list of
indicators, which will monitor sector performance in integrating LBT and other cross
cutting issues.
A.3 AGRICULTURE
The specific objectives of this year’s agriculture PER are to review progress on
implementation of recommendations of the previous PER, review sector performance for
the past three years and for the current fiscal year and analyze the recurrent and
development budget performance for the above period, review the existing plans and
strategies and refine costing of interventions over medium term and assess their impact
on PRS targets, identify performance and service delivery on cross cutting issues like
HIV/AIDS, environment sector. In addition to the above objectives an analysis of the
medium term plan and budget framework is also attempted. Agriculture sector covers
three line ministries namely, the Ministry of Agriculture and Food Security (MAFS),
Ministry of Water and Livestock Development (MWLD) and the Ministry of
Cooperatives and Marketing (MCM).
47
Agriculture sector continues to be the predominant sector in the economy accounting for
about 50% of the GDP, 63% of the rural employment and 70% of all export earnings.
This sector has since 2001 formulated an Agricultural Sector Development Strategy
(ASDS) for achieving the PRS objectives consistent with the stable macroeconomic
framework envisaged in the Development Vision 2025 and the MDG The government is
implementing the ASDS through an Agricultural Sector Development Program (ASDP).
The District Agricultural Development Plans (DADP) were started in 2003/04. The long-
term strategies for growth in this sector call for macroeconomic and sector policy reforms
which include structural adjustment policies, local government reform program, medium
term expenditure framework and public sector reform program.
Implementation of recommendations of the last PER
The main recommendations of the last PER were to set up realistic targets with regard to
delivery of public services by all Agriculture Sector Line Ministries (ASLM) and to
maintain a database regarding the delivery of such services, inform the general
public/clients about the clients’ service charter of the line ministries, increase the overall
funding of the sector with larger share for the local government, better inter-ministerial
coordination, setting up a block grant that would be accessed only by the Local
Authorities (LA) that produce District Agricultural Development Plans (DADP) and to
set up a monitoring and evaluation mechanism to assess the performance of LAs.
In line with the recommendations of the last PER, the three line ministries, implemented
few reforms. MAFS revised the sub sector performance and public delivery targets,
client service charter and established a baseline data to assess performance of services
delivered in 2003/04. It also started publication of quarterly progress reports for better
monitoring and evaluation. With the implementation of the ASDP, the government
increased the allocation of resources and the local component of the donor funded
projects have been increased. Harmonization of taxes at the local and central government
level, better enforcement of regulatory standards for export crops through crop boards,
and improved coordination are other reforms implemented by the MAFS. The MWLD
has made some effort in establishing a database on livestock in the country and an early
warning system on livestock diseases and to inform the general public/clients of the
existence of a client service charter . Efforts are under way to put in place a client feed
back mechanism. The funding for MWLD has increased by 12.1% in 2003/04 and task
forces to identify constraints in the realization of ASDP objectives have been formed.
The MCM, in response to the recommendations of the last PER distributed copies of
service client charter to the stakeholders and the general public. It has also reviewed
some targets to make them more realistic. The MCM is implementing a member
empowerment program in cooperatives and have trained 105 change agents. The
ministry also facilitated inspection and auditing of 972 primary societies and 22
cooperative unions.
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The main constraint in the implementation of the recommendations is lack of funds.
Although the government increased the budget allocation to the sector, it was not enough
for the line ministries to implement the reforms and deliver public services.
Sector performance
Although agricultural sector recorded an increasing trend since mid 1990s, the actual
performance fell short of the targeted growth to achieve reduction in poverty from the
current 27% to 14% in 2010. Agricultural sector growth in 1999, 2000, 2001 and 2002
were 4%, 3.4%, 5.5% and 5% respectively.
Crop sector: Production of both cereals and non-cereals fell in 2002/03, the growth rates
were -9.8% and -9.6% respectively. Production of cash crops have been very erratic. All
cash crops except pyrethrum recorded positive growth rates in 2002/03, ranging from
0.4% (sisal) to 33.5% in the case of cashew nuts. Production of pyrethrum fell by 14.3%
in 2002/03. However, it may be noted that production of most cash crops recorded high
negative rates of growth in 2001/02 The high growth rates recorded in the year 2002/03
could be due to effects of the steep declines in the year 2001/02. The causes of such
large fluctuations in cash crop production need to be analyzed for corrective policy
interventions.
Livestock and milk: In the livestock sector, overall meat production is expected to
increase by about 2.3% in 2003/04. Production of pork is expected to increase by 13
percent in 2003/04; chicken, mutton and beef by 3.3%, 1.7% and 0.8% respectively. It
may be noted that growth in beef, which contributes the largest share to overall meat
production, is the lowest. In 2003/04 milk production from traditional cattle is expected
to increase by 31% and that of dairy milk by 1.8%. The increasing trend in urbanization
and population growth is likely to increase demand for milk and hence there is a need to
increase milk production.
Eggs Hides and skin: Production of eggs is expected to increase by 15% in 2003/04.
Hides and skins is a major source of foreign exchange. Hides of cattle, goat and sheep
are expected to increase by 14.3%, 25% and 9.1% respectively in 2003/04.
49
Constraints to sectoral performance
Poor performance of the agricultural sector is primarily due to the low levels of
productivity in the sector. It may noted that for most crops the actual productivity is far
less than the potential (Table A.1)
Table A.1 Actual, targeted and potential productivity of selected crops (tons/ha)
Crop 2002/03 actual Target(2009/2010) Potential
Paddy 2 (36) 3.5 5-6
Maize 1.2 (24) 3 5
Cassava 2.6 (12) 5 20-25
Sorghum 1 (50) 2 NA
Cashew nuts 0.69 (49) 1.4 NA
Coffee 0.2 (33) 0.7 0.6
Cotton 0.6 (43) 0.7 0.6
Sugar 7 (61) 11.5 NA
Tea 1.8 (51) 2.5 3-5
Tobaco 0.7 (39) 1.5 1.8
Sisal 1 (67) 2 1.5
Pyrethrum 0.3 (30) 1 NA
Figures in parentheses are actual yields as a percentage of potential or target yield
Source: MAFS
For food crops only 12 to 50% of the potential yields are actually realized. For cash crops
it ranged from 30 to 67%. Such low productivity is due to the use of traditional farm
implements like hand hoe, low adoption of improved seeds and fertilizers, poor
infrastructure facilities in distribution and inputs, poor marketing facilities, dependence
on rainfed agriculture and adverse weather conditions and inadequate extension services.
Low levels of public and private investment, inadequate capacity in managing
agricultural projects and limited access to financial services are also affecting sectoral
performance. In the livestock sector, severely undeveloped markets for both live and
livestock products, limited processing capacity, inadequate number of qaulified staff and
livestock keepers and high initial capital investment requirements are the major
constraints.
Service delivery
The year 2002/03 was the first year of implementation of the ASDP. The MAFS with the
implementation of the ASDP is concentrating on the public delivery of irrigation,
improved seeds, agricultural equipment, research and extension services, crop protection
and inspection services, grain storage and farmer training services. Seventeen irrigation
schemes which brought 6065 hectares under irrigation have been constructed. In addition
26 irrigation schemes which cover a total area of 7639 hectares are under various stages
of implementation. The government is also working on an irrigation master plan which
envisages bringing about 29.4 million hectares of land under irrigation. Distribution of
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quality seeds is another activity of the MAFS. In 2002/03 the actual supply of improved
seeds was only 35% of the requirement of which the government seeds farms contributed
about 1%. About 70% of the land in Tanzania is tilled with hand hoe. The MAFS in
2002/03 implemented various measures to improve mechanization of agriculture. These
include import and distribution of tractors, tillers and other machinery, oxenization and
training of farmers in the use of farm machinery. Agricultural research in 2002/03
emphasized on the development of breeder seeds for paddy (nine new breeder seeds for
paddy), sorghum, beans, pigeon peas, soybean, wheat, sweet potato and cotton. Breeder
seeds for the above crops were produced and distributed for farmer use. In order to
improve distribution of inputs, the MAFS through Agricultural Inputs Trust Fund has
provided loans and subsidies on interest rates to importers and distributors of inputs.
Promotion of low cost technologies, crop protection services, crop inspection services
and farmers’ training are other activities undertaken by the MAFS.
The MWLD has not been able to provide services like animal health services,
improvement of genetic potential of livestock, supply of water, and establishment of
livestock markets. There have been some progress in the development of rangelands
through construction of charco dams. The ministry has also initiated research on
improving the genetic stock of livestock and to improve the quality of feeds and forage.
The MCM provided services in the area of crop marketing, establishment and registration
of farmer organizations, accessing affordable financial services to the poor in rural and
urban areas and promotion of non-traditional crop export.
Sector Budget performance
Public spending in the agricultural sector include allocations to the MAFS, MCM and
MWLD with recent emphasis on decentralization and increased allocations to LAs.
Planned and actual Sectoral expenditure trends over the period 2000/01 to 2003/04,
presented in table A.2, shows a gradual decrease in expenditure both in absolute and as a
proportion of the total government expenditure from 4.3% in 2000/01 to 2.5% in
2002/03. The planned spending in the agriculture sector as a percent of the total
government spending in 2003/04 is 3.7%. These shares are much below the average of 6
to 7 % in less developed countries where agriculture sector is the dominant sector in the
economy. There is also a large discrepancy between actual and planned expenditure in
2002/03, as high as 52.2% in 2002/03.
51
Table A2 Agriculture expenditure trends (Mill. Sh)
2000/01 2001/02 2002/03 2003/04

Agricultural Planne Actual Planned Actual Planned Actual Planned
Expenditure d
Recurrent 24644 33797 33719 31964 64090 27602 47647
(137.1) (94.8) (43.1)
Development 26708 21362 25074 20843 38114 16551 35213
(74.4) (89.1) (43.4)
Total agricultural 53352 55158 58293 52797 84541 44153 82,860
(103.4) (81.8) (52.2)
Government 954700 1296100 1787400 2198600
Expenditure
Agricultural/Total 4.3 4.0 2.5 3.7
Govt. (%)
Figures in parantheses are actual as a percent of the planned expenditures
Source: PER 2002/03 Table 3.1 and MAFS and MCM, Appropriation Accounts. MLWD not included
The internal and external factors that lead to poor fiscal performance and thus deviations
between actual and planned expenditures indicates the poor fiscal performance of the
government. Over the period considered, the deviations between planned and actual
expenditures have been increasing.
Budget performance in the MAFS has been impressive in the last two years (Table A3).
Table A3: MAFS total expenditure (domestic and foreign)

Expenditure 2000/01 2001/02 %change 2002/03 %change 2003/04 %change
2000/01/ 2001/02 2002/03
2001/02 /2002/03 /2003/04
Planne Actual Planne Actual Planne Actual Planned
d d d
Recurrent 10,315 10,314 9,560 8,702 -7.3 14,659 15,672 53.3 22,629 54.4
Development
(L&F) 15,807 13,006 15,957 14,661 1.0 18,604 14,533 16.6 31,518 69.4
Total Rec.
and Dev. 26,121 23,320 25,517 23,364 -2.3 33,262 30,205 30.4 54,147 62.8
Source: Appropriation Books of Accounts and other financial statements of 2001, 2002, 2003 and MTEF of 2003/04-
2005/06.
The expenditure, recurrent and development from both domestic and foreign sources,
allocated to the MFAS increased by 30.4% and 62.8% respectively in 2002/03 and
2003/04. The deviations between planned and actual expenditures were also
insignificant. The budget allocation and performance in terms of ratio of actual
disbursement to allocation for the MCM also improved over the last three years. Both the
allocation and actual expenditure increased over the last three years. The MCM is
implementing two projects, the Coffee/Cotton Markets Development and Trade
Promotion and the Development of Rural Markets. However, project implementation is
constrained by the scarcity of funds allocated to the ministry. Revenue collection on the
other hand improved significantly between FY 02 and FY03.
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Expenditure and PRSP: The PRS identifies agriculture as the priority sector for poverty
reduction. In 2001/02 and 2002/03 the proportion of actual expenditures to the proposed
PRS expenditures were 64.1% and 74.2% respectively (Table A.3).
Table A.3 PRSP proposals and actual expenditure for agriculture sector (Mill. Shs)
Sn. Budget Item 2001/02 2002/03 2003/04

1 Planned Expenditure 25,517.21 33,262.49 54,146.81
2 Actual Expenditure 23,363.7 30,205.58 -
3 PRSP Proposed Budget 36,455.9 40,727.9 -
4 Percentage of the Planned (local contribution
only) to PRSP Proposed Expenditure 30 40.5 -
5 Percentage of the Actual (local and external
contributions) to PRSP Proposed Expenditure 64.1 74.2 -
Source: MAFS 2003
The analysis of the sector budget shows that support in areas like agricultural research
and extension, irrigation, technological innovation, training and disease control has been
increasing over time. However, overall budget support does not reach the 10%
recommended level to achieve the desired poverty reduction. Further, the deviations
between planned and actual expenditures continue to persist.
Policy interventions in agricultural sector
In order to increase productivity in the agricultural sector the three line ministries have
increased actual and budgeted expenditures on line items like development of policy,
regulatory and institutional framework; sector information; strengthening training,
advisory and technical services; research services; and private sector development
(Tables A4, 5 and 6).
Table A4: Trends in recurrent expenditure in priority areas of activity under MAFS
(million T.Shs.)
Activity 2001/02 2002/03 (actual) 2003/04 (Budget)

(actual)
Policy, regulatory and institutional 859.32 890.50 (3.6) 1093.75 (22.8)
framework
Agril. Sector information 31.94 53.77 (68.3) 146.57 (172.6)
Training advisory and tech. services 4615.16 9711.05 (110.4) 17102.18 (76.1)
Agril. Research services 220.08 370.45 (68.3) 588.28 (58.8)
Private sector development 4.63 7.79 (68.3) 33.57 330.9)
Cross cutting issues 38.66 44.26 (14.5)
Figures in parentheses are growth rates over the preceding year
The annual percentage growth rates show significant increases in actual and budgeted
expenditures for all priority activities under the MAFS. All priority activities under the
MWLD show significant increase in expenditures in the year 2002/03 (Table A5). Actual
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expenditures for all activities except private sector development shows significant growth
in the year 2002/03. The government increased the spending on livestock information
significantly. The MCM also increased its spending on priority areas(Table A6) like
policy and regulatory framework, technical services, agricultural finance, strengthening
information, etc.
One of the innovative approaches in the ASDS is the consideration of cross cutting issues
like rural infrastructure, electrification and communication, HIV/AIDS, malaria, gender,
empowering youth, and environmental management in planning and implementation.
The ASLMs will start with programs for gender, HIV/AIDS and environment in their
budget in 2004/05. The Land (amendment) act submitted to the parliament in 2003 is
expected to provide an environment for private sector development in investment
activities that require land. Although HIV/AIDS is affecting of the work force in
agriculture sector thus reducing productivity, ASLMs have taken only a low profile in the
fight against this epidemic. The PER recommends voluntary counseling and testing for
employees, access to up-to-date information on HIV/AIDS issues, leadership
commitment on HIV/AIDS issues, non-discriminatory environment and provision of
condoms under all the LMs. Financing of HIV/AIDS interventions within the ASLMs
have been erratic due to the absence of well defined strategies.
Table A5: Trends in recurrent expenditure in priority areas of activity under MWLD
(million TShs)

(actual)
Policy and institutional framework 308.13 348.45 (13.1) 557.37 (60.0)
Livestock information 18.50 257.94 (1294.3) 87.30 (-66.2)
Research and training 742.65 778.05 (4.8) 1200.48 (54.3)
Production, extension & rangeland 879.31 1554.66 (76.8) 1530.00 (-1.6)
development
Delivery of veterinary services 659.87 1958.55 (196.8) 1406.00 (-28.2)
Under the environmental initiative, the MAFS implemented soil and water conservation
measures and measures for the control of water hyacinth weed in the river Kagera and
Lake Victoria. In 2004/05 the MAFS plans to implement irrigation schemes such as
protection and demarcation of catchment areas and land use planning.
54
Table A6: Trends in recurrent expenditure in priority areas of activity under MCM
(million TShs)

(actual)
Policy and regulatory framework 80.89 306.77 (279.2) 1064.68 (247.1)
Training and advisory services 979.56 1357.04 (38.5) 983.32 (–27.5)
Technical services 450.21 1166.55 (159.1) 1018.32 (-12.7)
Strengthening information system 300.00 463.05 (54.4) 1000.00 (116.0)
Private sector development 1860.50 629.07 (-66.2) 100.00 (-84.1)
Research services 660.30 690.00 (4.5) 824.68 (19.5)
Advisory services 500.00 685.64 (37.1) 600.00 (-12.5)
Agricultural finance 46.48 510.00 (997.2) 200.00 (-60.8)
Summary of major observations and recommendations of the PER
The agriculture sector PER made the following observations and recommendations in the
agriculture sector to achieve the overall objective of poverty reduction by 50% by 2015.
a. Agricultural growth rate in 2002 (5.2%) was lower than the planned growth rate
of 6% to achieve the desired poverty reduction. The PER suggested to increase
the budgetary support for agriculture to at least 10% of the total government
expenditure.
b. The levels of investment and output growth are low in the agriculture sector. The
PER recommends an increase in public investment (such as construction of rural
roads and marketing infrastructure), to provide more budget support to MCM and
putting in place policies and measures that would attract private investment.
c. In adequate delivery of research and extension services is another constraint
limiting agricultural production. Research to improve the technology and seeds to
suit local conditions and more extensive extension support are recommended.
d. Inadequate planning and implementation capacity at the district level is affecting
the implementation of projects. Improved civil service deployment at the
agricultural sector in the local government is recommended.
e. As regards HIV/AIDS strategies and gender mainstreaming, the ASLMs should
implement the activities that have been proposed.
f. There still are problems with the devolution of responsibilities to LGAs. It is
recommended to strengthen the inter-ministerial coordination and devolve
ASDS/ASDP activities earmarked for LGAs.
g. The PER further recommends to put in place a monitoring and evaluation
mechanism for performance assessment.
55
A.4 EDUCATION
The fiscal year 2003/04 education sector PER builds up on the previous PER updates. It
first summarizes the recommendations of the last PER and actions taken on those
recommendations and reviews sector plans, strategies and performance. It then tracks the
budget performance and expenditures at the sector and sub-sectoral levels in the last three
financial years. The PER then analyzes sector targets and achievements, progress in
cross cutting issues like gender and HIV/AIDS, projections of resource requirements and
availability in the medium term and finally makes recommendations for policy reform in
budgeting financial management and accountability.
Developments since the last PER
Since the 2002/03 PER progress has been made on a number of outstanding issues.
These include:
• Completion of a Secondary Education Development Plan in early 2004.
• A National Education Fund was established to cater to the needs of disadvantaged
children.
• An education database unit has been established to monitor the progress in
educational achievements
• In order to enhance transparency and accountability in the use of PEDP funds the
government has started to publish allocation of funds by councils and schools
• Primary school enrollment has been made compulsory and the attendance rules of
2002 has been enforced
Review of sector plans, strategies and performance
The Education Sector Development Program (ESDP) developed in 1996 outlines the
framework for development of the education sector. The ESDP covers basic education,
higher education and vocational education.
Primary education: Under the ESDP a Primary Education Development Plan (PEDP) is
being implemented to improve enrolment and quality of education at primary school
level. The PEDP implementation resulted in significant increase in enrollment in 2003,
though not in tune with the increase in 2002. The second component of the PEDP has
been to improve the quality of primary education. There has been significant increase in
the quality of primary education through improvement in teaching and learning materials,
pre-service and in-service training programs, improvement of school environment and
better monitoring and evaluation systems. However increased enrolment has affected
quality as improvements in capacity building did not kept the pace with increases in
enrolment. For instance only 80 percent of target could be achieved in classroom
construction and construction teacher’s houses. There has also been a decrease in in-
service training.
56
Non-formal education: In 2003 the government developed the medium term strategy and
action plans for adult and nonformal education. Three separate programs have been
developed for adult and nonformal education; COBET Cohort one for children aged 11-
13 years, COBET Cohort two for youth aged 14-18 and Adults aged 19+. However,
implementation was constrained due to lack of enough facilities, instructors and
instruction materials.
Secondary education: The education sector is finalizing a Secondary Education
Development Plan (SEDP). The gross enrollment continues to be low though there was a
small improvement in 2003. Enrolment at lower secondary (Forms I-IV) is well below
10 percent and the problem is more pronounced at upper secondary level. Lately, there is
a general deterioration in transition rates, drop out rates and repetition rate. Inadequacy
of qualified teachers and managers, quality of student intake and financial constraints are
the main reasons for poor performance. The number of schools increased by 6 percent.
Higher and technical education: The government launched the Higher and Technical
Education Master Plan (HTEMP) in 2003 but the implementation has not yet started.
Data from the universities and technical colleges show that there has been significant
increase in both undergraduate and graduate enrolment. There has also been significant
increase in teacher-student ratios. However data from the universities show that there is
considerable cohort wastage in higher learning institutions.
Sector policies, performance indicators and PRS targets
The PRS (2000) had set the following specific targets for the basic education sector to be
achieved by 2003:
1. raise primary enrolment to 85 percent
2. increase transition rate from primary to secondary from 15 to 21 percent,
3. reduce drop-out rate in primary school from 6.6 to 3 percent,
4. raise net primary enrolment from 57 to 70 percent,
5. increase number of students passing standard seven from 20 to 50 percent,
6. expand adult education programs, and
7. to monitor changes in literacy rate of 15-24 year olds.
The assessment of performance in relation to PRS targets have shown that there has been
significant increase in primary and secondary enrolment though the validity of the data
on enrolment rates is questionable. The gap between the gross and net enrolment rates
continues to be high which shows that the over and under pupils together account for 17
percent of total enrolment. Annual drop out rates at the primary level are about 5 percent
and the retention rates shows only modest signs of improvement. Similarly the pass rates
in Primary School Leaving Examination were low but a significant improvement has
been achieved in 2003. The PRS target of 50 percent pass rate in PSLE by 2005 could be
achieved only if the pass rate observed in 2003 could be sustained. Although the literacy
rates among 15-24 year olds are high there are significant regional and gender disparities.
The ratio of girls to boys at primary schools has improved significantly in the past three
years largely due to the measures under the PEDP. Though the gender gap at the
secondary school has declined it continues to be significant. In sum, the PRS targets
regarding gross and net enrolment at primary level and transition rate from standard VII
57
to Form I has already been achieved. It is highly likely that the targets regarding
percentage of students passing PSLE, net enrolment rate in secondary school and girls/
boys ratio in primary and secondary levels will be achieved by 2005. However, the
targets for reduction in primary school drop out rate and secondary gross enrolment rate
are highly unlikely to be achieved.
The 2003 PER noted that the current PRS targets for the education sector focus on
primary education alone and hence there is a need to include targets for secondary and
tertiary levels of education. Further gender related indicators in line with the MDGs are
needed at the secondary and tertiary levels.
Review of Education Budget and Expenditure
Expenditure on education continues to increase over the period from 2000/01 through
2003/04 (Table 1). As a percentage of GDP, total spending on education has been
showing an increasing trend from 3.3 percent in 2000/01 to a budgeted 5.1 percent in
2003/04. Share of education sector in the expenditure on priority sectors ranges from
Table 1. Government expenditure on education, 2000/01-2003/04 (Billion T.Shs.

current prices)
2000/01 2001/02 20020/03 2003/04

(Budget) (Budget)
Total Education Expenditure 254.9 344.9 474.3 570.6
Recurrent 189.2 282.1 400.0 464.4
Recurrent as % of total 74.2 81.8 84.3 81.4
Development 65.7 62.8 74.3 106.2
Development as % of total 25.8 18.2 15.7 18.6
Total govt. expenditure on priority sectors 494.7 749.8 999.9 1258.1
Education expenditure as % of exp. on priority 51.5 46.0 47.0 45.4
sectors
Education expenditure as % of GDP 3.3 4.0 4.9 5.1
Source: URT (2003k)
51.5 percent in 2000/01 to 45.4 percent in 2003/04. The above data shows a gradually
declining trend in the share of education expenditures in total government spending on
priority sectors. Share of recurrent expenditure in the total increased from 74.2 percent in
2000/01 to a budgeted 81.4 percent in 2003/04 with an average of 80.4 percent over the
four year period considered.
58
Recurrent expenditure
Sub-sectoral analysis of recurrent spending on education shows that the government is

putting increasing emphasis on primary education, followed by higher and technical
education. The share of primary education in total recurrent spending increased from
65.4 percent in 2000/01 to a budgeted 71.4 percent in 2003/04 (Table 2). Such high
shares for primary education is a reflection of the resources required for wages and
salaries and material supplies in this sub-sector. Share of higher and technical education
is showing a gradually decreasing trend from 21.9 percent in 2000/01 to 16.7 percent in
2003/04. The pattern of recurrent expenditure seems to show an increasing bias towards
the primary education with falling emphasis on secondary and higher education. This
may result in dearth of qualified manpower with superior skills and the labor market
crowed by labor force with basic education only.
Table 2: Distribution of recurrent and development expenditure by sub-sectors,

2000/01-2003/04 (%)
Sub-sector 2000/01 2001/02 2002/03 2003/04

Recurrent Develop. Recurrent Develop. Recurrent Develop. Recurrent Develop.
Primary 65.4 75.1 61.3 77.4 73.9 67.5 71.4 NA
education
Secondary 6 10.2 8.2 9.6 5.8 10.6 6.6 NA
education
Teacher 1.4 0.8 2.0 1.4 1.3 2.1 1.6 NA
education
Higher and 21.9 6.8 22.8 4.6 15.2 13.0 16.7 NA
technical
education
Administration 5.3 7.1 5.7 6.9 3.8 6.7 3.7 NA
and others
Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 NA
Source: URT, (2003m)
Personal emoluments and other charges account for a major share of the recurrent
spending on education, the latter accounting for 75 percent in 2002/03 and the former 25
percent of the recurrent expenditure. Among the sub-sectors, personal emoluments
account for a major share of recurrent expenditures except in the case of higher and
technical education. Other charges accounted for more than 98% of the recurrent
expenditures in the case of higher and technical education.
Analysis of the recurrent budget performance shows that in 2001/02 and 2002/03 about
99 percent of the approved recurrent budget was disbursed to the two ministries and out
of the total disbursements, an average of 98 percent was spent.
Development expenditure
Both foreign and domestic funds have been supporting development spending in the
education sector, the former being the main source of funds for the development budget.
The foreign component of the development budget increased from 87.5 percent in
2000/01 to 95.6 percent in 2003/04. The corresponding share of the domestic funds
59
increased from 12.5 percent in 200/01 to 16.6 percent in 2001/02 but then fell to 5.7
percent in 2002/03. The PER notes that there are significant resource inflows that are not
properly accounted for in the government accounting system.
Development expenditures by sub-sectors show higher emphasis on primary education
followed by secondary education, higher and technical education (Table 2). Teacher
training got the least share. The above sub-sectoral expenditure pattern is similar to the
pattern followed in the case of the recurrent expenditures. Data on approved budgets
versus actual expenditure shows that in 2002/03 the actual expenditure by MOEC was
only 68 percent of the approved budget (76.7 % in 2001/02). In the case of MSTHE, the
actual expenditure was only 90.8 percent of the approved budget in 2002/03. This could
be because a major share of the development budget is foreign funded and that donors are
holding the release funds as the government fails to meet counterpart budgetary
commitments.
PEDP expenditure analysis
A major share of the funds that are allocated to education sector in general and primary
education in particular, is expended through the implementation of the PEDP. The
sources of funds for PEDP and their trends are presented in Table 3.
Table 3: PEDP Expenditure analysis (Billion TSh.)
2001/02 2002/03 2003/04

A. Source of funds
Government financing 167.1 (71.9) 175.1 (60.4) 130.3 (46.6)
External financing 65.2 (28.1) 114.6 (39.6) 149.4 (53.4)
Total 232.3 289.7 279.6
B. Government financing of PEDP
Recurrent expenditure 165.2 (98.8) 173.8 (99.3) NA
PE 132.2 138.4 NA
OC 33.0 35.4 NA
Development 1.9 (1.2) 1.3 (0.7) NA
Total 167.1 (100.0) 175.1 (100.0) NA
Source: URT, (2003b)
Figures in parentheses are percentage of the respective total
The share of government financing for PEDP shows a decreasing trend from 71.9 percent
of the total in 2001/02 to 46.6 percent in 2003/04. During the above period the share of
external funding nearly doubled from 28.1 percent to 53.4 percent. The data on donor
funding, however, do not capture the off-budget funding. The dominance of government
funding in PEDP recurrent budget is a reflection of the interest of development partners
in developments programs as opposed to recurrent spending. Government spending
accounted for 98.8 percent of the government funding for PEDP in 2001/02 which
increased to 99.3 percent in 2002/03. A further breakdown of government funding for
PEDP recurrent expenditure shows that while PE accounts for 80 percent of the total, OC
accounts for only 20 percent.
60
Financial management and role of local government authorities
The local government authorities have been entrusted with the task of implementing the
PEDP. Resources for PEDP fall under three categories: capitation grant, other charges
and development or capital funds. The funds move from the Ministry of Finance to the
Accountant General, District Councils and then to the schools. In general there has been
an increase in funds allocated to districts during the first two years of PEDP
implementation. Lately there have been problems in the flow of funds largely due to
resource gaps. The PER found that there are substantial variations in per capita
allocations among the districts and there is no clear criteria for allocations among the
councils.
The assessment and practice of managing PEDP funds show that though there has been a
general improvement over the first year of PEDP implementation the flow of funds from
the center to the districts depends much from which window the funds come and that
funds managed by donors are not easily ascertained in terms of disbursement schedules.
It is recommended that school accounts be computerized for more efficient flow of funds.
Delays in transfer of funds from the center to districts and then to schools,
misappropriation of funds at school level, lack of transparency and schools receiving less
than allocated amounts are other problems identified.
Cross cutting issues
The main cross cutting issues in the education sector are HIV/AIDS and gender issues.
HIV/AIDS and education sector
The main effect of AIDS on education services are reduction in supply of experienced
and newly recruited teachers, depletion of resources due to increased AIDS related
expenses and transaction costs associated with transportation and burial of teachers who
die of the disease. The Ministry of education undertook the following activities to deal
with HIV/AIDS problem:
1. Strengthening management and coordination of programs on AIDS activities-An

AIDS coordination unit has been established to coordinate the activities.
2. Reducing vulnerability of school youth to HIV/AIDS/STI. This has been
achieved through integration of HIV/AIDS education component in the
curriculum, distribution of learning materials related to AIDS.
3. Reducing unprotected sex among men and women: MOEC leaders and workers
and peer educators have been trained to conduct workplace education sessions in
departments and institutions.
4. Promoting the culture of values and norms in the society that encourage positive
attitudes and decision making about sexual matters. A number of cultural
activities have been designed and carried out with this objective.
5. Research to appraise the impact of AIDS on the education sector and to identify
the needs for social behavior and communication on HIV/AIDS and promoting
use of health and social services on HIV/STIs have also been conducted to devise
appropriate policies to combat this epidemic.
61
Issues that need attention: MOEC and PO-RALG share the responsibilities of
HIV/AIDS education, MOEC developing the guidelines and teaching materials and PO-
RALG the implementing them at the district level. However the modalities of sharing
these responsibilities have not yet been worked out. Although substantial funds have
been spent on AIDS related activities, it has been hard to track the expenditures on
HIV/AIDS related interventions. Due to the fragmented nature of HIV/AIDS
interventions in the sector, it has been hard to verify whether the identified activities are
fully funded or not. Further, the funding of HIV/AIDS related interventions are not fully
captured in the national accounting system. Participation of local communities and
NGOs is important in order to have a sustainable and coherent HIV/AIDS program. The
2003/05-2006/07 education sector MTEF underlined the need for strengthening school
AIDS committees that are composed of teachers, students, pupils, parents and community
members including faith organizations. Schools that have not developed such programs
should be encouraged to pursue this. The MTEF identified programs to cover children in
non-formal school system, adult learners and students and teachers with disability. There
is a need to ensure sufficient budget commitment for these activities. Resources should
also be directed towards programs that mitigate the impact of AIDS, like programs to
support vulnerable HIV/AIDS orphans.
Gender and education
Primary education: There are apparent gender differences in the education sector as
revealed by the Gross and Net Enrolment rates. Although the gross enrolment rates have
improved significantly in the past three years, difference between the male and female
enrolment tends to increase; from 2 percentage points in 2001 to 7 percentage points in
2003 (Table 4). The PER found that although an equal number of boys and girls are
enrolled at the age 7, older girls are finding it difficult to start schooling than their male
counterparts. Similarly, the percentage of girls passing the primary school examination
seems to be significantly lower than males. These trends in enrolment seem to indicate
the PRS and MDG target for parity in overall enrolment of girls and boys in primary
education by 2005 may not be achieved.
Table 4: Gender disaggregated performance indicators at the primary level
Indicator 2001 2002 2003

Net Enrolment Ratio (%)
Female 65 79 87
Male 66 82 90
Gross Enrolment ratio (%)
Female 83 96 102
Male 85 101 109
Pupils Passing PSLE (%)
Female 21 20 --
Male 36 34 --
Girls/Boys in Primary School
Girls/Boys: All standards 0.97 0.96 0.95
Girls/Boys: Standard one 0.93 0.94 0.94
Source: URT, 2003f
62
Secondary education: The gender gap in transition rates from Standard IV to Form I are
not large despite the fact that boys tend to outperform girls in the primary school leaving
examination. However, the gender gaps in enrolment rates are large (Table 5). The ratio
of girls to boys in secondary education tends to fall at higher levels of secondary
education. These results suggest that elimination of gender disparity in secondary
education by 2005 would require more serious interventions to reduce dropout rate of
female students in the secondary school.
Table 5: Secondary education Gender indicators
Indicator 2001 2002 2003

Transition from standard seven to Form I
Female 19 19 18
Male 21 22 20
Girls/Boys in Primary School
Form I-IV 0.86 0.84 0.84
Form I 0.96 0.88 0.93
Form IV 0.85 0.78 0.80
Form VI 0.51 0.47 0.50
Source: URT, 2003f
Higher education: Gender disparity is much higher at the technical and higher education
levels. A number of programs like pre-entry science program for female students and
female undergraduate scholarship program have been implemented.
Costing of interventions
The projected resource requirements for the education sector during the MTEF period
(2004/05-2006/07) are presented in this section. The proposed policies concentrate on
interventions for secondary education, Adult and Non-formal Education (AE/NFE), and
HIV/AIDS related interventions.
Secondary Education Development Plan (SEDP)
The overall objective of the SEDP is to increase the number and of youth in Tanzania
who complete secondary education with acceptable learning outcomes. In order to
achieve this SEDP has outlined programs to improve access, ensure equity of
participation in undeserved areas by geographical location, remove gender and income
inequalities, improve the performance of students by increasing the passing rate and
increase efficiency of secondary education through management reforms and devolution
of authority. The projected resource requirements to implement the above programs are
presented in Table 6.
63
Table 6 Projected Resource Requirement and available resources for the years
2004/05-2006/07 (Tsh. Millions)
REQUIREMENTS 2004/05 2005/06 2006/07

Recurrent
1] Teacher Salaries 13,162 14,955 17,509
2] Non Teacher Salaries 2,632 2,991 3,502
3] Non Salary Recurrent Expenditure 11,523 13,508 14,599
4] Government Schools Student Capitation
7,682 9,006 10,814
Grant
5] Non- Government Schools Student Capitation
Grant 2,078 2,362 2,724
6] Government Schools Fee Subsidy 4,878 6,004 7,570
7] Targeted Bursaries 1,097 1,351 1,703
8] Form V-VI Supplementary Capitation 390 421 462
9] Disadvantaged Schools Capitation 576 675 811
10] Exam Fee Waiver 1,000 1,385 1,635
11] Secondary Teacher Training 6,494 9,848 11,029
12] Total recurrent 51,512 62,506 72,359
Development
1] Public Financing of Government Secondary
22,157 31,790 44,008
Schools
2] Government Secondary Schools Additional
6,132 9,054 7,549
School Capital
3] Total Cost for Teachers Training Institutions 1,398 1,628 2,507
4] Total cost for University Teacher Training 389 267 537
5] Total development 30,076 42,739 54,602
TOTAL REQUIREMENT 81,588 105,245 126,961
AVAILABLE RESOURCES
Total Recurrent Resources 54,799 64,663 73,716

Total Development Resources 14,575 16,616 18,942
Total 69,374 81,279 92,658
Resource Gap 12,214 23,966 34303
Resource Gap as % of Projected Resource
15 23 27
Requirements
Comparison of the resource requirements in relation to the available resources shows a

gap of 15 percent in 2004/05 which increases to 27 percent in 2006/07. It may be noted
that the SEDP is giving increasing importance to the private sector in its plan.
64
Adult and Non Formal Education (AE/NFE)
The objective of AE/NFE is to target out of school children, youth and adults, especially
girls, women, disadvantaged groups and nomads. The projected resource requirements
for the Adult and Non Formal Education (AE/NFE) over the medium term (2004/05 –
2006/07 are presented in Table 7.
Table 7: Projections and resource requirements for AE/NFE for the years 2004/05-2006/07
((Tsh. Millions)
Category of the Budget 2003/04 2004/05 2005/06 2006/07

1] 11-13 out of school 1,221.3 3,640.0 3,066.4 81.9
2] 14-18 out of school - 1,980.2 4,459.8 4,039.2
3] Adult Education Learners 1,868.9 5,936.9 7,677.3 4,997.6
4] Post Literacy Group 43.3 228.3 793.3 793.3
5] Other Indirect Costs (Capacity Building) 772.0 2.2161.3 2,176.7 1,121.9
6] TOTAL 3,905.4 13,946.7 18,173.4 11,033.9
There is a drastic increase in resource requirement between years 2003/04 and 2004/05 as
the project envisages initial enrolment of a significant number of out of school children.
HIV/AIDS related interventions
Resource requirements for HIV/AIDS related activities are projected based on the
assumption of projected increase in enrolment during the medium term and substantial
expansion of HIV/AIDS related activities.
In order to improve access to secondary education the SEDP plans to complete existing
schools, increase enrolment, increase the number of teachers in teacher deficient schools,
relocate teachers based on a pupil: teacher ration of 30:1.
Main findings and recommendations
The main findings of the education sector PER are summarized below:
 There are marked improvements in the implementation of PEDP program and

enrolment ratios. However, the challenge remains to keep the newly enrolled
children in school until they reach standard seven. Gender issues in education
remain a concern, even though gender balance has almost been achieved at
primary level and progress is required at the secondary level. Measures to
reduce dropout of girls particularly at higher levels and to enhance the
performance of girls should be put in place.
 Structure of the education budget is dominated by the recurrent component at

both national and education sector levels. Overall, both the recurrent and
development budgets have been increasing over time. This upward trend is an
indication that the activities related to education are expanding. Compared
65
with the other priority sectors, education sector has been receiving the largest
proportion of the total budget.
 Although the total development expenditure on education has in general been

increasing during the period under review internal resources to education have
been fluctuating with an overall decreasing trend. The external resources to
education have recorded an increasing trend.
 The budget structure for education sector favors primary education. One
notable implication of such a bias is low transition rate to secondary level.
 There is a noticeable mismatch between PEDP resource requirements and the

actual budget allocations. This has adverse effects on planned PEDP activities.
The budget mismatches between PEDP resource requirements and the actual
budget allocations have affected planned PEDP activities and subsequently
PRSP objectives and targets.
 HIV/AIDS interventions activities have been found to be fragmented. This

renders tracking of spending on HIV/AIDS interventions difficult. The newly
introduced HIV/AIDS GFS code and Coordinating Unit will ease tracking
expenditures on HIV/AIDS
In light of these findings, the report makes the following recommendations:
I: Sectoral Plans and Strategies: The PER recommended sectoral plans and strategies
like establishment of more centers for Integrated Community Based Education and
Complementary Basic Education, preparation of micro-plans by all schools, extension of
coverage of school mapping to all districts, extension of Education Management
Information System to all districts, and establishment of Education Database Unit within
Ministry of Science Technology and Higher Education (MSTHE).
Though PEDP implementation has been largely a success, actions need to be taken to
solve outstanding problems identified with respect to PTR variation across regions,
recruitment of teachers, construction of teachers’ houses, procurement of textbooks,
dropout rate, low pass rates and improving predictability of resource flows.
Expansion of secondary education will result in increased private sector involvement.

Mechanism to distribute projected resources to the private sector has to be worked out.
In order to minimize chances of disputes, it is recommended to support the private sector
in terms of reward and/or appreciation to the service delivered rather than pre-support
system.
Non-formal education has shown some success in terms of enrolment. However, the
delivery system needs action in terms of expanded facilities, instruction materials, and
recruitment of instructors.
66
Availability of textbooks is the only quality indicator that has been quantified. More
quality indicators such as indicators related to inspectorate system, curriculum,
attendance of teachers and pupils and school environment are needed.
II: Education Expenditure: In terms of funding, the areas that need improvement are:
containing expansion of administration component, improving predictability of (donor)
development funding, and increasing government component of development budget. In
order to avoid double budgeting for some activities, a mechanism to capture flow of
funds to schools should be developed.
Although the Secondary Education Development Plan (SEDP) that is intended to

operationalise the Secondary Education Master Plan (SEMP) has been finalized, the role
and modalities for private sector participation need to be spelt out clearly and cautiously
so as to avoid conflicts and wastage of resources. For example, support of the private
sector spelt out in the SEDP could be in form of rewarding good practices rather than
advance provision of resources.
III: Financial Management and Accountability: The full implementation of the CAG
report will increase effectiveness of funds utilized, enhance accountability and
transparency. A system of following up the responses in relation to raised queries should
be instituted.
School committees should be granted greater autonomy in executing their budget

according to their material needs. Accounting for used money should be reinforced.
Cases of misappropriation and other irregularities should be prosecuted with speed in
order to pre-empt other would-be offenders. IFMIS should be used to track source and
flow of funds to school level.
IV: Cross Cutting Issues: In addition to preventive interventions against HIV/AIDS

measures to mitigate their impact, for example, by supporting access to education of
orphans and vulnerable children, should be designed. Formation of functional school
HIV/AIDS committees for schools that do not have such committees should be
encouraged. A disaggregated accounting of cross cutting issues to reflect each item
separately is recommended.
Gender related targets such as proportion of girls enrolled, especially at upper secondary
schools, drop out rate and pass rate of girls and proportion of girls joining tertiary level
of education are essential in order to monitor gender related aspects of education access
and achievement at secondary and tertiary level institutions.
A.5 HEALTH
The objectives of the health sector PER were to review the findings and actions taken on
the last PER and identify the follow-up actions required, analyze the recurrent and
development budget performance for the past three years, analyze the expenditure trends
at sectoral and sub-sectoral levels, review the existing plans and strategies for the sector
67
and costing priority interventions over medium term and to compare the financial
requirements for meeting PRS targets with the resource availability. The main findings
of the PER are summarized below. A summary of key issues and recommendations is
also presented.
Review of the findings of the last PER and actions taken
Health sector has been identified as a priority sector in the Tanzania Poverty Reduction
Strategy. The key findings and actions taken on the recommendations of the last health
sector PER is summarized below.
68
Finding/recommendation Action taken
Slow increase in on-budget • A Joint Health Finance Committee (JHFC) comprising of representatives
allocation to the health sector in from MOH, PORALG, MOF and Partner representatives have been
recent years identified. This committee will analyze in detail the level and type of
resources coming into the sector as well as to set future targets, and to
lobby the Ministry of Finance12. The PER found that although the
members have been identified the Committee has not yet met13.
Downward trend in share of • The JHFC was supposed to take up this issue but has not yet met.
domestic funding to health sector
within on-budget expenditure
There is a reversal in trend of • As above, the JHFC was assigned the responsibility to examine the
subventions to local government downward trend of health subventions to Local Government. As noted this
level as a share of the sectoral Committee has not yet met
total and in health share of • Finalization of resource allocation formula as a means of strengthening the
overall LGA grants equity in the distribution of devolved funds, both from the basket and the
block grants for Other Charges
Encouraging shift in spending • Emphasis towards Preventive Services has been further reinforced by the
towards Preventive Services development of the medium term Health Sector Strategic Plan (2003-2008)
with one critical objective to increasingly allocate funds towards priority
areas and programs of the Sector The priority actions included
strengthening immunization services, improvement in the availability of
drugs and medical supplies, provision of quality health services through
the delivery of the essential health package).
Improved capture of external • Development Partners have been encouraged to provide regular quarterly
resources through MOF database financial updates to the Treasury for Projects/Programs that do not use the
Exchequer System. However, despite this, there still remain significant
gaps in the data that is currently available on this Database making it
difficult to obtain a clearer picture of off-budget expenditure. The Health
Sector, in preparation for the development of the MTEF FY2005, has
circulated the latest figures from the database to each development partner
for further checking and updating.
Improvement in central level • Although budget performance continues to improve at the Central Level in
absorption capacity FY03 particularly in terms of the development budget, there is still room
for further improvement.
Significant increase in spending • This has been maintained in FY03, particularly through Basket funding.
on drugs and supplies from However, problems remain in determining their allocation.
central level
Weak capture of spending at • There have been continued efforts in the past financial year to strengthen
Local Government level capacity at the local level, through training of the CHMTs in recording
income and expenditure, and wider circulation of the financial and
implementation report.
• In addition, there has been general government strengthening of the
budgeting and financial management system through extension of the GFS
coding system to councils, enabling clearer identification and comparison
of key sub-items.
Inadequate MOH staff time • Discussion is required between MOH and MOF regarding realistic
dedicated to PER process with assignment of roles between MOH officials and external consultant
resulting over-reliance on support.
consultant inputs
12
Para 14 of Side agreement, Annex x to 2003 JRM Report
13
Progress against agreed milestones, as of 18th February 2004
69
The above summary of actions taken shows that although the government has initiated
some actions the desired results have not yet been achieved.
Trends in budget performance and expenditure Overall budget performance

An analysis of the budget performance during the period 1998-99 to 2003-04 (Table 1)
shows that the actual expenditure fell short of budgeted expenditure in all years except
2000/01. Actual expenditure ranged from 94.2 percent of the budgeted expenditure in
1999/2000 to 99.4 percent in 1998/99. In 2000/01 the total expenditure exceeded the
budgeted expenditure (101 percent of the budget expenditure).. In all the years
considered the actual off budget expenditures were higher than the budget expenditures.
Similarly, the actual development expenditures were significantly less than the budgeted
expenditures in all years considered.
Table 1. Health sector expenditure in Tanzania, FY99-FY04 (Billion TSh)
1998/99 1999/2000 2000/01 2001/02 2002/03 2003/0

4
Budget Actual Bud Actual Bud Actual Budget Actual Budget Actual Budget
get get
Recurrent 62.2 62.2 67.3 59.3 92.0 85.5 123.9 117.5 154.6 141.8 167.9
(100.0) (88.1) (92.9) (94.8) (91.7)
Domestic funds 62.2 62.2 60.7 58.0 75.5 74.9 100.6 95.9 121.3 109.5 150.7
Foreign funds 6.52 1.36 16.5 10.6 23.3 21.6 32.3 32.3 17.3
Development 26.8 17.9 21.5 12.0 26.8 17.7 36.1 23.9 40.8 33.9 33.1
(66.8) (55.8) (66.0) (66.2) (83.1)
Domestic funds 2.6 0.9 4.6 2.8 5.1 5.1 5.3 5.0 6.1 6.1 6.6
Foreign funds 24.2 17.0 16.9 9.2 21.7 12.6 30.8 18.8 34.7 27.8 26.4
Total on budget 89.0 80.1 88.8 71.4 118. 103.3 160.0 141.3 195.4 175.6 201.0
(90.0) (80.4) 8 (87.0) (88.3) (89.9)
Total off budget 35.6 43.9 52.3 61.5 59.4 76.9 66.1 80.6 49.3 60.8 70.7
(123.3) (117.6) (129.5) (121.9) (123.3)
Domestic funds -- 1.1 -- 1.5 -- 1.9 1.2 -- 1.7 1.7
Foreign funds 35.6 42.8 52.3 60.0 59.4 75.0 66.1 79.4 49.3 59.1 69.0
Total health 124.6 123.9 141. 132.9 178. 180 226.2 221.9 244.7 236.4 271.7
expenditure (99.4) 1 (94.2) 2 (101.1) (98.1) (96.6)
Health -- 2.2 -- 2.1 -- 2.5 -- 2.7 -- 2.6 2.7
expenditure as %
of GDP
Health -- -- -- 7.5 -- -- 10.4 9.2
expenditure as %
of total
government
expenditure
Deflated Health 157. 187.
expenditure* 149.6 148.7 1 148.0 4 189.4 226.2 221.9 233.5 225.6 248.4
Figures in parentheses are actual expenditure as a percentage of budgeted expenditure
*
Deflated using CPI at 2001 prices
Trends in expenditure
The health expenditures show an increasing trend during the period considered. The
nominal health sector spending increased from Tsh. 132.9 billion in 1999/2000 to 236.4
billion in 2002/03 and a budget allocation of Tsh 271.7 billion in 2003/04. In 2001/02
prices, the actual expenditures increased from TSh. 149.6 billions in 1998/99 to
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TSh. 225.6 billion in 2002/03 at an average annual rate of 11.6 percent. The per capita
health sector expenditure at constant prices increased by 2.5 percent only between FY03
and FY04. As a percentage of GDP the total health expenditures increased from 2.1
percent in 1999/2000 to 2.6 percent in 2002/03 and is budgeted to be around 2.7 percent
in FY04. Similar trends were observed in health expenditure as a percentage of the total
government expenditures, increasing from 7.5 percent in FY00 to 10.4 percent in FY03 to
a budgeted 9.2 percent in FY04. Although there have been increases in health
expenditures in absolute terms and as percentage of total government expenditures, the
percapita expenditure continues to be low, $5.39 in FY03 and it is budgeted to be
US$5.24 in FY04. These percapita expenditures are relatively low in relation to
increasing needs of this priority sector. The costs of providing health services have also
been increasing lately. The PER recommends increased budget allocation to this
important sector.
Domestic funds drive most of the recurrent spending while most of the development
expenditure came from foreign funding. Basket funding with the foreign funding has
increasingly played a significant role in supporting day-to-day operations with in the
health sector through both recurrent budget support and grants to local government.
The PER found that there was an increasing trend in health expenditures for preventive
and primary level services till FY01, which was reversed between FY02 and FY03
largely due to an increase in administrative expenses of the MOH. The trends in
recurrent and development expenditures are discussed below.
Recurrent and development expenditures
The share of recurrent expenditure in total expenditure continues to be high (Table 2), 82
percent of the total expenditure in 2002/03. It is budgeted to be 50 percent of the total in
2003/04. This is largely because of the increasing share of the donor basket and the fact
that majority of the basket spending is accounted for through the recurrent budget.
Table 2. Composition of recurrent and development expenditures in total expenditures
1998/99 1999/2000 2000/01 2001/02 2002/03 2003/

04
Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget Budget
Recurrent 77.7 74.3 84.9 68.9 83.9 70.3 83.8 74.2 82.0 81.1 50.0
Developm 22.3 25.7 15.1 31.1 16.1 29.7 16.2 25.8 18.0 18.9 50.0
ent
Spending by activity type: The trend in recurrent spending for administrative, preventive
and curative categories shows (Table 3) that the biggest increase between FY02 and
FY03 was in expenditures for administration (41.7%) followed by hospital services
(13.0%) then preventive services (11.6%). In FY03 preventive services accounted for
45.2 percent of the total recurrent spending compared to 47.8 percent in FY02. Spending
on administration increased from 9.5 percent of total recurrent expenditure in FY02 to
13.7 percent in FY03. Similarly the spending on hospital services fell from 42.7 percent
of the total recurrent expenditure in FY02 to 41.1 percent in FY03. It may be noted that
71
there has been a slight fall in expenditures on preventive services as percentage of total
expenditures in the last fiscal year while the expenditures for administration has
increased.
Table 3 Trends in spending by level/categories (Tsh billion)
FY01 FY02 FY03

PE OC Total PE OC Total PE OC Total
MOH Admin 3.79 7.95 11.75
NIMR 1.59 0.35 1.95
TFNC 0.66 0.22 0.88
MOH Admin, NIMR and TFNC 2.90 3.69 6.58 3.25 5.24 8.50 6.05 8.52 14.57
Hospitals
Muhimbili National Hospital 3.79 1.20 4.99 4.78 1.72 6.51 5.36 2.02 7.38
Muhimbili Orthopaedic Institute 0.54 0.30 0.85 0.56 0.38 0.94 1.53 0.93 2.46
Ocean Road Cancer Institute 0.28 0.23 0.51 0.29 0.43 0.72 0.35 0.48 0.83
Bugando Medical Centre 0.71 0.86 1.57 0.72 0.41 1.13 0.94 1.27 2.21
Kilimanjaro Christian Medical Centre 1.20 0.83 2.03 1.33 0.71 2.04 1.48 0.77 2.25
Referral hospitals, MoH * 1.74 4.06 5.81 2.03 0.32 2.35 0.23 0.87
Regional hospitals 4.43 2.07 6.50 5.14 2.40 7.54 5.69 3.27 8.96
District hospitals 3.53 5.06 8.59 5.22 4.39 9.62 6.54 5.34 11.88
Designated District Hospitals 3.07 1.27 4.33 2.94 2.23 5.16 3.43 1.74 5.17
Voluntary Agencies - Hospital 1.91 0.23 2.14 1.94 0.09 2.03 2.32 2.32
Total hospitals 21.20 16.11 37.31 22.93 13.07 38.03 27.65 16.05 43.70
Preventive/Primary health care
MoH preventive services 0.27 3.55 3.82 0.27 6.01 6.28 0.30 6.21 6.51
Regional preventive services 0.13 0.08 0.21 0.25 0.05 0.30 0.15 0.15 0.30
Council preventive 14.11 12.86 26.97 18.50 17.45 35.95 23.40 17.89 41.29
Total Preventive/Primary 14.51 16.49 31.00 19.02 23.51 42.53 23.85 24.25 48.10
Total Health recurrent 74.90 89.06 106.37
On-versus off budget expenditures:
The share of on-budget expenditure continued to increase from 53.7 percent in 1999/2000
to 74.3 percent in 2002/03 and a budgeted 74percent in 2003/04 (Table 4). This has been
made possible as a result of the concerted efforts by the MOH and MOF by improving
information on external funding, capturing a higher proportion of the total within
budgetary estimates and through improvements in the planning and budgeting process, as
the MTEF becomes a more familiar and applied tool.
Table 4. On-budget and off-budget health expenditure

1998/99 1999/2000 2000/01 2001/02 2002/03 2003/
04
Budget Actual Budget Actual Budget Actual Budget Actual Budget Actual Budget
Total on budget 89.0 80.1 88.8 71.4 118.8 103.3 160.0 141.3 195.4 175.6 201.0
(71.4) (64.6) (62.9) (53.7) (66.7) (57.4) (70.7) (63.7) (79.9) (74.3) (74.0)
Total off budget 35.6 43.9 52.3 61.5 59.4 76.9 66.1 80.6 49.3 60.8 70.7
(28.6) (35.4) (37.1) (46.3) (33.3) (42.7) (29.2) (36.3) (20.1) (25.7) (26.0)
Total health 124.6 123.9 141.1 132.9 178.2 180 226.2 221.9 244.7 236.4 271.7
expenditure (100) (100) (100) (100) (100) (100) (100) (100) (100) (100) (100)
Analysis of spending
Recurrent spending: Recurrent expenditures both from domestic and foreign funding
sources continue to increase during the period. Total recurrent expenditures increased by
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17.1 percent in 2002/03. While recurrent expenditures from domestic funding increased
by 12.4 percent the increase in foreign funded recurrent expenditures were 33.1 percent.
Most of the recurrent spending in the health sector has been for drugs and supplies, and
on HIV/AIDS. Between FY 02 and FY03 the expenditure on drugs and supplies
increased by 21 percent. A further 20 percent increase has been budgeted for FY04. The
hospital services department continues to be the largest consumer of drugs and supplies.
Incomplete estimates of per capita expenditure on drugs and medical supplies shows that
it increased from $0.64 in FY02 to $0.69 in FY03 and to a budgeted $0.77 in FY04. The
PER found that there are substantial variations in per capita allocation of drugs and
medical supply to the different regions.
Spending on HIV/AIDS spans over different sectors and ministries with funding from
government and basket funding. Since different ministries and sectors are involved, it
has been difficult to get a correct estimate of the total. At the central level, the total
MOH expenditures increased from Tsh. 1.52 in FY02 to Tsh. 7.29 billion in FY03. It is
budgeted to be Tsh. 8.63 billion in FY04, a 4 percent increase from FY03 level. At the
local government level all LA s have assigned funds for HIV/AIDS in their budget,
although at a low level. HIV/AIDS spending at the LA level as a percentage of the total
health OC spending increased from 1.3 percent in FY02 to 2.6 percent in FY04. Though
there has been an increase in HIV/AIDS spending at all levels it may however be noted
that such increases are small in relation to the extent of HIV/AIDS problem in the
country.
Development expenditures: Development projects in the health sector have been

implemented at the central, regional and council levels. At the central government level
the MOH continued to implement reforms with the objective of improving efficiency.
The Health Plans and Management program is one such program implemented in FY03.
Other development projects at the central level focused on more traditional development
activities such as construction, rehabilitation and purchase of equipments. Development
projects at the regional level are funded by both donors and the government, the former
accounting for about 80 percent of the actual expenditures in FY03. This pattern is
expected to continue in FY04 also. At the council level majority of the development
projects were to improve the infrastructure through capital investment in health centers,
dispensaries and district hospitals
Local government budget and spending in relation to PRS objectives
According to the PRS local government spending in priority sectors represents a major
component of the pro-poor activities. There is evidence of continued government
commitment to devolution of responsibilities to local authorities (Table 5).
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Table 5. Government subventions to LGAs, FY01-FY04
FY01 Approved estimates FY02 Approved estimates FY03 Estimates FY04 Estimates
PE OC Total PE OC Total PE OC Total PE OC Total
Urban 4.47 1.57 6.04 4.90 2.16 7.06 5.71 2.53 8.23 6.59 3.29 9.89
District 16.58 6.47 23.05 18.83 9.59 28.42 21.41 11.07 32.48 25.00 13.51 38.51
Total 21.05 8.04 29.09 23.73 11.75 35.48 27.12 13.59 40.71 31.59 16.80 48.40
Information on releases in relation to the budget provided by MOF indicates that 100
percent of all planned OC block grants for health was released to each council by the end
of the financial year in FY03. The PER did not analyze the geographical variation in
allocation and expenditures in the health sector at the local government level
Fiscal decentralization and allocation
In order to achieve equitable allocation of local government funding across geographical

areas the MOH has approved a new formula for fiscal decentralization and allocation in
the health sector. This will be applied to both block grants and council basket funding
from July 2004. This formula will use population, mileage traveled within the region,
poverty level, and under-five mortality with different weights to determine the funding.
Health sector performance
The national health goal of the PRS is to first arrest the decline in life expectancy and
then raise it to 52 years by the year 2010. The health sector has also set specific targets in
terms of infant mortality rate, under-5 mortality, maternal mortality, malaria mortality,
and access to safe water, to be achieved in the coming years. There is no data available
to measure the progress in achieving these specific targets. Data presented in Table 1
show significant increase in health sector expenditure in nominal terms and in constant
prices in the last three years.
Spending on priority items
In FY 04 the Ministry of Finance has made distinction between expenditure on items

falling within the priority items in the health sector and spending on HIV/AIDS. This has
created a break in the series between FY03 and FY04 in reporting health sector budget
and expenditures.
Recurrent spending on PRS priority items increased from Tsh. 52.4 billion in FY02 to
Tsh. 63.3 billion in FY03 and is budgeted to be Tsh. 79.4 billion in FY04 (Table 6)
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Table 6. Recurrent spending on PRS priority items, FY02 to FY04 (Tsh. Million)
FY02 FY03 FY04

Total subvention to LGAs 35,393 43,250 48,856
Preventive service subvote at RAS 302 304 310
LGA drugs budgeted under MOH 9,108 12,478 15,000
MOH HQ Preventive services subvote 7,574 7,253 15,187
Total Health Priority items 52,376 63,285 79,353
Total Priority sector spend/budget 117,473 141,746 167,966
Priority items as % sectoral spend 45% 45% 47%
Spending on priority sector as percentage of overall sector spending is around 45 percent.
Although the above figures do not account for funds from health basket funds and value
of directly procured drugs, it may be noted that more than 50 percent of the total
recurrent spending is on priority items.
In the case of development spending, PRS priority projects accounts for only about two
thirds of the development spending. GOT funding although less than 13 percent of the
total development budget, is primarily targeted at non-PRS priority projects. Similarly,
the foreign basket development funding allocated to PRS priorities is very low (25
percent of the total). However, about 94 percent of the foreign non-basket development
funding supported priority projects.
Financing performance
The per capita allocations and spending in the health sector at the central, regional and
district levels have been showing improvement since FY01 (Table 7). It increased by
Table 7. Selected indicators of financial performance (in US $)
Level Baseline FY 03 FY04

FY01 Budget Actual Budget
Total GOT public allocation to health per capita Central 1.49 2.12 1.77 2.58
Regional 0.21 0.24 0.24 0.26
District 1.02 1.31 1.33 1.37
Total 2.72 3.67 3.34 4.21
GOT and donor allocation (budget & off-budget) to National 6.12 7.28 7.04 7.26
health sector per capita average
Per capita GOT recurrent expenditure by levels of Central 0.23 0.42
government Regional 1.29 1.26
District 1.07 1.39
Total 2.59 3.07
22.8 percent from $2.7 in FY01 to $3.3 in FY03 and is budgeted to be around $4.21 in
FY04 (Table 7). The increase has been higher at the central and at the district levels.
Total health sector spending percapita, budget and off budget, from government and
donors increased from $6.1 in FY 01 to $7.0 in FY03 and is budgeted to be at $7.3. The
percapita GOT recurrent expenditures increased from $2.6 in FY01 to $3.1 in FY03.
Recurrent spending at the regional and district levels are significantly higher than that at
75
the central level, which shows the government to a large extent provided health services
at the local government levels.
The analysis of opportunities for cost sharing of revenues show that the revenues
generated could make a substantial contribution to daily running expenses with in a given
facility with revenues reaching as much as 50 percent of the expenditures on drugs. The
PER further found that there is substantial variation in both revenue generation and
absorption of such revenues between hospitals. The PER however suggested that further
analysis might be needed to ensure that revenue generation objective does not affect the
accessibility of the poor to the health services.
Future costs and revenues
Costing for the health sector is done based on a costing study done in 1998 in the MOH
prior to the PER exercise. The MOH is using a figure of $9 per capita as a target for
spending in the health sector. The PER found that this cost estimate and the baseline has
to revalued as the country is facing increasing costs from new first line treatment of
malaria, introduction of new vaccines, expansion of services such as VCT and TB
prophylaxis and introduction of ARV treatment for AIDS. Poor costing of interventions
required continues to be a weakness of the PER.
Future sources of revenues are government funding including GBS, basket funding and
external project funding. Based on the budget guidelines issued by the government the
total GOT real allocation to the sector is projected to increase by 24 percent over the
three-year period from FY04 to FY07. This increase is entirely due to a large (about
218%) increase in foreign non-basket funding to the sector in FY05. But the total local
funding is expected to fall by 3 percent during the above period.
There has been significant increase in the basket funding for the health sector in FY05
due in large part to the contribution from the World Bank under the new Health Sector
Development Program. The PER expects significant increase in flow of external funding
through donor project and basket funding in the health sector. Such funds are expected
for the Global Fund for HIV/AIDS, tuberculosis and malaria control, and the HIV/AIDS
Care and Treatment plan with the assistance of the Clinton Foundation.
Key issues and recommendations
The following key issues and recommendations emerge from the main sector report:
• Although there is an increasing trend in health sector budget and expenditures
their real growths are much less than the demands due to the increasing health problems
and higher costs of delivering a basic package of services to the population. There is an
apparent decline in the share of health sector expenditure in the total government
expenditure in the FY04 budget allocations. There is a need for the JHFC to take up this
issue and to secure better budget allocation to the health sector.
76
• The analysis of spending by level and by category (preventive versus curative)
could be strengthened by inclusion of basket funding and those elements of the
development budget, which contribute to recurrent spending. Further work is needed to
disaggregate central spending on behalf of LGAs, but would be useful in terms of
obtaining a more accurate measure of resource availability at that level.
• Currently there is no analysis of actual expenditures in relation to budgets. The

MTEF is still incomplete in terms of external support to these areas. It is therefore
recommended that the FY05 update include analysis of spending in at least two such
programmatic areas, to be defined in advance. This should include both a central and
LGA analysis.
• Analysis of budget performance and absorption capacity is incomplete. IFMIS

permits comparison both of releases against budget, and of expenditure against release,
thereby enabling comparison both of performance by GOT (and partners) in meeting their
stated budgetary commitments, and of the spending agency in using resources. However,
currently this is undertaken for MOH HQ only due to lack of detailed expenditure data at
the Regional and LGA levels. For the past three years actual expenditures have been
consistently less than budgets.
• Although the nominal level of funds allocated to the local government level has
increased between FY03 and FY04 the budgeted health sector share of LGA funds has
been falling in recent years, from an initial baseline of 18% to 16.6% in FY04. It is not
possible to say whether this is due to the presence of the council basket funds. The
allocation between urban and rural councils raises some queries, as the growth of both
PEs and OC allocations is higher for urban councils. The PER FY05 update may analyze
the geographical distribution of basket and/or block grant funding between Regions using
the FY03 data as a baseline. IFMIS may be extended to the council level to obtain actual
expenditure data from LGAs. Thi s may be undertaken prior to the FY05 PER update
process in order for the results to be used, and should cover both PE and OC funding
• This PER update indicates that the although the contribution of cost sharing to the
overall sectoral resource envelope is limited, the existing cost-sharing schemes are
creating barriers to access for the poorest contrary to the objectives of overall
development policy as articulated in the PRSP. There is little clarity on sources and uses
of funds under the cost-sharing program. The FY03 PER update had raised the issue of
lack of reporting in this area, but little action appears to have been taken. The PER
further recommends that there should be better information on the Community Health
Fund. There are no incentives in the NHIF to ensure cost-effective or equitable use of
heath services, and therefore the extent to which it might ultimately be considered pro-
poor is questionable.
• Although there has been increase in total on-budget spending on drugs and
supplies at MOH HQ the available data do not show the distribution of these funds, both
by level of the health system and by geographic regions. The whole area of spending on
drugs and supplies within the sector in the framework of the MTEF merits a more
detailed study. The PER further recommended a systematic study on supply of drugs and
services at the sectoral and at various levels of the government. Such a study should:
77
quantify the total drugs and supplies with in the sector including purchases by projects
and programs, analyze the centrally procured items and their share of regional and local
governments and analyze the geographical allocation of drugs and supplies in order to
comment on the existing formula and justify any difference with that used for block
grants and basket funding for councils.
• The PER found that there is inconsistency in budget and expenditure information
collected through the sectoral PER and MOF data. The changing definitions of priority
sectors and items complicate calculations of time series data. For the revision of the
PRS, it is recommended that definitions of priority sectors and items be clearly stated,
together with targeted allocations, in order to give a basis for comparison in future PER
updates.
• Problems with the IFMIS within the MOH were a particular problem for this PER
update, both delaying proceedings and necessitating repeat analysis of the same items.
Such problems in accounting database affect the future inflow of funds. Unavailability of
skilled staff, multiplicity of formats are other problems in the management of the
database.
Immediate steps
The PER recommended the following immediate steps:

a. In order to take up the issue of health sector financing and budget allocations, the
Joint Health Finance Committee agreed in 2003 need to reactivated.
b. The preparation of the FY05 PER should begin as early as possible
c. The PER coordinator should meet with all stake holders and formats should be
prepared for quarterly reports so that annual reporting will then become less
burdensome.
HIV/AIDS Expenditure Review
The objectives of the multi-sector public expenditure review conducted in 2003 are to
review the major recommendations and actions taken on the last PER, review the public
expenditures on HIV/AIDS, expenditures by sectors and local governments, budget
performance and the proposed spending pattern and to make recommendations for
improved performance of multi-sectoral approach to control HIV/AIDS.
HIV/AIDS has very severe impact on the economy and human development in Tanzania,
through its impact on productivity, increasing dependency ratio and increasing costs for
the care of infected individuals. The country has responded to the HIV/AIDS challenge
through the formulation of the Tanzania Commission for AIDS (TACIDS) and a National
Multi Sector Strategic Framework (NMSF) to operationalize the national policy on
HIV/AIDS. Since HIV/AIDS affect all sectors, interventions in to the work plans of all
sectors and ministries with object of a rapid acceleration of preventive programs and
mitigation of its impact have been formulated and implemented.
78
Review of recommendations and actions taken
The main recommendations of the last PER and actions taken on those recommendations
are summarized below:
1. HIV/AIDS should be coded at activity level in the IFMS budget coding structure-
this recommendation has been accepted for 2004/05 budget.
2. Budget guidelines should provide more detailed guidance on planning and
budgeting for HIV/AIDS programs- this has been proposed in the 2004/05 budget
guidelines
3. TACIDS should strengthen financial staff and capacity and develop stronger ties
to MOF and PORLAG- number of accounting staff has been increased and a
procurement specialist is being recruited.
Expenditure on HIV/AIDS
There is no internationally accepted definition as to what constitutes public expenditure

on HIV/AIDS, as it has not been possible for practical reasons to separate out HIV/AIDS
element of public expenditures. However, spending programs that are targeted to
HIV/AIDS interventions are considered in this report as public expenditure on
HIV/AIDS. There is no good accounting of expenditures targeted to HIV/AIDS in
Tanzania and hence data on expenditures are incomplete. The best estimates of the
expenditures on HIV/AIDS for 2001-02 and 2001-03 are presented in Table 1. The total
expenditure on HIV/AIDS increased by 89 percent from Tsh. 16.8 billion in 2001-02 to
31.7 billion in 2002-03. All the individual line items show significant increase from
2001/02 to 2002/03. While the recurrent government spending increased by Tsh 4.75
billion (207%) the aid flows to public sector increased from Tsh.9.9 billion to Tsh. 16.4
billion (65%) during the above period. The total aid flows to NGOs increased by 82
percent from Tsh. 4.5 billion to Tsh. 8.3 billion. The significant increase in total public
sector spending (91.6%) and government recurring spending for HIV/AIDS show its
commitment to the HIV/AIDS problem in the country. There has also been significant
increase in aid flows.
HIV/AIDS expenditure plans
The existing and the proposed public expenditure plan for HIV/AIDS over the medium
term are presented in Table 2. The budget envisaged an increase in expenditure from
Tsh. 11.6 billion in 2002-03 to Tsh. 42.6 billion in 2003-04. Although this is a 267
percent increase, the outlay for 2003/04 accounts for only about 40 percent of the
requirements based on international evidence. The total resources in the two subsequent
79
Table 1 Expenditure on HIV/AIDS*
2001-02 2002-03
Recurrent, Government 2296 7050 (207.1)
Development, Government 0 0
Aid via Govt. systems NA 4460
Total spending, as per Accountant general 11510
Aid direct to public sector recipients 11950
Total ODA to public Sector 9948 16410 (65.0)
Total public sector expenditure 12244 23460 (91.6)
ODA to NGOs 4546 8267 (81.9)
Total expenditure 16789 31727 (89.0)
The data presented in the table are incomplete as it is difficult to identify expenditures
specific for HIV/AIDS
Figures in parentheses are percentage increase from the 2001/02
years are higher than the budget guidelines, total resources are about 183 percent and
161percent of the budget guidelines in 2004/05 and 2005/06 respectively. It may
however be noted that the actual donor commitments usually fall short of the actual
spending and hence this should be treated with skepticism. The shares of different
sources funds for HIV/AIDS activities show that external finance accounts for more than
75 percent of the total resources. Funding from government sources account for about 20
to 25 percent of the total resources. A significant share of the external financing goes to
NGOs.
Table 2: Estimates of available and required HIV/AIDS expenditures,

2002/03-2005/06
2002/03 2003/04 2004/05 2005/06
Estimates of required resources
2003 Budget guidelines 11.6 (36.6) 42.6 (72.2) 42.9 (54.5) 43.9 (61.9)
Estimates of resources available
Government resources 7.0 (22.1) 14.5 (24.6) 16.3 (20.7) 16.6 (23.4)
External finance 24.7 (77.9) 44.5 (75.4) 62.4 (79.3) 54.3 (76.6)
Budget aid 4.5 (14.2) 8.6 (14.6) 30.1 (38.2) 44.2 (62.3)
Other aid to Government 11.9 (37.5) 18.9 (32.0) 16.4 (20.8) 6.5 (9.2)
Total to public sector 16.4 (51.7) 27.5 (46.6) 46.5 (59.1) 50.7 (71.5)
Aid to NGO 8.3 (26.2) 17.0 (28.8) 15.6 (19.8) 3.6 (5.1)
Total resources 31.7 (100) 59.0 (100) 78.7 (100) 70.9 (100)
Total resources as % or budget guidelines 138.5 183.4 161.5
Figures in parentheses are percentages of total available resources
The figures reported tend to understate the actual level of resources devoted to HIV since
they cover only specific HIV/AIDS spending programs. They do not capture the share of
Peps accounted for by staff spending part of their time on HIV/AIDS, costs of HIV/AIDS
patients being cared for in medical facilities, reproductive health costs that could be
attributed to HIV/AIDS prevention and costs of such joint programs as TB/HIVAIDS etc.
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The UNAIDS estimates that Tanzania need s to spend $90 million in calendar year 2006
and about $100 million in the subsequent years to control and prevent the spread of HIV
in the country. Even if the increased donor commitments are fully realized the
government would need to nearly triple its domestic funding in order to reach spending
levels envisaged by UNAIDS. The government would also have to mobilize increased
funding from donors and ensure that more of their funding supports the NMSF priorities
and more of it is disbursed through the budget in ways to enable the government to avoid
unbalanced spending patterns that result from uncoordinated project commitments.
Role of NGOs
Though the MOF accounts include official donor commitments to NGOs, they do not
fully capture the spending by NGOs. As Table 2 indicates there is a doubling of donor
commitments to NGOs in 2003/04. The flow of funds to NGOs is likely to increase to
$20-25 million per year and such increase may require substantial increase in absorptive
capacity. Provisions for capacity building are incorporated in the US programs and in the
World Bank supported TMAP Community Fund.
The Clinton Foundation Care and Treatment Plan is a major initiative for HIV/AIDS
management prepared with the support from the Clinton Foundation. The cabinet has
approved this program with a total cost of $539 million over the first five years. A large
part of the resources under this project is additional although the government is expected
to incur significant expenditure in the longer term.
Sectoral analysis of actual and planned HIV/AIDS spending
The sector strategies are compared with the budget available for HIV/AIDS spending in
this section. The individual sectors are discussed below:
Health
Health sector has the most fully developed and costed plan for HIV/AIDS. The resources
required for the strategy are compared in Table 3 with the available resources based on
the MTEF projections and the information on donor commitments. Even with
government and donor commitments, Table 3 shows that there are substantial financing
gaps through the MTEF period. The figures show that the total commitments will
finance only about 40 percent of the requirements. Even with the continued growth in
donor inflows the funding strategy will require a substantial increase in government
commitments to HIV/AIDS programs in the health sector.
Education
The education sector strategy for HIV/AIDS that is currently being finalized will estimate
the cost implications of reaching full coverage of preventive actions for the youth in
school. Such a program targeting the youth would result in an estimated per capita cost
of $2.3. Assuming that pupil enrolment in these grades to grow to 2.5 million, and also
that some interventions are required at the secondary level, the required budget would
grow to Tsh. 8.4 billion.
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Table 3: Financing the Tanzania Health Sector HIV Strategic Plan14 (Shillings, Billions)
2003-4 2004-5 2005-6 2006-7 Total

Prevention
Cost 11.3 22.4 30.4 31.4 95.3
MTEF, from Govt 1.6 2.9 2.4 6.9
MTEF, from Donors 3.6 5.7 3.4 12.7
MTEF, Total 5.2 8.6 5.8 0 19.6
Donor Commitments 6.2 5.9 0.2 0.0 12.4
Shortfalls (Surplus) 3.4 13.5 27.7 31.4 76.1
Care
Cost 16.5 32.6 38.5 51.7 139.3
MTEF, from Govt 5.3 5.5 5.9 16.7
MTEF, from Donors 0 0.1 0.1 0.2
MTEF, Total 5.3 5.6 5.9 16.8
Donor Commitments 7.0 9.8 24.9 41.6
Cross-Cutting
Cost 1.2 2.4 2.8 3.2 9.6
MTEF, from Govt 2.1 1.7 1.7 5.5
MTEF, from Donors 0.7 2 0.1 2.8
MTEF, Total 2.9 3.6 1.9 8.4
Shortfalls (Surplus) -4.9 -2.6 -2.8 3.2 -7.0
Total Strategy
Cost 28.9 57.4 71.7 86.3 244.3
MTEF, from Govt 9 9.9 9.9 28.8
MTEF, from Donors 4.2 7.8 3.7 15.7
MTEF, Total 13.3 17.7 13.6 44.6
Sources: Health sector strategy; health sector MTEF; analysis of donor commitments to MOH based on MOF database
plus analysis of donor documents. See Annex 2 for assumptions.
TACIDS
The current MTEF envisages TACIDS budget to fall in 2004/05 and 2005/06 (Table 4),
which is not consistent with the expanded leadership role assigned to TACIDS. The
present budget do not allow for increased growth in non-personal related OCs. TACIDS
will also require an increase in spending on advocacy materials, monitoring and
supervision and on measures to enable TACIDS to be an effective “one stop shop” for
advice and information about HV/AIDS in the country. TACIDS will also manage the
World Bank TMAP funding and the Clinton Foundation Care and Treatment Plan.
14
Strategy figures are for calendar years and are US dollar figures at 2002 prices converted at exchange
rates used in the MOF external finance department database.
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Table 4: TACAIDS Budget: 2003-4 to 2006-7, (Tsh. ’000)
2003-4 2004-5 2005-6 2006-7

PE & Staff benefits 444 450 450 450
OCs, Other 3851 3240 3511 3511
Govt Development 287 1515 1515 1515
Total existing 4582 4755 5026 5026
IDA 1169 2710 5273 5363
Budget Ceiling 5751 7465 10299 10389
Other donor flows 2026 4340 660
Total 7777 11805 10959 10389
Local Government Authorities
There is no accurate data on actual government expenditure on HIV/AIDS at the district

level. The 2003/04 budget for subventions to local government authorities for HIV/AIDS
was just Tsh. 433 million which is equivalent to Tsh. 3.6 million per LGA. Most LGAs
lack planning capacity and resources to develop multisectoral plans for combating
HIV/AIDS at the district level. PORALG which is mandated to oversee development of
local authorities and therefore indirectly the role of communities in fighting HIV/AIDS
has not itself prepared a strategic plan for HIV/AIDS.
The donors through NGOs and CBOs fund most of the HIV/AIDS activities that are
taking place in the communities. Expected disbursements by donors for HIV/AIDS are
expected to reach $16 million in 2003/04 compared to $5 million in 2002/03. In addition
to this, an additional $87 million from the Global Fund and the IDA will also flow to
districts and communities. The Global Fund will address requirements for care and
support within 45 districts focusing on VCT for both HIV/AIDS and TB and on
providing comprehensive care and support to people living with HIV/AIDS. Other
programs that are being implemented at the LGA level are the TMAP project,
Community AIDS Response Fund that will provide resources mainly through NGOs,
CBOs and the CARF that will support a full spectrum of AIDS activities. Assuming a 75
percent disbursement of the commitments, the total resource flows to districts and
communities from the Global Fund, IDA and support via NGOs might reach around $26
million per annum. This will work out to roughly $216 thousand per district or $0.75 per
head. The PER recommended substantial improvement in the capacity of the local
government and community-based organizations to absorb these significantly increased
resource flows.
The PER further raised the following two main concerns in the distribution of funds at
the LGA levels:
1. The distribution of funds is likely to be highly skewed towards more accessible

districts and those districts that have more active NGOs and CBOs.
2. There is also the likelihood of a skewed distribution of funds towards care and
treatment at the expense of prevention.
83
In order to ensure better distribution of resources, it is recommended that funds from such
sources as IDA be targeted to less served districts and towards prevention rather than
treatment and care.
Budget process for HIV/AIDS
Budget guidelines
The PER has identified the following problems while reviewing the current MTEF for
HIV/AIDS:
1. The MDAs fear that allocating money to HIV/AIDS will squeeze their priority
programs when there are TMAP resources that can be accessed outside the
national budget process. This has affected the allocation for HIV/AIDS.
2. The MTEF is not used at present to make strategic choices about future allocation
of resources. This problem is manifested in HIV/AIDS programs with no growth
in allocation, but rather a repetition of the activities and allocations in the current
year.
3. TACAIDS have not yet established for themselves a formal role in supporting the
preparation of MDA action plans and budgets, nor in supporting MOF to review
sector MTEFs for their HIV/AIDS treatment
Role of TACIDS in budget process
The PER found that TACIDS has neither played a strategic leadership role with respect to
the treatment of HIV/AIDS in the national budget nor the internal TACIDS budget has
been used to plan a medium-term strategy. The PER recommends two roles for TACIDS
in the broader budget process:
1. To provide technical support to MDAs in developing strategies and medium term

expenditure frameworks
2. To support the Ministry of Finance in providing guidance on how to mainstream
HIV/AIDS within the budget, reviewing the proposed MDA action plans and
budgets and briefing MOF on HIV/AIDS aspects for their meetings to discuss the
budget proposals coming from MDAs.
In order perform these roles TACAIDS will need to strengthen their relationships with
the budget division of MOF, and with the heads of planning and budgeting within
individual MDAs. This could be initiated by arranging a series of meetings between
TACIDS and their technical advisors together with the budget department of MOF and
the budget and HIV/AIDS officers of relevant MDAs.
Accounting and data management on HIV/AIDS
At present it is very difficult to track the planned and actual expenditures on HIV/AIDS.
As a result some of the expenditures are not accounted for in the MOF database system.
The PER recommends the following actions for better accounting of the expenditures:
• TACIDS should ensure that they are copied on the relevant sections of
MTEFs and action plans prepared by MDAs and by Districts, so that the data
84
can be readily retrieved. The Policy and Planning Department of TACAIDS
should support and monitor HIV/AIDS aspects of the MTEF and budget
process across Government.
• There should be routine data reporting on all aspects of HIV/AIDS and

TACIDS may coordinate this.
• At present it is very difficult to track planned and actual expenditures on HIV/AIDS. Although
Tanzania has an integrated financial management system the way in which some of the codes
are operated makes it difficult to consolidate reports on cross cutting issues like HIV/AIDS.
The PER has recommended an alternative coding structure that is more objective in tracking
funding and expenditures on various HIV/AIDS activities.
85
ANNEX 2
CONSISTENCY BETWEEN POLICY, PLANNING, AND BUDGETING
A.1 INTRODUCTION
Good and pragmatic expenditure projections with reliable budget execution are essential
for successful expenditure management. Leaving expenditure policy aside, the level of
consistency between the projected resource envelope, the detailed sectoral programmed
budget, and the expenditure out-turn, is a major indicator of the maturity and the
precision of fiscal targeting and programming, policy coordination and coherence
between various actors in the budget process, and the capacities of the executing
agencies/ministries. This note explores the extent this consistency was achieved in
Tanzania as manifested by the available expenditure data with more focus on the
programming side.
This note is organized as follows: Section 2 provides some background of the recent
evolution of budget planning, programming and execution in Tanzania. Section 3
introduces the budget statistics series on which the analysis is based. Section 4, discusses
the consistency in major statistical aggregates in public expenditure programming and
execution. Section 5 repeats the same discussion for priority sectors. Finally Section 6
provides concluding statements.
A.2 THE EVOLUTION OF PLANNING, PROGRAMMING, AND EXECUTION
Public expenditure management is a delicate process both from the programming as well
as from the execution part of it. If predictions and programming are weak, one can
expect major uncertainties, unanticipated events and disruptions during execution that
will necessitate sizeable adjustments throughout the fiscal year, which could undermine
delivery of services, project implementation, and fiscal objectives and balance. On the
other hand, if the projections and the construction of the programming are reasonable but
the out-turn has little resemblance with the approved budget, it indicates serious problems
at the execution stage. In both cases, budget predictability, transparency, and
effectiveness, suffer and stake holders, including creditors, and particularly important in
the case of Tanzania, donors, may loose confidence in the expenditure management
altogether. The consequences could be far reaching and negative to credibility of public
institutions, fiscal and macroeconomic stability, and growth.
According to FY97 PER and other Bank documents, in the mid 1990s Tanzania
demonstrated symptoms of poor expenditure planning, programming and execution.
Those symptoms included:
• Over optimistic expenditure projections;
• Adherence to the resource envelope was poor and the resource allocations were
frequently overridden during subsequent preparation of the Budget.
86
• Government commitment to the budget was weak as there were frequent
reallocations early during the execution;
• Budget allocations lacked a policy framework to prioritize expenditure,
• There was lack of a sense of ownership in the budget preparation by the line
agencies;
• Most of the programming was focused on development expenditure which
constituted a small proportion of the total expenditure;
• At the execution end, weak monitoring and accounting added to the uncertainties;
and Donors were also uncertain of the formal budget process and a high
proportion of their assistance bypassed the formal budget.
In the mid 1990s, the Government of Tanzania committed itself to improving expenditure
management. Since then, public expenditure management has been in a state of
transition and improvement. Many of these weaknesses were successfully addressed.
Some of the achievements included:
• Integrating the institutional responsibility for both recurrent and development
expenditure programming under the Ministry of Finance.
• Improving the accuracy of forecasting, particularly of revenues and external
financing. The capacity of the government officials for macroeconomic and fiscal
forecasting is better, particularly with the use of a macro model (MACMOD).
• The introduction of MTEF improved the linkages between planning, budgeting,
and execution.
The PER process allowed sector policies and priorities and their detailed program costing
to be fed into the MTEF. It also allowed stakeholder involvement and participation.
Because line ministries are represented in various committees in the budget process and
responsible for forwarding their forward budgets based on the ceilings in the Budget
Guidelines, the line agencies and ministries’ inputs and ownership of the process have
significantly increased.
The PRSP became the basis for prioritizing the allocation of public resources.
The introduction of the IFMS has permitted detailed target-setting, programming, and
monitoring execution; brought discipline, transparency, and accountability, to the budget
process; simplified controls over releases to all spending units (use of IFMS in districts is
still in a pilot stage); made easier to monitor progress by having reliable and timely
information and quarterly reports; and allowed financial performance to be fed back into
the next budget cycle and the MTEF.
Though some problems remain or persist, the accomplishments made so far fostered a
greater certainty, participation, and confidence in the budget process. They allowed
87
greater integration between sectors, national resource envelope, and the macro policies.
The budget process has earned its credibility.
A.3 DEFINING THE BUDGET DATA
To explore the extent to which the improvements in programming and execution are
reflected in the budget data, we analyze four sets of budget data in the subsequent
sections. They are the Budget Guidelines, cross-sector MTEF, Annual Budget, and
Actual Expenditures. The comparability of the data sets somewhat relate to the stage in
the budget cycle they were generated. For the budget preparation, Table 20 below
illustrates the stages in which the first three data sets are generated. The Budget cycle
starts annually in September/October, programming ends in June when the budget is
submitted to the parliament, and implementation ends in June of the following year.
Table 20: The Budget Preparation Process

Sept-Oct Nov-Dec Jan-Feb Mar-April May-June
(a) Budget Guidelines Preparation

(b) The MTEF processes
(c) The Approval of the Annual Budget
Briefly, the four sets of data can be described as follows:

(a) The Budget Guidelines (Issued in January). It is a 3-year rolling medium-term
expenditure plan put together by the Budget Guidelines Committee. The overall resource
envelope of the three-year projection is developed with inputs from the Ministry of
Finance, the Central Bank, Civil Service Department, line ministries, and Office of the
President (Planning and Privatization). The PER working group assists in the process by
providing projections of donor finance as an input to the budget guidelines. The most
important determinants of the level of the overall resource envelope are the domestic
revenue and the foreign financing projections. The Budget Guidelines Committee simply
agrees upon budgetary ceilings by sector and vote after consultations with concerned
parties, and submits the proposed budget ceilings to the cabinet for approval by
November/December. After its subsequent approval, the sectors and agencies prepare
their detailed forward budget proposals and MTEF projections. The sector ceilings are
generally binding and respected except for the updates of the resource envelope and for
possible changes in external commitments.
(b) The MTEF (Concludes in April/May). In Tanzania, the MTEF comprises the macro-
fiscal framework, the cross-sectoral MTEF, as well as detailed sectoral MTEFs for the
priority sectors which incorporate sector policies and PRS priorities into the detailed
sector programming and costing. In principle, the allocations and the resource envelope,
are those specified in the 3-year rolling Budget Guidelines. Differences to the budget
guidelines ceilings arise primarily from updates with regard to foreign funded
projects/programs.
88
The first three MTEFs (FY99, FY00, and FY01) focused only on recurrent expenditure,
reflecting the fact that the development budget is almost entirely financed by donors in
processes that are largely outside the regular budget process. Following the introduction
of the PRS and the provision of direct budget support by a large number of donors, the
last two MTEFs (FY02 and FY03) were comprehensive and included development
expenditure. It is expected that, eventually, all sectors and agencies of government will
join the MTEF exercise.
(c) The Annual Budget (June). The National Budget Committee reviews all submissions
and submits to the Cabinet. Ministry of Finance incorporates changes, on i.e.,
outstanding requests from sectors and agencies on payroll, in to the final budget and
submits it to the parliament for debate and approval by mid-June.
(d) Actual Expenditure. Actual expenditure refers to the out-turn following the
execution of the annual budget as reported in the appropriation accounts and audited by
the National Audit Office. Tanzania continues to apply strict cash budgeting. Deviations
between budget estimates and actual expenditures can come from: (i) unanticipated
shortfalls in resources; (ii) reallocation of funds among the sectors occurs mainly to
distribute new funds and/or the retained funds at the MoF for contingencies; (iii) under
spending by vote-holders as a consequence of low rate of budget releases or
implementation; and (iv) unanticipated changes in the flow of external assistance. Most
of the deviations are in the development budget.
The budget data reflects the accounts of the Central Government. It excludes local
government revenues and the expenditures these revenues finance. Unfortunately, it also
excludes an undetermined number of foreign financed projects that bypass the formal
budget system. In the latter, though in principle, they should be included in the budget,
accounting for all of them remains to be a challenge.
A.4 OVERALL BUDGET TRENDS
Data Sources and Definitions
The Budget Guidelines, Annual Budget, and Actual Out-turn data presented in this
section are obtained solely from the annual documents of the Budget Guidelines. There
were obtained from the ‘Budget Frame (Accounting)’ table. The reason that the ‘Budget
Frame (Accounting)’ is that it was consistently provided in all Budget Guideline
documents. Several characteristics of the data in the Table are worth noting. First,
because the classification is not the standard GFS/IMF format, and the total recurrent
expenditure includes amortization and payment of arrears. Second, besides PE and OC,
there are other categories in the composition of recurrent expenditure, including: (i)
‘designated items’ which include items such as the Road Fund, Parastatal Wages, TRA
and Retention Scheme; (ii) CRS which includes debt service; and (iii) payment of arrears.
Third, in some years, total expenditure is higher than the sum of recurrent and
development expenditures. The difference is ‘contingency funds.’
89
Within-Year Consistency of Aggregate Expenditure Estimates (Budget Guidelines –
MTEF – Budget – Actual Expenditures)
The primary role of the budget guidelines is to define expenditure priorities for the next
fiscal year, project the overall resource envelope, and set expenditure ceilings for key
expenditure categories such as wages and salaries or debt service as well as sectoral and
ministerial expenditure ceilings. Based on this information, spending units prepare their
detailed budget submissions and MTEFs.
Aggregate Resource and Expenditure Estimates
Projections of resource projections play a key role in Tanzania’s budget process, as they
determine the level of expenditure. The total resource envelope includes domestic
revenue as well as foreign program and project finance. Other resource flows such as
domestic borrowing, or privatization proceeds are also included in the resource envelope,
and are typically small compared to the other resource types. During the past five years,
resource estimates at the time of the budget guidelines were typically below those in the
budget. In recent years the gap has narrowed from around 12 percent difference between
the budget guidelines and the budget in FY02 to around six percent in FY04. Given the
inherent uncertainties in making projections, a difference of five percent can well be
interpreted as a sign of cautious budgeting rather than a symptom of major problems in
making macro-fiscal projections.
Figure 9: Differences in Total Resource Estimates
Difference in Total Resource Estimates
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
FY00 FY01 FY02 FY03 FY04
Budget - BG Actual - Budget
The analysis of the components of the resource envelope indicates that projections of
program support undergo the largest change between the budget guidelines and the
budget. At the same time, the narrowing of the difference between resource estimates in
the budget guidelines and the budget is also mainly attributable to improved program
support projections in the budget guidelines. While in FY00, program support shown in
the budget was about 60 percent higher than estimates in the budget guidelines
90
(accounting for about six percentage points of the difference in estimates of the resource
envelope), in FY03 this figure has declined to below 20 percent (or about 3 percentage
points of the total difference). This improvement is due to efforts by government and the
donor community to enhance predictability in program support through indicative
medium term commitments of budget support through the PRBS facility.
Figure 10: Domestic Revenue, Program Grants and Loans, and Project Grants and Loans,
Difference between Budget and Budget Guidelines, FY00 – FY04
Dif fer ence betw een Budget and BG Dif fer ence betw een Budget and BG
(% of component) (% of total resources)
70.0% 8.0%
60.0%
50.0% 6.0%
40.0%
30.0% 4.0%
20.0% 2.0%
10.0%
0.0% 0.0%
-10.0%
-20.0% -2.0%
FY00 FY01 FY02 FY03 FY04 FY 00 FY01 FY02 FY03 FY 04
Domestic Revenue Pr ogram Grants and Loans Domestic Revenue Program Grants and Loans
Project Grants and Loans Pr oject Grants and Loans
Reflecting the observations made on the resource side, estimates of aggregate expenditure
levels at the time of the budget guidelines are consistently below the estimates that are
presented in the budget six months later. However, the degree of underestimation has
declined in recent years. While in FY02, the difference between the estimates of total
expenditure was twelve percent, it has fallen to only six percent in FY04.
Figure 11: Total, Recurrent and Development Expenditure, Difference Between Budget
and Budget Guidelines Estimates, FY00 – FY04
Diff erence betw een budget an budget guidelines

estimates (% of total expenditure)
14.0%
12.0%
10.0%
8.0%
6.0%
4.0%
2.0%
0.0%
-2.0%
-4.0%
FY00 FY 01 FY02 FY03 FY04
Total Recurr ent Development
91
It is interesting to note that that the differences between the budget guidelines and budget
estimates are mainly on account of underestimation of recurrent expenditures, while
estimates of development expenditure seem to undergo less change between the budget
guidelines and the budget.
Figure 12: Wages and Salaries, Operations and Maintenance, and Debt Service, Difference
between Budget and Budget Guidelines, FY00 – FY04
Difference Budget and BG Diff erence betw een budget and budget guidelines
estimates (% of BG recurrent expenditures)
25.0% 10.0%
20.0% 8.0%
6.0%
15.0%
4.0%
10.0% 2.0%
5.0% 0.0%
-2.0%
0.0%
-5.0%
FY00 FY01 FY02 FY03 FY04 Wages and Salaries Operations and Maintenance
Debt Service and Others
Wages and Salaries Operations and Maintenance

Debt Service and Others
Looking at the main components of recurrent expenditure, i.e., wages and salaries,
operations and maintenance, and debt service reveals interesting patterns for these sub-
categories. The estimates of wages and salaries show virtually no difference between the
budget guidelines and the budget. This reflects the Tanzanian practice of setting wage
bill targets as a percentage of GDP during the budgeting stage. In the budget, resources
for salary increases are retained under the category of other expenditures and are
typically only transferred to specific votes during budget execution.
Estimates of debt service are typically under-estimated at the budget guidelines stage,
with the magnitude of change between the budget guidelines and the budget ranging
between five and 20 percent.
Finally, estimates of expenditures for operations and maintenance also show a consistent
pattern of budget guidelines estimates being less than the final budget estimates. Among
the various expenditure categories in the budget guidelines, this is certainly the most
important one for the budget process since the sectoral ceilings for operations and
maintenance are based on this figure. Overall, it appears that changes between the budget
guidelines and the budget have become smaller, declining from around 23 percent in
FY00 to around 10 percent in FY04.
In summary, our analysis indicates that in recent years the projections of broad resource
and expenditure categories have improved and changes between the budget guidelines
and the budget have become smaller. A driving force behind this development is
apparently greater predictability of program support as a result of efforts by government
92
and the donor community to provide clear indications of likely budget support already
prior to the preparation of the budget guidelines.
Assessment of Outer Year Estimates
The budget guidelines also contain projections of revenue, aggregate expenditure, as well
as sectoral and ministerial expenditure levels over a three-year horizon. In the Tanzanian
context, these expenditure projections are intended to fulfill a dual purpose. The first is
related to expenditure planning where the adoption of a medium term outlook on
expenditure planning is intended to increase the strategic focus of decision and allow for
a better link between policy, planning, and budgets. The second objective relates to the
dialogue with the donor community. As donors are providing a significant share of their
assistance in the form of general budget support, the government budget has moved to the
center of the dialogue between government and the donor community. A credible MTEF
allows this dialogue to focus on the overall public expenditure strategy of the authorities
rather than the discussion of specific budget items.
Overall Trends
Generally, since FY00, total expenditure has been increasing at higher rate, apparently,
than the planning officers have expected. On average, the Annual Budget (in nominal
terms) was increasing annually by 23% during the FY00 to FY03 period. As illustrated
in Figure 13, the first-year of each of the rolling three-year Budget Guidelines is
significantly higher than the second-year of the previous rolling Budget Guideline. It is
also modestly higher than the Annual Budget being executed that fiscal year. Yet,
despite the upward adjustments, the Annual Budget and the Actual Out-turn always turns
higher than the 1st-Year Budget Guideline. In Figure 13, 1st-year Budget Guidelines are
connected by a solid bar.
Figure 13: Total Expenditure, Budget Guidelines, Annual Budget, and Actual Expenditure,
FY00 – FY07
Figure 1: Total Expenditure

Budget Guidelines (BG), Annual Budget, and Actual Expenditure
3,500,000
BG FY05-FY07
3,000,000
BG FY04-FY06
2,500,000
Tsh Millions
BG FY03-FY05
2,000,000
Annual Budget
BG FY02-FY04
1,500,000
Actual Out-turn
BG FY01-FY03
BG FY00-FY02
1,000,000
FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07
93
As indicated above, though the 1st-year Budget Guideline was significantly higher than
the 2nd-year of the previous plan, it seems that the outer years of each Budget Guidelines
(BG) are rolled over to the following year’s plan. Each retiring plan serves as a starting
point in the preparation of the first and second year of the following plan.
Figure 14: Recurrent Expenditure, Budget Guidelines, Annual Budget, and Actual
Outturn, FY00 – FY07
94
Recurrent Expenditure
2,500,000
BG FY05-FY07
2,300,000
2,100,000
BG FY04-FY06
1,900,000
1,700,000
Tsh Millions
BG FY03-FY05
1,500,000
Annual Budget
BG FY02-FY04
1,300,000
Actual Expenditure BG FY010-FY03

1,100,000
BG FY00-FY02
900,000
700,000
500,000
Recurrent Expenditure: The programming of recurrent expenditure demonstrates a clear

and pattern, with each of the rolling 3-yrar BG showing steep and similar slopes. As
indicated before, though planners were optimistic and programmed significant increases,
it turns out that they had understated the resource envelope. Roughly, in every plan,
planning officers allow T.Shs 30-70 billion annual increases. Yet, every 1st-year Budget
Guideline is higher T.Shs 200 billion than the 1st-year of its predecessor and the Annual
Budget and Actual Expenditure turn out even higher.
95
Figure 15: Development Expenditure, Budget Guidelines, Annual Budget, and Actual
Outturn, FY00 – FY07
Development Expenditure
Budget Guidelines (BG), Annual Budget, and Actual Out-turn
1,400,000
1,200,000
1,000,000
BG FY05-FY07
Tsh Millions
800,000
BG FY04-FY06
BG FY03-FY05
600,000
Annual Budget
Actual Out-turn
400,000
BG FY00-FY02 BG FY02-FY04
200,000
BG FY01-FY03
-
Development Expenditure: Planning and budgeting for development expenditure over

the medium-term have apparently been less predictable than the recurrent expenditure.
The successive 3-year Budget Guidelines illustrated in Figure15 reflect uncertainties on
the part of planners on the prospects of development programs over the medium-term.
The 1st-year Budget Guideline for development expenditure is very different from the
2nd-year of the previous plan.
Recurrent Expenditure Sub-Trends
Based on the Budget Frame (accounting) classification, recurrent expenditure is divided

in to three main categories: Other Charges (OC), Wages and Salaries (PE), and CFS plus
other small items (DI&CFS). The percent composition of the recurrent expenditure is
provided in Table 21. Composition of Recurrent Expenditure. The Table illustrates that
the share of OC increased in relation to PE and DI&CFS. The trend is true for Budget
Guidelines, Annual Budget, and Actual Expenditures.
96
Table 21: Composition of Recurrent Expenditure
FY00 FY00 FY03 FY03
Budget Actual Budget Actual
Salaries and Wages 29.7 31.6 27.4 26.7
Other Charges 19.9 24.0 33.8 59.7
Designated Items, CFS, and Other 50.3 44.4 38.8 13.6
Total 100.0 100.0 100.0 100.0
Figure 16: OC Expenditure, Budget Guidelines (BG), Annual Budget, and Actual
Expenditure, FY00 – FY07
Figure 5: OC Expenditure
1,200,000
1,000,000
Annual Budget
BG FY05-FY07
800,000
BG FY04-FY06
Tsh Millions
600,000
Actual Out-turn
BG FY03-FY05
400,000 BG FY02-FY04
BG FY01-FY03
200,000
BG FY00-FY02
-
Though the increase in OC expenditures relative to other categories were policy-driven,

the OC often benefits also from updates in the resource envelope Figure 16 indicates that
the ‘Other Charges’ (OC) category in the Annual Budget or Actual Expenditure figures
represent upward adjustment compared to that specified in the Budget Guidelines. Some
of the upward shift can also be a reallocation within the resource envelope, particularly
from DI&CFS.
97
Figure 17: PE Expenditure, Budget Guidelines (BG), Annual Budget, and Actual
Figure 6: PE Expenditure
850,000
BG FY05-FY07
750,000
650,000
Tsh Millions
BG FY04-FY06
550,000
450,000 BG FY03-FY05
BG FY02-FY04
BG FY01-FY03
350,000
BG FY00-FY02
250,000
In contrast to OCs, PEs are often not subject to significant change since they are centrally
allocated. Compared to the Budget Guidelines, Figure 17 illustrates that there are far less
changes in PE in the Annual Budget or in the Actual Out-turn for the FY00 to FY03
period. In Figure 18, the Annual Budget and the Actual Out-turn are identical and the
two representative lines are on the top of each other.
Figure 18: CFS Expenditures, Budget Guidelines (BG), Annual Budget, and Actual
Figure 7: Designated Items and CFS Expenditure

900,000
BG FY04-FY06
800,000
700,000 Annual Budget
BG FY03-FY05
600,000
Tsh Millions
BG FY01-FY03
500,000
FY02-FY04 BG FY05-FY07
400,000 BG FY00-FY02
Actual Out-turn
300,000
200,000
100,000
98
Of the three components of the recurrent expenditure, CFS expenditure is the least
predictable. Figure 18 illustrates the pattern of the rolling three-year Budget Guidelines,
the Annual Expenditure, and the Actual.
Analysis of budget deviation at sub vote level
In looking at the degree of consistency between approved budgets and actual expenditure,
it is important to note that the level deviation observed varies greatly with the level of
aggregation of the analysis. Many of the sharpest concerns on effective implementation
of the budget concern expenditure at the level of individual programs rather than broad
sector aggregates. Performance on implementation of individual programs can be
examined, but it is valuable to draw these results into a more general picture of how well
the budget predicts actual expenditure at this level of detail. What is needed is analysis
which draws on a lower level of aggregation and yet provides a picture of what is
happening in terms of overall budget implementation, rather than a commentary on
individual programs or sub votes.
For a preliminary analysis of budget execution at lower levels of aggregation, it seemed

most useful to focus on expenditure data by sub vote. Data are available for three years
from FY01 to FY03. An index of budget deviation was calculated as the sum of absolute
differences between approved budget and actual expenditure at the sub vote level,
expressed as a percentage of the total budget. For each subvote the budget figure under
reference is from the budget, book as approved by parliament, taking no account of any
reallocations subsequent to parliamentary approval. The table below shows preliminary
summary results for these years, for central government recurrent expenditure.
Table 22: Budget Deviation at Sub-Vote Level (average as % original budget)

Percentage deviation
FY01 22.6
FY02 26.3
FY03 12.3
Some observations can be made on these preliminary results. First, it is important to

consider the implications of the degree of deviation observed. Deviation at subvote level
of the order reported is clearly a significant problem for effective management of
resources. Given that the level of analysis is still fairly aggregate, it must be assumed that
deviations at the level of individual spending units are even higher, implying a serious
problem for spending managers in planning activities. Variances can arise from a wide
range of possible sources and it should not be assumed that deviations should optimally
be reduced to zero. Nevertheless, deviations of the order observed imply reallocation at a
level, which must be expected to have adverse effects on the efficiency of expenditure.
Secondly, there appears to be a significant improvement in performance during FY03.

Tracing through the potential causes of the pattern in observed deviation will require
further analysis, but there seem to be good grounds for associating the improvement with
a tightening of the approval process for reallocations within year, starting FY03.
Performance may also have been assisted by the reform of budget classification in the
99
previous year, allowing better alignment between expenditure classification and the
organizational structure.
A.5 TRENDS IN THE PRIORITY SECTORS
The priority sectors (Education, Health, Water, Agriculture, Roads, HIV/AIDS, and
Judiciary) in comparison to non-priority sectors, enjoy a greater attention and are subject
to an intense and detailed scrutiny in programming and execution. The seven priority
sectors absorb an increasing large proportion of the central government expenditures.
Between FY00 to FY03, the proportion of the allocated Annual Budget to the priority
sectors has increased from 33% to 43% of the total, including CFS.
Data Sources and Definitions
The data presented in the following analysis are extracted from the ‘Sectoral Allocation’
Tables in both the Budget Guidelines and Cross-Sector MTEF documents. Given that the
available data in these documents provided same format and coverage only for some
years/sectors, the coverage is limited. For sectors, they fortunately cover four key
priority sectors: Education, Health, Water, and Roads. These sectors account for over
90% of total expenditure to priority sectors, and therefore are fairly representative.
A key difference (from Section 4) in the classification of this data is that recurrent
expenditure is the sum of PE and OC. The total recurrent expenditure for the priority
sectors in the following discussion represents the sum of the four selected sectors. Since
PE is largely not subject to change (as illustrated in Figure 17) and development
expenditures were not treated in earlier years/documents, the discussion of MTEF in the
following paragraphs is solely on OC. All differences with respect to recurrent
expenditure are OC differences.
Overall Trends
The recurrent expenditure allocation to priority sectors was, in general, increasing at a

faster rate than the average overall increase. Figure 19 illustrates that, in the short period
between FY00 to FY03, the recurrent expenditure to priority sectors more than doubled.
There is a slight upward adjustment from BG/MTEF to Annual Budget, and then to the
Actual. As indicated earlier, all adjustments primarily occur in the ‘Other Charges’
category.
The consistency between Budget Guidelines, MTEF, the Annual Budget, and the Actual,
is sharper than average for the sectors discussed in the previous section. The difference
between the data sets is very small indeed (Figure 20). The difference between the 1st
years of BG and MTEF I and II (FY00-02 and FY01-03) is nearly zero. According to the
statistics, the discrepancy in FY02-04 has to do with an upward adjustment for the Health
sector totaling T.Shs 25 billion thereby causing a difference of 6% in that fiscal year.
The percent discrepancy between MTEF and the Annual Budget and between the Annual
Budget and the Actual ranged from 1% to 6% and 2 to 4%, respectively.
100
Figure 19: Recurrent Expenditure of Selected Priority Sectors (Education, Health, Water,
and Roads), Budet Guidelines, MTEF, Annual Budget, and Actual Expenditures, FY00 –
FY04
650
600
Annual Budget
550
MTEF FY02-04
500
BG FY02-04
450
400
Actual Out-turn MTEF FY01-03 BG FY01-03
350
300 M TEF FY 00-02

BG FY00-02
250
Figure 20: Selected Priority Sector Expenditures, Difference between 1st Year Budget
Guidelines, 1st Year MTEF, Annual Budget, and Actual Outturn, FY00 – FY04
7.0
6.0
5.0
4.0
3.0
Percent
2.0
1.0
0.0
1st-Year BG vs 1st-Year MTEF
-1.0
1st-Year MTEF vs Annual Budget
-2.0
Annual Budget vs Actual
-3.0
FY00 FY01 FY02
Just like the Budget Guidelines, the outer two years of MTEF are rolled over to the
subsequent MTEF plan. Just like the Budget Guidelines, the outer years of MTEF (year
2 and 3) allowed modest increases but turned out to be conservative when compared to
101
the Annual Budget and Actual Out-turn. The allocations for outer two years have been
conservative compare to the following MTEF plan.
Sector Trends
The priority sector trends reflect the general trend described above for the priority
sectors. Education and Health, in particular, receive the highest priority within the
priority sectors and, in the past, received most of their expenditure requirements. Trends
in Education, which absorbs about half of the allocation to priority sectors, is illustrated
in Figure 21. The 1-st Year Budget Guidelines and that of MTEF exactly coincide, and
the graph lines are on top of each other. There is some of adjustment upward with regard
to the Annual Budget notably in FY02 and another upward adjustment during the
execution in the same fiscal year.
Figure 21: Recurrent Expenditure on Education, 1st Year Budget Guidelines, 1st Year
MTEF, Annual Budget, and Actual Outturn, FY00 – FY04
450
1st-Year Budget Guidelines
400 Annual Budget
Actual Out-turn
350
1st-Year MTEF
Tsh Billions
300
250
200
150
100
FY00 FY01 FY02 FY03
Recurrent expenditure in Health, the second most important priority sector, is illustrated
in Figure 22. With regard to variance, the most notable one is the T.Shs 25 billion
adjustment (discussed before) in FY02 but which was scaled down in the Annual Budget
and the Out-turn.
102
Figure 22: Recurrent Expenditure on Health, 1st Year Budget Guidelines, 1st Year MTEF,
Annual Budget, and Actual Outturn, FY00 – FY04
130

120
1st-Year MTEF
110 Annual Budget
Actual Out-turn
100
Tsh Billions
90
80
70
60
50
FY00 FY01 FY02 FY03
Figure 23: Recurrent Expenditure on Water, 1st Year Budget Guidelines, 1st Year MTEF,
20
18 1st-Year Budget Guidelines

Annual Budget
16
Actual Out-turn
14 1st-Year MTEF
Tsh Billions
12
10
4
FY00 FY01 FY02 FY03
The recurrent expenditure on Water and Roads sectors are presented in Figure 23 and
Figure 24. In water, the most significant difference between the budget data sets is in
FY02. In the latter, BG and MTEF figures are identical. However, both the Annual
103
Budget and Actual Out-turn are relatively higher. Similarly, in the Roads sector, the BG
and MTEF data are identical. The Annual Budget is higher, but the out-turn is lower than
the MTEF program.
Figure 24: Recurrent Expenditure on Roads, 1st Year Budget Guidelines, 1st Year MTEF,
110
100
90 Annual Budget
Actual Out-turn
Tsh Billions
80 1st-Year MTEF
70
60
50
40
FY00 FY01 FY02 FY03
A.6 CONCLUSION
The preceding analysis of the budget data illustrates and confirms that some consistency,
in aggregate terms, has been achieved with regard to planning, programming, and
execution of the budget. The consistency is particularly high in the priority sectors where
there is less deviation between the four sets of budget data. Compared to the situation of
planning, budgeting, and execution problems a decade ago, this is an impressive
achievement. It signifies that budget projections/programming are/is realistic, the policy
and activities’ coordination between various actors inside and outside government is very
good, and the institutional capacity to program and execute the budget with confidence
and precision (particularly in the priority sectors) has improved.
Overall, the budget cycle has earned respectability and increased predictability. The
approach is pragmatic but conservative with norms that: (i) stress realism, participation,
and local ownership; (ii) protect against over-estimation and over-spending; (iii) enforce
fiscal discipline and accountability; and (iv) give precedence to priorities.
A key cause of the difference between the Budget Guidelines and the Annual Budget is
the conservative attitude of the planning officers toward setting an overall resource
envelope plus the mere fact that external funding for recurrent expenditure has been
increasing at a rate faster than any one has expected. In the priority sectors, there is little
deviation between Budget Guidelines and MTEF figures, MTEF and the Annual Budget,
and the Annual Budget vs. Actual Out-turn. Updates in the budget cycle are
104
predominantly an upward adjustment of resources that benefited OCs most. PEs are
hardly subject to change from planning to execution. This is, overall, an remarkable
achievement which clearly demonstrates the strong commitment on the part of the
government, and the degree of compliance and manifestation of ownership by all
agencies/sectors. Whether this manifested consistency between the aggregates of data
sets, however, trickles down to line items and sub-votes, is an open question and the
available data does not allow us to explore it further.
There are two issues worth noting. First, since the consistency is higher in priority
sectors than in the overall average, the margin of adjustment in non-priority sectors
during the budget cycle must be higher and, therefore, should be reduced. Second,
programming development expenditure over the medium-term has been less effective
than for recurrent expenditure. Past budget programming (as reflected by the rolling
plans of the Budget Guidelines since FY00) did not convey or indicate a clear path for
investment resources to flow over the medium-term. This is an issue, which may require
both strengthening of institutional capacity, but may also reflect uncertainties in the
funding and external commitments.
105

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PUBLIC EXPENDITURE REVIEW FY04

Report on Fiscal Developments and Budget Management Issues

June 14, 2004

Road network in Tanzania

Road sector revenue and expenditures...........................................................44

Summary of major observations and recommendations of the PER.............55

• Multiplication of processes: Since development of the annual PER process, a

• Developing accountability to domestic stakeholders: There is growing

• Defining priorities: Both Government and development partners have expressed

.6 In section 4, the report reviews issues in shifting towards a greater focus on

.7 The final section reports on local government expenditure and development of

Aggregate Fiscal Discipline

Table 1: Financing of the Fiscal Deficit (% of GDP), FY98-FY04

Central Government Operations FY98 FY00 FY02 FY03 FY04 FY04

Figure 1: Ability to Finance Recurrent Expenditure from Domestic Revenue

1.6 Improvements in tax administration lead to an increase in the revenue to GDP

Table 2: Revenue Performance (% of GDP) FY98-04

1.7 While increasing domestic revenue is important to reduce Tanzania’s aid

Findings from the Investment Climate Survey on the Tax System1

Tax Rates Tax Administration

Source: Investment Climate Assessments

1.13 Corruption in tax administration is a problem in Tanzania. Despite recent reforms –

Table 3: Composition of External Assistance (% of GDP), FY98-04

1.18 Concerning the efficiency of spending on operations and maintenance, it would be

Table 4: Government Expenditure (% of GDP), FY98-04

Table 6: Civil Service Average Salaries, FY98-FY04

Table 7: Composition of Public Expenditures as % of GDP, FY96-FY04

Table 8: Functional Allocation of Recurrent Expenditure (actuals, % of GDP), FY96-FY04

1.24 Table 8 presents the functional classification of recurrent expenditures funded

Table 9: Social Sector Recurrent Expenditures (actuals, % of GDP), FY96-FY04

1.30 Recorded development expenditures show a continuous upward trend increasing

Vote 61 Electoral Commission

Table 11: Utilization of the Contingency Under Vote 50, FY03

1.3 PRIORITY SECTOR EXPENDITURES

Priority sector trends 1999/2000 – 2003/04

2. CONSISTENCY IN BUDGET PLANNING AND EXECUTION

1.58 The main contributing factor is an underestimation of the amount of forthcoming

Table 14: Budget Deviation at Sub-Vote Level (average as % original budget)

1.65 Secondly, there appears to be a significant improvement in performance during

3. STRENGTHENING BUDGET PROCESS

• Clear linkage to policy: Sufficiently detailed to capture the key elements of

Strengthening the Budget Guidelines

1.70 Aggregate resource framework: Adequate forecasting of external financing is one

1.78 Strategic Plans, annual performance agreements: An increasing number of

Implications for donor consultations on the budget

4. STRENGTHENING A RESULT-BASED APPROACH IN POLICY MAKING AND BUDGETING

Developing a Result-Based Tanzania PRS

1.98 PED is considering the implications of shifting from a sector-based to an

1.99 PRS preparation: Preparing a sector-based PRS could be easily accomplished.

1.102 A consolidated initiative would focus on developing a management information

1.107 PRS Implementation: The greatest difficulty in an outcome-based PRS is in

1.108 No less difficult will be translating cross-sectoral approaches into MDA-specific

Performance-compatible incentive structures

1.110 Strengthening performance-compatible incentives will require the alignment of

5. PUBLIC EXPENDITURE MANAGEMENT ISSUES AT LOCAL GOVERNMENT LEVEL

1.111 Status of Public Expenditure Management at Local Level: Overall, government

1.115 Financial reporting: To-date there is no mechanism/procedure for collection,

1.121 Sustainable local Government financing: The abolition of nuisance taxes

1.123 Review of Actual Local Government Expenditures: Preliminary Findings 11

Table 17: Total Local Government Expenditure (T.Shs.)

Table 18: Total Local Government Expenditure (%)

Recurrent vis-vis Development Expenditure

1.125 A comparison of annual recurrent and development expenditure categories over