ANNUAL NATIONAL POLICY DIALOGUE PUBLIC EXPENDITURE REVIEW MEDIUM TERM STRATEGY

1. ANNUAL NATIONAL POLICY DIALOGUE PUBLIC EXPENDITURE REVIEW MEDIUM TERM STRATEGY AND CROSS CLUSTER MTEF November 20, 2009

2. Outline • Overview of PER • Economic performance and outlook • Public financial management • Budget strategy and the Medium Term Expenditure Framework • Aid management and effectiveness • Concluding Remark

3. Overview of PER PER is a forum between Government, DPs, Private sector, CSO, NGOs, Research institutions and Academia to deliberate various policy intents and progress in implementing public sector reforms Government takes the lead in the PER process, and implements a set of agreed indicators Indicators are in line with overall MKUKUTA objective of: Accelerated economic growth Improve quality of life and social well-being Good governance and accountability

4. Overview of PER Cont’d... • PER dialogue is organised under four cluster working groups, the first three being MKUKUTA clusters, and fourth-the Macro and PFM Group. • The PER Main is the umbrella working group which overseas the four cluster working groups and is chaired by the Deputy Permanent Secretary. • Most of analytic work is undertaken in the Cluster Working Groups, with guidance from the PER Main Group • Challenge: The PER dialogue for 2009 has been less effective in informing budget process. Discussions are ongoing to revive PER process.

5. Economic Performance and Outlook • Tanzania has continued to record robust economic growth, averaging 7.0 percent per annum over almost a decade. • GDP growth for 2008 was 7.4% compared to 7.1% in 2007. • The projections have been revised downward to 5.0% in 2009 due to the impact of global financial crisis. • The economy experienced inflationary pressures, raising to double digit level. • The Annual Headline Inflation rate for the year ended October 2009 was 12.7%. • Food inflation rate has increased to 18.1% in October from 17.3% in September 2009. • Non food inflation increased to 4.4% in October 2009 from 4.0% in September 2009.

6. Economic Performance and Outlook Cont’d... • Over years, domestic revenue exceeded projections, however, in 2008/09 revenue collection was 18% above the levels in 2007/08, but 10% below the target for the year. • This performance was primarily due to the impact of global financial crisis resulting in slowdown in the growth of economic activities. • Some revenue measures which did not materialise. • The Government budget has continued to benefit from external inflows from Development partners • Expenditure for FY 2008/09 was broadly in line with resource envelope

7. PUBLIC FINANCIAL MANAGEMENT • Progress: • CAG report - general improvement in the management and control of public finances in MDAs • There has been significant improvement in bank reconciliation • The recruitment of a new PFMRP coordination secretariat • Ongoing review of Public Finance Act 2001: • provide for the establishment of the new internal audit dept. • introduction of electronic funds transfer (EFT) • taking out sections on CAG following the enactment of the Public Audit Act in August, 2008 and • give more powers to the PMG and the ACGEN to oversee and monitor LGA finances.

8. PFM progress Cont’d… • Migration from Govt Finance Statistics (GFS) system 1986 to the GFS 2001 economic classification. • Budget books for 2009/10 prepared in line with GFS 2001 • 2010/11 budget will be prepared in accordance with GFS 2001 functional classification. • Connection of all sub-treasuries and RSs to the main IFMS database in Dar es Salaam • Facilitates better expenditure control • Enables timely production and consolidation of systems generated reports

9. PFM Cont’d… • Challenges include: • fully integration of the IFMS with other systems such as the payroll system and the debt and cash management systems; • strengthening predictability and availability of funds to MDAs and other spending agencies; • further reduction in the number of bank accounts at the commercial banks; • ensure that EFT system is fully operational; • streamlining fund flows and multiple reporting systems in LGAs.

10. BUDGET STRATEGY AND THE MTEF • Budget:an instrument that implements various national policy decisions aiming at realizing Vision 2025 • Budget trend • Government budget has grown from 22.9% of GDP in 2007/08 to 25.3% in 2008/09 and then 30.6 % in 2009/10. • Notable increase in domestic resources mobilization • Increase in external assistance • recurrent spending increase faster than development spending • NB: key expenditures on social service delivery are budgeted under recurrent spending

11. Budget Strategy Cont’d... • A need for balance between recurrent and development spending • the country aims for higher economic growth which requires investment in physical infrastructure • Limit the growth of recurrent expenditures • Scale up capital investment to accelerate economic growth in line with the Vision 2025. • Improve supportive transport and communication infrastructure -roads, railway, ports and telecommunication; • irrigational infrastructure; and • ensuring availability of reliable and affordable power supply

12. Budget Strategy Cont’d... • Enhance resource mobilisation both, from domestic and external sources • Improve expenditure management to enhance efficiency • Promote Public Private Partnerships (PPPs in infrastructure development to complement existing financing arrangements • This will reduce fiscal burden • Empower and promote private sector led growth

13. Medium Term Expenditure Framework • Domestic revenue of 16.4% of GDP percent in 2009/10 and up to 17.0% in 2011/12 • Expenditure is estimated at 30.6% in 2009/10 and a gradual decline to 26.8% by 2011/12 • External assistance of 10.2% in 2009/10 and will level around 7.0% in the medium term. • Domestic borrowing of 1.6% of GDP as part of fiscal stimulus in 2009/10 and 1.0% in the medium term. • MKUKUTA financing for 2009/10 accounts for 71.2% of total budget and is expected to remain around this level in the medium term.

14. Resource Allocation across MKUKUTA Clusters

16. AID MANAGEMENT AND EFFECTIVENESS • Transparency and accountability are essential elements for development results in line with: • Paris Declaration, • Accra Agenda for Action • JAST Principles • Under JAST, the GoT and DPs agreed to become more accountable to each other and to their citizens. • Aid Management Platform (AMP) System has been installed in MoFEA • Is a web based application tool designed for better management and coordination of external resources. • The Technical Assistance Policy has been developed in consultations with key stakeholders. Once approved, the Policy will guide the selection, management, monitoring and evaluation of TA.

17. GBS performance (in USD mn)

18. DPs’ Aid Performance

19. Conclusion • The budget strategy seeks to guide policy implementation while consolidating the achievements made in various programmes. • The strategy needs to refocus primarily on promoting economic growth, reduce poverty in a supportive good governance and accountability environment • Accord high priority on infrastructure development consistent with the declaration of Kilimo Kwanza • Addressing key challenges in public financial management • Strengthening the strategic alignment of expenditure consistent with the growth agenda.

20. THANK YOU AHSANTENI