Tanzania and the IMF

United Republic of Tanzania
Interim Poverty Reduction Strategy Paper (PRSP)

Prepared by the Tanzanian Authorities
March 14, 2000

1.  The Government of Tanzania is preparing a Poverty Reduction Strategy Paper (PRSP), which is a key requirement for reaching the completion point under the enhanced Initiative for Heavily Indebted Poor Countries (HIPC) and provides background essential to IMF and World Bank lending to Tanzania. The strategy aims at attacking the country's deep and pervasive poverty by raising growth and enhancing the participation of the poor in the development process. Between 15 million and 18 million Tanzanians, half the population live below the poverty line of $0.65 a day. Of these, nearly 12.5 million live in abject poverty, spending less than $0.50 on consumption a day. Poverty incidence has stagnated or worsened during the 1990s. Poverty remains predominantly a rural phenomenon, although the number of poor in urban areas, mainly the unemployed and those engaged in the informal sector, is growing fast. In both rural and urban areas, the poor typically lack capital and human assets: they are less educated, of ill health and have large families. The vulnerability of the poor is increased by preponderance of disease, including the rapid spread of HIV/AIDS.

2.  Many social indicators in Tanzania are comparable to or better than those in countries with the same income level. However, there are indications of a high degree of deprivation with respect to health standards, food security and education attainment. The infant and under-five mortality rates are, respectively, 86 and 133 per 1000, while life expectancy is around 49. Malnutrition affects 44 percent of children and access to safe water is around 50 percent. The adult illiteracy rate is 28 percent and the net primary school enrollment rate is about 57 percent. For all indicators, important regional variations, urban-rural differences, and gender differences persist.

3.  Since independence in 1961, the Government of Tanzania has had poverty reduction as its main goal. In 1997, the Government adopted the National Poverty Eradication Strategy, which spells out a vision of a society without abject poverty, and with improved social condi-tions. This vision, which is in line with the International Development Goals, remains a point of reference for current poverty actions. In June 1999, the Government issued "Poverty and Welfare Monitoring Indicators," a document intended to provide the basis for monitoring the implementation and evaluating the impact of poverty eradication programs. The indicators will facilitate the development of baseline data for assessing the status of poverty and welfare, in order to guide policy and programs for reducing poverty. The National Poverty Eradication Strategy and the Poverty and Welfare Monitoring Indicators were developed in collaboration with a wide range of stakeholders. In line with the National Poverty Eradication Strategy, the Government has identified priority areas for public expenditure in the context of the Medium-Term Expenditure Framework (MTEF), whose implementation is monitored under the annual public expenditure review (PER) process, involving a wide range of stakeholders. This process has guided the budget framework for three years.

4.  Consistent with the long-term objective of eradicating poverty, and similar to the HIPC Initiative, the Government established (with effect from July 1998) a Multilateral Debt Relief Fund (MDF), to which seven donor countries have contributed. The MDF, which amounted to US$88 million during its first year (1998/99), has assisted in servicing debt to the World Bank, IMF, and African Development Bank. The savings of Government resources were used to provide services to the priority sectors that permitted them to increase their expenditures beyond what was originally envisaged in the budget. In 1999/2000, these donors have pledged to contribute US$81 million to the MDF. Its progress is monitored in quarterly review meetings between the Government and involved donors.

5.  The Government is currently developing the Tanzania Assistance Strategy (TAS), which is intended to be a homegrown strategy to guide external aid to Tanzania. The main objectives of the TAS are to improve ownership, partnership, and the effectiveness of aid. The PRSP, which is an essential component of the TAS, will focus on specific goals for poverty reduction and for the improvement of social indicators and on specific public policies and institutional changes to reach these objectives.

6.  Poverty in Tanzania is so widespread that it cannot be eradicated in the short run. It is an objective that will be pursued through a long term strategy aimed at achieving higher growth, improving economic opportunities for the poor, building human capital, and empowering the poor to participate in the development strategy. To move in this direction, in the interim period, up to the HIPC Initiative completion point, the Government will:

(a) Prepare a Poverty Reduction Strategy Paper by August 2000. Its preparation will involve consultations with, and the participation of, all stakeholders, including the civil society and development partners.¹ The process will mainstream the poverty and welfare monitoring system into the budget instruments, such as the MTEF framework. The PRSP will not substitute for existing sectoral programs but will strengthen the prioritization of actions within and across sectors targeting poverty. It will:

• Assemble baseline data on poverty and develop a national poverty line.
• Set medium-term poverty reduction targets, including monitorable indicators of main poverty objectives that can be achieved within one to ten years. These indicators will at the minimum cover income poverty, and essential human development.
• Set poverty reduction targets for each of the priority sectors, including primary education and health, rural roads, water, and extension services in agriculture.
• Shift budgetary resources to meet specified poverty reduction targets.

(b) Conduct 50 percent of district-based school mapping by the end of 2000. This information is a critical requirement for improving the delivery of education. With this, the Government will prepare a report covering the availability and condition of schools, the quality and distribution of teachers, the quality of school management, the enrollment rate, the dropout rate, and key problems in the delivery of primary education. This exercise is a key investment for drawing up district-level education plans aimed at increasing the net enrolment rate and the quality of primary education.

(c) Adopt specific short-term actions to improve health outcome. The first is to raise the coverage of children under 2 years immunized against measles and DPT (diphtheria, polio, and tetanus) from the current 71 percent to 75 percent of the eligible population. This will have a major impact on reducing childhood mortality and morbidity. The second is targeted at raising the awareness and combating the denial of the HIV/AIDS pandemic. In this regard, the Government plans to implement national awareness campaigns covering at least 75 percent of all districts in the country. The campaigns will be spearheaded by the National Advisory Committee on HIV/AIDS, working hand in hand with the National AIDS Control Program.

(d) Implement a Household Budget Survey and a pilot labor force survey. This information, which will be available during the first half of 2001, will be essential for updating preliminary estimates of poverty that will be compiled in the PRSP and for monitoring the poverty reduction strategy. Subsequently poverty monitoring surveys will be developed for tracking changes in poverty and welfare.

7.  The Government attaches great importance to maintaining the gains in macroeconomic stability of recent years. This is a necessary condition for achieving a higher rate of growth and poverty reduction. The Government intends to avoid net domestic financing of the budget, and to follow monetary policies aimed at reducing inflation below 5 percent per year to rates prevailing in Tanzania's trading partners, while allowing adequate growth in credit to the private sector to support investment and growth. The Government has already completed the process of building international reserves to the comfortable level of 4 months of imports of goods and nonfactor services, and intends to maintain them at that level henceforth. The exchange rate will remain market determined, with interventions by the Bank of Tanzania only to smooth seasonal fluctuations. With a stable macroeconomic environment, and with continuing structural reforms, the Government aims to reach an annual real economic growth rate of at least 6 percent by the year 2002.

8.  The Government also plans to undertake actions to ensure sustained improvement in economic governance and the environment for robust private sector development. These actions, together with sustained macroeconomic stability, are expected to improve income opportunities through higher growth, thus helping reduce the proportion of Tanzania's population below the poverty line. The details of proposed key structural reforms to be implemented by the HIPC completion point are presented in Appendix I, which also includes key actions to strengthen the design and monitoring of anti-poverty efforts. The Government aims at improving accountability and financial management, make the tax regime more transparent, and improve the business environment, so as to enhance private investment and lower the cost of doing business. The major policy measures implemented in recent years are listed in Appendix II, while Appendix III presents a medium-term policy framework matrix for the next three years.

9.  In order to ensure broad-based support, the preparation of the PRSP will draw on the experience of the participatory arrangements adopted in the past four years, such as those used in the preparation of the National Poverty Eradication Strategy, the poverty and welfare monitoring indicators, the MTEF and expenditure review, sector reform programs, and the TAS. These participatory arrangements have received increased acceptance across a wide range of stakeholders in the country.

10.  The organization, preparation and consultation process for the PRSP will be as follows:

Organization

• A Committee of Ministers and the Governor of the Bank of Tanzania has been established to steer the preparation of the PRSP. The Committee began its work in mid-October 1999.
• A technical committee representing relevant ministries, chaired by a Deputy Permanent Secretary, has been established in the Ministry of Finance to assist the Committee of Ministers. The technical committee, which is responsible for laying the groundwork of the PRSP, will integrate its work with the macroeconomic subcommittee of the TAS.
• The technical committee will coordinate consultations with stakeholders such as the donor community, nongovernmental organizations (NGOs), the business community, and academics, in the framework of the TAS setup.

Preparation of the PRSP and consultation process

(i) Preparation of draft outline: January and February 2000

• The approach to preparation of the PRSP was discussed in January at consultative technical meetings involving central level stakeholders from the donor community and civil society.
• A draft outline was prepared by the technical committee and approved by government in early February 2000 (Appendix IV).

(ii) Consultations to define overall priorities, targets and actions needed for poverty reduction to be inserted in the PRSP: March 2000

• Preparation by the technical committee of a draft prospectus defining strategic directions, poverty reduction priorities, long and short term objectives and targets and actions needed to achieve these goals. Work on the initial draft of the prospectus will commence in February 2000.
• Discussion of draft prospectus with all stakeholders through the organization of a national workshop and six zonal workshops covering most regions of the countries.

(iii) Preparation of the PRSP: April-June 2000

• Drafting of the PRSP by a core group of specialists under the supervision of the technical committee.
• Technical workshops discussing preliminary results with various stakeholders, including the TAS and the Public Expenditure committees.
• The technical committee, in cooperation with the Plan and Budget Guidelines Committee and in the framework of the medium-term targets of the MTEF will reflect the priorities for poverty reduction in the 2000/01 budget.
• Presentation of strategic directions and preliminary results to CG meeting in May 2000.

(iv) Discussion and approval of PRSP: June-August 2000.

• National workshop to discuss draft PRSP, by end June 2000.
• Presentation for approval to the Cabinet of final draft PRSP incorporating the views of stakeholders, with objectives and program priorities integrated in the budget in July 2000.
• Submission of the PRSP document to the IMF and the World Bank by end August 2000, following which it will be widely disseminated.