Executive Summary

This Report presents an independent assessment of the status of public financial management (PFM) in Mainland Tanzania and an assessment of progress in the implementation of PFM reforms.

It is based on the application of the PEFA methodology, as updated in 2016, and thus also provides a consistent basis of comparison with the 2017 PEFA assessment. The report has three objectives:

(i) To assist the Government in prioritising the implementation of PFM reforms and systems enhancements;

(ii) To inform the dialogue on PFM between Government and its Development Partners;

(iii) To provide an input into how the next phase of PFMRP should be designed, implemented and monitored.

The sixth phase of the PFM reform programme (PFMRP VI, 2022 – 2027) begins from the start of fiscal year 2022/23. The design process has been taking place in parallel with the implementation of this PEFA assessment and the final programme draws closely on the findings of this Report.

The Government of Tanzania (GoT) has led the 2022 PEFA assessment through the Permanent Secretary of the Ministry of Finance & Planning (MoFP), with financial support and technical guidance from Norway.

The Government appointed a Management & Oversight team to oversee the assessment, as well as a Task Force Secretariat to provide managerial and logistical support.

The assessment has been undertaken by Fiscus – a UK based public finance consultancy company, working in conjunction with staff of United Efforts, Sweden and Expertise Global Consulting Ltd., Nairobi.

The assessment covers the Central Government of Mainland Tanzania, which is comprised of 67 ministries, departments and commissions, 26 Regional Administrative Secretariats and 215 autonomous or semiautonomous agencies (extra-budgetary units). The assessment does not cover the 185 Local Government Associations (LGAs) which comprise a lower tier of Government, or the 4 social security funds or the 82 Public Corporations, which comprise part of General Government and the Public Sector, but not part of Central Government.

The assessment is based upon information from the three most recent completed financial years (2018/19, 2019/20 & 2020/21), and, where relevant, on information on the process of the formulation of the 2021/22 Budget.

Field work was undertaken in November 2021 and the analysis in this report is based on data and reports available up to 31st, May 2022, the agreed deadline for receipt of comments and additional data from the authorities following the circulation of the first draft of the report to the Ministry of Finance & Planning and the ‘PEFA Check’ peer reviewers. Table 0-1 presents an overview of the strengths, weaknesses, opportunities and threats identified through the 2022 assessment of the PFM system. A summary presentation of the 2022 scores against the 31 indicators of the 2016 PEFA Framework is presented in Table 0-2 of the report.

The overall picture emerging from the 2022 PEFA assessment is positive: there are several important areas of strength and quite a number of the weaknesses identified could be addressed without too much difficulty in the short to medium term.

A reading of the strengths, weaknesses and opportunities identified in Table 0-1 confirms this conclusion.

Government has a strong set of procedures by which to monitor and control the major potential threats to aggregate fiscal discipline, based upon the processes relating to debt management, the reporting of Central Government extra-budgetary operations, and the monitoring of fiscal risk from the wider public sector. Legislative scrutiny of the Budget works well and improvements are being recorded in Internal and External Audit and in most aspects of accounting and financial reporting, as the Government progresses towards the full implementation of IPSAS accrual standards, and the consolidation of the new MUSE integrated financial management system. Payroll controls have been further tightened since 2017 and significant improvements have been recorded in procurement management. These systems provide the basic ‘nuts and bolts’ for efficient service delivery.

Several of the weaknesses identified in this PEFA assessment could be corrected relatively straightforwardly by dedicating attention to the shortcomings identified in this report.

In particular, careful attention to the format of public reports and to their timely publication could generate ‘quick wins’ in relation to Budget documentation, Public access to Fiscal information, and In-Year Budget Reports. Strengthening Public Investment Management will be a longer term process, with extensive investment still required but the Public Investment Management Operational Manual (PIM-OM) and the related structures and procedures introduced since 2015 offer a sound basis for strengthening investment management, so long as a properly phased and resourced programme of capacity development and consolidation of systems can be implemented.

Strengthening of medium term expenditure budgeting will also be a medium term process but it will require a willingness to review the current, overly complex approach that has been adopted to the implementation of the MTEF.

The peculiarly detailed format that has been chosen for the formulation of medium term projections on the basis of activity-based costings generates a heavy burden of work for MDAs and, in addition, complicates the process of adapting MTEF projections during the annual budget scrutiny process. This same observation was made in the 2017 PEFA assessment: a review of the approach to the MTEF is therefore overdue, with the basic objective of developing a framework for medium term budgeting that is simple and fit for purpose, starting from a careful reassessment of what should be the core objectives of such a system in Tanzania. However, a precondition for an effective medium term budget is a credible annual budget, which is not currently the case.

The lack of a reliable, credible annual budget remains the biggest threat to the Tanzania PFM system.

The continuing weaknesses in core aspects of PFM – budget credibility, cash management, commitment control – threaten to undermine the value of the improvements achieved in other areas. High levels of expenditure arrears and weaknesses in the monitoring of arrears have been persistent problems in Tanzania, reported in the 2010 and 2013 PEFA assessments, as well as the 2017 assessment. Although PEFA assessment of the PFM systems of the Tanzania Central Government 2022 there is evidence that procedures to control new arrears and clear past arrears have improved, the stock of payment arrears continues to hover at around 10 - 11% of total expenditure.

The primary obstacle to prudent monitoring of arrears and accounts payable is the cash rationing system and the way MUSE is set up to restrict payments, as the system rejects any expenditure entries – including entries for commitments - that go above the monthly payment ceilings, or beyond the current month. As a result, the commitment function in MUSE is rendered effectively useless because it is only possible to make commitments for payments which will be paid in the same month and which fall within the available payment ceiling.

The cash rationing system has created a situation where the budget is not credible and arrears build up: aggregate fiscal discipline is maintained but the strategic allocation of resources isundermined and service delivery suffers.

With a gradually improving economic situation as the global economy emerges from the Coronavirus pandemic, coupled with a strong financial management system based on MUSE, the time is ripe for substantial improvements, focused on more modern, and more flexible systems of cash planning and commitment control, which support the predictability of the budget, while controlling the fiscal deficit. Some steps have been taken in this direction, with salary payments and regular recurrent expenditures now being fully financed each month but development expenditures and non-regular (“lumpy”) recurrent expenditures continue to be subject to monthly cash controls.

PFMRP VI should provide a strong basis for addressing these threats but it will be essential to ensure the scope and direction of reforms are targeted to correct the weaknesses identified.

Only if these threats are properly tackled can Tanzania strengthen the ability of the PFM system not only to ensure aggregate fiscal discipline but also to allocate resources in line with strategic priorities and to promote efficient service delivery.

A comparison of the scores of the 2017 and 2022 assessments points to a significant aggregate improvement in PEFA scores over the period.

Of the 31 indicators of the 2016 PEFA framework, it shows an improvement in 12 indicators, deterioration in 3 indicators and 16 with no changes. There is strong evidence of positive changes in a wide range of areas, with 4 of the 7 pillars of the PEFA framework showing net improvements. In most cases, this reflects the results of steady and continuous improvements, introduced across various phases of the PFM reform programme. These improvements have included reforms in legislation and regulations, the building of human resource capability, as well as modernisation and greater integration of IT systems – notably with the introduction of the Government electronic Payment Gateway (GePG), and the shift to MUSE. Systemic improvements in PFM take a long time to implement - particularly in a large country like Tanzania with a substantial public sector – but the signs are that the fruits of past investment in PFM improvement are now being reaped. The challenge for PFMRP VI is to ensure that the remaining weaknesses are comprehensively addressed, while continuing to maintain the high standards already being attained in other aspects of the PFM system.