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. In addition, the 2011 PEFA methodology has been applied so as to permit comparison with the three previous assessments conducted at the national level (2006, 2009 and 2013). Its purpose has been threefold:
(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 fifth phase of the PFM reform programme (PFMRP V, 2017 – 2022) was launched in July 2017, the start of fiscal year 2017/18. The design process has taken place in parallel with the implementation of the PEFA assessment and it has drawn closely on the findings of this Report.
The Government of Tanzania (GoT) has led the 2017 PEFA assessment through the Permanent Secretary of the Ministry of Finance & Planning (MoFP), with financial support from Denmark. 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 SIPU International, Sweden and of IDI, the INTOSAI Development Institute based in Oslo.
The assessment covers the Central Government of Mainland Tanzania, which is comprised of approximately 50 ministries, departments and commissions, 26 Regional Administrative Secretariats and 183 autonomous or semi-autonomous agencies (extra-budgetary units). The assessment covers neither the 180 Local Government Associations (LGAs) and their related water corporations, which comprise a lower tier of Government, nor the 7 Social Security Funds and 41 Public Corporations, which comprise part of General Government and the Public Sector respectively, but not part of Central Government.
The assessment is based upon information from the three most recent completed financial years (2013/14, 2014/15 & 2015/16), and, where relevant, on information on the process of the formulation and execution of the 2016/17 Budget. Field work was undertaken in March 2017 and the analysis in this report is based on data and reports available up to 14th, July 2017, the agreed deadline for receipt of comments following the presentation of the key findings in Dar es Salaam on 4th, July 2017.
The overall picture emerging from the 2017 PEFA assessment is broadly 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-term.
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 and of External Audit reports work 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 implementation of IPSAS accrual standards. Payroll controls have been tightened in recent years and improvements have also been recorded in procurement management. These systems provide the basic ‘nuts and bolts’ for efficient service delivery.
Several of the weaknesses identified in the 2017 assessment could be corrected relatively straightforwardly by dedicating attention to the specific 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, Fiscal strategy and InYear Budget Reports. Strengthening Public Investment Management will be a longer term process, with extensive investment in capacity development and consolidation of systems still required but the Public Investment Management Operational Manual (PIM-OM) and the related structures and procedures recently introduced offer a sound basis for strengthening investment management.
Strengthening of medium term expenditure budgeting will also be a medium to long term process but the Government has displayed 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 budget scrutiny process, with the result that this is not done effectively. A review of the approach to the MTEF would be very timely, 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 are 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 is perhaps 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 both the 2010 and 2013 PEFA assessments. However, the 2017 assessment points to a further deterioration, with the stock of arrears now hovering at around 10% of total expenditure.
The primary obstacle to prudent monitoring of arrears and accounts payable is the cash rationing system and the way EPICOR 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 EPICOR 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 is undermined and service delivery suffers. With an improved economic situation, coupled to a functioning financial management system, 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.
A less obvious, longer-term threat to the performance of the PFM system is presented by the apparent slow-down in the process of strengthening revenue administration. In the last ten years, there have been steady and consistent improvements in revenue administration but the 2017 PEFA assessment shows a deterioration relative to 2013, applying the 2011 methodology. Moreover, the score against the 2016 framework was no higher than a “C+”, which suggests that the system is falling short of the high standards required of a modern, efficient tax administration. The more detailed TADAT assessment conducted in 2016 gives strong evidence in support of this view: it revealed a variety of weaknesses, most notably in relation to the reliability of the taxpayer registration database and the IT system for tax administration. Ongoing reforms are being pursued which should help to accelerate improvements in the revenue administration system: these will be especially important to implement rigorously and effectively, as the Tanzania economy grows and access to grant aid and concessional finance is reduced.
A comparison of the scores of the 2013 and 2017 PEFA assessments following the same methodology - the 2011 PEFA Framework – is complicated by the fact that the evidence base in 2017 is a good deal stronger than it was in 2013. With the benefit of hindsight and additional information, it is clear that a number of the ratings assigned in 2013 were too high. There is no procedure to make a formal correction of past PEFA reports. However, if one were to take into account the two very clear cases of “over-scoring” in the 2013 assessment, the aggregate comparison between the two periods would read: improvement in 9 indicators, deterioration in 8 indicators and no change in 11 indicators. Overall then, the comparison points to a modest aggregate improvement in PEFA scores over the period.
Notwithstanding this overall judgement that PFM performance is improving, it is instructive to examine the areas where deterioration is identified by application of the 2011 framework. These directly highlight the same threats to PFM performance, which we have identified above: the core processes of budgeting, cash management and commitment control have deteriorated, as also has revenue administration.
PFMRP V provides a strong basis for addressing these threats but it will be essential to ensure the scope and direction of reforms is sufficient 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.