Tanzania is expected to achieve the fi rst Millennium Development
Goalto halve poverty by 2015. Over the past 10 years,
annual GDP growth has averaged between 5 and 6 percent,
while GDP per capita has doubled. The populations well-being
has improved measurably. In 2000, only 59 percent of children in
Tanzania went to primary school; today almost all are attending.
Child mortality has declined. And the country is gradually becoming
a less costly location for enterprises: the World Bank Groups 2007
Doing Business report named Tanzania one of the 10 top reformers
worldwide.
Country Indicators 1994 2005
GDP per capita (US$) 157 336
Average infl ation (%) 37.1 4.4
Total public debt (% of GDP) 93.7 24.6 (2006)*
Fiscal balance (% of GDP) 2.3 1.9
F.D.I. net infl ows (US$ millions) 151 (1995) 325
Poverty incidence (%) 39 (1991) 35 (2001)
Rural poverty incidence (%) 41 in 1991 39 ( 2001)
Urban poverty incidence (%) 28 in 1991 23 (2001)
Gross primary school enrollment rate (%) 68 (1991) 112.7 (2006)
Under-fi ve child mortality (per 1,000) 147 (1996) 112 (2004)
Maternal mortality (per 100,000 live births) 529 (1996) 578 (2005)
Population (millions) 26.7 38.3
*Following Multilateral Debt Relief Initiative.
Sources: World Bank World Development Indicators 2006; IMF World Economic Outlook
2006; Annual Economic Survey by Ministry of Planning, Economy and Empowerment;
Poverty and Human Development Report 2005.
IDA AT WORK
Tanzania: MKUKUTA, a Home-grown
Agenda for Change
2
COUNTRY ACHIEVEMENTS
After independence in 1964, Tanzania
pursued African socialism.
President Julius Nyereres leadership supported
political stability and national unity
unparalleled within Sub-Saharan Africa. But
his economic policies proved damaging. A rural
development strategy for self-reliant villages
resulted in drastic falls in food production.
A thick tier of ineffi cient and overstaffed
parastatal companies (owned or controlled
by the state) in the banking, industrial and
farming sectors siphoned budget resources
from social services.
Production languished, and goods grew scarce
throughout the economy. Service delivery faltered.
Between 1980 and 1983, GDP growth
plummeted to less than 1 percent from about
3 percent, and the countrys reserves fell to
an average of six-days-worth of imports, while
infl ation surged to an average of 29 percent.
In mid-1983, the World Bank froze new
projects until an economic recovery program
could be put in place, while continuing to fund
ongoing operations. In 1985, with conditions
continuing to worsen, the donor community
pushed for a plan to address the countrys
spiraling economic crisis.
Beginning in 1986, steps were taken
to improve economic performance.
The country adopted an economic recovery
program, led by Tanzanias President Ali Hassan
Mwinyi and designed in collaboration with
IDA, that emphasized market-based producer
and consumer prices, trade liberalization,
and an end to controls of exchange rates and
interest rates. It received signifi cant support
from the donor community and was initially
very successful, with GDP growth recovering
to an average of 6 percent between 1986 and
1990.
The gains were short-lived, however, and, by
1994, economic growth had slowed to less than
2 percent. Individual reforms were needed,
but they werent always well-sequenced.
For example, international trade had been
liberalized, but state marketing boards still
monopolized the export crop sector.
Reforms in different spheressuch as those in
public enterprise, banks and courtswerent
From the onset of comprehensive reforms in 1995, the International Development Association
(IDA), the World Banks fund for the worlds poorest countries, has provided US$3.2 billion to
Tanzania. A close and continuous policy dialogue with government has translated into a process
of change that is driven and supported from within the country. Tanzanias most recent poverty
reduction strategy is best known as MKUTUTA, after its Swahili acronym. It is the Tanzanians
agenda for change.
Tanzania is the fi fth highest performing country in the IDA portfolio as measured by IDA on
the basis of macroeconomic, structural, social, and institutional criteria. Within Sub-Saharan
Africa, it ranks second.
■ ■ ■
3
well-coordinated either. As the fruits of
reforms became less visible, support for
the program weakened, with government
viewing policy changes as little more than a
bargaining chip to secure fi nancial assistance.
Meanwhile, Tanzanias fi scal performance
had begun to deteriorate. Tax cuts without
improved tax administration or expenditure
control deepened budget defi cits. The government
pushed for increased support, but
donors wanted sustained reforms, including
better fi scal management.
In 1995, Tanzania began pursuing
a sustained reform process.
In June of that year, an independent team of
experts issued a report (Helleiner Report),
which provided two overriding recommendations:
the government needed to deliver
macroeconomic stability through a sustainable
reform program; and donors needed
to strongly accept country ownership of the
development agenda. President Benjamin
Mkapa, elected at the end of 1995, embraced
a comprehensive reform agenda for the years
ahead.
Reforms aimed to produce a more effi cient
state and to let the private sector drive
growth. To improve fi scal management, the
government established an independent revenue
authority with an employment system
built on merit and performance. Tanzania
also introduced a value-added tax and
strengthened the judiciary to reduce tax evasion
and leakage. The fi scal defi cit declined to
1.9 percent in 2005 from 7.5 percent of GDP
in 1993.
A second area of focus was the productive
sector. Following the disillusionment with
African Socialism, the government focused
on providing a policy and infrastructure
framework that would encourage private
fi rms to grow.
Since 1995, the economy has
responded strongly.
Growth has averaged between 5 and 6 percent,
with prices stabilizing by 1999. Relief under
the Multilateral Debt Relief Initiative (MDRI)
spread over 2007-2044 cancels Tanzanias
IDA debt. The total debt cancellation under
MDRI, including the African Development
Bank and the IMF is expected to amount to
about US$3.8 billion, US$2.8 billion of it from
IDA. Following the implementation of MDRI,
Tanzanias debt burden is now sustainable.
Progress is being made toward
meeting MDG targets
Although poverty rates fell modestly between
1991 and 2001 (the last year for which poverty
rates were measured), projections show that
Tanzania should be able to attain the goal of
halving poverty by 2015.
The Poverty Puzzle
Available data shows modest declines in poverty
levelsfrom over 39 percent in 1991 to around
35 percent in 2001. This is the result of an uneven
pattern: poverty actually increased in the early
1990s, reaching 40 percent in 1994, and then
declined with the recovery of economic growth.
Available data suggest that poverty decreased to
33 percent in 2005 and that the goal of halving
poverty by 2015 can be met as long as per capita
growth is around 4 percent per year.
The results of a new household budget survey
to be fi elded in early 2007 will provide a clearer
picture of poverty trends since 2001.
4
Progress is visible on other MDG targets. Mortality
rates for children under-fi ve decreased
from 147 per 1,000 live births in 1996 to 112
in 2004. While in 2000 only 59 percent of
children in Tanzania went to primary school,
96 percent are attending today.
However, there is a considerable degree of
regional inequality. In addition to large ruralurban
discrepancies, there are large variations
across districts. For example, access to
safe water varies from 99 percent in Arusha
(urban) to as low as 7 percent in Sikonge.
Tanzania is becoming a less costly place to
do business. Though still ranked 142nd in the
world in terms of ease of doing business , the
2007 Doing Business report highlighted Tanzania
as one of last years top 10 reformers
worldwide. Indeed, foreign investments have
more than doubled within the last 10 years.
IDA CONTRIBUTIONS
IDA is Tanzanias largest source of development
assistance, delivering interest-free
credits and grants since 1963. Since sustained
reforms began in 1995, however, IDA has
stepped up its support, extending over US$3.2
billion to Tanzania in the last 12 years.
As Tanzanias largest donor, IDA
has participated in the countrys
remarkable transformation.
More than one-third of IDAs support since
1995 has been provided through eight development
policy operations initially focused
on improving public expenditures, reducing
infl ation, increasing growth, and improving
the delivery of social services. Later, building
on the government-led poverty reduction
strategy, IDA provided direct support to the
overall development program. Other development
policy operations have supported
primary and secondary education.
Since 1995, IDA has also fi nanced more than 30
investment projectswith a focus on private
and fi nancial sector development, energy,
roads, rail, water, rural development, natural
resource management, community and local
government development, and public sector
reform.
In addition, IDA has conducted more than
60 studies, assessing Tanzanias economic
situation, its poverty profi le, the needs of
various sectors, and effi cient public fi nancial
management. IDA has collaborated with local
academia, the government, development
partners, civil society and other stakeholders
to build capacity while maintaining high
analytical standards.
Helping shape a country-led
development program.
IDA provided considerable support to the
government in its preparation of its fi rst and
second Poverty Reduction Strategy Papers
(PRSP) in 2000 and 2004. The second PRSP,
called MKUKUTA after its Swahili acronym,
was developed through a highly participatory
process providing a framework for growth
and poverty reduction. Donor activities are
increasingly aligned with the plan.
Building capacity for
macroeconomic management.
To deepen the understanding and commitment
to fi scal reform, IDA helped establish
an annual Public Expenditure Review (PER) to
help set priorities within an overall expenditure
ceiling, as well as to monitor progress
5
and assess results. The 2003 PER contained
a detailed analysis of how to make public
expenditure benefi t the poor.
Based on this analysis, the government
implemented a strategic budget allocation
system, which links budget allocations with
the countrys development goals. In cooperation
with other development partners, IDA
helped to build understanding and the capacity
among non-state actors with an interest in
the budget process. Since 2005, the process
has been widened to also include a country
fi nancial accountability assessment and a
country procurement assessment.
Harmonizing donor support.
The government of Tanzania and its development
partners have entered into a compact
for managing development cooperation in
order to achieve national development and
poverty reduction goals. Called the Joint
Assistance Strategy, it includes alignment of
support to the government poverty reduction
priorities. Tanzanias Development Partner
Group, representing more than 35 development
partners, has analyzed Tanzanias
development achievements and challenges
and has adopted a plan for fi nancial and
technical support extending until 2010.
Providing budget support.
Since 2003, IDA and 13 other donors1 have
been directly helping to fi nance the Tanzanian
budget, while providing policy advice.
This approach has helped double per capita
spending on areas such as education, health,
water, agriculture, roads, judiciary, and HIV/
AIDS, as identifi ed in the poverty reduction
strategy.
In the right country context, direct budget
support for key expenditures provides
greater potential for domestic ownership
of programs, strengthens those programs
accountability to parliament and the public,
and helps concentrate procurement, fi nancial
management, accounting and auditing around
a single budget process.
It has become the Tanzanian governments
preferred aid modality and is now provided
by 14 development partners, up from fi ve in
2000.
1. The 13 other donors currently providing budget support include:
the African Development Bank, Canada, Denmark, the
United Kingdom, the European Commission, Finland, Germany,
Ireland, Japan, the Netherlands, Norway, Sweden, and Switzerland.
The End of Stand-alone Project Units
Under the Joint Assistance Strategy, a number of steps are being taken to better manage development.
Some have to do with procurement; others with monitoring and evaluation, coordinating technical assistance
and increasing aid predictability. One of the more bold ideas is to do away with parallel Project Implementation
Units (PIUs).
PIUs have been in use for decades to keep World Bank projects on track. But because they often exist
outside a countrys institutions, they may do little to build in-country capacity. The World Bank, in keeping with
international commitments to harmonize and make aid more effective, is working to phase out stand-alone
implementation units.
6
Supporting public service reform.
In 1999, IDA started funding the fi rst of three
phases of the governments public service
reform program. IDAs long-term commitment
to the program (19992010) has been instrumental
in mobilizing a common approach by
fi ve development partners as well as a joint
basket fund from donors.
The combination of programmatic rather
than project lending in support of a single
government reform program and strong
partnership between government and donors
have already contributed to positive results.
Notable among others is a performance
improvement fundcurrently being replicated
worldwideto support strategic and
capacity development initiatives in addition
to salary enhancements for public servants in
ministries, departments and agencies.
Encouraging fi nancial and
private sector development.
Tanzania has transformed its fi nancial sector
during the past decade from the sole preserve
of state-owned fi nancial institutions to a system
with increased private activity, effi ciency
and competition. In 1997, the bulk of credit
went to the public sector, while credit to the
private sector amounted to only 3 percent of
GDP. By 2005, credit to the private sector had
increased to 10 percent of GDP.
In partnership with four other development
partners (Denmark, the Netherlands, Sweden
and the UK), IDA has increased its support for
changes that strengthen Tanzanias business
climate.
Between 2005 and 2006, Tanzania became an
easier place to operate an enterprise: license
fees for small- and medium enterprises disappeared;
companies used a central computer
system for tax registration; imports took 12
days less to clear customs, and the court
process became less time-consuming. Higher
company profi ts, together with improved tax
collection, increased government revenues
from 11.3 percent of GDP in 2000 to an estimated
14.2 percent in 2006.
While Tanzania is on the right path, its current
Doing Business ranking (142nd out of 175
countries) underscores the need for further
regulatory streamlining.
IDAs impact in Tanzania is felt across
many inter-connected sectors.
Rural development. The rural economy
accounts for about 45 percent of Tanzanias
overall GDP and for nearly 87 percent of its
poor. Since the late 1990s, agriculture has
grown by about 5 percent per year, among
the fastest in the world, despite intermittent
drought. IDA has supported enhanced agricultural
research, management, access to
extension services and technology improvements.
A New Roof
When asked what had changed in recent years
in Mandawa, a village in Southern Tanzania, a
farmer responded: Baada ya miaka michache
atabadilisha nyumba yake kuondoa nyasi kuweka
mabati. Umasikini ulijaa kiloba, sasa unapungua
kiasi kikubwa. After a few years my house has
an iron roof instead of thatch, and poverty has
fallen a lot.
7
But beyond agriculture, other IDA interventions
have had positive spill-over effects.
For example, the rehabilitation of trunk and
feeder roads under the supervision of the
national road agency (Tanroads), has increased
the connectivity between urban centers and
rural areas and improved farmers access to
markets and the delivery of social services
to rural communities. (However, rural roads
under the supervision of local authorities
remain an important challenge.)
Another example is the privatization of the
national telecommunications company which
led to a surge in cell phone ownership (from
38,000 mobile phone subscribers in 1998 to
1.6 million in 2004). Improved communications
in the countryside has had a signifi cant
impact on agricultural trade and marketing.
Transportation. IDA has channeled more than
US$100 million since 2000 to improve transportation.
It supported the creation of the
Tanzania Road Fund to mobilize resources for
road maintenance and helped establish a road
agency. During this period, the percentage of
major arteries and trunk roads in good and
fair condition increased to 86 percent in 2006
from 51 percent in 2000. Overloading of lorries
was reduced by 75 percent, and regular
funding was provided for the maintenance of
roads by local governments.
Education. IDA investments in education
through projects and budget supporthave
focused on sustainable reforms to widen
access to schooling while improving quality
and relevance. The governments share of
the recurrent budget devoted to the education
sector has reached 28.5 percent, higher
than many low-income African countries. IDA
support also has included analytical work and
expenditure reviews with recommendations
for increasing effi ciency and ensuring sustainability
of education programs.
Education: Key Outcomes
Gross primary school enrollment rate increased
from 77.6 percent in 2000 to 112.7 percent in
2006.
Net primary school enrollment rate increased
from 58.6 percent in 2000 to 96.1 percent in
2006.
Drop-out rate declined from 5.5 percent in
200001 to 3.4 percent in 200506.
Performance in learning measured through
Primary School Leaving Examinations improved
from a pass rate of 28.6 percent in 2001 to 61.8
percent in 2006
Tanzania ranked fourth among the 14 African
countries that participated in a 2000 student
assessment.
The Fastest Port in Sub-Saharan Africa
Contracting private operators to manage the port of
Dar Es Salaam has transformed the facilities over
a fi ve-year period, resulting in a doubling of the
number of containers handled between 2000 and
2005. Dar has emerged as the fastest port in Sub-
Saharan Africa, and compares favorably with some
in Europe and Australia.
The terminal employs about 500 more people and
salaries have increased by an average 300 percent
on average. Instead of paying subsidies to a loss
making enterprise, the government over the fi rst
fi ve years, collected US$136 million in taxes from
the private operator.
IDA provided fi nancial support and technical advice
as the transformation of the port was unfolding.
8
Health: IDA has supported Tanzanias efforts
to increase access to and improve the effi -
ciency of health services, with policy advice
and knowledge transfers as well as fi nancing.
IDA provides funding through a basket funding
arrangement together with fi ve other
donors.
Over the last 10 years, access to essential
medicines has increased, diagnosis and treatment
of the most common killers of children
(malaria, pneumonia, diarrhea, measles and
malnutrition) have improved, and a larger
share of the population is protected from
impoverishment due to illness with the
introduction of social insurance. Infant and
child mortality declined by 32 and 24 percent
respectively over a six year period (1996-
2004).
An innovative public-private partnership has
increased the domestic production and use of
bed-nets to prevent malaria: 38 percent of
pregnant women slept under a net following
the launch of the program in 2005, increasing
to 52 percent in mid-2006.
CHALLENGES AHEAD
Although Tanzania has taken important strides
towards its goal of poverty reduction, many
challenges remain.
Tanzania needs robust and broad based
growth, particularly in rural areas, to ensure
sustained progress on this front. Working to
lessen regional disparities in terms of access
to basic services will determine opportunities
for the next generation of Tanzanians.
Making a Difference in the Fight
Against Poverty
There is more access to health services, there are
better roads now. The situation has changed but
we are still one of the poorest countries, reminded
Tanzanias President Jakaya Kikwete in an
interview in March 2007. We need to do more.
The major challenge for me is how to attain higher
growth levels because if we were able to get 8 to
10 percent growth, sustained over a period of 10
years, that would really make a difference.
The country has established a solid track
record of macroeconomic stability and good
use of IDA resources over the last decade.
Tanzanias well-defi ned poverty
reduction strategy makes it well
placed to absorb additional funding in
a number of areas.
Tanzania has moved rapidly on a range of
policy and institutional reforms in the energy
and transport sectors but many challenges
remain in reforming utilities more broadly.
Tackling Tanzanias energy defi cit.
The power sector has diversifi ed its base,
and improved its management, but still only
about 10 percent of Tanzanians have access
to power.
IDA is working with the government and other
development partners to mobilize public and
private fi nanciers to respond to the energy
crisis. Over the next fi ve years US$1.5 billion
are needed to provide reliable and affordable
electricity, doubling the number of people
9
with access to electricity. (This cost refers to
transmission and distribution costs onlynot
to new power generation.) A key part of this
strategy involves creating the right environment
for attracting investors. In addition, IDA
is working closely with the Tanzanian authorities
on a fi ve year fi nancial recovery plan and
capital investment program for the sector.
Developing transport infrastructure.
Tanzanias transport infrastructure remains
insuffi ciently developed to support growth
and connect all Tanzanians with markets and
services. While IDA helped to improve the
condition of the highways and trunk roads,
locally managed roads (which include feeder
roads connecting rural populations) have
suffered years of neglect, with 75 percent in
poor condition. The volume of goods transported
by rail is stagnant. Dar Es Salaam is
severely congested.
Increased fi nancing would help: improve
strategic road links between Tanzania and
neighboring countries to increase trade; rehabilitate
and maintain rural roads to increase
access peoples to markets and services; and
restore and modernize non-road infrastructure
such as rails, ports, and airports.
Improving governance.
According to the World Bank Institute, Tanzania
improved its control of corruption over
the last 10 years. But the country started
from a very low baseline: Tanzanias ranking
is on par with the Sub-Saharan average,
which is lower than two thirds of the worlds
countries. The government with the help of
IDA is eager to tackle corruption to further
improve the countrys standing.
Raising the educational bar.
Currently, only 5 percent of adults have a secondary
education and only about 1 percent, a
tertiary education. Increased IDA funding for
the ongoing fi nancing of primary and secondary
education, as well as for higher education,
would help to improve Tanzanians skills
to compete in global markets.
Delivering basic health services.
Although child and infant mortality rates
have decreased, maternal mortality rates
and fertility are showing no, or only minor,
improvements.
Due to drug resistance (in tuberculosis
and malaria), HIV/AIDS treatment, and
the introduction of more expensivealbeit
more cost-effectivetechnologies, the unit
cost of delivering basic health services has
increased.
In addition, new resources will be needed
to train health workers and retain them.
Maternal mortality will only be reduced if the
country invests in both staff and facilities to
provide emergency obstetric care.
Learning from Tanzanias
development experience
Donors increasingly common habit of channeling
resources through the countrys own
institutions and systems has made aid more
effective by strengthening Tanzanias capacity
to develop, implement and account for its
own policies.
By working with development partners, IDA
contributed to increasing the synergy, coherence
and effectiveness of aid.
10
Country ownership of reforms has taken
root, creating an environment that provides
incentives for change to government, civil
society and the private sector. Nevertheless,
domestic accountability and parliamentarian
and ministerial understanding of the budget
process still need to be enhanced.
Following a 2000 assessment of IDAs Tanzania
program by the World Banks Independent
Evaluation Group, IDA has been working to
adopt the following recommendations: Promote
balanced long-term growth. Develop
strategies for private sector development
and rural development. Address distortions
in social policy. Strengthen fi nancial management
and accountability systems. And
improve aid coordination.
March 2007.
http://www.worldbank.org/ida
Goalto halve poverty by 2015. Over the past 10 years,
annual GDP growth has averaged between 5 and 6 percent,
while GDP per capita has doubled. The populations well-being
has improved measurably. In 2000, only 59 percent of children in
Tanzania went to primary school; today almost all are attending.
Child mortality has declined. And the country is gradually becoming
a less costly location for enterprises: the World Bank Groups 2007
Doing Business report named Tanzania one of the 10 top reformers
worldwide.
Country Indicators 1994 2005
GDP per capita (US$) 157 336
Average infl ation (%) 37.1 4.4
Total public debt (% of GDP) 93.7 24.6 (2006)*
Fiscal balance (% of GDP) 2.3 1.9
F.D.I. net infl ows (US$ millions) 151 (1995) 325
Poverty incidence (%) 39 (1991) 35 (2001)
Rural poverty incidence (%) 41 in 1991 39 ( 2001)
Urban poverty incidence (%) 28 in 1991 23 (2001)
Gross primary school enrollment rate (%) 68 (1991) 112.7 (2006)
Under-fi ve child mortality (per 1,000) 147 (1996) 112 (2004)
Maternal mortality (per 100,000 live births) 529 (1996) 578 (2005)
Population (millions) 26.7 38.3
*Following Multilateral Debt Relief Initiative.
Sources: World Bank World Development Indicators 2006; IMF World Economic Outlook
2006; Annual Economic Survey by Ministry of Planning, Economy and Empowerment;
Poverty and Human Development Report 2005.
IDA AT WORK
Tanzania: MKUKUTA, a Home-grown
Agenda for Change
2
COUNTRY ACHIEVEMENTS
After independence in 1964, Tanzania
pursued African socialism.
President Julius Nyereres leadership supported
political stability and national unity
unparalleled within Sub-Saharan Africa. But
his economic policies proved damaging. A rural
development strategy for self-reliant villages
resulted in drastic falls in food production.
A thick tier of ineffi cient and overstaffed
parastatal companies (owned or controlled
by the state) in the banking, industrial and
farming sectors siphoned budget resources
from social services.
Production languished, and goods grew scarce
throughout the economy. Service delivery faltered.
Between 1980 and 1983, GDP growth
plummeted to less than 1 percent from about
3 percent, and the countrys reserves fell to
an average of six-days-worth of imports, while
infl ation surged to an average of 29 percent.
In mid-1983, the World Bank froze new
projects until an economic recovery program
could be put in place, while continuing to fund
ongoing operations. In 1985, with conditions
continuing to worsen, the donor community
pushed for a plan to address the countrys
spiraling economic crisis.
Beginning in 1986, steps were taken
to improve economic performance.
The country adopted an economic recovery
program, led by Tanzanias President Ali Hassan
Mwinyi and designed in collaboration with
IDA, that emphasized market-based producer
and consumer prices, trade liberalization,
and an end to controls of exchange rates and
interest rates. It received signifi cant support
from the donor community and was initially
very successful, with GDP growth recovering
to an average of 6 percent between 1986 and
1990.
The gains were short-lived, however, and, by
1994, economic growth had slowed to less than
2 percent. Individual reforms were needed,
but they werent always well-sequenced.
For example, international trade had been
liberalized, but state marketing boards still
monopolized the export crop sector.
Reforms in different spheressuch as those in
public enterprise, banks and courtswerent
From the onset of comprehensive reforms in 1995, the International Development Association
(IDA), the World Banks fund for the worlds poorest countries, has provided US$3.2 billion to
Tanzania. A close and continuous policy dialogue with government has translated into a process
of change that is driven and supported from within the country. Tanzanias most recent poverty
reduction strategy is best known as MKUTUTA, after its Swahili acronym. It is the Tanzanians
agenda for change.
Tanzania is the fi fth highest performing country in the IDA portfolio as measured by IDA on
the basis of macroeconomic, structural, social, and institutional criteria. Within Sub-Saharan
Africa, it ranks second.
■ ■ ■
3
well-coordinated either. As the fruits of
reforms became less visible, support for
the program weakened, with government
viewing policy changes as little more than a
bargaining chip to secure fi nancial assistance.
Meanwhile, Tanzanias fi scal performance
had begun to deteriorate. Tax cuts without
improved tax administration or expenditure
control deepened budget defi cits. The government
pushed for increased support, but
donors wanted sustained reforms, including
better fi scal management.
In 1995, Tanzania began pursuing
a sustained reform process.
In June of that year, an independent team of
experts issued a report (Helleiner Report),
which provided two overriding recommendations:
the government needed to deliver
macroeconomic stability through a sustainable
reform program; and donors needed
to strongly accept country ownership of the
development agenda. President Benjamin
Mkapa, elected at the end of 1995, embraced
a comprehensive reform agenda for the years
ahead.
Reforms aimed to produce a more effi cient
state and to let the private sector drive
growth. To improve fi scal management, the
government established an independent revenue
authority with an employment system
built on merit and performance. Tanzania
also introduced a value-added tax and
strengthened the judiciary to reduce tax evasion
and leakage. The fi scal defi cit declined to
1.9 percent in 2005 from 7.5 percent of GDP
in 1993.
A second area of focus was the productive
sector. Following the disillusionment with
African Socialism, the government focused
on providing a policy and infrastructure
framework that would encourage private
fi rms to grow.
Since 1995, the economy has
responded strongly.
Growth has averaged between 5 and 6 percent,
with prices stabilizing by 1999. Relief under
the Multilateral Debt Relief Initiative (MDRI)
spread over 2007-2044 cancels Tanzanias
IDA debt. The total debt cancellation under
MDRI, including the African Development
Bank and the IMF is expected to amount to
about US$3.8 billion, US$2.8 billion of it from
IDA. Following the implementation of MDRI,
Tanzanias debt burden is now sustainable.
Progress is being made toward
meeting MDG targets
Although poverty rates fell modestly between
1991 and 2001 (the last year for which poverty
rates were measured), projections show that
Tanzania should be able to attain the goal of
halving poverty by 2015.
The Poverty Puzzle
Available data shows modest declines in poverty
levelsfrom over 39 percent in 1991 to around
35 percent in 2001. This is the result of an uneven
pattern: poverty actually increased in the early
1990s, reaching 40 percent in 1994, and then
declined with the recovery of economic growth.
Available data suggest that poverty decreased to
33 percent in 2005 and that the goal of halving
poverty by 2015 can be met as long as per capita
growth is around 4 percent per year.
The results of a new household budget survey
to be fi elded in early 2007 will provide a clearer
picture of poverty trends since 2001.
4
Progress is visible on other MDG targets. Mortality
rates for children under-fi ve decreased
from 147 per 1,000 live births in 1996 to 112
in 2004. While in 2000 only 59 percent of
children in Tanzania went to primary school,
96 percent are attending today.
However, there is a considerable degree of
regional inequality. In addition to large ruralurban
discrepancies, there are large variations
across districts. For example, access to
safe water varies from 99 percent in Arusha
(urban) to as low as 7 percent in Sikonge.
Tanzania is becoming a less costly place to
do business. Though still ranked 142nd in the
world in terms of ease of doing business , the
2007 Doing Business report highlighted Tanzania
as one of last years top 10 reformers
worldwide. Indeed, foreign investments have
more than doubled within the last 10 years.
IDA CONTRIBUTIONS
IDA is Tanzanias largest source of development
assistance, delivering interest-free
credits and grants since 1963. Since sustained
reforms began in 1995, however, IDA has
stepped up its support, extending over US$3.2
billion to Tanzania in the last 12 years.
As Tanzanias largest donor, IDA
has participated in the countrys
remarkable transformation.
More than one-third of IDAs support since
1995 has been provided through eight development
policy operations initially focused
on improving public expenditures, reducing
infl ation, increasing growth, and improving
the delivery of social services. Later, building
on the government-led poverty reduction
strategy, IDA provided direct support to the
overall development program. Other development
policy operations have supported
primary and secondary education.
Since 1995, IDA has also fi nanced more than 30
investment projectswith a focus on private
and fi nancial sector development, energy,
roads, rail, water, rural development, natural
resource management, community and local
government development, and public sector
reform.
In addition, IDA has conducted more than
60 studies, assessing Tanzanias economic
situation, its poverty profi le, the needs of
various sectors, and effi cient public fi nancial
management. IDA has collaborated with local
academia, the government, development
partners, civil society and other stakeholders
to build capacity while maintaining high
analytical standards.
Helping shape a country-led
development program.
IDA provided considerable support to the
government in its preparation of its fi rst and
second Poverty Reduction Strategy Papers
(PRSP) in 2000 and 2004. The second PRSP,
called MKUKUTA after its Swahili acronym,
was developed through a highly participatory
process providing a framework for growth
and poverty reduction. Donor activities are
increasingly aligned with the plan.
Building capacity for
macroeconomic management.
To deepen the understanding and commitment
to fi scal reform, IDA helped establish
an annual Public Expenditure Review (PER) to
help set priorities within an overall expenditure
ceiling, as well as to monitor progress
5
and assess results. The 2003 PER contained
a detailed analysis of how to make public
expenditure benefi t the poor.
Based on this analysis, the government
implemented a strategic budget allocation
system, which links budget allocations with
the countrys development goals. In cooperation
with other development partners, IDA
helped to build understanding and the capacity
among non-state actors with an interest in
the budget process. Since 2005, the process
has been widened to also include a country
fi nancial accountability assessment and a
country procurement assessment.
Harmonizing donor support.
The government of Tanzania and its development
partners have entered into a compact
for managing development cooperation in
order to achieve national development and
poverty reduction goals. Called the Joint
Assistance Strategy, it includes alignment of
support to the government poverty reduction
priorities. Tanzanias Development Partner
Group, representing more than 35 development
partners, has analyzed Tanzanias
development achievements and challenges
and has adopted a plan for fi nancial and
technical support extending until 2010.
Providing budget support.
Since 2003, IDA and 13 other donors1 have
been directly helping to fi nance the Tanzanian
budget, while providing policy advice.
This approach has helped double per capita
spending on areas such as education, health,
water, agriculture, roads, judiciary, and HIV/
AIDS, as identifi ed in the poverty reduction
strategy.
In the right country context, direct budget
support for key expenditures provides
greater potential for domestic ownership
of programs, strengthens those programs
accountability to parliament and the public,
and helps concentrate procurement, fi nancial
management, accounting and auditing around
a single budget process.
It has become the Tanzanian governments
preferred aid modality and is now provided
by 14 development partners, up from fi ve in
2000.
1. The 13 other donors currently providing budget support include:
the African Development Bank, Canada, Denmark, the
United Kingdom, the European Commission, Finland, Germany,
Ireland, Japan, the Netherlands, Norway, Sweden, and Switzerland.
The End of Stand-alone Project Units
Under the Joint Assistance Strategy, a number of steps are being taken to better manage development.
Some have to do with procurement; others with monitoring and evaluation, coordinating technical assistance
and increasing aid predictability. One of the more bold ideas is to do away with parallel Project Implementation
Units (PIUs).
PIUs have been in use for decades to keep World Bank projects on track. But because they often exist
outside a countrys institutions, they may do little to build in-country capacity. The World Bank, in keeping with
international commitments to harmonize and make aid more effective, is working to phase out stand-alone
implementation units.
6
Supporting public service reform.
In 1999, IDA started funding the fi rst of three
phases of the governments public service
reform program. IDAs long-term commitment
to the program (19992010) has been instrumental
in mobilizing a common approach by
fi ve development partners as well as a joint
basket fund from donors.
The combination of programmatic rather
than project lending in support of a single
government reform program and strong
partnership between government and donors
have already contributed to positive results.
Notable among others is a performance
improvement fundcurrently being replicated
worldwideto support strategic and
capacity development initiatives in addition
to salary enhancements for public servants in
ministries, departments and agencies.
Encouraging fi nancial and
private sector development.
Tanzania has transformed its fi nancial sector
during the past decade from the sole preserve
of state-owned fi nancial institutions to a system
with increased private activity, effi ciency
and competition. In 1997, the bulk of credit
went to the public sector, while credit to the
private sector amounted to only 3 percent of
GDP. By 2005, credit to the private sector had
increased to 10 percent of GDP.
In partnership with four other development
partners (Denmark, the Netherlands, Sweden
and the UK), IDA has increased its support for
changes that strengthen Tanzanias business
climate.
Between 2005 and 2006, Tanzania became an
easier place to operate an enterprise: license
fees for small- and medium enterprises disappeared;
companies used a central computer
system for tax registration; imports took 12
days less to clear customs, and the court
process became less time-consuming. Higher
company profi ts, together with improved tax
collection, increased government revenues
from 11.3 percent of GDP in 2000 to an estimated
14.2 percent in 2006.
While Tanzania is on the right path, its current
Doing Business ranking (142nd out of 175
countries) underscores the need for further
regulatory streamlining.
IDAs impact in Tanzania is felt across
many inter-connected sectors.
Rural development. The rural economy
accounts for about 45 percent of Tanzanias
overall GDP and for nearly 87 percent of its
poor. Since the late 1990s, agriculture has
grown by about 5 percent per year, among
the fastest in the world, despite intermittent
drought. IDA has supported enhanced agricultural
research, management, access to
extension services and technology improvements.
A New Roof
When asked what had changed in recent years
in Mandawa, a village in Southern Tanzania, a
farmer responded: Baada ya miaka michache
atabadilisha nyumba yake kuondoa nyasi kuweka
mabati. Umasikini ulijaa kiloba, sasa unapungua
kiasi kikubwa. After a few years my house has
an iron roof instead of thatch, and poverty has
fallen a lot.
7
But beyond agriculture, other IDA interventions
have had positive spill-over effects.
For example, the rehabilitation of trunk and
feeder roads under the supervision of the
national road agency (Tanroads), has increased
the connectivity between urban centers and
rural areas and improved farmers access to
markets and the delivery of social services
to rural communities. (However, rural roads
under the supervision of local authorities
remain an important challenge.)
Another example is the privatization of the
national telecommunications company which
led to a surge in cell phone ownership (from
38,000 mobile phone subscribers in 1998 to
1.6 million in 2004). Improved communications
in the countryside has had a signifi cant
impact on agricultural trade and marketing.
Transportation. IDA has channeled more than
US$100 million since 2000 to improve transportation.
It supported the creation of the
Tanzania Road Fund to mobilize resources for
road maintenance and helped establish a road
agency. During this period, the percentage of
major arteries and trunk roads in good and
fair condition increased to 86 percent in 2006
from 51 percent in 2000. Overloading of lorries
was reduced by 75 percent, and regular
funding was provided for the maintenance of
roads by local governments.
Education. IDA investments in education
through projects and budget supporthave
focused on sustainable reforms to widen
access to schooling while improving quality
and relevance. The governments share of
the recurrent budget devoted to the education
sector has reached 28.5 percent, higher
than many low-income African countries. IDA
support also has included analytical work and
expenditure reviews with recommendations
for increasing effi ciency and ensuring sustainability
of education programs.
Education: Key Outcomes
Gross primary school enrollment rate increased
from 77.6 percent in 2000 to 112.7 percent in
2006.
Net primary school enrollment rate increased
from 58.6 percent in 2000 to 96.1 percent in
2006.
Drop-out rate declined from 5.5 percent in
200001 to 3.4 percent in 200506.
Performance in learning measured through
Primary School Leaving Examinations improved
from a pass rate of 28.6 percent in 2001 to 61.8
percent in 2006
Tanzania ranked fourth among the 14 African
countries that participated in a 2000 student
assessment.
The Fastest Port in Sub-Saharan Africa
Contracting private operators to manage the port of
Dar Es Salaam has transformed the facilities over
a fi ve-year period, resulting in a doubling of the
number of containers handled between 2000 and
2005. Dar has emerged as the fastest port in Sub-
Saharan Africa, and compares favorably with some
in Europe and Australia.
The terminal employs about 500 more people and
salaries have increased by an average 300 percent
on average. Instead of paying subsidies to a loss
making enterprise, the government over the fi rst
fi ve years, collected US$136 million in taxes from
the private operator.
IDA provided fi nancial support and technical advice
as the transformation of the port was unfolding.
8
Health: IDA has supported Tanzanias efforts
to increase access to and improve the effi -
ciency of health services, with policy advice
and knowledge transfers as well as fi nancing.
IDA provides funding through a basket funding
arrangement together with fi ve other
donors.
Over the last 10 years, access to essential
medicines has increased, diagnosis and treatment
of the most common killers of children
(malaria, pneumonia, diarrhea, measles and
malnutrition) have improved, and a larger
share of the population is protected from
impoverishment due to illness with the
introduction of social insurance. Infant and
child mortality declined by 32 and 24 percent
respectively over a six year period (1996-
2004).
An innovative public-private partnership has
increased the domestic production and use of
bed-nets to prevent malaria: 38 percent of
pregnant women slept under a net following
the launch of the program in 2005, increasing
to 52 percent in mid-2006.
CHALLENGES AHEAD
Although Tanzania has taken important strides
towards its goal of poverty reduction, many
challenges remain.
Tanzania needs robust and broad based
growth, particularly in rural areas, to ensure
sustained progress on this front. Working to
lessen regional disparities in terms of access
to basic services will determine opportunities
for the next generation of Tanzanians.
Making a Difference in the Fight
Against Poverty
There is more access to health services, there are
better roads now. The situation has changed but
we are still one of the poorest countries, reminded
Tanzanias President Jakaya Kikwete in an
interview in March 2007. We need to do more.
The major challenge for me is how to attain higher
growth levels because if we were able to get 8 to
10 percent growth, sustained over a period of 10
years, that would really make a difference.
The country has established a solid track
record of macroeconomic stability and good
use of IDA resources over the last decade.
Tanzanias well-defi ned poverty
reduction strategy makes it well
placed to absorb additional funding in
a number of areas.
Tanzania has moved rapidly on a range of
policy and institutional reforms in the energy
and transport sectors but many challenges
remain in reforming utilities more broadly.
Tackling Tanzanias energy defi cit.
The power sector has diversifi ed its base,
and improved its management, but still only
about 10 percent of Tanzanians have access
to power.
IDA is working with the government and other
development partners to mobilize public and
private fi nanciers to respond to the energy
crisis. Over the next fi ve years US$1.5 billion
are needed to provide reliable and affordable
electricity, doubling the number of people
9
with access to electricity. (This cost refers to
transmission and distribution costs onlynot
to new power generation.) A key part of this
strategy involves creating the right environment
for attracting investors. In addition, IDA
is working closely with the Tanzanian authorities
on a fi ve year fi nancial recovery plan and
capital investment program for the sector.
Developing transport infrastructure.
Tanzanias transport infrastructure remains
insuffi ciently developed to support growth
and connect all Tanzanians with markets and
services. While IDA helped to improve the
condition of the highways and trunk roads,
locally managed roads (which include feeder
roads connecting rural populations) have
suffered years of neglect, with 75 percent in
poor condition. The volume of goods transported
by rail is stagnant. Dar Es Salaam is
severely congested.
Increased fi nancing would help: improve
strategic road links between Tanzania and
neighboring countries to increase trade; rehabilitate
and maintain rural roads to increase
access peoples to markets and services; and
restore and modernize non-road infrastructure
such as rails, ports, and airports.
Improving governance.
According to the World Bank Institute, Tanzania
improved its control of corruption over
the last 10 years. But the country started
from a very low baseline: Tanzanias ranking
is on par with the Sub-Saharan average,
which is lower than two thirds of the worlds
countries. The government with the help of
IDA is eager to tackle corruption to further
improve the countrys standing.
Raising the educational bar.
Currently, only 5 percent of adults have a secondary
education and only about 1 percent, a
tertiary education. Increased IDA funding for
the ongoing fi nancing of primary and secondary
education, as well as for higher education,
would help to improve Tanzanians skills
to compete in global markets.
Delivering basic health services.
Although child and infant mortality rates
have decreased, maternal mortality rates
and fertility are showing no, or only minor,
improvements.
Due to drug resistance (in tuberculosis
and malaria), HIV/AIDS treatment, and
the introduction of more expensivealbeit
more cost-effectivetechnologies, the unit
cost of delivering basic health services has
increased.
In addition, new resources will be needed
to train health workers and retain them.
Maternal mortality will only be reduced if the
country invests in both staff and facilities to
provide emergency obstetric care.
Learning from Tanzanias
development experience
Donors increasingly common habit of channeling
resources through the countrys own
institutions and systems has made aid more
effective by strengthening Tanzanias capacity
to develop, implement and account for its
own policies.
By working with development partners, IDA
contributed to increasing the synergy, coherence
and effectiveness of aid.
10
Country ownership of reforms has taken
root, creating an environment that provides
incentives for change to government, civil
society and the private sector. Nevertheless,
domestic accountability and parliamentarian
and ministerial understanding of the budget
process still need to be enhanced.
Following a 2000 assessment of IDAs Tanzania
program by the World Banks Independent
Evaluation Group, IDA has been working to
adopt the following recommendations: Promote
balanced long-term growth. Develop
strategies for private sector development
and rural development. Address distortions
in social policy. Strengthen fi nancial management
and accountability systems. And
improve aid coordination.
March 2007.
http://www.worldbank.org/ida
