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Independent Evaluation Office, International Monetary Fund
Operations Evaluation Department, World Bank


United Republic of Tanzania: Evaluation of the PRSP process and arrangements under the PRGF

Process and Arrangements Under the Poverty Reduction and Growth Facility (PRGF)

July 6, 2004

SARPN acknowledges the World Bank website as the source of this document.
This case study was prepared jointly by the independent evaluation units of the World Bank and IMF, as background to separate but complementary evaluation reports available at www.worldbank.org/oed/prsp and www.imf.org/ieo.
The other country case studies conducted in support of these evaluations are also available on-line at the above addresses.
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Executive summary

The PRSP process

The initial formulation of the PRSP took place within an extremely compressed timetable, under pressure to reach the HIPC completion point. Civil society inputs in the preparation of the PRSP were limited and hence had little influence on the initial policy content of the PRSP. The Ministry of Finance officials indicated that at the beginning they were frustrated over the lack of clarity of what was expected from a PRSP. A country-led and comprehensive poverty reduction strategy, set in the context of the long-term Vision 2025, already existed in the form of the National Poverty Eradication Strategy (NPES). With respect to partnerships, the Helleiner report had initiated a fruitful dialogue with the country’s external partners and the Tanzania Assistance Strategy (TAS)—aimed at coordinating donor assistance—was under formulation. So what potential did the PRSP have when it was introduced? A review of the existing strategy documents and the evolution of the process, as evidenced from the preparatory phase and the subsequent three years of implementation, suggests that the PRSP process has indeed added value in some important areas, although challenges remain.

A key contribution of the process has been the opening up of a dialogue between the government and civil society. Civil society is now more actively engaged in national policymaking through channels such as participation in the public expenditure review (PER). The PER has broadened to become the main avenue for public policy debate and strategy formulation in Tanzania. The institutionalization of the policy dialogue, through the PER process, where the World Bank played a critical supporting role, has been crucial—although it is not possible to attribute this development to the PRSP approach per se. The PER process provided a forum for follow up of the policy debate which was very important given initial gaps in the poverty reduction strategy. It is broadly participatory, government-led and encourages domestic and external partnership. It also facilitates a multi-sectoral resultsorientation of the PRSP via links to the budget and assessments of the poverty focus of expenditure.

One area where stakeholder involvement has been limited is on macro policy issues— involving mainly the government, donors, and the World Bank and the IMF. While this is partly due to the weak technical capacity among civil society groups, it also reflects limited success by the IMF in framing key macro policy issues in a manner digestible to a wider audience and in ensuring that all major macro issues were included in that debate. IMF staff were not clear as to what their role should be if some key policy issues were not emerging and were reluctant to intervene too actively in what was meant to be a government-led domestic debate.

The PRSP has enhanced the mobilization of resources and focused them on priority sectors— with public expenditure reviews as major inputs. During the PRSP process the shares of priority sectors in expenditures have risen steadily, although PER analyses have shown that spending within priority sector needs to be better targeted to the poor. The PRS process has substantively enhanced national processes for poverty monitoring and a master plan now guides all monitoring activities. But the feedback between monitoring of results and policy actions remains in need of improvements.

In retrospect, the issue of poor domestic capacity has not been adequately considered given the broad agenda of reform—both within the process of implementing the PRSP and more broadly as part of ongoing government reforms—particularly management and coordination at the sub-national level. Lack of capacities has led to serious delays, and may ultimately lead to inadequate outcomes.

The PRSP process has been partnership-oriented. External partners view the PRSP as the guiding framework for development assistance and have attempted to streamline their processes accordingly. The BWIs have also aligned their processes and their behavior in the field, along the lines of the PRSP approach, although in the view of domestic stakeholders more remains to be done. Two issues of concern on partnerships are the still low levels of involvement in the process of the business community and the continuing high transactions costs for the government of numerous donor missions, some of which are still not well coordinated.

In the initial phase of its implementation, the PRSP has been mainly focused on improving service delivery, particularly in education and health, by increasing social sector expenditures. Several stakeholders also noted that the poverty diagnosis of the PRSP was not comprehensive enough, with a bias towards nonincome aspects. The income-oriented elements of a broader growth and poverty reduction strategy were delayed by the late completion of sector specific strategies, notably for agriculture and rural development. This also reflects the legacy of the initial focus on social expenditures of the HIPC process. The completion of sector strategies and action plans in later years and the more elaborate PRSP progress reports have helped to expand on and balance the implementation of the strategy.

The ownership of the PRSP is strongest at the level of top leadership and the Ministry of Finance, followed by priority sector ministries, but is found to be much lower in nonpriority central ministries. Among civil society and local government, ownership has been mixed, being a function of their involvement in the process, with Dar-based groups more favorable to the process than those outside. Parliament has been largely outside the process, and its ownership is low.

The main conclusions from Tanzania’s PRS experience are fourfold. First, it is the process, not the document itself that matters. Despite the compromised quality of the initial participatory process, the insufficient poverty diagnostics and lack of a broader growth strategy in the initial PRSP, three years after the launch of the PRSP policy-makers have been able to flesh out the strategy and improve poverty monitoring mechanisms. Second, while there has been commitment to the strategy at the top leadership level, there is by no means a full consensus on many key issues among all stakeholders involved in the exercise.

The sustainability of the PRS process depends upon a broader level of participation by Parliament, nonpriority sector ministries, and civil society, including in the macroeconomic policy framework. Third, capacity constraints and lack of clarity about the role of the BWIs if major policy issues are not emerging in the debate are currently hindering such participation and need to be addressed. It is also clear that wide differences of view about the scope and goals of participation remain. Fourth, the PRSP process requires closer World Bank and IMF collaboration, including a clearer delineation, as part of the PRSP framework, of what analytical inputs should be delivered.

IMF role and the PRGF

The consultation processes under the PRSP did, over time, have a significant impact on the content of macroeconomic policies, and the PRGF-supported framework did show considerable flexibility. In this sense, there was eventually an “alignment” with the key objectives of the PRSP although the process was not driven by preparation of the original PRSP. In assessing how the PRSP process affected the scope of policy choices available to the government and how the PRGF adapted to these policy choices, we examined in depth four policies in the macroeconomic area. They included two cases, the PRGF programming framework and cash budgeting, where a broader debate in the PER working groups led to a more flexible fiscal stance and increased priority expenditure better insulated from temporary budget shocks; one case, trade reform, where the political nature of the problem and the lack of a domestic debate on the lines of the PER evaded easy resolution; and a last case, fiscal federalism, which, though considered a priority by the government and with clear relevance for the PRSP, was approached very cautiously by IMF staff, in light of the fairly limited local capacities and the IMF’s own experience from other countries, and thus the alignment of the PRGF remained incomplete.

Lack of capacities within government led to delays in policy formulation and implementation, although the process of interaction and debate finally led to the convergence of views on key macroeconomic issues. However, effective networking by key government officials, reinforced by donor concerns that the initial macroeconomic framework did not sufficiently accommodate increased aid flows, helped bring onboard technical expertise from local consultants, academics engaged in local research-oriented NGOs, and others from abroad. Their participation in the PER macro working group and workshops organized by the government, as well as technical contributions to policy discussions helped move the process forward. In this sense, the substantive revisions that were made in the original PRGF program design reflected an effective contribution of the institutional framework set up for consultations between stakeholders and the use of outside expertise to strengthen capacity.

However, this participatory process was incomplete since it largely involved government, the BWIs, and bilateral donors, with civil society stakeholders largely on the sidelines. With regard to internal IMF policy formulation and review processes, the overall conclusion is that the IMF does seem to have evolved towards better discussion of the PRGF-PRSP linkages, as well as poverty issues more broadly, and did show flexibility in modifying the program design. However, while the program was able to accommodate higher aid inflows and did modify the targeted fiscal path, in light of the slower-than-expected-response of private sector investment and demand for credit, the assumptions on growth remained largely exogenous to program design. Moreover, PSIA still did not play a significant role as a guide to policy formulation.

World Bank effectiveness

The Bank played a facilitative role, providing technical advice to the government during the short formulation period of the PRS as well as in identifying key process issues, which influenced the sectoral contents of the strategy and helped promote a more participatory process. Stakeholders were critical of the Bank’s “intrusive” influence in the initial stages of the formulation of the strategy, but acknowledged that this keenness was tempered by the country office. Overall, the principal drafters of the PRSP described the formulation as a government-led process with the BWIs not influencing the substance of the final strategy. Government officials, however, did complain about having to adhere to “formatting requirements” for the BWIs.

Civil society members, on the other hand, were critical that during formulation the Bank did not exert more influence on the government to increase their participation. But they were cognizant of the dilemma faced by the Bank in urging the government to expand the consultative process while respecting the “country-led” principle. Further, the Bank as well as the civil society was reluctant to hold up Completion Point under HIPC to demand a more extensive consultative process. During implementation, the Bank has promoted the participation of civil society within the national PRS processes with encouraging results. Civil society participation has been a feature of the PER process and is being further strengthened year by year.

An area where the Bank could have been better prepared for the PRSP was in assisting Tanzania to conduct a Household Budget Survey prior to 2000. During implementation of the PRS, however, Bank staff have provided substantial technical advice in analyzing the results of the Household Budget Survey and in establishing the Poverty Monitoring System. The Bank’s technical expertise and sectoral inputs in education and health and via the PER process have supported the 1st and 2nd Annual Progress Reports and have been greatly appreciated. The PER process in particular has been well recognized for its support of the PRSP and its principles, and the Bank has played a leading role in promoting and expanding the PER from an external technical assessment to a country-led participatory process involving a wide range of stakeholders. Besides providing secretariat services to the bi-weekly PER meetings until the end of 2003, Bank staff have fostered the momentum of the process and have continued to provide high-quality technical expertise.

In other areas of the Bank’s analytical support, some key shortcomings came to light in the formulation of the PRSP, and some of these remain. There are continuing knowledge gaps between the micro-macro linkages, specifically the micro-economic social and poverty impacts of macro-economic and structural policies, analysis on the sources of growth and the poverty impact of alternative policy and strategy options. At the sectoral level, the depth and breadth of the Bank’s analytical work was uneven prior to the formulation of the PRSP.

Work in agriculture, for example, should have started much sooner and the Bank could have been more assertive in promoting the growth agenda in the PER/MTEF processes.

The Bank’s lending portfolio in the last three years has been well aligned with the PRSP, and the recently introduced PRSC signals a further shift towards alignment with country processes. The PRSC1 is programmatic, aligned with the PRS policy matrix and has much less conditionality than previous policy-based lending instruments.

The Bank’s overall behavior vis a vis respecting the “country-led” principle is widely recognized as having improved significantly. The Bank was already moving in this direction but the PRSP has helped moved it much further and faster. Interviewees described a “sea change” in the Bank’s behavior, and have cited the strong role of the country office in promoting this change. But there is still room for improvement, with some national stakeholders feeling that the “Washington consensus” has become a “Washington-Dar” consensus. Government officials and NGOs also feel that some sector teams are more resistant to the principle of country ownership and often fail to adequately consider alternative viewpoints.

The Bank has continued to promote the “partnership” principle. The Bank’s proactive role in the participatory PER process, the alignment of the PRSC within the framework of the PRBS, and its engagement with the DAC, are important steps that have enhanced the collaboration of donors in Tanzania. There are still complaints about the Bank’s coordination at the sector level which relate to the large numbers of missions that regularly arrive from the Bank. At the same time stakeholders have acknowledged that the complaints at the sectoral level are strongly correlated with capacity problems within ministries, an area where the Bank’s and donors' technical assistance has not been successful in addressing.

World Bank-IMF collaboration

The PRSP process has fostered greater coordination amongst the World Bank and IMF teams working on Tanzania, although there remain important gaps—including the setting of priorities for timely delivery of PSIA. On conditionality, the BWIs have narrowed their focus to areas of their specialty, but this has not resulted in substantial reductions in aggregate conditionality. The Joint Staff Assessments of the PRSP and the Progress Reports have been important in providing a forward-looking perspective on the process but have been fairly uncritical, especially with respect to implementation capacity at the local level. As commentaries on a multi-stakeholder process, however, questions have been raised on their limited inclusiveness.



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