Tanzania’s Experience in Aid Coordination,

Harmonization and Alignment

- From Chaos to Harmony -

Paper presented by the Government of Tanzania and Development Partners to the Africa Regional Workshop on Harmonization and Alignment for Development Effectiveness and Managing for Results, Dar es Salaam, 9-11 November 2004

Tanzania’s Experience in Aid Coordination, Harmonization and Alignment

Table of Contents

Abbreviations……………………………………………………………………………...3

Introduction………………………………………………………………………………..5

Renewing Aid Relations in Tanzania……………………………………………………..5

Policy Frameworks for National Ownership of Development……………………………7

TAS Framework for Aid Coordination and Harmonization………………………………9

Achievements and Challenges in Aid Harmonization ……………………………...…...11

  1. Aligning Aid to National Priorities…….…………………………………………..12
  2. Increasing Predictability of Aid Flows…….………………………………………13
  3. Integration of External Funds in the Government Exchequer System…….………15
  4. Harmonizing and Rationalizing Processes…….…………………………………...16
  5. CapacityBuilding for External Resource Management…………………………...18

Consultative Mechanisms in Development Cooperation…….………………………….20

Independent Monitoring of Aid Harmonization…………………………………………22

Joint Assistance Strategy…………………….…….…………………………………….23

Achievements, Challenges and the Way Forward ………………………………………25

Summary of Lessons……………………………………………………………………..27

Annex 1. Tanzania’s Policy Planning Processes and Reform Programmes……………..28

Annex 2. Tanzania’s Aid Coordination Modalities and Funding Partners………………30

Annex 3. Proposed Annual Process Cycle……………………………………………….31

Abbreviations

ADBAfrican Development Bank

BESTBusiness Environment Strengthening for Tanzania

CFAACountry Financial Accountability Assessment

CGConsultative Group

DFIDDepartment for International Development

DPGDevelopment Partners Group

ESRFEconomic and Social Research Foundation

FYFiscal Year

IMF International Monetary Fund

IFMSIntegrated Financial Management System

IMGIndependent Monitoring Group

JASJoint Assistance Strategy

LGRPLocal Government Reform Programme

MDAMinistries, Departments and Agencies

MDGMillennium Development Goal

MTEFMedium Term Expenditure Framework

NEPADNew Partnership for Africa’s Development

NPESNational Poverty Eradication Strategy

OECD-DACOrganisation for Economic Cooperation and Development-Development Assistance Committee

PAFPerformance Assessment Framework

PEDPPrimary Education Development Programme

PERPublic Expenditure Review

PFMRPPublic Financial Management Reform Programme

PIUProject Implementation Unit

PMSPoverty Monitoring System

PRBSPoverty Reduction Budget Support

PRGFPoverty Reduction Growth Facility

PRSPoverty Reduction Strategy

PRSCPoverty Reduction Support Credit

PRSLPoverty Reduction Support Loan

PSRPPublic Service Reform Programme

SALStructural Adjustment Loan

TASTanzania Assistance Strategy

UNDPUnited Nations Development Programme

Introduction

It is now widely agreed that in order to increase the effectiveness of aid in support of poverty reduction, there is an urgent need to improve aid coordination, promote harmonization and strengthen government ownership of development processes. The Government of Tanzania and her Development Partners are at the forefront of building national ownership and pursuing joint initiatives for aid coordination and harmonization. Having emerged from deteriorated aid relations in the early 1990s, these substantial improvements are the result of the Government’s and her Partners’ continued commitment to enhance aid effectiveness within clearly articulated development policy and aid harmonisation frameworks, most notably the Poverty Reduction Strategy (PRS) and the Tanzania Assistance Strategy (TAS). Their joint efforts are based on mutual trust and the common goal of poverty reduction.

Being a frontrunner in implementing the good practice standards and principles laid out in the 2003 Rome Declaration on Aid Harmonization, Tanzania and her Development Partners offer valuable lessons on opportunities and challenges in redefining development partnerships. Tanzania’s experience has already been shared with the international community through her participation in the OECD-DAC Task Force on Donor Practices as well as at the Rome High Level Forum on Harmonization in February 2003 and the May 2004 Shanghai Conference on Scaling-up Poverty Reduction. At both conferences, President Benjamin William Mkapa as a guest of honour offered suggestions for strengthening harmonization among partners. This document provides an update of achievements and challenges in aid coordination, harmonization and alignment in Tanzania and outlines lessons for the international community.

Renewing Aid Relations in Tanzania

Tanzania maintains a long history of development cooperation, dating back to her independence in the early 1960s. After three decades of extensive Development Partner support, Government-Development Partner relations deteriorated in the early 1990s as both sides increasingly became dissatisfied with each other’s practices. Development Partners questioned Government commitment to reforms and were deeply concerned with the Government’s perceived fiscal mismanagement, poor governance and corruption. The Government in turn blamed Development Partners for making unrealistic and excessive demands on Tanzania and for interfering excessively in the policy reform process without delivering on their promised resource inflows. The tension between the Government and her Partners culminated in the reduction of aid flows, as IMF and World Bank credits were put on hold and principal Partners suspended their non-project finance. In response to this situation, a team of five independent advisers[1] led by Professor Gerald Helleiner was commissioned in mid 1994 to undertake an evaluation ofTanzania’s relationship with her Development Partners and to propose measures for its improvement. The team came up with 21 recommendations, published in 1995 in a document known as the ‘Helleiner Report’. Being highly committed to restoring development partnerships, the new Government under the leadership of President Mkapa, elected in 1995, discussed the recommendations with the Nordic countries, resulting in the launch of a New Nordic-Tanzania Development Partnership in 1996. This paved the way for broader discussions between the Government and her Development Partners and their joint adoption of 18 ‘Agreed Notes’ in 1997 on the basis of the Helleiner Report. The Agreed Notes outline actions to be taken by the Government and her Partners in order to renew their partnership, focusing on the need for sound nationally owned development frameworks and policies as well as harmonized and rationalized aid delivery and management in line with Government priorities and systems.

Following the adoption of the Agreed Notes, the Tanzanian Government and her Development Partners have greatly improved their aid relations and moved forward on implementing the jointly agreed measures, which served as the fundamental starting point for subsequent aid coordination and harmonization efforts.

Policy Frameworks for National Ownership of Development

One of the central concepts of aid effectiveness is that governments must own their development agenda and lead the process of change for it to be sustainable. Having a clear vision and strategy for development is a crucial prerequisite for establishing meaningful government ownership and leadership in aid relationships, as it provides the basis for aligning development assistance within country priorities. Tanzania has addressed this issue by formulating and implementing a range of national policy frameworks under broad-based participation of domestic stakeholders, which has led to widespread understanding and acceptance of Tanzania’s development goals.

National Vision 2025

In 1998, the Government of Tanzania formulated and adopted the National Development Vision 2025[2], which provides the country’s overall development framework and lays out long-term social and economic development goals to be attained by the year 2025. The Vision aims at Tanzania’s graduation from a least developed into a middle income country, having eliminated abject poverty and maintaining a high economic growth rate of at least 8 percent per annum.

National Poverty Eradication Strategy (NPES)

Tanzania’s long-term poverty reduction targets, which are broadly in line with the Millennium Development Goals (MDGs), are spelled out in the National Poverty Eradication Strategy (NPES), prepared in 1997. The NPES provides a guiding framework for coordinating and supervising the formulation, implementation and evaluation of policies and strategies for poverty eradication and identifies three areas for strategic intervention:

  1. Creation of an enabling environment for poverty eradication
  2. Capacity building for poverty eradication
  3. Poverty eradication

Poverty Reduction Strategy (PRS)

Tanzania has also developed and implemented a nationally owned Poverty Reduction Strategy (PRS)[3] for targeting poverty reduction in the medium term. The country’s first PRS was drawn up in 2000 for a three-year implementation period in the context of the enhanced HIPC Initiative. Guided by Tanzania’s Vision 2025, the NPES and the TAS, the Strategy elaborates objectives and interventions for poverty reduction in seven priority sectors[4], indicates costing and monitoring mechanisms and lists a range of monitoring indicators. It provides the framework for public expenditure management and policy. Achievements towards the set out objectives are reviewed in a broad-based participatory process under the Poverty Monitoring System (PMS) and published in annual Progress Reports.

As the first PRS has come to the end of its three-year cycle with the publication of the third Progress Report in January 2004, a follow-up strategy has been drafted with contributions from all Tanzanian stakeholders and is due to be finalised in December 2004. Tanzania’s second PRS[5] is set out for five years and moves away from the earlier priority sector approach to focusing on outcomes and activities in three broad clusters, namely:

  1. Growth and income poverty reduction
  2. Improvement of quality of life and social well-being
  3. Governance and accountability

This avoids the previous neglect ofother sectors, which are equally important in the poverty reduction process, and allows for mainstreaming cross-cutting issues, such as gender, environment and HIV/AIDS, as well as for more effective linkages with the MDGs.

Tanzania’s first PRS as well as the new strategy also call for rationalization and realignment of international Development Partner support to reflect their priorities within the framework of the Government budget. This is to ensure maximum progress toward poverty reduction and improved predictability of the budget. Tanzania’s harmonization and rationalization agenda is hence embedded in the country’s national poverty reduction policy framework, which contributes to the agenda’s national ownership.

TAS Framework for Aid Coordination and Harmonization

Following the Helleiner recommendations and the ‘Agreed Notes’ of 1997, Tanzania and her Development Partners have institutionalised their commitment to increased aid coordination and harmonization with the launch of the Tanzania Assistance Strategy (TAS) in June 2002. It was formulated through a broad-based participatory approach under the coordination of the Ministry of Finance. The TAS constitutes a three-year strategic framework for improving aid coordination and harmonization under Tanzanian leadership and ownership in line with international initiatives on aid harmonization, such as the 2003 Rome Declaration (chart 1 illustrates how TAS relates to the Rome Commitments), the OECD DAC Task Force on Donor Practices and the New Partnership for Africa’s Development (NEPAD).

Chart 1. Applying the Rome Commitments on Harmonization and Alignment to Tanzania

1. Ownership

(Tanzanian Government)

2. Alignment

(Government-DPG)

3. Harmonization

(DPG)

Source: TAS Implementation Report 2003/2004, adapted from OECD-DAC Explanatory Note on the Joint SPA-DAC Survey on Progress in Harmonization and Alignment 11 June 2004.

The Tanzania Assistance Strategy seeks to ensure that external resources are transparently and effectively delivered, managed and accounted for in accordance with the requirements of the Constitution and the Public Finance Act in order to achieve Tanzania’s development goals stated in the Vision 2025, the NPES, the PRS and sector policies. Specifically, the TAS document identifies 13 ‘best practices’ in development cooperation for both Government and Development Partners, which take up the points of action under the 1997 ‘Agreed Notes’,and establishes a framework for monitoring progress towards achieving these principles.

In addition to the overall guiding framework of the TAS, a TAS Action Plan was devised in 2003 to define concrete steps to be undertaken by the Government and her Partners towards implementing the TAS during the three years of its first cycle. It addresses key constraints to aid effectiveness by highlighting four Priority Areas for urgent attention, and lists activities, monitoring indicators and tools for achieving objectives in each area.

Within the framework of the TAS, Government and Development Partners are working together towards implementing the 13 ‘best practices’ and the TAS Action Plan under the supervision of a Joint Government-Development Partner TAS Harmonization Group and a Joint TAS Technical Secretariat. Both bodies consist of representatives from the Ministry of Finance, which chairs the two groups, sector ministries, the Vice President’s Office, President’s Office - Planning and Privatisation and Development Partners.

Progress in implementing the TAS and TAS Action Plan is monitored jointly by the Government and her Partners on an annual basis and documented in a TAS Annual Implementation Report. It is also evaluated biennially by an Independent Monitoring Group (see pp 22f). The TAS Implementation Report sets out achievements and challenges for the year under review and establishes a plan of action for the coming fiscal year, thus allowing the TAS to be continuously informed by on-going national and international debates and to absorb new ideas and initiatives on best practices.

The institutionalisation of the TAS and TAS Action Plan have led to the consolidation and deepening of Government and Development Partner commitments to aid coordination and harmonization, resulting in substantial progress towards ‘best practices’ in development cooperation. Both documents will undergo a full review and update in 2005/2006 after the end of their first cycle.

Achievements and Challenges in Aid Harmonization

As spelled out in the TAS and TAS Action Plan, for aid to be effective in reducing poverty, it has to fund national priorities, be nationally owned, predictable, integrated in the Government system, delivered and managed through harmonized and rationalized processes and complemented by capacity building efforts. Since the inception of the Tanzania Assistance Strategy in 2002, the Government and her Development Partners have made substantial progress towards achieving the objectives spelled out in the TAS document and the TAS Action Plan. Progress of individual Partners has however been variable and both Government and Development Partners are still facing considerable constraints and challenges in moving forward.

I. Aligning Aid with National Priorities

As the Government has laid the foundation for national ownership and leadership in development by establishing a national development and poverty reduction agenda, Development Partners have increasingly responded by aligning their programmes, projects and allocation of funds to the priorities set out in the above mentioned frameworks, most notably within the Poverty Reduction Strategy.

In addition, in order to move towards increased national ownership of development cooperation, substantial improvements have been made in allowing the Government greater control over the utilisation and allocation of external resources. This has been achieved through the increasing use of budget support and basket funds.

The rise of budget support in absolute terms has increased the level of discretionary resources available to Government, enabling it to allocate resources to its own priorities. This in turn has contributed to increased spending on PRS priorities. Currently, budget support is provided in the form of Poverty Reduction Budget Support (PRBS) from 11 bilateral Partners and the European Commission, a Poverty Reduction Support Credit (PRSC) from the World Bank, and a Structural Adjustment Loan (SAL) from the African Development Bank (ADB). The PRBS and PRSC are aligned to each other in support of the PRS and funds are released on the basis of completing policy actions under a Performance Assessment Framework (PAF), which is jointly agreed upon by Government and Partners. It draws objectives from the PRS and sets out specific annual policy actions in broad reform areas, including, among others, public service reform, budget formulation and execution and public financial management. ADB is currently preparing to align its Structural Adjustment Loan[6] to the joint monitoring framework used for the PRBS/PRSC instruments.

Basket funds and joint funding mechanisms allow for an increased degree of ownership over resource allocation within sectors. They are currently provided to the health sector, primary education, local Government reform, the Poverty Monitoring System, public sector reform and others (see annex 2 for a list of current budget support and basket funding modalities in Tanzania).

Direct budget support is the Government’s preferred aid delivery mechanism because of its great advantages not only in terms of national ownership but also with regards to strategic resource allocation, expenditure transparency and accountability, predictability of aid flows and alignment with Government systems, as outlined in the following sections. Basket funds are encouraged as a transition measure from project aid to budget support. Even though budget support and basket funds now together constitute the majority of aid delivery mechanisms in Tanzania, direct project funds continue to play an important role in supporting Tanzania’s development efforts (see table 1). A comprehensive impact assessment of budget support in Tanzania, currently undertaken by independent consultants, might facilitate Development Partners’ increasing recognition of the benefits of budget support.

Table 1. Percentage of Aid Flows by Different Modalities 2001/2002 - 2004/2005

Type / 2001/2002 / 2002/2003 / 2003/2004 / 2004/2005
Budget Support / 26% / 30% / 38% / 34%
Basket Funds / 5% / 16% / 18% / 21%
Project Funds / 69% / 54% / 44% / 45%

Source: Government Budget Books

II. Increasing Predictability of Aid Flows

The Government budget is the principal tool for implementing Tanzania’s development agenda and poverty reduction strategy. As Development Partner funds constitute a large share of the Government budget (41 percent in 2004/2005[7]), the availability of information on aid commitments and disbursements as well as timely inflows of external resources, matching promised amounts, are crucial for adequate budget planning and execution. Development Partners in Tanzania have made considerable progress in improving the predictability of their funds through increased and timelier information sharing on committed and actual external resource inflows, longer term commitments, front-loading of aid disbursements, and through bringing actual disbursements more in line with initial commitments.