REVOLUTIONARY GOVERNMENT OF ZANZIBAR
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REVOLUTIONARY GOVERNMENT OF ZANZIBAR
MKUZA FINANCING AND STRATEGIC ALLOCATION OF RESOURCES INTO AREAS THAT SUPPORT PRO-POOR GROWTH
Draft Report
Prepared by
Deograsias P. Mushi
Salum S. Ali
Iddi Salum Haji
January 2010
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Table of Contents
1.Introduction
1.1Background
1.2Objective of the Report
1.3Approach and Methodology
2.Analysis of the General Budgetary Resources, Allocation and Public Expenditure for the Implementation of MKUZA
2.1Issues, Implications and Recommendations
3.Analysis of Allocation of Resources and Actual Expenditure by MKUZA Clusters and Specific Interventions
3.1Resource Allocation to MKUZA Clusters: Issues and Recommendations
3.2Resource Allocation to MKUZA Sectors: Issues and Recommendations
3.2.1Allocation of Resources within MoEVT
Community contributions to the Education sector
The impact of the spending on the Education sector
3.2.2Allocation of Resources in the MoHSW
The impact of the spending on the Health sector
4.The Contribution of the Private sector in public social service provision and prospects for Public-Private Partnership in Zanzibar
5.Emerging General Issues and Summary of Recommendations
References
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1.Introduction
One crucial aspect of MKUZA financing is strategic alignment of budgetary and other resource allocations into the clusters and the strategic interventions of MKUZA by reflecting on its general and specific goals. A critical issue in the process is mainstreaming resource allocation into those areas that support pro poor growth. In this regard, the MKUZA Implementation Monitoring Secretariat determined to commission a study, of which this document is a draft report, with a view of determining a better and an effective strategic allocation of resources to MKUZA. The report is organized to give a brief background to MKUZA Strategy, an analysis and discussion of the findings of the study on financing of MKUZA, emerging issues and implications, and a summary of recommendations.
1.1Background
The second generation Strategy for Growth and Poverty Reduction for Zanzibar (ZSGRP) or MKUZA was launched in January 2007. The strategy constitutes the continuing effort by the Revolutionary Government of Zanzibar to ensure the attainment of sustainable growth that will reduce both the income and non-income poverty to the majority of Zanzibaris. It is thus a part of the strategies to implement the long term development plan, the Vision 2020. The ZSGRP comes as the second generation of the first three-year Zanzibar Poverty Reduction Plan (ZPRP) that was launched in 2002. The ZPRP recorded significant achievements; the challenges encountered during its implementation have been taken as strength towards development of the second generation strategy, MKUZA, which has generated a strong agenda aiming at sustained broad-based growth whilst emphasizing equity and good governance.
MKUZA has three but not mutually exclusive clusters for growth and poverty reduction outcomes. These are (i) Growth and Reduction of Income Poverty (ii) Social Services and Well-being, and (iii) Good Governance and National Unity. Each cluster contains key issues, a defined broad outcome, goals, key strategic interventions and lead actors to coordinate implementation.
MKUZA offers recommendations cum interventions on how the Government, the Non State Actors including Development Partners, the Private Sector, Civil Society Organizations and the Community can engage their actions and approaches to significantly enhance economic growth and thus poverty reduction. The ultimate objective is to achieve high standards of social well being for all the citizens of Zanzibar.
Implementation of MKUZA entails aligning sector strategies, programs and projects and Local Government plans through the Medium Term Expenditure Frameworks. In addition, efforts have been made to align various systems, processes, reforms, and programs with MKUZA. For example, with regard to resource mobilization, several instruments including the Zanzibar Budgetary Allocation System (ZBAS) have been developed to align budgetary allocations with MKUZA interventions.
The costing of MKUZA in 2007/2008 indicated that Cluster One (Growth and Reduction of Income Poverty) would need US$ 232.7m in 2008; US$ 226.5m (2009); and US$ 233.9m in 2010. Analogously, Cluster II (Health, Education, and Water/Sanitation) would need a total of US$ 625.9m. The implementation performance trend so far shows that 66% of MKUZA development expenditure went to Cluster I; 28.5% to Cluster II, and 5.4% to Cluster III.
The main sources of revenue for financing MKUZA have largely been domestic which constitute about two thirds of the total budgetary financing. External sources of finance have remained to be one third of the total budgetary financing. The foreign financing has been channeled through various modalities, including Government Budget Support (GBS) – the most dominant and the biggest, project support, etc. Efforts to reduce this dependency have included measures to increase domestic resource mobilization (tax and non-tax revenues) as well as community contribution; and of late, the Public-Private Partnerships (PPP) has been sought as one of the important sources of financing.
A crucial aspect of MKUZA financing, as indicated earlier is strategic alignment of budgetary and other resources into the clusters and the strategic interventions of MKUZA by reflecting on its general and specific goals. And as also observed earlier, one critical issue is mainstreaming resource allocation into those areas that support pro poor growth – and thus impact simultaneously and directly on growth and poverty. This requires a continuous detailed assessment of resource allocation and the extent of strategic allocation into MKUZA Clusters and interventions – the subject matter of this report.
1.2Objective of the Report
The overall objective of this report is to assess the financing of MKUZA and the extent to which resource allocations are aligned to MKUZA, especially allocation into areas that support pro-poor growth. This entails assessment of the overall and specific budgetary allocation to MKUZA Clusters and interventions, including the extent to which these resources reach lower levels – communities in particular. The assessment includes the role played by the private sector through the PPP arrangement, and community contributions to MKUZA.
1.3Approach and Methodology
Preparation of this report involved general and specific approach focusing on the scope of the work as outlined in the terms of reference; this was to ensure that each item of the scope of work is adequately addressed and the objective of the study is achieved. Desk work reviewsconstituted the main task in the implementation of the assignment. This involved going through public expenditure reports and all the relevant documents relating to plans and performance of MKUZA financing as obtained from the various government Ministries and Departments and a few other sources. Thus, the main source of information and data were published and unpublished reports as cited in the relevant sections of this report.
In addition, the study team made field visits in selected service outlets in Zanzibar as follows: Unguja: Kandwi, Chaani, Gamba, Mkokotoni, Pale, Kizimkazi, Makunduchi, Paje, and Bwejuu; and Pemba: Vikunguni, Kiuyu Mbuyuni, Kiuyu Maziwa, Ngombe, Mgwiye and Micheweni Urban. The objective of the field visits was to assess the extent to which services are available and accessible – a proxy measure of resources reaching community level; and also to establish the extent to which communities contribute resources to complement government efforts.
2.Analysis of the General Budgetary Resources, Allocation and Public Expenditure for the Implementation of MKUZA
Ideally, this section presents an assessment of the trends of allocation of financial resources generally to the MKUZA clusters, and specifically to the interventions of MKUZA particularly those areas that by design or default support pro poor growth. We would want to establish the absolute and relative allocations to the MKUZA interventions. This involves tracking budgetary and non budgetary allocations and expenditures in various public institutions that are implementing MKUZA; basically covering the period 2007/08, 2008/09 and 2009/10. The analysis shows the composition of the sources of financing and the strategic allocations to the major clusters and interventions of MKUZA and potential beneficiaries therein. The presentation is organized to point out the observed issues and therein the evidence and implication on the attainment of the objectives of MKUZA.
2.1Issues, Implications and Recommendations
I.Budget growth is somehow aligned to growth of domestic revenue
Table 1 provides analysis of variability in resource allocation for financing public expenditure in Zanzibar. Notwithstanding the current dependency on external resources of about one third of the total budget, it is observed that growth of the government budget of about 24 percent somehow matches the growth of domestic revenue that averaged 24.7 percent for the past two years. By implication, growth in domestic revenuemobilization has helped to hold constant the ratio of external budget dependency although public spending has been increasing throughout. This records a credit for good tax policy and effort in Zanzibar. However, as we indicate later in this section, the trend of the flow of external resources has not been as smooth as expected.
Table 1: Analysis of Variability in Resource Allocation for Financing Public Expenditure in Zanzibar
2006/07 / 2007/08 / 2008/09 / 2009/10Total Domestic Revenue / 89,629,586,532 / 110,652,537,776 / 139,561,305,544 / 58,804,953,905(up to November)
Domestic Revenue Growth (%) / 23.5 / 26 / -
Government Budget / 214,801,618,000 / 266,942,535,000 / 331,234,881,000 / 410,255,000,000
% growth of government budget / 24.3 / 24.1 / 23.9
Actual Government Expenditure as a % of the total budget / 82.7 / 67.1 / 70.2 / N/A
MKUZA Costing* (000,000) / 504,960 / 523,800 / 554,040 / N/A
Foreign sources / (i)Expected
(Tshs) / 156,305,000,000 / 173,751,83 5,000 / 199,188,000,000 / N/A
(ii) Actual
(Tshs) / 63,762,352,402 / 47,122,646,239 / 15,517,128,414 ( up to October) / N/A
(ii) As a % of (i) / 41 / 27.12 / 7.8 / N/A
* The figures do not include costing for Cluster III
N/A = Not available/applicable
II.Actual expenditure falls short of budget by a big margin
It is observed from Table 1 that actual expenditure by the government has averaged 73 percent, indicating that expenditure falls short of budget by 27%. For example, in the financial year 2008/2009, it was only 70% of the total budget that was realized as actual expenditure – this is a resource gap that challenges attainment of budgetary objectives in Zanzibar.
Recommendation: Align government budget with the actual resource flows to the public sectorByeither asking Development Partners to honour their commitments or to be concrete in their
kind support to the development of Zanzibar. Second, improve government revenue prediction
in Zanzibar by outsourcing expertise in the short term and more training in the long term.
III.Actual flow of external resources is far below the corresponding commitments
We observe further in Table 1 that actual external financing has never exceeded 50% of the total commitments from Development Partners for the past three years – the trend is generally worsening with time. This constitutes the major source of volatility in the public sector actual spending versus budget commitments in Zanzibar. Much of the external resources are usually used to finance development expenditure which is directly linked to MKUZA implementation and attainment. By implication then, attainment of the objectives and goals of MKUZA will largely depend on the trend of the inflow of external resources.
Recommendation: Improve the flow and reliability of external support by askingDevelopment Partners to be more concrete to their budget support to Zanzibar
IV.Annual cost of full implementation of MKUZA is not affordable to Zanzibar
Table 1 shows further that the annual costs of the implementation of MKUZA is slightly more than half a trillion excluding costs for cluster three; and also more than twice the annual total governmentspending. Attainment of the objectives of MKUZA sounds unrealistic given that the total annual government domestic revenue is less than 20% of the total estimated annual costs of implementation of the strategy. By implication, more external sources of finance are necessary to achieve the objectives of MKUZA because the strategy is too ambitious as compared to the available resource envelop.
Recommendation: Mobilize more external and domestic budgetary resources forImplementation of MKUZA. Prioritize items to be implemented every fiscal year within the
MKUZA framework and the actual available resource envelop.
V.Actual development expenditure for MKUZA is far below budgetary commitments
Table 2 shows development budget for MKUZA and the actual spending on the same for the period 2007/08 through 2009/2010. Actual development expenditure for MKUZA for the period hardly exceeds 50% of the budgetary commitments. By large, the observed resource gap is a limiting factor to the implementation of MKUZA.
Table 2: Performance of the development budget for MKUZA - Summary
Development Budget / 2007/08 / 2008/09 / 2009/2010Amount budgeted / 135,646,424,000 / 376,824,249.00 / 239,913,000,000.00
Actual development expenditure / 73,906,404,402 / 134,993,724.00 / 31,785,651,414.00
Actual expenditure as a % of the budget / 54.5 / 35.8 / 13.2% (by October 2009)
We observe too sources of underfunding for MKUZA; one is the general annual budget ceiling for each sector, as issued by the Ministry of Finance and Economic Affairs, andmay also involve monthly limits; the second is the resultant underfunding that is generated by the difference between the approved budget and actual disbursement of funds. The latter introduces reprioritization of spending in order to accommodate the resource gaps, and thus may potentially be misaligned with the original budget priorities.
Recommendation: Ensure that the Government sources of finance for developmentprojects are concrete and financial support committed for development by the Development
Partners is fully realizable.
3.Analysis of Allocation of Resources and Actual Expenditure by MKUZA Clusters and Specific Interventions
3.1Resource Allocation to MKUZA Clusters: Issues andRecommendations
Tables 3a – c provide an analysis of financial commitments and actual development expenditure for the implementation of MKUZA for the period 2007/08 – 2009/10.A number of issues and observations with regard to the financing of the implementation of MKUZA emerge from the three tables as we discuss next.
I.Development budget for MKUZA is too much dependent on external sources which are not smoothly realizable/predictable
It is observed from Table 3 that more than eighty percent of the development budget is from external sources which are not smoothly predictable and realizable. Although small, government contributions to the development expenditure have been more realizable than external sources.
Recommendation: Reduce dependency of the development budget on external resources byAllocating more domestic resources to the MKUZA development budget.
II.The actual development expenditure for MKUZA sectors is far below the corresponding budgetary commitments
Table 3b shows that in 2008/09 the actual development expenditure for the three clusters of MKUZA was 35.8% of the total budget commitment. This is observed to be too low compared to the actual annual costing of MKUZA. The source of such an underfunding, as underscored throughout this report, is mainly the external support which is not predictable or smoothly realizable.
Recommendation: Ensure that financial commitments from external sources for MKUZAimplementation are reliable and realizable to avoid underfunding and reprioritization
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Table 3a-c:Analysis of development financial commitments to MKUZA clusters in FY 2007/2008 -2009/10
(a) 2007/08
Source of Funds / CLUSTER / TotalI / II / III
Budget / Actual / Budget / Actual / Budget / Actual / Budget (000 Tshs) / % share
% of the total financial commitment / 66.1 / - / 28.5 / - / 5.4 / - / 135,646,424 / 100
% of SMZ contribution / 9 / - / 13 / - / 47 / - / 16,277,570.88 / 12
% of External sources / 91 / - / 87 / - / 53 / - / 119,368,853.12 / 88
(b) 2008/09
Source of Funds / CLUSTER / TotalI / II / III
Budget / Actual / Budget / Actual / Budget / Actual / Budget (000 Tshs) / Budget % share / Actual (000 Tshs) / Actual as a % of budget
% of the total financial commitment / 32.8 / 29.6 / 16.2 / 19.2 / 51 / 51.2 / 376,824,249.00 / 134,993,724.00 / 35.8
% of SMZ contribution / 7.5 / 28.5 / 9.9 / 18.1 / 9.6 / 26.8 / 33,766,000.00 / 9 / 34,579,358.00 / 102.4
% of External sources / 92.5 / 71.5 / 90.1 / 81.9 / 90.4 / 73.2 / 343,058,249.00 / 91 / 100,414,366.00 / 29.3
(c) 2009/2010
Source of Funds / CLUSTER / TotalI / II / III
Budget / Actual / Budget / Actual / Budget / Actual / Budget (000 Tshs) / % share
% of thetotal financial commitment / 60.7 / 33.5 / 5.7 / 239,912,883.00
% of SMZ contribution / 16.3 / 12 / 53 / 40,725,105.00 / 17
% of External sources / 83.7 / 88 / 46.8 / 199,187,778.00 / 83
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III.Additional financial resources for strategic implementation of the Cluster One objectives and goals are necessary in order to enhance achievement of the rest of MKUZA objectives and goals
Growth and reduction of income poverty is a pre-requisite for sustainable availability and access to social services, reduced morbidity, improved nutritional and calorific intake, reduced mortality, improved learning capacities, etc. Accordingly, more resources for implementation of cluster one of MKUZA is necessary to speed up growth and reduction of poverty.For example, in 2008/09 priority by spending was Cluster III, and in 2009/10 priority by budget commitment is cluster I (Tables 3b & c).
Recommendation: Prioritize and increase actual allocation of resources going to theimplementation of Cluster One for strategic attainment of the other objectives and
goals of MKUZA
3.2Resource Allocation to MKUZA Sectors: Issues and Recommendations
I.Priority sector in resource allocation in Zanzibar is Education
The general budgetary allocation of resources to government ministries in Zanzibar is provided in Table 4. Clearly, the priority sector is Education and Vocational Training (MoEVT). The Ministry of Finance and Economic Affairs (MoFEA) comes second to the allocation, and the Ministry of Health and Social Welfare (MoHSW) ranks third in terms of government budget and spending priorities. Overall, allocation to Ministries favours Cluster II as the priority in the general budget and actual expenditure – which is a good and strategic allocation to trigger growth and poverty reduction (Cluster I) in the long term.
Table 4: GoZ Budget Allocation to Ministries
MDA / FY05/06 / FY06/07 / FY07/08Budget / Expenditure / Budget / Expenditure / Budget / Expenditure
Rank / % / Rank / % / Rank / % / Rank / % / Rank / % / Rank / %
MoEVT / 1 / 25.5 / 1 / 27.6 / 1 / 25.8 / 1 / 23.3 / 1 / 26.8 / 1 / 28.5
MoFEA / 2 / 10.1 / 2 / 11.3 / 2 / 9.8 / 2 / 10.2 / 2 / 11.1 / 2 / 8.9
MoHSW / 3 / 8.5 / 3 / 9.4 / 3 / 8.1 / 3 / 8.8 / 3 / 8 / 3 / 9.3
HoR / 4 / 6.8 / 4 / 5.6 / 4 / 6.3 / 4 / 5.9 / 4 / 5.4 / 4 / 6.5
MoALE / 5 / 6.1 / 5 / 6 / 5 / 6.3 / 5 / 5.9 / 5 / 5.7 / 5 / 6.3
Source: PER MoHSW 2008
Recommendation: Continue prioritizing the Education Sector in resource allocation forlong term and sustainable growth and reduction of poverty in Zanzibar.
3.2.1Allocation of Resources within MoEVT
Analysis of allocation of financial resources within MoEVT, as provided in Table 5 and Figure 1&2, compares budgeted resources by item of expenditure, actual release of funds and actual expenditure by category and item of spending in the ministry. Accordingly, the analysis raised a number of issues as we discussed next and make proposals for further improvement.
II. Actual expenditure falls short of the sectoral budget by a big margin
In 2007/08 the MoEVT actual expenditure as a percentage of the sectoral budget, as indicated in Table 5 and Figre 2, was 67 percent. The resource gap was thus 33 percent. The situation was much better for the previous years as indicated further in Figure 2. The underfunding varies by items of expenditure leading to reallocation of resources.