Strengthening PER in Tanzania / 2013

The United Republic of Tanzania

Ministry of Finance

The Public Expenditure Review (PER) Process

Information and Operational Manual:

Documenting the Rules of the Game

(16thAugust, 2013)

PREFACE

Tanzania’s Public Expenditure Review (PER) process aims to develop an analytical partnership which informs and improves the formulation and management of fiscal policy. Through the regular dialogue, the process develops analytical studies and brings together ideas from the government and a wide range of stakeholders (Development Partners, Non-State Actors, Parliament, Private Sector, Research and Academic Institutions, and so forth)to facilitate and inform budgetary and PFM reforms.

This PER manual provides operational guidance to all stakeholders, particularly newcomers to the process. The Manual highlights the current PER dialogue structure; PER Calendar and its entry points into the national budget cycle; governance and management of the process including roles of main actors; agenda setting;financing of the PER process; and communication mechanisms. Although some of this information is available, the rationale behind this manual is that the information is fragmented. The purpose of this manual is thereforeto consolidate some important information and summarize it into onedocument.

The manual is a living document that can be updated regularly to suit the changing needs of the stakeholders. The PER link in the Ministry of Finance website provides details of the PER process, a collection of past reports and information on ongoing studies:(

It should serve as the first port of call for information on the public expenditure review process in Tanzania.

CHAPTER ONE

1.1.Background

This manual provides information on the Public Expenditure Review, its set up and operation in Tanzania. The Public Expenditure Review (PER) is a consultative process between the government and stakeholders. Under the leadership of the Ministry of Finance, the PER process results in analytical products which inform the Government budget process and public financial management in Tanzania.

The motivations for undertaking a Public Expenditure Review are grounded in the mainstream public economics literaturethat emphasize spending public financial resources as effectively as possible. Economic theorymakes the case that government intervention ought to be considered in two instances: i) inefficiency due to factors including market failures, externalities, imperfect market structures (e.g.monopoly) and asymmetric information or ii) when market activities worsen the distribution of income. After identifying a rationale for intervention, the government chooses among a range of instruments to redress the resultant inefficiency. The instruments available include regulation, taxes, subsidies, and public-funded provisioning.

In Tanzania,the absolute poverty, often rural and agro-based, is the biggest development challenge. The provision of basic services like primary education and health, infrastructure, income generating and employment activitieswarrantsstate involvement. Because public spending is financed by domestic and international taxpayers (in the form of development grants and loans), efficacy of public spending is not only important for development effectiveness, but also because of accountability to the financiers of public spending.

The government intervenes in a country’s development through resource allocation in the form of budgets – national andLGAs. While poverty can be reduced through multiple channels (such as growth spurred by private investment), public spending in basic service provisioning remains one of the most direct instruments. Further, budgets serve numerous socio-economic purposes by allocating resources in ways that promotes growth and equity. Despite this overarching importance, budgets in Tanzania have not been as effective as they could be. This is why the agenda to reform public expenditure systems has been given such a high priority. In Tanzania a number of processes and technical reforms have been put in place to improve the Public Expenditure systems, which include:

  • Policy priority setting and better resource planning: a longer term planning horizon where policy choices are disciplined by realistic resource availability. Government programs should compete for funding, not rely on routine increments. Cost Analysis of public projects ought to be a systematic and continuous exercise. The Public Investment Management Operational Manual which is being developed as part of the 2012/13 PER process will provide guidelines on project analysis.
  • Better accounting, auditing and procurement: a transparent process of formulation, approval, implementation and reporting among the formal institutions – the Cabinet, Finance Ministry, Line Ministries, and Office of the Auditor General is a primary requirement. This should be complemented by information disclosure and press freedom laws.
  • Better performance: allocation alone does not ensure impact. A greater link between resources and performance guided by measurable indicators needs to be established.

Formal institutional remedies of these kinds are necessary to strengthen national Public Expenditure Systems (PESs), and this has been the focus of most public sector reform programs. But incorporating elements of civic engagement to complement these institutional reforms has so far been appreciated. This will be included in the revitalized PER process.

1.2. The Meaning and the Objectives of the Public Expenditure Review

Meaning of the Public Expenditure Review

Public Expenditure Reviews (PERs) is a process or forum where the allocation and management of public spending isanalyzed. The objective of a PER is to analyze the extent to which policy priorities are effectivelyimplemented in practice through budget allocation in order to increase the effectiveness andefficiency of public spending.

  • PERs look at both recurrent and development expenditures, and attempt to review the joint impact of both types of spending on budgetary outcomes including economic growth, poverty reduction, and asset maintenance.
  • A PER may also contain an institutional assessment and analysis of the whole public expenditure management system.
  • PER is a participatory mechanism of undertaking strategic analysis of a public expenditure programme in view of improving management of fiscal policy.

Some of the key issues/questions in the Public Expenditure Review are;

  • Was the expenditure at local, sectoral or national levels consistent with the policy priorities?
  • How effective was the expenditure with regard to the attainment of the desired socio-economic outcomes?
  • What needs to be done to improve formulation and managementof fiscal policy?
  • Does the budget allocation and implementation ensure value for money?

Lessons learned from the PER can inform strategic planning and budget preparation by identifying ways to improve budget allocation to achieve faster progress towards policy objectives. The Public Expenditure Review seeks to generate analytical insight into the budget system, from its preparation to the execution. It aims to improve strategic planning, budget preparation and fiscal management in the short, medium and long term to meet desired policy objectives.

Specific Objectives of PER

There are three main objectives of the PER:

  1. To inform the preparation of the budget guidelines with a view to establishing accurate resource envelope; strengthening policy-budget linkages; taking into account research findings; and achieving value for money.
  2. To review budget proposals, to promote a contestability role across all levels of Government, and to share feedback between the sectors and the Ministry of Finance, as well as other stakeholders; and
  3. To review budget execution and assess the functioning of public financial management systems.

The Public Expenditure Review process increases the participatory level, the extent of transparency and the utilization of analytical findings in improving fiscal policy formulation and management. With regard to the participatory level, the PER can provide an avenue for various stakeholders to participate in the scrutiny of the budgetary process with some relative degree of independence and this enhances the transparency of the process. The process brings together the government, development partners, Academics,members of Think-Tanks, faith based groups and the Civic Society Organizations.

To practically add to the development agenda, there should be PER studies aimed at short term and medium term results at both national, sector and local levels, to contribute to:

  • Planning and priority setting: The PER studies could inform the national and sectoral planning and priority setting. This should include sectoral studies which determine how resources should be used within a sector.
  • Revenue mobilization efforts: There should be analytic studies that help in increasing revenue measures and potentials with clear mechanisms to enhance collection; including minimizing revenue leakage.
  • Resource allocation exercise: This exercise should be informed by the specified results envisaged in each spending unit (some milestones to be followed- an example are the BRN laboratory initiatives) based on priorities identified in PER studies.
  • Expenditure management: The continuous assessment of quality (reliability, efficiency and effectiveness) of PFM tools and systems, as well as VfM audits should be at the core of the PER agenda. In this case, Public Expenditure Review should be structured in several ways: (i) Assessment on whether funds are allocated to the specified result areas (milestones) or Policy-budget linkage (ii) Tracking financial and physical implementation of plans, (iii) Assessment of costs of projects/major milestone activities before being entered into the Government budget.

Results that are expected from the PER process are:

  • PER analytic studies that present high quality findings and concrete recommendations to influence the fiscal policy decisions made by the budgetary committees and other public decision makers.
  • The process promotes the culture of participation among Government, DPs, Academic& Research institutions, CSOs and Thin-Tanks - theyprovide inputs and feedback into the budget process.
  • Capacity is developed for rapid response to address just in time requests (e.g. Rapid Budget Analysis).
  • A forward looking, demand driven sustainable PER work program is established and focuses on improving value for money in the national key priority areas.

Commitment of Government of Tanzania to the PER process

Government of Tanzania has decided to make more use of Public Expenditure Reviews, and is eager to build capacity so that PERs can be conducted by national experts and by Ministries/sectors. In this context, it may benoted that elements of a PER have been integrated into the Sector Performance Report, that each Ministry is required to produce every year. Besides the Sector PerformanceReport, PERs value addition comes in terms of deep and rigorous analysis of some aspects such as:

  • Benefitincidence analysis:
  • A general institutional evaluation to reassess public versus private roles:, and
  • The various options (e.g. performance contracting) of getting services to the people.

The Government in collaboration with Development Partners (DPs) has put concerted efforts in revitalizing the PERas an important ingredient in improving the management of fiscal policy through strategic choices and policy implementation informed by participatory process and rigorous studies.

CHAPTER TWO

2.PER Calendar and Budget Cycle

In order for the PER to be effective it must link with the national budget cycle/calendar for each fiscal year at a point that maximizes its impact. It is therefore important for the budget cycle to be well understood and entry points for the PER to be highlighted. For this to be possible, it is important to appreciate the role of the PER process in the budgetary process.

Findings and recommendations from the PER studies assist in reforms regarding (i) Planning methodologies and tools; (ii) Revenue forecasting, collections and management; (iii) Resource allocation exercise; and (iv) Expenditure management- institutional set up (tools, systems, laws/rules and regulations) (v) Financing modalities of fiscal gaps (Basket, Projects & GBS).

2.1PER outputs and entry points into the Budget process

2.1.1The outputs

These include consolidated and comprehensive list of detailed findings and concrete/realistic recommendations from the studies, as well as views from different stakeholders (especially from the annual wider stakeholders’ consultative meetings).

2.1.2Entry points:

All PER working groups (Champions, PER Main, Sector Working Groups- SWGs, etc) should have sessions with the National Task Force on Tax and Non-tax revenue/and the national Plan and Budget Guidelines Committee. For constructive dialogue during the budget process, it means that the PER working groups should have policy, revenue, and expenditure components in their annual agenda.

Furthermore, since PER studies take time from TORs to completion, outputs of the PER process in Yt should be for Yt+1 (e.g. studies in FY 2013/14 feeds into the budget of FY 2014/15). So, for the 2014/15 budget, PER studies for 2013/14 should be completed by July 2014 before commencement of Revenue Task Force and PBGC meetings.

2.2Description of main activities in the Budget cycle

Budgeting as a process involves various stages and interventions by a number of key actors and stakeholders. It involves a series of activities, which are performed throughout a financial year.The PER entry points could be in line with the following major areas as per the figure below:-

  • Planning and priority setting: The PER studies could inform the national and sectoral planning and priority setting. This is normally done to inform the budget guidelines with macroeconomic scenarios and resource envelope projections.
  • Revenue mobilization efforts: In this case, there should be analytic studies that help in increasing revenue measures and potentials (including new revenue sources or expansion of revenue base)with clear mechanisms to enhance collection; including minimizing revenue leakage.
  • Resource allocation exercise: This exercise should be informed by the specified results envisaged in each spending unit (some milestones to be followed- an example is the BRN laboratory initiatives) basing on priorities identified in PER studies.
  • Budget implementation andmonitoring: In this case: (i) Assessment on whether funds are allocated to the specified result areas (milestones) - the Policy-budget linkage (ii) Tracking financial and physical implementation of plans, (iii) Assessment of costs of projects/major milestone activities before being entered into the Government budget.

Budget and PER Cycles in Tanzania

CHAPTER THREE

3.0Governance and Management of the PER Process

A PER Dialogue Structure is crucial in ensuring an effective and participatory process that helps in management of public expenditure programmes through strategic prioritization, allocation of resources and monitoring implementation. This chapter specifically, underscores the institutional framework required to spearhead the PER process.

3.1. PER Structure

In the context of the PER revitalization process, the ideal structure is seen as the one led by the PER Extended Champions Group at the higher level, and the Sector/Thematic Working Groups at the lower level. The PER Secretariat acts as a coordination mechanism between the two levels. Thedecision to merge the PER Champions and the PER Main to form an Extended PER Champions Group was made at the PER Champions Group in July 2013. TheExtended Per Champions Group will include high level representation from the GOT, DPs, CSOs, the Private Sector and Academic Institutions. They may also include representatives from the SWGs and core institutions depending on the Agenda for a particular meeting[1].

Figure 1 shows the new structure.

The PER dialogue is coordinated by the dedicated PER secretariat drawing members from the Ministry of Finance and Development Partners.

For enhancing wide stakeholders participation and quality discussions in the PER process, active involvement of the Government, DPs, CSOs, the private sector and academic institutions at all levels of the structure (including the Champion Group) is strongly advocated.

3.1.1. Membership and Composition of the PER Working Groups

Extended PER Champion Group

The Extended Champions’ Group is Chaired by the Permanent Secretary, Ministry of Finance, and other members include the Governor of the Bank of Tanzania, Executive Secretary of the Planning Commission, Permanent Secretary of the Prime Minister’s Office, World Bank Country Director, GBS Chair, EU Ambassador, the UN Resident Representative, Representative of CSOs from Policy Forum, and the representative of Private Sector from Tanzania Private Sector Foundation (TPSF).

Appointment of Members:

Given their mandate as think tank of the PER process, the members shall be appointed by the PS MOF.

PER Secretariat

The PER Secretariat is headed by the Deputy Permanent Secretary (Ministry of Finance) and consists of 2 staff from the Government and 2 staff from Development Partners.

Appointment of Members

Members shall be appointed by the PER Champions Group [PS MOF on the Government side and Lead Institution of the DPs].

Sectors/Thematic areas

A sector or thematic area constitutes a thematic entity on the basis of which policies, strategies and plans are formulated and implemented and dialogue is organised. At the same time, the term sector (or thematic area) is used to refer to a group of institutions (e.g. MDAs) that are stakeholders and engage in dialogue on the thematic area. Members of a Sector/ Thematic area will be the Directors of Policy and Planning of the MDAs, DPs, and NSAs constituted in a sector/thematic group, and the Sector Lead should ensure effective participation of all the stakeholders.

Appointment of Members:

Members shall be appointed by their respective Permanent Secretaries/Heads of Agencies

3.1.2. Roles of the Actors in the PER Structure

PER Extended Champions Group

The PER Champions Group has the mandate of defining and approving the annual analytical agenda, delivering key messages from analytical outputs, approval of PER work plan and financing and evaluating the PER process.

PER Secretariat

The role of the PER Secretariat includes the following:

  • Establish PER membership and update it regularly;
  • Coordinate PER group meetings, prepare work plan, budgets and manage PER basket fund;
  • Maintain all PER documentation in files and website, and communicate it to members in a timely manner;
  • Initiate funding requests and coordinate the release of funds
  • Coordinate the preparation and quality assurance of the TORs for analytic work;
  • Close and systematically follow-up with working group chairs on each piece of agreed work to ensure results delivered on time;
  • Conduct initial review or facilitate peer review of reports to ensure quality and consistency with agreed requirements;
  • Discuss emerging policy issues;
  • Receive and analyse recommendations from studies and reports; and identify inputs for plans and budgets;
  • Monitor key developments with budget/fiscal implications (e.g. pronouncements of leaders, parliamentary decisions, movement of key finance indicators) and advise the WG chairs accordingly;
  • Coordinate and monitor implementation of decisions made by the Champions Group;
  • Prepare annual wide stakeholders’ consultative meeting;
  • Monitor whether PER study recommendations are implemented and highlight progress with the PER Champions’.
  • Receive and prioritize sector study proposals and advise ChampionsGroup;

Sectors Working Groups Role in the PER