2009 ANNUAL NATIONAL POLICY DIALOGUE Key Issues on

2009 ANNUAL NATIONAL POLICY DIALOGUE Key Issues on PFM at the Central and Local Govt Levels BOT Conference Room 19 -20 and 23 -25 November, 2009 MINISTRY OF FINANCE AND ECONOMIC AFFAIRS 1

Outline B/ground: Where we are coming • PFMRP I, III • Framework for dialogue on PFM in TZ • Leadership & Mgt of PFMRP • Recent Achievements on PFMR in TZ Key Issues & Actions Going • Scope and Coverage of IFMS • Cash Management • Quality of Reporting • Budget Execution Concluding from Forward Remarks 2

PFMRP Phase I: 1998 -June 2004 [Aggregate fiscal discipline] • Focused on minimising resource leakage, strengthening financial controls, enhancing accountability & introduction of a computerized IFMS. Phase II: July 2004 – June 2008 [Allocative efficiency] • Focused on improving: Revenue forecasting, Debt mgt, Expenditure f/work; External resources mgt; Budget mgt; Treasury mgt & accounting; Procurement; use of IT; Investment mgt; Admin. support services; External audit; and Leadership, coordination and M&E of the programme. • PFMRP basket fund was introduced. Phase III: July 2008 - Present • Focus has been on enhancing predictability of resources to MDAs; promoting effective service delivery; and strengthening production of accurate/ timely accounts & results. 3

F/work for Dialogue on PFM WG [Chair – DSPFM; DP Co-Chair] – forum for technical discussions PFM JSC (chaired by PST) for policy guidance Supplementary forums • Bilateral Meetings between PFMRP Component Managers & DPs • PFM DPG • GBS Troika Plus: Current Chair – Af. DB • Other Meetings: MFEA & DPs; DPs & CS; PAC, LAAC, POAC; Visiting Delegations 4

Leadership & Mgt of PFMR champions/ Political leadership: H. E. the President; Rt. Hon PM; MFEA MOFEA as anchor – Appointment of DSPFM New PFMRP Coordination Secretariat on board from October 2009 Energized Watchdogs: NAO Parliamentary Committees Media – albeit sensational/frenzy NSA – e. g. PWC, Policy Forum 5

Where we are coming from: A Recap TZ as a star performer on PFMR until 2007 Suddenly, concerns emerged that PFMR in TZ has stalled cf. Bitz Report 2008; PEFA 2008; CAG report 2007/08 pointing to misappropriation of public funds; Media frenzy on EPA, Richmond cases Quality of AWPs for PFMRP & dialogue not as hoped by DPs Govt concerned by lack of mutually agreed assessment criteria for performance of PFMRP Under-funding of PFMRP vis-à-vis commitments by both GOT and DPs 6

Where we are coming from: A Recap Growing concerns on micro-mgt of PFMRP & high transaction cost of meetings/ fluid demands by DPs Lack of clarity on focus & scope of PFMRP vis-à-vis PFMR /entire PFM system Institutional memory seemingly lost with rotation of embassy staff Thus, our initial focus in 2009 was on revitalizing dialogue on PFM. Hence more on process/finding common ground. However, Significant progress was also recorded on substantive issues. 7

Good News: Recent Achievements on PFM in TZ Adoption in 2007/08 of IPSAS (International Public Sector accounting Standards) - cash basis accounting. This improved timeliness, content, quality & transparency of the financial reports. LGAs financial statements 2008/09 migrated from International Financial Reporting Standards (IFRS) to IPSAS – accrual basis, permitting uniformity in reporting of Govt accounts. This is a major milestone and an excellent starting point for improving financial reporting. All sub-Treasuries connected to the IFMS database at HQ in DSM. 76% - 99% of Govt transactions now automatically reconciled within Epicor. 8

Recent Achievements on PFM in TZ Public Audit Act No. 11 of 2008 enacted to enhance operational independence of NAO. Decision taken to establish the office of the Internal Auditor General. Budget economic classification upgraded from GFS 1986 to GFS 2001. Section established under the Budget Dept to undertake expenditure monitoring & tracking of funds. 9

Recent Achievements on PFM in TZ Compliance with PPA Cap 410 increased from 39% in 2007/08 to over 60% buttressed by frequent procurement audits conducted by PPRA & training. Public Procurement Policy Directorate established for policy formulation & devt of procurement cadre. 10

Recent Achievements on PFM in TZ Audited accounts of RGZ for 2007/08 issued on time. Backlogs now history. Outstanding performance/improved operations of NAO (Mainland & Z’bar). Oversight functions of PAC, POAC, LAAC (URT Parliament and ZHR) enhanced significantly through PFMRP sponsored training 11

Challenges Ahead Key Issues & Proposed Actions Going Forward GOT to undertake preparation of PFMRP IV (during 1 st half of 2010), drawing lessons from implementation of PFMRP III; forthcoming report on review of IFMS by NAO; recent external evaluation of PFMRP etc. 12

Key Issue 1: Performance, Scope & Coverage of IFMS Large No. of unreconciled transactions. Modules which are not yet operational. Partial integration of IFMS with SBAS, HCMIS & cash/debt mgt systems. Ltd functionality of IFMS at LG 13

Key Issue 1: Points of Information Most unreconciled transactions relate to migration from Platinum to Epicor software. Automatically reconciled transactions now range from 76% - 99%. Reconciliation adjustment module used to deal with the remainder. Operationalisation of modules partly constrained by ltd capacity for customisation & equipment - New server for the data warehouse has been bought 14

Key Issue 1: Actions Going Forward Go. T to implement short term recommendations from the NAO review of IFMS report expected end December 2009. Achieve complete reconciliation of transactions between MOFEA & BOT (by June 2011). Clearance of unreconciled transactions from 2000 to-date (by June 2010). Operationalise asset module starting with 10 MDAs & the Data Warehouse. Will be done with TA support and intensified systems training (by June 2010). 15

Key Issue 1: Actions Going Forward Establish a Systems Steering Committee to guide integration of IFMS with other systems/budget tools (by June 2010) Submit for approval revisions of the PFA 2001 to give ACGEN stronger oversight over PFM & operations of IFMS at LG level (by June 2010) 16

Key Issue 2: Improve cash Management Large no. of Govt accounts in commercial banks Large balances of cash which are not fully utilised 17

Key Issue 2: Points of Information 36, 406 accounts were initially identified in 2007. Main source: MOUs requiring special accounts to be opened for DFPs & programs (24, 000 accounts for PEDP alone) June 2009 update revealed a total of 43, 406 accounts, o/w instructions have gone out to close 31, 441 18

Key Issue 2: Actions Going Forward Finalise scrutinisation of remaining Govt bank accounts to identify those to be closed & balances transferred to BOT (by June 2011) Future MOUs to exclude clauses that create additional special accounts (by June 2010) Revenue collected by line ministries transferred to BOT by the end of the month & Govt balances in commercial banks minimised (by June 2010). Enhance autonomy of LGAs in the use of funds within the approved budget (by June 2011) 19

Key Issue 3: Improve flow of funds to all levels of Government Electronic fund transfer not yet operational Low quality of cash flow plans Late/partial/uncertain funds flow (esp. OC) to spending units/LGAs/SDUs Unequal distribution of funds to LGAs in per capita terms & staff between councils Disclosure of unspent balances at the end of the year in LGAs budgets Budget re-allocations leaves some councils with less budget 20

Key Issue 3: Points of Information Preparations for EFT is quite advanced. Transfer of files from ACGEN to BOT has been tested. Training staff of MOFEA, PMO-RALG, Education, Agriculture, Infrastructure has been done with East. Afritac support Pending work on EFT includes completion of digital signature, Connecting the TZ Inter-bank settlement system (TISS) to the Central Bank system & preparation of operational manual. Priority expenditures are given preference in monthly ceilings to minimise uncertainties. Funds sent directly to accounts of LGAs from 2007/08 Front-loading of GBS has eased flow of funds 21

Key Issue 3: Points of Information (cont) Uncertainty of funds flow partly reflects application of the cash budget introduced since 1996 to instill fiscal discipline Delays in release of Funds for LGDG contributes to delays in the transfer of funds (no funds release to-date for 2009/10) Allocations to LGAs not 100% formula based esp. PE (50% of the budget). Weights assigned to some parameters of the formula lead to biased allocations. In 2009/10 Additional funds Tshs. 21. 6 bn allocated as devt grants to 36 under-served areas (remote/inaccessible, lagging in education, having special circumstances etc) to attract staff. Use of IPSAS obliges LGAs to disclose opening balance as a source of income for the following year 22

Key Issue 3: Actions Going Forward BOT to complete upgrade of systems to link up with ACGEN software (by June 2011) MOFEA to finalise review of PFA 2001 to provide for EFT and appropriate safeguards and submit for Govt approval (by June 2010) Consolidate & scale-up capacity building/training of more staff on cash forecasting (by June 2012) Review LGFA and share proposed changes with stakeholders (by June 2011). Transfer of funds to LGAs to be completed within 7 working days (by June 2010) Timed phase-out of project & basket fund modalities and shift to GBS and LGDG as agreed in JAST (by June 2011) 23

Key Issue 3: Actions Going Forward To review the formula based allocation system in consultation with stakeholders (June 2011) Continue & increase supplemental devt grants to under-served LGAs based on clear criteria (by June 2011) Explore the possibility of enhancing salaries/allowances for staff working in remote LGAs (by June 2010) ACGEN to monitor and ensure that end-year balances of LGAs are disclosed and transferred to the opening balances/revenue of the subsequent year 24

Key Issue 4: Improve Overall Quality of Reporting of revenue still not integrated. TRA depts. still operate stand alone systems (AYSCUDA++, ITAX 2000 etc. ) Duplicative/multiple LG level reporting & audit at PLANREP still not functional & the mgt of other reporting systems (SBAS, RIMKU, IFMS, LGMD, PIMA) under various authorities do not talk to each other Non availability of budget & expenditure information to the public 25

Key Issue 4: Points of Information Non-tax revenue data base has been established & is in process for operationalization. PLANREP exists but its use limited to planning & budgeting Duplicative/multiple reporting and audit at LG level arises out of clauses in the various MOUs Budget books/speeches are printed annually and posted in public libraries/websites LGAs revenue & expenditure reports are made public through village assembly meetings & notice boards Govt & NSA do prepare summaries/budget briefs for public consumption 26

Key Issue 4: Actions Going Forward Govt to commission a study to examine/recommend whether/how various revenue collection systems could be integrated (by June 2010) DPs to shift to GBS and LGDG systems (by June 2010) MOFEA to lead the establishment of Systems Steering Committee to oversee harmonisation of reporting systems (by June 2011) MOFEA & PO-PSM to sustain training on report writing using Govt formats PMO-RALG to constantly update the website www. pmoralg. go. tz where the information on budgets and expenditure of LGAs are posted (by 2011) MOFEA to review budget summaries for effectiveness and possible simplification including devt of a simplified Swahili guide to the budget (by June 2011) 27

Key Issue 5: Budget Management Long and complex procurement/ low procurement capacity. Complex and non-uniform basket fund arrangements Budget allocations coming in July after approval of the LGA budgets in April; Late revision of local priorities; and late disbursement which lead to roll over of funds to the subsequent year Financial leakages and cases of misappropriation of funds Need for clear follow-up of findings of the 2007/08 CAG report MTEF not a reliable guide for spending in future years 28

Key Issue 5: Points of Information PPRA rolled out checking & monitoring of procurement performance & compliance to 316 out of 364 PEs. PPRA rolled out Procurement Management Information System to 182 PEs and 113 are connected Review of PPA has been done and is at approval stage Complex & non-uniform basket funding arrangements emanate partly from clauses in MOUs PMG report 2009 responded to issues raised in the CAG report for 2007/08 29

Key Issue 5: Actions on the Way Forward Go. T to develop & implement PPRA to complete roll out of the system for checking and monitoring procurement to remaining 48 procuring entities (by June 2011) Govt to prepare regulations after approval of the revised PPA (by June 2012) Improve procurement compliance to 80% (by June 2010) Finalise review of LGFA & PFA to give more oversight powers to the ACGEN over finances of LGAs including disciplinary measures (by June 2011) Establish the Department of the Internal Auditor General through the enabling legislation (by June 2011) Go. T will continue to implement findings of CAG reports 30

Concluding Remarks PFM encompasses effective: Management of revenue collection Debt management Planning & budgeting Budget implementation Accounting & reporting Procurement Internal & external oversight M & E 31

Concluding Remarks Building a strong & sound PFM system is a key priority of GOT. We believe that a robust & credible PFM system is imperative for TZ to develop/prosper Budget practices & procedures in use have been shaped by: Administrative traditions, some going back to colonial times Past & present economic realities Ongoing reform effort Developing a coherent PFM framework Is a continuous process Must take into accountry circumstances & regional /international trends Must be home-grown to max. impact & degree of success Must ensure PFMR goals are Specific, Measurable, Attainable, Relevant & Time-bound [SMART]. 32 32

Concluding Remarks My humble plea to PFM stakeholders in TZ: Maintain communication – Regular, Transparent, Candid but with Trust and Respect. Together we need to build on and consolidate our achievements We need to avoid past mistakes: Among them – We need to be very selective/focused in the design of AWPs; DPs must give Govt the space & needed support (financial & technical) to implement PFMR; Equally important, Govt must deliver on mutually agreed indicators of progress. I also challenge the Academia /Research institutions in TZ to be more proactive on PFMR agenda going forward. 33 33

Concluding Remarks No. 1 priority on PFMR going forward My strongest single additional message to colleagues in Govt and fellow citizens is 3 words: “Domestic Revenue First”. We have to embark on a domestic revenue revolution as a central pillar of the next phase of PFMR. Making ‘DRF’ is the only reliable instrument that will deliver on ‘Making Poverty History’ and make Tanzanians proud. And to the True friends of TZ: “Direct the bulk of your invaluable support to building the DRF pillar”. There is no magic bullet: All we need is determination to face the challenges ahead of us. But will have to do so, more selectively, more innovatively & boldly, without loosing sight of the SMART criteria. 34 34

Appreciation: GOT Colleagues; DPs; & Other Stakeholders: Your inputs helped shape this presentation esp. Section II on issues/way forward 25/11/2009 ASANTENI SANA KWA KUNISIKILIZA 35 35