Friday, November 14, 2008

Prioritization of Expenditures in Tanzania

Some of the institutional weaknesses for creating fiscal space;

budget classification: the country’s budget classification, reporting and accounting systems do not allow for the ready identification and monitoring of public infrastructure expenditure—part of which is either conducted outside of the central government or not systematically recorded in the government’s accounts;

project selection: a 2006 audit of procurement practices of 20 public entities found significant weaknesses, with compliance only at 39 percent of procurement regulations. Several recent high profile scandals have also highlighted the weaknesses in this area, in particular regarding the lack of transparency in the bidding process and problems enforcing large government contracts;

budget execution: in 2006-07 only about 50 percent of central and local governments’ development expenditure was executed. While the creation of the Tanzania National Roads Authority has helped to boost budget execution rates for major trunk road projects from around 50 percent in 2002-03 to over 75 percent in 2006-07, execution rates for regional and local road rehabilitation projects remain around 40 percent (Ministry of Infrastructure Development, 2007); and

regulatory frameworks: the AICD estimates that hidden fiscal costs resulting from underpricing and other inefficiencies in the power sector amounted to nearly 2.5 percent of GDP between 2001 and 2006 (Briceño, Smits, and Foster 2008).

If infrastructure investment is a key development priority, governments should look to ensure that it is given adequate emphasis in their expenditure planning and budgeting procedures. Over the past decade or so, a number of governments in both developed and developing countries looking to alter the intersectoral allocation and the impact of public expenditure have made effective use of two public financial management tools:

expenditure reviews: comprehensive program reviews designed to improve the efficiency of public expenditure and to create fiscal space on the expenditure side of the budget have become a regular feature of the budget process in countries such Canada, Chile, France, the Netherlands, South Korea and the United Kingdom. Box 1 discusses the UK experience with using expenditure reviews to put greater emphasis on public investment within their resource allocation process over the past decade;

-medium-term expenditure frameworks (MTEFs) which enable governments to “lock in” savings identified in lower productivity/priority sectors and reallocate them to higher productivity/priority sectors over a period of years. MTEFs are a now a common feature of budgeting systems in Africa and a number of countries have made effective use of them to alter the sectoral allocation of expenditure over a number of years. For example, in Uganda, the government’s most recent National Budget Framework Paper envisages a real reduction in expenditure on security, justice and governance from 39 percent of the national budget in 2008 to 36 percent in 2011 to allow for a scaling up of pro-poor expenditure on rural development, energy, road infrastructure and human development over the next 3 years.

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