RETURN TO FILE COPYI REPORTS D WITHIN4 DOCUMENT OF INTERNATIONA BAQNR RU ION AND DEVELOPMENT Not For Public Use Report No. P-1517a-TA REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED PROGRAM LOAN TO THE UNITED REPUBLIC OF TANZANIA November 25, 1974 This report was prepared for official use only by the Bank Group. It may not be published, quoted or cited without Bank Group authorization. The Bank Group does not accept responsibility for the accuracy or completeness of the report. CURRENCY EQUIVALENTS USED IN THIS REPORT Tanzanian Sh = US$0.14 US$1.00 = TSHs 7.14 ABBREVIATIONS USED B.O.P. = Balance of Payments TANU = Tanganyika African National Union TANZANIA FISCAL YEAR July 1st - June 30th REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED PROGRAM LOAN TO THE UNITED REPUBLIC OF TANZANIA 1. I submit the following report and recommendation on a proposed program loan for the equivalent of US$30.0 million to the United Republic of Tanzania. The loan would have a term of 30 years, including 10 years grace, with interest at 8 percent per annum. PART I - BANK GROUP OPERATIONS IN TANZANIA 2. Tanzania joined the Bank, IDA and IFC in 1962. Beginning with an IDA credit for education in 1963, 19 credits and six Bank loans amounting to $246.3 million have so far been approved for Tanzania. In addition, Tanzania has been a beneficiary of nine loans, totaling $229.8 million, which have been extended for the development of common services operated regionally by Tanzania, Kenya and Uganda through their associa- tion in the East African Community. The only IFC investments in Tanzania to date, totaling $4.7 million, were made in the Kilombero Sugar Company in 1960 and 1964. This Company encountered financial difficulties and in 1969 IFC and other investors sold their interest in the Company to the Government. A discussion of present and future Bank operations in Tanzania, summary statements of Bank loans and IDA credits to Tanzania and the East African Community Organizations as of September 30, 1974 and notes on the execution of ongoing projects are contained in Annex II. 3. The last full Economic Report on Tanzania (AE-26) was distributed to the Executive Directors on May 22 and June 22, 1972. This was followed by an Economic Updating Report (30-TA) which was distributed on December 11, 1972 and which was especially prepared for the East African Consultative Group meeting on Tanzania of January 1973. An agriculture rural develop- ment sector mission visited Tanzania during September/October 1973; its report will be distributed shortly. A mission to study the industrial and mining sectors visited Tanzania in August/September 1974. 4. Tanzania's overall debt service ratio is currently about six per- cent and is not expected to rise significantly in the medium term. In view of this low ratio there is scope for a modest amount of lending to Tanzania on conventional terms. In terms of outstanding commitments, the Bank Group is Tanzania's largest creditor followed by Sweden, People's Republic of China, Canada, Denmark, the Netherlands and the Federal Republic of Germany. Including a notional one-third share of the debt of the East African Community Corporations, the IBRD is presently holding 14 percent of Tanzania's outstanding external debt and IDA 16 percent; the IBRD share is expected to rise to about 20 percent in the next five years, and the IDA share to remain about the same. The share of debt service payments to the Bank is at present about 10 percent of total debt service payments; the corresponding share for - 2 - IDA is about 2 percent. These two figures are projected to rise to about 20 percent and 3 percent, respectively, by 1980. Most capital aid to Tanzania is made available on very favorable terms and a declining share of the total is tied to procurement in the donor country. Supplier's credits have been kept to the minimum. PART II - GOVERNMENT DEVELOPMENT GOALS, STRATEGIES AND PROBLEMS OF IMPLEMENTATION 5. The goals and methods that characterize the Tanzania development effort are as important, or more important, for understanding the present economic problem than the conventional economic statistical trends over the past 13 years of its independence. Two paramount goals are equalizing standards of living and eradicating poverty. The objective of equalizing standards of living permeates Tanzania development policies. The tax structure is highly progressive; at present rates the maximum net of tax personal income is the equivalent of about $8,000 per year. Moreover, better off sections of the population, such as coffee farmers, pay a steeply progressive export tax. Wages and salaries of middle and upper income groups have been held back as lower income group wages were increased. Consumer prices for most basic consumer goods are uniform over the nation so that less well off regions, despite higher supply costs, pay no more than wealthier regions. The same reasoning applies to uniform national agricultural producer prices. Finally, measures are taken to ensure that the provision of social services such as water, schools and health clinics result in equal treatment; this means that less well off areas are favored so they will "catch up" to the better endowed areas. As a result, differentials in standards of living have been narrowed between the urban upper income groups and the lowest, and to a lesser extent between urban and rural groups and between regions. 6. The complementary goal of poverty eradication has made rural develop- ment one of the primary goals of Tanzania in as much as over 90 percent of the population, most with per capita incomes of less than $70 per year, reside there. This has reinforced the policy of giving priority to the supply of social services and infrastructure to rural areas, but with an equal emphasis on agricultural development to increase rural incomes. The Tanzanians have had difficulty in achieving a balance in implementing these two components of rural development. On the one hand, it has proven institutionally and logistically easier to provide infrastructure and social services. On the other, it has been more difficult to mount effec- tive agriculture programs: staff is more scarce; some of the improved technologies suitable for adaptation in Tanzania have not been proven; and there are all the problems of organizing supply of inputs and marketing of products for over 2.5 million farm families. 7. A major method of rural development is ujamaa. Most of the rural population is dispersed in individual homesteads, and most of the population is stretched out along the perimeters of the country. If the rural popula- tion's methods of production and manner of life are to be transformed and - 3 - modernized, relatively cheap and efficient means must be found for delivery of services such as extension, credit, input supply, marketing, roads, water, schools, health, etc. Collecting the scattered population into villages is seen as the principal method to facilitate these objectives, and "villagization" is therefore the major characteristic of the first phase of ujamaa. Villagization was first recommended to the Tanzanians by a Bank Economic Survey Report in 1961. But the Tanzanians have evolved and adopted their own features. Whereas the resettlement schemes recommended (1961) by the Bank evolved into a capital intensive program provided by the Government, the Tanzanians now stress less capital intensity and volun- tary contribution of labor in creating housing and village infrastructure. About one third of the rural population are now in ujamaa villages. The second stage of ujamaa is to create multi-purpose cooperatives for supplies, credit and marketing. This stage is taking longer to achieve. The long term goal is to have ujamaa farmers practice collective farming. However, initial efforts in this regard had very mixed results in respect of output and farmer responsiveness. Hence, the present policy is to support indivi- dual farming on individual plots in the block of land allocated to the ujamaa village. 8. Another goal is mass participation of the population in defining the priorities of development and their implementation. This is facilitated by the political party organization (Tanganyika African National Union, TANU) which starts with the ten family cell and is linked successively to village, division, ward, district, region and national central committee and congress levels. Party representatives at each level are expected to and do participate in organizing the development effort. Recently (1972), the central govern- ment administration was systematically decentralized and substantial budget and program powers were given to the 20 regions and 78 districts. Each district and region is expected to have its own development plan and budget subject to central government guidelines, control and finance, and to direct and coordinate all development staff and activities within its jurisdiction. However, they have no taxing powers. It is too early to assess the impact of this substantial reorganization, but one fact and one tendency are evident. The fact is that the scarce high and middle level managerial staff of the government have been spread even thinner as the areas of responsibility broadened. The tendency is that with grass roots interests given greater scope, the demand for the popular services such as water supply, health clinics, schools and roads has grown rapidly. As already noted, these services are institutionally easier to implement than agricultural programs, and this tendency threatens to unbalance the develop- ment effort. To counter this tendency, current policy is to insist that at least 40 percent of district and regional development budgets be spent on directly productive activities. But at present this is more of a goal than a practice. 9. Another goal is self reliance which operates at many levels. First, it is the country wide voluntary contribution of labor as described above in ujamaa. Second, it is the pricing of state enterprise products to ensure that state enterprise savings make a substantial contribution to -4- financing investment. State enterprise savings were estimated at about $100 million in 1973 or 6 percent of GDP. Thirdly, it means a serious tax effort where combined tax revenues now (1973) are 19 percent of GDP, one of the highest ratios for a country with a per capita income level of $110. 10. A final goal is Tanzania's desire to develop a socialist economic system. In furtherance of this objective a series of nationalization measures have been taken since 1967 when the Arusha Declaration (Tanzania's blue print for socialism) was announced. There is also growing state intervention in market pricing. The prices of capital, labor, land, imports, industrial and agricultural products and consumer goods are all controlled both by direct price controls and indirect methods such as import licensing. There have been implementational problems and in some cases conflict of goals. For example, the goal of keeping basic industrial and food prices low to benefit lower income groups, all part of equalizing standards of living, conflicts with the goals of maximizing state enterprise savings or with providing adequate producer prices for farmers. The decentralization of government machinery and the creation of state agencies have placed heavy pressure on scarce skilled manpower; they are not only spread thin, but there has been a very rapid turnover of top and middle level staff. One might say that these conflicts are the inevitable consequences of a "frontal" approach to development and poverty eradication. PART III - THE BALANCE OF PAYMENTS PROBLEM Background 11. Between 1968 and 1973, GDP increased 4.8 percent per year in real terms. Exports of goods and services in constant prices grew 2.8 percent per year during the same period. Domestic savings increased from 17 percent of GDP to 18 percent. Investment increased from 19 percent of GDP to 23 percent with public sector investment rising to 80 percent of the total investment in 1973. Annual price increases were moderate to low. Current government receipts more than doubled, but current expen- ditures increased at similar rates so that budgetary savings stagnated. While imports, especially of capital and intermediate goods grew rapidly, export earnings grew very slowly and the increasing current account deficits were financed by a rapid increase of public capital inflow, largely on concessional terms, and external reserves were maintained at prudent levels. 12. Several features emerge from these trends. The increase in domestic savings and investment rates was substantial, and is evidence of a serious commitment to development. The growth of GDP is probably not commensurate with the investment effort. This is largely due to the large amount of investment that went into slow gestation infrastructure and social services. - 5 - This was exemplified by the investment of about $400 million in the Tan-Zam railway, the largest single project undertaken in Tanzania, and by the difficulties encountered in mounting investment in agriculture. The stagnation of agricultural export volumes and the apparent growth of food production at the same rate as the population were the most worrisome problems. Despite the heavy pressure on domestic and external resources, the absence of unduly high domestic price increases, the maintenance of external reserves at prudent levels and the financing of external capital inflows on concessional terms (the external debt service ratio was 5.5 percent in 1973) attests to prudent financial management. Indeed, with external reserves at about $145 million in late 1973 - the equivalent of 4 months imports - the economy appeared in relatively good shape before the events of the winter of 1973-74. The Current Situation 13. Three events occurred then which resulted in a drastic change in the overall balance of payments of Tanzania. First, import prices rose sharply; most particularly petroleum prices. Overall import prices increased an estimated 15 to 20 percent. The increased cost of petroleum imports, whose prices rose three-fold, is estimated at $67 million in 1974 alone, or 14 percent of 1973 imports. Second, the 1973 rains failed in many parts of the country resulting in a substantial reduction in food production. in 1973-74. This became evident in January and February 1974 necessitating substantial increases in imports of basic food items in 1974. The drought became general in 1974 necessitating continued high levels of food imports from September 1974 to August 1975 when the new crop harvest begins. It is estimated that food imports in 1974 will cost $147 million compared to an annual average in 1970-72 of $40 million. Finally, agricultural export volumes declined or stagnated so that Tanzania could not fully benefit from higher export prices. The drought was a primary reason for the decline or stagnation in food and agricultural export production in 1974, but it also reflected weaknesses in agricultural development policy. 14. The overall balance of payments was in surplus in 1972 and 1973 but the net result of the events of 1973-74 described above is that reserves are estimated to decline by $89 million even after allowing for drawings on the IMF of $34 million and $11 million of bilateral B.O.P. financing to meet the emergency. As a result external reserves at the end of 1974 are estimated at $56 million - or less than one months import equivalent of 1974 imports. 15. The upward trend of import prices, high food imports and stagnant agricultural export volumes is expected to continue into 1975. A judgement on the outlook for the overall B.O.P. in 1975 depends on several crucial assumptions. -6- We have assumed that: (a) normal weather will return in 1974-75,resulting in normal food crop production, and thereby permitting substantially reduced food imports after September 1975; (b) agricultural export volumes, which have been stagnant or declining in recent years, will grow from September 1975 onwards; (c) petroleum prices will increase 4 percent in volume compared to the 9 percent historical trend, a slowing made possible by conservation measures (price increases and a ban on weekend gasoline sales) and the substitution of new hydroelectric power for diesel. (d) non-food consumer imports will be held constant in nominal terms involving an estimated decline in real terms of 7 percent, capital goods imports will increase 4 percent in real terms and 11 percent in nominal terms, a rate below recent trends; (e) regular external capital disbursements under project agreements will increase 10 percent in current terms after 1975: and (f) external reserves will not be built up, even though they are less than would be desirable. Based on these assumptions, it is estimated that the overall B.O.P. deficit for 1975 will be $142 million. This estimate is conisistent with the one made by the IMF as part of the first credit tranche arrangements in October 1974. 16. Thus, the immediate problem is managing the estimated B.O.P. deficit of $142 million in 1975. External reserves are so low that they cannot be prudently used to finance the deficit. We judge that consumer imports other than food will be at austerity levels in 1975 with an estimated decline of 7 percent in real terms. For example, the Government has banned all liquor, tobacco and sugar imports and has reduced automobile imports to a maximum of 300, far less than a replacement level. Reducing raw materials and spare parts for industry would only reduce growth and savings and exacerbate domestic inflationary trends which emerged in 1974. If capital goods and construction materials imports were reduced by the extent of the deficit, public sector investment would have to be reduced by 50 percent which would seriously undermine the development program built up with great effort over recent years. Thus, the preferred alternative is to arrange financing for the 1975 B.O.P. deficit of $142 million. -7- 17. Most, if not all, of the financing for the 1975 B.O.P. deficit will have to be quick disbursing because of the immediacy of the problem. Our B.O.P. projections already assume that disbursements under existing and new project financing arrangements will be increased substantially in 1975 (by 21 percent) and the Tanzanian authorities have taken measures to this end. Thus, program assistance is required in 1975 in order to avoid a reduction in investment. The Longer Term Problem 18. While there are necessarily increasing uncertainties when the components of the B.O.P. are projected into the future, the trend and magnituue of the projected B.O.P. deficits indicates a major problem. Assuming continuation of present economic policies, the overall B.O.P. dpfici ts would be about as follows: TiS$ Million 1976 56 1977 75 1978 89 1979 97 1980 101 Concessionary aid will not be available in anything like these magnitudes and reliance on external borrowing on conventional terms would exhaust Tanzania's external creditworthiness. The trend and size of B.O.P. deficits over 1976-80 is therefore not sustainable, and economic policy remedies must be adopted. The Tanzanian authorities agree with this diagnosis. 19. The policy remedies required are discussed in Part V below. It will take time to implement these policy changes. For example, new investments in agriculture, industry and mining that will directly and indirectly benefit the B.O.P. will take several years to come to fruition. In addition, it will take a few years to make further changes to the development budget if for no other reason than that it takes time to build up new priority projects. - 8 - PART IV - INVESTMENT POLICIES AND PROGRA4 General 20. The public sector dominates investment in Tanzania. Private investment has amounted to about Sh 500 million ($71.4 million) per year for the last five years and is expected to account for less than 18 percent of total investment this year. The Government's development budget accounts for over 75 percent of the total public sector invest- ment program. The bulk of the extra budgetary program is accounted for by parastatal (nationalized company) investments in agriculture and industry financed by self-generated funds, borrowing from the local banking system, direct borrowing from foreign sources and transfers fromn the budget. 21. During the second five-year plan period (1969-74) Tanzania achieved an impressive level of investment which reached 33 percent of monetary GDP, or 23 percent of total GDP, at 1971 market prices. However, this increased rate of investrment was not significantly reflected in the growth of gross domestic product. This was a result of a heavy bias in these investments toward infrastructure (particularly in communications links with Zambia), the difficulty in mounting effective programs in agriculture and the under-utilization of some investments, particularly in industry. In 1971 severe financial difficulties resulted in drastic cuts in the 1971-72 development budget. The Government instituted an intensive mid-plan review at that time and decided to make a conscious effort to reallocate develop- ment expenditures to more productive, quick-yielding investments. However, it has taken some time for this policy decision to reflect itself in the pattern of investment expenditures. Some major infrastructure projects have only recently been completed and the identification and preparation of directly productive projects in the agricultural, industry and mining sectors has proved to be a slow and difficult: process. The 1974-75 Investment Program 22. The 1974-75 investment plan forms the bridge between the second five-year plan, which ended in June 1974 and the third plan due to start in July 1975. The overall 1974-75 developmernt budget of Sh 2.2 billion ($314 million) represents a 38 percent increase over the 1973-74 program. However, the extent of the foreign and local resource constraints were not fully appreciated when the 1974-75 plan Was formulated and some short- fall in implementation is likely. The Government is, therefore, actively reviewing the developmnent budget to ensure that any shortfalls which occur do not affect the directly productive sectors. Consideration is being given to freezing some ongoing infrastructure projects, especially those with high import content and for which legal commitments have not been made. All new projects will be reviewed in the light of their production potential. - 9 - Tanzania: 1974-75 Development Program Total Public Secto Government Development Budget Investment Program_ $ million % $ million % Directly Productive Sectors 114.9 36.5 176.9 402 Agriculture2/ 79.4 25.2 127.5 31.8 Conmmerce, Industry Mining 35.5 11.3 49.4 12.4 Economic Infrastructure 117.0 37.1 137.9 34.5 Water 31.9 10.0 31.9 7.9 Power 31.3 9.9 40.4 10.1 Communications 30.4 9.7 31.3 7.8 Other 23.4 7.5 34.3 8.7 Social Infrastructure 28.9 9.0 30.8 7.6 Education 15.9 5.1 17.8 4.4 Health 11.7 3.6 11.7 2.9 Other 1.3 0.3 1.3 0.3 Other (including Security) 55.3 17.4 55.3 13.7 Total 316.1 100 400.9 100 Tanzania-Zambia RailwaY3 3.6 3.6 Total 319.7 404.5 1/ Budgetary plus extra-budgetary expenditures. 2/ Includes tea, meat, sugar and cashew processing. 3/ Local costs only (these are entirely financed by a Chinese Commodity credit). - 10 - 23. Even before the review the current development budget 1/ showed a marked change of emphasis from earlier years. Over 36 percent of the development budget and over 44 percent of the total public sector program is to be concentrated in the directly productive sectors of agriculture, industry and mining; this compares to 27 percent of the development budget in 1972-73 and 23 percent in 1937-74. Several major communications projects other than the Tan-Zam Railway have now been completed and expenditures for this sector are expected to make up less than 10 percent of the development budget, compared to over 28 percent in 1970-71. The relative importance of other infrastructure investments, including water, has also declined. Expenditures on social investments including education and health are expected to form about 9 percent of the development budget. The 30 largest projects amount to Sh 926 million ($132.3 million) or 42 percent of the total development budget. These include major investments in sugar, cotton, livestock, seed multiplication, leather processing, cement, communications, medical training and water and power development. The remainder of the Government's development program comprises a large number of medium and smaller scale projects, many of which will be implemented by the regional administrations under the new decentralized government structure (paragraph 8 above). Agriculture 24. Agriculture has been allocated highest priority; about 25 percent of the Government's development budget and over 30 percent of public sector investments are expected to take place in this sector. Ongoing programs, including grain storage and seed multiplication projects, are designed to support Tanzania's efforts to become self-sufficient in the production of food crops. In addition, Sh 35 million has been allocated to the 10 major maize producing regions in an attempt to promote small- holder production of the crop. Subsidized fertilizers, the use of insec- ticides and improved transport facilities are being supported under this program. However, the Government was late in recognizing the problems of the food production sector and properly articulated and well-conceived food production programs still have to be formulated. The Bank Group is currently discussing these problems with the Government and it is hoped that a special maize production project will be ready for implementation in 1976. Other major elements of the agriculture investment program include nearly Sh 200 million for sugar production projects designed to make Tanzania self-sufficient in this commodity by 1977; a major effort in the livestock sector, which will establish parastatal and ujamaa ranches, improve livestock marketing for the traditional sector and expand meat processing facilities; smallholder export oriented projects for tea, tobacco, and cotton; and a major effort to increase cashew production. In addition, several integrated regional projects are in the early stages of implementation, preparation and identification. Many of these efforts are being supported by ongoing Bank Group projects. 1/ For the purposes of comparison the Tanzania-Zambia Railway, which is being 100% financed on concessional terms by the Peoples Republic of China, has been treated as an extra-budgetary item. - 11 - 25. Although most of these projects are well-conceived, organizational difficulties, low producer prices until 1974 and inadequacies in the marketing system have resulted in a slower rate of implementation than might have otherwise been expected. These problems and the measures the Government is taking to solve them are discussed in Part V. Industry and Mining 26. The Government's strategy for industrial development gives priority to the processing of agricultural products and raw materials for local consumption and for export. Many of the most obvious import substitution projects have already been implemented. The 1974-75 program includes projects for the expansion of cashew processing, a new cement factory, a new sugar factory, the expansion of existing textile mills, a new tannery, a shoe factory and a canvas mill. 27. Although not included in the current development budget, Tanzania has made arrangements with the People's Republic of China to develop Tanzania's coal and iron ore. It is understood that the project involves 100 percent Chinese financing on concessional terms. 28. Although there are a number of promising possibilities in the mining sector, projects still have to be identified and prepared; the overall allocation to mining of Sh 16.0 million ($2.2 million) is small but could rise rapidly. Cormunications 29. The proportion of the development budget, excluding the Tan-Zam Railway, devoted to this sector has declined from a high of over 28 percent in 1970-71 to under 10 percent for the current year. Within the overall allocation the program is now increasingly focusing on the expansion and upgrading of the network of secondary and tertiary roads, in particular of feeder roads in line with the importance given to agricultural development, and improving the maintenance of the present road network. Five of the 15 major road projects are exclusively for feeder road development. Several major trunk road projects will be completed during the year; only a few urgently needed, high priority, new trunk road improvements will be commenced in 1974-75. Water and Power 30. The Government has given high priority to the expansion of potable water supplies, particularly for the rural sector, and public expenditures on water have risen from about Sh 62 million ($8.8 million) in 1970-71 to a projected Sh 220 million ($31.4 million) in 1974-75. Although the Government's ability to redirect expenditures from this sector has - 12 - been inhibited by commitments to ongoing projects, in light of the current resource constraints an attempt has been made to reallocate expenditures from this to more directly productive sectors. The proportion of the development budget allocated to water has fallen from 11.8 percent last year to 10 percent for the current year. Over 80 percent of the water program is being financed by foreign donors. 31. About Sh 156 million ($22.3 million) or 72 percent of budgeted investments in the power sector are allocated to the Kidatu Hydroelectric Power Project which is being supported by Loan No. 715-TA. This 100 MW project is expected to come on stream in July 1975 and should result in annual savings of imported fuel of about $13 million per year. Education 32. The Government's development strategy in this sector is sound and well-conceived. The policy is to have universal primary education by 1989, with all secondary, higher education and training geared strictly to manpower needs. The Government's 1974-75 development program reflects these policy objectives. About Sh 57 million ($8.1 million) or 52 per- cent of the sector budget is devoted to primary education. Owing to resource constraints the expansion of primary education has, however, been more limited than planned and universal primary education will not now be reached by the target date. The programs for the expansion of secondary education (Sh 21.5 million, $3.1 million), teacher training (Sh 10 million, $1.4 million), higher education (Sh 7.8 million, $1.1 million) and technical education (Sh 10.3 million, $1.2 million) have been determined strictly in accordance with projected manpower requirements. Virtually every post-primary education project is being supported by foreign agencies including the Association. Health 33. The Government's strategy in this sector is to develop an economical rural based health system, organized around rural health centers with out- lying dispensaries, designed to satisfy the entire health needs of the family except those which can only be provided in the hospital. Rural hospitals at the district and regional levels, equipped to provide major curative services,will also be established to complement the system. This strategy calls for medical auxiliaries to operate the country's health care facilities at all levels, under the overall supervision of physicians. The investment program is geared to the phased production of the required rural health facilities and the expansion of medical training to meet the manpower demands. The 1974-75 health program (3.6 percent of the total development budget) includes modest allocations for the construction and expansion of training institutions for medical aids and auxiliaries as well as the expansion of the health faculty at the University of Dar es Salaam. About Sh 33 million ($4.7 million), or 41 percent of the health sector development budget, is being administered by the regions, primarily for the construction of rural health centers and dispensaries. - 13 - The New Capital City 34. In October 1973 the Government decided to shift the capital from Dar es Salaam to Dodoma which is more centrally located and from which the Government feels that it will be easier to stimulate and guide rural development. Details of the move and its phasing, which was originally scheduled to take place over 10 years, are presently being finalized. The Prime Minister's Office moved to the new capital in October 1974. No reliable cost estimates are at present available. Meanwhile about Sh 23 million ($3.3 million), or just over one percent of the current development budget, has been allocated for the new capital. In addition, about Sh 9 million ($1.3 million), financed by loans from the Tanzania Housing Bank and other banking institutions in Tanzania, is expected to be spent on residential housing in the new capital during the year. Summary 35. We have examined the 1974-75 development budget in detail and we believe that its pattern of sectoral allocations and project content are sound. PART V - MANAGING THE MEDIUM TERM BALANCE OF PAYMENTS PROBLEM General 36. The projected size and persistent trend of overall B.O.P. deficits over 1975-80 suggest that major remedial measures are required in the structure of the Tanzanian economy. The projected trend is the consequence of the expected deterioration in the terms of trade and the slow growth of export volumes. Thus, less relative real resources are expected to beavailable to sustain the growth of consumption and investment. As already noted, persistent B.O.P. deficits resulting from the present pattern of investment, consumption and output would require a level of external borrowing, which is likely to be increasingly on conventional terms, such that creditworthiness would soon be exhausted. Continued external borrowing on conventional terms would inevitably result in external debt management problems in the 1980s. Reducing the level of consumption absolutely at present low levels of per capita incomes and consumption is politically unacceptable. However, the rate of increase of consumption can be moderated. Even if this is achieved, the resource constraint will be such that there will not be enough resources to sustain the present rate of increase of investment. It follows that if the growth rate of GDP is to be maintained and hopefully increased, then investment will have to be restructured to become more productive, especially in ways that benefit the B.O.P. The - 14 - preferred solution is therefore a judicious blend of demand management and restructuring of investment in ways that increase the growth of output despite the limited resources available. This solution seeks to increase output while moderating the rate of increase of consumption and investment. Public Investment Policy 37. As noted in Part IV,the Government has already made substantial progress in reallocating public sector investment to the directly pro- ductive sectors of agriculture, industry and mining and has informed the Bank that it will continue to pursue this objective. This will imply that investment resources will be available for other sectors. Although there will be political and institutional difficulties in making these reallocations (for example, the Government is committed to supply water to all rural areas in 20 years and these plans will now have to be rephasec) thie Government is deternined to carry them out. Agriculture Policy 38. A second policy area is to improve agricultural production. The single most worrying weakness in the economy is the low rate of growth of agriculture production as reflected in the stagnation of per capita food output. While this is a result of a range of problems, there is consensus on some of the primary contributing factors. Until recently, producer incentives were dampened by low agricultural producer prices. However, the Government has responded to this situation by substantially increasing the prices of the major crops in 1973 and 1974. For example, producer prices were increased substantially on May 1, 1974, and increased again on November 1, 1974 for the 1974-75 crop season. The November price increases include a 50 percent increase for maize, 23 percent for paddy, 30 percent for wheat, 75 percent for cotton and 20 percent for flue cured tobacco. Corresponding adjustments have also been made to the controlled retail prices. These prices are now close to the projected long term world parity. The Government has informed the Bank of its intention to continue to maintain prices at levels which provide sufficient incentive to producers. The increased rural incomes made possible by these higher producer prices will not, in our judgement, increase consumption to unmanageable levels, and the foreign exchange gains of increased production would substantially exceed the foreign exchange costs involved in the increased rural consumption. 39. There are three other policies affecting producer incomes where the appropriate action raises great, difficulties. One is that the structure of progressive export taxes, largely on "older" traditional crops such as coffee, are now such that at higher prevailing world prices the producer receives relatively less than at lower prices. This probably has an adverse effect on production. However, the short run supply elasticity of coffee is low, and with a premium on savings, taxing the "windfall" incomes generated by higher world prices is a legitimate fiscal objective. Another is the present uniform national producer price policy. Although this policy results - 15 - in some misallocation of resources, its modification is a complex subject, e.g., if transport differentials are not set correctly, internal cross haulage will occur. It is also a politically sensitive issue in egalitarian Tanzania. Finally, the rise in the import prices of agriculture inputs such as fertilizer, has affected the impact of input subsidy policies. However, input subsidy levels will have to be examined by the Government in the context of producer price policy and tax policies. The Government has informed the Bank that it will initiate studies of these complex issues with a view to taking appropriate action. 40. A second factor contributing to agricultural stagnation is inadequate project planning and implementation. For example, the IDA assisted tea and tobacco projects are far behind original schedules. Part of the problem is that skilled staff has been dispersed too widely and staff turnover has been extreme as a result of agency proliferation and government decentralization. Concentrating limited staff on priority areas and projects and greater stability of staff tenure are seen as the solutions. The Government has begun to move in this direction. For example, a team of project implementation experts has been established in the Ministry of Agriculture. The Government has also notified the Bank that it will arrange longer tenure for senior staff whose frequent rotation has disrupted implementation. The Bank Group will assist the Government's efforts by provision of project planning staff under the IDA assisted Kigoma project as well as the regular services of the Bank's Regional Mission in East Africa (RMEA). Furthermore, the Bank's Resident Rep- resentative in Tanzania is concentrating his attention on this problem. 41. A third contributing factor to the agricultural production problem is the inadequacy of distribution systems for production inputs, consumer goods and the marketing of crops. One problem here is inadequate road transport. This is due, in part, to the transition to a mixed system of private, coopera- tive and state truck operators. The Association has agreed to provide exper- tise to find solutions in the road transport sector under the Highway Maintenance Project (Credit 507-TA). The Government has informed the Bank that it will take measures to improve distribution of inputs, consumer goods, and marketing of crops. These measures are expected to include improvements in truck maintenance, use of army trucks in supply emergencies, improvement of credit facilitiesfor private truckers, and measures to improve cooperative marketing which is presently seriously inadequate in a number of respects. 42. Another contributing factor to the agricultural problem is that when villagization under ujamaa is poorly planned and implemented,as has happened on occasion, this disrupts agricultural production for at least one season, if not longer. The Government decided to increase rapidly the pace of villagiza- tion in 1974 and, although the statistics are unreliable, it appears that about two million persons were resettled during the year. It is also apparent that many of these moves were poorly planned and that some adverse effect on agricultural production in 1975 can be expected. In the emergency facing Tanzania, the planning and implementation of villagization will have to be improved to minimize the short run negative effects on production. The Govern- ment and TANU party recognize this, and the Central Committee of the Party is currently conducting an inquiry into the problems of ujamaa implementation. Mean- while, the Government has informed the Bank that villagization plans will con- tinue to be kept under constant review and their implementation will be related to the availability of suitable land, competent staff, adequate plans and supply of production inputs. When farmers are resettled within established cash crop areas, villagization will be implemented in ways not to disrupt production. - 16 - Industry and Mining 43. In the area of industry and mining, improvement in the productivity of existing state manufacturing enterprises is very important. These are now largely insulated from market incentives by the system of price, import and marketing controls. The Government is currently identifying possible improvements to the present incentive systems for managers and workers, to more effectivelv relate bonuses to increased productivity. The recent Bank industry/mining sector mission found cases where the export/domestic price ratio was adverse to exports. Furthermore, incentives for the export of manu- factured goods are needed and the Government has indicated to the Bank that it intends ts initiate appropriate studies. The development of selected industrial and mining ventures will have a substantial impact on the B.O.P. outlook. The manufacture of textiles, sisal, cashew and cement, based on local raw materials, for all of which projects are being prepared or are in the early stages of implementation, are examples of industries with expansion potential. Phosphate, soda ash, rare metals from beach sands, iron ore and coal, and natural gas are examples of mineral development possibilities. The economic potential of these industrial and mining possibilities are so impor- tant that the Government has decided that scarce skilled manpower and finance will be concentrated on the processing of these projects. The Bank is now exploring the feasibility of an IDA credit to assist in project preparation in these sectors. Private Consumption 44. It has already been emphasized that measures to slow down the rate of growth of private consumption will be required to deal with the projected B.O.P. problem. The Government has already introduced and intends to main- tain a wage and salary freeze although this will be increasingly difficult to maintain if inflationary pressures persist, and it is difficult to insulate the economy from inflation from the import side. The Government is also taxing unsatisfied demand where consumer goods are in short supply as is now the case for several basic items such as textiles and beer. The recently announced increased prices (para. 38 above) will also modify the growth in private consumption. Finally, state enterprise product prices will need to be adjusted where inflation is raising costs if state enterprise savings are to be maintained. This will be difficult because higher prices conflict with the objective of holding down the cost of living for the poor. Government Consumption 45. The Government is having to examine the rate of growth of its own expenditure, particularly of non-development recurrent expenditure. A decline in the rate of increase of investment that generates high levels of recurrent expencitures, tor example in the social sectors, would automatically have a favorable effect on Government consumption. While increases in the rate of taxation are unlikely to be possible given the present high ratio of tax revenue to monetary GDP, it may be feasible to devise direct or indirect methods for collecting user charges for sertain social services, such as rural water, at present supplied free of charge. The Government has informed the Bank that it will take further measures to slow the rate of growth of Government consumption and to curtail non-development recurrent expenditure. - 17 - Summary 46. The policy measures outlined above can be expected to reduce the B.O.P. gap to manageable levels, without undue damage to the development effort, if implemented effectively and as quickly as possible. The Government recognizes the need for action along these lines. Many of these policy changes have already been introduced and will be developed further in the formulation of the 1975-76 development budget and the new Five Year Develop- ment Plan both scheduled to begin July 1, 1975. Furthermore, in the agri- cultural sector future public investment and staff will be concentrated in areas of highest productive potential. In this context, special measures will be devoted to a national food production program, and within this program, a special program to increase maize production. PART VI - TUE PROGRAM LOAN 47. The above analysis suggests that Tanzania is facing very difficult and unexpected problems in the pursuit of its development objectives. The B.O.P. has come under severe strain because of the unforeseen scale of import price inflation and an extraordinary level of food imports brought about by the drought and by stagnant agriculture which has also adversely effected export volumes. Furthermore, the B.O.P. problem is likely to persist through the 1970s because of the anticipated decline in terms of trade and an expected slow growth in export volumes. The Government has taken measures to curtail petroleum and non-essential imports, to prune recurrent budget expenditures, to impose a public sector wage and salary freeze and to activate the agricultural sector by increasing producer prices. Despite this, a B.O.P. deficit in 1975 of about $142 million is projected after allowing for a substantial increase in disbursements from the pipeline of existing projects. The time it would take to commit and disburse new project loans makes it impossible for external landers to assist in any immediately effective manner through more project assistance. Without additional quick disbursing external assistance, it will be impossible to sustain the ongoing investment program. This program deserves support in order to maintain Tanzania's development effort at a reasonabie level. Additional quick disbursing assistance will give the Government time to implement policy changes to cope with the medium term B.O.P. program. Tanzania has therefore requested a program loan of $30 million from the Bank. 48. A special economic appraisal mission which visited Tanzania in September examined the Government's program of development policies and investment outlays as outlined in Parts IV and V. Another mission visited Tanzania in November, following agreement between the International Monetary Fund and Tanzania on a standby, to negotiate the proposed program loan; it held detailed discussions with the Government on the major economic and financial policy changes required for dealing with the medium term B.O.P. problem while promoting the growth of the economy and the Government's other develop- ment objectives. The main elements of these policy changes are outlined in Part V and were accepted by the Government. The implementation of these policies are expected to have a far-reaching impact on development and the B.O.P. problem. 49. Considering the magnitude of the B.O.P. problem in 1975, and its unique and unexpected character, the support we can provide to the investment program, and the steps the Government has already taken and the further steps we are confident it will take in the near future, there is ample justification for a program loan of $30 million. Preliminary contacts made by the Tanzanian authorities and Bank staff with other external lenders, including the IMF, indicates that there - 18 - is a reasonable chance that the balance of the 1975 deficit of $142 million will be covered from these other sources. However, if these alternative sources of external finance prove to be inadequate, the Tanzanian authorities may approach the Bank for a second program loan in the course of 1975. I am satis- fied that the loan proposal meets the criteria for program loans spelled out in my memorandum to the Executive Directors of December 15, 1970 on the Pearson Commission recommendation concerning program lending, namely: (a) Tanzania has an ongoing development program and has taken and intends to take supporting economic and financial policies which provide a satisfactory basis for external assistance; (b) The needed transfer of resources from external lenders in support of the ongoing development program cannot be achieved effectively and expeditiously by the financing of investment projects, including justifiable local currency expenditures; and (c) Other external sources are not available to Tanzania to fill the gap on terms appropriate to Tanzania's economic conditions. 50. A part of the loan proceeds would be used for private sector imports, which account for about 40 percent of the total in Tanzania; procurement in respect of these would be subject to normal commercial practices. The remainder of the loan proceeds would be used for parastatal and government imports. The parastatal sector follows normal commeicial procurement practices using competitive bidding where appropriate. In respect of imports made by government departments the procurement regulations of the Central Tender Board apply. For overseas procurement, these require advertisement in the Government Gazette, in the local press and that notices be sent to local embassies. Practically all countries from which prospective suppliers are likely to be interested are represented by missions in Tanzania. Adequate time, usually at least six weeks, must be given for prospective suppliers to prepare and subrit tenders. The procedures ensure full opportunity for participation by foreign suppliers. The bids are evaluated on the basis of prescribed procedures and are awarded to the lowest evaluLated bidder. The Government's procedures are irn accordance with the Bank Groups procurement guidelines. As a check, particularly on the private and parastatal sectors, the Dank of Tanzaria requires that, with a few exceptions, all imports be subject to cormipulsory quality and quantity inspection and price comparisor, by the General Super- intendence Company, Switzerland, before shipment is effected. General Superintendence is reqcuired to ascertain whether f.o.b. prices invoicec correspond, within reasonable limits, with the generally prevailing export prices. The above procedures are generally sound and ensure econoaic procurement cf goods. 51. Foreign exchange provided under the loan would be utilized for essen- tial imports of capital equipment, intermediate goods and raw materials for the public and private sectors. No disbursements would be made for food, fuel, fertilizers or consumer goods. Tanzania would be reimbursed for foreign exchange expenditure on eligible imports on the basis of import documents and evidence of payment submitted to the Bank. Appropriate arrangements to - 19 - this effect have been agreed between the Bank and the Borrower. In order to simplify the procedures, individual import expenditures of less than $500 would not be eligible for reimbursement. No disbursements would be made for imports for which other sources of foreign financing have been secured (Section 2(e), Schedule I, draft Loan Agreement). It is expected that the proceeds of the proposed loan would be disbursed by the end of June 1975. 52. The Bank of Tanzania would open a special project account in the name of the Government, to which the Tanzania shilling equivalent of the imports financed under the project will be credited. The Government would withdraw funds from the project account to cover expen- ditures under the 1974-75 Government development budget for each of the following votes: Prime Minister and Second Vice President's Office, (regional and rural development), Agriculture, Education, Commerce and Industries, Communications and Works, Lands, Housing and Urban Development, Finance, Health, Water Development and Power, and Natural Resources and Tourism (Schedule 4, draft Loan Agreement), Withdrawals from the project account would be made by the Government periodically for the aforementioned purposes, after the Bank has had an opportunity to review withdrawal proposals. The use of the counterpart funds in financing investments would be limited to those expenditures which are not otherwise financed by external sources. PART VII - LEGAL INSTRUMENTS AND AUTHORITY 53. The draft Loan Agreement between the United Republic of Tanzania and the Bank, the Report of the Committee provided for in Article III, Section 4(iii) of the Articles of Agreement of the Bank and the text of a resolution approving the proposed Loan are being distributed to the Executive Directors separately. 54. I am satisfied that the proposed Loan would comply with the Articles of Agreement of the Bank. PART VIII - RECOMMENDATION I recommend that the Executive Directors approve the proposed Loan. Robert S. McNamara President Attachments Washington, D.C. November 25, 1974 o~~ ciTh : '-- R~.(04r.'~ h t~00 0 ZI M K0 I Ot 0 A 1 ( 000 0 ' . .\O, . k A L44 -' 1:a'~~~~~~0 >..~4- 0 ti k~~~~~~~~~~~~0 0 0 a - . 1-10 0 o C o o ,5 -10. 0 . -.o-' - o > 0 0 0- .0 - 0 o-r--o~~~~~~~~~~~~~~~ - .-, .. ~~~~~~~~~~~~ o.oo. -o 00~~~~~~~~R g o >a00.~~~~~~~~~ItIf Is SNI ANNEX I Page 2 of 7 ECONOMIC DEVELOPMENT DATA (Amounts in millions of U.S. dollars) Actuadl Projected 19 64- 19 67 - 19 70 - 19723 - 1970 1971 1972 1970 1971 1972 194 975 1976 1969 1972 1973 1976- - NATIONAL ACCOIINTS _ __ 3-Year Average at 1967- 1969 Prices & Exchange hates Average. Annual Growth Rates As Percent of GOT Gross Domestic Product 1214.1 1275.4 1347.7 1494.7 1562.0 1632.1 6.1 4.9 5.6 4.5 100.0 100.9 103.6 Gains from Terms of Trade)± -60.2 - 10.6 - 47.0 - 21.5 - 32.3 - 49.0 Gross Domestic Income 1213.9 126-4.6 1-295.7 14732 159.7 1531 5.0 45 5.1 4.0 10. 100 100 Import (lncl. lIFS) 366.6 395.1 365.7 413.6 400.3 389.5 6.7 6.8 1.4 0.6 30.2 31.2 28.2 Exports (import casacity) 302~O_.5 310. 1 306.0 275.2 787.2 379. 2.1 3.6 0.7 2.0 25.0 24.6 73.6 Resource Gap 63.1 84.5 59.7 138.4 113.1 60.3 5.2 -6.7 4.6 Consumption Expenditures 1022.8 1061.6 1060.0 1288.3 1315.8 1312.4 5.8 4.8 4.7 3.8 64.3 84.0 81.8 Investment ". (in.. stocks) 254.3 387.6 295.4 323.3 327.0 331.0 9.1 6.4 6.7 2.4 30.9 22.7 22.8 Dom-stic Sav-ings 191.1 203.1 235.7 184.9 213.9 270.7 1.4 2.7 7.3 4.7 15.7 16.1 16.2 National1 Savings 198.0 306.6 235.3 1809 207.3 261.3 3.1 3.4 4.9 4.5 16.3 16.4 16.7 MERPCHAND)ISE TRADE Annual Data at Cu,rrnt Plrices1 9 66. 72 197 0-73 197 3- 76 As Percent of Total. Imports 5 Capital goods 94.2 117.0 125.2 137.2 138.0 149.5 13.5 14.0 7.4 29.6 30.7 31.0 Interme.diate goods (emtfuels) 101.7 132.1 154.4 210.6 212.1 226.6 13.5 21.5 7.6 31.9 34.6 38.2 Fuels and related materials 27.0 35.8 41.3 139.4 145.0 161.6 16.3 27.7 42.0 6.5 9.4 10.2 o f which: Petroleume (27.0) (35.8) (41.3) (139.4) (145.0) (161.8) (16.3) (27.7) (42.0) (9.5) (9.4) (10.2) Cvnsu.mpt,ion gosd.s 95.5 96.6 82.9 225.3 188.0 84.8 1.0 1.4 -5.7 30.0 25.3 20.5 Total March. 1aports (elf) 31. 81.5 403.8 712.5 631 627 87 1. 9.3 100.0 100.0 100.0 Exports!7 Primary prodtucts (excl. fuels) 183.1 163.1 208.6 229.5 332 .7 337.4 0.6 13.2 6.2 77.4 75.4 7 2 .3 Pades and related materials ) ) of swhich: Petroleum ) 53.4 ) 59.8 30.7 42.0 43.7 48.8 (14.5 ) 9.7 22.5 ) 22.6 ) 24.6 10.6 Manofactured goods ) )__ 49.1 54.0 59.4 65.4 ))6.6 )___)17.0 Total Mereh. Broorts (fob) 236tT 24 2.6 288.4 42 5.5 435.8 4517 _JT.7 1 T73 100.0 10-0.0 T16-0 Tourism and Boer.,, Traue . .. . Merchandise Trade lIndices Average 1967-69- 100 Export Price Index 100.6 102.0 112.6 174.2 170.1 172.0 Import Price Index 99.0 103.5 129.9 187.8 189.2 196.5 Terms of Trade Index 101.6 98.5 86.7 92.7 89.9 87.0 Exports Volume loden. 126.0 127.0 132.0 135.3 143.0 149.6 VALUE A.DD.D BY SECTOR Annual. Data at 1966 Prices and Exchange Eaten Average Annual Growth Rates As Percent of Total 1964-69 1965-70 1966-71 1967-72 Agriculture 446.5 442.7 471.2 3.3 4.4 1.4 2.6 40.0 38.1 38.5 Industry and finiing 179 .2 198.0 202.7 9.3 8.3 7 .2 5.0 16.0 17.0 16.5 Service 691.1 522.0 551.3 7.1 7.6 7.0 6.1 44.0 44..9..2 45AI.±.2 Total 1116.8 1162.7 1255.3 5 .7 6.3 4.7 4.5 102.0 100.0 102 0 PUBLIC FINANCE Annual 1Dana at Cemen.t Prices 19 67 - 72 As Percent of GC Cen`tral Ouve`rnmant) ___ Current Receipts 235.6 260.3 306.3 14.0 19.2 20.6 22.0 Current Expenditures 228.4 249.3 306.6 15.4 16.6 19.7 23.0 Budgetary Savings 7 .2 11.0 -0.3 0.6 0.9 -- Other Pablic Sector 39.0 57.0 75.0 25.0 3.7 4.5 5.6 Putlic Sector Tnvestment 163.0 233.0 233.0 21.0 13.3 16.4 17.5 CURRENT EXPENDITURE DETAILS Actual Preti.;. As % Total Current Expend.) Ff1971 FY1972 FY1973 Education 21.1 17.5 18.6 Other Social Services 10.3 Agriculture 31.5 27.3 12.5 Other Economic Services) ) 15.4 Adsainiatraticn and Defenne 30.5 32.0 9.54/ Otber 16.9 23.2 33.7 Total Current Expenditures 100.0 100.0 100.0 SEL.ECTED INDICATORS 1960- 1965- 1970- 1973- (Calculated from -year averaged data) 1.965 1970 1975 1978 Average TCOIR 2.9 4.3 4.3 ImPort Elasticity 1.6 0.4 0.3 Marginal Domestic Savings Sale o.i 0.2 0.25 Marginal National Savin-gs Rate 0.2 0.0 0.2 L.ABOR FORCE AND Total Labor Force Value Added Per. Worker (in current priecs) OUTPUJT PER WJORKIER In Millions % of Total in UlSDollars Percent of Average 1971 1971 197 1 1971 Agriculture 5.3 91 98 43 Industry 0.0 2 1590 694 Service 0.4 7 2170 948 Total 5.TS0 7 not applicable -nml or negligible not available --less than) half the smallest unit shown 1/ Includes re-exports, unclassified domestic exponts and adjustmensa for time, valee and coverage November 18, 1974 E/ Defense only HAIANCE OF PAYKENTS1 EXTERNAL ASSISTANCE AND DEFT 7amaunts in millims of U.S. dollars at current prices) Avg. Annual Actual Estimated rojected Crowth Rate 1969 1970 1971 1972 1973 1974 19751_ 96 1977 1978 1979 1969-1979 SUMMARY BALANCE OF PAYMENTS Exports (incl. NFS) 276.8 308.8 333.1 397.5 479.8 516.9 543.4 646.8 713.0 802.7 915.6 13.0 pp7ort49{7cl. NFS) 288.4 373.1 449.8 476.1 591.1 776.9 757.4 765.3 859.8 964.2 1079.3 14.0 Resource B3alance (X-M) -11.6 -64.3 -116.7 -78.6 -111.3 -260.0 -214.0 -118.5 -146.8 -161.5 -163.7 Interest (net) -2.9 3.5 3.0 34 -5-9 -7.3 -13.6 -21.1 -22.6 -32.0 -49.7 )33.0 Direct Investment Income ) ) ) ) -1.5 -1.5 - 1.5 - 1.5 -1.5 -1.5 -1.5 Workers' Remittance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 - Current Transfers (nt) 8.6 12.4 9.3 -1.7 0.7 14.0 7.0 7.7 8.5 9.3 10.2 1.7 Balance on Curren Accounts -5.9 -55.4 -110.4 -83.7 -118. -7 r -22r -13. -162. - 1rr -Tr Private Direct Investmernt nil nil nil nil nil nil nil nil nil nil nil - Official Capital Grants 10.0 12.0 14.0 16.0 18.0 20.0 21.5 23.1 24.8 26.7 28.7 11.0 Public M6ILT Loans Disbursements 44.0 49.1 49.8 126.6 154.2 133.0 82.6 83.2 91.5 100.6 110.7 9.7 -Repay r.nts -9.9 -9.7 -11.9 -15.4 -13.2 -14.0 -14.0 -14.0 -14.0 -14.5 -15.0 4.3 Net Disbursermnts 34T1 39i4 37.9 111.2 141.0 n5 Tzr 8 6 .1 9 5 . 7 10.8 Other M< Loans Disbursements -Repayments 0.0 0.0 0.0 :. .. .. ... .. NRetDisbursements rr rr 1T.T1 . 1 3 .2 T1rr -5.6 17r Actuml Estimated Capital Transactions n.e.i. -21.0 -52.0 -15.0 28.2 -6.6 199 1970 1971 192 1973 Change in Net Reserves 2.8 -15.3 - 4.7 60.2 27.7 DE;3T AND DEFT SERVICE1/ Public Debt Out. & Disbursed 176.4 220.2 262.5 344.5 424.6 GRANT AND LOAN COMMITMENTS Official Grants & Grant-like Interest on Public Debt 6.1 6.2 6.6 6.9 8.7 Repayments on Public Debt 9.9 9.7 11.9 29.0 11.5 FPublic M< Loans Total Public Debt Service 16.0 15.9 18.5 35.8 20.2 IBRD 7.0 30.0 - - - Other Debt Service (net) - - - - - IDA 20.5 9.0 9.8 10.8 28.8 Total Debt Service (net) - Other - - - - - Other Multi-lateral - - - 3.3 2.0 Burden on Export Eirnings (%) Governments 48.8 232.4 26.3 49.3 94.9 Suppliers - 0.3 - - - Public Debt Service 5.8 5.2 5.6 9.0 4.2 Financial Institutions 3.2 3.0 _ _ _ Total Debt Service 5.8 5.2 5.6 9.0 4.2 Bonds - - - TDS+Direct Invest. Inc. 5.1 4.8 5.1 7.7 3.0 Public Loans n.e.i. 16.9 2.2 0.8 Total Public W =LT Loans Average Terms of Public Debt Actual Dobt Outstanding on Dec. 31, 1972 Int. as % Prior Year DO&D 65 4.2 3.5 3.0 2.6 2.5 ETERN9AL DEBT Disbursed Onl,y Percent Amsort. as % Prior Year DO8,D 6.8 5.5 5.4 11.0 3.3 World Bank 0 r IDA 49.1 14.2 IBRD Debt Out. & Disbursed Other MIltilateral 2.5 0.7 " as % Public Debt O&D 1.4 1.7 4.1 7.6 7.4 Governments 213.5 62.0 " as % Public Debt Service2/ 0.0 0.6 1.6 2.2 10.0 Suppliers 0.3 0.1 Financial Institutions 24.2 7.0 IDA Debt Out. & Disbursed Bonds 10.1 2.9 " as % Public Debt O&D 14.2 15.4 16.1 15.6 13.7 Public Debts n.e.i 20.9 6.1 as % Public Debt Service_/ 0.6 0.6 1.1 1.1 1.9 Total Public M14&T Debt 344.6 100.0 Other M&lT Debts Short-term Debt (disb. only) not applicable e staff estimate 1/ Not including Tanzania's share in EAC (debt) not available - nil or negligible 2/ IBRD/IDA debt service as 7 of total public debt service ... not available separately -- less than half the but included in total smallest unit shown November 18, 1974 TANZANIA BALANCE OF PAYMENTS (Current US$ Millions) ACTUAL PROJECTED 1972 1973 1974 1975 1976 1977 1978 1979 1980 CURRENT ACCOUNT Exports (f.o.b.) 288.4 332.7 425.5 435.8 451.6 474.7 506.7 550.0 600.9 Imports (c.i.f.) 403.8 477.1 712.5 683.1 622.7 678.6 738.0 804.8 877.2 Trade Balance -115.4 -144.3 -287.0 -247.3 -171.1 -203.9 -231.3 -254.8 -276.3 Net Services 35.8 25.6 18.2 18.2 30.0 33.0 36.3 39.9 43.9 Net Transfers - 4.2 0.7 14.0 7.0 7.7 8.5 9.3 10.2 11.3 Current Account Balance - 83.7 -118.0 -254.8 -222.1 -133.4 -162.4 -185.7 -204.7 -221.1 CAPITAL ACCOUNT Govt. M< Loans Tazara 94.6 108.5 70.0 7.0 - - - - - Other 32.0 45.7 63.0 75.6 83.2 91.5 100.6 110.7 121.8 Less Repayments - 15.4 - 13.2 - 14.0 - 14.0 - 14.0 - 14.0 - 14.5 - 15.0 - 15.5 Net Inflow 111.2 141.0 119.0 68.6 69.2 77.5 86.1 95.7 106.3 Parastatal M< (Net) 6.2 9.8 9.7 10.6 11.7 12.9 14.1 15.6 17.1 Private M< - 1.7 1.6 1.5 1.5 1.5 1.5 1.5 1.5 1.5 Govt. Compensation Pints. - 5.7 - 5.1 - 5.0 - 5.0 - 5.0 - 5.0 - 5.0 - 5.0 - 5.0 Other Capital Movements 7.2 - 17.8 - 12.6 - 14.0 - - - - Errors and Omissions 21.7 19.1 18.8 18.8 - - - - - Capital Acct. Balance 139.0 148.5 131.4 80.5 77.4 86.9 96.7 107.8 119.9 Special Transactions 5.0 - 2.8 34.4* - - - - - - Net Change in Reserves + 60.2 + 27.2 - 89.0 -141.6 - 56.0 - 75.5 - 89.0 - 96.9 -101.2 Net Reserves (IFS) 110.1 145.5 56.5 - - - - - - * IMF 1st Credit Tranche & Special Oil Facility a) asz eDm Eastern Africa Region October 17, 1974 ANNEX I Page 5 of 7 BALANCE OF PAYMENTS PROJECTIONS 1. Exports (f.o.b.) - staff estimates. 2. Imports (c.i.f.) - staff estimates. 3. Net Services - 1972 and 1973 actuals. 1974 and 1975 from IMF/Bank of Tanzania. For 1976 assume 10% growth + addition of US$10 m of earnings from Tazara. Thereafter 10% p.a. growth for total. 4. Net Transfers - 1972 and 1973 actuals. 1974 and 1975 from IMF/Bank of Tanzania. For 1976 and beyond, 10% p.a. growth assumed. 5. Govt. M< Loans - Tazara - 1972 and 1973 actuals. 1974 from IMF/Bank of Tanzania. For 1975, estimate of $7.0 m is based on twice cost of imported inputs estimated for 1975, on assumption that local costs are equal to import costs. (In 1974, the estimate of capital goods Tazara imports = approx. 1/2 of the $70 m capital inflow in 1974.) Other - 1972 and 1973 actuals. 1974 and 1975 from IMF/Bank of Tanzania. For 1976 and beyond, 10% p.a. growth assumed. Repayments - 1972 and 1973 actuals. 1974 and 1975 from IMF/Bank of Tanzania. For 1976 and 1977 no increase assumed lag - then slight increase. 6. Parastatal M< - 1972 and 1973 actuals. 1974 and 1975 from IMF/ Bank of Tanzania. Thereafter, 10% p.a. growth assumed. 7. Private M< - actuals 1972 and 1973. IMF/Bank of Tanzania for 1974 and 1975. Thereafter assumed level. 8. Govt. Compensation Pmts. - 1972 and 1973 actuals. 1974 and 1975 IMF/ Bank of Tanzania. Thereafter assumed level. 9. Other Capital Movements, Errors & Omissions - 1972 and 1973 actuals. 1974 and 1975 IMF/Bank of Tanzania. Thereafter omitted since largely offsetting items in recent years. 10. Special Transactions - 1974 is IMF first credit tranche & special oil facility. Tanzania Government Development Expenditures Tanzania Public Sector 1970/71 - 1974/75 Investment Program 3/ 4/ 1970/71 i/ 1971/72 1' 1972/73 I/ 1973/74 2/ 1974/75 3/ 1974/75 Sh Mill. _ Sh Mill. _ Sh Mill. % Sh Mill. % Sh Mill. % Sh Mill. 7, Directly Productive 26.7 10.3 29.9 23.3 36.5 44.2 Agriculture 130 15.8 55 7.9 170 22.6 225 16.2 548 25.2 880 31.8 8/ Commerce, Industry & Mining 90 10.9 17 2.4 55 7.3 98 7.1 245 11.3 341 12.4 Economic Infrastructure 47.5 55.6 43.8 45.8 37.1 34.5 Water 62 7.4 47 6.6 65 8.7 165 11.8 217 10.0 220 7.9 Power 10 1.2 88 12.4 80 10.7 210 15.1 216 9.9 279 10.1 Works & Communications 233 28.2 181 25.6 129 17.2 187 13.4 210 9.7 216 7.8 Housing & Urban Development 42 5.2 17 2.4 9 1.2 41 3.0 52 2.4 126 4.6 Natural Resources & Tourism 46 5.5 61 8.6 45 6.0 35 2.5 50 2.3 52 1.9 Capital Development - - - - 23 1.1 23 0.9 Other Regional Infrastructure - - - - 36 1.7 36 1.3 Social Infrastructure 7.7 6.8 7.5 8.9 9.0 7.6 Education - Culture & Youth 46 5.5 37 5.2 43 5.6 70 5.1 110 5.1 123 4.4 Health 17 2.1 4 0.6 12 1.6 50 3.6 78 3.6 81 2.9 Labor 1 .1 7 1.0 2 0.3 3 0.2 9 0.3 9 0.3 Other 18.1 27.3 18.8 22.0 17.4 13.7 Regional Administration & Planning 5/ 39 4.7 41 5.8 18 2.4 69 5.0 87 4.0 87 3.1 Central Administration & Planning 10 1.2 15 2.1 14 1.9 18 1.3 22 1.0 22 0.8 Information & Broadcasting - 3 0.4 3 0.4 3 0.2 16 0.7 17 0.6 Security 6/ 101 12.2 134 19.0 105 14.1 210 15.5 256 11.7 256 9.2 Total 827 100 707 100 750 100 1384 100 2175 100 2768 100 aq Tanzania - Zambia Railway 7/ 2 148 180 211 25 25 829 855 930 1595 2200 2793 o H 1/ Actual Expenditures 5/ licluding the Rural Development Fund 2/ Provisional Actual Expenditures 6/ Defense, National, Service, Home Affairs, Judiciary 3/ Estimates 7/ Local Costs only (these costs were entirely financed by a Chinese Commodity Credit) 4/ Budgetary plus extra budgetary expeniditures 8/ Includes tea, meat, sugar and cashew processitng ANNEX I Page 7 of 7 Tanzania: Government Transactions; Central Government and Regions, 1972/73-1974/75 (In millions of Tanzania shillings) 1972/73 1973/74 1974/75 Unaudited Provisional Budget Actual Estimates Current Revenue 2,328 3,080 3,664 Current Expenditure 2,240 2,766 3,385 Current Surplus 88 314 279 Development Expenditure 930 1,595 2,200 Overall Deficit -842 -1,281 -1,921 Financing Net Foreign Loans & Grants 485 637 1,147 Net Domestic Borrowing 324 493 513 of which: banks -2 301 300 Other 33 151 261 Sources: Tanzania, Financial Statement and Revenue Estimates (1974/75); Estimates of Public Expenditure, Ministerial Development Expenditure, and Regional Development Expenditure (1974/75); Estimates of Public Expenditure, Consolidated Fund Services, and Supply Votes (1974/75); and data provided by the Tanzanian authorities. ANNEX II Page 1 of 9 A. BANK GROUP OPERATIONS IN TANZANIA 1/ 1. Tanzania has received a total of 19 IDA credits and six Bank loans amounting to $246.3 million. Our lending program, reflecting the emphasis the Tanzanian Government is placing on agricultural develop- ment, has increasingly focused on directly productive activities in the rural sector. Up to the end of FY72, 10 out of 14 loans and credits had been made for infrastructure. All but one of the nine loans to the East African Community Organizations, of which Tanzania is a beneficiary and co-guarantor, have been extended for improvements in transportation and communications. However, the approval by the Executive Directors of the Flue-Cured Tobacco Project (Credit No. 217-TA), in October 1970 opened a new phase in our lending for more directly productive activities. The Smallholder Tea Development Project (Credit No. 287-TA) and a Second Live- stock Project (Credit No. 382-TA) were approved in March 1972 and in April 1973, respectively. A Cotton Development Project (Credit No. 454-TA), a Cashewnut Development Project (Loan No. 1014-TA), a Sugar Development Project (Loan No. 1041-TA and Credit No. 513-TA) and the Kigoma Integrated Rural Development Project (Credit No. 508-TA) were approved earlier this year. A proposed dairy project has recently been appraised and a second rural development project, a forestry project and a fisheries project are under preparation. 2. Tanzania is developing an institutional structure, stressing greater regionalization and development of ujamaa villages, designed to promote and respond to development initiatives. These institutions are still in their formative stages, and related organizational and staffing difficulties have sometimes resulted in the project delays and the slow rates of dis- bursement referred to in Part D of this Annex. Tanzania's education and training programs are expected to solve the manpower problem in the longer run, but meanwhile there will continue to be a need for technical assistance in planning and implementation if the difficulties in executing projects are to be overcome. The Government has taken steps to speed up recruitment of needed expatriate technical expertise and instituted a regular high level review for all externally aided projects. The Bank's Resident Repre- sentative is giving special attention to these problems and in addition, we hope to intensify, through our supervision missions, assistance in project implementation. As a result of these efforts, it is expected that project implementation should now improve. 3. Our Regional Mission in Eastern Africa was involved in the prepara- tion of six projects in the agricultural sector. Our capacity to provide such assistance has proved to be particularly valuable in a country where project preparation capacity is, and for some time will be, limited. We are also exploring with the Government how assistance of this kind can be strengthened and best fitted to Tanzania. Through participation in their 1/ As of September 30, 1974 ANNEX II Page 2 of 9 projects we have supported Tanzania's new development institutions at an early stage. Our supervision of the projects has resulted in bringing to light, earlier than might have happened otherwise, that some of these institutions are facing significant difficulty in executing the projects they have undertaken. Because of our involvement, we have been able to help the Government in its consideration of how to overcome this problem whose solution is fundamental to rapid development. 4. The urban Sites and Services Project (Credit No. 495-TA) approved in July 1974 marked the Bank Group's first lending to Tanzania for urban development. The Credit for the Tanzania Investment Bank (Credit No. 460-TA) approved in February 1974 was the Bank Group's first lending in the indus- trial sector in Tanzania. A proposed project for textile development has just been appraised and a project for the development of an industrial estate is presently under preparation. Other projects outside the agri- cultural sector include a highway maintenance project (Credit No. 507-TA) which was approved on August 6, 1974. A water supply project, the second phase power of the Kidatu Power Project (Loan No. 715-TA) and a further education project are under preparation. ANNEX II Page 3 of 9 B. SUMMARY STATEMENT OF BANK LOANS FOR COMMON SERVICES GUARANTEED BY KENYA, TANZANIA AND UGANDA AS AT September 30, 1974 (US$ million) Amount less cancellations No. Year Borrower Purpose Bank Undisbursed Three loans fully disbursed 75.0 638 EA 1969 EAHC Harbours 35.0 8.9 674 EA 1970 EARC Railwaya 42.4 19.5 675 EA 1970 EAPTC Telecommunications 10.4 o.6 843 EA 1972 EADB Development Finance 8.0 7.7 865 EA 1972 EAHC Harbors 26.5 22.0 914 EA 1973 EAPTC Telecommunications 32.5 25.9 Total 229.8 84.6 of which has been repaid 27.6 Total now outstanding 202.2 Amount sold 24.4 of which has been repaid 24.4 0 Total now held by Bank 202.2 Total undisbursed 84.6 ANNEX II Page 4 of 9 G. STATEMENT OF BANK LOANS AND IDA CREDITS TO TANZANIA as at September 30, 1974 (US$ million) Amount less cancellations No. Year Borrower Purpose Bank IDA Undisbursed One loan and six credits fully disbursed 5.2 43.o 586 TA 1969 Tanzania Roads 7.0 1.9 149 TA 1969 Tanzania Bducation 5.0 1.4 217 TA 1970 Tanzania Tobacco 9.0 7.7 715 TA 1970 TANESCO Power 30.0 .2 715-2 TA 1974 TANESCO Power 5.0 5.0 232 TA 1971 Tanzania Education 3.3 2.8 265 TA 1972 Tanzania Roads 6.5 5.7 287 TA 1972 Tanzania Smallholder Tea 10.8 7.9 371 TA 1973 Tanzania Education 10.3 10.2 382 TA 1973 Tanzania Livestock 18.5 18.4 454 TA 1974 Tanzania Cotton 17.5 17.5 460 TA 1974 Tanzania Tanzania Investment Bank 6.o 6.o 1014 TA 1974 Tanzania Cashewnut 21.0 21.0 495 TA 1975 Tanzania Sites and Services 8.5 8.5 507 TA 1975 Tanzania Highway Maintenance 10.2 10.2 508 TA 1975 Tanzania Rural Development 10.0 100 513 TA 1975 Tanzania Sugar 9.0 9.0 lo4i TA 1975 Tanzania Sugar 9.0 9.0 Total 77.2 167.6 152.4 of which has been repaid 0.7 0.2 Total now outstanding 76.5 167.4 ANNEX II Page 5 of 9 (US$ million) Amount less cancellations Bank IDA Undisbursed Amount sold .1 of which has been repaid .1 0 Total now held by Bank and IDA 76.5 Total undisbursed 37.1 115.4 ANNEX II Page 6 of 9 D. PROJECTS IN EXECUTION 1/ (As of September 30, 1974) There are currently 16 projects under execution. AGRICULTURAL SECTOR Credit No. 217-TA - Tobacco Project: $9.0 million Credit of October 9, 1970; Closing Date - September 30, 1976 As a result of the Tanzania Government's intention to complete its villagization program by 1976, the process has been accelerated and a total of about 7,200 families have been moved to villages in the tobacco complexes, bringing the number of project farmers to 10,000. As a result of these vigorous efforts, it is now likely that the appraisal target of 15,000 farmers will be reached by 1975. Strict measures to enforce minimum tobacco acreages per family will contribute to increased tobacco production. However, yields per hectare and quality of leaf have been below anticipated levels. Improve- ments are required to strengthen the extension and cooperative services. Provision of water supplies and social infrastructure is progressing well. A new Financial Controller assumed his duties in September. Creidt No. 287-TA - Smallholder Tea Project: $10.8 million Credit of March 3, 1972; Closing Date - December 31, 1976 This project has experienced serious management problems both at headquarters and in the field which have largely contributed to the short- fall in planting achievements, currently 45% of target. Insufficient and poor quality field supervision with inadequate control and guidance from headquarters have resulted in poor husbandry practices, low yields and poor quality of leaf produced. Of the four tea factories established or improved under the project, only one is performing satisfactorily. While the building of project roads in two areas is proceeding satisfactorily, the start of works has slipped in the two other areas owing to delays in appointment of consultants and staffing difficulties. Work has now commenced in one of these areas and the Government is currently reviewing a draft consultancy agreement for the supervision of construction in the last remaining area. In January 1974 the Association informed the Government of its serious concern over management problems but until recently staff strengthening has been slow. New appointments have however now been made for the posts of Operations Coordinator, Financial Controller, Chief Technical Adviser and candidates for other key posts are presently being reviewed. As a result, it is now hoped that project implementation will improve. The Associa- tion has recently agreed to the extension of planting for a further year and will consider further extension in the light of this season's performance. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular, to report any problems which are being encountered, and the actions being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 7 of 9 Credit No. 382-TA - Second Livestock Development Project: $18.5 million Credit of Nlay 23, 1973; Closing Date - December 31, 1979 Invitations for bids for the three meat plants to be constructed and improved under the Project have been issued. Contracts for land clearing equipment have been awarded and detailed ranch plans are being prepared. Credit No. 454-TA - Geita Cotton Project: $17.5 million Credit of January 17, 1974; Closing Date - December 31, 1982 The Project became effective on April 5, 1974. The conditions in which the Project will operate were radically changed by the decision, effective April 15, 1974, that farmers throughout the District should immediately move into villages. The move was poorly planned and in the short run will adversely affect production of cotton and foodcrops. Although in the long run villagization could well be advantageous to the project as savings in mechanization, extension and credit staff could be achieved, the initial implementation of the project will be delayed. Project staff are currently reviewing the implications of the villagization with a view to identifying necessary adjustments to the project. Staff recruitment has been slow but most important posts, including that of Deputy Project Manager, to which a staff member of the Agricultural Development Service has been appointed, have now been filled. Loan No. 1014-TA - Cashewnut Development Project: $21.0 million Loan of June 24, 1974; Closing Date - December 31, 1981 The Loan was declared effective on September 26, 1974. Bids for the five processing facilities to be constructed under the Project have been received. However the lowest bid was considerably in excess of the appraisal estimate for the project component. The Cashewnut Authority is currently reviewing methods to reduce the cost of these items. Credit No. 508-TA - Kigoma Rural Development Project: $10.0 million Credit of August 21, 1974, Closing Date - December 31, 1980 The Government is currently taking the required actions precedent to effectiveness. Recruitment of Project staff is moderately well advanced. The pace of villagization in Kigoma region has been considerably more rapid than expected at the time of appraisal. Insufficient attention has been given to planning villages. The Village Site Feasibility Reports provided under the Project will therefore be even more important as a screening device in t'Le selection of Project villages than was anticipated earlier. Credit No. 513-TA and Loan No. 1041-TA - Kilombero Sugar Development Project: $9.0 million Credit and $9.0 million Loan of September 27, 1974; Closing Date - December 31, 1970 The Government and the Kilombero Sugar Company are currently taking the required actions precedent to effectiveness. Contracts for the first phase of procurement have been let. ANNEX II Page 8 of 9 POWER SECTOR Loan No. 715-TA - Kidatu Hydroelectric Project: $30.0 million Loan of December 14, 1970 and Supplementary Loan No. 712-2-TA of June 24, 1974; Closing Date - June 30, 1976 A supplementary Loan of $5.0 million was approved by the Executive Directors on June 6, 1974 and Sweden has approved a grant of SKr 20 million ($4.5) to cover the remaining foreign cost overruns which have been experienced by this Project. The supplementary Loan became effective on September 26, 1974. Although there have been some delays in manu- facturing the turbines and generators, the date of commissioning of the power station remains, as originally scheduled, July 1975. INDUSTRIAL SECTOR Credit No. 460-TA - Tanzania Investment Bank Project: $6.0 million Credit of February 13, 1974; Closing Date - June 30, 1978 This Credit was declared effective on April 18, 1974. Three sub- Projects have so far been submitted and approved. TRANSPORTATION SECTOR Loan No. 586-TA - Second Highway Project: $7.0 million Loan of February 24, 1969; Original Closing Date - December 31, 1972: Revised Closing Date - September 30, 1974 Construction works were satisfactorily completed late in 1972. Outstanding contractors' claims have been settled and disbursements made. Credit No. 265-TA - Third Highway Project: $6.5 million Credit of August 6, 1971; Closing Date - December 31, 1974 After long delays by Government in completing tender arrangements, an award of contract for the improvement of the Mtwara-Masai Road has been made. However, owing to the increase in world prices for civil works since the appraisal in 1970, the bid price for improving this road is now more than double the appraisal estimate. The African Development Bank is expected to make a loan of about $4.4 million equivalent to help cover the cost overruns. Work by two betterment units on the improvement of about 475 km of agricultural feeder roads in the Geita district and Mara region has commenced. Consultants for the pre-investment studies to be funded under the Project have been selected. Credit No. 507-TA - Highway Maintenance Project: $10.2 million Credit of August 21, 1974; Closing Date - June 30, 1979 The Government is currently taking the required actions precedent to effectiveness. ANNEX II Page 9 of 9 EDUCATION SECTOR Credit No. 149-TA - Second Education Project: $5.0 million Credit of May 29, 1969; Closing Date - December 31, 1975 Progress has improved recently. All civil works contracts have now been awarded and although it is not expected that lost time can be made up, all elements of the Project should be completed in good order within a 24 month extension of the Closing Date. Credit No. 232-TA - Third Education Project: $3.3 million Credit of February 5, 1971; Closing Date - June 30, 1975 Bids for the construction of all 13 Project institutions were received in May 1973 resulting in the contract award for four institutions but due to high quotations and poor response, the remaining nine were retendered. Although the new tenders were still higher than anticipated, all civil works contracts have now been awarded. Although the lost time cannot be made up, Project progress has now improved. Credit No. 371-TA - Fourth Education Project: $10.3 million Credit of April 13, 1973; Closing Date - June 30, 1978 The Credit was declared effective July 2, 1973. The Project Coordinator has been appointed and after some delays, technical assistance specialists to assist in Project implementation, provided by the Danish International Development Agency, have arrived in Tanzania and are now engaged in detailed design work. URBAN SECTOR Credit No. 495-TA - Sites and Services Project: $10.0 million Credit of July 12, 1974; Closing Date - December 31, 1978 The Credit was declared effective on October 3, 1974. The civil works contract for one site has already been awarded. ANNEX III Page 1 o0 2 TANZANIA PROGRAM LOAN Loan Summary BORROWER: United Republic of Tanzania MAOUNT: US $30.0 million equivalent TERMS: 30 years including 10 years grace at 8 percent per annum. PROJECT The Droposed project would provide foreign DESCRIPTION: exchange for imports of essential capital, intermediate goods and raw materials for the public and private sectors to enable the borrower to implement its 1974/75 development program. PROCUREMENT Imports by the private and parastatal ARRANGEIEUMTs: sectors would be subject to normal commercial practices. In respect of imports by governmental agencies, the Government's tender procedures would apply. For overseas procurement, these require advertisement in the Government Gazette and in the local press and notice to local embassies. Practically all the countries from which prospective suppliers are likely to be interested are represented by missions in Tanzania. The procedures normally require at least six weeks notice for submission of bids. They are in accordance with Bank Group Guidelines. DISBURSEMNT ARRANGEMENTS: Imports: The borrower would be reimbursed for the foreign exchange expenditure on eligible imports on the basis of evidence to be submitted to the Bank periodically. No disbursements would be made for food, fuel, fertilizers and consumer goods or for imports for which other sources of foreign financing have been secured. Individual import expenditures of less than $500 would not be eligible for reimbursement. ANNEX III Page 2 of 2 Counterpart Funds: The Bank of Tanzania would open a special project account in the name of the Government, to whioh the Tanzania shilling equivalent of imports financed under the loan would be credited. The Government would withdraw funds from the project account to cover development expenditures under specified votes in its 1974/75 development budget. The use of the counterpart funds in financing such expenditures would be limited to those expenditures which are not otherwise financed by external agencies. Withdrawals from the project account would be made on the basis of periodic certification by the Accountant General regarding such expenditures, and after the Bank has had an opportunity to review withdrawal proposals. Approved Votes of Government's 1974/75 Developnent Budget US $ million equivalent Prime Minister and Second Vice President's Office 12.2 Agriculture 44.8 National Education 8.9 Commerce and Industries 21.1 Communications and Works 29.4 Lands, Housing and Urban Development 4.3 Finance 314.9 Health 6.7 Natural Resources and Tourism 7.1 Water Development and Power 53.2 Total 222.6