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Cablegate: Donor Frustrations with Tanzania

VZCZCXRO0478
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHDR #0848/01 3421343
ZNR UUUUU ZZH
R 081343Z DEC 09
FM AMEMBASSY DAR ES SALAAM
TO RUEHC/SECSTATE WASHDC 9117
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHJB/AMEMBASSY BUJUMBURA 3026
RUEHKM/AMEMBASSY KAMPALA 3564
RUEHLGB/AMEMBASSY KIGALI 1496
RUEHKI/AMEMBASSY KINSHASA 0344
RUEHNR/AMEMBASSY NAIROBI 1455
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHLMC/MCC WASHINGTON DC

UNCLAS SECTION 01 OF 02 DAR ES SALAAM 000848

SIPDIS

DEPARTMENT FOR AF/E JTREADWELL, INR JBERNTSEN, FEHRENREICH
STATE PASS USAID, USTR, USTDA
COMMERCE FOR ROBERT TELCHIN
TREASURY FOR REBECCA KLEIN

E.O. 12958: N/A
TAGS: ECON EAID PGOV TZ
SUBJECT: DONOR FRUSTRATIONS WITH TANZANIA

REF: 2008 Dar es Salaam 809

DAR ES SAL 00000848 001.2 OF 002


1. SUMMARY. During the late November Annual National Policy
Dialogue among the Government of Tanzania, donors, and civil society
organizations, donors expressed frustration with both the lack of
GOT progress in many areas since the previous year's meetings and
with the poor quality of the dialogue. Particular areas of concern
include recent lack of progress on anti-corruption, the business
environment, and public financial management, as well as the
longer-term issues of persistent income poverty and the increasing
impact of rapid population growth. Privately, the other leading
donors acknowledge that their leverage with the GOT is limited,
because the GOT knows that the pressure in capitals is to maintain
or increase funding levels to stable, relatively well governed
Tanzania. End Summary.

2. Government, donors and civil society met over several days in
late November to review progress on poverty reduction and indicators
of achievement tied to General Budget Support. (Note: Roughly 12.5
percent of Tanzania's annual budget comes from direct donor support;
the figure rises to 33 percent when basket and project funding is
considered.) Tanzania is entering the final year of its five-year
national strategy for growth and reduction of poverty, known by its
Swahili initials as "Mkukuta," and has started planning for "Mkukuta
II." During the meetings, donors expressed their dissatisfaction
with sparse high-level GOT participation, limited opportunities for
dialogue, and the GOT's lack of consultation with donors in the
development of Mkukuta II. Donors are particularly concerned with
the GOT's slow progress and failure to include donors in the review
of the first Mkukuta, such that planning for the second round is
proceeding without sufficient perspective on the accomplishments -
and failings - of the first. (Comment: Although donor complaints
about "quality dialogue" are perennial, the heightened intensity of
feeling this year reflects both a greater perception of GOT
disengagement and concerns about lack of progress on substance. End
comment.) The principal GOT interlocutor, Finance Minister Mkulo,
was alternately aggressive and conciliatory, calling for an
evaluation of donors' adherence to their commitments but also
offering to address areas of disagreement (privately).

Corruption and Business Environment
-----------------------------------
3. Donors took the GOT to task for stagnation in efforts to fight
corruption and improve the business environment. The 2008 Dialogue
was preceded and immediately followed by Tanzania's first
prosecutions in grand corruption scandals (ref); since then, there
have been no new high-level prosecutions. The Director General of
the GOT's anti-corruption body (PCCB), Edward Hoseah, defended his
agency's record as having increased overall prosecutions and
continuing to obtain convictions (albeit in petty corruption cases).
Hoseah also argued that Tanzania's decline in Transparency
International's Corruption Perception Index could be attributed to
increased media reporting on corruption over several years and
pointed out that Tanzania remains ahead of Kenya and Uganda in
perceptions of corruption. GOT officials acknowledged problems with
Tanzania's business and investment climate but called for the donors
to be patient as the government developed a new round of reforms.

Persistent Poverty
------------------
4. To the consternation of donors and the GOT, Tanzania's sustained
record of macroeconomic stability and economic growth in the 2000s
has not translated into a reduction of income poverty. The 2008
Household Budget Survey showed that from 2001-2007, the proportion
of Tanzanians living below the national poverty line fell from 38
percent to 33 percent. Because of rapid population growth, the
absolute number of the poor increased by over a million. With the
GOT's increased political emphasis on agriculture, donors are
pressing for measures that would include (or principally benefit)
the poor in new agricultural policies and investments. While the
GOT continues to see population growth as a sensitive topic, it has
indicated a willingness to engage in dialogue with donors on the
subject.

Donor largesse to continue
--------------------------
5. During the Policy Dialogue, donors warned the GOT that lack of
progress against corruption and in improving the business climate
could put at risk continuation of current high levels of donor

DAR ES SAL 00000848 002.2 OF 002


support. Indeed, there have been some changes to funding over the
last six months in relation to donor concerns about governance and
corruption issues. The UK declined to grant Tanzania a general
budget "performance bonus" and the Netherlands reduced its level of
direct budget support (in relation to a specific investment
dispute), although both governments have essentially maintained
their overall support levels by redirecting funding to projects.
The World Bank lowered its ceiling for Tanzania's access to
concessional loans, but is also planning supplemental funding in
relation to the global financial crisis. Privately, some donors
have told us that whatever their misgivings about both the process
of dialogue with the GOT and Tanzania's somewhat lackluster
achievements, they are unlikely to substantially reduce their
support here. As with our Millennium Challenge rankings, where
Tanzania scores well against its low-income peers, other donors
continue to consider Tanzania a relatively good bet for effective
use of funds. Some of our donor colleagues complain that pressure
from headquarters prevents them from making a serious threat of
reducing funding.

Tanzania's 2009/10 budget: a snapshot
-------------------------------------
6. The GOT's current-year budget (July 1, 2009 to June 30, 2010) of
Tsh 9.5 trillion (USD 7.3 billion), up 32 percent from the prior
year, builds on a several year trend of double-digit increases and
reflects both election-year political realities and a stimulus
response to the impact of the global economic crisis. Education (18
percent), infrastructure (11.5 percent) and health (10 percent)
continue as the leading sectors for expenditure, while agriculture
(7 percent, up from 6.4 percent) and water (3.7 percent, up from 3.2
percent) saw the greatest increases, in keeping with the GOT's
"Agriculture First" policy. Despite the overall increase in the
budget and Tanzania's ongoing power problems, energy sector funding
(3 percent) declines by nearly a quarter under this budget. Outside
development-related sectors, home affairs including law enforcement
(4 percent) and defense (3 percent) grow slightly faster than the
overall budget.

LENHARDT

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