Poverty and Human Development Report 2009 - UNDP in Tanzania

To achieve its long-term goal, the LGRP aims to strengthen local financing and planning by:
(i) enhancing the procedures whereby the central government provides budget
allocations to LGAs;
(ii) increasing revenue collections by LGAs through reforms to local tax systems; and
(iii) improving financial management in LGAs.
CHAPTER 1 - CLUSTER III - GOAL 2
The overall objectives of the fiscal reforms are to ensure that local authorities have adequate
funding to deliver social services, have greater responsibility and autonomy in allocating their
budgets, and use financial resources prudently. In line with local government reforms, key sectors,
such as education and health, have also reformed and increased their financing to LGAs.
The specific MKUKUTA indicator related to financial allocations to local government
authorities is the ‘Percentage of LGAs that receive the full calculated amount of their annual
formula-based budget allocation’. However, as discussed in detail below, the roll-out of
formula-based allocations is still in progress. Therefore, the proxy indicator ‘Percentage of
LGAs qualifying for Local Government Capital Development Grants’ is monitored. Data show
that the proportion of LGAs that qualified for the LGCDG has increased from 51% in 2006/07
to 98% in 2009/10. To more comprehensively assess progress towards meeting Goal 2, the
achievements and ongoing challenges of the LGA fiscal reform process are examined in the
following sections.
Formula-based Budget Allocations
In 2004, an important agreement between the Government of Tanzania and Development
Partners was reached in principle towards reforming central government fiscal transfers to LGAs,
whereby formulas would be applied to calculate allocations to LGAs for recurrent expenditures
in six key sectors – education, health, local roads, agriculture, water and administration – and a
new joint donor-Government funded block grant for development, the Local Government Capital
Development Grant (LGCDG) was introduced. The primary objectives of these reforms were to:
(i) share resources more transparently and fairly by application of needs-based formulas; and
(ii) to enhance LGAs’ autonomy in budget allocations and implementation of local
development plans.
Progress in the reform of recurrent fiscal transfers has been modest. Although formula-based
allocations were agreed and endorsed by the Cabinet, they have not yet been fully implemented
(PMO-RALG, 2007b and 2007c). Recurrent transfers are predominantly composed of personal
emoluments (PE). However, staff recruitment and deployment remains largely centralised, so it
has not been possible to apply formula-based allocations in practice. As a consequence, fiscal
allocations to LGAs are unequal. Figure 47 presents data on allocations for education staff in
selected councils in 2007/08. The figure shows that allocations for council education staff ranged
from TShs 5,000 to over Tshs 20,000 per capita.
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