Zanzibar Public Expenditure Review 2003 : Laying the Foundations for Improved Public Expenditure Management
Zanzibar finds itself currently in an extremely precarious fiscal situation, caused by the dramatic decline in government revenue during the past four years. The decline is primarily the result of the harmonization of tax policy, and administration...
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| Format: | Public Expenditure Review |
| Language: | English en_US |
| Published: |
Washington, DC
2013
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| Online Access: | http://documents.worldbank.org/curated/en/2003/06/2874645/tanzania-zanzibar-public-expenditure-review-2003-laying-foundations-improved-public-expenditure-management http://hdl.handle.net/10986/14675 |
| Summary: | Zanzibar finds itself currently in an
extremely precarious fiscal situation, caused by the
dramatic decline in government revenue during the past four
years. The decline is primarily the result of the
harmonization of tax policy, and administration between
Tanzania Mainland and Zanzibar, and as such, is likely to be
permanent. Increasing revenue will require significant
improvements in tax policy and administration, and is likely
to be a slow process. In the short to medium term, the key
challenge for Zanzibar is to adjust budgets, and the level
and structure of public expenditures, to the new reality of
a considerably smaller resource envelope. To date, the
burden of adjustment has fallen exclusively on development,
and non-wage expenditures, which have been cut in line with
the fall in resources. This has led to a severe structural
imbalance in Zanzibar's public expenditures, with
expenditures on wages and salaries claiming 62 percent of
recurrent expenditures. This structural imbalance between
wage and non-wage expenditures, has direct implications for
Government's capacity to deliver services, as staff
often lack the means to carry out their functions. In
addition to fiscal and public expenditure issues, this
public expenditure review also assesses the role of the
wider public sector in the Zanzibar economy. Here the most
urgent need for reform concerns the role of the Zanzibar
State Trading Corporation, which currently enjoys a monopoly
on the export of cloves, Zanzibar's main agricultural
product. Removing the monopoly and liberalizing the clove
sector, is likely to have significant positive welfare
implications for clove farmers and the Zanzibar economy.
Main reasons for the high variability of revenue, include
the fact that Zanzibar collects most of its revenue from
indirect taxes, which reflect instability in the performance
of imports, and production of cloves. Possible options to
reduce this variability include (i) diversification of the
tax system to reduce dependence on taxation of trade, and,
(ii) reform of the indirect tax regime to have more
predictable rates, and a standard valuation of imports. |
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