Madagascar - Manpower Training Project

cz/L~ Ac s+ - Y Docment of The World Bank FOR OMCLAL USE ONLY MICROFICHE COPY Report No. P- 5488-MAG Type: (PM) BLAY, PAUL/ X34013 / / AF3PH MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 16.7 MILLION TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR FOR A MANPOWER TRAINING PROJECT 0 MAY 18, 1992 This docment has a restrictd distibutin and may be usd by recipiets only in the performace of their official duti. Its contents may not orwise be disdosed without World Bank autorization.  URRENY ALENT (March 1992) Currency Unit = Malagasy franc (FMG) USS 1.00 = FM 1800 FMG 1000 = US$ 0.55 SDR 1 = FMG 2458 FMG 1000 = SDR 0.41 SDR 1 = USS 1.36555 MEASURES Metric System DEiMOCRAT[C REPUBLIC OF MADAGASCAR FISCAL YA 1 January - 31 Deember ACADEM YEAR October - June GLOSSAQ OF ABBREVIATIONS ASAC Agricultural Sector Adjustment Credit BPE Education Project Office CNFTP National Technical and Vocational Taining Council CRESED Education Sector Reinforcement Credit (Credit pour le Renforcement du Secteur de l'Education) DET Department of Technical and Vocational Education ENFAR National Civil Service Training School FAC French Aid and Cooperation Fund ILO International Labor Office INPF National Vocational Training Institte ISAC Industril Sector Adjustment Credit IST Higher Technological Institue rTPAC Industry and Trade Policy Adjusent Credit MEF Ministy of Employment and Training MIP Minist of Education MU Ministry of Universities OGL Open General Licensing Stem PSAC Public Sector Adjustment Credit TEFISO Public sector vocational schools TUT Sales tax TVET Technical and Vocationia Education and Training UNDP United Nations Development Program  FOR OMCIAL USE ONLY MADAGASCAR MANPOW aRAR NlM Q CRED1 AND) paR1E SUIQMUA Democratic Republic of Madagascar. National Technical and Vocadonal Taining Counci (CNFTP), and through it, private, NGO and public taiing institutions; Miniy of Education (MIP); Ministry of Employment and Trainn OM ; Minstes of Agriculture, Livestock and Forestry; National Vocadonal Training Institut (INPF); National Civil Service Trainig School (ENFAR). SDR 16.7- million (US$22.8 million eqivalent). Ternm: Standard with 40 years maturity. Onlending Terms: Not applicable. Government will grant funds to CNFTP, INPF and ENFAR. Einamcg ~Plan:- Goverment and beneficiaries 4.9 (uS$ million) France 2.2 UNDP 1.6 IDA Total 1 L Economic Rate of Not applicable. staff AVVMIW R".- No. 9365-MAG. * JU IBRD 20035R. 1/ Including taxes of US$1.7 million equvalent but excluding import duties of US$2.4 equivalent. This document has a restricted distribution and may be used by recipients onlY in the performance of their oMcial duties. Its contents may not otherwise be discosed without World Bank authoization.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CRED1T TO THE DEMOCRATIC REPUBLIC OF MADAGASCAR EQRAWMETRAININGf PROJECr 1. I submit for your approval the following report and recoendaion on a proposed development credit to Madagascar for SDR 16.7 mfllion, the equivalent of US$22.8 million on standard InDA terms with a maturity of 40 years to help finance a project for manpower training. The project would be co-financed by France (FAC) for US$2.2 million equivalent and by UNDP for US$1.6 million. 2. Part I of the present document describs the country's policies and the Bank's assistance stratgy. I draws upon recent economic mLss!.s to Madagascar. Part 1H describes the credit, the rationale for IDA involvement, project objectives, agreements reached, and the risks of the operation. PART I - COUNTRY POIUCIES AND BANK GROUP ASSISTANCE STRATEY A. Eonodc Polides and PeIormance 3. With a population of about 11.6 milion growing at three percent per year and a per-capita income estmated at US$230 in 1990, Madagc is one of the least-developed countries in the world. Income distribution is unequal and poverty is widespread. Madagascar is the world's fourth lagest island, with a rugged topography, a wide range of soil and climate, a rich minerad endowment, and unique flora and fauna. The economy is predominanty based on agriculture, with about 80 percent of the population living in rural areas and agriculture providing about 80 percent of mrchandise export earnings. Rice is the country's main staple, and the major exports are vanilla, coffee, cloves and, more recently, shellfish. The agricultural sector is dominated by small-scale farms which produce both -sport and food crops; a few large fams (private or public) produce industrial and some export v ops (e.g., sugar, cotton and sisal). The industrial sector (about 10 percent of GDP) is undergoing a major transformation away from capital-intensive, import substitng activities, toward labor-intensive and export-oriented production. The couny has significant long-term economic potential, given its industrious labor force and its ample natura resources. 4. Since independence in 1960, Madagascar's economic record is one of modest growth to 1970, stagnation from 1970 to 1980, sharp detrioration between 1980 and 1982, and financia stbiliation with limited economic growth from 1983 through 1987. Beginning in 1988. conomic results were encouraging. The country expenenced positive per capita -albeit modest- GDP growth in three consecutive years (1988-0), with tangible evidence of increased private investment, especially in labor-intensive, export-oriented ventures. During the second half of 1991, political turmoil swept the country, severely dirupting economic activity. In Jamny 1992, transitional governing institutions were set in place; a new government is expected to be instaled by end-1992, following preidential and parliamentary elections. The transitional government has confirmed its support for the adjustment process. Its limited mandate, however, may affect its ablity to implement the strong stabilization and reform measures needed to reestablish the conditions for sustained growth.  StbU 4AWudabuuJL i3. S. lhe diointaig growth performance of the 1970s was largely caused by the move from an open-market economy to a tightly reulated, command economy. Th role of the public sectr gready increased, following the nationalization of foreign-owned assets and the introduction of pervasive economic controls. Import substitutionand industrializaonbecame cenral objectves, with agdculture relegated to a suppordlg role. In the late 1970s, tis strategy culminated in an ambitious public investmen program composed of lage, capital-intensive and economically non-viable projects, financed to a large etet by etera borrowing on commercial terms. This policy, together with the declining terms of trade and stagnat domestic revenues, led to a wideing of externa and domestic disequlibria, high infation, and a contraction in real GIP of 11 percent between 1980 and 1982. Moeover, the extna debt burden inceaased substantially, constraining economic growth to this day. 6. During the 1983-1985 period, the Govement carried out a generally succsul stabilization program with IMP suppotL The program succeeded in halting the economic decline, and GDP grew by 1.4 percent per annum on average between 1983 and 1987. On the exernal side, while exports declined i no minal dollar terms and interest paymen soared, there was a major contraction in imot, which dropped by more tan 40 percent in real terms during thet frst half of the 1980s. These developments, together with Icreasing extern aid flows, helped improve significandy bMdagascars balace of payments situation. However, economic recovery was hampered by strctual constaints, including an ovewrvlued curren, widespread quantitative Impott restrictions and prce controls, a bloated and inefficient parastat sector, a badly deterated and obsolete Infrastructure, poor public services, and pervasive govenmen ference m vually all aspects of economic life. 7. To address these structura ostr , the Governme launched a structural adjustment program in 1985. The adjustomt process was first initiated at the sector level, with the support of an IDA-financed Indusal Sector Adjumt Cedit (ISAC) in FY8S and an Agricultural Sector Adjustmet Credit (ASAC) in FY86. In the industrW setor, in 1985-86 the Govment eliminated ost ex-try price controls, reduced contols on profit margins, eliminated export taxes on manuface products, removed some merchandise impor. proibitions, and improved the quality of public investments in the sector. In agriculture, the Govermment fully liberalized the domestic rice pricng and marketin system in 1986, and started to rationalize public investmens in the sector. Imports of rice, which had peaked at 351,000 tons in 1982, declined to 76,000 by 1990 (equivalent to less than 5 percet of total rice production). 8. In 1987, the Government embarked on a broader reform ageada spelled out in is first Policy Framework Paper P) covertng 1987-90. IhIs PFP formed the basis for an arrangement under the IMP's StCtual Adjustment Facility (SAP) and for IDA's Industry and Trade Policy Adjustment Credit (TFAC) approved in PY87. In 1988, a second PFP (1988.91) laid the foundation for an Enhanced SAP (ESAF) and for IDA's Public Sector Adjustment Credit (PSAC) approved in FY88. In June 1990, a third PFP (1990-92) ouning the Government's program to consolidate the reform process was discussed by the Commite of the Whole, and provided the basis for a second year drawing mlder the ESAF arrangement. 9. The policy refonns drn since the mid-1980s have drtically altered the economic evironmn of Madagasar. With regards to foreign eajchanfe and trade liberalization, the Goverment devalued the Malagasy Franc (FMG) by a cumulave 53 percent in trade-weighted oreign currency terms in 1987, and in 1988 the FMG was further depr_eated by a total 14 percent.  -3 - As a tesult, by 1989, the real effective exchge rate had fallen to about 40 percent of its 1982 level. This major exchange rate adjustment enabled the Government to eliminate quantitative restridctions on imports in 1988, to launch a four-year program of tariff reform, and to Introduce an automatic allocation of foreign eage for merchandise imports dtough an Open General Licensing system (00L). In addition, export restrictions wee substantially reduced, all state agricultural monopolies were eliminated (except for vanilla), and export taxes were abolished on all but the three traditional products (i.e., coffee, cloves and vanilla). Nominal and effective protection were lowered by reducing the number of import tariff rates from 69 (ramging fom 0 to 1,000 percent) in 1987 to 14 rates (ranging from 5 to 60 percent) in 1991. The Government also decided to reduce the number of tariff rates to 5 (rangig from 10 to 50 percent) in 1992. In parallel to this external trade liberalization, all remaining domestic price controls were lifted, except for natural monopolies and stae-cotolled sectors (e.g., vanilla, tobacco, suga, wheat). 10. In the fi ial sector. where all banks were owned by the state and were experiencing severe financial problems as well as weak and worsening portfolios, the Government also undertook a major reform. Specifically, by end-1989 the portfolios of the three state-owned banks had been cleaned-up of all non-performing and of most doubtful assets. In 1990, a futly private new bank with majority foreign capital started operations and, in early 1991, one of the three sta-owned banks (BNI) was privatzed, while a second (BFV) obtained minority private participation, and two private foreign banks opened represetations in Madagascar. In 1990, to encourage further competition in the financial sector, the Central Bank began replacing direct quantitative control mechanisms with a more flexible system based on the use of indirect market instruments. 11. Starting in 1987, the Government inidated a major reform of the owned enterpries with the objective of witdrawing the state from productive and commercial activities. Although measurable progress was achieved in this area, the divestture process proved more difficult than manicipated initly, In large part a reflection of lack of government commitment. In ubic finance, significant improvement in the programming and composition of public expenditure was achieved; however, progress in the reform of the budgetary system was slower than anticipated. A cI serytee rmf~ process was launched in 1990 with a census of the civil service, the results of which are in the process of being validated. A civil services assessment study, completed with Bank assistance in June 1991, has provided the basis for the preparation of a comprehensive civil service reform action plan. To encourage d[ nestment ad e diversification, a new Investment Code and freetrade zone legislation were promulgated in December 1989. Finally, social and environental concerns were integrated more explicitly in the Government's f cial and economic program, and a targeted poverty alleviation program was launched, supported by the IDA-financed Economic Management and Social Action project approved FY89. 12. Overall, despite slower than expected ptogress in *process-oriented" policy improvements (i.e., budgetary and public enterprise reforms), the cumulative implementation of the package of sectoral and macroeconomic refom implemented since 1985 was far reaching, and the difference between the policy landscape of 1985 and that prevailing before the start of the political turmoil in 1991 was striking. The adjustment program had undeniably led to a more open and market-oriented economy and had contrbuted to the resumption of per-capita growth. More importantly, a broad conensus formed in Goverment and business circles that Madagascar's experimen in centrally- planned development had failed and that the key to sustained development would be a reduction in the role of the state in economic activity and a commensurate increase in private sector activity. Economic progress was accompanied by political liberalizadon, which began in 1989 with the lifing of press censorship and included unrestricted multi-party activity, as well as steps to adapt the counys socialist constitution to the new market orientation of M?-agascar.  -4- 13C t Develg=m n (1990-91 13. Macroeconomic developments in 1990 confirmed that while economic recovery was well underway, it remained fragile. Strong growth in new export-oriented manufacturing activities (garments, leather, woodwork) - fueled by a substamn increase in domestic and foreign private investment - and in trade and tourism-related services led to a third successive year of positive per capita - albeit modest - GDP growth. At the same time, the overall fiscal deficit (including external grants) declined from 4.1 percent of GDP in 1989 to less than 1 percent in 1990 (see Table 1), owing to the joint effect of a lower- -2an-programmed implementation of public investment expendiures and increased fiscal revenues from import taxes, stemming f-,m an exceptional surge in ImVorts. Merchandise imports rose by 58 percent in nominal U.S. dollar terms as a result of an uncontrolled expansion of credit (provided targely through BTM, the only remaining fully state-owned commercial bank), an appreciating real effective exdhange rate and an increased oil bill. This, together with stagnating merchandise exports in current dollar tems, due largely to the continued sharp decreases in the pi.ces of the country's major exports (in particular that of coffee), produced a trade deficit of 6 percent of GDP compared to a small surplus in 1989. The external cuffent account deficit widened from 8.6 percent of GDP in 1989 to 1O.7 percent in 1990. These factors, combined with lower-than expected aid inflows, caused foreign exchange reserves to decline from five months of imports at end- 1989 to less than two months by end-1990. Table 1: Selected Economic Indicatoreg 1987' 1988 1989 19 1991 GROWTH RATESW GDP at market prices 1.2 3.4 4.1 3.1 -63 Exports (GNFS) 18.2 0.6 24.0 11.1 -42 l.pwrts (GNFS) -1.4 -10.3 6.2 26.3 -22.1 RATIOS Ci)" current External Account/GDPO -9.? -11.0 -8.6 -11.7 -105 Debt Servfce/Exports (G#FS)S 37.9 49.0 53.1 42.1 68.0 Gross Investment/GDP 10.1 13.3 13.4 17.0 9.0 Gross Domestic Savings/GDP 5.2 7.1 9.5 8.2 2A Public Savings/GDP 4.3 3.5 5.6 7.0 05 Govt RevenuJ/GDPV 15.4 13.8 15.4 16.2 10A Govt Total Expenditure/GOP 18.1 17.2 19.5 17.1 15.6 Overalt Budget Deficit/GDP' -2.7 -3.4 -4.1 -0.9 -52 INDICES GDP Deflator (oroith) 22.9 21.2 10.8 12.9 12.8 Terms of Trade (1987 - 100) 100.0 84.9 82.8 73.8 67.0 Real Effective Exchanve Rate (1987 a 100) 100.0 91.3 88.4 92.8 79.8 gf Based on Wevied dafta provided by tOe Govermen In Ajuil 1992 kIBosed on 1900 constant pdous St Based on crrent pdice if Exciudin grants gI Afte redulin 14. Ihe Government acted, albeit slowly, to restore financial equilibria by devaluing the FMG by 16 percent in foreign currency term and by severely tightening credit expansion between November 1990 and June 1991. The above measures, and increased external support, helped improve the country's eernad position during the first half of 1991. The Government took these  -5- corrective measures in the context of a broader effort to renew the adjustment momentum. Negotiations on a fourth PFP (1991-94) were completed in July 1991-and IDA's next adjustment operation (a Private Sector Environment Adjustment Credit) was in an advanced stAge of preparation- when the country was plunged into a polidcal crisis. 15. The political turmoil that swept the country in July 1991 and which has persisted through the present derailed the adjustment effort. Widespread demonstrations and strikes, including by the civil service, paralyzed the public administration and severely disrupted economic activity. Output fell by an estimd 6.3 percent, and inflaionary pressures Increased. The shortfall In tax collection due to the civil service strike resulted In a budget deficit equivalent to 5.2 percent of GDP. The extena position of Madagascar also weakened further in 1991. Notwithstanding important disbursements of balance of payments support during the first half of the year and a 20 percent reduction in imports in dollar terms (in part due to the under-implementation of the PIP), the country's poor export performance led to an overall balance of payments deficit of US$221 million for the year. ITis deficit was financed by an accumation of extal payments arrears (US$173 milion by end-l991) and the depletion of reserves. The growing shortage of foreign exchange during the second half of the year led to the suspension of the OGL system in October and its replacement by a rationing mechanism of foreign exchange alocation. Despite the above economic environment, the private sector - especially export-oriented industries - were better able to weather the political crisis of 1991-92 than other sectors. This has reinforced the widespread change in atitudes in the country, which now are firmly on the side of adjustment and private-sector-spurred growth across the political spectrmL 16. Meanwhile, the political reform process has continmed. A transitional power-sharing arrangement agreed in late October by all major political forces became effective in Jamnary 1992. Under this arrangement, President Ratsiraka remans in office with greatly diminished executive powers; the National Assembly was dissolved and replaced by a High State Authority headed by a key opposition leader; and a Government of national consensus was formed. A referendum on the new Constition is scheduled for June 1992, to be followed by Presidential and Legislative elections latr during the year. B. Development Constraints and Issues 17. Madagascar has significant long-term development potential, stemming from its industrious labor force and a diversified and favorable resource base. There is substantial scope for the expansion of non-traditional exports (particularly in fishing, agriculture, mining, and labor-intensive manufacturing activities such as garments, leather, and woodwork), and of tourism. This potential is in stark contrast with the low level of per-capita income, the widespread incidence of poverty throughout the country, particularly in the rural areas, and the spiral of envron t degradation that threatens not only Madagascar's unique heritage of bio-diversity, but sustainable economic development as well. To realize its growth potenti while reducing poverty, Madagascar needs to overcome short-term issues and address the remaining structura constraints in the economy as discussed below. Short-Term -Tsue 18. Madagascar is at a crossroads. The country faces the challenge of managing a political transition towards a stable and democratic political system, while arresting the macroeconomic  -6- slippage and the decline In social conditions, and re-dynamizing the adjustment process. The immediate priorities are to correct the macroeconomic imbalances and to create a stable political environment conducive to a resumption of private sector Investment. 19. The transitional Governmet has confirmed its commiment to the adjustment process. At the same time, however, the multiplicity of inteim govering insttutions with overlapping responsbility and authority In economic management limits its ability to Implement decisions. Moreover, in an electoral year, the authorities may be reluctant to take the stabilization and structural economic measures needed to restore macroeconomic balances, particularly those wh!,ih may be deemed politically sensitive, such as: higher taxes, especally on petroleum products; reduction and reallocation of public expenditure; stricter monetary policy; and maintaining the competitiveness of the economy through a flexible exchange rate policy. 20. Parallel BanklIM missions visited Madscar in April 1992. Although the authorities were forthcoming on the principles of the needed reforms, they were unable to decide on the specific measures. As a result, the missions could not reach agreement on a coherent maroeconomic framework for 1992. Consequently, Madagascar was unable to gain access to IMF resources under the third year ESAF arrangement, for which the commitment period in the case of Madagascar expired on May 14, 1992. The authorities and the IM are now considering the possibility of a Stand-by arngement for 199293. The latter is a condition for the country's access to Paris Club rescheduling and for additiona balance of payments assistance. A failure to obtaun generous debt relief and rescheduling of existing arrears would result in the further accumulation of exal arrears. For its part, the Bank would be prepared to support an agreed macroeconomic program in 1992 by providing balance of payments assisunce through the release of the third tranche of the Public Sector Adjustment Credit (PSAC), provided the Government also restores the policy reforms undertaken under the previous phase of adjusmen (e.g., OGL), and meets the specific conditions of the third tranche release (e.g., civil service reform action plan, public enterprise reform). strauchat l1s ues 21. Notwithstanding the encouraging results of 1988-1990, the supply response to the structural reform program implemented since 1985 has not reached its potental. Traditioa export crops and import substituting industries contined to stagnate. The emergence of new activities in manufacturing, non-traditional agricultural exports and tourism-related services was promising and in many instances impressive; however, since these activities stareld from a very low base, they attained a relatively limited scope and had, therefore, a limited impact on the overal econmy. The swpply response has been constrained in pardcular by important physical (fifrastructure) bottenecks, poorly finctioning commodity and factor markets, a heavy debt burden, and adverse terms of trade. The growth in new exports is rapid and promising, but is not yet large enough to compensate for the sharp decline in the prices of the country's traditional exports. 22. The tansport and communication i ctre is inadequate, given hdagsca's size, rugged topography and remoteness from world markets, and it is not adequatey mainned and operated. This inhibits economic development and reduces the coury's extra competitiveness. Domestic omodity markets, in particular for agricultura goods, have benefted from liberlization, as shown by the increased availability and diversity of goods. These markets are, however, far from efficient ad remain caactrzed by unduly large price fluctuations and lack of iegation (e.g., farmgate prices can move in different directons in neighboring regions). There are remaining barriers to entry on the domestic and export markets related to: licensing and other administrative  -7- requirements; lack of access to information, market inteligence, kiow-how, capital and trade credit; and foreign exchange controls, including on services and capital. Ihese barriers perpet the de facto oligopolistc trading and industril structre (e.g., In vanilla, catde export, cotton gnning and processing, sugar) inherited from the color4W period and stengthened during the 'socialist' era. Labor markets are hampered by the generally poor quality of education, a shortage of qualified manpower adapted to the evolving needs of the economy, and restrictive labor regulations. Private investment is constrained by excessive regulations, the low level of domestic savings, and an under- developed financial system which hampers the mobilization of savings and financial intermediaon. 23. Other major development constraints include a high population growth, widespread poverty and deplorable social conditions, food insecurity and environmental degradation. Madagascar's average population density (19.8 Inhabitants per square km) is comparatively low. However, the pattern of settlement results in 'ocalized areas of intense population pressure. With mobility severely constrained by geographic and social factors (e.g., access to land, insecurity in the rural areas), population growth is a paramount long-range concern. At the current 3 percent anmal growth rate, Madagascar's population would reach 20 million by the year 2005. In addition to absorbing most of the gains in production, such an increase would put an unsu ble burden on the country's capacity to provide adequate basic social services and infrastructure, and on the already-endangered unique environment. 24. Madagascar's social conditions are below sub-Saharan African standards. Child mortality rates are high (around 20 percent of live births); endemic and communicable diseases are prevalert (malaria has become a major health pwoblem); the basic education system is crippled by indequate fumding, and management problems and school enrollment rates are falling, albeit from high initial levels; chronic malnutrition affects some 40 percent of the populaton; and the primary health care system is largely inperative, owing mainly to the lack of medical suplies and inadequate access to qualified staff. 25. The absence of agricutural intensification in the densely populated areas of Madagascar, combined with the lack of viable off-farm opportnities, lead to the cultivation of unprotected hill slopes, and the expansion of agriculture into increasingly marginal areas using 'slash and burn agricultural practices. In turn, these agricultural practices lead to soil erosion, deforestation, fiuther declines in agrictural productivity, and widespread in uc degradation, partidcularly silting up of downstream ports and irrigation schemes, and destruction of roads and bridges. In addition, the progression of "slash and burn" agriculture into the primary forest areas increasingly threatens the natural environment and the wildlife that is unique to Madagascar. 26. Madagascar's import and savings capacity is severely restricted by its heavy debt service burden and the deteriorating terms of trade. Since 1981, Madagascar has signed seven rescheduling agreements with the Paris Club, and four with the London Club. The country also benefitted from US$516 milion equivalent in debt cancellation in 1989, mainly from France. Despite this debt relief and the highly concessionad terms of the debt coated after 1982, debt service remains high. In 1991, total debt outanding amounted to 117 percent of GDP, and debt service payments after rescheduling represented 68 percent of export of goods and services. The pace and scope of economic recovery will depend on the country's ability to ease this debt burden through further debt cancellation and innovative debt relief schemes, and on its continued access to highly concessional new financing. Madagascar's terms of trade deteriorated by a third between 1987 and 1991, a reflection of the structura concentraion of exports on too few primary commodities for which price prospects are unattractive (e.g., coffee, cloves, vanilla), and a diversification drive not rapid enough to compensate for the decline in traditional export prices.  -8- 27. In the absence of an agreed macroeconomic framework between the Government on the one hand and the Bretton Woods institutions on the other, the economic prospects presented below are based on simulations prepared by Bank staff. As in the 1991-94 PPP, the projections presented below have as their main objective the restoration of sustainable real per capita growth In the context of medium-term balance of payments viability and domestic price stability. The attainment of this objective depends on a successfiu and rapid polidcal transition, and the Government's ability to restore the macroeconomic equilibria stardng in late 1992 and to Implement the adjustment measures required to alleviate the strucur constraints outlined in the previous section. 28. The key targets of these tentative projections are to: (i) reach a 4 percent annual GDP growth rate by 1995; (i) lower the inflation rate from 13 percent in 1992 to 8 percent in 1995; and iii) reduce the external current account deficit, excluding official transfers, from 10.5 percent of GDP in 1991 to about 7.6 percent In 1992 onwards. Achieving these targets will require a steady increase in investment from the unusually low level of 9 percent of GDP in 1991 (compared to 14.5 percent of GDP on average in 1988-90) to 17.9 percent of GDP by 1995, with private investment rising comparatively faster in response to expected improvements in the policy environment and in public investment concentaig on physical and social inastructure. According to these projections, domestic savings would be restored to its pre-crisis level of 8.5 percent by 1993 (from the low 2.4 percent in 1991), essentially due to restored public savings, and would reach 11.4 percent by 1995. External viability would be fostered by an active exchange rate policy, the acceleration of export diversification, the growth in foreign private investment, and the ensuing decrease in dependence on external aid. 29. In addition to political stability, these medium-term prospects hinge on two important assumptions: a sustained rise in imports to maintain the recovery from the severely depressed levels of the 1980s, and a condtuous improvement in domestic savings performance. The first assumption implies continued balance of paymens support, while the second calls for an improvement in uio financial system and in tax aiministration as well as the progressive reduction of Government consumption. 30. Total gross external financing requrement for 1992-1995, including the needed resources to build up gross external reserves progressively to the equivalent of S months of imports by 1995, and repay the external arrears accumulated in 1991 (US$172.8 million), are estimated at US$2.3 billion. Altogether, official grants, foreign direct mvestment, disbursements of already committed balance of payments support, and project-related disbursents are anticipated to provide about 56 percent of this amount. Ihe remaining gap is about US$1 billion, or an anmnal average of US$260 million, a level similar to that of previous years. The external financing gap could be financed by additional IMF resources, further debt relief, and new quick-disbursing aid, including a rumption of IlDA policy-based lending. 31. The projections also assume tat the transitional Govermnent and the IMB could agree on a program In 1992, and that the Government would be able to implement strong stabilization and adjustment measures before year-end, including a sharp reduction of the budget deficit from 5.2 percent of GDP in 1991 to 1.6 percent in 1992, improving the execution of the PIP, and complying with the remaining conditions of the third tanche of the PSAC. Failure by the Malagasy authorities to stabilize the economy in 1992 and to pursue aggressively the implementation of structural reforms is likely to aggravate the country's financal situation, leading to further accumuilation of externa arears, increased rationing of foreign exchange and, ultimately, delayed economic recovery.  C. Bank Group Assiance Strategy Composition of Past Bank Assistance 32. Since 1966, Madagascar has received 56 IDA credits and five IBRD loans for a total of US$1,183.2 million, and five investment operationa frm IFC totaling US$34.9 million (oan and equity invesmt). Bank Group lending (72.4 percen of totl) financed: (a) infrastructure (27.7 percent), including road maintenance, cyclone damage rehabilitation, railway sub-sector rehabilitation, port rehabilitation, water supply and sanitation, and urban development; (b) agriculture and rural development (20.6 percent), including Irigation rehabilitation, foresty, livestock development, agricultural credit, development of the rice and cotton sub-sectors, agricultura services, environment, and institutional building; (c) human resources development (9.5 percent) in primary and secondary educadon, accounting and management training, and prinary health care; (d) energy (7.6 percent), including hydro-electric power generation and oil exploration; (e) industry and finance (5.2 percent); and (g) an economic management and social action program (1.8 percent). Ai lending (27.6 percent of total) financed: (a) two operations in the industrial sector (12.1 percent); (b) a public sector reform program (11 percent); and an agricultural sector reform program (4.5 percent). Table 2: Distribution of Lending FY66-92 lOtUl. LItI1tUMS (PIOMM3 AC%1VD 68 Of g,73iM uSS N O.Of x uS$ ofhich Nitlion Projects Undisburaed Million Undisbursed Undisbursed Investment Lendina Agriculture 244 20.6 22 34.8 129 85 65.9 Infrastructure 328 27.7 21 22.8 111 75 67.6 Htusr Resources 112 9.5 6 70.5 80 79 98.8 Industry & Finance 62 5.2 3 83.9 57 52 91.2 Energy 89 7.6 4 17.9 25 16 64.0 Econ. Ngt. & Socfal 22 1.8 1 86.4 22 19 86.4 Action Sab-Total 857 72.4 ST 38.0 42U 326 76.9 AdusmUent Lendir. Public Sector 131 1.0 1 35.9 131 47 35.9 Ag. Sector 53 4.5 1 0 - - Industrial Sector 143 12.1 2 0 - - Total 1183 100 61 31.5 55 373 67.2 33. IDA commitments increased markedly in the FY85-91 period with the approval of four adjustment opetiuons in FY86-88 and incrased investment leading acro the board. Tot anal commitments for investment projects averaged US$82.1 million in FY89-91 compared to US$49.6 million in the previous three fiscal years. Ihe current portfolio consists of 22 IDA credits. About 67% of total outstanding commients remain undisbursed (US$373.6 million). Disbursemens for investment operations averaged US$37.8 milion p.a. in FY88-89, US$28.6 million p.a. in FY90-91, and are estimated at about US$20 million in FY92. In addition to the 1991 political turmoil which affected the implementation of public investmet in 1991 and in 1992, the factors contribut to the low rate of diabursement for investment operations are: (i) cumbersome in-coutry procurement  - 10- procedures; (ii) weak implementation capacity by the public administration; and (iii) shortage of counterpart finding. Following a Country Imlementation Review in April 1992, the Government took several measures to accelerate procurement and disbursement. Disbursements for adigilMent lending averaged US$62.5 million p.a. in FY88-89, US$61.8 million p.a. in FY90-91, and US$2 million during the first three quarters of FY92. Three of the four adjustment operations have been fully disbursed. The first two tranches of the last adjustment operation (PSAC) approved by the Executive Directors in FY88 were disbursed albeit with some delay; the release of the third and last tranche of the PSAC (about US$47 million equivalent) has been delayed by the Government's slow progrs in meeting the specific conditions of tranche releaae and inability to n aintain a viable macroeconomic framework. Objectives and Straleg 34. The Bank's over-arching objectives In Madagascar are to help promote sustained export-led growth with equity, to help reduce poverty and to protect the environment. In pursuing these objectives through its lending and economic and sector work, the Bank is giving priority to: (i) improving macroeconomic management; (ii) reducing the role and scope of the public sector and trengthening its management; (iii) promoting export diversification through private secto. development and external competitiveness; (iv) alleviating widespread poverty; and (v) removing physical and human capital constraints to sustainable long-term growth. 35. Since the start of the recent political turmoil, the Bank's lending activities in Madagascar have been in a de facto core* mode, pending improvement in the macroeconomic environment: the Manpower Training project recommended in this report is the only operation in the FY92 lending program. Given the current level of uncertainty with respect to the ability of Madagascar to resume implementing its reform program and stabilize the economy, the Bank's lending strategy for the medium-term calls for lending which would be modulated, depending on country performance, from a *full" to a "core* p wm. The full lending program corresponds to current expectations that the Govenment will stabilize the economy, resume the adjustment process aggressively, combat poverty and environ l degradation, and Improve the implementation pace of the Bank's project portfolio. The scenario L predicated upon the Bank responding quickly and flexibly to the evolving economic and political situation, by mtching progress and perormance by the Government in addressing the priorities outlined above, in particular on the adjustment and stabilization front, with ieased financial support. At the other extreme, if the government fails to improve macroeconomic management and stabilize the economy, implement adjustment reforms, deal aggressively with the problem of deteriorating social conditions and increase the disbursement rate of IDA-financed projects, the Bank would shift formally to a 'core mode of financial assistance to the country. Under this scenario, the Bank would hold-off fiurther quick-disbursing assistance and major sector nvestment operations and shift to a core lending program aimed at preserving the long-term development poteni of Madagasc, through investment for poverty alleviation, infrastructure maintenan and rehabilitation, and human capital development. Priorities for Bank A,sistance Under a Full Program 36. The proposed full IDA lending program would consist of about three operations a year and mount to US$12 per capita. he full lending program over FY93-95 would include two adjustment operations. Ihe share of quick-disbursing support to total IDA lending is exptd to be in the 25-35 percent range, depending on the degree of the Government's adjustment effbrt as well as the country's finan.n requirement.  - 11 - 37. Adjustment lending (a proposed Structural Adjustment Credit and a follow-up financial sector adjustment credit) would support the re-ivigoration of the adjustment process and the completion of the unfinished policy reform agenda. The proposed SAC would be designed to support reforms necessitated by the recent macroeconomic slippage (e.g., restoration of OGL, flexible exchange rate policy) as well as reforms initially planned under a Private Sector Environment Adjustment Credit (e.g., liberalization of the vanilla, air transport and insurance sectors, removal of foreign exchange controls on services, and the remaining barriers to entry on the domestic and exteml markets), the processing of which was stopped as a consequence of the political events of 1991. The. financal sector adjustment credit would support the deepening of financial sector reforms. Investment operations would support private sector development by providing capital through the commercial banking system at positive interest rates in real terms, and by improving the provision and quality of essential public infrastrcture and services. Lending for poverty alleviation would be pursued vigorously by channelling resources directly to efficient NMOs and by increased cost-recovery to redirect scarce public resources to the poorest, on the basis of sectoral public expenditure reviews and social sectors surveys. 38. Macroeconomc Mangement and Adjustment Process. The frst priority in Madagascar is to stabilize the economy by restoring macroeconomic management and reviving the adjustment process. The latter entails, Inter alia, recovering lost ground (e.g., in the area of exchange rate) and moving ahead with new reforms to strengthen the enabling envirorunent for the private sector. Urgently needed macroeconomic measures include tighter fiscal management, administrative and civil service reform, monetary and financial sector discipline, and accelerated public sector reform. The Bank could support the stabilization efforts by contributing to an external assistance package including balance-of-payments aid and debt relief (e.g., rescheduling and/or debt cancellation). The Bank's main instrument in the short term is the last tranche of the PSAC which could be released under the conditions noted in paragraph 20. 39. Medium-term objectives in macroeconomic management are to maintain a competitive exchange rate whfle moving towards a market-determined rate; remove remaining barriers to trade and capital movement, including regulatory and administrative barriers; reduce fiscal deficits and increase public savings; improve monetary management, including the revision of the financial relations between the Government and the Central Bank with a view to increasing Central Bank independence, promote the productive use of domestic credit, and contain iflaton. In pursuit of these objectives, the proposed SAC, as well as complementary sector lending, would support fiscal resource mobilization and fiscal discipline, the privadzation of state-owned enterprises and financial institutons, the reform of the financial sector, the introduction of a market-based foreign exchange and externa trade regime, and the removal of remaining domestic and exernal trade distortions. 40. Public Sector Management. In accordance with the above objectives, Madagascar should strive to streamline and improve the efficiency of its public administraton and, in particular, enhance its capacity to implement the public investment program (PIP) so that it can provide essental public i tructure and services efficiently. This entails, especially: revamping the role and functions of govermnent with a view to divesting from producdon of twadeables and commercial activides (e.g., petroleum) and transferring certain public services (e.g., veterinary, inaucture maintenance, vocational education) to the private sector, NGOs and/or local communities; adminitative reform reflecdng the reduced role of government and civil service reform; improving the design and implemetatIon of public investment; and ensuring adequate mannance, operation and replacement of existg assets. Ihese objectves would be pursued under the specific actions supported by the PSAC as well as the proposed SAC in the area of public expenditure management (PIP and PEP reviews) and public enterprise reform; the preparation and implementation of sectoral PEPs supported  - 12 - by sectoral operations (including in the social sectors, environment, agriculture and infrastructure); and sector investment programs (Manpower Training, Transport, Agricutural Export Promotion, Irrigation, Highways VIII, Urban II, Petoleum Sector), in close coordination with donors co- financing such investments. 41. PrvateSectorDevelopment and Eernal Compeiveness. Inadditionto themacroeconomic reforms to be covered under the proposed adjustment operations, the Bank would provide direct support to help Madagascar improve the business environment and the extera competitiveness of the private sector, and to address specific sector bottlenecks. Specifically, the SAC would support: (i) reforms of the legal and regulatory framework to promote freer entry and exit of firms (including foreign firms), and adapt labor legislation to the needs of a more competitive economy; and (ii) deregulation of markets to remove monopolistic, oligopolistic or monopsonistic arrangements. The financial sector adjustment credit would support the strengthening and diversification of financial intermediation, including revitalization of non-bank financial institutions and development of financial markets. In parallel to the overall opening of the domestic market supported under the adjustment dialogue, specific sectoral investment operations would seek to promote the considerable export potential of Madagascar. For example, a proposed Agricultural Export Promotion project would help deregulate key traditional exports (vanilla, coffee, cloves), encourage private export-oriented agro- business through technical assistance programs on a cost-sharing basis, and strengthen support services (collection and dissenion of market information, public health regulations and services, and efficient management of natural resources such as fish); a proposed Rural Finance project would help explore new approaches to improve smallholder farmers' access to financial services; and a proposed Transport Sector project would support deregulation and privatization of transport activities (coastal shipping, rail and air transport). 42. Role of IFC and MIGA. The Bank's agenda in private sector development will be pursued with IFC's active cooperation and involvement. The Bank and IFC staff are currently cooperating on the formulation of a Private Sector Assessment, to establish a commonly-agreed base for action. in addition, IFC is actively exporing several avenues in support of private investment in Madagascar: (J) assistance to local entrepreneurs through the Africa Project Development Facility; (i) financing of small and medium enterprises through the Africa Enterprise Fund; (iii) direct IFC investment in export-oriented enterprises (textiles, garment industry, fisheries, mining and tourism) and commercial banks (BNI); (iv) corporate restructuring to recapitalize and/or privatize viable companies; and (v) consideration of opportunities for a capital market, including a study of leasing regulations with a view to establishing a first leasing company in Madagascar. MIGA has recently launched its activities in Madagascar by providing support to the development of the private sector in the tourism industry. 43. Powen Allevaion. Sustained growth is a necessary condition for providing a durable and effective response to the widespread poverty now observed in Uadagascar. In addition to adjustment lending to promote sustained growth, Bank's assistance strategy will place a special emphasis on the development of agriculture which is the main sector of activity for the majority of the population, including its poorest segments. Proposed operations in agriculture (Rural Finance, Irrigation Sector, Agricultural Export Promotion) and infrastructure (Mransport, Highway V}U, Urban II) will be specifically tailored to promoting rapid supply response in the leading sector of the economy. Specifically, the proposed agricultural and infrastructure operations aim at increasing and stabilizing food production, improving the efficiency of agricultural markets in general (and therefore income distribution), strengthening the delivery of crucial services to the agricultural sector, improving the geographical distribution of public investments in rural areas, as well as providing new and diversified income and employment-generadng activities in the rural and urban areas.  - 13 - 44. Sustained growth, however, will not be sufficient to alleviate poverty. Some of the poorest households cannot be adequately reached through agricultural growth; many more need also to be protected in the event of natural disasters. In addition, special attention needs to be paid, in the design of the agriculture and Infrastructure operations, to addressing the underlying causes of the worsening income distribution. The latter will be achieved through the deregulation of monopoly or oligopoly situations (e.g., vanilla sector), the promotion of competition in agricultural trade, and the support of labor-intensive activities in rurl areas, either in public works projects (roads and rural roads, irrigation rehabilitation and maintenance) o: in the agro-processing sector. Project components aimed at alleviating poverty on a targeted basis will rely increasingly on NGOs and private organizations with a proven record for efficient delivery of programs reaching the most vulnerable groups. Finally, a proposed Food Security operation would establish specific programs targeted on the poorest segments of the population, including income and employment generation, food and nurition education programs. 45. Constraints to Long-Term Growth. The focus of the Bank's assistance would be the key structural constraints identified earlier: (i) promoting investment, maintenance and efficient operation of key infastructure (transport, communications, power and water supply, market and storage facilities); (ii) upgrading the human capital; and (iii) strengthening the management of the rich natural endowment and the unique environment of Madagascar. Bank operations and policy dialogue will provide funding for priority investment and maintenance in these areas and support reforms aimed at increasing the role of the private sector, NGOs, local communities, and users. 46. Several proposed IDA operations (Transport Sector, Highways VIII, Urban H, Telecommunications, Agricultural Export Promotion, and Irigation Sector) would provide resources for public investment (from credit proceeds, by supporting increased mobilization and reallocation of fiscal resources, and through cost-recovery) to help rehabilitate and maintain essental ink wbgsotrd; they would encourage the transfer of management and/or financing responsibilities to the private sector (e.g., rehabilitation and maintenance of road and irrigation schemes, storage facilities, coastal shipping, domestic air transport, telecommunications); and they would strengthen the capacity of the public administration in key areas (e.g., design and implementation of the PIP). 47. To upgrade Madagascar's hma goital and address population growth, on-going projects in Education, Health and Population would help improve the quality of education and training, strengthen sectoral management, and broaden family planning. In parallel, economic and sector work and policy dialogue wvill seek to encourage increased cost recovery, the accountability and financial management of public resources, and increased participation of NGOs in managing such services. The proposed Manpower Training operation is a key instument of the Bank's strategy in this area. Specifically, the project would improve the effectiveness of vocational and technical training by establishing the mechasm for matching better the supply and demand for skilled labor, while generalizing the principle of cost recovery and helping improve further the financial management of public expenditure in the sector. 48. Enviromental issues are being addressed directly through the on-going Environment project (approved in FY90), the first of its kind in the Bank, which supports implementation of the Environmenta Action Plan (EAP). On-going and future operations in agriculture (Irrigation, Agricultural Export Promotion) and infrastructure (Highway VIII, Transport Sector) would also pursue the objectives of the EAP by fostering agricultural intensification, regional specialization and inter-regional trade, thus reducing the need for extensive agriculturi cultivation which is environmentally unsound. The proposed Agricultural Export Promotion project would also assist Madagasc to streagthen its capacity to manage on a sustainable basis its rich fish resources, which  - 14- are increasingly thened by over-exploitation. Specific economic and sector work tasks, such as the study of the environmental impact of woodfuels, would help the Government build further environmental concems into policy making. 49. Women play a significant role In the social and economic fabric of Madagascar. In addition to having major responsibilities for household activities, women are important producers of food crops and contribute significantly to cash crops production as well. Women-headed households are disproportionally represented among the poor, particularly in the urban areas. By contrast, girls are not discriminated against in their access to prmary education. The Bankes lending strategy, under both the core and the full programs, includes: (a) enhancement of women's access to health services and ability to choose the size of their families (on-going health sector operation); (b) enhancement of women's access to financial services in the rural areas (proposed Rural Finance operation); an4 (c) targeting of women in the poverty-oriented Food Security operation. 50. Economic and Sector Work. The objectives of the economic and sector work progran are to support the policy dialogue, provide the analytical underpinnings of the lending program and strengthen aid coordination. The program is focused on those areas where there are both serious information gaps and pressing policy issues. Over the 1990-1992 period, the Bank, together with bi- lateral donors and multilateral development agencies, has undertaken major studies on the impact of adjustment on the economy and on the remaining structural and macroeconomic constraints (egal and reguatory framework, civil service and public adminon capacity a sment, tax policy, private sector development, infrastructure) with a view to defining the needed actions and deriving priorities for future operations. A Country Economic Memorandum (No. 9101-MAG) was issued in June 1991. Reports on the urban sector, transportation and the civil service were also completed in 1991, and a Financial Sector Review (No. 9817-MAG) was issued in March 1992. 51. Studies are underway on the agricultura sector; they have already led to the completion of an agricultural strategy report as well as a vanilla sub-sector study; and they are expcted to culminate in an Agricultural Sector Memorandum to be Issued in FY94. In the socia sectors, ESW will focus on cost recovery in the education and health sectors, as well as improved public sector management A Poverty Assessment, to start in FY93, will quantify the scope and characeristics of poverty in Madagascar, analyze the role of public policies and institutions, and propose a coherent strategy and operational framework for poverty alleviation. In Infrastructure, ESW will concentrate on the definition of a national policy for water supply and sanitation. A study on the environmena impact of woodfuels would aim at identifying and measuring the environmental problems relate to the utilization of woodfuels in Madagascar. Finally, public expenditure reviews will be carried out annually with a view to pursuing improved public investment and expenditure management, including adequate funding of priority social services targeted on the poor, in close cooperation with other donors. Cteria for Evaluating Profress 52. Progress in implementing the Bank's full lending strategy will be monitored by tracking the following benchmarks: (a) improvements in the implementation of the PIP, including the rate of disbursement of Bank-fimanced projects; (b) appropriate macroeconomic management (e.g., public savings, tax collection effort, monetary and exchange rate management); (c) effective implementation of stcuWal reforms (e.g., restoration of the OGL and liberalization of exchange controls, fur privatization of banking system and public enteprises, tariff reform, deregation of key sectors such as vanilla, air transport, petroleum); (d) export growth Cn particular, non-traditional exports and the  ratio of exports to imports); (e) rado of Inetme to GDP (in parcular, private investent); (f) the share of GDP allocated to primary health care; (g) prim sool enrollment ates; ) the contraceptive prevalence rate; and () Improvement In the povrty indicators of targeWd populations (women-headed households, children). Unsatisfactory progress on the first three crit, dealing directly with maao omlmc management, will be cental in tggen a si from the full lending proga to the core lending program. 'he 'Core" Lending Pro ram 53. hI case Madagascar were to continue with a vtal absence of macroeconomic manageme the Bank would shift formaly to a core lending mode. The core lendn program would be lited to one investment operation a year on average and amount to about US$3 to US$4 per capita lTese operations would focus on direety alleviat poverty, on sthening Madagascar's human capital base - as would be done under the project recoended in this report - and on tackling some of the country's most pressing constraints to development A proposed Food Serity operation would constitute a cental element of the core program. t aims at Implementng targeted programs of poverty alleviation, mostly through efficient NGOs. Since inadequae inrstructe (roads in particular) is a key development constrn In Madagascar, the core program would also include a Highway Rehabilitation project designed to implement innovative and more efficient schemes for the rehabilitation and sustainable maintence of the road iuctre, and to improve the flow of goods and information within and among the high-potential regions of the country. Finally, the core program would include an opeation to follow up on progress In the ongoing health project. In addition to these new operations, the Bank would, in the core mode, focus on Intensive supervsion of on-going projects In education, health and enviomnme rvMU DiaQgg and AidQn 54. Bank-county relations have been generaly good. The focus of the dialogue has been On the pace and sequencing of reforms to overcome Madagascar's formidable structural constran. More recently, the policy dialogue, although rendered more difficult because of the multiplicity of goveming institutions, has centered on the need to stabilize the economy, reestablish investors' confidence, accelerate the execution of on-going projects, and meet the conditionality for the thid tranche release of the PSAC. 55. Effective donor cootdination is a prerequisite for sucoessful implementtion of the B's assistance srategy. Close coodiation between the Bank, the Fund other donors is necessary to ensure that macroeconomic stabilization tames sufficiently into account the economy's supply side and private sector requirements, and that project aid supports economic policy reforms. With exter donors financing about 70 percent of the PIP, stuctural adjustment can take place only if the design and composition of these investments are consonant with the redefined role of the state in the economy. Donors have been regularly kept informed of the state of the Bank's dialogue with the Government, both under the SPA mechanism and in the context of regular donor coordiniaon meetings in Madagascar. These efforts have been complemented by donors' active participation in public expenditure reviews conducted by the Bank in recent years. Ihe Bank intends to continue and stengen this approach. 56. Implementadon of the adjustment program requies close coordination with the IMP, not only in monitoring the macroeconomic framework and the PFP, but also in designing specific adjustment  -16 - operations supported by IDA and Fund arrangements. Bank and Fund staff cooperation has Included joint or parallel missions, frequent discussions on proposed policies, and close cooperation during negotiations of Policy Framework Papers and the underlying macroeconomic frameworks. cauntay RU$kB 57. There are a number of political and economic factors which could cause serious slippage in the implemeion of reforms and hence the capacity of the Bank to pursue its assistance strategy under the full program scenario. on the politcal front, the current transitional situation remains fraie and there is a risk of further instability In the short run. Moreover, as mentioned earlier, with Madagascar geared towars elections throughout 1992, the transitional governing institutions are lilcely to be cautious in implementing poitically sensitive refrms. There is also a risk that a strong Government may not emerge from the elections; as a result, the newly established Government, too, may be limited in its capacity to resume the reform momentum and stabilize the economy. Finally, there is a more pervasive risk that the powerful vested private and urban interests will be successful in their attempts to weaken the reform movement, notably in the areas of civil service reform, deregulation of key sectors and greater openness of the economy. This last risk is mitigated by the fact that all major political parties contesting for power in Madagascar have explicitly affirmed their commitment to economic reform. 58. On the economic front, factors beyond the control of Government, such as a substantial deterioration in the terms of trade or unfavorable climatic conditions, could have a serious impact on the external position of the county and necessitte significantly higher levels of externa adjustment. Given the donors' response in the past, however, there is reasonible expectation that Maagascar can mobilize the needed extnal assistance, provided it stays the course of adjustment. Finally, there is a risk that weak institial capacity will slow implementation of the public investment program as well as the design and implementation of targeted programs for poverty alleviation. This would impact directly on the preparation and effective delivery of the Bank's lending program. This risk is being addressed tirough the periodic Coutry implementaion Reviews conducted with Government which aim at solving specific portfolio implementation and procurement-related issues; it is also being addressed though the capacity- building components of the on-going Economic Management and Social Action Project (approved in FY88) and ftre sectoral investment operations. D. Summary Assessment 59. Madags enjoys a rich, varied and favorable natral resource endowment, as well as an industrious labor force. Yet, the current low level of income, widespread level of poverty and extent of environmenta degradation is in stark contrast with its large and promising potental for economic growth and development. Overall, Madagascar has been successfid in implementng most of the policy reforms recommended by the Bank and the Fund, and the supply-response, although limited, has been encouraging, in particular in the non-traditonal, export-oriented sectors. This positive momentum for reform and sustainable eoonomic growth has, however, been recenty derailed by an absence of effective macroeconomic management as well as by political unrest. Te ie i priority is to stabilize the economy and re4dynamize the adjustment process. The focus of strucural reforms should be on improving the maoeconomic management capacity of the Government, and on obtaning a more robust supply-response to  - 17- reforms by acceleraig the liberalizationprocess, strengthening the business environment, and removing remainig structura constraints, parcularly in infrastructure. 60. The Bank's main objectives in Madagascar are to help promote sustained export-led growth, to help reduce poverty and to protect the environment. Through a combination of policy dialogue and lending, the Bank will concentrate on: (a) laying the foundation for improved macroeconomic managemant with a view to stabilizing the economy, and creating an incentive enviroment that is geared towards reducing the role of the public sector, the continued development of a competitive export-oriented private sector, and a wider distribution of the benefits of growth; and (b) reorienting public expenditures towards the efficient provision of social and economic infrastructure, the development of human capital, the p'eservation of the environment, and the alleviation of poverty. Provided that the Government demonstates its commitment to needed economic reforms, the lending program calls for about three operations a year over the medium-term. Quick-disbursing assistance could account for one-quarter to one- third of total lending, depending on the dqgree of the Government's adjustment effort and the county's financial requirements. The size and composition of IDA lending will be linked to Government performance on the stabilization and adjustment fronts as well as on poverty alleviation, the environment and the implementation of the Bank portflio. Government perfrmance would be monitored on the basis of specific benchmarks. Should the authorities fail to demonstre their commitment to economic reforms and to improve the disbursement rate on the Bank portfolio, the Bank would withhold adjustment lending as well as major sector nvestment operations and shift to a core program concentrating on longer-term and poverty alleviation issues. PART II - TIE CBZj= 61. lackgcgu4. Diversified growth in industry in reaction to changes in the economy is leading to an increase in the demand for trained manpower. This trend is expected to continue. Technical/vocational education/trainin (IVEI) is however of poor quality, with little relevance to labor market needs. Exceptions are courses provided by the National Traing Institute (NP'F) with ILO/UNDP support, by some NGOs, and by a few parastatal and private companies. NGO and private TVET schools provide training at all levels, with quality ranging from excellent to poor. The Ministtry of Education (MIP) runs 24 technical lycdes and equvalent, and 39 secondary vocational schools (FISO) for skilled workers, spending 4.5% of its budget on TVEr. The public system is however inefflcient; the TEFSO especially have low enrollment * and bigh unit costs. Government is now reforming technical education, switching emphasis from the technical baccalaureate to short-cycle courses responding to employment needs, and progressively closing TEFISO. At post-secondary level, institutes being established under the * 1990 Education Sector Reinrcement Credit (CRESED) will train middle level tuchnicians. Six public agricultural lyc6es have a small annual output of inadequy trained technicians. 62. No tafing for senior civil senmts existed from 1970 unti 1988, when the National Adminision Traiing School (ENO AR) was set up, with national financing, because of a forecast serious shortage of trained civil servants. ENFAR has made a satisfactory start. 63. .toect Objectives Govermnent has recently established a new TVET strategy, which is reflected in a strategy letter that has been reviewed with IDA, and by which it plans to re- structure the TVET system, to upgrade traiing quality and responsiveness to labor market needs, to sdmulate TVET financing by employers, and to develop the TVET institutional frameworL  - 18- Ihe projecti s ded to support this new stategy. Subsidiary project objectives are to develop trg for civil servants, and to reform agsdiulu training. 64. The five-year project has five components: (a) to establish the National Training Council (CNFTP), which would develop training strate, and promote, coordinate and finance public, NGO or private TVET (34 percent of project cosu). t would manage a training fund to fiac TVET activities, selected accring to aee citera Private setor employes and Government would participate euWly in CNFTP management. CNFTP would help develop training programs, and carry out priority TVET studies including on cost recovery and financing of training; (b) For the public TVET system (49 percent of project costs): (i) to rehabilitate the technical school system, supporting the MIP Technical Education Department (which is being transfed to the Ministry of Training - MEF), establishiDng and operatng a trai*ng center for TVET trainers, and rehabilitating seven priority technical lycEes; and (U) to expand and strengtien INPF to meet priority demands; (c) Improving knowledge of the labor market and its training needs through an Employment Observatory in MEF mainly financed by UNDP with ILO support (5 percent of project costs); (d) Restructuring the agricultura education and training sub-sector (4 percent of -ojec costs); (e) thening ENFAR, for initia and inservice civil service trainig (6 percent of project costs). 65. The tota cost of the projec is esmated at US$29.8 miion with a forein exchage component of US$22.1 million (74 percent), excluding taxes. A cost brendown and a financing plan are shown in Schedule A. Amounts and methods of procurement and of disbursement, and the disusement schedule, are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operatons in Mabdagascar are given in Schedules C and D. The Staff Appraisal Report, No. 9365-MAG dated May 15, 1992 is also attahed. 66. IXle X. The project will be implemented under the coordination of an inter- minisericmmittee hdaired by the Minisr of Vocational Trainig. Each component will be Implemted by the agecy oncmned (Componen 1 by CNFTP, Componant 2 by ME, MIP, and INPP, Component 3 by MEF, Componet 4 by the Ministry of State for Agculture and Rur Development, and Component S by ENFAR). The Education Project Unit, which manages the Education Sector project, will odinat procurement and disbursement procedues, and provide credit accounting and logistical supporL The Project Unit will receive funds under the Credit to enable it to perform these functions. The agencies concerned are capable, with the assistance to be provied by the projeO', of executing the ta involved. hrining sub-projects to be financed by CNFTP will be selected in accordance with criteria concening cost, quality of trang, relation to labor market needs, and the financial contribuionof the trainig institution and the trainees or their employers. CNFIP wil supervise the sub-projects and monitor the results.  - 19 - 67. W a Unless new sources of finacing can be identified, the funds available for training will remain inadequate. By closely associating the private sector with the process of allocating resources for traiing, the project opens new avenues for training finance, and thus allows its expansion along desirable lines. The project study of the fiancing of training will identify means of fincing CNFP's acvies after project completion: CNFTP must prove its value to employers and to the economy in order to justify intduction of new financing measures. In the meantime, the Government in 1992 introduced changes in the statutes of public sector traiing institutions under which employers are conributing to financig of courses in public technical schools which respond to their needs. Other components do not imply net increases in rurrent public expenditure, taking into account the saVIngS to be obtained from increased efficiency in the public TVET sector. 68. Lessons from experience. Five operations in the education and training sector in Madagascar have received Bank Group support: education projects in 1967, 1976 and 1990 (Loan No. 510-MAG and Credits 663-MAG and 2094-MAG), and two projects (Credit 1155-MAG in 1981 and Credit 1661-MAG in 1986), supporting beer alta creation of an accoun training center, and its subsequent expansion int a high level acuntancy and management traiing instte. The two on-going projects are pwceding satisfactorily. The project completion report on the second education project noted the need for a clear definition of the responsibilities of the project implementationunit, the importanceof coordination between the physical and educational components of the project, and of good control of building implementation. The report on the first accuntancy traiing project found it to have been a success, but noted that the under- estimation of technical assistance costs had led to an under-esfimate of the start-up costs of the scool. These lessons were applied in the 1990 education sector project and in preparation of te current project. Project design also incorporates lessons concerning project implemenation rean to Malagasy procuremen and disbursement practices learnt from implementation of the education project, and the results of countr impleaion reviews carried out in 1990 and 1992. 69. Rationgae fo IDA Involvement. Madagascar has advanced considerably on the adjustment path. While further policy reforms are still needed and the country currently faces m o-economic management problems, it is important at this stage to address the constraints to a supply response. Lack of skilled manpower is seen by poten investors as a major difficulty. The project is thus a key element in Bank Group strategy for Madagascar. By inoducing a flexible, demand-driven approach to TVET, the project would help meet qualitative and quantitaive requirements for skilled manpower. IDA financing for reform of the sub-sector, together with France and UNDP, is hlkely to atract other donors to CNFTP in the future. Support for training civil servants wiUl complement civil service reform initiated under the Public Sector Adjustent Credit (Cr-1941 MAG). 70. Actions atreed. CNFTP was established in April 1992 following review by IDA of Its draft statutes, its executive director named, its working procedures and criteria for access to the training fund were finaized after approval by IDA, and a revised list of training.sub-projects eligible for fnancing in the frst year has been reviewed. Decrees were also published in April 1992 deentralizing adminisation of public sector TVET, creating regiona advioy committees with participation of local employers, allowing pubic sector TVET schools to receive and use funds from employers, and establishing a center for training TVEr personnel which wil be supported by the project. During ngotiaions the strategy letter was finalized, and ageement reached on the following points:  - 20 - (a) Conditions of effeciveness: (V) signau of implementing agreements between government and CNFTP, INPF and ENFAR. Te CNFTP agreement will incorporate the approved procedures mamnul and eligibility criteria for traing sub-projects; (ii) for CNFTP, appointment of a principal techical adviser (with qualifications acceptable to IDA), and its managing committee and chairma; (iii) establishment of a project coordinating committee; (iv) deposit of funds into a local currTey project account and two specia accounts, following proeedures satiactory to IDA, by which the project xecuting agencies (the education project unit and CNFTP) can draw fimds without prior approval by the Mnistry of Finance. (b) A condition of disbursement for public sector agricultural training will be adoption of an agricultu training program and arrangements for its implementation, in agreement with IDA, following a study under the project (for which terms of reference have been approved). (c) Other agreements: (i) Subsequent to apprai a new minisatry responsible for vocational training had been established, so dividing responsibility for technical education and vocational training. Government has now agreed that responsibility for TVET public establih s wil again be unified, under the Ministry of Vocational Trining, and the transfer will be complete by July 31, 1993; (ii) Work programs for the project and CNFTP will be approved annually, providing for minimium disbursements to CNFTP and from the training fund for NGO training activities; (iii) Implemenaion of sector policy and the project will be reviewed annually, inclg trends in enrollment in public technical schools; (,v) A sector public expenditure program will be prepared and reviewed annually with IDA; (v) A joint mid-term review of execution of the project and related sector policy measures will be held by June 30, 1995; and (vi) Terms of reference for the CNFTP financing study (of which thie outline has been aeed) will be finafized by December 31, 1992, and the study wiU be completed by June 30, 1995. 71. Environmental Apects. Ihe project has no sificant environm implications. As part of its standard procedures, CNFIP will check that trinig sub-projects are not evironmentaly harmful. 72. AntIM and other as. CNFTP wiUl ensure dth at least 10 percent of its fumdihw goes to support training carried out by NGOs: it intends to help NGOs providing traiing to people drawn from the urban and rur poor to help them to enter the informal or formal labor markets. CNFlP also intend to give priority in its actviies to promotion of training for women. 73. Bendfilt. The project will help to rsucture the traing stem to make it respond more efficiently to the needs of the economy. It wil upgrade training capacity and stegthen training institons, so helping to meet skill needs more efficiently, and to raise the quality of trained manpower: it will tus reduce a constraint to economic development, and improve the allocation of scace resources. It will encourage employer partiipation and cost recovery, increasing the relevance of training, as well as contributng to a bettr use of Government resources, strenthening1the public expendiure program process. It wiUl build on and complement the sector management reforms developed in the conteot of the Education Sector Rehabilitation Project,  -21- reducing prsure at the university level by limiting numbers taking the baccalaureate. The project will provide more flexible, market-based instruments for management of training, to identify and to respond to emerging training needs. 74. Aisa. If the economy does not grow as hoped, employers may be unwiling to pay for training; and reduced demand for trained workers may slow the project. SocW pressures may delay political decisions, for example, in closing inefficien schools, or in modifying the technical baccalaure; such pressures might also push Governent to expand public TVET beyond desirable capacites, so increasing costs, and reducing quality and relevance of training. The Authorides are aware of these dangers, and see the project as the best meaws of showing that alterative solutions exist. It is also conceivable that the private sector would be reluctant to play the active role envisaged for it in the CNFTP and maagement of public sector TVET, or that the government would be reluctant to consult with employers to the extent it has indicated. However, employers have expressed a strong desire to participate so long as their participation can be gemiine. These sensitive political areas will require carefid handling. It will be essentW to lunch training programs that are of high priort to employers early in the project so that employers see the advantage of cost sharing. 75. R e_ . I am satisfied that the proposed credit would comply wkh the Articles of Agreement of the Associaon and recommend that the Executive Directors approve the proposed credit. Lewis T. Presoon President Aacments Washington DC May 18, 1992  -22- Schedule IA DEMOOCI ]REPUBLIC OF MA2AGASCA MANPOS TRIMNG PROLCI ESlllU COSTS AND) FINANCING PA ProJe ct (ost Suy 1. CNFTP and Trling Fund 3.5 5.7 9.2 34 2. TVET 2.8 10.3 13.1 49 3. Labor Market 0.2 1.0 1.2 5 4. Agric. Educ. and Traning 0.4 0.6 1.0 4 S. ENFAR 0.5 1.2 1.7 6 6. Project Implementation 0.3 0.3 0.6 2 TOTAL BASE COST (1.6) 11 7.7 19.1 26.8 100 7. Phy. Cont 0.4 1.2 1.6 6 8. Price Cont 1.3 1.8 3.1 12 TOTAL PROJECT COST (1-8) 1/ 9.4 22.1 31.5 118 I~~~ 4*. . I _ .*" .' PinaNngi Plan E g g .. . gOWG 'E~tk ' XQJ E IDA 3.9 18.9 22.8 72 UNDP 0.3 1.3 1.6 5 France 0.3 1.9 2.2 7 Government and beneficIaies 4.9 - 4.9 16 Total including taxes 9A | 22.1 31.51/| 100 J/ including taxes of US$1.7 milion equivaent but aecluding irport duties of US$2.4 million equivalent  -23- Schedule B Page I of 2 D1MLQCRAT REPUIBLIC OF MADA,GASCAR MANPOM TRNINQ POECT R,O,0., NI M M aND DIASBUR N A. Procurement Method (UiS$ mitlio Project Element ICB LCB Other n/a Total Costs Civil Works - 3.1 - 3.1 - (2.7) - - (2.7) EquipmentMatNVehicles 7.0 1.2 0.5 1.9 10.6 Funre (7.0) (1.1) (0.4) (-) (8.5) Technical Assistance - - 2.5 1.6 4.1 and Studies - - (2.5) (-) (2.5) Training - - 8.1 2.7 10.8 -(8.1) (-) (8.1) Inuremental - - 1.2 - 1.2 Operating Costs (1.0) (1.0) Total 7.0 4.3 12.3 6.2 29.8 I1 (7.0) (3.8) (12.0) (-) (22.8) Note: The figures in parentheses are the amounts to be financed by IDA. 2/ Excluding taxes (US$1.7 million equivalent)  -24- Page 2 of 2 1B. DISBREET (1) 100% of expendiures for training sub-projec fianced by 3.2 CNFTP. (2) 100% of expenditues for civil works. 1.4 (3) 100% of expenditures for equipment, materis, vehicles, and 4.8 supplies. i (4) 100% of expenditures for consultant' services. 1.2 (5) 100% of expenditures for Uaining. 1.8 (6) 100% of expenditures for opeaing costs for BP1, including 0.4 salaries of non-civil service staff. (7) 100% of expenditures for materis, equipment, vehicles, 1.4 consultants, training and opating costs for CNFTP, including salaries of non-cvil service staf. (8) Refimd of PPF advance. 0.8 (9) Unallocated. 1.7 TOTAL 16.7 C. Estimated IDA Disbursemen - US$ milion - isa1 year FY93 FT4 FY95 FY9 FY FY98 Annuial 1.5 3.5 5.0 6.0 4.0 2.8 Cumuative 1.5 5.0 10.0 16.0 20.0 22.8  -25- Schedule C DECRAI REPUBLIC ODAA tfANPOWS TRM RJC TIMErABLE OF KEY PROJECr PROCESSIN EVETS (a) Time taken to prepare: 21 months (April 1989 to December 1990) O) Prepared by: Government with assistance from France, IDA and UNDP I/ (c) First IDA mission: February 1989 (oint mission by IDA and French M*inisty of Cooperation) (d) Apprais mission departre: November 1990 (e) Negoiaons: April 1992 (f) Planned date of effectiveness: September 1992 (g) Relevant PCRs: Second Education Project (Credit 663-MAG, PCR No. 6774, May 1987 and Accountancy Training (Creit 1155-MAG, June 1990) 1/ Key staff responsible for preparation of the projoct ware Nessrs Paul Blay (AM3PR, senior aonmist), Cung Tran-Luu (aITED, Senior Training specialist), and Jean-Christophe Laederach (AF3PH, Senior Implementation Specialist)  - 26 - Schedule D STATUS OF SANK GROUP OPERATIONS IN MADAGASCAR Page 1 A. STATEMENT OF SANK UANS AND IDA CREDITS April 80, 1992 Amount In USS Million Loan or (less cancellation) Credit Fiscal -- - ------- number Year Borrower Purpose Bank IDA (1) Undisbursed 5 loans fully disbursed 82.57 84 credits fully disbursed 596.08 Of which 3 SECALs Cr. 1891 s6 Madagascar Agricultural Sector Adj. 20.00 Cr. ASlO 86 Madagascar Agric. Sect.AdJ. (SFA) 88.00 Cr. AMY? 86 Madagascar Industrial Asst. (SFA) 20.00 Cr. 1541 86 Madagascar Industrial Assistance 40.00 Cr. A032 87 Madagascar Industy A Trade Pol. (SFA) 67.00 Cr. 184 87 Madagascar Industy A Trade Pollcy Adj. 16.00 Sub-total 196.00 Cr. 1488 84 Madagascar Cotton Development a/ 17.80 0.01 Cr. 1497 84 Madagascar Urban 12.80 4.21 Cr. 1589 85 Madagascar Irrigation Rehabilitation 10.57 6.78 Cr. 1661 8 Madagascar Accounting A Mgmt. Training 10.30 9.92 Cr. 1694 86 Madagascar Third Railway 12.00 2.68 Cr. 1709 86 Madagascar Second Ag. Institutions 10.00 2.31 Cr. 1752 87 Madagascar Port Rehabilitation 16.00 7.87 Cr. 1787 87 Madagascar Energy 25.00 18.11 Cr. 1804 87 Madagascar Second Agricultural Cr. 10.00 1.07 Cr. 1878 68 Madagascar Forests Mgt.& Protection 7.00 4.00 Cr. 1905 88 Madagascar Seventh Highway 40.00 81.89 Cr. 1928 88 Madagascar lImenite Mining Eng. 8.55 5.61 *Cr. 1941 88 Madagascar Pub.Sec. AdJ.(ncl. 4 supp.) 180.60 47.48 Cr. 1967 89 Madagascar Econ. Mmt Social Action 22.00 19.87 Cr. 2042 89 Madagascar Nat'l Agric. Research 24.00 28.93 Cr. 2094 90 Madagascar Education Sect.Reinforc. 89.00 87.69 Cr. 2104 90 Madagascar Fin.Soct.UPriv.Ent. 48.00 46.61 Cr. 2117 90 Madagascar Antana.Plaln Dev. 80.50 28.89 Cr. 2125 90 Madagascar Environment 26.00 24.96 Cr. 2150 90 Madagascar Agr.Ext.Pilot 8.68 2.86 Cr. 2248 91 Madagascar Livestock Sector 19.80 19.12 Cr. 2261 91 Madagascar Health Sector Improv. 81.00 31.27 Sub-total active proJects 554.60 878.64 Total less cancellations: 82.57 1150.66 of which has been repald 16.54 28.86 Total now held by Bank and IDA: 16.03 1126.79 (1) Amount sold: 6.86 of which repaid 6.86 Total undisbursed 0.00 878.64 * SAL, SECAL, Program Loan */ Includes Special Fund (1) Sum of Total now held by IDA and Total Undisbursed Is higher than Total Outstanding because of depreciation of the USS.  - 27 - Schedule D Page 2 Status of Sank Oroup Operations In MADAGASCAR PFDR2U - List of Close SALS and Scals Loon or Fiscal Undis- Creit No. Year Borrowr Purpose Bank T"A bursed CR1641-Zi 1986 MADAGSCAR Ind. Sector Loan I 40.00 0.02 * CA10-4AO 1986 MADAGASCAR Agri. Sector Adjust. C. 3U.06 0.00 C891401AG 16 MADAGASCAR Agri. Sector Adjust. C. 20.00 0.00 CAU7O-MAG 106 MADSCAR Ind. Sector Loon II 20.00 0.00 C16340-MAG 198t? MADAASCAR Ind. & Trade PolIcy 1.09 0 .00 C19411-MAG 1989 MDAGSCR Public See. Adl 1.40 0.00 * C19412-MA 1 MADAGASCAR Public Sec. AdJ. 1.20 0.00 TOTAL MADAUSCAR 131.8' 0.02  - 28 - Schedule D Page a MADAGASCAR B. Statemont of IFC Investments (as of April 28, 1902) Year Obligor Type of Business Loan Equity Total 1990 FIARO Development Finance 0.4 0.4 1980 seta Shoes Footwoer 1.25 1.25 198t COTONA Textiles 10.88 0.18 11.06 1084 Nossi-Be Food and Food Processing 6.94 0.25 7.19 1977 Sotems Textiles 14.78 0.80 15.03 Tot I Gross Commitments 33.80 1.18 34.93 Less: Cancellations, Terminations, Repayments Sales, Exchange Adjustments 14.10 14.10 Total Commitments now hold by IFC 19.70 1.18 20.83 Total Undisbursed 0.88 0.00 0.38 Total Disbursed 19.82 1.18 20.45  -29 - Schedule E Nda~gaescr- GCONONIC INDICATORS TABLLES Page I of 3 Nid-IM9 Population (site.)i 11.6 1990 Per Capita UP In U8s: 230.0 r-A. ON"" of Gross Domstfc Pro t-O-. Greuth Rates CS peraf )- ~~-(fC Ie auret pelee dots) - - frcm comtant price daeta- 1965 1973 1960 1960 1969 1990 5-73 73-80 80-90 1969 1990 arm omeOfstic Product, ..p. 100.0 100.0 J O.0 100.0 100.0 100.0 3.6 1.2 1.1 4.1 3.5 Net Indirect Taxes 9.6 10.8 11.2 11.3 10.3 11.2 .. . Agriculture .. 2.9 26.? 29.7 30.3 29.2 .. 0. 2.4 5.2 1.5 IrnAltry .. 16.0 14.3 11.7 11.1 11.6 .. 1.6 1.2 0.9 6.3 (of which Ranlfaturing) * * * * ** * * * Services . 49.3 47.i 47.3 47.9 47'. 9 .. 1. 03 4.1 4.3 * Resource Sealane -6.8 -4.6 -16.4 -6.7 -4.5 -8.7 . . . . Export of SF5S 13.2 14.2 13.3 16.3 16.2 15.3 -1.4 1.9 1.3 26.0 0.? Imports of SF5S 20.0 18.9 29.7 23.0 22.7 24.0 0.6 2.7 -3.9 0.9 20.0 Totoal Expenitures 106.8 104.6 116.4 106.7 104.5 106.7 3.4 1.3 -0.2 0.2 7.2 Total Consmpton 100.3 95.5 101.4 93.4 90.9 91.8 3.3 1.3 -0.7 -0.4 4.4 Private Consuwticn 64.3 63.3 69.3 65.2 82.1 63.2 3.3 1. -0.9 -1.4 4.9 General Government 16.0 12.2 12.1 6.1 8.9 8.6 3.3 4.3 0.9 9.0 0.4 aress Domtesticnvestment 6.5 9.1 15.0 13.3 13.5 16.9 4.2 3.2 4.6 4.8 25.6 Fixed Invetment 8. .4 14.4 . . . . . Changes In Stock .. 0.7 0.6 . . . . . . . Gross Dometic Savngs -0.3 4.5 -1.4 6.6 9.1 8.2 .. . . 34.4 -13.4 Met Faftor Incin -3.3 -1.8 -1.1 -7.0 -7.6 -5.2 . . Ne Current Tranfers .. . 0. 2.9 3.3 2.2 . . . . Gros National savings -3.6 1.3 -3.1 1.2 3.3 5.2 . . . 79.6 39.8 in ofillion of LCUs (at constant 198 prices) Gross Domestic Product 2065 2619 2894 2836 2952 3056 3.6 1.2 1.1 4.1 3.5 Capacity to Impot 640 746 516 406 464 442 1.4 -4.7 0.4 14.3 -4.7 Term of Trade Adjustment 149 275 -43 -6 44 89 . . Gross Domestic Incm 223 269 2851 2630 266 2967 3.9 -0.3 1.0 2.1 2.7 Gross Nttatioa Product 2015 2569 266 2646 272 289 3.7 1.3 0.5 3.0 6.3 Gross Nativona Income 2164 2644 262 2640 266 260 4.0 -0.1 0.4 0.9 5.5 C. Price tndices I (1987*100) --Ir-nf Ltiofn Rates Cl ..- 1980 l 1986 1968 4 99 5-73 73-80 80-90 1969 1990 Consume Price (IF$ 4 30.5 76.0 67.0 126.9 138.3 154.6 3.4 9.0 16.6 9.0 11.8 Iliotesal. Prices (IFS 63) .. .. - tmpLicft GOP Deflator 29.5 71.2 81.3 121.2 134.3 151.4 4.0 10.0 17.1 10.8 12.8 Implicit Expendture Deflator 26.5 69.2 78.6 122.3 137.9 156.2 4.0 11.3 17.8 12.7 13.3 0. Othe Indicastors 65-73 73-80 80-90 Growth Rates CS p.s.) Population 2.3 2.7 2.9 Labor Forc 2.0 2.2 2.0 Gros Natioalt Incom p.c. 1.7 -2.8 -2.5 Private Cwnsuaption p.c. 1.0 -1.5 -3.7 Impot Elasticity: Imorts (G.NFS) / SDP(uP) 0.2 2.3 -3.5 Marginal Savns Rates: Gros National Saving - - Groan Domesi Savngs . . . ICOR (period averages) Shae o Toat Lw orc 194I5 1973 1980 1M6 1990 Note: These tables are currently Agriculture 65.1 82.8 60.9 unerrviio ndmih Industry 4.3 5.2 6.0 . present slight services 10.5 12.0 13.2 . Inconsistencies with the Totat 100.0 100.0 100.0 I.~xf&r9