Afghanistan - Education Project

RESTRICTED Report No. P-403 FILE COUPY This report was prepared for use within the Bank and its affliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing thoir views. INIERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE KINGDOM OF AFGHANISTAN FOR AN EDUCATION PROJECT November 2, 1964  REPORT AND RECOMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIREC'i'ORS ON A PROPOSED DEVELOPMELT CREDIT TO THE KINGDOM OF AFGHAINISTAN FOR AN EDUCATION PROJECT 1. I submit the following report and recommendations on a proposed development credit to the Kingdom of Afghanistan in an aiount in various currencies equivalent to $3.5 million. The credit would be used to assist in financing the construction and equipping of seven secondary- * level vocational schools as part of the current five-year program of the Ministry of Education. PART I - BACKGROUND 2. The p%oposed credit would be the first Bank or IDA operation in Afghanistan. The preparation of the project has taken more than two years, In March 1962 the Royal Government of Afghanistan reqlaested an IDA credit for educational development. An IDA mission which visited Afghanistan during September/October 1962 concluded that education was a field justifying high priority consideration for IDA financing but that further work would be required to prepare a suitable project. After agreement was reached with the Government on thle scope of such a project, a second mission visited Afghanistan in lilarch/April 1964 to prepare and appraise the project. 3. In agreement with Unesco and within the terms of the Bank/Unesco cooperative program, memDers of the Unesco Resident Mission in Afghanistan participated actively in every phase of the mission's work. 4. No other Bank loans or IDA credits for Afghanistan are at present under active consideration. A proposal for a study of irrigation possibilities in the northern province of Kunduz to be financed from Bank technical assistance funds is under discussion and coul1d eventually lead to further IDA financing. PART II - DESCRIPTION OF THE PROPOSED CREDIT 5. Purpose: To assist in financing the design, construction, equipment and initial staffing of seven vocational schools at the secondaryj level. Borrower: Kingdom of Afghanistan.  -2- Amount: The equivalent in various currencies of $3.5 million. Term and Amortization: 50 years witih no amortization during the first 10 years. From October 15, 1974, one-half of one per cent of the principal amount would be repayable semi-annually for 10 years; and one and a half per cent semi-annually thereafter to April 15, 201h. Service Charge: 3/4 of one per cent per annum on the principal amount of the credit disbursed and outstanding. Payment Dates: April 15 and October 15. PART III - APPRAISAL OF THE PROPOSED CREDIT The Project 6. A detailed appraisal of the project (Report No. TO-463a) is attached (No.1). 7. Despite progress in recent years, Afghanistan still lacks a strong educaticnal system and is faced with critical shortages of the qualified manpower needed for economic and social development. Primary education is quite inadequate. Of the prii.iary school a-e poprlation only one in ten is in school, and wastage is very high, especially in the rural schools. This constitutes a major bottlenec'K to improvement of thle educational system., requiring a substantially greater effort to train teachers. 8. At the secondary level, even though the screening of entrants is not as strict as it shoutld be, the number of middle-school pluils is not rising fast enough to enst:re a balanced expansion of the educational program, including adequate trainees for the teacher truin-ng programs. In higher education also, entrance requirements are insufficiently selectiveI the result is both to lower academic standards and to divert potential skilled labor away from the labor market. 9. The Afghan economy is based on a primitive agriculture whose modernizaticn will require large numbers of trained tecil-mnicians. Present facilities are entirely inadequate to train the requisite numbers. As to the immediate manpower needs of industry, the Afghan economy is marked not only by inadequate formal training facilities, but also by a virtually complete lack of opportunities for apprenticeship training in trades using modern technological processes.  - 3 - 10. The project is intended to increase Afghanistan's capacily to train staff for teacher-training schools and staff for mechanical schools, as well as apricultural and industrial techInicians and primary school teachers. The schools included in the project are the followJing: (a) On a single site in Kabul: (i) an academy for training teacher educators; (ii) a technical teacher training schiool; (b) On a single site in Xurduz (northern Afghanistan): (i) an agricultural school; (ii) an electro-mechanical school; (iii) a teacher training school; and (c) On a single site in Herat (western Afghanistan): (i) an agricultural school; (ii) an electro-mechanical school. 11. The project includes the services or an architectural firm to design and supervise construction of the schools, as well as an architectural specialist and an educational equipment specialist to ad-vise the Ministry of Education during the construction phase of the project. In addition provision is made for foreign agricultural teachers, for a total of 18 man-years, to assist the two new agricultural schools for the first three years of operation, plus overseas training of 12 Afghan teachers in fields related to those of the expatriate teachlers. Other schools in the project either require no foreign personnel or their requirements are being met by multi-lateral or bi-lateral aid programs. The project includes, in addition, furniture for school buildings and boarding facilities; teaching aids; laboratory equipment; generators; transport vehicles for all the schools except the academy; and tractors, farm implements, other equipment and livestock for the two agriciutural schools. Multi-lateral or bi-lateral financial assistance is providing the remaining equipment needed for the project. 12. The facilities provided by the project will make it possible to increase the output of middle-level agricultural technicians by almost 100 per cent, of sidlled mechanical workers by about 50 per cent,  - 4 - and of primary school teachers by about 30 per cent, over the levels other-Tise anticipated by the end of the Second Plan period. Ln the longer term the academy and the technical teacher training school will provide staff for doubling the size of the primary teacher training and mechanical education programs in the next decade. Of equal importance will be the iniprover,ment in the quality and effective- ness of the programs assisted under the project. 13. The total cost of the project to be shared by IDA and the Government is estimated at the equivalent of $4.67 million, including contingencies, of which the proposed IDA credit equivalent to $3.5 million would cover approximately 75 per cent. While the foreign exchange component of the project is estimated at less than one-half it is considered appropriate in Afghanistan's difficult financial circumstances that IDA meet a higher proportion of the costs. 14. Additional assistance amounting to roughly $1 million is exnected to be received over the next four years from Unesco and Unicef to cover expenditures related to the project, while the Government of the Federal Republic of Germany is expected to staff and equip the tecnmical teacher training school and the two mechanical schools in the project at a level comparable to that in the mechanical schools already being assisted under the German aid program in Afghanistan. No cost data are available on the German assistance, but it is estimated to exceed $1.5 million over the next five years. 15. All major equipment contracts and all construction contracts financed from the proceeds of the proposed credit would be awarded on the basis of international compet-itive bidding. 16. The schools under the project provide in most cases for boarding facilities for varying proportions of the planned enrollment, wJhich in each case is expected to come from a relatively extensive catchment area. The schools are designed to austere standards, and represent the minimum acceptable for such schools in Afghanistan. It is hoped that the design and construction experience gained from the project will result in models which can be widely duplicated in the future throughout Afghanistan. The Economy 17. A report on "The Development Prospects of Afghanistan" (AS-95a) was distributed to the Executive Directors on February 20, 1963 (SecH/63-38). A memorandum summarizing recent developments in the economy is attached (No.2).  - 5 - 18. No national accounts are available for Afghanistan and therefore the overall growth of the economy cannot be measured. Under the impact of higher world market prices and an exchange reform in March 1963, there has been a substantial increase in marketing of karakulJ skins and cotton, two of Afghanistan's most important exports. Apart from cotton, however, other agricultural production has shown no similar expansion and last year's wheat crop, in particular, was severely affected by adverse weat'her conditions. Though industrial production in some lines has expanded rapidly in recent years, rough estimates indicate that on the whole industry and mining still contribute less than 10 per cent of GNP. Mineral discoveries in recent years, particularly of natural gas in the north, are promising but are yet to be exploited. 19. In recent years the Afghan economy has been under considerable strain. The Government has sought, under successive Five-rear Plans beginning in 1956, to finance a rising level of development expenditure while at the same time ordinary expenditures have increased. The development program is heavily dependent upon external assistance, primarily from the U.S. and the U.S.S.R. 20. The Second Plan (1962-67) originally set veriy ambitious targets for both domestic financing and foreign assistance. During the first two years of the Plan, actual expenditures have fallen well below these goals. Foreign financing, including commodity assistance, has covered roughly 70 per cent of expenditures; domestic revenues have contribuited only about half the remainder and th1e Government has restrted to substantial deficit financing. This, along with a bad crop year, has led to sharp price rises over the last year and to a weakening of the free market exchange rate. At the end of August 1964, the Government's net foreign exchange reserves had declined to about $40 million, equivalent to roughly four months' import requirements at the 1962/63 level. Consultations are continuing between the Government and the International Monetary Fund on steps necessary to bring the economy back into balance, and some remedial measures have already been taken. Annual allocations under the Second Plan are being adjusted downward, in the liglht of available resources. 21. Recent political changes in Afghanistan are of far-reaching significance for the future of the economy. In 1963 the King named a commoner - a career civil servant - as Prime iviinister, giving Afghanistan for the first time a government not headed by members of the royal family. The royal family has now been formally excluded from political life by the provisions of the new Constitution, promulgated on October 1, 1964, which also provides for popular election of a new Parliament to be convened on October 14, 1965. The new Government is giving greater impetus to both economic modernization and social reform. Though faced with the necessity for some retrench- ment, it gives highest priority to the drive toward economic development.  - 6 - 22. The limited resources of the eccnomy, however, resulting from its still primitive structure and the low level of income, estimated at less than $100 per capita, sharply restrict the domestic resources which can be devoted to investment. Afghanistan's external payments position is already heavily burdened by an external debt service ratio estimated to increase over the next five years from 14 per cent to 13 per cent of current foreign exchange earnings. In the circumstances, IDA assistance is considered appropriate. PART IV - LEGAL INSTRUPE2NTS AND AUTHORITY 23. Attached (No.3) is a draft Development Credit Agreement (Education Project) between the Association and the Kingdom of Afghanistan. The Agreement conforms substantially to the usual pattern for education credits. Attention is drawn to the following provisions of the draft Agreement: (i) Section 6.01 provides, as a condition for effectiveness of the Credit, that satisfactory arrangements be made with Unesco, Unicef and the Federal Republic of Germany to obtain additional assistance for the schools included in the Project. The Government has already taken preliminary steps to satisfy this condition and it is expected that appropriate agreements will be signed in the near future; (ii) Section 2.03, among other things, conditions withdrawals for all parts of the Project on the appointment of a, satisfactory Project Coordinator, deemed essential to the successful implementation of the Project; (iii) The new Constitution provides that all acts of the Govern- ment taken until 30 days after the establishment of the new Parliament will be valid and binding. It is proposed, therefore, that disbursements under the credit be made normally during the first year, but Section 2.03 provides that they shall not be made with respect to expenditures undertaken after November 12, l965 unless and until the Parliament ratifies the Development Credit Agreement. Also Section 5.02 provides that disapproval or rejection of the agreement by the Parliament would be an event of default. 24. Also attached (No.4) is a draft of a Supplementary Letter on "Educational Objectives" to be signed in connection with the Developmnent Credit Agreement. This letter sets forth the Government's specific objectives in terms of numbers of students to be trained in each institution as well as the development of in-service and pre-service training programs, as appropriate, and the development of suitable teaching materials.  - 7 - 25. The recommendations of the Committee provided for in Article V, Section l(d) of the Articles of Agreermient of the Association are attached (Nio.5). PIART V - CCMPLIACE WTrtH ARTICI2S OF AGRvEEMNT 26. I a.m satisfied that the Borrower wTill be able to fulfill its obligations under the Agreement and that the proposed development credit complies with the Articles of Agreement of the Association. PART VI - PICOMirENDATIONS 27. I recommend that the Association make available a develop- ment credit to the Kingdom of Afghanistan in an amount in various currencies equivalent to $3.5 million for a total term of 50 years with a service charge of 3/4 of one per cent end on such other terms as are specified in the draft Development Credit Agreei-mient and Supplementary Letters, and that the Executive Directors adopt a Resolution to that effect in the form attached (No.6). George D. Woods President Attachments Washington, D.C. November 2, 1964