Honduras - Basic Education Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6496-HO MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT IN THE AMOUNT EQUIVALENT TO SDR 20.4 MILLION TO THE REPUBLIC OF HONDURAS FOR A BASIC EDUCATION PROJECT MARCH 8, 1995 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS US$1.00 = 9.3 Lempiras (L) (January 1995) SDR 1.0 = US$1.47 (January 31, 1995) FISCAL YEAR January 1 - December 31 ACADEMIC YEAR February 1 - November 30 ACRONYMS AND ABBREVIATIONS ADEPRIR Rural Primary Education Management Project (Proyecto Administraci6n de la Educaci6n Primaria Rural - ADEPRIR) CADs Teacher Training Centers (Centros de Actualizaci6n Docente) CAS Country Assistance Strategy CBH Central Bank of Honduras (Banco Central de Honduras) FHIS Honduran Social Investment Fund (Fondo Honduretlo de Inversi6n Social) GDP Gross Domestic Product GOH Government of Honduras GTZ German Agency for Technical Cooperation (Deutsche Gesellschaft fur Technische Zusammenarbeit) IDA International Development Association KfW German Credit Institute for Reconstruction (Kreditanstalt fur Wiederaufbau) MOE Ministry of Education (Secretarfa de Educaci6n PWiblica - SEP) PCU Project Coordination Unit PRAF Family Assistance Program (Programa de Asignaci6n Familiar) SIF-I Social Investment Fund Project SIF-Il Second Social Investment Fund Project UNICEF United Nations International Children's Emergency Fund UPNFM National Pedagogic University (Universidad Pedag6gica Nacional Francisco Morazdn) USAID United States Agency for International Development  FOR OFFICIAL USE ONLY HONDURAS BASIC EDUCATION PROJECT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Honduras Implementing Agency: Ministry of Education (MOE) Beneficiary: Not Applicable. Poverty: Program of Targeted Interventions. The project would support the national policy of equitable access to education opportunities, by channeling resources especially to rural and indigenous areas, thus contributing to poverty reduction and development of human resources. Amount: SDR 20.4 million (US$30.0 million equivalent). Terms: Standard IDA terms with 40 years maturity including a 10- year grace period. Commitment Fee: 0.50% on undisbursed credit balances, beginning 60 days after signing, less any waiver. Financing Plan: See Schedule A. Net Present Value: The most likely scenario, which only considers potential gains in the future earnings power of students, yields IRRs of 13.8% with a 5% student income differential, or 18.1% with a 10% income differential. See Annex 17 of the Staff Appraisal Report. Staff Appraisal Report: Report No. 13791-HO Maps: IBRD No. 26279R - 26281 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.   MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF HONDURAS FOR A BASIC EDUCATION PROJECT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Honduras (GOH) for SDR 20.4 million (US$30.0 million equivalent) to help finance a Basic Education Project. The credit would be repayable on standard IDA terms with a maturity of 40 years, including a 10 year grace period. The project would also be assisted by the Government of Germany, through parallel financing in the amount of DM 20.0 million (US$13.3 million equivalent) from the German Credit Institute for Reconstruction (KfW). The Ministry of Education (MOE) would be the implementing agency for the project. 2. Background. Although Honduras experienced some economic progress over the last two decades, per capita GNP in 1994 remains low at an estimated US$580. One-third of the population of 5.5 million lives in extreme poverty and 80 percent of the poor live in rural areas. The promising economic trends of 1991-92 were not sustained in 1993. As the elections approached, the fiscal deficit, which was targeted to fall to 3.8 percent of GDP in 1993, reached over 10 percent. A new Administration took office in January 1994, inheriting serious fiscal and balance of payments problems. Inflationary pressure began to build up in 1993, and foreign exchange reserves have now been depleted. The present Administration is committed to the resumption of sustainable economic growth, through the implementation of a medium-term program that aims to reduce the fiscal deficit, reform the public sector to ensure more efficient use of public resources, and raise significantly the level of human capital accumulation through improved quality and equity in the provision of basic education and health services. 3. Education indicators reflect the country's widespread poverty. In 1992, the illiteracy rate for the adult population was still at 32 percent, and 42 percent in rural areas. For the population as a whole, the average educational attainment is estimated at about 3.5 years of schooling. Although the coverage of primary education expanded rapidly in recent decades, affording approximately 80 percent of children aged 7-12 attendance in primary school (net enrollment rate) in 1992, the level of academic achievements of students is low, reflecting the poor quality of the services provided. Grade repetition rates in primary schools are high at 28 percent on average and 46 percent in the first grade in 1988. These rates have not changed considerably in recent years. Only 36 percent of students entering the first grade in 1988 were likely to complete the sixth grade in 1994, and it took on average 10 years to graduate from primary school. Approximately half of total primary classes are multigrade, but multigrade classrooms are poorly managed because teachers do not have the appropriate training, teaching materials are unsuitable, and physical facilities are inadequate. Standard textbooks on four subjects (Spanish, mathematics, sciences and social studies) became available for primary students since 1987 with financing from USAID, but they require substantial content revisions. Reprinting and improved distribution is urgently needed, since some textbooks have already exceeded their five years of usable life. For the poorest rural and indigenous children, access to schooling is still limited and learning conditions are especially deficient due to overcrowding, insufficient teaching staff, shortage of didactic materials, and dilapidated school building which often lack safe water and  2 sanitary facilities. The Honduran Social Investment Fund (Fondo Hondureflo de Inversi6n Social - FHIS), supported by IDA Credits 2212-HO of 1992 and 2401-HO of 1993, has contributed to improve education infrastructure by rehabilitating approximately one-third of all public primary schools during the 1990-94 period, but considerable needs remain. 4. Public expenditures on education in Honduras are relatively high at an estimated 4 percent of GDP in 1993, up from 3.3 percent in 1979, exceeding that of most Central American countries. But sector resources are not used efficiently and are unequally distributed, favoring the richer urban areas at the expense of rural areas where most of the poor live. The share of primary and secondary education over total sector expenditures declined by 6 percent during the 1980-92 period, while administrative expenditures grew by 8 percent, and higher and technical education expenditures rose by 3 percent. Since 1980, the MOE salary bill grew faster than the total sector budget, and so did transfers to higher education. In 1993, salaries represented 65.6 percent of the education sector budget and non-salary expenditures per student were extremely low--less than 2 percent is invested in teacher training, education materials, classroom aids and school buildings. These trends, combined with a rapid expansion of enrollment during the 1980s, have resulted in a 20 percent reduction of the MOE non-salary expenditures per student for preschool and primary education over the last 13 years. On account of the high grade repetition rates and low completion rates, for each student that graduates from primary school, the system must finance 10 student years instead of 6. Although substantial savings would accrue, in the long run, from more efficient student flows through primary grades, the education sector budget would have to increase on the short term, to finance substantial improvements in the equity and quality of basic education which are preconditions to higher internal efficiency. To ensure more efficient use of resources and a sustainable financial basis for the sector, administrative restructuring and institutional strengthening would be necessary, because the MOE has limited institutional capacity to undertake the required education reforms, due to a dysfunctional organizational structure and obsolete management practices. 5. Government Strategy. In October 1994, the Government stated its commitment to providing quality basic education for all as the first priority for the country's development and for the creation of a more just and democratic society. Through the publication of the "Escuela Morazdnica," the GOH called for a profound transformation in the content and management of basic public education, with emphasis on improving the quality and efficiency with which the MOE delivers education services, and on promoting more active community involvement. To achieve these objectives, the GOH is committed to increasing public resources for basic education to carry out specific measures aimed at improving students' academic achievements. These measures include: (i) increasing the relevance of the school curriculum by revising existing textbooks; (ii) enforcing compliance with the school calendar; (iii) enhancing teachers' skills and enforcing technical criteria when hiring new teachers; (iv) introducing performance incentives for teachers, with community participation; (v) introducing flexible grade promotion based on academic modules; (vi) providing complementary educational materials and classroom libraries, particularly in the poorest areas; (vii) strengthening supervision at the school level; (viii) providing bilingual instruction in indigenous areas; (ix) expanding classrooms and teaching staff in the poorest rural areas where schools are currently overcrowded; (x) establishing a system of independent evaluation of student achievements; and (xi) expanding coverage of preschool education in poor rural communities. These measures are expected to raise the overall  3 level of schooling in society, retain more students in the school system, raise their academic achievement, and improve student flows from first grade to primary school graduation. 6. To increase the public sector's capacity to deliver education services efficiently, the MOE will be restructured to eliminate redundant units and functions, and decentralized services will be strengthened to better support the operation of the schools. Personnel policies will be revised to provide incentives for improving the performance and accountability of teachers and for reducing the number and enhancing the skills of the administrative staff. Planning, budgeting and financial management functions will be strengthened through enhanced management information systems, streamlined procedures, and improved office technology. Basic to the restructuring plan is the transfer to departmental offices of key operational functions associated with management of teachers, didactic materials and technical supervision of schools, redefining the role of the central administration as basically normative. The proposed restructuring of the MOE is part of a broader public sector management reform aimed at reducing the size of the state and improving its efficiency, which will be supported by a proposed IDA operation currently under preparation. To make national education more democratic and relevant to social development, the GOH is committed to promote community involvement in various aspects of school life, drawing on the commitment of teachers, parents, students, education authorities, and community members and leaders. Municipal governments will be directly involved in school management, by assuming responsibility for school maintenance and distribution of textbooks within their jurisdiction. Parents would play a key role in monitoring teacher attendance and will be informed on a regular basis of their children's academic progress and of the importance of their continued school attendance. 7. Project Objectives. The objectives of the proposed project are to improve the quality of learning and student performance, inspire better teaching, increase school attendance, and create more effective learning conditions, thereby reducing student dropout and repetition rates, and raising student's academic achievements at the primary level. The project also aims at strengthening the MOE's institutional capacity to deliver basic education services at higher levels of efficiency and fiscal accountability, leading to reduction in administrative costs. 8. Project Description. The project has been organized into two major components: (a) improving the quality of basic education; and (b) institutional strengthening. (a) Improving the Quality of Basic Education (US$38.2 million or 72 percent of total project costs including contingencies) to provide for: (i) training and assistance to upgrade the skills of preprimary and primary teachers, principals and supervisors, and to improve pre-service teacher training and accreditation; (ii) educational materials including textbooks, didactic materials, classroom libraries, and improved distribution facilities; (iii) bilingual education in indigenous areas for the GarYfiuna and the Miskito communities; (iv) external evaluation of students' academic achievements; and (v) infrastructure improvements for overcrowded rural schools, including additional teachers and access to community-run preschool education in poor rural areas. (b) Institutional Strengthening (US$14.9 million or 28 percent of total project costs including contingencies) to provide for: (i) technical assistance for the restructuring and  4 decentralization of the MOE, and improved technical supervision; (ii) a pilot Teachers' Performance Improvement Program; and (iii) project administration, monitoring and evaluation. 9. Project Costs and Financing. Total project cost, including physical and price contingencies, and local taxes, is estimated at about US$53.1 million equivalent, of which an estimated US$24.7 million (46 percent) is in foreign exchange. The proposed IDA credit of US$30.0 million equivalent would finance 62 percent of total project costs net of taxes and duties, including 64 percent of foreign exchange expenditures and 50 percent of local expenditures. The amount of local cost financing by IDA is in line with other IDA credits for Honduras due to its difficult fiscal situation, and the relatively low foreign exchange costs of education projects. The KfW concessional loan of US$13.3 million equivalent would finance 27 percent of total project costs net of taxes and duties. The Government of Honduras would finance US$9.8 million equivalent, or 18 percent of total project costs, including taxes and duties estimated at US$4.6 million equivalent. A breakdown of estimated costs and financing are shown in Schedule A. Amounts and methods of procurement and disbursement and the disbursement schedule are shown in Schedule B. A timetable of key project processing events and the status of Bank Group operations in Honduras are given in Schedules C and D, respectively. The Staff Appraisal Report No. 13891-HO, dated March 7, 1995, is also attached. 10. Project Implementation. The proposed project will be implemented over a five year period. The MOE will be the principal implementing agency, but the FHIS, the Municipalities, the National Pedagogic University (UPNFM), and local communities will also have a major implementation role. FHIS will carry out classroom construction and school rehabilitation as well as construction and remodelling of departmental offices under norms provided by MOE. The Municipalities will gradually take over primary school maintenance, starting with the schools expanded under the project, and will be responsible for ensuring the timely distribution of education materials to the schools in their jurisdiction. The UPNFM has created a technical unit for measuring students' academic achievements which will be contracted by MOE to prepare and apply student achievement tests yearly, as part of the external evaluation subcomponent of the project. Preschool programs will be run by local communities, and parents will be directly involved in the pilot Teachers' Performance Improvement Program. MOE has established a clear strategy for administrative restructuring and decentralization which received the approval of the Presidential Commission for the Modernization of the State, the coordination agency for the GOH's public sector management reform. Implementation of the institutional reforms would be phased, in order to allow for adjustments to the normative framework, preparation of operations manuals, staff training, and installation of improved information systems. Project implementation will be coordinated by a Project Coordination Unit (PCU). The PCU has already been created under the Vice-Minister for Technical Affairs of the MOE, and the proposed project director and key technical staff have been named. 11. The project would be implemented nationwide, covering all public primary schools. However, specific interventions would be targeted to poor rural communities that are presently underserved (para. 22). The targeted activities comprise (i) expansion of community-run preschool programs, (ii) improved access to primary education through additional classrooms and teachers, (iii) bilingual education at schools serving the Miskito and Gar(funa indigenous communities, and (iv) provision of classroom libraries and complementary educational materials. To facilitate reaching all public primary and preprimary teachers throughout the school year, in-  5 service teacher training will be highly decentralized, using an existing network of 1,500 teacher training centers (Centros de Aprendizaje Docente - CADs) that function on weekends in primary schools throughout the country. 12. Project Sustainability. With a conservative target of reducing the repetition and dropout rates by 10 percent over a period of five years, the financial impact of incremental recurrent project costs and of the increased number of students due to efficiency gains and population growth, will require annual increments of the current primary education budget between 0.6 percent and 6.3 percent during the project implementation years. This will be covered by the projected education sector budget increases of about 4 percent a year, in line with projected GDP growth. In the year 2000, after project completion, the incremental recurrent costs generated by the project are estimated at US$6.3 million per year, or the equivalent of 3.4 percent of the projected education sector budget. This level of budget growth is within the possibilities of the country, and will be more than offset by the savings accruing from lower administrative costs resulting from restructuring of the MOE and from increased efficiency of student flows in primary school. 13. Lessons from Previous Bank Involvement. Recent Bank Group experience in Honduras shows that project start-up is slowed by unfamiliarity with Bank legal, procurement, and disbursement procedures, and that Borrower's ownership of the project is important to implementation success. The experience of the Rural Primary Education Management Project (Ln. 2804-HO, 1987) shows that when a project implementation unit is created separately from the existing organizational units, existing units often miss the opportunity to acquire technical expertise during the process of project implementation and to strengthen their institutional capacity. To avoid this problem, the PCU for proposed project has been established as part of the MOE, with staff drawn from the operational units who prepared the project. To strengthen project management, building upon lessons learned from the FHIS-I and FHIS-II projects (Cr. 2212-HO, 1991 and 2401-HO, 1992), the proposed project will adopt a Project Operational Manual containing explicit guidelines for financial management, procurement and staffing. The FHIS experience also shows that when school maintenance is not ensured at the local level, schools tend to fall in disrepair. This finding is reflected in the design of the proposed project which provides for the gradual transfer of school maintenance from the MOE to the Municipalities. The experience with implementation of the Nutrition and Health project (Cr. 2452-HO, 1993), which supports the GOH's Family Assistance Program (PRAF), shows that coordination problems tend to delay project implementation when several executing agencies are involved. The proposed project will not need complex coordination mechanisms since all participating entities will work under contract with MOE. In order to avoid start-up delays associated with lack of familiarity with Bank procedures, the proposed project will hold a project launch seminar upon credit effectiveness, to orient and train Borrower personnel. 14. Feedback from several education projects in Latin America indicates that a proper policy framework and adequate institutional capacity are major factors in determining the success of project implementation. The proposed project focuses on improving the quality and efficiency of primary education on the basis of: (a) a clearly stated government policy framework; and (b) improvement of the institutional capacity of the MOE at the central and departmental levels. Other specific lessons learned from basic education projects in Latin America which have been incorporated in the design of the proposed project include: (i) the need increase education  6 expenditures and other compensatory efforts, targeted to the poorest regions, to promote higher student achievement; (ii) community participation in school management and maintenance to encourage better teacher and administrator performance; (iii) effectiveness of financial incentives to improve teachers' performance; (iv) positive impact of classroom libraries to complement teachers' strategies and stimulate students' interests and reading habits; (v) importance of learning materials complementing textbooks to stimulate more active learning in schools; (vi) high returns from bilingual education in primary grades; (vii) environmental education, promoted in the early years of a child's life, to form a positive attitude towards natural resources and public facilities; and (viii) appropriately designed school furniture to stimulate cooperative classroom work when students sit in small circles around collective tables, instead of rigid benches with attached writing surfaces. All these elements have been taken into account in the design of the proposed project. 15. Rationale for I]DA Involvement. The proposed Basic Education Project is consistent with IDA's most recent Country Assistance Strategy (CAS) for Honduras which was discussed at the Board on occasion of the presentation of the Agricultural Sector Adjustment Credit on August 5, 1993. The strategy focuses on reducing the public sector deficit, alleviating poverty, investing in human capital, and strengthening institutional capacity as key instruments to promote sustainable economic growth. Low productivity of the labor force is one of the fundamental causes of poverty and it is partly the result of low access among the poor to basic education and health services. IDA's involvement in the proposed project complements the GOH's targeted social safety net programs of nutrition assistance and small scale social infrastructure through PRAF and FHIS, supported by IDA credits 2401-HO and 2452-HO, respectively. By supporting the proposed Basic Education Project, IDA assistance will play a catalytic role in: (a) increasing investments in primary education, thus helping to accumulate human capital, the lack of which is a serious constraint to growth; (b) addressing the needs of the poor and contributing to a more equitable distribution of educational and economic opportunities; and (c) improving the efficiency of scarce public sector resources. IDA assistance for the proposed project will also help mobilize support from other donors for the improvement of basic education, as the Government of Germany would allocate DM 20 million in parallel financing through the KfW and approximately DM 1 million in technical assistance through the German Agency for Technical Cooperation (Deutsche Gesellschaft fur Technische Zusammenarbeit - GTZ). 16. Agreed Actions. The Borrower has submitted (a) guidelines for the restructuring of the MOE, satisfactory to IDA and evidence that a technical group has been established at MOE to design and implement the restructuring plan; (b) an action plan for the improvement of teacher- training schools; (e) a draft Agreement between MOE and FHIS for the implementation of civil works contemplated in the project; and (d) evidence of access to land for the construction of 13 departmental offices, thus complying with the agreed upon conditions for negotiation. 17. During negotiations, agreement was reached on: (a) a detailed teacher training plan for the first project year and assurances that training plans for subsequent years will be presented as part of the annual Project Implementation Plans; (b) a model Municipal Educational Materials Distribution Agreement to be entered into by MOE and the Municipalities; (c) a draft Agreement to be entered into by MOE and UPNFM for the measurement and reporting of primary students academic achievements; (d) terms of reference for the execution of a school census and assurances that the results of such census will be presented to IDA not later than six months after  7 Credit effectiveness; (e) a model Municipal Maintenance Agreement for the maintenance of primary schools expanded under the project, and assurances that continuous maintenance will be provided; (f) Project Implementation Plans which shall specify, inter alia, the annual program for construction, rehabilitation and equipping of classrooms, allocation of teaching staff to expanded primary schools, and provision of counterpart funds; (g) presentation to IDA by MOE, not later than July 31, 1996 of evidence that MOE has established a system, satisfactory to IDA, to administer employment and salaries; (h) Project Monitoring and Impact Evaluation Indicators; and (i) the carrying out by MOE of Annual Project Reviews, in July of each year and a Project Midterm Review, with IDA, not later than July 31, 1997. 18. Conditions of Effectiveness. As conditions of credit effectiveness, the Borrower will present evidence that: (a) an agreement between MOE and FHIS for construction and rehabilitation of schools and other facilities has been entered into by the parties thereto; (b) the MOE has adopted (i) the Project Operational Manual; (ii) the Project Implementation Plan for the first year of the Project; and (iii) a program, satisfactory to IDA, to strengthen MOE's management capabilities and information systems; (c) an agreement between MOE and UPNFM, providing for the establishment of a unit for the external evaluation of students' academic achievements, has been entered into by the parties thereto, and that such unit has been established; and (d) the PCU has been established. 19. Conditions of Disbursement. As conditions for disbursement of Credit proceeds (a) for the purchase of goods allocated to Departmental Directorates of Education, the MOE will have appointed the 18 officers who will manage such Departmental Directorates; and (b) for payment of teachers' incentives, the MOE will present evidence that a Teachers' Performance Improvement Program, satisfactory to IDA, has been initiated. 20. Environmental Aspects. The proposed project is rated "C", because it would enhance environmental conservation practices through the introduction of environmental themes in the primary school curricula and teacher training program. 21. Program Objective and Poverty Category. The project falls under the Program Objective Category of poverty reduction and would support a program of targeted interventions as part of the GOH's national policy of equitable access to education opportunities, by channelling resources especially to rural and indigenous areas, thus contributing to poverty reduction and development of human resources. The Miskito and Garffuna indigenous communities were selected as priority for the introduction of bilingual education based on the fact that they represent 60 percent of the indigenous school age children in Honduras, as indicated by anthropological research carried out during project preparation (Map IBRD 26279R). Single classroom multigrade rural schools, targeted for expansion, were chosen based on the 1992 school map and enrollment figures for the 1992- 1994 period that show overcrowding of more than 60 children per teacher and classroom and a steady enrollment growth trend over the past three years. Classroom libraries and didactic materials other than textbooks, will be targeted to primary schools with three or less teachers, therefore covering practically all rural primary schools and most schools located in poor urban neighborhoods. 22. Participatory Approach. Representatives of parents and teachers, as well as municipal authorities and teacher unions, have been actively involved in discussing the main features of  8 project design with MOE. Municipalities have expressed enthusiasm to participate in the distribution of textbooks and didactic materials. Municipalities are also supportive of assuming responsibility for school maintenance, provided that schools are first rehabilitated by FHIS. Eight indigenous ethnic groups have actively contributed to the design of the bilingual and intercultural education program for primary schools over the last year, and have indicated their commitment to help its implementation. Since 1990, rural communities have successfully run a community-based preschool program with assistance from UNICEF which will be supported and expanded under the project. To launch the pilot Teachers' Performance Improvement Program, the MOE plans to carry out, in cooperation with Municipalities, a series of community meetings and information campaigns to promote the participation of parents as well as teachers. Throughout project implementation, the MOE intends to disseminate information on the academic achievements of students to parents, teachers and the public at large, thus sustaining over time the participatory approach used in project preparation. Children's learning achievement improvements and teacher incentives will encourage parents and teachers to participate actively in the project. 23. Project Benefits. By raising children's cognitive achievement as well as their probability of completing the primary education cycle by a conservative 10 percent, the main project benefits would consist of a higher rate of human capital accumulation, contributing to economic development. Due to the project's emphasis on rural areas and bilingual education, project benefits will also include more equitable distribution of economic opportunities among Honduran children, especially for the poorest and the underserved indigenous populations, and the project will contribute to the Government's goal of redressing inequity in primary education. The project will improve efficiency of public resource use by reducing repetition and dropout rates by about 10 percent, and by increasing the amount of investments with high social rates of return. Approximately half of the children who will benefit from an improved quality of educational services would be girls; their access to higher levels of education and better work opportunities would thus improve. Further benefits can also be expected, as research has shown that increasing the education levels of women has a significant positive effect on the health status and on the educational attainment of children, and also contributes to lower fertility. The impact may be particularly significant for indigenous girls. Teachers, supervisors and principals will improve their productivity through systematic on-the-job training, and will contribute to the quality and efficiency of the primary education system nationwide. Institutional strengthening will contribute to a better allocation and increased productivity of human resources within the MOE, a reduction of about 29 percent in administrative costs, and an enhanced capacity to carry out, evaluate, and monitor educational policies and programs. Altogether, approximately one million primary school children, and over 26,000 preprimary and primary teachers, school directors and supervisors, and MOE managers will raise their human capital. 24. Project Risks. Project implementation may be delayed if the strengthening of the MOE institutional capacity takes longer to achieve than anticipated. To mitigate this risk, the project would: (i) provide technical assistance in the areas of planning, management information systems, and evaluation; (ii) utilize successful models and lessons learned under previous projects; and (iii) implement sector reforms supported by the proposed Public Sector Management Reform project. There is also a risk of inadequate provision of counterpart funds due to high budget deficits. This risk would be minimized through savings accruing from the MOE institutional reform and annual sector expenditure reviews.  9 25. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Sven Sandstrom Acting President Attachments Washington, D.C. March 7, 1995  10 Schedule A Page 1 of I HONDURAS BASIC EDUCATION PROJECT PROJECT COST SUMMARY Local Foreign Total ---US$ million--- Improving the Quality of Basic Education Training of Teachers, Principals & Supervisors 2.1 0.2 2.3 Textbooks and Didactic Materials 6.0 17.2 23.2 Bilingual Education 0.6 1.0 1.6 External Evaluation 1.2 0.1 1.3 Infrastructure Improvements 5.9 1.0 6.9 15.8 19.5 35.3 Institutional Strengthening Reorganization & Decentralization of MOE 7.3 3.0 10.3 Teacher Incentives 1.5 0.0 1.5 Project Administration, Monitoring & Evaluation 1.6 0.5 2.1 10.4 3.5 13.9 BASE COST 26.2 23.0 49.2 Physical Contingencies 0.7 0.5 1.2 Price Contingencies 1.5 1.2 2.7 TOTAL PROJECT COST" 28.4 24.7 53.1 FINANCING PLAN Local Foreign Total US$ million- Government of Honduras 9.8 0.0 9.8 IDA 14.3 15.7 30.0 Government of Germany (KfW) 4.3 9.0 13.3 Total 28.4 24.7 L I Includes approximately S4.6 million in local taxes.  11 Schedule B Page 1 of 3 HONDURAS BASIC EDUCATION PROJECT PROCUREMENT METHODS BY CATEGORY (US$ thousand) Procurement MethocP' Non-Bank Category Financed Total ICB LCB Otherb' Civil Works 0.0 0.0 0.0 5,774.9 5,774.9 Equipment and Vehicles 1,147.9 417.3 418.6" 0.0 1,983.8 (887.3) (320.1) (321.3) (1,528.7) Furniture 0.0 142.0 284.3"! 0.0 426.3 (99.6) (199.1) (298.8) Printing of Textbooks 0.0 0.0 0.0 6,441.9 6,441.9 Didactic Materials 17,228.2 820.6 200.0L' 1,083.2 19,332.0 (13,044.8) (492.4) (181.6) (13,718.8) Technical Assistance, Studies, and 0.0 0.0 7,493.4 0.0 7,493.4 Training " (7,493.4) (7,493.4 Salaries, Incentives and Operating 0.0 0.0 11.600.8 0.0 11,600.8 Costs"' (6,960.5) (6,960.5) Total 18,376.2 1,379.9 19,997.0 13,300.0 53,053.1 (13,932.0) (912.1) (15,155.9) (0.0) (30,000.0) W Figures in parentheses are amounts estimated to be financed by IDA. F Non-ICB/LCB are aggregated as Other, including local shopping, direct contracting and hiring of consultants. d Co-financed in parallel by the Republic of Germany through the KfW. 4' Didactic materials procured through local shopping, and proprietor books procured through direct contracting. ' Local shopping and direct contracting. P Consultants selected according to IDA Guidelines. " Financed on a declining basis, not subject to procurement.  12 Schedule B Page 2 of 3 HONDURAS BASIC EDUCATION PROJECT DISBURSEMENTS WITHDRAWALS OF THE PROCEEDS OF THE LOAN2' Amount of the Credit Allocated | ' of Expenditures Category (expressed in US$ equivalent) to be finaed " 1. Goods, other than non-durable didactic materials, including local freight: 100% of foreign expenditures and 100% of local expenditures (ex-factory (a) under Part B. (d) of the Project 700,000 cost) (b) under Part AA4 of the Project 50,000 (c) under the other Parta of the Project 4,950,000 2. Consultants' ervices, studies and training: 100% (a) under Part A.4 of the Project 1,300,000 (b) under the other Parts of the Project 5,400,000 3. Non-durable didactic material, including local freight 9,200,000 100% until disbursements under this Category shall have reached an aggregate amount not to exceed the equivalent of $2,600,000; 80% until disbursements under this Category shall have reached an aggregate amount not to exceed the equivalent of S7,200,000; and 63 % thereafter 4. Salaries, incentives and operating costs: (a) under Part B.2 of the Project 1,500,000 100% until disbursements under this Category shall have reached an aggregate amount not to exceed the equivalent of $200,000; 60% until disbursements under this Category shall have reached an aggregate amount not to exceed the equivalent of $ 1,000,000; and 25 % thereafter (b) under the other Parts of the Project 5,500,000 100% until disbursements under this Category shall have reached an aggregate amount not to exceed the equivalent of $2,500,000; 60% until disbursementu under this Category shall have reached an aggregate amount not to exceed the equivalent of $5,100,000; and 25% thereafter 5 U nallocated 1,400,000 Total 30,000,000 Part B. 1 (d) of the Project refers to the acquisition of office equipment and vehicles, as needed, for the Departmental Dimctorates of Education of MOE; Part A.4 of the Project pertains to developing the Borrower's institutional and technical capabilities for external evaluation of academic achievement of students enrolled in public priaruy schools; Part B.2 of the Project refers to designing and carrying out a pilot program to improve teachers' classroom performance in public primary schools. 3 Net of all duties and taxes.  13 Schedule B Page 3 of 3 ESTIMATED DISBURSEMENTS TIMETABLE IDA FLscal Year 1996 1997 1998 1999 2000 Annual 3.44' 9.0 5.8 6.0 5.8 Cumulative 3.4 12.4 18.2 24.2 30.0 4 Includes Special Account Authorized Allocation of US$1.8 million and retroactive financing of up to USSI.0 million for eligible expenditures incurred after August 31, 1994.  14 Schedule C Page 1 of 1 HONDURAS BASIC EDUCATION PROJECT TIMETABLE OF KEY PROJECT PROCESSING EVENTS (a) Time taken to prepare 13 months (b) Prepared by : MOE (c) First Bank mission . July 1993 (d) Appraisal mission departure August 1994 (e) Negotiations : February 1995 (f) Planned date of effectiveness August 1995 (g) List of relevant PCRs and PCR 2212-HO, Report No. PPARs 13573, September 1994 PPAR 2212-HO, 2401-HO, Report No. 13839-HO, December 1994  15 SCHEDULE D Page 1 of 2 STATUS OF BANK GROUP OPERATIONS IN HONDURAS A. STATEMENT OF BANK LOANS AND IDA CREDITS (As of December 31, 1994) Ceditl Fi. :: l onNo. Yowr Bowe: P -: A j i 33 loans and 17 credits fully disbursed 634.81 217.49 Of v.hich SECALs, SALs, and Program Loans In. 2990-HDS 1989 Honduras Structural Adjustment 50.00 Cr. 2208-HDS 1991 Honduras Structural Adjustment 20.00 20.00 Ln. 3257-HDS 1991 Honduras Structural Adjustment 11 90.00 r. 2306-1-HDS 1992 Honduras Energy Sector Structural Adjustment 31.50 31.50 Subtotal 191.50 51.50 n. 2421-HDS 1984 Honduras Water Supply and Drainage 19.60 5.39 n. 2703-HDS 1986 Honduras Third Industrial Credit 35.10 3.18 Ln. 2804-HDS 1987 Honduras Rural Primary Education 4.40 1.49 'r. 2306-HDS* 1992 HIonduras Energy Sector Structural Adjustment 50.60 16.43 r. 2401-HDS 1992 Honduras Social Investment Fund H 10.20 2.41 Cr. 2417-HDS 1993 Honduras Morazan Dam Emergency 12.00 2.69 Cr. 2452-HDS 1993 Honduras Nutrition and Health 25.00 18.36 Cr. 2458-liDS 1993 Honduras Transport Sector Rehabilitation 65.00 62.96 Cr. 2540 I1DS* 1994 Honduras Agricultural Sector Adj. Credit 60.00 36.51 Cr. 2540-2-HDS a> 1995 Honduras Agricultural Sector Credit 26.30 26.95 ** Sub-total 59.10 249.10 176.37 Total 693.91 466.59 Of which has been repaid 329.69 13.68 Total now held by Bank and IDA 364.22 452.91 Amount sold: 4.46 Of which has been repaid: 4.46 Total Undisbursed 10.06 166.31 176.37 a > Not yet effective. * SAL, SECAL, or Program Loan. ** Difference due to exchange rate fluctuations between SDR and US$. MdeS: LA2CO File: N:AMdeSilva\disburse\honduras\HN-12-94.xls Jan. 19, 1995  16 SCHEDULE D Page 2 of 2 I{ONDURAS STATIEMENT OF IFC INVES'TMENrS As of December 31, 1994 (in Millions of US Dollars) :E X 7 ; X f X E ~~~~~-~-O6gisa ro a CnsentA- .- -- Fiset8l Yetas WC 1W Nsd-, Totia IJby by indhuAi Comsittned Obfigagtor TypeOfBasines i: Loan Equitey ptiionns6 FC0 rIF C:. Partici. 1964,G6 Empresa de Curtidos a! General manufactwuing 0.21 0.07 0.10 038 . 1969,'70 Conipania Pino CeIoIosa de Tinmber, ptUlp and paper -- 0.08 -- 0.08 -- -- 1978 rextiles Rio lindo, S.A. Textiles 3.77 1. (0 6.00 10.77 2.14 -- 1987 (irajas Mfarinias San a' Food and agjibusiness -- 0.5X -- 0 58 -- -- Fotal gross comnitmncits b:' 3.98 1.73 6.10 11 81 I ess cancellations, temiinanons, iepaynment & sales 2.84 0.73 6.10 9 67 I oLal commnitments now held c, 1 14 1.00 -- 2 14 2.14 -- -- Pending comntienleLts HI(tOSA 10.50 S 50 16.30 32 30 Iotal pending comnmitments 10.90 5.50 16 30 32.30 Futal .onlnitncents held and pending cLniioiitnsents 11.64 6 50 16.30 34.44 I-oL indisbursed comttnmtmnts -- -- 0.00 a, lnvcstnncnts rshih have been fully cancelled, leeminalted, wnttvn-off, sold, redeemned, or repaid. b GSross comnitnents coisist of approved and signed projects. cI lcld c contiitneots conrsist of disbursed and sindisburscd iisiveslnents.  88 86 84 j 88r 0 25 50 75 100 K,Ioneterts 2i 50 I j | HONDURAS f BELIZE 25 50 75 130Miles BASIC EDUCATION PROJECT ETHNIC LANGUAGE GROUPS ! ROATAN;- 16' 16' GUATEMALA . 4SAN PEDRO . SULA 0 40,~~~~~~~~~~~~~~~~~~~ PUERTO YOROE) ~~~~~~~~~~~~~~~~~~~~~~~~LEMPIRA I SANTA . A f3 / BARBARAG<'_ SANTA ROSA z,- ' . f DE COPAN e _* *. 7_CQTEPEOUE JUTICALPA 4# - NUEVA NtIBU( fCOMAYAGUA NICARAGUA 9 ] ~~~~LA f3 tPAZ. -_ bH E~RANZv LAA -14 ,, A * TEGLKIGALPA 1 A'- 14 .~~~~~. I - -~~~~~~ FRAN. ).EHNCGOP ESTIMATED PRIMARY14 EL SALVADOR -_ '- - MORA. YUSCARAN S/ HOO ETHNICGROUPS SC LPOPULATION ( >v J