Benin - Technical Assistance For Planning and Economic Management Project

Document of The World Bank FOR OMCIAL USE ONLY C X i. /So-'8' st N.. P-3899-PIM REPORT ALD RECOMMENDATON OF TRE PRESIDENT OF TEE IlTERNATToNAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 5.1 MILLION TO THE PEOPLE'S REPUBLIC OF BEAN FOR A TECHNICAL ASSISTANCE PROJECT FOR PLANNING AND ECONOMIC MANAGE1ENT November 15, 1984 Western Africa Region Thk d.e.inm ha a resuiced dkisbu w a.d ml be usd by wepim. my in the pfewmmue of their sEdmi dudt.. lfl =tmy mt elberwbe be discimd t w Bss Widld B I  Currency Equivalents (as of October 15, 1984) Currency Unit CPA Frauc (CFAF) USSi.00 CPAP 435 1/ CPA? * zillion USS2,298.8 ACRONYN BCP Bureau Central des Projets CAJA Caisse Autonaoe d'Amortissement mCu European Currency Uvit EDP Thropean Derelopnent Fund FAC Fknds d'hide et de Cooperation IO Ln- ia Labor Organization IhF International Monetary Fund INSAE lnstitut National de la Statistique et de lAnalyse Economique NE Nlnistere des Finances et de 1'Economie EPS Iinistere du Plan et de la Statistique UNDP United Nations Development Program UNDTCD United Nations Departaent of Technical Cooperation and Development UNYPA United Nations Fund for Population Activities Fiscal Year January 1 - December 31 I/ The CFA Franc (CFAF) is tied to the French Franc (FF) in the ratio of FF1 to CFAF 50. The Freneh Franc is currently floatizg.  FOR OMCIAL USE ONLY - i; - PEOPLE'S REPUBLIC OF BMlFl T3=ECICAL ASSISTANCE PROJECT FOR PLANNING AND ECONOMIC NANGENEIT Credit and Project Summary Borrower: People's Republic of Benin Nain Beneficiaries: inistry of Plan land Statistics (WSP) linistry of Finance and ECo3my (E) National Institute of Statistics and Economic Analysis (INSAE) Caisse Aatonome d'Amortissement (CAA) Amount: SDR 5.1 million (USS5.0 million equivalent) Terms: Standard IDA terms Co-Financiers United Nations Development Program (UNDP) Ponds d'Aide et de Cooperation (FAC) Earopean Development Fund (EDF) United Nations Fund for Population Activities CUIFFA) Project Description: The proposed project aims at reinforcing the capacity of the Government for planning and economic management. This broad objective will be pursued by: 'i) introducing improved procedures for programming, budgeting, and monitoring of public sector investments; (ii) helping to improve the preparation and analysis of investaent projects; (iii) organizing public finance into a more coherent structure; (iv) strengthening Benin's institutions involved with the collection and analysis of statistics; and (v) providing training in project preparation and analysis, business accounting, and providing fellowships for advanced studies abroad in economics, public administration and business administration. 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 authorizationo  -~ ~ ~ ~~~~~~~~~L _ i$ii- Benefits and Risks: Benefits would accrue to lenin over many years as the advice and training provided lead to an increased Government capaclty to: (i) prepare macroeconomic and sector plans, sound projects, and realistic investeDt prograos, (:i) properly mage public fiance including the external debt, and (iii) improve the data and information base. The risks are that (i) becamse of the lii.ted muber of trained personnel in Benin, effective counteroarts may prove difficult to find, ad (ii) coordination problems anmd limited available country information may reduce the effectiveness of the foreigzt experts. Government is aware of these risks and special arr ag eats have been made under the project (i) for the selection of counterparts, in consultation 'ith IDfA, prior to the arrival of the technical assistants, and (ii) to ensure proper coordination of the various project components and an adequate flow of information.  Estimated Costs (exempt of taxes and duties) _ass mi l lo 4 o Local Foreign Total Planning and Project Preparation 0.3 1.4 1.7 Pmblic Finamce anagemmt 0.2 0.7 0.9 Statistics 0.2 0.6 0.8 Training 0.4 0.7 1. Fellowships - 0.4 0.4 Activities to be identified 0.2 1.0 1.2 Equipment and Vehicles - 0.6 0.6 Operating Costs 0.4 0.4 0.8 Base Cost 1.7 5.8 7.5 Price and Physical Contingencies 0.2 0.8 1.0 TOTAL Project Costs 1.9 6.6 8.5 .-US DifliOn Fi.ancing Plan Local Foreign Total IDA 0.9 4.1 5.0 UND? 0.3 1.4 1.7 PAC 0.2 0.5 0.7 EDF 0.2 0.4 0.6 ?NFPA - 0.2 0.2 Goveranent 0.3 - 0.3 TOTAL 1.9 6.6 8.5 Estimated Disbursements from the IDA credit (US$ million equivalent) P3 1 1!8F FMS P!B lD99 P1M 9 PFM An=l 0.5 1.1 1.1 0.9 0.6 0.4 04 CWAlatiM 0.5 1.6 2.7 3.6 4.2 4.6 5.0 11 Includes repayment of a PPF advance of $450,000. Estimated Completion Date: June 1990 Economic Rate of Return: N.A. Staff ApLraisal RePort: There is no separate appraisal report. MZp: IBnD 18661  INTERNATIONAL DEVELOPKENT ASSOCIATIOR _ REPORT AND RECOFMEIDATION OF THE PRESIDENT TO THE EXECUTIVE DIEECTORS ON A PROPOSED DEVELOPMET CREDIT TO THE PEOPLE' S RFPUBLIC OF BENIN FOR A TECHNICAL ASSISTANCE FROJECT FOR PLANNING AID ECONOMIC IARAGENENT W 1. I submit the following report and recommendation on a proposed Development Credit to the People's Republic of auin for an amount in various currencies equivalent to Special Drawing Rights 5.1 million (US$5.0 million cquivalent) on standard IDA terms to help finance a Technical Assistance Project for Planning and Economic Management. The project will be cofinanced on a parallel basis by grants totalling USS3.2 million from United Nations Development Program (JIDP), United Nations Fund for Population Activities (UIPPA), the Republic of France acting through the Ponds d'Aide et de Cooperation, and the European Development Fund (EDF). PART I - THE ECONOMY 2. The latest economic report on Benin (Report No. 4686-BEN) was circulated to the Executive Directors in April 1984. The paragraphs below are based upon this report and other information that has since become avail- able. Annex I provides basic country data. Political Background 3. After independence in 1960, a period of instability characterized by frequent changes in Government prevailed in Benin until the revolution in 1972, which brought to power the military Government of Lieutenant-Colonel Kerekou. The country has since then enjoyed a comparatively long period of political stability under a one-party system. Following the adoption of a new constitution, President Kerekou was confirmed in 1980 as head of a Government including many civilians. Structure of the Economy 4. Benin is a small, poor nation with a population of 3.5 million and an estimated 1982 per capita GDP of US$280. Agriculture, the most important sector of the economy, employs three-fourths of the active population and accounts for 40 percent of GDP and around half the foreign exchange earnings. There is a small industrial sector consisting of a few import substitution and agricultural processing plants. It contributed an estimated 11 percent to GDP in 1982. The tertiary sector is dominated by trade and transit activities that link economic activity in Benin to conditions existing in neighboring economies. 5. The agricultural sector is predominantly fooderop oriented, producing maize, sorghum, yams, cassava, beans and small quantities of rice. Benin, at present, enjoy3 an overall food surplus; it is estimated that a-significant portion of domestic fooderop output (perhaps as much as 20 percent) is exported unofficially to Nigeria and Niger. This offsets Benin's foodgrain imports which hare been rising in recent years. The main export crops are  -2 palm oil, cotton and peanuts. Cotton, which is well-suited environmentally to conditions in northern Benin, is rising in importance whil& oil palm in the south is in relative decline because of insufficient rsinfall. 6. The production of petroleum, cement and sugar which have significant export potential began recently. For cement and sugar, however, major marketing hurdles will need to be cleared to perdit export sales to take place, particularly to Nigeria. Recent Economic Develo]Ments 7. Real GDP growth during 1978-1982 averaged about 5 percent per annum, up substantially from the 0.7 percent annual average during the 1972-76 period. Grovth appears to have been strong in 1977, 1981 and 1982 when there were sharp increases in construction, manufacturing, trade activity and public administration. This growth was linked to the heavy public investment program and to strong grovth in commercial activities due to the oil boom in Nigeria and the uranium boom in Niger. Agriculture, on the other hand, consistently grew at less than one percent per annum between 1970 and 1975, and then at an average rate of 2 percent between 1976 and 1981. Agricultural performance improved substantially in 1982 and 1983 with a sharp rise in cotton output attributable to higher producer prices and the availability of modern inputs. B. During the mid-seventies, the Government expanded its presence in the modern sector of the economy by nationalizing the maJor industrial enterprises as well as extending its involvement in the agricultural sector. Under the First Four-Year Development Plan (1977-1980), the Goverment went further by investing in three large projects: Seme Petroleum, Sava Sugar and Onigbolo Cement. This policy of greater Government involvement has determined the course of the recent evolution of public finance, external debt, and external balance. 9. Until the late seventies, the Government maintained a conservative public finance posture. Tight control over expenditures resulted in current budget surpluses, which averaged 31 percent of revenues between 1977 and 1979. Nodest foreign borrowing financed the limited public investment program. More recently, the public finance current 3urplus has weakened, partially because of rising current expenditures, about three fourths of which are wages and salaries. The other factor contributing to this decline is the weakened revenue base. Over half of the revenues are derived from import duties, of which a significant proportion is levied on imports re-exported (officially or unofficially) to Nigeria dnd Niger. The post-1980 dowaturn in economic activities in these neighboring countries has reduced demand and limited ths inflow of dutial6e goods that transit through Benin. In con- sequence, the current budget went into deficit in 1983. 10. Public enterprise financing also poses a problem for Government finances. Two-thirds of the approximately 60 public enterprises in Benin are in financial difficulties. Losses have been financed by the state-owned banks, rather than through transfers from the budget. As many of these advances cannot now be repaid, the Goverment, either as shareholder or as banker, will have to cover these deficits. Public enterprise difficulties have stemmed from poor initial project design, undercapitalization, inexperienced business management, inadequate Government pricing and personnel  -3- policies, and other inefficiencies.. In 1982, the Government announced a series of measures to strengthen the public enterprises, including more realistic pricing policies, better incentives for managers and workers, tougher controls, and the liquidation of non-viable units. A program is now being prepared (see para. 22) to support these decisions. 11. In the external sector the growth of exports has been modest while imports have grown rapidly, mainly because of capital imports associated with the major public investments. In 1981, the resulting current account deficit reached 23 percent of GDP as the investment ratio reached 30 percent of GDP. The current account deficit rose to 28 percent of GDP in 1982 oving mainly to further capital imports associated with an investment ratio of 35 percent. Financing came mainly from external loans, principally supplier credits and long-term official lending. 12. External indebtedness and debt service obligations have therefore grown rapidly. The stock of external debt disbursed and outstanding which was US$193 million at end-i980 rose to US$600 iillion at end-1983. Simultaneously with this rapid growth of the debt stock, there occurred a relative hardening of the average loan terms. As a result, scheduled debt service as a percentage of exports rose from 5 percent in 1981 to 22 percent two years later. Owing to the weakened revenue situation and the start-up problems of the cement and sugar projects, all the debt service due in 1982 and 1983 were not met. At end-1983, pa3ment arrears stood at about USS43 million. Policy Changes and Future Prospects 13. Confronted by may problems, the Government has begun to eliminate economic distortions in order to improve the performance of the economy. Starting with cotton, agricultural producer prices are being raised, and input subsidies are being eliminated in a planned fashion. Najor reforms have been decided in the pricing, personnel and management policies affecting public enterprises, and some marginal enterprises have been closed. In addition, the Government has decided that its direct involvement in productive actIvities will be reduced and that private capital will be accorded a greater role in the develoluent process. These policy changes, which are reflected in the medium-term Developuent Plan (1983-1987) should lay the basis for more vigorous growth in the longer term. 14. Benin's growth performance over the mediu term will be limited by several constraints which make it unlikely .that GDP will grow by more than an average of 3 to 4 percent per year during the 1982-90 period, even taking the 35e'me oil output into account. Key constraints include the slowdown in demand in neighboring countries and the poor initial performance of the cement and sgar projects. 15. The public finanee situation is likely to remain difficult in the years ahead due to the recurrent cost implications of recent major invest- ments, the need to re-finance a number of public enterprises, and the external debt problem. On the revenue side, the buoyancy in import duties over the 1979-81 period associated with goods re-exported to neighboring countries is not likely to continue in the Iid-1980s. The exploitation of Same oil is not expected to make even a modest contribution to fiscal resources until 1986. 1  - 4 - 16. Benin's balance of payments is difficult to project because of the large size of unrecorded exports. It is estimated, however, that the current account deficit in relation to GDP will decrease during the rest of the 1950s. This results fr%.m expected exports of petroleum, and possibly cement and sugar by 1986 and from a decline in the real value of capital imports from the high levels of 1981-82, followirg completion of the cement and sugar projects. As a result of a morp modest level of public investment, fewer loans will be required in the near-term. Therefore debt service ratios should begin to stabilize, although at a higher level than in the past. The ratio is projected to remain at about the 25 percent level through 1990. 17. Benin remains a very poor country with large needs for directly pro- ductive investment and supporting infrastructure. Its increased debt burden due to heavy foreign borrowing in support of public investments will constrain future access to commercial loans. The Government has recognized the need to mobilize increased concessionary financing from bilateral and multilateral sources, as reflected in the Donors' Roundtable Conference convened in March 1983. In view of Benin's poverty and the inability of public savings to finance more than 5-10 percent of the future public investment program, the country will continue to need foreign financing on concessionary terms. Foreign donors should provide a large share of total project costs, including, if possible, the financing of local costs. PART II - BANK GROUP OPERATIONS IN BENIN 18. Since the Bank group started lending to Benin in 1969, Benin has received twenty-two IDA credits, two supplementary IDA credits, and two Special Fund credits, totalling US$224 million. Six of the credits were for agriculture, seven for road construction and maintenance, two for education, three for energy, and one each for port expansion, urban water supply, development of small- and medium-scale enterprises, and forestry. Annex II contains a summary statement of Bank group operations in Benin as of September 30, 1984. 19. In the past, the Bank Group's dialogue with Benin was limited and based on a case-by-case approach to lending operations. More recently, however, the policy and lending dialogue has intensified and Government has displayed considerable interest in and responsiveness to Bank advice and policy assistance. The Country Economic Memorandum (Report 4686-BEN), released in March 1984 and discussed with the Government in December 1983, was utilized as a vehicle to broaden this dialogue substantially. The report emphasizes the importance of comparative advantage considerations in the choice of development activities and identifies policy issues at the aggregate and sector levels which need to be resolved to strengthen output performance. 20. A large proportion of Bank assistance to Benin's development so far has been in the agricultural sector. IDA's earlier operations in this sector met with mixed success and, in fact, during the execution of an IDA-FAC -Zou-Borgou credit for cotton development made in 1972, cotton production actually fell. In 1977, a technical assistance credit was approved to help the Government better prepare rural development projects. The assistance provided by this credit was instrumental in preparing the Bhrgou, Zou and  -5- Atacora provincial rural development projects. Under the Borgou project, for which a US$17 million IDA credit was approved in April 1981,'ficotton production in the Borgou province doubled in the 1982-83 season and sharply increased again in the 1983-1984 campaign. The Zou Project (FY83 IDA US$20 million) is noteworthy for the fact that it includes financing of fertilizer imports on a declining scale as a response to the Government decision to phase out ferti- lizer subsidies and reduce pestieide subsidies. The rural development project in Atacora Province,, appraised by the Bank, was financed by a US$6 million credit from the International Fund for Agricultural Development (hFAD) and a US$4 million loan from the OPEC Fund for Interntional Development. 21. In the transport sector, Bank involvement began with a Land Transport Study which led to the financing of a four-year Highway Maintenance Project in i969-70. Since then, the Bank group has financed three highway projects, three feeder roads projects and a port extension project. In general, these projects were satisfactorily completed with actual economic rates of return comparing favorably with appraisal estimates. In the case of the Third Highway Project however, the project completion report notes that institu- tional development objectives were only partially met. The Third Feeder Roads Project, approved on May 29, 1984, puts emphasis on strengthening the planning and monitoring capability of the Ministry of Civil Works through the provision of technical assistance experts, the establishment of a road maintenance section, and training for Beninese staff. 22. Following the Government's decision in 1982 to proceed with the reform of public enterprises, it requested Bank group support in the public enterprise sector. Discussions in progress are expected to lead to agreement on specific policies for this sector. An IDA credit to finance detailed studies needed to prepare individual enterprise rehabilitation programs, and to finance the execution of these programs is under preparation. In the energy sector, the Seme Oilfield Phase II Development Project was approved June 19, 1984 and the Nangbeto Hydroelectric Project on June 28, 1984. Other assistance to Benin is expected to continue in the transport, education, urban and energy sectors. 23. Benin's performance with respect to project implementation and disbursement is generally satisfactory, and the Government is quite familiar with the Bank's procuiement and disbursement procedures. Delays are sometimes encountered, hovever, because of the Government inability to make timely contributions of counterpart funds, a problem which has been exacerbated by the difficult budgetary situation. PART III - THE NEED FOR TECHNICAL ASSISTANCE 24. The stringent economic and financial situation in Benin in recent years has made apparent, not least to the Government itself, the shortcomings in the economic management of the country. These arise largely from weak- nesses in project preparation, macroeconomic planning (policy analysis, and investment programming) and public finance management (budgeting, budget execution and debt management). The poor data and information base and the limited number of capable national staff available to undertake the various tasks are major constraints to Goverment efforts in improving economic management.  -6- Weaknesses in Economic Management 25. Macroeconomic Planning. Three sections of the Minlstry of Planning and Statistics (MPS) have institutional responsibility for the planning, appraisal and selection, programming and monitoring of investment projects. These units are the Direction des Studes et Synthese (DES), the Bureau Central des Projets (BCP), and the Direqtion de la Programmation et de l'Azuenagement du Territoire (DPAT). The DES is responsible for conducting policy-oriented studies of the economy as a whole, and for drawing up development plans. The DPAT is responsible for the programming of investments, the environmental concerns of development and the issue of regional balance during the growth process. It recently became involved in monitoring the execution of projects. 26. At the present time, severe deficiencies exist in the investment programming process. The DPAT is in charge of producing each year's tranche of the development plan for inclusion in the budget, taking into account the financial feasibility of the total package, given foreign and domestic financing available, the availability of domestic counterpart funding where required by externally-financed projects, and the budgetary consequences of resulting recurrent expenditures. This important function is not being adequately performed at this time. As a result, the implementation of externally funded projects has occasionaly been interrupted by lack of counterpart funds. Furthermore, there is a general continuing problem of poor maintenance of infrastructure and periodic shortage of supplies, both due to the underfunding of recurrent expenditures. This situation arises largely from poor investment programming that does not pay adequate attention to the financing framework of each year's investment budget and to the explicit allocation of recurrent cost needs. The recent performance of the DPAT in the area of project follow-up has, however, been satisfactory. The project will provide the services of a consultant to improve the investment programming process as described in para. 47. 27. Project Preparation and Selection. The BCP was created in 1976 to prepare, analyze and review projects to be included in the investment program. While the BCP should play a key role in the NPS, it has been largely ineffective. One of BCP's problems is that it has responsibility for a multiplicity of tasks (identifying projects, conducting feasibility studies, appraising projects, drawing up project documents, seeking financing for projects and monitoring inwestments), some of which conflict (such as identifying, preparing and screening projects within the same unit). The BCP does not have the range of skills needed to fulfill all these tasks. As a result of attempting to do too much, the BCP often fails in its key tasks of screening projects and many projects that should have been rejected on efficie4cy grounds, or should have been redesigned to improve their quality, have been retained in the investment program as initially proposed. 28. In light of the above, the Government has decided to proceed with a reform of the BCP and clarify its relations with the planning units of individual technical ministries, the Directions den Etudes et de la Planification (DEPs). The role of the DEPs in the areas of project identification, preparation and promotion will be emphasized. The DEPs will be expected to identify and prepare projects including studies of economic justification, In the BCP, emphasis will be placed on critical evaluation of project proposals, particularly the screening of projects submitted for  -7- inclusion in the investment program. Part of the BCP's present staff will be reassigned to the DEPs where project formulation and prepafttion will take place. After it has been reorganized, the BCP will also provide advice to the T'RPs on methodological matters. The proposed project will support Government's decision to reform the BOP as described in paras. 48 and 49. 29. Public Finance Management. The Ministry of Finance and Economy (MFE) organizes the management of public finance through four divisions: the Budget Office (DB), the Money and Banking Office (DAMB), the Debt Nanagement Office (CAA) and the Treasury. The DB draws up the current budget, the DANB is res- ponsible for supervising banking and monetary affairs, the CAA is in charge of debt management which encompasses the management of loan funds from the tims they are contracted through the time they are repaid, and the Treasury serves as the depository for current revenues and makes payment on current expendi- tures. A budgetary commission chaired by the Minister of Planning and Statistics is responsible for final presentation of the budget to the National Assembly. 30. Public finance management is constrained by poor organization of the budgetary framework and inability to keep current data on operations. One of the weaknesses in the structure of the budget is that only operating receipts and expenditures are recorded according to a proper administrative classification. Expenditures on supplies and on investment program expenditures are not systematically classified. The lack of nomenclature for the investment budget leads the Treasury to put all investment expenditures into a suspense account which makes it difficult to monitor the execution of the investment program. As the budget is executed, movements in public finances cannot be easily monitored and there is no warning system for financial stress situations. 31. Information on the public sector's debt and contingent liabilities arising from debts guaranteed by Government is incomplete. The accounts of the CAA on even the portion of debt it has in its ledgers are not up to date. The CAA has not published its accounts since 1979 and cannot provide a comprehensive picture of public debt, especially for the debt contracted by state enterprises and guaranteed by the Government. Debt service projections are not reliable when they are made. The recent growth in external indebted- ness of the public sector on account of parastatal projects has increased the need for a comprehensive debt data base, improved debt accounting procedures and, generally, better debt management capability. At the Government's request, the Bank recently seconded an external debt specialist to the CAA to assist in reorganizing the management of external debt information. Vith an improved information base and better accounts, the CAA will be able to more actively manage the debt portfolio as opposed to its present passive posture. Local Constraints 32. Statistics. The weakness of the statistical base makes it difficult to assess the performance of various sectors and the economy as a whole and represents a major constraint to economic management. Benin's official statistical agency is the Institut National de la Statistique et de l'Analyse Economique (INSAB), which is organizationally a part of IPS. The INSAE collects, analyses and publishes official data. Though the institute has a small group of dedicated staff, it does not, at present, possess the technical capacity to produce up-to-date statistics covering the main macroeconomic and sectoral aggregates.  - - ~ ~ ~ ~ ~ ~ 8 33. National acomunts statistics are prepared with a two-year delay, usig periodic assistae from the United NWations Econocic Coamission for Africa. Public finance statistics (including external debt daa.) and statistics on external trade are out-of-date and of uncertain quality. In other important sectors coverage is only partial: in the agricultural sector, far9gate and market prices of crops are not well documented, and in the industrial sector, output, salestand financial statistics are deficient. 34. The effect of unreliable statistics may be illustrated by the example O.- growth rate estimates that often have to be revised markedly when the base data, are changed. ihereas initial base data led to the estimation of the average growth rate of Beninm during the period 1972-76 at 3 percent, it was later realized, on the basis of revised base data, that growth during the period was really no higher than 0.7 percent. Another area where poor statistics constrain Benin7s ecomic management is in the public enterprises sector. The paucity of data on public enterprises (production, profitability, indebtedness) have made it diffieult to have continuing assessment of the performnce of public enterprises, and to take the necessary steps to improve their onerations. 35. Staff Adequacy and Training. Although in the past Benin had a reputation for having a large number of highly-educated and well-trained civil servants, it is currently handicapped by the fact that a large number of qua- lified Beninese are living abroad. This has created shortages of experienced manpower, especially at the middle and higher levels of Government. Noreover, the limited number of experienced high level civil servants who are in Benin find it very difficult, in addition to fulfilling their day-to-day operations, to accomplish two major tasks on which emphasis should be placed: (a) preparing, implementing and monitoring institutional and policy reforms and (b) training and coaching more junior staff. 36. An illustration of the difficulties encountered by Government in implementing reforms which are poorly prepared is the attempted establishment of the Caisse Centrale de Financement (CPF) within the Ministry of Finance, now NFE. In 1980, the CPF was proclaimed by law, merging the CAA, DANE, and the Treasury in an effort to eliminate the overlapping responsibilities of these agencies. However, the CFT never became operational, and many officials acknowledge that such a major institutional reform would have required more thorough preparation. 37. Formal undergraduate training in economics and statistics and related disciplines in Blenin is offered at the University of lenin; however, the curricula in these areas are weak. Wany students follow courses in law and the numbers of graduates with skills crucial in economic management-the * project cycle, macroeconomic analysis, finance, statistics, and accounting- remain lower than the levels needed. The University of Benin does not offer training in these fields beyond the first-degree level and Government's fellowships for studies abroad are limited. The Need for Coordinated TA in Nacroeconomic Management 38. Past and Ongoing Bank Technical Assistance in Benin. It the past, technical assistance provided to Benin by the Bank has been limited to tech- nical ministries and operational positions associated vith the iVplementation  -9- of specMic projects (Zou and Borgou Rural Developtent Projects; Technical Assistance Petroleum Sector Project; Industrial Development a oject; Feeder Roads and Highway Projects). Recently, however, the Government bas shown interest in expanding technical assistance from the Bank Group to the area of economic manage ent. As noted above (para. 31) the Bank seconded a staff member to fill the position of external debt advisor starting in Jovember 1983. He is currently laying the foundations for the assembly of the debt data and the maintenance of a comprehensive debt data base. 39. Other Past and On-going Technical Assistance. So far, five agencies hav provided technical assistance to Benin in the areas of macroeconomic- _ It, project preparation and statistics. The 1JDP has provided two technical assistants to the IPS for the past three years. One advisor, a acroeconomist, participated in the drafting of the 1983-1987 Development Plan and left Cotonou in larch 1984 for another t. The other advisor, an investaent progralMer, has introduced some improved procedures for the monitoring of publie invesbients. 40. The Fonds dWAide et de Cboperation (FkC) and the Emropean Development Fund (EDP) have financed the services of advisors to the BCP at different times and for various durations ranging from 6 months to 2 years (engineers, economists, finwacial analysts). Their work baa included project preparation and monitoring of projects under execution. However, the weaknesses of the BCP (see para. 27) have not allowed Benin to benefit fully from the presence of these advisors. In agreement with the Governmeat, PAC and EDP decided during the appraisal in December 1983 to end their assistance to the BCP. In the future, any assistance from FkC and EDF in the area of project preparation, promotion, and supervision will be provided to the technical ministries. 41. The United Nations Fund for Population Activities (UDPPA) assisted INSAB in launching a population census in 197g. The project gath^red useful demographic infomation, but the data collected then and those from another surver in 1983 still need to be analyzed, the results published, and disseminated. The United Nations Economic Commission for Africa (UNECA) has provided periodic short-term assistance for the preparation of national accounts. Longer-term assistance is needed, however, to upgrade procedures and to train Beninese staff in the skills necessary to take over responsibility for this task. 42. The Present Need for Technical Assistance. Past and on-going technical assistance programs have not alwars been tailored to the nature and scope of Benin.Ls major weaknesses in economic management. For instance, there is a clear need for assistance in the area of public finance management which has not been addressed. To help the Goverment to develop its economic management tools and formulate reforms in a coherent manner, a more coordi- nated approach is necessary for the delivery of technical assistance in Benin. Another shortcoming of certain previous technical assistance programs has been Government's failure to provide adequate counuterparts or donors' failure to ensure that foreign experts actually work with thep4r designated counterparts and interact generally with a good number of local officials in their assigned institutions. The proposed project is the first broad-based technical assistance operation supported by IDA in Benin. In addition to providing financing not available from ovher sources at the present time,  - 10 - IDA's role in the project will be to help Benin achieve a more effective approach toward efficient economic management. PART IV - THE PROJECT Bckground 43. The proposed technical assistance project was first identified with the Government during a Bank economic mission in June 1982 and assistance was formally requested by the Government in Ray 1983. The project was appraised by an IDA mission in December 1983 which was joined by representatives of UIDP and PAC. A Project Preparation facility of USS450,000 was approved in July, 1984 to permit preparation of training programs and early launching of the assistance to the debt management office. A credit and project summary is provided at the beginning of the report. Annex III contains supplemmetary project data and Annex x gives the list of main documents available in the project file. There is no separate Staff Appraisal Report. Negotitionsa were held in Washington from October 17 to 19, 1984. The Beninese delegation was led by H.E. Mr. Zul-Kifl Salami, Minister of Planning and Statistics. Project Objectives and Summary 44. The overall objective of the proposed technical assistance project is to reinforce progressively Government's cap'city to manage the economy effec- tively. Specifically, the project wiLl attempt to strenothen Benin'a institu- tions in project preparation and macroeconomic planning (policy analysis and investment programming), in public finance management, statistics, and management training. The project will also (i) improve the organization of the BCP, a key directorate of the 1PS, and (ii) facilitate tie planning and implementation of organizational changes which may be undertaken in the NFE following the diagnoses to be made under the project. The development of these objectives, which are crucial to proper economic management in Benin and to IDA's future operations in that country, and the need for coordination with the other major aid agencies providing technical assistance to the Government, call for a key role to be played by IDA in meeting Benin' s technical assistance needs. 45. Technical assistance will be provided to key ministries for periods ranging from a few weeks of short-term coaching to long-term assistance. Resident technical assistants will not be line managers but will perform as advisors. Table I below shows the duration and sources of finance for the major technical assistance positions. Ir addition to these, the project provides for the fir'ancing of trainin7 o&r -tie3 and for fellowahips. Annex IV contains a matrix showing pr ',e. objectives, inputs, duration of assignments, and expected results. Table I - Summary of Technical Assistance to be Provided (in staff months by component) So=uce/FiMn9zg Comp t IDA~ UhF PlC FJF GMA GOVT TL Plaulmingand PLoject Prp. 78B 60 - - Pablic mwe ent 45 - 18 - - 63 St atsies - 36 36 24 18 - 114 IDEIAL 123 --59 54 24 18 - 315 _ _  - 11 - To ensure that the work of the tec.bnical assistance advisors has a lasting and tangible impact, and in view of the importance attached to *raining (see paras. 60-64 below): (i) the Government will designate a number of Beninese staff as counterparts to each resident technical assistant, in addition to his main advisee (see Annex V), and (ii) the ability to train local counterparts will be one of the selection criteria in the recruitment of consultants. The total cost of the project is ss*imated at USS8.5 million of which $5.0 million would be financed by IDA, $1.7 million by the UNDP, $0.7 million by the FAC, $0.6 million by the EDF, $0.2 million by th.e UNFPA, and $0.3 million by the Government. A condition of credit effectiveness will be that the conditions for the disbursement under each of the DIDP, UNFPA, and PAC grants Shall have been fulfilled (Section 6.01 (b) of the Draft DCA). B Project Components A. iacroeconomic Planning and Project Preparation 46. Economic AnalYsis and Investment Programming. In the MPS, a macroeconomic advisor financed by UND? (with qualifications and experience acceptable to IDA) will work with a team of nationals headed by the Director of DES. He will lead work on policy-oriented macroeconomic studies, advise on technical matters relating to the formulation of national development strategies and the preparation of national development plans. He wi'l also assist in the monitoring of economic developments. The latter is expected to lead to the regular quarterly production of studies of -the current economic situation (Note de Conjoncture). 47. An investment programmer will be finaced (initially for two years with the possibility of extension from contingencies) by the UNDP (with qualifications and experience acceptable to IDA) to work in the DPAT, advising the Director of DPAT and the four programming section chiefs. The work of the investment programer will be to reinforce the concept of keeping public sector investment plans in line with national priorities and existing budget constraints. At budgeting time he will ensure that the investment budget is a part of a financial program that is feasible and that also provides for recurrrent and counterpart funds. Between budgets, he will concentrate on follow-up of project execution. His programming work will go part-way towards addressing the issue of the operation and maintenance of existing investments by integrating into the budgeting exercise the practice of explicitly allocating the needed resources. The proposed advisor will follow up and expand on the work of the UNDP-financed expert mentioned in para. 39 and whose c-~ntract will expire in December 1984. 48. Project Appraisal. It was agreed with the Government that implemen- tation of the proposed reform of the BCP was a necessary condition for techni- c~al assistance in the field of project appraisal. The reorganization will streamline BCP's functions, emphasizing its screening role as a project appraisal unit; and since it will no longer be responsible for conducting feasibility studies and appraising projects, it wilr reduce the number of its staff. Understandings on the BCP reorganization, including its new functions and or8uaizational chart, were reached during negotiations. All necessary action required to reorganize the BCP accordingly will have to be taken as a condition of disbursement for the services of the project analyst described in para. 49 below (Schedule 1, para. 3(b) to the draft DCA).  - 12 - 49. To support the Government's decision to reform the BCP and to make it more effective, an expatriate project analyst will be recruited under the proposed project (IDA financing) for two years. He will work closely with the director of the BCP and will take advantage of teaching materials developed by EDI on project analysis to help the BCP build up a reference library during the project period. 50. Project Preparation. Project formulation and preparation will now take place in the DEPs of the technical ministries. In order to strengthen their capabilities, staff released through the restructuring of the BCP will be reassigned in the DEPs of these ministries. The DEPs will have continuous access to the advice of the expert on project preparation and analysis recruited for the BCP. 51. Given the present and future importance of industrial and agro- industrial projects in the economy, the services of an advisor on industrial projects will be provided for two years (IDA financing) to the Industry Directorate (DI) of the MFE. The adviso: will help the DI to increase its capacity to (i) prepare and promote sound industrial projec;s, (ii) supervise and advise existing industrial companies especially public enterprises, and (iii) carry out studies leading to the formulation of coherent strategies for industrial subsectors. This assistance is required given (a) the limited experience of the DI's staff and the major responsibilities entrusted to this directorate, and (b) the poor performance of public enterprises and the large projects completed over the last few years (Onigbolo cement, Save sugar). The advisor will work closely with the chiefs of service of the DI who will assume the leading role after the term of the expatriate advisor. 52. Livestock is another sector for which the Government has requested IDA assistance to help develop a coherent strategy and coordinate foreign aid. Initially, consultants (totalling 11 staff months) will be recruited under the propo3ed project (IDA financing) to assist the Ministry of Raral Development and Cooperatives in conducting a livestock sector review. This revie-w will help the Government to develop a strategy for the sector. Following the sector review, a livestock advisor will be recruited for 19 months under IDA financing to strengthen the livestock directorate and help prepare a project which will be a coordinated follow-up operation to livestock activities presstly supported by the EDF, the Netherlands and France. 53. During project implementation, it is expected that short-term assistanc.e will be needed to conduct sector reviews and formulate projects that have not yet been fully specified (see para. 66 below). Such assistance, which will be financed under the "activities to be identified' category, would primarily benefit the technical ministries to the extent that funds cannot be used under other IDA finanwced projects in specific sectors. B. Public Finance Nanagement 54. The assistance foreseen in the area of public finance management will consist of short and medium-term expertise to assist in: (i) improving the structure of the budget and strengthening the Treasury Department; (ii) creating the capacity to monitor and manage the public debt; and (iii) improving the data collection process for public finance statistics.  - 13 - 55. The proposed Credit will finance the services of consultants to help the Budget and Treasury departments introduce systematic buZMetary nomencla- ture for the operating and investment budgets so that they are compatible with IMF nomenclature. The use of nev nomenclature in budgeting will allow for proper budget execution and expenditure control. A public finance system specialist will be recruii3d for a period of twelve months divided into four periods to allow proper follow-up after the initial design of a new budget framework. In addition, an accountant and a systems specialist (recruited for a total of nine months under FAC financing) will help adapt the Treasury' s accounting system to the new budget nomenclature and supervise the computerization of the Treasury's operations. One computer will be purchased under IDA financing for the use of the Treasury Department. 56. Two short-term consultants will be attached to the CkM of the Ministry of Finance (IDA financing). The first, an accountant will help the CAk adapt its accounting system to conform with the National Accounting Plan and generally improve accounting procedurps. The second, a computer special- ist, will assist the CAA in computerizing its external debt statistics and accounting system. This will supplement the efforts of the debt specialist seconded by the Bnek to improve the CAIA's debt-management capacity. in particular its knozledge of debt stock, its evolution through time, and projections of debt service obligations. For the storage and treatment of data and for accounting operations, one computer will be purchased for the use of the CAk. Hardware selection will be upon the advice of the system experts and maintenance arrangements will be established with the suppliers" represen- tatives in the regt.on. 57. An economic statistician specialized in public finance and acting as an advisor will be recruited (18 staff-months, IDA financing) to assist the Direction des Etudes et de la Planification (DE?) of the IFE to establish procedures for prompt data collection on revenue, expenlIture, and public debt so that a consolidated picture of Benin's financial situation could be obtained and kept up to date. One of the outcomes of this exercise will be the establishment of monthly economic indicators. During negotiations, the Government confirmed that it will assign two public finance statisticias to work full time with the advisor (Section 3.03(b)) of the draft Development Credit Agreement). The advisor and the local team will be expected to begin their work by doing a joint diagnosis of procedures for producing the required statistics. Other short term prcgraws will be financed by FAC in the area of customs collection. C. Statistics 58. Statistics are notably weak in Benin (see paras. 32-34). To help remedy the situation the major areas discussed below will be assisted under the project. This assistance, which has been designed to correspond with absorbtive capacity and staff resources of INSAE, will be directed towards ii- provirg the quality of statistics to facilitate the.management of the economy. 59. A statistician will be recruited under UNDP financing for two years to strengthen the capacity of the INSAB to compile national accounts. He will help to improve the collection and analysis of data for national accounts, and will be complemented by short-term consultants, also financed by the UNDP in the areas of external trade, prices and public finance statistics. Two  -14 - statisticians, under financing from FAC and EDP, will assist INSAB in conducting a household budget and expenditure survey, as well as publishing the results. A demographer will be recruited for 18 months (IDA and UNFPA financing) to analyze the 1979 population census and the 1983 survey and to publish the results. - D. Training 60. In addition to the streamlining of responsibilities of selected Government agencies and the introduction of improved procedures, the project will include training activities which are an integrated part of a strategy for long lasting institutional strengthening. While substantial work haa been done to assess the training needs in techbncal fields under the two IDA financed Education Projects and vith the assistance of UNESCO and 1o1, the training needs in key ministries and agencies are yet to be properly assessed. Consequently the assistance foreseen in the area of training will include the provision of the services of a resident training advisor and the preparation of an in-service training program in the priority area of project analysis, preparation, and supervision. The project will also include a training program in business accounting and the training of a limited number of tax auditors. 61. The proposed Credit will finance the services of a training advisor attached to the project coordinator's office for 18 months (Section 5.01 (b) of the Draft DCA). He will, at project inception, be responsible for assessing the training needs of all agencies involved in the project and helping each technical assistant design on-the-job training programs and identify formal training opportunities for national staff. During project implementation, he will coordinate training activities under the project and monitor their execution. The Government will forward to IDA a list of candidates to be considered as counterparts for each technical assistant, in addition to the main advisee. During negotiations it confirmed its agrseemet that those counterparts with whom the technical assistants will be associated, will be selected before the arrival of technical assistants and that an adequate number of secretaries and other support staff will be assigned (Section 3.03 (a) of the Draft DCA). 62. The strong need for training in project analysis, preparation, and supervision was confirmed during the appraisal mission, which included a representative from EDI. The mission discussed with the Government the major focus and the target group of such a training program. It will be an in- service program for medium- and high-level staff from various ministries, government agencies, and state enterprises. It will cover all stages of the project cycle, placing emphasis on calculation of financial and economic rates of return, determination of recurrent costs and debt-service implications, and methods of proper project supervision. The training program will be designed and implemented by consultanta who will largely utilize training materials from the EDI and in coordination with activities being carried out in the BCP and the DEPs. US$300,000 will be made available under the proposed Credit to prepare and implement the program. 63. The business accounting program will be a continuation of an rLO- assisted program initiated in 1982 to implement the system of standardized enterprise accounting introduced by the Government in 1981. ILO assistance  - 15 - will end in December 1984. IDA will finance the continuation of the program for three years. The participants will come from both public and private companies in Benin. The program will be improved in three respects: (a) clear distinction will be made in the curriculum between three levels of qualifi- cations in the field of accounting: certified accountants, accountants, and junior accountants; (b) the program will be designed to ensure effective follow-up of the participants in their enterprises to help them apply proper accounting procedures; and (c) although ILO will continue to assist in the management of the program, local and foreign consultants will be utilized to a greater extent to complement the expertise made available by the 'Centre National de Formation Comptable" (CEIAFOC) at Cotonou and the ILO. ILO/CEKAFOC has prepared a work program for the proposed training program which was discussed during negotiations and is being finalized. 64. Under PAC financing, a short-term consdatant will train about ten Beninese professionals of the Taxation Directorate of the MFE in the area of enterprise tax auditing. This training program will a&i at establishing two tax auditing brigades of about five membeis each, to strengthen Government's ability to collect corporate taxes. E. Fellowships 65. Because of the acute shortage of trained economists, and public and private administration specialists in Benin, the proposed Credit will finmmce fellowships (US$300,000) for graduate studies in these fields. The fellow- ships will offer twelve student-years of graduate education abroad, since no graduate-level training programs are offered in Benin and bilateral funds for these purposes have d'olined in recent years. The fellowsbips will serve to broaden knowledge and develop expertise of professionals who have graduated from the university and have demonstrated strong potential in their work per- formance over at least a three-year period. Participants will be selected for their potential contribution to the formulation of economic policy. Before awarding any fellowships, the Government will furnish to the Association for its approval the dossier of the candidates for fellowships (Section 3.06 (a) of the draft DCA). The Government will undertake to employ them upon the successful completion of their studies and will require then to stay on for at least three years (Section 3.06 (b) of the draft DCA). The fellowship program will be managed by the Directorate of Technical Cooperation in the lPS and will be reviewed every six months by the Association. F. Activities to be Identified 66. About 15 per cent of the proposed Credit will be reserved at the outset to finance activities subsequently to be identified in the above components or which otherwise serwe the overall project objectives of strengthening macroeconomic management and preparing sound projects. Programming of such funds will be administered by the Project Coordinator (see para. 68) in consultation with and subject to the approval of the Association (Section 3.07 of the draft DCA). 67. Technical assistance, studies, training activities and equiplext to be financed under the "Activities to be identified' category can be determined precisely only during project implementation. However, funds are likely to be used for inter alia (i) policy-oriented macro-economic studies in the 1MPS;  - 16 - (ii) sector reviews and feasibility studies (technical ministries mentioned in para. 52); (iii) follow-up actions which will be necessary-for the MFE; and (iv) technical assistance which will be necessary for certain aspects of a financial stabilization program foreseeable in the next two years. Project Organization and Implementation 68. Project Kanagement Structure. Overall formal responsibility for project management and liaison with the Association will rest with the Director of Technical Cooperation (DCT) of the MPS who has been appointed Project Coordinator. The DCT will head a project unit comprising a senior officer (who will perform the day-to-day functions), an accountant, and a secretary. Under the direction of the Project Coordinator, Beninese Chiefs of Operations will be respectively responsible for the implementation of each of the main components: planning, public finance management, debt management and statistics, within the beneficiary agency concerned. In the case of training which is a service to all project components the DCT will retain overall supervisory responsibility. Each Chief 6f Operations will organize andi direct the work of consultants and their Beninese counterparts and will prepare progress reports for the activities falling under his responsibility, at half- yearly intervals. 69. To assist in the recruitment of technical specialists and to facili- tate proper project implementation, the Government has decided with the concurrence of IDA to engage two outside agencies whose services will be financed out of the proposed Credit. It has requested that a United Nations agency-the Department of Technical Cooperation and Development (UNDTCD)--be engaged to help implement the project components which will be executed by the Government under a cost sharing arrangement with the UNDP and the UNFPA (see Annex X). This choice is based on previous technical assistance which the UNDTCD has helped implement in the areas of planning and statistics in Benin. The Government is discussing a service contract with the UNDTCD which will specify the administrative and supervision services which the UNDTCD will undertake, and a detailed budget stating the costs of consultants services and DTCD's administrative costs. The agreement will be submitted to IDA for approval before signature. The second outside agency (or consultancy firm) to be engaged by the Government will assist in the implementation of the public finance component of the project by helping in the hiring of consultants and the monitoring of their work. The firm will be selected by the Government according to Bank guidelines (Section 3.02 (b) of the draft DCA). 70. Aid Coordination and Donors' Supervision. The Government and the donor agencies have agreed to exchange and discuss the terms of reference of all majo.r technical assistance positions, regardless of the source of finan- cing for each of these positions. IDA and each cofinancier concerned will discuss and agree on the suitability of the qualifications and experience of each expert. During negotiations the Government confirmed its agreement on the terms of reference for the major technical assistance positions listed in Annex VI. Any changes to the terms of reference agreed during negotiations will have to be cleared with IDA (Section 3.02 (d) of the draft DCA). 71. IDA and co-financiers will receive copies of the supervision reports made by the agencies assisting with project execution for their respective project components. Joint supervision missions will be arranged among the co-  - 17 - financing agencies, with IDA as the lead agency. All future initiatives related to technical assistance for macroeconomic management'-ill be discussed with the other donors before being finalized. 72. In addition to the contribution to project implementation expected from outside agencies such as UNDTCD, IDA will devote the requisite amount of staff resources to ensure adequate project supervision. At the initial stage, Bank staff will monitor the finalization of contracts with outside agencies and the recruitment of experts. After the launching of the project there will be intensive supervision aimed at ensuring that the experts actually work-with their designated counterparts and that the appropriate steps are taken to achieve the expected results indicated in Annex IV. Upon completion of each component, the Government and IDA w4ll determine the appropriate follow-up which should be given to the technical assistance program concerned. 73. ProJect Implementation. The project will be implemented over a five- year period, excluding sisx months of activities begun before effectiveness and financed from the PPF advance and cofina"ciers' contributions. The estimated completion date is June 30, 1990. 74. The identification, preparation and supervision of all studies and training programs will be carried out with the assistance of resident specialists financed under the proposed project. Such studies and programs and the award of any fellowship will be subject to prior approval by the Association and the other donors based upon supporting documentation which will include a detailed justification, plan of execution, and supporting services to be provided (Sections 3.05, 3.06 and 3.07 of the draft DCA). 75. The Project Coordinator will ensure that semi-annual progress reports be prepared for each project component and he will call a meeting at least semi-annually with the Chiefs o-f E,9rations and other senior Government staff. Such meetings will reviev the status of project activities and will consider the results of each project component, including expenditures made, staff training results, policies developed and institutional changes produ- ced. Semi-annual reports will be sent- to IDA (Section 3.09 (c) of the draft DCA). The Government agreed during negotiations to evaluate the performance of each resident technical assistant at the end of his first year of assign- ment and of each short term consultant upon completion of his task. These evaluations would be transmitted to IDA for review (Section 3.02 (e) of the draft DCA). The Project Coordinator and the Chiefs of Operations will also ensure the accessibility of necessary information to both technical assistants -and intermediary agencies (section 3.02 (c) of the draft DCA). 76. Project Costs and Financing. The total cost, net of taxes, of the project is estimated to be US$8.5 million. Foreign exchange costs amount to US$6.6 million, about 75 percent of project costs. Contingencies amount to about 16 percent of project base costs, excluding the costs of activities to be identified, and are based on expected domestic inflation of 12 percent per year, international inflation of 8 percent (average Bank KV index during period). The costs of consultants per staff-month (including salaries, housing and other allowances, travel, and cost of recruitment) have been estimated on a basis that the Government has found realistic in relation to those prevailing locally for expatriates having similar qualifications as those required for the project.  - 18 - 77. The project will be financed on a parallel basis by an IDA credit and grants from UNDP, UNFPA, EDF and FAC. For each project component, Annexes VII and VIII give the financing plan and the IDA contribution, respectively. The Government's contribution estimated at about US$0.3 million equivalent will pay the salaries of the incremental Beninese staff, including one secretary for each of the five agencies involved in the project, two public finance statisticians in the NPE, one accountant in the C M and two computer technicians for the CAA and the Treasury. The Government will make provisions in its annual budget for funds sufficient to provide this support. 78. Expenditures to be financed out of the proceeds of the proposed Credit include: (i) services of consultants and experts; (ii) costs of training activities (local staff salaries excluded); (iii) fellowships; (iv) office equipment, computers and vehicles; (v) salaries of the project unit's personnel and operating costs of the project unit; (vi) expenditures to be specified under the "activities to be identified" component of the project; and (viii) repayment of the advance from the Project Preparation Facility. 79. Procurement and disbursement. The selection, qualifications, experience and terms of employment for all advisors financed by IDA will be subject to approval by the Association (Section 3.02 (a) of the draft DCA). No single purchases of above $100,000 are foreseen under the Project. Contracts for purchases of goods which are less than US$100,000 but more than US$50,000 will be awarded in accordance with IDA guidelines for international competitive bidding. Contracts for purchases of goods of less than $50,000 but more than $25,000 will be awarded following local competitive bidding procedures which are acceptable to IDA, and contracts for goods for less than US$25,000 will be awarded on the basis of quotations from not less than three reputable suppliers. The aggregate value of IDA-financed equipment and vehicles is expected to be about US$0.4 million. Separate accounts will be maintained by the Government for all project activities, and will be audited each year by auditors acceptable to the Association. All disbursements from the credit account would be against full documentation (up to 100%, taxes excluded), with the exception of salaries and local operating costs of the project unit (up to 80% of total cost) for which monthly statements of expenditures will be prepared. IDA supervision missions will review Government records on procurement and disbursement under the project, specifically the monthly statements of expenditures. 80. No disbursement applications of less than $20,000 equivalent will be accepted by IDA. An IDA revolving fund of US$300,000 equivalent will be established to cover about three months of project expenditures and will be replenished on the basis of the regular Government reimbursement applications  - 19 - (Section 2.02(c) of the draft DCA), The opening of a special account for this fund will be a condition of Credit effectiveness (Section 61O1 (a) of the draft DCA). The Special Account will be monitored by the Project Coordinator. Disbursements out of the Special Account will be cleared with the Caisse Autonome d'"Aortissement, the debt mAnagement office. 81. Benefits and Risks. Tbh benefits will accrue to Benin over many years as the advice and the training provided lead to increased efficiency in economic and financial management including improved policy analysis and decision making. The project will specifically lead to an increased Government capacity to (i) prepare sound projects that will form part of a realistic program; (ii) prepare macroeconomic and sectoral plans that are feasible and are internally consistent; (iii) manage its finances including its public debt; and (iv) improve the data and information base. Obviously, the project will not solve all public sector management problems in Benin. IDA will continue its dialogue through economic sector work in coordination with other developlent assistance agencies assisting Benin and may consider finance further technical assistance and training. One of the main risks of the project derives from the difficulties in ensuring that qualified Beninese can effectively benefit from the presence of the foreign experts. The project will include a number of measures which will minimize the risks associated with counterpart selection and training (see paras. 44 and 61), and special efforts will be made to ensure the accebsibility of necessary information to both technical assistants and intermediary agencies. Given the large number of components, there is an additional risk that project implementation could suffer from insufficient coordination. However, particular care has been taken during project preparation to reduce this risk, including (i) centralizing the overall responsibility for the project in the JPS, (ii) requiring that Chiefs of Operations hold coordination meetings on a regular basis under the chairmanship of the Project Coordinator, and (iii) utilizing the services of two intermediary agencies to facilitate the coordination of operations financed by various donors. PART V - LEGAL INSTRUMENTS AND AUTHORITY 82. The draft Development Credit Agreement between the People's Republic of Benin and the Associstion, and the Recommendation of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement, are being distributed separately to the Executive Directors. 83. Features of the Development Credit Agreement of special interest are listed in Section III of Annex III. Special conditions of effectiveness Vill be: (i) the opening of a special account for deposit of the IDA revolving fund; and (ii) the conditions for the first disbursement under the PAC grant, under the UNDP grant and under the UDFPA grant, shall have been fulfilled (Section 6.01 of the draft DCA). A special condition of disbursements for the services of the project analyst will be that the Government take all necessary action for the reorganization of the ECP in a manner satisfactory to the Association (Schedule 1, para. 3 (b) of the draft DdA). 84. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association.  - 20 - PART VI - AECO!mENDATION 85. I recommend that the Executive Directors approve the proposed Credit. A. W. Clausen President Attachments Washington, D. C. November 15, 1984 a~~~~~~~~~~~~~~~~  - 21 - ANNEX Iw Page 1 of 4 I A -LI IAu - LsCI. Z S DATA SH MIII muses cacumn icvszronh AVu ) j^ UK m(S SHTS iTZ lb 1961k Sb,L T Jb LU NIDOIC