Mali - Third Education Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3717-MLI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON PROPOSED CREDITS 0F SDR 4.44 MILLION FROM IDA AND SDR 4.66 MILLION FROM THE IDA SPECIAL FUND TO THE REPUBLIC OF MALI FOR A THIRD EDUCATION PROJECT February 2, 1984 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 Currency Unit = Malian Franc (MF) US$1.00 = MF 784 MF 1 million = US$1,275 US$1.00 = SDR 0.955153 GLOSSARY AND ABBREVIATION AfDF African Development Fund DNPES Directorate for Planning and School Equipment EIV Junior Livestock Technicians Training Center FAC French Fund for Aid and Cooperation MEN Ministry of Education USAID United States Agency for International Development REPUBLIC OF MALI FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY CREDIT AND PROJECT SUMMARY Borrower: Governnent of Mali IDA Credit Amount: SDR 4.44 million (US$4.6 million) IDA Special Fund Credit Amount: SDR 4.66 million (US$4.9 million) Terms: Standard Project Description: The proposed Project would: (a) develop the institu- tional capability of the Ministry of Education in the areas of educational planning and financing, and admin- istration of technical education and vocational training; (b) improve the quality of basic education; (c) increase access to basic education for children and adults (particularly women and young farmers) by expanding primary teacher training and non-formal adult education programs; and (d) improve the skills of agricultural extension workers and livestock technicians. Benefits and Risks: The strengthening of educational planning and admin- istration is essential and is expected to result in a more effective control and guidance of student flows, a more efficient allocation of budgetary resources, and a closer match between the output of the education system and the requirements of the economy. Increased access to basic education should increase the quality and number of skilled workers entering the labor market. The major risk is that pressures to maintain expenditures and scholarships for secondary and higher education will pre- vent the Government from reallocating education expendi- tures. The Government, however, has confirmed its commitment to this budgeting reallocation in a statement of intent, and past reductions in scholarships indicate that it is making a concerted effort to reallocate its education budget in favor of basic education. An agreed set of indicators would be used to measure Government performance in educational policy reform. Progress would be monitored and discussed annually, with an in-depth midterm review and assessment. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ji - Estimated Project Cost: 1/ Local Foreign Total -------US$ million------ I. Institutional Development Educational Planning 0.2 0.8 1.0 Administration of Technical 0.1 0.2 0.3 Education II. Development of Basic Education Educational Reform 0.1 0.6 0.7 Teacher Training 2.1 4.0 6.1 Adult Education 0.3 0.8 1.1 IEII. Agricultural and Livestock Technician Training Agricultural Agents Training 0.6 1.7 2.3 Livestock Technicians Training 0.3 0.7 1.0 IV. Project Management 0.5 0.4 0.9 Base Costs 4.2 9.2 13.4 Contingencies: Physical 0.2 0.6 0.8 Price 1.0 2.1 3.1 Total Project Costs 5.4 11.9 17.3 2/ Financing Plan: 3/ Local Foreign Total ------US$ million ------ IDA 1.2 3.4 4.6 IDA Special Fund 1.3 3.6 4.9 AfDF 2.0 4.9 6.9 Government of Mali 0.9 - 0.9 Total 5.4 11.9 17.3 1/ The project will be exempt from taxes and duties, except for taxes on fuel which are expected to be negligible. :2/ Includes US$1.0 million PPF advance. 3/ The proportion of IDA financing and the establishment of a revolving fund (the Special Account) form part of the Special Action Program in Mali.  - iii - Estimated Disbursements: FY 1985 1986 1987 1988 1989 1990 1991 ----------------------US$ million------------------------ Annual IDA 0.5 0.4 0.6 0.7 0.8 1.2 0.4 IDA Special Fund 0.6 0.4 0.5 0.9 0.9 1.1 0.5 Cumulative IDA 0.5 0.9 1.5 2.2 3.0 4.2 4.6 IDA Special Fund 0.6 1.0 1.5 2.4 3.3 4.4 4.9 Total 1.1 1.9 3.0 4.6 6.3 8.6 9.5 Economic Rate of Return: Not applicable. Staff Appraisal Report: No. 4542-MLI, dated January 30, 1984. Map: IBRD 17190   INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENIYATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON PROPOSED DEVELOPMENT AND SPECIAL FUND CREDITS TO THE REPUBLIC OF MALI FOR A THIRD EDUCATION PROJECT 1. I submit the following report and recommendation on a proposed development credit of SDR 4.44 million (US$4.6 million) and a proposed IDA Special Fund Credit of SDR 4.66 million (US$4.9 million equivalent) on standard IDA terms to the Republic of Mali to help finance a proposed Third Education Project. The African Development Fund (AfDF) will contribute about US$6.9 million equivalent. The AfDF Credit is expected to be on terms of 0.75 percent interest per year, with repayment over 50 years, following a 10 year grace period. PART I - THE ECONOMY _/ 2. Two reports entitled "Economic Memorandum on Mali" (3200-MLI) and "Mali-Special Economic Study--Planning Institutions and the 1974-78 Plan" (3333-MLI) were distributed to the Executive Directors on June 30, 1981. The following paragraphs are based on these reports and the findings of recent World Bank and IMF economic missions. Annex I gives country data. Economic Resources and Constraints 3. Mali has a population of over 7 million inhabitants, in an area of 1.24 million square kilometers in the middle of sub-Saharan West Africa. In 1982, GNP per capita was only US$180. By almost any measure, Mali is one of the least developed countries in the world, with a subsistence-oriented econ- omy (85 percent of the population depends on the primary sector), dependence on a few commodity exports, an extremely low rate of domestic savings (minus 2.7 percent of GDP in 1982), a high population growth rate (2.8 percent), a low level of education (less than 10 percent adult literacy and a 27 percent primary enrollment rate), and difficult living conditions that give a life expectancy at birth of only 45 years. 4. Poor physical and underdeveloped human resources, as well as inade- quate economic and social infrastructure, constrain economic growth in Mali in the short and medium term. Potential for agricultural production is limited by uncertain rainfall, fragile soils prone to exhaustion and erosion, and low- yielding, traditional crop and livestock technologies with little scope for intensification. Mineral and energy resources are limited and difficult to 1/ Parts I and II are substantially the same as those contained in the President's Report for the Second Mali Sud Rural Development Project (P-3645-MLI) which was approved by the Executive Directors on October 11, 1983.  exploit. Human resources are underdeveloped, in part because access to basic amenities like clean water, better health care, and educational opportunities remains quite limited. There are shortages of skilled workers and experienced managers. Transportation and communication are extremely expensive by world standards, because Mali is landlocked and internal distances are vast. The above factors result in low incomes, small domestic markets, and limited potential for industrial development. Finally, Mali is a small open economy, with trade concentrated in a few commodities. Imports and exports together amount to more than half of GDP. Cotton and livestock comprise four-fifths of exports, and petroleum and foodstuffs, one-third of imports. Thus, the country is extremely vulnerable to changes in world prices and declining terms of trade. 5. Although economic development will be difficult in the short and medium term, Mali has economic potential that can be developed over the long term. Malian farmers are among the most proficient in West Africa. Rainfed maize production could be significantly expanded in the south. Mali has more irrigated rice land than any other Sahelian country, as well as the largest physical scope for expanding irrigation. Hydroelectric generating potential cn the Niger and Senegal rivers is significant. Although mineral resources remain largely unexplored and unexploited (except for gold and phosphates), they may offer longer-term opportunities. Economic Performance 1960-82 6. The Malian Government has attempted since independence to promote economic growth while trying to improve social equity and raise consumption f`rom very low levels. During 1960-82, annual growth of GNP per capita averaged 1.1 percent in constant prices, although annual variations were large. Tlhe economic structure has shifted as the agricultural sector has become less important while the services sector has become more so. Although this tend- ency is normal for developing economies, in Mali it also reflects the effect of policies that have shifted resources to the urban sector and to public consumption. At the same time, the industrial sector has stagnated despite government efforts to create a modern industrial base. Because of drought and dLeclining terms of trade, as well as continuing mistakes in economic manage- ment and poor allocation of public resources, there have been since indepen- dlence consistently large and worsening imbalances in public finances and on foreign accounts, with declining domestic savings and growing foreign indebt- edness. While economic and social objectives have been partially achieved, the process has led to severe financial and economic disequilibria that have been sustained only by dependence on foreign borrowing and the accumulation of arrears. 7,7 Mali's economic history can be divided into four periods (1960-67, 1967-74, 1974-80, and 1980-82) based roughly on changes in economic and poli- tical conditions. The changes in economic and financial structure during 1;hese four periods are indicated in the following tabulation:  -3- 1960 1967 1974 1980 1982 (est) GDP (US$ millions, current) 273 241 414 1 ,325 1 ,028 Agriculture (percent GDP) 55 50 35 42 43 Industry (percent GDP) 10 13 16 10 10 Services (percent GDP) 35 37 49 48 47 Terms of trade index 100 73 58 64 57 Gross domestic savings (percent GDP) 9.5 1.3 -19.2 -3.6 -2.7 Budget deficit (percent GDP) .. 5.3 3.5 4.0 1.5 Resource gap (percent GDP) -4 -16 -33 -20 -20 Net foreign assets (US$ millions) 2 1/ -56 -139 -279 -235 Long-term foreign debt (US$ millions) .. 269 441 853 1,260 Constant GNP growth rate (percent p.a.) 2/ .. 3.4 2.5 8.2 0.4 These figures (as well as the economic indicators in Annex I) illustrate some of the major trends in the Malian economy. 8. Post-independence, 1960-67. The first post-colonial government undertook a major program of modernization that included an independent mone- tary system, an ambitious five-year development plan, a program of industria- lization based on state enterprises, and a welfare orientation intended to keep prices down and to assure consumers an adequate supply of basic commodi- ties. During this period, GDP growth was high in part because of favorable climatic conditions, but public pricing and investment policies created finan- cial imbalances that could not be sustained. Government budgetary deficits often exceeded 5 percent of GDP. By 1967 the resource gap had quadrupled (as a percent of GDP), net foreign assets had turned negative, and the debt service ratio had risen to 19 percent. The economic crisis led to the signa- ture of monetary accords with France in early 1967, followed by a 50 percent devaluation in mid-1967 and reintegration with the franc zone in early 1968. At that time, the French Treasury opened an Operations Account for Mali to provide overdraft facilities to support the convertibility of the Mali franc. 9. Economic Reform, the Sahelian Drought, and the Energy Crisis, 1967-74. In late 1968, a new government launched an ambitious but pragmatic reform program that proposed to increase official commodity prices and liber- alize private trade--especially in cereals. But the shock of the severe Sahelian drought (1968-73), followed by a quintupling of petroleum prices during 1972-74, caused economic performance during 1967-74 to be poor, leading to a decline in the primary sector output and real per capita income. These shocks also prevented the new government from carrying out reforms, and economic policies remained inadequate. For example, low official prices and restrictive marketing regulations discouraged agricultural production and led to increased food imports. Recourse to bank credit to finance the mounting 1/ 1962. 2/ Rate is for the period that preceeds the year under which the figure is given.  - 4 - losses of state enterprises led to increased external debt. By 1974, the economic imbalances--already severe 7 years earlier--had either deteriorated or not improved. Domestic dissaving was greater, net foreign assets had fallen by over 100 percent, and public external debt more than doubled. The resource gap was also larger although this reflects partly the large inflow of foreign aid to sustain consumption after the 1968-73 drought. 1{. Uneven recovery, 1974-80. Compared to the drought years, the sub- sequent period was favored by generally better weather and more foreign aid. There was more rapid growth of GDP, led by agriculture recovering from the drought. But the severe disequilibria in public finances and external ac- counts inherited from earlier periods were not corrected. Inflation increased. Domestic dissavings and the resource gap remained high. The need to finance increasingly large Government Treasury deficits and growing losses in state enterprises caused short-term foreign liabilities to double. Borrowings to finance the 1974-78 Development Plan caused external long-term public debt to double as well. Despite a few abortive efforts late in the period, the Gover- mient did not develop and carry out reforms. Continuing external shocks, like a second jump in petroleum prices, hampered reform efforts, but the availabil- ity of substantial foreign resources also made the imbalances more manageable and relieved some of the pressures to change policies. 11. New orientations, 1980-82. Faced with both worsening financial disequilibria and a more restrictive central bank credit policy, the Malian Government at the end of 1980 requested technical and financial assistance from both the Bank and the IMF to help it formulate and carry out a program of economic reform and adjustment. IDA responded to this request with a US$10.4 million Economic Management and Training project (Credit No. 1307-MLI). The first assistance was in the field by mid-1981 under Project Preparation Facility financing, and the project was approved in December 1982. The IMF prepared a one-year Standby Program, which was approved for SDR 30.4 million in May 1982, and a second, 18-month Standby Program was approved in December 1983. In conjunction with this assistance, the Governnent has carried out numerous reforms in the areas of public finances, government employment, education, agriculture, and state enterprises. 12. In public finances, Government has more than halved the budget deficit, while also significantly reducing arrears, by increasing receipts faster than expenditures. Regarding public employment, Government has reduced recruitments and stopped automatic hiring of graduates. The education budget has been reallocated in favor of basic education. In agriculture, Government has both liberalized markets for coarse grains and groundnuts and substantial- ly increased official producer prices. Distortions in retail grains markets have been reduced, as have the financial losses of the state marketing board. The record for state enterprises is less positive, in part because of diffi- culties in reducing excess employment, but the Government is exploring major restructuring options. Finally, there is now agreement that Mali be allowed to rejoin the West Africa Monetary Union, a move which should help strengthen its banking system and consolidate public sector debt.  -5 Development Policies 13. 1981-85 Development Plan. This Plan continues to give priority: to water development for the rural population, livestock, and irrigation; to agricultural and livestock production for achieving food self-sufficiency, for supplying an expanded agro-industrial sector, and for increasing commodity exports; to energy development; and to conservation of natural resources-- especially forests and pastures. More importantly, the new Plan emphasizes for the first time the need for policy reforms to re-establish fundamental financial and economic equilibria, notably by balancing the government budget, reducing the balance of payments deficit, reducing the losses of the state enterprises, reorienting education, controlling recruitment for the Civil Service, and increasing local private participation in investments. Develop- ment expenditures proposed by the new Plan are estimated at US$2.2 billion of which US$1.7 billion would be required during the five-year planning period. Foreign sources will be expected to provide over 85 percent of the financing. At the end of 1982, the Government hosted, with UNDP assistance, a Donors Roundtable Conference to solicit firm donor commitments for Plan financing. Although unsuccessful as a pledging session, the Conference gave the Govern- ment a forum to demonstrate its new receptivity to greater aid coordination and to reiterate its request for non-incremental recurrent cost financing, estimated at about US$300 million per year to help support policy reforms. 14. Although the stated objectives of the Plan foeus fairly well on the major constraints to economic development in Mali, the link between investment and objectives is weak. The document is essentially a cataloging of projects rather than allocation plan for scarce domestic and foreign resources. As a result, planned investments often appear to be too capital-intensive, unduly foeused on the secondary sector, and oriented towards new projects rather than rehabilitation of existing assets. The Plan is also overly ambitious; the implied annual investment level is about 50 percent greater than the planned level for the 1974-80 period, which was itself only half realized. Implemen- tation already appears to be far behind schedule. As in the past, the poor performance and delays are caused by insufficient project preparation, poor project management, inadequate Government counterpart financing, and poor supporting policies, as well as unrealistic expectations. These problems are likely to persist, although the Government is increasingly open to a dialogue with IDA and the IMF on improved resource allocation and investment budgeting. 15. Foreign Aid. Foreign aid finances practically all public investment in Mali and is therefore critical for promoting future growth. More than half of this aid is in the form of grants, and almost all the rest is loaned on highly concessional terms by official aid agencies. Multilateral agencies provide about two-fifths of long-term loans. IDA is by far the largest multi- lateral lender, accounting for over half the multilateral loans and for 19 percent of total debt committed and outstanding at the end of 1982. Long- term external public debt (about three-fourths of which is disbursed) has in- creased substantially over the last 10 years, although debt levels per capita and as a share of GDP have declined, reflecting the increase in official grant aid and continued recourse to short-term liabilities drawn on the Operations Account. Actual debt service payments on long-term debt have been quite modest in the past, and in 1980-81 the debt-service ratio was lower than in  -6- the late 1960s and the early 1970s. The debt-service ratio could rise signi- ficantly in the mid to late 1980s, but the Government is in the process of rescheduling several loans. It is expected that this and other measures (converting loans to grants and obtaining special balance of payment financing) will keep the debt-service ratio within manageable proportions. PART II - WORLD BANK GROUP OPERATIONS IN MALI 16. The proposed credit would be the Association's thirty-second credit extended to Mali (including two supplementary credits), which would bring total commitments of IDA funds to US$318.4 million equivalent (including IDA Special Funds totalling US$11.2 million equivalent). Of the thirty-one operations already approved, twelve have been for agriculture and related industries, eight for transport, two for education, two for telecommunica- tions, two for energy, one each for small-scale industries, urban development, power and water supply, technical assistance, rural water supply and health. Transportation and agriculture represent the largest share of past commit- ments, each accounting for 31 percent of total commitments. In addition, the International Finance Corporation has made two investments for a total of US$3.2 million, one in a company manufacturing bleach and plastic products and the other in a company processing sheanut butter for export. 17. Project implementation in Mali is satisfactory. Despite difficulties and delays caused by the shortage of Government counterpart financing, the disbursement profile through 1981 was slightly more rapid for Mali than for other West Africa countries and all IDA recipients. More importantly, project performance appears to be improving in recent years, pari passu with increased Government commitment to economic dialogue and policy reform. 18. Taking account of Mali's constraints and potential, the Bank Group's objectives in Mali are to help improve the country's economic policies, to finance productive investments, and to help develop institutions that can implement policies and projects effectively. The strategy for achieving these objectives has evolved from merely financing investments, to linking invest- ments with related policy reforms, to focusing more directly on policies and institutions. The scope and pace of IDA's program depends in part on an on- going assessment of the Government's economic management, particularly the willingness and ability of the Government to address policy issues and to change policies as needed. IDA can assist by helping design and implement policy reforms and by providing non-incremental recurrent financing to help compensate for possible budgetary losses caused by these reforms. Concurrent with policy reforms, IDA can help finance sound productive investments, including a high percentage of local cost expenditures to improve project implementation. 19. Given Mali's improving image of economic management, IDA lending is increasingly foeused on policy and institutional reform, both in free-standing projects and in conjunction with productive investments. If results continue to be positive, it may be possible to consider future program-type lending at the sector or national level. In the meantime, the dialogue will be sustained  through the traditional channel of projects, through the Economic Management and Training Project, through the IMF programs, and through intensified economic and sector work. PART III - THE EDUCATION AND TRAINING SECTOR Background 20. The low level of human resource development is a major constraint on Mali's economic development prospects. Both the adult literacy rate (10 percent) and primary school attendance (28 percent) remain extremely low. The demand for education services, fueled by the young age structure of the population, is strong, but delivery of these services is made difficult by the widely dispersed population and weaknesses in the management and administra- tion of the education system. Providing adequate education services is a severe burden on the already constrained Governnent budget, and budgetary problems have been exacerbated by inefficiencies in the allocation of avail- able resources. As a result, access to education is limited and quality is poor. Continued failure to develop a broadly literate population capable of adopting new technologies could severly hamper Government efforts to develop the agricultural and livestock sector, which is both the base of the present economy and the most promising source of potential expansion. In particular, increased emphasis on basic education for women is crucial to the success of efforts to improve productivity through introduction of modern health, family planning, and nutrition practices. The Education System 21. The structure and organization of the education and training system are similar to those of other former French colonies in West Africa. Educa- tion is compulsory through Grade 9. This nine-year course, called Basic Education (Enseignement Fondamental) is divided into a first cycle (EFI, Grades 1 through 6, corresponding to primary education) and a second cycle (EF2, Grades 7 through 9, corresponding to lower secondary education). A competitive examination allows students to proceed either to general secondary education (Enseignement Secondaire, a three year course leading to the bacca- laureate), or to technical schools. Mali has not established a university, but has created instead several specialized institutions which offer profes- sional training. The Government has adopted an innovative approach to improve the quality of and access to basic education through work-oriented literacy programs for adults. Results have been encouraging: teams of researchers and specialists have been created, educational materials in eight local languages have been written and distributed, over 70,000 farmers have received func- tional literacy training since 1968, and a monthly newspaper in the Bambara language is widely distributed. The Government frequently delivers literacy campaigns through the regionally based rural development agencies ("Op