Guinea - Technical Assistance For Economic Management Project

Document of The World Bank FOR OFFICIAL USE ONLY C P. /S sY- 9iZ Report No. P-3952-GUI REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDR 9.7 MILLION TO THE REPUBLIC OF GUINEA FOR A TECHNICAL ASSISTANCE PROJECT FOR ECONOMIC MANAGEMENT February 20, 1985 This document has a restricted distribution and uay be used by recipients only in the performance of their official duties. Its contents may not otherwise be dislosed without World Bank authorization.  CURRENCY EQUIVALENTS Currency Unit: Guinean Syli (CSY) US$1 24.4 Sylis 1 Syli = US$0.041 FISCAL YEAR Januarv 1 - December 31 ABBREVIATTONS ADETEF Agence pour le Developpement des Echanges en Technologie Economique et Financiere BCEP Central Studies Office (Bureau Central d'Etudes des Projets) BCRG Central Bank CIDA Canadian International Development Agencv CNtP National Public Procurement Commission (Commission Nationale des Marches Publics) CNTC National Center for Computing and Management 'in MPS) CNP National Productivity Centre (Training Organization) CPP Project Preparation Center (in DGPS) DDE External Debt Division of the Central Bank/MFF DGPS General DLrectorate of Planning and Statistics DCS Directoratp of Statistics (in MPR4) DGP Directorate of Planning (in MPRN) Ti n International Labor Organization MAEF Ministrv n'f Financial and Economic Affairs (pre January 1985) MEF Ministrv of Fconomv and Finance (after Januarv 1985) MOF Ministrv of Finance (pre January 1c'5) MPRN Ministry of Planning and Natural Rtsources (after January 1985) M4PS Ministrv of Planning and Statistics (pre January 1985) UNDP United Nations Development Program  FOR OFFICAL USE ONLY REPUBLIC OF GUINEA TECHNICAL ASSISTANCE PROJECT FOR ECONOMIC MANAGEMENT CREDIT AND PROJECT SUMMARY Borrower: The Republic of Guinea Amount: SDR 9.7 million (US$9.5 million equivalent) Terms: Standard Cofinancing: France (US$0.7 million equivalent) UNDP (US$0.3 million equivalent) Project Description: The project would improie the Government's economic management through a three-year, first phase program of technical assistance and staff training, focussing on macroeconomic management, investment choice and procurement, control of public finance and extcrnal debt. The project provides for 23 staff-years of resident advisors, 326 staff-months of short-term consultant services, and 45 staff-months of overseas training for the core economic agencies. The National Productivity Centre (CNP) would prepare and implement, in conjunction with the work program and on-the-job coaching,a program of staff training. Short-term consultants would help carry out a divestiture program for the parapublic sector. The project also includes a fund of US$350,000 for pre-feasibility activities, and US$300,000 for a bookkeeper/ accountant training program. Project Benefits: The main benefits would be training and development of staf' expertise in project preparation and economic analysis, introducing systematic procedures for invest- ment choice and procurement, strengthening financial and customs operations, improving management and monitoring of Guinea's external debt, and improving economic data. Training activities would promote the introduction of these procedures throughout the Government. Measurable outputs would include a rolling, three-year investment program and annual national accounts statistics, a project evaluation manual, standardized procurement procedures and regular external debt reporting. Project Risks: Although important inputs to the Government's program for economic reform, the project's ambitious work program and goals present substantial risk, implying the tkeed for careful and frequent supervision by IDA staff. The use of a single consulting firm with overall This document has a resticted distribution and may be used by recipients only in the performance of their ofricial duties. Its contents may not otherwise be disclosed without World Bank authoru6tion.  responsibility for the IDA-financed technical assistance for planning reduces the risk of administrative delays, as does the early designation of senior Guinean staff. Estimated Costs: (net of taxes and duties) '000 US$ Foreign Local Total Macroeconomic Planning, Project Analysis and National Accounts 3050.3 147.0 3197.3 Procurement Regulation 94.5 3.0 97.5 Finance, Budget and Customs Management 921.0 18.0 939.0 External Debt Management 190.6 1.0 191.6 Training Activities 2597.1 124.0 2721.7 Parapublic Reform Program 1163.0 20.d 1183.0 Otber project activities and studies 912.8 50.0 962.8 Subtotal 8929.9 363.0 9292.9 Refinancing of PPF 194 400.0 - 400.0 Total Base Costs 9337.9 373.0 9692.9 Physical Contingencies 191.7 28.4 220.1 Price Contingencies 998.9 54.5 1053.4 Total Project Costs 10520.5 445.9 10966.4 Financing Plan: US$ millions Foreign Local Total Government - 0.5 0.5 IDA 9.5 - 9.5 France 0.7 0.7 UINDP 0.3 - 0.3 TOTAL 10.5 0.5 11.0 Estimated IDA Disbursements US$ millions FY85 FY86 FY87 FY88 FY89 Annual 0.6 3.2 2.4 2.9 0.4 Cumulative 0.6 3.8 6.2 9.1 9.5 Economic Rate of Return: Not applicable Estimated Project Completion Date: December 31, 1988 Staff Appraisal Report: There is no separate appraisal report.  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF GUINEA FOR A TECHNICAL ASSISTANCE PROJECT FOR ECONOMIC MANAGEMENT 1. I submit the following report and recommendation on a proposed Development Credit to the Republic of Guinea for SDR 9.7 million (US$9.5 million equivalent) on standard IDA terms to help finance a technical assis- tance project for economic management. France and the United Nations Develop- ment Program will provide cofinancing in amounts equivalent to US$0.7 million and US$0.3 million respectively. PART I - THE ECONOMY 2. An Economic Memorandum (Report No. 4690-GUI) was discussed with the Government in November 1983 and distributed to the Executive Directors in February 1984. This section summarizes its contents, focusing on chaizges in Guinea's economic situation and policies in recent years. More specifically, the change in Government Following the death of President Sekou Toure in March 1984 has resulted in a .adically different political orientation which greatly enlarges the possibilities for close collaboration between Guinea and the Association, in the context of a major economic reform program (para.16). 3. Despite its mineral and agricultural potential, Guinea saw declining economic performance from Independence in 1958 until about 1973-74. Economic activity, with a stimulus from mining, grew rapidly between 1973-76, but again at a slower pace since then. At present, most of Guinea's 5.8 million inhabi- tants live at the margin of poverty. With a per capita income of about US$300 in 1983, Guinea belongs among the least developed countries as classified by the United Nations. Life expectancy is only 44 years, infant mortality is about 17 percent, 90 percent of the population has no access to safe water, and 80 percent of the adult population is illiterate. 4. Since 1976, and particularly since 1979, Guinea has been re- examining its development policies, institutions, and relations with the outside world. Important first steps were taken towards improved economic management and decentralization of the economy: excessive monev supply was gradually reduced: more explicit performance criteria and greater autonomy of public enterprises are being introduced; and a reform of the banking sector has been initiated. A new Government, which took office on April 1984, is now committed to more far-reaching economic reforms. There is greater acceptance of technical assistance for planning, investment programming, and project preparation, and explicit recognition of the need for economic pricing of resources. State retail trade has been discontinued, and many price c:ontrols have been permitted to lapse, thus liberalizing and encouraging the agricul- tural sector. Private investment, small and medium-scale enterprises, foreign direct investment, and the return of expatriate Cuinean capital are being encouraged, and some private enterprises have been allowed to import and export most goods and to borrow and hold foreign exchange. Primary education is to be revamped and strengthened. Enrolments in higher education have been  -2- severely reduced and more students are being directed to vocational training: manpower planning is being introduced, and the guarantee of state employment to school graduates is being reappraised, with a view to curtailing the increase in public employment and the wage bill. These measures reflect a significant and broadly based attempt to address Guinea's deep-seated problems and poor economic performance, and represent fundamental changes from past policies. Recent Performance 5. Real output of the economy is estimated to have grown at an average rate of 1.6 percent in real terms between 1979 and 1983. Growth was more rapid in 1980 (2.6 percent) reflecting a recovery in agriculture and mining. However agriculture stagnated in 1981, mining and coaistruction declined and overall growth fell to 0.6 percent. Recovery in 1982 and 1983 - at 1.8 and 1.3 percent respectively, well below the rate of population increase of nearlv 3 percent - resulted from an increase in construction activities, mainly for preparations for the OAU conference that was to be held in Conakry in May 1984. The primary sector remained the most important throughout the period, representing 42 percent of GDP, although it produced well below potential for lack of incentives and adequate pricing policies. Secondary industries, mining and construction, contributed 23 percent of real GDP, although the manufacturing sector - mainly public enterprises - produced at less than 15 percent of capacity and registered heavy losses. The tertiary sector account- ed for the remaining 35 percent of GDP, with real output in commerce declining by 4 percent from 1979 to 1983, reflecting the poor performance of state trading enterprises. 6. Surpluses in the trade account from 1979 to 1983 were more than offset by rising deficits in services and private transfers. Despite impor- tant official transfers, the current account consistently recorded deficits. Capital inflows were not sufficient to offset these current account deficits, which were joined by important errors and omissions -- ve-y likely reflecting heavy unrecorded capital flight. The overall balance of payments deficits increased from US$40 million in 1979 to US$85 million in 1983. Overall deficits were financed through reduction in net foreign assets and accumula- tion of external debt arrears, which at over US$200 million at the end of 1983 represent more than 40 percent of annual export earnings. 7. After registering a slight surplus in 1981, the Government's finan- cial situation steadily deteriorated. In 1982 despite an increase in revenue the overall deficit approached 2 billion Sylis. This was largely because of transfers of 5.5 billion Sylis to the public enterprises following the liqui- dation of the accumulated debt to the banking system of the sectoral holding companies, which were abolished in 1981. In 1983, Government revenues were about 11 percent lower than in 1982. This reflected lower direct tax collec- tions as well as falling customs duties and taxes on foods and services, as unrecorded private trade transactions grew to dominate the consumer sector. Non-tax revenues consisting of transfers from the parastatals to the equipment budget fell by 25 percent following a reduction in profits of IMPORTEX, the state trading company, as its de jure monopoly was eroded by private  - 3 - importers. The overall Government deficit tripled to 6.3 billion Sylis, or 38 percent of expenditure, the largest deficit recorded in recent years. 8. Other than the enclave mining projects, most productive investment in Guinea is of a public and parapublic nature. During the last development plan (October 1973 to December 1978), public and parapublic investment reached US$478 million (55 percent of planned expenditure) averaging 10 percent of GDP. Total investment was modest at 15 percent of GDP on the average. Two- thirds of centrally-planned investment was financed by foreign assistance. The ongoing plan (1981-85) projected much higher investments of US$1.6 billion (in 1980 prices), favoring collectivized agriculture (31 percent) and industry (14 percent). Many of the proposed projects remain in preliminary stages of preparaL-.in, however, and their financing is not sure. The new Government is reviewing the investment program and, with the help of the Association, is reassessing its project priorities. It appears unlikely that the proposed investment targets can be reached. During the 1981-83 period, public and parapublic investment represented about US$200 million per year ir, current terms, about the same proportion of GNP as the previous plan exercise. 9. Recognizing the need to maintain and use existing capital assets better, the Government has increased the proportion of its recurrent budget for maintenance and repair. It is also undertaking a serious examination of the viability of state enterprises. The least successful ones (including the entire network of retail trade enterprises outside Conakry) will be closed down, while others have embarked on rehabilitation programs, mostly with external assistance. Recent policies in the parapublic sector aim at making parastatals financially self-sufficient, autonomous in their management, more responsive to market mechanisms, and more receptive to technical assistance. Foreign Assistance and External Debt 10. Since 1975-76, Guinea has been diversifying its sources of foreign assistance through renewed ties with the Western industrialized countries, expanded relations with Arab nations and with multilateral sources. Guinea qualified for drawings under the IMF first credit tranche and trust fund facilities, and successfully negotiated a Stand-By Agreement in 1982. Howev- er, this agreement lapsed owing to the Government's inability to meet some of the agreed financial performance criteria, and to reach an understanding with the Fund on the issue of adjusting the overvalued exchange rate. 11. The accumulation of foreign debt to finance Investments in infra- structture and public enterprises, as well as consumer goods, has resulted in a burden of foreign obligations which is, and will remain for years, a major problem. Guinea's outstanding public and private external guaranteed debt exceeded US$1.5 billion as of December 31, 1983 of which US$1.2 billion (66 percent of GNP) was disbursed. Service obligations on this debt are projected at US$132 million per annum over 1985-87. Foreign exchange shortages have hindered the payment of debt service, and outstanding arrears totalled US$220 million at the end of 1983. The ratio of public and publicly guaranteed debt service obligations to gross export earnings in 1983 was about 24 percent. Actual service payments on this debt amounted to about 17 percent of export receipts. Private non-guaranteed debt is estimated at US$300 million in 1983  - 4 - (20 percent of GNP), and its debt service represented about 10 percent of the 1983 export earnings. 12. Although Guinea's debt servicing has shown some improvement, accumu- lated arrears are likely to increase in absolute terms unless there is new debt rescheduling or major changes in the present allocation of foreign exchange. In the past, the Government addressed the problem through bilateral debt rescheduling, and measures to improve debt management by the External Debt Department in the Central Bank, to which the Bank provided technical advice as part of its economic work. Government has also undertaken a strict- er control of investments financed by external credits. The pressure on imports was somewhat relieved in recent years by official toleration of some private exports at the free rate outside official foreign exchange channels. However successful these operations may be, Guinea will have to rely on substantial amounts of foreign assistance on concessional terms during the next few years. This will be needed not only for investment purposes, but also to provide foreign exchange for intermediate and consumer good imports which are vital to stimulate economic activity and relieve supply constraints, particularly in the rural sector. Furthermore, net public savings after debt service will be inadequate u,til at least the late 1980s, and local cost and recurrent expenditure financing by external sources will be needed. Prospects 13. Guinea's long-term development possibilities are substantial based on its agricultural, mineral and hydroelectric potential. However, with 80 percent of the population in the rural sector, and with modest national savings (about 9.4 percent of GDP in 1983) combined with an acute shortage of foreign exchange, the exploitation of this potential hinges oiu the country's ability to provide incentives to agricultural producers and to attract foreign capital for investment in mining, agroindustry, and, eventually, petroleum development. 14. During the 1980s Guinea will continue to face a serious foreign exchange constraint, despite the entry into operation of a diamond mine in 1984. Existing mining operations have few prospects for expansion in the coming years, and the downward trend in agricultural exports will be hard to reverse immediately. At the same time price distortions linked to the over- valued exchange rate discourage the substitution of the large food imports by domestic production, while the debt service burden remains heavy. 15. At present Guinea is excessively dependent on bauxite mining for its foreign exchange. Diversification of Its mineral production is thus a key element in the country's longer-term development strategy. Iron ore mining is one possibility now under active investigation, as are oil exploration and development of other minerals. 16. The Association and the IMF are helping the Government formulate and implement an economic reform program aimed at further encouraging private sector development, notably in agriculture, while at the same time increasing the efficiency of the public sector and improving resource management. Partic- ularly crucial will be a major devaluation, with accompanying measures to  - 5 - correct price distortions, and thereby reform the structure of agricultural incentives. The authorities also plan to introduce rigorous budgetary mea- sures and the rational programming of public investments. To reverse the previous regime's economic policies, the new authorities plan most dramatical- ly to open up the economy to the private sector and greatly reduce the scope of the Government's direct involvement in the productive sectors. The project supports a large-scale public enterprise divestiture program, the success of which will depend on the overall economic reform program's ability to attract and encourage private entrepreneurs. To emerge from its burden of external debt, Guinea plans to seek a multilateral debt rescheduling in 1985 and subsequently limit its foreign borrowing at appropriately concessional terms. At the Association's suggestion, the Government has examined these interrelat- ed problems, and has prepared a coordinated economic reform program eligible for donor support. This program will be the basis for an IMF Standby Arrange- ment in 1985, and the Association will soon appraise a Structural Adjustment Credit and help mobilize balance of payments support from other donors. Following the major Agricultural Sector Review organized by the Bank with the support of several other agencies (CIDA, USAID, CCCE, IFAD, UNESCO), its report (GUI-4672, April 15, 1984) also represents a significant step in assisting the Government to reform agricultural sector policies. A long-term strategy and agricultural investment program are now under preparation with the Association's help. 17. However, once the Government embarks on major reforms, Guinea would face a difficult transition period during the late 1980s when increased foreign assistance, on concessional terms, would be needed to ease the balance of payments difficulties and contribute to a gradual realization of the country's considerable development potential. PART II - BANK GROUP OPERATIONIS IN GUINEA 18. The first Bank Group operation in Guinea comprised two loans in FY68 and FY71 for the profitable bauxite mining project at Boke. This project was followed by IDA credits in the mid-1970s for pineapple production and the rehabilitation of roads. Encouraged by the first results of these projects, the Bank Group began to diversify and expand its lending program, based upon broad priorities agreed with the Government: (i) rehabilitation and mainte- nance of basic infrastructure; (ii) improvement of human resources; (iii) mining development; and (iv) development of the rural seccor. IDA operations in each of these areas have been approved, with particular emphasis on sectoral planning, institution building and training. The FY79 First Educa- tion Project was very satisfactorily implemented, and provided a sound basis for the Second Education Project, which is proceeding well. The First Power Project (FY81) is rehabilitating the Conakrv power system. Following the conclusions of the UNDP-financed W4ater Resources Master Plan, for which the Bank was executing agency, a Second Power Engineering and Technical Assistance Credit has been appraised. It would help prepare a long-term electric genera- tion and transmission program to exploit Guinea's substantial hydroelectric potential. A Water Supply project (FY79) provides similar assistance, and was partially the precursor of the Conakry Urban Development project (FY84), which assists the Government in managing urban growth in the capital region. The Second Highway Project was successfully completed in 1984 and Highways III  -6- (FY84), which includes the reconstruction of the country's first priority road link, cortinues with a third phase of maintenance and rehabilitation under a revamped highway organization. Implementation of the renovation works under the Conakry Port Project (FY83) is also on schedule. Public enterprise rehabilitation programs under the Industrial Rehabilitation Promotion Project (FY81) have begun. Recent operations to assist efforts to promote private investment, a first IFC loan and investment for the AREDOR diamond mining company, and the Petroleum Exploration Promotion Project (FY84), have also started well. 19. It is in the rural sector that the Government has experienced the greatest difficulty in harnessing its development potential. Support for small private producers, including marketing and financial incentives, and access to modern technology and applied agricultural research, has been almost nonexistent. To deal with these fundamental problems, the Association has supported intervention in two sub-sectors with substantial growth potential. The Livestock Development Project (FY81) aimed at strengthening the national livestock planning institutions, improving animal health and productivity and training livestock sector staff. However the continuation of enforced govern- ment cattle purchasing created significant implementation problems and the Credit was cancelled on Septeriber 12, 1983. The new Government has removed these obstacles, and a Second Livestock project is being prepared, based largely on the preparatory woi-k completed under the first project, but modi- fied to take into account the new circumstances. The Rice Development Project (FY80) stresses national institution-building and introduces pilot low-cost improved rice production methods in an area with high potential. In addition, as part of the intensive dialogue between the Bank Group and the Government, the Agricultural Sector Review (para. 16) provides the focus for new direc- tions for agricultural development and policy formulation. The Government has accepted the need for improved incentives and the absolute priority of smallholder agriculture. These discussions will be pursued, and supported by the lending program, inter alia, in a Regional Rice Development Project, which has recently been appraised, and by other agricultural projects addressing the sector's institutional and training needs. 20. Bank Group operations in Guinea now include fourteen TDA Credits totalling US$185.2 million, and two Bank loans totalling US$73.5 million. Guinea's disbursement rate (disbursements in relation to the undisbursed balance) compares verv favorably with that of other countries at similar levels of per capita income and development. Irs disbursement profile matches the Regional profile. 21. Current Assistance Strategy. The proposed Bank Group lending program, supported by an expanded program of economic and sector work, is based on a strategy of encouraging key policy reforms at the national, project and sector levels to improve existing economic mechanisms, promote market forces and thus begin the stnrctural adjustment of the Guinean economy, and promote growth through support to the directly productive sectors. Specific targets are: (a) providing balance of payments support for key imports needed to increase production, in support of the overall economic reform program (para. 16); (b) giving prioritv to policy-based projects that increase production; (c) introducing technical assistance directed towards policy  reforms, improved economic management and resource allocation; (d) improving absorptive capacity in those social and infrastructure sectors which support the productive sectors, through rehabilitation, and technical and managerial training; and (e) improving capital flows through the promotion of private investment and increasing the level of cofinancing. During the preparation of the economic reform program, the Association will help the Government mobilize the necessary increased financial support from other donors. 22. The Association is planning to expand agricultural operatiuns once the devaluation has created the needed incentive structure for smallholder agriculture, in the context of a long-term strategy for agricultural develop- ment, which is under preparation. It is equally important for the Bank to deepen its understanding of the industrial sector through additional sector work and policy discussions, possibly leading to a second industrial rehabili- tation operation once the Government has defined its industrial policy and the role of public enterprises (para. 46). The Association is also providing technical advice to Government for diversifying mining activities, including promotion of secondary minerals as well as the proposed Mifergui-Nimba iron ore project, through a mineral development project which will be appraised later this year. 23. The Bank Group's share of Guinea's external debt (public and private guaranteed) at the end of 1984 stood at about 13 percent (including undisbursed). Its portion of external debt disbursed is expected to be 11 percent by 1987 compared with 8 percent in 1981; its share of debt service on public debt and private debt guaranteed, 6.6 percent in 1980, is expected to decline to 3.7 percent by 1985. PART III - THE NEED FOR TECHNICAL ASSISTANCE 24. Guinea's economic performance lias been disappointing and well below potential for a number of reasons, not least of which have been the weaknesses of institutions charged with managing the economy. Recognition of the need for help in improving economic management, particularly with the decision to undertake a medium-term economic reform program, has led the Government to request IDA assistance. The program sketched out above (paras. 13-17), which the Government is in the course of preparing with the help of the Association and the IMF, will require careful analysis of Guinea's policy options, as well as a much stronger planning and administrative capacity. Unfortunately, measured against the effort required, the Government's institutional capacity remains very limited and responsibilitv for planning decisions is diffused among many bodies. 25. The Planning Process Inherited by the New Government. The planning process in Guinea has been a combination of decentralized project preparation and centralized sectoral planning, with the technical ministries concentrating on project preparation. In practice, there has been little sectoral or sub-sectoral planning within the technical ministries. Detailed project preparation has been undertaken usually only when projects were expected to be submitted for donor finance, and generally with heavy donor involvement. To date there has been no program planning and only the beginnings of sectoral investment programs, generally, again, at donor urging. Under the previous  - 8 - and highly centralized Government, once the Plan, prepared by the Director- ate-General of Planning and Statistics was adopted by political bodies, projects were examined for conformity with its largely non-economic objec- tives, sometimes including a review of the economic justification of project proposals. In practice, however, projects reached a very advanced stage, near approval or negotiatior. with potential donors or suppliers, before their economic and institutional aspects were reviewed by the Central Studies Office (BCEP 1/), an agency in the Presidency, and the technical ministry, which is responsible for preparation and execution of a project, submits it to the Council of Ministers for approval. If external resources are s.ught, two other ministries become involved: the Ministry of Foreign Affairs and Interna- tional Cooperation which coordinates the programs of bilateral donors and the European Development Fund; and the Central Bank, which estimates and provides guidelines on the foreign exchange likely to be required to support the national development effort, and coordinates the assistance provided by the World Bank Group, AfDB and the IMF. 26. Most of the work on the current 1981-85 plan was done at DGPS, over a five-month period preceding its adoption in late 1981. This did not allow enough time for a complete assessment of the economic situation or the justi- fication of projects suggested by the technical ministries for inclusion in the Plan. In the end, projects were included mainly because financing was available and not necessarily because they contributed to important national economic development objectives. This reflected a tendency to view planning as a process that recurs every four or five years as part of preparing a 1/ BCEP, created in October 1982, had been asigned about 30 of the most capable personnel from technical ministries. Consistent with previous centralization attempts, it tried to screen all development projects prepared by technical ministries, all proposed foreign investment, and most proposed local private investment. In addition to examining the technical soundness and foreign exchange implications of proposed activities, BCEP prepared tenders, reviewed contracts and participated in negotiations. While the technical ministries had de facto retained project preparation activities, BCEP's existence created overlapping responsibilities, particularlv with MPRN, for investment screening and contract authorization. Moreover, BCEP's role in approving all projects and contracts greatly slowed planning and procurement decisions. These delays resulted from the sheer volume of decisions to be vetted, and the lack of systematic formalized work procedures, as well as the newness of this structure and the small number and relative inexperience of its staff. While BCEP tried generally to play a constructive role in introducing cost-consciousness and encouraging careful negotiation with suppliers and financing sources, under the reorganization of Government being introduced by the new regime, its role has been severely reduced, with planning entrusted to the Ministry of Planning and Natural Resources, and procurement procedures streamlined and largely delegated to technical ministries under the purview of a new National Commission for Public Procurement in the Ministrv of Economy and Finance (para. 34).  - 9 - descriptive Plan document, rather than as an iterative process involving policy formulation, the development and execution of projects, and the evalua- tion of results and achievements. The mix of projects lacks overall coherence and frequently fails to exploit and develop intra- and inter-sectoral linkag- es. Projects are sometimes redundant and often ignore previous project experience. Although MPRN is responsible for integrating sector and sub- sector plans and projects, the types of projects currently underway and proposed for financing suggest that coordination is minimal, not only across sectors, but even frequently within sectors. This lack of coordination and clear definition of responsibility led to duplication of effort and failure to exploit project complementarities. The macro-economic implications (financ- ing, debt repayment and the balance of payments) are seldom analysed. One reason for this is the scarcity of accurate, complete and up-to-date data on external debt obligations. Another is that projects are frequently presented to ministries by equipment suppliers, consulting firms, potential private partners and donors with a commitment to obtain financing or to provide management services. It is not surprising that analysis rarely goes beyond the financial level. Often, even a rigorous technical and financial analysis is lacking. 27. Under the previous Government, the role and powers of the Ministry of Finance (MOF) had been severely eroded, as decisions about the allocation of Government revenues were increasingly centralized in the President's office. The Ministry had not been allowed to play its traditional role of deteL-mining budget priorities and monitoring use of recurrent and investment budgets accorded to the technical ministries, and lacked the capacity for forecasting or policy analysis. There was no formal consultation on the budget or the public investment program. In MOF's Budget, Customs and Trea- surv Directorates obsolete procedures and nomenclature, related largely to the experience of the senior staff, are employed. Many date back to French procedures of 1945, which have since been improved, modernized and adapted to current African conditions: this absence of written procedures frustrates attempts to ensure systematic and adequate control of tax collection and monitoring of foreign borrowing, current and capital expenditures financed from external gr-nts and loans, and even normal Government budget operations. Government audit functions to some extent were performed bv the Ministry of State Control (MCE), which also assured overall supervision of the public enterprises, including Government transfers to them. Although replete with staff, MCE's methods were similarly antiquated. 28. The Central Bank (BCRG) had also been weakened, with decisions on monetary policy and the management of the exchange rate, external debt and the country's foreign exchange reserves taken by the President's Office. BCRG's staff continue to employ out-of-date methods for recording and management of public external debt, and despite technical advice over the past few years from staff of the Association and the IMF, external debt procedures remain very weak. With the money supply and credit expansion determined politically under the former regime, monetarv and credit statistics are virtually worth- less and show wide fluctuations, and there has been effectively no control over credit to the government and parastatal sectors. Although this unaccept- able situation is largely the result of the political decision effectively not to allow the Central Bank to play a normal role, the overall impact over the  - 10 - 1960-1984 period was a gradual erosion in BCRG's authority and professional abilities. 29. The absence of adequate basic national accounts and sectoral statis- tics, both at central and technical ministry levels, has greatly hampered efforts to project the impact of economic policy changes and proposed projects on the performance of the Guinean economy. This lack of a reliable data base and the absence of systematic data gathering also preclude sound policy and investment analysis and coherent program definition. This is particularly a problem in the financial transactions of the central government and the parastatals, national and sectoral accounts statistics, and external transac- tions, including balance of payments and external debt. In addition, there is scarcity of adequately trained personnel, office space, office equipment, basic supplies and reference materials, which has a detrimental effect on working conditions. Few efforts have been made to introduce systematic work methods and procedural manuals, organize proper office facilities and plan work programs. Perhaps most significantly, with Guinea's relative isolation and a general downgrading of the educational system, many civil servants lack the training, experience and exposure to outside ideas that would enable them to propose policies and analyse their impact. These problems are compounded by inadequate incentives offered by low salary scales in the civil service, leading to high absenteeism, low productivity and staff morale, and insuffi- cient discipline. 30. Training Issues. Much will need to be done to bring the performance of the civil service up to the standard needed to mount a sustained develop- ment effort. In the core ministries, the secrecy and absolute centralization of decision-making practiced by the former regime did not permit staff devel- opment and training. There are a few cases of long-term personnel that have received no on-the-job training, formal upgrading or training courses to improve their skills. Large numbers of younger staff, recent graduates of the universities in Guinea, have few years of experience and have never worked in an efficient, functioning administration. In the last 15 years, Guinea has replaced almost entirely the last of any civil servants who had received skill training outside of Guinea and almost all who would ha-re served in the pre- independenep administration. This scarcity of experier..eed and skilled person- nel is aggravated Dy the lack of a systematic approach to problem-solving and of models used in planning and control, most notably auditing. Absenteeism and short work hours are the norm, as well as a severe lac:k of motivation. 31. Base skills have to be improved if the Government is to be able to apply a systematic approach to management of the economy. Many skills for economic, financial and statistical analysis are outdated. Much of the actual work is done manually, without calculators or copiers, for example. The productivity level is low and the work of a low quality, compared to the needs of a government attempting to improve the country's economic condition. It is a situation where on-the-job learning is difficult because the supervisor is outdated, or lacks the training and experience himself. Guinean managers often state that they feel they have adequate means to motivate persounel through the work itself, provided there is adequate equipment and facilities. However, key decision-makers suggest that many staff do not know what they do not know, and that a generalized retraining is needed, following a strategy of  - 11 - starting with basic skills and the introduction of new systems and procedures. The backgrounds of many civil servants reveal intensive theoretical training rather than skill development. The project's training component will attempt to address some of these problems (para. 48, Annex VIII). 32. Steps toward Reform. Recognizing the results of the lack of effec- tive economic management in Guinea, the former Government had started an active search for new approaches to improve the situation. Progress toward reform was slow, owing to the political reluctance of the previous leaders to modify structures and institutieas. After llscussions with IDA following the change of government, however, the new authorities decided to act decisively on these issues, in the context of the reform of the Guinean economy and their general review of Guinea's public administrative structures and procedures. The new leadership is aware that capacity for general and sectoral planning needs to be developed, along with a strengthened capability for short- and medium-term economic management and stronger control of revenue and expendi- tures. 33. As preparation of the economic reform program proceeded, the new authorities decided that a complete overhaul of the institutions would be necessary. Consultants financed under the PPF advance examined the relation- ship between the Ministry of Planning and Statistics and other agencies, particularly BCEP, and the functioning of the Ministry of Finance. The IMF reviewed the structure and operations of the Central Bank. Following discus- sions with the Association and the Fund, and in the context of a major reform of Government organization in December 1984, the authorities decided to undertake immediately a complete organizational overhaul of the three key ministries charged with economic management. 34. The Central Bank will be reorganized with IMF assistance, and given the powers traditionally assigned to a central banking authority. The Minis- try of Planning and Natural Resources (MPRN) will be responsible for macroeco- nomic planning and management (in cooperation with the Ministrv of Economy and finance), sector planning and investment programming (in cooperation with the technical ministries), coordination of external aid, project evaluation and monitoring, preparation of national accounts statistics and other statistical enquiries. (MPRN also has directorates general responsible for energy and mining, which will also be assisted under upcoming IDA projects.) At the Government's request, France has agreed to support the reorganization and strengthening of the new Ministrv of Economy and Finance (MEF) under a twinning arrangement, similar to the one in Niger (para. 45). MEF has been given traditional functions of revenue and expenditure control and audit, external and domestic borrowing, and assumes responsibility for public enter- prise financial supervision from the abolished Ministry of State Control. A new National Commission for Public Procurement (Commission Nationale des Marches Publics, CNMP) in the Ministry of Economy and Finance will be respon- sible for the elaboration of public procurement procedures and seeing that they are followed. Formalized in earlv 1985 after discussion with IDA staff, legal texts confirm the formal powers and organization of each minis- try/agency, regrouping functions now performed by other agencies that have been abolished. The Government also plans to formally change the planning and investment choice process at the technical level, and responsibility is to be  - 12 - given to technical ministries for sectoral strategies and investment programs, which will be coordinated by the MPRN and MEF into a three-year investment program updated and revised annually. The proposed project supports these organizational changes and regrouping of responsibility for economic manage- ment decisions (para. 42). 35. As experience is gained during the implementatinn of the economic reform program, further adjustment of the planning and finance institutions during the project implementation period may be expected. The project design takes this into account. It focuses on immediate operational measures to improve the quality and efficiency of economic management. Special priorities are investment analysis and public sector procurement, budget and customs management, the preparation of the short- and medium-term-economic program based on an analysis of past performance; and collection of sector and macro- economic data needed for the preparation of an investment program. The train- ing needs of Guinean staff involved in these tasks will be addressed. 36. Other Donor Support for Planning. Other donors have agreed to provide technical assistance for economic management. In the past UNDP has financed several technical assistance operations, including help for then-DGPS to establish a Project PreparatIon Center and to introduce computer processing of data. The UNDP projects had only very limited success, because of the ambiguity of the roles played by the agencies being helped and the limited institutional objectives in the operations, and the staff productivity and morale problems noted above. UNDP is now reviewing its future support for economic management in light of the IDA-led effort, and is helping prepare the legal reorganization. After discussions with IDA, other donors are joining in providing assistance to core ministries. Canada has agreed to provide one technical assistant to the statistics directorate of MPRN to improve external trade, investment and production statistics. Italy will supply two special- ists to MPRN for two years, to work in areas complementary to the IDA-financed program: one will assist the industrv, energy and mines division of MPRN's investment directorate in analysing projects and programs in these three important sectors, while another will do basic survey work in the statistics division, collecting data important for the agriculture and industry portions of the national accounts estimates (para. 44). France will assist the Minis- try of Economy and Finance (para. 45). The donors interested in the core ministries have kept in close touch with IDA during project preparation, and the proposed project reflects a coordinated approach to the needs for techni- cal assistance for economic management. Role of the Association 37. Through its lending program and economic and sector work, the Association has been actively involved in technical assistance at the sectoral and national level. As the exchanges between the Government and IDA intensi- fied over b-oad questions of economic management, attention was increasingly focussed on the performance and operation of core ministries. All IDA- assisted projects include technical assistance and training for personnel of the executing ministry, and IDA has developed in most sectors an effective working relationship. This allowed the Association to help the Government  - 13 - address institutional and management issues, a particularly important task for the new authorities. 38. The proposed project was identified in late 1981 during an economic mission, folloving a request for technical assistance from the Ministry of State Control. It was prepared by the Government and consultants financed under two PPF advances, with the assistance of IDA staff. The two PPF advanc- es financed management and training consultants, preparation of architectural plans, and project start-up activities, including the reorganization studies and their legal implementation. 39. The Association's broad lending experience in many sectors, sector work (in transport, agriculture and industry) and the increasingly productive macroeconomic discussions the Association has had with the Government, over the last two years in particular, have created a sound basis for IDA support for the Government's efforts to improve its economic management processes. On-going projects in power, water, agriculture, education and highways include the preparation of investment programs and strengthening of sector management and planning bodies. Consistent with efforts to promote the rural sector following the publication of the Agricultural Sector Review, the Government is strengthening agricultural project selection and defining the organization and institutional strategy for the Ministry of Agriculture. A 1981 study of the parapublic sector (Report 3046-GUI) is a precursor to the parapublic action plan under the proposed project (Annex V). While assisting the Government in preparing and carrying out its economic reform program, we shall continue the discussion on institutional development and of the need for technical assis- tance. The proposed project will help the Government and other donors identi- fy further resources that might contribute to strengthening the planning process, while furthering the general economic and sectoral dialogue. 40. Given the necessarily long-term nature of building economic manage- ment institutions, a gradualist approach seems the soundest one. The project was appraised in December 1982 but processing was delayed because the respon- sibilities of the various agencies remained confused. Following the change in Government in April 1984, the project was reappraised. The components were revised to reflect the new Government's decision to start with a reorganiza- tion of its planning processes, with an emphasis in this first stage on immediate operational requirements and the training of staff. Negotiations were held in Washington in January 1985 with a delegation led by Captain Jean Traore, Minister of State for Planning and Natural Resources. The Government agreed during negotiations to continue the discussions with the Association of its planning institutions, and to prepare by February 15, 1987 for discussion with IDA a long-term institutional development and training program for economic management (Section 3.03(b) of draft Development Credit Agreement). The proposed project provides consultant funds for assistance in preparing such a plan, and the issue will be raised during supervision.  - 14 - PART IV - THE PROJECT 2/ Project Objectives and Description 41. The principal aim of the project would be to improve the quality of the Government's economic management, through a three-year, first phase program of technical assistance and staff training. The project would have five main components covering investment analysis, general planning, control of public expenditure and revenues, economic data, and training. Important but smaller components would address the management of external debt statis- tics, procurement procedures and the parapublic sector. 42. The immediate objectives of the investment analysis component would be to improve the capacity of the Ministrv of Planning and Natural Resources and the technical ministries for programming, evaluation and monitoring of the public investment program and the analysis of the capital and recurrent cost implications of Plan activities. MPRN would also begin to strengthen general macroeconomic and sector planning, and using consultants would undertake with other ministries an initial diagnostic survey of the parapublic sector. The economic data component would seek to improve MPRN's estimates of the national accounts aggregates, by (a) making better use of existing data, (b) undertak- ing simple surveys to estimate unavailable data, and (c) formulating guide- lines for a longer-term statistical program. The Ministry of Economy and Fi-aance component would introduce modernized procedures for treasury, budget and customs administration, while the external debt component would improve MOF's monitoring and management of external debt. This would assist the Govvernment in preparing for a multilateral debt rescheduling, part of its economic reform program (para. 16) and in reviewing the acquisition of new external debt on terms appropriate for each new project. Procure- ment procedures would be elaborated and introduced by MEF's new National Public Procurement Commission. A planning, financial and economic training program, to be implemented by the National Productivity Center (CNP), would be integrated with the project-supported work programs of the participating agencies. The parapublic component aims at restructuring the public enter- prise sector by a large-scale divestiture program. 43. Investment Analysis. The project provides for expatriate special- ists in project preparation, economic and financial analysis, to assist the staff of MPRN in the identification, preparation and selection of investment projects, including a definition of the criteria to be followed and the procedures to be employed by the technical ministries, who will remain respon- sible for project preparation and implementation. MPRN would develop an appropriate operational manual and supervise its implementation throughout the Government according to a timetable to be agreed with the Association before March 31, ;986 (Section 3.07(a) of draft Development Credit Agreement). More specifically, the project would finance one resident Principal Project 2/ There is no separate appraisal report for the project. Annex III lists key events and special conditions.  - L5 - Planning Advisor to the chief of the Investment Directorate of MPRN for three years, together with specialized consultants in organization and management, economic and financial analysis (46 staff-montbi). They would help the MPRN staff implement the work program outlined above and review sectoral strategies and investment programs prepared by the technical ministries to ensure their consistency with sound project planning and investment analysis. In particu- lar, the resident specialist will coordinate the preparation, prior to March 31, 1986 of a 1986/88 investment program, the first of a series of three-year rolling investment programs that would be revised and updated annually (Sec- tion 3.04(b) of draft Development Credit Agreement). About 15 staff-months of short-term sectoral planning specialists would work with MPRN and the sectoral ministries at developing sectoral plans and investment programs 3/. The project also provides a US$350,000 fund for -refeasibility studies of project proposals which the Government and the Association agree seem to merit further examination before full feasibility studies are undertaken. 44. Macroeconomic Planning. The project would finance a resident macroeconomic planner to assist MPRN's General Planning Division for three years in preparing a diagnostic of the Guinean economy, and undertaking appropriate macroeconomic, sectoral and policy analysis as a framework for the programming and financing public investment. After a review of past perfor- mance and identification of constraints to development, the division would prepare an outline strategy for the public investment program and related policies, focussing on the overall potential for developing the rural and agricultural sectors. The working group would prepare the macroeconomic and policy framework for the rolling three investment programs, and as appropriate would supply macroeconomic input and comments to the technical ministries preparing sectoral investment programs. 45. Economic Data. Initially, the project will provide MPRN's Statis- tics Directorate (DS) with one rull time economist/statistician for three years, supported by 45 staff-months of part-time statisticians on shorter assignments. This team would help DS staff prepare national accounts esti- mates to provide a macroeconomic framework for planning and policy, and in the process update national accounting plans and analytical techniques. A first set of estimates would be prepared by June 30, 1986 and updated annually thereafter according to an annual work plan to be agreed with the Association by March 31, 1986 (Section 3.04 of draft Development Credit Agreement). In line with identified priorities for economic reform, the consultants and a resident statistician financed by CIDA will also help MPRN and technical ministry staff collect and estimate data on sectoral performance, particularly in agriculture and industry, make indirect estimates of external trade data (using IMPORTEX and BCRG data) and undertake household and production surveys. With existing census statistics, which MPRN's Human Resources Division is in 3/ This work will be coordinated with the preparation of sectoral strategies and investment programs in energy, water supply, transport, mining and agriculture under on-going and proposed TDA projects and industrial sector work planned by UNIDO (with IDA involvement) (Annex VI).  - 16 - the process of finalizing, this should greatly improve efforts to understand the operation and performance of the economy, and identify sectoral linkages. The three-year work program would also include 14 staff-months of short-term consultants for specific studies, including price surveys, a farm budget survey, etc., which would be carried out in close collaboration with the statistician and planner financed by the Ttalian Government (para. 35). The master plan for a medium-term statistical program would be prepared with assistance from the principal statistical advisor. The Government has agreed to adhere to an annual statistical work program supported by the IDA-, CIDA- and Italy-financed experts (Section 3.04 of draft Development Credit Agree- ment). The project would also finance computer software, spare parts and training for MPRN's National Center for Computing and Management (CRIG). CNIG would continue to provide computing support to the statistical effort, and with consultant help, prepare a modest Computer Development Master Plan, to define Government computer training and equipment requirements over the medium-term. 46. Ministry of Economy and Finance. Under a twinning arrangement 4/, the Guinean Ministry of Economy and Finance would be twinned with the French Ministry of Economy, Finance and Budget through its non-profit association ADETEF. Under the proposed arrangement, France would provide support for the work program of MEF by the secondment of a resident specialist to the office of the Minister of Economy and Finance and one to the Customs Service, as well as eighteen visits of up to three months each by experts drawn from its own staff and from other French ministries such as the Ministries of Plan and Cooperation. The MEF advisor would help: (a) critically analyse current budget procedures, the payments circuit and the relationship between departments in MEF and between MEF and MPRN; (b) assisted by the short-term experts, update Government budgeting and financial control procedures, according to modern simplified nomenclature and accounting methods, and introduce these procedures throughout the Government; and (c) improve revenue collection and control and day-to-day management of the treasury, including more timely transfers of direct and indirect tax revenues to the general accounts. The specialist in the Customs Service would: (a) critically analyse existing customs procedures and the current customs code to identify the causes for the low collections and the high incidence of fraud and evasion; and (b) introduce and implement a new, simplified customs code and enforcement procedures. In addition to the secondment of French staff, France will organize training in its own departments and offer other training possibilities in France for Guinean staff. The signature of a first protocol defining a two-year cooperation program in the field of public finance management will be a condition of disbursement on this component. A Franco- Guinean committee will be established to periodically review the progress achieved under this bilateral cooperation agreement and take the necessary measures to ensure proper implementation of the MEF work program. Part of the 4/ A twinning arrangement is a professional relationship between an operating entity in a developing country and a similar but more mature organization elsewhere.  - 17 - US$150,000 fund for unidentified equipment will assist MEF in acquiring necessary equipment, including computers. needed for these tasks. 47. External Debt Management. With assistance by IDA staff over the past three years, the External Debt Division (DDE) of the Central Bank has greatly improved its monitoring of external debt payments. In line with the reorganization, DDE would be transferred to the Ministry of Economy and Finance, which will henceforth be responsible for contracting, monitoring and servicing external debt. To prepare for the economic reform program, to permit better monitoring of the debt in the future, and to lay the basis for the eventual creation of an Autonomous Debt Agency (Caisse Autonome d'Amortissement, CAM), DDE staff need to develop their skills in the proper management of the debt portfolio and acquisition of new debt. The project thus provides 12 staff-months of part-time consultant assistance to DDE to (a) perform a complete audit of Guinea's external debt, checking data with major creditors; (b) improve the timeliness, coverage and frequency of the debt reporting system, by implementing by March 31, 1986 a quarterly reporting system analysing the external debt profile (Section 3.08(b) of draft Develop- ment Credit Agreement); and (c) strengthen DDE's ability to assess the repay- ment capacity and define appropriate financing terms for development projects and investments requiring debt guarantees, in order to help articulate a public sector borrowing strategy within the country's limited debt capacity. Funds for study tours for DDE staff to visit external debt divisions and CAAs in other developing countries are included. The project would also finance the acquisition of a mini-computer for the introduction of a computerized debt monitoring and analysis system (para. 56). 48. Training Component. A full-time resident expatriate Training Advisor would assist the staff of the National Productivity Center (CNP) prepare and implement a program of staff training in support of the other project components (Annexes IV and VII) and linked directly into the work program. With the participation of MPRN's project planner and macroeconomist and the statistical advisor at DS, the short-term specialists, and visiting training officers specialized in the topics to be covered, training would be provided in economic and financial analysis, management systems, statistics, national accounts, computing and procurement management. In addition to on- the-job coaching by the resident and short-term advisors, approximately 400 higher level staff would be trained in 21 training courses of two- to four- week duration, during which they would be released full-time from their other duties. Staff of MPRN, MEF, and CNMP, and officials from technical ministries involved in project preparation and analysis, would participate. To improve the support for higher level staff, approximately 60 typists, clerks and computer operators would also be trained at CNP. The project would provide six staff-months of consultant services to prepare a training and professional development program for accountants and auditors in the public sector and state enterprises. After agreement with IDA on the program, the project would include US$300,000 for implementing a first phase of bookkeeper and accountant training. This component would also finance 35 months of external training and fellowships, which would be agreed with the Association, to complement project in-country and on-the-job training activities, and 10 months of external training for CNP trainers. The project also provides funding for new  - 18 - CNP training and seminar rooms and renovation of existing CNP offices, togeth- er with classroom and office furniture and training equipment. 49. Parapublic Reform. The project would finance the services of accounting, investment banking and management consulting experts for a total of 70 staff-months of short-term assistance and 2 staff-years of resident assistance in the Ministry of Economy and Finance. Accounting services would consist of 12 staff-months to supervise the liquidation during 1985 of the network of Government-owned regional stores handling crop marketing, retail trade, petroleum distribution and books and school supplies. Investment banking and consulting services (58 staff-months) would be engaged to manage the divestiture, bv mid-1987, of selected public enterprises in other sectors as identified by the Government. These experts would also assist the Govern- ment in coordinating the rehabilitation of those enterprises that will remain in its portfolio and in preparing new regulations and policies granting a larger autonomy to these enterprises. An action program would be submitted by June 30, 1985. Annex V gives outline terms of reference for these services. 50. Additional Activities. Six staff-months of consultant services would help the National Public Procurement Commission (CNKP) develop procure- ment procedures for Government purchases, consistent with sound international practice and donor requirements, and prepare guidelines for the preparation and negotiation of international contracts. This manual would be implemented throughout the Government by August 15, 1985 (Section 3.08(a) of draft Devel- opment Credit Agreement). Additional consultants funds to be administered by MPRN, would enable the Government to engage 26 man-months of short-term consultants to help in the preparation and monitoring of the economic reform program, examining the impact of proposed policy changes on household budgets, rural production, and consumer and producer prices. In addition to six staff- months identified for assistance to the Government in reviewing the operation of its economic management bodies, consultants (six man-months) would also help the Government prepare a second technical assistance project. A review of public sector employment, coordinated with IDA/UNESCO sector work, would be carried out during the latter part of 1985. MEF would administer US$100,000 for consultants for legal advice related to the project, inter alia including the preparation of legislation and decrees relating to the parapublic sector and customs and financial matters. The terms of reference of the studies and the qualifications, experience and conditions of employment of all consultants hired under for these activities, like all other technical assistance person- nel under the project, will be agreed with IDA. Project Organization and Execution 51. The Directors of the six units being assisted, MPRN's Planning and Statistics Directorates, CNP, and the Ministry of Economy and Finance's Treasury, Customs and External Debt divisions would have professional responsibility for preparing and carrying out their work programs, according to the annual program and budget to be agreed with the Association (Section 3.06 of draft Development Credit Agreement). Annex VI gives a provisional work program. Together they would (a) monitor project implementation to ensure continued focus on project objectives, (b) be responsible for the project's financial and personnel administration, (c) ensure adherence to the  - 19 - Association's procurement and consultant guidelines, and (d) coordinate the programming of funds for activities to be identified. A full-time national administrator, located in the Ministrv of Planning and Natural Resources, assisted by a full-time Guinean accountant, would handle day-to-day project administration. The implementation and progress reporting for activities under all project components, and the monitoring of project training activi- ties at CNP, would be the direct responsibility of the department directors concerned. A resident training specialist would assist the Director of CNP in the preparation and implementation of the training program, and in the organ- ization of overseas training. The joint Franco-Guinean consultative committee would monitor the work program and progress of the Ministry of Economy and Finance component, and the Government should agree to exchange views regularly with the Association on the progress of this component (Section 3.06 of draft Development Credit Agreement). An interministerial investment committee, with representatives of MPRN and MEF would supervise the implementation of the parapublic divestiture program. IEF would supervise the valuation of company assets and the actual liquidations and manage the receipts from the sales. 52. Detailed terms of reference for the resident specialists (Annex IV) have been confirmed. Aside from the parapublic sector study and the legal consultants, all technical assistance personnel would be obtained from a single consulting firm, to be selected in accocdance with IDA procedo.res. The firm would designate one of the four resident specialists as team leader. ILO would prepare, and then implement, the accountant training program (para. 47). The parapublic sector study would be awarded under separate short-listing procedures, and the legal consultants and experts for prefeasibility studies selected, in accordance with IDA guidelines. All personnel would have experi- ence and qualifications acceptable to the Government and IDA. Candidates for the resident specialist positions proposed by this firm and selected on the basis of their curricula vitae would, as appropriate, visit Guinea for inter- views prior to recruitment and the cost would be financed by the project. The Association's approval of contracts for the resident specialists would be subject to the Government having made available the required Guinean profes- sional and support staff and related office facilities (Section 3.05 of the draft Development Credit Agreement). 53. The detailed preparation and supervision of the studies and overseas training programs identified would be carried out with the assistance of the resident specialists financed under the project. They would be subject to prior approval by the Association based on supporting documentation which would include a detailed justification, plan of execution and supporting services (Section 3.05(b) of draft Development Credit Agreement). 54. Skill requirements of Guinean staff have been identified. The individual members of the work groups in each unit being assisted will be identified and agreed with the Association. In general formal training in project financial and economic analysis, statistics and financial analysis would be first carried out in short courses at CNP, then continued by oii-trie- job training supplemented by local seminars. The training coordinatcr would ensure that formal and on-the-job training programs maintain their effectiveness and their high priority during project execution. and review with the resident specialists and the Guinean unit directors the results of  - 20 - the training activities. This advisor would be responsible for detailed programming of training (including visits by other specialists to conduct seminars and short courses), supervision of execution, evaluation of results and follow-up. 55. A Project Coordinating Committee would be established under the chairmanship of the Secretary General of MPRN. It would include the Directors of DGS, DGP and CNP, MEF's Secretarv General and Directors of Treasury, Customs, and External Debt, and the six senior resident specialists. It would meet quarterly to review progress reports. Such meetings would in particular review in consultation with the Association at least semi-annually the policy outputs of project activities and consider the results of each component. keeping account of the investments made, staff newly trained, policies devel- oped and institutional changes produced or proposed (Section 3.06 of draft Development Credit Agreement). The Project Coordinating Committee would report, through its chairman, on all policy questions to a Joint Policy Group, including the Minister of State for Planning and Natural Resources, the Minister of Economy and Finance and the Governor of the Central Bank, which would meet semi-annually. Project Costs and Financing 56. The project would provide about 20 staff-years of resident special- ists, 366 staff-months of identified short-term consultant services, 45 staff- months of overseas training, construction of a training center, and acquisi- tion of vehicles, equipment and furniture. Its total cost, net of taxes and duties (from which it would be exempt) is estimated at US$10.9 million equiva- lent. Physical and price contingencies would constitute 11 percent of total base costs, which have been prepared in December 1984 prices. Government would meet all local costs, US$0.4 million equivalent, in addition to Guinean staff salaries. Salaries of the ADETEF-seconded advisors and consultants to MEF (10.5 staff years), estimated at US$0.7 million equivalent, would be financed by France. A UNDP grant would finance TJS$300,000 of the prefeasibility fund. The proposed IDA Credit of US$9.5 million would cover the remainder of the project's foreign cost component, which accounts for 96 percent of total costs. Price contingencies on resident specialists, short- term consultants and training programs have been incorporated on the following basis: 3.5 percent for 1984, 8 percent for 1985 and 9 percent for 1986-88. Physical contingencies of 15 percent on all local costs and 15 percent on the foreign costs of civil works and equipment have been included. Procurement and Disbursement 57. The selection of consulting firms to supply the technical assistance personnel would be the responsibility of the Project Coordinating Committee. All terms of reference, qualifications and contracts would be subject to prior approval by the Association. Construction of the CNP training center (US$344,000) would be subject to international competitive bidding, following TDA guidelines. Procurement of vehicles, furniture and equipment would follow limited international tendering (US$670,000). Procurement of office supplies (US$120,000) would follow local procedures acceptable to IDA. Procurement of  - 21 - the four micro-computers (US$80,000) would be on the basis of a single respon- sibility contract for equipment, software and training. 58. The proposed Credit would be disbursed against 100 percent of total direct foreign exchange costs of the consulting services, training programs and vehicles, furniture, computers and equipment, and 100 percent of foreign costs or 80 percent of total costs for civil works. The Government would finance the related local costs, (estimated at US$0.4 million equivalent), making explicit provision in its annual budgets for funds sufficient to support the project's Guinean staff and associated other project costs (Sec- tion 3.01 of draft Development Credit Agreement). After refinancing the two PPF advances totalling US$400,000, US$570,000 of the proposed Credit would remain unallocated. The disbursement projections correspond to the project implementation timetable, which takes into account the advanced status of project start-up activities (selection of consultants, preparation of archi- tectural plans), the project timetable, and generally favorable project performance and disbursement experience in Guinea. Accounts and Auditing 59. MPRN would establish and maintain consolidated project accounts for all expenditures under the proposed proJect. Prior to project effectiveness, the project local currency account would be established and an initial contri- bution in local currency equivalent to US$60,000 made into it. A foreign currency Special Account of US$30,000 for the purchase of vehicle spare parts and other items would als' be established prior to project effectiveness and replenished by IDA upon presentation of supporting documentation (Sections 2.02 and 3.01 and Schedule 4 of draft Development Credit Agreement). These accounts and supporting records would be audited annually by auditors accept- able to IDA and audited reports would be submitted promptly to the Association (Section 4.01(c) of draft Development Credit Agreement). Benefits and Risks 60. The main benefits of the proposed project would be the training and development of staff expertise in project preparation and analysis and finan- cial administration, the introduction of systematic procedures for investment choice, procurement and budgetary control, improved management and monitoring of Guinea's external debt, and improved national accounts estimates and the beginnings of a statistical basis for sectoral analysis. The organization of training activities common both to core and technical ministries should facilitate the introduction and acceptance of these procedures through the Government. Institution of formal procedures for procurement and contract negotiation, and strengthening of financial controls, should belp initiate a better control of public expenditure. The project remains, however, only a first step in a series of measures that will be needed to strengthen perma- nently the Guinean institutions responsible for economic management. 61. Measurable outputs. The first set of locally-produced national accounts estimates and a 1986/88 Investment Program would be produced by June 30, 1986, and regularly thereafter according to an annual work program to be  - 22 - discussed and agreed with the Association (paras. 43, 45). The preparation of these planning documents would also include important instruments for economic management: a formal project evaluation manual introduced throughout the Government (para. 43), standardized procurement procedures (para. 50), and regular quarterly reporting of external debt (para. 47). The PPF advance has already financed a study of urban household budgets and will finance an audit of Guinea's external debt. Over the next year, consultants under the project will help the Government develop and then analyze the impact of the proposed economic reform program, including urban household surveys, farm budgets, and a review of the investment program. The large-scale parapublic sector dives- titure program would be prepared and subsequently implemented (para. 49). A training and staff development program for accountants would be prepared by September 30, 1985 (para. 48). The project would also help the Covernment review the operation of the newly reorganized economic managemenc bodies, which would be discussed with IDA (para. 39), and prepare a possible second phase technical assistance operation, consistent with longer-term objectives and needs. With the assistance of the project. MPRN would jointly review with the technical ministries sectoral strategies and investment programs now under preparation in power, water, transport, mining and industry, and discuss these strategies with the Association as a basis for sectoral donor meetings in 1985 and early 1986. In the third year of the project, the Government would use the macroeconomic and sectoral outlines and the sectoral investment plans to update the three-year investment program. 62. Four principal risks are associated with achieving project objec- tives. The main risk is that policy and program recommendations arising from the project would not be fully reviewed and acted upon. The Government has agreed that it will regularly account for and consult with IDA concerning the results of all project activities and recommendations pertaining to policy and procedural reform, and institutional changes (para. 55). A second risk is that of delays or difficulties in providing technical assistance personnel, with a consequent rise in IDA supervision of project administration. This risk is mitigated by the use of a single consulting firm for recruitment and administration (para. 51) of most of the staff, and the early start for recruitment procedures, which provides additional incentive to resolve any technical assistance problems that arise. In general the Association's experience is that the Guinean Government moves quickly to resolve project administration problems, and has in the past enjoyed good relations with its technical assistance personnel. A third risk surrounds the project's training and staff development objectives. While the technical assistance input is heavy, it is not disproportionate with the major tasks to be achieved; nevertheless, the trainizg of Guinean staff and the establishment of proce- dures and rules that contribute to a sound working environment is the proj- ect's ultimate objective. Senior Guinean personnel before Board presentation have been designated and the preparation of a long-run training program taking into account the experience of project implementation would contribute to meeting this goal. The Government has also agreed not to move personnel trained under the project to other unrelated posts in the Administration (Section 3.11 of draft Development Credit Agreement). A fourth risk is that the career and salary structure in the Guinean civil service (para. 29) may tend to outweigh the training, work program and improved working conditions which the project would introduce into core ministries. This is a problem not  - 23 - modification under a slingle project, but the Association continues to discuss the matter with the Government, in the context of this and other operations. In light of these risks, and the project's ambitious work program, frequent and fairly intensive supervision by IDA staff will be needed. PART V - LEGAL I11STRUMENTS AND AUTHORITY 63. The draft Development Credit Agreement between the Republic of Guinea and the Association and the Recommendations of the Committee provided for in Article V, Section 1(d) of the Articles of Agreement are being circu- lated to the Executive Directors separately. 64. Special conditions of the project are listed in Section III of Annex III. Creation of and initial deposits into the local currency revolving fund and creation of the project Special Account are conditions of effectiveness (Section 6.01 of draft Development Credit Agreement). 65. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. RECOMMENDATION 66. I recovmend that the Executive Directors approve the proposed Credit. A.W. Clausen President Washington, D.C. February 20, 1985 Attachments  - 24 - ANNEX 1 TABRLEL 35 FACE ot 5 CUINU - BOCIAL INDtCATORS DATA SCNS GUINZA RECFENCE cIoun (ICCNTED AhrASh) a NOST (MOST BCENT tINATETC) /b RECENT LOW INCONC AFRICA NIDOLE I rHIE 1i6a! iit4 ESTIWATEL som or uARA AFRIcA s. or sALN AEA (ToDAND q. W) TOTAL 245.9 245.9 243.9 AGRICULTURAL 44.0 45.7 45.7 any Mt CAITA cinS$ a0.0 120.0 310.0 249.1 1112.9 BlURT conmwnTau S CUITA (KtLOGRAKS OF OIL EQUIVALENTS 35.0 58.0 55.0 62.5 529.0 POMATIo AMD VITAL STATUTIC8 POPULATION.HID-YTAR (TOUSAIOS) 3630.0 4490.0 3704.0 1* URBN POPULATION (2 Of TOTAL) 9.9 13.9 20.3 19.2 29.7 POPULATION PROJECTIONS POPULATION IN TEAR 2000 (HILL) 8.7 STATIONARY POPULATION (HILL) 28.0 POPULATION NONENTWU 1.8 POPULATION DENSITY PER SQ. 34. 15.7 18.3 22.7 32.5 53.5 PER SQ. KM. AGRI. LND 17.3 98.2 122.0 119.2 111.5 POPULATIOX ACE STRUCTU (I) 0-14 YRS 42.0 62.5 44.0 45.6 45.4 15-64 TRS 33.1 34.7 53.0 51.5 31.7 65 AND ABOVE 2.6 2.8 2.9 2.9 2.9 POPULATION CRWrTK IRATE (2) TOTAL 1.1 1.3 2.0 /c 2.3 2.8 URSA 7.0 4.9 5.1 6.2 5.2 CRUDE BIRTH RATE (ER TNOUS) 48.3 49.3 49.1 45.6 47.0 CRUDC DEATH RATE (PER 7HOU5) 34.9 31.6 27.0 17.7 15.2 CROSS REPRODUCTIOII RATE 3.2 3.2 3.1 3.2 3.2 FANI LY PLANNING ACCEPTORS. ANNUAL (THOUS) USERS ( 0or MARRIAD WUEN) .. .. mmD MI WAtTtOI INDEX OF F70D PWD. PER CAPITA (1969-71-100) 97.0 101.0 89.0 85.8 91.6 PER CAPITA SUPPLY OF CAIZS (I OP REQUIRFJEINTS) 74.0 78.0 75.0 86.6 98.2 PROTEINS (CRAMS PER DAY) 37.0 38.0 36.0 49.9 - 3.7 OF WHICH ANINL AND PULSE 7.0 6.0 7.0 Id 18.3 17.0 CNILD (AGES 1-4) DCATH RATE 65.0 38.0 50.0 23.5 16.7 LIFE EXPECT. AT 31RT1 (TYES) 32.3 34.4 37.5 48.4 51.7 INFANT MORT. RATE (PER TIIUS) 222.0 208.0 190.0 117.5 1O2.7 ACCESS TO SAFE WATER (2POP) TOTAL .. .. 10.0 I. 21.6 35.6 URAN .. .. 44.07; 61.5 54.1 RURAL .. .. 2.7 14.2 27.3 ACCESS TO EZRETA DISPOSAL CZ Or POPULASTION) TOTAL .. 13.3 .. 32.0 URBAN .. 70.0 .. 69.2 RURAL .. .0 .. 24. - POPULATION PER PIYSICIAN 33770.0 35460.0 17110.0 (d 27477.8 1194S.3 POP. PER NURSING PERSON