Guinea - Second Economic Management Support Project

Document of The World Bank FOR OFFICIAL USE ONLY Cz,Z /1r 67-' Report No. 7420-GUI STAFF APPRAISAL REPORT REPUBLIC OF GUINEA SECOND ECONOMIC MANAGEMENT SUPPORT PROJECT October 19, 1988 Country Operations Division Occidental and Central Africa Department This document has a resricted distributioir and may be used by recipients only in the performance of their official duties. Its contents may nof, otherwise be disclosed without World Bank authorization.  REPUBLIC OF GUINEA SECOND ECONOMIC MANAGEMENT SUPPORT PR)JECT CURRENCY EQUIVALENTS (Annual Average, Guinean Francs per US Dollar) 1986: GF 345; 1987: GF 428; 1988: GF 475 (estimate) ABBREVIATIONS AND ACRONYMS ADETEF Association pour le Developpement des Techniques Economiques et Financieres ASYCUDA Automated System for Customs Data AfDB African Development Bank AfDF African Development Fund BARAF Bureau d'Aide a la Reconversion des Fonctionnaires BCRG Banque Centrale de la Republique de Guinde CCCE Caisse Centrale de Cooperation Economique (France) CCEF Comite de Coordination Economique et Financiere CNPG Centre National de Perfectionnement et de Gestion DGIP Direction Generale des Investissements Publics DGP Direction Generale du Plan DGSI Direction G6ndrale de la Statistique et de l'Informatique EMSP II Second Economic Management Support Project FAC Fonds d'Aide et de Cooperation (France) IDA International Development Association IFC International Finance Corporation IMF International Monetary Fund MEF Ministry of Economy and Finance MPCI Ministry of Plan and International Cooperation MRAFP Ministry of Administrative Reform and Civil Service PIP Public Investment Program PMC Project Management Committee PPF Project Preparation Facility RMU Reform Monitoring Unit SAL II Second Structural Adjustment Credit SED Ministry of Decentralization SGG General Secretariat of the Government SDR Special Drawing Rights SDSP Social Development Support Project SPPF Special Project Preparation Facility TA Proj. Technical Assistance Project for Economic Management UNDP United Nations Development Programme UNDTCD U. N. Department of 'ech. Cooperation in Development USAID United States Agency for International Development FISCAL YEAR and PROJECT YEAR January 1 - December 31  FOR OFFICUAL USE ONLY REPUBLIC OF GUINEA SECOND ECONOMIC MANAGEMENT SUPPORT PROJECT TABLE OF CONTENTS Page CREDIT AND PROJECT SUMMARY .. i I. BACKGROUND ................................................ 1 A. The First Phase of the Recovery Program (1985-1988).. 1 B. Lessons Learned ..................... 5 C. Institutional Issues Outstanding and Government Plans for the Second Phase (1988-1991) ..................... 9 II. THE PROJECT .......... .................................... 13 A. General ............................................. 13 - Project Rationale ................................ 13 - Project Concept .................................. 13 - Project Objectives ............................... 13 B. Project Description .................................. 14 - Economic Analysis and Planning .................... 15 - Public Finance Management ........ ................ 16 - Administrative and Civil Service Reform ........... 18 - Professional Skills Development ................... 19 - Other Direct Support to the Recovery Program ...... 21 III. PROJECT COST, FINANCING, DISBURSEMENTS AND PROCUREMENT ... 24 A. Project Cost and Financing Plan ...................... 24 B. Disbursements, Procurement, Accounts and Audits ...... 25 This report was prepared by Mr. M. Kuoh (Country Officer) and is based on the findings of missions which visited Guinea in February, April and July 1988. The missions also included Mr. A. Cherif (Loan Officer, AfDB); Mr. H. Tuluy and Mrs. T. Manuelyan-Atinc (Economists), Mrs. L. Truong (Senior Public Sector Management Specialist), Messrs. P. Guislain (Counsel) and S. Kaba (Operations Officer, World Bank Resident Mission, Conakry); and Mr. A. Vorms (Consultant). 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.  Table of Contents (continued) IV. PROJECT MANAGEMENT AND IMPLEMENTATION .................... 28 A. Project Management and Coordination ... .... 28 B. Project Implementation and Monitoring ... .... 29 C. IDA Supervision and Donors Coordination .... ... 31 D. Status of Project Preparation ....... 32 V. BENEFITS AND RISKS ....... 33 VI. AGREEMENTS AND RECOMMENDATION ... . ... 34 A. Conditions and Agreements ....... 34 B. Recommendation ....... 35 ANNEXES Annex I : Main Project Activities and Expected Results Annex II : Main Training Programs Annex III : Project Costs by Component and Nature Annex IV : Project Financing by Component Annex V : Project Financing by Nature of Costs Annex VI : Estimated Disbursement Schedule Annex VII : Project Organizational Chart Annex VIII : Selected Documents in Project File Annex IX : Timetable of Key Processing Events Map: IBRD No. 20873 R  REPUBLIC OF GUINEA SECOND ECONOMIC MANAGEMENT SUPPORT PROJECT CREDIT AND PROJECT SUMMARY Borrower: Republic of Guinea Implementing Ministry of Plan and International Cooperation Agencies: (MPCI), Ministry of Economy and Finance (MEF), Ministry of Administrative Reform and Civil Service (MRAFP), Central Bank (BCRG) and National Management Training Center (CNPG) Credit Amount: SDR 11.3 million (US$ 14.5 million equivalent) Terms: Standard, with 40 years maturity Cofinancing: United Nations Development Program (UNDP), African Development Fund (AfDF), Fonds d'Aide et de Coop4ration (FAC), Caisse Centrale de Cooperation Economique (CCCE), and United States Agency for International Development (USAID) Proiect Description: The Project objectives are to (i) support long-term institution building through the strengthening of key government functions (planning and investment programming, public finance management and management of the civil service); (ii) help improve the management and monitoring of the Government's Economic and Financial Recovery Program and, in particular, to facilitate the implementation of economic and institutional reforms included in its structural adjustment program; (iii) develop sound economic legislation; and (iv) strengthen the Government's civil service training capacity and develop the professional skills of a number of national cadres. This will be achieved through an integrated package of mutually supporting operations including short and long-term technical assistance, in-country training programs and fellowships, studies, and financing of equipment and vehicles. The Project will be executed over a period of four years.  - ii - Estimated Project Costs by Components a/ Z of Local Foreign Total Base Cost ...... .(US$ million) 1. Economic Analysis & Planning 1.3 2.5 3.8 17.1 2 Public Finance Management 2.0 3.8 5.8 26.1 3. Administriitive and Civil Servfce reform 1.1 2.4 3.5 15.8 4. Professional Skills Develop. 1.5 2.3 3.8 17.1 5. Other Direct Support to the Recovery Program 1.2 3.2 4.4 19.8 Central Bank (0.2) (0.9) (1.1) (4.9) Legal Assistance (0.7) (1.6) (2.3) (10.4) Other Activities (0.3) (0.7) (1.0) (4.5) 6. Reform Monitoring and Project Management 0.3 0.6 0.9 4.1 Total base costs 7.4 14.8 22.2 100.0 Physical contingencies 0.2 0.4 0.6 Price contingencies 1.9 0.7 2.6 Total Project Cost 9.5 15.9 25.4 (Taxes excluded) Taxes 2.4 - 2.4 Total Project Cost 11.9 15.9 27.8 (Taxes included) ____________________________ a/ Including the costs of activities financed through a SPPF of US$300,000 and a PPP of US$455,000.  - iii - Project Fir ncing Plan Local Foreign Total ........... (US$ million) ......... Source of Financina Government 3.3 - 3.3 IDA 5.3 9.2 14.5 UNDP 0.8 1.4 2.2 AfDB 0.9 1.6 2.5 FAC 0.9 1.9 2.8 CCCE 0.4 0.8 1.2 USAID 0.3 1.0 1.3 TOTAL 11.9 15.9 27.8 Estimated Disbursement Schedule IDA Fiscal Year .(US$ million).... 1989* 1990 1991 1992 1993 1994 1995 Annual 1.4 3.0 3.0 3.0 2.0 1.6 0.5 Cumulative 1.4 4.4 7.4 10.4 12.4 14.0 14.5 -I-c------the-repaymet-of-the----F-and--- *Includes the repayment of the SPPF and PPF  - iv - Proiect Benefits: The overall outcome of the Project will be the timely implementation of reforms included in the Recovery Program and stronger institutions capable of promoting and supporting sustained economic growth. Specific benefits will include: (i) a stronzer ecoisomic data base; (ii) better prepared investment projects and improved programming of investments; (iii) enhanced financial management based on sound regulations and procedures leading to improved revenue collection and expenditure control; (iv) a more reliable civil service personnel data system; fv) a coherent set of economic and financial legislation; and (vi) a pool of nationals better trained and equipped to perform effectively in the context of the new liberal economic system. Project Risks: The Project faces three significant risks. First, the pressure to carry out the reforms expeditiously may stand in the way of achieving its long-term institution-building objectives. This risk should be minimized by the emphasis put on developing new procedures, selecting suitable counterparts, and monitoring closely training activities, including on-the-job training. Second, the large number of activities to be undertaken under the Project and the involvement of five donors may create implementation and coordination difficulties. However, the project management and implementation arrangements have been designed to provide sufficient flexibility, efficient leadership, and effective coordination. Third, given the profound changes that the adjustment process is introducing in the social fabric, there is a risk that resistance of interest groups benefitting from the status quo could, at times, delay the implementation of SAL reforms and thereby affect the Government's ability to achieve some of the Project objectives in a timely manner. Economic Rate of Return: Not Applicable Memorandum of the President: No. P-4878-GUI AFlCO October, 1988  REPUBLIC OF GUINEA SECOND ECONOMIC MANAGEMENT SUPPORT PROJECT I. BACKGROUND 1.01 In late 1985, Guinea's new government launched a far-reaching Economic and Financial Recovery Program. The -I.rst phase of the Recovery Program (1985-1988 - Phase I) was supported by ,.MF Stand-By and SAP arrangements, IDA and SFA structural adjustment credits totalling SDR 38.5 million and the IDA-financed Technical Assistance Project for Economic Management (the TA Project Cr-1559-GUI, SDR 9.7 million). During Phase I, Guinea adopted most of the initial corrective measures needed to eliminate the distortions inherited from the past and create a market-oriented economy. The results obtained so far are encouraging. However, the scale of adjustment needed to attain self-sustaining growth and the deep-seated weaknesses in economic management are such that Guinea will continue to face a difficult transitional period over the medium term and will need support from the international community during the next phases of its structural adjustment process. The Government has requested IDA assistance for the second phase of the Recovery Program (1988-1991). This led to the preparation of (i) a Second Structural Adjustment Credit of SDR 47 million approved in June 1988 (SAL II: Report No P-4805-GUI), with cofinancing from the African Development Fund (AfDF) and the government of Japan; (ii) the proposed Second Economic Management Support Project (EMSP II), which is designed to strengthen institutional capacity for managing the Recovery Program and achieve sustained economic growth; and (iii) a Social Development Support Project (under preparation) which would help alleviate the social impact of adjustment. A. The First Phase of the Recovery Program (1985 - 1988) The Legacy of the First Republic 1.02 Ineffective economic polizies. Despite its considerable agricultural, mineral and energy resources, Guinea is one of Africa's poorest countries with a per capita income of about US$300 in 1986. From being a major exporter of agricultural products at independence in 1958, Guinea became a net food importer and increasingly dependent for its foreign exchange earnings on bauxite and alumina. The economy's external position became unsustainable as mounting debt-service obligations resulted in a massive accumulation of arrears totalling almost US$300 million at the end of 1985. This poor performance resulted from an inefficient, state-dominated economy producing at levels well below its potential because of inadequate producer incentives and deteriorating physical infrastructure. The distorted incentive framework included: (a) a highly overvalued exchange rate leading to buoyant parallel markets; (b) non-remunerative agricultural producer prices; and (c) an average monthly salary which, even assuming two salaried persons per family in a  - 2 - typical Conakry household, could not cover more than one third of total household expenditures. 1.03 Inefficient Economic Management and Weak Institutions. A country dominated politically and economically by the Parti Democratique de Guin4e (PDG), a "State-Party" headed by the late President Sekou Toure, Guinea was governed without efficient institutions and proper procedures. As most day-to-day economic decisions were made essentially on political grounds at the Presidency, management tools such as budgeting, investment programming and a solid statistical base were not developed for the management of Guinea's economy. 1.04 As a result, the agencies formally responsible for key economic management functions developed major institutional weaknesses. First, it became increasingly obvious that the civil service included a large body of unskilled, underpaid and unmotivated civil servants often resorting to corruption. Second, domestic resource mobilization was minimal as both Customs and Tax directorates were totally inefficient and the banking system insolvent. Third, expenditure control was nonexistent given that neither the ministry responsible for economic planning nor the finance ministry prepared budgets on the basis of which capital and current expenditure could be monitored. Policy Reforms and Economic Performance since 1985 1.05 Reforms undertaken. The new Government launched an ambitio,;s Economic arid Financial Recovery Program under the overall supervision of a ministerial-level economic and financial coordination committee, the Comite de Coordination Economiaue et Financibre (CCEF). The overriding objective was to free the economy from pervasive state controls and government intervention and to put in place a policy framework supporting a market-oriented economic system. Specific measures were designed to (i) correct the serious overvaluation of the currency; (ii) restore confidence in the banking system by encouraging the establishment of a new banking system to replace the defunct state banks; (iii) decontrol prices; (iv) liberalize internal and external trade; (v) reduce the scale and improve the efficiency of the public enterprise sector through liqiidations, privatizations and restructuring of selected public enterprises; and (vi) launch a major administrative reform program which, inter alia, targeted a staff reduction of nearly 25 percent in the public sector in 12 months (from 88,000 to 66,000). 1.06 A new agency (the Commissariat General a la Reforme Administrative - CGRA) was established in 1985 under the direct authority of the Head of State to supervise the preparation and the implementation of the administrative reform program. The CGRA has been leading the work to standardize and simplify the internal organization of ministries and their staffing. Thus far, 12 out of 27 ministries have had their organization structures revised and new staffing levels approved; the remaining ones are at various stages of finalization. The staff reduction process has been initiated including the issuance of ordinances and decrees which provide  - 3 - for (i) the ttansitory "administrative reserve' status (disponibilitd speciale) created initially for laid-off parastatal employees; (ii) early retirement; (iii) voluntary departures; (iv) the removal from permanent civil service status of auxiliary staff (e.g. drivers, mailmen); and (v) the flexible use of temporary contractual staff. In addition, the Government decided that, to create a leaner civil service, staff selection will be made through a comprehensive vesting exercise (aptitude and competence) covering the whole civil service and organized by ministry. The first staff testing were completed in the Livestock directorate of the Ministry or Agriculture in November 1986. 1.07 Out of concerned for the social impact of the adjustment process, particularly in urban areas, the Government decided to (i) provide additional payments to civil servants to compensate for increases in the cost of living and transportation resulting from the devaluation and the increases in petroleum prices; (ii) continue to pay, on a temporary basis, the salaries of laid-off public sector employees; and (iii) launch labor- intensive work programs to create employment in Conakry. In addition, to ease the absorption of :edundant civil servants by the private sector, the Government created an employment advisory service (the Bureau d'Aide a la Reconversion des Agents de la Fonction Publique - BARAF) in March 1987 that provides assistance in preparing bankable projects. Under this scheme, which is supported by French aid agencies, departing civil servants can use their severance pay as a down payment to secure loans up to five times that amount. 1.08 Encouraging though uneven results. The reforms have yielded encouraging results. The economy grew by 6? in rea] terms in 1987, implying an increase of over 3Z in per capita income. This was largely due to an impressive supply response in the rural areas, including increases in coffee and rice production, and resumption of activities in the livestock sector. The number of public enterprise liquidations and privatizations has also been impressive. Out of 180 public enterprises in existence in 1986, 69 have been liquidated, 20 have been privatized, and 80 more are in various stages of liquidation or privatization. At the came time, small scale enterprises, principally in construction, agroindustry, transport and trade, have increased in number and exhibited significant increases in their activities. 1.09 The objectives set by the Government in 1985 concerning staff reduction and civil service personnel management were probably overly ambitious. The total number of public sector employees has been reduced by 15,200 staff including 5,500 persons placed in administrative reserve (mainly parastatal employees), 8,200 retirees, and 1,500 persons who opted for the voluntary departure scheme. However, no civil servant had actuallv been laid-off as of September 1988.  - 4 - Donor's Support for Improved Economic Management 1.10 The IMF and IDA have been closely associated with the formulation and implementation of Phase I which also benefitted from technical assistance operations funded by UNDP and the French government:. 1.11 The IMF provided the Centra'l Bank (Banque Centrale de la Republique de Guinee - BCRG) with a senior advisor to the Governor and three advisors located respectively in the Foreign Exchange, Credit and Studies, and Accounting departments. This assistance which supplemented direct support from IMF staff (including a Resident Advisor) played a critical role in helping the Government reorganize the 3CRG, implement the currency change, operate the major initial devaluation of the currency and establish the weekly foreign exchange auctions. 1.12 IDA support: the Technical Assistance Project for Economic Management (the TA Project). With components for macroeconomic and investment planning, national accounts and a strong training component, this first operation approved in March 1985 was designed primarily to help the Ministry of Plan and International Cooperation (MPCI) develop a statistical base and strengthen the planning process. The TA Project, which will be completed in December 1988, has been implemented satisfactorily. As of end-August 1988, disbursements represented 80 percent of the credit compared to the 40 percent norm according to the Africa Region Disbursement Profile. 1.13 Principal outputs have included the 1987-89 public investment program, endorsed by the donor community in March 1987 at the meeting of the Consultative Group for Guinea, statistical surveys on household consumption, and national accounts for 1985, 1986 and 1987 (preliminary). Macroeconomic work was also initiated leading to the presentation, for the first time in March 1988, of a macroeconomic model adapted to the Guinean economy. 1.14 The TA Project also helped the Government prepare Phase I reforms and implement a number of policy measures which contributed to the positive developments in the economy since 1985. Assistance to the newly created debt division in the Ministry of Economy and Finance (MEF) has been critical fot debt rescheduling negotiations. Consultancy services financed under the project have contributed to the success of the Government's public enterprise sector restructuring program. Other project outputs which support the reforms directly include an investment code, a new accounting framework for enterprises and a draft procurement code expected to be passed into law shortly. 1.15 Finally, the project included a strong training component focused on the Centre Nationa'l de Perfectionnement et de Gestion (CNPG), the leading management training center in Guinea. In addition to -ssisting in the construction of modern and functional facilities, the project enabled the CNPG to develop and conduct formal upgrading and training courses in  economic and financial analysis, statistics and business accounting for staff selected from ministries and public enterprises. 1.16 Additional Bank support is being provided under the Special Technical Assistance Program for IDA countries. A Bank staff member was seconded to the Government in October 1987 as a Senior Economic Advisor to the Minister of Plan and International Cooperation. In addition to advising the Minister on policy matters and providing guidance and support to MPCI's directors and division chiefs, he has been very active in the preparation of Phase II. More specifically, he has helped create an informal interministerial working group which has been helping the CCEF monitor the execution of the program. The group also played a key role during the preparation of SAL II and the proposed EMSP II. 1.17 Assistance from the Fonds d'Aide et de Coop4ration (FAC). In parallel with the preparation of the TA project, the Government discussed a technical assistance program with the FAC. Although a larger program was originally envisaged, both parties finally agreed to proceed with a smaller technical assistance package. FAC financed the services of an advisor to the Minister of Finance, and three experts, located respectively in the Budget, Treasury and Customs directorates, who have mainly assisted the Minister and his senior advisor in carrying out day-to-day operations. 1.18 Also in 1985, UNDP approved an Administrative Reform Support Project (Prodoc No Gui/85/OOP) which was complemented by an IDA Special Project Preparation Facility (SPPF I GO 13-GUI, US$300,000 equivalent, September 1985) to help finance the civil service census. The UNDP project helped the Government establish the CGRA and launch the administrative reform program (para. 1.06). The CGRA which merged with the Ministry of Civil Service to become the Ministry of Administrative Reform and Civil Service (MRAFP) in January 1988, has played a major role in directing and coordinating the design of the organizational structures of the new administration and in supervising the staff selection process (civil service census, testing of civil servants and establishment of voluntary departure schemes). B. Lessons Learned 1.19 In December 1987, in the course of the preparation of Phase II, the Government organized, with Bank assistance, a workshop on the adjustment program. The workshop offered 28 high-level Guinean officials the opportunity to conduct a critical examination of the preparation and implementation of Phase I. It served to highlight positive developments as well as a number of shortcomings from which both the Government and the donor community have drawn lessons regarding various dimensions of the adjustment process (economic, social and institutional) and the design and implementation of technical assistance operations. Finally, the workshop played a catalytic role ia the identification of economic and institutional  - 6 - reforms to be carried out under Phase II and in the preparation of SAL II and the proposed EMSP II. Relevance of the Liberal Policy Orientation 1.20 For most Guineans, especially the 80 percent of the population living in the rural areas, the four-year experience of the Second Republic has confirmed that a liberal policy orientation can induce positive changes in the structure of the economy, facilitate the resumption of economic growth, and thereby improve the living conditions of the people. Consequently, the Government's strategy, which puts a high premium on private initiative and is based on a restricted and supportive role for the state, has the support of the majority of Guineans. It is not challenged on objective economic grounds, despite the continued resistance to reforms by a number of citizens (mainly located in the Conakry area) who benefitted from the state-dominated modern sector under the First Republic. The Social Dimensions of Adiustment 1.21 In spite of the additional cost-of-living allowance and the assistance provided through the BARAF (para. 1.07), measures to alleviate the social impact of adjustment were not designed as an integral part of the overall development strategy during Phase I. Until the establishment of the Task Force on Social Policy by the Minister of Plan and International Cooperation in September 1987, little had been done to identify the most vulnerable groups, monitor their situation and formulate appropriate responses to their needs. 1.22 In parallel with the preparation of SAL II and the proposed Project, the Government and IDA launched the preparatWon of a Social Development Support Project (SDSP) which was appraised in July 1988. The SDSP, which is also supported by UNDP and AfDB, will help the Government implement a comprehensive program including: (i) the preparation and implementation of specific small-scale projects and programs designed to mitigate the transitional impact of adjustment on the most vulnerable groups, and which will be financed through a Social Fund of about US$3 million equivalent; and (ii) strengthening of the Government's capacity to design and implement social policy measures and monitor the situation of the poor. The Institutional Dimensions of Adjustment 1.23 Managing the Recovery Program. The Government's Recovery Program has suffered from the absence of a monitoring and coordinating body at the technical level. Composed of cabinet members, the CCEF was created in January 1986 to facilitate the decision-making process on issues to be submitted to the Council of Ministers. The CCEF is not, however, equipped to conduct policy analysis, monitor the implementation of decisions taken and ensure that internal consistency is maintained during the execution of detailed reform measures. For instance, insufficient preparation and loose supervision of the privatization/restructuring program of public  enterprises have made possible agreements granting monopolies and incentives beyond the provisions of the Investment Code adopted in January 1987. Under Phase II, the Government has decided to establish a Reform Monitoring Unit (RMU) to act as a permanent secretariat to the CCEF with a view to strengthening interministerial consultation at the technical level. 1.24 Streamlining the distribution of responsibilities and sequencing improvements in key government departments. Another lesson learned since 1985 is that additional gains in economic management will be difficult (i) as long as the distribution of responsibilities between Government departments remains confused and (ii) if improvements continue to be introduced at different speeds and without appropriate sequencing in the key government departments responsible for macroeconomic management: the MPCI, the MEF, the BCRG and the MRAFP. 1.25 A review of policy implementation difficulties during Phase I indicates, for instance, that the competing roles of the MEF and the BCRG regarding the management of the country's debt has hampered the development and implementation of a reliable debt management system. It appears also that progress in developing institutional capacity in the MEF has lagged significantly behind that in the other three departments. Consequently, further improvements in preparing and executing an efficient public investment program, establishing a reliable civil service roster and implementing a flexible and effective exchange rate policy are currently hampered by the absence of adequate budget and expenditure control procedures and effective tax and customs administrations. During Phase II, the Government will emphasise the clarification the responsibilities of its departments and will carefully monitor progress to ensure that the critical improvements necessary in each of the key departments are introduced in a timely manner. Skills Shortages and Conditions for Effective Institution-Building 1.26 Skills Development. In addition to the weaknesses in the regulations and procedures inherited from the First Republic, the implementation of Phase I highlighted Guinea's serious shortage of skills at all levels and in all fields (economics, finance, general administration, law and engineering) critical for economic development. This is a result of an education system characterized by low enrollment levels, inadequate allocation of resources, poor quality and internal efficiency of education at all levels and a lack of coherence between the training system and the employment/labor market. 1.27 Phase I confirmed the need to reinforce the civil service training capacity with a view to developing the professional skills needed to manage a market-oriented economy. As an example, basic accounting concepts such as depreciation expenses and retained earnings were not believed to be relevant to the former state-dominated economic system and therefore are new to many Guinean cadres responsible for monitoring the activities of enterprises in technical ministries or pzocessing their tax returns in the MEF. The Government fully realizes that the sustainability  - 8 - of its economic and institutional reforms and, in the medium term, the establishment of an economic system in which the State can effectively play its supportive role, call for a major effort to develop professional skills within the civil service and increase the average level of competence and efficiency of public sector personnel. 1.28 Effecti're Institution Building. Under Phase I, the results have been uneven regarding the institutional development objectives of technical assistance operations. In most instances, consultants performed discrete activities without working in partnership with national staff and without sharing responsibility for the outcome. As a result, actual on-the-job training has been insufficient, limiting the transfer of professional knowledge. This situation resulted largely from the limited attention paid by the Government to the formulation of a strategy for the utilization of technical assistance and to the management of technical assistance operations. Consequently, the Government and its foreign partners have not always cast the appropriate balance between operational outputs of technical assistance projects and staff training. Also, delays in reorgan:.zing government departments, clarifying their respective functions and selecting staff expected to act as counterparts to the technical assistance personnel have curtailed the transfer of knowledge. 1.29 Aid coordination. Despite the intensive discussions which took place among donors in 1985, the various technical assistance operations financed by IDA, UNDP and FAC, were not designed as integral parts of a global institution-building effort. Each aid agency focused on the institution it had chosen to support while the Government lacked the capacity to coordinate and manage the technical assistance programs effectively. As a result, the sequencing of institutional support to key agencies was not properly determined, limiting the synergetic effect of the various operations. Moreover, the links between these agencies (i.e. MEF-MPCI on the execution of the public investment program, MEF-BCRG on the management of the public debt) raised issues that the design of each separate technical assistance operation could not address properly. 1.30 In late-1987 and 1988 the Government and Guinea's maior donors becamp increasingly aware of the need to strengthen donor coordination in the area of technical assistance, particularly technical assistance for macroeconomic management and administrative reform. This was highlighted during the UNDP-financed National Technical Cooperation Assessment Program (NaTCAP) exercise conducted in 1987-1988 and was underscored in the December 1987 workshop.  - 9 - C. Institutional Issues Outstanding and Government Plans Institutional Issues Outstanding 1.31 To develop an efficient economic management system in the medium-term the Government needs to (i) strengthen its economic analysis and planning capacity substantially; (ii) create a new public finance management system; and (iii) speed up the implementation of the administrative reform in order to permit the effective management of the civil service. Major institutional issues and operational deficiencies in these three areas described below. 1.32 Economic Analysis and Planning. Economic analysis And planning fall under the responsibility of the MPCI, a ministry with a limited number of sufficiently trained and experienced staff, especially economists. The MPCI includes four general directorates carrying out operational responsibilities: Statistics (DGSI), Planning (DGP), Public Investment (DGIP) and International Cooperation (DGCI). 1.33 While MPCI's organizational structure is appropriate, major improvements are still necessary in the way operations are conducted. The weakness of the statistical base makes it difficult to assess economic performance, representing a major handicap for economic management. In 1986 and 1987, DGSI initiated surveys (on households and enterprises) which require a follow-up. Its current objective is to establish a system to gather and update information regularly on important parameters such as enterprise production, trade volume and consumer behavior. There is also a need to complete the ongoing survey on the informal sector with a view to determining its contribution to GDP and to employment creation. 1.34 DGP has primary responsibility for undertaking economic works and policy analysis in MPCI. Despite the effort made by the MPCI recently in the context of the staff selection process, DGP's staffing i1 .1arkedly weak. As a result, DGP lacks the capacity to monitor key economic indicators, conduct policy-oriented macroeconomic studies and formulate sound development strategies. Most of DGP's work over the last three years has been carried out by the technical assistance personnel. 1.35 The overall structure for project evaluation and arbitrage functions exists within the DGIP which comprises four sector divisions (agriculture and agroindustries, industry and energy, infrastructure, social sectors) and a finance division. Despite recent improvements, the public investment program (PIP) still does not pay adequate attention to recurrent cost implicatione and the intersectoral linkages between investment projects. Moreover, the annual tranches of the PIP are not yet translated into the budget properly. The project portfolio remains of uneven quality. Feasibility studies and project evaluation documents exist only to the extent that they were undertaken by aid agencies. The limited  - 10 - capacity of technical ministries to conduct such studies and the DGIP's limited ability to perform its economic evaluation, screening and selection functions need also to be addressed. 1.36 Public finance management. One of Guinea's major development constraints is the overwhelming reli&ace (for almost 80 percent of fiscal revenue) of the Government on revenue emanating from the bauxite sector. This renders the public finance situation excessively vulnerable to developments in the international aluminum market. Consequently, a major policy objective is to expand the non-mining tax effort, leading to an increase in non mining revenues from about 4.5 percent of GDP in 1988 to 7 percent by 1993. The increase in resource mobilization will be generated primarily through institutional reinforcement which is expected to lead to a steady increase in tax and custom duty collection. There will also be a need to place and maintain stringent controls on the level and nature of expenditure if the budget deficit estimated at 7.6 percent of GDP (excluding grants) in 1988 is to be progressively reduced to about 5 percent in 1993 as planned. 1.37 These important aspects of Guinea's structural adjustment program fall primarily under the responsibility of the MEF, an overstaffed ministry (3,000 employees to be reduced to about 2,000) which needs a major overhaul, starting with a revision of its organizational chart. The MEF lacks a budget classification framework which (i) clearly distinguishes between investment and recurrent and operating expenditures by category and item; (ii) allows proper monitoring and accounting of all resources and expenditures of the Government by budget items; and (iii) provides full budgeting of all investment projects together with details on their funding from internal and external sources. Also, the MEF estimates revenues and expenditures poorly, has highly fragmented and delayed knowledge of the status of budget execution, public accounts, and the Government's liquidity position, and is weak in mobilizing domestic budgetary resources due to poor tax and customs duty collection. 1.38 Administrative reform and management of the civil service. The difficulties in proceeding expeditiously with the administrative reform have revealed the critical importance of the institutional dimensioln in Guinea's adjustment process, and therefore the need to design institutional reforms carefully and realistically. First, the staff census encountered practical problems which delayed its completion by about a year. Moreover, the absence of a properly equipped unit to follow up on the staff census has hampered the civil service management component of the administrative reform. Second, despite substantial achievements, the MRAFP often failed to set its priorities clearly. It became involved in too many activities at the same time, in some cases duplicating responsibilities of other agencies: staff testing, preparation of organizationel structures, design of administrative reform for local government, preparation of a budget framework law and budgetary procedures, management of the public enterprise sector reform, etc. This has generated resistance from other ministries and agencies, and reduced the efficiency of the MRAFP whose limited resources became overstretched.  - 11 - 1.39 Consequently, despite the initial steps taken under Phase I, much remains to be done to create a new administration, staffed with fewer but competent and motivated staff performing on the basis of clearly defined regulations and procedures. New organizational structures (cadres organiques) are yet to be developed for a number of ministries and for the local administration, and operational procedures need to be defined for all ministries and agencies. Staff testing and selection which have been undertaken in 30 percent of the ministries so far, need to be completed to permit staff assignment, improvements in employment conditions and effective in-service training. In addition, there needs to be a permanent personnel information system and efficient central and sectoral personnel units to implement the civil service policy changes. Government Plans for the Second Phase of the Recovery Program 1.40 Economic Objectives and Policy Agenda. Under Phase II, the Government will pursue an adjustment strategy aimed at achieving sustained growth of incomes and private investment in the medium term, and fostering the participation of the poor in the process of economic growth. Guinea's basic economic and financial objectives, as incorporated in the SAL II medium-term scenario, are to (i) achieve an average annual rate of economic growth of about 4 percent through 1993, predicated on a strong private sector supply response to the planned improvements in infrastructure and the favorable policy environment; (ii) curb the rate of inflation to one that by 1990 would approximate that of Guinea's main trading partners; and (iii) raise the rate of national savings from about 13 percent of GDP in 1988 to 18 percent of GDP in 1993, and hold the current account deficit to less than 4 percent of GDP starting in 1989. 1.41 To achieve these objectives, the Government is committed to consolidating the market-oriented economic system through inter alia (i) a policy of flexible exchange and interest rates, (ii) further liberalization of trade and prices (reform processing of import applications, full-cost pricing policy for food-aid rice), and (iii) continued restructuring of the public enterprise sector including liquidations, privatizations and the restructuring of a limited number of enterprises to remain in the public sector. 1.42 Current government strategy regarding technical assistance for economic management. The Government's agenda for Phase II includes a major effort to strengthen the management of the economy. While creating a liberal policy environment during Phase I dld not require a continuous effort from most government agencies, the susstainability of the adjustment process and the achievement of medium-term economic growth will critically depend on improvements in economic management. Today, strengthening the major government departments and reinforcing their ability to combine and coordinate their operations are fully recognized as one of the highest priorities. 1.43 In order to bring about the needed improvements, the Government has developed a strategy aimed at long-term institution-building  - 12 - objectives, not just short-term remedies. While the Government acknowledges the need to utilize substantial foreign expertise in the short and medium term, it places emphasis on (i) defining clearly the responsibilities of governLment agencies and units; (ii) adequately staffing the units expected to benefit from technical assistance operations; (iii) developing efficient and easily applicable administrative and operating procedures; (iv) developing the professional skills of selected staff through intensive training prograt to create a lean and efficient civil service; and Cv) coordinating effectively technical assistance operations financed by various donors. This strategy to be supported by the proposed EMSP II, will enable the Goverrnment to tackle effectively the weaknesses of its institutions and progressively overcome the deficiencies in the country's economic management mechanisms.  - 13 - II. THE PROJECT A. General Project Rationale 2.01 The proposed credit will provide technical support and training necessary to strengthen economic and financial management and improve the civil service system. The Project is critical for the successful implementation of the Recovery Program supported by SAL II (approved in June 1988) and to the substantial improvements required in revenue collection, expenditure control, public investment programming and budgeting and the implementation of investment projects. The Project will also serve to enhance aid coordination in the area of technical assistance for economic management. Proiect Concept 2.02 The Project is designed to support the Government's strategy outlined above (para. 1.43). It represents an integrated package of mutually supporting operations (short- and long- term technical assistance, training, studies and financing of equipment and vehicles) which, over a period of four years, will strengthen substantially Guinea's economic and financial management capacity. 2.03 While emphasizing training, particularly on-the-job skills development, the Project takes into account the current shortage of civil servants sufficiently qualified to contribute effectively to the timely implementation of the Recovery Program. Consequently, the Project offers a combination of two types of technical assistance, namely: (i) job-focused assistance, giving priority to the timely delivery of specific services and the production of specific outputs by consultants (reports, notes, economic data), and (ii) long-lasting institution-building assistance, which emphasizes skills development through the active participation of qualified nationals in activities where consultants are used. Project obiectives 2.04 The two goals of the Project are to support long-term institution-building while providing short-term remedies to the current weaknesses in the management of the national economy. This combination of short- and long-term concerns is refla ted in the specific Project objectives which fall into three interrelated broad categories:  - 14 - (a) strengthen key government functions (planning and investment programming, public finance management, management of the public enterprise sector and management of the civil service) through the introduction of measures to improve analytical capabilities in the MPCI, revenue collection and expenditure control in the MEF, the personnel management system in MRAFP and economic and financial legislation; (b) facilitate the implementation of the Recovery Program by reinforcing the ability of the Government to carry out, coordinate and monitor the activities set out in its Statement of Development Policy (SAL II); (c) strengthen the Government's capacity to train public sector staff expected to contribute to the development of a lean and efficient civil service, and provide effective proressional training in the areas of economic and financial management and administrative techniques. B. Proiect Description 2.05 The Project will consist of the following six components: (a) economic analysis and planning; (b) public finance management; (c) administrative and civil service reform; (d) professional skills development; (e) other direct support to the Recovery Program including: (i) assistance to the BCRG focusing on the oversight of commercial banks; (ii) a legal assistance program; and (iii) studies and other short-term technical assistance needed to support the structural adjustment program; and (f) monitoring and coordination of economic and institutional reforms. 2.06 Most of the technical assistance and training programs described in the following paragraphs will be accompanied by the provision of equipment and office supplies, including computers necessary for the development of efficient operating systems (i.e. civil service roster and payroll, budget preparation and execution, customs administration, economic modeling). The elements of the Project and their expected results and timing are summarized in Annex I. Annex II includes a table on the main training programs.  - 15 - Economic Analysis and Planning 2.07 Component obiective. The objective of this component is to strengthen MPCI's analytical capacity, focusing on statistics, macroeconomic analysis and investment programming, areas in which substantial improvements are needed (paras. 1.32 to 1.35). 2.08 Project support. Following up on the activities undertaken under the TA Project, the Project will provide 15 person-years of resident specialists and about 50 person-months of short term consultants. In addition, the MPCI will receive computer equipment and related office furniture, software and supplies and a vehicle. The base cost of this component, which will be mainly financed by IDA and AfDF, is estimated at US$ 3.8 million equivalent representing about 17Z of total project base cost. 2.09 In the area of statistics, DGSI staff will be assisted by three resident specielists: (a) a principal statistician will be recruited for three years to advise the Director General of DGSI in (i) setting the operational objectives and preparing the annual work programs for the directorate; (ii) developing regulations and procedures relating to data collection and the use of statistical information; (iii) supervising the work of DGSI's Divisions and providing technical support for the preparation of various notes and reports; and (iv) establishing adequate liaison with other MPCI Directorates and other Government agencies; (b) a statistician/economist specialized in survey techniques will be provided for two years to help DGSI prepare and carry out a number of surveys and disseminate the results properly. Following up on the work initiated over the last three years, he will ensure that the relevant data are collected in a timely manner for the monthly price index and the preparation of national accounts; and (c) a national accounts specialist will be financed for two years to strengthen the capacity of the (DGSI) to compile national accounts. 2.10 Concerning economic analysis, a macroeconomist will work over a period of three years, with a team of about four nationals headed by the Director of DGP (and in close coordination with the Senior Economic Advisor to the Minister financed under the IDA special technical assistance program), on policy-oriented macroeconomic studies and matters relating to the formulation of national development strategies. Each year, when the budget is being finalized, the DGP will produce a report which situates the budget and the three-year rolling PIP in a five-year macroeconomic framework, highlighting the major medium-term development constraints and  - 16 - the key policy measures to be implemented. The DGP will also prepare biannual reports on the current economic situation (Note de conioncture). The macroeconomist will also help the DGP continue the economic modeling work started recently with a view to refining and expanding the macroeconomic model of the Guinean economy. 2.11 To make the three-year rolling PIP an effective management tool, there is a need to continue to refine the programming process and strengthen DGIP's capacity to review and screen projects. The Project will offer a comprehensive package of assistance including: (a) an Investment Programmer for three years, who will advise the Director and help him supervise DGIP's divisions. In particular, in coordination with DGP staff, he will help ensure that the public investment program is consistent with national priorities and existing budget constraints and that the investment budget is part of a realistic financial program which makes adequate provision for the Government's contribution to recurrent and capital expenditure. He will also concentrate on analyzing the intersectoral linkages of the PIP, on screening project ideas and proposals, and on monitoring project execution; (b) a Sector Economist/Project Analyst recruited for two years who will focus on strengthening DGIP's sector divisions, developing procedures for the preparation of project evaluation, supervision and completion reports. The latter will help Government agencies draw the lessons from previous experience; (c) short-term consultants needed for the preparation of major projects and the review of more complex project proposals; and (d) a training program in project appraisal (para. 2.88) which will also improve the quality of analysis in the DGIP. 2.12 Principal results expected from this component include: (i) a stronger computerized economic data base and timely preparation of national acc3unts; (ii) improved medium term projections and monitoring of macroeconomic indicators; (iii) better screening of projects on technical, financial and economic grounds and improved programming of public investments based on coherent sector strategies; and (iv) imprived expenditure control as the three-year rolling PIP is translate, into the annual budget. Public Finance Management 2.13 Coiaponent objective. The Project will help the Government implement a comprehensive reform of its public finance management system including: (a) rationalizing the internal organization of the MEF and each of its directorates;  - 17 - (b) adopting regulations pertaining to the preparation and execution of the budget (Loi Organique and R6glement Financier) which (i) spell out the responsibilities of each agency in the budgetary process; (ii) set a strict calendar for the preparation of the annual budget; and (iii) make the annual budget a legally binding document signed into a law; (c) adopting three important codes at various stages of preparation (customs, tax and procurement), and a business accounting framework law; and (d) establishing odequately staffed units in MEF's directorates to enable them to apply the new laws and procedures. 2.14 The publication of the ArrAt6 defining the functions of MEF key directorates (Budget, Treasury, Tax and Customs) will be a condition for Credit effectiveness. 2.15 Project support. Under this component, estimated at US$5.8 million equivalent (26 percent of total project base cost), the Project will finance about 35 person-months of short-term consultants, 30 person-years of resident specialists including (i) a training/personnel management advisor and a senior economist both advising the Minister; (ii) two to three advisors in each of the directorates of Budget, Treasury and Customs; and (iii) one expert each in the Debt and Procurement Divisions, and a legal advisor, (para 2.34). The MEF will also receive vehicles, computer equipment, related software and supplies and office furniture. This will include the assistance needed to help computerize customs declarations based on the UNCTAD/ASYCUDA (Automated System for Customs Data) system. 2.16 The French aid agencies, FAC and CCCE, which have been closely associated with the preparation of the Project, have indicated their readiness to finance the services of the trairing/personnel management advisor, the senior economist and most of the assistance to be provided to the Budget, Treasury, Tax and Customs Directorates. In parallel with the Project, CCCE will also finance the construction of temporary facilities to provide office accommodation to a core team of MEF staff while a new ministry building is under construction. The proposed Credit will finance the services of the legal advisor, the debt and procurement specialists and equipment, including that associated with the implementation of ASYCUDA. 2.17 This component was prepared in close coordination with the IMF which has already provided the Tax Directorate with a resident advisor and will help the Government develop new tax regulations and procedures. Project support to the Tax Directorate will, therefore, concentrate on enhancing collection through the creation of central taxpayer files and the establishment of tax returns verification teams. 2.18 Major results expected from the public finance management component include: (i) improved budget preparat-on and increased  - 18 - efficiency in budget execution; (ii) a broader revenue base due to incre&sed tax and duty collection; and (iii) increased efficiency in debt management. Administrative and Civil Service Reform 2.19 Component obiective. The objective of this component is to help the Government carry out its action program for the administrative and civil service reform. The program includes: (a) reorganizing central and local administration through the adoption of new organizational structures and staffing patterns (cadres organiques) in each ministry and prefecture, and the implementation of the new organization, giving pr.lority to the core ministries responsible for economic management (MPCI, MEF, MRAFP) and one pilot prefecture; (b) adiusting the size and the composition of the civil service through staff testing, separation of those who fail the tests from the civil service, progressive and selective recruitment of better qualified persons; and (c) upgrading administrative performance through careful staff assignment, in-service training, improved supervision, better employment and working condiEions, increased efficiency of agencies responsible for personnel management and effective functioning of a personnel data system. 2.20 The Project will help the MRAFP establish a permanent system to better manage and monitor the public personnel situation through (i) rehabilitating the master personnel files and computerizing personnel data processing; (ii) putting in place the new organization of the Civil Service Department and strengthening the personnel units in the ministries through better selection and staff training; and (iii) improving the coordination between central and sectoral personnel units. The Project will also help MRAFP complete the census of prefectoral staff, test the remaining staff, and carry out the staff selection program. As a condition for Credit effectiveness, civil servants selected pursuant to the testing and evaluation operations in MPCI, MEF, and MRAFP should be assigned to positions authorized by the Cadres Organiques of their central departments. 2.21 In addition to providing support to the MRAFP, the Project will assist the Ministry of Decentralization (SED) in initiating a pilot effort by helping to establish one prefecture according to the new administrative structure designed for the prefectures. 2.22 Proiect support. This component, which is estimated at US$3.5 million (about 16 percent of total Project base cost), will be primarily supported by UNDP (US$2.1 million) under a second phase of its technical assistance program to the MRAFP. Fourteen person-years of resident specialists and 30 months of short-term consultant services will be funded  - 19 - by UNDP, including 24 months each of expertise in public administration, personnel administration, financial and payroll procedures, personnel information systems, administrative organization and procedures, local administration and staff evaluation. The proposed IDA credit will cover (i) the costs of about 30 months of short-term consultant services to update the 1986 staff census and for staff testing and selection for a uumber of key ministries (refinancing of SPPF and PPF); and (ii) office equipment, microcomputers and vehicles. In addition, the Project will finance staff training programs in the country and overseas which directly support the administrative and civil service reform (para. 2.29). 2.23 Expected Results. Major outputs will include (i) regular publication of reliable data on civil service employment and payroll; (ii) completion of the staff testing and selection process leading to a core civil service staff of about 50,000 persons (a reduction of about 14 percent in the ac ive civil service in 1987); (iii) improved personnel policies and procedures; (iv) improved organization of agencies responsible for personnel management; and (v) better qualified staff. The overall result is expected to be a marked improvement in the preparation and implementation of the Government's economic and financial policies. Professional Skills Development 2.24 Component objective and general presentation. The objective of this component is to help the Government raise the level of competence and efficiency of employees of key agencies responsible for economic management, and strengthen its civil service training capacity. This objective will be pursued through a combination of institutional support, development dnd implementation of training programs, felowships and assistance in developping the professional skills of young cadres with solid educational backgrounds who may be interested in joining the civil service. 2.25 About US$3.8 million equivalent, or 17 percent of the total base cost of the Project, will be allocated to this component. The Project will finance training programs in Economic and Financial Management, Project Appraisal and Management, Busiaess Accounting and Audit, and Administrative Techniques and Persennel Management. The details of these programs are given in Annex II. In addition, the Project will initiate training needs assessment exercises in MEF and MPCI, and emphasize effective on-the-job training which is an integral part of the Government's strategy for long-lasting institutional strengthening. Consequently, before any resident specialist reports for duty, the Government will communicate to the Association for comments, the names and qualifications of his national 1,ounterparts. 2.26 Training needs assessment. Under FAC financing, a resident training/personnel management advisor will be provided to the MEF (para 2.15). One of his roles will be to facilitate the establishment of effective working relations between the technical assistance personnel and the national counterpart cadres and monitor the process of transfer of  - 20 - skills and know-how. He will also be responaible for organizing a training-needs assessment exercise in the MEF, and helping the Governemnt establish efficient personnel management procedures in MEF in coordination with MRAFP staff. Another training neecs assessment exercise will be conducted under IDA financing in the MPCI with the assistance of short-term consultants and in coordination with the CNPG, a training institution strengthened under the TA Project and which will provide adequate follow-up to the training-needs assessment in MPCI. Finally UNDP-financed experts will assess tralning needs of MRAFP staff. The training-needs assessment reports will be transmitted to the Association no later than September 30, 1989 for the MPCI and March 31, 1990, for the MEF and MRAFP. 2.27 CNPG's training programs. The Project will support the continuation of the professional training programs initiated under the TA Project at the CNPG and introduce two new training schemes. In order to reduce the costs of these programs, and build on its experience so far, the CNPG will intensively utilize local technical assistance personnel and lecturers from neighboring countries. The CNPG will continue to offer (i) a training program in economic and financial management (12 months on a part-time basis) which provides each year refresher courses to about 60 officers and managers from various ministries and agencies; and (ii) a training program in business accounting and auditing, executed with the assistance of ILO and designed to disseminate Guinea's new Business Accounting Framework and facilitate statistical data collection and taxation. For the period of 1989-91, these two training programs target a total of about 1,000 trainees for seven types of seminars, six of which will be repeated several times each year. 2.28 Under IDA financing, a training program in project analysis, preparation and supervision will be developed in the CNPG and carried out by a training officer with considerable experience in project analysis and management courses. The program will be tailored to the specific needs of MPCI s DGIP staff and the planning units of technical ministries. In addition to short courses and seminars, the training officer will visit the trainees regularly at their offices, on a predetermined schedule, and provide appropriate clarifications and guidance in liaison with their supervisors and technical assistance partners. 2.29 Administrative techniques and personnel management. The Project will help the recently established training unit of MRAFP (the Centre de Perfectionnement Administratif - CPA) develop and carry out training programs in administrative techniques and procedures, office management and personnel management. A key objective in developping these programs will be to adequately match curricula, training material and methodologies to the needs of the Guinean administration. Consequently, as a first step, appropriate resources will be devoted to designing in-country short-term training programs specifically tailored for various levels of responsibility: support staff, middle level staff, professionals and mavs'gers. An initial allocation of US$300,000 equivalent will help the MRAFP prepare the training programs and launch CPA activities.  - 21 - 2.30 Fellowships and Junior Professional Program. The proposed Credit provides for US$0.6 million equivalent for a Fellowship Fund and US$0.3 million equivalent to support a Junior Professional Program. The fellowships will help broaden the knowledge and develop the expertise of promising public sector personnel in the fields of economic management, public finance, statistics, public administration, banking and law. The ber2ficiaries will spend up to 12 months abroad in universities, training i4stitutions, or agencies performing the same functions as their respective ones at home. Whenever possible and with due regard to staffing constraints, beneficiaries will be sent for training in teams in order to maximize the impact of training when they return. The selection of trainees and training programs to be financed through the Fellowship Fund will be subject to IDA approval. 2.31 The Project will also enable the four key ministries and agencies responsible for economic management and administrative reform (MPCI, MEF, MRAFP and BCRG) to recruit, under contracts of up to 24 months, a selected number of young Guinean professionals (up to 35 years old) with solid educational backgrounds but with limited work experience. Given the current budget constraints and, in the short term, the difficulties in identifying qualified civil servants who can act effectively as counterparts to the technical assistance personnel, the Junior Professional Program will facilitate the achievement of such project objectives as transfer of know-how and professional skills development. About 15 junior professionnals will be recruited under the program. A junior professional who performs satisfactorily will have the choice of joining the civil service at tne end of his assignmient accordi..g to standard government recruitment procedures. The selection, qualifications and terms and conditions of employment under the junior professional program will be subject to approval by the Association. Other Direct Support to the Recovery Progr 2.32 Assistance to the central bank (BCRG). This component of the Project has been prepared in close coordination with the IMF which continues to assist the BCRG by providing an advisor to the Governor, an accounting advisor, and one advisor in each of the Foreign Exchange and Credit departments (para. 1.11). However, the IMF assistance does not address BCRG needs in two areas: (a) First, the BCRG lacks the necessary skills to properly monitor the operations of the commercial banks, particularly their costs, profits, quality of portfolio and liquidity position. As a result the central bank is not in a position to fulfill its oversight function effectively and, in particular, monitor compliance with regulations on the basis of a thorough understanding of the conditions under which commercial banks operate. At times, this situation has adversely affected the dialogue between BCRG and the newly established commercial banks which have played a key roe in the success of the monetary reform during Phase I and which are expected, during Phase II, to  - 22 - increase their levels of lending, particularly investment lending. (b) Second, improvements are needed in the preparation of balance of payments statistics. Data provided by customs, the commerce department, the BCRG and the MEF are incomplete and often difficult to reconcile. 2.33. Under the Project, USAID will finance two resident specialists for a total of four person-years. One of them will help establish BCRG's Banking Sector Division, develop its capacity to analyze documents submitted by primary banks, help carry out in situ inspections at regular intervals, and provide on-the-job training as appropriate. He will also contribute to BCRG's effort geared towards improving the institutional and regulatory framework of Guinea's financial sector, including such regulations as those related to commercial banks' prudential ratios and profit margins. The other resident specialist will develop a system for the timely preparation of Guinea's balance of payments by the BCRG and provide appropriate training to Guinean staff in that area. 2.34. LeRal assistance. To address the current shortage of qualified and experienced lawyers in Guinea, the Project will provide a package of legal assistance in support of the ongoing economic and financial reform program. It will finance the services of a law firm which will provide about 80 person-months of long term assistance and about 12 person-months of short term assistance to the CCEF, the MEF, the General Secretariat of the Government (SGG) and the Ministry of Justice. The legal advisors will assist by (i) compiling existing laws in the economic and financial areas and establishing a legal data base; (ii) drafting and commenting on drafts of new legislation to reflect the Government's policy choice for a liberal economic system and to ensure internal consistency in the legal framework; (iii) reviewing recent economic and financial jurisprudence; (iv) drafting contracts between the Government and suppliers, foreign investors and lenders and assisting in negotiations; (v) assisting the MEF, the SGG, and the Ministry of Justice in organizing their legal services and work programs; and (vi) training civil servants in the areas of legal drafting, negotiation and enforcement and organizing seminars on current legal issues for law practitioners and businessmen. In addition, the Project will finance a vehicle, equipment and supplies in support of the above activities and for the publication of the Official Gazette (which is currently issued with a delay of about two years). 2.35 Under the Project, the Government has undertaken to reduce the delays in the publication of the Official Gazette to a maximum of three months by December 31. 1989. 2.36 Other Activities. An amount of US$1.0 million (about 7 percent of the proposed credit) will be allocated to finance studies, short-term technical assistance and other activities that the CCEF feels necessary to support the structural adjustment program, part of which has already been  -* 23 - identified and part of which will be determined during Project implementation. 2.37 The already identified assistance will help the Government proceed with its public sector restructuring program and, in particular, develop and implement a legal and institutional framework redefining the relations between the Government and public enterprises. The program will also introduce a performance-based system of public enterprise monitoring and evaluation, including the preparation of performance contracts. Funds are also likely to be used for policy-oriented macroeconomic studies. sector reviews and feasibility studies. MonitorinR and Coordination of Economic and Institutional Reforms 2.38 As indicated earlier, the Recovery Program has suffered from the absence of a monitoring and coordinating body at the technical level (para. 1.28). Under AfDF and IDA financing, the Project will help the Government establish and operate a Reform Monitoring Unit (RMU) composed or three Guinean professionals, which would report to the Chairman of the CCEF and act as its Secretariat. The principal officer of the RMU will be designated Coordinator of the Recovery Program (the Coordinator). His appointment will be a condition for Credit effectiveness. Other cadres of the RMU will be the Project Administrator (para. 4.03) and an economist/operations officer. 2.39 The terms of reference of the RHU emphasize its coordinating and monitoring role avoiding any duplication of responsibilities with ministries. The RMU will be responsible for (i) reviewing dossiers to be discussed in CCEF meetings; (ii) monitoring the effective implementation of decisions taken by the CCEF; (iii) preparing concise quarterly progress reports on the Recovery Program indicating achievements and steps to be taken for each of the measures included in the Government's Statement of Development Policy and the Action Program annexei to it; (iv) coordinating the technical work necessary to facilitate the dialogue between the Government and Guinea's major donors on the execution of the Recovery Program; and (vi) managing the Project.  - 24 - III. PROJECT COST. FINANCING. DiSBURSEMENTS ANT) PROCUREMENT A. Project Cost and Financing Plan Proiect Cost 3.01 The Project will provide about 75 person-years of resident specialists, 18 person-years of short-term consultant services, short-term local training, fellowships, equipment, furniture and vehicles. The total cost, net of taxes, is estimated at US$25.4 million equivalent. Foreign exchange costs amount to US$15.9 million or about 62 percent of project costs. The cost of consultants per person-month (including salaries, housing and other allowances, travel and cost of recruitment) is in line with Government estimates for expatriates with similar qualifications currently employed. Base cost estimates are in September 1988 prices. 3.02 Contingencies amount to US$3.2 million, representing 12.6 percent of total Project cost, net of taxes. Physical contingencies of 3 percent on resident specialists, and 5 percent on equipment and vehicles and incremental operating costs have been included. Price contingencies for foreign exchange costs have been incorporated on the following basis: 3 percent in 1989 and 1990, and 1 percent thereafter. Price contingencies on local costs have been calculated on the basis of 30 percent for 1989 and 1990, and 20 percent thereafter. Project costs by component and nature are provided in Annex III. Tax elemen'rts are estiated at US$2.4 million equivalent. Financing Plan 3.03 The Project will be financed on a parallel basis by IDA, UNDP, AfDF, FAC, CCCE and USAID. Confirmation of UNDP. AfDB. FAC, CCCE, and USAID financing is a condition for effectiveness. Annex IV and V give the project financing plan by components and nature of costs. A summary is provided below: Taxes Excluded Taxes Included Source of Financing US$ million 2 USS million X GOVERNMENT 0.9 3.6 3.3 12.0 IDA 14.5 57.1 14.5 52.1 UNDP 2.2 8.6 2.2 7.9 AfDB 2.5 9.9 2.5 9.0 FA" 2.8 11.0 2.8 10.1 CCCE 1.2 4.7 1.2 4.3 USAID 1.3 5.1 1.3 4.6 TOTAL 25.4 100.0 27.8 100.0  - 25 - 3.04 The Government's contribution, estimated at US$0.9 million equivalent (taxes excluded), will finance operating costs including the salaries of an accountant and a secretary, the services of local staff associated with the surveys, office supplies and consumables. To ensure that the Government's contribution is available when needed, the Government will establish a special Project account to finance expenditures incurred under the Project. At the beginning of each quarter, it will deposit the amount necessary to finance its share of local expenditure as identified in the work programs. Setting up of such an account with an initial Government deposit of US$50,000 equivalent is a condition of credit effectiveness. 3.05 The proposed IDA credit of US$14.5 million equivalent, or 57 percent of total project costs (taxes excluded), will finance the services of resident specialists and short-term consultants, equipment, furniture, vehicles and operating costs (maintenance contracts for equipment and office supplies). B. Disbursements, Procurement, Accounts and Audits Disbursements 3.06. The proposed Credit would be disbursed over a period of six years, compared to a Regional Disbursement Profile of seven and a half years (Annex VI). This is feasible given Guinea's good disbursement record under the TA Project (para. 1.12). Expenditures to be financed out of the proceeds of the proposed credit are the following: IDA Disbursements Amount of the Credit allocated 2 of (US$ thousands Expenditure Disbursement Categories equivalent) to be financed Cat 1 Office equipment and vehicles 2,450 1002 Cat 2 Consultant services 9,150 100l (including junior professionals) Cat 3 Fellowships 300 1OO0 Cat 4 Operating costs 900 802 Cat 5 Refund of SPPF and PPF advances 700 1002 Cat 6 Unallocated 1,000 Total 14,500  - 26 - 3.07 A Special Account of US$150,000 (equivalent to about GF 75 million) will be established upon credit effectiveness. These funds will be managed by the Project Administrator (para. 4.03) to cover project expenditures and replenished by IDA on the basis of eligible withdrawal requests. Replenishment applications will be submitted on a monthly basis, except for incremental operating costs and training activities conducted locally which will be disbursed against statements of expenditures with underlying documentation held available for review by IDA missions. Should any disbursements be made from the special account which are not acceptable to IDA, the Government will deposit the corresponding amount in the Special Account or refund it to the Association. Procurement Procurement Arrancments / ICB LCB Other N.A. TOTAL --------------------