Tunisia - Economic and Financial Reforms Support Loan

 Economic and financial reforms support loan Report No: ; Type: Report/Evaluation Memorandum ; Country: Tunisia; Region: Middle East And North Africa; Sector: Macro/Non-Trade; Major Sector: Economic Policy; ProjectID: P005742 December 29, 1995 Tunisia: Economic and Financial Reforms Support Loan (Loan 3424-TUN) The Implementation Completion Report (ICR) for Tunisia Economic and Financial Reforms Support Loan (EFRSL) (Loan 3424-TUN approved in FY92 in the amount of US$250 million, disbursed in three tranches) was prepared by the Middle East and North Africa Regional Office. The Borrower did not comment on the ICR. The objectives of the EFRSL as stated in the Memorandum of the President (MOP) were: (i) the virtual completion of the liberalization of external trade and prices; (ii) reforms to promote financial markets and to bring bank regulation gradually up to international standards; (iii) reform of investment incentives to make them more economically efficient and less costly to the budget; (iv) reform of the social security system to enlarge its coverage and make it more financially viable, and reduce obstacles to labor mobility; and (v) the establishment of an external debt management system. The macroeconomic framework remained satisfactory during loan implementation. The structural reforms moved forward and were achieved in substance, but some reforms were not completely finished. Trade liberalization did not go as far as anticipated in the MOP. Through a waiver of the conditionality, the Bank accepted the Government of Tunisia's argument that certain products included in a negative list subject to quantitative restrictions would be liberalized later in the context of the GATT Agreement and the free trade agreement with the European Union. Financial reforms were successfully implemented, and included the revision of the banking law with an improved regulatory and supervisory framework. The revised investment code, however, fell short of the original objective of simplification and substantial reduction of fiscal incentives. The reform of the social security system was also planned under the loan, but at the time of final tranche release, the Government and the Bank agreed instead on a statement of the principles for its future reform. The ICR does not discuss whether or not the introduction of a system of external debt management was accomplished. The ICR rates the overall outcome of the operation as satisfactory, sustainability of the reforms as likely, and institutional development impact as not applicable. The Operations Evaluation Department (OED) agrees with the first two ratings and, given the presence of institutional development objectives in the financial sector and in social security, rates institutional development as moderate. OED rates Bank performance as satisfactory. The lessons drawn by the ICR include: (a) that complex reform programs can be prepared in a short period of time when Bank staff is familiar with the country and there is strong government ownership of the program; and (b) that components of the program which are not well prepared and discussed are likely to cause implementation delays. The ICR is good. However, the absence of an aide memoire and of any Borrower comments suggests limited involvement, if any, by the Borrower. Also, the ICR could have discussed more thoroughly the implementation issues that resulted in slowdown of reforms. An audit is planned.