Announcement of Malawi Railways Restructuring Project on March 30, 1995

FO I lAS The World Bank 1818 H Street, N.W., Washington, D.C., 20433, USA IDA News Release No. 95/46/AF Contact: Eric Chinje (202) 473-4467 MALAWI RAILWAYS RESTRUCTURING PROJECT The following is information on a project approved by the World Bank's Board: DATE: March 30, 1995 WORLD BANK GROUP SUPPORT: Credit from the International Development Association (IDA), the World Bank's concessionary lending affiliate: US$16.16 million (SDR 11.2 million'). The IDA credit is for 40 years, including 10 years of grace; it carries no interest but has an annual charge of 0.75 percent on the disbursed balance and a variable charge of up to 0.5 percent (currently zero percent) on the undisbursed balance. TOTAL PROJECT COST: US$29.0 million. OTHER PROPOSED FINANCING: Government of Malawi, US$0.86 million; United States Agency for International Development, US$11.98 million. IMPLEMENTING AGENCIES: Malawi Railways (1994) Ltd. and Malawi Lake Services Ltd. ESTIMATED COMPLETION DATE: 1998 PROJECT DESCRIPTION: As a poor landlocked country, Malawi must depend on neighboring countries for sea access for all imports and exports. Insurgent activity in Mozambique led to the 1984 closing of the shortest and least expensive rail routes to the Mozambican ports of Nacala and Beira. With the alternative route to the port of Durban three times longer, the average transport margin for imports2 increased from about 25 percent in 1975 to about 45 percent in 1987. The resulting economic burden has been estimated at between US$50 million and US$80 million annually- 4 percent to 6 percent of GDP. The Nacala route was reopened as a commercial route in 1993 but functions poorly. The Railways Restructuring Project will revitalize the Nacala rail route by; installing wagon tracking and management information systems along the whole corridor; establishing a joint review board; hiring a transit facilitation expert; and computerizing commercial transactions. A new railway company will be set up and made responsible for the revitalization. The project will restructure, commercialize and eventually privatize the Railways and Lake Services. Toward this end, the Railways Restructuring Project will formulate and implement a transport policy encouraging genuine inter-modal and inter-route competition, and set up a coordination mechanism among the entities managing the Nacala rail route and the Port of Nacala to ensure sustainability of improved operations. IDA credits are denominated in SDRs (Special Drawing Rights) which are valued on the basis of a "basket" of currencies. The US dollar equivalent of the SDR amount reflects the exchange rates existing at the time of the negotiations of the credit. 2 transport and insurance cost as a percentage of the total landed cost of imports Archives/Records Center, H 61-001 ( 1) JrN 13 '95 08:5epM WB mNpCp 2024177979 P.1/ OM EXTERNAL FFAIRS world Bank BANK NEWS pELEASE 95146 NTNA CONTACT: JEANNE Y-MIN`. (202)473-2318 WORL BANK APPROVE 150 MILIO ECNMC RETH-ILITfATION LO.AI Washington, D.C., Ianuary 13, 1995 --The World Bank has approved'a $150 million Economic Rehabilitation Support Loan (ERL) to Algeria to provide urgent assist,ance for its economic reform effort and help meet the basic social needs of the population. Economic stagnation and a population growth rate of over 2.5 percent have taken their toll on Algerian society. Per capita income has fallen by 20 percent in the last decade and unemployment is close to 25 percent. For the 16-25 age group, unemployment exceeds 30 percent and is even higher for educated youth in urban areas. Economic Remedies To face those challenges, the Government of Algeria has taken bold steps to stimulato and transform, the economy through a stabilization program agreed with the International Monetary Fund under its Stand-By operation of May 1994. Inflation has been brought under control and the budget deficit is programmed to fall from 9 percent to under 3 percent of Gross Domestic Product in 1995. JAN 13 '95 08:5ErM WB MNPC 2024777979 P.2/3 The stabilization program includes the adjustmert of the exchange rate by some 40 percent in 1994 and the authorities plan to move to a market-determined exchange rate by introducing an interbank foreign exchange market during the second half of this year, The Government also adopted measures to liberalize imports, lifting various import suspensions and virtually eliminating quantitative restrictions on imports. Most prices have been freed under the program, with the share of free prices in the consumer price index exceeding 80 percent, from 10 percent in 1989. Subsidies on food staples and energy products have been cut by about 6 percent of GDP, with further reductions planned. The external payments situation is improving as well. Algeria has successfully negotiated debt rescheduling with its major Paris Club creditors, and negotiations are underway on commercial debt rescheduling through the London Club. Steps taken to pave the way for the ERL agreement include the sale of public enterprises, the preparation of legislation for privatization and competition, the iastitutional and financial strengthening of commercial banks and the restructurimg of major public enterprises such as the steel, fertilizer and truck production companies. ERL to support reforms program The specific reforms that the ERL supports are designed to accelerate Algeria's transition to a market economy. They can be grouped into the following five broad areas: * Private sector development, where the focus is on encouraging private sector investment and stimulating competition through support for the implementation of the new Investment Code and a new competition law, and promoting small and medium-scale enterprises through the liberalization of imports. 2 JAN 13 '95 08:56PM WB MNACP 2024777979 P. 3/3 * Public enterprise reform, where the emphasis is on initiating privatization and accelerating public enterprise restructuring through tighter budget constraints and greater management responsibility at the enterprise leveL In November 1994, the Government adopted a wide- reaching policy, which opens all sectors to privatization or to private sector management. * Public expenditure reforms. which aims to consolidate the withdrawal of the state from the financing of public enterprise investments. They also aim at phasing out the financial restructuring fund in favor of a case-by-case approach based on the existing bankruptcy laws. * In te finacal setr, the program supports measures to complete the legal and regulatory framework. The restructuring of existing banks will continue to be pursued under this component with a view to their privatization, while efforts are made to attract new financial institutions. * To strengthen the social protection sstem. through actions to be taken to consolidate the newly introduced unemployment insurance and early retirement system. Additional reforms have been introduced to the broadly targeted 1992 social safety net to compensate for reductions in food subsidies and to target scarce budgetary resources more effectively to truly vulnerable groups. The World Bank loan is at the Bank's standard variable interest rate, with repayment in 17 years, including five years grace. 3