Tunisia - Second Agriculture Sector Adjustment Loan Project

 Second agriculture sector adjustment loan Report No: ; Type: Report/Evaluation Memorandum ; Country: Tunisia; Region: Middle East And North Africa; Sector: Agriculture Adjustment; Major Sector: Agriculture; ProjectID: P005692 Tunisia_Agriculture Sector Adjustment Loan II (Ln. 3078-TUN) The Tunisia Agriculture Sector Adjustment II (ASAL II) project, supported by Loan 3078-TUN for US$84.0 million equivalent, was approved in FY89. Following a six-month extension, the loan was closed on June 30, 1995. A balance of US$1.4 million was canceled. Additional financing of US$16 million equivalent, linked to the ASAL II conditions, was provided by the German Kreditanstalt f■r Wiederaufbau (KfW). The Implementation Completion Report (ICR) was prepared by the Natural Resources and Environment Division of the Middle East and North Africa Region. The Borrower's contribution is appended to the ICR. This loan, for a hybrid project, continued support to the Government's Medium-Term Agricultural Sector Adjustment Program (MTASAP), begun under the First Agricultural Sector Adjustment Loan (Ln. 2754-TUN). The main objectives of the loan were to promote greater efficiency and economy in the production of agricultural products and in the use of public resources in the sector and to enhance the role of the private sector in the provision of commercially-viable sector support services. Major policy reforms in support of these objectives were: (i) parastatal privatization (divestiture of parastatal marketing boards to the private sector, with increased competition); (ii) pricing and marketing changes (subsidy reduction and aligning producer prices with world prices, subject to a 15 percent tariff); and (iii) adjustment of agricultural support services (privatization where possible and better funding of public sector research and extension). The loan provided US$50 million for import support and US$34 million for investment sub-projects. Overall the MTASAP achieved its major policy objectives and achieved satisfactory development results. Subsidies on inputs (fertilizers, pesticides, seeds, animal feeds) were substantially reduced or eliminated and parastatal reform was generally successful, including the liberalization of domestic marketing and foreign trade in edible oils and of importation of tractors. Three factors explain these results: a high level of government ownership, the unanticipated decentralization of the Ministry of Agriculture, and highly favorable weather which increased farm profitability and reduced farmer resistance to removing input subsidies. Exceptions to this overall satisfactory outcome are the remaining overprotection of wheat production, inadequate privatization of cereals marketing and meat imports, and a lack of clarity about the aims of a number of remaining parastatals. The investment component was not defined in detail until a year after loan effectiveness. Most investment sub-projects were completed as expected despite delays and some ultimate financing from other sources. However, the economic impact of these investments was not recalculated. In retrospect, the decision to set up a hybrid loan_including both import support and financing of investment sub-projects_made the project extremely complicated causing unusually heavy demands for preparation and supervision that were not fully met. The impetus for choosing such a lending instrument was not clearly articulated. As the ICR points out, there was a divergence between the stated objectives and those pursued during supervision. The Bank's main concern was related to reducing the fiscal imbalance and sector inefficiencies (through pricing reforms). Pre- appraisal analysis revealed that the side effects of such policies would be marginally negative sector growth and minor declines in farm incomes. However, these expected results were not described in the President's report to avoid diminishing support for the project, and the project was cast in terms of growth and public resource efficiency objectives. This explains most of the implementation shortcomings. As the ICR points out_and OED agrees_in hindsight, a frank discussion of the policy implications would have been better, even if they would have complicated appraisal. The ICR and OED rate project outcome as satisfactory, sustainability as likely, and institutional development as modest. The ICR rates Bank performance as satisfactory, but OED rates Bank performance as unsatisfactory. This difference rests on the above reported failure to communicate to the Borrower and Board the analysis of likely project impact. The ICR is satisfactory, providing a full and frank account of project experience. The weakness is the absence of a re- estimate of the economic rate of return (reflecting weak project monitoring, as described in the ICR). No audit is planned.