Central African Republic - Second Technical Assistance Project

Doumusut of The World Bank FOR OMCUIL USE ONLY Rlst Now P-4004-CA REPORT AND RECOMMDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMNT CREDIT OF SDBR . 4 MILLION TO THE CEN1TAL AFRICAN REPUBLIC FOR A SECOND TECHNICAL ASSISTANCE PROJECT March 28, 1985 T& dsc.ma 1_ls _rs&ICW uisiibue au may be ose by redmlb imy In tbe pdilmumce of t Ida dwl. IEa csutmm- may ad shuwbe be dlsdu.u u Wea BDk au.wIzmds.  CURRENCY EQUIVALENTS Currency Unit - CFA Franc (CFAF) US$1.00 - CFAF 490 1/ CFAF 1,000 - US$ 2.04 CFAF 1 million - US$ 2,041 ABBREVIATIONS CAADE - Caisse Autonome pour l'Amortissement des Dettes de l'Etat (Public Debt Management Fund) CAR - Central African Republic FAC - Fonds d'Aide et de Cooperation (Aid and Cooperation Fund) (France) GTZ - Gesellschaft fur Technische Zusammenarbeit (Cerman Agency for Technical Cooperation) TA = Technical Assistance UNDP - United Nations Development Program 1/ The CFA Franc (CFAF) is tied to the French Franc (FF) at the ratio of FF 1 to CFAF 50. The French Franc is presently floating.  FOR OMCI4L USE ONLY CENTRAL AFRICAN REPUBLIC SECOND TECHNICAL ASSISTANCE PROJECT CREDIT AND PROJECT SUMKARY Borrower: Central African Republic Amount: SDR 8.4 million (US$8.0 million equivalent) Terms: Standard IDA terms Project The major objectives of the proposed project are (a) to Description: support Government efforts at rehabilitation of the national economy, principally through assistance with the design and implementation of a coherent, global rehabilitation/ development program; (b) to design the tools needed to monitor the implementation of this program, elaborating methods and procedures and training Central African co-workers with a view to making the Government progressively able to carry out these functions on its own; and (c) to increase the country's absorptive capacity in three key economic sectors: diamonds, forestry, and transport infrastructure. Provisions under the proposed project would include: (a) the services of ten resident specialists (six of them already in residence, having been hired under the First TA Project, Credit 1150-CA) in the sectors of economic planning, public finance (two specialists), external debt, public administration, public enterprises, forestry, and diamonds (two specialists), and a legal expert in a general supporting role for several sectors; (b) short-term consultants to complement the activities of the resident specialists, prepare new projects, and assist the resident specialists in drawing up training programs; (c) funds for training, Identification of possible future projects, and other project-related activities to be identified during project implementation; (d) the serrices of a national Project Coordinator to help coordinate the contributions of national specialists, specialists provided by other donors, and the ten resident specialists provided under the proposed project; (e), Project Administrator to carry out administrative and logistical tasks; and (f) housing, vehicles, office equipment and supplies, support staff, and other operating costs for project implementation. Benefits and Risks: Principal project benefits would be (a) the preparation and implementation of realistic annual rehabilitation/ development programs and substantial improvement in the Government's budget procedures and investment preparation; (b) increased control over Government expenditures, particularly the largest, the civil service; (c) Improvements in the functioning of the parapublic sector; and (d) enhanced ability of key national off'cials to manage the national development effort. I 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.  - ii - Project implementation faces two possible risks: (a) the Government's lack of ability or willingness to implement an austerity program and, in particular, the possibility that certain powerful special interests may circumvent the channels and procedures established by the Govern ent (with the assistance of the project's resident specialists) to rationalize the choice of investment projects and the use of government resources; and (b) the difficulty of achieving coordination among the project's specialists, national experts, and other expatriate advisors supplied by other multilateral and bilateral agencies. Measures to minimize these risks have been included in the project design. Estimated Prolect Costs Local Foreign Total US 000 I. Resident Specialists (a) Salaries and benefits 472 2,713 3,185 (b) Housing 300 -- 300 Cc) Vehicles 50 -- 50 Cd) Vehicle maintemance, spare parts, and operating costs 60 - 60 Subtotal 882 2,713 3,595 II. Project Administration (a) Salary supplement for Project Coordinator 80 80 (b) Project Administrator 20 40 60 *c) Support staff 60 -- 60 (d) Office equipment and supplies 100 0 100 Subtotal 260 40 300 III. Short-term consultants and training (a) Short-term consultants 1,670 1,670 (b) Training 150 350 500 (c) Needs to be identified during project implementation 100 700 800 Subtotal 250 2,720 2,970 Total Base Costs 1,392 1/ 5,473 6,865 Contingencies - Physical 76 105 181 - Price 282 1,072 1,354 Total Project Costs 1,750 6,650 8,400 I/ Includes US$10,000 equivalent of duties and taxes on imported but locally purchased office equipment and supplies, spare parts, and gasoline. All other project items would be exempt from taxes and duties.  - iii - Financing Plan: Local Fore4n Total USS '000 IDA 1,350 6,650 8,000 Government 400 400 Total 1,750 6,650 8,400 Estimated Disbursements: FY86 FY87 FY88 FY89 Annual 2,060 3,010 2,130 goo Cumulative 2,060 5,070 7,200 8,000 Estimated Project Completion Date: December 31, 1988 Economic Return: Not applicable Staff Appraisal Report: Not applicable IBRD No. 15646R  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMNDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE CENTRAL AFRICAN REPUBLIC FOR A SECOND TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation on a proposed Development Credit to the Central African Republic (CAR) for the equivalent of SDR 8.4 million (US$8.0 million) on standard IDA terms to help finance a second technical assistance project. PART I - THE ECONOMY 2. A Country Economic Memorandum, the Bank's first comprehensive economic report since 1970, was completed in December 1984, and its findings are to be discussed with the Government in May 1985. During the second half of the 1970s, severe mismanagement and the deteriorating political situation made an economic dialogue impossible, and the Bank Group's activities were reduced to supervision of ongoing projects. 3. The governments vhich succeeded the Bokassa regime in late 1979 began to address the CAR's economic difficulties with the assistance of France, other bilateral donors, and international organizations, including the Bank Group and the IMF. Under the leadership of President Kolingba, the present military Government has made considerable progress towards reversing the trend of economic decline caused by poor economic and fiscal policies and an almost complete disintegration of the country's public administration in the late 1970s. The Government has become increasingly receptive to Bank advice. An economic dialogue was resumed in earlv 1980 and has steadily improved over the last five years. Contributing factors have included (a) policy discussions related to the preparation and implementation of new projects in key sectors (para. 21). (b) iiscussions during the preparation of the recently completed Country Economic Memorandum; (c) the secondment of a Bank staff member as an economic and financial adviser to the Government under the Bank's technical assistance program for IDA-only countries; and (d) macroeconomic and sector discussions with the Government during the preparation of this proposed technical assistance (hereafter, "TA") project. Our involvement in revieving (a) a medium-term development plan now being prepared and (b) the background documents for an international donors' conference tentatively scheduled for late 1985 should further strengthen our dialogue and may enable us to assist the Government in designing and implementing a policy-oriented program in the near future.  - 2- Economic Potential and Constraints 4. The CAR is a landlocked country of 623,000 kma situated in the heart of Africa with a population of 2.4 million growing at an annual rate of 2.5 percent. About 30 percent of the inhabitants live in urban areas. With a per capita income of US$310 in 1982, the CAR belongs to the group of least-developed countries. The CAR is a member of the six-country Monetary Union with a common currency, the CPA franc, which is issued by a common central bank, the Bank of the Central African States (Banque des Etats de l'Afrigue Centrale-BEAC). It is also a member of the Customs Union of the Central African States (Union Douaniere des Etats de l'Afrigue Centrale-UDEAC). 5. Th' CAR has a good economic resource base which should allow the population's per capita income to grow at a modest but sustainable rate, provided appropriate macroeconomic policies are put in place and the economies of the country's trading partners continue to improve. Agriculture, including forestry, Is the mainstay of the economy and accounts for about 40 percent of GDP. Agricultural production is predominantly based on smallholder farming and is largely subsistence-oriented. The principal export crops, cotton and coffee, have low yields in comparison with neighboring countries with similar climatic conditions. Incentives to intensify cotton production (raise output per hectare) are weak in most parts of the country due to the low population density (3.9 per square km) and the relative abundance of land. Livestock-raising, a relatively recent economic activity in the CAR and almost completely in the hands of some 20,000 pastoralist families of the M'Bororo tribe, accounts for about 4-5 percent of GDP. Mining and manufacturing account for some 14 percent GDP, utilities and construction for 5 percent, and services for 41 percent. High transportation costs in both domestic and international trade and an oversized civil service are responsible for the large share of services in GDP. 6. The CAR's landlocked position, difficult transport conditions, a sparsely populated area, the small size of the domestic market, and a weak human-resource base are the principal constraints to developing its economy. Bottlenecks in the river/rail route to the sea through the Congo and the road/rail route through Cameroon substantially raise production and inventory costs and reduce the C.A.R's export competitiveness. Production costs and prices are also high because utilization of capacity is generally low and because there is little competition, a situation which favors monopolistic pricing policies. 7. Import substitution, which should have benefited 'rom natural protection, has been only moderately successful. Political instability and financial difficulties in the late 1970s and early 1980s caused a stagnation in private and public investments and a decline in agricultural production, and discouraged private investment. Years of rapidly growing employment in the civil service (accounting for about 50 percent of total salaried employees) and in public  - 3 - enterprises have resulted, however, in incomes which have enabled the urban population to pay for high-priced imported goods. Import tariffs, which constitute a major source of budgetary resources, have been ineffective in protecting domestic industry, since it is very difficult to control the C.A.R's borders. Last, but not least, the expansion of import substitution has been hampered by a lack of skilled personnel. Recent Performance 8. Bokassa's erratic rule eventually led to economic and political collapse in 1979, when the regime was overthrown. Contributing factors included (a) declining agricultural production, in the late 1970s. caused by dwindling producer prices in real terms, heavy government interference In agricultural marketing, an inefficient state marketing agency for cotton, and the gradual disappearance of consumer goods in rural areas; (b) unsound investments, typically grandiose "prestige" projects with little economic justification; and (c) rapidly increasing budgetary deficits, due mainly to an oversized civil service, inefficient nationalized public enterprises, and expensive short-term borrowing. The domestic problems were aggravated by external factors. World market prices for cotton had dropped at an average annual rate of almost 12 percent in real terms between 1976 and 1979, and in 1979 coffee prices in constant terms had fallen to two thirds of their high 1976-77 levels. Public investments averaged only 7 percent of GCP during 1976-79, since foreign-aid dislursements were cut in half and domestic capital expenditures dropped to their lowest level ever. Consequently, the country's infrastructure became dilapidated, resulting in the breakdown of agricultural marketing channels and extension services. Moreover, toward the end of the Bokassa regime, the public administration had virtually ceased to function. 9. Since 1980, significant progress has been made towards reestablishing at least short-term economic management and programming and a return to financial discipline. An emergency rehabilitation program for 1980-81. presented to the international community in June 1980 at a donors' conference held in Bangui, received the general support of the Bank and other donors. The Government defined rehabilitation of the agricult-ural sector, reconstruction and maintenance of infrastructure in support of agricultural production, improvement of education planning, and redressing the large financial im'balances as the most urgent development priorities. Its National Action Program, 1982-85 represents an important step forward in terms of determining development priorities and making better use of available external financing. The Bank is in agreement with the established rehabilitation priorities and supports them with projects and specific actions (paras. 26-27). 10. In agriculture, the Government has taken a series of policy measures aimed at raising cotton and food-crop production. Producer prices for cash crops have been gradually increased, input subsidies  -4- are being phased out, and cotton production is to be intensified with its cultivation limited to the most productive areas. The performance of SOCADA, the CAR's main rural development agency, has been significantly improved by lowering its overhead costs through a reduction in the number of employees, closure of unprofitable ginneries, modernizing its trucking fleet, and by contracting private transporters. Its input supply and marketing services have substantially improved. The Government has also begun to rebuild a priority road network, mainly in support of cotton production, but also to facilitate transportation of food crops and consumer goods. As a result of these measures, and in response to the reappearance of consumer goods in rural areas, agricultural production has begun to recover over the past two to three years. 11. In the diamond sector which accounts 'or about 15 to 20 percent of export earnings, the Government has introduced a series of reforms resulting in a substantial increase in official diamond exports. The diamond export tax has been reduced from 20 percent to 14 percent in 1984 and to 12 percent in 1985. Consequently, official diamond production increased by 14 percent in weight, and by 32 percent in value, half of which is due to the production increase and the other half to the appreciation of the US dollar against the CFA franc (14 percent) and increased diamond prices (2 percent). Following the establishment of an artisanal gold production office financed by foreign private operators, official gold production has also increased from 95 kg in 1983 to 236 kg in 1984. Other measures to increase the mining sector's contribution to economic development and the government revenues in particular include a reorganization of the Mining Brigade, technical support to artisans, improvement of the mining code and the reorganization of the cutting factory. 12. These measures and the improvement of world market prices for cotton, coffee, and timber in 1984 led to a slowing down of the economic decline since 1982, except in the drought year of 1983, and preliminary estimates appear to indicate a GDP growth of around 4 percent in 1984. However, the resumption of growth remains fragile as reflected in the following key indicators: (a) total domestic savings, always very low, have been negative since 1978; (b) the rate of investment dropped from an already low 12 percent of GDP during 1975-79 to around 9 percent during 1980-84; (c) real export earnings declined by one fifth between 1975 and 1979, from 37 percent to 27 percent of GDP, recovered somewhat in 1980, but stagnated between 1980 and 1983. before they increased significantly in 1984. The Budget 13. Over the past two years there have also been some encouraging developments in the area of public finance, the Government's second main area of concern. Since 1981, when the military Government came to power, budgetary revenue has increased by almost 50 percent due to several tax increases, strengthened tax collection, and a reduction of customs dutv exemptions. The Government  has also begun to address the very grave problem of the vastly overstaffed civil service. In 1983 the number of civil servants was marginally reduced, and as of 1984 recruitment into the civil service is to take place on the basis of competitive examinations for university graduates with the aim of reducing gradually the number of civil servants. The Government's reprivatization policy in the parapublic sector has also had some moderate success since in several enterprises public administration has been replaced by private management. The Public Debt Management Agency (Caisse Autonome d'Amortissement des Dettes de l'Etat-CAADE) has been reorganized and strengthened, and the external debt is being regularly serviced after debt reschedulings have alleviated the country's immediate burden. Consequently, during 1982-83, budgetary deficits were cut in half as a percentage of GDP. 14. In spite of this progress, the CAR's financial situation remains precarious and continues to pose a major obstacle to the country's economic development. Although the coverage of public current expenditure by government revenue has risen since 1980, total budgetary revenue financed only 83 percent of current expenditure on average during 1980-84. Similarly, the share of salary payments in total government expenditure has declined since 1980, but still averaged 60 percent during 1980-84 compared to 48 percent during 1971-75. The budget does not contain public investments financed by external sources and therefore does not shape the level or composition of the investment program. Capital expenditu_a listed in the budget represent the Government's contribution to externally financed investment. Balance of Payments 15. The deterioration of the balance of payments in the late 1970s and early 1980s reflects the CAR's economic decline, in general, and, in particular, its weakened agricultural export capacity, the recent reconstruction efforts, and the decline of terms of trade. Through most of the 1970s the trade balance remained positive as imports could be kept below slowly growing exports. The absence of significant food imports, comparatively low investments and a decline in foreign aid flows, with which capital goods could have been financed, and rather favorable world market prices for the CAR's export commodities were responsible for this situation. The overall balance of payments also remained mostly positive or was only slightly negative during this period, since the current-account deficits were financed by substantial public transfers and private capital inflows. However, since 1980 imports reached considerably higher levels in connection with the economic reconstruction efforts following the resumption of foreign aid, while exports expanded only gradually due to the long-standing neglect of agriculture and unfavorable world-market prices for cotton, timber, and coffee. Between 1976-79 and 1980-83, the average annual current-account deficits consequently more than doubled in nominal terms and rose from 11 percent to almost 16 percent of GDP. Foreign reserves bave also been declining each year since 1980  because public transfers covered smaller parts of the current account deficits and net official loans remained small after the Government resumed debt service payments in the early 1980s. External Debt 16. The CAR's public and publicly guaranteed external debt outstanding and disbursed has risen from CFAF 6.6 billion in 1970 to CFAF 80.7 billion in 1983 (US$218 million) or from 11.6 percent to almost 30 percent of estimated GDP. By African standards, the debt burden is not alarming if calculated on a per capita basis (US$90 on average during 1980-83). But its repercussion on the budget is severe. Several factors have prevented the CAR from servicing its debt regularly which resulted in a loss of credibility and a decline of conces6ionary aid in the late 1970s. First, disbursements which doubled between the first and second half of the 1970. were frequently made for unsound and poorly prepared projects incapable of debt servicing. When economic management progressively deteriorated during the last years of the Bokassa regime and disbursements from France declined rapidly, the Government resorted to contracting expensive private capital. In 1979, for example, medium and long-term disbursements from France amounted to only one quarter of their levels in the early and mid-1970s and the share of private credit disbursements in total disbursements rose from some 25 percent to 50 percent between the early and late 1970s. Budgetary revenue, on the other hand, grew only slowly and irregularly due to declining economic activities and lax tax collection. The previous governments, however, gave low priorities to debt servicing, and at the end of 1979 arrears had accumulated to about or.e fifth of total disbursed public debt. The post-Bokassa governments have made substantial progress in addressing the CAR's public debt problem. The CAADE (para. 13) in the Ministry of Finance, which supervises the CAR's contracting of foreign debts, has been reorganized and strengthened, debt recording and servicing have been put on a sound basis, and the external debt is being regularly serviced after debt rescheduling have alleviated the country's immediate burden. 17. In 1981 and 1983, the CAR received debt relief from creditor countries under Paris Club agreements. In 1983, participating creditors rescheduled US$21.3 million, or 10 percent of total disbursed public debt in 1983, US$9.7 million of which represented arrears built up in 1982. and US$11.6 million maturities due in 1983. The resulting total debt service amounted then to US$19 million compared to US$36.3 million before rescheduling, excluding IMF charges (19 percent of budgetary revenues vs. 37 percent). While the 1983 rescheduling provided substantial relief, the CAR's debt service problems are expected to continue over the next few years. Projected debt service payments between 1984 and 1990 average US$35 million a year (including IMF charges), or roughly one third of projected annual budgetary revenues, without taking into account debt service on new borrowings, although the latter are expected to be contracted on highly concessional terms.  - 7 - 18. In recent years, the IMF has provided the CAR with substantial balance-of-payments support. In 1978, the country received a US$6.9 million equivalent Trust Fund loan, and in 1980, balance-of-payments support amounted to US$14.7 million equivalent (US$5.2 million equivalent First Credit Tranche, plus US$9.5 million equivalent Trust Fund loan). In 1981, 1983 and 1984, economic and financial stabilization programs were supported by IMP stand-by arrangements (1981: US$9 million, 1983: US$19 million, and 1984: US$15 million). In addition, the country has received a total of US$5.5 million equivalent in SDR allocations since 1977, and Compensatory Financing equivalent to US$12 million in 1983. Development Prospects 19. At present, the country finds itself in a very difficult economic and financial situation. Its natural disadvantages for economic development-its landlocked position and a small population dispersed over a large area-have been aggravated by serious economic mismanagement over many years. The long-standing neglect of the agricultural sector, and an almost complete disregard for costs and productivity in the public sector, have resulted in low output and a loss of financial credibility. The recession-induced reduction in demand for the CAR's primary exports during the early 1980s has not aided the Government's recent efforts to rehabilitate the economy. Last but not least, the drought in 1983/84 has meant a further setback to resuming economic growth. 20. In spite of this bleak background, the CAR's prospects are good for returning to a path of economic growth and achieving a modest but sustainable rise in per capita income in the medium and long term. This assessment is based on the country's good agricultural resource base, supplemented by some mineral resources (diamonds), a labor force whose level of training and experience could be raised rather quickly, and on the assumptions that appropriate macroeconomic and sectoral policies can be designed and implemented and that the economies of the countrv's trading partners continue to improve. This growth scenario assumes further that a return to sound fiscal management will not only raise the CAR's contribution of its development expenditures, but also induce official and private foreign financing well above the levels recently observed. 21. The Government's policy measures and concrete actions (paras. 9 and 10) represent encouraging steps towards mobilizing production and financial stability. Taken together they constitute a good framework in which agricultural producers, enterprises and state agencies can achieve sustainable economic growth, if supported by foreign aid. Yet, over the past few years economic performance has remained well below what could have been achieved. Several factors appear to be responsible for this disappointing situation. First and most important, the proposed or actual policy measures rarely are the result of a concerted political decision-making process and, therefore, often fail to have the full support of the Government as a whole or its  -8- agencies. Second, policy measures tend to be taken on an ad hoe basis without being sufficiently embedded in medium-term sectoral or overall economic and financial strategies or policies. Third, the country's precarious financial and political situation frequently forces the Government to retract from policy positions already taken or to refrain from implementing them fully. Fourth, due to these factors, foreign aid and technical assistance tend to be less efficient, compazed to a situation where these factors would not prevail. 22. The Government has become aware of these shortcomings and has begun to address them. In March 1984, the President created a Coordinating Committee for Economic and Financial Policy, the main purpose of which is to design a coherent and systematic action program aimed at overcoming the country's most pressing development conbtraints in the short and medium term. The Committee consists of key Ministers, High Commissioners, and heads of other government agencies and reports directly to the President. The Committee has met several times and is currently in the process of refining an action program for 1985 and 1986, which has been presented to the Bank in a draft version. The proposed project has been expressly designed to assist the Committee in its work, and to support the implementation of the action program. The Government gave assurances that by December 31 of each year, it will prepare an annual recovery and development program for the upcoming year, to be submitted to IDA for the latrer's review and comments (Section 3.08 of the draft Development Credit Agreement)(hereafter, "the draft DCA"). The Government has also begun to prepare a medium-term development plan for the period 1986-1990 and the background documents for an international donors' conference (para. 3), which the Government intends to use as a forum for coordinating better the foreign technical and financial assistance available to it. 23. In view of the country's poverty and debt-service problems, the CAR is not creditworthy for conventional borrowing at present. Even assuming exceptional efforts to improve public financial performance, public savings net of debt service are likely to remain negative during the early 1980s. Therefore, the Government's contributions to public investments will remain modest for several years. Foreign donors should be prepared to support the Government's efforts at reform and rehabilitation by continuing their program aid, assisting new development projects, extending their assistance on highly concessional terns, and financing a high proportion of local costs. PART II - BANK GROUP OPERATIONS IN THE CAR 24. Bank Group commitments in the CAR amount to US$79.2 million and cover four projects in the transportation sector, two in education, and one each in livestock, rural development, and technical assistance. Annex II contains a summary statement of IDA Credits as of December 31, 1984. Project implementation in general is rather good. The CAR's die!arsement rate compares very favorably with those of other countries, averaging 42.7 percent during the last three years, compared  -9- with 24.1 percent for Bank Group borrowers as a whole. It also compares very favorably with those of other countries at similar levels of development. 25. The Bank Group's initial strategy for assisting the CAR's development efforts reflected the outcome of the donors' conference held in Bangui in June 1980 (para. 9). The main elements of this stra-egy were to (a) support the rehabilitation of the agricultural sector (including its institutions), (b) support the rehabilitation of the existing transportation infrastructure and continue to develop the country's road-maintenance capacity, (c) encourage other export sectors, notably diamonds and timber, (d) support the Government in its efforts to return to financial iiscipline in the public administration and also in its efforts to improve the efficiency c'f parapublic enterprises, (e) mobilize other donors to participate in financing high-priority rehabilitation programs, and (f) assist the rehabilitation of the existing education infrastructure. 26. In pursuit of this strategy, the Bank Group, together with other donors, prepared and approved three major investment projects: (i) the Fourth Highway Project (Credit 1258-CA) (cofinanced by FAC, the OPEC Fund, the Kuwait Fund, the African Development Fund, and the Development Bank of the Central African States--BDEAC), which is rehabilitating roughly one third of the CAR's priority road network; (ii) the Cotton Ares Rural Development Project (Credit 1376-CA) (cofimanced by FAC, the Caisse Centrale de Cooperation Economique, the European Development Fund, the Arab Bank for Economic Development in Africa-BADEA, and the Development Bank of the Central African States), the objectives of which are to increase yields and production of both cotton and food crops in the project area, raise incomes of farmers, and provide some basic infrastructure in the project area; and (iii) the Second Education Project (Credit 1359-CA), which is rehabilitating primary schools in the three most disfavored regions of the country as well as providing advice to the Government on the strategy for develuping the education/training sector such that costs are minimAl and output is geared to the changing manpower needs of the developing economy. A fourth project, the Livestock Project (Credit 894-CA), was approved in the last months of Bokassa's reign but has been substantially redesigned since then; formerly a "problem project", it is now being successfully implemented. A first TA Project (Credit 1150-CA)(para. 30), approved in May 1981, was designed to encourage an increase in both official financial assistance and private investment in the CAR through (i) the preparation of major investment projects, (ii) studies of key sectors resulting in more attractive policies and tax regimes, (iii) improvements in public debt management, and (iv) a more streamlined public administration. We are presently considering follow-up projects to the five listed above as well as a small project which would aim at rehabilitating the formerly flourishing small- and medium-scale enterprise sector. 27. The Bank Group's assistance strategy to the CAR's reconstruction efforts is currently being amplified and strengthened  - 10 - through policy components beyond those already included in the individual projects now under implementation. It has begun to give considerably more weight to the policy reforms and adjustments needed to Improve the country's economic and financial performance in the medium term. Recognizing the constraints mentioned in para. 21 and the Goverment's limited capacity for implementing its short-term adjustment program and designing a medium-term development plan, our strategy now focuses on (a) reaching an understanding with the Government and other donors about the country's development constraints and priorities as vell as policy measures and actions for overcoming them, (b) supporting the Government's action program with financial aid and technical assistance, and (c) helping the Government elaborate a medium-term recovery program. The proposed Second TA Project has been designed to initiate this type of Bank assistance and to serve as a vehicle and link between the traditional project lending with limited policy components we have undertaken until now and the more policy-oriented lending we expect to undertake in the future. 28. Crucial to the success of the various elements of this strategy is the Government's commitment to a rational and achievable development strategy, one which takes into account the country's comparative advantages and areas of greatest need as well as the resources likely to be available, including external aid, and all the demands on the public treasury (public administration, investments needed for rehabilitation, maintenance, external debt, parapublic enterprises, etc.). During Programs missions to the CAR in February 1984, May 1984, and March 1985 the President of the CAR expressed his commitment to the development of such a program and has supported the idea with a number of specific actions, in particular, with the creation in March 1984 of the inter-ministerial Coordinating Committee for Economic and Financial Policy (para. 22). The Committee has already prepared a draft rehabilitation/development program for 1985 which includes the Government's policies and targets in the key productive sectors (agriculture, forestry, diamonds), the main features of the investment and recurrent budgets, and the measures to be taken in the areas of external debt, public administration, and public and parastatal enterprises. PART III - THE NEED FOR TECHNICAL ASSISTANCE 29. The CAR's low level of development is evident not only in terms of its economic achievement but also in terms of the level of education of its people. It will take many years before the country succeeds in providing a basic education to all Central African children, and the effects of this lacuna are obvious from the widespread illiteracy and the present low skill level of the adult population. The small number of well-trained nationals, both in the administration and in the private sector, are generally far overworked and often must spend most of their time trying to resolve the minutiae of day-to-day crisis management. The difficulties presented by these inherent constraints were greatly compounded by the gross mismanagement or neglect of important state business during Bokassa's reign. At the  same time, the CAR faces the challenge of not letting the pace of economic development deteriorate, and, if possible, of accelerating it. The management of this task, let alone its detailed execution, requires experience and skills which are not now available locally in sufficient measure. Existing Technical Assistance 30. In the wake of Bokassa's downfall, the international community, led by France, moved rapidly to help the Gover,nent redress the situation. A large amount of "traditional" technical assistance (such as teachers, health personnel, and technical experts of various categories) as well as some assistance in the area of economic, financial, and public-enterprise management has been provided, mainly by France, and it is likely that such assistance will continue, although perhaps not at the present levels. There are presently over 400 French TA experts working in the CAR, most of them provided by FAC. UNDP, the European Community, and the Federal Republic of Germany (GTZ) provide another 65 or so technical assistants, most of whom are assisting in the implementation of specific projects; these agencies are likely to continue to provide the technical people needed to carry out their investment projects. There are a few American Peace Corps Volunteers, most of them working in rural food-production projects, and one Japanese technical aesistant working in the country. The Bank Group has provided and will continue to provide technical assistance under the projects it finances (Part II) to the agricultural, forestry, diamond, transportation, and education sectors as well as a legal expert in a general supporting role for several sectors. In addition, a seconded Bank staff member (para. 3) is provided to the High Commission for Planning as an economic and financial adviser under the Bank's TA program for IDA-only countries. 31. The First Technical Assistance Project in the CAR (para. 26) was a short-term emergency project designed to speed public and private investments in a country which was bankrupt and whose government had lost all credibility. The project provided a number of technical experts, both residents and short-term consultants. It has made a substantial and positive contribution to the CAR's recovery and development efforts, particularly in the fields of project preparation (Fourth Highways and Cotton Area Rural Development Projects), formulation of improved policies in the diamond and forestry sectors, provision of legal advice to government agencies, particularly during negotiations with public and private investors, improvement of public debt management, streamlining of the civil service payroll, and studies of the parapublic and banking sectors. 1/ It also yielded a number of 1/ The study of the banking sector led to the hiring of a specialist in bank liquidation who has supervised the liquidation of three banks which failed during Bokassa's reign and whose remaining assets had never been liquidated.  - 12 - valuable lessons which have been taken into account in the design of the proposed Second Project (paras. 40, 42, 48 and 53). In particular, the experience of the First Project has shown that training of nationals must accompany expatriate technical assistance if the latter Is ever to be phased out, in the longer term. The proposed project would begin to address this need and would be in line both with the Government's own perceived needs and with the Bank Group's strategy for assistance to the CAR (para. 26). 32. Bank-financed technical assistants under the First TA Project have given both technical and policy advice, particularly on public administration and public debt matters, but these actions were not necessarily coordinated with one another. The results, although impressive, have been somewhat piecemeal. There is a need for more general policy advice to reinforce and integrate the CAR's economic management and planning capabilities. The Government realizes that financial aid and policy initiatives are unlikely to yield the expected benefits unless they are accompanied by a strengthening of key institutions (in particular, those related to planning and public finance) which would enable them to evolve and implement a concerted recovery plan in a coordinated way. It was for this reason that President Kolingba created the Coordinating Committee for Economic and Financial Policy (para. 22). 33. It was already clear at the time the First Project was appraised that the Government had only limited means for organizing and implementing a wide-ranging rehabilitation plan on its own and that once the emergency measures of the First Project had been taken, further longer-term action would be needed to address the major underlying institutional, organizational, and training needs of the CAR's public sector. In particular, there is now a need for specialists who can help the Coordinating Committee carry out its role of establishing and implementing a specific, coordinated rehabilitation/development program which takes account of existing realities, can be achieved, and will serve as a base for coordinating future international aid. 34. The Government is aware of these problems and realizes that alone it does not have the required personnel to design and implement a workable recovery program. Accordingly, it has approached the Bank with a request for experienced advisers. The Bank is well placed to respond favorably to this request: the thrust of the Government's program coincides with the Bank's analysis of what priority economic measures are needed to rationalize the public sector and to stimulate exports. Furthermore, the IMF, France, and other donors have said that they would welcome such Bank-financed assistance and that it could be expected to facilitate an expansion of vitally needed aid from the international donor community, including the development of an expanded Bank Group lending program to the country.  - 13 - PART IV - THE PROJECT Background 35. The proposed project was prepared in February 1984 and appraised in May 1984. During appraisal, the specific terms of reference for each proposed specialist were reviewed and agreed with the Government. Negotiations were held in Bangui on March 7-8, 1985, with a Central African delegation headed by His Excellency Mr. Guy Darlan, High Commissioner for Planning and for Economic and Financial _ Cooperation. Special conditions of the project are listed in Annex III. There is no separate Staff Appraisal Report. Project Objectives 36. The major objectives of the proposed project would be (a) to assist the Government in preparing and implementing appropriate annual recovery/development programs aiming at achieving specific actions in the major productive sectors and specific targets in public finances; (b) to strengthen the Government's capacity to formulate and implement a suitable medium-term development program. The process of preparing and carrying out such programs would enhance the Government's credibility, with consequent reinforcement of the country's stability. This objective would be achieved by making technical assistance available to key members of the Coordinating Committee for Economic and Financial Policy (para 21). The ten resident specialists envisaged under the project would (i) assist with the collection and updating of economic and financial data; (ii) propose improvements to existing government structures and procedures; (iii) assist in analysing alternatives and then in elaborating proposals for short- and medium-term measures intended to improve macroeconomic, financial, and sector management; and (iv) help establish mechani.sms for intra-government coordination with regard to investment planning and the link between budgetary and investment programming. 37. Further, related objectives would be the following: (1) *ro increase the country's absorptive capacity in the diamond and forestry sectors, both of which have the potential tor contributing substantially larger amounts than at present to the CAR's GNP, export earnings, and budget revenues, and in the transportation sector, on which the directly productive sectors, notably agriculture, depend. The rehabilitation of these sectors is a high Government priority and a key element of the Bank's strategy for the CAR. (ii) To provide training to Central Atrican government personnel, to enable them to assume progressively more management responsibility and thereby gain control over, and be able to coordinate, the national development effort.  - 14 - (iii) To facilitate the expansion ot lending by the international donor community, generally, and the formulation of a tuture World Bank lending program, in particular. Project Description 38. The resident specialists. Under the proposed project, a total of ten resident specialists would be provided for periods of up to three years to assist certain key Ministries and High Commissions where there are specific needs not being met, either by national staff or technical assistants provided by other external financing. A projects economist and a macroeconomist in the High Commission for Planning would contribute to the preparation of the annual investment budget; a budget specialist in the High Commission for the Budget within the Ministry of Finance would perform a similar function with respect to the annual recurrent budget. For this task, the budget specialist would use data provided by, inter alia, a public administration specialist, a public enterprises specialist, and a public debt specialist; these three would also help the Government define and implement appropriate policies in their respective areas of expertise, as would a forestry specialist and a geologist/mining-sector specialist. A diamond appraiser would perform a specific technical task not at present being performed: the appraisal of diamonds at the time of their exportation. Finally, a legal specialist provided by GTZ would be supported under the project tu continue efforts begun under the First TA Project to revise legislation for the forestry, diamond, and parapublic sectors. The tasks of these ten experts are described in more detail in paras. 45-47. They would work in close collaboration with other, bilaterally funded resident specialists (para. 50) as well as with Central African officials. The Goverment has agreed to assign Central African personnel of varied qualifications and experience to work with each specialist (Section 3.05 of thei draft DCA). These specialists, together with the national teams they would animate, would carry out dual, though closely related, functions: (i) defining and implementing specific measures and activities to improve performance in their respective sectors, and (ii) previding inputs to be coordinated with those of other teams for the formulation of the annual rehabilitation/development programs by the Coordinating Committee for Economic and Financial Policy (para. 22). The ten specialists, their national co-workers, and other expatriate specialists would thus function as a team, and their activities would be coordinated by the High Commissioner for Planning with the help of individual work programs. Before October 31 of each year, each specialist would be required to prepare a detailed work program for himself and his national co-workers for the upcoming year. This program would be reviewed by the specialist's superior, the national Project Coordinator, the High Commissioner for Planning, and IDA, and would be modified as necessary. During the year, each specialist would prepare short quarterly progress reports to be reviewed by the same parties as was his work program. Finally, by March 31 of each year, each specialist would submit a report evaluating the implementation of his work program for the preceding year. These requirements are included in each expert's terms of reference, which also detail the specific,  - 15 - concrete outputs expected from each expert, and in the draft legal agreement (Section 3.07(a) of the draft DCA). 39. Training. The project would include significant provision for the training of Central African personnel since the shortage of competent manpower is a critical issue in the CAR (para. 29). Training responsibilities form a major component of each specialist's terms of reference. All would be required to prepare specific programs of training activities for their national colleagues in their periodic work programs and to include mention of these activities in their progress reports. During appraisal, the first year's work programs of each specialist were drawn up and included a list of national colleagues and their training needs. (These documents are available in the Project File.) This on-the-job training would be supplemented by formal seminars. Most of the training seminars would be held in the country, but provision would also be made for some overseas training for suitably qualified persons in programs acceptable to IDA (Section 3.06 of the draft DCA). The work would be organized so that during the first year. emphasis would be on forming a team and accomplishing the task at hand. During the second year, the specialists would leave progressively more of the work to their Central African colleagues and concentrate on writing an operational manual. During the third year, it is hoped that a very substantial part of the work would be done by the Central Atricans, with the resident specialists concentrating on advising, training, and monitoring. A consultant training specialist (who would be tinanced under the project) would be called upon at periodic intervals to help the resident specialists elaborate the training programs and to monitor the overall progress of the project's training activities. This target is ambitious and may not be entirely achieved, but it is hoped that the provisions of the project and the emphasis given to this obiective will result in substantial progress in this area. 40. Housing and Vehicles. Credit funds would be provided for rent for the resident specialists, up to a specified ceiling. This arrangement has been made in the lignt of experience with the First TA Project 2/. At the inception of the First Project, the Government was bankrupt, and it was agreed that its counterpart contribution would be made in kind through the provision of housing, office space, materials, and the like. When it became clear that there simply were not the funds to provide housing, the financing plan was modified accordingly; thereafter, the resident specialists were reimbursed for their rent with funds from the Credit, within a cetling recommended by the UINDP Resident Representative and approved by IDA. Satisfactory private rental properties are available in Bangui. Government housing, on the other hand, is very scarce: foreign specialists have sometimes spent months in a hotel waiting for government housing to become available. 21 A separate memorandum which elaborates at length the lessons learned from the First Project is available in the Project File.  - 16 - This situation is likely to persist at least through the proposed project implementation period. Vehicles and vehicle maintenance, spare parts, and operating costs would also be provided for the resident specialists out of Credit funds. 41. Future Project Preparation and Other Short-Ternm Consultancies. Under the proposed project, the services of short-term consultants would be made available to prepare a fifth transportation project, which probably will, like the Fourth Highway Project, have several co-donors. Short-term consultants would also be provided under the proposed project to prepare a possible third TA Project, which might continue some of the activities begun under the First and Second Projects, if necessary. In addition, it might address new technical assistance needs of the country. In particular, a third TA project would give even more emphasis to training and would probably also assist the Government in reviewing the adequacy of the present system of career development and other incentives related to improving the efficacy of training. In addition, short term consultants would be hired to complement the work of the public enterprises specialist (para. 46). Finally, short-term consultants would be hired to audit the project accounts (para. 56). 42. Other Activities to Be Identified. One of the lessons of the First TA Project which the Government has cited repeatedly is the advantage of having a part of the Credit available for specific needs which were not apparent during project preparation and appraisal but which require financing quickly, once identified. Under the proposed Second TA Project, an amount equivalent to US$800,000 would be reserved for studies, further short-term consultants' services, and other related activities within the objectives of the proposed project. Some of these funds might be used to hire short-term specialists to provide backstopping as needed to the resident specialists. Funds under this component might only be drawn upon for activities or expenditures recommended by the Project Coordinator (para. 48) and approved by the High Commissioner of Planning and by IDA (Schedule 1, para. 3(b) of the draft DCA). Project Implementation 43. The proposed project would be implemented over a period of three and a half years, beginning about the time of the estimated Completion Date of the First TA Project (June 30. 1985) and ending by December 31, 1988. The proposed implementation period is shorter than the disbursement profile for technical assistance projects in the East and West Africa Regions, yet our experience with the First Project has convinced us that this is a reasonable period to finance. Six of the resident technical specialists to be provided under the project are incumbents. The remaining four would be identified well before the projected date of Credit effectiveness. Thus the major cause of delay in the implementation of the First Project-the substantial amount of time it took to identify and recruit the resident specialists-would be avoided. Overall responsibility for coordination would ultimately rest with the High Commissioner for Planning; specific components of  - 17 - the project would be overseen by the respective technical Ministry or High Commission. The day-to-day coordination of the project would be the responsibility of the national Project Coordinator (para. 48), also an incumbent, who is a senior civil servant with ready access to the various Ministers and High Commissioners. 44. The project would add a new dimension to the work done under the First Project in that it would cause the various experts to function as a team and to provide coordinated contributions towards the formulation of a national program of concrete measures to improve the Government's economic performance. This objective would be achieved in two ways. First, the proposed project would enable the Coordinating Committee to carry out its double role of (a) initiating, guiding, reviewing, and approving the rehabilitation/development programs or elements thereof produced by the project team in conjunction with other national and expatriate experts, and (b) submitting these programs to the Council of Ministers for approval. These critical functions began with the preparation of the rehabilitation/development program for 1985 (para. 22). Secondly, the proposed project would strengthen the technical and managerial capabilities of the various members of the Coordinating Committee, in particular, that of the High Commissioner for Planning, who is responsible for the timely preparation of proposals for submission to the Coordinating Committee's sessions. 45. The projects economist (a recently recruited incumbent) would continue to report to the High Commissioner for Planning. His main responsibilities would relate to the establishment of a reliable projects information system: he would continue his work setting up a National Central Projects Office, which would compile technical and financial data on all projects, whether planned or under implementation and whether financed from goverrment funds directly or through external assistance. The macroeconomist (one of the four new specialists yet to be identified) would report to the High Commissioner for Planning. He would draw on the information compiled by the projects economist and his team and would be responsible for defining methods for preparing annual capital budgets incorporating all government investment projects to be initiated or continued in that year, whether with domestic or external financing. His duties would also include, among others, establishing a structure for effective consultation on government investments between the CAADE, on the one hand, and the Ministry of Finance and the High Commission for Planning, on the other. A budget specialist (another of the four specialists yet to be identified) would report to the High Commissioner for the Budget and would have functions similar to those of the macroeconomist in the High Commission for Planning: he would be responsible for defining methods for preparing annual recurrent budgets incorporating all government recurrent expenditures, whether financed from government revenues or external budgetary support. This methodical preparation of each year's recurrent budget should result in more realistic estimates of both government revenues and government expenditures. The budget specialist would receive substantial inputs for the preparation of the government recurrent budget from the three specialists described in the following paragraph.  - 18 - 46. The public administration specialist (an incumbent who has lived and worked in the CAR since August 1983) would continue to be responsible for preparing monthly and annual data on the cost of the country's civil service and for proposing and implementing measures to control the future evolution of the civil service and the government payroll. 3/ In addition, he would help set up a computerized government personnel file and a comput"rized manpower budgeting system. Finally, the specialist would be expected to devise simple internal control procedures to facilitate close monitoring of these new systems. The public enterprises specialist (a recently recruited incumbent) would continue to report to the High Commissioner for Public and Parapublic Enterprises and would support the Government's efforts to rationalize the public and mixed enterprises sector. His contribution would be focussed on formulating recommendations for the reorganization of that sector. Specifically, during the first two months, he would undertake an initial brief examination of perhaps ten key enterprises which were not already receiving external assistance, basing his initial analysis on material collected by a French specialist who has since left and has not been replaced and on the study of the parapublic sector financed under the First TA Project (para. 30). From these, he would select five or so for a more detailed analysis, which he would carry out in the next three to four months and on the basis of which he would select one or two on which rehabilitation work could be started as part of project activities. His work would be complemented by the services of short-term consultants (para. 41) hired to draw up specific and detailed rehabilitation plans during one-month missions, following terms of reference compiled by the resident specialist. The actual rehabilitation prorgrams might be begun during the implementation of the Second TA Project but would require additional external financing over a longer period of time. 4/ The public debt specialist (an incumbent who has lived and worked in the CAR since June 1982) would continue to report to the Director-General of the CAADE within the Ministry of Finance and would be responsible for proposing means to strengthen the CAADE, facilitating the centralization of operations involving the public debt, and assisting with computerizing the management of the public debt (already well underway). He would assist the Minister of Finance in devising and implementing a national borrowing policy and, through the Director of the CAADE, would provide the Coordinating Committee with data pertaining to outstanding debt, debt service, and trends in these figures. The forestry specialist 3/ The President recently created an autonomous working group within the Presidency itself. The group is responsible for undertaking a number of initiatives intended to make the civil service more efficient and less costly (expenditure for salaries of civil servants have declined in both current and real terms in 1984, thanks to the efforts of this working group). 4/ Several other donors have indicated an interest in providing such financing.  - 19 - (an incumbent who has lived and worked in the CAR since September 1983) would continue to report to the High Commissioner for Water and Forests, Hunting and Fishing, and Tourism. His specific activities under the Second Project all derive from the forestry sector study financed under the First Project (para. 31). In particular, he would prepare a forest inventory and a reforestation program and study and propose measures for the revival of private investment and business activity in the sector. His duties would also include helping coordinate donor assistance to the sector and preparing projects for possible Bank Group or other financing. 47. A geologist/mining-sector specialist (the third of the four specialists yet to be identifed) would report to the High Comissioner of Mining and Geology. As is the case with the forestry specialist, the specific activities of the geologist under the Second Project all derive from the diamond sector study financed under the First Project. In particular, this specialist would elaborate and begin to implement a strategy for the development of the mining sector, drawing on the already considerable number of existing studies and including, inter alia, proposals to (a) assist small-scale prospectors. (b) attract private investors, (c) revise the existing legislation governing the exploitation of the mining sector, and (d) secure external public financing for high-priority projects. The diamond appraiser (the last of the four specialists yet to be identified) would report to the High Commissioner for Mines and Geology and would assess the actual value of diamonds being exported in order to minimize current underinvoicing practices and thereby increase export tax receipts. The legal expert (an incumbent who has lived and worked in the CAR since September 1981) would continue to be attacbed to the High Commission for Planning and would continue to develop a government legal service and provide general support in the forestry, diamond, and parapublic sectors. He would also assist with efforts recently begun to revise legislation in these sectors. The legal expert would be cofinanced by the Federal Republic of Germany, vith the Association for Technical Cooperation (Gesellschaft ffir Technische Zusammenarbeit--GTZ) paying his salary and the IDA Credit providing his rent, vehicle, and vehicle operating and maintenance costs. Project Administration 48. Arrangements for project administration have been made in the light of experience with the First Project. At the time that project was appraised, it was thought that one person could act as Project Coordinator and, simultaneously, as economic specialist attached to the High Commissioner of Planning. Experience during implementation has led to the post's being broken down into three separate functions: the Project Coordinator function (para. 48), with responsibility for coherent, day-to-day implementation of the various project components; the Administrative Officer function (para. 49), with responsibility for administrative and logistic activities; and the resident specialist function (currently filled by the Bank seconded staff member mentioned in paras. 3 and 29), with responsibility for advising the High  - 20 - Commissioner for Planning. Accordingly, the project provides for a post of Project Coordinator In the High Commission for Planning. He would ensure permanent contact between the Government and IDA and prepare the proposals for new studies or project-preparation activities which might be eligible for financing under the Credit's category for other needs to be identified during project implementation (para. 42). He would monitor the activities of the various specialists and consultants, ensuring that their various activities were complementary to and coordinated with one another and that these activities corresponded to their terms of reference. He would facilitate the access of the specialists to government authorities and sources of information. He would, in conjunction with the High Commissioner for Planning, determine what follow-up activities might be appropriate on the basis of the specialists' and consultants' reports and elicit Government responses from the appropriate authorities. Finally, he would prepare, with the help of the project Administrative Officer, quarterly and annual progress reports covering project progress, difficulties, and costs, as well as a Project Completion Report, all to be submitted to IDA and to the High Commissioner for Planning (Section 3.07(b) of the draft DCA). 49. For the reasons cited above, separate provision is made for a post of Administrative Officer. Under the First TA Project, this function is being carried out by an expatriate. It is proposed that under the Second Project, the expatriate be retained for the first year of project implementation, but that she focus on training a Central African. The post will be advertised soon, and it is planned that a suitable Central Afr.can candidate will have been selected by the time project implementation begins. The Administrative Officer's responsibilities include keeping project accounts, carrying out procurement, drafting correspondence with potential consultants and suppliers, and preparing withdrawal applications. In addition, the Administrative Officer assists in the logistics of ensuring satisfactory living and working conditions for the resident specialists during project start-up and throughout implementation. Coordination with Other Donors 50. Specialists engaged under the project would work closely with specialists financed from other external sources. In particular, the legal expert (para. 47) would be a member of the project team, but his salary would be financed by the Federal Republic of Germany (GTZ). A financial controller provided by France (FAC) would also work in close collaboration with specialists financed from the Credit. His main responsibility would be to monitor the implementation of the annual recurrent budget prepared by the budget specialist (para. 45) provided under the project. France (FAC) also provides an agricultural economist/planner in the Ministry of Rural Development whose inputs will be critically important to the preparation of the annual rehabilitation/development program. Finally, France intends to provide an economic and financial advisor to the President who will also need  - 21 - to work closely with the specialists provided under the proposed project. Care has been taken throughout the preparation of the proposed project to ensure that the tasks of the specialists provided by all donors have terms of reference which are complementary. Project Costs and Financing 51. Total project costs are estimated at US$8.4 million equivalent, of which US$6.7 million (79 percent) represent foreign costs. Local costs (US$1.7 million equivalent) include about US$10,000 of duties and taxes on imported but locally purchased office equipment and supplies, spare parts, and gasoline. All other items would be exempt from taxes (including vehicles--if purchased locally, dealers can file for a refund of the import taxes they had earlier paid). In view of the country's poverty and the Government's critical budgetary situation, it is recommended that IDA finance 95 percent of total project costs net of taxes (100 percent of foreign costs and 77 percent of local costs), equivalent to US$8.0 million. The Government would finance the remaining US$0.4 million in local currency, covering local staff salaries, half of vehicle maintenance, spare parts, vehicle operating costs, and office equipment and supplies, and the local component of the project's training program (para. 39). 52. Base costs have been estimated as of March 1985, the date of negotiations. The estimated cost of the resident specialists is based on existing contracts for the six incumbents and on rates currently being paid to specialists of similar competence and level of responsibility, for the four specialists yet to be hired. Physical contingencies of 10 percent have been provided for all items except salaries. Since it is assumed that the CFA franc will be adjusted daily (as is the French franc, to which it is linked), following daily adjustments in the major hard currencies in relation to one another, price contingencies have been estimated for both foreign and local costs at 7 percent in 1985 and 6 percent yearly thereafter. Total contingencies are estimated at US$1.49 million. Special Account and Project Account 53. Because the Government has found it difficult, in its present financial situation, to prefinance expenditures eligible for reimbursement from the IDA Credit, a Special Account was established for the First TA Project in a local financial institution acceptable to IDA. A similar arrangement would be made for the Second TA Project. Following Credit effectiveness, and on the request of the Borrower, an amount of US$500,000 equivalent would be transferred from the Credit to the Special Account. The amount proposed for the Special Account corresponds to about four months of estimated eligible expenditures averaged over the project implementation period, including a provision for possible delays in internal procedures by the Government in processing the accounts. It would be a condition of Credit effectiveness that the Special Account had been opened (Section 6.01(a) of the draft DCA). The account would be operated under terms and conditions acceptable to IDA, and IDA would replenish the account upon  - 22 - receipt of evidence of disbursements from the Special Account for allowable expenditures. Should any payments be made from the Special Account that are not acceptable to iDA, the Government would be responsible for depositing the corresponding amount into the Special Account (Schedule 4, para. 6 of the draft DCA). 54. The Government would also establish and periodically replenish, in the Treasury, a Project Account for its local counterpart contributions to project costs (Section 3.01(b) of the draft DCA). As a condition of effectiveness of the proposed IDA Credit, the Government would be required to submit evidence to IDA that CFAF 30 million had been deposited in the Project Arcount (Section 6.01(b) of the draft DCA). The Project Coordinator would be responsible for the management of the Special Account and the Project Account. Procurement 55. The four as yet unidentified resident specialists and the short-term consultants would be recruited internationally and would be employeA by the Government under terms of reference and on terms and conditions acceptable to IDA; no substitution of the originally agreed specialists and consultants or modifications of the terms and conditions of their employment would be made except with the prior approval of IDA (Schedule 3, Part II of the draft DCA). All contracts would include a cancellation clause allowing the Government, after consultation with IDA, to terminate a contract if it were not satisfied with the specialist's performance. Given the Importance, the scope, and the sensitive nature of the tasks to be undertaken by the consultants and resident specialists, the Government has preferred in the past, and would prefer, under the proposed project, to recruit individuals or individuals from different consulting firms. It is thought that if a single firm were engaged to provide all the technical assistance required, the firm might be perceived as running the country. The new resident specialists' contracts would be tor an initial period of one year, with the understanding that they might be renewed for a second and a third year if all parties were satisfied. The incumbent resident specialists' contracts would also be renewed on a year-to-year basis, as long as there were a need for their services. Purchases of vehicles, vehicle spare parts, and office equipment and supplies would total about US$175,000 equivalent: these would be procured on the basis of price quotations from at least three qualified suppliers, national or international.  - 23 - Disbursements 56. The ID'. Credit proceeds would be disbursed as shown in the following table: A!nount to be Z of expenditures Category disbuLsed to be financed (US$ thousands) 1. Resident specialists 3,185 100 Z 2. Housing 300 100 X 3. Vehicles 50 100 X 4. Vehicle maintenance, spare parts, and operating costs 30 50 X 5. Project administration (a) Salary supplement for Project Coordinator 80 100 % (b) Project Administrator 40 100 X of forsign (c) Office equipment and supplies 50 50 Z 6. Sh=rt-term consultants 1,670 100 X 7. Training 350 100 % of foreign 8. Needs to be identified during project implementation 800 100 % 9. Initial Deposit in Special Account 500 10. Unallocated 945 8X000 Disbursements would be fully documented except under Category 5(c), offico equipment and supplies, where statements of expenditures would be used, t1.e documentation for which would not be sent to the Association but would be retained by the project Administrative Officer in the High Commission for Planning for review during the course of normal IDA supervision missions. During the project implementation period, these statements and all project accounts would be audited annually by independent auditors acceptable to IDA, and the audit reports would be sent to IDA no later than April 30 of each year (Section 4.01(b) of the draft DCA). The Closing Date would be June 30, 1989. Project Benefits and Risks 57. The first major project benefit would be the creation within the Government of a capacity to design and implement coherent, realistic rehabilitation/development programs, on both a short-term (annual) and a medium-term basis. By demonstrating its ability to prepare such programs and its commitment to implementing them (in particular, its political will to enforce austerity measures), the Government would enhance its credibility vis-a-vis private investors and the international donor community alike. A second major project benefit would be a substantial improvement in the Government's budgetary procedures and investment preparation. The assistance provided by the different resident specialist in (i) making realistic and methodical forecasts of, and then monitoring, public expenditures and revenues, (ii) designing standard procedures and criteria for  - 24 - choosing investments, (iii) controlling and managing the civil service, (iv) servicing the public debt, (v) streamlining the parapublic sector, and (vi) establishing permanent links among the agencies responsible for these activities would help the Government with the data, expertise, and mechanisms for coordinated policy formulation. 58. Benefits accruing to key productive sectors would include (i) in the diamond sector, the capturing of revenues now being lost, (ii) in the forestry and the mining sectors, the elaboration and implementation of a sound development program, and (iii) in the parapublic sector, a start in the rehabilitation of one or two viable parapublic enterprises. The support of the government's legal service would improve its ability to negotiate favorable investment agreements in these three sectors and ot:.ers as well. Finally, major benefits could be expected from the project's training component, through the transfer of technologies and procedures from the resident specialists and consultants to their Central African colleagues. 59. Project implementation faces two possible risks. The first is that the Government might be unwilling or unable to implement an austerity program. It was thought that the serious consideration of ill-planned and unadvisable projects would be checked when a High Commission for Planning was established in the Presidency in 1982. Because of poor clearance procedures, however, and a lack of technical competence in the High Commission, the appropriate channels are occasionally still circumvented. Under the proposed project, the institutionalization of standard procedures for preparing and executing the investment budget would make such circumventions impossible--if the Government enforces the procedures. Another related problem is that high-level officials are reluctant to surrender the prerogatives of hiring and spending that they have enjoyed for some ten years. Nevertheless, several factors indicate that this is a suitable time to proceed, including (i) the fact that several high-level officials, including the President, have repeatedly asked the Bank to help strengthen the Government's economic and financial management capacity; (ii) the creation of the Coordinating Committee, which appears to be taken seriously by everyone; and (iii) the successes already achieved in several areas, notably in the newly instituted controls over the civil service. The types of expertise to be provided under the project and the links among them built into the project design will also help to mitigate this risk. Finally, if IDA supervision missions judged that the national officials concerned were unwilling to implement austerity measures, then they would recommend that the resident specialists' contracts not be renewed. 60. The second risk is the difficulty of achieving coordination among the resident specialists provided under the project, other expatriate advisers supplied by other donor agencies, and national experts. Efforts were made to mitigate this risk during project preparation and appraisal, in that terms of reference were designed especially to complement, rather than conflict with, other expertise either already in place or planned. The existence of the Coordinating  - 25 - Committee vill also tend to mitigate this risk. The terms of reference of the national Project Coordinator, which have been approved by all government officials involved maxe hin specifically responsible for promoting cooperation and liaison among experts, whatever their source. Finally, during project supervision, there would be frequent contacts between Bank staff and other donors, especially the French. PART V - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Development Credit Agreement between the Central African Republic and the Association, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement of the Association, are being distributed to the Executive Directors separately. 62. Special conditions of the project are listed in Section III of Annex III. Special conditions of Credit effectiveness would be the submission by the Government of evidence (i) that the Special Account (para. 53) had been opened and (ii) that the Project Account had been opened and that the Government had made an initial deposit of CFAF 30 million in it (para. 54)(Section 6.01 of the draft DCA). 63. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMXENDATION 64. I recommend that the Executive Directors approve the proposed Development Credit. A.W. Clausen President Washington, D.C. M h 28, 1985  A;MM; I -26 - Page I of 6 - (~~~~~~~~~Lm MManaa o . *A)I .OFM TOMA 622.0 625.0 022.0 AMIOILUIAL 47.2 46.3 49.5 m i carit (US) 100.0 iso.0 31w.a I 1112.3 - mimse. urn cai (TOL0CR* OF 0IL EIflvALUT 30.0 44.0 32.0 62.3 2. NWIAZ!a LU mm3 Yall= . IPOUIJ N,UO-W7 (130W11) 1605.0 1673.0 240U.0 maim 1033AT0N Is 0 1r0AL) 22.7 21.1 37.1 13.2 23.1 IOIUTIOU 3WCYIIU IGIuLAftgN LEUMM 2000 (MILL) 4.0 STASUMY IOFtUYON (MM) 13.* 3OHl.ATlOU 1NNZ 1.3 VOIUATI0U f6131T 3 SQ. M1. 2.1 3.0 3.9 3 2.5 55.6 MR SQ. 31. A:E. LA1., 21.0 23.3 47.0 113.2 I1.5 SO II Al SAGEUIBIU (2) 0-14 us 23.1 23.0 41.2 43.0 45.3 1-4 133 57.9 50.7 54.3 51.5 51.7 05 APD AMR 3.5 3.7 3.3 2.9 2.3 FOFIA?M GUMn AAX (Z) TOi L 1.2 1.0 2.1 2.3 2.6 URI" 0.7 4.7 3.5 3.2 5.2 613 3ta3 mm ciii twous) 42.0 42.3 41.5 46.0 47.0 631 WATS un (Nit TNOUS) 2U.0 22.7 10.3 17.7 l5.2 G3033 N33oOuCTSOK 3An 2. 2.7 2.3 3.2 3.2 74IL5 PLASNG OcIZFTOU. 11131. (T.OM) s or C.Am .... .. .. INDEX orU F00 3no3. 33 CAPITA (1961-71-100) 100.0 100.0 100.0 35.3 p1.0 mn CAPITA 3011. 0F CALOILE25 C OF REQIIIEITS) 90.0 101.0 90.0 ".4 33.2 3 1 (MANlS 1P3 DAY) 29.0 45.0 *0.0 49.3 5.7 Cr Vwsa2 ULMML 4IM P0LB3 9.0 11.0 11.0 IC 18.3 17.0 OIILD (C61J ") 31ATH nATE 41.0 21.0 2.0 21.3 13.7 LSIY EXPECT. AT aITR (CTEM) 23.4 42.0 17.5 43. 51.7 133111T lUlT. 2ATn Cm 20W03) 170.0 148.0 113.0 117.5 102.7 ACCESS TO SAfl& VAU (SNI0) TOTAL .. .. 10.0M 21.3 35.0 33113 .. .. 40.0 /d 01.5 54.1 RURL .. .. s.o A 14.2 27.3 ACCISS TO LCTA DISPOSAL CZ OF POPILAXIOU) TAL .. 72.0 .. 32.0 133Am .. *4.0 .. 9.2 303*1 *. * *9.0 * 21.3 ..8 FOPuLATolI PR PISICIAM 51770.0 074o.o 20750.0 /e 27477.8 11390J3 FOP. 3U AmSIIn gEnSOa 3410.0 1020.0 1710.0 ff 3390.2 2243.9 FOF. PSI hOSPrTAL MM TOTAL 350.0 540.0 710.0 /f 1089.0 983.9 UUBAX 730.0 020.0 SoU.O 395.2 3U.7 3AI3L 390.0 520.0 910.0 /C 3094.0 4012.1 a.SSS PER 0sPrTAL szO .. 21.9 19.3 Ic -I- AVEZACE S= or BOPUSUO TOTAL 3.9 .. 03313.. .. . .. 103*1 .. .. . .. A3cAGc No. OF 3oso1S/36st ToTAL 3.4 .. m*m .. .. . .. 1MtAL .. .. ACES TO ELECT. (3 OF UILLDG) IOTAL .. .. U3U3 .. ... RURAL. .. ..  -27 - ANNEX I Page 2 of 6 CENTRAL AIR. REPUBLIC - SOCIAL ODI UR DATA 5533? CENTRAL AIR. REPU LIC REFERENCE GROUPS (<WEGHTD AVERAGS) p MOST T C ESTim ) n8otk 1 RCENT LW OE AFRCA HI N 1960tLb Lgd_b j jTbiiU&T sOUTN OF sABA AtCA 3. OF RA ADJUSTED CEROLLMENT RATIOS PRIMAY TOTAL 132.0 94.0 U.0 85.2 91.0 AL 33.0 90.0 89.0 73.8 90.5 FEMALE 12.0 41.0 I9t 57.8 75.8 SECONDARYI TOTAL 1.0 5.0 L3.0 13.1 17.4 ALEC 2.0 3.0 20.0 [17. 23.7 A. FEMALE .. 2.0 7.0 8.3 14.3 VOCATIOAL (t or szC Y) 10.0 12.2 7.5 La 7.2 5.3 PUPIL-yTACHER RATIO * PRIMARY 55.0 64.0 60.0 48.1 28.8 SECONDARY 30.0 21.0 .. 25.9 24.3 ADULT LITERACY RT CR) 7.46 .. 33.0 44.3 3ILl PASSENGR CAS/TNOUSAND POP 1.5 3.3 8.5 /4 3.8 20.7 RADIO WEC11 WRS/THOUSAND POP 7.5 24.5 52.5 41.9 1WJ TV IECEIVERS/THOUSAND FOP .. .. 0.3 2.0 13.5 NEWSPAprU (DAILY GCENIAL INTEREST) CIRCULATION PER TIOUSAD roPULAoON 0.3 0.3 .. 5.4 17.2 CINEMA ANNUAL ATTENDACEICAPITA 0.2 0.3 lh .. 1.4 0.3 TOTAL Lou FORCE (THOU ) 3H.0 1064.0 1290.0. FEMALE (ERtCENT) 49.4 49.0 47.9 36.5 33.1 AGRIlCULTURE (PERCENTl) 94.0 91.0 U.0 1.4 57.1 INDU1STTRY (PECE NT) 2.0 3.0 4.0 9.8 17.4 PAyTICIPATI )N RATE (PRTENT) TOTAL 60.4 57.7 5336 41.0 3683 MOTAL 63 2 61.2 58.0 52.1 47.8 FEMALE 57.1 54.4 49.5 30.2 25.1 ECONOMIC DEPENDENCY RATIO 0.7 0.8 0.8 1.2 1.4 INC= DISURIBITOH PERENT OF PRIVATE INCOll RECEIVED IY HICNEST 5Z OF HOUSEWOLDS IG:ST :'02 OF HOUSEDOLDS LOWEST 202 OF HOUSEHOLDS LOaEST 401 OF HOUSEHOLDS ESTIMATED ABSOLUTE POVERTY INCOIE LEVEL (USS PER CAPITA) URBAN f 168.3 5253 RURAL 49.0 f 90.8 249.0 ESTIMATED REIlATIVE POVERTY INCOE LEVEL (USS PER CAPITA) URBANH , ... 107.7 477.4 RURAL. 91.0 /f 65.0 18.0 P ESTIMATED POP- BELOW ABSOLUTE POVERTY INCOME LEVEL (Z) URBAN 31 7 RURAL 65.4 NOT AVAILABLE NOT ApPLICABLE N OTE S 1- rhe EZoUP averages for each indicator are population-eighted arithmtlc _as. 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