Tunisia - Municipal Sector Investment Project

Document of The World Bank FOR OFFICUIL USE ONLY MICROFICHE COPY Report No. P- 5723-TUN Type: (PM) VEUTHEY, B/ X32371 / H4171/ EMIIN RepNo. P-5723-TUN MEWORADUM AND RECOIMEMNDTION OF TEE PRESIDENT OF TEE ZNTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN IN AN AMOUNT EQUIVALENT TO US$75 MILLION TO TEE REPUBLIC OF TUNISIA FOR A MUNICIPAL SECTOR INVESTMENT PROJECT JUNE 10, 1992 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.  CURRENCY EOVIVALENTS (average 1991) Currency Unit - Tunisian Dinar (TD) US$1.00 - TD 0.92 TD 1.00 - US$1.08 FISCAL YEM January 1 - December 31 GLOSSARY OF ABBREVIATIONS ANPE Agence pour la Protection de 1'Environnement (Agency for Environmental Protection) ARRU Agence pour la Rehabilitation et la R6novation Urbaine (Urban Rehabilitation and Renewal Agency) DGCPL Direction Generale des Collectivit6s Publiques Locales (General Directorate for Public Local Governments) ENA Ecole Nationale d'Administration (National School of Administration) ENIT Ecole Nationale d'Ing6nierie Tunisienne National School of Engineering of Tunisia FCCL Fonds Commun des Collectivit6s Locales (Common Fund for Local Governments) GOT Government of Tunisia NDA Municipal Development Agency (Caisse de Pr6t et de Soutien des Collectivit6s Publiques Locales) MDP Municipal Development Program NOF Ministry of Finance MO0 Ministry of Interior MOP Ministry of Plan MSIP Municipal Sector Investment Project OFPE Office de Formation Professionnelle et de l'Emploi (Office for Vocational Training and Employment) PIC Plan d'Investissement Communal (Municipal Investment Plan)  FOR OMCL41 USE ONLY REPUDLIC OF TUN8SIA MUNICIPAL SECTOR IIWESTMENT PROJECT Loan and Proiect Summarv Republic of Tunisia Ben2figiar.Ua: Municipalities, Ministries of Interior and of Finance, Municipal Development Agency Amount: US$75 million equivalent Terms: Repayable in 17 years, including a five-year grace period, at the Bank's standard variable interest rate Financina Plan: Central Government US$ 78.7 million Municipalities USS 54.0 million IBRD USS 7S.0 million TOTAL US$ 207.7 million Economic Rate of Returns Minimum 12 percent when applicable Staff Appraisal Renortt Report No. 10348-TUN MuL no. 23566R 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.  MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE REPU8LIC OF TUNISIA FOR A MUNICIPAL SECTOR INVESTMENT PROJECT * 1. The following memorandum and recommendation on a proposed loan to the Republic of Tunisia for US$75 million equivalent is submitted for approval. The proposed loan would finance a Municipal Sector Investment Project (MSIP) that aims to increase the efficiency of local governments (municipalities and regional councils) in planning and delivering local services, financing and implementing investments, as well as mobilizing and allocating resources. This project is part of the Government of Tunisia's (GOT) macroeconomic and institutional reform programs, which the Bank has been supporting through adjustment lending and a Public Enterprise Reform Loan. The project will support GOT's objective to strengthen local governments and finance part of their investments, thereby increasing their contribution to the economic, social, and political development of the country. Bahkamu4d 2. Tunisia is a highly urbanized country; 60 percent of its eight million inhabitants live in urban areas. More than 80 percent of its GDP originates in the Tunis Metropolitan Area and three other cities along the coast (Sfax, Sousse and Bizerte). The urban growth rate is about 3.7 percent p.a., while the population growth rate is 2.2 percent p.a. It is projected that by the year 2000, about 7 million people will live in Tunisian cities, creating further demands on the provision of infrastructure and services. 3. Many urban services are provided by Central Government utilities and agencies. This has proved to be an efficient approach in a small country like Tunisia: population coverage and cost recovery are adequate and the highest among the Maghreb countries. Whereas the quality of services provided by national agencies is good, other municipal services, such as solid waste collection and disposal, have been neglected. GOT has started the process of strengthening its local governments; its objective is to reinforce their capacity to (a) plan and manage their own investment programs; (b) coordinate central agencies' activities in their jurisdiction; (c) improve the quality of services they do provide (minor road and sewer works, refuse collection, street lighting, and some community facilities); and (d) increase the municipalities' capacity to mobilize local resources. The process is now moving forward as a cabinet-level position of State Secretary for Local Governments was created in 1989 within the Ministry of Interior (MO!). More significantly, C-O9 has made regional and municipal development the foundation of its Eighth National Economic Plan (1992-1996). 4. Municipalities' contribution to GDP is almost negligible. The total budget of Tunisian municipalities represented only 1.3 percent of 1988's GDP, and their resources reached barely 5 percent of GOT's revenues. The annual average level of investments controlled by municiRalities is about Ust'2 per capita, mostly self-financed. Twenty-two percent of municipal revenues are constituted by local tax receipts.  -2- 5. In 1988, GOT financed 47 percent of the municipalities, total sAcurent budgets with transfers via the Local Government Common Fund (FCCL), and 40 percent of their iestments through the budgets of various ministries. The Municipal Development Agency (Z4DA), an agency under the supervision of MO0, provides additional investment financing in the form of loans (about 35 percent of municipal investments) for local governments but has operated as a cashier's window for the General Directorate for Public Local Governments (DGCPL) of MOI. Under the project, MDA is being restructured and strengthened. 6. The project would provide an essential link in the implvmentation of GOT's regional and municipal development strategy. MDA would become GOT's main instrument for developing municipal capacity for designing and financing their investments. It would also contribute to the replicability and sustainability of Government investment in the municipal sector. Better technical and managerial skills, developed through project-financed training programs and studies, would allow the municipalities to improve planning and coordination of investments carried out within their jurisdictions by national agencies. Rationale for Bank Involvement 7. The Bank's support to GOT's urban sector activities has gradually moved beyond financing infrastructure investments to supporting changes in sector policies and institutional responsibilities. Initially, the Bank focused on providing support to site-specific urban works; this evolved to assisting GOT in improving urban policies that affect other economic sectors and institutions. 8. The Eighth Plan highlights regional and municipal development as one of the main underpinnings of its development strategy. The plan contemplates about US$470 million to finance the municipal investment program (PIC), out of which the project would finance priority investments that have a high positive social and environmental impact. The municipalities' own revenues would be increased through a revamped local tax regime and improved cost-recovery practices. MDA would achieve financial viability by building its equity through GOT's transfers and loan recovery, and moving towards efficiency pricing in public investment financing. Investment quality would increase because projects would be selected on the basis of technical, financial, institutional and economic criteria. Central Government's matching grants for investments would be allocated according to national priorities (e.g., the environment and rehabilitation) using criteria agreed with the Bank. the Proke