Chad - Capacity Building Project for Economic Management

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-6729-CD MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT OF SDR 6.4 MILLION (US$9.5 MILLION EQUIVALENT) TO THE REPUBLIC OF CHAD FOR A CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT JANUARY 22, 1996 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 EQUIVALENTS The CFA franc (CFAF) is pegged to the French Franc at the rate of FF 1 = 100 CFAF Year US$1 = CFAF 1990 272.26 1991 282.11 1992 264.69 1993 283.16 1994 555.20 1995 506.50 METRIC SYSTEM WEIGHTS AND MEASURES Metric US Equivalent 1 meter (m) 3.28 feet (ft) 1 kilometer (km) 0.62 miles (mi) 1 hectare (ha) 2.47 acres (a) 1 kilogram (kg) 2.21 pounds (lb) FISCAL YEAR January 1 - December 31 ABBREVIATIONS CAS Country Assistance Strategy ERC Economic Recovery Credit ESAF Enhanced Structural Adjustment Facility GEF Technical Assistance Project for Economic and Financial Management IMF International Monetary Fund PFP Policy Framework Paper SAC Structural Adjustment Credit UNDP United Nations Development Program  FOR OFFICIAL USE ONLY REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT CREDIT AND PROJECT SUMMARY Borrower : Republic of Chad Main Beneficiaries : Ministry of Finance, Ministry of Plan, Ministry of Civil Service and Secretariat for State Divestiture. Implementing Agency : Coordinating Unit (Ministry of F lan) Amount : SDR 6.4 million (US$9.5 million equivalent) Terms : Standard IDA terms with 40 years maturity Economic Rate of Return : Not Applicable Financing Plan: Loca Eig TotaI (in US$ million equivalent) IDA 1.7 7.8 9.5 Government 0.5 --- 0.5 Total 2.2 7.8 10.0 Estimated IDA Disbursements (US$ million) FY96 FY97 FY98 FY99 Annual 2.0 3.0 3.0 1.5 Cumulative 2.0 5.0 8.0 9.5 Poverty Category : Not Applicable Staff Appraisal Report : No Separate Staff Appraisal Report Technical Annex : Report Number P6729-CD Product ID , : TD-PA-35623 This document has a restricted distribution and may be used by recipients 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 DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF CHAD FOR A CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT 1. I submit for your approval the following memorandum and recommendation on a proposed development credit to the Republic of Chad for the equivalent of SDR 6.4 million (US$9.5 million equivalent), on standard IDA terms, with a maturity of 40 years, to help finance a Capacity Building Project for Economic Management. 2. Country and Sector Background. Chad is one of the least developed countries in the world. With a population of 6.5 million, per capita GNP is estimated at US$190 for 1994, below the level at independence. Social indicators of primary health and education are well below those in most other sub-Saharan African countries. Chad ranks 168th out of 173 countries on UNDP's Human Development Index. Extended periods of political instability and civil strife have been major contributing factors to this low level of development. 3. Over the past five years the government has been able to bring about political stability. A democratization process has been initiated and elections are now expected to take place by mid- 1996. Following the devaluation of the CFA franc in January 1994, a reform program was put in place to restore order to public finances and lay the groundwork for growth and poverty alleviation. This program was supported by an IMF Stand-by arrangement and an IDA Economic Recovery Credit (ERC), both approved in March 1994. The ongoing Technical Assistance Project for Economic and Financial Management (GEF) was significantly restructured to support the work of high level committees, which were established in June 1994 to monitor program implementation. The result was a dramatic improvement in the country's economic performance, particularly as concerns government revenues. A PFP was recently negotiated and an ESAF program was approved by the IMF on September 1, 1995. 4. The prolonged instability has taken a massive toll on the economy, from which it has yet to recover. Years of turbulence have left the physical infrastructure, human resource base, and institutional and administrative capacities at levels well below those in most countries in the region. With revenues equivalent to 7.4 percent of GDP in 1994, the Government is barely able to meet basic requirements. The low level of institutional capacity in Chad represents both a threat and constraint to the sustainable development of its resources. Revenue collection and expenditure control are especially weak in the Ministry of Finance. Poor operating procedures and control systems are compounded by lax management and lack of accountability and transparency. Similarly, insufficient human resources reduce the ability of the Ministry of Plan and Cooperation to forrmulate economic policy, to prepare and monitor public investment planning, and, more generally, to provide leadership in economic management. 5. Project Objectives and Description. The project's objective is to help Chad increase its capacity for economic management. In the short term, the project will assist the government to prepare and implement a reform program to be supported by a series of single tranche  2 Structural Adjustment Credits (SACs). It would support objectives that form part of Chad's medium-term and long-term economic management strategy including: (i) rebuilding the administration around a civil service of modest size with a clear focus on core public sector functions and in which transparent and criteria-based recruitment, career planning, training and career management would be targeted; (ii) restoring the Government's capacity to provide essential public goods and services, improve its public finance management; (iii) improving the quality and efficiency of public expenditures; and (iv) implementing the Government's divestiture program. 6. In particular, the project would support the Government's ongoing efforts to: (i) enhance revenue mobilization, by providing consulting services, training, equipment and office facilities to the Directorates responsible for revenue collection, namely the Directorate of Customs, the Directorate of Income tax and the Directorate of property tax (US$2.17 million). (ii) improve the quality of public expenditures (current and capital) by providing short- term technical assistance, training and equipment to the Directorates of Budget and Debt in the Ministry of Finance and to the Directorate of Programming and External Aid in the Ministry of Plan (US$1.82 million); (iii) strengthen capacities in economic policy formulation and monitoring, and dissemination, through provision of consulting services, training, and equipment for the Coordinating Unit, the Directorate of Economic Planning and the Directorate of Statistics in the Ministry of Plan (US$2.65 million). (iv) implement its divestiture program by: (i) financing consulting services to the Secretariat overseeing the divestiture process (US$0.4 million); (ii) financing revision of the legislation, consultants and audits of public enterprises (PEs) to be restructured, privatized or liquidated (US$1.6 million). (v) design and implement a program of civil service reform (US$0.86 million) by providing consulting services for (i) the redefinition of the functions of the central administration, reorganization of the existing economic entities and preparation of a new organizational chart for the economic ministries; (ii) the definition of long-term and short-term training needs of the refocussed civil service; and (iii) the establishment of an information system for personnel management and the improvement of the filing system of the Ministry of Civil Service. The recently completed civil service census will provide the data necessary for planning the staffing component of the reform. 7. Overall, during the three-year period (1996-98), the project will finance about 120 m/ni of consulting services for institutional capacity building; a training program of 700 trainees; and logistical support. 8. The project will promote greater coordination between the central and line ministries, particularly with regard to budget preparation, execution and monitoring. In parallel, the European Union intends to support the strengthening of the financial management of the line  3 ministries, and the French Cooperation is expected to continue to provide assistance for internal audit and inspection services within the Ministry of Finance. This assistance will complement the actions to be financed under the proposed project. 9. Project Cost and Financing. Total project cost is estimated at US$10 million, to be financed by the Government (US$0.5 million), and the proposed IDA Credit (US$9.5 million). The Government would finance part of the local costs and other facilities and services to the unit responsible for overall implementation of the project. IDA would finance all other costs. 10. Project Implementation and Performance Indicators. To correct performance slippage in program implementation in the first half of 1994, the Government put in place an Interministerial Committee supported by a Technical Committee and a Coordinating Unit for the adjustment program, within the Ministry of Plan. This structure has worked well, as evidenced by the greatly improved coordination and monitoring of the reform program since June 1994. In particular, the Coordinating Unit, which was established during the restructuring of the GEF project and largely resr -)nsible for the turn-around in project performance, demonstrated its capacity to successfully implement well-focused programs. This Coordinating Unit will be the implementing agency responsible for the overall coordination of the project and directly responsible for the implementation of the sub-components related to the Ministry of Finance and Ministry of Plan. The Secretariat for the Divestiture Program, which has established a good track record, will be responsible for the privatization/liquidation component of the project. The civil service reform subcomponent will be implemented by the Directorate of Civil Service in the Ministry of Civil Service. The project will be implemented over a three-year period. Performance indicators are detailed in Schedule B3. 11. Project Sustainability. A basic objective of the project is to contribute to the institutional capacity of governmental agencies targeted for assistance. Chad's development prospects will be enhanced through increasing capacity in the public sector, by ensuring that the administration has the structures, staff skills and resources it needs to lead the economic reform process. Improved revenue collection is key to financial sustainability. The project's consulting services for advisory assistance and training elements have been carefully designed to limit long term expatriate assistance and to enhance local capacity. By the end of the proposed project, it is expected that the divestiture program and the civil service reform would be completed and the Chadian authorities, would be able to collect at least 11.5 percent of GDP in revenues without outside assistance. 12. Lessons from Previous Bank Group Involvement. The proposed project was designed taking into account the lessons learned from implementation of the GEF project. That project was meant to increase capacity, yet failed to adequately recognize the extremely low implementation capacity. The project was restructured in April 1994 around tightly focused activities aimed at achieving concrete results within specific time limits. Implementation has since improved dramatically. Actual disbursements since April 1994 have been greater than for the previous five years combined. Considering these factors, activities under the proposed project have been deliberately restricted to key priority areas where performance indicators are clearly identifiable. In addition, 20 staff weeks of supervision per year on average have been allocated to reflect the need for close staff supervision.  4 13. Rationale for IDA Involvement. The proposed project is fully consistent with the Country Assistance Strategy (CAS) to be presented at the same time than the proposed project, and is a key for its successful implementation. The CAS objectives are to (i) restore critical public sector capacity; (ii) focus public expenditures on poverty reduction; (iii) create an environment favorable to private sector development; (iv) promote sustainable use of natural resources. The program of assistance under the proposed project will help Chad re-establish the core functions of government and thus provide an appropriate framework for private sector development and poverty alleviation. It will help Chad build up critical capacity in economic management, and improve the quality and efficiency of its public expenditure. 14. Agreed Actions. At negotiations, the Government gave assurances that it would: (i) make provisions for its contribution to the project and prepare procurement documents critical for project start-up by April 1996; (ii) restructure the Ministry of Plan and the Ministry of Finance before end-1996 to improve coherence and coordination of public economic and financial institutions; (iii) confirm the Coordinator for the Adjustment Program as coordinator of the Project; (iv) mainta n and strengthen the interministerial High Committee, the Technical Committee for adjustment and the Secretariat for State Divestiture as the key bodies to develop and monitor the implementation of the economic reform program; (v) follow the project implementation plan agreed upon with IDA; (vi) conduct a joint annual review of project implementation not later than March 31, after the end of the year under review, in coordination with the other donors involved and (vii) implement the training program agreed upon with IDA, beginning with the design of a detailed program for the first year of the project before March 31, 1996. Condition of effectiveness is the employment of an independent auditor acceptable to IDA. 15. Environmental Aspects. The proposed project would have no direct impact on the environment and is classified "C". Recommendations of the Country Environmental Strategy Paper, published in June 1994, are being translated into specific operations with the support of donors, including IDA. 16. Project Objective Categories. Project activities would be executed as part of Chad's structural adjustment efforts. Specific objectives of the project are institution- and capacity- building, improved management of public finances and private sector development. 17. Participatory Approach. The project's design has resulted from extensive consultations with prospective beneficiaries. During project preparation, the Government established working groups, comprised of relevant representatives from the various ministries and, where appropriate, the private sector, to address reform issues. These groups were responsible for identifying priorities and elaborating detailed action plans. The plans were subsequently presented and discussed at a plenary session attended by a broad spectrum of concerned parties from the private and public sectors. 18. Project Benefits. *The proposed operation is designed to provide the financial and technical support needed for Chad to implement its adjustment program and establish the framework for sustained economic growth and poverty alleviation. It will help improve the management of public finances, strengthen fiscal performance and make the civil service more efficient. In particular, the proposed project will increase the capacity of the customs to collect  5 revenues. A comprehensive expenditure control system is expected to be in place by the end of 1996, and will include the reinforcement of the capacity of the Budget Directorate to prepare and monitor the budget and of the Directorate of Treasury to control expenditures. The proposed project will also significantly improve the debt management system and Chad's public investment planning capabilities. Under the recently negotiated PFP, the Chadian authorities are committed to privatizing and/or liquidating most public enterprises. 19. Risks. The major risks associated with the strategy for change in public sector management arise from the fragility of Chad's political situation. In the process, political resistance may be encountered from vested interests. To help reduce these risks, extensive consultations were held with parliamentarians, representatives of the private sector and NGOs, and union leaders during the preparation of the project. The Government subsequently organized seminars and workshops with a wide array of stakeholders on its economic reform program. 20. Recommendation. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve it. Attachments Washington, D.C. James D. Wolfensohn January 22, 1996 President  6 Schedule A Page 1 of 1 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Summary of Project Cost and Financing (US $ million) (Net of taxes and duties) -Poject Cost Local Foreign Total 1. Consultancy services 0.24 4.0 4.24 2. Equipment, vehicles and supplies - 1.84 1.84 3. Training 1.1 1.56 2.57 4. Office rehabilitation 0.25 0.4 0.65 5. Operating costs. 0.7 - 0.7 Total 2.20 7.80 10.0 Fiinc~igPan~ Loa oegotal IDA 1.70 7.80 9.5 Government 0.5 - 0.5 Total 2.20 7.80 10.0  7 Schedule B 1 Page 1 of 1 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Project Benefits and Costs (US$ 000) . B.efi. Unit-Cost rs_ a _Cost id- Advisory Assistance for 4.7 per man-month Efficiency gain in revenue Institution Building collection (from 7.4% of GDP in 1994 to 11.5% in 1998) reduction of current fiscal deficit from 7.8% in 1994 to less than 1 percent in 1998. reduction of wage bill from 5.8% of GDP in 1994 to 5.1% in 1998. Training 3.7 per trainee Training of about 700 persons (high officials, economic staff, parlementarians, unions leaders and private sector managers). Office rehabilitation 0.4 per sq. m. Modernization of revenue collection facilities Privatization of 12 parastatals 125 per company Strengthening of the private sector Assumption and Nature of Benefits: This Capacity Building project supports implementation of the reform program. Its benefits are particularly difficult to quantify and to disentangle from those of the adjustment program. Every effort was made to minimize costs. Risks: In itself this project has relatively small risks stemming essentially from political factors. The realization of its full benefits is also contingent upon how effectively the adjustment program is implemented.  8 Schedule B2 Page 1 of 1 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Financial Summary (US$ million) Project Cost- 196 1997 - 1998 1999 2000 2001 Implementation Period Operational Period Investment Cost 2.0 2.9 2.9 1.5 - - Recurrent Costs 0.1 0.2 0.2 0.2 0.2 0.2 Total 2.1 3.1 3.1 1.7 0.2 0.2 Fi ain ao rsnci n g :; ::: Xf :tt:- -t h c W : 0 0i :f :f0t04t X : f: :0: ;t t d; :t00f 4 ?:'' ft:0i;; :: :-0 f 4: :t :t s o u r c e _ _ _ _ _ P erc e nta g _ _ __ -:_ _-__ - IDA 95.0 94.0 94.0 88.0 - - Government 5.0 6.0 6.0 12.0 100 100 Total 100.0 100.0 100.0 100.0 100 100  9 Schedule B3 Page 1 of 2 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Table 3 Activities and Performance Indicators Objectives Activities Cost Performanee itdicators Implementation "Implementing A' TA per Agencies Directorate :_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ : : _ _ _ _ _ _ _ _ _ _ _ __ ._. _._._' _'_::_'_. _''_-_. an d S tu d ie s , a. Improve Revenue - Improve customs tax collection 1.6 Increase collection of custom duties 96-98 Directorate of Customs 30 and fiscal mobilization by 35 percent in 1996-98. studies - Improve intemal taxes collection 0.57 Increase internal taxes collection by 96-98 Directorate of Internal 10 25 percent in 1996-98 taxes b. Rationalize - Strengthen budgetary procedures 1.62 - Budget prepared on time 96-98 Directorate of Budget expenditures and expenditures control; (draft available end September) and Treasury 10 improve allocation. - Quarterly Reports on budget 96-98 implementation prepared on time (one month after) - Reduction of wage bill as share in 96-98 current expenditures from 41 percent in 1996 to 38 percent in 1998. - Reduction of sovereignty 96-98 expenditures from 48 percent in 1995 to 38 percent in 1998. - Rationalize debt management 0.2 - Monthly report on debt status and 96-98 Directorate of Debt 5 service payments prepared on time. - Rationalize PIP 0.5 - Preparation of an annual 96-98 Directorate of Planning 30 Investment Budget and External Assistance - Reduction of number of projects 96-98 in the Ministry of Plan by at least 30 percent - Annual updating of the three-year 96-98 PIP, as an all encompassing and realistic instrument. - Enhance donor coordination - Round Table well attended. 1996 Ministry of Plan  10 Schedule 13 Page 2 of 2 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Table 3 Cont.: Activities and Performance Indicators .:O W ; tl10000 - k .: .t000000 ... .... ..: ..... ... ........ ..0AtV:000000000000;f:00tliEttiiSSt00000 aS00::0 ......... ..:Xii::Eitti' Obectives A c.tvitieps Cost Pferformaxice 1ndicators IMPlemntaion inpementnin m. TA..p. r ti:;::000:0::000:X:00X000 t ...:00 :;A:;A04:240:S: ;00200 tit4;0 ... . ...... .. .....00000 EtEEt f; idi; 0.4:.0 t40022400E: c. Improve - Reinforce Macro-Economic policy 2.65 - Satisfactory implementation of 96-98 Coordinating Unit Economic Policy formulation. reform program supported by formulation, - Efficient implementation and SACs monitoring and monitoring of reform program. - Quarterly reports on progress of 96-98 Coordinating Unit 20 dissemination adjustment program - Dissemination. - Publication of economic data and 96-98 Directorate of Statistics 5 monitoring indicators - Seminars for Civil Society 96-98 Coordinating Uinit (parliamentarians). d. Divestiture - Privatization of 12 parastatals 2.0 - Effective completion of the 96-98 Secretariat of State 10 + studies program divestiture program (12 Divestiture parastatals). e. Civil Service - Action plan to rebuild a 0.86 -Implementation of the Action Plan 96-98 Ministry of Civil studies Reform modernized civil service of about Service 25000 employees. - Downsizing (2000 employees). 96-98 - Redefine criteria for public service - Computerized system in place for management (recruitment, career, revised guidelines salary promotion) adjustment. I__ _ _ _ _ I_______ - Training programs effective. 96-98  11 Schedule C Page 1 of 2 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Summary of Proposed Procurement Arrangements (US$ Million) Project Element ICB NCB Other NBF Total A. Civil Works - Office Rehabilitation 0.65 0.65 B. Goods 1.13 0.4 0.31 1.84 - Office Supplies 0.50 - Vehicles 0.63 C. Consultancy Services 4.24 4.24 - Studies 2.0 2.0 - Technical Assistance 2.24 2.24 D. Training and technical workshops 2.57 2.57 2.57 2.57 E. Operating costs 0.2 0.5 0.7 Total 1.13 1.25 7.12 0.5 10.0 ICB: International Competitive Bidding NCB: National Competitive Bidding NBF: Not Financed by IDA  12 Schedule C Page 2 of 2 REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT Allocation and Disbursement under proposed IDA Credit :All':c.at:ibn':Cator -Amout Dibrement.. Consultant services 3.99 100 % Equipment, vehicles and supplies 1.74 100 % of foreign expenditures and 95 % of local expenditures Civil works 0.60 95 % Training and technical workshops 2.47 100 % Operating Costs 0.2 95 % Unallocated 0.5 N.A. T o t a ..5 ....._ __....._ __.. Estimated Disbursements (US$ million equivalent) IDA Fiscal Year - _ _ _ '-f-f-Xt0040- t0-0.--0E'f'.S'SSit.000t'l00000.0.000000 i000t,000000g'0001996 1997f'0..'.'', 19I8 1-9 Annual 2.0 3.0 3.0 1.5 Cumulative 2.0 5.0 8.0 9.5  13 Schedule D REPUBLIC OF CHAD CAPACITY BUILDING PROJECT FOR ECONOMIC MANAGEMENT TIMETABLE OF KEY PROJECT PROCESSING EVENTS Time taken to prepare the project Twelve months Creation of Government's Committees to prepare project November 1994 Initial Executive Project Summary January 1995 Appraisal October 1995 Negotiations January 1996 Board February 1996 Planned date of Effectiveness March 1996 The .P.,roj was ,prepad nd appraised by'a 'eam comprisi 'f Me'rM'es Amadou B. Ciss (Principal ,C,ou.nTry OffcerTask Manager) AF3C 1,: Peter Harrold (Economic and Finan.cial Adviser) AFTPS, Amanda Carlier (Privat SSector S