Malagasy Republic - Tananarive Education Project

,w 'RC1ELUTING COPY 10MURN TO ARCHIVES DIMION RETURN TO RESTRICTED REPORTS DESK Report No. P-560 WITHIN 34~ _____ ONE WEEK FILE CPY This report was prepared for use within the Bank and its affiliated organizations. They do not accept responsibility for its accuracy or completeness. The report may not be published nor may it be quoted as representing their views. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPC)RT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE MALAGASY REPUBLIC FOR AN EDUCATION PROJECT August 2, 1967  INTETNATIONAL BANTK FOR REC01NSTRUCTION AND DEVELOPMENT REPORT AND RECO14MENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN TO THE MALAGASY REPUBLIC 1. I submit the following report and recommendation on a proposed loan in an arnount in various currencies equivalent to $4.8 million to the Malagasy Republic, to assist in financing an education project. PART I - HISTORICAL 2. In July 1964, the Yalagasy Government requested Bank/IDA assist- ance in the financing of a project comprising the construction and equip- ment of schools. An appraisal mission visited the country in May/June 1965. The project appeared suitable for Bank or IDA financing and in January 1966 the Government was so informed. At the same time Bank (or IDA) were considering financing of' $10 million for a road project. Since Malagasy was regarded as a soft blend country (see paragraph 12 below), it was decided to work out an IDA credit for the road project and a Bank loan for education. 3. Negotiations f'or the proposed Bank loan for education were delayed some time becauEse the Government had to acquire prior to negotia- tions about two-thirds of the land required for the project. This took some time, as the ownership was divided among hundreds of small-holders. By February 1967, however, the Government had taken possession of practi- cally all the land, and negotiations for the proposed Bank loan were com- pleted in Uhashington on March 24, 1967. The Government was represented by a delegation headed by the Planning Commissioner. The $10 million IDA credit (Credit No. 90 iLPG) for the road project was made to the Malagasy Republic in August 1966. No disbursements have yet been made. No Bank loan has yet been made in Madagascar. PAR.T II - DESCRIPTION OF THE PROPOSED LOAN 4. Borrower: The Malagasy Republic. Amount: Equivalent, in various currencies, of $4.8 million. Purpose: To assist in financing the "Complexe scolaire de Tananarive," a project for the construction and equipment of three secondary technical schools and two teacher-training institutes in Tananarive. Amortization: Term of 30 years, including 10 years grace period, with semi-annual payments beginning April 1, 1977 and ending April 1, 1997.  -2 - Interest Rate: 6 percent. Commitment Clharge: 3/8 of 1 percent per annum. PAURT III - THE PROJECT 5. An Appraisal Report (TO-510d) is attached. The project would consist in the relocat:Lon and expansion of three secondary technical institutes (public works and construction; business administration; domestic science, hote:L keeping and business training) and two teacher- training institutes (an "Institut Pedagogique" and a physical-education teacher training center). Total cost of the project is estimated at I-D 1,778 million, the equivalent of $7.2 million, with a foreign ex- change component equivalent to $4.3 million. The three secondary tech- nical institutes account for about 82 percent, the "Institut Pedagogique" for 14 percent, and the physical-education teacher training center for only 4 percent of the total cost. The proposed Bank loan of $4.8 million represents two-thirds of the estimated cost of the project. 6. The five institutes which would benefit from the project are already in existence. Present accommodation at each of the institutes, however, is highly inadequate for the number of students enrolled. 7bcpansion on the present sites is not possible. The relocation and con- centration of the five schools on one site will enable the total enroll- ment to increase from 1,350 students to over 3,000 and will make possible the sharing of various cammunal facilities. In acquiring the land, the Government is taking into account the need for further expansion of the schools. The Bank has received assurances from the French Government that it will provide, upon request from the Malagasy Government, expatriates to fill teaching positions which cannot be filled by qualified I4alagasies, for the institutes included, in this project. 7. The Government attaches a high priority to the project. It is part of a general educational plan to increase enrollment, improve the quality of teachers, remedy the acute shortage of technically trained personnel and enable Madagascar to reduce its dependency on expatriates, who still occupy most of the teaching positions in secondary schools and many positions as middle-level technicians. There is ample evidence that the need for middle level technicians is particularly urgent in the field of building construction and in the commercial sector; the three secondary technical institutes would help meet this demand. 8. Total cost of the project is equivalent to about 11 percent of total planned investment in education from 1964 to 1973, the period of the two Five Year Plans in which the construction of the project falls. As the French Government wrill meet about two-thirds of the cost of expatriate teachers, recurrent costs of the project wsould not ex- ceed 3 percent of total budgeted recurrent expenditures on education and 0.6 percent of total budgeted recurrent expenditures at 1967 levels.  9. Construction of the project would be carried out over a period of four years (1968-1971). Awarding of construction contracts and the procurement of general and instructional equipment wJouJld be on the basis of international competitive bidding. PART IV - LEGAL L-ISTRU15ENTS AND AUTHORITY 10. A draft Loan Agreement between the IMalagasy Republic and the Bank and the Report of the Committee provided for in Article III, Sec- tion 4 (iii) of the Articles of Agreement are being distributed separately to the executive Directors. 11. The draft Agreement follows generally the pattern of agreements for similar projects. Since the major portion of the loan wJould be used for financing construction contracts, disbursement of the proceeds would be on a percentage basis, with the Bandk having the right to benefit from any ultimate savings. The site of the project requires draining and filling, wzorks wqhich are already underway; it is therefore provided that expenditures for these works, after June 1, 1967, be eligible for reim- bursement. (Section 2.03 ) PART V - TIHE ECOMNON 12. An economic memorandum on "Recent Economic Developments in the 1Nalagasy Republic" (AF-62a) was distributed to the Executive Directors on June 28, 1967. The memorandum updates the report "The Economy of the M4alagasy Republic," No. AF-42a, dated June 1, 1966. (Sec. R66-96, dated July 11, 1966). The memorandum reviews economic developments in the last few years and the prospects for future economic growth in the light of these developments. In recent years the performance of the economy and economic policies pursued by the Government have been reasonably satisfactory, although national output has failed to rise faster than population which has been groring at an estimated 3 percent per year. An increase in the present low rate of investment is needed to bring about a faster growth in output, and this wdill require a larger inflow of foreign capital. It is desirable that the bulk of foreign assistance be on soft terms to take account of the still limited savings capacity of the NEalagasy economy and to prevent an escalation of the debt service burden. Since, however, the service of external debt at the present time represents less than three percent of export earnings, a moderate amount of borrowing can prudently be incurred on conventional terms. PART VI - CO0PLIA11CE TIIH ARTICLES OF AGREEMENT 13. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank.  - 4 - PART VII - ;,CO19,21DATION 14. I recommend that the Executive Directors adopt the following resolution: RESOLUTION No. Approval of Loan to the Nalagasy Republic in an amount equivalent to U.S. $4,800,000. RESOLVED: THAT the, Bank shall grant a loan to the Malagasy Republic in an amount in various currencies equivalent to four million eight hundred thousand United States dollars (U.S.. $4,80o,000), to mature on and prior to April 1, 1997, to bear interest at the rate of six per- cent (6,') per annum, and to be upon such other terms and conditions set forth in the form of Loan Agreement (Educa- tion Project) between the iMalagasy Republic and the Bankc which has been presented to this meeting. George D. Woods President by S.R. Cope TTashington, D.C. August 2, 1967 Attachments