RESTRICTED FILE C0PY Report No. P-29 Public Disclosure Authorized 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 The report may not be published nor may it be quoted as representing their views.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 DEVELOPMENT ASSOCIATION Public Disclosure Authorized REPORT AND RECOMMENDATIONS OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A Public Disclosure Authorized PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF TUNISIA FOR AN EDUCATION PROJECT Public Disclosure Authorized August 31, 1962 REPORT AND RECOMIENDATIONS OF THF. PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED D37VELOPENMT CREDIT TO THE REPUBLIC OF TUNISIA FOR AN EDUCATION PROJECT 1. I submit here-with the following report and recommendations on a proposed development credit to Tunisia for an amount in various currencies equivalent to $5 million, to help finance an education project. PART I - INTRODUCTION 2. In April 1961 the Tunisian Government requested an IDA credit to assist Tunisia's program to expand technical education at the secondary level. The request was accompanied by a study prepared for Tunisia by UNESCO. The Bank economic mission which visited Tunisia in Nlay 1961 concluded that expansion of the education system deserved priority in Tunisia's develop- ment plais, in view particularly of the serious shortage of trained manpower which has been aggravated since independence in 1956 by the progressive departure of Europeans. Accordingly, IDA missions visited Tunisia in November and December 1961 and again in June 1962 to examine the Tunisian educational system, the government's plans for its expansion, and the schools which warranted assistance. 3. It became apparent at an early stage that to concentrate attention on technical education alone would be imoracticable since in Tunisia most of the technical education is administered as an integral part of the secondary school system. For this reason we have extended our view to the educational system as a whole and hiave concluded that it is at the secondary level that expansion is most urgent. 4. Tunisia has made preliminary plans for the expenditure of 88 million dinars ($210 million) on education in the ten years 1962-71, of which 56 million dinars ($135 million) wTould be for secondary education. Hfowever, a consider- able amount of preparatory work needs to be done before a sound long-term program can be drawm up in detail. In particular the central achinistration of the Tunisian educational system needs to be strengthened and steps need to be taken to reduce the cost of school buildings. We informed the Tunisian Government in February 1962 that in the long run we w,,ould be prepared to consider IDA assistance on a substantial scale (provided that IDA's resources permitted) once a sound long-term program was prepared. We offered to assist Tunisia to obtain technical assistance in the field of school building design standardization and cost reduction. The Government'has expressed interest and the Bank is now organizing a team of experts of international standing to assist Tunisia in this respect. A proposal will be presented in due course to the Executive Directors that the Bank should bear a substantial part of the cost of this technical assistance. We also recommended to the Tunisian government that they seek the services of foreign educational administrators in order to strengthen their planning and administrative services. The Tunisian govern- ment has recently addressed a request for such assistance to UNSC5G. 5. While these actions should enable Tunisia in the next year or two to revise and improve its long-term school building program, the need for secondary school graduates and the pressure of the students expected to leave primary school in the next few years, makes it imperative that Tunisia proceed at once with the construction of a number of secondary schools as a matter of urgency. Tunisia's three-year investment plan 1962-64 contains provision for the expenditure of 29 million dinars (M7O million) on construction and equipment in education (including work in progress),of which 13 million dinars (i31 million) is to be devoted to secondary schools. The authorities have requested IDA assistance in financing six schools which, apart from work in progress, make up the bulk of the three-year program for secondary schools. Credit negotiations were held in iWashington in August. 6. This credit would be the first operation by either IDA or the Bank in Tunisia. It would also be the first IDA credit for an education project. PART II - DESCRIPTION OF THE PROPOSED DEVELOPiEET CREDIT Borro-wer: Republic of Tunisia. Amount: The equivalent in various currencies of $5 million. Purpose: To help finance the construction and equipment of six secondary schools in Tunisia. Term and Amortization: 50 years with no amortization for the first ten years. Repayment to be in 80 installments, 1/2 of 1%Sof the principal amount to be repaid semi-annually beginning November 15, 1572, and ending flay 15, 1982, and 1-1,/2% semi-annually thereafter to Nay 15, 2012. Service Charge: 3/4 of 1% per annum on the principal amount of the credit disbursed and outstanding. Payment Dates: May 15 and November 15. PART III - APPRAISAL OF THE CREDIT The Economy of Tunisia 7. A report on the Economy of Tunisia /no. AF-l(a7 is attached (No. 1). B. Tunisia is the smallest and least favored economically of the three French-speaking North African countries. Its population of about 4 million has an average national income per head roughly estimated at $150. Income distribution is uneven, the population of the cities and more productive agricultural areas of the north and east, which enjoy a 4ilediterranean climate, being more favorably placed than the inhabitants of the center and south which- is much drier, merging in the far south wfith the Sahara. 9. The French protectorate of Tunisia ended in 1956, and in 1957 the present republican constitution was adopted. The economy has been heavily dependent on France for capital, markets and supplies of skilled manpower - at independence there were some 38,000 French and Italians. resident in Tunisia. Tunisian wine and hard wheat, which account in normal years for 25%-35% of Tunisian exports, enjoy a preferred position in the French market. Prior to 1957, a substantial proportion of public investment funds was provided by France. 10. Events in Algeria led to a cooling-off of official relations between the Tunisian and French governments, culminating in the Bizerte crisis of 1961. French financial assistance was terminated in 1957, although technical assistance continued. A substantial niuber of the French and other Europeans resident in Tunisia have left the country and French and other foreign private capital has been hesitant to come in. In July 1962, high level contacts between the two governments led to the general expectation that more normal relations would follow soon. In the meantime, however, the Tunisian economy has been virtually stagnant. Exports, hampered by drought, have declined in each of the past four years and national income per head has grown only very slowly, if at all. 11. The Government is keenly anxious to halt this trend and to bring about satisfactory rates of economic growth. In 1962 it adopted a set of development "perspectives" for the ten years 1962-71, wlith a three-year "pre-plan" for 1962-64. We intend to make an analysis of these plans before the end of 1962; in the meantime only tentative judgments can be offered regarding them. The levels of saving and investment contemplated are ambitious and the investment targets would be attainable only with substantial foreign assistance. While it may not be possible for the economy to absorb as much foreign aid as the plans contemplate, there is little doubt that Tunisia can use a substantial amount effectively. The Tunisians are determined that foreign resources shall be put to good use in combination with hard work and sacrifices internally, and this makes Tunisia a deserving case for foreign assistance for wrell- conceived projects. 12. There exists a complicated French-Tunisian financial dispute, dating from 1957 which involves the suspension by Tunisia of the transfer of service payments on debt to the French government and its agencies and other inter- governmental claims and counterclaims. Also outstanding are claims by the former foreign oawners of the electric power properties taken over by the Tmnisian Government. We have informed the Government that we cannot proceed with the appraisal of its electric power development program as a basis for lending, which it has requested us to do, until satisfactory progress has been made in arranging for compensation of the former owmers. However, in view of the special circumstances which have hitherto frustrated the efforts of both parties to achieve a reasonable settlement of these various claims, I do not consider that the proposed credit for education should be held up on that account. 13. Apart from its debt to France, Tunisian foreign debt is small. Once the outstanding claims have been settled, Tunisia's annual debt service burden should not be excessive, and, depending upon the terms of settlement with France, may leave some further margin for borrowfing on conventional terms. However, Tunisia would be prudent not to exhaust this borrowing capacity immediately in view of the uncertain prospects for economic growth, and the fairly poor prospects for growth in exports. I consider it appropriate, therefore, that at least some part of Tunisia's requirements for development assistance should be made available on IDA terms. The Project 14. Attached is a report (No. TO-322b) (No.2) appraising the Project against the background of the Tunisian educational system, the main highlights of which are given in paragraphs 2-5 above.