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					Public Disclosure Authorized


                                                     FILE C0PY                                   Report No. P-29

                               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                               not be published nor may it be quoted as representing their views.
Public Disclosure Authorized

                                       INTERNATIONAL DEVELOPMENT ASSOCIATION

                                              REPORT AND RECOMMENDATIONS
Public Disclosure Authorized

                                                                   OF THE


                                                                   TO THE

                                                      EXECUTIVE DIRECTORS

                                                                     ON A

                                             PROPOSED DEVELOPMENT CREDIT

                                                                   TO THE
Public Disclosure Authorized

                                                       REPUBLIC OF TUNISIA

                                                                   FOR AN

                                                        EDUCATION PROJECT

                                                            August 31,        1962

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.


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%S 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.

15.     The Project consists of the construction and equipment of six
secondary schools of various types in various places in Tunisia. The designs
of these schools have already been prepared. They apcDear to be reasonably
adapted to their objectives and cost estimates are not unduly high although
in respect of both costs and designs the schools may not measure up to what
can be expected once the technical assistance project referred to has been
completed. I believe, however, that their urgency justifies their construction
at once and the allocation of IDA funds to assist them. The estimated cost of
constructing and equipping the six schools is $9.2 million of which the
proposed credit would provide 54%. For practical reasons the actual disburse-
ment of the credit would be on the basis of a percentage (initially fixed at
75%) of construction costs only. The schools will be constructed by contractors
satisfactory to the Bank, selected after competitive bidding among pre-
qualified contractors, Tunisian and foreign, established in Tunisia. Super-
vision of construction will be the responsibility of the Secretariat of State
for Public Works and Housing, which is adequately staffed for this purpose,
and supplemented by architects satisfactory to the Bank.


16.     Attached is a draft Developmen't Credit Agreement /fietween the Republic
of Tunisia and the Associatio 7(No.3)0 Development Credit Regulations No.1
dated June 1, 1961, would be applicaole without amendment, to this agreement.
The borrower would be obligated to cause the project to be carried out with
due diligence and efficiency, in conformity with sound technical standards and

with due regard to economy, and to be operated in accordance with sound
educational practices (Section 4.01(a)). The borrower is to furnish the
Association with information on its school system and school construction
programs, with the Association afforded an opportumity to comment on the
latter (Section 4.02). In other respects the draft Agreement conforms
generally to the pattern of other IDA credits.

17.     The recommendation of the Committee provided for in Article V,
Section l(d) of the Articles of Agreement of the Association is attached


18.     I am satisfied that the proposed development credit will comply
with the Articles of Agreement of the Association.

                        PART VI   -   RECOMMENDATIONS

19.     I recommend that the Association make available a development credit
to the Republic of Tunisia in an amount in various currencies equivalent to
$5 million for a total term of 50 years, with service charge of 34 of 1%
per annum, and on such other terms as are specified in the attached draft
Development Credit Agreement, and that the Executive Directors adopt a
Resolution to that effect in the form attached (No.5).

                                                        Eugene R. Black

Washington, D.C1,
August 31, 1962.