' -'?* *o 2 /

Document of

The World Bank

'FOR. OFFCLAL USE ONLY

lkeportNo.P-6277 KM

MEMORANDUM AND RECOMMENDATION

OF THE PRESIDENT OF THIE

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORS

ON A PROPOSED CREDIT

IN THE AMOUNT OF SDR 3.7 MILLION

TO TRE

ISLAIUtC FEDERAL REPUBLIC OF THE COMOROS

FOR A

SMALL ENTERPRISE DEVELOPMENT PROJECT

JUNE 1, 1994

Industry and Energy Operations DivisionSouth-Central and Indian jcean DepartmentAfrica Region

This document has a restricted distribution and may be used iv recipients only in the performance oftheir official duties. Its contents may not otherwise be RIscIosed without World Bank authorization.

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CURRENCY EOIIVALEN

Currency Unit = Comorian Franc (CF)US$ CF 280 (prior to Jan. 12, 1994)

CF 430 (since Jan. 12, 1994)

GLOSSARY OF ABBELVIATIOqS

BDC = Development Bank of CommerceBIC Commercial Bank of The ComorosCASP Center for As-istance to the Private SectorEDF Enterprise Development FundMERCAP = Macro-Economic Reform and Capacity Building CreditPFI Participating Financial IntermediariesSDR Special Drawing RightSSE Small-Scale Enterprises

FISCAL YEAR

January 1 - December 31

FOR OFFICIAL. U1SE ONLY

MILAMlIC FEDERAL REPUBLIC OF THE COMOROSSMALL ENTERPRIISE DEVELOPMENT PROJECT

CRIEDIT AND PROJECT SUlIMARY

Borrower: Islamic Federal Republic of the Comoros

Ben eies: Ministries of Finance and of Justice; Private Entrepreneurs; Participating FinancialIntermedliaries (PFIs); Center for Assistance to the Private Sector (CASP).

_oun_ SDR 3.7 million (US$5.1 million equivalent).

Terms: Standard IDA terms with 40 years maturity

Q52!tive: The project objective is to help the Government implement its development strategy byproviding the nascent private sector with the means and incentives to engage inproductive investments. Tlie project will provide financing and technical support tosm.,11-scale entrepreneurs and help implement improvemcnts in commercial and laborlaws as well as legal and judicial procedures, while strengthening investment incentives.

ProJect Components nOnlending: The project would consist of four, mutually reinforcing components: (a) a line of credit

which will provide the term resources needed to finance medium- and long-terminvestment; (b) an enterprise development fund to help entrepreneulrs improve the designof their projects atid strengthen their managerial capacity; (c) training and institutionalsupport to the Ministry of Justice to strengthen its capabilities to design and irniplementlegal and judiciary reforms aimed at improving the legal system; and (d) training andinstitutional support to the Ministry of Finance to undertake studies tc design reformsaimed at improving the business environment, and to oversee project implementation.The line of credit will be reimbursed by the banks periodically according to a schedulematching the schedules set for subloans. The interest rate charged to banks will reflectthe cost of funds and that charged to beneficiaries will be within the maximum ceilingpresently set at 12.5 percent p.a. These inteiest rates will be variable and will bereviewed periodically. The EDF institution will receive the funds as a grant, and privatebeneficiaries will share in the cost of services provided.

Financing Plan: US$ Milliou

Source Total %IDA 5.14 67Government 0.37 5PFIs 1.00 13Private Entrepreneurs 1.15 15TOTAL 7.66 100

Economic Rate of Return: N.APoverty cattg2ry: PTIStaff Appraisal Re_ort: Report No. 12712-KMMau: No. IBRD 25699

This documnent has a restricted distribution and may be used by recipients only in the performance of theirofficial duties. Its contents may not otherwise be disclosed without World Bank authorization.

NMEMOA UM AND RECOMMENDATION OF TLE PRESIDENTOF THE INTERNATIOONAL DEVELOPMENT ASSOCIATION

TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDITTO THE ISLAMIC FEDERAL REPUBLIC OF TIE COMOROS

FOR A SMALL ENTERPRISE DEVELOPMENT PROJECT

1. I submit for your approval the following memorandum and recommendation on a proposeddevelopment Credit to the Islamic Federal Republic of the Comoros of SDR 3.7 million (JS$5.1 million),on standard IDA terms, repayable in 40 years, to help finance a small enterprise development projet.Part of the Credit proceeds (equivalent to US$2.5 million) would be onlent to banks at variable interestrates reflecting the cost of funds in the Comoros.

2. Country BaJigroun. The Comoros is an archipelago of diree islands, inhabited by a populationof about 510,000, with GNP per capita of US$510 in 1992. This income level has been achieved throughheavy reliance on external assistance (US$115 per capita annually), equivalent to about 70 percent ofimports. The country is predominantly rural: agriculture accounts for 40 percent of GDP and employs70-80 percent of the work force. The private sector in the Comoros is not well developed in industry,trade or services. All but a handful of firms are small-scale enterprises (SSEs) employing at most 50people and often less than 20. Market concentration tends to be high, even in trade, where 12 firmsaccount for the bulk of imports. Comorian exports consist of three commodities (vanilla, cloves andperfume essence), and covered about 40 percent of imports betweern 1988 and 1992. Followingindependence in 1975, the economy grew at an annual per capita rate of about 3 percent. However, thisgrowth was fueled by uneconomic public investments and could not be sustained. Duriag 1986-92, GDPper capita declined by an annual average of 2 percent, and the overall budget deficit to GDP (excludinggrants) and debt service ratios averaged about 22 percent and 24 percent, respectively. In 1993, theoverall budget deficit declined to about 12 percent, thanks to cuts in the wage bill.

3. This poor economic performance can be attributed to a mixture of structural and policy problems:(i) high production costs linked to the overvaluation of the Comorian Franc; (ii) declining terms of trade;(iii) human resource constraints, despite high unskilled labor unemployment; (iv) weak macroeconomicmanagement; and (v) an inadequate private sector framework. In 1991, the Government, supported byan IDA Credit (MERCAP) and an IMF SAF, launched a structural adjustment program, aimed atcounteracting the overvaluation problem and reestablishing sustainable internal and external balancethrough measures designed to improve productivity and decrease costs. Measures under the programinclude the compression of current public expenditures, civil service reform, privatization and liquidationof some public enterprises, trade and price liberalization, and simplification of regulatory requirementsfor businesses. On January 12, 1994, the Comorian Franc was devalued from 50 to 75 per FrenchFranc. This action and a continuation of ongoing measures to keep inflationary pressures under checkshould contribute to greater employment and income growth and sustainable development.

4. These actions indicate Government's commitment to the adjustment program despite a volatilepolitical situation. The adoption of a new constitution and subsequent multi-party elections have beenaccompanied by political turmoil and frequent cabinet reshuffling, not unusual in a young democracy.The latest multi-party legislative elections, held in December 1993, produced a working majority for theGovernment in the Federal Assembly. The Government has determined that to foster a sustainable supplyresponse sectoral and microeconomic constraints facing the private sector also need to be addressed, andintends to pay particular attention to the development of the small-scale enterprise (SSE) secor, whichis expected to be the main source of future employment, investment and growth.

5. Project Obiectivg&. The Government's development strategy, supported by the Bank, calls foraccelerated export led growth, and a business environment where the private sector provides the mainimpetus for investment and growth, creates employment opportunities and helps alleviate poverty. 'Thesector strategv calls for going beyond re-establishing sustainable internal and external balance andproviding a boost to competitiveness through broad measures such as the recent devaluation, ard asreflected in the second PFP distributed to the Board in March 1994. The Government woald like to takespecific measures to create a business environment conducive to the development of all private sectorenterprises, while catering particularly to the needs of small scale enterprises. The project objective isto help the Government implement this strategy by providing a nascent private sector with the means andincentives to engage in productive investments. Specifically, the project will provide fiancing andtechnical support to small-scale entrepreneurs and help implement improvements in cormmercial and laborlaws as well as legal and judicial procedures, while strengthening investment incentives.

6. Project Description and Cost. To achieve the above objectives, the project would consist offour mutually reinforcing components: (a) a line of credit which will provide the term resources neededto finance medium- and long-term investment; (b) an enterprise development fund to help entrepreneursimprove the design of their projects and strengthen their managerial capacity; (c) training and mstitutionalsupport to the Ministry of Justice to strengthen its capabilities to design and implement legal and judicialreforms aimed at improving the legal system; and (d) training and institutional support to the Ministryof Finance to undertake studies to design reforms aimed at improving the business environment, and tooversee project implementation. The main features of the project are summarized as follows:

o SupnortinLy SSE Investment: Credit Component - The project includes a line of credit of US$2.5million which will finance individual subloans up to US$200,000 for financially profitable andenvironmentally sound private investments through participating financial intermediaries (PFIs).All private investments in productive and service sectors (including permanent working capitalfor activities other than commerce) will be eligible. It is expected that the majority of financingwould be for small scale enterprises (SSEs), some of which would be new, others alreadyexisting, and others graduating from the informal sector. The foreign exchange risk will beborne by the Government (which will be compensated by the margin between the onlending rateto banks and the IDA rate). The commercial risk will be borne by PFIs. Other than the CentralBank, there are only two banks in the Comoros (the development bank, BDC, and a privatecommercial bank, BIC). Both banks were assessed as per OD 8.30 during project preparationand were found to be financially sound, and readily meet the Bank's eligibility criteria as PFIs,even when the impact of the recent devaluation is taken into account (the impact of thedevaluation on BIC is likely to be positive and on BDC relatively minor). In addition, BDC hasprepared a business plan which will improve its efficiency and ensure that its institutional cultureis adapted for SSE lending. Managers of both banks indicated their strong interest to participateas intermediaries in the line of credit. In the interest of simplicity and tc avoid needlessmanagement costs associated with the creation of 'apex' institutions, the line of credit will bemade directly available to these two banks on a first-come first-served basis. Subloans wouldhave a maturity of up to 15 years. Interest rates (six and a half percent p.a. for 12 monthdeposits and an average of about 12 percent p.a. for lending) are already positive in real terms(annual inflation has been less than 2 percent during the past four years). The Government wIllpass on resources to the PFIs at rates that reflect the cost of funds, which will be revisedperiodically (presently about six and a half percent p.a.). As per the PFP agreements, a singleceiling of 12.5 percent p.a. will apply for medium- and long-term lending rates, with no setoraldistinctions. As at present, banks will be free to charge different rates for different subprojects

depending on their perception of risk. The authorities believe that maintaining a ceiling on themaximum interest rate is juEtified for the tune being by the lack of competition. The maximumrate will be periodically revised to ensure that lending rates are always positive in real terms.Following the recent devaluation, higher inflation is expected in 1994, but this rate shouldu,ecrease to less than 5 percent in 1995. To promote the private construction sector, a small partof the line of credit would be available to the banks to finance construction of housing, some ofwhich might be used for cottage industries (micro-entrepreneurs operating at home) by ownersor for rental (eligible housing would be relatively modest constructions with living areas of atmost 130 sq.m., for which eligible subloans would not exceed US$9,000). However, to favorfinancing of productive investments by PFIs, only after four dollars of commitments for suchsubprojects would up to one dollar be allowed for housing. The exception to this rule will beat the start of the project, when banks will be al'owed to commit up to US$50,000 for housingwithout corresponding commitmenLts in other sectors.

Encouraging Entrepreneurship: Entergrisg Development Fund (EDF2 - The Credit wouldcontribute US$850000 to an enterprise development fund, which would provide specializedtraining and assistance programs to SSEs and financial institutions. These programs would beconceived to enhance SSE management and productivity and would complement other donorinitiatives. The Ceater for Assistance to the Private Sector (CASP), a private sector agency, oranother institution acceptable to IDA, would manage the EDF and execute the first two of thefollowing three sub-components (the last would be managed by the Ministry of Finance): (i) about10 specialized short-term interventions (about one month each) by experts who would provideadvice to groups of about 10 entrepreneurs with similar problems; to minimize costs whileensuring quality advice, the experts will be selected among the pool of international volunteers(retirees); (ii) about 50 man-months of assistance by an engineer and a financial analyst, includingalso 6 man-months for the CASP's principal technical advisor; and (iii) training for banks inmedium- and long-term lending, with special emphasis on how to be more resoonsive to the needsof SSEs and evaluate their risk, and on the assessment of environmental impact of subprojects,thus strengthening the execution of the line of credit component. The assistance to the privatesector would be usually provided on a cost sharing basis: EDF would pay for about 70 percentof costs for short-term experts described in (i); and entrepreneurs would be charged a daily feeof around US$25 to consuit the engineer. Tne rules for interventions by IDA expert are spelledout in a Procedure Manual.

o Improving Business Laws and Their Application: Legal Reforms and Strengthening the Judiciary -The Credit would contribute about US$850,000 for reform of business laws, training, publicationand dissemination of the texts and strengthening the commercial jurisdictions of courts. Thiscomponent would build on the findings of a recent study and the ensuing action plan and wouldinclude: (a) based on ongoing inventory of existing commercial and business laws, consolidation,publication and dissemination of such laws, as well as rehabilitation of the process of publicationof the Official Journal; (b) review of the Commercial Code and other commercial and businesslegislation, with particular emphasis on revision of legislation governing: (i) ownership ofproperty, (ii) establishment, registration and operation of conrpanies, (iii) liquidations,bankruptcies, and company reorganizations, and (iv) investment and labor; (c) establis' nent ofa commercial court jurisdiction at the level of district courts in Moroni and Anjouan; (d) trainingfor lawyers and magistrates, with special emphasis on training in commercial au business lawsfor the benefit of magistrates, lawyers, ushers and court registrars; and (e) introduction of revisedjudicial procedures to accelerate and strearnline the judicial process. The project would finance

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a legal reform coordinator, short-term international technical assistance for the implementationof reforms, equipment for the Ministry of Justice and the courts, specialized training ofmagistrates and lawyers and para-legal staff in business law, and technical assistance to improvethe Ministry's ability routinely to draft and update legislation. In the area of institutionalstrengthening and training, the approach to be pursued under the project will involve starting witha small, well-focused intervention (for example, traLning and provision of reference materials atthe level of a tribunal in Moroni) which can be replicated elsewhere subsequently.

0 lImlementirLg the Government Strategy: Institutional Strengthening and Ca aciy Building-TheMinistry of Finance is already responsible for implementing a short-term action plan agreed withthe Bank and the IMF, which would among other things relieve the tax burden on SSEs. It willalso carry out a study to formulate the medium-term action plan to propose further reductions andstreamline corporate taxation; to determine whether and to what extent the fiscal benefits of theinvestment code can be integrated into the tax code, in parallel with appropriate investnentlegislation to strengthen investors' legal property rights and provide for independent arbitration;and formulate a set of tourism and export incentives. To decrease the cost of doing business andcreate opportunities for the private sector, the Government will continue the process ofprivatization and public enterprise restructuring. Priority will be given to studying the port andthe electricity company (in collaboration with French Aid), and adopting and implementing arestructuring plan for oil importing and privatization of a number of the port's commercialactivities (e.g. shipping and handling). IDA financing of about US$400,000 would be madeavailable for hiring the project coordinator and the project accountant, and for contracting expertassistance for training and for the preparation of the above studies and action plans.

7. The detailed costs of the program, as well as the financing arrangements, are presented inSchedule A. Procurement and disbursement arrangements are summarized in Schedule B. A timetableof key project processing events and status of IDA operations in the Comoros are given in Schedule Cand D, respectively. A map of the Comoros is attached. A Staff Appraisal Report No. 12712-COM,dated June 1, 1994, is being distributed separately.

8. Project Implemen tipn. Overall coordination of project implementation would be theresponsibility of the Ministry of Finance. A local project coordinator and a project accountant, financedby the Credit, would be located at the Ministry of Finance. The coordinator would be responsible foroverseeing the execution of the institutional strengthening and capacity building component, andmonitoring the execution of the other components, particularly with respect to procurement andaccounting. The PFIs would implement the line of credit. The investment fuds would be madeavailable to PFIs, which would pass them on to the private sector. PFIs would appraise and take thecredit risk for subproject lending, while the Government would take the foreign exchange risk. TheMinistry of Justice would be responsible for the legal reform and judicial strengthening component. Alegal reform coordinator, financed by the Credit, would be located in the Ministry of Justice. Draftingof new laws and training in business law would be undertaken by local and international experts. TheEDF would be managed by the CASP or another institution acceptable to IDA. The engineer and thefinancial aaalyst would be hired internationally, as would the short-term experts, but counterpartarrangements would enable on-the-job and in-house training.

9. ect Sustaina iity. Improvements in the business environment are expected to have a lastingimpact on the level and quality of investments in the Comoros. Financial intermediary lending forproductive investments will benefit from the availability of long-term funds by diminishing the potential

for maturity mismatches. The legal and institutional strengthening components would involve localcounterpart staff, who will be trained by experts, to ensure continuity and sustainability. The use ofexpert advice is expectAd to have a permanent impact on the capacity of private sector management andenhance the competitiveness of private firms, thus ensuring sustainable private sector-led growth.Moreover, the CASP already benefits from donor financing and from local resources, and the assistanceto promoters is likely to continue beyond the project. Finally, by lowering the cost of doing business andstimulating SSEs, tourism and exports, the Comoros would be able to sustain its growth objecives.

10. Lessons From Previous 1DA Involvement. IDA extended a line of credit (Cr. 1378-COM, ofMay 12, 1983) to the Development Bank of Comoros (BDC). This Credit's Project Completion Report(PCR No. 8764-COM, distributed to the Executive Directors on November 1, 1990) indicated that theproject was implemented faster than anticipated and attained most of its development objectives. Thereport also noted that the political situation was unstable and further deterioration, as well as the plannedreductions in the number of civil servants, including some who had guaranteed subloans by BDC tosubborrowers, might have had a negative impact on BDC's portfolio: a situation that has, in fact,materialized. BDC has already constituted sufficient provisions for the part of the portfolio that isaffected, and has agreed to prepare a business plan to strengthen the institution and make it moreresponsive to SSEs. In line with the approach towards broader-based and more efficient intermediation,the project has moved away from a single institution approach tjwards a multi-institution type operation.

11. Bank experience with technical assistance projects in Africa has been mixed, due to lack ofownership by Governments, and because long-term experts have tended to substitute for theircounterparts, while neither the work program nor expected results have been clearly identified. Theinstitutional strengthening proposed for the Ministries of Finance and Justice will finance expert adviceand training for local stwff. This support will be provided mainly through short-term assistance providedby international and local experts, collaborating closely and effectively with qualified and motivatedgovernment counterparts. These experts are expected to have access to decision makers to ensure rapidactions, while working as a team with their counterparts and providing them with on-the-job training.

12. Rationale for IDA Involvement. The latest Country Assistance Strategy (CAS) for theComoros was discussed with the Board on December 14, 1993. As indicated in the project objectives,the project is in full agreemLnt with, and an essential component of, this strategy, which is founded onprivate sector-led development. According to the CAS, with better macroeconomic policies, anappropriate enabling environment for the private sector, outward orientation and human resourcedevelopment, the Comoros could emulate the successful growth experience of its neighbors in the IndianOcean - Mauritius and Seychelles - and improve the standard of living of its people. Through economicand sector work and carefully selected and well-targeted operations, the Bank, in close collaboration withthe Comoros's principal donors, endeavors to help the Comoros move in that direction. The proposedproject is a small but important first step.

13. Agreed Actions. The Govermnent has adopted a Statement of Sectoral Policy, agreed duringnegotiations, where all the actions related to improving the business environment would be spelled out.The Credit Agreement provides for a mid-term review, in late 1996, to ensure its proper implementationand redefinition, where needed. In order to help assess the developmental impact, quantified monitorabletargets have been developed in the SAR and key indicators agreed during negotiations are included in theCredit Agreement. Other agreements include commitnents by the Government to review interest ratesperiodically to ensure they reflect inflation and macro-economic conditions; by the BDC to prepare andimplement its business plan; and by each PFI to maintain a satisfactory capital adequacy ratio. Signature

T

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of at least one participating agreement between the Governmerit and a PHI and of the Grant Agreementfor EDF, and the establishment of the Law Reform commission are conditions of effeztiveness. Otherconditions include hiring the project accountant and the legal reform coordinator, opening a projectaccount and regular deposit of counterpart funds.

14. Environmen Ape e project is classified as category "B'l. An area that has receivedconsiderable attention during project preparation is the need to ensure that proposed investnment projectsdo not damage the environment. While the exact zature of subprojects to be financed is not known, thelevel of the Comoros's industrial development and its comparative advantage suggest that mostsubprojects would be undertaken mainly by micro-enterprises and small-sized service activities, withoutsignificant environmental impact. In December 1993, the Council of Ministers adopted an EnvironmentalPolicy Statement, which has been discussed with IDA. Currently the Parliament is considering a NationalEnvironmental Law. The adoption of the National Environmental Action Plan (NEAP), being preparedwith UN assistance, is expected in early July 1994. TMis plan would include a general classificationscheme and regulations for industries. Moreover, under a proposed IDA-financed environment project,the Ministry of Tourism and the Environment will be strengthened to ensure proper implementation ofthe NEAP. In the medium term, local capacity for conducting appropriate envirounmental tests will becreated with the support of the proposed environment project. Initially under the Credit, PFIs will beresponsible for sensitizing subborrowers to the importance of environmental aspects of their proposedsubprojects. Bank supervision would confirm that the PFIs screen subprojects to ensure thatenvironmental aspects are covered adequately in the appraisal. Banks will receive specialized trainingin this area. Subprojects likely to zause damage to the environment would have to provide an acceptablemitigating plan.

15. Progam Objective Categoria;. The project would contribute to the following Bank ProgramObjectives: (i) private sector development; (ii) financial intermediation; (iii) poverty reduction throughemployment creation; and (iv) economic management. This project forms part of the Program ofTargeted Interventions for poverty reduction. The credit component and Enterprise Development Fund(which together make up over 40 percent of the project) are expected to benefit disproportionateiy thepoor as (a) it will assist informal operators to graduate to the formal sector and thus out of poverty; (b)many enterprises will be artisanal, construction and other sectors that tend to emr loy disproportionatelythe poor and (c) the poor, who presently have limited access to credit to form a small business, willconstitute the bulk of new borrowers. This project was endorsed under the CAS as a means to reducepoverty in Comoros through job creation and private sector development.

16. Benef5ts and Risks. The proposed operation is a complement to the Comoros's macro-economicadjustment program already launched with Bank and IMF support. The project would help spur privateinvestment and assist the Comoros achieve its growth and poverty alleviation objectives. Major expectedbenefits would stem from an enhanced supply response by small-scale private sector investors, whichwould create the employment opportunities that are critical for the success of adjustment and the reductionof poverty. The Comoros is undergoing a dual process of political and economic liberalization. Apossible risk would be renewed political instability which could shake investor confidence and slow downthe process of revamping the legal and regulatory framework. This could mean that the private sectorinvestment and the implementation of a well-focused private sector development strategy could be slowerthan expected. In view of the Government's track record in the last two years, this risk is not expectedto be significant.

17. Recommendatign. I am satisfied that the proposed Credit complies with the Articles ofAgreement of the Association and recommend that the Executive Directors approve it.

Lewis T. PrestonPresident

Atahments

Washington, D.C.June 1, 1994

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MPIESTCOSTSUMMARY(million U$

Estimk&td Proict Cos:

(A) Invstments 1.65 2.80 4.45(B) L,pndJudici&21 Refornn 0.20 0.90 1.10(C) Institutional Strenptheninsz 0.20 0.30 0.50(D) Enternrise Development Pund 0.12 0.R8 1.00

(1) Assistance to promoters (0.10) (0.80) (0-90)(2) Training for banks (0.02) (0.08) (0.10)

(E) A 0.03 0.22 0.25(F) Increme'pted Oerational Costs 0.03 0.13 0.16(G) alapllovated 0.05 0.15 0.20

TOTAL 2.28 5.38 7.66

Fintncing Plan:Amount

nvestment j Prjects 4.45 10Subborrowers (Private Sector) 1.00 22Banks 0.95 21IDA 2.50 57

Legal and Judicial R4r 1.10 100Government 0.25 23IDA 0.85 77

ins titution Strezwthening 0.50 100Government 0.10 20IDA 0.40 so

Enterprise Develon ment Fund 1.00 100Private Sector 0.15 15IDA 0.85 85

Audits 0.25 100Banks 0.05 20IDA 0.20 80

Incre9nenta Operational Cost 0.16 100IDA 0.14 90Government 0.02 10

Unalloted 0.20 100IDA 0.20 100

TOTAL 7.66 100Government 0.37 5Private Sector 1.15 15Banks 1.00 13IDA 5.14 67of which PPF (0.30) (4)

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Iteemw lPl<()UPREMLMENT METHODh ke Otht]e. ;lI Total

A. Line of Crudii I,/ 4.45h1i (.2.S()) (2,50)

Goodis, woil:.s vX1ot ̂ -v,< I, ,,'S 4.45!h' (,''(U) (2.50)

B. Legal and Ju0icial RcUionot 10 1.10(0. Ys) (0. 85)

Consulting services anid 1ainingŽ 0. 6/ 0.67(0.50) (0.50)

Office equipalalnt, SlppJluIi. (0. i2 0.43publications and vehicles (0.35) (0.35)

C. lnstitutional Strengtheningand capacity building 0.50 0.50

(0.40) (0.40)Consulting services and training 0.35 0.35

(0.30) (0.30)Office equipment and vehicles 0.is 0.15

(0.I0) (0.10)

D. Enterprise Development Fund 1.00 1.00(0.85) (0.85)

Consulting Services and training 1.00 1.00(0.85) (0.85)

E. Audit 0.25 0.25(0.20) (0.20)

F. Incremental Operational Cost 0.16 0.16(0.14) (0.14)

G. Unallocated (0.20) (0.20)

Notes: a/ International and local shopping for goods. Consultants to be hired in accordance with Bankguidelines.

b/ For goods contracts below US$500,000 international shopping procedures. For goods contractsabove US$500,000, procurement will be through ICR.Figures in parenthesis represent amounts financed by IDA.

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I STIMATED IDA DlSIBURaEMENslrq

The proceeds of tlhe Credit would tic disbursed as follows:

(a) Credit Component: US2.5-0,UOO( t)(i) 100 percent of expenditures for up to 70 peiwnt of total subproject cost for new operativns;(ii) 100 percent of expenditures for up to 80 percent of totl cost of subprojocts for etens)ons,

modernization and rehabilitations.

(b) Legland Judicial Refoi in: is 0,000(i) 100 percent of the cost of consultants, assistance and training,(ii) 100 percent of the c.i.f. cost of goods directly imported;(iii) 90 percent of the local cost for materials and supplies.

Consultant Services, Studies and Training 500,000Office Equipment, Supplies, Publications and Vehicles 350,0%0

(c) Institutional Strenethenin and Ca acit Buildin Component: Ul$s4Q00AO(i) 100 percent of the cost of consultants, studies and training for the Ministry of

Finance;(ii) 100 percent of the c.i.f. cost of goods directly imported;(iii) 90 percent of the local cost for materials and supplies.

Consultant Services, Studies and Training 300,000Office Equipment and Vehicles 103,000

(d) Enteprise Development Fund: UI85 0 000(i) Proportion of total costs for management consultants for private sector firms consistent with

the agreed cost sharing schedule (70 percent for short term assistance, cost recovery of aboutUS$25/day for the engineer and financial expert).

(ii) 100 percent of consultant services for training to banks.

(1) Private Promoters 750,000(2) Banks 100,000

(e) Audits: US$2OAO,000(i) 100 percent of the costs for all, except for banks which will pay 50 percent of the costs.

(f) Incremental Operational Cost(i) 90 percent cf the cost of eligible expenditure US$140,00

(g) Unallocated: US$200,000

TOTAL: AS$5 1100000of which PPF Funding US$300.000

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Estimated IDA Disbursements (Milliou US$)

Fiscal Year 1995 1996 1997 1998 10999 200(0 2001

Annual 0.6 0. 8 0.9 0.9 0.7 0.6 0.(6

Cumulative 0.6 1.4 2.3 3,2 3.9 A.S 5.1

12

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TIMAIETABLE OF KEY PROCESSING EVENTS

Tine takeen to prepare project : TIen lmontls

Prepared by Government and private sector with IDA assistance

First WDA AMission May 1903

Appraisal AMission Departure ianuary 1994

Negotiatiimo May 1994

Planned Effectiveness August 1994

jheddl-e DPage 1 of 2

TIhlie Status of Bank Group Operations in the ComorosSummary Statement of Bank Loans and IDA Credioc,(LWA data as of 04/30/94 - MIS data as of 05/19/94)

Amiount in US$ million(lkss cancellations)

Loan or Fiscal Urldisburw- ClosingCredit No. Year Borrower Purpose 3iL' ]DA Uak:

Credits7 Credits closed 30. 1

C17510-COM 1987 COMOROS Education III '190 2.92 06/30/94(R)C22070-COM 1991 COMOROS Road Maintenance 6.60 5.46 12/31/95C22700-COM(S) 1991 COMOROS Macroecon. Reform 8.00 6,08 06/30/94C25530-COM' 1994 COMOROS Pop.&. Hluman Resownces i.0C) 23.00 06/30/99

Total number of credits: 4 35.50 77.46

TOTAL- 65.91of which repaid 0.82

TOTAL held by Bank & IDA 65.09Amount sold

of which repaid

TOTAL undisbursed 27.46

Notes:

Not yet effectiveNot yet signedTotal Approved, Repayments, and Outstanding balance represent both active and inactive Loans and Credits.

(R) indicates formally revised Closing Date.(S) indicates SAL/SECAL Loans and Credits.

The Net Approved and Bank Repayments are historical value, all others are maiket value.

The Signing, Effective, and Closing dates are based upon the Loan Department official data and are not taken from the TaskBudget File.

-14

2ag oft 2Z

NOTE ON PROJECTS Wlrlll SIGNIFICANT DISBURSEMENT LAGS

1. A review of the portfolio took place in March 1993. Implementation of ate three active projectsin the Comoros has significarntly improved. Disbursement lags of two projects have beeii brought downto 26 percent and 36 percent and disbursements under the third operation improved from 100 percent to69 percent. 'Ihis resulted from sustained efforts of the Government implementation agencies to improveproject execution, including change of the local management teams, adequate allocation of local operatingfunds in tde budget, and close monitoring of key project components.

2. Status of the three ongoing projects is sumnmarized below:

(a) Macro-economic Reform and Capacity Building Credit (2270-OQM . Implementationof MERCAP has substantially improved since July 1992. The rising trend of currentexpenditures was reversed, the civil service reform has been accelerated, and tradeliberalization has progressed well. Based on this progress the B3ank declared the Crediteffective in December 1992 and released the first tranche. Since then, the Comoros haskept the adjustment program on course and the credit has been upgraded from a 3 ratingto a 2 rating since January 1993. Progress on MERCAP implementation will continueto be closely monitored and, if it continues to be satisfactory, the second tranche of US$3million may be released by end-June 1994.

(b) Highwav Maintenance (2207-COM). Implementation of the Road Maintenance Projectis now making good progress, despite some delays in effectiveness and initial difficultiesfaced by the project unit in handling the project. This is due mostly to the improvementin the overall financial situation, including regular replenishment of the Road Fund andthe timely payments of civil servant salaries. The effect of the CFA devaluation will cut30 percent of the buying power of the Road Fund over 1993 and will reduce the volumeof maintenance works. Bidding for periodic maintenance works by contractors isunderway according to a detailed schedule, and routine maintenance works have starledon the three islands. Disbursements on this Credit are expected to accelerate fromUS$0.3 million in FY93 to US$1.7 million in FY94.

(c) Second Education (1751-COMI. Following the mid-term review in March 1992combined wii the appointment of a new project director, implementation of the SecondEducation project improved significantly. The project rating was changed from a 3 toa 2 in March 1993 and the closing date was extended by one more year to June 30, 994.Measures recommended during the review have been largely implemented, namely therestructuring of the Ministry of Education and red&rloyment of staff to improve internalefficiency, strengthening of inspection services and reduction of repetition rates, andimproved procurement and distribution of textbooks to schools. 'The remaining 42percent of the Credit is expected to be fully disbursed by end-1994 as large commitmentshave already been made for textbooks and school equipment.

Thle v7,sk,rres <eKe'1 Iccu' 'osotlt<lr'/s ' I ./ rE Cr-rod_ ' crudl e,y otSIcr rn("orrn,o- *t.wn or. I_fl- rop do ,o;t -'pl o, r,h, pr,p of r /_lflrl wobl Bo,A, G'or'p "I." ludnocr't I ) j. ,-or,ll fh ief'l 'octuS *( (my cr' -o,y | ,0\y onyclcJo's-nCalsf sc(I>!cl? of !

NGAZ IDJA .

(GRANDECOMORE) AA

MORONI

Ico-l A 7,t60. \COMOROSV vBondumnrocr SMALL SCALE ENTERPRISES

M,Isocudjc

\ ,zo,n' oumbou- ROADS TOWNS

PATHS CONTOURS (elevaicons .n feellAIRPORTS SPOT ELEVATIONS (in feet)

PORTS REEFS

Or''. NZWANI(ANJOUAN)

MWALI(MOHELI)

- Tonqor 5Fombonr,25920 Mo>c -( \'R"'oo'-'

Nioumaccouc7 \5 0 25 640

5 0 25

KILOMETERS 44

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