world bank document · 2017. 11. 4. · document of the world bank for offical use only repw n....

Document of

The World Bank

FOR OFFICAL USE ONLY

RePw N. 5401

PROJECT PERFORMANCE AUDIT REPORT

TUNISIA SECOND AGRICULTURAL CREDIT PROJECT

(LOAN 1340-TUN)

December 28, 1984

Operations Evaluation Department

This document has a restricted distribution and my be used by recipients only i. the perforgmance eftheir official duties. Its contents may not otherwise be disclosed withot World Bank aoiaon.

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

WEIGHTS AND MEASURES

Metric System

ABBREVIATIONS

BNT - National Bank of Tunisia(Banque Nationale de Tunisie)

BNDA - Agricultural Development BankERR - Economic Rate of ReturnFOPRODI - Special Fund for Industrial PromotionFOSDA - Agriculture Development Fund

(Fonds Sp6cial de Dgveloppement Agricole)FRR - Financial Rate of ReturnGA - Guarantee AgreementGOT - Government of TunisiaIBRD - International Bank for Reconstruction and DevelopmentLA - Loan AgreementMOA - Ministry of AgricultureOED - Operations Evaluation DepartmentPCR - Project Completion ReportPPAM - Project Performance Audit MemorandumPPAR - Project Performance Audit ReportRS - Regional ServicesSAR - Staff Appraisal ReportSCMV - Small Farmer AssociationSONAMO - Agency Provi'-ng Tractor and Harvesting Services

(Socift6 Nationale de Motoculture)STIL - Tunisian Company for Milk Production

(Socifti Tunisienne de l'Industrie LaitiZre)

FISCAL YEAR OF BORROWER

Calendar Year

FOR OFFICIAL USE ONLY


TUNISIA - SECOND AGRICULTURAL CREDIT PROJECT(LOAN 1340-TUN)

TABLE OF CONTENTS

Page No.

Preface ............................................................ iBasic Data Sheet ---- ............................................... iiHighlights ......................................................... iii

PROJECT PERFORMANCE AUDIT MEMORANDUM

I. STMARY .................................................. 1

A. The Project...................................1......1B. Implementation Delays ..................... ... 2......2C. Investments and Disbursements by Category............. 3D. Project Impact and Benefits............... .......... 6E. Other Results.............................. .... 7......7

II. ISSUES ...................................... ............ 9

A. Credit Policy .9.....................................9B. Institutional Development .................. .......... 12C. Monitoring and Evaluation and Measurement of Project

Benefits. ........................................... 13D. Conclusions. ......................................... 15

Annex 1 Comments from Borrower .-..................... .... ..... 17

PROJECT COMPLETION REPORT

I. INTRODUCTION ............................................. 27II. PROJECT FORMULATION ........................................ 28

III. PROJECT IMPLEMENTATION ...................................... 29IV. PROJECT IMPACT ............................................... 42

V. LESSONS LEARNED AND CONCLUSIONS .......................... 46

Annex 1 BNT's Summarized Balance Sheets, Income and ExpendituresStatements, and Sources and Application of Funds ......... 49

Annex 2 Disbursements ........................... .............. 52

MAP 18707

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

- I -


p TUNISIA - SECOND AGRICULTURAL CREDIT PROJECT(LOAN 1340-TUN)

PREFACE

This is a performance audit of the Tunisia Second AgriculturalCredit Project, for which Loan 1340-TUN in the amount of US$12.0 million wasapproved on November 23, 1976. The Closing Date was extended from December31, 1980 to December 31, 1982. However, the Bank agreed to honor alldisbursement requests received -mntil June 30, 1983. The last disbursementwas made on April 5, 1983. As total disbursements on June 30, 1983 amountedto US$11,901,360, the balance of US$98,640 was cancelled on that date.

Considerable delays in disbursements were also experienced by theFirst and Third Agricultural Credit Projects. The First Agricultural CreditProject (Loan 779/Credit 263-TUN), in the amount of US$8.0 million, wasapproved on July 1, 1971, and closed on July 22, 1978, almost three yearsafter the original Closing Date [see Project Performance Audit Report (PPAR),First Agricultural Credit Project (Loan 779/Credit 203-TUN), OED Report No.2497 dated May 11, 1979]. The Third Agricultural Credit Project (Loan1885-TUN) in the amount of US$30.0 million, was approved on June 26, 1980.As of April 9, 1984, disbursements were about 30Z of the expected level. TheBanque Nationale de Tunisie (BNT) has been the Borrower and executing agencyfor all three projects.

The audit report consists of an audit memorandum (PPAM) prepared bythe Operations Evaluation Department (OED) and a project completion report(PCR), which was prepared by Agricultural Division II of the Europe, MiddleEast and North Africa Regional Office and is based in part on a completionreport prepared by the Borrower. The audit memorandum is based on a reviewof relevant Bank documents, including minutes of project presentation to theBoard and interviews with Bank staff who have been associated with theproject. Proiect documents reviewed include: the Appraisal Report (No.1133-TUN) dated October 22, 1976, the President's Report (P-1932-TUN) ofNovember 3, 1976, the Loan Agreement dated December 17, 1976, the PCR ofMarch 1984, and memoranda on project issues as contained in relevant Bankfiles.

A draft version of this report was sent to the Borrower for com-ments on September 19, 1984. Comments which were received have been takeninto account in the report and are reproduced as Annex 1 to the PPAM.

On the basis of this procedure, the audit finds that the PCR gener-ally covers the main features of the project experience. The audit memoran-dum elaborates on problems of credit policy, institutional development, moni-

toring and evaluation, and the related topic of measuring project benefits.


TUNISIA - SECOND AGRICULTURAL CREDIT PROJECT

(IAN 1340-TUN)

BASIC DATA SHEET

KEY PROJECT DATA

Appraisal Actual or Actual as I ofEstimate Estimated Actual Appraisal Estimate

Total Project Costs (US$ million) 26.3 24.6 /a 94Loan Amount (USS million) 12.0 11.9 99Daze Board, Approval 06/76 11/23/76 -Date Loan Agreement - 12/17176 -Date Effectiveness 10/76 07/19/77 -Closing Date 12/31/80 12/31/82 -Economic Rate of Return (2) 34 33 /b -Financial Rate of Return (2) 11-50 neg.-46 -Number of Direct Beneficiaries Ic 1,250 5,825 465Number of Subloans 957 4.063 4Z5

CUMULATIVE DISBURSEMENTS

FY77 FT78 FY79 FT80 FY81 F82 FT83

Appraisal Estimate (USS million) 2.7 8.3 11.4 11.8 12.0 12.0 12.0Actual (USS million) - 1.7 3.6 6.7 9.4 10.3 11.9Actual as 2 of ESciMAte 0 20 31 57 78 86 99Date of final disbursement: April 5, 1983

MISSION DATA

Date No. of Nandays Specializations Performance Types of(mo./yr.) Persons in Field Represented/d Razing le Trend/f Problemsa

Identification 01/75 - - - - - -

Preparation JI975 l 5 205 A,C.E,I,E - -

Appraisal 11/75 4 84 A.E.F.I - - -

Sub-total 289

Supervision 1 03/77 2 22 li C,E 2 2 N,TSupervision 2 06/77 1 12 1i C 2 2 1I,TSupervision 3 11/77 2 3s 71 C,E 2 2 NTSupervision & 05/78 1 9 It E 2 2 H,TSupervision 5 11/78 2 8 C,E 2 2 H,TSupervision 6 0/79 1 20 A C 2 2 H,TSupervision 7 03/81 3 15 A,C,E 2 1 H,TSupervision 8 10/81 1 5 E 2 2 H.PSupervision 9 07/82 1 7 E 2 2 a.PSupervision 10 12/82 2 7 /1 E.F 2 2 H.p

Sub-total 143

Total 432

OTHER PROJECT DATA

Borrower: Banque Nationale de Tunite (BNT)Executing Agency: Banque Nationale de Tunisle (BN)Fiscal Year: January 1 - December 31

Name of Currency (Abbreviation) Dinar (0)

Currency Exchange Rate:

Appraisal Year Average: US51.00 - D 0.429Intervening Years Average: USS1.00 - D 0.430Completion Year Average: US$1.00 - D 0.591

Preceding Project: Follow-on Project:

Name First Agricultural Credit Third Agricultural CreditLoan/Credit Number Loan 779/Credit 263-TUR Loan 1885-TUNLoan/Credit Amount (US$ N) 5.0/3.0 30.0Date Board Approval 07/01/71 06/26/80PPAR Number 2497 -

Ia D 10.6 million at average exchange rate during the Intervening years if US$1.0 - D 0.430.71 See PPAN pars. 24.7c Defined as recipients of sub-loans in the case of mall and commercial farmers; in the came of sub-loans to

SCNVs anl cooperatives, there was an average of 50 beneficiaries per sub-loan./d A - Agriculturist; C - Credit Specialist; E - Economist; P - Financial Analyst; I - AgroIndustries Specialist;

L - Livestock Specialist.Ie 2 - moderate problems.if I - improving; 2 - stationary.

N M - Managerial; T - Technical; P - Political.h FAO/CP.

71 Combined with supervision of other project(s).

- i1i -



HIGHLIGHTS

The project supported a program to increase agricultural productionwhich would help meet rising domestic demand and reduce huge agriculturalimports. In contrast to the First Agricultural Credit Project (Loan 779/Credit 263-TUN), the project provided investment credit to small/medium farmoperators who, up to 1976, had limited access to institutional credit.

Project investments were expected to total about US$26.0 million,of which Loan 1340-TUN would finance US$12.0 million. Banque Nationale deTunisie (BNT), the Borrower and executing agency, would finance US$3.1million equivalent, sub-borrowers US$6.0 million, and the Government US$5.2million, half of which would consist of grants and the other half as loans tosub-borrowers. Main investments to be undertaken through the project were:light agricultural equipment, seeds, dairy cattle, and well and irrigationimprovements by small/medium farmers; heavy agricultural equipment, dairyfarm development and irrigation infrastructure by large farmers; date palmplantation development by cooperatives; and olive oil mills byagro-industries (PPAM paras. 1 and 2, and PCR para 2.04).

Project implementation was delayed by two years, but the overalldelay was about two and one-half years as Board presentation was delayed fivemonths due to a controversy over credit policy between the Government and theBank. Further, the final disbursement took place four months after theclosing date. Delays were caused by problems of meeting the effectivenessconditions by the Government, competition from alternative sources of funds,and Government policies (PPAM paras. 7-10 and PCR para. 3.01).

Although the investment pattern at completion was somewhatdifferent than envisaged at appraisal, the project generally appears to haveachieved its objectives. However, due to incomplete development of aninvestment monitoring system that was a component of the project, preciseinformation on project accomplishments is not available. According toestimates, the project achieved its overall incremental crop and livestockproduction objectives (PPAM para. 23 and PCR paras. 4.01 and 4.02). Projectbeneficiaries have been estimated at 5,800 at completion compared with 1,250

estimated at appraisal (PPAM para. 25). This increase was primarily due tosmaller loans being made to more small/medium farmers than was envisaged.The reestimated rate of return is 33%, about the same as the appraisalestimate; however, this estimate is conditioned by the lack of basic projectperformance data noted above (PPAM paras. 24 and 49).

- iv -

Other points which may be of special interest are:

- institutional development of BNT was significant; administrationwas reorganized and decentralized, professional staff was expanded,and appraisal procedures improved (PCR paras. 4.06 and 4.07);

- although BNT's lending level expanded considerably during theproject period, its agricultural lending operations have not beenprofitable (PCR paras. 4.08 and 4.09);

- the Bank's efforts to change credit policy in Tunisia have not beensignificantly successful (PPAM paras. 30-45); and

- monitoring and evaluation of credit projects is especiallydifficult due to the dispersed nature of investments, but a betterdesigned monitoring and evaluation system could improve results(PPAM paras. 49-52).

PROJECT PERFORMANCE AUDIT MEMORANDUM


I. SUMMARY

A. The Project

1. The principal objective of the Second Agricultural Credit Projectwas to increase agricultural production to meet rising domestic demand forfood and other agricultural products in Tunisia and to reduce the hugeagricultural production deficit. An innovative feature of this project,which was supported by a Bank loan of US$12.0 million, was that it wouldprovide investment credit to small/medium farmers 1 / who up to that time(December 1976) had little access to institutional credit.2/ Projectinvestments were expected to total about US$26.0 million, of which 30% wouldbe made by small- and medium-sized farms. Further, these farms were tobenefit from 32% of the Bank loan which would assist in the purchase of lightagricultural equipment, seeds, dairy cattle, and well and irrigationimprovements. Other investment credits were to be granted to commercialfarmers, collectively owned smallholder date plantations, and agro-industries. Investments by commercial farmers were expected to includeheavyagricultural equipment, pure bred dairy stock and related physicalfacilities, and construction and improvement of irrigation infrastructure.Date palm and plantation development was expected to consist of groundwaterirrigation, drainage development and land levelling, land preparation,planting and maintenance (first seven years) of date palms, windbreaks,pumping stations, tractors, miscellaneous agricultural implements and storagefacilities. Agro-industries were expected to invest mainly in olive oilmills.

2. The First Agricultural Credit Project3 / had supported essentiallythe same types of investments as the Second Project - grain, dairy, and datepalm development - but only for commercial farmers and agro-industries.

1/ The term "small farmers" is used in the appraisal report but "small andmedium farmers" is used in the Loan Agreement, likely a compromise dueto the difficulty encountered in agreeing on the size definition ofsmall farmers.

2/ The limited access to investment credit by small/medium farmers wasthrough FOSDA and bilateral assistance projects. Further, theIrrigation Rehabilitation Project (Loan 1068-TUN), which was approvedDecember 19, 1974, earmarked US$2.1 million for small farmer credit.

3/ See also Project Performance Audit Report, Tunisia First AgriculturalCredit Project (Loan 779/Credit 203-TUN), OED Report No. 2497 dated May11, 1979.

- 2 -

However, date palm plantations were developed by STIL (Socifta Tunisienne de1'Industrie Laitiare), a semi-private industry with much experience in dateproduction.

3. At full development, incremental annual production of the projectwas expected to total 50,000 tons, consisting of grains, fruits, vegetables,beef, dates and olive oil and some miscellaneous livestock. The value ofthis incremental output would be around D 6.5 million, in 1975 dinars.Further, the project was expected to provide increased incomes to about 1235farmers, of which about 960 would be smallholders, including 300 SCMV members(Socift6 Civil de Mise en Valeur - Farmer Association for Joint FarmDevelopment). About 475 of the smallholder beneficiaries were estimated tobe in the poverty group. The project, through investments in commercial,smallholder and cooperative farms, was expected to create 1,300 man-years offamily employment, and 350 jobs at olive oil mills.

4. The Borrower and executing agency of the project would be theBanque Nationale de Tunisie (BNT), as it was for the First AgriculturalCredit Project. At the time of project appraisal, BNT was the second mostimportant commercial bank in Tunisia, providing mainly short-term loans tocommerce and industry. A start was made under the First Agricultural CreditProject to improve BNT's lending activities to agriculture. An objective ofthe Second Project was to continue to improve BNT's efficiency as an agencyfor providing agricultural credit by fully staffing the Project Unit withinBNT that was established under the First Agricultural Credit Project.

5. Procurement under the project by farmers would be through localchannels, but procurement of machinery and equipment for oil mills would bemade by selecting the best of three offers. Local competitite bidding wasrequired for procurement of construction of deep wells for plantationdevelopment. Most of the goods for on-farm development was considered to betoo varied to be suitable for bulking and international procurement.

6. Investment results were expected to be monitored on arepresentative sample basis. To this end, BNT would set up a monitoringsystem within 12 months of effectiveness. Further, the Borrower had agreedto provide suggested procedures for designing an appropriate monitoringsystem within nine months after effectiveness.

B. Implementation Delays

7. The project was delayed even before approval. The project wasappraised in November 1975 and was scheduled to be presented to the Boardin June 1976. Differences between the Bank and GOT developed on creditpolicy, including interest rates. Another contentious issue was lending forsmall farms which GOT did not favor under the lending terms advocated by theBank. As a result, the project was not presented for Board approval untilNovember 19, 1976.

8. Loan effectiveness was delayed by four months. The main reason forthis delay was a condition that required GOT to issue and publish decreesrevising the terms and conditions by which special agricultural development

- 3 -

funds (Fonds Sp&cial de D6veloppement Agricole - FOSDA) were on-lent by theBorrower (BNT). Fulfilling these terms and conditions required significantchanges in the interest rate and other lending terms existing for FOSDA atthat time. Although the new conditions and terms finally decreed for FOSDAwere not exactly comparable to those of the Loan Agreement, they wereaccepted by the Bank as being sufficiently comparable as to not have adetrimental effect on the timely disbursement of the loan.

9. Another condition of effectiveness required the Borrower to furnishthe Bank with: "(i) a report of the audit of its acounts and financialstatements for fiscal year 1975 of such scope and in such detail as requestedby the Bank, and (ii) certified copies of its audited financial statementsfor such year." This report was received by the Bank; however, it did notcontain the standard audit certification because of the limited scope of theaudit. Nonetheless, the Bank accepted the report as satisfying Loan Agree-ment Section 7.01 because BNT's management agreed that a full audit would bedone in compliance with standard audit practice by an auditor acceptable tothe Bank. This decision was taken before the first effectiveness date; thus,compliance with this condition did not delay loan effectiveness.

10. In sum, the project was implemented with an official delay of abouttwo years, but the overall delay was about two and one-half years. The finalClosing Date (December 31, 1982) took place two years after the originalClosing Date, but disbursements, as agreed by the Bank and the Borrower,were continued for another six months until June 30, 1983, based on commit-ments as of December 31, 1982. The final disbursement was made on April 5,1983. An undisbursed balance of US$98,640.42 was cancelled on June 30, 1983

C. Investments and Disbursements by Category

11. For on-lending purposes, the project was divided into fourcategories:

I - Sub-loans4 / to small and medium farmers for generalfarm development and to SONAMO (Sociftf Nationale deMotoculture) and to service cooperatives for agricul-tural machinery.

II - Sub-loans to commercial farmers for general farmdevelopment.

III - Sub-loans to SCMVs (Sociftf Civil de Mise en Valeur)for collectively owned date palm plantations.

IV - Sub-loans for agro-industrial enterprises for foodprocessing, packing and storage.

4/ All sub-loans were medium- and long-term, i.e., 3 to 20 years dependingon type of investment. For example, sub-loans for deep tubewells werefor 20 years with a two-year grace period.

12. Sub-loans to small/medium farmers got off to a slow start due to alack of staff within the Project Unit who could apply the new system ofevaluation of sub-loan applications which was initiated under the proj-ect.5/ It took about twelve months for the first disbursement to beapproved by the Project Unit. Because of a shortage of technically competentstaff within BNT, it was decided that sub-loan applications from smallfarmers would be technically appraised by the Regional Services (RS) of theMinistry of Agriculture (MOA), whose personnel had to be trained in sub-proj-ect appraisal procedures required by BNT and the project. RS was reluctantto appraise sub-loans under terms which were not exactly the same as those ofFOSDA (Fonds Sp cial de D veloppement Agricole). This reluctance also slowedsub-loan approval and disbursements. It was only in May 1978 that MOA agreedto appraise sub-loans under lending terms and conditions which were in accor-dance with the Loan Agreement.

13. There was an abundance of sub-loan applications from the small/medium farmer group in 1979 and through the first half of 1980; thereafter,there were few sub-loan applications because of the availability of FOSDAfunds with simpler lending procedures and conditions, contrary to the letterand intent of the Loan Agreement. In December 1982, in order to speed updisbursements after the Closing Date had been extended twice, the Bank per-mitted the transfer of sub-loans already approved by BNT for financing byFOSDA funds.

14. Sub-loans to SONAMO (Soci t Nationale de Motoculture) and servicecooperatives were made without difficulty and accounted for 21% and 15%,respectively, of total investments under Category I. These totaled D 3.5million compared with D 3.3 million expected at appraisal (includingcontingencies). Disbursements by the Bank under this category amounted toUS$4.6 million vis-a-vis US$3.9 million6 / allocated to Category I at approv-al. The additional funds for this categ--y came from a transfer from Cate-gory III.

15. On the basis of sub-loans, the number of beneficiaries under Cate-gory I was about 4,860 compared with 960 estimated at appraisal, when lendingto small/medium farms was expected to finance investments in integrated farmdevelopment which would encompass irrigation development, cultivation equip-ment, livestock, and stables. However, lending to small/medium farmers wasgenerally for single investments, and the average amount of sub-loans wasabout one-sixth of the expected amount. This together with sub-loans made to30 Cooperative Production Units (approved as beneficiaries after the LoanAgreement was signed), which included an average of about 30 farmers,accounts for the increased number of beneficiaries. The incomes of thesmall/medium farmer group were expected to increase by about D 1,000 (morethan double their average base level) at full development through project

5/ At appraisal, the small/medium farmer group was defined as farms withincomes of not more than D 600. On delays in implementation, see alsoComments from Borrower, Annex 1, paragraph reference (12).

6/ The exchange rate averaged US$1 = D 0.430, over the implementationperiod.

investments. Due to the lack of an adequate monitoring system (see PPAMparas. 49-52), no information on the impact of project investments on theincomes of this group is available.

16. Sub-loans to coaercial farmers (Category II) were made promptlyand without difficulty because of BNT's prior experience, and because loansto this group of farmers were mainly for mechanization, which were ineligiblefor financing by FOSDA under its new terms and conditions. Loans for farmmachinery accounted for 82% of lending under this category. This result wasessentially in line with appraisal expectation. Expected total disbursementsunder this category were exceeded by 10%. There is also no informationavailable on income improvements resulting from these investments (PCR

paras. 3.22 and 3.23).

17. Sub-loans to SCMVs (small farmer associations) for development of

date palm plantations (Category III) experienced a considerable delay. Atcompletion, only 58% of the expected disbursements were made. Lending underthis category only began during the second quarter of 1981 (six months afterthe original Closing Date). The initial delay was related to compilation oflegal documents required for establishment of SCMVs, performance reviews, andlack of extension services. Delay was also due to the Government'sopposition to creation of new date palm plantations by farmer associations.However, in 1980 this policy was changed, and the creation of eight SCKVs wasapproved. Sub-loan requests, in the amount of D 2.0 million for six SCMVs,were processed quickly by RNT. However, implementation of these investmentswas hampered by difficulties in obtaining drilling rigs, suitable

contractors, and supplies of suitable date palm seedlings. As of August1983, none of the six SCMVs had been completed. The uncompleted works wereeventually financed by the Third Agricultural Credit Project (PCR paras. 3.09

and 3.10).

18. After it became apparent in December 1982 that the reduced (seepara. 14 above) amount of funds available under this category would not bedisbursed before the Closing Date, the Bank approved conversion by BNT ofD 243,642 in grants it had already made to SCMVs to sub-loans eligible forreimbursement under Category III. This action resulted in additional dis-bursements by the Bank of US$202,000 under this Category.

19. Sub-loans to agro-industries (Category IV) were made without anydifficulty; however, no sub-loans were made to olive oil processing plants as

expected at appraisal. Instead, project funds were used to finance food,drink, seed and feed processing facilities, and cold storage. The reasonsfor the change to financing of these facilities (which was permitted underthe Loan Agreement) were: requirements for oil mills were overestimated,agro-industrial sub-projects did not qualify for FOPRODI (Special Fund forIndustrial Promotion) subsidi,s which some prospective borrowers insisted on

getting, and BNT financed some oil mills out of its own funds for reasonsunknown. Actual investments under this category were about 25% less thananticipated at appraisal (including contingencies) (PCR para. 3.02).

20. Only one minor amendment was made to the Loan Agreement which per-

mitted sub-loans to production cooperatives (see para. 15) to be reimbursableunder the project. Such cooperatives had been excluded from the original

- 6 -

project because they were not well managed. Upon the Borrower's request, the

Bank later agreed to include such cooperatives if they were judged to havegood performance and management.

21. A number of covenants were not complied with or were only partiallycomplied with by the Borrower. With respect to reporting and audits, quar-terly and annual reports were generally complete and timely, but financialand audit reports were usually late (up to one year) and had received onlyqualified approval of the auditors. The reason, reportedly, for theirdelayed arrival at the Bank was that the auditors could not finalize theiraudit before BNT's general assembly had approved BNT's financial statementswhich usually occurred six months after the end of the fiscal year. A moreserious problem occurred with Covenant 3.08 of the Guarantee Agreement underwhich the Government agreed to ensure that credit for purposes similar tothose of the project would be made available on such terms and conditionsthat would not materially affect the carrying out of the project by theBorrower. Funds provided through FOPRODI at terms and conditions morefavorable than those of the project competed with lending to agro-industries(Category IV) and, similarly, FOSDA funds competed with lending tosmall/medium and commercial farmers. This competition was partly responsiblefor the delay of disbursements under Category I.7/

22. Under the Loan Agreement (Section 3.05), the Borrower agreed todesign and establish an investment monitoring system within 12 months of thesigning of that agreement. The objective was to obtain information on theeffective use of project inputs and outputs. This system was designed withthe guidance and approval of the Bank, and implementation was first initiatedin 1978 with about 10 medium and large farmers. The program was interruptedin 1979 but resumed in 1980 with a sample of 25 farms and extended to 58farms in 1981. Inadequate information was collected by this system (see PPANparas. 49-52 and PCR paras. 3.22, 3.23 and 4.05).8/

D. Project Impact and Benefits

23. Due to BNT's limited success in establishing an adequate monitoringsystem, there is only indicative information on the project's impact. On thebasis of limited inform2tion available and appraisal of sub-loans by MOA andBNT, 12 representative farm models were developed. Estimates of total incre-mental annual production were made by weighting the models by the actual num-ber of sub-loans made to each type of farm represented by these models.These resulting production estimates at full development compare with thosemade at appraisal as follows:

7/ See also Comments from Borrower, Annex 1, paragraph reference (21),item 5.

8/ The Borrower disagrees with the assessment, see Annex 1, paragraphreference (22).

-7-

Appraisal EstimateEstimate At Completion

(tons) (tons)

Grain 13,155 16,000Fruits and Vegetables 22,700 -Vegetables - 19,490Fodder - 2,000Milk 6,500 10,970Beef 370 776Lamb and Mutton - 150Wool - 8Dates 3,000 3,100/a

/a At full development (18 years); however, total investmentswere not financed under this project.

On commercial farms, large yield increases did not materialize. These farm-ers generally increased land cropped and continued their traditional croppingpractices rather than using more intensive production practices as wasexpected at appraisal. Most of these investments were in tractors. Yieldincreases on small/medium farms were less than expected too, since credit wasmainly used for single investments rather than for integrated developmentpackages as assumed at appraisal.

24. Estimates of the financial rates of return (FRR) to the 12 farmmodels range from negative (a commercial livestock farm model) to over 50%.The re-estimates of FRRs for agro-industrial investments range from negative(fruit and vegetable processing) to 20%, and that for date palm plantationsis 14%. The re-estimated FRR for the entire project is 33%. Because theestimates of the economic rates of return (ERR) for the project's componentswere generally higher than the financial rates for the Second and Third Proj-ects, the PCR concludes that the same relationship would likely hold for there-estimated ERR for the Second Project, and thus the ERR is not less than33%. However, the PCR notes (para. 4.05, footnote) that no separate calcula-tion of the project's ERR was made because of lack of actual results of proj-ect investments. Because of this, and because of input subsidies, Governmentcontrol of product prices, and the shadow pricing of labor at 20% to 50% ofthe minumum wage,9/ all of which affect the relationship between the FRR andERR, the audit questions the validity of the PCR's assumption about there-estimated ERR.10/

9/ This is difficult to justify since investments were made i large farmm-chines.

10/ See also Borrower's interpretation of the validity of the reestimatedERR and project benefits, Annex 1, paragraph references (23) and (24).

- 8 -

25. On the basis of the number of sub-loans that were made, the number

of project beneficiaries at completion is estimated at about 5,800 comparedwith just 1,250 estimated at appraisal. Only 616 sub-loans were made to com-mercial farms; hence, the bulk of the beneficiaries are small/medium farms(see para. 15). The main reason for the increase in the number of beneficia-ries is that the average loan amount to small/medium farms was much less thanexpected due to the investment pattern noted above.

E. Other Results

26. Performance of the Borrower. BNT lending to agriculture almosttripled during the 1976-82 period. About half of the BNT lending was for

short-term loans, while project and special funds such as FOSDA were used formedium- and long-term lending. Despite expanding its lending, BNT's agricul-tural operations have not been profitable. A special study of BNT's opera-

tions for 1979 and 1980 determined that losses on agricultural lendingamounted to about D 1.0 million each year. This figure, however, resultsfrom using a conservative reserve for bad debts, so actual losses were likelyhigher.

27. BNT's sub-loan recovery record remained poor over the project peri-od and in 1982 appeared to have detericrated, especially for funds providedby FOSDA and the Second Agricultural Credit, which were 52% and 66%, respec-tively. This generally poor recovery rate is due to regulations that do notprovide BNT with incentives to recover loans financed by special funds. Incontrast, its recovery of loans provided by its own funds (mainly short-term

lending to large farmers) averaged about 90%. BNT attributes this highrecovery rate to the need for obtaining new loans each season, and the factthat national grain marketing agencies can withhold marketing proceeds torepay any outstanding loans held by BNT.

28. Positive steps were taken during project implementation tostrengthen BNT's organizational structure. Staff in charge of creditoperations was expanded by about 70% and the credit department wasreorganized.

29. Bank Performance. The Bank was instrumental in getting BNT to pro-vide funds for investments by small/medium farmers at more economic rates ofinterest and to conduct more vigorous appraisals of sub-projects. However,the Government's lack of commitment to changing its practice of providingfunds to small/medium farmers through BNT at concessionary terms and rateswas not fully recognized by the Bank until late in the implementation peri-od. The Government supplied FOSDA funds at terms and conditions which com-peted with Second Credit Project funds, and this contributed to the extendedperiod of disbursements. Although some progress has been made, the Bank hasnot been able to get the Government to change its general policy on terms andinterest rates for lending to agriculture.

-9-

II. ISSUES

A- Credit Policy

30. As already pointed out, both the First and Second AgriculturalCredit Projects for Tunisia experienced considerable time overruns; the FirstProject, 34 months, and the Second Project, 27 months. Moreover, the ThirdProject is now far behind its estimated disbursement schedule. Only about30% of the expected level of disbursements for that project had been achievedas of April 1984. The Third Project (Loan 1885-TUN), which was approved onJune 26, 1980 and became effective on June 24, 1981, has been listed as aproblem project since September 1982. A common reason cited as a cause forthe delays in implementation and consequently disbursement of all three proj-ects has been competition from other sources of credit, principally FOSDA, atinterest rates and terms much more favorable to the farmers than those per-mitted under the Bank loans. In BNT's view, more important factorscontributing to project delay are: other sources of financing (in additionto FOSDA), which are better suited to the needs of farmers in well definedareas than are Bank projects covering the entire country, the Bank's frequentdisregard for certain factors that are inherent in the country'ssocio-economic situation, and the time required to put project mechanisms andprocedures in place at start-up.

31. A major issue between the Bank and the Government at the time ofnegotiations of the Second Agricultural Credit Project was the uniformity ofterms and conditions for all institutional agricultural credit in Tunisia.Further, sub-projects which were financed by special funds (e.g., FOSDA) weresubject to little financial and economic appraisal or supervision by BNT. Inaddition, these funds included a grant portion as well as low interestrates. In the Bank's view, FOSDA was not providing sufficient credit forsmall farmers. The Bank sought to increase lending to small farmers, butonly with higher interest rates and adequate subproject appraisal and super-vision.

32. Because of the Bank position on lending conditions to small farm-ers, the Government wanted the project to provide funds only for on-lendingto large farmers and agro-industries. The Government planned to provide sub-stantial FOSDA funds for small farmer credit on its traditional subsidizedterms. The Government considered terms and conditions of lending .o smallfarmers to be a sensitive internal political issue in which it preferred notto involve the Bank. However, the Bank continued to promote credit policyreforms in the direction of what it believed would lead to greater effective-ness and efficiency in lending to agriculture.

33. Eventually, after numerous discussions, the Government acceded tomost of the Bank's conditions for agricultural credit policies. These policydiscussions, as already noted, led to delays in starting formal negotiations,originally planned for May 1976 but actually held in September 1976, and inpresenting the project to the Board, which was delayed from June 1976 toOctober 1976.

- 10 -

34. Eventual compromises reached during negotiations included: inter-

est rate at 6% for small/medium farmers, 7% for commercial (large farmers)and 8Z for agro-indus tries. The Bank had proposed 6% for small/medium farm-ers, 8% for commercial farmers and 9% for agro-industries. BNT had beenlending to small farmers at interest rates from 2.OZ to 4.5% together with alarge grant element. Under conditions of the Loan, small/medium farmers, in-dividually and as members of cooperative associations, would continue toreceive sub-loan grants of 10% to 40% (LA11 /, Schedule 4, Section C.1). Itwas also agreed (LA 7.01(a)) that all loans made by BNT out of the proceedsof FOSDA be under revised terms and conditions which would reflect thespecific terms and conditions detailed in paragraphs B.1, B.2 and C ofSchedule 4 of the IA which stipulated lending conditions for small/mediumfarmers.

35. Ln the Guarantee Agreement (Section 3.08), this covenant stipulated

"The Guarantor shall take all steps necessary on its part to ensure thatcredit for purposes similar to those of the Project shall be made availableon such terms and conditions as shall not materially and adversely affect thecarrying out of the Project by the Borrower.-

36. As already noted (para. 8), compliance with this covenant delayedthe effectiveness of the loan from March to July, 1976. A supervision back-to-office report of July 1977 noted a number of differences between therevised terms and conditions for FOSDA funds as reflected in published"D&crets- and "Arrates" and those detailed in the Loan Agreement. The dif-ferences were not considered significant enough to affect disbursement underthe project.

37. Early supervision missions did not detect any signs or receive any

information indicating that under actual terms and conditions and availabil-ity FOSDA funds were competing with lending under the project to the small/medium farmers. As late as September 1979, a supervision mission expectedthe full amount of the loan to be disbursed by the original Closing Date ofDecember 31, 1980. It was noted, however, that there had been no sub-loancommitments for date palm plantations and that funds for the Category (III)probably would have to be reallocated. Thereafter, there was a gap of 18months in supervision, essentially because the Third Agricultural CreditProject was being appraised and and processed for approval during that peri-od. In the meantime, the Closing Date of the loan had been extended by sixmonths to June 30, 1981. The latter supervision mission of March 1981, whilerecommending the extension of the Closing Date to December 1982, did notrecognize that FOSDA loans were competing with lending to small farmers underthe project.

38. It was not until the October 1981 supervision mission that the com-petition between FOSDA loans and Bank supported sub-loans was noted. Prior-ity was being given to sub-loan applications which would qualify for FOSDAfinancing by the Regional Services of the Ministry of Agriculture, which wascharged with the technical appraisal of loan requests. This indicated that

11/ Loan Agreement.

- 11 -

there was considerable and, possibly, increasing Government allocation offunds to FOSDA. Commercial farmers, too, had access to FOSDA loans. Becausethese funds excluded lending for mechanization, they did not compete withsub-loans to commercial farmers under the project. Sub-loans for mechaniza-tion represented 82% of the amount of sub-loans made to commercial farmers,(see para. 16).

39. It is not intended to imply that competition from FOSDA was theonly cause of delay in project implementation. The point is that the Govern-ment did not, to a large degree, support the Bank's principles of creditpolicy: that beneficiaries should pay the full cost of credit or at least apositive rate of interest, sub-loans should only be made for economicallysound enterprises or investments, and credit institutions should be operatedon a financially sound basis--they should bear the risk of their lendingoperations in order to promote greater efforts to recover overdue loans.

41. Government policies, especially provision of alternative sources ofcredit at subsidized terms, including lack of enforcement of repayment ofloans, and on terms conflicting with those agreed to under Bank financing,also affect implementation of the Third Project. 1 2 / As of December 31,1983, the original Closing Date of the project, disbursements had just reach-ed 24%. The Bank had indizated that it would not extend the Closing Dateunless the Government and BNT took measures to improve loan recovery andreduce subsidies available to large farmers. The Bank agreed to an extensionof the loan to December 31, 1984 when the Government proposed to undertakethe following measures (April 9, 1984 Supervision Report, Annex 3):

(i) an increase in interest rates for large farmers and agriculturalinvestment projectsl3/ from 6.0% p.a. up to 7.5% and 8.0

p.a. 1 4/, these investments and beneficiaries being moreover ineli-gible for FOSDA investment subsidies. For small and medium farm-ers, Government proposed to evaluate the impact of an increase inlending rates on financial viability of typical farmers before tak-ing any action;

(ii) the presentation to Parliament for approval of a law aimed atgranting to financial institutions the Privilage d'Etat forrecovery of loans extended on budgetary resources or guaranteed bythe state;

12/ In BNT's view, the Third Credit Project was delayed due to slowness incompletion of the Second Project (which in turn was due to the factorsmentioned) and appreciation of the U.S. dollar exchange rate vis-a-visthe Dinar; see Annex 1, paragraph reference (41).

13/ Defined as Category C in the 1982 law of promotion of investments inagriculture.

14/ 7.5% for investments in livestock and fruit tree plantations.

L

- 12 -

(iii) increased financial incentive for financial institutions to lend tothe agricultural sector, through the assumption by a guarantee fund(Fonds National de Garantie) of part of the risk of default onagricultural loans; and

(iv) the strengthening of the management and financial situation of theSocift6s de Caution Mutuells (SCMs).

42. These measures were to be taken in February 1984, but up untilApril no significant results were apparent.15/ Note that item (i) aboveimplies that large farmers were receiving investment 3ubsidies, which wascontrary to Section 3.08 of the Guarantee Agreement.

43. In the audit's view, the Bank's efforts to change agriculturalcredit policy and to establish an economically viable agricultural creditsystem in Tunisia has only met with limited success. Interest rates havebeen raised, but are still negative in real terms. The Government continuesto provide alternative and competing sources of credit at subsidized interestrates together with investment grants to both small/medium and commercialfarmers.

44. The Bank has been patient in its attempts to get the Government toaccede to reforms in institutional credit. Although the Government agrees tomake changes which the Bank believes to be in the right direction, it con-tinues to revert to earlier practices.16/

45. It has been noted in Bank reports that one of the reasons for theGovernment's conCinued subsidization of agricultural credit is that prices ofagricultural products are controlled at low levels to hold down the cost ofliving. While the Bank has taken note of this fact, there is no evidencethat it has attempted to promote its credit policy in the broader and morerealistic setting of appropriate or incentive pricing for agricultural out-put. Under such a regimen, farmers would be better able to afford highercredit charges.

B. Institutional Development

46. A major objective of the Bank was to develop BNT into the foremostBank providing credit to agriculture in Tunisia, especially to smallfarmers. In addition to the three agricultural credit projects, BNT has beenthe Borrower and executing agency for the Northwest Rural Development Project(Loan 1997-TUN, US$24 million) and also has managed part of the funds of theSecond Fisheries (Loan 1746-TUN, US$28.5 million) and Rural Roads (Loan1601-TUN, US$32 million) Projects. However, during the implementation ofthe Second and Third Agricultural Credit Projects (1981), the Government

15/ BNT notes, Annex 1, paragraph reference (42), that measures adopted bythe Government are now being implemented.

16/ BNT states, without being specific, Annex 1, paragraph reference (44),that with the new agricultural regulations, radical changes have beenmade in the system.

- 13 -

created: (a) an Agricultural Development Bank to finance investments inagriculture; (b) a fund for lending to small farmers in marginal areas andrural communes; (c) an agency for promotion of investments in agro-industries. All of these institutions compete with BNT in some respect.1 7 /According to a Bank supervision report (April 9, 1984), loans by BNDA tolarge farmers (Agricultural Development Bank) were competing successfullywith those provided under the Third Project because BNDA provided loans atmore favorable overall terms.

47. Recovery of sub-loans by BNT has been a continuing concern of theBank. The recovery rate on BNT's own funds has averaged about 90%; recover-ies for the Bank-supported projects have ranged from 40% to 80Z but haveaveraged under 70%, while for FOSDA they averaged about 55%. In light of thecovenants under the Guarantee Agreement (GA), there is no incentive for BNTto make special efforts to ensure high recovery rates. In essence, the GA(Section 3.06) for the Second Project stipulates that the Government under-write a large part of the losses due to non-repayment of loans by small/medium farmers (parts A and C of the Second Project). Similar conditionswere provided for under the Third Agricultural Credit Project. The apparentpurpose of these covenants was to ensure the financial viability and promo-tion of agricultural credit operations by BNT despite a poor record of sub-loan recovery. Partly as a result of these subsidies, BNT has remainedfinancially viable. As noted, preliminary studies indicate that BNT is los-ing money on its agricultural credit operations. Further detailed studies tobe done under the Third Agricultural Credit Project have not yet beencompleted.

48. More vigorous methods of appraising sub-loan requests have beenestablished by BNT, but there is still a staffing problem. A start has beenmade to train and establish an effective agricultural extension service inBNT and MOA (Third Project). Some training of BNT staff has been done, butafter much delay due to jurisdictional disputes. In sum, despite consider-able growth in lending and improvements in lending procedures, BNT needsfurther improvements in lending criteria and recovery rates if it is to comeup to the Bank's expectations for it.

C. Monitoring and Evaluation and Measurement of Project Benefits

49. The PCR notes (para. 4.05, footnote 2) that no separate calculationof the ERR (in addition to the FRR) was made because of the lack of reliabledata concerning the results of project investment. Estimation of projectbenefits and rates of return are notoriously difficult for agriculturalcredit projects because of the number of beneficiaries, their dispersion,range of farm sizez, and varying production methods and types of products

17/ However, according to BNT, the National Agricultural Development Bankwas established to finance integrated projects of the scale in which BNTand commercial banks cannot become involved because of the nature oftheir resources, Annex 1, paragraph reference (46).

- 14 -

produced. Usually, estimates of ERRs for credit projects are made byassuming some idealized farm models (as is done at appraisal) augmented byfragmentary information of on-farm results and then aggregating model resultsby the number of sub-loans made to farms (industries) and possibly adding tothe cost-benefit stream an overhead charge related to implementation of theproject. As a result of this idealized procedure, rates of return usuallyturn out to be very favorable. In many cases, these may be legitimate ratesof return because many credit projects introduce,through investment creditand sub-project supervision, input packages (high-yielding seeds,fertilizers, pesticides, irrigation, etc.) that yield large productivityincreases. However, in all cases, to certify the true benefits of creditprojects, it is necessary to undertake detailed sample surveys of projects'beneficiaries in order to obtain the required information on the cost-benefitstreams with and without the project. To make good estimates of the withoutproject cost-benefit streams, it is necessary to obtain information onbeneficiary farms some years before the project is implemented and on thebasis of this information estimate what would likely occur without theproject. Collecting such information requires good statistical samplingdesign and ample resources, which are not usually available.-18Nevertheless, the achievement of high standards in measuring benefits ofcredit projects is difficult and costly. Other problems of measuringbenefits of credit projects, as noted in a recent OED report, 1 9 / areaccounting for overhead cost, additionality, substitution and diversion.

50. As noted in paragraph 22, the Loan Agreement included a covenant(Section 3.05) under which the Borrower was to prepare not later than ninemonths after the Agreement Date, a proposal for an investment monitoringsystem (based on sampling) to estimate the benefits derived from sub-loans bysub-borrowers and then to establish such a system not later than 12 monthsfrom the date of the Loan Agreement and to continue to operate it there-after. Questions were raised at Board presentation of the efficacy of delay-ing implementation of a monitoring system so long after approval, and aboutthe possible success of such monitoring system. Bank staff stated that anattempt would be made to start the monitoring system earlier but admittedthat slow progress had been made in establishing good monitoring systemsbecause of, inter alia, inadequate data bases.

51. The monitoring system of project investments got off to a slowerstart than expected and then had an up-and-down history. BNT prepared a pro-posal in 1977, with assistance from the Bank, and initiated a program in 1978with a sample of 10 (large) sub-borrowers. Some farmers in the sample werereluctant to participate because they did not want to disclose farm financialinformation. No monitoring was done in 1979 because the engineer in chargeleft the project. A replacement was recruited and trained and monitoring wasresumed in 1980 with a sample of 25 farmers and expanded to 58 farmers in1981 (PCR para. 3.22). The same monitoring system was to be continued underthe Third Project, but the audit could find no information on its presentstatus.

18/ See also Comments from Borrower, Annex 1, paragraph reference (49).

19/ Ninth Annual Review of Project Performance Audit Results, OED ReportNo. 4720, September 16, 1983, Vol. 2, Chapter 5, Supp. 2.

- 15 -

52. In conclusion, more effective and efficient methods must bedeveloped to monitor the implementation and measure the results and benefitsof credit projects. Terms of reference should be drawn up at appraisal whichwould provide programs of data collection and analysis which would followscientific procedures. Further, beneficiaries should be required to partici-pate in data surveys as a condition of receiving subloans. Otherwise, usefulinformation will be lost and uncertainties about results will remain.

D. Conclusions

53. Changes in credit policy (or any other price policies involvingsubsidies) are very difficult to effect when such changes are contrary tocountry economic development philosophy and when vested interest of longstanding exists. As has been pointed out by OED previously, 2 0 / this issuemight best be addressed at the ministerial level rather than through indivi-dual projects. However, such change is unlikely unless serious governmentfinancial constraints exist. In the case of the First, Second and ThirdCredit Projects in Tunisia, other sources of credit funds were Pavailable.

54. The design and program for monitoring the impact of credit projectsneed to be agreed to by all parties involved, preferably at the time of proj-ect approval, in order to obtain accurate measures of project progress andbenefits. Otherwise, the uncertainties which many times surround the bene-fits of credit projects will continue to exist.

20/ Project Performance Audit Report, Yugoslavia First Agricultural CreditProject (Loan 1129-YU), OED Report No. 5100, May 29, 1984.

一たニー一

メルンノ汐介ノ泌レ才

ち

- 17 - ANNEX 1Page I

PROJECT PERFOM4ANCE AUDIT MEMORANDUM

TUNISIA - SECOND AGRICULTYRAL CREDIT PROJECT(LOAN 1340-M)

COME ENT S FROM BORROWER

Translatea-THE NATIONAL BANK OF TUNISIA from FrenchBanque Nationale de Tunisfe

The President and Managing Director Tunis, November 15, 1984

Mr. Yukinori WatanabeDirector, Operations Evaluation DepartmentWorld BankWashington, DC

Reference: Your letter of September 19, 1984

Subj*ct: Project Performance Audit Report - Second Agricultural CreditProject (Loan 1340-TUN)

Dear Mr. Watanabe:

Enclosed please find our observations concerning the ProjectPerformance Audit Report for the Second Agricultural Project.

Sincerely yours,

Isl Mohamed Ghenima

ANNEX 1

-18 - Page 2

TECHNICAL DEPARTMENT Tunis, November 2, 1984


Chapter 1 - Summary

A. The Project

(1) Small/medium farmers had access to investment credit through FOSDAor other bilateral assistance projects (FSA, FAI, KfW).

At the time of preparation of the project, however, the financing ofsmall/medium farmers thrcugh the network of Local Mutual Credit Funds (CLCMs)was included among the principal objectives.

B. Implementation Delays

(7) We do not find the second point of contention between the TunisianGovernment and the Bank very explicit.

(10) Disbursements continued in 1983, based on financial commitmentsthrough December 31, 1982.

C. Investments and Disbursements

(12) Subloans made to small/medium farmers had a slow start because ofthe problems we encountered with the Ministry of Agriculture, related mainlyto the introduction of a new system of evaluation.

Furthermore, regional offices of the Ministry of Agriculture do nottake part in the approval of loans, which falls within the sole purview of theNational Bank of Tunisia. The regional offices were willing to assist us inthe evaluation process, but they had little motivation and inadequatepreparation for this task.

Thus, "differences in loan terms and conditions" can by no means becited to explain the delays found.

(13) BNT is not empowered to grant loans from FOSDA or from otherbilateral aid funds or those of supervised projects.

The fall in demand that began in 1980 was due to the implementationof a number of supervised projects better geared to the needs of farmersbecause their scope is limited to specific areas.

Moreover, their appraisal procedures are simpler and the lendingprocess is decentralized.

(15) The cooperatives that were approved as beneficiaries after thesigning of the loan agreement are the "cooperative production units." Webelieve, also, that our monitoring system has enabled us to compile sufficientinformation to assess the impact of the project and to determine the economicrate of return (see below).

ANNEX 1Page 3

- 19 -

(17) The constraints that have delayed the implementation of the programof Small Farmer Associations (SCMVs) are described in detail in our projectcompletion report, paragraph 4.3.2.

The Ministry of Agriculture is by no means opposed to theirestablishment; rather, the delays are related to the performance reviews, thecompilation of legal documents, and the lack of extension services.

Financing for the uncompleted works was provided by the ThirdAgricultural Credit Project without the participation of FOSDA.

(19) With regard to agroindustries, the requirements for oil processingplants were overestimated in our opinion, given the foreseeable development ofagricultural production and particularly that of domestic and export markets.

RApart from the competition from other banks that provide funding for

this sector, the main problems that we have been able to identify are:

- The legislation in force, which requires that the banks meet apercentage of medium term lending from their own funds;

- Competition from FOPRODI with its more advantageous conditions,especially as regards self-financing.

(21) The quarterly and annual reports to the Bank on projectimplementation have always been filed within reasonable periods (one to twomonths). Conversely, the financial statements and audit reports are the onesthat have not always been sent in time, owing to the auditors' delays incompleting their work.

As for compliance with the Covenant 3.08 of the Guarantee Agreement,we feel that the Bank was already aware of the terms and conditions of loansmade in Tunisia, and that the audit report understates the importance of thesedifferences where they do exist.

Moreover, the wording of the covenant does not imply a matching ofthese conditions with those of the Bank.

Finally, we consider it difficult to assess the impact of theseconditions on project execution when all other factors involved are taken intoaccount.

In our opinion, the main problem lies in the large number of sourcesof financing, which are managed with greater flexibility when mechanisms aremore or less independent, while terms and conditions are similar.

(22) To the contrary, the monitoring system designed by BNT andimplemented after approval by the Bank has enabled us to gather highly usefuland interesting information for analysis of the post-investment performance offarms.

ANNEX 1Page 4

- 20 -

Furtnermore, the procedures were subjected to several field tests,and the monitoring program was introduced after an appropriate informationalcampaign since this is not a very common practice in Tunisia.

The interruption of the program in 1979 was due to the departure ofthe engineer in charge. It naturally took some time to train his replacement,who was a young man just out of university.

D. Project Impact and Benefits

(23) The impact of the project has been assessed in a very precise anddetailed manner (see our project completion report).

We deliberately limited the number of representative models in orderto make the necessary comparisons with the models indicated in the performancereport.

Moreover, it wculd have been impossible to monitor all of the modelsbecause of the diverse natere of the farms and investments financed,especially since the projecu covers the entire country.

As in the case of the appraisal, the project performance report mustbe based on realistic and feasible approaches.

As to the integrated projects of small/medium farmers, attentionmust be called to the incompatib!-lity of this formula with current practicesand procedures. In addition, the low incomes earned from these farms wouldnever have sufficed to cover cie self-financing requirements.

(24) The economic rate of return could have been calculated preciselyfrom the information compiled during evaluation of the project impact andthe results of investments.

Moreover, we believe that the approach taken in the projectcompletion report is quite realistic since both lines of credit have had thesame conditions and have financed the same types of investments.

E. Other Results

(27) It is entirely normal that recovery rates would change very littleand even Zall during poor agricultural years.

One must be aware of the accruing amounts due, which when theydecrease are nonetheless added to the total delinquent amount, despite anyrecoveries.

The high rate of recovery of seasonal loans from own funds isexplained by the fact that the borrowers must return to BNT each year toobtain the new credit they need to begin the season.

ANNEX 1Page 5

- 21 -

Furthermore, grains are marketed mainly through national agencieswhich pay the proceeds to BNT, making it possible to concrol the entireoperation and to apply withholding at the source.

Thus, BNT is obliged to make additional efforts to recover sums dueon investment credits financed from other funds.

(28) The office responsible for managing World Bank loans has been ine-istence since the first credit project.

There has been only an internal reorganization within BNT.

(29) Small/medium farmers can obtain loans with similar conditions andrates from all funds.

It is. rather, in the case of commercial operations that differencesexist, particularly as regards interest rates and subsidies. That componenthas not caused any special problems.

Furthermore, the Bank was aware of these differences, which arestated clearly in the FOSDA documents.

ANNEX 1Page 6

- 22 -

CHAPTER II: ISSUES

A. Credit Policy

(30) The delays in implementation and disbursement of the threeagricultural credit projects are explained not only by competition from FOSDAor other sources whose conditions are deemed more favorable. We must callattention to other factors that in our opinion are even more decisive:

- Other sources of financing which are better geared to the needs offarmers in well-defined areas than Bank Projects covering the entire country;

- The start of any project takes sorne time at the outset to putproject mechanisms and procedures in place. The delay therefore involves allother ongoing projects.

- The Bank's projects frequently disregard certain factors that areinherent in the country's socioeconomic situation.

For that reason the projects are often poorly suited oroverestimated in terms of financing possibilities. They are likewise morerestrictive to the farmer (rules for the timing of investments) and for BNT(risks).

- Variations in the exchange rate of the dollar have often beenresponsible for the lag in disbursements. For example, the third project wasappraised assuming a rate of D 0.4 = $1.00, whereas the present value of thedollar is more than twice that amount.

- The risk assumed by BNT compels it to be highly prudent, in contrastto other projects financed by government funds or the like (bilateralassistance).

(31) At the time of project preparation FOSDA had a major impact onsmall/medium farmers. In BNT's view, "t was rather the expansion ofoperations of the Local Mutual Credit Funds whose members were small/mediumfarmers. Lacking resources, those institutions could only finance short-termloans.

The changes that occurred thereafter were the result of the newapproach taken by the authorities, which was to encourage a new mutual creditsystem (mutual guarantee companies) and to make the banking system responsiblefor investment credits.

(41) As mentioned earlier, there has been no discernible conflict in loanterms and conditions that %uuld have affected the implementation of the ThirdCredit Project.

It was rather the delay in completion of the second project thatslowed Lhe start of the third project, at least for small/medium farmers.

-23- ANNEX 1-23 - ARPage 7

in the matter of disbursements, we point out the movement of the

exchange rate of the dollar during this period, especially when the projectwas too ambitious considering all of the others in place.

(4Z) The measures adopted by the government are now being implemented.Large farmers are no longer eligible for loans from FOSDA or similar funds,and are no longer receiving subsidies from any lender.

Thus, they are being penalized since they are paying at least 0.5 to1% more in interest than that charged on Bank funds.

The sole advantage to young farmers under (35 years of age) is areimbursable grant to cover part of their self-financing in the case ofintegrated projects approved by APIA.

(44) With the new agricultural regulations, radical changes have beenmade in the system.

B. Institutional Development

(46) BNT was not the borrower in the Rural Roads Project (Loan 1601-TUN),and the Second Fisheries Project (Loan 1740-TUN). Only part of the funds, tobe used for making loans, is managed by BNT.

Moreover, the National Agricultural Development Bank (BNDA) was notestablished to compete with BNT, but rather to finance integrated projects ofa certain scale in which BNT and the commercial banks cannot become involvedbecause of the nature of their resources.

Finally, we would point out that there is no National Popular Bank.Rather, there is a fund intended for small farmers in marginal areas and forrural communes.

(48) In the area of training, BNT has had an appropriate training programsince the start of the second project, which has trained both its ownpersonnel and those of the Ministry of Agriculture.

The Bank has been informed of these actions periodically and thereis no legal dispute.

We believe that the desired training cannot take place within theperiods stipulated. Practical exercises and field work can ensure the bestpossible training in problems of agricultural credit.

Finally, we would point out that several years ago BNT instituted aprogram of continuous training for all its staff. The programs are reviewedevery year and the courses are taught by its own personnel in addition toseminars held by other institutions.

(49) The method that you propose for performance auditing has beenadopted in its entirety at our instigation.

ANNEX 1-24- Page8

We are likewise in agreement with you on the problems in making goodestimates, especially since the majority of our farmers do not keep accounts.

(51) It is entirely normal that the monitoring system devised by BNT andused for the first time in Tunisia would be slow in getting started for threebasic reasons:

- Time is needed to test the system in the field and train personnel;

- The impact of the investment does not become evident until after aseason;

- Agriculture is a cyclical process, which means that information canbe obtained only at very specific points in the year, namely the beginning andthe end of the season.

The withdrawal of some farmers and the halt of monitoring in 1979had no impact on the results, inasmuch as the final sample was quiterepresentative and the data for the 1979 season were collected in thefollowing year.

As noted, the program was suspended in 1979 because of the departureof the engineer in charge and not because of these problems. Needless to say,we had to recruit and train another expert who has specialized in this areasince the period in question.

(52) We believe that the monitoring procedure we have adopted iseffective enough to be reviewed.

In our opinion, strict. scientific procedures cannot be adoptedbecause of the educational level of most of our farmers.

Moreover, supervision of investments by BNT is i usual condition ofthe contract. In practice, however, it is highly difficult to enforce itgiven the lack of means. Rather, our monitoring system is based mainly oninforming farmers and persuading them to cooperate.

D. Conclusions

(54) Whatever monitoring system may be adopted, we believe there isalways uncertainty about the benefits of a project, for various reasons:

- It is impossible to monitor all beneficiaries;

- Even when the sample is sufficiently representative and theinformation collected is reliable, the highly diverse nature of the farmsfinanced and the unforeseeable changes that occur on the farm mean that theresults of sampling are always approximate;

- The estimate of project benefits made after adding up the data islikewise uncertain, and cannot reflect the actual benefits derivedfrom the project.

- 25 -


TUNISIA

SECOND AGRICULTURAL CREDIT PROJECT(Loan 1340-TUN)

March 1984

EMENA Regional Office

^67,s-

- 27 -


TUNISIA

SECOND AGRICULTURAL CREDIT PROJECT(Loan 1340-TUN)

I. INTRODUCTION

Project Background

1.01 Bank/IDA involvement in agricultural credit in Tunisia startedwith the First Agricultural Credit Project (Loan/Credit 779/263, USt8million). The Loan/Credit became effective in March 1972 and financed part ofBanque Nationale de Tunisie (BNT) lending to commercial farmers for investmentin mechanization and dairy farming, and to Sociftf Tunisienne de 1'IndustrieLaitiare (STIL) for development of date palm plantations. The Project wascompleted in July 1978 and a Project Performance Audit Report was issued inMay 1979. The Second Agricultural Credit Project is a follow-up project with,however, a change in focus towards small and medium farmers. To date, Bank'stotal lending to Tunisia amounts to US$1,338.5 million for 72 projects (62loans and 10 IDA credits). In the agriculture sector 13 projects for a totalloan amount of US$273.4 million have been approved from 1967 to December 1983.

The Agriculture Sector

1.02 Tunisia's 6.7 million pop*--ation (1982) is growing annually at 2.5%and almost half of it is rural. GDP growth rate during the seventies has beenhigh (about 8%) but declined to about 5% in the early eighties as a result ofstagnation in agricultural, petroleum and chemical output. Agriculture'sshare in Tunisia's GDP declined from 24% in 1960 to 13% in 1981. Similarly,agriculture's share in total employment declined during the same period from56% to less than 35% and its share of exports of goods from 57% to less than10%. The decline in the relative importance of agriculture has been causedessentially by the more rapid growth of other sectors, particularly petroleum,manufacturing and tourism.

1.03 Covernment objectives in the sector include the pursuit of food self-sufficiency (defined as a balanced commodity trade in agricultural products),increased rural employment and income generation, foreign exchange earningsand savings, and economic growth. Under the Fifth Development Plan (1977-81)total investmenc in agriculture amounted to D 584 million of which 44% was forirrigation, 17% for farm machinery and 12% for livestock. Government'sobjectives in employment and food self-sufficiency were, however, notattained. The agricultural trade balance has worsened due to relativestagnation of exports and growth of imports and because of a deterioration inthe terms of trade of agricultural goods. The basic issues to be addressed in

- 28 -

the Sixth Development Plan (1982-86) have not changed though the emphasis hasshifted somewhat from highly capital intensive projects such as irrigation andfarm machinery to labor intensive subsectors such as livestock and fruitproduction.

II. PROJECT FORMULATION

Origin, Preparation, Appraisal

2.01 The Second Agricultural Credit Project was prepared with theassistance of FAO/IBRD CP and represented a continuation of activitiesfinanced under the first project. The project was appraised in December 1975by a four-person team. The Issues Paper dated December 9, 1975 proposed thefinancing of an agriculture credit project of a total cost of US30 millionand Bank financing of USt15 million. It flagged as the most important issuethe appropriateness of the Government's proposed lending terms and conditionsin the agricultural sector (6% interest to all farmers, increase in subsidiesto small/medium farmers and no interest charges during the grace period).

2.02 At the decision meeting held on December 17, 1975, it was agreed that(a) a 6% interest rate on loans to small farmers should be accepted; and(b) interest rates similar to those agreed upon under the Sixth DFC Project(8%) should apply to loans to commercial farmers and agroindustry. A decisionon the loan amount was postponed until receipt of the Government's response tothe Bank's proposition concerning the terms and conditions of lending tocommercial farmers and agroindustry. The Loan amount was finally set at$12 million to cover a 2-1/2 year credit program instead of the 3-year programenvisaged at appraisal.

Negotiation and Approval

2.03 The negotiations were held only in September 1976 after lengthypreliminary discussions with the Government on the proposed lending terms tocommercial farmers (interest rate of 7% p. a. was accepted by the Bank) andthe definition of small farmers. Board presentation had also to be delayeduntil November 1976, one year after the return of the appraisal mission,because of delays in signing by BNT and the Government of a relendingagreement under the Irrigation Rehabilitation Project (Loan 1068-TUN), whichwas a condition of Board presentation of the present Loan.

Project Objectives and Description

2.04 The Second Agricultural Credit Project financed a part of BNT'smedium- and long-term lending for agriculture. While the First Projectfinanced investments by commercial farmers in farm mechanization, livestockand date palm plantations, the Second Project, in addition included anagroindustries component and aimed at improving the availability of investmentcredit to small farmers for on-farm development and to small farmerassociations for date plantations. Out of the Loan amount of US$12 millionequivalent, US$3.9 million (33%) was for small farmers, US3.7 million (31%)

- 29 -

for commercial farmers, UStl.9 million (16%) for small farmer associationsinvesting in date palm plantations, and US$2.5 million (21%) for

. agroindustries. BNT's Project Unit, created under the First Project andconsisting of five agriculturalists, was to be supplemented by an agroindustryspecialist and the Unit was to be maintained and expanded as required during

. the Project implementation. A system to monitor the performance andproduction impact of subprojects was also to be set up.

III. PROJECT IMPLEMENTATION

Loan Effectiveness

. 3.01 Two special conditions had to be met for Loan effectiveness:(a) agricultural credit policies and procedures agreed for the Project duringnegotiations would be applied to all FOSDA loans (interest rates for lendingto farmers to increase from 3.5-4% to 6% for small farmers and from 6% to 7%for commercial farmers); and (b) the audit report of BNT's accounts for 1975had been completed and submitted to the Bank. The original date ofeffectiveness of March 16, 1977 had to be postponed twice, mainly to allowtime to the Government to meet the first of the two conditions because ofdelays in approving and publishing the revised terms and conditions forFOSDA. The Loan became effective on July 19, 1977.

Project Cost and Financing

3.02 The cost estimates at appraisal and the actual costs are comparedbelow.

Project Cost

(D'000)

Appraisal Estimated Actual DifferenceSubprojects Cost Cost Cost (%)

Small farmers 3,300 3,505 +205 +6Commercial farmers 2,800 3,626 +826 +29Date palm plantation 2,700 1,798 -902 -34Agroindustry 2,200 1,670 -502 -23

Total 11,000 10,599 -401 -4

The difference between SAR projections and actual costs reflects the actualdemand for loans in each category and the delay in implementation of the datepalm plantation component, and the subsequent transfer of funds betweencategories (see paras. 3.05-3.12).

- 30 -

3.03 The SAR financing plan compared to actual Project financing issummarized below.

Project Financing

(Z of total)

SAR Actual

Sub-borrowers contribution 23 24.5Government grants 10 7.5Government loans 10 3BNT 12 14Bank 45 51

Total 100 100

The substantially lower than expected financing by Government loans affectedthe financing from all other sources. The SAR projections of financing byGovernment loans was based on the assumption that Government loans would besubstituted for BNT financing in the case of loans to SCMV's for date palmplantations because BNT was not authorized to grant loans with maturities aslong as 15 years from its own funds, and the assumption that agroindustrialsubprojects would consist mainly of oil mills where the Government financesthrough subsidized loans investment in olive oil storage facilities. Thedelays in implementation and subsequent reduction of the date palm plantationcomponent (para. 3.09) led to a corresponding reduction of the portionfinanced by Government loans, and other agroindustrial ventures than oil millswere financed (para. 3.11) with no Government financing.

Project Start-Up and Implementation by Category

3.04 The first subloans to be approved in the quarter followingeffectiveness of the Loan were to commercial farmers, and first disbursementby the Bank was made in the following quarter. Disbursement of loans to smallfarmers started only a year later, in late 1978. 1/ The first loan forinvestment in agroindustries was disbursed early in 1978. Disbursements forloans to small-farmer associations for date plantations started only in 1981.

Category I - Loans to Small Farmers

3.05 Besides direct loans to small farmers, defined as those whose yearlyincome does not exceed D 600 (1977 prices), the Category included loans to

1/ Calendar year - as in all future references.

- 31 -

SONAM (SociAtA Nationale de Motoculture, a semi-public organization providingtractor and harvesting services to small farmers) and to service cooperativesproviding similar services.

3.06 While BNT's lending to SONAM for purchase of farm machinery startedpromptly, there was a 12-month delay in disbursement of loans to smallfarmers. The main reason for this delay was that, because of the importantnumber of subloan applications expected under the project and of the shortageof technically competent agricultural staff within BNT, mostly at branchlevel, it was decided that subloan applications from small farmers would beappraised technically by the Regional Services of the Ministry of Agriculture,who were not familiar with and had to be trained to use subproject appraisalprocedures required by BNT. I/ Another reason for the initial delays was thereluctance on the part of MDA credit department to approve subloans when theterms and conditions were not exactly the same as FOSDA terms. It was only inMay 1978 that the Ministry of Planning informed the Bank that the MOA hadagreed to comply with the uniform lending terms and conditions agreed duringnegotiations.

3.07 During 1979 and the first half of 1980, incoming subloan applicationswere abundant. However, individual subloan amounts were substantially smallerthan expected at appraisal (para. 3.15) with a corresponding adverse impact ontotal disbursements. In 1981, loan applications dropped to a trickle (only 24were received during 1981), essentially because of improved availability ofFOSDA funds which were preferred by farmers because of their simpleradministrative procedures, no requirement of field appraisal and nopreconditions for investment in wells, livestock, etc. Subloan applicationswere also negligible during 1982 and BNT requested a third postponement of theLoan Closing Date to December 31, 1983. The Bank did not agree to thisrequest, but accepted to continue to disburse until June 30, 1983 forexpenditures under subloans approved prior to December 31, 1982 (telex datedJanuary 21, 1983). To speed up disbursements the Bank also agreed (telexdated December 15, 1982) to BNT's proposal to transfer to the Project recentsubloans approved on FOSDA funds but qualifying for financing under the Loan.Bank disbursement resulting from this reallocation amounted to USt535,936. ByJune 30, 1983, US$4,593,000 had been disbursed, nearly US700,000 more thanoriginally allocated under this category.

Category II - Loans to Commercial Farmers

3.08 Lending under this category proceeded without difficulty and at apace corresponding to appraisal projections. This was mainly because BNT hadprior experience in this type of lending, no major organizational changes wererequired, and most importantly because loans for mechanization were noteligible for FOSDA financing. The first subloans were approved in the quarterfollowing Effectiveness. By the end of 1980, two-and-a-half years afterEffectiveness, BNT had approved 652 subloans totalling D 2,812,000 (theappraisal estimate for the total amount of loans under the category was

1/ This also contributed to poor loan recovery (see para. 3.28).

- 32 -

D 2,956,000, including contingencies) and disbursed 500 loans amounting toD 2,156,000. By the end of 1981, the category was overcommitted and BNTtransferred some of the pending applications to FOSDA and some to the Bank'sThird Agricultural Credit Project (Loan 1885-TUN). US320,000 from categoryIV (Agroindustries) was also used to partly meet the substantial demand forsubloans from commercial farmers. Loan funds for commercial farmers werefully disbursed by June 1981.

Category III - Loans to Small Farmer Associations for Date Palm Plantations

3.09 BNT's lending under this category started only in the second quarterof 1981, some 6 months after the original Closing Date of the Loan. Initialreasons for the delay were (a) lengthy administrative and legal requirementsneeded to be fulfilled to establish the small farmer associations (SCMVs);(b) difficulty for SCMV members to assemble the minimum equity capitalrequired; and (c) delay by MOA agents to provide the technical assistance forthe design of the civil works (land leveling, irrigation infrastructure,drainage, etc.). A contributing factor was the apparent preference during1978-1979 by the Tunisian authorities to allocate the underground waterresources to new Government sponsored plantations rather than the SCMVs. Whenthis attitude changed in 1980 and the Government approved the creation of 6SCMVs, subloans were processed rapidly. BNT's commitments for the sixsubloans were D 2.0 million, representing a potential Bank disbursement ofabout US$2.5 million, or about US600,000 more than amounts available for thepurpose.

3.10 It was expected that the first three SCMV plantations would becompleted by June 1982, and the remaining three by April 1983. However,progress was slower than expected because (a) there was only one rig availablefor drilling; (b) there were difficulties to find suitable contractors toexecute the irrigation infrastructure works; (c) MOA technical assistance was,at the initial stage, inadequate in relation to demand; and (d) temporarily,there was a shortage of suitable date palm seedlings. By the end of 1982,when it became clear that the funds available under the category would not bedisbursed before the Closing Date, BNT proposed that FOSDA subsidies, which todate had been disbursed before the subloans, be deferred and that the subloanamounts be correspondingly increased. The additional subloans qualified forBank disbursements. 1/ The Bank agreed to this procedure (telex datedDecember 15, 198?), which resulted in Bank disbursements of USt202,800. By

1/ BNT's loans to each SCMV are global loans covering all contemplatedinvestment to establish date palm plantations (tubewell, irrigationinfrastructure, land levelling, etc.). As a normal banking practice, BNTshould have first disbursed subloans against the accrued expenses, andonly when the agreed upon total loan amount was fully utilized, disbursethe Government subsidies. Instead, BNT was considering each applicationas a separate investment and was first disbursing the Government subsidyand then the subloan. This procedure was changed to conform with normalbanking practice in December 1982, as discussed above.

- 33 -

June 30, 1983, total Bank disbursement under the category amounted to onlyUS$1.1 million, US$800,000 short of the original allocation and about USl.lmillion short of funds needed to complete Bank financing of these loans. TheBank agreed to finance their balance under the Third Credit Project.

Category IV - Loans to Agroindustries

3.11 As in the case of lending to commercial farmers (para. 3.08 above),lending under this category proceeded smoothly, and except for the type ofinvestments financed (see para. 3.21), according to apprai.-al projections. Bythe end of 1980, the original Loan Closing Date, BNT disbursed under thecategory D 1,169,000 representing Bank disbursements of US$2,122,000, someUS378,000 less than originally allocated. The Bank agreed to BNT's proposalsto finance further agroindustrial investments from funds available under theThird Credit Project (Loan 1885-TUN) and to use of unused balance of CategoryIV to finance loans to commercial farmers where BNT's commitments exceeded theoriginal allocation.

Amendments to Loan Agreement

3.12 The Loan Agreement was amended once, in October 1979, to allowfinancing under Category I of loans to production cooperatives in addition toservice cooperatives. This amendment did not constitute any major change inthe Project description or the Project objectives. Credit to productioncooperatives had earlier been excluded because, as a group, they were assessedto have a poor overall performance. The Bank agreed to include on a selectivebasis those production cooperatives which met agreed criteria for goodmanagement and performance. This inclusion was justified on the grounds ofbeing able to provide credit to a larger number of credit-worthy small farmerswhile encouraging institutions which were performing satisfactorily.

Disbursemencs

3.13 Bank's disbursement covered 75% of BNT's disbursements under theProject. The SAR estimate of the disbursement period was 4 to 4-1/2 years andall funds were expected to be disbursed by December 31, 1980. Actualdisbursements took two-and-half years longer and as of June 30, 1983,US$11,901,360 were disbursed. The balance of the loan (US98,640) wascancelled as of the same date. About five months of this total ielay of 30months is due to delayed Board presentation 1/ and four months aue to delayedeffectiveness of the Loan. Remaining delays are to be attributed to slowerdisbursements than anticipated for new activities by small farmers and SCMVsfor date palm plantations (paras. 3.05-3.07 and 3.09-3.10). The projected andactual disbursements are summarized below and details are given in Annex 2.

1/ The estimated disbursement schedule in grey cover SAR maintained theestimate of yellow cover in spite of delayed Board Presentation.

- 34 -

Cumulative Disbursements

(U million)

IBRD FY Appraisal Estimate Actual X of Estimate

1977 2.7 - -1978 8.3 1.7 20.01979 11.4 3.6 31.61980 11.8 7.1 60.21981 12.0 9.1 75.81982 10.4 86.71983 11.9 /a 99.1

/a UStO.1 million cancelled.

Sublendie Terms and Conditions

3.14 Agreed sublending terms under the project were the following:

Interest Term Grace PeriodCategory Rate (YearZ) (Years)

Small farmers /a 6% 5-8 2Commercial farmers

Grain farms 7% 8 1Dairy farms 7% 8 3Mixed farms 7% 8 1

Date palm plantations 6% 15 8Agroindustries 8% 7 2

/a Defined as farmers whose income derived from farming does not exceedD 600/year (1977 prices).

It was a condition of negotiations (see para 3.01 above) that the same lendingterms and conditions as agreed for this project at negotiations would applyfor all agricultural lending in Tunisia. 1/ Some discrepancies regarding

1/ Interest rates for loans to small farmers were substantially lower priorto loan effectiveness.

- 35 -

procedures and emphasis on repayment between Governmeue's FOSDA and theproject however remained (see para. 3.29).

Number of Subloans and their Size

3.15 The table below compares the actual number of subloans and their sizewith appraisal estimates.

Appraisal Estimate ActualCategory No. of Average Loan No. of Average Loan

Subloans Amount /a Suboans Amount(D) (D)

Small FarmersIndividual farmers 660 2,390 3,396 /b 440Cooperatives /c - - 30 13,015SONAM /c - - 1 539,293

Commercial Farmers 275 5,230 616 4,359

Date Palm Plantations (SCMVs) 4 /d 250,740 6 312,400 le

Agroindustries 18 84,610 14 83,481

/a Without contingencies./b Including subloans transferred from FOSDA./c Loans to SONAK and cooperatives although specifically authorized in the LA

and mentioned in the SAR were not singled out in the SAR cost table. Eachsubloan to cooperatives represents in average about 50 directbeneficiaries.

/d About 300 beneficiaries in total.te Part of the subloan is being financed by the Third Credit Project.

Based on the number of subloans the actual number of beneficiaries was about5,825 (instead of estimated 1,250), an increase of about 365%. The increasein the number of beneficiaries is partly the result of a substantially largernumber of subloans than expected to small farmers and partly of the inclusionof production cooperatives under this category. The SAR estimates were basedon farm models in which subloans ranged from D 955 to D 5,800, and in allcases were expected to finance integrated farm development projects comprisinginvestments in well improvement, pump, irrigation equipment and cultivator orin livestock, stable, and small irrigation. In reality, small farmers werereluctant to invest generally in more than one item, with, as a result, a muchlarger number of subloans and beneficiaries (there were very few cases whereone farmer benefitted from more than one subloan).

- 36 -

3.16 SAR projections proved to be accurate in the case of commercialfarmers and subloans to SCMVs. In case of loans to agroindustries, thenumerical estimates proved to be quite accurate, though this is quiteaccidental as investments other than projected were financed (see para. 3.21).

Investments Financed

3.17 The investments actually financed compared to the SAR estimates aresummarized below:

Category Small Farmers Appraisal Estimate /a Actual(D'000) (D'000)

Individuals:Small irrigation 656 (27%) 653 (19%)Cultivators 195 (8%) -Livestock & stables 1,300 (54%) 920 (26%)Agricultural equipment 276 (11%) 239 (7%)Plantations - 94 (3%)Plastic greenhouses - 306 (9%)

SONAM:Agricultural equipment and spares - 275 (8%)Farm machinery - 461 (13%)

Cooperatives:Farm machinery - 34 (1%)Livestock - 523 (14%)

Total 2,428 (100%) 3,505 (100%)

/a Excluding contingencies.

3.18 Generally the investments financed and the amount of funds investedin them were in line with the SAR estimates, with two exceptions: asignificant number of cultivators were not introduced as expected, andconsiderable investment in plastic greenhouses was made contrary toprojections Technical innovation by small farmers to adopt, for examplecultivators, were found to be too optimistic in view of the weakness of theexisting extension services. The unexpected introduction of plasticgreenhouses had not been foreseen because at appraisal, no such demand wasidentified (the introduction of plastic greenhouses in Tunisia is relativelyrecent). Subloans for livestock to small farmers were also smaller thanex-ected possibly because milk prices did not rise enough to maintainincentives for milk production.

- 37 -

3.19 Category Commercial Farmers

(D'O00)

AppraisalEstimate Actual

Livestock, stables, ensilage 382 (19%) 221 (6%)Agricultural equipment 82 (4%) -Farm machinery 1,591 (77%) 2,969 (82Z)Irrigation - 180 (5%)Greenhouses 90 (4%) 129 (4%)Plantation - 127 (3%)

Total 2,055 (100%) 3,626 (100%)

The SAR projections were largely in line with the actual results except forthe investment in livestock, which was again less than projected because offailure of largely administered milk prices to maintain pace with other pricesand thus provide incentive for production. The investment in plantations,which was not expected at appraisal, represented loans to STIL for completionof work initiated under the First Agricultural Credit Project. As under theFirst Credit Project, most loans for farm mechanization (60%) were forreplacement of existing equipment.

3.20 Category Date Palm Plantations

(D'000)

Appraisal ExpectedEstimate When completed

Wells, Pumps, Irrig. Network 541 (34%) 1,590 (48%)Land Prep. & Planting 435 (27%) 1,438 (43%)Equipment & Storage 76 (5%) 160 (5%)Plantation Maintenance 539 (34%) -Livestock - 129 (4%)

Total 1,591 (100%) 3,317 (100%)

All financing was close to projections except for plantation maintenance, forwhich there was no need. Later, studies made in 1982 by BNT and MOAconfirmed that once the plantation investments are completed, maintenance

- 38 -

expenditures could be financed by revenues from intercropping, withoutrecourse to loans. Subloans for the purchase of livestock, although notforeseen during appraisal, were justified and authorized because of the

complementarity of livestock and date palm plantation activities.

3.21 Category Agroindustries

(D'000)

AppraisalEstimate la Actual

Oil mills (18) 1,523 -Fruit & vegetables processing (4) - 684Tomato juice & concentrate (1) - 120Seed processing (1) - 32Cold storage (1) - 135Meat processing (1) - 37Tuna canning (1) - 129Olive canning (1) - 231Animal feed (3) - 186Soft drink production (1) - 116

Total 1,523 1,670

/a Excluding contingencies.

The actual results were significantly different from projections as not asingle oil mill was financed under the Project, and, on the other hand, 14other ventures were. At appraisal, an increasing need was seen for new millsin the north and center, where the deficit in extraction capacity wasestimated to reach 3,200 tons/day by 1981. To meet this shortage some 100 newmills were anticipated and BNT was already financing 6-8 each year (30 tons/day capacity). The Project mainly provided for 18 such mills, but alsoallowed for financing of other agroindustrial ventures. The primary causes ofthis discrepancy between SAR projections and actual results are:(a) requirements for new mills in the north were overestimated;(b) agroindustrial subprojects did not qualify for FOPRODI subsidies.(para. 3.29(a)) and some potential borrowers insisted on getting thesesubsidies and thus refused to take Project financing; and (c) for reasonsdifficult to establish, BNT financed some oil mills (8 in 1977-1978 alone)from its own resources without using the Project facility.

Monitoring and Evaluation

3.22 In 1977, BNT prepared a proposal for a system to monitor the impactof subloan investment at the farm level. The proposals were found by the Bank

- 39 -

to be complete and well designed, but possibly too ambitious in view of BNT'sstaffing constraints. The system started to be implemented early in 1978 on asample of 10 sub-borrowers with the intention to progressively expand it tocover 10-15% of all sub-borrowers under the Project. However, already in thefirst year of implementation, it was found that farmers frequently changedtheir cropping pattern as compared to the one originally programmed which madethe results difficult to interpret. Moreover, some farmers became reluctantto cooperate with BNT agents because of a risk of exposure of their financialsituation. Monitoring was thus interrupted in 1979 and resumed in 1980 on asample of 25 farmers and was extended to 58 farmers in 1981.

3.23 The final results and usefulness of the effort proved to be ratherdoubtful. This can be ascribed to several causes:

(a) The system as developed by BNT was a priori too ambitious and did nottake into account the often low level of formal education of thefarmers;

(b) The farmers, in many instances, did not fully understand the purposeof the exercice and were afraid to collaborate or furnished erroneousinformation;

(c) The level of supervision by BNT was inadequate due to staffconstraints and because BNT was not convinced of the importance ofthe monitoring concept; and

(d) The prevailing practice in Tunisia to rent land which induces hugevariations in cultivated areas from one year to the next.

Audit

3.24 The satisfactory audit of BNT's accounts was a major issue duringimplementation of the First Credit Project. BNT, as a condition of LoanEffectiveness, made new arrangements for its audit and provided the Bank witha satisfactory audit report for 1975. While its old auditors SIMM& (Socidt&Internationale Maghrebienne du Management et d'Audit) continued as B4T'sauditors, they, however, had the assistance of international auditors Coopers& Lybrand.

3.25 Over the project period, final audit reports were received regularly,but six or more months later than specified in the Loan Agreement (six monthsafter the end of the fiscal year). The reason for the delays was that theauditors could not finalize their audit before BNT's General Assembly hadapproved BNT's financial statements, which had to be cleared by a Comissaireaux Comptes (generally six months after the end of the fiscal year). Thisconstraint has been taken into account in the Third Agricultural CreditProject which requires the Audit reports to be submitted to the Bank not laterthan four months after the approval of BNT's financial statements by itsGeneral Assembly.

- 40 -

3.26 The delays in audit procedures imply that the auditors' commentscannot be taken into account in the preparation of the financial statements of

the year concerned. In practice, however, the recommendations contained inthe auditor's reports have been taken into account the following year,provided BNT's Board agreed with their substance. BNT has used this externalaudit more like a management tool to improve its operations rather than a

legal obligation since its accounts are already verified by the Commissaireaux Comptes.

3.27 The auditors' reports were of acceptable standard and quality but inall cases provided only a qualified approval of the accounts. However, thenumber of qualifications has considerably decreased since 1976. The

substantial improvement of the auditing standards over the Projectimplementation period should be considered an important achievement of theProject.

Recovery of Subloans

3.28 BNT's loan recovery performance before the Project was, and duringthe Project period remained, unsatisfactory. A comparison of BNT's loanrecovery under the Loan, FOSDA and agricultural lending from own resources isshown below.

BNT's Rate of Recovery /a

Second Agr. Credit FOSDA Own Funds Overall

1978 79% 57% 91% 76%1979 40% 53% 85% 71%1980 62% 55% 88% 72%1981 68% 54% 91% 73%1982 66% 52% 91% 72%

/a Principal recovered as percentage of principal fallen due as of

December 31 of each year. BNT's practice is not to write off anybad debts and overdues includes potential bad debts dating fromthe first years of BNT's operations.

While the recovery performance under the Loan has not improved over the lastthree years, it is somewhat better than recovery achieved for lending usingFOSDA funds, but much worse than when BNT's own resources are applied tolending activity. BNT's lending to agriculture from its own resources isessentially short term and goes to large farmers. Rate of delinquency istherefore much smaller than in the case of lending to small farmers. Thegenerally poor performance recovery on subloans financed from special funds(FOSDA, FOSEP, Bank, etc.) can be ascribed to three factors. First, BNT bearsno, or only a small part of the default risk, and efforts to achieve better

- 41 -

loan recovery are simply not cost effective. Secondly, BNT receives acommission for its onlending activity which is related only to its total

. outstanding portfolio financed from special funds, and this commission is notlinked in any way to subloan recovery levels. Incentives and instruments toachieve improved loan recovery performance are critically needed. Thirdly,

. subloan appraisal is done by the MOA extension staff, who have noresponsibility for loan recovery, which is BNT's but without the latterinvolvement in identification of the borrower and appraisal and approval ofthe loan.

Compliance with Loan Conditions

3.29 Although BNT complied with all major Loan covenants, it haddifficulties with the covenant specifying that BNT should employ a qualifiedengineer specialized in agroindustries. Two attempts were made (in 1978 and1980), but in both cases the engineer left after working for less than ayear. As a final solution, BNT trained two of its agricultural engineers inappraisal of agroindustrial projects. The Government did not, however, complyfully with Covenant 3.08 of the Guarantee Agreement specifying that lendingterms outside the Project should not be such as to adversely affect theProject. This was true in several cases:

(a) under Category IV - Loans for Investment in Agroindustry wherepotential subborrowers had access since December 1975 to theGovernment FOPRODI (Special Fund for Industrial Promotion) fundswhich provided loans on soft terms (12-year repayment periodincluding 5 years of grace; interest 3% p.a.) to cover the borrowersequity contribution of up to 30% of total investment cost, and incertain cases (investments below D 75,000), an additional loancovering the remaining 70% of investment cost (10 years, grace 3years, interest 4%);

(b) under Category I -- Loans to Small Farmers through the availabilityof FOSDA funds. Although the financial terms and conditions underFOSDA were made consistent with those of the Project, theadministrative procedures were different because (i) FOSDA appraisaland approval procedures involved little or no technical evaluationand there were no technical pre-conditions for subloans; (ii) farmerscould obtain a new loan even when they were in default on previousloans; and (iii) of the widely shared perception among farmers thatFOSDA loans do not have to be repaid. After 1980, when FOSDAoperations were decentralized and budgetary allocations increasedsubstantially, these differences began to disrupt Project activitiesand subloan applications under the category were reduced to atrickle; and

(c) under Category II -- Commercial Farmers continued to have access,except for mechanization loans, to FOSDA loans with more favorableterms than Project's subloans. Loans for mechanization are excludedfrom FOSDA financing. As a result, subloans for mechanizationpurposes represented 82% (in value) of total subloans to commercialfarmers (para. 3.19).

- 42 -

IV. PROJECT IMPACT

Yields, Production and Project Output

4.01 The SAR estimates of yields and output were based on an aggregationof six farm models, a model each of a date palm plantation and of an olive oilmill. The expected increases in yields were substantial and varied between 50and 66% of pre-project yields. The increases in production were to beachisved, in case of commercial cereal farms, through more intensivecultivation of the land, and by progressively eliminating fallow periods, andin case of small farmers, by the change in crops and cropping patterns, andmore intensive use of agricultural inputs.

4.02 The expected high increases in yields in the case of commercialfarmers did not generally materialize 1/ as the farmers continued their oldcropping practices. Where the Project investment was a first acquisition (asopposed to replacement), they tended to rent additional land in order to makefull use of their equipment. An increase in production has therefore beenachieved by cultivating more land rather than by more intensive farm practiceson existing farms. In the case of small farmers, yield increases were alsoless dramatic than expected as the farmers generally did not invest inintegrated farm development projects (para. 3.15). Actual increase in yieldsand production was due to a change in crops cultivated and wider use of smallirrigation. In order to estimate the yearly average actual incrementalproduction due to the project, 13 representative farm models were preparedcovering about 80% of the actual number of subloans and more than 90% of thetotal investment cost of small and commercial farmers. A weighted aggregationof the production impact (either as incremental or prevention of decline) ofeach model led to the following results:

Incremental production 2/ of Cereals 16,000 tons

Fodder 2,000 tonsDates 3,100 tons 3/Off-season vegetables 1,130 tonsSeason vegetables 18,360 tons

The above figures are to be considered indicative and are subject to importantvariations due to climatic conditions, changing crop rotation, etc.

Financial and Economic Returns

4.03 At appraisal, the expected financial rate of return of the farmmodels ranged from 15% to over 50%. In addition, it was 11% for the date palmplantations and 29% for the oil mill. The actual financial rates of return ofthe 13 representative farm models, as calculated for the PCR, range from 13%

I/ Based on findings of BNT's monitoring unit.2/ Average per year.31 At full production -- year 18.

to over 50%. 1/ These estimates are in line with those made for similarinvestments at appraisal of the Third Credit Project in 1980 when the FRR was

calculated to range between 22% (tractor replacement by a commercial farmer)to over 50 (small farmers: irrigation and well improvements, pump, pure-bredcows and pasture).

4.04 The estimates of the FRR of the actual investments in agroindustrialinvestments range from negative (in the case of a particular fruit andvegetable processing unit) to 20%. The FRR of the date palm plantations wascalculated at 14%. The aggregation of all the models led to the calculationof the FRR for the whole Project with, as a result, an FRR of 33%.

4.05 The appraisal estimate of the economic rate of return (ERR) of thefarm component was 38%, of the date plantations 13%, of agroindustries 36%,

and of the total project investments 34%. These rates were in most casesseveral percentage points higher than the FRR of the components. The samerelation between the FRR and the ERR was found at appraisal of the ThirdAgricultural Credit Project, where the ERR was calculated for each farmmodel. No factors which would reverse this relation have intervened since theappraisal of the Third Credit Project, and it is therefore safe to assume thatthe overall actual ERR of the Project investments is not below the FRR of33%. 2/

Institutional Performance of the Borrower

4.06 During Project implementation, BNT's staff in charge of agriculturalcredit operations expanded from 310 to about 530 in 1982, and comprised at thelatter date 3 agricultural engineers, 12 assistant agricultural engineers, and33 agricultural technicians. From the organizational point of view, severalpositive steps were taken: the Agricultural Credit Department was reorganizedand credit decisions decentralized on a pilot basis; and a new service wascreated which was put in charge of (a) identification and appraisal ofagricultural and agroindustrial projects; (b) management of lending under IBRDprojects; and (c) training of personnel.

4.07 BNT's lending to agriculture 3/ in general expanded substantiallyduring the project implementation period.

1/ With the exception of the case of a commercial farmer investing in

livestock only, where the FRR was negative.2/ No separate calculation of the Project ERR was made because of lack of

reliable data concerning the actual results of project investments (seeparas. 3.22 and 3.23).

3/ Although BNT is by far the largest source of institutional credit toagriculture in Tunisia, its main activity -- and main source of income --is lending (mainly short-term) to industrial and commercial enterprises.BNT's income from agricultural lending represented in 1978 and 1982 (firstand last of Project implementation years) only 12.2% and 11.0%respectively of its total income, and 15.8% and 13.6% of interest andcommissions received.

- 44 -

BNT's Lending for Agriculture

(D Million)

1976 1978 1980 1982

Agricultural Commitments 83.6 113.4 145.0 208.0of whichAgricultural production & investment 49.8 75.0 104.0 144.4

Marketing (wheat, oil, wine) 33.8 38.4 41.0 63.6

of which under the Project - (2.2) (6.3) (7.5)

Agricultural Disbursements 16.7 33.3 39.6 45.1

Short-term 6.7 15.6 20.4 24.0Medium- and long-term /a 10.0 17.7 19.2 21.1

Number of Branches 34 58 58 61

/a Generally from special funds.

Over the seven-year Project implementation period, BNT's short term lending to

agriculture increased by 258% and medium- and long-term lending by 111%. Thissubstantial increase was possible because of improvement and streamlining ofBNT's organization and because of increased availability of resources.

BNT's Financial Position

4.08 BNT's comparative balance sheets and income and expenditurestatements during the period of Project implementation are shown in Annex 1.BNT's overall financial position remained sound over this period, BNT's totalassets 1/ increased from D 239 million to D 567 million, sight deposits fromD 63 million to D 224 million, and income from D 12 million to D 36 million.Net profit had not quite kept up with BNT's growth rate and increased duringthe same period from D 1.5 million to D 2.8 million. The ratio of interestincome to total assets improved from 4.1% to 5.2% and the ratio of interestincome to outstanding loans, after a decrease from 6.2% in 1977 to 5.3% in1979, increased again to 6.5% in 1981 and 7.8% in 1982. Interest andcommission paid increased from D 4.7 million to D 17.0 million during the sameperiod, and represented from 4.9% (1977) to 10.5% (1982) of outstandingmedium- and long-term borrowing. 2/ Profit before tax as a percentage of

1/ Excluding contingent items.2/ Bonds and term deposits, banks and correspondents, special funds.

equity 1/ decreased from 20% in 1977 to 16.3% in 1981 but increased again to24% in 1982. Profit after tax as percentage of equity remained fairlyconstant at about 10%.

4.09 BNT's agricultural lending operations, however, have not beenprofitable. Under the Third Agricultural Credit Project (1885-TUN), BNT setup a cost accounting system to permit the allocation of costs of and revenuesfrom its various activities and assess the financial viability of itsagricultural credit operations. Results from the study of BNT's agriculturallending in 1979 and 1980 indicate that the institution incurred a net loss ofabout D 1.0 million (US$1.4 million) each year on its agricultural operations,and that an increase of about 2% of the available financial margin would benecessary to ensure their financial viability, along with other measures toimprove recovery levels (para. 3.28). Current dialogue between the Bank andthe Tunisian Government aims at resolving these issues.

4.10 BNT's provision for bad debts increased from D 2.7 million in 1977 toD 8.1 million in 1981 2/ covering 97% of BNT's overall bad debt risk (asestimated by the auditor -- BNT's own estimate of bad debt risk is lower andthe bad debt provision covers it fully). BNT's practice is not to write-offany bad debts and, as a result, about 28% of the arrears on its books dateback three years or more. The Bank's recommendation to adopt more realisticpractices has not been followed.

4.11 The growth of BNT's lending was possible because of a sustainedincrease in deposits and an increase in Special Resources (FOSDA, FOSEP, Bank,etc.). Sight deposits increased over the period 1977-1982 from D 63.5 millionto D 224.0 million, term deposits from D 29.4 million to D 48.5 million, andSpecial Resources from D 48.5 to D 102.0 million. BNT's sources andapplication of funds over the Project implementation period is shown inAnnex 1, Table 3.

Bank Performance

4.12 Since it was a follow-up project with BNT, the assessment of theBank's performance needs to be made in light of strengthening achieved inBN9T's agricultural lending activity, especially, the new component dealingwith small farmers. Prior to the Project, investment credit for small farmerswas financed exclusively from Government FOSDA funds with little or nosubproject technical appraisal or supervision of subloans. By including underthe Project a substantial small farmer credit component, the Bank encouragedthe Government not only to improve availability of investment credit to smallfarmers, but also to introduce sound appraisal methods for subprojects andbetter discipline concerning loan repayment by this category of farmers. Thiswas not achieved fully because of continued and increased availability of

1/ Capital, reserves and provisions.2/ Auditor's report for the fiscal year 1982 was not available at time of the

drafting of present report.

- 46 -

FOSDA funds. In retrospect, it appears that during appraisal the magnitude ofthe problems connected with the introduction of such lending methods had beenunderestimated, and Government's commitment to set small farmer investmentcredit on a sound basis was probably overestimated at the time of appraisaland negotiations. Throughout Project implementation, the Bank maintained aconsistent and firm position with regard to this component, which did finallytake off and during the extended period was disbursed fully.

4.13 On the other hand, the Bank should probably have taken a firmer standduring implementation, when it became apparent that contrary to the spirit ofGuarantee Agreement, the procedures and conditions (not the financial terms)of lending from other funds were more liberal to subborrowers than thoseagreed under the Project. This issue became a central one for the ThirdAgricultural Credit Project now under implementation.

4.14 The timing of Bank supervision missions was adequate and the missionsreflected a reasonable level of continuity in terms of staff participation.

V. LESSONS LEARNED AND CONCLUSIONS

5.01 The major lessons learned during the processing and implementation ofthe Project are:

(a) BNT's Loan Recovery performance varies considerably from dismal(below 50% of due) for loans granted with Government resources andfor which the Government bears 100% of the default risk, to poor forloans granted under the Project (65%) for which BNT bears part (25%for small farmers and 100% for commercial farmers) of the risk ofdefault, to satisfactory (90%) for loans granted on BNT's ownresources and for which it bears fully the risk of default. The Bankfailed to establish adequate incentives for BNT to improve its loanrecovery efforts and performance by (i) not making BNT graduallyassume a larger part of the subloans' default risk, and (ii) notlinking BNT's remuneration, fixed under the Project (GuaranteeAgreement) at 3% of the subloans' principal amount outstanding at theend of the year, to recovery performance.

(b) Role of the Ministry of Agriculture in subloan appraisal was a majorcontributing factor to the delay in subloan approvals, as well as inthe eventual poor performance in loan recovery. Unlike under thecredit operations financed by its own resources, BNT's role inappraising the sub-borrowers' creditworthiness and the proposedinvestments was reduced, in many cases, to providing an accountingfunction. On the other hand, the MOA staff, who approved subloanapplication, had no responsibilities for loan recovery. Such a splitin the responsibility for subloan appraisal and loan recovery, andthe involvement of staff outside a credit institution in purelycredit functions, proved to be unsatisfactory. On the one hand, itwould have been difficult to request that BNT bear the full defaultrisk for subloans (categories A and B) technically appraised by the

- 47 -

services of MOA and not by its own staff; on the other hand, reducedexposure to default risk did not provide BNT with sufficientincentive to increase its recovery efforts. The lesson here isclear: an agricultural credit institution should be given fullresponsibility for loan appraisal and approval and bear the fulldefault risk of its lending operations.

(c) Disbursement of Subloans to Small Farmers was slow essentiallybecause of competing FOSDA funds (paras. 3.07, 3.14 and 3.29). Whileconsiderable attention was paid to achieving equality in loan termsand conditions, other procedures and conditions, such as quality andspeed of the appraisal and processing of loan applications, were notemphasized. The lesson to be learned is that it is not sufficient tohave the same financial lending terms, but that all conditions suchas subloan appraisal procedures and incentives provided to thelending institution to undertake its assigned tasks should be atleast comparable for all sources of funds in order to ensuresatisfactory performance under a Bank loan.

(d) Delayed Disbursement to Small Farmer Associations (SCMVs).Considering that SCMVs were new "institutions" and there was littleexperience in Tunisia and in the Bank as to their effectiveness, theimplementation complications which plagued this component during theearly years should have been better foreseen during Projectpreparation. The implementation of this component could have beenfacilitated by greater attention before appraisal to its key designfeatures.

(e) The Monitoring System for assessing the impact of the Projectinvestments did not produce satisfactory results (paras. 3.22-3.23).In retrospect, it appears that the Bank should have paid moreattention to this issue, both from the point of view of theobjectives and design of the M&E system, and of convincing theGovernment and BNT of the importance of this aspect of the projectcycle. The lesson is that monitoring and evaluation systems workonly if they are designed to provide a true service to the end user(the Borrower) and therefore win its full-hearted commitment.

5.02 In summary, despite considerable implementation difficulties,especially for the components dealing with small farmers, Project objectivesset at the time of appraisal were generally ret, albeit with considerabledelay. BNT has improved its lending procedures and its lending to agricultureduring the Project period increased substantially. Although interest rates tofarmers remained negative in real terms, they were increased substantially ascompared to the pre-project situation (from 3-4.5% to 6% for small farmers,and from 6% to 7% for commercial farmers). However, at the end of the Projectperiod, BNT, as an effective financial intermediary for agricultural lending,needed further reform on issues which are currently the subject of a dialoguebetween the Government and the Bank.

- 48 -

5.03 Problems of low level of loan recoveries, lack of decentralization ofBNT's loan appraisal procedures, inadequacy of a financial margin available toBNT for its agricultural lending operations and resolution of the interestrate issue became the objectives of attention of the Third Agricultural CreditProject, which was approved by the Board in 1980. BNT has since then set up acost accounting system to review the financial viability of its agriculturallending operations, has created a loan collection unit to strengthen itsrecovery procedures, has defined a training program for its agriculturalcredit staff and has decentralized, on a pilot basis, the task of appraisaland approval of subloans to small farmers. Some of the other measuresnecessary to resolve the major issues in institutional credit are outside theresponsibility and control of BNT. In particular, Government is directlyresponsible for establishing the policies regarding interest rates, the spreadavailable to financial institutions and creating a climate for financialdiscipline and loan repayment. Increased recognition is "eing given by theGovernment to these issues. Some actions have recently beea taken by theGovernent (privilfge d'Etat for the recovery of agricultural loans) butfurtber action to resolve these issues is critically needed for the soundgromth of a viable agricultural credit system and for continued involvement ofthe Bank in supporting this subsector.

- 49 -

FFi1Er Com'fEr3Der IEn AReg ITable 1

71UMMA SED AMIU MrAL CIEDIr EMCr (on 130-1T0

ffr - gmmarized Emlen Shesta 1976-82

(D 'O0)

1976 1977 1978 1979 1980 1981 1982

AS~S AMF

Camh n Hand, caae~ Back, Postal Checks 1,340 1,881 1,794 2,83 2,029 1,974 1,852 Caisse, cP, CrB~s n Ccaeqanfct 5,075 2,714 13,907 25,407 22,198 21,295 6,028 B-nqus et rrensparneGe , Br~ and Tne,ry Bills 16,072 20,003 22,673 34,228 39,765 46,646 53,470 Effets Publice et Autres Titresills Di-e~e 30.948 28,875 36,586 47,784 69,862 85,312 94,682 Porteauille Ec-me

Ca~n Ar==" Cnbit> 55,073 54.476 64,633 76,675 81,208 89,392 107,309 Cau3~e cmra Débiteus~y Dat~ 93 103 76 53 2,006 4,880 2,691 Dibiteurs Dier

Equity Iresmanrs 3,504 4,128 5,951 7.197 7,370 8.234 9,561 Participa:ionsFiA Asts. Nn-Pr~xtimn Assets 2,198 2,586 3,114 3,727 4,092 4,452 4,597 lsmbilisatiom et No-valen net

ice11 ,= 35.675 76,561 57,8 63.117 83,451 121,585 182,667 Divers• kar~l 149,978 191.327 206,579 260,991 311,981 383.770 462,917 S~u-Total

Specal 1r~d Inme.rnenta 41.533 47,497 57,743 67,915 74,714 87.835 106,234 Prts mr Dotations Späciales1l 191,511 239,274 264.322 328,906 386,695 471,605 67,151

Sundxy Ios Dier H~ BilanGrante Dekor 45.513 57,084 111,185 128,368 155,626 235,568 247,471 D~itu Per Caution et AcptleIngae~r Caedits 2,694 2.688 2,674 2,854 2,995 3,001 2,969 CrEmr~a de l'Etat I Recourir

1Drm 48,207 59,772 113,859 131,222 158 621 238,569 250,&0 1D

CROD 1m 39718 299,046 378xr181 460128 565t316 710,174 817,591 GLwe uDL

L AE A- flnD EHNDS pASS

Depasia i Sight 61.249 63,481 94,777 123,003 156,871 185,436 223,956 D~pa å VueHo~s al Term Deposita 29,589 29,449 32,619 45,791 53,4% 54,436 48,506 Hans et Canes 1 TermeBaks atd Corrxepodta 7,598 16,482 6.393 7,655 7,130 12,693 10,558 H-BrL- et COrrespoa--nSaky Creditorm 10,630 7,400 8,096 9,536 6,919 6.106 6,999 Crediteu Diverm14 ei1 m 23.849 57,972 4346 50,196 56,606 88,556 135,702 Dir

S.totalr 132,915 174,786 186,229 236,181 281,020 347,225 425,719 Sous-Total

Special Fummi Nssre SpecialesEOSD 17,780 21,175 26,869 33,842 38,686 ) )

6,010 7,340 8,658 9.507 10,754) ) 0SEP2,758 2,761 2,765 2,765 2,769 ) )

lUD-D 6,899 6,783 7,520 9,230 10,372 1 ) -ILth 10,989 10,466 12,539 15,306 18,023 ) ) Divers

Suaotal 44,436 48,525 58,351 70,650 80,602 89,862 102,083 SOU-Total

Provisims Provisionsine11m~m=• Rinka 3,400 3,400 3,540 684 832) %8) Riaqueu Divers

Eqity Insm ~f 181 323 574 721 793) 897> D)p~iation dem TitresW Db 2,017 2,721 3,209 4,

29 8,059) Catetieux

Subttal 5.598 6,444 7,323 5,534 7,190 9,924 12,790 Sous-Tatal

RCe 3,129 3,618 4,80 8,657 9,711 0,223 11,785 RMveCapital 4,000 4,400 6.000 6,000 6,000 12,000 12.000 CapitalYerly Pfit1433 1,503 1 611 1 884 2,172 2,371 2774 Tfice de 'Mercice

Subotal 8,562 9,521 ,?.W T' T7W 24,596 26,559 SOUs-Ttal

lDDm 191.511 239,274 266,322 3290 386695 471,605 567,151 1Dum

u Divers It Bilanrrea emi.. 45,513 57,084 111.85 128.368 155.626 235.568 247,471 EAme~a per caution et acceptatioa

Gmern Cit åaa-~a to Collect 2,69 2,688 2,674 2,854 2,995 3,001 2,9 Etat - rGe Cre 1 ReanurirlEDL 48,207 592 113.859 131,222 156 238569 250,440 10tAL

G(UD IMDL 239,718 299,046 378181 4W0128 565 3 710,174 817,591 CR~ 1lDL

(2333. p.30)

le. 1III j [in qja Iijmass a es as

ser s a e

bn- mi I I- w0a

ases r 1

aran aIe imisEs


TUNISIA SECOND AGRICULTURAL CREDIT PROJECT (Loan 1340-TUNI

BNT - Sourceas and ADplication of Funds

191n 192 19.80 ili 1982Z

Net Profit 1.6 1.9 2.2 2.4 2.8 R6sultat NetDepreciation l. 1i 1. LA LA Amortissements et Provisions

Cashflow 2.7 3.6 4.3 5.9 6.2 Casflow

Increase in Capital 1.6 - - 6.0 - Augmentation du capitalIncrease in Reserves 1.4 4.0 1.3 0.7 1.6 Augmentation des r6servesOther Increases Autres Augntations

Sight Deposits 31.3 28.2 33.9 28.6 38.5 06p6ts a vueTerm Deposits 3.2 13.2 7.7 0.9 - Bons et Comptes & termeSpecial Resources 9.8 12.3 9.9 9.3 12.2 Ressources spiciales et i plus d'un anSundry Creditors 0.7 1.4 - - 0.9 Cr6diteurs diversMiscellaneous Liabilities - 5.7 6.2 31.7 38.4 Divers Passif

Decreases DiminutionLiquid Funds - - 3.5 6.5 15.4 Disponibilit6sSundry Debtors - - 2.2 06biteurs diversBonds l-= - Bons

TOTAL SOURCES 70.0 68.4 66.8 89.6 114.4 TOTAL RESSOURCES

APPLICATION OF FUNDS EMELOS

Increase in Lending Augmentations des engagementsOwn Resources 17.9 12.0 4.5 11.0 17.9 Sur fonds propresSpecial Resources L3A .4 .u _U l .11 -1. Sur ressources spicialesSubtotal 27.7 22.2 11.3 24.2 33.3 Sous-total

Increase in: Autres augmentationsDiscount Portfolio - 11.2 22.1 15.4 9.4 Portefeuille escompteEquity Participation 1.8 1.2 0.2 0.9 1.3 ParticipationFixed Assets 0.7 0.8 0.7 1.1 0.1 Effets PublicsLiquid Assets 21.3 11.3 - - - Liquidit6sMiscellaneous - 5.3 20.3 38.1 61.1 Divers ActifsProfit Allocation (previous year) 1.5 1.6 1.9 2.2 2.4 Affectation r6sultats ann6e pr6cedente

Decrease in: DiminutionsSundry Creditors - - 2.6 0.8 - Criditeurs diversMiscellaneous Liabilities 13.8 - - - - Divers passifProvisions - .LIt . - - ProvisionsTOTAL APPLICATION OF FUNDS 70.0 68.4 66.8 89.6 114.4 TOTAL EMPLOIS

(2333E, p. 32)

-52 - ANNEX 2Table 1


TUNISIA

SECOND AGRICULTURAL CREDIT PROJECT (Loan 1340-TUN)

Quarterly and Cumulative Disbursements(in US Million)

IBRD FY Actual SAR Projections Actual as

Quarter Ending Quarterly Cumulative Quarterly Cumulative Z of projection

FY77March 31, 1977 1.25 1.25 0

June 30, 1977 1.40 2.65 0

FY78

September 30, 1977 1.15 3.80 0

December 31, 1977 1.45 5.25 0March 31, 1978 0.24 0.24 1.50 6.75 4

June 30, 1978 1.48 1.72 1.55 8.30 21

FY79September 30, 1978 0.54 2.26 1.25 9.55 24

December 31, 1978 0.24 2.40 1.65 11.20 22

March 31, 1979 0.38 2.88 0.12 11.32 25June 30, 1979 0.78 3.66 0.11 11.43 32

FY80September 30, 1979 0.52 4.18 0.10 11.53 36

December 31, 1979 0.49 4.27 0.11 11.64 40

March 31, 1980 1.26 5.94 0.10 11.74 50

June 30, 1980 1.21 7.15 0.09 11.83 60

FY81September 30, 1980 0.33 7.48 0.08 11.91 63

December 31, 1980 0.43 7.91 0.09 12.00 66March 31, 1981 0.96 8.87 - 12.00 74

June 30, 1981 0.27 9.14 - 12.00 76

FY82

September 30, 1981 0.44 9.58 - 12.00 80

December 31, 1981 0.28 9.96 - 12.00 82March 31, 1982 0.15 10.01 - 12.00 83

June 30, 1982 0.37 10.38 - 12.00 87

FY83

September 30, 1982 0.16 10.54 - 12.00 88December 31, 1982 0.12 10.66 - 12.00 89March 31, 1983 0.88 11.54 - 12.00 96June 30, 1983 0.36 11.90 - 12.00 99

PROJACT COMPLETION REPORT

TUNISIA ýECOND AGRICLTURAL CREDIT PROJECT (LOAN 1340-TUN)

SI-isbursement Profile - Cåmparison of EMENA TypicÅl, SAR and actual

1 / i

Typical Profile IBRD EMENAAgriéultural Credit Loans

---- •---- SAR Disbursement!Profile

.... *.*...*. • Actuål Loan DisbursementProfile

ic ,z

(Dy .4

ANNE 2Table 3

PROJCT COMPLETI) REPORT

TUNISIA ECOKID AGRICåLTURAL CRED T PROJECT dOAN 1340-TUA)

Disburslment Profilé per Category(Compard to origin.1 Allocati

Category - Small FaLers

- egory-- G--omerc-ial--nmes--- - - --- -

Category II - SCMv'siDate Palm Plantation

* i ~ Category risCaeoyV- Agroindjstries-

1 far.

i '>

liGe 1

1*-

:FYi *q* 1 L po

, ��

, ��

&

��

&

-

Redeyel El Guellar

SFAXý-ýKq p kon no

Islands

GGAFSA Mezzouna

Mchares

Rediryof Metlaoul El Guertor

U- Sekhira,

XiL-34* T 0-2 E UR McihouioTOZEUR

GABES +Hournt SaukNaftaE l

Harnmo

Adilm

KEBIII G A B E 5 Dior(

Mareffi

K E B l L l Mormotaza(755

Douz

MEDENINE

BantKeddoche.

a ýanGordane

-33* ähournrossen 33--

lp

T A T A 0 IJ l N EU 0 25 50 75

* National Capital l KKOMETERS i

* Governorate Copitals rhis map has been prepared byThe World BankS Maff exclusivetyPoved Roods for the convenience 01 the

Rodways readers and is exefusively for the 0 Rernada Map

inlernal usa of The World Bank Arra JA se.Ports and the Inlernationai Finance

Copporshon The denorninationsAirports used and lhe boundarjes Shown

0 on this map do not impy, on lhem Salt LokesC) part of rhe World Bank and the A L G E R I A L I B Y Am Governorate Boundaries International Finance Corporation, 32t

any p~ent on the legal slatusInternational Boundaries M any lerntory or any -ou

endorsement or jcceplance ofsuch boundaries

108 "'NIGE R CHAD

world bank document · 2017. 11. 4. · document of the world bank for offical use only repw n....

Documents