Evaluation Team

This report has been prepared by Mr. M. H. RAZAFINDRAMANANA, Prinicpal Evaluation Oficer, and a consultant, following an evaluation mission conducted in Tunisia in July 2006. Questions relating to the report should be addressed to Mr. D. A. BARNETT, Acting Director, OPEV or Mr. RAZANFINDRAMANANA (h.razafindramanana@afdb.org)

Objective

The overall objective of the Competitiveness Support Programmes, PAC I (1999-2001) and PAC II (2002-2003) is to consolidate the basis of a competitive economy and allow for sustainable growth of the Tunisian economy. The specific objective of the PAC I was to make capital allocation more effective. In 2000, the banking sector had to be despecialized and the finance sector governed by a new prudential regulation. PAC I had five components: Restructuring/modernization of the banking system; ii) Related reform of public and para-statal enterprises; (iii) Reactivation of the treasury securities market; (iv) Modernization of money management instruments; (v) Strengthening of the Insurance Companies and the Orgnisations de placement collectif en valeurs mobilieres (OPCVM). A sixth component concerning macroeconomic stability was implicit. The specific objective of  PAC II was to support private sector development by improving the business environment and finance conditions of that sector and improving the coverage of its non-commercial risks. While consolidating the PAC I outputs, it broadened their scope of implmenatation. PAC II comprised the 5 following components: (i) stability of the macroeconomic framework; (ii) improvement of the private sector environment; (iii) strengthening of the financial sector and consolidation of its outputs; (iv) reorganization of the insurance sector with a view to its liberalization; and (v) reform in the information technology and communication sector. The specific objective of PAC III, currently under implementation, is to contribute to the attainment of an annual average growth rate of 5.2% for the period 2005-2006, through the implementation of three fundamental and interdependent aspects of the Government’s economic policy. These facets seeking to promote increased private sector participation in investments under the 10th Plan are: (i) maintaining a stable and responsive macroeconomic framework; (ii) improving the private investment environment and promoting new investment opportunities; and (iii) strengthening the finance sector contribution to growth financing by improved coverage of nonperforming loans of the banking system and through provisions and development of alternative finance sources, such as the capital market.

Main Lessons

• Tunisia has succeeded in laying the bases for a competitive economy through the well-coordinated implementation of macro-economic and structural policies and reforms. It has modernized its financial sector and eliminated major impediments to investment and privatization of public enterprises’. The implementation of the EUAA made it possible to engineer the clear opening out of the economy to the external world. The vigorous reforms relating to the business environment, enterprise governance and privatization, telecommunications and information technologies, insurance and financial intermediation have made it possible to significantly improve the long-term competitiveness of the Tunisian economy.
   
• The successes of the Tunisian economy can be attributed to five factors: (i) the authorities’ political will concerning the implementation of the reforms, (ii) the ownership and broad consensus at the political level, (iii) abundant and high caliber human resources, (iv) firm support from well-coordinated partners that have shown flexibility in the face of certain constraints not anticipated from the outset. 

• The programme teaches the importance of properly targeting and scheduling reforms, particularly in the case of successive programmes over the longer term. The programme approach is implicit, though PAC I and II are astride two separate development plans. The Bank and the authorities should, by common agreement, establish a framework for longer term evaluation covering the successive phases of reform. 

• The ownership of the borrower’s reform programme is a major asset for its success. It makes for real commitment of the administration in the implementation of the programme. In the cases of PAC I and II, for example, the programme was initially designed by the Tunisian authorities, who thus invested in its smooth implementation. The role and the quality of the Tunisian administration in the sound implementation of the programme are noteworthy. Indeed the contribution of stable,d competent and commited teams to the design as well as the implementation of the reforms is an asset for the successful implementation. 

• The economic and sector studies made it possible to carefully target and gauge the reforms and decide which supplementary studies were necessary to clarify certain specific aspects of reforms. They opened an important channel for continued dialogue with the authorities. It was also a wise decision to complete the preparatory work before initiating the insurance sector reforms. This aspect was given particular attention in the PAC II. It is thus important, in preparing the Bank’s annual administrative budget, to provide the necessary resources for sector studies, which are prime instruments for preparation of reforms.

• Close cooperation between the three donors has helped improve the programme performance and efficiency. There has been effective coordination between co-financiers, for example through exchange of information and conduct of joint missions throughout, from the programme identification up to the supervision stage 

• The experience with regard to privatization of public enterprises and of the ,financial sector has shown the need for the Bank to be flexible concerning the fulfillment of ,certain conditions. Thus in accepting partial reform for certain aspects, the co-financiers ,ultimately obtained the full implementation of the reforms. In other words the patience, ,perseverance and flexibility paid off in the end.

• The conditions should be feasible within the stipulated time frame and the verification criteria very clear. The condition concerning the UIB/BTEI merger is a case in ,point. A contrario, the formulation of the condition relating to the granting of the GSM ,license was debatable and concerned a commercial transaction. 

• The formulation of the conditions including amendments of laws or the voting of new law to be submitted to Parliament should take into account the ramifications of these ,changes as well as possible difficulties. The Bank should weigh such difficulties and assess them in a flexible manner, as it did for the amendment of the law relating to loant recovery.

Main Recommendations

Recommendation(s) to the Beneficiary:

• Continue consolidating the reforms already started and speed up their implementation;

• Formulate a long-term plan for the implementation of the reforms, in order to supervise the different phases of the Programme and better prepare future phases; take timely measures to secure funding for the required studies. This framework is all the more necessary as the acceleration of reforms has already been programmed by the Government in its last Orientation Note

• Encourage the authorities to prepare periodic progress reports on the Programme as well as the completion reports for it, in accordance with the general provisions of the loan agreements

• Provide the Bank supporting documents for disbursements at the same time as the other co-financiers

• Seek the advice of the Bank in determining loan interest rates and monitoring their evolution throughout the period.

Recommendation(s) to the Bank:

• Pursue and depeen the dialogue with the authorities, in order to continue assisting the country in future phases of the programme 

• Provide increasingly strong technological expertise, as the reforms advance and become more complex 

• Strengthen the expertise provided throughout the programme cycle and finance preparatory studies intended to give value-added to the Bank’s assistance 

• Establish with the authorities, an evaluation framework over an extended period covering successive phases of the programme, so as to better target the reforms 

• Formulate feasible conditions within the stipulated time frame 

• Avoid formulating measures with a technical content which the evaluators are not familiar with, and which could thus cause a bottle necks when difficulties arise

• Avoid formulating measures raising commercial issues that could delay the implementation of the reforms 

• Avoid linking the tranches to sectors, since that could complicate the disbursement mechanisms and would not facilitate the provision of support throughout the reform programme 

• Ensure that the coordination amongst donors covers, not only the usual missions, but also the examination of documents, particularly the evidence of implementation of measures in order to coordinate decision making 

• Ensure the translation of official documents into Arabic, whichis an African working language of the Bank, to avoid any delays 

• Relax the procedures for examining supporting documents for disbursements and enable Bank staff to be more responsive by making them more accountabl 

• Advise the RMC authorities in determining the type of loan interest rates to apply and assist them in managing these throughout the period, with a view to minimizing the interest due and enabling the Bank to be more competitive.