Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized FILE COPY Document of The World Bank FOR OFFICIAL USE ONLY REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOP'ENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A SECOND FOODGRAIN STORAGE PROJECT March 15, 1978 Report No.P-2263-BD This documnt hk a retsictd diltrbutle ad -y be und by eipients only in he performnce of their official duti Its contents may nt othdrwie be disclosed without World Dank agtbohrztion.

2 CURRENCY EQUIVALENTS The Bangladesh Taka is officially valued at to the Pound Sterling. The Pound now floats relative to the US Dollar and consequently the Taka/US Dollar rate is subject to change. The rate below has been used throughout this report. US$1 - Tk 15.5 Tk I - US$ Tk I million - US$64,500 WEIGHTS AND MEASURES 1 acre (ac) hectare (ha) I mile (mi) kilometers (km) 1 square mile (sq mi) ac (259 ha) 1 maund (md) lbs (37.3 kg) 1 metric ton (ton) md 1 cubic foot per second (cusec) cu meters per second ABBREVIATIONS HYV - High Yielding Varieties IRDP - Integrated Rural Development Program PECU - Project Engineering and Construction Unit PIU - Project Implementation Unit PSC - Project Steering Committee PM - Planning and Monitoring Cell TCCA - Thana Central Cooperative Association TPC - Temporary Purchase Centers GLOSSARY Aman - Rice planted before or during the monsoon and harvested in November or December (B. aman is broadcast, T. aman is transplanted) Aus - Rice planted during March and April and harvested during July and August (B. aus is broadcast, T. aus is transplanted) Boro - Rice planted in winter and harvested during the period April to June Paddy - Thana - Unhulled rice Administrative unit in Bangladesh. There are 413 thanas in the country. Six or seven thanas form a subdivision, three or four subdivisions form a district, and there are 19 districts in the country. FISCAL YEAR July 1 - June 30

3 FOR OFFICIAL USE ONLY BANGLADESH SECOND FOODGRAIN STORAGE PROJECT Credit and Project Summary Borrower: Amount: Terms: Purpose: People's Republic of Bangladesh US$25 Million equivalent Standard To help improve the storage capacity and operating efficiency of the domestic foodgrain procurement program. The project will assist the Government in implementing a farmgate price support program. By enabling the Government to increase its levels of domestic foodgrain procurement the project would increase production and farmer income. Losses would also be reduced by improvements in pest control and paddy drying operations. There is a risk that increases in the supply of grain in the project area would be inadequate to permit the economic utilization of the net addition to storage capacity made available under the project. However, given the Government's efforts to expand production and domestic procurement, the risk is not considered large. The credit will finance storage facilities, essential equipment, vehicles, mechanical drying facilities and technical assistance to (a) increase storage capacity and improve farmer access to Government procurement centers; (b) strengthen grain inspection and pest control operations; and (c) develop the marketing potential of selected Thana Central Co-operative Associations. A study of private storage would be undertaken to identify constraints and investment needs. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

4 Estimated Costs: Local Foreign Total X Foreign US$ million Exchange Items Godown Construction Land New Godown Structures Ancillaries and Power Rehabilitation Engineering & Construction Sub-Total Procurement System Testing & Reception Equipment, Vehicles Training and TCCA Pilot Project 0.3 _ Sub-Total Paddy Drying Civil Works Dryer Equipment Sub-Total Pest Control Equipment and Vehicles, Training Sub-Total Technical Assistance Engineering Procurement & Drying, Pest Control Studies, Planning and Monitoring Sub-Total Base Cost Estimates Physical Contingencies Price Contingencies Total Project Costs

5 - ii~i - Financing Plan: Bangladesh Government IDA Total US$ Millions Rate of Return: About 21%. Estimated Disbursements: Bank FY FY78 FY79 FY80 FY81 FY US$ Million Annual Cumulative Appraisal Report: Appraisal of a Second Foodgrain Storage Project, February 15, 1978, Report No. 1715a-BD.

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7 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A SECOND FOODGRAIN STORAGE PROJECT 1. I submit the following report and recommendation on a proposed credit to the People's Republic of Bangladesh for the equivalent of US$25 million, on standard IDA terms, to help finance a second foodgrain storage project. PART I - THE ECONOMY 2. A Basic Economic Report on Bangladesh, entitled "Bangladesh: Development in a Rural Economy" (Report No. 455-BD, of September 15, 1974) was distributed to the Executive Directors on October 1, The last country Economic Report circulated was entitled "Bangladesh: Current Economic Performance and Development Policy Issues" (Report No BD, of May 19, 1977). This report was distributed on May 23, 1977; it was based on a field mission undertaken in November Since that date, a further economic mission has visited the country (in November 1977) and its report is currently under preparation. The basic conclusions of this most recent mission are summarized below. Economic Prospects in FY78 3. Economic growth in Bangladesh is heavily influenced by the performances of agriculture (mainly foodgrains and jute) and industry. For FY78 the harvests are expected to be good. Weather conditions have generally been favorable, and the prices prevailing in the previous season, combined with anticipations of a further strengthening of demand in FY78, encouraged farmers to increase the acreage sown to both jute and aman rice, and to invest in modern agricultural inputs. 4. With respect to industry, the seasonal distribution of production makes it impracticable, on the basis of data for the early part of the year, to predict with any confidence what the trend will be for the year as a whole, but increased consumption and investment are expected to yield a strong upturn in performance. This was facilitated during the first quarter by the expansion of the "Open General License Scheme" at the beginning of the calendar year, enabling an increase in the importation of industrial raw materials. Unfortunately, this was suspended in October 1977 because demand exceeded available foreign exchange; however increased demand for jute goods, cotton textiles, and construction works, and the continuing strong demand for fertilizer, are believed to be stimulating increased capacity utilization.

8 The prospects for both raw jute and jute goods exports have improved. However, despite a 17% increase in raw jute production this year, aggregate raw jute availability is limited due to the stock rundown caused by the poor crops of the two preceding years. But, since this is also a characteristic of the world market, the average export prices of raw jute and jute goods are estimated to be 12 and 15% higher respectively than in FY77. Thus, the increase in aggregate jute export earnings for the year should be of the order of 8%. Minor and nontraditional exports such as fish, leather and spices are expected to continue to grow, but at a diminished rate, due to such factors as international competition, and domestic shortages. 6. The Government is continuing to pursue prudent monetary and fiscal policies. The planned monetary expansion for FY78 is linked to the anticipated rate of economic growth, and the Budget includes no provisions for deficit financing. However, Government did purchase an unforeseen 296,000 tons of foodgrains at a total cost of $63 million, at the beginning of the financial year (in order to ensure an adequate pipeline), while revenue collections from customs and excise have been less than targeted, so far. 7. As a result of the improvement in the general economic situation, both the volume and value of imports are expected to increase substantially over the financial year. An important factor here is the projected increase in foodgrain imports - to a total volume of 1.8 million tons and value of US$279 million - despite record harvests expected to total 13.2 million tons. This is regarded as an essential step towards attaining the official target stock of I million tons, required both to maintain foodgrain security, and to facilitate open market operations. Physical imports of raw cotton, fertilizer and cement, and to a much lesser extent edible oil and minor consumer products, are also expected to increase significantly. The average prices of rice, wheat, oil seeds and cotton are projected to decline, and those of petroleum products, fertilizer and cement to increase. Overall, the net effect is likely to be an increase in the value of imports of 47% to a total of some US$1,275 million for FY To summarize: aggregate rates of growth are projected at 10% for agriculture, 8% for industry and 8% for the remaining sectors combined, yielding about an 8% growth rate overall. The increased availability of imports and foodgrains, combined with plans to limit monetary expansion, should help to contain the rate of inflation at 7%, as compared with 11% in FY77. Major Developments and Policy Issues 9. Foodgrains. A number of measures to increase foodgrain output were introduced in FY78. The procurement price for aman rice was increased by 8% over FY77 (to Tk 132/md), and was announced well in advance of the planting season. In addition measures to facilitate procurement, including the opening of 100 new purchasing centers, a strengthening of staff cadres, an expansion in the number of grain dealers, bank branches and payment points,

9 and increased flexibility in the quality requirements, were instituted which should facilitate domestic procurement, the target for which was raised from 400,000 to 500,000 tons. During FY77, input packages consisting of fertilizer kits, and a Tk 1,000 million credit program (of which Tk 400 million has been disbursed), were introduced on an experimental basis. These policies, combined with favorable weather conditions, are expected to increase FY78 production by 11% over FY77, to 13.2 million tons - the highest level of output since independence. These steps have led to considerable increases in fertilizer usage. However, these short term gains, while considerable, must be weighed against the laxity in credit discipline and the disruption in extension activities which appear to have characterized the crash programs. 10. The foodgrain ration system has been further modified through an increase in the price of rice distributed of 11% and of wheat of 14%; an increase in the percentage of wheat distributed to most ration categories, to change the wheat/rice ratio to 2:1 in those cases; and the elimination from the system of those households enjoying incomes of more than Tk 1,600 per month combined with a limitation on all households of a maximum of six cards. "Essential Supply Shops" have been opened to enable these newly excluded groups to purchase food necessities at less than the open market price. This is described as a transitional measure and in general the new strictures are commendable steps towards the stated objective of providing rations to vulnerable rural and urban groups alone. At present such rural groups tend to be bypassed, despite the continuation of both the Modified Rationing System and the Food for Work program, and rural public works programs should be expanded. At the same time, increased utilization of wheat and "new" cereals such as sorghum in the ration system, could, if combined with an intensive publicity campaign to ensure acceptability, have an important impact on nutritional standards. The increae in the ratio of wheat to rice constitutes a firm step in this direction. 11. Jute. In response to the favorable jute/rice price ratio existing in FY77, and the early announcement of a higher jute procurement price for FY78, the area sown was increased by 29% to 1.8 million acres, including 500,000 acres under the Intensive Jute Cultivation Scheme (IJCS). Total output, despite bad weather conditions, rose from 4.7 million bales in FY77 to 5.5 million bales in FY78. The mills needed to replenish their diminished stocks, and this combined with a buoyant international raw jute market to generate a total demand greater than supply, and so to increase prices from Tk 130/md at the beginning of the season, to Tk 175/md at the end of December This price trend should encourage a significant increase in the acreage sown to jute next season, and, in combination with Government's continuing program of expansion in the IJCS, to further increase output to some 6 million bales in FY79. This should help to set the price of jute goods at an internationally competitive level. The Government is optimistic about the future for jute production in general, under the assumption that the currently buoyant world market will not be undercut by expansions of output in other producer states.

10 The jute goods sector is also expected to benefit from the increase in world demand for FY78. Shortages of raw jute however are expected to limit the expansion in the volume sold to 9% (or a total of 480,000 tons). Despite these shortages, anticipated revenues should increase due largely to a 15% rise in jute prices. Industry losses will nonetheless be of the order of Tk 300 million for FY78, but this is better than the Tk 525 million loss incurred in FY77, and certainly very much better than the Tk 700 million loss originally foreseen. 13. Public Enterprises. The general upturn in economic activity during FY78 should substantially increase capacity utilization in the public sector, particularly in the cement, cotton textiles, engineering, and steel industries. The pricing policy with respect to textile output has been revised to reflect input costs. Primarily because of this, losses sustained by the industry are expected to be reduced. Both this, and the improvement in net returns anticipated in the jute goods industry, are prime factors in the forecast decline in the combined losses of the public sector enterprises for FY78. The basic problems afflicting the effective operation of public enterprises however, continue primarily in the form of excessive centralization and control exercised by ministries over the day to day commercial functions of the enterprises. A number of these issues have been alluded to in previous economic reports. Some progress has been made in alleviating the most difficult problems, but the approach has essentially been an ad hoc one. Any marked improvement in the performance of public enterprises must be predicated on greater functional autonomy, particularly in the determination of input and output prices, and the incentives offered to employees. A number of supplementary measures, including a decision to sell off any enterprises that have continually been incurring losses, may also be necessary. The object should be to conserve the resources available so that they may be invested in those areas that offer the best scope both for growth and the maximization of social benefits. 14. Domestic Resources. The budget for FY78 includes no structural changes in the tax system, and thus the heavy dependence on both indirect taxes (primarily customs and excise duties) and aid derived counterpart funds continues. A shortage of funds available to the development account will result in reductions in development expenditures. The changes in the ration system in mid year should make some contribution here, and a number of less essential expenditures have been weeded out, but subsidies to nationalized enterprises, albeit less than originally anticipated, will remain high. Overall, current expenditure is targeted at 10% greater than in FY77. In order to raise additional resources for development, very much more stringent measures will have to be introduced. The cost effectiveness of the various production and consumption subsidies should be closely examined, and appropriate remedial measures instituted. Similarly, since inappropriate pricing policies lie at the root of most losses in the public sector, appropriate policy changes will have to be identified and instituted here also. Such measures, combined with policies to lessen tax evasion and improve tax administration, offer the best hope for improving resource mobilization in the short-run. Even if these efforts are undertaken and prove successful,

11 they will need to be supplemented by a higher level of aid disbursement-- principally in the form of commodity aid--in order to ensure that an adequate level of counterpart funds is generated for the implementation of ongoing projects. 15. Project Implementation. A number of steps to improve the Government's capacity to implement projects were taken during The Project Implementation Bureau's staff was strengthened, and its ability to monitor progress improved considerably. Project entities were assigned much greater functional autonomy--especially with respect to the authorization of expenditure. For FY78 the complex procedures for the allocation of monies to projects were simplified, and the Government is trying to speed up the approval of projects in the pipeline, and to weed out existing projects that do not promise early completion. These measures are welcome. At the same time, it is important to focus on other major problems which have slowed down project implementation in the past. Greater fungibility in the disposal of development monies should be introduced, so that fast moving projects can employ the funds of those that have stalled. Delays resulting from breakdowns in machinery, shortages of supplies, absenteeism, and bad planning of sequences of activity, must be avoided. Donors could help by ensuring that project resources are supplemented by the provision of a higher proportion of local currency cost in aid transfers, in order to ensure that the implementation of projects is sustained even when Government revenues fall short of expectations. 16. Pricing Policies. The forthcoming Approach Plan offers the Government a good opportunity to eliminate the price distortions that have hampered economic growth in the past. It has already made a start, and an apparent shift towards more market oriented pricing policies has been an encouraging feature of economic management in FY78. First, the Government has recognized the beneficial effect on production of an adequate incentive price for farmers. Subsequent modifications to the foodgrain ration system were also indirectly intended to achieve this end. Second, in encouraging jute mills to purchase raw jute soon after the crop was harvested, the Government hoped to reverse the traditional slump in prices during the immediate post harvest period, and so ensure that farmers really benefitted from the price support. Third, in permitting textile mills to pass on to consumers increased costs of imported cotton, it enabled the industry to reduce its losses. The Government has indicated that it intends to further improve pricing policies in a broad range of sectors. This is both commendable and crucial; a realistic pricing structure is essential, both for the maintenance of efficiency, and for effective utilization of resources. 17. The Balance of Payments. Estimates for FY78 and revised estimates for FY77 are given in Table 1. The buoyant international market for both raw jute and jute goods and, to a substantially lesser extent, the expected modest increase in earnings from non-traditional exports, are major factors in the projected increase in export earnings for FY78 of US$29 million, to a total of US$450 million. On the other hand, the country's heavy dependence upon imports, when combined with the increased tempo of economic activity envisaged for FY78, implies that imports will increase by some US$410 million (to a total of US$1,275 million) over the same period. The resultant trade

12 deficit of some US$825 million is expected to be modified by a surplus of US$84 million on the services account, but the current account deficit is nonetheless projected to be US$362 million greater than in FY77. In addition, debt amortization is estimated at US$25 million (US$8 million greater than in FY77) yielding an overall deficit for FY78 of US$766 million. Table 1: BALANCE OF PAYMENTS (US$ million) FY77 (Revised Estimate) FY78 (Estimate) Merchandise Imports (c.i.f.) ,275 Merchandise Exports (f.o.b.) Trade Balance Other Current Account (net) Current Account Balance Amortization: Medium and Long Term Debt Short term Capital Movements (net) (including IMF) Changes in Reserves (-=increase) External Capital Disbursements of which: Food Commodity Project Cash 200 Source: Government of Bangladesh and IBRD estimates. The Medium Term Development Focus 18. In its memorandum for the July 1977 Bangladesh Aid Group Meeting, the Government spelled out a medium-term development strategy. Agriculture will continue to be the cornerstone of the program, but within agriculture the emphasis will be on an intensified Rural Developmment Strategy, which seeks "growth with equity" in the distribution of benefits. To this end, strenuous efforts to expand the acreage under high yielding varieties of seed, to intensify "Food for Work" programs, to step up agricultural input programs, and to improve the efficiency and capability of the country's agricultural support institutions, are envisaged. It is as yet too early to judge the extent to which the Government's intentions will be translated into realistic programs of action, but they do represent an essential first step. 19. Industry too, is to be the subject of a determined development effort, aimed at increasing both its efficiency and its contribution to economic growth. Basically, the new industrial strategy is comprised of two elements: first, measures to improve the climate for private investment;

13 - 7 - including an increase in the ceilings for such investment, the payment of compensation for nationalized property, the encouragement of foreign collaboration in selected fields, the provision of increased opportunities for participation in domestic and foreign trade, and an attempt to activate the capital market; and second, measures to improve the performance of public enterprises, such as increased autonomy in matters of staff management, pricing policies and inventory control, and the creation of distribution networks. In order to obtain significant improvements in this sector, however, very much more will be required. 20. Strengthening of the administrative framework is a further necessary focus of Government effort. The frequent overlapping of functions, and insufficient decentralization of authority, have been important reasons for delays in the execution of projects in the past. The Government has indicated its intention to remedy these defects, and has taken steps to reduce administrative bottlenecks previously impeding project execution. Discussions on IDA financing of technical assistance in project preparation for the Planning Commission are currently underway, and project preparation and implementation cells are being set up both in Ministries and in Public Sector organizations, in order to identify, develop, and monitor projects. Finally, a joint Government/IDA review of the Water Development Board's organization and programs is underway, and an IDA assisted study to determine means of strengthening the capabilities of both the Ministry of Agriculture, and the Bangladesh Agricultural Development Corporation, has led to proposals for strengthening the financial management of these institutions. 21. A substantial revenue effort is another major component of the strategy. Foreign assistance currently finances some 80% of Bangladesh's development expenditures. However, total revenues were estimated to have increased by 11% (or about twice the rate of growth of GDP) during FY77, when measures such as a 20% increase in the price of fertilizer, a small irrigation charge for Water Development Board projects, and taxes on both urban non-agricultural land, and all agricultural land in holdings greater than 8.4 acres, were introduced. 22. Finally, population planning is assigned high priority, and forms an integral part of the Government's economic development strategy. With the assistance of IDA and bilateral donors, Government has developed a program emphasizing a multisectoral approach, and including motivation, communication, and education. It involves a major effort in training both medical and paramedical personnel, in coordinating a number of agencies, and finally in devising programs for research and evaluation. 23. These policies and measures represent a good start, but they are no more than a beginning in tackling the major problems of expanding the output of foodgrains, increasing domestic resource mobilization, promoting exports and improving administration. Both the successful implementation of measures already initiated, and the formulation of additional measures, will be necessary in future.

14 - 8 - PART II - BANK GROUP OPERATIONS IN BANGLADESH 24. Bangladesh became a member of the Bank and IDA in August Initially, Bank Group operations in Bangladesh concentrated on the reactivation of uncompleted projects, financed under credits made originally to Pakistan, before Eleven such credits, amounting to US$148.2 million (including US$44.1 million for the repayment of amounts that had been disbursed under the corresponding previous credits to Pakistan, and net of cancellations) were made to Bangladesh. In addition, as of January 31, 1978, 24 new credits, excluding the consolidation credit of US$31 million referred to in paragraph 25, have been made, totalling US$716.3 million. Of these, US$425 million have been for six program credits. The project credits have emphasized agricultural development, but also included amounts for population, telecommunications, transport and industry. On June 18, 1976 Bangladesh became the 105th member of the IFC, but no IFC investments have been approved as yet. 25. Agreement has been reached between Bangladesh and most of the bilateral and multilateral donors, concerning the assumption by Bangladesh of portions of the debt contracted by Pakistan, before Bangladesh became independent. This will lead to some increase in debt service and, while the debt service ratio is not expected to exceed 20% over the next ten years, it may do so by the mid-1980s, unless careful debt management policies are pursued, and aid provided on appropriately concessional terms. With respect to the Bank Group, Bangladesh agreed to accept liability for portions of IDA credits extended for projects visibly located in Bangladesh, and completed before independence. Based on this agreement, a consolidation loan of about US$54.9 million, and a consolidation credit of about US$31.0 million were signed on February 14, The Bank Group's share of Bangladesh's outstanding external debt is not expected to rise significantly (over the next few years), from the present level of about 22%. 26. Annex II contains a summary statement of IDA credits and the Bank loan made to Bangladesh as of January 31, 1978, and notes on the execution of ongoing projects. While disbursement of the program credits has proceeded satisfactorily, project credit disbursements have lagged far behind expectations, owing inter alia to delays in the release of local funds, clearance of contracts, employment of consultants, and appointment of staff. The Government has taken some steps to eliminate bottlenecks but, although some improvements in project implementation have taken place, they have not yet been reflected in disbursement performance. This is due in part to substantial delays occurring in the submission of withdrawal applications for local expenditures by executing agencies who have little incentive to seek reimbursement in foreign exchange (which goes to the Bangladesh Bank) once they have made the expenditures from their own budgets. In addition, serious implementation constraints remain, because of shortage of qualified staff, over-centralized bureaucratic procedures and organizational deficiencies. However, progress is being made on these issues. For example, at the Government's request, IDA is providing assistance to improve organization and procedures, especially in the ministries and agencies dealing with agriculture and water resources. Further, the Government has taken actions including

15 - 9 - improved procedures for recruitment of civil servants, the review and recent implementation of revised pay scales, and increased emphasis on training - which are important not only as steps towards gradually improving the quality of public administration, but also as evidence of its awareness of the problem and concern to do something about it. On the organizational side, the Government is in the process of establishing planning cells in the main ministries and agencies, and in strengthening the Planning Ministry. In this connection, IDA is providing assistance both under specific projects and under the Technical Assistance Credits (409-BD and 622-BD). 27. Of the 18 new project credits totalling US$291.3 million, 10credits totalling US$173.5 million have been directed towards agriculture and rural development (excluding subprojects of the Technical Assistance credits devoted to this sector). Their basic objective is to support the delivery of inputs, including assured water, through quick yielding projects with low capital intensity. While the pace of implementation has been disappointing so far, the fundamental importance of improving agricultural productivity means that projects geared to the rural sector should remain the cornerstone of future IDA lending. However, in the shorter term, the rate of planned lending for agriculture will be a function of progress in improving the currently limited absorptive capacity of the project executing agencies. At the same time, greater efforts in institution building are being made through closer supervision and technical assistance where necessary. Some progress has already been made in correcting problems in ongoing projects. In the next few months, projects for agricultural research, drainage and flood control, fisheries and a second rural development project are expected to be ready for consideration. 28. Industry has been the major beneficiary of the six program credits to date. For the reasons given in paragraphs of my Report and Recommendation on the Sixth Imports Program Credit (P-2155-BD, dated November 8, 1977), program lending to Bangladesh will continue to be required while efforts are made to correct basic structural weaknesses in the economy. Nevertheless, the share of program lending in total lending on a year to year basis is planned to decline gradually during the next few years. The industrial sector has also benefitted from DFC and small industry projects and a fertilizer production project. A second small-scale industry project is expected to be ready for presentation in the near future and, depending upon progress in the Program Credit action programs, a jute industry balancing and modernization project may also be considered. IFC is currently in the process of identifying suitable investment opportunities. 29. The enormity of Bangladesh's population problem gives this sector an extremely high priority, limited only by its absorptive capacity. The first IDA-supported population project is now making encouraging progress, and a second population project is expected to be appraised shortly. Improved availability of trained manpower is also crucial. Past lending in this field has emphasized agricultural and technical training, and future operations, while maintaining a similar basic emphasis, are expected to include assistance for vocational and management education as well.

16 Given Bangladesh's immense needs, specific efforts to identify projects in agriculture, transport, industry, energy and power, and telecommunications are now under way. In this connection, particular emphasis will be placed upon those possible projects which provide infrastructure for the rural sector, which process or provide outlets for its products, or which reduce the strain on Bangladesh's foreign exchange resources. Such projects could make a significant contribution towards supporting Bangladesh's development efforts. In view of Bangladesh's difficult foreign exchange position, IDA credits should cover all foreign exchange costs. However, all external lenders are inhibited from achieving the levels of resource transfers appropriate to Bangladesh's economic circumstances by difficulties in the preparation and implementation of development projects. The Government's capacity to carry out projects is constrained, inter-alia, by a low domestic savings rate. In these circumstances, and in order to direct IDA lending to those sectors - such as agricultural and rural development - where the percentage of foreign exchange costs is relatively low, the financing of local currency expenditures is also justified. 31. In addition to lending, economic and sector work provides the basis for continuing dialogue between the Bank Group and the Government on development strategy, and for the coordination of external assistance within the framework of the Bangladesh Aid Group. Recent activities in this area have concentrated on food policy, industrial investment strategy, and increased domestic resource mobilization. 32. The scope and complexity of Bangladesh's development problems will continue to strain the physical, human, and financial resources of an already overburdened development administration. Since substantial improvements will take many years, external assistance agencies, including the Bank Group, will have to tailor their requirements in terms of project design, preparation and implementation to the administrative realities. They will also have to contemplate higher amounts of technical assistance and supervision than is the case in many other countries. Nevertheless, there are opportunities for making significant progress in improving economic conditions for the people of Bangladesh. But progress is bound to be slow and will require painstaking efforts, they are nonetheless worth making. PART III - THE FOODGRAIN SECTOR Production and Imports 33. Bangladesh has a gross area of 35 million acres of which about 22.5 million acres are under cultivation, at a cropping intensity which has averaged about 135% in recent years. Foodgrains play a dominant role in the Bangladesh economy, making up roughly 30-35% of GDP. They constitute the major crop of the subsistence farmer. In 1975/76 about 83% of the total cropped area was under foodgrain crops. Rice accounts for about 98% of total foodgrain production. Foodgrains are also a major element in the

17 national diet, with rice and wheat providing almost 85% of the calory and 70% of the protein intake of the population. During the 1960s, agricultural production grew at an annual rate of about 2.5% and foodgrain production at a rate of 2.4%. However, both lagged behind the population growth rate of close to 3% and, as a result, foodgrain imports increased from less than 0.6 million tons in 1960/61 to over 1.5 million tons in 1969/70. A severe drought combined with the disruptions caused by the 1971 civil strife sharply reduced production in 1972/73 -- some 15% below the 1969/70 level -- necessitating food imports of 2.7 million tons. Despite a substantial recovery, production in 1973/74 and 1974/75 remained below the 1969/70 level. In 1975/76, due to favorable weather conditions, improved availability of fertilizers and unusually high foodgrain prices in 1974/75, foodgrain production reached a new record, at about 13 million tons, which exceeded the 1969/70 level by some 10%. Nonetheless, Bangladesh still had to import about 1.4 million tons of foodgrains in 1975/76. About 85% of the country's foodgrain requirement in recent years has been met by domestic production, though in bad crop years this proportion has been as low as 75%. Imports have ranged from 1.4 million tons in 1975/76 to 2.7 million tons in 1972/73. Despite consumer preferences for rice, wheat has dominated food imports because of its lower price and greater availability on concessionary terms. Substantial foodgrain imports are likely to continue for the foreseeable future. 34. Bangladesh has large areas of highly fertile deltaic soils, a climate suitable for year-round cropping, and abundant groundwater potential for dry season irrigation. In recent years, the development of HYV of rice and wheat, suitable for cultivation in large areas of Bangladesh both under irrigated and rainfed conditions, has opened up the prospects of substantial increases in production which could lead to greater self sufficiency. Given these resources and the need to meet the problems posed by persistent food defecits, the Government's agricultural and foodgrain development strategy aims at: (i) increasing the area under irrigation; (ii) delivering a package of key inputs such as HYV seeds, fertilizers and pesticides; (iii) strengthening extension, credit and other farmer support services; and (iv) operating a domestic procurement and marketing system for foodgrain that would ensure incentive prices to producers. Recent IDA agriculture sector projects support these objectives. 35. The marketing system in Bangladesh is largely traditional. Although most growers part with a proportion of their crop upon harvest, because of their immediate need for cash for consumption and loan repayment and the lack of storage facilities, only about 2-3 million tons, or some 20-30% of production, actually enters the commercial market. Private traders, who are often the source of farmer credit, and who rent land to sharecroppers, dominate the market system. Their operations, however, lack adequate storage and infestation control facilities; losses are high. Farmer co-operatives are being encouraged to market paddy, but their operations are constrained by insufficient technical knowledge and trained personnel, and the lack of physical facilities required for an efficient marketing operation.

18 Food Policy 36. Discussions on food policy within the Bangladesh Aid Group have focused on the need for reforms in the distribution system and a strengthening of the domestic procurement effort, along the following lines. The ration system should be restructured by limiting access to it to the lower income groups and to the vulnerable in emergency situations. Parallel with the introduction of changes in the ration system, the Government would have to intervene in the market to ensure stability in food prices throughout the year for the increased number of people buying food in the open market. To that end the Government should expand its open market operations. The price of foodgrains offered by Government should be adjusted to cover at least the costs to the Government, and to allow for markups. At present food subsidies represent a heavy burden on the budget. The benefits of the subsidy accrue not only to those most in need. While there should be a move towards fuller recovery of food costs and a narrowing of the margin between the official sales price under the ration system and free market prices, there could be a justification for retaining an element of subsidy on food prices distributed through the ration system once that system had been restructured to focus on the needy and vulnerable groups. Procurement administration should also be streamlined. The procurement price, which should be announced well ahead of the procurement drive, should be calculated so as to assure the farmer of an adequate incentive to use more inputs and to raise his productivity. To effectively support the procurement price, the Government should have at its disposal sufficient funds to purchase the required amounts and adequate facilities to stockpile without excessive losses. To facilitate the introduction of changes in the distribution system and, in particular, to ensure that a large open market operation could be managed with continuity and without risk of failure in the face of unexpected shortfalls in the domestic crop, the Government would need a large stock on hand and adequate assurances of supply from abroad. These recommendations were made by an IDA Food Policy Review Mission which visited Bangladesh in February The mission's report ("Bangladesh: Food Policy Review", Report No. 1764a-BD dated December 12, 1977) was distributed to the Aid Group on December 19, 1977, and discussed among members of the Aid Group at a special meeting on Food Aid convened in Washington on January 19, 1978 under the Chairmanship of the World Bank. 37. Public marketing of foodgrains in Bangladesh since the Bengal famine of 1943 has focussed on: (i) ensuring the supply of foodgrains to urban areas especially in times of poor crops and high prices; (ii) supplying foodgrains to Government employees at subsidized prices; and (iii) providing low-priced foodgrain to those in need. Imports (primarily wheat) and domestic procurement (rice) were the two methods of supplying grain to the ration system. With large amounts of food aid being available on concessionary terms, however, domestic procurement received low priority until 1975/76, when 400,000 tons were procured. Procurement prices were not set sufficiently high so that procurement had often to be undertaken compulsorily, causing widespread bitterness among farmers. The Government's procurement effort was also inadequately organized, giving private traders a strong bargaining position in the market. Unlike Government procurement agents they were able to pay cash, and in

19 many cases were able to advance credit to producers and rent land to sharecroppers. Large margins have existed between farmgate and consumer prices because of difficulties faced by farmers in the processing, storing and transportation of their grain and because of various market imperfections. Even in years of relatively good crops, average farmgate prices remained below official procurement prices, with significant regional and seasonal variations, the differences often accruing to traders. Low farmgate prices offered little incentive to farmers to invest in yield-increasing technologies. 38. To stimulate production and raise farmer incomes the Government has, since 1974, operated a farmgate price support program. Its impact, however, has been limited, although there has been some improvement in 1977/78. Efforts to expand the Government program have been constrained inter alia, by a scarcity of strategically located storage and pest control facilities in surplus areas, which limited farmer access; slow purchase and payments; staffing and organizational problems; and the application of stringent grain moisture requirements in an attempt to reduce losses. Recently, however, the Government has emphasized procurement not only as a means of supplying foodgrains to urban areas, but also as a farmgate price support mechanism. Steps taken include: the announcement of an increased procurement price well ahead of the procurement drive; the opening of 100 additional procurement centers; the simplification of procurement procedures; and the relaxation of quality requirements of offerings. The measures recently taken by the Government to strengthen its procurement effort are beginning to have effect in raising farmgate prices. They are in line with the recommendations of this project and of the IDA Food Policy Review Mission mentioned above. 39. The impact of the Government's measures on price depends not only on the procurement effort, but also on the system of grain distribution. Procured grain is distributed through a rationing program which does not always benefit those most in need. Moreover, ration prices have been well below prices paid by consumers with the result that domestic procurement involves significant budgetary support. However, the Government is committed to reducing subsidies and ration shop prices have been gradually raised. At present they are about 75% of free market prices. The Food Policy Review recommended that the ration system be modified with greater emphasis on open market operations to distribute the higher stock levels built up through procurement. The Government has taken some steps in this direction such as increasing the ration price of rice and wheat, and changing the ratio of ration off-takes of wheat relative to rice. The measures taken so far have not however placed greater reliance on open market operations. IDA Assistance to Foodgrain Storage 40. In conjunction with Sweden, IDA financed the First Storage Project (Credit 381-BD) which included the construction of four silos with a capacity of 232,000 tons for storing imported foodgrains. Silo construction was virtually complete by 1971 and the storage and transhipment facilities financed

20 under the project played an important role in the foodgrain emergency of 1971/ 72. Thereafter the silos deteriorated due to weak management and lack of maintenance. In 1974, with assistance from IDA's Resident Mission, the Government drew up and embarked on an action program to improve silo operations including in particular filling a substantial number of staff vacancies. In addition, consultants financed under the First Technical Assistance Credit (409-BD) assisted in improving operating procedures and training. Significant improvement in project operations occurred and the project was completed by June 30, A Project Completion Report is under preparation. The facilities constructed under the project have assisted the Government in maintaining a timely flow of foodgrain imports into Bangladesh. The imports have been particularly crucial after poor harvests and calamities. In addition to physical facilities, the First Foodgrain Storage Project financed a study of Bangladesh's future foodgrain.requirements, which was completed in December The proposed Second Foodgrain Storage Project is based on discussions with the Government concerning this study's findings, and its objectives are consistent with the findings of the recent IDA Food Policy Review Mission (paragraph 36). PART IV - THE PROJECT 41. The project was appraised in April/May Negotiations for the proposed credit took place in Washington in December Attached as Annex III is a supplementary project data sheet. A project map is also attached. Project Description 42. The primary objective of the project would be to provide additional grain storage and procurement facilities in order to permit improvements in the Government's domestic procurement program. It would include the provision of 145,000 tons of additional storage capacity at about 150 existing or new sites in the six major rice producing districts which would be the area of project concentration. These districts in Northern Bangladesh produce about 45% of total domestic foodgrain production and have the greatest potential for streamlining procurement. Although the area provides some 65% of the domestic procurement, it contains only 28% of Government-owned storage facilities, and additional storage facilities are required to support the procurement effort. In addition the project would finance rehabilitation of 25,000 tons of delapidated storage facilities. These additions to storage capacity would facilitate farmer access to Government procurement facilities and the subsequent movement of procured stock, and reduce grain storage losses by reducing present dependence on sub-standard storage facilities. Weighing and testing equipment and mechanical drying facilities would be provided to improve the procurement system. To strengthen grain inspection and pest control operations, equipment and transportation would be provided and a new foodgrain testing laboratory established. In addition, 20,000 tons of capacity would be constructed outside the area of project concentration to facilitate the provision of relief food supplies in emergency situations to selected flood or cyclone prone areas.

21 A pilot project to develop the marketing potential of selected Thana Central Cooperative Associations (TCCA) would be established. Ten man years of technical assistance would be financed in engineering, pest control training, paddy drying and procurement systems, and studies for the evaluation of project benefits. A study of the private sector storage system, which handles 70-80% of marketed production, would be undertaken to identify constraints and investment needs (Section 3.21 of the draft Development Credit Agreement). A Monitoring Cell would be established within the Ministry of Food to improve the performance of the Directorate of Food (Section 3.03 of the draft Development Credit Agreement). 44. The project would meet the Government's storage requirements in the project core area for at least the next four years, increasing the Ministry of Food's capacity to procure to a total of 400, ,000 tons in the project area. Although additional storage will be required by the mid- 1980s, it is considered prudent to limit new construction to the levels planned under the project until improvements in the procurement system have been made and grower response tested. During negotiations the Government agreed to inform IDA of any proposed construction of foodgrain storage in addition to that provided under the project in the six project districts, and it would undertake such construction only if it does not adversely affect the utilization of project facilities (Section 3.11 of the draft Development Credit Agreement). Construction of godowns and all ancillary facilities would be standardized, and would be sited at locations agreed with IDA (Section 3.12 of the draft Development Credit Agreement). 45. Temporary procurement centers and godowns would be equipped with weighing scales, moisture meters and testing sieves. Ministry of Food Chief Inspectors and field officers would be equipped with vehicles to enable adequate and regular supervision of the procurement effort. Mechanical drying facilities would be provided at selected storage depots and suitable moisture content standards applied. 46. Pest control squads, which are needed to serve storage facilities in the project area, would be equipped with vehicles and standardized equipment. Inspection squads would be provided with sampling and measuring equipment, and the frequency of inspection would increase. 47. The project would provide equipment and facilities for the establishment of a foodgrain testing laboratory in the project area which would operate under technical supervision of the existing laboratory at Dacca. The laboratory's Chemist, who would be responsible for its establishment, would be appointed prior to disbursements being made against expenditures for the laboratory (Schedule 1, paragraph 4(c) of the draft Development Credit Agreement). 48. Requirements for trained staff would be met through a field training program involving operators, spraymen, godown managers and inspectors. The project would provide two man years of quality control expertise, three equipped training vans and training costs for about 600 man weeks of field

22 training and demonstration sessions to which private sector and TCCA participants would also be invited. The project training program would be complementary to ongoing efforts financed by the United Kingdom but would focus on field training in the project area. The Ministry of Food would coordinate both programs. 49. The project would initiate a pilot program through the Government's Integrated Rural Development Program (IRDP) to develop the marketing potential of ten selected TCCAs. Selected TCCAs would already have storage facilities. Consequently, investment needs for them would be small, consisting of moisture meters, analysis equipment, weigh scales and 10 motorcycles for supervising project officers. Assurances have been obtained that a day of the week would be fixed for purchase solely from the TCCAs participating in the pilot project, and for those subsequently adopting the model developed (Section 3.14 of the draft Development Credit Agreement). Alternatives to be studied and future phases of the program would be monitored by the procurement system consultant. Technical Assistance The project would provide ten man years of technical assistance costing an average of about US$7,000 per man month. Specific areas of assistance, which would be recruited internationally, would include: (a) an engineering consultant for four years to assist with contractor prequalification, tender evaluation and work supervision, and advise on design and construction methods; (b) two man-years of pest control expertise to assist with training of field staff; (c) four man-years of consultancy in procurement and drying systems to assist with the streamlining of the procurement system, the operation and evaluation of mechanical dryers, and the training of dryer operators and procurement officers. 51. All consultants would be provided with vehicles and would be assisted by qualified counterparts. They would have qualifications, and would be recruited under terms and conditions satisfactory to IDA (Section 3.07 of the draft Development Credit Agreement). Recruitment of the procurement and drying system specialist and of the engineering consultant would be conditions of disbursement against expenditures on civil works (Schedule 1 paragraph 4(b) (ii) of the draft Development Credit Agreement). Project Cost and Financing 52. The total cost of the proposed project is estimated at US$40.0 million (including about US$7.2 million in taxes and duties) with a foreign exchange component of about US$11.7 million. The proposed US$25 million IDA credit would finance all the foreign exchange costs and US$13.3 million of local costs, or about 75% of project costs net of taxes and duties. The Government would contribute US$15.0 million to the project.

23 Estimates are based on mid-1977 prices for construction. A physical contingency of 5% has been applied to godown construction and dryer civil works costs to allow for site-specific variations. Physical contingencies are not needed for other items. Price contingencies have been applied to all items on the following basis: for civil works, 9% per annum until 1979 and 8% thereafter; for equipment and vehicles, 7.5% until 1979 and 7% thereafter. Continge&cies average 20% of total costs. Project Implementation 54. A Project Implementation Unit (PIU) in the Ministry of Food would be established, headed by the Director-General, Food (Section 3.02 of the draft Development Credit Agreement). The PIU would be administratively selfcontained to carry out the following functions: (a) manage the project fund, prepare annual construction plans and handle project-financed procurement (other than godown construction); (b) handle recruitment of pest control and paddy drying and procurement consultants; and (c) prepare progress reports on the project. A staffing plan for, and functions of, the PIU were agreed during negotiations (part A of Schedule 4 of the draft Development Credit Agreement), and its formal establishment is a condition of credit effectiveness (Section 5.01(c) of the draft Development Credit Agreement). 55. Responsibility for godown construction and rehabilitation would rest with a Project Engineering and Construction Unit (PECU) to be established within the Public Works Department (PWD) (Section 3.04 of the draft Development Credit Agreement). The PWD has built almost all the existing godowns owned by Ministry of Food. The PECU would be headed by a project construction manager of the rank of Additional or Deputy Chief Engineer. It would have the necessary complement of engineering and supervisory staff at its Dacca Headquarters, and PWD's field organization would be strengthened. The establishment of PECU and the appointment of its construction manager would be a condition of credit effectiveness, while full staffing of the PECU in accordance with a plan satisfactory to IDA would be a condition of disbursement against civil works items financed under the proposed credit (Section 5.01(d) and Schedule I, paragraph 4(b) (i) of the draft Development Credit Agreement). In order to start construction without delay, suitable locations for 70 godowns have been agreed, together with a detailed plan for the first year of project implementation. For 20 of these locations, suitable sites will have been selected and land acquisition completed prior to credit effectiveness (Section 5.01(f) of the draft Development Credit Agreement). Maintenance of all project godowns would be the responsibility of the PWD (Section 4.03 of the draft Development Credit Agreement).

24 A Project Steering Committee (PSC), with a composition and functions that were agreed during negotiations, will be established under the Secretary of Food prior to credit effectiveness (Sections 3.05 and 5.01(e) of the draft Development Credit Agreement). It would review and ensure satisfactory cooperation among the agencies charged with implementation of the project. It would include Joint Secretaries of the Ministries of Food, Agriculture, and Finance; the Director General, Food; the Chief Engineer, Public Works; the Project Construction Manager; a representative from the Bangladesh Bank; and the Director of the IRDP (part D of Schedule 4 of the draft Development Credit Agreement). A quarterly progress report prepared by the PIU would form the basis for the PSC discussions. Foodgrain Procurement Methods 57. Effective coordination between the Ministry of Food and other Government field organizations would be crucial for the success of the enlarged domestic procurement effort. A district food coordination sub-committee would function in each of the project districts comprising the existing district coordination committee headed by the Deputy Commissioner with, in addition, representation from the Ministry of Food, the PWD executing engineer, the district managers of commercial banks, the district agriculture officer and the IRDP project director (in the TCCA pilot project area). 58. The continuation of improvements, already initiated, in methods of operation of the procurement program would be needed to reap full benefits of the project's investments. To facilitate farmer access the new temporary procurement centers would be located close to primary markets. The provision of strategically located storage would permit grain procurement to continue uninterrupted by difficulties in movement. The Ministry of Food would continue its current practice of using transport contractors selected through competitive bidding to move foodgrain stock. 59. In order to increase competition among foodgrain traders purchasing grain in primary level markets, the number of authorized grain dealers would be increased (Section 3.17 of the draft Development Credit Agreement). Grain procurement activities would start immediately post harvest, and procurement prices would be announced at least one month before planting. The waiting period at purchase points would be reduced by the establishment of two purchase lines. Objective determination of quality would be possible using the testing equipment. 60. To enable sellers to receive quick payment, payment booths would be established at all purchase points and two officials would be authorized for signing payment certificates. The Government would ensure that adequate security support is available to commercial banks to deliver cash to and operate the booths. In addition, procurement procedures would need to be continually reviewed, and assurances were obtained that the Government would take all necessary measures to: (a) minimize congestion at procurement points; (b) ensure expeditious payment; (c) simplify purchase quality standards; and (d) provide appropriate alternatives in case of failure of normal transport arrangements (Section 3.16 of the draft Development Credit Agreement). Assurances were also obtained that procurement prices would be maintained at

25 levels which ensure adequate incentives for growers to increase production through the use of new seed, fertilizer and irrigation (Section 3.18 of the draft Development Credit Agreement). 61. Over the past three years considerable experience has been gained in the operation of the payment system. In order to learn from this experience and to strengthen the payment system further to cope with increased procurement, the Government would constitute a suitable team to review the entire payment system, the review to be completed no later than October 31, The terms of reference for this review were agreed during negotiations (Section 3.19 and Schedule 5 to the draft Development Credit Agreement). Monitoring and Evaluation 62. A Planning Cell has been established to assist the Ministry of Food in the formulation of long term plans and policies for the foodgrain sector and would be strengthened with the appointment of a research officer and an economist (Section 3.06 of the draft Development Credit Agreement). In addition, a Monitoring Cell would be established within the Ministry of Food to: (a) collect and review all appropriate operating and cost information; (b) establish internal reporting and review systems; (c) analyse data, and make specific recommendations for increasing cost effectiveness; and (d) prepare the Annual Operational Report of the Directorate General, Food which would include an Annual Operating Plan, covering the country wide operations of the Directorate of Food. 63. The Chief of the Monitoring Cell would report directly to the Director General, Food. The Cell, whose staffing and functions were agreed during negotiations, would be established by October 31, 1978 (Section 3.03 and part B of Schedule 4 of the draft Development Credit Agreement). 64. Evaluation of the project would focus on determination of the impact on farmgate prices and on Ministry of Food operating efficiency including storage utilization and losses. Consultants would be recruited to design and assist in the implementation of a suitable continuous farmgate price monitoring system. It has been agreed that a suitable consultant would be recruited by October 31, 1978 (Section 3.07 of the draft Development Credit Agreement). Within six months of the Closing Date of the proposed IDA Credit the Government will submit a Project Completion Report to IDA which will analyze the operation of the Project, its costs and benefits and the respective performances of the Government and IDA in carrying out the Project (Section 3.09(c) of the draft Development Credit Agreement).

26 Procurement 65. Civil works contracts amounting to about US$29.5 million would be dispersed over about 200 sites in at least 10 districts, and would also be spread over four years. Each contract would be small (under US$150,000). Designs would be simple and construction techniques labour intensive. Such contracts would not be suitable for international competitive bidding and would be advertised locally. Prequalification of contractors would be required. Although PWD's contracting procedures are generally satisfactory, changes in performance bonding and warranties would be required. Project requirements of imported construction materials would be too small to justify a separate tender for the project. Bidders for civil works contracts would have the option to bid based on self-procured materials or materials made available to contractors by PWD from its stocks. Project use of PWD's imported stocks would be replenished by normal commercial imports, not otherwise financed by foreign assistance using international shopping under procedures satisfactory to IDA. 66. Vehicles (US$1.25 million) and pest control, drying, and weighing equipment (US$5.0 million) would be procured after international competitive bidding in accordance with IDA guidelines. A preference limited to 15% of the CIF price of imported goods, or the prevailing customs duty, whichever is less, would be extended to local manufacturers. Procurement of off-the-shelf imported items costing less than US$10,000 CIF would be by prudent shopping based on prices from at least three suppliers. Such purchases would be limited to a total of US$500,000. The balance of project expenditures would consist of technical assistance (US$1.1 M), local training (US$0.5 M), evaluation studies and the monitoring and planning cell (US$0.1 M), land acquisition (US$0.25 M) and engineering (US$2.3 M). 67. To ensure prompt availability of local currency financing, a condition of effectiveness would be the establishment and initial funding of two project funds, one to be operated by the PIU, and the other by PECU, for making local currency payments to suppliers and consultants as well as for local training (Section 5.01(b) of the draft Development Credit Agreement). Assurances have been obtained that the project funds would be replenished quarterly to maintain beginning-of-the-quarter levels of at least Tk 2 million and Tk 5 million respectively plus such additional amounts, as deemed necessary by the PIU and PECU (Section 3.20 of the draft Development Credit Agreement). The Project budget has been approved by the Planning Commission; it would be a condition of effectiveness that the budget had been approved by the Executive Committee of the Government's National Economic Council (Section 5.01(a) of the draft Development Credit Agreement). Disbursements 68. Disbursement under the proposed credit would extend over four years for:

27 (a) 100% of foreign expenditures for imported vehicles, equipment and spares or 100% of local expenditures (ex-factory costs) for locally manufactured goods, or 60% of local expenditures for other locally procured goods; (b) 100% of foreign expenditures for imported construction materials used by the project, and 65% of local expenditures for all civil works, including ancillaries and power, and engineering; (c) 100% of the cost of technical assistance project studies and training; (d) 80% of operating expenditures for the PIU, Monitoring Cell and Planning Cell. 69. All disbursements would require full documentation except for contracts below US$10,000 (subject to a maximum of US$500,000) for which details of bid evaluations would be retained by the PIU for field inspection by IDA. Disbursements against civil works would require a copy of the certificate of work completion approved by the project construction manager, co-signed by the engineering consultant. 70. Assurances have been obtained during negotiations that the PIU and the PECU would maintain separate accounts of expenditures made under the project. Auditors acceptable to IDA would be appointed to audit project accounts (Section 4.02 of the draft Development Credit Agreement). Audited accounts would be sent to IDA within six months of the close of each fiscal year. Benefits, Justification and Risk 71. The principal quantifiable benefits resulting from the project would be the savings in foodgrains resulting from reduced losses in godowns to be constructed or rehabilitated under the project. Losses would also be reduced by improvements in pest control and paddy drying operations. About 19,000 tons of foodgrain valued at about US$6.0 million, would be saved annually. An indirect and unquantifiable benefit stemming from the project would be that by enabling the Ministry of Food to increase its levels of grain procurement at guaranteed incentive prices, the project would increase the income of farmers and, in particular, of small scale farmers, who are now often forced to sell in the immediate post-harvest period, when commercial purchasers have maximum leverage. This would encourage farmers to increase production of foodgrains by reducing risks and adding to the resources available for investment in improved technologies. Other benefits due to the project would be the experience gained in paddy drying and in the development of cooperative grain marketing. In addition, Government response to disaster relief would be facilitated by the provision of storage in the flood or cyclone prone areas of Bangladesh which would benefit about 150,000 farmer households.

28 The economic rate of return is estimated to be 15% for the godown construction component, the cost of which is US$25 million; 24% for the paddy drying component, the cost of which is US$900,000; and above 50% for the pest control component, the cost of which is US$600,000. The average economic rate of return on these components, which account for 66% of total project costs,is estimated to be 21%. 73. A risk facing the project is that increases in the supply of grain in the project area would be inadequate to permit economic employment of those project facilities that constitute a net increase in storage space available to the Ministry of Food. However, about 60% of the storage facilities to be constructed under the project would replace marginal facilities which are currently hired by the Ministry of Food and basically unsuitable for grain storage. Underutilization would occur only if the Government did not succeed in raising foodgrain procurement in the project area by 35% over 1975/76 levels within the next five years. The probability of the project facilities not being fully utilized, either through disappointing production in the project area, or through inefficiency in procurement, is not considered large, especially in view of the Government's determination to increase domestic production and procurement. By 1981, the project would increase the storage capacity available to the Ministry of Food to about 60% of estimated mid-1980s potential if the Government continues to strengthen its procurement efforts. A sensitivity analysis shows that a delay of four years in reaching target production levels would reduce the overall return to 17%, assuming that surplus storage facilities would remain idle during this period. PART V - LEGAL INSTRUMENTS AND AUTHORITY 74. The draft Development Credit Agreement between the People's Republic of Bangladesh and the Association, and the Recommendation of the Committee provided for in Article V, Section 1 (d) of the Articles of Agreement are being distributed to the Executive Directors separately. 75. Special conditions of the project are listed in Section III of Annex III. Conditions of effectiveness of the credit (Section 5.01 of the draft Development Credit Agreement) are: (a) the approval of the project budget by the Executive Committee of the National Economic Council; (b) the establishment of the PIU and PECU project funds with initial contributions of Tk 2 M and Tk 5 M respectively; (c) the establishment of the PSC, PIU, PECU with organizations, functions and responsibilities agreedwith IDA; and (d) the acquisition of land for at least 20 sites out of 35 locations inspected by PECU.

29 Special conditions of disbursement would be: (a) against expenditures for the new testing laboratory, that the Chemist for the laboratory has been appointed; (b) against expenditures for civil works, that PECU has been staffed according to a plan satisfactory to IDA and the project engineering consultant and the procurement and paddy drying consultant have been appointed. 76. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 77. I recommend that the Executive Directors approve the proposed Credit. Robert S. McNamara President

30 BANGLADESH - SOCIAL INDICATORS DATA SHEET LAND AREA (THOU KM2) BANGLIDESH REFERENCE COUNTRIES (1970) TOTAL MOST RECENT AGRIC t0 ESTIMATE BURMA THAILAND MALAYSIA*** GNP PER CAPITA (USs) 50.0* 80.0* *La 70.0* 210.0* 440.0* -24- ANNEX I POPULATION AND VITAL STATISTICS POPULATION (MID-YR. MtLLION) /a PER SOUARE KM Oa o PER SQ. KM. AGRICULTURAL LAND _ VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) CRUDE DEATH RATE (/THOU,AV) INFANT MORTALITY RATE (/THOU) /a LIFE EXPECTANCY AT BIRTH (YRS) GROSS REPRODUCTION RATE * /a POPULATION GROWTH RATE (x) TOTAL URBAN * URBAN POPULATION (X OF TOTAL) AGE STRUCTURE (PERCENT) 0 TO 14 YEARS /a 15 TO 84 YEARS sbo./a * /b I 65 YEARS AND OVER 5.2 ' F a AGE DEPENDENCY RATIO 1, o.9/a ECONOMIC DEPENDENCY RATIO 16/b.. 1.4/C 1.1/a 1.1/a I.767 FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) /a USERS (X OF MARRIED WOMEN) /ag EMPLOYMENT TOTAL LABOR FORCE (TWOUSANO) /b /a LABOR FORCE IN AGRICULTURE (X) d UNEMPLOYED (X OF LABOR FORCE).- *-.0/d...O. 6,,b INCOME DISTRIBUTION % OF PRIVATE INCOME RECD BY- HIGHEST 5% OF HOUSEHOLDS 18,3 /c 16.7 /a /C 28.3 HIGHEST 20% OF HOUSEHOLDS 44.5 ff 42.3 ra *-, LOWEST 20% OF HOUSEHOLDS 8.9 I LOWEST 40% OF HOUSEHOLDS 1' C 1.2 DISTRIBUTIfin OF LAND OWNERSHIP = X OWNED BY TOP 10% OF OWNERS /b.. *- X OWNED BY SMALLEST 101 OWNERS F.. HEALTH AND NUTRITION POPULATION PER PHYSICIAN /d C POPULATION PER NURSING PERSON i a E /e /b POPULATION PER HOSPITAL BED / t /a PER CAPITA SUPPLY OF - CALORIES (x OF REQUIREMENTS).. B8.0/e /c PROTEIN (GRAMS PER DAY) ? -OF WHICH ANIMAL AND PULSE /C 17.0/d / DEATH RATE (/THOU) AGES EDUCATION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 42.0 /f 5o.o /f /a SECONDARY SCHOOL B YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) /a VOCATIONA ENROLLMENT (X OF SECONDARY).. 1.0,, /e 3.0/a ADULT LITERACY RATE (%) HOUSING PERSONS PER ROOM (URBAN) /a OCCUPIED DWELLINGS WITHnU7 PIPED WATER (X) /a.d ACCESS TO ELECTRICITY (x OF ALL DWELLINGS), /a RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) /a CONSUMPTION RADIO RECEIVERS (PER THOU POP) PASSENGER CARS (PER THOU POP) /f ELECTRICITY (KWH/YR PER CAP) NEWSPRINT (KG/YR PER CAP) S NOTES AN- DE I I I N- - SEE NOTES AND DEFINITIONs ON REVERSE

31 ANNEX I NOTES Unless otherwise noted, data for 1960 refer to soy year between 1959 sod 1961, for 1970 betwoen 1968 and 1970, end for Most Roceot Estimate beween 1973 cod *GNP per capita date are basod on the World Bank AtleS methodology ( basis). T0 The population growth rste is abnormally low due to the effects of the war of independence and mass population novemento acroso the borders doring that period. Presently, the overage population growth rote is ontinoted at 2.8% per annum. 050 Selection of Malsysia on o'. 'aective country in based on MalaysOi'O suc-e-s in naintoining a high rate of economic growth and adeqoate level of welfare conc.rrentty wi- -- orac ying its economic - truc-ur. BaGLADESH 1960 /a Age grasp and 60 and over reepec-tivly; /b Ratio of population under 15 end 60 and over to total labor force; /c ; /d Registersd not o11 precticing in the country; In -ove-nment hospital establislmencs only; 7? Appro-inate enrollment es percentage of population in 6-10 and 11-I age groups respectively /s , /b ; /c Registered not all prccticing in the country; /d Government hoepitl establishnents only; /a Average ; If Appr-i-mato enrollment on percentage of popol-tion in 6-10 and age groupo respectively. MOST RECENT EST7IATE: /a 1976; /b Age group and 60 and over respeotively; /c Ratio of population under 15 and 60 and over tc total labor force; /d esinly uomnploysd workers seeking their firct job; /e Including nidwive.; /f 1972; La Percent of female population. BUREA 1970 Is Ratio of population under 15 and 65 and over tc total labor force; /b Peroonnel in government services only; /c TRAILOND 1970 /a Ratio of population under 15 and 65 and av-r to oconomically action population ago 11 yearn and over; /b Econrically actioe population age 11 yasre and over; /c Rural only; /d ; /e Public school., which includes technical edu..tion at the pant-secandory level. MALAYSIA 1970 Ia West Malaysia; /b Registered applicants for work /c ; /d Piped water Inoide Rll, October 6, 1977 DEP7NITTI0N osocal F INDICATORS Lnd Arcs (thou be 2 ) Ponulation per nursing nerson - Population dicided by number of practicing Total - Total surfacs a-eo comprin.ig land ares and inland watson male sod female gradato nurses, "tr-ined' or 'certified` nur-ee, aed Agcr. - Most renent eetimate of agriculturl coe1 aced temporarily or pens- *snili-ry persoenel with tr-ining or experienne meetly for crops, pastce-s, mafrkt 6 kitchen gardens or to lie fsllo. Population per hospital bed - Popul-tion divided by numbsr of ho-pital beds Ivslloble in publin and privnte g.n.er -1nd specicli'ed hoapiral and IblP per nanito (US$) - GNP per nopit. setits- at ocurrent market prices, rehabilitation c_oters; oxtlode. n_rsiag heesnd satabliciments for -alolated by came conversion mcthod as World Bank Atlas ( basin); cs todel and presentive cars 1960; 1970 and 1975 data. Per cdcita npl of fonid f7. of renuraseents) - Computed fron energy equivalet of net food supplies ceailable ie canntry per capita par dsy; Ponulatios and vital statistini avazllble supplies comprise donestic prodoctian, imports Ies separts, and poolatlon feed-year millioni As of JnIy first: fc eat availoble, b verng changes it stack; net supplies exclude animal feed, ceeds, quattities used of two nod-yar estimates; 1160, 1970 and 1975 dat, in fond processieg end leases in distribution; requirments were estia ted by FAO b.sed on physiological nsedn for normal activity and health nonsid- Pno.larion density - par quamr kb - Rid-year popultion per *qvarn kilosstsr ening environmental tempes-tur-, body weights, age snd san disttibotions of (100 hentares) of total ares, popultion, end allowing 107, for waste at houaehold level. Pseolation density - p-r *ovare be of sgria lend - Gompot-d as above for Per nseit. su-nly of Protein (orcec per day) - Protein conte-t of per.. pita grnictturn. i ad only. net oupply of food per day; nt supply of food is dfinead c sbows; requirerents for.11 conntries established by t1sda Eco-nin Research Servties Vital cratianlos provide for a mini=um all.wanne of 60 grase of total protein per day, and Crude birth rte pear thonsad. verage - Annual live birthe per thousand of 20 grena of anilml end pulse proteti, of whibh 10 grams should be aeimal mid-year popol-tion; ten-yn-r rithanetio ayersges Dding in 1960 and 1970, prot-in; these etendards ac- lower them those of 75 grams of total protein cod five-year aernge ending in 1975 for most recent estimte, and 23 gr of *nimal protein as an averags fur the onrld, proponed by FA0 Cruds death rate per thousand, average - Amnd- deaths per thor-nod of mid-year in the Third World Food Surey. papolatiom; ten-year arithestin averages ending in 1960 and 1970 and give- per ca pita c"otin sporel iron animal and polee - Protein supply of food year avarage ending in 1971 for most rcnst estimate derived from animnic and poless in gons per day Infant mortality rsts (/thaou - Annual deaths of infants onder one your of ago Doath rate (/thou) ans Annual do-thb per tho-asnd in agn grasp 1-4 per theuasd live births. years, to children in this age group; nuggotef t s an indicator of Life snexetonny at birth (yr-) - Average nunber of years of life remaining at malnutrition. birth; usually five-yeor overages ending in 1960, 1970 and 1975 far developing no"ntris Educatclu froes. reeprduction into - Average nonher of live d-ughtere a woman will bhar Adilut-d enrollment ratio - primary school - Eorltment of a11 ag.e as perin her norma1 reproductive period if she emperiencns present age-specific contage of prinary school-ego population; includea htildrem eged 6-11 years fertility rats-; -sually five-yeer averages anding in 1960, 1970 and 1975 bho adjusted for different lengths of prim-ry education; for c-untries with for developing countries univer-al education, enrollment may emceed 1007 sinus same pup1la are below Population Krowth rate (i) - total - Compamad annual growth e-te- of aid-year or above the official school go. population for , and Adluoted enrollment ratio - necondary anhool - Computed an above; aenondery Population growth rate (%) - urban - Computed libe growth rate of total education requires at leant four years of epproved primary ietaructias; pepulation; diff.rant definition of urban areas may affect nmapoe-bctlty of providee general, vocational or tecear trsining insteuctiona for pupils data amnog contrise. of 12 to 17 peace of ago; corneap-d.en. neurons are generally nexloded. Urban population (2 of total) - Ratio of urban to total population; difforent yars of schooling provided (fir t and second levoal) - Total yy..- of definition- of orbon areas may effect comparability of data mmong councries. tcholing; at -econdary level, vocational instruotion may be partially or completely eatlded. anne slrucctuno mrernset,l-uoocn in-cu years), working-age (15-64 yearn), Vonatm-nal enrollment (7. of *ecmndary) - Vocational *nuticution- include and retired (65 yeses and over) s percentages of old-year population technical, iodu tri-l or other pr-gr-mo which operate indepedeontly or as Age dopee-d--y ratio - Ratio of population under 15 and 65 and oven to those depanrc-nto of -econdary icutitution. of ages 15 through 64 'dolt 11terac rate (2) - Literate adolts (able to read and write) as per- Eto.naic dep-ndenc- ratio - Ratio of population under 15 and 65 and aver to cencoge of toral edult population aged 15 yearn sod vnr. the labor force in ago group of year. Family Jlanniso- acseptcr (cumulative. thaou - Cullative number of cceptors h.ouuing of birth-control devices under auspices of national family plaoniog program persons peo rno (urban) - Average number of ponn-ns per ronm in..oopiod since ineption. conventional dwell-igs in orban areas; dwellings ec lode non-permanent family plan.ing -uer- (7 of married women) - Percentages of married oomen at uccucturee and ucoccupled parts. child-besriog age (15-44 yearn) who one birth-control de-i.es to all married Occupled dwallino without piped water (7.) - 0c-upied conveetianal dwellings w n in a age grp. in urban d rural areas without inside or outside piped water facilities as percentage of all -ccepied dwellings. P.neioy,aent access to elentricicy (7 of oil dwellimoss - Convonslonal dwelings with Total labor tonrc (th. and) - E-ofnomSally active persona, including cewd oleucnlto ieitefof quaot as percent of tot.a dwellings in rban ad forces nd -nemployed bart scluding hbausoive-, studenct, etc; definition- rural areas. In -asrifo srnionrricutare not forpsarye enrol dwelion connocted to electricity (7.) - Computed as abov- for rural Labor forte in agrinu-. t! r t) - ogricu1toral labor fence fin fa rming, foretry, dwo1llngs only. h-ntiog and fishisg) as percentage of total labor force. Lnneloved i2 of labor force) - Sneeplayed are -smally defined as persons who Consumption sen able ed willing to trke a jab, out of a job on a giveo day, r-oined out R-dio receniver (Peb r tho pap) type. of receivers far radio broadcasts of a job, and.e.hing woch foa *paifisd s minion period not -oceeding -n- to goneral public per thoutsnd of population; exliudes oslicensod receivers wek; may not be c.-parable betweencountries duo to differect definitions in tountriesad in yearn when registration of radio sets was in effent; of uoemployed end aorce of data, e.g, -aploymeet office stctiotion, sample data for retent years may not be comparable since mass cosntries abolished sur.-y., -onpul-ry unemployment insur.on.. lico tusig. P... rcas(.rto 00 inoegar... cart coprise motorca.rs seating Tense distribution - Percentage of prioste income (both In oseb and kind) aa. than eight pers c>udep r bhtnces, hearss sd ilitary recived by richest 5%, richest 20%, poorest 207, and poonsct 40h of hones- vehicles. holds, elctricity (kwb/yr per cap) - Annual con-nption of indostrial, -oeseroial, public sod pric-ce electriity in kilowatt boors per.. pit., Ssnersllp Disttibution of laed -nnrship -Percentages of ilad owned by wealthiest 107, b ased on pr-d-ci dtec, without all sowace for lssea In gride bat allowand ponrest 10% of land owners itg for import- aed exports of electricity. N-smert- Ikefp pr tee-p) -Pee capita anua nema- ption in bilograas Health and Nutrition Nwtitd fr domestic prductciu- plus n t Imports of respritc. Population per ebysician - Pepolatiom divided by number of practiciog physicians qalified from a medical school at university level

32 ANNEX I EDCONONIrC DEVEWp8ThTP DATA (Aots nmilions of U.S. dollars! ~~~~~Estlmate4 Av. Actual / /77 Av / / / / NATIDXA,L ACCOIINMIn Constant Ž973 Prilces & Exchange Pates Av~erage Annual Growth Rates As Percent of GDY Gros, ioxsestic Prosueit 6,012 5,833 6,514 7,295 7, R. IT. l~inos from. Terms of Trade1 (a) ros3 Domestic Income 6,1-01 r7.m r79 7 7i,1 50 7, MTU Imprt cloo. NFS) , Exports (1 import capacity) , Re,source Gap ' _67_93_ Consumption Expenditures 5,666 5,817 6,403 7,062 7, Investment "(cine. stocks) Dome.stic Savings National Savings ,6 MERCHANDISE TRADE Annual Data at Current Prices As Percent of TotaLl Tmporets Capital goods.. lo Intermediate goods (Exclfuels) Poulo and related materials of' which: Petroleum Consumption goods,..~ Total Merch. Tnports (cif) ,402 1, ioo Exports Primary products (earl, fulels) Puels and related materials of which: Petroleum Mauatoe goos , 5, Total Merh Exots (fob) Tour'ism and Border Traae Merchandise Trade Indices Average Export Price index ill Import Price Index Terms of Trait Index , 11.7 Exports Volumer Codes ,9 VALUE AlDIED BY SECTOR Annual Dots at Prices and Exchange Rates Average Annual Growth Rates As Percent of Total Agriculture 3,542 3,403 3,712 4,078 4, Industry and Mining Service 2, ,4 2,333 2, T'o tal 6,012 5,663 6,324 6,938 7, PUBLIC FINANCE TCent-ral Goverrsment) Current Receipts Current Expenditures Budgetary Savings I Other Public Sector Purli Sector Investment ' 4.' ~~~~~~US $ million~ CIIRPTh,'C EPFPNDITIIRR DETAILS Actual. Estimated DETAIL ONq At Av. 1972/73 P and ER 9 As 9, Total Current_Expend.) 1969/ / / / /77 PUBLIC SECTOR ijrst Plan %/ of Total Education INVESTMENT PROGRAM (1973/ /78) Ither Social Services Social Sectors Agriculture and Agriculture 1, Other Econmic Services Industry and Mining 1, Admidnistration and Defense Power Other Transport and cosmsunications Total Current Ex-oenditures 100o.0 100o Other TotaTotal pexpendiures44, SELECTED INDICATORS FINANCOING (Calculated from 5-year averaged data) Domestic Borrowing Average ICOR Public Sector Savinigs 2,0, Import Elasticity Program aid counterpart 1, Marginal Domestic Savings Rate Foreigs Project Aid I1Z& Marginal National Savings Rate Total Pinancing 4, ~~~~~~~~~~~~~~~~~~~~~~~~A Percent of GOP LABCR PORCE AND Total Labor Force Value Added Per Worker ( Prices & Exc. Rates) OUTPUT PER WORKER In Millions % of Total Sn U.S.Dollars Percent of Aver: ge / / / /73 Growth Rate 1969/ / / ,/73 Growth Rate Agriculture , Industry , 105 Service Total not applicable- nil or negligible not available - less than half the smsallest unit shown Note: Pigures are on fiecal year basis (July 1-Jose 30). Data prior to 1972/73 pertain to erstwhile East Pakistan /I These are original plan targets.

33 ANNEX I BALANiCE OF PAY5ENTS. EXTERNAL ASSISTANCE AND DEBT (amounts in millions of U.S. dollars at ourreot prisms) Artual EstimAted ProJectad Average Annual Growth Rate 1969/ / / / / / SLMMARY BALANCE OF PAYMENTS Expurts (ino. NFS) l lmdores (tool. NESS , Resource EAlaore (X-M) , Interest (oar) Discos Ioves t0nt Income I Worker. Recituc-ce I Current Transfers (not) I Balance on Currest Accounts..-T Pricvte Discst I.vestEent Officio) Capital Gronts Public Sh1.T Loans Minbursneot t Repaynents. _ Net Diobuus-nt S Other MILT uos bonbrsnessests Repas gents Net Dinbu-senetr Capitol T-anactioun u.o.i Change in Net R-esrveu ( - - increase) S Autual Rotiousc Crres Reserves fe-d period). :. 107 A / / / GRANT AND LOAN COMMITMENTS Official raunts & tract-like DEBT AND EBT SERVICE Public Debt Out. 6 Disbursed ,009 2,245 Public M6LT Loans I nterent on Public Debt IBRD Repayments on Publiu Debt IDA B7 Total Public Dabt Serice S1 47 Other Multilateral Othes Debt Se_sic (net) Governments Total Debt Se.ice (net) Suppliers Flnassial I-stituticcs. - _ 4 Burden on ircrs Etrnings (T) Bonds. Public L... n.e.i. Public ebt Bervice Total Public KhLT Loans Total Debc Sevion... Aukual moate OuiuaaAlus an Jurs 30, 1976 TDS+Direct Iuvest. Ins..... EXTERTAL DElT finbursed Only Percent Averuge Tassno of Public Debt World Bank _c IA Int. as X Frior Tear 06D.D Ocher M.tltilateal APror. us I Friur Year DODD Gcosuneota 1, Suppli IBED Deb Out. h Ditbussed Fi.nacial institutiono ' us Publis Debt 06D Bondn - cabin n-. _. Public - Publis Debt Servio _0 TCual Public MHLT Debt 1, IDA Debt Out. 6 Dibtuesed asherf Pub7iI Debt kid O~~~~h- ~ M6LT ~ D.bt ~ ~ ~ ~ ~ ~ ~ ~ ~ a 1Public Debt Snvio Short-Tern Debt (disb..1iv) cot applicable r - staff ettiaste utn-. A-lable - - ril or negligible iout aviloble separately bat -- leun thb hfbalf thn -allest torludod in total unit shoon May 1977

34 ANNEX II BANGLADESH STATUS OF BANK GROUP OPERATIONS As of January A. IDA Credits to Bangladesh US$ Million Net of Credit Exchange Adjustment Number Year Purpose Amount Undisbursed (net of cancellations) Seven Credits Fully Disbursed Cyclone Area Reconstruction (replaces Credit No. 228-PAK of 1971) Chandpur Irrigation II (replaces Credit No. 184-PAK of 1970) Tubewells (replaces Credit No. 208-PAK of 1970) Telecommunications (replaces part of Credit No. 145-PAK of 1969) Small-Scale Industry (replaces Credit No. 192-PAK of 1970) Chittagong Water Supply (replaces Credit No. 42-PAK of 1963) Dacca Water Supply and Sewerage replaces Credit No. 41-PAK of 1963) Education (replaces Credit Nos. 49-PAK and 87-PAK of 1964 and 1966) Highways (replaces Credit No. 53-PAK of 1964) Technical Assistance Cereal Seeds Inland Water Transport Rehabilitation Second Telecommunications Ashuganj Fertilizer Population Barisal Irrigation Karnafuli Irrigation

35 ANNEX II BANGLADESH STATUS OF BANK GROUP OPERATIONS As of January 31, 1978 A. IDA Credits to Bangladesh (CON'D) US$ Million Net of Credit Exchange Adjustment Number Year Purpose Amount Undisbursed Agricultural and Rural Training Technical Assistance II Rural Development Bangladesh Shilpa Bank Imports Program V Shallow Tubewells Muhuri Irrigation Extension and Research Inland Water Transport II * Imports Program VI Jute * SUBTOTAL Principal Repayment 0.4 Effective Credits held by Association B. IBRD Loans to Bangladesh Consolidation Loan TOTAL * Not yet effective

36 ANNEX II C. PROJECTS IN EXECUTION-/ Cr. No. 339 Cyclone Area Reconstruction Project: US$25.0 Million Credit of October 18, 1972; Effective Date: January 17, 1973; Closing Date: June 30, 1978 Project performance has improved and, although still 2-1/2 years behind schedule, it is no longer falling further behind. Following reevaluation of the design, the cyclone shelter program is now moving ahead with 124 modified shelters expected to be completed between mid-and-end Strengthening of the shelters already constructed will commence shortly. Arrangements for supervision of shelter construction still need to be strengthened. Four of the five primary roads are now finished with the fifth road scheduled for completion in The IDA financed portion of the feeder road program is nearing completion. Construction of towers for the telecommunications subproject is behind schedule but was to be completed by December The fisheries subproject, including distribution of boats to groups of local fishermen has been completed. Work on the repair or new construction of inland water transport terminals is almost completed. Cr. No. 340 Chandpur Irrigation II Project: US$13.0 Million Credit of October 18, 1972; Effective Date: January 17, 1973; Closing Date: April 30, 1978 The project should be completed by December Delays have been due to major flooding, labor problems, shortages of materials, equipment, breakdowns, ineffective management, and delays in provision of local funds. While problems remain, substantial progress has been made recently both in physical construction and agricultural extension. The main regulator is now operational, although utilization of the irrigation works will be delayed due to land acquisition problems (now resolved) which interfered with work on irrigation channels. A four month extension of the Closing Date has been agreed to allow additional time for project audits and proposals for the recovery of water charges to be prepared. A further extension of the Closing Date will be considered when these have been received. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.

37 -31 - ANNEX II Cr. No. 341 Tubewells Project; US$14.0 Million Credit of November 6, 1972; Effective Date: January 13, 1973; Closing Date: March 30, 1979 Because of a slow start, project implementation is about 18 months behind schedule. Completion of the Project is expected within a year. About 90% of the wells under contract have now been drilled, and verticality problems have largely been corrected by the contractors. BADC has decided to recontract for 285 wells not yet drilled. Pumphouse construction and engine/ pump installation is proceeding satisfactorily. The agricultural development component of the project, also behind schedule, has been incorporated in the Extension and Research Project. Project audits are not being received in a timely fashion. Arrangements for extending consultants' services have been agreed. The Closing Date has been extended to March 30, Cr. No. 343 Telecommunications Project; US$7.3 Million Credit of November 15, 1972; Effective Date: January 17, 1973; Closing Date: June 30, 1978 The Project was originally financed as part of Credit No. 145-PAK of 1970, and goods valued at US$2.2 million had been received prior to suspension of disbursements. Three of the four microwave systems have been commissioned, two years behind schedule. The contract for the fourth microwave system (which substitutes the coaxial cable system in the original project) has been awarded together with contract for similar systems under Credit 487-BD. This system is expected to be commissioned by June The Closing Date has been extended from December 31, 1975 to June 30, Cr. No. 353 Small-Scale Industry Project; US$3.0 Million Credit of January 19, 1973: Effective Date: May 14, 1973; Closing Date: December 31, 1977 The Project is administered by the Bangladesh Small and Cottage Industries Corporation (BSCIC) and a consortium of commercial banks. In early 1976, the Closing Date was extended to March 31, 1977 to allow for disbursements under outstanding letters of credit. To permit all credit funds to be disbursed, a further extension of the Closing Date, from March 31, 1977 to December 31, 1977 was agreed. A second project involving BSCIC and commercial banks under revised institutional arrangements was appraised in July/August Cr. No. 367 Chittagong Water Supply Project; US$7.0 Million Credit of April 9, 1973; Effective Date: June 7, 1973 Closing Date: October 31, 1978 After very little movement during the first two years because of organizational and procurement difficulties, the progress of work in the past three years has been satisfactory and disbursements on the project are expected to be completed by November 1978, some three years behind the

38 ANNEX II schedule established in WASA has been in default of the financial covenant (Section 4.03 (a) of the Credit Agreement dated April 9, 1973), which stipulates that rates are to provide sufficient revenue to: (i) cover operating expense, depreciation and interest; (ii) to meet repayment of long-term debt to the extent that such repayments exceed depreciation charges; and (iii) finance normal extensions of the systems and provide a reasonable portion of the cost of future major extensions. GOB approval of a tariff increase was given on November 3, This will increase annual revenue by about 38 lakhs Taka and should, with other measures being taken, provide Chittagong WASA with sufficient revenue to enable it to meet the earnings covenant for FY78. A fourth extension of the Closing Date to October 31, 1978 was recently agreed. Cr. No. 368 Dacca Water and Sewerage Project; US$13.2 Million Credit of April 9, 1973; Effective Date: June 7, Closing Date: October 31, 1978 Project progress and the Dacca WASA's financial problems are similar to those of Chittagong under Credit 367-BD above. A fourth extension of the Closing Date to October 31, 1978 was recently agreed. Cr. No. 381 Foodgrain Storage Project; US$19.7 Million Credit of May 18, 1973; Effective Date: July 17, 1973; Closing Date: September The project, originally financed by US$19.2 million IDA Credit No. 83 of 1966 and a 25 million Kroner credit from the Kingdom of Sweden, was almost completed at independence and 95% of the reactivated IDA and Swedish credits was used for repaying the previous credits. Substantial delays occurred in hiring consultants and in design and construction of ancilliary civil works. In addition, there was serious deterioration in the silos mechanical equipment due to inadequate maintenance and management, under staffing in the Directorate of Silos and delays in ordering spare parts. After January 1976, however, significant progress was made in accordance with an action program agreed with IDA/SIDA, particularly in constructing ancillary civil works and staffing the project agency; one silo was put back into operation, consulting services for a silo maintenance improvement program have been obtained and jetty rehabilitation started in February The Association agreed to a third extension of the Closing Date to September 30, The project was completed on June 30, 1977 and a mission to prepare a project completion report visited Bangladesh in February Cr. No. 407 Education Project; US$21.0 Million Credit of June 29, 1973; Effective Date: September 27, 1973; Closing Date: June 30, 1978 This project was originally financed by Credits 49-PAK and 98-PAK and by December 1971, when disbursements were suspended, US$7.7 million had been disbursed. Progress on the Agricultural University portion of the project is about 30 months behind schedule due to initial difficulties in reaching

39 ANNEX II agreement with the consultant architects on a revised contract and shortages of building materials and delays in the preparation of equipment lists and furniture designs. However, significant progress has been made beginning in late The academic buildings now under construction are expected to be completed by June 1978 and the remaining works by December The University has taken steps to improve the relevance of its agricultural training and research programs to Bangladesh's practical problems in agricultural and rural development but further progress in this direction is needed. The technical education portion of the project is about 30 months behind schedule due to past delays, but is expected to be completed by July, The graduates are facing severe problems of unemployment and a committee has been established to revise the curriculum to make it more relevant to job requirements. Cr. No. 408 Highways Project; US$25.0 Million of June 29, 1973; Effective Date: September 27, 1973; Closing Date: December 31, 1979 Several project elements are now nearing completion, including the Sitalakhya Bridge, ferry improvements and the Keane Bridge which was officially opened in June However, the Feni bypass is still seriously behind schedule and completion is unlikely before mid Construction of the Roads and Highways Directorate building has commenced. An action program calling for a review of project progress against agreed targets was established for purposes of approving an extension of the Closing Date to December 31, Cr. No. 409 Technical Assistance Project; US$4.0 Million Credit of June 29, 1973; Effective Date: August 20, 1973; Closing Date: December 31, 1978 Contracts have been signed with consultants for thirteen subprojects amounting to about US$3.9 million. Completed studies have played a key role in the preparation of projects for IDA financing. Due to delays in initial commitment of credit funds, disbursements are 2 to 3 years behind initial estimates. The Closing Date for this Credit was extended initially by two years, to December 31, 1977 and a second extension, to December 31, 1978 was agreed recently to permit full disbursement of the credit. Cr. No. 410 Cereal Seeds Project; US$7.5 Million Credit of June 29, 1973; Effective Date: January 30, 1974; Closing Date: December 31, 1979 Although the project is about 20 months behind schedule, implementat-on has improved considerably in recent months. Orders for farm machinery and laboratory equipment have recently been placed. After contract negotiations with the lowest bidder for the seed processing plants broke down, proposals for simplification of plant design were agreed and tenders are now being processed. After substantial initial delays, work is now proceeding on improvements at the seed multiplication farms and production of seed, especially wheat, is increasing. The Closing Date was recently extended to December 31, 1979.

40 ANNEX II Cr. No. 424 Inland Water Transport Rehabilitation Project; US$8.7 Million Credit of August 10, 1973, as amended by Amending Agreement of October 17, 1975; Original Credit Effective Date: September 27, 1973; Supplementary Credit Effective Date: March 19, 1976; Closing Date: June 30, 1978 Procurement of spare parts and equipment under the original credit was slow initially but credit proceeds are almost fully committed with 88% of available funds disbursed. Under the Supplementary Credit, two used lighterage tankers have been procured, necessary repairs and modifications have been completed, and the tankers delivered to Chittagong. Delivery of pipes for connecting the oil miooring to the ERL refinery has been delayed, but an adjacent berth is being utilized in the meantime for unloading of crude oil. Due to delays in the procurement of fenders, commencement of oil transfer operations was delayed, and was finally attempted by the Bangladesh Shipping Corporation (witlhout fenders and against the IDA-financed consultant's advice) in July, 1977 during the monsoon. Both lighterage tankers were damaged, one having to be taken out of service and replaced by a chartered vessel. Additional technical assistance has been proposed to assist BSC, which is expanding its fleet at a rate beyond its managerial, operational, technical and crewing capabilities. This would require the Closing Date to be extended by nine months to March 31, 1979, if the Credit is used to finance this technical assistance. Cr. No. 487 Second Telecommunications Project; US$20.0 Million Credit of June 26, 1974; Effective Date: July 23, 1974; Closing Date: June 30, 1979 The project is about two years behind schedule due to delays in procurement. About 30% of tthe Credit has so far been committed; the balance is expected to be committed in About 60% of the appraisal targets for local network expansion for first three years has been achieved. Work on long-distance telephone exchanges has still to commence. A Telegraph and Telephone Board has been established, a year behind schedule. Consultants financed under the Credit are assisting the T&T Board in establishing a commercial accounting system and valuation of assets. Cr. No. 527 Ashuga! 1 j Fer.ilizer Project; US$33 Million Credit of February 11, 1975; Effective Date: December 19, 1975; Closing Date: December 31, 1982 The project is being cofinanced by the Asian Development Bank, KfW, and the Governments of Iran, Switzerland, UK and US, providing a total of US$109 million equivalent in addition to the IDA credit. Site preparation work including the necessary dredging and filling was completed on schedule. However, based on the soils analyses undertaken by two specialist consulting firms, further preparation ol the site is being carried out to protect the plant against earthquake risks. Site preparation should be completed in March 1978 after which construction can commence. Currently the project is

41 ANNEX II about two years behind schedule due primarily to the additional site preparation and initial slow progress in (a) placing orders for time-critical items and (b) planning for construction. Revised cost estimates are being finalized. Allowing for the additional site work and the delays, costs are expected to be significantly higher than lender funds currently available. Discussions with Government on means of providing the project with sufficient foreign exchange are under way. Cr. No. 533 Population Project: US$15 Million Credit of February 11, 1975; Effective Date: September 25, 1975; Closing Date: December 31, 1982 The project is being cofinanced by six co-lenders providing a total of about US$25 million equivalent in addition to the IDA credit. Notwithstanding the delay in declaring the Credit effective, the Government has made substantial progress in project implementation. The organizational structure of the Population Control and Family Planning Division (body responsible for the population program) has been defined and its headquarters staff has been placed in position; most field staff is being recruited. Population programs in five non-health ministries are underway. The Building, Planning and Design Unit of the Ministry of Health, with the assistance of consultants, has completed a master plan for the project's construction program and contracts for construction of project buildings are being awarded. Preliminary drafts of a study on Population legislation and a management study for the Ministry of Health, Population Control and Family Planning have been completed. M4ost of the required consultants and advisors for other parts of the project have been appointed. Cr. No. 542 Barisal Irrigation Project; US$27 Million of April 29, 1975; Effective Date: February 24, 1976; Closing Date: December 31, 1980 The project is behind schedule due to initial delays in hiring project consultants and in assignment of Water Development staff members to the project, and delays in land acquisition. The staffing position has improved and field survey and design activities are now progressing satisfactorily. Principal field activities have been survey work, procurement of materials and housing and office construction. Two pilot areas have been developed which have been useful in testing the project concept and in identifying potential problems. Construction of irrigation channels had been delayed by problems of land acquisition but these have now been resolved. Cr. No. 591 Fourth Imports Program; US$100 Mtillion of November 25, 1975; Effective Date: December 29, 1975; Closing Date: September 30, 1977 This credit was fully disbursed in December, 1977.

42 ANNEX ll Cr. No. 605 Karnafuli Irrigation Project; US$22 Million of January 28, 1976; Effective Date: February 24, 1976; Closing Date: December 31, 1980 The project is behind schedule due to initial delays in hiring project consultants. The consultants for the irrigation portion of the project began work in September 1976, but their effectiveness was limited by delays in procurement of vehicles and equipment and in the assignment of local consultants to assist in the design work. Work is now underway to prepare construction contract documents and to facilitate equipment procurement. The fisheries component of the project made virtually no progress until recently. Key staff have now been appointed and a contract with a fisheries consulting firm has been signed. Cr. No. 621 Agricultural and Rural Training Project; US$12.0 Million of March 25, 1976; Effective Date: June 30, 1976; Closing Date: June 30, 1981 Progress on preparation for construction is about five months ahead of schedule. Most sites have been selected and acquired. Progress has also been achieved in the preparation of sketch plans for project buildings and the Government has been working on revised, more economical plans for the Bogra Rural Development Academy. The inservice training program supported under project has been delayed due to delays in allocation of local funds; delays are also being experienced in hiring consultants for the project. Cr. No. 622 Second Technical Assistance Project; US$7.5 Million of April 8, 1976; Effective Date April 14, 1976; Closing Date: June 30, 1980 Five subprojects have been approved amounting to about $4 million. Other subprojects are under consideration. Cr. No. 631 Rural Development Project; US$16.0 million of May 20, 1976; Effective Date: August 3, 1976; Closing Date: December 31, 1981 The reorganization of pump groups into cooperatives under the Integrated Rural Development Program is being completed, and adequate progress has been achieved in rescheduling loans. As part of a nationwide effort to revitalize the extension system, modifications are being introduced to the project's agricultural extension system. Procurement under various project components, benchmark and fish pond surveys, land and draft animal registration are in progress. After some initial delays, the construction of feeder roads and thana buildings is proceeding on schedule. However, the project has experienced some implementation problems in part due to lack of proper coordination among the various implementing agencies, inadequate supervision of field level staff, and inconsistencies which have developed among various ongoing rural development programs. A mission visited Bangladesh in November, 1977 to review the implementation of this project and discuss with the Government institutional and policy issues affecting rural development in general.

43 ANNEX II Some modifications are expected to be made to the project on the basis of the mission's recommendations. Cr. No. 632 Bangladesh Shilpa Bank Project; US$25.0 Million of May 20, 1976; Effective Date: November 8, 1976; Closing Date: June 30, 1981 As of January 31, 1978, IDA had committed US$7.7 million and US$0.8 million had been disbursed. It is anticipated that the Credit will be fully committed by December 1980 and that disbursements will be completed by the Closing Date. Cr. No. 676 Fifth Imports Program; US$75 Million of January 25, 1977 Effective Date: February 24, 1977; Closing Date: December 31, 1978 As of January 31, 1978, disbursements were US$45.5 million. In addition about US$9.0 million of letters of credit are outstanding. Cr. No. 724 Shallow Tubewells; US$16 Million of July 1, 1977; Effective Date: December 9, 1977; Closing Date: December 31, 1981 Tender documents for engines and pump sets for all 10,000 wells have been agreed. A consultant for workshop management has been designated and the preparation of tender documents for workshop tools and machinery is at an advanced stage. The preparation of Thana Irrigation Maps is expected to be completed by March, Cr. No. 725 Muhuri Irrigation; US$21.0 Million of July 1, 1977; Effective Date: January 6, 1978; Closing Date: June 30, 1983 Delays have occurred in obtaining Government approval of the project budget, establishing the project fund, completing arrangements for hiring the engineering consultants, and signing a contract with the Contractor who will construct the Feni Regulator. Cr. No. 729 Extension and Research Project; US$10 Million of July 1, 1977; Effective Date: January 6, 1978; Closing Date: April 30, 1981 The effectiveness deadline for this project, originally September 29, 1977 was extended twice to January 6, 1978 to allow the Government more time to complete conditions of effectiveness (approval of the project budget, appointment of key management personnel, submission of the legal opinion, and establishment of revolving fund) and to work out arrangements concerning the role of field level extension personnel in some new agricultural development programs.

44 ANNEX II Cr. No 735 Inland Water Transport II Project; US$5.0 Million Credit of September 30, 1977; Closing Date June 30, 1980; Credit not yet effective. Lists of spare parts for BIWTA vessels and navigation aids, and for BIWTC cargo vessels have already been prepared and BIWTC lists for spare parts for hydrographic equipment and specifications for new mobile cranes are under preparation. Discussions have taken place with the respective agencies involved about the specialist services required, and procedures for initiating enquiries and selection of suitable specialists agreed. Operational specialists are now expected to be appointed by end April four months behind the original schedule due to the late signing of the Credit Agreement. Conditions of effectiveness have yet to be complied with. Cr. No. 752 Sixth Imports Program; US$75 Million of November 30, 1977; Effective Date: January 13, 1978; Closing Date: December 31, 1979 Cr. No. 765 Jute Project; US$21 Million of February 8, 1978; Closing Date: June 30, 1983; Credit not yet effective.

45 ANNEX III BANGLADESH SECOND FOODGRAIN STORAGE PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken to prepare project: November April 1977 (b) Agency which prepared project: GOB, based on proposals contained in consultants' feasibility studies. (c) Project first presented to IDA: Consultants' feasibility study, December (d) Satisfactory completion of action programs for correcting deficiencies in Foodgrain Storage I: June 30, 1976 (e) GOB comments on consultants' feasibility study: July 27, 1976 (f) First IDA mission to review project: November 1976 (g) Departure of appraisal mission: April 20, 1977 (h) Completion of negotiations: December 23, 1977 (i) Planned date of effectiveness: July 1, 1978

46 ANNEX III Section II: Special IDA Implementation Actions To expedite project implementation agreement was reached during appraisal on the location of the 70 sites that will be developed during the first year of project implementation. A supervision mission is scheduled for May Section III: Special Conditions Assurances have been obtained from the Government that: (a) IDA would be informed of any proposed construction of foodgrain storage, in addition to that provided by the project, and it would undertake such construction only if it does not adversely affect the utilization of project facilities (para 32); (b) godowns would be built using designs, construction methods, and contracting procedures satisfactory to IDA and that construction of a godown at a new location in the core area would only be undertaken after testing its potential through the operation of a temporary procurement center (para 32); (c) GOB would fix a day of the week in each sub-division where project TCCA were operating, for purchase from TCCA (para 37); (d) auditors satisfactory to IDA would be appointed to audit the separate project accounts of PIU and PECU, which would be sent to IDA within 6 months of the close of each fiscal year (para 58); (e) the Government would take measures to increase competition among foodgrain traders at the farmgate level and make such purchase and transport arrangements required to (a) minimize congestion at procurement points; (b) ensure expeditions payments; (c) simplify purchase quality standards; (d) provide appropriate alternatives in case of failure of normal transport arrangements and set procurement prices at levels that provide sufficient incentive for growers to increase production through a greater use of new seed varieties, fertilizer and irrigation (paras 47 and 48); (f) by October 31, 1978, the proposed reviews of the field administration of the Directorate of Food, and of the current system of payments and financing used to purchase foodgrains domestically, would be completed (para 49);

47 -41 - ANNEX III (g) by October 31, 1978, the Planning Cell in the Ministry of Food would be strengthened and the Monitoring Cell would be established, with staffing terms of reference satisfactory to IDA (paras 50 and 51); and (h) by October 31, 1978 consultants to design the farmgate price monitoring system would be recruited (para 52).

48

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