Document of The World Bank. FOR OMCAL USE ONLY C0.9 /G rn-9 2 3

Transcription

1 Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Document of The World Bank FOR OMCAL USE ONLY C0.9 /G rn REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED THIRTEENTH IMPORTS PROGRAM CREDIT IN AN AMOUNT OF SDR MILLION (US$200 MILLION EQUIVALENT) TO THE PEOPLE'S REPUBLIC OF BANGLADESH January 10, 1986 Rlt No. P-4212-BD lla' doemmeuit h= a resbicto dlsrbudo.i sd may be ans by reciple.tb awly in the perfoumame of dhidr.d.ic udeds. Ift euinb ma unot sihewbe be dladmi witou Weed Bak authoiadou.

2 CURRENCY EQUIVALENTS The external value of the Bangladesh Taka (Tk) is fixed in relation to a basket of reference currencies, with the US dollar serving as intervention currency. On December 22, 1985, the official exchange rate was set at Tk buying and Tk selling per US dollar. FISCAL YEAR July 1 to June 30 WEIGHTS AND MEASURES 1 cubic meter (m3) cubic feet 1 hectare (ha) = 2.47 acres 1 metric ton (ton) = 1,000 kilograms 0.98 long ton 1 meter (m) = 1.09 yards 1 kilogram (kg) 2.20 pounds 1 kilometer (km) = 0.62 mile 1 square kilometer (km2) = square mile 1square meter (m2) = square feet ABBREVIATIONS AND ACRONYMS ADP - Annual Development Program BADC - Bangladesh Agricultural Development Corporation BWDB - Bangladesh Water Development Board ECNEC - Executive Committee of the National Economic Council COB - Covernment of Bangladesh IMED - Implementation, Monitoring and Evaluation Division, Ministry of Planning o & M - Operation and Maintenance PEC - Project Evaluation Committee PP - Project Proforma PFDS - Public Foodgrain Distribution System SFYP - Second Five Year Plan (FY81-FY85) TFYP - Third Five Year Plan (FY86-FY90) TIP - Trade and Industrial Policy WES - Wage Earners' Scheme

3 FOR OMCIAL USE ONLY BANGLADESH THIRTEENTH IMPORTS PROGRAM CREDIT Table of Contents Pa2e No. CREDIT SUNMARY... ii I. THE ECONOMY.1... A. Introduction B. Overall Developments and Short-Term Outlook C. Macro-Economic Management... 3 D. Development Planning and Policy Issues... 9 E. The Need for Program Lending in Bangladesh F. Relations with the INMF II. BANK GROUP OPERATIONS IN BANGLADESH III. ID&'s IMPORT PROGRAM CREDITS IV. DEVELOPMENT POLICY AND MANAGEMENT REFORMS Introduction Agricultural Sector A. Agricultural Credit B. Public Foodgrain Procurement and Distribution C. Future Role of Bangladesh Agricultural Development Corporation (BADC) D. Fertijizer Pricing Strengthening of Economic Management Capacity A. Budgetary Planning and Management Strengthening of Accounting and Monitoring Capability Multi-Year Budget Planning B. Allocation of Resources for Operation & Maintenance.. 25 C. Debt Recording System D. Project Implementation E. Public Service Management V. THE CREDIT VI. RECOMMENDATION ANNEX I: Social and Economic Indicators Data Sheets ANNEX II: The Status of Bank Group Operations - Bangladesh ANNEX III: Supplementary Credit Data ANNEX IV: Major Features of Past Imports Program Credits This doment has a resticted distnbution and may be used by recipients oy in the perfonmane of thir ofid dues Itsontents may not otewie be disosed wihut Wold Bnk autboiatio

4 -~~~~~~~~~~~~~~~II BANGLADESH THIRTEENTH IMPORTS PROGRAM CREDIT CREDIT SUMMARY Borrower: Amount: Terms: Purpose: People's Republic of Bangladesh SDR million (US$200 million equivalent) Standard The Credit will provide foreign exchange to finance general imports. In order to reduce Bangladesh's dependence on concessional aid inflows, the Government has agreed, in the context of negotiations for the proposed Credit, to undertake policy and administrative improvements designed to increase efficiency in agricultural and food programs, and in its capacity for economic management. Estimated Disbursements: The proposed Credit would be available for disbursement in two tranches: SDR million (US$120 million equivalent) upon Credit effectiveness and the remaining SDR 74.5 million (US$80 million equivalent) subject to a review of progress in implementing the policy improvements under the Credit, meaning sound economic development policies, including, in particular, those associated with agricultural credit, foodgrain procurement and distribution, fertilizer pricing and distribution, financial planning and management and project implementation. This review is to take place no later than August 31, It is expected that Credit disbursement of about US$100 million will take place in FY86 and US$100 million in FY87.

5 INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED THIRTEENTH IMPORTS PROGRAM CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH 1. I submit the following report and recommendation for a proposed Thirteenth Imports Program Credit (IPC-13) to the People's Republic of Bangladesh in an amount of SDR million (the equivalent of US$200 million), on standard IDA terms, to provide foreign exchange for financing general imports. The credit would support the Government in implementing policy and institutional reforms in the agricultural sector and in strengthening its economic management capacity. PART I - THE ECONOMY A. Introduction 2. An economic report entitled "Bangladesh: Economic and Social Development Prospects," (IBRD Report No BD, dated April 2, 1985) has been distributed to the Executive Directors. 3. Bangladesh, which became independent in 1972 under very difficult circumstances, is a country with a very high population density and widespread poverty. Annual per capita income was about US$130 in FY85. The economy, dominated by agriculture, remains highly vulnerable to disruption by both natural and external factors. The ability to grow sufficient food has been the highest priority for the country since Independence. Although considerable progress has been made in terms of increased flood control, and extending the availability of irrigation and other inputs, foodgrain production remains heavily dependent on weather conditions; notwithstanding a 60% production increase sinze FY73, foodgrain output conlinues to fall short of domestic requirements. To meet minimum needs, the Government has to import foodgrains financed by aid and from its own resources. The uncertainties of foodgrain availability also make it necessary to maintain public foodgrain stocks, the financing of which adds to the problem of fiscal management. 4. The economy is also characterized by low savings, which reflect the low level of incomes, and by a large structural external payments gap. Domestic savings account for only a small part of investment (which has averaged about 162 of CDP in recent years). Export earnings cover less than 30Z of the import bill, with raw jute and jute goods still accounting for 55-60% of merchandise exports. The resource gap of about 15Z of GDP is financed by workers' remittances, which rose rapidly to more than 5% of CGP in FY83 before declining markedly again during the past two years, and by foreign assistance equivalent to about 10X of GDP per annum. The capacity to

6 -2- finance imports can be severely affected by external factors that are beyond the control of the Covernment. The effect of such adverse factors on the economy is amplified by the heavy dependence of budgetary resources on imports; customs duties and sales tax on imports taken together account for about 55Z of tax revenues. B. Overall Developments and Short-Term Outlook 5. During the late seventies and early eighties, despite the country's formidable structural constraints, Bangladesh made significant progress. Though still heavily dependent on foreign aid, the country is within reach of food self-sufficiency by the end of the current decade; there have been marked improvements in agricultural and food distribution policies, and in the development of the country's energy resources, as well as a reorientation of government policies towards a more active role of the private sector in the economy. However, the high rates of population growth (2.6Z per annum) and adult illiteracy (75%) continue to act as major constraints on economic and social development. 6. After the severe disruptions of the independence struggle and the devastating floods in the early 1970s, output in agriculture and industry did not recover to pre-independence levels until the mid-1970s. Large budget deficits, inflation, rapid population growth and political instability during the first few years of independence added to the country's plight. In the second half of the 1970s, political and economic stabilization helped the Government to focus more on longer-term development objectives and real increases in aid disbursements made rising public investments possible. Despite setbacks in crop production due to adverse weather, foodgrain production increased by 3.5Z p.a., manufacturing output grew by 6.3% p.a. and GDP by 5.1% p.a. between FY75 and FY This period of consolidation was followed by renewed and severe economic and financial difficulties in the early 1980s. Largely due to the sharp increase in international petroleum prices and declining jute export prices, Bangladesh's terms of trade deteriorated by over 30% during FY81 and FY82, and the trade deficic more than doubled to reach almost US$2.0 billion, or 18% of GDP, in FY82. At the same time, aid inflows declined in real terms leading to cutbacks in domestic public investment. In addition, agricultural output fell in FY82 due to bad weather after a record harvest in FY81 and agricultural incomes declined. As a result, GDP growth in FY82 slumped to 1.4Z. 8. In FY83 more favorable weather conditions and increased input use led to a 3-4% growth in agriculture and to an overall GDP growth of nearly 3%. However, most of the non-agricultural sectors remained severely depressed, largely due to the reduction in private disposable income as a result of the Government's far-reaching stabilization measures introduced in the FY83 Budget. Imports declined in real terms while workers' remittances from abroad increased sharply from US$424 million in FY82 to US$628 million in

7 -3- FY83, permitting a significant accumulation of gross gold and foreign exchange reserves from a low of US$122 million at the end of FY Economic performance in FY84 and FY85 was affected by a series of damaging floods during 1984 whose intensity was comparable to the devastating floods of Successive rice crops were hit causing net foodgrain losses of over 0.5 million tons. Net losses would have been much higher but for extensive replanting of the damaged aman crop, and sizable expansion of the dry season boro and wheat crops. This response by the farmers and the availability of more dispersed food storage facilities, the improved efficiency of the Public Food Distribution System and the Government's largescale foodgrain procurements abroad averted a famine. Despite the impact of the floods, agricultural growth reached about 2.4% in FY84, and 3.3% in FY85. The floods also left Bangladesh with substantially lower foreign exchange reserves and sizable medium-term debt service requirements incurred on external food loans. The cyclone and tidal bore disaster in May 1985 caused extensive loss of life and property along the Southern Coast and islands of Bangladesh, but had little effect on overall food production and economic losses were geographically limited. 10. On the other hand, there was in FY84 a gradual recovery in the nonagricultural sectors. Industry, in particular, rebounded sharply from the weak performance of the preceding year. This was due to a combination of factors including further liberalization and privatization measures (divestment of major segments of the jute and textile industries as well as privatization of some banks) following the promulgation of GOB's New Industrial Policy in 1982; easier access to imports during a period of less restricted foreign exchange resources; increased output of non-traditional industrial exports (especially ready-made garments); and increased demand generated by a sharp expansion of private credit. Therefore, despite the severe setbacks in agriculture, the improvements in industry still led to a CDP growth of around 3.5Z for FY84, compared to 1.4% in FY82 and around 3Z in FY83. In FY85, however, preliminary Government estimates would suggest that industrial growth was only about 3% due to declines in output of jute goods, sugar, cement and slower growth in cotton textiles, fertilizer, steel and engineering products. On the other hand, the recovery of imports helped growth in the trade and transport sectors, resulting in GDP growth in FY85 of about 4%. Overall, during FY80-85 economic growth slowed down to an average of 3.7% per annum from over 5% during FY Per capita CDP is estimated to have increased by only around 1Z a year during the period. C. Macro-Economic Management 11. Monetary Policy. A major concern with respect to short-term economic management has been the need to restore monetary stability and the introduction of consistent and effective monetary policy. During the two years ending in June 1984, total liquidity (H2) increased by almost 85%, well in excess of the growth of nominal CDP. Some of the increase was due to the rebuilding of foreign exchange reserves from the very low level of June 1982,

8 -4- but over 70Z of this expansion was attributable to growth in outstanding private sector credit, with agricultural credits accounting for over 55Z of the growth. In contrast, bank borrowing by the public sector was relatively modest. Substantial refinancing of credit by Bangladesh Bank to various sectors, especially agriculture, was one of the most important factors in generating the rapid domestic credit expansion during FY83 and FY84. The worsening performance in credit recovery in general, and in agriculture in particular, also contributed to the rise in private credits outstanding. The floods during 1984 were a significant contributing factor to that sector's inability to repay loans as they fell due. 12. The liquidity situation deteriorated further during the first six months of FY85 with the growth rate of private credit expansion continuing to increase. At the same time, public sector credit also expanded, partially in response to urgent credit needs of public sector corporations, especially in the jute industries sector. Total money supply grew by 35Z during the December 1983/December 1984 period, with new monetary growth almost entirely due to domestic credit expansion, while foreign exchange resources fell by over US$100 million between June and December The rapid expansion of rural credit during 1984 was used by the Government to mitigate the effects of the severe floods and to ensure adequate seasonal credit for crop plantings; also, private credit expansion helped stimulate recovery in the non-agricultural sector. However, the excessive relaxation in monetary policy also began to threaten price stability and created pressures on imports. By the end of 1984, the Government decided to impose strong corrective monetary policy measures to curb credit expansion. In consultation with the IMF, it announced: (i) curtailment of refinancing by Bangladesh Bank, except for special cases mainly in the export and agricultural sectors; (ii) significant increases in interest rates on advances against fixed-term deposits and on trading credits and advances secured by financial papers; (iii) an increase in the Bangladesh Bank rate from 10.5% to 11Z; and (iv) an increase in interest rates on rural individual savings deposits; (v) the imposition of individual credit ceilings on banks to achieve an overall domestic credit target growth of 18% for FY85 and a 4Z penalty rate above the Bangladesh Bank rate for credits in excess of these ceilings. 14. While these measures failed to limit domestic credit expansion to the 18% target set, they were instrumental in moderating significantly the growth of credit during the second half of FY85. From December 1984 to June 1985, the annual rate of private credit expansion slowed to 12% compared with 40Z during FY85 as a whole and 60% in FY84. Bangladesh Bank has successfully continued to restrain domestic credit expansion during FY86. Under the Stand-By Arrangement recently approved by the IMF (December 2, 1985), Bangladesh Bank wiil adhere to credit limits and liquidity expansion targets during the period of the Arrangement from December 1985 to June 1987.

9 Price increases over the last two years have been relatively modest when compared to the rapid expansion of money supply. The consumer price indices for major cities show price increases of only during FY85 or about the same as in FY84. This can be explained partly by the accelerating monetization of the economy. However, there is still some danger that the recent large wage and salary increases in the public and private sectors, combined with the substantial increase in liquidity during the last few years, could set off a general cost-price spiral. 16. Balance of Payments. Bangladesh's balance of payments continues to be characterized by a massive structural trade deficit and a correspondingly heavy dependency on external aid. Export earnings finance only about onethird of import requirements, with raw jute and jute products accounting for 55-60% of merchandise export earnings. Exogenous factors beyond the Government's control (such as the vicissitudes of weather, international terms of trade and the availability of external assistance) have exacerbated the difficulty of managing the country's external resources. During FY81 and FY82, Bangladesh suffered from a 30% decline in the terms of trade due to rising oil prices and falling jute prices, and from stagnating external aid disbursements. As the current account deficit widened to almost 15% of CDP in FY82, foreign exchange resources declined to the equivalent of only about two weeks of merchandise imports by June The pressures eased considerably in FY83 and external resources remained less constrained in FY84. Merchandise exports rose from $680 million in FY82 to $811 million by FY84, due to a recovery in the prices of raw jute, jute products and tea, together with the emerging importance of nontraditional exports. Even though still accounting for only a small proportion (about 20%) of total merchandise exports by value, the rapid growth of non-traditional exports is encouraging given the urgently needed diversification of exports and establishment of a significant labor-intensive export industry. Merchandise imports remained low in FY83 and FY84 as economic recovery from the preceding recession was slow and aid-financed capital goods imports were depressed by delays in project implementation. Although workers' remittances began to decline to about $600 million in FY84 after reaching a peak of $628 million in FY83, gross gold and foreign exchange reserves still recovered from $122 million at the end of FY82 to $539 million at the end of FY84 (equivalent to over 2.8 months of import requirements). 18. Since the last quarter of FY84, Bangladesh's balance of payments position again deteriorated. Import demand recovered substantially in FY85 from the unusually low levels of FY83 and FY84. This reflected in part the recovery in the non-agricultural sectors but was also stimulated by the injection of additional demand through the domestic credit system (paras above). Furthermore, a high level of foodgrain imports was necessitated by the flood emergencies. With only limited additional food aid available in response to the crisis, the Government had to purchase over 1.2 million tons out of 2.6 million tons of foodgrain imports in FY85 from its own resources at a cost of over $250 million. Workers' remittances also

10 -6- declined further to $431 million (or less than 70Z of their FY83 peak level). Therefore, despite record merchandise export earnings of $932 million and aid disbursements of $1.27 billion, there was a substantial drawdown in foreign exchange reserves of around $144 million in Ff85. Gross reserves (including gold) stood at $395 million as of June 30, 1985, equivalent to only 1.8 months of import requirements. 19. During the two-year period ended February 1985, the official exchange rate of the taka, determined against a basket of six major currencies appreciated by 20% in real effective terms. With the objective of ensuring competitiveness and encouraging a gradual shift of resources to the traded goods sector, the Government, in close consultation with the IMF, embarked as of February, 1985 on a policy of steadily depreciating the taka. During the period February-December 1985 the official exchange rate of the taka was depreciated by 18%, in terms of the US dollar. Under the new Stand-By Arrangement with the IMF the Government will continue to pursue a flexible exchange rate policy designed to avoid a renewed appreciation of the official real effective exchange rate. 20. Over recent years an important innovation in Bangladesh's import policy has been the considerable expansion of the scope for financing imports through the secondary foreign exchange market (WES market) where supply and demand determine the price of foreign exchange and hence its allocation among competing users. The relative importance of the market has grown significantly. Since July 1985 approximately 50% of all export earnings are sold in the WES market, compared with about 23% in FY85 and only 8% in FY79. The Government intends to transfer more transactions to the WES market during FY87 and also to take measures to ensure the WES market to be a free interbank market, with no net sales, on a quarterly basis, by Bangladesh Bank in this market. The official exchange rate is currently at a discount of about 8% relative to the WES market. To further liberalize the trade and payments system the Government, as of FY86, has moved from a positive import List to a negative list which is supplemented by a "restricted" list containing items importable under conditions specified in the Annual Import Order. Current balance of payments constraints make further liberalization measures difficult, but the Government is determined to reduce remaining restrictions as the external situation permits. 21. Bangladesh's balance of payments will continue to be under very considerable pressure during FY86 and FY87. Merchandise export earnings are unlikely to exceed significantly the FY85 level in nominal terms. Even significant gains in non-traditional exports, in particular garments, as well as in leather are estimated to no more than offset the expected losses in earnings from export of jute and jute products due to the sharp decline in international price. The inflow of workers' remittances is also unlikely to recover fully to their former levels, although some increase is expected in FY86 over FY85 levels. The situation will be further aggravated by the substantial loan repayments falling due during FY86 and FY87 for recent purchases or foodgrain imports on deferred terms. Bangladesh also has sub-

11 -7- stantial repurchase obligations due to the IMF in FY86 and FY87. The critical state of the country's external payments situation is demonstrated by the further decline of official gross reserves (including gold) during the first four months of FY86 to only $315 million, or about 1.5 months of import requirements, as of end-october Taking into account prospective external assistance from donors and further balance of payments support from the IMF (see paras. 37 and 38 below), it is estimate_. that foreign exchange availabilities should be sufficient to finance merchandise imports at levels of about US$2.5 to US$2.6 billion in FY86 and FY87 as compared with imports of about US$2.3 billion in FY83 and FY84 rising to US$2.6 billion in FY85. However, imports in FY83 and FY84 were unusually depressed and the relatively high level in FY85 was made possible only by medium-term foodgrain loans, a severe drawdown of reserves and balance of payments support from the INF-CFF drawing of SDRs 55 million. Even taking into account resources available under the IMF Stand-By Arrangement in FY86 and FY87 and the proposed imports program credit, the country's limited import capacity will continue to constrain the scope of growth in non-agricultural production; it will thus be difficult to achieve an overall rate of growth in GDP of about 4Z per annum as estimated by the Government. 23. External Debt. Since most of Bangladesh's borrowings have been on highly concessional terms, servicing external medium and long-term debts has so far not been a major problem. Nonetheless, the burden of servicing this concessional debt is rising steadily as debts incurred in the first years after independence are increasingly falling due for repayment. Total service payments on external public medium and long-term debt rose from about 13% of export earnings (goods, services, and workers' remittances) in FY84 to 14% in FY85 and are expected to reach a peak of 18% in FY87, gradually declining thereafter. However, when obligations to the IMF are included, the debt service ratio in FY85 was about 24%, and is estimated to stay at about this level during FY86 and FY87. The debt service ratio is forecast to decline thereafter, as food debts are repaid, to about 17% by FY90. The Bank Group's share of Bangladesh's debt servicing obligations will remain modest over this period, rising from about 8% in FY84 to 92 in FY86. The Bank Group's share of total debt outstanding and disbursed is projected to increase from about 30% in FY84 to about 35% in FY Public Finance. In recent years, GOB has pursued relatively cautious fiscal policies and considerable efforts have been made to consolidate the investment program and to strengthen the system of budget management and accounting. The FY83 Budget, in particular, contained significant revenue raising measures and provided for a careful matching of expenditure targets with realistic estimates of available resources. More recently, however, budget planning and fiscal management have proved less effective and since FY83 deficits have been avoided mainly because shortfalls in revenues have been offset by significant shortfalls in development spending. The level of current revenues, heavily dependent on the fluctuating level of dutiable

12 -8- imports, increased in nominal terms by 1I% in FY84 and 20% in FY85, or 9.62 and 10% of CDP, respectively. Whill current expenditures increased at a higher rate of about 20% in each year, these provisions were the minimum required to meet increases in public sector remuneration and the requirements of operations and maintenance of completed development programs. Although domestic resource mobilization efforts in FY84 and FY85 were modest compared with the gains made in FY83, the Government set ambitious targets for the Annual Development Program (ADP) which in the event, could not be achieved, mainly due to constraints in project implementation. Had the latter not been the case, the limited availability of Taka resources would still have posed a serious constraint to implementing the planned ADPs for these years. 25. Revenue measures announced in the FY86 Budget included increases in excise taxes, changes in income tax rates and coverage, an increase in the land tax rates, modifications in customs duties and sales tax on imports, and various higher fees and charges. The measures helped reduce the heavy dependence of the country's tax system on import-related revenue sources. Together with some additional tax measures announced subsequently in August and September 1985, the total budget revenue to GDP ratio is projected to remain at 10% in FY86, with tax revenue to GDP ratio increasing from 8.3Z to 8.5Z In addition, the Government, at the time of the Budget statement and subsequently, has enacted a series of significant pricing adjustments designed to reduce the level of subsidies on a range of public sector outputs and services. Tne Government has introduced increases in natural gas prices averaging about 20%, in the price of fertilizer averaging about 9Z and in power rates averaging about 18%. The Government also expects foodgrain subsidies to decline significantly from Tk 2.5 billion in FY85 to Tk 1.9 billion in FY86 as a result of lower volume of sales as well as increases in ration prices during FY86. Actions to reduce subsidies under the foodgrain ration system and in public wholesale fertilizer sales have been the subject of understandings reached in the context of past IPCs, as well as under the proposed IPC-13 operation (paras below). 26. On the expenditure side, the Government announced in the FY86 Budget, retroactive as of June 1, 1985, increases in the basic wage and salary scales of the public sector, ranging from about 50% for the highest grades to 100Z for the lowest. Other cash benefits were also raised. At the same time, however, non-pecuniary benefits were reduced, especially for the higher grades, resulting in a net average increase in public sector remuneration by about 28%. This increase is the major factor in the budgeted 13% increase in current expenditures. While a greater degree of selectivity in awarding salary increases would have been preferable, the increases were long overdue. They were basically cost-of-living adjustments to offset the severe erosion in the purchasing power of public service salaries and were awarded following recommendations of the National Pay Commission and the Pay Committee for Armed Services Personnel. Low salaries relative to the private sector have been a disincentive to recruitment and motivation in the public service; the need to raise public service salaries has also been an important topic in the dialogue between IDA and GOB in the context of the proposed IPC-13 credit.

13 -9- The ADP of Tk 38.3 billion proposed in the FY86 Budget represents a 16X increase over the preliminary actuals achieved in FY85 and it is most unlikely that an ADP of this magnitude can be achieved in the current fiscal year. As part of its mid-term review of the FY86 Budget in February 1986, the Government will revise the budgeted ADP after a reassessment of resource availabilities and project implementation capacity. 27. The experience of the last few years indicates the need for more effective resource planning and administration in the management of the budget, and has highlighted the importance of removing institutional constraints to the implementation of development programs. Both these issues are addressed under the proposed credit. D. Development Plannint and Policy Issues 28. After completion of the Second Five-Year Plan period in June 1985, the Third Five-Year Plan (FY86-FY90) has been approved by the National Economic Council in December The Third Five-Year Plan (TEYP) envisages total outlays of Tk 386 billion, Tk 250 billion of which in the public and Tk 136 billion in the private sector. This volume implies a 23Z increase at FY85 prices over the actual outlays of the Second Plan. The share of private sector outlays has been increased to over one-third reflecting the Government's intention to enhance significantly the role of the private sector in the economy. A preliminary review of the Plan documents suggest that the priority development objectives of the TFYP follow in their basic direction the priorities outlined in the Second Plan: (a) reducing significantly population growth from the present rate of 2.6% per annum; Cb) eliminating mass illiteracy through universal primary education and promoting human resource development; (c) achieving foodgrain selfsufficiency; and (d) promoting domestic energy development. Overall, however, the emphasis on the expansion of productive employment in the economy and on meeting minimum basic needs of the population has been strengthened significantly. 29. With appropriate producer incentives, resources to provide needed inputs to farmers, and an expanded role for the private sector in the provision and servicing of modern agricultural implements and inputs, foodsrain self-sufficiency could be achieved by the end of the decade. In spite of set-backs from floods, the country is already making good progress towards achieving this geal. Given Bangladesh's high illiteracy rate, the emphasis on primary education is well founded; under the Plan the objective of achieving universal primary education has been adopted. Prospects for achieving the objectives of educational expansion and improved foodgrain availability would be improved by success in reducing the ponulation zrowth rate; this will require more determined efforts than have been made thus far, especially with regard to birth control efforts, which have suffered from poor implementation and have had only limited success. The Government has recently taken steps to coordinate more closely its maternal and child care services with

14 -10- its family planning activities and to strengthen training and supervisions programs for field staff. 30. Accelerated utilization of the country's energy resources, particularly natural gas, is very important since petroleum imports are sizable, currently the equivalent of about three-quarters of merchandise export earnings. The Government is already implementing sizeable investments to augment the supply of gas to meet growing demand from the power and fertilizer sectors. The implementation of appropriate energy conservation measures and the setting of energy prices at economically efficient levels will also be critical to the success of the energy development program. 31. There is an urgent need to address the growing problems of rural poverty and unemployment. Fifty percent of the rural population is functionally landless, and the employment situation has deteriorated significantly since the 1970s, with only 70Z of new entrants to the labor force finding gainful employment. Increased foodgrain production alone will not suffice to resolve the unemployment and income problems, in view of the large projected growth of the work force. Measures must be taken simultaneously, therefore, to develop other sectors, such as fisheries, livestock, forestry and nonfoodgrain crops, and to strengthen the industrial sector - especially smallscale and cottage industries -- so that incomes generated in one subsector will generate effective demand for the output of others. 32. As noted in paragraph 10, the Government's New Industrial Policy has placed greater emphasis on the industrial sector for the long-term growth of the economy and employment generation and given a leading role to the private sector in industrial development. It has limited and reduced the role of the public sector in manufacturing by divesting nationalized industries and reducing the regulatory constraints on the private sector. In line with the privatization thrust, the Government has recently indicated that the role of the private sector in the remaining nationalized commercial banks may be gradually increased. Moreover, the Government has increased the incentives for export industries and liberalized the import regime (see para. 20). However, there remains an urgent need to strengthen the development finance institutions, whose financial structure has been undermined by an increasing problem of debt arrears, and to rationalize industrial incentives. The Government is now examining the future role of the development finance institutions in the light of recent consultants' studies. A series of ongoing IDA-financed studies is expected to lead to action programs for the rationalization of a broad range of trade and industrial policies. Reforms in these areas will be critical to expanding and diversifying the coun:ry's exports. 33. Realization of the Government's development objectives will require a sustained and intensive domestic resource mobilization effort to raise tax revenues, increase the level of cost recovery, reduce subsidies, and improve the financial performance of public enterprises. In the medium term, the tax base will have to be broadened to reduce its present dependence on import

15 -11- duties, thereby improving the elasticity of the tax system. In addition, more efforts will be required to effect significant improvements in development administration. There is urgent need to strengthen project implementation, streamline administrative procedures, and improve decisionmaking processes. Recognizing that local government bodies can play an effective role in the development effort, the Government has decided to decentralize a number of planning and administrative functions to the upgraded Upazila (Sub-District) level. The implementation and impact of this policy will need to be closely monitored by the central authorities. E. The Need for Program Lending in Bangladesh 34. Bangladesh appropriately looks to the IMF (paras ) to provide balance of payments support to counter short-term adverse movements in its external account. The IMF provides relatively short-term finance, and thu: one must expect that it will be repaid in years of less than average balance of payments pressures and be called upon in years of substantially more than average pressures. However, the country will also continue to require substantial long-term program-type assistance on highly concessional terms for some years to come, because of the large structural imbalances that exist between the country's export earnings and its import requirements, and between its domestic savings rate and its minimum investment needs. Even with a higa degree of import substitution in fertilizer and energy and less dependence on foodgrain imports, the external resource gap cannot be expected to narrow significantly in the near future, because of the continuing uncertain prospects for jute exports and the small base from which non-traditional exports are growing. Despite improvements in the mobilization of domestic financial resources and the increase (until FY84) in private remittances from abroad, gross national savings still represent only about 4-5Z of GNP, while external assistance finances about 75-80% of total investment. In view of Bangladesh's low capita income and the large subsistence sector in its economy, even strong domestic financial resource mobilization efforts will not permit a radical reduction of the domestic savings gap in the short- to medium-term. 35. While there will be a continuing need for substantial amounts of commodity aid, there are also problems in maintaining a satisfactory pace of disbursements from the available pipeline of project aid, currently totaling around US$4.0 billion. In the last year or so, the delays in project aid disbursements have been attributable more to institut onal constraints than to the shortage of domestic counterpart funding. Nevertheless, assuming institutional constraints could be eased, the limited availability of domestic financial resources would pose an impediment to achieving a significantly improved rate of project implementation and disbursement. The situation has been aggravated by the recent decline in the proportion of commodity aid to total aid disbursements from about 502 in FY79 to below 34Z in FY85. In order to support a faster pace of development and to increase the effectiveness of foreign assistance, this trend needs to be reversed because: (i) given the limited scope for increasing domestic resources in the short-

16 -12- term, more commodity/program assistance will be required to generate local counterpart funds and thereby facilitate a faster pace of project implementation; (ii) additional commodity/program assistance would provide more resources for essential operation and maintenance (O&K) expenditures; (iii) adequate fast disbursing non-project assistance would help minimize major disruptions caused by import restrictions due to chronic shortages of foreign exchange. 36. In response to the acute need for commodity assistance, the transfer of Bank Group financial resources in this form has been given high priority in IDA's assistance strategy for Bangladesh; program lending constitutes an important component of the lending program, accounting for between 30Z and 35Z of total lending. F. Relations with the IMF 37. The IMF provided assistance to Bangladesh under the Compensatory Financing Facility (CFF) in February 1982 for a shortfall in export earnings and in August 1982 for excess cereal import payments; assistance was also provided under a six-months Stand-By Arrangement during March-August During FY84, when the external payments situation was manageable, the Government did not seek further IMF assistance. However, in the aftermath of the severe floods in 1984 the IMF made SDR 54.9 million available in April 1984 under the CFF for excess cereal import payments. In view of the deteriorating foreign exchange position during 1985 and the unfavorable balance of payments prospects for the next two years, the IMF Executive Directors, on December 2, 1985, approved a Stand-By Arrangement in the amount of SDR 180 million. The Stand-By Arrangement will be for a period of 18 months extending from December 1985 to June The stabilization program to be supported by the IMF Stand-By Arrangement focuses on mobilizing additional domestic resources, restrained monetary and credit policies and, through the pursuit of flexible exchange rate policies, strengthening the competitiveness of the traded goods sector. The broad areas of the conditionalities for the Stand-By Arrangement are complementary to the policy and institutional reform measures to be carried out under the proposed Credit, as well as to IDA's broader economic development policy objectives. PART II - BANK GROUP OPERATIONS IN BANGLADESH 39. Cumulative Bank Group commitments to Bangladesh total US$3, million. This figure includes reactivation of eleven credits (US$ million) made to Pakistan before 1971 and a consolidation loan (US$54.90 million) and a consolidation credit (US$37.45 million) approved in 1975 to cover liabilities arising from projects completed prior to independence. In addition to these, the Bank has approved 90 new credits since Bangladesh

17 -13- became a member in In terms of total commitments, approximately 24% of IDA lending has been for agriculture, irrigation and rural development; 11% for industry; 13% for power and energy; 92 for transportation and telecommunications; 9% for education and technical assistance; 2% for urban infrastructure; 2X for population control; and 30% for imports program support. Apart from increased emphasis on energy development, the composition of IDA lending over the next several years is not expected to change markedly. On June 18, 1976, Bangladesh became a member of IFC and three investments have been approved to date. 40. IDA's country assistance strategy is designed to support the Government's priority development objectives as summarized in paragraph 28 above. IDA's lending has emphasized agriculture, with particular importance attached to increasing food production through augmenting the supply of essential inputs such as irrigation equipment, fertilizer and improved seeds, the development of flood control infrastructure, extension services, research programs and rural cooperatives, the provision of agriculture credit, and the promotion of input and output pricing policies that allow adequate incentives to farmers to increase production. IDA has also supported the Government's efforts to encourage greater private sector participation in the supply and distribution of agricultural inputs. IDA's lending program vill place increasing emphasis on agricultural diversification through increased production of fish and forestry products. 41. IDA's lending for power and gas investments is designed to expand the use of natural gas in substitution of imported oil, promote conservation measures and more efficient energy use, and encourage further gas and oil exploration. IDA is also financing projects to expand the country's rural electrification system and power generation and transmission capabilities. Through its projects, IDA is also assisting the Power Development Board in reducing losses in power transmission. 42. In the education sector, IDA's lending strategy focuses on two areas - primary education and skills development. Lending for primary education supports the national goals of achieving un_:versal primary education and reducing illiteracy, expanding access to education, and upgrading quality. Projects for vocational and technical education promote the training of craftsmen, technicians, and engineers. 43. In order to alleviate the severe economic and social pressures created by the extremely high population density and the continuing population increase, IDA, together with other donors, is assisting the Government in implementing an accelerated family planning program. With Bangladesh's urban population expected to increase from about 16 million in 1985 to between 35 to 40 million by the year 2000, future IDA activities will also help the Government address the problem of providing low-cost shelter and infrastructure services to the urban poor; IDA is already financing water and sanitation improvements in Chittagong and Dhaka.

18 To achieve a higher and sustained level of growth, provide productive employment for a rapidly growing work force, and improve the country's external trade and payments position on a sustained basis, industry will need to play a pivotal role in the economy. IDA's lending program seeks to assist the Government in: (a) increasing efficiency in public sector enterprises; (b) reforming trade, industrial and financial policies; (c) strengthening existing financial institutions; (d) establishing export development programs; and (e) promoting rural and small-scale industries. In addition to assistance under program credits, IDA has supported projects to increase fertilizer production, rehabilitate the jute and textile industries, strengthen the development finance institutions, and promote small-scale industries. 45. Because of the importance of river transport in this deltaic country, IDA has focused in the transport sector on the development of the inland water transport system. The road network in Bangladesh is extensive, but the roads are in poor condition and are inadequately maintained. IDA's future lending program will concentrate primarily on maintaining and upgrading existing roads. 46. Because of the urgent need for sustained transfer of substantial external financial resources discussed earlier, the assistance strategy for Bangladesh provides for a significant proportion of annual lending to be in the form of program credits. In addition to providing much-needed foreign exchange and local counterpart financial support, annual program credits have provided a useful vehicle for addressing a wide range of sectoral and macroeconomic issues (paras below). 47. Project implementation is hampered not only by a shortage of domestic financial resources, but also by weak development institutions, shortage of managerial and technical staff, and cumbersome bureaucratic procedures. IDA, in consultation with other donors, is engaged in a continuing dialogue with the Government on ways to improve project implementation. In support of broader institutional reform, IDA is: (a) providing technical assistance for project preparation and implementation; (b) financing projects to train civil servants and other managerial and technical personnel; and (c) encouraging the Government to introduce administrative reforms to promote increased efficiency and undertake a comprehensive review of the incentive and promotion systems, training, and career development opportunities in the public service. The proposed IPC-13 Credit supports these efforts. PART III - IDA'S IMPORT PROGRAM CREDITS 48. Since 1972, IDA has extended twelve import program credits for a total of US$965 million. The scope and objectives of the IPCs have evolved in line with the needs of the country. The first three supported critical post-independence rehabilitation needs. Beginning with IPC-4, the emphasis

19 -15- changed to efforts aimed at improving the efficiency of the jute and cotton textile industries. By FY78, progress in these areas was sufficient to allow IPC-7 and IPC-8 to focus on export development and structural problems of the industrial sector as a whole. Given the critical importance of the agricultural sector and of food security, IPC-9 and IPC-10 concentrated on reforms aimed at increasing agricultural production and improving the efficiency and equity of foodgrain distribution, but industrial and trade policy improvements also continued to receive attention. In view of the urgent need to cope with the severe macro-economic difficulties facing the country, IPCs 11 and 12 addressed broader issues relating to effective resource utilization and appropriate levels of Government expenditures along with new initiatives in agriculture, trade and industry. 49. IPC-12, for SDRs million (US$140 million), was approved by the Board in May 1984 and became effective in June 1984, when the first tranche of US$70 million was released. The main conditions for the release of the second tranche (US$70 million) were: (a) decisions to be taken by the Government on adjustments in fertilizer prices and power rates by January 1, 1985; and (b) IDA being satisfied that the Government was pursuing sound economic development policies. While price adjustments were not fully implemented by the due dates, since the severe floods of 1984 constrained the covernment's capacity for implementing major price adjustments, IDA nevertheless considered the Government action with respect to fertilizer and power prices adequate to meet the release conditions. With respect to macroeconomic performance, Government measures to restrain the growth of domestic credit and restore monetary stability (discussed earlier), which were followed by the conclusion of CFF arrangement with the IMF, satisfied the economic performance conditions. The Second Tranche was therefore released in March 1985; the credit has now been fully disbursed. 50. IPC-13 will support: (i) further improvements in agricultural sector policies and programs, including agricultural credit, public foodgrain distribution programs, fertilizer pricing and distribution, and institutional reforms; and (ii) policy measures to strengthen the country's economic management capacity including budgetary planning and management, operation and maintenance, debt recording, project implementation and public service management. IDA is currently conducting with the Government an intensive policy dialogue on major issues of industrial policy and trade reforms. It is expected that trade and industrial policies, including, in particular, measures to promote and diversify exports, will constitute an important focus for future IPC or sector operations.

20 -16- PART IV - DEVELOPMENT POLICY AND MANAGEMENT REFORMS Introduction 51. Faced with severe external and domestic financial resource constraints as a result of the international economic recession of FYB1-83, the Government of Bangladesh took a series of steps to improve public sector resource mobilization and utilization. Government policies included actions to increase prices and reduce subsidies in public sector outputs and services, reforms in the programming and financing of the public investment program, and improvements in aspects of project implementation. However, given the prospects for continuing tight resource constraints over the medium term, the Government recognizes the necassity for intensified efforts in these areas in order to achieve even modest sustained advances in economic growth. In the agricultural sector in particular, it will be important to increase output and productivity by pursuing policies conducive to the more efficient utilization of scarce resources, including improvements in the agricultural credit system, in the public foodgrain distribution system, in public sector organizations involved in agriculture, and in the pricing and distribution of fertilizer. 1. Agricultural Sector 52. Agriculture is the most important sector of the economy, accountin; for about 50% of GDP, and directly or indirectly for about 75% of employment and exports. Over the past several years, the country has achieved major successes in agricultural development, which is especially impressive in comparison to the performance of most other low-income countries. In the past five years, foodgrain production has accelerated to nearly 4.0% p.a., and agriculture value-added to over 3.0% p.a., significantly above the rate of growth in population. Agricultural production has also become increasingly resilient to natural disasters, with record crops in four out of the past five years despite bad monsoons and serious droughts or floods. Finally, diversification to wheat has been a dramatic success, exports of non-jute agricultural commodities have increased substantially, and in jute Bangladesh has captured an increasing share of a declining world market. 53. These successes are directly related to the high priority given to agriculture by GOB, and to the implementation of basically sound policies and programs. Allocation of public investment resources to agriculture has been given priority in successive deveiopment plans; quick-gestation and low-cost investments in irrigation and flood control have been specifically promoted; adequate incentives have been provided to farmers through the public foodgrain procurement policies; sizable subsidies in fertilizer, foodgrains and irrigation services have been sharply reduced and nearly eliminated over time; and finally, the role of the private sector in the efficient distribution of key inputs such as fertilizer and minor irrigation equipment has been rapidly expanded.

21 -17- A. Agricultural Credit 54. In support of increased utilization of agricultural inputs, agricultural lending has grown very rapidly over the past few years, from a level of Tk 3.7 billion in FY81 to Tk 10.1 billion in FY84 and Tk 11.3 billion in FY85. The Government used the rapid expansion in agricultural lending in early FY85 to mitigate the income losses suffered by farmers as a result of the severe floods in 1984 and ensure adequate credit for replanting the crops. The rapid growth in lending has, however, been accompanied by an unacceptably low rate of credit recoveries, and financial discipline in the agricultural credit system has been weakened because lending institutions were compelled to expand lending without taking account of the credit worthiness or repayment history of the borrowers. Furthermore, the rapid expansion of agricultural credit had been a major contributor to the recent sharp increase in money supply that necessitated the stabilization measures discussed under paras. 13 and The 1982/83 Joint GOB/IDA Agricultural Credit Review presented a set of recommendations aimed at strengthening the agricultural credit system and making it more accessible and its services more affordable to a wide crosssection of the farming population. While the Government has already implemented some of the recommendations resulting from the review, policy action on several other recommendations will be supported under the proposed credit. 56. Rural Bank Operations: The large number of crop, seasonal and other agricultural based credit programs and the often rather difficult borrower/lender relationships at the field level have adversely affected the quality of services rendered by credit institutions at the branch level in rural areas. The situation had been aggravated by the proliferation of rural branches of the banks which were required to open new rural branches in accordance with a prescribed ratio to branches in urban areas. This has promoted overborrowing for non-productive purposes, disrupted the timely flow of credit to creditworthy borrowers and contributed to the poor recovery rate. Following the recommendations of the Joint Credit Review, the Government introduced (i) an "Annual Crop Loan System" which amalgamates many of the existing short-term credit programs and (ii) credit passbooks that help banks assess the creditworthiness of borrowers and the amount of credit already extended by other banks. A similar simplification of medium-term credit programs which ensures uniformity of lending terms and conditions will be undertaken and to achieve this objective Bangladesh Bank is to prepare an implementation plan by March 31, Interest Rates: The Joint Review recommended an adjustment of agricultural credit interest rates, primarily to ensure adequate margins to the credit institutions. Subsequently, the interest rates on agricultural credit for short-term and medium-term loans to co-operatives were raised in October 1983 to 10% for short term credit and I1I for medium term credit; the cost to final borrowers (including service charges) was raised to 19% for

22 -18- short-term loans and to 162 for medium-term loans. In addition, penal rates on overdues of 3% on short-term loans and 6% on medium-term loans were introduced. The margins thus allowed were thought to be sufficient to cover the administrative cost of the financial institutions, improve their loan recovery, and give them the financial base for substantially reducing their dependence on GOB for guarantees against non-recovery of loans. The October 1983 increases in interest rates resulted in the maintenance of positive real rates of interest during FY84 and FY85. The adequacy of interest rates and margins has to be reviewed at regular intervals and, if necessary, adjusted. To this effect, an Interest Rate Advisory Committee has been established which is to meet at least once in six months to review the interest rate structure in agriculture. 58. Deposit Mobilization: As a corollary to the measures needed to curb central bank refinance and to make it more responsive to development needs, credit institutions must improve deposit mobilization. A first step towards mobilizing more deposits in rural areas was last year's increase in interest rates on term deposits in rural ereas by 2.5 to 4 percentage points above the rates prevailing in the urban areas (12-15% for term deposits). In addition, as of January 1, 1985, the interest rate on savings deposits in rural areas for accounts of individuals was raised from % to %. Since institutions differ with regard to their deposit structure and the extent of their deposit mobilization capability, Bangladesh Bank needs to address the issue of deposit mobilization on a bank by bank basis by (i) assisting them in developing action plans for improving their deposit mobilization performance, and (ii) establishing for each bank a target for allocating a proportion of its own funds to agricultural credit. The Covernment and Bangladesh Bank will prepare a detailed action program to improve deposit mobilization in rural areas by December 31, It will take into account the recommendations of ongoing studies in this area under the USAID-financed Rural Finance Project and include not only a review of deposit rates but also of other incentives to mobilize deposits. 59. Refinancing: Funding of the expanding volume of agricultural credit has been sustained to a substantial extent through (i) refinance by Bangladesh Bank, and (ii) the provision by the Covernment of guarantees which, although designed to cover risk involved in agricultural lending, has been used as another source of liquidity by the credit institutions. These factors have contributed significantly to the excessive growth of money suply during the past two years. The share of refinance in total agricultural lending in FY83 and FY84 has risen to over 60%. Even though the commercial banking system as a whole had liquidity well in excess of minimum requirements, it drew increased refinance from Bangladesh Bank to expand agricultural lending by an additional 50% in FY84. Liberal refinancing by Bangladesh Bank has thus been a disincentive to the credit institutions to give high priority to the mobilization of their own resources, especially rural deposits, for funding agricultural credits.

23 At the same time the annual agricultural lending and refinance targets which were determined by Bangladesh Bank in consultation with the banks and agricultural development agencies have not been an effective instrument to achieve a planned allocation of credit to the agricultural sector. Bangladesh has set annual targets for rapid expansion in lending without regard to the viability of such expansion in lending. Individual banks have in turn viewed the targets as Government 'instructions' to expand agricultural lending. In the absence of efforts to achieve an adequate level of credit recoveries or deposit mobilization in rural areas to finance such lending the banks have relied excessively on Bangladesh Bank refinance. Bangladesh Bank has sought to reduce the demand for refinance by raising the average refinance interest rate to 8.5% p.a. and by introducing a varying rate of interest on refinance related to the extent of refinance drawn from Bangladesh Bank by individual banks. However, with cost of funds from refinance significantly lower than the cost of raising deposits, the changes in refinance policy announced in FY84 have not fully achieved their intended effect. 61. While Bangladesh Bank will continue its policy of setting an annual target for agricultural lending, this target will mainly serve as an indicator of the Government's priorities. Bangladesh Bank will establish overall limits on the extent of agricultural refinance to be provided to individual lending institutions. The refinance limits will take into account credit recovery performance, deposit mobilization and demand for credit. In case of failure on the part of a bank to iwprove its collection performance or mobilize deposits, Bangladesh Bank's refinance will not be used simply to compensate for such shortfalls. The refinance limits will be guided by the need to maintain control over the total volume of prudent by acceptable credit expansion in the agricultural sector and of total credit expansion. 62. Credit Recovery: As noted above, the very rapid increase in agricultural lending over the past few years has been accompanied by a very low level of agricultural credit recoveries. With recoveries of past short- and medium-term loans currently only amounting to about 40% of current dues plus arrears, the lending institutions have, as noted earlier, relied heavily on refinance from Bangladesh Bank to maintain their lending to the agricultural sectors. The banks did not have much incentive to press for loan recoveries since bad debts were covered by the Special Agricultural Credit Program (SACP) which was backed by Government guarantees. The SACP system was not only targeted directly to deal with loan recovery and bad debt problems but also provided insurance against poor liquidity due to delayed recovery. Following the recommendations of the Joint Credit Review Committee, the Government has decided to abolish the SACP. Since there will be a continued need for relief to cover the cost of bad debts arising from natural calamities, the Government has accepted in principle that an Agricultural and Rural Guarantee Fund (ARGF) be established with the participation of Bangladesh Bank, the banks and the Government. The ARGF will be the only Government guarantee fund operating in Bangladesh and will only cover losses arising from natural calamities. The operational guidelines for establishing

24 -20- ARGF will be formulated by Bangladesh Bank by June 30, 1986 and discussed with IDA before implementation. 63. In addition, the Government is introducing the following measures to improve credit recovery: (i) the issuance of instructions to local Government officials to afford protection to bank staff in the performance of their duties; (ii) improvement in the intra-bank and inter-bank information system on defaulters; (iii) an increase in the number of Certificate Officers, who are charged with collection from defaulters, and better staffing of Certificate Courts; (iv) relaxation of Government restrictions on the purchase of transport facilities for the banks' field staff; (v) instructions to individual banks by Bangladesh Bank to reduce progressively the volume of fresh lending at the end of each quarter at those branches where there is no improvement in recovery levels; and (vi) in order to improve loan recovery in a medium-term setting, studies and the subsequent preparation of an action program by Bangladesh Bank aimed at strengthening the institutional capacity of the agricultural credit institutions. These studies will be conducted as a follow-up to a general credit survey currently being carried out under a USAID financed Rural Finance Project, and will concentrate, on the operation of bank branches, their staffing patterns and requirements, training needs, incentives and delegation of authority. The draft terms of reference of these studies will be completed by July 31, 1986 (at the time of the completion of the survey under the USAID financed Rural Finance Project) and the studies will be completed by December 31, It is GOB's objective to attain full recovery of agricultural credits as early as possible. In order to achieve this objective, Bangladesh Bank will establish average annual credit re_overy targets satisfactory to IDA and to be monitored by GOB. Failure to meet such targets by the banks will entail significant penalties including the reduction of refinance limits for agriculture and other lending. The average recovery rates (which include both arrears and current dues) will be progressively raised. Bangladesh Bank has already fixed average recovery targets at 50Z for FY86, 55% for FY87 and 60% for FY88; Bangladesh Bank will, however, aim to achieve higher levels of 60% in FY87 ad 65% in FY88. Progress towards these targets will be reviewed every six months. Furthermore, Bangladesh Bank will monitor progress based on the age structure of agricultural loans and recoveries due to ensure that the maximum effort is made to recover current dues fully. B. Public Foodgrain Procurement and Distribution 65. IPCs 9-12 supported a gradual process of reform in the Government's foodgrain procurement and distribution policy. The objective has been to transform the traditional urban-biased public food policy into a set of market-oriented stabilization instruments to promote producer incentives, consumer welfare and food security. While significant progress has been made, some major inefficiencies and inequities in the Public Food Distribution System (PFDS) remain. Grain sales through Statutory Rationing (SR), the program of distribution to "essential and other priority groups"

25 -21- (PC) and the so-called modified ration system (MR) are subsidized relative to the market prices and to the full cost of domestic and external procurement. These programs account for over 60% of the PFDS; in FY84, 1.34 million tons were sold under these programs out of 2.05 million tons under the PFDS in toto. Even though the level of unit subsidy on domestically procured foodgrain has been reduced from about 35Z to about 122 from FY79 to FY85, it is still a considerable burden on the Government's budget since the subsidies on such sales cost about Tk. 1.8 billion. The budgetary subsidy is even higher, currently around Tk. 2.5 billion annually, because of the relatively high prices attributed to food aid imports, the frequent lags in the adjustment of issue prices, and the very low prices of some categories of PFDS sales. Beneficiaries, especially under the SR and PG programs, are almost entirely public sector employees, defense personnel and employees in large industries (jute, textiles). The subsidies are commonly regarded by these beneficiaries as income in kind. It is also generally believed that a significant part of ration and other entitlement are resold or redistributed by beneficiaries. 66. Unless the subsidies are eliminaced over time, the demands of the ration system will limit the Government's flexibility in adjusting PFDS sales volumes so as to effectively stabilize grain prices and thus serve consumers and producers throughout the country as well as its ability to meet the needs of the poorer sections of the population through the programs for Relief Operations and Vulnerable Group Feeding. 67. The Government is committed to reduce foodgrain subsidization and to limit it eventually to needy population groups and to transform PFDS into an effective instrument of food security policy. GOB has therefore appointed a high-level National Committee to review the PFDS and the food subsidy policy. Based on the the recommendations of this Committee the Government will by March 31, 1986 prepare an action program to gradually eliminate the current food subsidies. In the meantime, the Government increased ration prices by 5% for wheat and by 3% for rice in December 1985 and is committed to a further increase within the second half of FY86 to reduce further unit subsidies and to cut the aggregate budgetary subsidy by Tk 0.6 billion in FY86. The exact timing and levels of this price adjustment will be agreed with IDA by March 31, Furthermore, as a condition of the release of the second tranche of this credit (para. 97), GOB will agree with IDA on future specific measures to be implemented by December 31, 1986 to reduce the unit subsidies in FY87 to a level acceptable to IDA; IDA would expect the unit subsidy to be cut by about 50Z from FY86 levels. C. Future Role of Bangladesh Agricultural Development Corporation (BADC) 68. The BADC is a major public sector agency responsible for several agricultural operations involving the purchase and sale of fertilizer, seeds and irrigation equipment. It employs over 20,000 staff, has agricultural depots throughout the country and an annual turnover of about $400 million. One important element in the Government's strategy to increase foodgrain

26 -22- production has been to try to augment the supply and improve the distribution of agricultural inputs and equipment to farmers. In order to achieve this goal the Government has recognized the need for a significantly greater private sector involvement in an area which, in the past, has been largely the preserve of the BADC. The Government has in recent years fully privatized retail trade in fertilizer and taken steps to permit private dealers to enter the wholesale fertilizer sales trade, and to import and sell minor irrigation equipment and pesticides. More recently in the context of this credit, the Government has agreed that private wholesale distributors will henceforth be permitted to purchase and take delivery of fertilizer directly from the fertilizer factories and certain nominated inland depots, instead of being restricted to take delivery from BADC depots as at present. This should help ensure timely distribution of fertilizer to the farmers and reduce the cost of public sector distribution. In the wake of these policy changes to promote the private sector, the role of BADC needs to be adjusted and re-defined. 69. To undertake a comprehensive review of BADC, the Government will employ consultants to study BADC's responsibilities and functions, make recommendations as to the future role of BADC in providing agricultural services, and propose an appropriate organizational structure and staffing pattern to meet the requirements of BADC's redefined role. The study will be undertaken in accordance with TORs acceptable to IDA and will be completed by November 30, 1986; the report's findings will be discussed with IDA and thereafter implemented. D. Fertilizer Pricing 70. The fertilizer subsidy in FY85 exceeded Tk 0.9 billion (15% of cost). The size of the subsidy impinges upon the availability of resources for financing other essential investments. Under an agreement with IDA in 1979, in the context of the First Fertilizer Import Credit (Cr.944-BD), GOB undertook to eliminate the fertilizer subsidy in stages by the end of FY85. In line with this commitment, fertilizer sales prices more than doubled between 1979 and The average unit budgetary subsidy was reduced from about 50% in FY79 to about 24% in FY84; the total budgetary subsidy declined from 9Z of the ADP in FY79 to about 4% in FY84. In view of the Government's concerns that a series of large price increases might adversely affect fertilizer consumption and progress towards foodgrain self-sufficiency, it was agreed under IPC-12 to postpone elimination of the fertilizer subsidy to the end of FY Official wholesale prices of fertilizer were not adjusted in FY84 and with high market prices for all important agricultural products the off-take of fertilizer increased by about 17% in FY84. Fertilizer prices were increased by a weighted average of about 10% in July 1984 and again by 7X in

27 -23- January 1985 to reduce the level of per unit economic fertilizer subsidy 1/ to about 17%. Nevertheless, due to high prices for agricultural output, increased demand as a result of replanting of crops damaged by the floods, and a major expansion of agricultural credit, fertilizer off-take continued to increase by about 15% during the first half of FY85. During this period, farmers, because of the scarcity of fertilizer during the latter part of FY85, were effectively paying unsubsidized prices for fertilizer, but the official wholesale price continued to be subsidized, with large budgetary losses to the Government. 72. More recently, fertilizer off-take has begun to fall partly as a lagged response to declining paddy and jute prices and there are concerns that abrupt large price increases could, in these circumstances, lead to an unacceptable decline in fertilize- application. The Government, while remaining firmly committed to the elimination of the subsidy, has therefore decided, in agreement with IDA, on gradual increases so as to achieve the objective of subsidy elimination by July 1, Fertilizer prices were increased on July 1 by about 3% in each case for urea, triple sulphate (TSP) and muriate of potash (MP). Further increases were implemented with effect from October 1 of about 4% for urea, 10% for TSP and 12Z for MP. The effect of these increases was to eliminate the economic subsidy on urea (which accounts for two thirds of fertilizer consumption in Bangladesh), and reduce the subsidies on TSP and MP to about 14X and 18% respectively. The. Government has undertaken (i) to review in consultation with IDA fertilizer prices again by April 1, 1986 and make such further adjustments as may be required to eliminate economic subsidies by no later than July 1, 1986; and (ii) thereafter, review wholesale fertilizer prices no less frequently than at quarterly intervals and adjust prices, as needed, at least twice in each fiscal year, to ensure that there is no economic subsidy on such sales. 2. Strengthening of Economic Management Capacity A. Budgetary Planning and Management 73. During the past three years, the Government has begun to implement a number of measures to improve budgetary and financial planning and management. Significant progress has been made with respect to the delegation of financial authority to line ministries and project agencies, the streamlining of budgetary procedures, the decentralization of administrative activities, the denationalization of public enterprises, and the restructuring of public corporations; these efforts have been supported under previous IPC operations. 1! Economic subsidy is defined in relation to world market prices, using export parity prices for urea and import parity prices for triple sulphate (TSP) and muriate of potash (MP).

28 However, budgetary planning and administration have continued to suffer from a tendency to over-estimate both the availability of resources as well as the capacity of line Ministries and agencies to prepare and implement projects. Measures taken in FY83 to improve budgetary management included the formulation of a protected Core Program within the ADP, the substantial reduction in the number of projects, particularly of unapproved projects, included in the ADP, and the streamlining of ADP fund release procedures. The FY83 ADP reflected in overall size, resource availability and estimated project implementation capability a fairly realistic assessment of available resources. In FY84 and FY85, however, resource planning and administration were less satisfactory. Actual ADP expenditures in both these fiscal years fell considerably short of budget estimates. These shortfalls were mainly due to well-below target performance in project aid disbursements, attributable largely to physical and administrative implementation constraints. As noted in para. 26 above, the FY86 ADP budget of Tk 38.3 billion is unlikely to be achieved; the Government is expected to revise the size of the ADP at the mid-term Budget review in February 1986 after a reassessment of resource availabilities and project implementation capacity. 75. Continued over-estimation of ADP expenditures undermines the effectiveness of the ADP as a tool for planning and managing Government development expenditures. The recent experience underscores the need for more effective planning and management of public resources. With this in view, the Government has undertaken in the context of the proposed Credit a number of steps that would improve the Government's accounting and monitoring capability, strengthen the planning of the ADP, and introduce multi-year budget planning. 1. Strengthening of Accounting and Monitoring Capability. 76. One of the major impediments to improved management of the budgetary process is the lack of up-to-date information on the status of revenue collection and expenditures throughout the year. This complicates the task of formulating the budget and makes it difficult to undertake budgetary adjustments (e.g., at the time of the mid-term budget review) with the required degree of confidence. Measures are, therefore, to be introduced within Government to ensure the timely compilation of reliable budget data. The Government is receiving technical assistance from the IMF in installing a revenue forecasting system and in improving the system of fiscal reporting in the National Board of Revenue. It is expected that progress will be made during the remainder of FY86 so as to facilitate a more realistic estimate of domestic resource availabilities for the preparation of the FY87 Budget. On the expenditure side, an interministerial Committee established in the Ministry of Finance on Budget Monitoring and Evaluation has furnished its report to the Government. On the basis of the Committee's Report a timebound action program will be formulated by the Government, in consultation with IDA, by March 31, 1986 and its implementation will begin in the fourth quarter of FY86.

29 Multi-Year Budget Planning. 77. The strictly one-year time horizon in budget planning and implementation used by the Covernment has proved an inadequate framework for the allocation of resources. In particular, it fails to provide the Government with the information required to understand the future capital and recurrent cost implications of their annual decisions on the ADP. The Government has therefore decided to introduce a medium-term, i.e., three year programming and budgeting framework with resource and expenditure projections. As a first step, the Covernment will formulate (by January 31, 1986) "Shadow ADPs"' for FY87 and FY88 assessing for those years likely resource requirements for the ongoing projects; this will be an important factor in planning the number and size of new projects which might be added to the public investment program during these later years. Technical assistance being provided by the IMF will include advice in the preparation of rolling forecasts of financial resources for the medium term. This will help the Government to develop a three-year timeframe for budgetary planning and management. B. Allocation of Resources for Operation and Maintenance 78. Inadequate resources allocated for the operation and maintenance (O&M) of infrastructural facilities and for the operation of public services have led to a deterioration and low utilization of valuable capital assets and contributed to the poor performance of public service agencies. Currently the system of allocating budgetary resources is biased towards new investments and the requirements for O&M are generally either accorded lower priority or are not even properly assessed. However, the need to provide for adequate resources for O&M has increasingly been recognized at all levels within the Government and in the FY86 Budget statement the need for greater provisions for O&M was acknowledged. 79. The present system for allocating resources will, therefore, be modified so as to create a link between the funding of new investments and funding of operations and maintenance. A clearly identified developmentrelated O&M Budget component will not only heighten the perception of the importance of O&M in the development process within the Government, but also focus the awareness of the external donors on the need to contribute adequate resources for this purpose. With this objective in mind, the Government plans to introduce a revised budget presentation starting with the FY87 budget which will clearly identify O&M provisions required for on-going and completed development projects. 80. In order to ensure adequate O&M provision in future budgets, line ministries and public autonomous bodies will need to (i) assess the extent of backlog in O&M requirements; (ii) establish future O&M needs based on sectorspecific plans and standards; (iii) formulate medium-term financing plans for O&M; and (iv) establish procedures for monitoring O&M implementation. Since this process will be time consuming, three key sectors, i.e., BWDB flood control, drainage and irrigation projects, national highways and education

30 -26- have been selected as initial candidates. The Covernment will commission the necessary studies to assess O&M needs in these sectors. To assist the Government, consultants will be appointed by March 31, 1986 under terms of reference acceptable to IDA. On the basis of these studies, new arrangements and procedures, satisfactory to IDA, for O&M management would be introduced by not later than July 1, 1987 in the relevant line ministries and agencies. As experience is gained in these important sectors, similar arrangements would be extended to other sectors and agencies. C. Debt Recording System 81. Despite highly concessional lending, Bangladesh's debt service burden has been increasing significantly. As noted earlier (see para. 23), the total debt service ratio stood at about 24Z in FY85 and is expected to stay at about this level in FY86 and FY87. Debt management is therefore becoming increasingly important for macro-economic management. However, Bangladesh's external aid and debt data collection and accounting systems are deficient. There are currently about 85 aid utilizing agencies in Bangladesh receiving credits from a variety of donors. Despite Government efforts many of these still suffer from inadequate accounting systems and conceptual difficulties with debt reporting. Understaffing, both in the line agencies and at the Ministry of Finance, and fragmented responsibilities for debt reporting have also contributed to the problem. 82. The Bank has provided technical advice to the Government through its regular debt missions; and there have been some improvements, such as the increasing computerization of the debt recording system by means of facilities provided by UNDP, the issuance of guidelines on foreign aid disbursements, and the strengthening of agencies' reporting requirements to the Ministry of Finance. However, in order to achieve a comprehensive and sustainable improvement in this area, the Government has agreed with IDA on a comprehensive work program for the Directorate of Foreign Aid Accounts and Budget including a substantial strengthening of staff and an appropriate training program. IDA is also considering technical assistance (possibly financed under the IDA non-reimbursable technical assistance scheme) to help the Government implement the reform measures. D. Project Implementation 83. In the case of Bangladesh, the degree of progress in implementing development projects must be viewed in the context of a country that at independence -- only 14 years ago -- lost much of its administrative and governing cadre, as well as an important segment of its private entrepreneurs. It is thus not surprising that project implementation in Bangladesh has been hampered by a variety of constraints, including weak institutions, limited managerial capacity, cumbersome bureaucratic procedures, and shortage of financial resources.

31 In FY82 and FY83 Bangladesh suffered particularly severe financial constraints, due to the international recession, and this adversely affected the Government's ability to provide taka counterpart funding for projects. The consequential deterioration in implementation of IDA financed projects is reflected in the decline in the project disbursement ratio 1/ from 16.6% in FY81 to 12.4Z in FY83. As the severity of the financial constraints diminished and improvements in project implementation procedures were carried out, project disbursements picked up and the ratio increased to 14.4% in FY84 and 16.4% in FY85. Nevertheless there is considerable scope for further improvement in project implementation; institutional and administrative impediments rather than financial stringency have recently become the binding constraints to project implementation during FY84 and FY Following a review of general project implementation constraints undertaken by IDA's Resident Mission in Bangladesh in 1982/83, in consultation with other major donors, there have been improvements in certain facets of project implementation, e.g. in project funding release procedures, increased decentralization of financial authority to line ministries and agencies and faster customs clearance of imports of project equipment. More recently, the Government has agreed with IDA on a series of action programs designed to expedite the execution of the portfolio of on-going agricultural. projects. During discussions leading to the proposed IPC-13 operation, agreement has been reached with the Government on further steps to improve project implementation including changes in the processing of the Project Proforma (PP), strengthening of the Implementation, Monitoring and Evaluation Division (IMED) of the Ministry of Planning, improvements in contract award procedures and, in the context of wider public administration reforms, a proposed review of the management of the civil service. 86. Project Proforma. Government approval of the PP, an internal Government document, is a prerequisite to the release of ADP funds for individual projects. The PP is initiated in the executing ministry or agency, reviewed by the Project Evaluation Committee (PEC)2/ and finally approved by the Executive Committee of the National Economic Council (ECNEC). Formal approval by ECNEC is normally a condition of credit effectiveness. Considerable delays have been experienced in recent years in declaring 1/ This ratio is the amount of project disbursements during a fiscal year expressed as a percentage of the undisbursed project balance at the beginning of the same fiscal year. 2/ PEC is a technical review committee consisting of high-level representatives of the Planning Commission, the External Resources Division of the Ministry of Finance, IMED, the Establishment Division and the Ministry responsible for the project. PEC's review of the PP and its recommendations are required before the PP is formally considered and approved by the ECNEC.

32 -28- credits effective because of delays in GOB completing its PP review processes in a timely way. In future the PP will be drafted earlier in the project cycle and approved by the PEC before credit negotiations, instead of postnegotiations as at present. Furthermore, formal ECNEC approval will be required before credit signing. 87. Contract Award Procedures. Delays in the award of contracts for equipment procurement and civil works and for the appointment of consultants constitute impediments to faster project implementation. Such delays can prove costly to the Government in terms of postponed benefits and inflation in project costs. Under the IDA Supplemental Assistance Credit (Cr BD), the Government established a Connittee to review Bangladesh's procedures for contract awards and for the appointment of consultants, with a view to expediting action in these areas. The Government has delegated greater authority to line ministries and agencies to decide upon contract awards within prescribed financial limits, and has under consideration the introduction of standard bidding documents, establishing a system to monitor procurement progress through a central government agency and a program of training for officers in ministries and agencies responsible for procurement activities. 88. The Government, with UNDP financing, is planning to undertake a study of project and commodity aid utilization. As a part of this study, the Government would employ by May 31, 1986, consultants, with qualifications and terms of references satisfactory to IDA, to assist the Government to: (a) review, and as appropriate, revise its procurement and contract award procedures including delegation of increased responsibilities to the implementing agencies; (b) prepare new or revise existing manuals setting out procurement guidelines and procedures; and (c) design and implement a training program for its key officers and staff that deal with ministries, public sector corporations, and implementing agencies. 89. Implementation, Monitoring and Evaluation Division (IMED). Since its establishment in 1974, IMED has expanded and strengthened its role in monitoring of project implementation and evaluation of projects. A UNDP-financed technical assistance project designed to further strengthen and increase the effectiveness of IMED will be undertaken by the Government with the assistance of consultants; this project will not only assist in introducing technical improvements, e.g. computerization, but also support IMED in establishing and strengthening project monitoring and planning cells in line ministries and agencies. E. Public Service Management 90. The 1983 Resident Mission Report on project implementation constraints identified low salaries and the failure to reward good performance as one important cause for lack of motivation in the public service and consequently for poor project implementation performance. The linkages between salaries and incentives and the resulting impact on project implemen-

33 -29- tation performance is subtle. However, there has long been evident a need to increase salaries in order to restore the erosion in the real value of salaries, attract and retain able staff, and eliminate the increasingly pervasive practice of civil servants supplementing their income from a variety of outside activities. The need for a review of public service pay was endorsed at the 1984 Aid Group Meeting. The Covernment, therefore, established a National Pay Commission for examining the pay structure of public servants; and the Commission made recommendations for a substantial upward revision of salaries and allowances. Following the Commission's Report, the Government introduced, effective June 1, 1985, increases in the basic wages and salaries of of the public sector ranging from about 100X for the lower to about 50Z for the higher grades; other cash benefits were also raised while at the same time some of the non-pecuniary benefits were reduced especially for the higher grades. The average net remuneration increase is estimated at around 28Z. 91. The Government recognizes that increases in pay are not by themselves sufficient to ensure a well qualified, properly trained and motivated public service. The Government, therefore, plans to take additional measures to improve the management and performance of the public service. It plans, in particular, to strengthen and improve the capacity of its key economic institutions and development agencies. To this end, the Government will appoint consultants with experience and terms of references satisfactory to IDA, to undertake a study to identify key constraints that affect the efficiency of public administration in general and those of the key economic ministries and development agencies in particular. The consultants would review and make recommendations for improvements in various areas including among others, personnel management policies (including career development and promotion policies), staff incentives, training and organizational and procedural improvements. The study will commence by no later than October 31, Following its completion an action program will be developed in consultation with IDA. PART V - THE CREDIT 92. The proposed credit was appraised in March-April Negotiations took place in Washington in November/December 1985; the negotiating team of the Government of Bangladesh was led by Dr. A.H. Sahadat Ullah, Member, Planning Commission. 93. The credit will provide foreign exchange to finance general imports and will support policy and institutional adjustments which are described in Part IV of the Report, comprising improvements: (i) in the agricultural sector including credit policies, food distribution policies, agricultural development institutions, and agricultural pricing policies, all designed to further

34 -30- strengthen the policy environment for faster and more efficient agricultural growth; (ii) in financial planning and budgetary management and in financial resource utilization -- so as to strengthen the effectiveness of public sector development efforts; and (iii) in project implementation to assure a more expeditious and efficient use of project aid. 94. Eligible Commodities. The funds to be provided under the proposed credit would be used to finance any imports of goods other than those specified in a short list of ineligible items. Imports directly financed from other sources would not be eligible for IDA financing. Not more than 25% of the proceeds of the credit would be used to finance the import of any commodity or group of commodities falling within a single 2-digit Division of the Standard International Trade Classification (SITC), Revision Procurement will be limited to goods from countries eligible under the Bank's Guidelines for Procurement. Both public and private sector imports will be eligible for financing. Except for proprietary items, all imports costing the equivalent of US$500,000 or more will be procured under contracts awarded after International Competitive Bidding (ICB); IDA will review procurement decisions after such contracts have been signed and prior to the submission to IDA of the first withdrawal applications in respect of such contracts. Non-proprietary items costing less than US$500, up to an overall ceiling of US$50 million -- may be procured through normal procurement procedures for such purchases, which generally include the invitation of quotations from no fewer than three suppliers. Contracts for commonly traded commodities may be awarded on the basis of price quotations available from organized international commodity markets. Contracts for proprietary items or equipment subject to domestic standardization regulations endorsed by IDA may be let on a negotiated basis, but the award of such contracts will be subject to prior approval by IDA. 96. Disbursement. Disbursements will be made against 100% of the foreign exchange costs of eligible imports on the basis of fully documented withdrawal applications prepared by Bangladesh Bank. Expenditures made prior to cred.t signing, but after April 1, 1985, in respect of eligible imports will be eligible for retroactive financing, up to an aggregate amount of SDR 18.7 million. The proposed credit is expected to be fully disbursed within about 18 months. Contracts less than US$5 million equivalent will be reimbursed through a special account. 97. Tranching. The proceeds of the proposed credit will be made eligible for withdrawal in two tranches. The first tranche of SDR million would be released upon credit effectiveness and the second tranche of SDR 74.5 million subject to IDA being satisfied that the Government is following sound ecunomic development policies. IDA's judgment in these matters will be based

35 -31- on an exchange of views with the Government not later than August 31, 1986 on Government's economic development policies -- including but not limited to those policy and institutional improvements supported by the credit. PART VI - RECOMMENDATION 98. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association and recommend that the Executive Directors approve the proposed credit. A. W. Clausen President Washington, D. C. January 7, 1986

36 cvc I., (SS : ( I',

37 -33- ANNEX 1 r A b L F. I Page 1 _ UAINCLAIID2H - SOCtAL INDICATORS DATA SaIK_ EIAGLADLv RKFWICE.E Go01S (SEIQCfL Ve93G3) 70 PST (NM: kmcext ESTIATE) lb wit ~~~~REWT LaW [mcgee HIDOLK [IncE 196d/6 197A ESTIMAT. ASIA & PACZVIC ASIA * PACIFc AREA DIAMO SQ. IN) TOTAL AGRICuLTURAL CW ap it.a 150$) ONSt WOSUTIWM PER CArTR (EtLOCctS OF OIL EQUIVALENT) e6.S Itl8 AM VITA StATISTICS POPI.LATON.MlD-YEAR (THOUSANDS) MEMA PFIATIOU (2 OF TOTAL) S POPULATION PROJECTtOUS POPUATION IN Yea2000 LL) STATIIUA PO?ILATIONl (HILL) rormatno. 11INIESTUI i.9 POPULAT DDESM PER SQ. Ci * u 3bb.9 PER sq. WI. AGRI. LAND POPULATItlt ACE STEICIU1RE (C) 0-16 urs 44.2 &6.2 * THS AND ABDVE b 2.b POPULATION cru11 RATE (C) TOTAL 1l b URBAN CRUDE BIRTH RATE (pr mous) & CODE DEATH RATE (PER THOUS) CIOSS RwROaurION RATE FPARLY PLANN5S ACCPTOIS. ANIUAL (THOUS) Ic. USERS (Z OF MARRIED aoen) Td FOOD AErD I INDEI OF FOOD PROD. PER CAPITA ( ) PER CAPITA SUPPLY OF CALORLES (t OF RSQUIKEMENIS) u ub PDETEIIS (CRAMS PER DAY) t0.3 OF TICH ANIMAL AND PULSE Ie CHILD (A(ES 1-4) DEATH RATE HEALTH LIFE xeac. AT BIRTH (EARS) u.6 NFANT mt. RATE (PER rhous) ACCESS TO SAFE MATER (WPaP) 1 TOTAL c 4* URA c RURAL o0 ToW ACCSS TO EXCRETA DISPOSAL (: OF POPULATION) TOTAL IC UUAN c 0 2T IURAL 3.0 W POPULATION PER PRYSICAN POP. PER NURSING PERSON &64.8 POP. PER HOSPITAL BED TOTAL _ /I *1, ORBAN ir Ic RDAL '' z 2347u.0 Ie b.9 ADMISSIONS PER HOSPITAL BED AVERA5E SIZE OF HOUSEHOLD TOTAL '- 5-9 It 5.8 /c UR8AN _ I 7c RURAL. 5.9 It 5.5 /c. AVERAGE NO. DF PEYSONS/RO0I TOTAL.... URIAN... RURAL '' '' PERCEIITAS OF OIELLLN5 1JITh RLECT. TOTAL /c URBAN... RURAL

38 -34- AN T A N L 3A Page 2 RANWL=W.S11 - SOCIAL IN1tCATORS DATA SHEET UIAMLrILSN REFERENCE GROUPS (EIMIGTED AVSE I r.rst (!IST KiSC8NrIT EST ET) f RECENT LOWINCOE IUDOL8 1noK 196etk 1971!. ESTDIATEi.T ASIA & PACIFIC ASIA & PACIFlC ADJUSTED ENROLtMENT RATIOS PaxARY-: TOTAL h 10.7 fal'e FIALDE S7.2 SECONDARtY: TOTAL HALE U.b FEMALE VOCATIONAL (2 OF SECONDARY) PUPIL-TEACHER RATIO PRLI Id SECONDARY co_srt PASSENCEk CARS/THOUSAND POP /c RADIO RECIVERS/TROUSAIID POP TV RECESITOUSAND FOP NEUSPAPER ("DAILY GENER INTEREST") CIROJLATION PER TROUSAND POPULATION CIEMA ANNUAL ATTENDANCE/CAPITA LAME& PORCZ TOTAL LABOR FORCE (THOUS) FEMALE (PERCENT) ASRCULTURE (PERCENT) /c INDUSTRY (PERCENT) o PARTIPATION RATE (PERCENT) TOTAL tmle d FEMALE ECONONIC DEPENDENCY RATIO IESU DIS5IT II PERCENT OF PRIVATE INCOME RECIVED If HIGHEST SZ OF HOUSEHOLDS HIGHEST 202 OF HOUSEHOLDS 44.5 ii 44.1 h LNEST 202 OF HOUSEHOLDs h.... h.4 LOWEST 402 OF HOUSEHOLDS 17.9 jj T ESTIMATE ABSOLUTE POVERTT INCOME LEVEL (USS PER CAPITA) URBAN Ie RURAL ESTIMATED RELATIVE POERTY INCOtE LEEL (USS PER CAPITA) URBAN kural MblIfLAtw rur. a L. POVERTY INCOWE LEVEL (Z) URN Ie RURAL Ie NOrT AVAILAMLE NOT APPLICABLE NO T E S /a The group averages for each indicator are populatiorwehated aritsetic mans. Qbverage of countries among the indicators depends on availability of data ad Is not uniform. lb Unless otbevwse noced. "Data for 1960" refer to any year between 1959 and 1961; "Data for 1970" between 1969 and 1971; and data for "Hot Recent Estimte" between 1981 and /c 1980; /d 1984; Ie 1977; /f 1973; ; A 1967 hi JUNE, 1985

39 -35- An aw 1 Page 3 -WMW OFSOCAL INDICATO Nooe Akhoqh the amduw from mbommayjmdpd dihe most awtitatve andna it ahud aa be note tha sheyuamyam be inonsetionally ammblie became of Ink of NandaddadueS.m _ d and esae in. by deel swam i cmheg the data e dautar. meoeaa efal to dmiber odem agalta indite _re and c am m oenala m r d _beawje mal u The Is oms ae (1) dt e- eoy pomp the Anbiset cmeuy and Q) a mouny poup with aouewhat sher av_age aci than the suny Wetosue ubjmssny (eap for Highnme O aporteu' pomwhe _ Middle Inme NortAfri and Middl Et is choen bee d er _occuhama OhS.). in t I omp dat the mumps are popul weighted aitbmetic warn for mcli indiaor nd sbwn only when mjority of therouiri in a pom ba dat for that Iudit Sine the oveae orcountui among the idicatos depend an dhe availbility ordu and is not unifomn e_em moa be eiad in ran aveom ofo einditor to arsher Them avang e only mnefu i comparnog th vadue on indicator ata timeong the Wy ad I poop. _ AREA (thound sq.km.) Cdru A" RAte (per th.a d)-number of live births in the year Tr&a-Total aurface are comprisaja land and inlnd waters; per thousand or mid-year population and 19J3 data and 19U3 data. Crude Deh at (per thinsand)-number of deaths in the year AgricuhwuI-Eatiznaze of agricultural are usd temporarily or per thousand orimid-year population; and 1983 data. pmanently for crops, pasurs. market and kitcben gardencs or to Goss Repoeuwu Rae-Average number of daughters a vioman lie fallow, and 1982 data. will bear in her normal reproductivc perod if she experieces prscnt agespecific fertility mtes usually five-year averages ending GNP PER CAPITfA USS)-NP per capita estimates at current in and markt p1n198 callated by smae converon method as Worl &amify Pfm* -Acepters, Asau (trheuauds.-annual num- Bank Atias ( basis); 1963 data. ber of accptors of birth-control devices underauspces of national ENERGY CONSUMPTION PER CAPITA-Annual apparent famil planningprogram. consumption of commercial primary energy (coal and ignite. fand(y Plaair-fr (percesut of mul nmuum)-the perenpetroleum natuda ps and hydroa. nudear and geothermal clec- tage of niarred women of child-bearing age who are practicing or ticity) in kilograms of oil equivlent per capita; and whose husbands are practicing any form ofcontraception. Women 1962 data. of child-bearing age are generally wonen aged aldtough ror some countries contraceptive usage is measured for other age POPUlATION AND VITAL STAISNCS groups. ToWPopSuvise. Mid-Yem (tbml-as of July 1; FOOD AND NUTRMON and 1983 data. 04n P m (peceof eto)-ratto of urban wo total MefhilrCqit offeed Index hadu Pr Cap& ( )-I ndex of per.. lan hp.isi.n (_ercent of torso-ratio of urban to total capita annual production of all food commodities. Production population; diffrernt definitons of urban areas may affect cmper- excludes animal fecd and seed for agriculturt. Food commodites ability of data among counties; and 1963 data. include primary commodities (e.g. sugarcane instead of sugar) Apufufo hejwi. which are edible and contain nutrients (e.g. coffee and tea are Ahpdaoion in yeor 2000-The proiection of population for 2000, excluded); they comprise cereal root crops, pues, oil seeds. made for each economy sepately. Starting with information on vegetabkls fruits, nuts, sugarcane and sugar bet livestock. and total populaion by age and sex. fertility rates. mortality rate and ivestock products. Aggregate production or each country is based iternational migrtion in tle bae year these parameters on national average producer price weights; and were projeted at five-year intervals on the basis of generalized 1962 data. assumptions untl the populaton became stationary. hr Capt Spply of Caloriers (prcen.f-regrenmren,u-comput- Stailcawy populaion-l one in which age- and sex-specific mor- ed from calorie equivalent of net food supplies available in country taliy rates have not changed over a long period. while age-specific per capita per day. Available supplies comprise domestic producfertility rates have simultaneously remained at repbacmemt level tion. imports less exports. and changes in stock. Net supplies (net reproduction rate= 1). In such a po-ulation. the birth rate is cxclude animal feed. seeds for use in agriculture. quantities used in constant and equal to the death rate, the age structure is also food processing, and losses in distribution. Requirements were constant. and the growth rate is zero. The stationry population estimated by FAO based on physiological needs for normal activity sire was estimated on the basis of the projected charactrisics of and health considering environmental temperature. body weighis. the populaton in the year and the rate of decline of fertility age and sex distribution ofpopulation. and allowing 10 pereent for rate to replacenent klvel waste at household levek and 1982 data. opua Mo mm s the tendency for population growth to Per Coos 5 qf t (Ip pe AryJ-Proton content of continue beyond the time that replacement-level fertility has been per capita net supply of foot t per day. Net supply of rood is defined achieved; that is. even aftcr the net reproduction rate has reached as above. Requirements for all countries established by USDA unity. The momentum of'a population in the year i is measured as provide for minimum allowances or 60 grams of total protein per a ratio of the ultimate stationary population to the population in day and 20 grams of animal and pulse protein. of which 10 grams the year, given the assumption that fertility remains at replacc- should be animal protein. These standards.are lower than thosc of meat lcvel from year t onward data. 75 grams of total protein and 23 grams of animal protein as an hfaktima Dentity average for the world. proposed by FAO in the Third World Food Per qamk.-mid-year population per square kilometer (100 hec- Supply: and 1982 data. tarc) of total are; and 1933 data. hr Capita htes Suppy Fror Anis n PIle-Protein supply Per sqikm. agriculmwuo Led-Computed as above for agricultural of food derived from animals and pulses in grams per day: land only and 1982 data and 1977 data. Popmktin Age St run (pertwr-children (0-14 years). work- imd (ages 1-4) Detk Rate (pertrsand.s-number ofdcaths of ing age (I5-64 years). and retired (65 years and over as percentage children aged 1-4 years per thousand children in the same age of mid-year population; and 1983 data. group in a given year. For most developing countries data derived Papuiaa ieur Growth Rate (pereeatd-raral-annual growth rates of from life tables and 1983 data. totl mid-year population for and HEALTH hppauies Growth Rtie (perceuty-an-annual growth rates Life Expectancy at BAr (yers)- -Number of years a newborn of urban population for and data. infant would livc if prevailing pattcrns of mortality for all people

40 -36- ANNEX 1 Page 4 at ut time of of it birth wer to sty th same throughout its lie APff-wher RPio - pnonwy. and xecndar-total sudets en and 1983 data. rolld in pimary and soday kv divided by numbers of 1 Mwaty N a e (par mn)-m ofinfantwhodie teachers in dhe Jcorespoding 6kvels befomc reaig ayar ne of ae per thousnd livc birts in a given ycur. 196 I 90. m aid IM1 data CONSURMFION A S* Wow (r.o I - nk bm"c Oz - huevew C (r _ppuadauj-paue casn comal-nbr 7of popli (total ban. ad rural) wih reasonable pnsc motor cs sn kw than eigbt person; ecludes ambulacu to safe watr supply (inludes tatdac wated or ances, herses and mailtary vehic. unesce but uncontminatd wat mbs that from protectedypes ns of boeoles. spring and sanitary wells) as pperetages of their rch-rtaood stsgnerapubliperhand of population; tive popu_laons In an urban area a public fountain or udpost exclude, un-linsed t cves in countris nmd in years when obcted not m tan 200 mn s finm a house mny bc onidered rgisration ou rdio selsas in eect; data for rn yars may as being witin resnawle m of dtt house In rua a not be comparadbl since mast countries abolished lcnsin ay reaoable accas would imply dta the bousewife or mnterbs of the housoid do not have to spend a disrporionat part or the day TvRee s(peremi mpeulniud-tvorvrsforbroadcast in fdtchi the findly s water necd to genucal public per thousand populaion; eadudes unlicensed TV Aceess to Enron DxWmd (parent of) or fidesq - eot4 ar. _ reccvem in countres and in yeas when rgosttion of V sets ws _ vrui-number of people (total. urba, and runal) srved by eacreta disposal as pactagles of their respectve populatiotts G ff UW- Cwcaam. (pzr uhlosmdpwpuladia)-shows the aver- Excta disposal may include the collaecion and disposal with or age circuation of -daly genral inte-st newspaper:" defined as a wihout eatmuent. of hnw exataa and wastc-water by water- Perodicl Publication devotd primarily to recording Snal news. bonse sytms or the us of pit privies and similar nswlans. It is cotidered to bc -daily- if it appears at kast frur times a week. stipulatku per Physkiua-I'opulation divided by number of pnc- Cina Aa_a AaunAae per Capi pw Yew-Based on the tising physicians quaified trom a medical school at university level. number or tickets sold during the year. inluding admissions to APqu111i p N-saI wer Pow-Pulation divided by number or drive-n canemas and mobile unils practicing male nd rmale graduate nmuse assstant nurses. practcal nurscs and nuring auzilaancm LABOR FORCE A_p -, Hmp ) d Drd.-gagsl md dl ation Te. Lahe F-c (theusu)--economnially active pesons, in- (total urban, d rurad divided by their respective number of bospiulbedsavsib&einpubbcandpnivatcagoswaid dluding armed forces and unemployed but cxduding houswive students. etc.. covering population oa all avs. Definitions in hospitls and reabtation centers. Hospitals are varoucsnot comparb 1960, 1970 an 93 da permanently staed by at lesst one physc Esablishanents prov- - (pere-0-fcoale latbor force as pcentage oa total bbor iding principaly usaodl care ae not included. Rural hospitals. force. howevc inucude healt and medical cnters n prmanently staffed Agricmkw (parens--labor force in arnming. foestry, hurting by a physian (but by a medical assistant. nurse. midwife. etc.) and fishing as percentage of total labor fomr and 19f0 wich offer in-patient accommodation and provide a iinited range data. atmedical tacalties. ImiY (percent)-labor force in mining, consruction. manu- A.ifsim per Hospil led-total number of admissions to or tacturing and eectricity. water and gas as pecentage of total labor disdcas ftrm hospital divided by the number of beds. force; and 1980 data. Pnr t R (penerw)afa.- Ji mdftas-p aion HOUSING or activity rtes are computed as total. mals and female labor force Am-e zre of Hoi-ehM (pes p-r &-s1lwmd-wa. wham, as pern tages of total male and fcmale population of all ages anar -A household consists of a oup ofindividuals who share rcspectivdy and 193 data. Thes zse basc'f on ILOs liing quarters and tbeir mauin mask A boarder or lodger may or parlicipation artes reflectingag-x sruetureofthe poph-1- zon, and may nol be included in the household for statistical purposes. log imne trend. A few estimtes are from national sources. A-we Nmher of Paw= per Reas-4ora, Urbn. mwd rrl - &Eou.c Depeqdeucy JRaio- - Ratio ot population under 15. and Average number of persons per room in all urban. and rural 65 and over, to the working age population (those aged 15-64). occupied conventional dwelings, respectively. Dwellings aclude non-pemaen t stuctures and unoccupied parts. INCOME DISTR1BUTION Ptrote of Dieaepgs 'wt Elecar*if -toral. orbj. and rural Peatage of ToJra Dispobl lracm (bet i ens aj kindj-- Conventional dwellings with letricity in living quartersas percen- Accruing to percentile groups of households ranked by toual housetage of total urban. and rural dwellngs respectively. hold income. EDUCATION POVERTY TARGET GROUPS A4used Emwmiv Rais The following estimates are very approximate measures of poverty R*unnY sdhool - rfo. i,ale and femal- Gross total, mak and n evels a-nd should be interpreted with considerable caution. Gemalc enrollment of all ages at the primary lvd as pecentages of E,rinaed Absohte rwerry onic Level (USS per _pita)-arhiu respective prnnary school-ag populations. While many countries and rural- Absolute poverty incomet kvd is that income levd consdr prinsary school age to bc 6-11 years. others do not. The below which a minimal nutritionaily adequate dict plus essential differecs in country practics in the ages and duration of school non-food requirennents is not affordable. are reflected in the ratios given. For some countries with universl Eii ed Rehafw Porerty Inow Leftd I USS per capa -wbae educatio gross enrolment ray ec 100 peznt since sotne a*d rural-rural rdative povertv income Icvel is one-third of pupils are below or above the rountrv's standard primary-school average per capita personal incomne of the country. Urban lvel is age dernved from the rural levcl with adjustment for higher cost of Secondry school - otafl mak wad fenak-compured as above, living in urban areas. secondary education requires at least four years of approved p- Etjmared P%pularsie Below Absoite vety laconw Lewd (permary insrucion; provides general vocational or teacler raiuing cear)-wbnu ad rura-- Peicent of population (erban and rural inst_ictions for pupils usually of 12 to 17 years of age: correspond- who are absolute poor.- nce ourss are generally excluded. Voaai E iarodner (percm of serondjry)-vocational institu- Comparative Analysis and Data Division Sions include tchaical industrial or other program which operate Economic Analysis and Projections Department independently or as departmts of seconary institutions. Junc 1985