Report No: ICR00002755

Document of The World Bank

Public Disclosure Authorized

IMPLEMENTATION COMPLETION AND RESULTS REPORT (IDA-43140)

ON A

CREDIT

IN THE AMOUNT OF SDR 10 MILLION

Public Disclosure Authorized (US$ 15 MILLION EQUIVALENT)

TO THE

REPUBLIC OF TAJIKISTAN

FOR A

COTTON SECTOR RECOVERY PROJECT

Public Disclosure Authorized September 25, 2013

Sustainable Development Department Central Asia Country Unit Public Disclosure Authorized Europe and Central Asia Region

CURRENCY EQUIVALENTS (Exchange Rate Effective August 21, 2013)

Currency Unit = Somoni US$ 1.00 = 4.7665 Tajikistan Somoni (TJS)

FISCAL YEAR January 1 – December 31

ABBREVIATIONS AND ACRONYMS

ADB Asian Development Bank AIB Agroinvestbank CSRP Cotton Sector Recovery Project DAT Debt analysis team DF Dehkan Farm DFID Department for Foreign International Development DLC District Land Committee DRA Debt restructuring agency FSP Farmer Support Program FPA Final Project Assessment IC Independent Commission JDC Jamoat Development Council JPIU Joint Project Implementation Unit KI Kredit Invest LRCSSAP Land Registration and Cadaster System for Sustainable Agriculture Project M&E Monitoring and Evaluation MoA Ministry of Agriculture MoF Ministry of Finance NBT National Bank of Tajikistan NGO Non-governmental organization PFI Participating Financial Institution PRSP Poverty Reduction Strategy Paper RRS Raions of Republic Subordination SCLRM State Committee for Land Resources and Management SCSSP Sustainable Cotton Sub-Sector Project (Asian Development Bank) SIDA Swedish International Development Association SMP Staff Monitored Program TIC Training and Information Center TSBLSS Tojiksodirotbank

Acting Vice President: Laura Tuck Country Director: Saroj Kumar Jha Sector Manager: Dina Umali-Deininger Project/ICR Team Leader: Bobojon Yatimov ICR Author: Malathi Jayawickrama

TAJIKISTAN

COTTON SECTOR RECOVERY PROJECT

CONTENTS

1. Project Context, Development Objectives and Design ...... 1 2. Key Factors Affecting Implementation and Outcomes ...... 4 3. Assessment of Outcomes ...... 8 4. Assessment of Risk to Development Outcome ...... 20 5. Assessment of Bank and Borrower Performance ...... 21 6. Lessons Learned...... 23 7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners...... 43 MAP ...... 48

ANNEXES

Annex 1. Project Costs and Financing...... 25 Annex 2. Outputs by Component ...... 26 Annex 3. Economic and Financial Analysis ...... 31 Annex 4. Bank Lending and Implementation Support/Supervision Processes ...... 39 Annex 5. Beneficiary Survey Results ...... 41 Annex 6. Stakeholder Workshop Report and Results ...... 42 Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR ...... 43 Annex 8. Comments of Cofinanciers and Other Partners/Stakeholders ...... 46 Annex 9. List of Supporting Documents ...... 47

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A. Basic Information

Cotton Sector Recovery Country: Tajikistan Project Name: Project Project ID: P098889 L/C/TF Number(s): IDA-43140 ICR Date: 10/07/2013 ICR Type: Core ICR REPUBLIC OF Lending Instrument: SIL Borrower: TAJIKISTAN Original Total Commitment: XDR 10.00M Disbursed Amount: XDR 9.45M Revised Amount: XDR 9.45M Environmental Category: B Implementing Agencies: Joint Project Implementation Unit, Office of the President Cofinanciers and Other External Partners:

B. Key Dates Revised / Actual Process Date Process Original Date Date(s) Concept Review: 03/23/2006 Effectiveness: 09/28/2007 09/28/2007 Appraisal: 02/08/2007 Restructuring(s): 02/09/2010 Approval: 05/30/2007 Mid-term Review: 04/18/2011 04/25/2011 Closing: 03/31/2013 03/31/2013

C. Ratings Summary C.1 Performance Rating by ICR Outcomes: Satisfactory Risk to Development Outcome: Moderate Bank Performance: Satisfactory Borrower Performance: Moderately Satisfactory

C.2 Detailed Ratings of Bank and Borrower Performance (by ICR) Bank Ratings Borrower Ratings Quality at Entry: Satisfactory Government: Moderately Satisfactory Implementing Quality of Supervision: Satisfactory Satisfactory Agency/Agencies: Overall Borrower Overall Bank Performance: Satisfactory Moderately Satisfactory Performance:

C.3 Quality at Entry and Implementation Performance Indicators QAG Assessments (if Implementation Performance Indicators Rating any) Potential Problem Project at any No Quality at Entry (QEA): None time (Yes/No): iv

Problem Project at any time Quality of Supervision Yes None (Yes/No): (QSA): DO rating before Moderately Satisfactory Closing/Inactive status:

D. Sector and Theme Codes Original Actual Sector Code (as % of total Bank financing) Agricultural extension and research 2 2 Agro-industry, marketing, and trade 52 52 Central government administration 34 34 Crops 7 7 Other social services 5 5

Theme Code (as % of total Bank financing) Other rural development 33 33 Rural markets 17 17 Rural policies and institutions 33 33 Rural services and infrastructure 17 17

E. Bank Staff Positions At ICR At Approval Vice President: Laura Tuck Shigeo Katsu Country Director: Saroj Kumar Jha Annette Dixon Sector Manager: Dina Umali-Deininger Juergen Voegele Project Team Leader: Bobojon Yatimov Bekzod Shamsiev ICR Team Leader: Bobojon Yatimov ICR Primary Author: Malathi S. Jayawickrama

F. Results Framework Analysis

Project Development Objectives (from Project Appraisal Document) To improve the livelihood of cotton farmers and create the conditions for sustainable growth of cotton production in selected, low income areas of Tajikistan, through debt resolution, an improved policy environment, and increased cotton output and profitability.

Revised Project Development Objectives (as approved by original approving authority) To benefit cotton farmers and create the conditions for sustainable growth of cotton production in low income areas of Tajikistan through an improved policy environment and better finance.

(a) PDO Indicator(s)

Original Target Formally Actual Value Achieved Indicator Baseline Value Values (from Revised Target at Completion or approval documents) Values Target Years Policy measures conducive to producer choice rather than public coercion, and competitive markets Indicator 1 : for buying and processing cotton. Value Heavy intervention in cotton High level of None (revised High level of quantitative or production, marketing, competition is in indicator) competition is in place Qualitative) production decisions place Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments The Project achieved elimination of export licenses, writing off farmers' debts, elimination of direct (incl. % intervention by local authoritieis, freedom to farm and high level of competition achievement) Indicator 2 : 20,000 farmers receiving at least 80% of the world market price Value None (revised quantitative or 3000 20,000 22,000-25,000 indicator) Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments Two methods of calculation showed 22,000 and about 25,000 farmers achieving prices greater than (incl. % 80% of the world market price. achievement) Indicator 3 : 75% of cotton output sold at 80% of comparable world market levels Value quantitative or 25% None revised indicator) 75% 95.2% Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments (incl. % achievement) Indicator 4 : Number of cotton farmers with access to the newly-established revolving fund Value None (revised quantitative or 0 2,200 2,300 indicator) Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments (incl. % achievement)

(b) Intermediate Outcome Indicator(s)

Original Target Actual Value Achieved Formally Revised Indicator Baseline Value Values (from at Completion or Target Values approval documents) Target Years Indicator 1 : Policy Advisor in place, collaborating actively with staff of President’s Office Value None (revised Policy Advisor in (quantitative No Policy Advisor Policy Advisor in place indicator) place or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments The International Policy Advisor was hired and actively and successfully worked with members of vi

(incl. % the President's Office, members of working group and donors during 3 years. achievement) Indicator 2 : Annual analysis of the impact of policy reform and other project activity Value None (revised Third Policy Three annual analyses (quantitative No analysis indicator) Analysis produced were achieved or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments (incl. % Target 100% achieved achievement) Indicator 3 : Number of Policy briefs prepared and distributed Value None (revised (quantitative No Policy Briefs 10 Policy Briefs 15 Policy Briefs indicator) or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments For three years, the International Policy Consultant has prepared and distributed 15 policy briefs, (incl. % which were sent to the Government, the Ministries and Departments. Target exceeded. achievement) Indicator 4 : Number of Policy workshops and seminars conducted Value None (revised (quantitative No Workshops 10 seminars 10 workshops/seminars indicator) or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments (incl. % Target 100% achieved. achievement) Improved access to finance through the establishment of a revolving credit line for Post-Harvest Indicator 5 : finance for cotton in selected project area Value None (revised Revolving Fund (quantitative No Revolving Fund Revolving Fund working indicator) working or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments Both banks used own funds to finance cotton and other agricultural products. Indicator is 100% (incl. % achieved. achievement) Indicator 6 : Number of Public Awareness Programs in Khatlon Value None (revised 6 campaigns over 7 campaigns conducted (quantitative No Program indicator) three years. over three years. or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments Five campaigns were carried out by the 19 NGOs during the 6 months in 2009 and 2010; one (incl. % campaign was held by nine NGOs during 2011-2012; and another one campaign was held by four achievement) NGOs during 2012-2013. Target 117% achieved. Indicator 7 : Number of rural people, including women, benefiting from public awareness programs Value None (revised 6,800 including 2,145 (quantitative 0 15,000 indicator) women or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments Although this indicator as reported here is only 45% achieved, data show that public awareness (incl. % programs and community outreach programs covered some of the same beneficiaries and hence it is vii

achievement) concluded that this target's achievement was greater than 45%. 4. Number of Trainers trained to implement community outreach and farmer extension Indicator 8 : programs in project districts Value None (revised (quantitative 0 80 80 indicator) or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments According to the submitted data, the eight NGOs - "Amon," "Bakht", "Bonuvoni Khatlon", (incl. % "Bonuvoni fardo", "Mehrangez", "MDRS Khatlon Region", "Nazm" and "Furughi Marifat" in 2011- achievement) 2012 had trained 80 trainers, indicating a 100% achievement of this target. Indicator 9 : Number of rural people, including women, benefiting from community outreach programs Value None (revised (quantitative 0 13,000 10,120 indicator) or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments The actual number of rural people, including women who benefited from community outreach (incl. % programs is 10,120 in 2011-2012. The completion percentage for this indicator is 77%. (See note on achievement) Indicator 7 above.) Indicator 10 : Number of rural people, including women, benefiting from Farmer Extension programs Value None (revised (quantitative 0 4,000 5,251 indicator) or Qualitative) Date achieved 05/31/2007 05/31/2007 02/09/2010 03/31/2013 Comments The number of rural residents including women who benefited from the Farmer Extension program (incl. % was 5251 in 2012-2013. The percentage of achievement is 131%. achievement)

G. Ratings of Project Performance in ISRs

Date ISR Actual Disbursements No. DO IP Archived (USD millions) 1 12/19/2007 Satisfactory Satisfactory 0.10 2 06/23/2008 Satisfactory Satisfactory 0.19 3 03/29/2009 Unsatisfactory Moderately Unsatisfactory 0.55 4 02/20/2010 Moderately Satisfactory Moderately Satisfactory 1.46 5 12/30/2010 Moderately Satisfactory Moderately Satisfactory 11.76 6 06/25/2011 Satisfactory Moderately Satisfactory 11.76 7 12/20/2011 Satisfactory Satisfactory 13.32 8 06/20/2012 Satisfactory Satisfactory 13.66 9 12/26/2012 Moderately Satisfactory Satisfactory 14.43 10 03/31/2013 Moderately Satisfactory Moderately Satisfactory 14.51

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H. Restructuring (if any)

ISR Ratings at Amount Disbursed Restructuring Board Approved Reason for Restructuring & Key Restructuring at Restructuring Date(s) PDO Change Changes Made DO IP in USD millions (a) discontinue non-performing project activities and include a new activity that responded to new constraints and opportunities for the cotton sector, 02/09/2010 Y U MU 1.46 which were not present during project design; (b) modify the PDO; (c) modify the outcome indicators and adjust outcome targets; and (d) to broaden the regional coverage of the project.

If PDO and/or Key Outcome Targets were formally revised (approved by the original approving body) enter ratings below: Outcome Ratings Against Original PDO/Targets Unsatisfactory Against Formally Revised PDO/Targets Satisfactory Overall (weighted) rating Satisfactory

I. Disbursement Profile

1. Project Context, Development Objectives and Design

1.1 Context at Appraisal

1. Tajikistan, the poorest member of the former USSR began its economic recovery in 1998, founded on improved political and economic stability, enhanced by external factors such as favorable cotton and aluminum prices, strong regional economic growth (especially in Russia), a sizeable flow of remittance income, and greater support from the international community. These factors contributed to real GDP growth rates of 8-10% per year over 2003-07 and a significant reduction in poverty. Despite this progress, Tajikistan was a deeply poor country, with 64% of the population below the poverty line ($2.15/day PPP) and a GDP per capita of US$310 in 2004. Sustaining this growth and further reducing poverty remained major challenges.

2. The cotton subsector was critical to both the agricultural sector and the national economy. Cotton accounted for 60% of agricultural output, supported 75% of the rural population, and used 45% of irrigated arable land. At the national level it had been an important source of both export earnings (15%) and tax revenue. Tajikistan was the world’s fourth largest exporter of cotton, and there was a strong international demand for its high quality output.

3. Agriculture sector growth had made a strong contribution to post-war economic recovery; however, production had fallen since then and cotton yields (below 2 tons/ha) remained low compared to international standards, despite observed yield increases. Agriculture growth accounted for about one-third of overall economic growth from 1998 to 2004. Sector output had risen by 65% in real terms during this period and had returned to levels observed prior to independence in 1990. Cotton production had grown by almost 50% from 1998 to 2004, driven by increases in yields and a modest increase in area. However, production had fallen since, due to adverse climatic conditions (in 2005) and the deepening effects of the cotton debt crisis since 2006. Recent analysis had shown that the previously observed growth was not sustainable, as it had been driven mostly by external factors, rather than by substantive changes to resources, incentives and the behavior of factor and commodity markets.

4. Government intervention and monopsony control of processing, exports, input supply and credit were continuing to distort markets and reduce farmer incentives to invest and raise productivity. Overdue debt, which was paralyzing the private sector, was the most visible aspect of this crisis. Cotton producers had accumulated a massive debt estimated by government at about US$400 million. The government, aware of the implications, had set debt resolution as the top priority for the sector and requested the Bank’s assistance to resolve the crisis and address relevant policy issues.

5. The Bank and other donors were united in their desire to remove the policy distortions that had led to the cotton crisis, and had initiated a number of complementary projects. These included: separate Asian Development Bank’s (ADB) projects to strengthen cotton marketing through the modernization of grading systems and certification procedures, and the introduction of warehouse receipts, and a project to support farm-level debt restructuring in

selected districts; an EU extension project; a Department for Foreign International Development (DFID) project to facilitate debt resolution through arbitration; and a Swedish International Development Association (SIDA) project to reform seed regulation. The Bank had an ongoing project on Land Registration and Cadastre System for Sustainable Agriculture (LRCSSAP) that was providing individual farmers with clear land use rights. The Bank had also worked on case studies of the debt of 14 cotton farms.

6. The Bank knew that this would be a high-risk operation, but one that would also provide high returns if it remained engaged along with other donors to pursue the government to undertake difficult reforms in the cotton sector. These critical policy reforms, if successfully undertaken, would also benefit overall agriculture and contribute to reducing rural poverty. The Bank responded to the government’s request with a pilot study to analyze the modalities for debt resolution, and assistance to prepare a “Road Map” that specified the reforms needed to effect sustainable cotton sector recovery, and a timeframe for implementing these reforms. An official decree recognizing the conditions specified in this Road Map further indicated GoT’s commitment to cotton sector recovery. The Cotton Sector Recovery Project (CSRP) also complemented the ongoing LRCSSAP in aiming to strengthen capacity of producers to make full use of land rights through policy reform, higher producer prices, and better farm management. CSRP was approved on May 30, 2007 and became effective on September 28, 2007.

1.2 Original Project Development Objectives (PDO) and Key Indicators

7. The PDO was to improve the livelihood of cotton farmers and create the conditions for sustainable growth of cotton production in selected, low income areas of Tajikistan, through: debt resolution, an improved policy environment, and increased cotton output and profitability.

8. The Key Performance Indicators (KPIs) were: (i) Debt resolution completed for 75% of land under cotton production; (ii) Termination of the tied client relationship between cotton producers and cotton investors (debt de-linkage); (iii) A policy environment conducive to producer choice rather than public coercion, and competitive markets for buying and processing cotton; (iv) An improved capacity for agricultural sector policy analysis and formulation (v) Increased farmer awareness of the rights to own and use land, and to engage freely in farm input, output and credit markets in the Khatlon region; (vi) Ginning outturn rates 10% higher than the national average in project districts (vii) A 25% increase in cotton yields in project districts.; (viii) A 10% increase in producer prices for raw cotton in project districts, relative to the national average, and more timely payment for cotton sold; (ix) Wider use of improved crop husbandry for cotton production and improved farm financial management in project districts; and (x) A 10% reduction in rural poverty in project districts.

1.3 Revised PDO and Key Indicators, and reasons/justification

9. The Bank’s Board approved a Level 1 restructuring of CSRP on February 9, 2010. In November 2007, GoT had acknowledged that much of the external finance for cotton had been obtained and secured by the National Bank of Tajikistan (NBT), and collateralized with a significant portion of the foreign exchange reserves of the NBT and NBT guarantees. This called for direct public intervention in the debt resolution process and obviated the need for a

project component on debt resolution. International awareness of the government’s default on the cotton debt also discouraged foreign investment in the cotton sector, making some activities under Component 3 infeasible. The project was restructured to: (a) discontinue non-performing project activities and include a new activity that responded to new constraints and opportunities for the cotton sector, which were not present during project design; (b) modify the PDO; (c) modify the outcome indicators and adjust outcome targets; and (d) to broaden the regional coverage of the project.

10. The revised PDO was to benefit cotton farmers and create the conditions for sustainable growth of cotton production in low income areas of Tajikistan through an improved policy environment and better access to finance.

11. The revised Key Performance Indicators (KPIs) were: (i) Policy measures conducive to producer choice rather than public coercion, and competitive markets for buying and processing cotton; that is, termination of the policies that support local processing and marketing monopsonies and restrict farmer ability to use their land freely; (ii) 20,000 farmers receiving at least 80% of the world market price; (iii) 75% of cotton output sold at 80% of comparable world market levels; and (iv) Number of cotton farmers with access to the newly-established revolving fund.

1.4 Main Beneficiaries

12. The original project was expected to benefit a rural population of about 760,000 people living on 115,000 hectares of irrigated land in seven districts, and the people providing goods and services to farms in these districts. Their incomes were expected to rise as a result of increased yields, lower costs of production and better access to markets. Activities under the restructured project were broadened to cover and benefit farmers in 18 cotton districts in Khatlon.

1.5 Original Components

13. Component 1: Debt Resolution (US$3 million) aimed to assist with establishing a transparent, rule-based mechanism for debt repayment as the basis for debt resolution. This mechanism was to ensure that producer payments are commensurate with their ability to repay, and that the viability of the current financial system is preserved. Sub-components included: (i) the Debt Resolution Agency (US$2.4m) to manage the repayment process and to inform farmers about debt resolution; and (ii) Debt De-Linkage (US$0.6m) to establish a Special Purpose Vehicle (SPV) into which farmers will make payments.

14. Component 2: Support for Policy Analysis and Reform (US$1 million) sought to strengthen the government’s policy analysis and guide reform by appointing an international policy adviser to work closely with counterparts in the President’s Office and the Independent Commission. This component also included annual analysis of the impact of policy decisions and project activity on farm productivity, farm incomes and household poverty.

15. Component 3: Cotton Supply Chain Development (US$10.0 million) aimed to address deficiencies associated with production, seed, processing and competition. Sub-components

included: (i) Cotton Ginneries (US$6.0m) to promote foreign direct investment in ginneries in selected districts, and demonstrate the impact of increased competition on producer incentives; (ii) Cotton Seed Supply (US$1.5m) to provide sub-credits to qualified private sector agricultural enterprises to finance modern seed processing equipment; and (iii) Farmer Support Programs (US$2.5m) to provide technical assistance, training and information to rural population of Khatlon oblast. Activities under Farmer Support Programs included: Regional Public Awareness; Community Outreach; and Farmer Extension.

16. Component 4: Project Implementation (US$0.9 million) was to facilitate project management. A joint Project Implementation Unit (JPIU) was established by the World Bank and the Asian Development bank (ADB) to coordinate implementation of CRSP and ADB’s Sustainable Cotton Subsector Project, and facilitate interaction with government.

1.6 Revised Components

17. Component 5: Post-harvest Finance (US$10.4m) was added to make funds available in the period immediately after harvest for the purchase of cotton seed from farmers. The subsidiary loans were to be advanced by the Participating Financial Institutions (PFIs) to eligible local Tajik ginning enterprises for the purchase of seed cotton. Initially this credit line was to be used for post-harvest cotton finance, but eventually it was to be available for all farm activities as a means to encourage agricultural diversification. Component 1 and FDI promotion (Component 3(i) and 3(ii) were dropped). These funds were used to set up a credit line. Component 2, Component 3(iii) and Component 4 remained the same.

1.7 Other significant changes

18. US$2.9m, US$6m and US$1.5m were reallocated from Components 1, 3(i) and 3(ii) respectively to the new Component 5. The original Financing Agreement of June 29, 2007 was amended to reflect these changes (see Amendment to the Financing Agreement, February 19, 2010).

2. Key Factors Affecting Implementation and Outcomes

2.1 Project Preparation, Design and Quality at Entry

19. CSRP was a rational response to Tajikistan’s cotton debt crisis, and the project became effective on time largely due to the Bank team’s intensive effort expended during project preparation. Given the complexity of the debt resolution issue, and at the government’s repeated requests for assistance, the Bank fielded several missions prior to approval and effectiveness, to identify options for debt resolution. Preparation activities included Briefing Notes to inform discussions on a framework of a joint ADB-WB proposal on farm debt restructuring, identify the risks related to feasibility, timing, resource requirements, stakeholder acceptance of the proposed debt restructuring process, and to minimize the negative repercussions for the financial and banking system and rural welfare.

20. CSRP incorporated key lessons in its design, from the Country Assistance Strategy (CAS) 2003-05, recent sector work, and the experience of other poor countries under stress. Based on sector work that identified cotton recovery as a pre-condition for sustainable growth, and the greater likelihood of success of a traditional sector approach than a community-driven approach, CRSP took on the former approach. This included lessons such as: the traditional approach providing a stronger platform for engaging government, communities and other donors in project design and implementation; the need for policy-oriented lending to focus on simple, politically-feasible reforms backed by sector-specific projects, capacity building and communication campaigns in a weak institutional environment; and the need for strong direct links between policy analysis and lending programs, and strong government engagement in both. CSRP’s design also incorporated the analysis from the pilot study that the Bank had conducted on the modalities for debt resolution mentioned above.

CRSP’s outcome indicators were well-linked to the PDO, attributable and measurable; in addition, the team identified most project risks and took mitigation measures. CRSP had a clear objective and outcome indicators (discussed further in Section 2.3) and focused on the poorest cotton-growing areas. One of the strongest aspects of the design was the Baseline Survey that was intended to provide the basis for assessing the project’s impact and follow-up monitoring (see Section 2.3). The project identified fiduciary risks and rigorously trained the JPIU during preparation to overcome its poor capacity to efficiently handle project management.

21. As mentioned in paragraph 6 above, the Bank knew this was a high-risk high-return operation, but proceeded with the project. This strategy paid off in the end, and enabled the Bank to persuade the government to undertake difficult reforms related to debt restructuring and freeing farmers in the cotton sector.

2.2 Implementation

22. Government’s resistance to sector reforms undermined the ability of the project to achieve its original PDO. Despite the Bank Task Team’s intensive effort to guide policy reform over the first 18 months, GoT remained reluctant to allow farmers to make their own production decisions. The combination of assigning the vast majority of the country’s irrigated land for cotton production and directed lending was the underlying cause of the cotton debt crisis, and this policy remained over the first 2-3 years. Plans to continue funding cotton production in 2009 using the state budget resources indicated the extent to which the government was prepared to go to maintain this policy framework. CSRP was therefore unable to make progress towards its original PDO and required restructuring.

23. Two months into effectiveness, the disclosure of NBT’s involvement in securing “external” cotton debt made it impossible for CSRP to support preparation and implementation of the debt resolution program. Component 1 experienced delays, and, as mentioned in Section 1.3, this new information fundamentally altered the nature of the situation and the potential options for resolution, and elevated the cotton debt to the ranks of major macroeconomic problems, best dealt with by the macro and financial units within the Bank and the IMF. At the end of April 2008, the IMF and the GoT agreed on the terms of a Staff Monitored Program (SMP), centered on the conduct of a special audit of NBT. The main

purpose of the audit was to assess weaknesses in the governance and accounting structure of NBT. NBT’s cotton export licensing authority was also abolished. These measures helped to make progress towards the PDO, albeit with a delay of about 12 months.

24. International awareness of GoT’s default on cotton debt discouraged foreign investment in the cotton and seed processing sectors, making Component 3(i) and 3(ii) infeasible. These components were dropped and the funds reallocated to set up a credit line.

25. CSRP was successfully restructured in January 2010 to better respond to constraints and opportunities that were not present at the time of project design. Bank supervision remained very proactive during this entire period. Efforts focused on implementation of the SMP and the government’s commitment to sector reform including efforts to obtain freedom to farm, and assigned lower priority to the eventual mechanisms for farm debt resolution. Several papers on cotton debt resolution and the accompanying dialogue with key government officials were critical inputs into: the government’s decision to initiate debt resolution, and base debt resolution on a complete write-off of farmer debts to cotton investors, in order to allow farmers to produce and sell their cotton freely and independently. The Mid- Term Review (MTR) on April 25, 2011 upgraded progress towards PDO achievement from MS to S due to significant advancement.

2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization

26. Design. The project’s M&E system was well designed. The Results Framework was comprehensive and included relevant indicators to capture the project’s activities under each component. During restructuring, the indicators were modified to reflect the revised PDO. The reporting formats for each component and sub-component were based on the annual performance targets and monitoring indicators as shown in Annex 3 of the PAD and in Annex 1 of the Restructuring Paper. One of the strongest aspects of M&E was CSRP’s design, which included a baseline survey in 2007/08 and follow-up surveys to monitor progress from 2008. The baseline survey included two parts: a survey of rural households to provide the basis for assessment of the project’s impact on rural poverty; and a farm-level survey to provide the basis for assessment of the project’s impact on cotton production and profitability, market behavior of cotton investors and interventions by local government. The Final Project Assessment (March 2013) was well done, and compared information on the outcome indicators for beneficiaries and the control groups and covered a representative sample of farmers.

27. Implementation and Utilization. M&E reporting experienced some interruptions. In 2010, the M&E rating was downgraded from ‘S’ to ‘MS’ as the post-harvest financing activities were not closely monitored partly due to the resignation of the M&E specialist. However, the PMU was able to do its’ best to monitor the activities and highlight any discrepancies such as the violation of the requirement to directly transfer funds to farmers rather than to ginneries (Aide Memoire, October, 2010). The team suggested that the PMU request that Commercial Banks provide summary reports that are easier to read in addition to detailed reports. A new M&E specialist was hired to replace the former without delay. Although the PMU was performing well in collecting the required monitoring information, the M&E rating was maintained at ‘MS’ in early 2011 until the M&E database was improved to facilitate up-to-date coverage of loan use in

the future. By November 2011, M&E was upgraded to ‘S’ as good monitoring was in place, including regular field trips to monitor the cotton season and cotton prices received by farmers. By 2012, the M&E system made considerable progress in achieving the development of an electronic system that allowed monitoring the PDOs and beyond. The system had evolved from just monitoring payments and prices paid by participating ginneries to cotton farmers to the monitoring of credit disbursement and repayment for all types of activities. The Bank team also suggested further development to the system at Project closing.

2.4 Safeguard and Fiduciary Compliance

28. The project was rated Environmental Category ‘B’. The Environmental Assessment (EA) carried out in mid-2006 identified the increased use of agricultural pesticides and the operation of ginning plants as the main environmental issues to be considered in project design and implementation. An Environmental Management Plan (EMP) was developed to respond to these issues. The design included training in agro-chemical use and pest management issues specific to the project. CSRP maintained a ‘S’ rating for overall compliance and implementation of the EA. All EMP activities were carried out, in particular, related to public awareness and information dissemination on sustainable water and land use, pest management, and environmental management at cotton ginneries. Furthermore, with the support of an NGO, special Environment Protection Action Plans (EPAP) were developed for seven ginneries participating in the post-harvest new credit line. The PMU has provided technical assistance for preparing templates for conducting sub-project Environmental Impact Assessment (EIA) for potential sub-projects, and training for PFIs and potential sub-borrowers.

29. Financial Management (FM). CSRP’s financial management remained moderately satisfactory through most of the implementation period. This was due to the FM risk before restructuring, and some improvements but also shortcomings in implementing the updated 1C accounting software system. The PMU regularly submitted satisfactory financial management reports (FMRs), and internal controls and audit reports were acceptable to the Bank, although the latter was delayed for CY2011 (but common to all projects in Tajikistan during CY2011). The final FM supervision gave a satisfactory rating to all aspects of FM.

30. Procurement. Procurement performance at the PMU was considered ‘MS’ in late 2010 as temporary delays in implementing the project procurement schedule occurred due to the resignation of the Procurement Specialist. A new staff was selected without delay. The Bank recommended that the new staff work closely with an international procurement specialist and the Dushanbe-Bank office-based procurement specialist to gain the appropriate level of knowledge of the Bank’s procurement procedures. Overall, procurement has been carried out in compliance with the Bank’s procedures. The filing system of procurement documents was maintained satisfactorily and several post reviews of selected contracts were in order.

2.5 Post-completion Operation/Next Phase

31. CSRP has done well in working closely with NGOs with an established record for implementation of programs in rural areas. These NGOs (19) that have received technical assistance and training under CSRP will continue to work with the farmers in terms of outreach,

training and advice. The TICs that have been established will continue their operation, and have already started to recover the operational costs by charging for services to farmers. The PMU has also taken a number of measures to ensure financial sustainability and transition to self- financing of all created TICs (see FPA, p. 71). Support to the cotton sector and to agriculture in general will continue through the project-initiated Revolving Credit Fund, which will continue for the next ten years. A follow-on project, the Tajikistan Agriculture Commercialization Project (P132652), will also be located in the rural areas in Khatlon Oblast and nearby districts in the Raions of Republican Subordination (RRS), where agricultural potential is high and agriculture is critical for rural livelihoods. This project will seek to scale up on activities and achievements of CSRP and other projects (i.e. the Emergency Food Security and Seed Imports Project and the Community Development Access to Quality Seed Program).

3. Assessment of Outcomes

3.1 Relevance of Objectives, Design and Implementation

32. CSRP’s objectives were relevant at the time of appraisal and remained relevant to the development issues being addressed throughout implementation. While the government had previously focused on measures to achieve political and macro-economic stability, it had begun to emphasize reforms of policies, institutions and product and factor markets that were essential for sustainable growth. The original project responded directly to the government’s National Development Strategy (NDS) for 2006-2015, which identified development of the agricultural sector as a national priority, and stated that “reform of the cotton sector targeted towards resolution of the debt crisis,” and the “formation of competitive production and sustainable growth” are sector priorities. Government had also made a commitment in the NDS to limit involvement of the state in private sector activity. By raising the incomes of cotton producers, rural poverty was also expected to decrease, consistent with the goals of the national Poverty Reduction Strategy for 2007-2009. CSRP responded directly to the first objective of the Country Partnership Strategy (CPS) to improve business opportunities in rural (and urban) areas, including reduction of the rent extraction in cotton. Project measures to halt inappropriate government intervention and improve policy formulation were consistent with the CPS’ quest to improve government capacity and reduce discretionary control.

33. CSRP’s original PDO and design, including the PDO indicators was consistent with GoT’s desire to address the cotton debt issue. Once circumstances changed during implementation, flexibility was shown in restructuring the project, and project activities were adjusted to focus on increasing farmers’ independence by giving them greater autonomy over cotton finance. CSRP, however, retained its pilot character and sought to still demonstrate practical market-oriented solutions to achieving increased agricultural productivity and rural income growth. Thus, the project was restructured accordingly to maintain the relevance of its objectives, indicators and components. The Bank’s implementation assistance was responsive to the changing needs, and CSRP remained significant to achieving country and Bank objectives.

3.2 Achievement of Project Development Objectives

34. Performance against the PDO Outcome Indicators prior to Restructuring. Progress towards achieving the PDO was downgraded from ‘S’ to Ú’ in the last ISR prior to restructuring (see ISR#3 dated March 29, 2009). The ISR states that despite the government's ostensible acceptance of the pathway to reform (the Resolutions 111 and 312), actual reform was minimal, and was reflected in slow progress with land privatization, further deterioration of the cotton debt crisis and in available farm survey evidence.

35. As described in Section 1.3 and 2.2, the cotton debt situation had become a major source of macroeconomic instability. The debt had continued to mount and with it the magnitude of this risk, which was further exacerbated by the probable financial losses of the commercial banks that were directed by the state to lend for cotton in 2008. Overall, prior to restructuring, progress against the PDO outcome indicators was unsatisfactory as detailed below.

36. Project ISRs report on five of the ten PDO indicators ((i), (ii), (iii), (vii) and (x) from Section 1.2), and this ICR follows the same below.

37. PDO Outcome Indicator 1: Debt resolution completed for 75% of land under cotton cultivation. This target was not met. The baseline was 10,000 hectares (6/1/2007), and the target was 180,000 hectares of irrigated land (6/1/2009). Actual achievement is recorded as 41,000 hectares (12/22/2008). The project’s design was premised on the assumption that the cotton debt was an “internal” private debt, owed by farmers to cotton investors. As such debt resolution was to be based on a combination of debt write-downs and partial repayment agreed between farmers’ and investors. Lack of progress on the policy front (see Indicator #2 below) and the forced disclosure of the NBT’s involvement in the securing external cotton debt made it impossible for CSRP to support preparation and implementation of the debt resolution program. This component and PDO indicator were dropped at restructuring.

38. PDO Outcome Indicator 2: Improvement in the policy environment as reflected in termination of the currently tied client relationship between cotton farmers and their alleged creditors ("delinkage"). The target of announcing and implementing nation-wide delinkage was not met. Delinking farmers from their creditors would have been an outcome of debt resolution. The de-linkage also required: (i) Cessation of government actions that restricted the freedom of farmers in terms of whom they contracted with; (ii) National Bank delicensing of exports protecting investor rights; and (iii) government abolishing support to investors seizing cotton against old debts in contravention of the rights of new financiers. The project also aimed for (iv) farmers to be able to receive and exercise their rights to land use on a stable, guaranteed basis without threats of their removal by local government or failure to follow planting instructions or meet ‘unofficial’ production targets. Although (iii) was followed through on December 22, 2008 (but late for the 2008 crop), the government remained reluctant to allow farmers to make their own production decisions (ISR #3). The government assigned the vast majority of the country's irrigated land for cotton production with directed lending--underlying factors that caused the cotton debt crisis, and continued to fund cotton production in 2009 using state budget resources.

39. PDO Outcome Indicator 3: Improve policy environment as reflected by free producer choice. This indicator was not met as described above. Results of a farm survey conducted by

several donors at the end of 2008 indicated that actual reforms were minimal and that policy pronouncements had not yet been implemented.

40. PDO Outcome Indicator 4: Increase in cotton yields in project districts relative to the national average by a factor of 1.25. The target was not met. CSRP was based on a requirement of minimum policy reform, and supported ongoing government actions. The two cornerstones of the project were to support the introduction of competition in the cotton sector, and to promote increased transparency and producer prices. If (i) to (iv) under PDO Indicator 2 above had been met, it would have been possible to encourage competition and increase incomes. If farmers were able to gain confidence in their means of production, they would have sought to increase yields, invest in their assets and obtained higher prices. Without the freedom to farm, producers still lacked the ability to reduce/withdraw their land from cotton production. International awareness of the default and continued deterioration of the cotton debt setting also discouraged potential FDI in processing and the industry as a means to increase competition and efficiency. Cotton yields in 2007 and 2008 were 16.1 and 15.8 (centner/ha). Yields improved significantly after 2009 (Final Project Assessment, 2013).

41. PDO Outcome Indicator 5: 10% reduction in rural poverty in project districts. This target was not met. Poverty levels were expected to increase due to the 2007-08 food price crises (ISR #3). Even in the absence of this external factor, given the issues in the cotton sector and the inability to attract FDI and demonstrate the impact of increased competition on producer incentives, this target was likely not met.

42. Performance against the PDO Outcome Indicators after Restructuring. CSRP conducted a Final Project Assessment (FPA) to review the Project’s impact on improving the living conditions of cotton farmers in the Khatlon region. The FPA used random sampling to cover 400 farmers in five districts—250 project beneficiaries and 150 non-beneficiaries, and evaluated their performance before and after the project (see Annex 5 for details). Findings pertaining to the four revised PDO Outcome indicators are presented below:1

43. Revised PDO Outcome Indicator 1: Policy measures conducive to producer choice rather than public coercion, and competitive markets for buying and processing cotton, i.e. termination of the policies that support local processing and marketing monopoly and restrict farmer ability to use their land freely.

44. The main goal of agricultural sector reform under Component 2--Support for Policy Analysis and Reform was to resolve the problem of cotton debt and create an enabling political environment to provide real freedom of farming, including the freedom of choice of the manufacturer and the development of competitive markets and cotton processing entities. Overall, the project achieved this outcome. After 2009, considerable work was accomplished in this area as detailed in Annex 2. CSRP facilitated writing off about US$548 million of cotton farm debt in 2009 in order to assist reforms and advance the freedom to farm concept. The

1 Cotton Sector Recovery Project, Final Project Assessment, Rahmat Khakulov, March 2013. Also see Annex 2 for details on Outputs by Component.

International Consultants (the Advisor on farmers’ debts remission and the International Policy Advisor), the Agricultural Reforms Secretariat, members of the six working groups in key ministries and agencies established under CSRP, and the PMU worked to achieve several outputs that contributed to this successful outcome. Key outputs include: amendments to several laws, including on Dehkan Farms (DFs), agricultural reforms, and restructuring of the Ministry of Agriculture), Policy Notes, the Agricultural Reform Conference, Study Tours, Policy Workshops and other activities to better inform farmers of their land rights and land use. These outputs, detailed in the FPA and in Annex 2, are linked to the outcomes below.

45. Elimination of export licenses. Upon completion of the IMF’s SMP, the export licenses for the export of cotton were canceled by the Order of the National Bank of Tajikistan № 466, December 19, 2008. Also, universal standards for cotton classification were introduced and procedures for exporting cotton were simplified. Farmers also received daily information on world cotton prices, which contributed to selling raw cotton for prices close to world prices.

46. Writing off farmers’ debt. Several Decrees were adopted in 2009 to write off farmers ‘debts (see Annex 2 for complete list). On additional measures to support agriculture, the following was adopted: "Indebtedness of business entities of the Republic of Tajikistan, producing cotton, formed before January 1, 2008 from all sources of funding should be resolved through writing off debts, debt discounting, deferral and payment terms installment, as well as issuing long-term government securities”.

47. Elimination of direct intervention by local authorities. In accordance with the Resolution of the Government of the Republic of Tajikistan № 111, March 5, 2007 and the Action Plan for resolution of cotton producing farm debt in the Republic of Tajikistan for 2007-2009, intervention of the Government authorities in farm planning, production, processing and marketing of cotton products was prohibited. CSRP supported the implementation of the above Resolution through training workshops, seminars and other events to inform local authorities, cotton producers, cotton processors and public organizations on the government decisions. For example, community outreach programs aimed to raise public awareness on the rights of rural people to engage in agricultural activities. From 2007 to 2012, over 22,171 farmers including 6,023 women received training on legal issues, including rights to obtaining land, free use of land, marketing and on the free choice of choosing partners for marketing and processing of raw cotton (related to the two points below). The FPA shows no direct intervention of local authorities in DFs’ affairs.

48. Greater farmer knowledge on laws regarding land use rights and setting up agricultural activities. Improvement in the regulatory framework to protect the rights of land users and the laws adopted have had a positive impact not only on cotton, but also on the other sectors of the rural economy and created the basis for recovery and growth of the agricultural sector. Farmers’ awareness rose sharply between 2011 and 2013 for beneficiaries and the control group. For example, the knowledge of the 2011 Amendments to the Land Code rose from 5.6% in 2011 to 42.4% (beneficiaries) and 30.7% (control group) (FPA, p. 24-27).

49. Freedom to Farm. The freedom of engaging in agriculture was a key policy objective. Farmers take risks that arise as a result of their own decisions about what crops to grow, where to

buy materials/agricultural production, to apply for a loan and where to sell the harvest. In this regard, the FPA asked farmers a number of questions to assess the freedom to farm. One of the major changes between 2011 and 2013 is the understanding of farmers that they can farm freely. In the survey years, farmers were asked about whether they agree or disagree with the statement: "In general, farmers can use the land as their choice." Farmers’ perceptions changed sharply with respect to cotton and the choice of sources of funding. On both issues, the majority of respondents indicated that they now make their own economic decisions (Figure 1).

Figure 1. Farmers agreeing with "freedom to farm" questions

50. Farms’ Management Practices. The basic policy of free farming is to provide greater incentives to farmers to increase production and reduce costs for their own benefit. They can also protect themselves from possible crop failure or low prices, for example, by diversifying their farms for the production of different types of crops. The FPA examined the extent to which farmers carry out each of these activities. Many farmers began to grow different types of agricultural products. The share of respondents who grew a single crop dropped from 19.6% in 2011 to 12.7% in 2013, while those who grew three or more crops increased from 35.5% in 2011 to 56% in 2013.

51. Data show that the majority of respondents sell a certain part of the harvest for all types of crops grown (The percentage of farmers was 84% in 2011; 84.7% in 2013—control group; and 99.6% in 2013—beneficiaries). Better management of agricultural activities with respect to selection, combination and diversification of farmed crops contributed to higher yields in 2013 of crops such as cotton, wheat, onions, potatoes, carrots and tomatoes. This resulted in a decrease in the share of the harvest sold for the main crop grown in 2013 compared to previous years as farmers diversified and reduced their dependence on the main crop.

52. The cotton market also developed through a transparent pricing system and the awareness of farmers growing cotton and world prices for cotton. CSRP beneficiary farmers were more aware of world cotton prices when they handed the crop in 2010-2012, and also sold their cotton crop at higher prices than farmers in the control group (FPA, P. 46-47).

53. Operation Management of the farms. The freedom of farmers engaged in cotton cultivation has improved significantly (as suggested in interviews with representatives of cotton

ginning plants and farmers during the 2009 and 2013 surveys). CSRP has played a key role in reducing the level of intervention of local authorities in implementing farmers' decisions. It has also greatly improved the freedom to choose the financing source, and the extent of land for cotton cultivation. In 2011, only about 39% and 43% of farmers interviewed indicated that they were free to choose the financing source, and free to determine the extent of land for cotton cultivation. These respective percentages increased to 98% and 92% for the 2013 control group and 98% and 91% for the 2013 beneficiaries. In 2011, only 24% of farms were free to choose cotton plants for processing. In 2013, this was 99% for the control group and the beneficiaries. While 214 farms were forced to work with a specific plant in 2009, only four were forced to do so in 2013. In general, writing-off the farm debt has also been a significant step forward in developing a more diverse and sustainable cotton industry and agriculture.

54. The FPA analyzed the reasons why farmers chose cotton-ginning plants and/or were forced to cooperate with certain plants. In 2013, the main reason for choosing a plant was the prompt payment for the sold crops and the nearest location of the plant, for both beneficiaries (62%) and the control group (52%). In 2009, this was zero (Table 1).

Table 1. Percentage of respondents who identified the reasons why they have to choose the cotton processing enterprise

Number of respondents Reason to cooperate with a certain plant 2013 2009 Willingness of investors to cooperate with this plant 2 89 Desire of local authorities to engage with this plant 1 57 Have debt to this plant, so working with it 1 38 Other (contract, no other plant, etc.) 0 30 Total 4 214

55. High level of competition is in place. Reviews and interviews conducted with DF- beneficiaries and DF-control group (non-beneficiaries) showed that among the respondents 99% of DFs mentioned they now had a free choice in selecting the ginnery. The main farmers’ criterion for selecting the ginneries for delivery and processing of raw cotton is the terms of payment for deposited cotton; and the second criterion is the closeness/proximity of the cotton processing plant. These factors all point to a higher level of competition among ginneries.

56. Revised PDO Outcome Indicator 2: 20,000 farmers receiving at least 80% of the world market price for their cotton output.

57. This outcome was achieved. All of the steps mentioned above, including writing off farmer debts, the elimination of direct interventions, the freedom to farm, and, more importantly, the ability of farmers to approach any ginnery with their cotton output and the resulting competition among ginneries to obtain this output contributed to farmers being offered a much higher share of world cotton prices than before CSRP. As part of the activities under Producers’ Support, on a daily basis from August 2011, the PMU staff faxed information on world cotton prices in international markets to local Hukumats, which in turn informed Jamoats, DFs, and Associations of DFs. These prices are also posted at the entrance gate to the ginneries. This played a role in contributing to selling raw cotton for prices close to world prices.

58. The PMU completed entering data on seed cotton purchases and deliveries to participating ginneries into the M&E system in August 2012. The final results of the 2011-2012 season cotton post-harvest financing with respect to the FPA’s random sample suggest that the actual number of farmers who directly benefited from selling cotton to participating ginneries and receiving at least 80% of the world market prices, was in 1654 (2010), 2806 (2011) and roughly 800 (2012). In addition, the use of project funds for the purchase of cotton at world prices forced ginneries to purchase cotton from DFs with their own funds also at world prices. The FPA analyzes data from seven cotton processing plants to determine the number of farmers from whom cotton has been purchased by processing plants at their own expense and at the world price in 2011-2012 (Table 2).

Table 2. Information on the purchase of cotton by the ginneries of Khatlon Region (at their own expense)

Bekhru Rushdi Yevon S.Mukh zi Isroil, Nekruz Khatlon Nemat, Cotton, tor, Murod Dzhiikul Farhor Cotton, Vose Yovon Farhor , Rumi Vahsh Total volume of cotton 5000 3600 5400 6000 2500 8900 4800 purchases (ton) The volume of cotton 1317 1328 1379 1171 570 1149 1181 purchase at CSRP credit (ton) The average gross sales receipts per 1 ton of cotton 3817 4425 3571 2008 4260 3850 4784 (US$) Number of DF-beneficiaries who received payment through 262 226 280 458 93 314 209 a loan Average purchase of cotton 5,0 6,0 5,0 2,4 6,0 3,7 5,7 per 1 DF (ton) The average number of DFs 736 379 804 2012 321 2094 635 sold cotton at the ginneries

Source: CSRP M&E system 59. The volume of cotton purchased by the ginneries with their own funds exceeded the amount of cotton purchased at the expense of CSRP credit by about 3.8 times. This suggests that the number of DFs who sold cotton at above 80% of the level of world prices was more than 20,000.

60. Also, a different approach was used in determining the fulfillment of this indicator. A survey of DFs in 5 Districts has shown that on average in 2011 and 2012, 51% and 78.3% of the interviewed farmers sold raw cotton at a level higher than 80% of the world price respectively.

61. Hence, it can be calculated that if in November 2012 the number of cotton producing DFs in 18 Districts of Khatlon Region was 34,361, one can assume that the number of DFs who sold their cotton at a level higher than 80% of the world price was over 25,000.

Table 3. Number of farmers who received of 80% of equivalent international cotton prices from participating ginneries in 2011 Total Received at least Received less than # Ginnery number of 80% of world price 80% of world price farms Number % Number % 1 Barakati Jomi LLC, Liomi Raion 99 73 84% 26 16% 2 Bekhruzi Murod LLC, Vose Raion 262 262 100% - 0% 3 Yevon Cotton LLC, Yevon Raion 226 225 100% 1 0% 4 Zierotshokh, Farhor Raion 551 551 100% - 0% 5 Isroil LLC, Dzhiikul Raion 281 280 100% 1 0% 6 Mukhtor and C LLC, Farhor Raion 314 314 100% - 0% 7 Nekruz, Farhor Raion 498 498 100% - 0% 8 Nemat, Vose Raion 209 207 99% 2 1% 9 Pakhta Rush. Khatlon, Rumi 93 80 89% 13 11% 10 Samar, Vose Raion 244 244 100% - 0% 11 Safari Cotton Invest LLC, Vakhsh Raion 114 72 83% 42 17% Total 2,891 2,806 97% 85 3%

Source: based on CSRP PMU Monitoring and Evaluation System (as of 22 October 2012)

Table 4. Volume of seed cotton purchased by participating ginneries in 2011 as compared with the PDO of 80% of equivalent international cotton prices

Received at least Received less than Total 80% of world price 80% of world price # Ginnery quantity*, Quantity, Quantity Kg % % Kg , Kg 1 Barakati Jomi LLC, Liomi 1,476,452 1,180,528 80% 295,924 20% 2 Bekhruzi Murod LLC, Vose 1,316,874 1,316,874 100%

3 Yevon Cotton LLC, Yevon 1,327,679 1,324,801 100% 2,878 0% 4 Zierotshokh, Farhor 1,251,678 1,251,678 100%

5 Isroil LLC, Dzhiikul 1,378,687 1,374,569 100% 4,118 0% 6 Mukhtor and C LLC, Farhor 1,149,372 1,149,372 100%

7 Nekruz, Farhor 1,171,385 1,171,385 100%

8 Nemat, Vose 1,180,623 1,171,512 99% 9,111 1% 9 Pakhta Rush. Khatlon, Rumi 569,521 316,097 56% 253,424 44% 10 Samar, Vose 1,143,874 1,143,874 100%

11 Safari Cotton Invest, Vakhsh 1,440,894 1,083,415 75% 357,479 25% 12,484,10 Total 13,407,039 88% 922,934 12% 5

Source: based on CSRP PMU Monitoring and Evaluation System (as of 22 October 2012).

62. Based on these two approaches, we can assume that the actual number of farmers receiving prices greater than 80% of the world market price amounted to over 22,000. Therefore, it can be concluded that this indicator has been achieved.

Table 5. Utilization of: (i) the CSRP Line in 2011; and (ii) Revolving Credit Line Funds from 2010 for seed cotton purchases from farmers in Khatlon Oblast in 20112

per per

farm farm

price

tl. tl.

US$

intl. cotton cotton intl.

. .

of seed cotton cotton of seed

location farm,

# of farms #

farm, US$ farm,

purchased

seed cotton cotton seed

of in

delivery US$ delivery

receipts per one one per receipts

Quantity of seed seed of Quantity

Equi

price at the at the price

cotton purchase cotton

Average price price Average

MT MT

gate on the date of ondate the gate

Farmer price as price Farmer

Average gross sales sales gross Average

Average quantity of quantity Average

purchased from one one from purchased Ginnery name and and name Ginnery Mukhtor and C LLC, Farhor 1149 871 799 109.0 314 3.7 3185 Nekruz, Farhor 1171 855 816 104.8 498 2.4 2008 Zierotshokh, Farhor 1251 799 828 96.5 551 2.3 1816 Samar,Vose 1143 874 815 107.2 244 4.7 4098 Nemat, Vose 1181 844 829 101.8 209 5.7 4784 Bekhruzi Murod, Vose 1317 752 823 91.4 262 5.0 3817 Safari Cotton Invest, Vakhsh 1440 697 805 86.6 114 12.6 8715 Yevon Cotton, Yevon 1328 752 811 92.7 226 5.9 4425 Isroil, Dzhiikul 1379 732 823 88.9 281 4.9 3559 Barakati Jomi, Liomi 1476 705 810 87.0 99 14.9 10101 Pakhta Rush. Khatlon, Rumi 570 739 795 93.0 93 6.1 4260 TOTAL 13404 775 814 95.2 2891 4.6 3594.0

Source: based on CSRP PMU Monitoring and Evaluation System (as of 22 October 2012).

63. Revised PDO Outcome Indicator 3: 75% of cotton output sold at 80% of comparable world market levels.

64. As shown above, this outcome was achieved. In 2011, DF-beneficiaries sold 85% of their raw cotton at 95.2% of comparable world market prices, and in 2012, this figure was 87%.

65. Revised PDO Outcome Indicator 4: Increasing number of cotton farmers with access to the newly established revolving fund.

66. After a long period of crisis in the cotton sector, the restructured CSRP, under the post- harvest finance component, financed the purchase of raw cotton at world prices and helped to provide timely payment to farmers for the cotton supplied. This activity was highly relevant to the moral and financial support to DFs growing cotton. As detailed above and in Annex 2, US$10.4m of credit issued for the two banks allowed the banks to also gain confidence, and by March 2013 they significantly increased the amount of agricultural sector lending from their own

2 All ginneries received US$1 million except Pakhta Rush. Khatlon, Rumi who received US$ 0.4m.

financial resources. Loans allocated on favorable terms to 5 cotton processing enterprises in 2010, 11 ginneries in 2011 and 2 gins in 2012 allowed the banks to gain economic benefits, pay on time, and establish a trusting relationship with the farmers. For the farmers, the revolving funds at the two banks created more favorable conditions in providing them with access to credit and an increased competitive environment among banks and micro-lending organizations, which could also promote further reductions of interest rates in the credit market. In the second stage after the adoption of appropriate amendments, lending extended to cover other agricultural activities in addition to cotton growing, as agreed, and overall lending became available in all regions of the country and not just in Khatlon.

67. The target for this indicator was 2,200 farmers. The revolving fund was established in 2011, and in 2011-2012, it was directed both to purchase cotton and to finance the production of other crops. The revolving helped to fund the purchase of raw cotton for 945 DFs in 2011 and for 800 DFs in 2012. Another 1,500 DFs were granted loans through the revolving fund for the development of other sectors of agriculture. Interviews with DFs’ show that in 2009, 24% of the respondents took out a loan, but in 2013 this number increased to 42% for beneficiary DFs and 25% for the control group of non-beneficiaries. Overall, 2,300 farmers obtained access to the newly-established fund. Therefore, the target was exceeded (FPA, p. 60).

68. CSRP has contributed to achievements beyond those indicated in the PDO indicators. Processing enterprises and farmers surveyed specify that in addition to prompt payment, the project has helped to increase the cooperation between ginneries and farmers, increase farmer knowledge of the cultivation of cotton (and other crops), improve the quality of cotton plants not only in project areas but also in other regions, and, most importantly, farmers now trust ginneries and deliver cotton on time. Beneficiary farmers now have greater income (see Section 3.5 (a)). The government has also stepped back from financing the cotton sector, which is now sustaining its support to farmers through the project-initiated Revolving Credit Fund.

69. Tajikistan’s cotton industry, which had suffered from inefficient investment policy in the period from 2003-2009 that led to significant debts of DFs, a sharp decline in total production, the area under cotton cultivation and yields, has begun its revival. Production of cotton and other crops started to increase after agricultural reform and debt relief, and after farmers obtained the freedom to farm any selection of agricultural products. Just in the last 3 years from 2009 to 2012 production of cotton in the country increased by 41%, the land allocated to cotton increased by 18%, and cotton yields increased by 18%. Positive changes in the cotton sector are even more significant in Khatlon region, which was the target region of the Project. In 2012 compared with 2009, cotton production in the region increased by 42%, the land allocated to cotton increased by 18% in response to higher profitability of cotton, and cotton yields rose by 20%. Project activities supported the reorganization of DFs and an increase in their number. From 2008 and 2012, the number of farmer household in Khatlon region increased from 12,108 to 43,909 DFs (FPA, p. 68-70).

3.3 Efficiency

70. CSRP, through its main activities that supported the resolution of cotton debt, greater freedom to farm, agricultural policy reform and improved access to financing has enhanced the economic efficiency of cotton farming in Tajikistan. Cotton farmers’ net cumulative cash flow improved considerably since 2008 due to a combination of factors such as increased cotton prices paid to farmers, lower debt and servicing costs, better payment terms and input availability at the time of project completion. Prior to the project, the farmers could expect to receive about US$ 109 in terms of financial returns per hectare and hope to achieve positive returns only in March-April of the year following cotton production. At the end of CSRP, farmers already broke even by October-November of the same year with a net income of US$ 274 per hectare. The equivalent return measured per 1 metric ton (MT) of seed cotton output were estimated to increase from US$51 in 2008 to about US$124 at the end of the project.

71. This improved cotton profitability is clearly reflected in enhanced cotton yields and production. Annual average cotton yields in the main project area of Khatlon oblast increased from 1.6 in 2007-2008 to 2.2 MT per hectare in 2011-2012, and cotton production increased by 7%. Farmers also responded positively and increased the area under cotton from 101,000 ha in 2010 to 128,000 ha in 2012: all signs of the sector’s recovery. Economic profitability, measured as the net margin at world cotton export parity prices and without the applicable 10% export tax in Tajikistan, increased from US$51 in 2008 to US$188 at the end of project.

72. The fiscal impact is discussed in Annex 3. Although the cotton debt that was written off was a drain on public funds, these reforms are expected to benefit revenues as the sector grows. Also, the post-harvest financing has been used to finance other types of agricultural activities since 2012, or two years after financing cotton sector activities. As no reliable and verifiable information on profitability was available on other activities, and due to the relatively short period of observation, the economic analysis does not take these returns into account. Other factors that constrained the efficiency analysis were the extreme international price volatility and the lack of reliable cotton farm-gate price information through CSRP’s life.

3.4 Justification of Overall Outcome Rating

Rating: Satisfactory

73. As described in Section 3.1, CSRP was relevant at the time of appraisal and its’ objectives and design remained relevant throughout implementation. Although the Project did not make good progress towards the PDO prior to restructuring and is rated ‘U’ for this period, it was effectively restructured, and successfully achieved its revised PDO as concluded in Section 3.2.3 CSRP was efficient. The financial returns and economic profitability at the time of the ICR exceed those estimated in the pre-project period (2008) as detailed in Annex 3.

3 The discrepancy between the final Implementation Status Report (ISR), which rates achievement of the PDO and Implementation Progress as Moderately Satisfactory is due to the fact that the results of the Final survey on the Revised PDO Indicator 2 (20,000 farmers receiving at least 80% of the world market price for their cotton output) had not yet come in.

74. With respect to the weighted average for the achievement of the PDO, the project disbursed US$1.46 million or 10% of the total project amount prior to restructuring against a ‘U’ rating (rating value of 2) in this ICR (see Data Sheet). The balance amount of US$13.05 or 90% was disbursed until closing against an ‘S’ rating (rating value of 5) in the ICR. Therefore, overall achievement of the PDO is (0.1 x 2) + (0.9 x 5) = 4.7 or satisfactory (ICR Guidelines, p. 43).

3.5 Overarching Themes, Other Outcomes and Impacts

(a) Poverty Impacts, Gender Aspects, and Social Development

75. The FPA provides evidence of reduced poverty through greater access to loans from banks and microfinance institutions and the ability to invest in farms, greater savings in cash and gold, ownership of household accessories, and overall increased income. For example, the average income from farming of beneficiary farmers and farmers in the control group increased from 5327 somoni in 2011 to 6630 somoni in 2013. Income from other sources and non-farm activities also increased significantly for CSRP beneficiaries compared to the control group. Ownership of household accessories such as refrigerators, TVs, generators, mobile phones (that farmers also consider as savings) also show increases from 2011 to 2013 (FPA, p. 51-53). The FPA did not conduct a full-scale analysis of beneficiaries by gender; however, the FPA points to the following: of the total 6,800 who benefitted from the public awareness program, 2,145 were women. A large number of women were attracted to the trainings and other activities conducted by NGOs and TICs. Under the third sub-component, 6023 of the 22,171 attended 972 training courses and other project events.

(b) Institutional Change/Strengthening

76. CSRP contributed to building long-term capacity in many areas. The project provided technical assistance and support for improving the legal and policy/regulatory framework for the entire cotton sector. There were additional measures adopted for agriculture in general, as described in Annex 2. The participating financial institutions (PFIs) were strengthened through training. CSRP brought significant benefits not only to farmers, but also to the two main banks— Agroinvestbank and Tojiksodirotbank as they developed through enhanced lending to agriculture. Following revision of the CSRP Financing Guidelines starting in November 2011, both PFIs in addition to financing the purchase of cotton from farmers, began lending to all other types of agricultural activities.

77. CSRP helped to strengthen NGOs and outreach and extension through the NGOs. Within the framework of the Producers’ Support sub-component, as discussed in Annex 2, the PMU established partnerships and collaboration with 32 Khatlon NGOs that had a good track record and experience in training and implementation of various projects. All NGOs selected have shown a creative attitude, which has allowed them to enrich their services through a wide variety of workshops, training courses and other activities related to DFs’ urgent needs throughout the country. The project also helped to establish and register as legal entities Training and Information Centers (TICs) and provided them with equipment and demonstration plots that have in turn strengthened the NGOs’ capacity to improve farmers’ access to information (via training and consulting), mastering advanced technologies and entrepreneurial skills. Overall, these have strengthened the long-term capacity of Tajikistan’s agricultural sector.

78. As described in Section 3.2, CSRP’s impacts extended beyond the PDO. Positive changes in terms of production, yields, area under cultivation and overall income of cotton farmers are observed in many regions outside the main project region of Khatlon.

3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops (Optional for Core ICR, required for ILI, details in annexes)

4. Assessment of Risk to Development Outcome

Rating: moderate

79. The institutional risk to development outcome is moderate. As described in Section 3.5(b) and in Annex 2, CSRP has built institutional capacity through training at every stage of cotton production. It is assumed that the six sectoral working groups created by the ministries and agencies that have made a substantial contribution to agriculture sector will continue to operate. With project completion, the Agricultural Reform Secretariat under the Deputy Prime Minister of the Republic of Tajikistan has ceased to function; however, activities of the sectoral working groups are well coordinated, including through donors and their coordination, hence the risk to this adversely affecting policy reforms is lowered. As stated in Annex, 2, the successful implementation of CSRP was also achieved through selection on a competitive basis of 32 pilot public partnership organizations with over 10 years of experience and many successful projects. These organizations have performed well and have taken on many project tasks. CSRP has also developed close working relationships with local Hukumats, Jamoats and NGOs. Heads of all District Hukumats and Jamoats consider the project has achieved significant results.

80. The financial risk to development outcome is moderate. The financial risk has been greatly reduced by addressing the farmers’ debt problem and the preparation and adoption of a number of legislative and regulatory acts that have created a favorable environment for the operation of cotton DFs. This has given DFs the freedom to make decisions on agricultural activities. In addition, education and training, which have positively affected DF activity in recent years, should help to ensure their sustainability.

81. One area where the risks might be elevated is in activities under the agricultural finance component, specifically under loan repayment (see Aide Memoire, April/May 2012). Although all loans are paid now, the two main PFIs, Agroinvestbank (AIB) and Tojiksodirotbank (TSB) experienced delays in repayment by client ginneries. The reasons for delays in repayment mainly concern delayed cotton fiber sale in anticipation of higher world prices; logistical reasons; and poor financial and procurement management at ginnery level. Ginneries have the right to choose a profit-maximizing sale strategy; however, poor price risk management and high risk aversion of participating ginneries remain a major threat to the sustainability of CSRP’s post-harvest finance component. Ginneries and PFIs need to follow up on recommendations made by the Bank team on concluding forward sale contracts with reliable buyers and exporters so that the ginneries can expect a certain level of their own profitability. It is essential that the PFIs pay more attention to the ability of the ginneries to co-finance seed cotton purchases at the time of

loan review, and monitor repayment by ginneries to ensure overall sustainability of post-harvest financing and sustainability of the PFIs. Under the third component, the TICs will continue their operation, and have also started to recover the operational costs by charging for services to farmers. The PMU has also taken a number of measures to ensure financial sustainability and transition to self-financing of all created TICs (see FPA, p. 71).

82. The environmental risk to development outcome is low. CSRP’s environmental rating was ‘B’. CSRP supported training in agro-chemical use and pest management issues that were identified in the EMP. Further, the project developed Environment Protection Action Plans for ginneries and EIAs for sub-projects, and conducted training for PFIs and potential borrowers, this risk is considered low.

83. The social risk to development outcome is low. The project is socially sustainable as it has built provisions that require transparent pricing for both fiber and by-products—a first step in Tajikistan, where farmers often had little idea of the value of their crop. The freedom to farm has made life better for farmers. It is likely that increasing agricultural productivity and incomes of farming households will improve food security, and the socioeconomic status of the poor and other vulnerable sections of Tajikistan’s rural population.

5. Assessment of Bank and Borrower Performance

5.1 Bank Performance

(a) Bank Performance in Ensuring Quality at Entry

Rating: Satisfactory

84. As discussed in Section 2.1, the project was a rational response to Tajikistan’s cotton debt issue, and the Bank team worked closely with the client to prepare CSRP. The team took into account lessons from experiences in other countries and the CAS, and designed CSRP with measurable outcome indicators that were well-linked to the PDO. Given the complexity of the debt resolution issue, the Bank fielded several missions prior to approval and effectiveness. The Bank also undertook a pilot study to analyze modalities for debt resolution and worked closely with other partners such as the ADB, DFID and SIDA in designing CSRP. This high-risk, high- return approach paid off in the end.

(b) Quality of Supervision

Rating: Satisfactory

85. The Bank was very proactive in supervising CSRP and providing continuous guidance for implementation, including through restructuring. The Bank fielded six supervision missions in total between project approval in May 2007 and June 2008 to support project implementation capacity to deal with rapid changes in project components, and to help the PMU to develop work plans, budgets and come up with a workable action plan to resolve issues. The team worked intensively with the client and the IMF to discuss potential options for resolving the difficult cotton debt issue in the early years of implementation, as mentioned in Sector 2.2. Following

restructuring, supervision efforts focused on the government’s commitment to sector reform and implementation of the Staff Monitored Program and less on the eventual resolution of the debt issue. The team is especially commended for its candid ratings during this period and throughout the project, on progress towards achievement of the PDO, implementation progress (IP) and safeguards. For example, very early in the project (in ISR #3 of March 2009), the PDO is drastically downgraded from ‘S’ to ‘U’ and IP is downgraded from ‘S’ to ‘MU’ with a frank assessment of issues. Managers’ comments are also upfront, with encouragement to the team to review the PDO indicators to better capture CSRP’s re-oriented activities even prior to restructuring. Actual M&E follow up of the project’s outcome indicators was well done, and the team also did well in pursuing to conduct a timely and thorough Final Project Assessment. As mentioned in Section 2.4, supervision of environmental safeguards, procurement and FM was good and the Bank team helped to resolve any issues. Overall, one of the exceptional strengths of CSRP supervision is the very upfront Aide Memoires, and candid ISRs and ratings.

Rating: Satisfactory

86. This reflects the ‘S’ rating for both Quality at Entry and Supervision.

5.2 Borrower Performance

(a) Government Performance

Rating: Moderately Satisfactory

87. Although the government accepted the pathway to reforms, actual reform of the cotton sector was minimal, as detailed above. The cotton debt crisis escalated not only to become a major source of macroeconomic instability, but it also discouraged foreign investment in the cotton sector as international awareness of the government’s default on the cotton debt spread. The Bank fielded frequent missions at the request of the Government, including discussions in Washington DC and in Manila in January 2008 to discuss options in addressing the difficult situation with the cotton debt issue, which was outside the scope of the project. Due to these reasons, CSRP required restructuring and its’ scope and implementation arrangements were adjusted. Overall, the government’s performance until this time is considered unsatisfactory. After restructuring, the government showed commitment to agricultural reforms and pursued the termination of policies that restricted farmer ability to use their land freely, and passed legislation to promote competitive markets in buying and processing cotton. Overall, this created an environment for the markets to function better and encourage investment in the sector that led to its revival, higher productivity and farmer incomes.

(b) Implementing Agency or Agencies Performance

Rating: Satisfactory

88. The PMU underwent a somewhat difficult start-up period, which was considered a usual phenomenon for many newly-established implementing agencies in Tajikistan. Suitable

corrective actions were identified early, during the December 2007 Bank mission for all minor deficiencies in project management including in the areas of procurement and FM in project implementation. The PMU worked closely with the Bank team to successfully complete the preparatory work in order to ensure an early start to project implementation. Jointly, the teams worked to commission the baseline study ahead of the original schedule to permit an earlier- than-expected evaluation of the baseline information in the project and “control” area and establish detailed annual targets. Despite some setbacks that led to the rating for Project Management being downgraded from ‘S’ to ‘MS’ in December 2010, (i.e. resigning of some key staff such as the M&E specialist from the project due to the low salary scale) the PMU managed to get the post-harvest credit lines started as planned and made considerable efforts to monitor its related activities on the ground. Project Management was subsequently upgraded to ‘S’ and maintained as the PMU made significant progress in implementing the Bank Supervision Mission recommendations, especially in establishing the TICs, which had been delayed.

Rating: Moderately Satisfactory

89. This reflects the ‘MS’ rating for Government and the ‘S’ rating for the Implementing Agency performance.

6. Lessons Learned

90. The Bank should not shy away from intensely engaging government and working closely with other partners (such as the ADB and the IMF in the case of CSRP) to resolve difficult issues. In CSRP’s case, the continued dialogue with government, and working together with the ADB and the IMF, the Bank was able to find a very effective solution to the cotton debt issue, which could have escalated further into a much deeper crisis without the Bank’s engagement and without the project.

91. A good Results Framework is critical to good project design and effective implementation. CSRP included a clear Project Development Objective and SMART (specific, measurable, achievable, relevant and time-bound) indicators that reflected the intentions and content of the PDO and could be attributed to project activities. In addition to its’ Results Framework, the project undertook several surveys, including a thorough baseline survey and final assessment that enabled the team to measure the project’s progress and attribute the impact of project activities on beneficiaries.

92. The role of local NGOs in extension activities in a small country like Tajikistan should not be underestimated. CSRP established four Training Information Centers and associated demonstration plots. Lessons learned from these projects include the value of working with community groups to enhance participation and widen benefits; the benefits from working with local NGOs to provide facilitation and training services.

93. Providing market information to all beneficiaries at all levels (in this case the ginneries and farmers) confirm the usefulness of market price information in bringing

competition in the agricultural sector. As part of the Producers’ Support activities, the PMU staff not only faxed daily world market cotton prices to local associations and farms, these prices were also posted at the age to the ginneries. This played a role in farmers obtaining prices close to world market prices for raw cotton sold to ginneries.

7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners

(a) Borrower/implementing agencies (b) Co-financiers (c) Other partners and stakeholders

Annex 1. Project Costs and Financing (a) Project Cost by Component (in USD Million equivalent)

Appraisal After Project Actual/Latest Percentage of Components Estimate (USD Restructuring Estimate (USD Appraisal millions) (USD millions) millions)

Cotton Debt Resolution 2.90 0.00 0.00 0.00 Policy Analysis and Reform 0.70 0.70 0.70 100.00 Cotton Supply Chain Development 9.80 0.00 0.00 0.00 Agriculture Finance and Producer Support 0.00 12.90 12.77 98.00 Project Management 1.60 1.40 1.01 69.00 Total Baseline Cost Physical Contingencies 0.00 0.00 0.00 0.00 Price Contingencies 0.00 0.00 0.00 0.00 Total Project Costs 15.00 15.00 14.48 96.50 Front-end fee PPF 0.00 0.00 0.00 Front-end fee IBRD 0.00 0.00 0.00 Total Financing Required 0.00 0.00 0.00

(b) Financing

Type of Appraisal Actual/Latest Percentage of Source of Funds Co- Estimate Estimate Appraisal financing (USD millions) (USD millions) Borrower 0.00 0.00 0.00 International Development Association (IDA) 15.00 14.48 96.50

Annex 2. Outputs by Component

1. The Project Restructuring Paper (Credit No. 4314 – TJ, P098889) presents the revised Results Framework with Results Indicators for each component and the Target Values of FY12. The following are the outputs and results achieved under each component.

Revised Component 2: Support for Policy Analysis and Reform (Technical Assistance to Government to guide policy reform)

2. The following was adopted to conform with solving the cotton debt issue: the Decree of the President of the Republic of Tajikistan № 663 of 30 May 2009 "On additional measures to support agriculture in the Republic of Tajikistan"; and the Resolution of the Government of the Republic of Tajikistan № 406, July 2, 2009 "On measures for implementation of the Decree of the President of the Republic of Tajikistan on May 30, 2009 № 663 ". On additional measures to support agriculture, the following was adopted: "Indebtedness of business entities of the Republic of Tajikistan, producing cotton, formed before January 1, 2008 from all sources of funding should be resolved through writing off debts, debt discounting, deferral and payment terms installment, as well as issuing long-term government securities.

 The Decree of the President of the Republic of Tajikistan № 663 as of May 30, 2009 "On additional measures to support agriculture in the Republic of Tajikistan";  Resolution of the Government of the Republic of Tajikistan № 406 on July 2, 2009 "On measures for implementation of the Decree of the President of the Republic of Tajikistan № 663, May 30, 2009 "On additional measures to support agriculture in the Republic of Tajikistan;  Resolution of the Government of the Republic of Tajikistan № 586, October 31, 2009 "On approval of the cotton sector development Program in the Republic of Tajikistan for 2010- 2014";  Improvement of regulatory framework to protect the rights of land users;  Simplification of procedures for exporting cotton;  Introduction of universal standard for cotton classification, etc.

3. As a part of the project the following was done upon the recommendations and with the active participation of project consultants:

• Formation of the Agricultural Reforms Secretariat under the Deputy Prime Minister of the Republic of Tajikistan in the number of 2 people; • Formation of 6 (six) sectoral working groups on reformation of the branches/Departments of the Ministries and Agencies • Organization of an international Conference on agricultural reform, which was attended by 300 people, including the more than 100 international organizations; • Preparation and submission of 15 political brief notes to the Government of RT on the issues of reform and development of the various sectors of the agricultural industry; • 6 (six) Foreign Study Tours; • Conduct of travelling training workshops on policy aimed at informing the public about the measures taken to resolve the cotton debts of DF/.

4. The solution of the problem of farmers’ debt to futures companies and the adopted Decree of the Government of the Republic of Tajikistan from July 2, 2009, № 406 "On measures for implementation of the Decree of the President of the Republic of Tajikistan on May 30, 2009 № 663 "On additional measures to support agriculture in the Republic of Tajikistan", prepared with active participation of CSRP Consultants became the key factors preventing the further decline and collapse of the cotton sector, and created a foundation for sustainable development of cotton and the whole agricultural sector in Tajikistan, as the stock of DFs’ debt to futures companies had a negative impact not only for cotton, but also in other sectors of agriculture .

Intermediate Outcomes Indicators

Component 2:

1. Policy Advisor in place, collaborating actively with staff of President’s Office This goal was achieved. The International Policy Advisor was hired and actively and successfully worked with members of the President's Office, members of working group and donors during 3 years. The Advisor was actively involved in policy-making in the agricultural sector, the development of legal and regulatory acts, preparation of policy briefs and other events.

2. Annual analysis of the impact of policy reform and other project activity In the course of the Project implementation there were three annual analyses of the policy reform impact and the effect of other project activities. In accordance with the annual reports, submitted by the International Policy Consultant, three policy reform impact analyses were accomplished. Performance on this indicator is 100%

3. Number of Policy briefs prepared and distributed The target for this indicator was an average of 10 notes/briefs. For three years, the International Policy Consultant has prepared and distributed 15 policy briefs, which were sent to the Government, the Ministries and Departments. (See FPA Section 4.1 on “The reforms, post- harvest financing, training workshops, courses and other activities carried out under the project" for the list of prepared Policy briefs. Performance on this indicator is 150%.

4. Number of Policy workshops and seminars conducted According to this indicator, the target was to conduct 10 seminars on policy and reforms during three years. Ten workshops/seminars were held in different Districts during 2011-2013. The Performance on this indicator is 100%.

Training workshops (seminars) and conferences on agricultural policies undertaken under CSRP:

№ Topic Place and Date of conduct 1 International Conference on the Agricultural Reform Dushanbe, April 15, 2011 2 Training workshop (seminar) on the Agricultural Reform Kurgan-Tube, March 27-28 2012 3 Training workshop (seminar) on the Agricultural Reform Vose District, April 5-6 4 Training workshop (seminar) on the Agricultural Reform Shahrinav District, July 3-5 2012 5 Training workshop (seminar) on the Agricultural Reform Kurgan-Tube, July 10-122012 6 Training workshop (seminar) on the Agricultural Reform Kulob, July 13-15, 2012

7 Training workshop (seminar) on the Agricultural Reform Istaravshan, July 17-19, 2012 8 International Conference on the Agricultural Reform Dushanbe, September 24 2012 9 Training workshop (seminar) on the Agricultural Reform Kurgan-Tube, February 14-15 2013 10 Training workshop (seminar) on the Agricultural Reform Kulob, February 1-22, 2013

Component 5

1. Improved access to finance through the establishment of a revolving credit line for Post-Harvest finance for cotton in selected project area

The first revolving credit line was established in 2011, not in 2009 as provided in the Revised Arrangements for Results Monitoring, as this subcomponent became operational only in 2010. However, due to delays in the repayment of loans by the ginneries, the amount of the revolving fund in 2011- 2012 was slightly less than the credited US$10.4m, and totaled US$9.1m. Considering that to finance the production of cotton and other agricultural products both banks have also used much of their own funds, which are significantly higher than the funds granted by the CSRP, it generally can be stated that this indicator is accomplished at 100%.

2. Number of Public Awareness Programs in Khatlon

The target for this indicator was to conduct six public awareness campaigns in Khatlon region over three years. Five campaigns were carried out by the 19 NGOs during the 6 months in 2009 and 2010; one campaign was held by nine NGOs during 2011-2012; and another one campaign was held by four NGOs during 2012-2013. In total, seven public awareness campaigns were conducted in the Khatlon region, which shows the performance on this indicator as 117%.

3. Number of rural people, including women, benefiting from public awareness programs

15,000 rural people, including women were targeted under this indicator. In compliance with the reports submitted by NGOs and the project accounting records, the actual number of rural residents who benefited from the public awareness program is 6,800, including 2,145 women. The trainings were conducted by 19 NGOs during the period from August 4, 2009 to February 4, 2010. Completion percentage for this indicator is 45%.

4. Number of Trainers trained to implement community outreach and farmer extension programs in project districts

According to this indicator 80 trainers were to be educated for implementation of community outreach programs to enable them to train farmers in the project areas. According to the submitted data, the eight NGOs - "Amon," "Bakht", "Bonuvoni Khatlon", "Bonuvoni fardo", "Mehrangez", "MDRS Khatlon Region", "Nazm" and "Furughi Marifat" in 2011-2012 had trained 80 trainers, indicating a 100% achievement of this target.

5. Number of rural people, including women, benefiting from community outreach programs

The target for this indicator was 13,000. The actual number of rural people, including women who benefited from community outreach programs is 10,120 in 2011-2012. The completion percentage for this indicator is 77%.

6. Number of rural people, including women, benefiting from Farmer Extension programs

The target result for this indicator was 4000. The number of rural residents including women who benefited from the Farmer Extension program was 5251 in 2012-2013. The percentage of achievement is 131%.

5. Under the revised Component 5, the results on the utilization of the CSRP credit line and revolving credit line are presented in Section 3.2 of the ICR’s main text. The final results of the 2011-2012 season cotton post-harvest financing suggests that the component had allowed purchasing 13,400 tons of seed cotton from 2,891 farmers as compared with about 7,000 tons of seed cotton purchased from 1,650 farmers in 2010-2011.

6. Evidence suggests that PFIs have also used CSRP roll-over funds to finance other eligible activities under the project. TSP provided 239 loans for a broad range of activities including cotton production, livestock farming and grain production. The value of disbursed loans raged from US$ 1,523 to 158,088 with the median loan size of US$10,504. The duration of loans ranged from 3 to 36 months. This suggests that some farmers were able to receive mid-term financing in order to purchase agricultural machinery.

7. Financing cotton production remained the primary activity for which farmers have borrowed from TSB. It accounted for 62% of the US$ 4 million portfolio.

8. In addition to achieving the majority of the set indicators under each component, CSRP contributed to the following outputs:

 Over 22,171 people attended 972 training courses and other project events. This has greatly improved their knowledge and skills in the production of cotton and other agricultural products, and in legal and economic issues, which have had a positive impact on the results of their work.  Personnel of the involved NGOs and the PMU have developed and distributed to farmers and other attendees over 193,500 copies of various brochures, leaflets and other printed materials, which have also had a positive impact on the skills of farmers.  The TICs and demonstration plots established under the project have allowed tofill the vacuum in obtaining the necessary practical education for DFs. However, as noted by the leaders of NGOs, to reach more farmers, it would be better to establish demonstration plots in each of the 18 pilot areas, reducing the area of demonstration plots from 50 hectares to 10 hectares in one area and having them running for at least five years.  A system of informing local Hukumats of 18 Districts was established, through which farmers got information on world cotton prices. This helped farmers to sell produced cotton at prices closer to world prices.

 CSRP was successfully implemented also due to the careful selection on a competitive basis of 32 pilot public partnership organizations, which performed well and had creative attitudes. These included, "Bonuvoni Khatlon", "Support and Development Center of Khatlon region”, PO "Source of life", PO "Baht", Association of DFs of Khatlon region, PO "Fidokor", “Public Support Fund for Farmers and Entrepreneurs - biotechnology" and other POs that had more than 10 years of experience and dozens of successful projects.  The project also developed close working relationships with local Hukumats, Jamoat and NGOs, and was highly appreciated by the Heads of all District Hukumats and Jamoats. They consider the project has achieved significant tangible results.

Annex 3. Economic and Financial Analysis4

Background

1. The original CSRP had the project development objective (PDO) to improve the livelihood of cotton farmers and create the conditions for sustainable growth of cotton production in selected, low income areas of Tajikistan, through debt resolution, an improved policy environment, and increased cotton output and profitability. The PAD considered addressing the sector’s issues through (i) eliminating the barriers that prevent competition in input supply and output marketing; (ii) increasing competition for cotton products by establishing a strong alternative buyer in local markets and (iii) post-privatization support through the provision of credit and advisory services to newly privatized family farms. The increase in farm productivity for the period 2007-2011 was anticipated to be the main source of incremental income.

2. On the cost side, the PAD’s economic analysis reflected expected on-farm costs to be partly financed through all four components of the Cotton Supply Chain Development Component. These project costs totaled about US$300/hectare. On the benefit size, it was assumed that 66% of farms in the project area would participate and fully introduce the technological improvements needed within a four-year period.

3. The project was restructured in February 2010 to better respond to constraints and opportunities that were not present at the time of the project design with the elimination of the debt resolution component and replacing the cotton supply chain development component with the agriculture finance and producer support component. The PDO was changed to benefit cotton farmers and create the conditions for sustainable growth of cotton production in low income areas of Tajikistan through an improved policy environment and better access to finance.

4. In line with the revised project operational manual, the participating financial institutions (PFIs) started financing non-cotton agricultural activities in 2012: two years after financing activities in the cotton sector. According to information from the PFIs, they provided about 5.5 million to financing non-cotton agriculture starting 2012 out of USD 10.4 million, financing potatoes, cattle, small ruminants, potato, grain production and other activities.

Approach and Assumptions

5. The financial and economic (FEA) analysis carried at project restructuring was carried out for a notional transaction in order to illustrate anticipated rates of return at each stage of the domestic cotton value chain: seed cotton production (farmer), ginning and cotton fiber trading. It was assumed that incremental income as a result of project activities (“with project scenario”) will be accrued thanks to higher yields and shortened payments as compared with the “without project scenario. The analysis clearly demonstrates the potential value of the on-going reform

4 Prepared by Dmitry Prikhodko, Economist, Investment Centre Division of the Food and Agricultural Organization of the United Nations (FAO), June 2013.

program to farmers. This analysis focused exclusively on farmers’ profitability due to time constraints.

6. The average cotton yields at project restructuring in 2010 were anticipated at 2.2 t/ha (moderate case scenario). The average yields reported by official statistics for Khatlon oblast in 2010-2012 were confirmed at 2.2 t/ha as compared with 1.6 t/ha in 2007-2008.

7. Prior to the project restructuring (2008-2009), all cotton production costs were assumed to be financed by cotton investors (“futurists” or traders who used to sell pre-finance cotton production in order to secure cotton supply). At project completion, farmers already could finance about 30% of total production costs due to better financing available from local commercial banks.

8. The cost of financing was set at 24% per annum in USD denominated loans - the average rate of financing farmers were expected to pay in Tajikistan -- at the time of project implementation.

9. The two commercial banks participating in this project started providing financing to non-cotton agriculture and agribusiness activities in late 2011-early 2012. While it was a much welcomed and encouraged development under CSRP (as it had allowed to untie financing from the cotton sector activities and allowed PFI to better respond to demand from farmers), there was no information on costs and returns for a variety of the newly funded non-cotton activities at project completion. Therefore, the analysis included in this note covered two years of project operation when it had focused purely on the cotton post-harvest financing: 2010-11 and 2011-12 seasons (marketing years).

10. International cotton prices were highly volatile at the time of project implementation and ranged from as low as USD 1135/1MT of cotton lint/fiber in March 2009 to USD 5063/1MT in March 2011 (please refer to Figure 3 in the Annexes). Overall, there was a slight upward trend in nominal cotton prices through the life of the project with an exception of an unprecedented peak of November-June2011. The peak, caused by the floods in Pakistan and other cotton supply disruptions, was rather unusual and was not considered for the purposes of this analysis.

11. According to CSRP M&E system, only 3% of farmers sold their cotton below the 80% threshold of the equivalent international cotton price on sale date. Improved price transparency in the domestic market is also believed to have contributed to higher prices received by farmers in the 2011-2012 marketing year. Despite significantly lower international cotton prices in the 2011-12 marketing year as compared with 2010-11, the average seed cotton price paid to farmers under CSRP actually increased from USD 701 per one ton in 2010-2011 to USD 775 per one ton in 2011-2012 (+11%). This was largely due to increased competition amongst participating ginneries and their anticipation of higher international cotton prices later in the 2011-2012 marketing year. The latter expectations of cotton ginners did not materialize and caused difficulties in loan repayments later.

12. Representative Cotton fiber and seed cotton prices at project start and beginning were used for this analysis as indicated in the table below to remove possible effects of price shocks that occurred at the time of project implementation.

Table 6 Cotton prices before and after the project

Cotton Seed cotton

Pre-project USD 1,830 USD 550 Post-project USD 2,205 USD 620

Source: Cotlook and CSRP PMU

Financial and Economic Analysis

13. The FEA model used for project restructuring was also utilized at project completion with the primary focus on cotton farmers, their cash flow and profitability. The financial model was modified to remove the number of scenarios and use actual costs, yields and returns.

14. At the time of final project evaluation in 2013, 62% of beneficiary farmers identified promptness of payment as a selection criterion as compared 31.4% for ginnery distance/location. As a result of improved financing of cotton gins they can now assure immediate payments to cotton farmers at the end of the project as opposed to significant payment delays prior to the project. The project also introduced the best practices of ginners borrowing for harvest finance from commercial banks. These practices did not exist before as financing along the entire cotton chain was tied to the so-called “futurists” and investors.

15. The figure below illustrates estimated cumulative earnings of a Tajik cotton farmer throughout the cotton production and sale cycle prior to and at the time of project completion. The cumulative balance of earning represents the monthly net expenses and revenues, including the cost of financing, as illustrated in Figure 3 and Figure 4 in annexes to this note.

16. As seen in the figure above, farmers’ net cumulative cash flow improved considerably due to a combination of factors, including increased prices, lower debt and servicing costs, improved payment terms, input availability and other factors before and after the project. Prior to the project, the farmers could expect to receive about US$ 109 per 1 ha achieving positive returns only in March-April of the year following after the harvest. Such late payments did not allow farmers alternating cotton with other field crops, like winter wheat. After the project, the farmers will already achieve the breakeven point by October of the same year with the final estimated net income reaching US$ 274 per ha by November-December of the same year.

17. Financial profitability measured as a net return over cotton production and financing costs (% and US$ per one ton of cotton), increased at project completion compared with the pre- project situation (2008). In particular, the net margin of cotton farmers per hectare increased from US$ 51 to US$ 124, while the rate of return on costs increased from 17% to 26%. The summary of the financial profitability of cotton farmers before and after the project is provided in the table below. (See annexes to this note for a more detailed summary of the financial analysis.)

Figure 2: Cumulative balance of monthly earnings and costs in cotton production and sale in 2008 and at project completion, US$ per hectare

S ource: own calculations

Table 7. Summary of the financial analysis results

Net margin, US$ per ton of seed Return on costs (%) cotton Before At project Before project At project completion project completion (2012- (2008) (2012-13 season) (2008) 13 season) Financial profitability at the farm level 17 26 51 124

Source: own calculations

18. After a sharp decrease of the cotton area in Khatlon oblast from 153,000 ha in 2008 to 101,000 hectares in 2011, it then increased to 128,000 ha in 2012 in response to high prices and profitability (refer to Figure 5 in the Annexes Section).

19. Cotton yields also increased from 1.58 MT/ha in 2008 to 2.21 in 2012 responding to the positive profitability and increased availability of agricultural inputs -- another important element of overall cotton sector recovery.

20. Economic analysis. As Tajikistan imposes a 10% export duty on cotton fiber, we adjusted the financial model to using international cotton prices at farm gate in Tajikistan without the 10% export duty. The economic profitability of cotton production under these conditions is summarized in the table below.

Table 8. Summary of the economic analysis

Economic return on costs (%) Net margin per ton of seed cotton

Before project At project completion (2012-13 Before project At project completion (2008) season) (2008) (2012-13 season) Farmers 23 40 51.3 188.0

Source: own calculations

Fiscal impact

21. The original project design envisaged that the main fiscal impact at project end to stem would from: (i) increased tax revenues from marketing and service activities associated with increased agricultural output, particularly from VAT; (ii) increased ability of farmers to meet their payments for social obligations and utility bills to the public budget; and (iii) in increased output, which would improve domestic food supplies, reduce the need for imports, and increase exports of cotton.

22. According to the information the Government of Tajikistan (GoT) reported to the WTO, the government effectively wrote off US$ 548 million of farm cotton debt in 20095. This debt forgiveness served the purpose of liberating cotton farmers as one of the main pre-condition towards the freedom to farm in Tajikistan. However, this debt forgiveness also represented a loss to the public finances, as the National Bank of Tajikistan had to cover losses.

23. As already mentioned above, the GoT imposes a 10% export tax on cotton. Cotton farmers also pay the fixed agricultural tax and cotton sales are subject to the VAT in domestic sales. The FOB export value of cotton exported in 2008-2010 averaged US$ 136 million with an average export tax revenues alone accounted for US$ 13.6 million per year. However, it was not possible to find reliable information on actual VAT payments in the domestic cotton trade as well as identify other tax revenues from cotton farmers in order to quantify expected timeframe for debt recovery through fiscal measures.

5 World Trade Organization, Document WT/ACC/SPEC/TJK/3/Rev.5 dated 5 October 2012 entitled “Domestic Support and Export Subsidies in the Agricultural Sector - Revision”

Annexes

Figure 3. International Cotton Prices, US$/1 MT

Source: own presentation based on Cotlook Index A

Figure 4. Flow of Cotton Farmer Costs and Revenues without (prior) Project in 2008, US$/ha

Source: own presentation based on the financial model used at project restructuring

Figure 5. Flow of Cotton Farmer Costs and Revenues at Project Completion 2012, US$/ha

Source: own presentation based on the financial model used at project completion

Table 9. Costs and benefits of cotton farmers before and at the time of project completion

US$ per MT of seed cotton US$ per HA Before At project Before At project Change,% Change,% Project completion Project completion Total production cost 650 1040 60% 406.25 472.727273 16% Total Revenues 880 1364 55% 550 620 13% Credit need (principal amount) 736.3 683.5 -7% 460.2 310.7 -32% Cost of financing 121.2 50.4 -58% 75.7 22.9 -70% Gross Margin 230.0 324.0 41% 143.8 147.3 2% Net margin 108.8 273.6 151% 68.0 124.4 83% Return on cost 17% 26% 57% 17% 26% 57% Total cost, including debt 482.0 495.6 3% 482.0 495.6 3% servicing (USD per MT)

Source: calculations based on the financial model

Figure 6. Cotton Areas and Production in Khatlon oblast of Tajikistan in 2006-2012

Source: National Statistics Agency of Tajikistan

Information sources:

24. The following information was used for the purposes of this analysis:

1. Official WB Project Documentation, including Project Restructuring Paper, Integrated Safeguards Datasheet, Project Operational Manual, Subsidiary Loan Agreements and Seed Cotton Financing Guidelines. 2. Daily seed cotton prices paid by the ginneries with benchmarking against international cotton fiber as reported in M&E System of the CSRP. 3. Results of the 2009 CSRP Baseline Survey (dated March 2011) and Tajikistan Cotton Farmer Survey in November‐December 2008: both surveys conducted by Zvi Lerman, World Bank and FAO consultant. 4. Policy Note 2. “Freedom to Farm”: The Behavior of Producers, Ginneries, Investors, and Local Government in the Cotton Sector prepared by Zvi Lerman, April 2011; 5. CSRP PMU: Final Project Assessment Report, March 2013. 6. Official cotton production statistics, 2012, National Statistics Agency of Tajikistan.

Annex 4. Bank Lending and Implementation Support/Supervision Processes

(a) Task Team members

Names Title Unit Lending Awudu Abdulai Consultant ECSSD Elmas Arisoy Manager EASR2 Arcadii Capcelea Senior Environmental Specialist ECSEN Garry N. Christensen Consultant AES Anna Crole-Rees Consultant ECSSD Norpulat Daniyarov Sr Financial Management Specialist ECSO3 Daniel P. Gerber Rural Development Specialist ECSAR Lola Ibragimova Social Development Specialist ECSSO Hannah M. Koilpillai Senior Finance Officer CTRFC Patrick Labaste Sector Leader EASER Mark R. Lundell Sector Manager EASCS Brian Aidan Lynch Consultant ECSSD Marc Peter Sadler Practice Leader SDNVP Thirumangalam V. Sampath Consultant AFTN2 Daphne Sawyerr-Dunn Program Assistant ECSSD Helen Z. Shahriari Sr Social Scientist AFTCS Bekzod Shamsiev Senior Agriculture Economist SASDA Nikolai Soubbotin Senior Counsel LEGAM Asyl Undeland Consultant SASDL Bobojon Yatimov Senior Rural Development Specialist ECSAR

Supervision/ICR Nicolas Ahouissoussi Senior Agriculture Economist/TTL ECSSD Ayse Seda Aroymak Sr Financial Management Specialist ECSO3 Alexander Balakov Senior Procurement Specialist ECSO2 Arcadii Capcelea Senior Environmental Specialist ECSEN Valencia Copeland Program Assistant ECSSD Garry N. Christensen Consultant AES Norpulat Daniyarov Sr Financial Management Specialist ECSO3 Malathi Jayawickrama Senior Operations Officer/Author ICR ECSSD Dilshod Karimova Procurement Analyst ECSO2 Naushad A. Khan Consultant ECSO2 Shodi Nazarov Financial Management Analyst ECSO3 John Otieno Ogallo Sr Financial Management Specialist ECSO3 Marc Peter Sadler Practice Leader SDNVP Ahmet I. Soylemezoglu Consultant EASTS Bobojon Yatimov Senior Rural Development Specialist ECSAR

(b) Staff Time and Cost

Staff Time and Cost (Bank Budget Only) Stage of Project Cycle USD Thousands (including No. of staff weeks travel and consultant costs) Lending FY06 246.16 FY07 438.14 FY08 50.75

Total: 735.05 Supervision/ICR FY06 0.00 FY07 0.00 FY08 282.49 FY09 FY10 FY11 FY12 FY13 Total: 282.49

Annex 5. Beneficiary Survey Results (Not Applicable)

Annex 6. Stakeholder Workshop Report and Results (Not Applicable)

Annex 7. Summary of Borrower's ICR and/or Comments on Draft ICR

Comments were received from the Borrower as follows:

Unofficial translation of feedback/comments from Government

DEPUTY PRIME MINISTER

Registration #13/5-18 September 24, 2013

To: Mrs. Marsha Olive, Country Manager World Bank in Tajikistan

Dear Mrs. Olive,

I would first like to thank you for the opportunity to submit my comments to the report, prepared by the Bank, on completion of Cotton Sector Recovery Project. The Government of Tajikistan is interested in an independent evaluation of the implementation of projects with a view of learning from the experience of projects implementation and scaling up best practices.

The agricultural sector in Tajikistan is perhaps the most difficult and complex sector of the economy that includes a number of vital sub-sectors such as irrigation, land use, local governance, financing, and is an economic sector that provides employment for 64 % of the population of the Republic of Tajikistan. The development of this sector is a priority for the Government, given its contribution to food security and improving the welfare of the population.

Started with adoption of # 406 Resolution on “Additional measures to support the agricultural sector in the Republic of Tajikistan” by the Government of Tajikistan, Government is making great efforts to promote reforms in all directions that include issues of farming, land use, irrigation, agricultural management, financing and social security in rural areas. Cotton Sector Recovery Project was developed and implemented in a much needed time when the Government of the Republic of Tajikistan started to introduce essential and necessary reforms aimed at changing the policies in the agricultural sector. This Project, developed in close collaboration with the World Bank, was designed to assist and support the achievement of cotton sector recovery goals, which have been identified as pre-condition for sustainable growth. The Government and the World Bank team agreed during the planning of the project that it is necessary to pay special attention to the reforms of the agricultural sector , and made "cotton debt resolution" and "development of a competitive production and sustainable growth" as priorities of the sector. Writing off cotton farms’ debts and the provision of “freedom to farms” (Resolution № 111) gave the main impulse to the beginning of diversification in agriculture. The project provided its support in promoting reforms through the recruitment of international consultants, who worked in

direct cooperation with the Government of the Republic of Tajikistan in order to develop the policies. The main achievements were the following: amendments were made in several laws, including the Law on “Dehqan farms (DF)”, reforms in agriculture, as well as the restructuring of the Ministry of Agriculture, analytical papers, conferences on agricultural reform, study tours, seminars on policy and other measures to better inform farmers about their rights for land and land use.

In addition, one of the achievements of the project was the provision and implementation of alternative financing mechanism that was not in place at the very beginning, after the mechanism of futures funds that didn’t prove to be effective was canceled. Accumulated, while using futures contracts, debts hindered the implementation of planned government reforms in the agricultural sector, and had a direct negative impact on the development of the cotton sector.

In the framework of the project the credit line was established and implemented through local commercial banks that enabled them, after the actual decline of the cotton sector, to continue lending in the agricultural sector based on financial resources, received from the World Bank. Concessional loans, provided to 5 cotton processing enterprises in 2010, 11 ginnery enterprises in 2011, and 2 ginnery enterprises in 2012, allowed banks to obtain economic benefits, to make payments on time, and to establish trust-based-relations with farmers, involved in cotton production. This lending scheme was also subsequently expanded to include other activities for financing in agriculture and to provide post-harvest financing. Improving an access to financing is one of the priorities in the agricultural sector and requires a significant amount of investments. Cotton sector recovery project has made a significant contribution to the resolution of this issue and provided the necessary support to overcome the crisis in the cotton sector.

It is also necessary to note the role of the project in enhancing the capacity of local authorities, as well as the contribution of the project in supporting the development of farming by providing training courses and specific trainings at the field. Centers for the dissemination of information that were set up in some project areas, as well as the training courses for farmers also had a positive impact on the implementation of the above reforms in the sector. Activities on dissemination of information and trainings, organized for farmers and despite their small scale, can serve as a model for developing the capacity of farmers, because of its timeliness and relevance of proper training of specialists for small and medium-sized farms, which were formed during the restructuring of large collective farms.

The project has achieved significant results, taking into account the adjustments that have been made in the design in the course of its implementation, through close cooperation with the World Bank, making timely decisions, implementing measures and carrying out monitoring. Unfortunately, the project failed to establish a large-scale mechanism for post- project sustainability and maintaining the obtained results, as the sector is in need of comprehensive measures that require significant investment. Scaling up of projects such as cotton sector recovery project will accelerate the growth of the agricultural sector of the country and solve priority problems in its development. This project has brought significant

results for farmers at the local level and the banking system and for implementation of reforms in the agricultural sector. We agree with the evaluation of the project, given by the World Bank, and we are grateful for assistance, rendered for the development of the agricultural sector as a whole.

Deputy Prime Minister Republic of Tajikistan Alimardon. M

Annex 8. Comments of Co-financiers and Other Partners/Stakeholders

Annex 9. List of Supporting Documents

CSRP, Project Appraisal Document, Report No. 39494-TJ, May 31, 2007. CSRP, Project Information Document, Report No. AB2260, February 17, 2010. CSRP, Environmental Assessment and Environmental Management Plan Report, March 19, 2007. CSRP, Minutes of the Quality Enhancement Review Meeting for the TAJIKISTAN: Cotton Sector Recovery and Poverty Reduction Project (P098889), October 2006. CSRP Financing Agreement, Number 4314-TJ, June 29, 2007. CSRP, Amendment to the Financing Agreement, March 11, 2010 CSRP, Implementation Status and Results Report, Numbers 1 to 10, December 2007 – March 2013. CSRP, Aide Memoires of Implementation Support Missions, August 2007 – March 2013 CSRP, Project Restructuring Paper, Report No. 49780-TJ, August 31, 2009 CSRP, Monthly Reports, 2007-2013. Financial Sector Mission Aide Memoire, April 1-10, 2013. International Project Implementation Consultant Report, Inception Report, FNT Consultants, February 2010.

Government/other Documents

CSRP, Final Project Assessment, Rahmat Khakulov, International Consultant, March 2013..

Public Organization, ‘The Source of Life’, Report, 2013

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