FILECOPY The DocumentWorld ofBank

FOR OFFICIAL USE ONLY Public Disclosure Authorized Report No. P-2203-BD

REPORT AND RECOMMENDATION

OF THE

Public Disclosure Authorized PRESIDENT

OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE Public Disclosure Authorized PEOPLE'S REPUBLIC OF BANGLADESH

FOR A

JUTE PROJECT

January 17, 1978 Public Disclosure Authorized

This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwisebe disclosedwithout World Bank authorization. CURRENCY EQUIVALENTS

The BangladeshTaka is officiallyvalued at 26.70 to the Pound Sterling. The Pound floats relative to the US Dollar and consequently,the Taka US Dollar rate is subject to change. The rate below has been used through- out this report, except where stated to the contrary.

US$1 Tk 15.0 Tk 1 US$0.067 Tk 1 million = US$67,000

WEIGHTSAND MEASURES

1 acre (ac) 5 0.405 hectares (ha) 1 mile (mi) 1.609 kilometers (km) 1 square mile 640 ac (259 ha) (sq mi) I maund (md) = 82.27 lb. (37.3 kg) 1 metric ton (MT) - 26.8 md 1 katcha bale jute = 4 md I pucca bale jute = 5 md FOR OFFICIAL USE ONLY

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

ADA - Assistant Director of Agriculture ADB - Asian Development Bank BADC - Bangladesh Agricultural Development Corporation BJRI Bangladesh Jute Research Institute BKB - Bangladesh Agriculture Development Bank (Bangladesh Krishi Bank)

DAJ - Directorate of Agriculture (Jute) DEM - Directorate of Agriculture (Extension and Management) HYV - High Yielding Varieties IJCS - Intensive Jute Cultivation Scheme IRDP - Integrated Rural Development Program ISO - Input Supply Officer JEA - Jute Extension Assistant JEO - Jute Extension Officer JFA - Jute Farmers' Association KSS - Village Cooperative Society (Krishi Samabaya Samity) SMS - Subject Matter Specialist TCCA - Thana Central Cooperative Association T&V - Training and Visit (extension system)

GLOSSARY

Block - Smallest unit in the Intensive Jute Cultivation Scheme - 200 or 400 acres jute. District - Administrative unit in Bangladesh. There are 19 Districts in the country. Katcha bale - Jute bale compressed by manually powered press, weighs 4 maunds. Paddy - Unhulled rice. Pucca bale - Jute bale compressed by hydraulic press, weighs 5 maunds. Thana - Administrative unit in Bangladesh. There are 413 thanas in the country. Unit - Intermediate unit in the Intensive Jute Cultivation Scheme - formed by 5 to 10 blocks - about 2,000 acres jute. Zone - Largest unit in the Intensive Jute Cultivation Scheme - formed by 25 units - about 50,000 acres jute.

FISCAL YEAR

July 1 to June 30

This document hasa restricteddistribution and mnaybe used by recipientsonly in the performance l of their official duties._~__ Its contents may not otherwisebe disclosedwithout World Bank authorization.

BANGLADESH

JUTE PROJECT

Development Credit and Project Summary

Borrower: People's Republic of Bangladesh

Amount: US$21 million equivalent

Terms: Standard

Relending Terms : Part of the proceeds of the IDA Credit would be passed on to Sonali Bank at a rate of 3% per annum.

Purpose: The proposed project, through the on-going Intensive Jute Cultivation Scheme (IJCS), is intended to bring about: (a) a higher productivity in jute cultivation; and (b) better marketing for raw jute. The project would, over a five year period, aim at: (a) raising yields and reducing cost of production of jute on 1 million acres by improved extension activities (including provision of housing and transportation for jute extension workers) and credit; (b) establishing a pilot jute marketing scheme aimed at increasing farmers' returns; and (c) improving production and marketing equipment (seed drills, hand hoes, storage sheds, baling equipment, etc.). In addition, technical assistance would be provided through consultants; the project would include overseas training of staff, local training of selected farmers and project evaluation services. Improved marketing practices, in particular through the pilot marketing scheme and ultimately through the establishment of intelligence and price management mechanisms would contribute to stabilizing the supply of jute fiber and goods around a level adequate to meet the requirements of local jute mills and for export at compe- titive prices. The increases in jute yields and reduction in production costs achieved through the project would enable Bangladesh to either: (a) maintain jute produc- tion at present levels and release approximately 400,000 acres for paddy growing or alternatively, (b) use its improved competitive position to capture a larger share of the world market for jute and its substitutes. In practice, the actual situation resulting from the project would presumably be a combination of these two alternatives, - ii -

with some increase in the total jute production and some decrease in the jute acreage in non-IJCS areas. The eco- nomic rate of return is sensitive to the level of jute prices on the world imarket. There is a risk that the project might encourage production of raw jute beyond the level of which it can be sold at economic prices. Parallel efforts, designed to establish effective systems for price management and marketing, are intended to minimize this risk.

Project Costs: Local Foreign Total ---- (US$ million) ----

I. Short-Term Credit 7.03 3.35 10.38

II. Implements 1.23 - 1.23

III. Extension Services 9.43 2.41 11.84

IV. Marketing Infrastructure 0.53 0.20 0.73

V. Technical Assistance 0.18 0.35 0.53

Base Cost Estimate 18.40 6.31 24.71

Physical Contingencies 0.56 0.24 0.80

Price Contingencies 5.69 2.08 7.77

Total Cost (with contingencies) 24.65 8.63 33.28

Financing Plan: Bangladesh Government Sonali Bank IDA Total ------(US$ millions)------

5.82 6.46 21.00 33.28

Disbursements: ------(US$ million)------Bank FY 1978 1979 1980 1981 1982

Annual 0.1 3.4 4.0 6.5 7.0 Cumulative 0.1 3.5 7.5 14.0 21.0

Rate of Return: Above 50%

Appraisal Report: No. 1587-BD, dated D)ecember 29, 1977 INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A JUTE PROJECT

1. I submit the following report and recommendation on a proposed credit to the People's Republic of Bangladesh for the equivalent of US$21 million, on standard IDA terms, to help finance a jute project.

PART I - THE ECONOMY I/

2. A Basic Economic Report on Bangladesh, entitled "Bangladesh: Development in a Rural Economy" (Report No. 455-BD dated September 15, 1974) was distributed to the Executive Directors on October 1, 1974. An economic mission was in the field in November 1976 and its report entitled "Bangladesh: Current Economic Performance and Development Policy Issues" (Report No. 1469-BD, dated May 19, 1977) was distributed on May 23, 1977.

Introduction

3. The Basic Economic Report described the obstacles to development in Bangladesh and outlined a course of action to maximize the development of the country's resources. The high ratio of population to natural re- sources, the slow development of the productive and infrastructural base and the weaknesses of the administrative and institutional framework led the Report to project a growth rate of GDP of between 2% and 3.5% per year in real terms over the five years 1973-78, the variations within that range depending on the appropriateness of the policy framework and on levels of aid.

4. Overall economic progress since independence, however, has been in- adequate. Agriculture output remains insufficient for a population growing at close to 3% a year. Industrial output, heavily dependent on imports, has been affected badly by scarcity of foreign exchange. State enterprises have been hampered by management deficiencies, excessive government controls, shortages and price regulation. Exports have been stagnant and finance less than half of import needs. Bangladesh also has been severely affected by an adverse shift in its terms of trade since 1973. Trade problems are compounded by dependence on annual food imports of 1-2 million tons, even in years of favor- able weather, and by heavy reliance on imported industrial raw materials. Gov- ernment revenue has been insufficient to meet current and development expend- iture needs. Bangladesh has had to depend on large flows of external assist- ance to support its development effort.

1/ Parts I and II of this report are substantially the same as Parts I and II of the President's Report for the Sixth Imports Program Credit (Report No. P-2155-BD), dated November 2, 1977. - 2 -

5. The present Government, in power since November, 1975, rules by martial law. General Zia Rahman, the Army Chief of Staff, serves both as President and Chief Martial Law Adiministrator. The two chiefs of the other defense services serve as Deputy Chief Martial Law Administrators. The three service heads and fifteen civilians form a President's Advisory Council. Each of the members has responsibility for one or more ministries. General Zia Rahman's political program was endorsed by an overwhelming majority in a referendum held in May 1977. This program includes national elections in December 1978 and local elections, at the municipal and district levels, this year: municipal elections have already taken place, while district elections are scheduled for December 1977 (UrnionCouncils were elected in January 1977).

6. The current Government has introduced some economic reforms, such as a reduction of producer and consumer subsidies, a tax on agricultural income, liberalized imports and an improved climate for private investment and private sector participation in domestic and foreign trade. Steps have also been taken to disinvest about 300 industrial enterprises and to grant greater functional autonomy to public corporations. In the financial field, the Bangladesh Gov- ernment (GOB) has continued to pursue prudent monetary and fiscal policies. However, the fundamental problems of the country - namely overpopulation, weak administration, inadequate infrastructure, insufficient foodgrain output and inadequate resources for development - continue to confront Bangladesh.

The Current Economic Situation

7. On July 1, 1975, Bangladesh initiated a stabilization program in conjunction with a standby arrangem,entwith the IMF. Its principal elements consisted of a credit restraint program and elimination of deficit financing, combined with some import liberalization. This was preceded by a devaluation of 58% in May 1975, which subsequenitly,as a result of a link with the Pound Sterling, has led to a cumulative de facto depreciation of 90%. The record so far is that the credit restraint program has been a success: after an estimated rate of inflation of about:80% in 1974, prices declined by 10% in 1975, and price stability has continued to be a major objective in 1976 and 1977. The import licensing program was relaxed during FY76; besides increas- ing allocations to an average of 95%'of entitlements, licenses were renewed on expiry and there is greater fungibility in the use of exchange allocations for selected categories of imports. Improvements in this area continued in ±iY77: import requirements of all public corporations and high priority private sector industries were fully met, the role of the Trading Corporation of Bangladesh was further reduced, and the list of items permitted under the Wage Earners' Scheme for imports by the private sector was enlarged.

8. The economy of Bangladesh was relatively stable in FY77. Population continued to grow at the high rate observed in recent years and the dependence on food imports to meet internal deficits continued. Export earnings showed a modest increase. Adverse weather affected the rice and jute crops, reducing output. However, the impact on prices was mitigated by recourse to stocks. A drawdown of foodgrain stocks, in conjunction with imports, helped to moderate an escalation of foodgrain prices in the first half of 1977. Likewise, jute exports were maintained at about the previous year's level by utilizing jute - 3 - stockpiled from previous years. Monetary and fiscal policies were designed to stimulate production and to moderate the rise in prices. Despite emerging shortages, therefore, the rate of inflation in FY77 was restricted to about 12%. Increased incentives were offered for the export of non-traditional ex- ports and import liberalization was accelerated. Greater opportunities were offered for participation of private enterprise in economic activity. Overal7l economic management continued to consolidate-albeit slowly-the progress that has been evident in recent years.

9. The agricultural sector did quite well in FY76 with overall pro- duction increasing more than 10%. Favorable weather was essentially respon- sible for the good harvests. The output of foodgrains rose to a record level of 13.0 million tons. This was reversed in FY77 when, as a result of cyclones and floods, foodgrain output declined to an estimated 11.8 million tons. The declines were concentrated in the autumn (Aman) and spring (Boro) crops. As a response to the lower harvests domestic rice prices began to rise sharply in the first quarter of 1977, prompting the Government to import about 100,000 tons of foodgrains with its own foreign exchange resources. Since that time, the Government has imported a further 280,000 tons of foodgrains at a cost of US$70 million. While weather continues to be an important element in the determination of harvests in Bangladesh, attention has to be paid to the improvement of agricultural support institutions and input delivery serv- ices as well as marketing systems. The small-scale irrigation program (com- prising low-lift pumps, and shallow and deep tubewells) is a major input in the improvement of farm productivity. The program needs to be designed to ensure greater coverage, efficiency in the maintenance of equipment and punc- tuality in delivery of the service. Procedures for the allocation of fer- tilizer, though much improved, still require simplification. The Government has expressed an intention as part of an approach to a comprehensive food policy, to increase the procurement price for rice and reorganize and improve the marketing, storage, and distribution network. It has also announced that it would increase the price of foodgrains sold through ration shops, change the proportions of ratinned rice and wheat in the ration system in favor of wheat, and ensure greater selectivity in the distribution of rationed food- grains. In order to achieve a greater degree of food security which would help it to carry out these measures in a satisfactory fashion, the Govern- ment has announced that it wishes to increase its foodgrain stock to about I million tons by the end of June 1978, and to have a pipeline of imports of about 500,000 tons, to wiLisLaiid unfoteseen contingencies. The achievement of the target foodgrain stock will depend on the efficiency of the domestic foodgrain procurement program, a satisfactory level of imports and appropriate pricing and distribution policies for rationed foodgrains.

10. The performance of the industrial sector has improved considerably in recent years. Capacity utilization has increased as a result of an im- provement in the supply of raw material and spares, combined with a ration- alization of the retail distribution network. The managements of nationalized enterprises now have greater autonomy with respect to operational matters. Inventory control has also been improved, and there is a closer relationship between input and output prices. The jute industry, which accounts for a significant share of total industrial output, as well as being a dominant foreign exchange earner, still continues to have problems relating to efficiency in production. In FY77, as a result of a shortage of raw jute and buoyant international demand for raw jute, the Jute manufacturing industry had to pay very high prices for raw jute. This exacerbated the problem of profit- ability; the losses of the industry are estimated at Tk 533 million in FY77.

Balance of Payments

11. The impact of the good foodgrain harvests and the policies and measures instituted in FY76 were reflected in Bangladesh's FY77 balance of payments. The restrictive monetary and fiscal policies of FY76 were con- tinued in FY77 and they continued to restrain demand. This, plus reduced requirements for food imports and lower import prices, reduced the value of total imports by 27%. Export earnings showed an increase of 5%. Exports benefitted from a favorable climate for non-traditional exports which, in addition, were stimulated by a package of incentives. New items were added to the list of export products elig:iblefor export performance licenses; the income tax rebate on earnings derived from non-traditional exports was doubled; exporters were qualified for preferential credit and interest rates; and priority was accorded them in the issuance of import licenses for the purchase of raw material and machinery. These incentives contributed sub- stantially to the large expansion, estimated at 36%, in the value of non- jute exports. Consequently, the tratdedeficit is estimated to have declined from US$909 million in FY76 to US$537 million in FY77. The current account deficit in the balance of payments is estimated to total US$512 million. However, since external aid disbursements in FY77 are estimated at US$572 mil- lion, inclusive of a cash grant of US$50 million, Bangladesh's international reserves are estimated to have risen by US$72 million to US$285 million at the end of June 1977. This would be equivalent in value to about three months anticipated imports in FY78.

12. The balance of payments gap is expected to worsen in FY78 as a result of a marked increase in the trade deficit. Export earnings are expected to maintain the momentum of recent years and increase further to about US$425 million, principally due to a further increase in non-traditional exports. However, the supply of jute is likely to be constrained as a result of a low level of stocks, while the scope for further increases in export prices is limited by competition from synthetic substitutes. The value of imports is projected to rise by US$337 million i(36%)over FY77. This is principally a result of food imports of 1.6 - 1.7 million tons (double that of the previous year) and an expansion in imports of raw material and other consumer goods. In FY77, certain basic stocks were run down, especially of such items as cotton, rock phosphate, cement clinker, pulp, soda ash, steel scrap, and crude soya bean oil. Increased capac:ity utilization in industry and the drive to contain inflation will necessitate larger imports in FY78. The Government has also accelerated the liberalization of imports: essential industries are now permitted to import raw materials and spares to meet 8 to 11 months of requirements. Further, for the first time, items such as cotton yarn, coconut oil, tires and tubes, and dyes and chemicals can be imported under open general license. The amortization of external debt will also rise in FY78. Bangladesh will have to repay approximately US$30 million to the IMF over and above its normal debt service. Hence, despite a 45% increase to US$816 million in anticipated disbursements from external aid, Bangladesh expects to reduce its international reserves by about US$32 million in FY78. - 5 -

BALANCE OF PAYMENTS ESTIMATES (million US$)

FY75 FY76 FY77 FY78 (Actual) (Actual) (Actual) (Projected)

Merchandise Imports (c.i.f.) -1,402 -1,290 /b -937 -1,274 Merchandize Exports (f.o.b.) 358 381 400 425 Trade Balance -1,044 -909 -537 -849 Other Current Account 7 1 25 15 Current Account Balance -1,307 -908 -512 -834 Other Receipts and Payments (net) 272 /a 122 46 50 Amortization: Long-term debt -25 -78 -21 /c -13 Short term capital movements (net) (including IMF) 62 -13 /d -51 Changes in Reserves (-=increase) -196 50 -72 32 External Capital Disbursements 924 814 572 816 of which: Food 389 307 128 286 Commodity 386 378 220 300 Project 145 129 174 230 Cash 4 - 50 -

/a Includes US$260 million of outstanding letters of credit. /b Includes an estimated settlement of US$24 million of outstanding letters of credit carried over from FY75. /c Including repayment of US$6 million on USSR Wheat Account. jd Including refund of a deposit of US$21 million made by the Kuwait Central Bank.

Source: Bangladesh Planning Commission and Bank estimates.

The Medium Term Development Focus

13. In its memorandum for the July 1977 Bangladesh Aid Group Meeting, GOB spelled out the focus of its development strategy for the medium-term. Agriculture continues to be the cornerstone of its program. Within agri- culture, the emphasis will be on an intensified Rural DevelopmeiaL Strategy which seeks "growth with equity" in the distribution of benefits. Strong efforts are being made to include many of the landless and unemployed in works related to the building of rural infrastructure. Efforts are being made to expand the acreage of high yielding varieties of seed, to intensify "Food for Work" programs, to step up agricultural input programs and to improve the efficiency and capability of agricultural support institutions. An intensive production program to increase output by 500,000 tons has been launched in connection with the forthcoming Aman crop and programs to increase the output of pulses, oilseeds, tobacco, sugarcane and tea-are being planned. It is too early to say to what extent the Government's intentions will be translated into realistic programs of action, but they represent an essential recognition of priorities. 14. In the industrialsector, capacity utilizationhas improved in a number of industries and the supply of raw materials and spares has improved. The Government has started to reorganize public enterprises, which account for a major share of industrial output, in order to improve management and labor productivity through, among other measures, providing them with more autonomy in matters such as staffing.

15. The weak administrative framework, the frequent overlapping of functions, and insufficient decentralization of authority have been important reasons for delays in the execution of projects. The Government has indicated its intention to remedy these defects and has taken positive steps to reduce administrative bottlenecks impeding project execution. Discussions are under- way with the Government concerning provision of technical assistance (with IDA funding) to the Planning Commission in the fields of overall planning and project preparation. Project preparation and implementation cells are being set up in Ministries and Public Sector organizations to identify, develop, and monitor projects. A study to determine measures to strengthen the capa- bilities of the Ministry of Agriculture and the Bangladesh Agricultural Development Corporation is under way, with assistance from IDA.

16. Despite a substantial fiscal effort in recent years, Bangladesh continues to depend heavily on foreign assistance, to finance the bulk of its development expenditures. The Government has indicated its intention to reduce this dependence and to imiproveits efforts to mobilize domestic resources. In FY77, total revenue is estimated to have increasedby 11%, about twice the projected rate of growth of GDP. Some new taxes and reduc- tions in subsidies have been introduced: (a) a tax on urban non-agricultural land and a tax on agricultural land holdings in excess of 8.4 acres; (b) a water charge levied at 3% of the gross increased benefit accruing to bene- ficiaries of the Ganges-Kobadak, North Bengal Deep Tubewell, and Dacca- Narayanganj-Demra Projects; and (c) a 20% increase in the price of fertilizer.

17. Population planning is being given high priority and is an integral part of the Government's economic growth strategy. The Government, with the assistance of IDA and other donors, has developed a program which emphasizes a multisectoral approach including motivation, communication, and education. This involves a major effort in training medical and para-medical personnel, in co-ordinating several agencies and in devising programs for research and evaluation.

18. The policies and measures initiated by the Government represent a good start. Yet they are no more than a beginning in tackling the major problems of expanding the output of foodgrains, increasing domestic resource mobilization, promoting exports and improving administration. Successful implementation of the measures already initiated and formulation of additional measures are necessary in FY78. - 7

PART II - BANK GROUP OPERATIONS IN BANGLkDESH

19. Bangladesh became a member of the Bank and 11)A in Augitst 1972. Initially, Bank Group operations in Bangladesh concennrrl-ed on rpartivation of IDA credits for uncompleted projects financed under credits to Pakistan before the independence of Bangladesh. Eleven such credits in an aggregate amount of US$148.55 million (including US$44.1 milliorn for the repayment of amounts that had been disbursed under the corresponding previous credits to Pakistan, and net of cancellations) were made to BangladcGh. In addition. as of November 30, 1977. 22 new credits, excluding the consolidation credit of US$31 million referred to in paragranh 20. have bef,ade totalling US$674.3 million. Of these US$425.0 million have beernfLo Lf-ve program credits. The project credits have emphasized agricuilt"rA.levei.pii,. 1 7 also included amounts for population, telecnmuni_tn transport and industry. On June 18, 1976 Bangladesh became the 105th member of IFC. IFC is currently considering several possible proiects and a request fron the Government to provide technical assistance in developii-, a capital ruarket.

20. Agreement has been reached between the- v ,r-.t-tand most of the bilateral and multilateral donors concerning the assutmption by Bangladesh of portions of the debt contracted by Pakistan before Bangladesh became indepen- dent. This will lead to some increase in debt service from the levels now prevailing. Currently, the debt service tatio is abur 1L%. A1ill_ it is not expected to exceed 20% over the next several years, iL nay do so by the Lid 1980s unless careful debt management policies are pursued and aid provided on appropriately concessional terms. With respect to the Bank Group, Bangladesh has agreed to accept liability for certain debt for projects visibly located in Bangladesh and completed before independence. A consol- idation loan of about US$54.9 million and a consolidation credit of about US$31.0 million were signed on February 14, 1975. The Banlk Group's Rhare of Bangladesh's outstanding external debt is not expected to rise significantly over the next few years from the present level of about 22~'.

21. Annex II contains a summary statement of IDA credits and the Bank loan made to Bangladesh as of November 30, 1977 and notes on the execution of ongoing projects. Present disbursement performance unlder the program credits is satisfactory. In contrast, disbursements uindernroiecr credits nave lagged far behind expectations. Reasons for this include d_Lays in the release of local funds, clearance of contracts, employment of consultants and appointment of needed staff. The Government has taken steps aimed at eliminating the most pressing of the bottlenecks and it is hoped that this will lead to accelerated project implementation. The release of local funds for projects to semi- autonomous government agencies now requires one application per year instead of the previous requirement for quarterly applications. The approval of the President is no longer required for contracts; the ceiling for contracts which can be approved directly by the proiect implementing qpencies has been raised from Taka 700,000 to Taka 10 million. Similarly, the requirement that the President approve all consultants' contracts has been waived; this responsi- bility now devolves upon the ministries responsible for the project agencies concerned. Finally, the authorization of the appointment of staff is being made automatic in the case of approved projects.

22. The IDA project lending program increasingly has concentrated on the rural sector, and specifically on food production. The Ashuganj Fertilizer, Barisal Irrigation, Karnafuli Irrigation, Rural Development, Agricultural and Rural Training, Muhuri Irrigation, Shallow Tubewells and Extension and Research Projects as well as the proposed project, all fit into this strategy. Other priority projects at an advanced stage of preparation include a foodgrain storage project. While development of the rural sector must have top priority, the growth of other sectors cannot be neglected. Particular emphasis should be placed upon projects which provide infrastructure for the rural sector, which process or provide outlets for its products, or which reduce the strain on Bangladesh's foreign exchange resources. Finally, emphasis must be placed upon improving Bangladesh's project preparation and implementation capability. Given its low per capita income, Bangladesh is heavily dependent on foreign assistance to help finance its investment requirements. In view of Bangladesh's difficult foreign exchange position, IDA credits cover all foreign exchange costs. Taking into account the level of financing expected to be available from other external lenders, and in order to direct IDA lending to those sec- tors (such as agricultural and rural development) where the percentage of foreign exchange costs is relatively low, the financing of local currency expenditures is also justified.

PART III - THE AGRICULTURAL SECTOR

23. Agriculture dominates the economy. About 90% of the population lives in rural areas mostly dependent on agriculture. The sector accounts for 55% of GNP, 75% of all employment an,dover 80% of all exports. In recent years, the sector has been unable to feed the rapidly increasing population, expand export earnings significantly and provide adequate employment to the largely unskilled and illiterate labor force.

24. Practically all the cultivable area of 22.5 million acres is already under cultivation and future production gains will require more intensive land use and higher yields. Total cropped area was 30.1 million acres in 1974/75, a cropping intensity of 134%. Rice, the most important food crop, covered 24.2 million acres and jute, the most important cash crop, 1.4 million acres.

25. While soils are fertile ancdtemperatures allow year round cropping, agricultural development is constrained by serious natural difficulties. The country is dominated by the delta of the greatest system of rivers in the world which, together with monsoon rains (75% of total precipitation falls in three to four months), cause widespread flooding during part of the year. IThilc 5.5 million acres are flooded annually, only about 2.5 million acres are irri- gated during the dry season from November to May. The rivers make transport difficult, and facilities for moving farm produce and inputs are inadequate and expensive. In addition, cyclone disasters are frequent. Perhaps even - 9 - more restrictive are socio-economicfactors. Some 30% of village dwellers are landless. Among farmers who own land about 50% cultivate 2.5 acres or less, fragmented into four or five plots. Even large farmers are small by world standards.

26. Generally, Bangladesh farmers are hardworking and receptive to proven improved farming practices. However, their efforts are often frus- trated by inadequate agriculturalresearch and advice, and inadequate supplies of inputs and credit. The Intensive Jute Cultivation Scheme (IJCS) developed by the Ministry of Agriculture has shown encouragingsuccess in increasing yields by delivering correct advice, credit and inDuts to jute farmers. It therefore forms the basis for the proposed project.

Jute Production Trends

27. Jute has been an internationallytraded commodity for more than 180 years. Jute is mainly used for packaging, carpet backing, ropes and wall hangings. However, demand, which expanded steadily until the mid 1960's, has declined since then, due to changes in packaging technology and competition from synthetic substitutes. More recently, jute exports suffered from the recession in the industrializedworld. World production of jute expanded from the mid-1950's to the mid-1960's at a rate of over 4% per year, but with marked yearly fluctuations. Since that time, world jute production has tended to stagnate,although it has continued to fluctuate widely from year to year. Keen competition for cultivable land for food crops has kept the acreage under jute from expanding significantlyin the two largest producing countries - India and Bangladesh; that situation is unlikely to change in the foreseeable future. At the same time, jute yields in India and Bangladesh have remained essentiallyunchanged over a long period of time.

28. Bangladesh'sshare of the world jute market represents about 75% for raw jute and 45% for jute goods. Jute plays a crucial part in the Bangladesh economy. Almost half of Bangladesh'sfarmers grow jute. Jute pro- vides about 80% of export revenue and is the raw material for the most import- ant industry. Bangladesh'sability to compete in the world fiber market is affected seriouslyby low levels of productivityof land under jute and by year to year fluctuationsin production that result from variations in the jute/paddy price relationshipand changing weather conditions. Moreover, because the productivityof jute cultivationhas been low and the marketing system weak, jute mills have been able to buy raw jute only at relativelyhigh prices which have affected their ability to competewith synthetic products. This has been a major cause for the losses sustained by the jute mills.

29. There is a strong case for trying to eliminate these weaknesses, in particularby concentratingefforts on improvingproductivity of jute cultivationand marketing of raw jute. Measures are also needed to improve the efficiencyof jute manufacturing;steps for improving-jutemanufacture have been taken under the Fourth, Fifth and Sixth Imports Program Credits (Credits 591-BD, 676-BD and 752-BD). - 10 -

Jute Production

30. The climate and most of the soils of Bangladesh are particularly suitable for jute production. Ample water supplies for growth and for retting give the country an advantage over others in the quality of its jute. Varie- ties of both Capsularis and Olitorius species are grown. The former resistL flooding and constitutes about 60%-70% of the crop. On average, a total of about 1.7 million acres is under jute. About 0.5 million acres of lo'vland is sown to jute every year because other crops are not competitive there. Another 0.5 million acres come under jutc as part of the pattern of crop rotation. Beyond this base of I million acres, the acreage planted to jute fluctuates according to the jute/rices price relatinnship.

31. Jute areas are grouped into three regions: the Jat, Northern and District (see map). The heaviest jut'e producing adlinistrative districts are Mymensingh (Jat), Rangpur (Northern) and Faridpur (District). Because of better soil and plentiful retting facilities, jute in the Jat area gives higher yields and is of higher qualit:y than jute grown in other areas. The proposed project would concentrate oni expanding improved jute cultivation in the Jat areas and in Rangpur and Fariidpur districts which together contain about three fourths of the total jute acreage. Because of a higher proportion of seasonally flooded and water logged land, about 80% of the jute in the Jat and Northern areas is Capsularis, whereas it comprises only 40% of the total in the District with a higher proportion of well drainsd soils. In parts of the Northern and District areas retting water is scarce and this factor depresses fiber quality. In addition, the Northern area lacks storage and baling facilities and is remote from the jute manufacturing and fiber ex- porting centers, so that jute farmers there have greater difficulties with jute marketing than in other areas. The pilot marketing component of the proposed project would therefore pay particular attention to this area.

32. Since most farmers have continued to use traditional methods for jute production, yields have stagnated for decades at about 3 bales per acre. Yields up to 6 bales per acre have however been obtained by farmers who have adopted Bangladesh Jute Research Institute (BJRI) recommendations.

Intensive Jute Cultivation Scheme (IJCS)

33. This scheme startcd to ftmcticn in 19J73 and by. 1971 covered about 0.3 million acres. It is executed by the Directorate of Agriculture (Jute) (DAJ) of the Ministry of Agriculture which arranges credit and inputs for participants and teaches them improved practices including: (a) use of good seed of recommended varieties; (b) seed dressing to prevent plant disease; (c) line sowing and improved weeding methods; (d) correct sowing and harvest- ing times; (e) correct fertilizer use; and (f) plant protection mainly against insect pests. The IJCS extension service is separate from the general exten- sion service, which is concerned with all crops other than jute and also comes under the Ministry of Agriculture. The IJCS extension service has been using, with suitable adjustments to meet the particular requirements of the crop, the Training and Visit (T & V) extension system, a system which has been implemented successfully in several other countries and which has recently been adopted by the general extension service in Bangladesh. The T & V system - 11 - relies on regular visits to farmers by field extension agents, close super- vision and control at all levels and regular in-service training.

34. In 1976, IJCS was organized into nine zones (each headed by an Assistant Director of Agriculture-ADA),which in turn are subdivided into 150 units of about 2,000 acres (each supervised by a Jute Extension Officer-JEO), and 1,500 jute blocks of 200 acres (each with a Jute Extension Assistant-JEA). Farmers are organized into Jute Farmers' Associations (JFAs), each coinciding with a block, to provide a focus for extension and to facilitate the distri- bution of inputs and credit by DAJ. JFAs have formed committees at unit, zonal and national level to exchange experience and to discuss problems. Only JFA members can participate in the IJCS.

35. The combination of concentrated extension services and effective distribution of inputs and credit through JFAs has been successful. A Gov- ernment evaluation, confirmed by a sampre survey in which the Bank assisted, showed that jute yields of participants in 1975 averaged 4.5 bales per acre compared to 2.9 bales outside the scheme, whereas net returns per acre were estimated at Tk 765 and Tk 330 respectively. The National Economic Council of Bangladesh approved the scheme in 1976, thus establishing high priority for funding IJCS.

36. Implementationtargets have not been achieved. As'against the goal of covering 0.7 million acres by 1976, only 0.3 million acres were in fact covered. Inadequate finance and lack of personnel have been the main con- straints. The situation has improved recently and there is now adequate staff for the 0.5 million acres that IJCS is presently estimated to cover. Some major handicaps remain. JEAs lack accommodation and transport, and farm im- plements are not available in sufficient quantity. Extension officers are not as effective as they could be because they have to spend considerabletime on administrative tasks and lack technical back-up experts. Finally, for expan- sion on a larger scale, the credit program needs strengthening. The proposed project would address these deficiencies.

Research

37. The Bangladesh Jute Research Institute (BJRI) under the Ministry of Jute is organized into three Directorates -- Agricultural Research, Technology Research and Seed Multiplication. The Agricultural Research Directorate,with a staff of 40 scientists, carries out plant breeding and research into culti- vation practices, plant protection and retting. There have been few advances since a package of improved practices was identified over ten years ago. Work has been handicapped by lack of land at BJRI but a new main research farm is now under development. The Asian Development Bank (ADB), through the Jute Seed Project, and the UNDP, through the related Jute Seed Research and Produc- tion Project, are helping to finance development of research farms, equipment, transport, experts and overseas training. This should help to step up research activities and no additional investment is needed for the time being. BJRI is already providing training for IJCS staff, but linkages between research, extension and farmers is inadequate. The proposed project would seek to strengthen this link. - 12 -

Inputs

38. The Seed Directorate of the BJRI is responsible for production and distribution of certified jute seeds. Its present annual capacity is about 750 tons of seed, enough for about 200,000 acres under jute. The entire supply is reserved for IJCS. Seed quality is satisfactory, but because seed pro- cessing facilities are inadequate, supplies are subject to weather conditions at harvesting time and therefore fluctuate from year to year. In the current season, for instance, supplies have been inadequate. The ongoing ADB Jute Seed Project aims at providing processing facilities and expanding production to 2,000 tons of seed per annum which would be enough to renew all jute seed once every three years. Implementation has been slow to date, but the project is forecast to be in full operation by 1979.

39. The Bangladesh Agricultural Development Corporation (BADC), which also comes under the Ministry of Agriculture, has developed an efficient fertilizer supply system for IJCS. Jute staff inform BADC of the require- ments, which are delivered by a BADC subagent appointed for each jute block. When fertilizers were scarce, BADC gave priority to meeting IJCS requirements. However, at present, fertilizer stocks are plentiful and BADC is expanding its storage facilities, with help from USAID. The fertilizer supply system is considered to be adequate over the next few years to satisfy the needs of the proposed project. For the longer run, IDA is financing a fertilizer mar- keting and distribution study to help BADC to reorganize and strengthen its distribution network and to identify investment requirements to cater for ex- pected increases in fertilizer demand for all crops. If additional facilities are warranted, IDA would be prepared to consider providing finance for them.

40. Pesticides are stocked at thana level by the Directorate of Agri- culture (Extension and Management) of the Ministry of Agriculture and sold to farmers at half the cost. The Government is investigating the possibility of involving the private sector in the pesticide trade as a means of improving formulation and packaging of materials according to farmers' requirements. Such a change would be acceptable to IDA. However, deliberations are at an early stage and the outcome is as yet uncertain. In the meantime, the exist- ing system is serving IJCS farmers adequately.

Credit

41. A recent IDA Agricultural Credit Review mission to Bangladesh pointed out that operations of the two main agricultural credit agencies -- the Bangladesh Cooperative Bank (BJSB) and the Bangladesh Agriculture Devel- opment Bank (BKB) -- are seriously constrained by the large amount of outstand- ing loans in default. IDA, in cooperation with ADB, is providing technical assistance to the Government to help strengthen these two institutions and their operations, as well as make the whole system of agricultural credit more effective.

42. To improve the availability of institutional credit to farmers pend- ing a reform of the whole system, the Government has asked commercial banks, which are owned by Government, to provide agricultural credit. Sonali Bank, - 13 - the largest commercial bank, has taken the lead in this field. As part of its agricultural credit operations, Sonali Bank is, against Government guarantee, already providing inputs credit to IJCS (amounting to Tk 4.7 million in 1976) by lending to DAJ, which onlends to farmers. Loans are for six months and recovery in 1976 was 90%. Loans are only made to JFA members and credit dis- cipline is imposed by the provision that no new credit can be obtained by members of any JFA for which the repayment rate falls below 75%.

43. With its strong deposit base, large and expanding branch network and experience in agricultural lending, Sonali Bank would be well qualified to meet all IJCS credit requirements as is envisaged under the proposed project. The Sonali Bank's management is keenly interested in expanding assistance of this type to smallholders and is prepared to extend US$6.5 million equivalent of its own funds as credit to IJCS.

44. In another move, the Government has recently decided that all insti- tutional credit for agricultural development, both short and medium term, carry interest at about 12%. This decision brings to an end the wide disparities in interest rates that existed previously between various agricultural programs that were causing considerable difficulty to those institutions charging inte- rest at higher rates and the farmers served by them. The current outlook for inflation in Bangladesh suggests that, at the nominal level proposed, interest in real terms would be positive. The review of the agricultural credit system, which has just been initiated (with assistance from IDA and ADB - paragraph 41), will examine what it costs the institutions engaged in agricultural credit to make such credit available and recommend what arrangements should be made to ensure that such costs are adequately covered.

World Market Prospects

45. With 85% of Bangladesh jute production exported in roughly equal quantities of fiber and manufactured goods, the share Bangladesh obtains of the world market for jute and similar fibers essentially determines how much jute the country should grow. Assuming continuing technology changes, competition from synthetics, and unchanged jute/synthetics price relation- ships and supply conditions, world jute consumption is projected to grow very slowly up to 1985. This overall projection is the combined result of forecasts of substantial growth in consumption in producing countries and of some decline in the volume traded internationally.

46. Short term export prospects for Bangladesh remain reasonably favor- able. In the longer term, however, the size of the jute market will depend in large measure, first, on Bangladesh's ability to stabilize the supply of raw jute - thus avoiding the recurrent shortages, and consequent sharp price increases that have hurt jute in its competition with synthetics - and to reduce the cost of production through increases in productivity; and, second, on the success of research and development efforts to find new uses for tra- ditional products as well as new uses for jute. Without taking account of the beneficial effects of improvements in these directions, Bangladesh's share of the market for the 1980's has been projected by the Bank, at 0.5 million MT - 14 -

fiber and 0.5 million MT goods, equivalent to about 5.5 million bales. With about 0.5 million bales required for domestic use, total jute production of about 6 million bales would be needed to meet market demand. At this level of production, in 1985, Bangladesh -juteexports would fetch an estimated price of US$344 per ton of raw jute (in 1977 constant dollars). With an increase in productivity there are opportunities for Bangladesh for reducing the cur- rent acreage under jute. With 1 million acres under the IJCS, 6 million bales could be produced on an area roughly 0.4 million acres less than that currently under jute. It is not possible now to say how the acreage potentially avail- able for other uses will most economically be employed. The proposed project would lower jute production costs by about 23% in financial terms and by about 31% in economic terms. Tentative analysis conducted by the Bank indicates that by lowering the export price by 10%, which would be possible with the lower farm production costs, Bangladesh may be able to expand exports by up to 20% to an equivalent of 6.6 million bales. Thus, if the international market develops as now forecast, it may well be desirable on economic grounds for at least part of the potential surplus in acreage now under jute to con- tinue to produce jute. Alternatively, the supply situation for rice, domes- tically and internationally, may be such as to make it more economic for this acreage to be transferred to paddy cultivation. In any event, the fact that the supply of cultivable land in Bangladesh is so limited will ensure that any land available for release from jute will be used productively.

Domestic Jute Marketing

47. In order to strengthen the competitiveness of jute in the inter- national fiber market, domestic marketing, in particular, requires attention. Domestic marketing involves farmers, a variety of jute traders, jute mills and Government corporations. Most farmers sell small, ungraded lots of jute at village markets to village middlemen. The product may change hands a number of times, as it is assembled into larger lots before it reaches large traders or Government corporations in secondary markets. The Government declares a minimum farmgate price, the present level of which is adequate as an incen- tive to jute growers. However, the Government has been unable to ensure that farmers receive no less than the minimum price. Government jute corporations under the Ministry of Jute are meant to be active at all stages of marketing. By purchasing from farmers, they are supposed to ensure that the farmer receives at least the minimum price. However, the corporations have too few centers (only 280) to reach farmers; in 1975, less than 2% of corporations' purchases were directly from farmers. The corporations have also suffered from severe management and financial problems. In an attempt to solve these, in early 1976, GOB amalgamated four corporations into two. However, problems have persisted, and the corporations are failing in their task of providing effec- tive competition to the private sector. The failure of the Government to enforce the minimum purchase price of raw jute has exacerbated fluctuations in production from year to year. In particular, when there is a heavy crop, most farmers have to sell at lower prices to middlemen; as a consequence, farmers tend to switch acreage from jute to paddy, with the result that the following year the jute crop is short-of existing demand so that prices rise sharply, thus setting in motion another cycle of over- and under-production. - 15 -

48. In addition, there are other weaknesses in the present system of marketing jute in Bangladesh that have the effect of either diminishing the incentives to farmers for economically efficient production or making raw jute more expensive to the end user than it need be. Short weighing and down-grading by middlemen are widespread and often the quality of jute is adulterated by middlemen by adding water and sand so as to increase the weight at sale to the Government corporations or large traders. Also, lute marketing is constrained by inadequate storage and baling facilities in the production areas; movement of large quantities of ungraded and unbaled jute overburdens the limited transportation system and increases the marketing cost. Furthermore, the present pricing system makes only small allowance for grade differences, so that there is little incentive for farmers to improve jute quality.

Jute Marketing and Pricing Mechanism

49. Stabilization of jute supplies, to ensure that production is in line with market requirements, would be a key requirement for the success of IJCS. For this purpose the Government should design an effective jute and paddy pricing mechanism based on supply and demand information, production and marketing costs and the interrelationship of jute and paddy prices. An IDA Foodgrain Price Policy Review Mission has recently examined the requirements for a foodgrain pricing mechanism, and has recommended establishment of a high level interdepartmental Food Policy Commission that would advise the Government on all policy aspects that affect foodgrain production and supplies. Jute price and production policies affect foodgrain supplies and it might be appropriate to have jute also covered by the Commission. The Commission would only be effective if adequate services were established to monitor and analyze farmgate prices and for collecting data of cost and returns on crop production as well as marketing. Alternatively, the Government may prefer to establish a separate but equally high level jute policy commission which could commission and supervise market and cost studies and would advise the Government on domestic and export prices and market opportunities. Such commission would need to collaborate closely with the Food Policy Commission. Besides having regard to the alternative use of land for paddy production, pricing policies for jute should be aimed at maintaining export prices at stable and competi- tive levels vis-a-vis synthetics while maximizing long-run economic benefits through achievement of an economically optimal mix between raw jute and jute goods exports, through prices that, throughout the chain from producers, through traders, to exporters of raw jute and jute mills, are commensurately attractive. The policies should allow for prices to be flexibly adjusted in response to short-run changes in demand and supply conditions without disrupt- ing the long-term objectives. Further, while the policy should be aimed at ensuring adequate and stable supplies of raw jute to mills and for export, it should also provide growers with an adequate return and jute mills with reason- able raw material costs after taking farm-to-mill marketing costs into account. A study of the pricing policies and internal marketing of raw jute and jute goods, and world export markets for the same products, is expected to be undertaken shortly. The aim of this study would be to establish an effective marketing intelligence and price management mechanism for raw jute and jute goods (paragraph 59). - 16 -

PART IV - THE PROJECT

50. In June/July 1975 an IDA mission visited Bangladesh to undertake a crop sector review, which included jute. The mission's main conclusion was that significant increases in agricultural production could be achieved by reorganizing and strengthening the extension services and agricultural research. The proposed project was prepared subsequently by the Government staff with the help of the Bank's Resident Mission in Dacca. The project was appraised in November/December 1976. Negotiations for the proposed Credit took place in Washington, D.C. in October 1977. The Appraisal Report (No. 1587-BD, dated December 29, 1977) on the project is being distributed separately. Attached as Annex III is a supplementary Project Data Sheet. Also attached is a project map (IBRD map 12761).

51. Project Concept. The proposed project is intended to cope with the problems outlined in paragraphs 28-29, 36-37 and 47-48. Thus, the project, through the on-going Intensive Jute Cultivation Scheme (IJCS), is intended to bring about (a) higher productivity in jute cultivation and (b) better marketing for raw jute. Specifically, the project would aim at: (a) raising yields and reducing cost of production of jute on I million acres by improved extension activities and credit; (b) establishing a pilot jute marketing scheme to increase farmers' returns; and (c) improving production and market- ing equipment. Improved marketing practices, in particular through the pilot marketing scheme and ultimately through the establishment of intelligence and price management mechanisms would contribute to stabilizing the supply of jute fiber and goods at a level adequate to meet the requirements of local jute mills and for export at competitive prices. Production on the 1 million acres under the project (which include the 0.5 million acres estimated to be pre- sently under IJCS - paragraph 36) is projected to increase from about 3.7 million bales to about 5 million bales per year, thus providing the bulk of the country's jute supply. To help avoid overproduction of jute, the Govern- ment has provided assurances that, before undertaking any expansion of IJCS beyond 1 million acres, it would ensure that such expansion: (a) is economic- ally justified, on the basis of medium- and long-term world supply and demand prospects for raw jute and jute goods; and (b) would not adversely affect the operation of the proposed project (Section 4.04 of the Development Credit Agreement - DCA).

52. Extension Staff. The project would continue the "Training and Visit" (T&V) system of extension work hitherto successfully organized by JEAs visiting Jute Farmers Association groups on a fixed day once every two weeks. JEAs are supervised by Jute Extension Officers (JEOs) who also tour on a fixed schedule. JEAs would now cover 400 acres each, instead of 200 acres, which would be possible given the back-up support that the project would provide them; thus no additional JEAs, over and above the existing 2,500, would be needed. The extension methods applied for the project would be acceptable to IDA (Section 3.20 of DCA). The project would, over five years, support the additional administrative, technical and extension staff needed to expand IJCS to 1 million acres, and to deal with distribution of equipment, credit, agricultural inputs and field research and demonstrations. The project - 17 - would emphasize the expansion of middle level IJCS personnel required to implement the T&V extension system. The incremental IJCS staff would include: 9 senior administrative and technical staff for headquarters, 11 Assistant Directors of Agriculture (ADA), each with a deputy ADA at the zonal level, and 250 JEOs and support staff. In addition, to relieve extension staff of administrative burdens, 500 Input Supply Officers (ISOs) would be employed to deal with distribution of equipment, credit and inputs. Also, 40 Subject Matter Specialists (SMSs) would be appointed, two to each zone (a plant protection specialist and an agronomy/extension specialist), to provide technical back-up to other field staff, conduct field research and demon- strations and participate in training of JEOs and JEAs.

53. Housing, Offices and Transport. The ability of Jute Extension Assistants (JEAs) to serve jute farmers adequately is impeded by lack of housing in the villages in the project area and inadequate transport facil- ities. The project, therefore, includes construction of 2,500 houses to enable extension workers to live in the area of their extension responsi- bility, and vehicles, motorcycles and bicycles to provide adequate mobility to field extension workers and supervising staff. Each house would include a small office/store as well as a meeting place where the JEA would meet groups of farmers. Assurances have been obtained from GOB that these houses would be built in accordance with construction standards acceptable to IDA (Section 3.07 of DCA). A local consulting firm would be employed to design these houses, assist the Government with the preparation and evaluation of tenders for materials and help supervise construction. The consulting firm would also help refine DAJ's basic design for the storage sheds and assist DAJ in supervising the construction of these sheds. This firm, with quali- fications and experience acceptable to IDA, would be hired by April 1, 1978 (Section 3.02 of DCA). The Government has agreed to provide adequate funds for the maintenance of the JEA houses (Section 4.02 of DCA). In addition, 250 sets of office furniture for the JEO offices, including typewriters and calculators, would be purchased. The motor vehicles would be departmentally owned, but motorcycles and bicycles would be purchased by the staff on credit. Since the bicycles and motorcycles would be used for official work and to provide enough incentives to DAJ staff to purchase these vehicles, the Govern- ment has agreed to provide interest free credit for their financing. Assurances have been obtained that the terms and conditions of this credit program would be acceptable to IDA (Section 3.12 of DCA). In addition, assurances have been obtained from the Government that appropriate travel and daily allowances would be provided by the Government to DAJ staff in the project area (Section 4.05 of DCA).

54. Demonstration and Field Research Materials and Equipment. The project would provide funds for inputs for at least one field demonstration or field trial per jute block each year. The demonstrations and trials would be designed by SMSs in close collaboration with BJRI staff; coordination of the jute research program at the national level would be ensured by the Central Coordination Committee (paragraph 67). Tile project would also provide extension staff with teaching materials such as charts, leaflets, posters, projectors and slides. -- 18 -

55. Production Credit. Credit:would be provided to enable farmers to purchase sprayers, fertilizer, pestiLcides and other agricultural inputs and to hire labor for weeding and harvesting. The Government would onlend US$7.8 million from the Credit proceeds to the Sonali Bank at a rate of interest of 3% per annum. Together with US$6.5 million of its own resources, Sonali Bank would have US$14.3 million equivalent for lending to jute farmers for production purposes. The bulk of the funds would be lent through DAJ, the present channel. In 10 thanas covered by the Rural Development Project (IDA Credit 631-BD) and a similar Asian Development Bank project, cooperatives (KSSs) under the Integrated Rural Development Program (IRDP) would be the channel. Sonali Bank would on-lend at 10.50% interest to DAJ and7.57interest to IRDP; the ultimate sub-borrowers, the farmers, would pay 12% interest. Special arrangements (to be adopted by March 1, 1978) would be made to assist subsistence farmers in joining the cooperatives involved in the project (Section 3.15 of DCA). The current measures to establish credit discipline (paragraph 42) would be maintained. In particular, a farmer would be excluded from future loans, (a) if he is on default on any of his jute loans, and (b) if he belongs to a JFA or KSS with a recovery rate on previous jute loans below 75% (Section 2.02 of Project Agreement). These credit arrangements are considered to be appropriate for a transitional period given the successful repayment results to date and the inability of the cooperative system to expand quickly enough to meet project requirements. However, it has been agreed that, no later than September 1, 1980, the Government would provide to IDA a review of the effectiveness of the two credit systems employed in the project and recommendations concerning improvements in the arrangements for supplying credit to jute farmers (Section 3.16 of DCA).

56. Equipment. Under the project, 25,000 seed drills and 20,000 hand- pushed hoes would be supplied to IJCS. DAJ would own the equipment and would distribute it to farmers' associations. The design of the seed drill requires improvement to ensure a more even sowing rate; such improvement is expected to result from the on-going Jute Seed Project which is beling assisted by ADB. The Government's Directorate of Agriculture (Extension and Mlanagement) (DEM) carries a large stock of hand sprayers and assurances have been obtained from the Government that DEM would supply, under arrangements satisfactory to IDA, the 20,000 units estimated to be required for pest control for the project; these units would be of a design and in condition satisfactory to the Director of Agriculture (Jute) (Section 3.06 of DCA).

57. Pilot Jute Marketing Scheme. The proposed project, through the marketing scheme, seeks to reduce costs, offer farmers an alternative sales outlet to village middlemen, and give incentives for improving grades (para- graphs 47-49). The project would include construction of a total of 50 stor- age sheds, each equipped with a baling press to be owned and, except possibly in the 10 Rural Development thanas (see below), operated by DAJ. Farmers would deliver jute to the storage sheds. At that time, they would receive payment in an amount equivalent to the Government's minimum price. Since DAJ has no working capital to finance stocks it holds between the purchase of jute from farmers and its sale to exporters or jute mills, this initial payment would be in the form of short-term credit. Such credit would be provided by Sonali Bank, in accordance with the arrangements employed for production credit - 19 -

(paragraph 55). The project would include Tk 30 million (US$2.0 million) for this purpose; of this amount, US$1.1 million would be provided out of the proceeds of the Credit to be on-lent to Sonali Bank and the balance would come from the Bank's own resources. DAJ would then grade, bale and sell the jute purchased from farmers. At that time it would calculate, on the basis of the price it obtained, the amount due to the farmer, deduct the credit advanced well as interest due on the credit and a service charge (as well as a margin for profit), and pay any balance remaining to the farmers. In the 10 Rural Development thanas (paragraph 55), cooperatives operating under the Integrated Rural Development Program (IRDP), would have the choice of either letting DAJ operate the jute stores as in non-IRDP areas or of leasing the stores and presses from DAJ and operating them themselves. The fees and charges to be levied for the use of DAJ sheds would be set at a level acceptable to IDA and reviewed annually (Section 3.13 of DCA).

58. The aim would be to recover full capital and operating costs (plus a reasonable margin for profit) based on the average expected use of the project facilities, with throughput expected to build up over 15 years. By setting its charges at such level, DAJ would avoid unfair competition with the private traders. This is important because the intention is merely to elimi- nate some of the weaknesses associated with the present system, not altogether to supplant the private trade, which now performs a vital function and will have to continue to do so. It needs to be recognized, too, that there is no assurance that the pilot marketing scheme, although addressing an important problem, will be a success, because it does pose difficult problems of orga- nization and management which, despite the strong technical back-up to be provided under the project, may prove to be beyond the capacity of DAJ. Con- sequently, the marketing scheme would be kept to 50 sheds (of which ten would be ready by 1979), to handle 30,000 tons of raw jute (about 3% of forecast production for the project area). If successful, a large scale marketing scheme would be considered for a followup project.

59. Technical Assistance. Two internationally recruited experts would assist the Director of Agriculture (Jute)--a project management expert and a marketing specialist, each for 24 months. The cost of such assistance is estimated at US$5,000 per man-month. The Government has given assurances that the consultants would be appointed on terms and conditions agreed with the Association, not later than April 1, 1978 in case of the management expert and July 1, 1978 for the marketing specialist (Section 3.08 of DCA). In addi- tion, a suitably qualified research institute would carry out a detailed eva- luation under terms and conditions agreed with IDA (Section 3.09 of DCA and paragraph 72). The Government expects to obtain financing from the United Kingdom for a study of pricing policies and internal marketing of raw jute and jute goods, and of the world market for jute goods and jute fiber (paragraph 49). IDA is consulting with the United Kingdom on the terms of reference for this study. Assurances have been obtained from the Government that it would have such a study initiated by March 1, 1978 and that, by December 31, 1978, based on the findings of this study, the Government would provide to IDA for review, a plan (including an implementation timetable) for establishing a jute price mechanism (Section 4.03 of DCA). --20 -

60. Training. The project would also include 48 weeks of overseas training for project staff and selected bankers, in particular to improve staff experience in commodity marketing. Overseas training proposals would be subject to IDA approval (Section 3.18 of DCA). In addition, one day train- ing sessions would be arranged fortnightly for JEAs and JEOs and longer pre- season courses for all field staff. The training program would be drawn up and coordinated by the headquarters' Training Officer. Bangladesh Jute Research Institute (BJRI) would conduct courses for senior staff, Sonali Bank would assist in teaching administrative and credit procedures while the Jute Ministry would train staff in jute grading. Assurances have been obtained that the Government will cause this in-service training program to be carried out (Section 3.18 of DCA). While most JEAs have no preservice qualifications, this has not proved to be an impedimtentto their performance because in- service training has been adequate. It has however, limited the promotional opportunities for JEAs. This would be corrected by sending groups of JEAs to Agricultural Training Institutes (ATIs), or other suitable institutions, for diploma training. Details of the most appropriate syllabus and length of course needed to bring JEAs to full diploma level are being considered by the Government. Assurances have been obtained that, by March 31, 1978, the syllabus and duration of training for JEAs at ATIs would be decided (Section 3.19 of DCA). IDA Credit 621-BD for the Agricultural and Rural Training Project currently supports the strengthening of the ATI program.

Project Costs

61. Total project costs are estimated at US$33.3 million, including physical and price contingencies and about US$3.8 million in taxes and duties. Foreign exchange costs would represent US$8.6 million. Excluding physical and price contingencies, the costs of the various components would be as follows: incremental short term credit (both for production and marketing), US$10.4 million; implements, US$1.2 million; extension services (buildings and office equipment, transport, materials and equipment, and salaries for incremental staff), US$11.8 million; marketing infrastructure, US$0.7 million; and tech- nical assistance, US$0.5 million. Physical contingencies (US$0.8 million in total) amount to 10% for civil works and 5% for transport, extension materials and technical assistance. Price contingencies (US$7.8 million in total) have been applied to staff pay and allowances at 6% a year; to civil works at 9% a year and to all other costs at 7.5% a year from 1977 to 1979. Total contin- gencies would amount to US$8.6 million or 26% of total costs.

Budgetary Impact

62. The annual operating and maintenance cost after completion of the five year development period would be small - about US$0.77 million, equiv- alent to US$0.77 per farm family benefitting from the scheme. This additional requirement compares with the Government budgetary allocations in 1976/77 of US$199.3 million for agricultural development projects and US$511 million for total current expenditures. Additional public revenues accruing from the ex- port tax on raw jute and improvements in the financial position of Government- owned jute mills resulting from any reduction in the cost of raw jute are likely to exceed the project's operating and maintenance costs. - 21 -

Financing

63. The proposed IDA Credit of US$21 million would finance about 71% of the total project cost (net of taxes and duties), representing the foreign exchange costs of US$8.6 million and US$12.3 equivalent of the local currency costs (for justification of local currency financing, see paragraph 22). The Government, which would contribute US$5.8 million to the project, is ex- pected to recover from the users the costs of bicycles and motorcycles sold on credit (paragraph 53) and ultimately the capital and operating costs of the storage sheds (paragraph 54). Sonali Bank is expected to contribute US$6.5 million from its own resources (paragraph 43). The Government and Sonali Bank are expected to recover their respective components of production and marketing credit.

Procurement

64. DAJ would be authorized by the Government to carry out all project procurement directly. Seed drills, hand hoes and office furniture would be of local design and manufacture and would be purchased after local competitive bidding using the Government's procedures. These are satisfactory to IDA. Extension materials, mostly charts, posters, pamphlets, blackboards, etc. would be purchased locally, while fertilizers and pesticides for field trials would be purchased from the Government agencies which are the sole importers. Motor vehicles, motorcycles, bicycles, baling presses and office equipment would be purchased over a four-year period and would be widely dispersed in rural areas. It would therefore be difficult to ensure adequate maintenance and spares for a small number of a variety of imported vehicles and equipment. They would thus be procured on the basis of competitive bidding advertised locally in accordance with procedures acceptable to IDA; there are in Bangladesh enough local firms and representatives of foreign firms to ensure a sufficient degree of competition and to provide adequate services for maintenance and spares. Small off-the-shelf items, costing less than US$10,000 each, could be pur- chased by prudent shopping through normal commercial channels. Such purchases would be limited to US$300,000 in total.

65. Civil works would each be small (none exceeding US$20,000 in value), scattered over a wide area and would be constructed over a five year period. These works would not be suitable for international competitive bidding and contracts would be awarded on the basis of competitive bidding advertised locally, following procedures acceptable to IDA. DAJ may have to provide some materials such as cement, iron sheets and timber to contractors. DAJ would procure such materials on the basis of competitive bidding advertised locally in accordance with procedures acceptable to IDA; the cost advantages from direct importing, if any, would be offset by storage, security and distribu- tion problems. For all contracts exceeding US$100,000 in value, draft tender documents and bid evaluations would be submitted for IDA review before issue and award, respectively.

Disbursements

66. Disbursements from the proceeds of the proposed Credit would be made for: (a) short term credit: 55% of net incremental loan disbursements; - 22 -

(b) pay and allowances for incremental staff: 55% of total expenditures; (c) construction materials and civil works: 100% of foreign expenditures and 70% of local expenditures; (d) vehicles and equipment: 100% of foreign costs for goods imported directly, or 100% of local expenditures (ex-factory costs) for goods manufactured locally, or 70% for other local expenditures for goods procured locally; and (e) consultants, overseas training and mon- itoring: 100% of total expenditures.

Project Organization and Management

67. Coordination. DAJ, Sonali Bank and IRDP would be project ir,pleern- tation agencies. A Central Coordination Cornmittep wnolu coordinate the work of these agencies and review progress of the project. The Committee. which would meet at least every two months, would consist oL representatives of the Ministry of Agriculture (Chairman), Ministry of Finance, Ministry of Planning, Ministry of Jute, IRDP, Jute Research Institute, Sonali Bank, and the Bangla- desh Jute Association. The Director of Agriculture (Jute) would be secretary.

68. In addition, the work of the national Coordination Committee would be assisted by Coordination Committees at zonal level. These Committees would comprise the Assistant Director of Agriculture (Jute)(chairman), representatives of Sonali Bank, BADC, Directorate of Agriculture (Extension and Management), Bangladesh Jute Association, Jute Trading Corporation or Jute Marketing Cor- poration, JFA and IRDP (if participating in the project in the zone). The zonal Committee would meet monthly and send records of its meeting to the national Coordination Committee. All the above Coordination Committees would be established as a condition of Credit effectiveness (Section 6.01 (g) of DCA), and assurances have been obtained that the Government would maintain these Committees with membership and terms of reference satisfactory to IDA (Section 3.11 of DCA).

69. DAJ. The Directorate of Agriculture (Jute) directs and ianages the IJCS, including its expansion, purchase of extension implements, transport and equipment, housing construction, employment and training of staff, pro- vision of credit to farmers as well as the pilot marketing scheme. By May 1, 1978 additional headquarters staff would be appointed (Section 3.21 of DCA). The DAJ Director (presently there is an acting Director with rank of Additional Director), who is responsible to the Secretary of Agriculture, would be assisted by a Project Unit headed by a Deputy Director. There wouild be working groups dealing with supervision, administrative, technical and marketing matters. The Project Unit would be assisted by a Construction Engineer and two inter- nationally recruited advisors for project management and marketing, respec- tively. Appointment of the Director and the Deputy Director would be a con- dition of Credit effectiveness (Section 6.01(f) of DCA). The Construction Engineer, an Administrative/Procurement Officer and a Finance/Accounts Officer would be appointed by March 1, 1978. The Government would consult with IDA on the functions and responsibilities of, and qualifications and experience required for, these three positions (Section 3.21 of DCA). To ensure prompt payment of local currency expenditures, the Government would establish a proj- ect revolving fund to be operated by the DAJ Director. This fund would be replenished quarterly to maintain balances adequate to cover expenditures for - 23 - the ensuing three months (Section 3.10 of DCA). Opening of this fund with an initial deposit of Tk 2 million would be a condition of Credit effectiveness (Section 6.01(c) of DCA).

70. Sonali Bank. As described in the proposed Project Agreement, the Sonali Bank would channel production and marketing credit to farmers through DAJ or IRDP (paragraphs 55 and 57). In addition, signing of a Subsidiary Loan Agreement, satisfactory to the Association, between the Government and Sonali Bank would be a condition of effectiveness for the proposed Credit (Section 6.01(b) of DCA). Sonali Bank already has branches in 124 of 185 project thanas and has plans to open branches in the remaining 61 thanas. It intends to post an agricultural graduate officer to each regional office and one field assistant per branch in the project area to deal with credit activities. Sonali Bank would also train Input Supply Officers and IRDP staff to appraise and monitor project credit and to keep adequate records. Its own staff would appraise loans and monitor credit utilization. Sonali Bank would arrange for loan repayment using mobile facilities, where necessary. Its experience in agricultural lending makes Sonali Bank a particularly useful partner in executing the credit components.

71. Input Supply. To ensure sufficient and timely supply of inputs for the project, assurances have been obtained from the Government that it would instruct (a) BADC to continue to supply IJCS fertilizer requirements on a priority basis; (b) the Seed Directorate of BJRI to meet IJCS seed require- ments; and (c) the Directorate of Agriculture (Extension and Management) to stock adequate supplies of pesticides (Section 3.14 of DCA).

Monitoring and Evaluation

72. Overall project evaluation would be the responsibility of the Planning Cell of the Ministry of Agriculture assisted by a local research institution (with qualifications and experience, and on terms and conditions satisfactory to IDA) to work with the Project Unit in project evaluation. By March 1, 1978, the Government would hire such a firm and furnish to IDA for approval a program for project evaluation (Section 3.09 of DCA). By March 1, 1978, the formats for monitoring the various project components would be sent to IDA (Section 3.17 of DCA).

Proiect Benefits and Risks

73. About 1 million farm families would benefit from improved jute production which would increase jute yields, reduce production cost per unit of jute and consequently improve farmers' income. Nearly all would be small farmers, over 90% owning 2 acres of land or less. Up to 100,000 families would benefit from the trial marketing scheme which is expected - directly and, by providing competition to private traders, indirectly - to enable farmers to obtain higher prices than they would otherwise receive. The project would mitigate fluctuations in the supply of raw jute and attempt to help Bangladesh maintain its share of the world jute market. - 24 -

74. The project would increase jute yields and reduce production costs. This would enable Bangladesh to either maintain jute production at present levels and release approximately 0.4 million acres for paddy growing (Alter- native I) or, by retaining the present jute acreage and increasing production, use its improved competitive position to capture a larger share of the world market for jute and its substitutes, by reducing prices (Alternative II). In practice, the actual situation resulting from the project would presumably be a combination of these two alternatives, with some increase in the total jute production and some decrease in the jute acreage in non-IJCS areas. The rates of return of the two alternatives are both above 50%.

75. The proposed project faces organizational and management risks (related to the expansion of IJCS from 0.5 million acres to I million acres) which are common to most development projects in Bangladesh. In addition, the economic rate of return is sensitive to the level of jute prices on the world market. For instance, under Alternative II, if Bangladesh decreased the price of jute exports by 10% in order to increase its share of the market, the benefits to the economy, although still over 50%, would be less than under Alternative I. Obviously, Bangladesh will be able only up to a certain limit to expand export sales and still obtain an economic price. There is a risk that the project may encourage iute production to increase beyond that limit. The world market price could also drop for exogenous reasons. If the international price dropped by 15%, the rate of return under Alternative II would be reduced to 20% (while a similar price decline in the case of Alternative I would still result in an economic rate of return of over 50%). At very high production levels, there could also be a fall in domestic prices which would damage the position of IJCS farmers. This could also lead to the continuation of large fluctuations in the jute/paddy price relationships and, consequently, in out- put. Parallel efforts, designed to establish effective systems for price man- agement and marketing (paragraphs 49 and 59), are intended to minimize this risk.

76. Accounts and Audit. The Sonali Bank, Directorate of Agriculture (Jute) and IRDP would be responsible for disbursements, and would maintain separate accounts for the project, which would be audited annually by inde- pendent auditors acceptable to IDA. Certified copies of audited accounts and auditors' reports would be sent to the Association within six months of the close of each fiscal year (Section 4.01 of DCA). Commercial auditors satis- factory to IDA, for the project accounts under the responsibility of the Sonali Bank, would be appointed as condition of effectiveness (Section 6.01(e) of DCA); the Government's Auditor General is expected to undertake the other audits required for the project.

PART V - LEGAL INSTRUM4ENTSAND AUTHORITY

77. The draft Development Credit Agreement between the People's Republic of Bangladesh and the Association, the draft Project Agreement between the Association and the Sonali Bank and the Recommendation of the Committee - 25 - provided for in Article V, Section I (d) of the Articles of Agreement are being distributedto the ExecutiveDirectors separately.

78. Features of the draft DevelopmentCredit Agreementwhich are of special interest are referred to in Annex III of this report.

79. Special conditionsof effectiveness(Section 6.01 of DCA) are: (a) the signing by the Government of a SubsidiaryLoan Agreement, satisfactory to IDA, with Sonali Bank; (b) the ratificationof the execution of Project Agreement on behalf of Sonali Bank; (c) the approval by the Government of the Project Proformas (a PP is a Governmentdocument necessary for the alloca- tion of funds and creation of staff positions for developmentprojects) for the project; (d) the appointmentof auditors,satisfactory to IDA, for the Sonali Bank; (e) the appointmentof the Director and Deputy Director to DAJ; (f) the opening of a project revolvingfund for local currency payments, with an initial deposit of Tk 2 million; and (g) the establishmentof the project Committees. A conditionof disbursement(Schedule 1, 4 of DCA) for the market- ing credit componentwould be that marketingand rental fees for the storage sheds have been agreed with IDA.

80. 1 am satisfiedthat the proposed Credit would comply with the Articles of Agreement of IDA.

PART VI - RECOMMENDATION

81. I recommendthat the ExecutiveDirectors approve this proposed Credit.

Robert S. McNamara President

January 17, 1978

ANNEX I

BANGLADESH - SOCIAL INDICATORS DATA SHEET Page 1 of 4 LAND AREA (THOU KM2) ------BANGINDESH REFERENCE COUNTRIES (1970) TOTAL 144.0 MOST RECENT AGRIC. 97.1 1960 1b/0 ESTIMATE BURMA THAILAND MALAYSIA*** GNP PER CAPITA (US$) 50.0* 80.0* 110.0 */a 70.0* 210.0 * 440.0 *

POPULATION AND VITAL STATISTICS

POPULATION (MID-YR, MILLION) 53.9 70.8 80.4/a 27.0 36.3 10.B

POPULATION DENSITY PER SQUARE KM. 374.0 492.0 558.0/a 40.0 71.0 33.o PER SQ. KM. AGRICULTURAL LAND 566.0 730.0 828.01w 253.0 263.0 1B5.0

VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 49.8 50.3 49.5 41.3 44.3 42.2 CRUDE DEATH RATE (/THOU,AV) 27.2 22.9 28.1 19.3 13.7 12.9 INFANT MORTALITY RATE (/THOU) .. 140,0 130.0 * 80.0 40.8/a LIFE EXPECTANCY AT BIRTH (YRS) 38.7 43.3 35.8 47.5 55.5 56.7 GROSS REPRODUCTION RATE 3.5 3.1 .. 2.7 3.2 2.6/a

POPULATION GROWTH RATE (2) TOTAL 2.7 2.8 2.1 2.2 3.1 2.9 URBAN . 6.2 7.4 3.7 4.9 3.2

URBAN POPULATION (% OF TOTAL) 4.8 6.4 B.8 19.9 15.0 26.9

AGE STRUCTURE (PERCENT) 40.0 45.1 44-7/a 0 TO 14 YEARS 44.7 .. 45.2 2 15 TO 64 YEARS 50.1/a *- 49.1 /b 57.0 51.8 5 .1 a 65 YEARS AND OVER 5.2fl .. 5.77F 3.0 3.1 3.27a-

AGE DEPENDENCY RATIO 1.0 .. 1.0 0.8 0.9 0.9/a ECONOMIC DEPENDENCY RATIO 1.6/b *- 1.4/C 1.1/a 1.1/a 1.67

FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) ., ,. 133.0/a .. 470.0 222.2 USERS (% OF MARRIED WOMEN) . .. 4. -/ag 10.0 B.0

EMPLOYMENT 0 TOTAL LABOR FORCE (THOUSAND) 19400.0 24500.0 26200.0 10920.0 16700.0 /b 29 0.0/a LABOR FORCE IN AGRICULTURE (X) 87.0 86.0 78.0 70.0 79.0 43.:Oj 1 5 0 UNEMPLOYED (X OF LABOR FORCE) .- .- . /d .. . . 6.07,b

INCOME DISTRIBUT.ION

X OF PRIVATE INCOME REC'D BY- HIGHEST 5X OF HOUSEHOLDS 19.3 /c 18.7 /a .. .. 22.0 /C 28.3 HIGHEST 20% OF HOUSEHOLDS 44.5 7c 42.3 7 . 51.1 71 56.0 LOWEST 20X OF HOUSEHOLDS 6 9 7c 7.9 7 - 5.6 7 3.5 LOWEST 40% OF HOUSEHOLDS 17.9 7 19.6 f , ,, 14.3 7 11.2

DISTRIBUTIUN OF LAND OWNERSHIP

X OWNED BY TOP 1OX OF OWNERS ,- 34.0 /b .. .. . X OWNED BY SMALLEST 10% OWNERS .. 1.0 7 .. .. .

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 10000.0/d 7600.0/C .. 8970.0 7970.0 POPULATION PER NURSING PERSON 110000.07 f72030.0 7 6B390.0/e 7540.0 /b 6650.0 POPULATION PER HOSPITAL BED 11000.0oW 8120.Otj 7120.0 1200.0 890.0 270.0/a

PER CAPITA SUPPLY OF - CALORIES (X OF REQUIREMENTS) .. 88.0/e 92.0 101.0 103.0 110.0 /c PROTEIN (GRAMS PER DAY) .. .. 40.0 49.0 52.0 49.o 7? -OF WHICH ANIMAL AND PULSE .. .. ,, 13.0/C 17.o/d 20.0 _1

DEATH RATE (/THOU) AGES 1-4 . . .. ,.. . , 5.5

EDUCATION

ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 42.0 /f 80.0 /f 71.0 111.0 81.0 99.0/a SECONDARY SCHOOL 8.0 7W 15.0 7W 25.0 21.0 16.0 34.07a YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 10.0 10.0 10.0 10.0 12.0 13.0/a VOCATIONA. ENROLLMENT (X OF SECONDARY) ,. 1.0 ,, 0.8 14.0 /e 3.o/a ADULT LITERACY RATE (X) . . 23.0 .. 79.0 55.0

HOUSI NG

PERSONS PER ROOM (URBAN) .. .. . , , , , 2.3/a OCCUPIED DWELLINGS WITHOUT PIPED WATER (X) . . . . . 65.0 /a,d ACCESS TO ELECTRICITY (X OF ALL DWELLINGS) ...... 43.0 /a RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) ...... 30.0 /a

CONSUMPPTION

RADIO RECEIVERS (PER THOU POP) . 6.0 . 15.0 78.0 41.0 PASSENGER CARS (PER THOU POP) . 0.4 .4/f 1.0 5.0 27.0 ELECTRICITY (KWH/YR PER CAP) 4.0 20.0 22.0 22.0 124.0 392.0 NEWSPRINT (KG/YR PER CAP) .. 0.1 0.2 0.6 1.0 4.0 SEE------NOTES------AND------DEFINITIONS------__------__--ON------REVERSE-____ ------SEE NOTES AND DEFlNITIONs ON REVERSE _ANYEX Page 2 of 4 NOTES

jnless orvoi-e noted, dact for 1960 refer to soy year berw-en 19i9 and 1961, for 1970 between 1998 end 1970, and for Most Recent Estfiate between 1973 and 1975.

0 GNP per e-pita dote ore based on the Acrld Ban. Arlia osthldriogy (1974-76 bhsoi).

-* Tho 1970-75 population gro.th rare in absovIolly low doe to the effeot_ of the nor of iodependence end mass populston l ovements across the borders dring that period. Pro-ently, the aoerego popuistion growth rote is nstrfated at 2.8% per snoe.

000 Seler-on of mal-etia ab so obje-tf-e -ountry Is bhsed on Nelsynies ster-e in naintaititg a high tern of etconui fOteth end adeqa-te letel of welfare concurrtly nith divr-rifying its -ononie stroctue.

BAdGLADESH 1960 /a *e groop 15-59 and 60 and oart eepectivsly; Lb Ratio of pePolotion ceder 15 sod 60 apd over to total ibhor force; 'd sIl prs-ticigg in the counrry; /e G-ov ent hoepitnl esthblish.. t oly; /n 1963-6h; t Re8istered not T Approximf e enreillenct n per-notage of populatien in 6-10 and 11-15 ape groupt re-petiy ely.

1970 Ia 1966-67; /b 1967-68; /i R.gigerert not o11 praotitieg in tho coontry; /d foover- ent hospital setahblilhentn oely; /e Ahroage 1969-71; /f Apprenivato enrollennt as Percentage of popuatiaon in 6-10 and 11-15 age gronpe reopen tiveTy.

MœOSTgiRECT ESID'ATI: ja 1976; /b Age groap li-59 and 60 and over r-spootinely; In Ratio of pupslatiio nndet 15 and 60 and aver to retal ahbr iorce; /d 7ianly anemployed -erkhrn seeking their flirt (ob; Le Tooloding invo; if 1972; Ig Percent of faea.le .poplati-e

BLeRMA 1970 /a Rati of popol.nrJ- tnder 15 and 65 and oIr to total lahbr force; /b Personnel in goovertent sorfoseoly; /c 1964-66.

fH-ILrND 19 7 0 -intR of populatio -. ,oe 16 end 65 aed eve teeoenninsily sotive popalatino one 11 yearo ned over; Lb So-oni-eIly notive popoltin ago 1I year ando ever; /c urin only; /d 1964-66; In Ptbhlic nchtoi, ohith inclodeg tehni-l edocotion at tha pot-secondary level.

MALAYSIA 1970 a hoot MIalaysia; Lb Rgioot.red applioants for cork; / 1964-66 /d Piped aster inside. RII, Octobot 6, 1977

DPFNITI(ONS OP SOCIAL INDICATORS

LgSa...hrts..&hblc 1052 Ponslesfon Oet note le peonn - popsianiot divided by nosher of pracnicp Total - Total surfa-e zaroa cmprising land ares ond inlana warsos male and inoale graduats nurses, trained" or "Certified' nuraea, and _gttAttn _n t ettlaten ino Of agricuilnural eros usssa nenpoarily or pets's- esmilfary reranted vitnh tra fnlngeor enpersnce nently for trops, pnsnures, marken A kItchen gardens or to lie fallow. Pooltstuie Per bsepiral bed - Population divided by suber of hospital beds naiehble in publi and private general sod specielined hospital and GNp net -anfta (20$) - CNP per napita antisotes t -r-rventn,rket prioes, rehabilitatimn centers: emolode totsilg I homes atd esatahfishents fot stisalculd by same nonversioro tvbed as Woeld Bnk Altles (1973-75 bnais); __oondial and preventive ears 1960; 1970 and 19/5 dar.e Per caeita evenly ot esloriseif of re-sire eis - fmptedp from engergy tqovalanofnetfod aspefI avIailable in -otry per .. pita par dsy; Pooulaticn sod viral tranleroc available topplies csmptisepepo.t-, dome-tis prodoonien, imporna iet-s and Populanion (old-year nillion) As of Ja1v fitn: if not -vailable, overage changr- in stock; net spplio- encIsde anisia fesd, seeds, qoantites useed of two snd-year ostivatei; 1(60, 1970 sod 1975 dta. in food pree.sting and losses is diasribtion; requirents were estimated by FAlObased o physiological needs Iot sornal activity and health -onsid- fopeatiodeeity- po soiats r -Mid-yea pepulatis p-r sqare kilomter ntip envrenetaI t-p-taer, body omighte, age end ... distribsti-t of 100 he ters) of total area popolatien, ed allowing l0i flr waste It hooebsid lev.-I Peoplation deontry-per pgrl, ennate kn of land - CPnpuced as shove for Per caoita supply of Protein per"orane day) - Fr-enin ne-teot of per "ep"na agricult-ral lsnd enly. net spply af ftod per day; nort pply of foed is defined asbove;requir- -eote for all -oonriee eathblished by USDA Eloomnic Rn..eaerh Se-oi-es Vital tant.srnnn provide for a oifninu slbosoe- of 60 Srts of total p-ntin per day, end Crodo bhith rato per th-ssod average - Atnnul iIoe birtha per thoo-and of 20 grn-a ef -niml and pnlse protein, of ohich 10 grsi ehould be animal old-year population; rnn-yaee arithmentic ending-eotgon tn 1960 nod 1970, protn; thone ntaodnrds Ott iowan then thoea of 7I gras sf total protein and fie-year antregoonding in175formostreenitstimae and 23 Uraafs of animal protei fortbewrid,hs -anaragepropoed by FAO Condo droth rate po thhonsand. averae- - Annual deaths per thousand nf aid-vert in the Third W-old Food Srvey. population; nn-year arithmetic avernges ending in 19f0 and 1970 snd five. Per caita Protein snelI fromA onioal IAd plroe - Protein supply of food year average ending in 1975 tnt nest teents estins.e derived from aninsia and palateIsi gtns per day. InfIat mortality rate - A/thauunnual death- of itfans- onder one year of age Dlath rote Gthos) gspe 1-h - Annuol de-oho pet tho-sand in age group 1-4 per thoatond live births, yearn, t children in thio ago group; snggeserd as an indicator of 7ife enfeerrney so birth fort) - Overage numbet af yetar of life remaining ot melnatrition. birth; -ussily five-year avera_ en ending in 1960, 1970 and 1975 for dtewiop- log counttiens EducatioD i_ he n rm tio ctagenii-ebt-At -aro of lire daShtera . on.. n ill bhar Adlvted enroilent ratio°o - peSero scool -ifnt deeht of all ege as p-er in hnrnoonarepodustive Pero. f seePe.ionet p...ont age-apeiffo netgeo pelm-y soeo-ae oplaio; nni oIden-he aged h-il ye-t fertility raven asually five-yost averages ending in 1960, 1970 and 1975 hot sdj-tted for different lengtha of primaty edsation; for cowtriss with Pet deoolopi,agnowotrieO. oniversol ednuntion, en-oloment nay tensed lilT since some papile are below P_.olotiv_ grpvth rate 501 - total - Cpmpoond a.nnal growth ratea of oid-year en sbhve the offlcial tsbo- age. popuIltio for 1950-60, 1960-70 and 1970-75. Adinsted enrollpent rtio - ae-I2darv anhool - -pred as above seeand-ty Ponolatti_ growth rate (Ti - urban - computed hits growth tets of totl educationeequires at least sfo- years of approved prim ay itntrootin; PoPulation definonioma ofIiffstest orban reso may sife-t omprshbilit, of provides g-nerals eocatiomal or tescher training in-tsrotio, fPer pepile data anOng enuntreai of 12 to 10 year- of age; correspondeee c .oreesare generally ecloded. Urbap poPclatieo fT of total) - Rlati of urbat to ttotl poplation; difforee TesYt of schooling erovidsd (first and secnd leyels) - Tosal yare of dettitloen -ofnbeifof orbasoenareas may ffent conpahability of dana among achooling at sec-odary level, osa nise-l iFtruetion euy be partially 00 completely exeluded. ______-______;n -oo yearn), wotking-age (15-64 yearn), Vocational enroiLsent (7. of se-agdarn) - nowani56al in-titosion- insclode and retired ifsvt ra end over) as perrenteos of nid--oar popolaion. technical itdoatrial or other pr-grm7s wOhO operate ildspe-den-tI or as gedeed- ears vtari of populationounder 15 atd 65 ard over to thos dop-m-ents of o-onnd-tv ifstitutions of ages 1l itroogh 4. literary rare (f) - LdultLiterates dolts (able to read and write) as per- iconooomfedeoetdssranio-RatioofpopI.larin -dr 15 ad 65 nd .o.rto nondage ofstodolnporniomased15yearsandover the labor torte in agn crop of i5-b4 yearsy foiyplni - acceptora feonslerlon. then) - Cnmulativr numb,er of acceprots Honsioc of bitth-eaoteol dovices -nder a-spi-ts of nat-ioal farily platoing progre= Persoan pee room (lrhanl - Anetase nusber of pere-e- per root inaoncpied siIoe inception conientiotal dwellings in urban steen d-el ings e-clade pn-pepaen pa-ily . - sers (7 of married enton) - Perrontages of married women of strzctorte end unotccpied parts. nhild-bhori.t ago (15-44 yeast) vh. 000 bihth- -ontrol devises to all married nnE_d doelltootithPut eieed osier fli - Ot-oeled o ventlovsl deelasnos nomensomo age grnp. In orbat od rarol areas vithoot inside oe ouiafde piped nAter fatilliie- as percentage of all econpied dwellina. Rpploymnet Scoese no elcntrititv (2 of all dwiite - Conventoanal dwellings vith lerel lahot force ftbousand) - Economically actire persona, inclnding sarsed elentritity to living oarteropas portent of betel dvellinpe is orhtn sod forces end rnem.pln.td htt -luding Aoeciven, studenrs, cr detinition- ornrl 5te5. ilnarin -ceottrt-s are net -ps-hble. Rrai doeilfnoa coonnted to electrinity (T) - Computed as above for totsl labor force it sotto'ltnre 10) - ,tgricu_tos al sleto fo-ct fit farming, forestry. dweilinga oniy hunting and fiahing) en pettentage of total labot f-rce Unen-pioed fT of labor forte) - Unesployed are utualiy defined a persons vha fonotion ore ahle snd oilli,,g to take a ob, eut of a job an a eives day, remined not Radio teceivets fee thfos pop) - Oil typee oP receiver- far redis htoadsssts of a job, ated Ierhlrp voth for a speoffid nynlo period not excneding 000 topgenerel phUbic per tbosand of pptlani_m; enclodes unlicnserd -e-i,-s dn-, to dilftrtnt definitfons in ceomtrien and in years sheen'.gtstrstfa of radio aere v- in effent; teek; may st he

Page 3 of 4 Pages ECONOMICDEVELOPUNrT DATA (Amounts in millions of U.S. dollrs) Av. Actual Es--957timated 1960- 1965- 1973- 1967-69 1974/75 19 76/77 Av.1967..69 1972/73 1974/75 17/6 1976/77 1965 1970 1977 NATIONALACCOUINTS __ ___ In Constant 1972- 19,-73 Pr,ices & Exchange Rultes Axerage Annual Growth Rates As Percent of GIlS Or;> f-Dmestic Procuct 583 614725 7616,012,61.7 3.3 6.7 - 3--r1iTrTU2T G'ains from Terms of Trade -- 89 - -117 -145 -148 1.5 -1.8 -2.0 Gross~Domestic In,come 6,101 597!fl C!3§97 7,150 7,1T.6 25 6.2 TW:e ThFi 100.

Impo,rt(incl. NF'S) 879 747 703 646 500 20.6 6.8 -7.4 14.4 11.0 6.7 3.1 .2.8! Exp,ts " (import capacity 598 369 197 200 210 12.3 -14.6 -12.6 9.6 Re,sourceSap 281 378 506 446 290 4.6 7.9 3.

Consumption Expenditures 5,666 5,617 6,403 7,06 2 7,230 5.7 3.6 5.6 92.9 100).1 97.6 7.8 7.4 Investment '1 (tori. stocks) 714 394 499 534 473 13.3 8.8 6.7 12.9

Domestie Savings 433 16 -6 88 183 4.3 10.0 81.0 6.8 -0.1 2.4 National Savinigs 416 32 10 110 200 8.7 20.5 57.0 7.1 0.2 2.6

MEPCHANLISE TRADE Annual Data at Current Prices As Perceot of Total

Imports 28.6 C'apitalgoods . 100 135 213 268... 25.7 . 16.8 . 30.4 26.7 Int-ermediategoods nfel) . 176 386 336 250 . 12.8 P'lelsand related materials of which: Petroleum . 23 155 126 144.. .. 49.8 . 10.0 15.4 252-1 Consumption goods , 428 726 541 275... -6.6 4Z..B Total Merch. Imports (ntf) 547 727 1,402 1-,26r6 9376. 100.0 100.0

Exports 42.0 Primary produicts(eml. fuiels) . 145 119 156 168 .. . 2.9 40.9 Fuets sod related materials of which: Petroleum Manufactured goods 195 239 225 242 ... .4 59.1 58.0 Total Merch. Exports (fob 81 340 358 381 400 3.8 100.0 100.0 Tourism and Border Trade

Merchandise Trade indices Average 1972- 73 *100 Export Price index 61 100 153 109 1ill . 2.4 Import Price index 52 100 215 195 189... 16.3 Terms of Trade Index 118 100 62 56 59.. .. -11.7 Exports Volume Index 148 100 80 106 123... 3.9 VALUE AIDED BT SECTOR Annual Data at 1972- 73Pcices and Exchange Rates Average Annual Growth Rates As Percent of Total

Agriculture 3,542 3,403 3,712 4,078 4,140 .5.8 59. 57 Industry and Mining 420 412 466 527 567 .. 4. 77.88 Soroice 2,050 1,848 2,146 2,333 2,504 34 3824 35 Total 6,012 5,663 6,324 6,938 7,211 6.1 lo( 100 100

PUBLIC FINANCE As Percent of GDP TCentral Gov~ernment) Current Feceipts 317 280 469 775 877 .. 5.3 7.2 11.2 Current Expenditures 365 364 419 600 686 . 34.2 6.1 6.4 8.7 Budgetary Saviogs -48 -84 50 175 11. 168 -0,8 0.8 2.5 OtEer Public Sector PutlicSectorInvestment ~~421239 248 295 350 . . 10.3 7.0 3'.8 4.9

OS $ millionl- CUERENT EXPENDITUREDETAI-LS Actual -Estimated CETATILON At Av. 1972/73 P and ER As 9 Total Current Expend.) 1969/70 1972/73 1974/75 19-75/76 1976/T77 PUBLIC SECTOR. F4,rstPlan 9, of Total - 1977/78 Education . 14.8 15.5 13.6 13.3- INVESTMENT PROGRAM (1973/74 15.3 Other Social Services .. 4.C 4.2 4.4 4.2 Social Sectors 758 Agriculture and Agriculture 1,302 26.4 20.7 Other Ecmonmic Services .. 11.2 7.2 6.8 6.7 Industry and Ilining 1,024 Administration and Defense .. 67.4 68.1 68.8 68.9 Power 529 10.7 ('tier 2.7 5.0 6.4 6.9 Transport and conaunicati-ons 802 16.3 Total Current Expenditures T00. 100.0o -1700.0 100.0 Other 524 10.6 ______Total ExpendItures 4,940 100.0

SELECTED INDICATORS i960- 1965- 1973- FINANIClNO (Calculated from 3-year averaged data) 1965 1970 1976 D7omesticBorrowing 784 15.9 40.9 Average ICOR . 3.74 0.89 Public Sector Savings 2,022 20.4 ImepsrtElasticity . 1.29 1.11 Program,aid counterpart 1,009 Srginial Domestic Savings Rate .. 0.22 Q.Q5 Foreign Project Aid 1.125 22.8 Marginal National Savings Rate .. .ss 0.05 Total Financing 4,940 100.0

I.ABORFORCE ANt Total Labor Force Value Added Per Worker (1972 73 Plrices& Exec.Rates) OUTPUT PER WORKER In Millions 7, of Total 1961 - 73 In U.S.Dollars Percent of Aver:ge 1970 - 73 1960/61 19 72/73 1960/61 1972/73 Growth Rate 1969/70 1972/ 73 1969/70 1972/ 73 Growth Rate

Agriculture 16.1 20,5 85 78 2.0 .. 166 .. 76 Industry 1.0 1.8 5 7 5.0 229 ., 105 Service 1.8 3.9 10 15 6.7 .. 484 ., 222 Total 1-8.9 26.2 100 1700 2.8 248 217 100 100 -41.9

not applicable -nil or negligible not available -- lees than half the smallest unit shows Note: Figures are on fiscal year basis (July 1-June 30). Data prior to 1972/73 pertain to erstwhile East Pakistan /I These are criginal plan targets. : OzcHHHIHI OHw0 Hm 0P H0 0,- .0 0 01 0-00 0- t o=EoH I o110 0.01 X 03aI 0z00xMwnOraz7S rf l o tI r- W 0 |

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BANGLADESH

STATUS OF BANK GROUP OPERATIONS

As of November 30, 1977

A. IDA Credits to Bangladesh

US$ Million Net of Credit Exchange Adjustment Number Year Purpose Amount Undisbursed (net of cancellations)

Five Credits Fully Disbursed 206.4 -

339 1972 Cyclone Area Reconstruction (replaces Credit No. 228-PAK of 1971) 25.0 7.6 340 1972 Chandpur Irrigation II (replaces Credit No. 184-PAK of 1970) 13.0 4.2 341 1972 Tubewells (replaces Credit No. 208-PAK of 1970) 14.0 2.2 343 1972 Telecommunications (replaces part of Credit No. 145-PAK of 1969) 7.3 1.3 353 1973 Small-Scale Industry (replaces Credit No. 192-PAK of 1970) 3.0 .2 367 1973 Chittagong Water Supply (replaces Credit No. 42-PAK of 1963) 7.0 .7 368 1973 Dacca Water Supply and Sewerage replaces Credit No. 41-PAK of 1963) 13.2 .7 381 1973 Foodgrain Storage (replaces Credit No. 83-PAK of 1966) 19.7 .3 407 1973 Education (replaces Credit Nos. 49-PAK and 87-PAK of 1964 and 1966) 21.0 7.3 408 1973 Highways (replaces Credit No. 53-PAK of 1964) 25.0 12.7 409 1973 Technical Assistance 4.0 1.6 410 1973 Cereal Seeds 7.5 5.8 424 1973 Inland Water Transport Rehabilitation 8.7 1.9 487 1974 Second Telecommunications 20.0 18.2 527 1975 Ashuganj Fertilizer 33.0 22.7 533 1975 Population 15.0 13.2 542 1975 Barisal Irrigation 27.0 25.7 591 1975 Imports Program IV 100.0 .6 605 1976 Karnafuli Irrigation 22.0 18.1 ANNEX II Page 2 of 11

BANGLAD ESH

STATUS OF BANK GROUP OPERATIONS

As of November 30, 1977

A. IDA Credits to Bangladesh (CON'D)

US$ Million Net of Credit Exchange Adjustment Number Year Purpose Amount Undisbursed

621 1976 Agricultural and Rural Training 12.0 11.6 622 1976 Technical Assistance II 7.5 7.0 631 1976 Rural Development 16.0 15.8 632 1976 Bangladesh Shilpa Bank 25.0 24.4 676 1977 Imports Program V 75.0 41.2 724 1977 Shallow Tubewells 16.0 16.0 725 1977 Muhuri Irrigation 21.0 21.0 729 1977 Extension and Research 10.0 10.0 735 1977 Inland Water Transport II 5.0 5.0* 752 1977 Imports Program VI 75.0 75.0 SUBTOTAL 854.3 372.3 Principal Repayment 0.4 Effective Credits held by Association 853.9

B. IBRD Loans to Bangladesh

1087 1975 Consolidation Loan 54.9 0

TOTAL 908.8 372.3

*Not yet effective ANNEX II Page 3 of 11

C. PROJECTS IN EXECUTION1 /

Cr. No. 339 Cyclone Area Reconstruction Project: US$25.0 Million Credit of October 18, 1972; Effective Date: January 17, 1973; Closing Date: June 30, 1978

Project performance has improved and, although still 2-1/2 years behind schedule, it is no longer falling further behind. Following reevalua- tion of the design, the cyclone shelter program is now moving ahead with 124 modified shelters expected to be completed between mid-and-end 1978. Strength- ening of the shelters already constructed will commence shortly. Arrangements for supervision of shelter construction still need to be strengthened. Four of the five primary roads are now finished with the fifth road scheduled for completion in 1978. The IDA financed portion of the feeder road program is nearing completion. Construction of towers for the telecommunications sub- project is behind schedule but was to be completed by December 1977. The fisheries subproject, including distribution of boats to groups of local fishermen has been completed. Work on the repair or new construction of inland water transport terminals is almost completed.

Cr. No. 340 Chandpur Irrigation II Project: US$13.0 Million Credit of October 18, 1972; Effective Date: January 17, 1973; Closing Date: April 30, 1978

The project should be completed by December 1978. Delays have been due to major flooding, labor problems, shortages of materials, equipment, breakdowns, ineffective management, and delays in provision of local funds. While problems remain, substantial progress has been made recently both in physical construction and agricultural extension. The main regulator is now operational, although utilization of the irrigation works will be delayed due to land acquisition problems (now resolved) which interfered with work on irrigation channels. A four month extension of the Closing Date has been agreed to allow additional time for project audits and proposals for the recovery of water charges to be prepared. A further extension of the Closing Date will be considered when these have been received.

1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered, and the action being taken to remedy them. They should be read in this sense, and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. ANNEX II Page 4 of 11

Cr. No. 341 Tubewells Project; US$14.0 Million Credit of November 6, 1972; Effective Date: January 13, 1973; Closing Date: March 30, 1979

Because of a slow start, project implementation is about 18 months behind schedule. Completion of the Project is expected within a year. About 90% of the wells under contract have now been drilled, and verticalitv prob- lems have largely been corrected by the contractors. BADC has decided to recontract for 285 wells not yet drilled. Pumphouse construction and engine/ pump installation is proceeding satisfactorily. The agricultural development component of the project, also behind schedule, has been incorporated in the Extension and Research Project. Project audits are not being received in a timely fashion. Arrangements for extending consultantsr services have been agreed. The Closing Date has been extended to March 30, 1979.

Cr. No. 343 Telecommunications Project; US$7.3 Million Credit of November 15, 1972; Effective Date: January 17, 1973; Closing Date: June 30, 1978

The Project was originally financed as part of Credit No. 145-PAK of 1970, and goods valued at US$2.2 million had been received prior to sus- pension of disbursements. Three of the four microwave systems have been commissioned, two years behind schedule. The contract for the fourth micro- wave system (which substitutes the coaxial cable system in the original project) has been awarded together with contract for similar systems under Credit 487-BD. This system is expected to be commissioned by June 1978. The Closing Date has been extended from December 31, 1975 to June 30, 1978.

Cr. No. 353 Small-Scale Industry Project; US$3.0 Million Credit of January 19, 1973: Effective Date: May 14, 1973; Closing Date: December 31, 1977

The Project is administered by the Bangladesh Small and Cottage Industries Corporation (BSCIC) and a consortium of commercial banks. In early 1976, the Closing Date was extended to March 31, 1977 to allow for disburse- ments under outstanding letters of credit. To permit all credit funds to be disbursed, a further extension of the Closing Date, from March 31, 1977 to December 31, 1977 was agreed. A second project involving BSCIC and commercial banks under revised institutional arrangements was appraised in July/August 1977.

Cr. No. 367 Chittagong Water Supp1_YProjecti__ US$7.Q Million Credit of April 9, 1973; Effective Date: June 7, 1973 Closing Date: October 31, 1978

After very little moovement during the first two years because of organizational and procurement difficulties, the progress of work in the past three years has been satisfactory and disbursements on the project are expected to be comnpleted by November 1978, some three years behind the ANNEX TT Page 5 of 11 schedule established in 1973. WASA has been in default of the financial covenant (Section 4.03 (a) of the Credit Agreement dated April 9, 1973), which stipulates that rates are to provide sufficient revenue to: (i) cover operating expense, depreciation and interest; (ii) to meet repay- ment of long-term debt to the extent that such repayments exceed deprecia- tion charges; and (iii) finance normal extensions of the systems and pro- vide a reasonable portion of the cost of future major extensions. GOB approval of a tariff increase was given on November 3, 1977. This will increase annual revenue by about 38 lakhs Taka and should, with other measures being taken, provide Chittagong WASA with sufficient revenue to enable it to meet the earnings covenant for FY78. A fourth extension of the Closing Date to October 31, 1978 was recently agreed.

Cr. No. 368 Dacca Water and Sewerage Project; US$13.2 Million Credit of April 9, 1973; Effective Date: June 7, 1973, Closing Date: October 31, 1978

Project progress and the Dacca WASA's financial problems are similar to those of Chittagong under Credit 367-BD above. A fourth extension of the Closing Date to October 31, 1978 was recently agreed.

Cr. No. 381 Foodgrain Storage Project; US$19.7 Million Credit of May 18, 1973; Effective Date: July 17, 1973; Closing Date: September 30, 1977

The project, originally financed by US$19.2 million IDA Credit No. 83 of 1966 and a 25 million Kroner credit from the Kingdom of Sweden, was almost completed at independence and 95% of the reactivated IDA and Swedish credits was used for repaying the previous credits. Substantial delays oc- curred in hiring consultants and in design and construction of ancilliary civil works. In addition, there was serious deterioration in the silos mechanical equipment due to inadequate maintenance and management, under staffing in the Directorate of Silos and delays in ordering spare parts. After January 1976, however, significant progress was made in accordance with an action program agreed with IDA/SIDA, particularly in constructing ancillary civil works and staffing the project agency; one silo was put back into opera- tion, consulting services for a silo maintenance improvement program have been obtained and jetty rehabilitation started in February 1977. The Association agreed to a third extension of the Closing Date to September 30, 1977. The project was completed on June 30, 1977 and a mission to prepare a project completion report will visit Bangladesh soon.

Cr. No. 407 Education Project; US$21.0 Million Credit of June 29, 1973; Effective Date: September 27, 1973; Closing Date: June 30, 1978

This project was originally financed by Credits 49-PAK and 98-PAK and by December 1971, when disbursements were suspended. US$7.7 million had been disbursed. Progress on the Agricultural Univcrsity portion of the proj- ect is about 30 months behind schedule due to initial difficulties in reaching ANNEX II Page 6 of 11

agreement with the consultant architects on a revised contract and shortages of building materials and delays in the preparation of equipment lists and furniture designs. However, significant progress has been made beginning in late 1976. The academic buildings now under construction are expected to be completed by June 1978 and the remlainingworks by December 1979. The University has taken steps to improve the relevance of its agricultural train- ing and research programs to Bangladesh's practical problems in agricultural and rural development but further progress in this direction is needed. The technical education portion of the project is about 30 months behind schedule due to past delays, but is expected to be completed by July, 1978. The graduates are facing severe problems of unemployment and a committee has been established to revise the curriculum to make it more relevant to job require- ments.

Cr. No. 408 Highways Project; US$25.0 Million of June 29, 1973; Effective Date: September 27, 1973; Closing Date: December 31. 1979

Several project elements are now nearing completion, including the Sitalakhya Bridge, ferry improvements and the Keane Bridge which was officially opened in June 1977. However, the Feni bypass is still seriously behind schedule and completion is unlikely before mid-1979. Construction of the Roads and Highways Directorate building has commenced. An action program calling for a review of project progress against agreed targets was estab- lished for purposes of approving an extension of the Closing Date to December 31, 1979.

Cr. No. 409 Technical Assistance Project; US$4.0 Million Credit of June 29, 1973; Effective Date: August 20, 1973; Closing Date: December 31, 1978

Contracts have been signed with consultants for thirteen sub- projects amounting to about US$3.9 million. Completed studies have played a key role in the preparation of projects for IDA financing. Due to delays in initial commitment of credit funds, disbursements are 2 to 3 years behind initial estimates. The Closing Date for this Credit was extended initially by two years, to December 31, 1977 and a second extension, to December 31, 1978 was agreed recently to permit full disbursement of the credit. Cr. No. 410 Cereal Seeds Project; US$7.5 Million Credit of June 29, 1973; Effective Date: January 30, 1974; Closing Date: December 31, 1979 Although the project is about 20 months behind schedule,implemen- tation has improved considerably in riecentmonths. Orders for farm machinery and laboratory equipment have recently been placed. After contract negotia- tions with the lowest bidder for the seed processing plants broke down, proposals for simplification of plant design were agreed and tenders are now being processed. After substantial initial delays, work is now proceeding on improvements at the seed multiplication farms and production of seed, especially wheat, is increasing. The Closing Date was recently extended to December 31, 1979. ANNEX II Page 7 of 11

Cr. No. 424 Inland Water Transport Rehabilitation Project; US$8.7 Million Credit of August 10, 1973, as amended by Amending Agreement of October 17, 1975; Original Credit Effective Date: September 27, 1973; Supplementary Credit Effective Date: March 19, 1976; Closing Date: June 30, 1978

Procurement of spare parts and equipment under the original credit was slow initially but credit proceeds are almost fully committed with 88% of available funds disbursed. Under the Supplementary Credit, two used light- erage tankers have been procured, necessary repairs and modifications have been completed, and the tankers delivered to Chittagong. Delivery of pipes for connecting the oil mooring to the ERL refinery has been delayed, but an adjacent berth is being utilized in the meantime for unloading of crude oil. Due to delays in the procurement of fenders, commencement of oil transfer operations was delayed, and was finally attempted by the Bangladesh Shipping Corporation (without fenders and against the IDA-financed consultant's advice) in July, 1977 during the monsoon. Both lighterage tankers were damaged, one having to be taken out of service and replaced by a chartered vessel. Additional technical assistance has been proposed to assist BSC, which is expanding its fleet at a rate beyond its managerial, operational, technical and crewing capabilities. This would require the Closing Date to be extended by nine months to March 31, 1979, if the Credit is used to finance this technical assistance.

Cr. No. 487 Second Telecommunications Project; US$20.0 Million Credit of June 26, 1974; Effective Date: July 23, 1974; Closing Date: June 30, 1979

The project is about two years behind schedule due to delays in procurement. About 30% of the Credit has so far been committed; the balance is expected to be committed in 1978. About 60% of the appraisal targets for local network expansion for first three years has been achieved. Work on long-distance telephone exchanges has still to commence. A Telegraph and Telephone Board has been established, a year behind schedule. Consultants financed under the Credit are assisting the T&T Board in establishing a commercial accounting system and valuation of assets.

Cr. No. 527 Ashuganj Fertilizer Project; US$33 Million Credit of February 11, 1975; Effective Date: December 19, 1975; Closing Date: December 31, 1982

The project is being cofinanced by the Asian Development Bank, KfW, and the Governments of Iran, Switzerland, UK and US, providing a total of US$109 million equivalent in addition to the IDA credit. Site preparation work including the necessary dredging and filling was completed on schedule. However, based on the soils analyses undertaken by two specialist consulting firms, further preparation of the site is being carried out to protect the plant against earthquake risks. Site preparation should be completed in March 1978 after which construction can commence. Currently the project is ANNEX II Page 8 of 11

about two years behind schedule due primarily to the additional site prepara- tion and initial slow progress in (a) placing orders for time-critical items and (b) planning for construction. Revised cost estimates are being finalized. Allowing for the additional site work and the delays, costs are expected to be significantly higher than lender funds currently available. Discussions with Government on means of providing the project with sufficient foreign exchange are under way.

Cr. No. 533 Population Project: US$15 Million Credit of February 11, 1975; Effective Date: Septeminber25, 1975; Closing Date: December 31. 1982

The project is being colinUancedby six co-lenders providing a total of about US$25 million equivalent in addition to the IDA credit. Notwithstand- ing the delay in declaring the Credit effective, the Government has made sub- stantial progress in project implementation. The organizational structure of the Population Control and Family Planning Division (body responsible for the population program) has been defined and its headquarters staff has been placed in position; most field staff is being recruited. Population programs in five non-health ministries are underway. The Building, Planning and Design Unit of the Ministry of Health, with the assistance of consultants, has completed a master plan for the project's construction program and contracts for construc- tion of project buildings are being awarded. Preliminary drafts of a study on Population legislation and a management study for the Ministry of Health, Population Control and Family Planning have been completed. Most of the required consultants and advisors for, other parts of the project have been appointed.

Cr. No. 542 Barisal Irrigation Project; US$27 Million of April 29, 1975; Effective Date: February 24, 1976; Closing Date: Decem- ber 31, 1980

The project is behind schedule due to initial delays in hiring project consultants and in assignment of Water Development staff members to the project, and delays in land acquisition. The staffing position has improved and field survey and design activities are now progressing satis- factorily. Principal field activitie!shave been survey work, procurement of materials and housing and office construction. Two pilot areas have been developed which have been useful in testing the project concept and in identifying potential problems. Constrturtionof irrigaLion channels had been delayed by problems of land acquisition but these have now been resolved.

Cr. No. 591 Fourth Imports Program,;US$100 Million of November 25, 1975; Effective Date: December 29, 1975; Closing Date: September 30, 1977

This credit was fully disbursed in December, iv77. ANNEX II Page 9 of 11

Cr. No. 605 Karnafuli Irrigation Project; US$22 Million of January 28, 1976; Effective Date: February 24, 1976; Closing Date: December 31, 1980

The project is behind schedule due to initial delays in hiring proj- ect consultants. The consultants for the irrigation portion of the project began work in September 1976, but their effectiveness was limited by delays in procurement of vehicles and equipment and in the assignment of local consultants to assist in the design work. Work is now underway to prepare construction contract documents and to facilitate equipment procurement. The fisheries component of the project made virtually no progress until recently. Key staff have now been appointed and a contract with a fisheries consulting firm has been signed.

Cr. No. 621 Agricultural and Rural Training Project; US$12.0 Million of March 25, 1976; Effective Date: June 30, 1976; Closing Date: June 30, 1981

Progress on preparation for construction is about five months ahead of schedule. Most sites have been selected and acquired. Progress has also been achieved in the preparation of sketch plans for project buildings and the Government has been working on revised, more economical plans for the Bogra Rural Development Academy. The inservice training program supported under project has been delayed due to delays in allocation of local funds; delays are also being experienced in hiring consultants for the project.

Cr. No. 622 Second Technical Assistance Project; US$7.5 Million of April 8, 1976; Effective Date April 14, 1976; Closing Date: June 30, 1980

Five subprojects have been approved amounting to about $4 million. Other subprojects are under consideration.

Cr. No. 631 Rural Development Project; US$16.0 million of May 20, 1976; Effective Date: August 3, 1976; Closing Date: December 31, 1981

The reorganization of pump groups into cooperatives under the Integrated Rural Development Program is being completed, and adequate progress has been achieved in rescheduling loans. As part of a nationwide effort to revitalize the extension system, modifications are being introduced to the project's agricultural extension system. Procurement under various project components, benchmark and fish pond surveys, land and draft animal registration are in progress. After some initial delays, the construction of feeder roads and thana buildings is proceeding on schedule. However, the project has experienced some implementation problems in part due to lack of proper coor- dination among the various implementing agencies, inadequate supervision of field level staff, and inconsistencies which have developed among various ongoing rural development programs. A mission visited Rangladesh in November, 1977 to review the implementation of this project and discuss with the Govern- ment institutional and policy issues affecting rural development in general. ANNEX II Page 10 of 11

Some modifications are expected to be made to the project on the basis of the mission's recommendations.

Cr. No. 632 Bangladesh Shilpa Bank PrJject; US$25.0 Million of May 20, 1976; Effective Date: November 8, 1976; Closing Date: June 30, 1981

As of December 31, 1977, IDA had committed $7.7 million and $0.6 million had been disbursed. It is anticipated that the Credit will be fully committed by December 1980 and that disbursements will be completed by the Closing Date.

Cr. No. 676 Fifth Imports Program; US$75 Million of January 25, 1977 Effective Date: February 24, 1977; Closing Date: December 31, 1978

As of December 31, 1977, disbursements were US$39.5 million. In addition about US$9.0 million of letters of credit are outstanding.

Cr. No. 724 Shallow Tubewells; US$16 Million of July 1, 1977; Effective Date: December 9, 1977; Closing Date: December 31, 1981

Tender documents for enginetsand pump sets for all 10,000 wells have been agreed. A consultant for workshop management has been designated and the preparation of tender documents for workshop tools and machinery is at an advanced stage. The preparation of Thana Irrigation Maps is expected to be completed by March, 1978.

Cr. No. 725 Muhuri Irrigation; US$21.0 Million of July 1, 1977; Effective Date: January 6. 1978; Closing Date: June 30, 1983

Delays have occurred in obtaining Government approval of the project budget, establishing the project fund, completing arrangements for hiring the engineering consultants, and signing a contract with the Contractor who will construct the Feni Regulator.

Cr. No. 729 Extension and Research Project; US$10 Million of July 1, 1977; Effective Date: January 6, 1978; Closing Date: April 30, 1981

The effectiveness deadline for this project, originally September 29, 1977 was extended twice to January 6, 1978 to allow the Government more time to complete conditions of effectiveness (approval of the project budget, appointment of key management personnel, submission of the legal opinion, and establishment of revolving fund) and to work out arrangements concerning the role of field level extension personnel in some new agricultural develop- ment programs. ANNEX II Page 11 of 11

Cr. No 735 Inland Water Transport II Project; US$5.0 Million Credit of September 30, 1977; Closing Date June 30, 1980; Credit not yet effective.

Lists of spare parts for BIWTA vessels and navigation aids, and for BIWTC cargo vessels have already been prepared and BIWTC lists for spare parts for hydrographic equipment and specifications for new mobile cranes are under preparation. Discussions have taken place with the respective agencies involved about the specialist services required, and procedures for initiating enquiries and selection of suitable specialists agreed. Operational specia- lists are now expected to be appointed by end April 1978 - four months behind the original schedule due to the late signing of the Credit Agreement. Con- ditions of effectiveness have yet to be complied with. ANNEX III Page 1

BANGLADESH

JUTE PROJECT

Supplementary Project Data Sheet

Section I: TimptahIp of Key Events

(a) Time taken to prepare project:

About 12 months

(b) Preparation by:

Government of Bangladesh assisted by IDA Resident Mission Staff

(c) First IDA Mission:

Crop Sector Review Mission in field June 1975

(d) Appraisal Mission departure:

November 1976

(e) Negotiations:

October 1977

(f) Planned date of effectiveness:

April 1978

Section II: Special IDA Implementation Actions

The draft terms of reference for the studies of the world jute market for jute goods and jute fiber, and on the pricing policies and internal marketing of raw jute and jute goods were prepared and agreed to in principle prior to negotiations. ANNEX III Page 2

Section III: Special Conditions of IDA Credit

(a) Special conditions of effectiveness are: (a) the signing by the Government of a Subsidiary Loan Agree- ment, satisfactory to IDA, with Sonali Bank; (b) the ratification of the execution of the Project Agree- ment on behalf of Sonali Bank; (c) the approval by the Government of the Project Proformas (a PP is a Government document necessary for the allocation of funds and creation of staff positions for develop- ment projects) for the project; (d) the appointment of auditors, satisfactory to IDA, for the Sonali Bank; (e) the appointment of the Director and Deputy Director to DAJ; (f) the opening of a project revolv- ing fund for local currency payments, with an initial deposit of Tk 2 million; and (g) the establishment of the project Committees (paragraph 79);

(b) Before undertaking any expansion of IJCS beyond 1 million acres, the Government would ensure that such expansion: (a) is economically justified, on the basis of medium- and long-term world supply and demand prospects for raw jute and jute goods; and (b) would not adversely affect the operation of the project (paragraph 51);

(c) A condition of disbursement for the marketing credit component would be that marketing and rental fees, for the storage sheds have been agreed with IDA (paragraph 79);

(d) The Directorate of Agriculture (Extension and Man- agement) would supply adequate numbers of sprayers of design and in condition satisfactory to the DAJ Director and to be provided to jute farmers under arrangements satisfactory to IDA (paragraph 56);

(e) Bicycles and motorcyles would be made available to staff of the Ministry of Agriculture under arrange- ments satisfactory to IDA (paragraph 53);

(f) The following consultants would be appointed promptly with qualifications and experience and on terms and conditions satisfactory to IDA: (i) Project Manage- ment Advisor by January 1, 1978; and (ii) Marketing Specialist by July 1, 1978 (paragraph 59);

(g) The Government would maintain specified project Committees (paragraph 68); ANNEX III Page 3

(h) Additional project and DAJ headquarter staff would be appointed by February 1, 1978 and April 1, 1978 respectively (paragraph 69);

(1) The Government would instruct: (i) BADC to continue to supply IJCS fertilizer requirements on a priority basis; (ii) the Seed Directorate of the Bangladesh Jute Research Institute to meet IJCS seed requirements; and (iii) the Directorate of Agriculture (Extension and Management) to stock adequate supplies of pesticides and sprayers (paLragraph71);

(j) The syllabus and. duration of the training for JEAs at Agricultural Training Institutes, or at other suitable institutions, would be decided by March 31, 1978 (paragraph 60);

(k) The Government would conduct a review of the project's credit operations by October 1, 1980 and would agree with IDA on any change in the IJCS credit system during project implementation (paragraph 55);

(1) A farmer would be excluded from future loans: (i) if he is in defaiult on any of his previous loans and interest; or (ii) if he belongs to a JFA or KSS with a recovery rate on previous loans below 75% (paragraph 55);

(m) Studies of the world market for jute goods and jute fiber, and on the pricing policies and in- ternal marketing of raw jute and jute goods, with terms and conditions satisfactory to IDA, would commence by December 1, 1977 (paragraph 59); and

(n) By December 31, 1.978,the Government would submit to IDA for review a plan, including an implementation timetable, for establishing a jute price mechanism (paragraph 59). , ~~~~~~~~~~~~~BRD127( RI X i :9 . - : - . ~~~~~~~BANGLADESH

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