Document of The World Bank Public Disclosure Authorized

Report No. P-2579-NEP

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE Public Disclosure Authorized

INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

Public Disclosure Authorized KINGDOM OF NEPAL

FOR THE

SECOND RURAL DEVELOPMENT PROJECT

MAHAKALI HILLS

June 7, 1979 Public Disclosure Authorized

This r4postmay not he publishednor may it be quotedas. representing the views of the World Bank. The Wor-ldBank doesnot acceptrespoosibility for the accurapyor complietenessof the repo'rtff CURRENCYEQUIVALENTS

Currency Unit - Nepalese Rupee (NR)

Since March 20, 1978

US$1.00 NRs 12.00 NR 1.00 = US$0.08 NRs 100 = US$8.33

WEIGHTS AND MEASURES

1 kilogram (kg) = 2.20 pounds 1 quintal = 100 kg = 220 pounds I metric ton = 1,000 kg = 0.98 long ton 1 millimeter = 0.039 inch 1 meter (m) = 3.29 feet = 1.09 yards 1 kilometer (km) 2 = 0.62 mile 1 hectare (ha) 3 = 10,000 m = 2.47 acres 1 cubic meter (m ) 35.31 cubic feet 1 liter (1) = 0.26 US gallon

FINANCIAL YEAR

July 16 - July 15

ABBREVIATIONS AND ACRONYMS

ADBN - Agricultural Development Bank of Nepal AIC - Agricultural Inputs Corporation BVNCC - Back to the Village National Campaign Committee CCC - Panchayat Development Central Coordination Committee DAP - District Administrative Plan DA - Department of Agriculture DCVI - Department of Cottage and Village Industries ICB - International Competitive Bidding LDD - Local Development Department, Ministry of Home Panchayat MFAI - Ministry of Food, Agriculture and Irrigation MOHP - Ministry of Rome Panchayat PCC - Project Coordinating Committee ZCC - Zonal Coordinating Committee

STAFF ABBREVIATIONS

CDO - Chief District Officer CPC - Central Project Coordinator PC - Project Coordinator FOR OFFICIALUSE ONLY NEPAL

SECOND RURAL DEVELOPMENTPROJECT

MAHAKALI HILLS

Credit and Project Summary

Borrower: Kingdom of Nepal

Amount: US$11.0 million

Terms: Standard

Relending Terms: Agricultural credit funds of about US$350,000 equiva- lent would be made available to the Agricultural Develop- ment Bank of Nepal (ADBN) at 6% per annum for short-term and 4% per annum for medium-term loans. ADBN would on-lend to cooperatives at 10% and 8% per annum respec- tively, which would in turn lend to farmers at 14% and 11% per annum respectively.

Project Description: The proposed project would help develop the three Hill districts of Dandeldhura, Baitadi, and Darchula and aims to raise agricultural production to levels whereby farmers could meet full family subsistence. The proposed project would provide for increased agricultural and live- stock production through minor irrigation development, strengthening of agricultural extension and animal health services, training, and improved availability of farm in- puts. These directly productive investments would be com- plemented by investments in erosion control, health care, village water supplies, lower and upper secondary educa- tion, postal services, panchayat facilities, and trails and foot-bridges. The project also provides for a study of cottage industry potential and prospects, as well as for facilities and staff required for project implementation. At full development, the project would raise food levels to about 330 days at average subsistence levels, compared to present food levels of about 260 days, for the 53,300 families residing in project districts. In view of the remoteness of the project area, the project faces a risk that government staff may not be willing to live and work in project areas. The project, however, is designed to minimize this risk by providing accommodation, project allowances and social amenities.

This document has a restricteddistribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization. Estimated Cost US$ Million Equivalent of Project: 1/ Component Local Foreign Total

I. Agriculture Agriculture Extension 0.88 0.08 0.96 Credit & Input Supply 0.44 0.42 0.86 Horticulture 0.06 - 0.06 Livestock 0.49 0.12 0.61 Irrigation 1.00 0.11 1.11

Subtotal 2.87 0.73 3.60

II. Social Infrastructure Water Supply 0.09 0.01 0.10 Health Services 1.27 0.18 1.45 Education 0.15 0.03 0.18 Panchayat Development 0.17 0.02 0.19 Postal Service, 0.04 0.01 0.05 Trails and Bridges 0.91 0.25 1.16 Erosion Control 0.36 0.11 0.47 Cottage Industry 0.26 0.06 0.32

Subtotal 3.25 0.67 3.92

III. Project Administration 1.01 1.52 2.53

Total 7.13 2.92 10.05

IV. Contingencies Physical 0.40 0.20 0.60 Price 1.90 0.90 2.80

Subtotal 2.30 1.10 3.40

Total Project Cost 9.43 4.02 13.45

Financing Plan: US$ Million Equivalent Local Foreign Total

IDA 8.0 3.0 11.0 Government 1.4 - 1.4 UNDP 0.1 1.0 1.1

Total 9.5 4.0 13.5

1/ Includes a negligible amount of taxes and duties. - iii -

Estimated IDA US$ Million Equivalent Disbursements: IDA FY 1980 1981 1982 1983 1984 1985 1986

Annual 0.02 0.54 1.68 2.30 2.70 2.45 1.31 Cumulative 0.02 0.56 2.24 4.54 7.24 9.69 11.00

Rate of Return: 21%

Staff Appraisal Report: No. 2401-]NEPdated May 31, 1979.

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT lO THE KINGDOM OF NEPAL FOR THE SECOND RURAL DEVELOPMENT PROJECT - MAHAKALI HILLS

1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Nepal for the equivalent of US$11.0 million on standard IDA terms to help finance the Second Rural Development Project - Mahakali Hills. The UNDP is expected to provide about US$1.1 million equivalent for the technical assistance requirements of the project. About 3.0% oE the total project cost (US$350,000 equivalent) will be on- lent to the Agricultural DeveLopment Bank of Nepal (see para 50).

PART I - THE ECONOMY 1/

2. The most recent economic report entitled "Nepal-Country Economic Memorandum" (Report No. 1873a--NEP)was distributed to the Executive Directors on March 21, 1978. The principal findings of the Memorandum are described below. Country data are shown in Annex I. An economic mission is visiting Nepal (May/June 1979) and will prepare an economic memorandum for the Aid Group Meeting scheduled for January 1980.

3. Nepal is one of the least developed countries in the world. Per capita incone in 1977 was estimated at $120, and health and education standards are well below the average of South Asia: life expectancy at birth is less than. 44 years, infant mortality exceeds 200 per thousand, and adult literacy is only 19%. Population in mid-1976 was 12.9 million, of which over 90% lived in, rural areas. Both birth and death rates are high, keeping popu- lation growth at 2.1% a year.

4. The economy of Nepal centers around agriculture. It accounts for 65% of GDP and almost 75% of merchandise exports, and provides a livelihood to over 90% of the population. In addition, most of the small industrial sector, which comprises about 4% of GDP, processes agricultural raw materials. However, about 25% of total rural incomes are estimated to arise from non- agricultural activities. Cottage industries are one of the most important of these, estimated to engage over 1 million people and comprise about 7% of GDP. They provide basic consumer goods in the many small, isolated markets where such goods would otherwise not be available.

1/ Part I of this Report is substantially the same as Part I of the Report and Recommendation of the President to the Executive Directors on a proposed credit to the Kingdom of Nepal for the Narayani Zone Irrigation Development Stage II Project (Report No. P-2385-NEP of September 25, 1978). - 2 -

5. As a small open economy with virtually free trading links with India, Nepal's economy is highly susceptible to developments in India. The Terai, which lies along the Indian border, has close trading links with India, and accounts for about 60 percent of the country's GDP, and about 40 percent of the population. The Kathmandu Valley, the administrative and commercial center, is closely linked with the Terai, but at significant transportation costs. The rest of the country, the hills and mountains, is almost inaccessi- ble economically, and consists of a large number of fragmented markets.

6. When Nepal adopted economic and social development as major govern- ment objectives in the early 1950s, there was virtually no economic and administrative infrastructure. Under these circumstances, initial develop- ment efforts necessarily concentrated on establishing a foundation for future development. It was inevitable that, during these early stages, growth would remain slow and that, as a result, there would be little if any increase in per capita income. However, four successive development plans passed with little shift in emphasis or improvement in per capita incomes and living standards. The Fifth Plan (1975/76 - 1979/80) was to become the turning point; emphasis was to shift away from heavy infrastructure towards quicker- yielding investments in directly productive activities, and towards the provision of social services. Investment in primary infrastructure would be highly selective, and kept in line with the country's near-term ability to exploit it. Infrastructure directly supporting other development activities would continue to receive priority.

7. To some extent the objectives of the Fifth Plan are being achieved; and investment has begun to be reoriented. However, GDP growth has been well below the 4-5% annual growth rate envisioned in the Plan, mainly because of poor agricultural performance. Following two years of stagnant performance, Nepal's economy has showed some improvements during the current fiscal year. An improved harvest due to favorable weather conditions is likely to boost agricultural production by 3 to 4 percent compared with the declining output during the two previous years. The growth in agricultural output together with the continued growth in other sectors of the economy, especially tourism, is likely to lead to a growth of 4 to 5 percent in overall real GDP in 1978/79. However, continued shortages of certain essential construction materials such as cement and iron bars, as well as shortages of electricity, have proved to be limiting factors in the growth of much of the nonagricultural sector.

8. So far overall balance of payments developments have not been a policy constraint for the authorities, and foreign exchange reserves in July 1978 were equivalent of about 8 months of imports. There has, however, been a large and increasing trade deficit. Imports have been growing under the impetus of the Government's development programs, while exports, principally rice (almost 50% of total exports) and jute (about 15%), declined. The trade deficits have been largely offset by increased earnings from tourism and remittances from Gurkhas (soldiers from Nepal serving in the British or Indian army). Tourism earnings accounted for 22% of total convertible foreign exchange earnings in 1976/77. However, despite increasing receipts from tourism and remittances from abroad, improvement in the trade balance remains critically important. Imports, particularly development goods and raw materials, are - 3 - bound to rise steadily; however, medium term prospects for exports are not promising. Prospects for rice, the largest export, are not favorable due to declining surpluses at home and a comfortable supply situation in India.

9. On Marc'h 31, 1978, the authorities implemented a major reform of the ex- change and trade system applying to transactions with third countries. This involved the replacement of a complex system of multiple exchange rates and exchange and trade restrictions by a dual exchange system and liberalization. Transactions with India, whichn are virtually free from restrictions, were unaffected by these changes. New treaties on trade and transit with India were also concluded in March 1978.

10. The poor long-run performance of the economy is chiefly due to the poor growth of agricultural production which is failing to keep pace with population growth. Over the period 1967-77, cereals production grew at an average annual rate of only 1.8% against an annual increase in population of 2.1%. Increases in the area under cultivation account for almost all of this increase; average yields rose by only 0.1% annually. Malnutrition is acute in the Hills, which contain only one-third of the country's agricultural land, yet close to two-thirds of the population. Population density on agricultural land in these areas is higher than in Bangladesh, under even less favorable natural conclitions. Cultivation has been pushed up steep hillsides and onto marginal latnd, and average yields have actually declined. Food availability for the average family has dropped to less than the equivalent of 225 days minimum subsistence needs a year. Because they have little to trade except their labor,, one-third of thet inhabitants of these areas migrate seasonally to the Terai plains and northern India for food and work. Since the mid- sixties, an estimated 400,000 have migrated permanently; there are signs that this exodus is accelerating. Family planning services which could help miti- gate this crisis are weak. Although such services are available in most of the larger towns, they are only just beginning to be extended into outlying rural areas. These efforts are being hampered by the inaccessibility of most of the population; mounting a program on the scale needed will require much more manpower and funds.

11. W'hile the average-sized farm in the Terai is only 1.7 ha, it is still four times as large as that in the Hills. The small surpluses produced by the Terai farmers have been the basis for Nepal's rice exports. However, these exports have been steadily declining, from about half a million tons in the early sixties to only about 100,000 tons in 1977/78. This has been the result of production lagging behind population growth and, more recently, the relative decline in export prices resulting from good crops in India in combination with poor harvests at home.

12. Agriculture thus has the highest development priority in Nepal, not only because of its central economic role, but also because of the pressing need for fcod in the Hills. However, only the Terai presents opportunities for establishing market-oriented farming in the near future; agricultural development in the Hills will have to concentrate on meeting subsistence needs. The focus of agricultural development efforts in the Terai has been on major surface irrigation schemes to increase cropping intensity. However, inadequate attention in the past to bringing development down to the farm level has resulted in the full benefits not being realized. The inadequate support services--inputs, credit, extension and research, and farm-to-market roads--compounded this problem. However, recent major irrigation projects financed by IDA and the Asian Development Bank are addressing these problems by taking more comprehensive and integrated approaches.

13. Although agriculture must occupy a predominant position in Nepal's development strategy, important opportunities exist in other directly produc- tive sectors, including tourism and industry. Tourism is one of the most rapidly growing sectors of the economy. Tourist arrivals have risen from fewer than 50,000 in 1971 to over 125,000 in 1977. But unless tourist services, particularly air transport, are expanded apace, this growth must necessarily come to a halt. Investment opportunities in large-scale industry are limited by the extremely low purchasing power of the population, the inaccessibility of much of the country, the country's remoteness from sources of supply and markets abroad, and its poor endowment with mineral resources. Under these circumstances, most private capital is invested in small agro-industries, trade, tourism and real estate, where profits are more assured. Effective promotion of agro-industrial investments would help promote crop diversifica- tion by farmers and increase domestic value added. Similarly, improved mar- keting arrangements both within Nepal and abroad, inputs supply and credit availability could help expand production by cottage industries. There is also potential in forest-based industries, based on controlled exploitation of forest resources. At present, however, fuelwood needs are causing the rapid depletion of forest resources in the Hills, contributing to the already massive erosion arising from natural causes and forage depletion. Immediate efforts in this sector must, therefore, concentrate on reforestation and water- shed management. In the longer run, fuller exploitation of Nepal's vast water resources could provide a basis for accelerated economic growth.

14. Nepal has made significant progress in mobilizing domestic resources to undertake its development programs, considering the extreme poverty, low degree of monetization, and fragmented nature of the economy. Revenues have grown at 16% a year since 1969/70, and revenues as a percentage of GDP have increased from 5.0% in 1969/70 to about 7.5% in 1976/77. Over the same period, the Government was able to maintain savings on current account in excess of 2% of GDP, a good achievement for a country in Nepal's economic position. 1/ It will be difficult, however, to maintain the public savings rate because current expenditures will have to start growing more rapidly than in the past to allow for proper maintenance of roads and major irrigation schemes, and the operating expenses of expanding social services.

15. The narrow tax base limits the potential for generating increased revenues through tax rate adjustments, but there is still considerable scope for increasing the contribution of agriculture, and improving tax administra- tion. Effective implementation of the recent agreement with India to improve control of unauthorized trade along the long common border would constitute an important step in this direction.

1/ Average government saving in the least developed countries as a whole is about -0.7%. - 5 -

16. In view of the limited prospects for additional resource mobiliza- tion, foreign aid remains the decisive factor in Nepal's development. Foreign aid has increased rapidly during the 1970s, but present projections indicate that there will nevertheless be residual financing needs, which will prove difficult to fill through projects assistance. Donors need to consider financ- ing a larger portion of the local costs of projects, increasing commodity assistance, and providing sector aid.

17. As important as the need for additional financial assistance is the need to boost further absorptive capacity. Donors have responded through project-related technical assistance, and more recently, through efforts to strengthEn the development administration capacity in certain key sectors. To assist in the overall coordination of financial and technical assistance efforts, the Nepal Aid Group was formed in 1976; the Group has met twice at plenary meetings to discuss overall external assistance needs as well as at the local. level in Kathmandu to discuss and coordinate strategy.

18. As of December 31, 1977, official foreign debt amounted to $299 M. Although utilization has been slow in the past, disbursements are beginning to accelerate rapidly. Debt service was equivalent to about 2% of exports of goods ancl services. In view of the accelerating pace of development, external public debt is expected to rise and, based on the trend in recent years, may reach about $450 million by 1980, of which approximately 50% could be in IDA credits. Because of the large grant element in much of the foreign aid, the total.debt service ratio is projected to remain below 5% by 1980; debt service t:othe Bank Group alone would be less than 2% of exports of goods and services.

PART II - BANK GROUP OPERATIONS IN NEPAL

19. Bank Group operations in Nepal began in FY70 with an IDA credit of US$1.7 million equivalent for a telecommunications project. In the fol- lowing nine years, 17 additional credits were approved, bringing total IDA assistance to Nepal to US$190.4 million equivalent, net of cancellations. In view of Nepal's many development needs, this assistance has been for projects in a wide variety of sectors. Five of these sectors account for 84% of IDA credits by amount: irrigaition (31% for 4 projects); power (22% for 1 project); telecommunications (11% for 3 projects); highways (10% for 2 projects); and water supply and sewerage (10% for 2 projects). The remaining 16% of IDA assistance has been for one project in each of the areas of rural development (4%), settlement (3%), technical education (3%), tourism (2%), technical assistance (2%), and industrial development financing (2%). The proposed credit would be the second in FY79, bringing the total amount of IDA assist- ance to Nepal to US$201.4 million equivalent, net of cancellations. No Bank loans have been made to Ne!pal. IFC made its first investment in Nepal ($3.1 million) in a hotel project in Kathmandu in FY75. Annex II contains a summary statement: of Bank Group operations as of April 30, 1979, and notes on the execution of ongoing IDA projects. It shows certain delays in the implementa- tion of these projects, particularly during the initial periods. These delays - 6 - have been largely due to Nepal's limited technical and managerial capabilities. In order to assist Nepal in coping with this constraint, considerable tech- nical assistance is being given by Bank Group staff, including our Resident Mission in Kathmandu. As a result, improvement in the rate of disbursements is being realized. During FY78, US$11.4 million equivalent were disbursed compared to US$12.8 million equivalent disbursed during the entire previous seven years; disbursements through April 30, 1979 indicate a further improve- ment, disbursing $14.6 million equivalent so far in FY79.

20. Bank Group lending to Nepal has so far been at a modest level com- pared to the country's need for external assistance. The international community has persistently shown considerable interest in Nepal's economic development and, to date, shortage of funds has not been a bottleneck. The main constraint on the utilization of increased aid has been Nepal's limited absorptive capacity, affecting the pace of project preparation and implement- ation. The Bank is assisting the Government in project preparation through the Technical Assistance Credit and by acting as Executing Agency for a number of technical assistance projects in the current UNDP Five-Year Program. The Bank Group has also addressed the problem of absorptive capacity through its role in organizing the Aid Group for Nepal (para 17).

21. The Bank Group's current strategy places major emphasis upon the directly-productive sectors (particularly agriculture) and the development of complementary infrastructure, including feeder roads (particularly con- necting the Hills to the Terai), communications and hydroelectric power. Preparation of projects in irrigation, forestry, water supply, grain storage, and cottage/small industry is under way.

PART III - THE RURAL SECTOR

22. Nearly 96% of Nepal's population lives in rural areas and for 95% of these residents, agriculture is the main source of livelihood as alter- native occupations are extremely limited. In the decade 1961-1971, when the non-agricultural labor force increased by 2.5%, the agricultural labor force increased in that period by 6.3%. This both increased pressure on land and increased rural underemployment. Urban areas are few and most settlements contain populations of less than 3,000. Hamlets are more widely dispersed in the Hills and Mountains than in the Terai (plains), adding yet another dimension to the problems of developing rural Hill and Mountain regions. Thus, the contrasts in Nepal are not so much between urban and rural areas, as between the Terai (with its relatively higher level of overall development) and the Hills and Mountains (except the three districts comprising the Kathmandu Valley).

23. Nepal is divided physically into three broad ecological zones: the Terai, Hills and Mountains. These th ee zones cover respectively 17%, 68% and 15% of the total area (140,800 km ). Rivers and streams cut through the country from north to south and with the hills create numerous microclimatic zones in valley bottoms and on surrounding hill peaks. Geography, a limiting factor in the development of the Hill and Mountain areas, adds to isolation and perpetuates ethnic, linguistic and cultural differences. This isolation is further accentuated by lack of communications; in 1974, 42 out of 55 hill districts were without major road access, and 10 of these districts did not have even feeder roads.

24. The population of Nepal is now estimated at about 13 million and is distributed as follows: 58% Hills, 34% Terai and 8% Mountains. The annual national growth rate of 2.1% has shown no perceptible signs of decrease over recent years. Most of the population is young: the median age is about 22 years, and 66% of the population is below 30 years. In the decade 1961-1971, the popu'Lationgrew at a faster annual rate in the Terai than in the Hills and Mounitains: 2.6% and 1.4% respectively. This difference in growth rates is large'Lyexplained by migration from the Hills and Mountains.

25. In 1971, the average holding size in Nepal was 0.94 ha per family but this average masks considerable variations as 81% of families in the Hills own less than 1 ha, compared with 53% in the Terai. In 1962, the average farm holding of a household in the Hills was 0.56 ha; in 1976, this was estimated at less than 0.4 ha, while in the Far West Region, the estimate was less than 0.3 ha. Each holding, particularly in the Hills, is sub-divided into plots of smaller size covering several microclimatic zones, thus reducing risks conse- quent on vagaries of weather, changes in the courses of rivers and streams, and landslides. In addition, inheritance continues to decrease land holding size at each succeeding generation.

26. Nutrition. Zonal differences in production of major food crops are considerable, and when translated into terms of caloric requirements for mini- mum subsistence 1/, the average family in the Mountains now has enough food for aboul:190 days; in the Hills, for 225 days; and in the Terai, for 540 days. The declining potential of the Hill and Mountain areas to provide subsistence for its residents is reflected in high infant mortality rates (estimated at over 200,/1,000live births), a high child mortality rate between the ages 1-4 (estimated at 39/1,000) and a general lowered resistance to disease.

Objectives and Strategy for the Future

27. The Fifth Plan (1975-1980) attempts to shift investment in favor of quick--yieldinggrowth promoting programs in agriculture, industry, water resources and tourism. In the Hill areas, it is the Government's goal to eliminate the deficit in foodgrains production. For cottage industries, the Government has proposed a two-pronged approach: (i) developing cottage industries in the most promising growth areas in the Hills for sale in the rest of the country or for export, and (ii) developing self-reliance in inaccessible areas, by catering to the needs of the local people in the area. For rura'Ldevelopment, the Government envisages an area-based integrated development strategy. Earlier, the general approach had not been integrated,

1/ About 2,000 calories per day for an adult. - 8 - and efforts were concentrated on one or, at best, a few facets of district development. Most agencies had established autonomous project authorities which had generally operated through different ministries of the Government. In early 1977, the Government decided to formulate guidelines for implementa- tion of future rural development projects and which would be adoDted by all international agencies agreeing to assist in the financing of such projects. In light of experience gained during execution of the IDA financed First Rural Development Project (Credit 617-NEP) (see para 34 below), the Government requested IDA assistance in formulating appropriate guidelines; these were discussed with representatives of aid donors at a meeting held in Kathmandu in mid-1977. The proposals emphasize participation of the people in drawing up development plans and establish that implementation should be carried out under the aegis of the District Administrative Plan (DAP). Furthermore, they identify priority areas for development, training and technical assistance and indicate those components which should normally be included in rural development projects. These proposals have since formed the basis for project formulation and implementation.

Organization and Implementation

28. Overall responsibility for coordination and implementation of rural development projects is vested in the Ministry of Home Panchayat (MOHP) and exercised by an already established Panchayat Development Central Coordination Committee (CCC), which is chaired by the Minister of Home Panchayat and in- cludes representatives of the National Panchayat, Back-to-the-Village National Campaign Committee (BVNCC), and Secretaries of the line ministries (designated as project officers). A Central Project Coordinator (CPC), holding the rank of Additional Secretary, serves as member/secretary. To assist the CPC in carrying out his duties, five new administrative divisions, each headed by a Joint Secretary, have been established within the MOHP, responsible for resource mobilization, training, research, coordination and panchayat devel- opment. The CPC, operating through the five administrative divisions, ensures inter-project coordination and funding, provides general administrative sup- port in project implementation and monitors and evaluates progress. Respon- sibility for implementation of individual project components rests with the designated project officers of the respective ministries and agencies.

29. Administratively, Nepal is divided into four Development Regions, running from north to south and each comprising Mountain, Hill and Terai areas. Each Development Region is sub-divided into Development Zones, vary- ing from 3 to 5 in number, which are further divided into Districts. Zonal Coordinating Committees (ZCC) would be established and chaired by the Zonal Commissioner and comprise Chief District Officers (CDOs), regional directors of line departments, BVNCC District Chairman, and District Panchayat Chairmen. The responsibilities of the ZCC would be: (i) to coordinate project activi- ties of participating ministries and agencies; (ii) to keep under regular review the progress of development projects; (iii) to review and to evolve, as necessary, procedures for smooth project implementation and monitoring; and (iv) to identify bottlenecks hindering project progress and to prescribe, as necessary, remedial measures to overcome them. In addition, ZCC would provide guidelines on the directions and nature of support which should be - 9 - given by central line agenciess to the districts and the time schedules for planning, preparation, approval and implementation of subprojects. The ZCC would also endorse district plans.

30. Under the DAP, the Chief District Officer (CDO) is the administra- tive head of all government functionaries of line ministries operating at the district level. District officers of these line ministries are merged into a District Secretariat, which also functions as the Secretariat to the district panchayat. DAP defines the two areas of responsibility of the CDO as mainte- nance of law and order and district development. Execution of the latter function is entrusted to a Panchayat Development Officer under the CDO's supervision. Line ministries retain technical supervision of staff at dis- trict level while delegating administrative and financial responsibility to the CDO for the preparation and implementation of district development plans. Popular participation in development is established through coordination com- mittees, chaired by the district panchayat Chairman and comprising the CDO, representatives of line ministries and district panchayat. The District Secretariat is responsible for implementation of approved projects.

31. The panchayat system, which encompasses the political and develop- mental organizations, has three tiers. At the lowest level is the village panchayat or, for areas with a population of 10,000 and more, a town panchayat. The next level is the district panchayat. At the highest level is the National Panchayat whose 125 members are elected by members of district panchayats. The Panchayat system and assistance in local development are the responsi- bilities of the MOHP, headed by a minister who is responsible to the National Panchayat. The Local Development Department (LDD) of the Ministry is its executive arm, through which technical assistance and funds are channelled to panchayats.

32. The major responsilbilityfor local development lies with village and district panchayats. Village panchayat programs are initiated at village meetings and submitted to the district panchayat for technical clearance and financial assistance from grants which the LDD places at the disposal of district panchayats for this purpose. Village panchayat projects are imple- mented through local implementation committees composed of village panchayat chairmen, district assembly members and voluntary workers. Technical super- vision is provided by district panchayat staff. The MOHP undertakes training of officials and elected memlbers and provides staff and development funds.

33. The responsibility for planning and implementation of district panchayat development programs lies with the Secretariat of district pan- chayats. After approval by the district assembly, development programs are submitted to the concerned departments for technical approval and provision of funds. During implementation, projects are supervised by technical staff of the appropriate departments. The MOHP provides a multipurpose development worker to each village panchayat, who also acts as secretary of the panchayat. Such workers not only serve as a liaison between the district administration and village panchayats, but also provide administrative support, especially in respect of record keeping and accounting. - 10 -

Bank Group Support to Rural Development

34. The Bank Group is at present involved in an on-going rural develop- ment project and a settlement project. The first Rural Development Project (Credit No. 617-NEP, US$8.0 million equivalent) became effective in July 1976 and is assisting in the development of the two Hill districts of Nuwakot and Rasuwa, located in the Central Region. The project is comprised of eight components:

(a) Development of more intensive agricultural extension accom- panied by wider use of improved crop varieties, establishment of farmer and staff training, improvements in marketing of horticultural produce and upgrading of research stations;

(b) Livestock development through improved animal health services, small cheese/butter plants, a livestock market, an exchange program for improved sires, and improved fodder resources;

(c) Establishment of a district organization for and undertaking investments to improve and extend hill and river terrace, and river valley irrigation systems;

(d) Improvements in availability of inputs through provision of small warehouses and credit;

(e) Soil erosion control;

(f) Health centers and development of village water supplies;

(g) Tracks and footbridges and upgrading of existing trails; and

(h) Improvement of cottage industries.

35. General progress has been satisfactory. With some exceptions, implementation is either ahead of schedule or as forecast at appraisal. Track and trail improvement has lagged owing to shortages of labor during the con- struction season. Furthermore, shortages of well-trained staff and lack of seed of improved varieties have contributed to a slow rate of improvement in agricultural production. However, with the recruitment of village agricul- tural assistants from the area farmers and with the Agricultural Inputs Corporation (AIC) providing improved seed and fertilizer through their sales depots, agricultural production is on the increase and considerable increases in potato production have occurred at higher elevations. The establishment of four small cheese/butter plants have also increased cash returns to livestock keeping. District staff are now acquainted with the project and display considerable keenness and initiative. Preparation of the annual district development plan has insured local participation and there is a marked increase in the confidence of local people toward the ability of Government to implement these programs. Interministerial coordination has been good and the Project Coordinator has been effective in ensuring funding - 11 - and providing support for district staff. Reporting of progress has been satisfactory. Disbursement is 85% of estimates (the discrepancy being due to savings in building costs and failure to meet expected development of tracks and trails), even though procurement procedures have been cumbersome due to unfamiliarity with procedures.

36. The Settlement Project (Credit No. 505-NEP, US$6.0 million equiva- lent) became effective in 1975 and is assisting in the clearing of land and settlement of three areas, two in the western Terai at Kanchanpur and Bardia, and one in the eastern Terai at Jhapa. The settlement schemes are designed to relocate rural families mainly from the Hills, and include food assistance during the first 270 days of settling in, extension services for agriculture and provision of credit. The project concept is designed to utilize the earn- ings from the sale of logs and lumber to finance investments in the settlement schemes, resulting in a very low-cost rural development scheme, in addition to a viable investment in the logging industry. Project progress in the forestry clearing component has been slow, due to both technical and managerial con- straints, while the implementation of the commensurately smaller settlement schemes has been satisfactory.

PART IV - THE PROJECT

37. The proposed project was prepared by the Agricultural Projects Service Center of Nepal, withi assistance from the FAO/IBRD Cooperative Program; preparatory work was financed under the first IDA-assisted rural development project. The project was appraised in November/December 1978. Negotiations were held in Kathmandu, Nepal, in May 1979. The Nepalese delegation was led by H.S. Shrestha, Joint Secre!tary,Ministry of Finance. A report entitled "Nepal - Staff Appraisal Report - Second Rural Development Project" (Report No. 2401-NE]?,dated May 31, 1979) is being circulated to the Executive Directors. A timetable of key events relating to the project, special imple- mentation actions to be taken by the Association and special conditions of the proposed credit are given in Annex III.

Project Objectives

38. The project would help develop the three far western Hill districts of Dandeldhura, Baitadi, and Darchula (Maps IBRD 14189 and 14190) and aims to raise agricultural product:ionto levels whereby farmers could meet full family subsistence. Given the remote project area, poor communications, and low income levels, the project: (i) emphasizes the adoption of low-cost mea- sures for raising productivity; (ii) utilizes simple design schemes for con- struction of irrigation works, wells, trails etc., which can subsequently be maintained by the beneficiaries; (iii) upgrades infrastructure; and (iv) pro- vides complementary investments in social services.

Project Description

39. The main components of the project are: - 12 -

(a) upgrading of agricultural and livestock extension services;

(b) expansion of agriculture and cottage industry credit programs and strengthening of Sajha cooperatives;

(c) expansion of horticulture through provision of fruit trees and vegetable seed;

(d) establishment of animal health and buffalo breeding programs;

(e) development and improvement of about 700 ha of hill and terrace irrigation schemes using water from perennial and seasonal sources and of about 700 ha of gravity-fed irrigation schemes in river valleys and lower terraces;

(f) upgrading of 225 shallow drinking water wells;

(g) construction and improvement of 3 small (15 bed) hospitals and about 25 health posts and provision for increased staff and supplies of drugs and medical equipment;

(h) upgrading about 110 lower secondary and 15 secondary schools through improvement to buildings and libraries, construc- tion of 5 student hostels, provision of teaching aids, and increasing the number of mathematics and science teachers;

(i) provision of panchayat facilities by construction of about 22 multipurpose panchayat community centers, strengthening of district accounting staff, and training of panchayat officials and staff;

(j) provision of furniture and fittings for existing post offices and construction of about 19 additional sub-post offices and about 50 relay stations;

(k) upgrading of about 250 km of main trails and about 340 km of secondary trails, and construction of about 128 timber and 19 suspension bridges;

(1) establishment of a divisional erosion control office and undertaking of protection measures for roads and trails and on other infrastructure;

(m) improvement of cottage industry through a study to determine the potential and prospects in the project area and through training of staff and of those engaged in wool weaving; and

(n) establishment of project headquarters and provision of staff, equipment and technical assistance.

40. In line with the administrative procedures established for all rural development projects in Nepal (para 28), overall responsibility would be - 13 -

vested in the Panchayat Development Central Coordination Committee (Section 3.03(a) of the Development Credit Agreement (DCA)). It would be a condition of effectiveness that the ZCC had been established for the Mahakali Zone and a full-time Project Coordinat:or (PC) had been appointed (Sections 3.03(b) and (c) and 5.01(c) of the DCA). The PC would be appointed from the MOHP of at least Joint Secretary rank and would serve under the general direction and supervision of the CPC. The PC would serve as member/secretary of the ZCC and would be assisted by an adviser appointed under the technical assistance program (para 47) and would establish a project headquarters expected to be located in Patan.

41. Each District Secretariat (para 30) would prepare annually a District Development Plan for each district in the project area in consulta- tion with the district panchayat, with assistance from the PC. Participating ministries/agencies would thean provide technical clearance of their components through their designated project officers. Individual components of the plan would then be implemented under the direct supervision of the technical func- tionaries of the concerned ministries, but under the overall guidance of CDO and with the support and cooperation of the district panchayat. District Development Plans would be submitted annually to IDA by September 15 for com- ment, and budgetary allocations to districts would be made in amounts suffi- cient for the proposed projeczt (Section 3.07 of the DCA).

42. The project would be implemented according to standard procedures of Government as they apply to planning, approval, budgeting procedures, and responsibilities of the Ministry of Finance. The PC would play an important role in preparation of financial estimates and district development plans and would assist CDOs and District Secretariats in the preparation of these development plans and detailed implementation schedules within the broad framework of: (i) project proposals; (ii) requirements of the DAP; and (iii) technical guidelines from central line agencies. Although the PC's role would be advisory, he would have the responsibility of bringing disputes and conflicting priorities, which cannot be resolved at the district level, to the attention of the relevant ministries and central agencies and, if necessary, to the ZCC for resolution. The PC would also provide assistance and advice to central line departments of Government in the timing, phasing and contents of their inputs to district plans. The PC would then present the completed district plan to the ZCC for endorsement and thereafter ensure timely sub- mission of the district plan to the CCC for approval. Finally, the PC would monitor the process whereby each concerned ministry and agency makes budgetary requests for financial provision to implement the planned project components and would collate such requests for the ZCC and the Finance Ministry.

43. Ait the three district headquarters, facilities, including the con- struction of offices and staiffhousing and provision of equipment, materials, and incremental staffing, would be developed for expanded and improved pro- grams of agricultural and livestock extension work, irrigation development, health services, cottage indlustries,and technical offices of the Ministry of Works and Transport (MOWT). Similar headquarters facilities to serve all three districts would be established in Patan for the PC, and for a Panchayat training program, erosion control, and technical support unit of the MOWT, and at Dandeldhura for the L.DD water supply project. - 14 -

44. The focus of most project activities would be the administrative service centers. About 22 such centers would be established under the proj- ect, each covering about 4-5 panchayats. Each center would be constructed from locally-available materials and would comprise a small office building for use by extension staff and other visiting government staff, as well as facilities for a small livestock dispensary and standing buffalo bull, a sajha cooperative office and store, post office and community hall; office and training equipment and staff quarters would also be provided. Each service center would also make available to local farmers the use of a small hand winnower to clean and grade seed.

45. Overall project implementation would take five years. A seed exchange program as well as extension services would be initiated from the beginning of the project. Given the focus of the extension programs on adoption of low-cost measures for raising agricultural production, increased agricultural credit is not expected to be required until the fourth and fifth years of the project. The upgrading and construction of the irrigation works, trails and bridges, health posts and schools are planned to commence at the end of the first or at the beginning of the second year of the project. As some of the project components were developed and would be implemented by separate corporations, as opposed to Government line agencies, it would be a condition of credit effectiveness that the Government had entered into formal arrangements, satisfactory to the Association, with the Agricultural Input Corporation (AIC), the Agricultural Development Bank of Nepal (ADBN), and the Dairy Development Corporation (DDC) (Sections 3.01(b)(i) and 5.01(a) of the DCA).

46. With the assistance of a training and communication officer (Section 3.02(d) of the DCA), detailed proposals for agricultural training programs for extension staff would be prepared and submitted by December 31, 1980 to the Association for comment (Section 3.10(a)(i) of the DCA). Funds would be provided under the project for the Dairy Development Corporation (DDC) to carry out studies by December 31, 1980 and to initiate pilot programs for the improvement of marketing and prodution of ghee (Section 3.10(a)(iii) of the DCA). The study on the prospects and potential of cottage industries in the project area would be initiated by December 31, 1980 (Section 3.10(a)(ii) of the DCA).

Technical Assistance

47. Through a UNDP technical assistance agreement, three internationally recruited staff are expected to be employed for three years to assist in project implementation (Sections 3.02(a), (b) and (c) of the DCA). A rural development administrator would serve as assistant to the PC to help develop procedures and expertise at district level in planning, budgeting and project implementation and to assist in setting up a system for project monitoring, disbursement and accounting. A civil engineer would work with staff of a district technical support unit and a district technical office of the MOWT in planning, design and implementation of work programs for project buildings, bridges, trail improvement, and construction of hill terrace irrigation. A socio-economist would formulate and develop procedures for monitoring the socio-economic impact of the project on participants and assist in the - 15 - analysis of data collected. The socio-economist would also design and carry out such ad hoc studies as are necessary to monitor progress and provide guidance to project management in project implementation. It would be a condition of credit effectivieness that the Government had made arrangements, satisfactory to IDA, for the retention of these technical experts, as well as the training and communication officer (para 46) (Section 5.01(b) of DCA).

Monitoring and Evaluation

48. The socio-economic unit set up in the Office of the CPC in the MOHP under the first rural development project (para 34) has proven to be a very useful tool in providing data on project progress and pointing out areas of concern and ways of resolution. The proposed project would strengthen this socio-economic program through the appointment of additional staff, training of local ccunterparts, and with the assistance of the socio-economist to be provided under the technical assistance program. The project would also provide funds for project evaluation; under the program a baseline socio- economic survey of the three project districts would be designed and conducted. The unit would also prepare, under the supervision of the PC, semi-annual project reports. Funds would also be provided under the project for employ- ment of shcrt-term consultants to assist in preparation of the project com- pletion report, as well as for feasibility studies and preparation of a further rural development project.

Cost and Financing

49. The total project cost is estimated at US$13.5 M equivalent, in- cluding contingencies and a negligible amount of taxes and duties. The cost estimates are updated to March 1979 prices and include physical contingencies of 10% for construction of buildings and 15% of costs of trails, irrigation and erosion control works. Price contingencies have been calculated using 6% per annum price increases for equipment and vehicles and 8% per annum for civil works and other project costs. The foreign exchange cost is estimated at US$4.0 million or about 30% of total project cost. The proposed IDA credit would cover all the foreign exchange cost (excluding the financing for tech- nical assistance expected to be provided by UNDP) and about US$8.0 million equivalent of local costs, amounting to 81% of total project cost. UNDP would provide about US$1.1 M and the Government would contribute US$1.4 M equivalent in local cost or about 11% of total project cost. The cost of individual consultantst services is based on the UNDP scales of about US$65,000 per man-year, including benefits, overheads, etc.

50. Agricultural credit funds (US$350,000) 1/ would be made available to ADBN under arrangements and upon terms and conditions satisfactory to the Association (Section 3.01(b)(i) of the DCA). It is expected that funds would be on-lent to ADBN at 6% and 4% per annum for short- and medium-term loans, respectively, equivalent to present rediscount facilities of the Central Bank. In line with present policy, ADBN would lend to cooperatives at 10% and 8%

1/ Net of price contingencies. - 16 - per annum respectively; they, in turn, would on-lend to farmers at 14% and 11% per annum respectively. Interest margins would be adequate to cover all operating expenditures and charges, including taxes and borrowing from all sources and are sufficient to maintain adequate reserves to meet reasonable bad debt risks. Inflation in Nepal over the past three years has averaged 6.7% per annum and is not expected to exceed 7% annually over the next three years. Therefore, the proposed rates to the ultimate borrowers would be positive in real terms.

51. Capital costs, including construction and civil works, provision of equipment and supplies, and studies, represent over 55% of total project cost. 1/ Operating costs 1/ for incremental staff and other incremental recurrent expenditures amount to about 30% of total project cost. The re- mainder 1/ is made up of technical assistance (11%) and credit (4%). The incremental operating costs are relatively small and well within the capacity of the Government to sustain after the five year project implementation period. In light of the investment to be undertaken to upgrade gravity-fed irrigation schemes in river valleys and lower terraces, the Government would submit proposals to the Association by June 30, 1984, regarding the amount and method of collection for the levy of appropriate water charges (Section 3.09 of the DCA).

52. Procurement. Procurement of equipment, furniture and vehicles (US$908,000) 1/, involving contracts above US$100,000 would be on the basis of international competitive bidding (ICB) in accordance with IDA guidelines. Orders of less than US$100,000 would be purchased under Government local tender procedures which are satisfactory. Because of the remoteness of the project area and small size of individual schemes, it would not be practical to group civil works contracts (US$5.8 M 1/) for ICB or local competitive bidding. Consequently, civil works would be undertaken by the Ministry con- cerned, using local labor, with the exception of works on "major" irrigation schemes (US$659,000) 1/ which would be subject to local competitive bidding.

53. Disbursement. Disbursement of funds would be on the following basis: (i) 90% of local expenditures for civil works carried out either by contract or by force account; (ii) 100% of foreign expenditures for directly imported equipment, furniture and vehicles and 100% of local expenditures (ex-factory cost) for locally manufactured goods and 90% of local expenditure for other goods procured locally; (iii) 90% of agricultural and cottage in- dustry subloans disbursed by ADBN; (iv) 100% of total expenditures for consul- tant services and training; and (v) 90% of local expenditures for salaries and allowances of staff engaged in the project in agricultural and livestock development, cooperatives, AIC, health, cottage industry, civil engineering, training and in project management, monitoring and evaluation. Disbursement against civil works carried out by force account and by contracts costing US$5,000 equivalent or less and against categories (iii) and (v) above would be made against statements of expenditures. The documentation for such expenditures would be retained by the Government and made available for

1/ Net of price contingencies. - 17 -

inspection by IDA representatives during the course of project supervision. Requests for disbursement against other items would be fully documented.

54. The Government would cause participating Government ministries, ADBN, AIC, and DDC to establish and maintain separate accounts for the project in accordaincewith sound accounting practices and would insure that these accounts wrould be audited annually by an independent auditor acceptable to IDA and furnished to the Association not later than twelve months after the end of each fiscal year (Sections 4.01(a) and (c) of the DCA). The audit report would be required to include a statement that funds disbursed against statements of expenditure had been used for the purpose for which they were provided. The documents evidencing the expenditures on account of which withdrawa:Ls are requested on the basis of statements of expenditure would be retained until one year after the closing date (Section 4.01(b) of the DCA.

Productionl and Farm Incomes

55. At full development in 1990, production is expected to increase by between 25-50% for the various crops (valued at about US$2.35 M annually) and net farm incomes would improve by 50-130%. Benefits are expected through yield improvements rather t:han increased cropping intensity or area expansion. Production increases from Livestock would result in increased production of milk, meat, wool, hair, and dung valued at about US$475,000 annually (gross value of production in financial prices). Almost all increased production would be consumed on farm to help meet subsistence needs. Ghee would be marketed across the border in India where there is a high demand for the product. Incremental wool producticn would be readily absorbed in the project area since wool based cottage industries presently have to import wool from Tibet and India. Consequently, no marketing constraints are foreseen for any incremental production resulting from the project.

Benefits and Risks

56. At full development, increased production would raise family food levels tc about 410 days at minimum subsistence levels 1/ or 330 days at average subsistence levels 2/, compared to 295 days and 250 days respectively without the project. Current consumption levels are estimated at about 300 days at minimum subsistence and 260 days at average subsistence levels. In- creased production would help reduce underemployment on farms and over the project period, development of infrastructure would provide about 4 million mandays of employment, mainly in construction. It is expected that the project would also help slow down permanent migration from the area, which in turn wou:Ld reduce population pressures on scarce land resources elsewhere in Nepal. Benefits from the social and other infrastructure programs would also contribute indirectly to increased production. At full development, the average income of the poorest group would increase from about 17% of the

1/ 2,000 calories per day for an adult. 2/ 2,500 calories per day for an adult. - 18 - national average to about 25%. Per capita incomes of larger farmers in the project areas (the average farm holding in the far West Region is only 0.3 ha) are expected to increase from 20% of national average to about 40%.

57. Discountingthe economic costs and the quantifiablebenefits over a 20 year period, the economic rate of return for the project as a whole is estimatedat about 21%. The economic rate of return for the agricultural developmentcomponent, which representsabout 18% of total project cost, is estimatedat about 50%; the economic rates of return for the irrigation component,which represents about 11% of total project cost, and for the livestockcomponent, which represents about 6% of total project cost, are estimated to be about 12% and 15% respectively. Costs and benefits of the social programs have not been included as the benefits are non-quantifiable. Sensitivitytests indicate that, under a series of adverse assumptions,the project would remain viable. If projectedcrop yields decreased by 20%, and constructioncosts increasedby 50%, the economic rate of return would be 14%. If achievementof full benefits of the project were delayed by 5 years, the economic rate of return would be 17%.

58. In view of the remotenessof the project area, the greatest risk lies in the availabilityand willingnessof government staff to live and work in project areas. The project is designed to minimize this risk by providing accommodation,project allowances and social amenities to create sufficient incentivesfor staff participation. In addition, the training of staff for the Department of Village and Cottage Industrieswould be allocatedon a priority basis to locally resident staff, and those selected for training would undertake to serve in the project area for at least two years from the date of return (Section 3.08 of the DCA). Lack of communicationsand means of transportationmay also affect farmers' participationin the project. To minimize this risk, activitieswould be decentralizedto administrative service centers located throughout the project area. In addition,tracks and trails would be improved to facilitatedelivery of inputs.

PART V - LEGAL INSTRUMENTSAND AUTHORITY

59. The draft DevelopmentCredit Agreement between the Kingdom of Nepal and the Association,and the Recommendationof the Committeeprovided for in Article V, Section l(d) of the Articles of Agreement, are being distributed to the Executive Directors separately.

60. Special conditionsof the project are listed in Section III of Annex III. Special conditionsof effectivenesswould be that the the Govern- ment had: (i) establishedthe Zonal CoordinatingCommittee and appointedthe Project Coordinator (para 40); (ii) completed arrangements,satisfactory to the Association,for the carrying out of the project components to be imple- mented by AIC, ADBN, and DDC (para 45); and (iii) completed arrangements, satisfactoryto the Association,for the retention of the required technical experts (para 47). - 19 -

61. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association.

PART VI - RECOMMENDATION

62. I recommend that the Executive Directors approve the proposed credit.

Robert S. McNamara President

Attachment:s

June 7, 1979 - 20-

ANNEX I TABLE 3A NEPAL - SOCIAL INDICATORS DATA SHEET AND a>'_ THGU KM2) ------NEPAL REFERENCE COUNTRIES (19701 TOTAL 140.8 MOST RECENT AGRIC. 40.0 1960 1970 ESTIMATE AFGHANISTAN BOLIVIA TURKEY**

GNP PER CAPITA (US$) 50.0 70.0 110.0 110.0 29C.0 510.0

POPULATION AND VITAL STATISTICS ______POPULATION (MID-YR, MILLION) 9.3 11.3 13.1 12.3/a 4.9 35.B

POPULATION DENSITY PER SQUARE KM. 66.0 80.0 93.0 19.0 4.0 46.0 PER SQ. KM. AGRICULTURAL LANO 243.0 284.0 328.0 87.0 16.0 65.0

VITAL STATISTICS CRUDE BIRTH RATE (/THOU, AV) 46.3 44.7 42.9 48.7 44.4 40.6 CRUDE DEATH RATE (/THOU,AV) 27.8 24.6 20.3 27.6 19.7 14.4 INFANT MORTALITY RATE (/THOU) .. 200,0 -300 154.01 153:0 /a LIFE EXPECTANCY AT BIRTH (YRS) 35.6 40.6 43.6 37.8 45.3 54.4 GROSS REPRODUCTION RATE 3.0 3.0 2.9 3.4 2.8 2. /b,c

POPULATION GROWTH RATE (X) TOTAL 1.5 2.1 2.1 2.21b 2.6 2 5 URBAN 6.5 3.9 5.4 5.2 4.2 4.9 Id

URBAN POPULATION (X OF TOTAL) 3.4 4.1 4.8 10.7 32.3 38.7

AGE STRUCTURE (PERCENT) 0 TO 14 YEARS 39.9 .. 40.5 43.2 41.9 41.7 15 To 64 YEARS 57.0 56.4 54.2 54.6 54.0 65 YEARS AND OVER 3.1 . 3.1 2.6 3.5 4.3

AGE DEPENDENCY RATIO 0.6 .. 0.8 0.6 0.8 0.9 ECONOMIC DEPENDENCY RATIO 1.0 1.0 - 1.0 /a 1.1 Ia

FAMILY PLANNING ACCEPTORS (CUMULATIVE, THOU) ,. 86.5 378.6 '' USERS (X OF MARRIED WOMEN) .. .. 17.0 .. .8. .2

EMPLOYMENT

TOTAL LABOR FORCE (THOUSANO) 4300.0 4900.0 . .. 2300.0 14000 If LABOR FORCE IN AGRICULTURE (X) 94.6 94.4 , .. 6s.0/b 63 - UNEMPLOYED (5 OF LABOR FORCE) ...... 16.0 11.9 a

INCOME DISTRIBUTION

S OF PRIVATE INCOME REC'D BY- HIGHEST 5% OF HOUSEHOLDS ...... C 32.8a HIGHEST 20% OF HOUSEHOLDS ...... 59.0j 60.6 LOWEST 201 OF HOUSEHOLDS ...... 4.0 2.9 1Ž 1 3 0 LOWEST 40X OF HOUSEHOLDS ...... C 9.4

DISTRIBUTION OF LAND OWNERSHIP

X OWNED BY TOP 10% OF OWNERS ...... 53.0 X OWNED BY SMALLEST 10% OWNERS ...... 0.9

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN 72000.0 49770.0o4. 36550.0 14680.0 2300.0 2250.0 POPULATION PER NURSING PERSON ,. 35600.0 1k 17430.0 / 210830.0 2730.0 1770.0 / POPULATION PER HOSPITAL BED 7000.0/a 6750.0 6630.0 .. 490.0 500.0

PER CAPITA SUPPLY OF - CALORIES (% OF REQUIREMENTS) 92.0 94.0 f.Oa/ 78.0 76..0 112.0 PROTEIN (GRAMS PER DAY) 51.0 52.0 50.Of 58.0 46.0 798.0, 9 -OF WHICH ANIMAL AND PULSE 9.0 /b 11.0 .2L 11.0 14.074 22.07M

DEATH RATE (/THDU) AGES 1-4 ...... - 7.4 14.7/A

EDUCATION

ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL 10.0 26.0 59.0/c 21.0/C 68.0 109.0 SECONDARY SCHOOL 6.0 9.0 14.0 /d 6.07 21.0 28.0 YEARS OF SCHOOLING PROVIDED (FIRST AND SECOND LEVEL) 10.0 10.0 10.0 12.0 10.0 11.0 VOCATIONAL ENROLLMENT (' OF SECONDARY) 0.2 6.0 22.0/c,e 4.2 11.0fe 14.0 ADULT LITERACY RATE (X) 10.0 14.0 19.2 10.0 40.0 55.0/a

HOUSING

PERSONS PER ROOM (URBAN) 2.0/C ..* *- - 1.91 OCCUPIED DWELLINGS WITHOUT PIPED WATER (X) 52.0/C .- 14.0/f 97.0/d . 66.0 ACCESS TO ELECTRICITY - (% OD ALL DWELLINGS) 30.0/C *- '' '' '' 40.0 RURAL DWELLINGS CONNECTED TO ELECTRICITY (X) ,...... 18.0

CONSUMPTiON

RADIO RECEIVERS (PER TAOU POP) 1.0 5.0 6.0 6.0 ,. 89.0 PASSENGER CARS (PER THOU OOP) 0.27d 0.4 3.0 4.0 4.0 ELECTRICITY (KWH/YR PER CA^' 1.0 6.0 t0o0 32.0 160.0 247.0 NEWSPRINT (KG/YR PER CAP) ...... 0.1 1.0 0.7

SEE NOTES AND DEFtNITIONS ON REVERSE - 21 -

NM Uniqueochervles. noted, fe.e. 1Gf per capita andl population), data for 1960refer to any veer between1919 sod 1961, for 19?0 betwaus 1969 sod 1971, sod for Most faceto Estimiate between 1973 enid 1976. Over the past forty pears, Turkey'seconomy has goowo at a respectable pace, starting from a very eail1 bas.- In so doiog the countryhas formulated objectives sod faced problems sod constraints which, to considearshe degree, are quite similiar to those Nepal is mowfacinga. Among others, theme,Ioclude increasing output from the productivescos-giutr and industry, accelersting Import eubetituticoc. diversifying sod.increasIng sopocre. mohillioig resources, improving education, health, training end employmant opportunities, land reform end improving income distrcbotioo.

NEPAL. 9190 /I 1965; /b 1964-66; Ic Capital sod main cities noly; /d 196).

1930 Ia Peresonnel ito govermet. services; /b Including midwivee.

KO;T OLECENT ESTINATE: / I. ncluding niduives and .osisrent nurses; Ih 1974 data; Ic 1976-77; /d L-owr onccodary (Grade,4-7) only; /a Upper secondary (trade 0-il) only; It Unbar only. uFGHANOISTAN 1910 I. Popuistior data for Afghanietan relate to the floral year which starto cc 21 March; lb Difference between UN0rote of natural i.cureeo and Bsni, popuistior grooth rote due to differeor pcpulatioo estimates; /c Public edu..atiooonly; Id Percentage of powulacior without esfe with supply.

BOLIVIA 1970 RatMaioof populatlon uoder 15 and 65 aod over to total Ishor fore; /b Ao percentage of labor force in employnent; Ic Population; Id 1964-66; I. Begioning 1900 tha durstion of genramrlsecodary education wee reduced from 6 to 4 y.ere.

ThRCt 970 / 1007; /b Excludas 17 eastern prvncn c 1965-67; Id 1965-70; /. Ratio of population under 11 and 65 end over to total civilian lshor force; If Civilian. labor force; IjL Including peek season agriculture underaploymsot; lb Disposable income (106); It. Including assistant nturses end midwivea; Ij 964-66; 1k 1967-6f; /1 Persons sin years and over who tell the census. takers that they can read and write..

R13 September 11, 1970

DEFfNrlONf104OP SOCIAL.IfODCATOROS

Land 4res (thou too2) Popul.tirn per .roring psr..n - Population dividno by ocaber of prartloing Trel-I TocAl -orfac area -opnioieg lord ar.es nd tol,sd waters. nabond (rotat greduat tnrr , trined" or rcertlfied"nr es,sd Afoit. M-tHr reteroetir- of gniruItu-I area used temporarily or porn- austilisrypernonrel with training or soportenre. corly for crops, paorturs.. arket A hitcher gSrdsns or to lie fallow. l'rula.tio pre hoapital hod - Population divided by otaber of hospital brd, ovailble in public and private asor sd ap-ialiond hospitol end GNP nor capita (US$) - GNP per c-pito estiosteseat o-rreot market prlr-, reaIIIltetI_nceters;.. encldes nursing homes sod estoblislusts for calcuItotd by cane cororilo method as World B.0k utica (1975-77 hosts); rustodiel cod prevention core. lOu0; 1979 aod 197 dat.- per .. pit. supply of calories f7. of reuoire....te(- Computed from energy eqoiv-lent of met food uopplienavalable in uv-try per -apito per day; Populeti-en nd vital statistico a-silabls supplies comprise dnee-ttc production, imports lean erporte, -rd Putrn(old-yea 00110cr) -A.s or July first: if ror avilable, average changes, in stock; net supplien emclude animal feed, osedo. quentitien oaod of two eod-yrar estimates; 1960, 1970 end 1977dsts. in rood processing end looses to dietrihution; req.irsnete .. re estimated by PA0 based on physirlogical node for normal activiry end health -odd- Populutiom density pere equate ho Mid-year population per equate kilomter eriog env irossnis temperature, body weights, ego and sex distributions 0; (lii bectare..) of .totl urea. populatior, and a11siog l10% for wast.eat ho..seheld level. PopulatIo density pcr euore ho of agric. land - Cosputed as shon for per cepits supply of pretelo foramm, per day) - Protein content of pet c-pita agri_ulrc-a1 lard only. not supply of food per dsy; net supply of food is defined as ahoo;rq'i- mente fur oil contie terbliebed by USDA Econoic Rc...arch Services vicol estatitics provide for a nimelse aloae of 60 grass of total protein per doy, cud tC-de birth rets per thousand -areroas- Annua lIve birth. per thousand of 20 fran of animal and pulan protei, of which 10 gres,a should ho eo-'o ,.td-yror population; tm-year -rithmtic -vrges ending in 1960 enod 197i, pretein; those stondarda are lowr than thoms of 75 gran of total prot.ir -o f;v-y-o overge ending in 1075 for mootr-s-t estiate. ood23 gras of animal1 protein us as average for the enrld, pr-poed by P90 Crde death rate per thoosard. overse - A-.u.I deotho par thousand of mid-year in ho Third World Prod oS-vy. population; to-yea oritlseatioav--gea ending ie 1060 sod 1970 and fiv- Par -oPit. orstein eupply from onimal sod wcles- Proret supply of Poed yeaeaveruge ending in 1975 for mast recent estimate, derived fins arilal end pulses In grms par day. Irfaut sorcality rats f/thou) -Aenua1 deatha of infaste under one year of age Death rate f/thou) mses 1-4 - Annul deaths per thoweend In age greop 1-4 per theonan.d lIes- births. yssre,' to ohilIdren in this ege group; suggested as am indicator of liiroortucv tbirth fyr., -Ivrage nuamber of years of life rentining st meInutrition. birth; acunlly floe-ye-rv--gse. ending In 1969, 10170 aod 1975 for develop- ing ronrin ducotion Gross repr-d-tion rate - kverge otanber of lice daughters a wanoill bear Adiusfe,d enrollIant ratio - oprisry school - Enrollment of all ages as per- in her ,-r,I r-p-rdurrtivs period if ohs.nsine present gS.-perifir cetag of pdmary erhoot-age population; Includes children aged 6-1l your fertility ror.a; usualy fie-y-a -vergee eoding in. 1969, 1070 and 1075 buat adjusted for different lengths of prItary edu..atiom; for c-otrias wit;, fer d_eorlping _nootiso. unt-earsl eds..atien,enro1ani may emceed 100% sinca ens pupfle are below fpoplation_growth rote MX - tota1 - Cosop.ond atn..al growth rstes of mid-year or above the official sohool age. population for 1950-60, 1960-79 aod 1970-75. Adbstsd enrllmet ratio - e..enda.-v school - Computed es abov; secondary PPccIaticuotoot .ete M - o-ban - tCmptatd like gr-eth rats of total education requires at Isaa.tfour years or approved primary lostructico; popularior; different defioltious ef urban areas may affert comparability of prowidee gene.ro1, voctional or tacboo tri- n i-tructior- for pupila data -nog coun.tries. o12t17yasf g; carrasponderr, curses ar g--eril er-lodod. trbar aPuPlation (. of total) - Ratio of urban to total population dfferent Years of crhooli provide(frtadend101)-Tol defloition of urban arre may effort comparability of data onoog countries. schoolioc; at serondary level, cuainlinetrtacio nay he porriely o coapletelp eocloded. Me acototrefes-osil -Children ft-lb yas-), worbiog-ags (15-64 years), peatlionsl nriaer _1ofsecondry - v-ctlunot iec-uloelolde and oclfred (65 year.eand ...rr) ae percoortfo of nid-ynar population trhbnical, industrial or other prafraco w.Mhic yrr ccrdo; ra ~poirpodrccyatio -lane ofpopolaIo undr 15 ad 6) ad oetohnod -purctof -ecodaryiaccic of coga 15 chr-gh 6h. udult loteruy a toi - literate odu1co (able t- -ru cud cr7- 'cu p- tccof rrdenr -rtio - Ratio of population under 1) aol 65 end coon ccceccaf of totL1 adult population afrO I y.:trcor_d:r nb- tenor torcr in ago group of 15-64 yea.- raiy toyc -acP tors (conolacive. thou) -iCronuItivo ouberiof a..crptrra Ocu-to of bnrth.ooteoL devices under oaice of natlonn~ vinmly plumnog progra Persons per room (urban) - Averoge r-ber of perso perromncasa stoco cocept icc conven~~~~~~~~~:tionaldwellings in urban areas; doa11oegs -iclde nen-peoem--en foorilplcutos-uers (. of narrind wmn Prcouaof married womn of a. trntre ord u--upied parce. child-1heariog ago (15-44 yearn) who use birth-control devices to all merried Oc..upta,d dwellimes wtot pined water (7'll- Occupied -onvtiroma dolftoS, utuo( -ae age troop. inuba sod rualssacithunr Inside or outside piped eater f-nilltlea

atprcentage of all occuPied dwslli 0 o.. localabor frce (hocuard E-toiclycio poooa includiog aroed electricIty io lein.gquartrasprote corl delings to urban and forces cod areploysdbrcecludiog honcoicro, etdento, etc.; dofirOiti- -1ra rea to ca-o orrc r o opor.ubi. Ouro1 dwelltoo. conncted to electricity (%) - Computed as abets for -rara Labor force ioaroocr (y.( - Agrfc-Itur.1 labor force (to furinir, fureatry, duellinga only. hurting and fisning) as percen ego of tots1 labor force Uaa coc (7,Xf o labor force - in-picyed are -ally defined as persona who Connunorto ar!cic.td ilig tc tae (k, out: of ,bo or a ie day, r-niond our fadio rec..lo-rs (ne thou pop) - ill types of recocor for radio broadcats ..o;br keiferb o spcfied minium pergtiod'oot eu ding ore to -e-r1 pubIlc per thousa.nd of pepulatiac; ... tludes unilcensdrceer ny -r!.c hr-oporablo h .t -netooocie doe to diffor-o definitiona ir coutries and to year. hw.. regierratlr of radio.et was I ffo.- of.cnpoo.ad1_ rro ar,eg,opoysr f o ra-tc,nrl data far resocsro nay not he comparable sinc most --oois aho1fahed ur,u oPu _oycopfey-ce _oo,roco li-srsiu.g

Pnsaerosr_corn (pe tou op - Pa....rucer cars. ur aorcr etn fLoce- djEttriulo Perrcsts, of pri-tce inc-m (both in cash and kirdl) losthar Iht person; ocldes obhula.cen, h..earsesnd silicary cccni-cd by rirbe- 5X, richest 207, po-rro 20%, sod poorest 40% of hos-.v.-cos Electrtilir fkhwb/o nor cap) - uco-1 r-n-aprto of tndnarril. _ ,er.al -d -_e of1-1~l - -..?er-.g.e by ... ,hi..,abli anIr ass tltrY 00 kIlowatt boora per capita, --eraly 'story.'. o. p-ycrcccsgeocC tedcocorulc of ot.( roard by wrarhlset 10 hho07d dllowanro:: a prodertic d ts, wItou fo'.rlose Or goOds hot aO.oa- -i y'rs 7 ad-A .ec..r.. to9 for Lrorto o-d euporco of e1-ocrlity. Secarichoyrpe cn). PIrap-ta -- ue1 --racptlo in hilogr-na Ira) I,:tiV cc , b. fp- J~~,--inatod nar61dd from denratlc pr-d-rtno plan -te Irperce at __wprfcr. yb.ilcq-aliftrd Iron~ eudicu r,0 t''les ro - 22 -

ANNEX I

ECONOMIC INDICATORS

GNP PER CAPITA IN 1977 U$$120 /a

(;iOSS NATIONAL PRODUCT IN 1974-/5 ANNUAL RATE OF GROWTH (7/, constant prives) US$ Mln. 7. 1965-75 (;l'Pat Narket Prices 1,424 100.0 2.0 (;ross Domestic Investment 150 10.5 (ross National Saving 100 7.0 Cuirrent Account Balancc - 25 - 1.8 Exports of Coods, NFS 104 7.3 Imports of Goods, NFS 154 10.8

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1971-72 Value Added

Value Added Labor Force /b Per Worker US$ M.n . Mln. ° / %

Agriculture 698 68.0 4.6 95.8 152 71 Industry 92 9.0 0.1 2.1 920 430 Services 237 23.0 0.1 2.1 2.370 1,107 Total/Average 1,027 100.0 4.8 100.0 214 100

GOVERNMENT FINANCE

CENTRAL GOVERNMENT

Rs. Mln. Rs. Mln. Rs. Min. Rs. Mln-! 1974/75 % of GDP 1975/76 1976/77 1977/78 Current Receipts 1,008.2 (6.8) 1,115.7 1,322.9 1,724.6 Current Expenditure 513.0 (3.5) 626.9 832.1 938.5 Current Surplus 495.2 3.3 488.8 490.8 786.1 Capital Expenditure 967.3 6.5 1,238.8 1,498,3 2,148.9 External Assistance (net) 415.0 2.8 457.5 540.8 1,103.3

MONEY, CREDIT AND PRICES

1973 1974 1975 1976 1977 (Million Rs outstanding mid-July)

Moncy and Quasi Money 1,493 1,850 2,027 2,458 3,144 Bank Credit to Public Sector 319 416 532 480 711 Bank Credit to Private Sector 459 702 810 783 863

(Percentages or Index Numbers)

Money and Quasi Money as 7. of GDP 12.4 11.1 11.1 General Price Index (1973 = 100) 187.9 218.4 255.4 261.7 264.2 Annual Percentage changes in: General Price Index 11.2 16.2 17.0 3.7 0.9 Bank Credit to Public Sector (net) 28.1 31.3 27.9 - 9.8 48.1 Bank Credit to Private Sector 14.7 52.9 15.4 - 3.3 10.2

Note: All conversions to US dollars in this table are at the average exchange rate prevailing during the period covered.

/a GNP per capita data based on World Bank Atlas Methodology (1974-76 basis). /b Total labor force; unemployed are allocated to sector of their normal occupation. iT Provisional ..not available - ZJ -

ANNEX I

FRAl: PAYMI'NTS AND CAPTIAT. FLOWS

BALANCE tOF PAYMENTS MERCHANDISEEXPORTS (AVERAGE 1974/75-197t/77) a! 1974/75 1975/76 1976!77 US5 Mln. (Millions US1) Lxp>rt>. .-. .b 60.1 98.3 93.9 Fuedstuff t ray maLtrials 69.7 82.6 ,mports, . b.i.:/ 189.0 15b.3 166.9 Manufactures 10.3 12.2 All other como(dities 4.4 5.2 Trade Balance -108.9 -58.0 -73.0 Total 84.4 100.0

Ucrvices, juet 26.1 23.2 39.4 "Cwhich: Touriss 15.7 17.1 23.0 EXTERNAL DEBT, DECEMBER 31,1977

Treios [>rs, enot 26.5 27.7 30.8 US5 Min, ,i which: Private RemiLtances 14.8 18.5 21.b Indian Excise Refund 7.9 8.8 9.4 Public Debt, inel. guaranteed 298.5 Non-Guaranteed Private Debt Current Accourt Balance -54.3 - 7.1 - 2.8 Total outstanding & Disbursed 298.5

Uf'icial Crants 19.3 70.0 18.5 OIticial Capital, net 8.3 12.1 16.3 DEBT SERVICE RATIO for 1977 less than 2.570 c/ Pr,-a(t CGpital, net -14.t 9.6 -10.3 Public Debt, inc. guaranteed Change in Reserves (- Increase) 41.:3 -34.6 -21.7 Non-Guaranteed Private Debt

Gross Reserves (mid July) 112.5 120.3 143.0 Total outstanding & Disbursed Net Reserves 109.8 114.9 137.8

Fuel and Related Materials IBRD/IDA LENDING. (July 1978) (Million US$): Imports of which: Petroleum 14.6 16.9 18.8 IBRD IDA

Expolrts of which: Petroleum -Outstanding & Disbursed 27.0 Undisbursed __ 90.2 RlATE OF EXChANGE From October 1975 t. iough Outstanding inci. Undisbursed 117.3 Through October 1975 March 20, 1978 Since March 20, 1978 US$ 1.00 = NRs L0.56 US$ 1.00 = NRs 12.5 US$ 1.00 = NRs 12.00 MR 1.00 = US$ 0.095 NR 1.00 = US$ 0.08 NR 1.00 = U.$ 0.083

a/ Customs basis. bI Payments bhal -/ Ratio of Debt Service to Exports of Goods and Non-Factor Services.

not available not applicable South Asia Programs Department Sept. 12, 1978 - 24 - ANNEX II Page 1

STATUS OF BANK GROUP OPERATIONS IN NEPAL

A. STATEMENT OF IDA CREDITS (as of April 30, 1979) /a

US$ Millions Amount (less cancellations) Credit Undis- No. Year Borrower Purpose IDA bursed

Three credits fully disbursed 7.1 373 1973 Kingdom of Nepal Irrigation 6.0 1.2 397 1973 Kingdom of Nepal Telecommunications II 5.5 3.7 470 1974 Kingdom of Nepal Water Supply and Sewerage 11.8 4.6 505 1975 Kingdom of Nepal Settlement 6.0 5.2 600 1976 Kingdom of Nepal Kulekhani Hydroelectric ib 26.0 16.3 617 1976 Kingdom of Nepal Rural Development 8.0 6.9 654 1976 Kingdom of Nepal Groundwater 9.0 5.9 659 1976 Kingdom of Nepal Technical Assistance 3.0 2.4 704 1977 Kingdom of Nepal Second Water Supply and Sewerage 8.0 7.6 705 1977 Kingdom of Nepal Industrial Development Corporation 4.0 3.9 730 1977 Kingdom of Nepal Second Highway 17.0 15.1 772 1978 Kingdom of Nepal Technical Education 5.7 5.6 799 1978 Kingdom of Nepal Telecommunications III 14.5 14.5 812 1978 Kingdom of Nepal Irrigation 30.0 29.9 856 1978 Kingdom of Nepal Irrigation 14.0 14.0

Total Outstanding 175.6 Total Undisbursed 136.8

B. STATEMENT OF IFC INVESTMENT (as of April 30, 1979)

Amount of US$ Millions Year Obligor Type of Business Loan Equity Total

1975 Soaltee Hotel Hotel 2.70 0.43 3.13 (Pvt) Ltd. Total commitments now held by IFC 2.70 0.43 3.13

Total Undisbursed - 0.10 0.10

/a No Bank loans have been made to Nepal. /b Supplemental credit (US$14.8 million) approved May 10, 1979, but not yet effective. - 25 - ANNEX II Page 2

C. Projects in Execution I/

Credit No. 373 - Birganj Irrigation Project US$6.0 million Cred4t of April 18, 1973; Effective Date: July 9, 1973; Closing Date: December 31, 1979

Implementation of the project is progressing satisfactorily after initial delays in appointing engineering consultants, in field surveys and in procurement. Civil works are progressing satisfactorily in the surface irri- gation blocks. Construction of tubewells is almost completed in the ground- water areas. Irrigation operations started in 1976 from nine tubewells, and in 1977, in the first surface irrigation block. The project completion may be delayed t:omid-1980.

Credit No. 397 - Telecommunications Project II US$5.5 million Credit of June 20, 1973; Effective Date: September 11, 1973; Closing Date: June 30, 1980

Due to organizational problems, lack of continuity in senior manage- ment, and delay in obtaining expert assistance, there have been delays in procurement and the project is about two years behind schedule. Good progress is now being made with the assistance of experts and consultants provided by the United Kingdom and a new General Manager has been appointed. The project is now proceeding satisfactorily and present estimates are for completion by early 1980, some twelve months behind schedule.

Credit No. 470 - Water Supply and Sewerage Project US$11.8 million Credit of May 8, 1974; Effective Date: June 26, 1974; Closing Date: June 30, 1978; Revised Closing Date: June 30, 1979

Design work is complete and all major contracts have been let. Project implementation is about two years behind the original schedule, primarily dlue to delays in letting the contracts. A management team provided by the United Kingdom is assisting the Water Supply and Sewerage Board. Work is progressing satisfactorily.

1/ These notes are designed to inform the Executive Directors regarding the projects in execution and, in particular, to report any problems which are being encountered and the action being taken. They should be used in this sense on the understanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution. - 26 - ANNEX II Page 3

Credit No. 505 - Settlement Project US$6.0 million Credit of August 14, 1974; Effective Date: February 20, 1975; Closing Date: July 15, 1982

Project implementation, though still about two years behind schedule, has improved slightly over the last 12 months and 600 families have been settled. Forestry clearing remains a bottleneck and technical assist- ance is being obtained to speed up the operation. Stress has also been laid on the need for employment of adequate and experienced staff and better man- agement and planning of operations. Because of doubts about land use policy, the Government is requesting reduction of project area to be newly settled from 17,600 ha to 11,100 ha. If progress continues to be unsatisfactory, restructuring or discontinuation of this project may have to be considered both by the Government and the Association.

Credit No. 600 - Kulekhani Hydroelectric Project US$40.8 million Credit of January 9, 1976; Effective Date: May 18, 1976; Closing Date: December 31, 1981

All civil works contracts have been awarded and construction work started in December 1977. The revised estimate of project costs, excluding taxes and duties, is now US$109 million which is some 60% higher than the estimate of US$68 million at the time of appraisal. The increases in costs are due to a number of factors, principally design changes as a result of further geological investigations and the risk factors inherent in a major project which is remotely located. These are reflected in higher prices and implementation delays which are adding to costs. In addition, the recent appreciation of the Japanese yen, in which substantial part of the costs of equipment and engineering services are being paid, has increased the US dollar cost of the project. Cofinanciers are providing additional funds to cover the most part of the foreign exchange cost overrun. An IDA supplemental credit of US$14.8 million and an EEC Special Action Credit of US$3.0 million equivalent were approved by the Executive Directors on May 10, 1979.

Credit No. 617 - Rural Development Project US$8.0 million Credit of April 30, 1976; Effective Date: July 16, 1976; Closing Date: December 31, 1981

General progress has been satisfactory. With some exceptions, im- plementation is either ahead of schedule or as forecast at appraisal. Track and trail improvement has lagged owing to shortages of labor during the con- struction season. Furthermore, shortages of well-trained staff and lack of seed of improved varieties have contributed to a slow rate of improvement in agricultural production. Nevertheless, considerable increases in potato production have occurred at higher elevations and the establishment of four small cheese/butter plants increased cash returns to livestock keeping. As a result of recent staff changes at the regional level, the agricultural program is now expected to gain momentum. Despite frequent transfers and - 27 - ANNEX II Page 4 failure to fill a number of posts (particularly in health and agriculture), district staff are now acquainted with the project and display considerable keenness and initiative. Production of the annual district development plan has insured local participation and there is a marked increase in the confi- dence of local people toward t:he ability of Government to implement programs. Interministerial coordination has been good and the Project Coordinator effective in ensuring funding and providing support for district staff. Reporting of progress has been satisfactory. Disbursement is 85% of estimates (the discrepancy being due to savings in building costs and failure to meet expected development of tracks and trails), but procurement has been cumber- some due to unfamiliarity with procedures.

Credit No. 654 - Bhairawa - Lumbini Groundwater Project US$9.0 million Credit of July 9, 1976; Effective Date: November 9, 1976; Closing Date: December 31, 1980

The project authorities have been established, the main consulting firm has been appointed and has started work, and equipment procurement has been started. Drilling of tubewells is in progress, initially using two rigs loaned by the Department of Groundwater Development. Twenty-two production wells have been completed out of the 63 to be provided under the project. Construction contracts for 33 other wells have been awarded. However, there is little progress with construction of transmission lines. Overall progress is slow and project completion may be delayed by one year.

Credit No. 659 - Technical Assistance Project US$3.0 million Credit of September 16, 1976; Effective Date: November 16, 1976; Closing Date: December 31, 1980

Terms of reference and draft consultants' contracts for some priority projects to be financed under the Credit have been made and others are being discussed with the Government. Studies are in progress for river control for the Sunsari-Morcng Irrigation Project, national agricultural extension, and cottage industries. Arrangements for initiating additional studies are being made, while the selection of other priority projects is underway.

Credit No. 704 - Second Water Supply and Sewerage Project US$8.0 million Credit of May 27, 1977; Effective Date: February 28, 1978; Closing Date: June 30, 1982

Engineering consultants have begun work, and feasibility studies, master plan updating, and final designs have been completed. A tariff spe- cialist is being recruited, and the first contract for water meters has been awarded. - 28 - ANNEX II Page 5

Credit No. 705 - Nepal Industrial Development Corporation Project US$4.0 million Credit of May 27, 1977; Effective Date: February 17, 1978; Closing Date: December 31, 1981

The UNDP-financed policy advisor took up his post in February and the ODM-financed accounting and information systems advisor is being selected. To date, subprojects for about $1.7 M have been approved by IDA. Progress in implementation of the credit has improved, but disbursement have continued to lag due to difficulties in providing documentation sup- porting the foreign exchange content of civil works and building constructing on subloans. Section 2.03 (a) of the DCA was amended in February 1979 to allow for disbursement against 60% of the costs of such items, in addition to the usual foreign exchange cost of goods and services (machinery and equipment) for which documentation is available.

Credit No. 730 - Second Highway Project US$17.0 million Credit of October 19, 1977; Effective Date: December 23, 1977; Closing Date: December 31, 1982

Project implementation is about 10-12 months behind schedule due to delays in the award of contracts and the appointment of consultants. Consultants (financed by CIDA) arrived in March to provide maintenance technical assistance. The pre-feasibility study for the Bombasa-Kohalpur Road was completed in July and a proposal for the Mechanics' Training Program is under review by the Government and the Association. Seven of ten con- tracts have been awarded for the construction of the Tulsipur Road and three contracts have been awarded for the earthworks on the Thankot-Naubise Road. Arrangements for consulting services for supervision of construction are expected to be finalized shortly.

Credit No. 772 - Technical Education Project US$5.7 million Credit of April 14, 1978; Effective Date: July 11, 1978; Closing Date: September 30, 1983

Good progress towards implementation has been made - a project implementation unit has been established, a physical implementation plan and equipment lists have been prepared, and bids for civil works an being evaluated. A team of educational experts, financed by ODM, have begun work in the field and a program of cooperation with Paisley College of Technology, Scotland, is progressing satisfactorily.

Credit No. 799 - Third Telecommunications Project US$14.0 million Credit of August 22, 1978; Effective Date: February 27, 1979 Closing Date: June 30, 1984.

ODM is financing the telex equipment and the satellite earth station. Project consultants have been appointed. Procurement actions have been initiated. - 29 - ANNEX II Page 6

Credit No. 812 - Sunsari-MoraingIrrigation and Drainage Development Project US$30.0 million Credit of July 7, 1978; Effective Date: November 30, 1978; Closing Date: June 30, 1984

The Project Board has been established and the Project Manager, Senior Agrizultural Officer, and Consultants have been appointed. Studies for major canal structural repairs, sediment control and river training are under way. Procurement has commenced for priority works.

Credit No. 856 - Narayani Zone Irrigation Development - Stage II Project US$14.0 million Credit of November 27, 1978; Effective Date: January 8, 1979; Closing Date: December 31, 1983

Ihe contract for project consultants under Stage I (Nippon Koei) has been extended to cover Stage II. Contracts for two of the six surface irrigation blocks have been awarded. Procurement of the remaining civil works and for equipment is being initiated. Satisfactory progress is being made. - 30 - ANNEX III Page 1

NEPAL

SECOND RURAL DEVELOPMENT PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I Timetable of Key Events

(a) Time taken by the country to prepare the project

15 months

(b) The agency which has prepared the project

Agricultural Projects Service Center of Nepal, with the assistance of the FAO/IBRD Cooperative Program

(c) Date of first presentation to the Bank and date of the first mission to consider the project

March 1977 April 1978

(d) Date of departure of appraisal mission

October 29, 1978

(e) Date of completion of negotiations

May 18, 1979

(f) Planned date of effectiveness

September 30, 1979

Section II Special Bank Implementation Actions

None

Section III Special Conditions

(a) Detailed proposals for agricultural training would be submitted to the Association for comment by December 31, 1980 (para 46); - 31 - ANNEX III Page 2

(b) DDC would carry out a study of methods to improve production and marketing of ghee by December 31, 1980 (para 46);

(c) DCVI initiate the study to improve cottage indus- tries in the project area by December 31, 1980 (para 46);

(d) the Government had established the Zonal Coordinating Committee and appointed the Project Coordinator (condition of effectiveness, para 40);

(e) the Government had entered into arrangements, satis- factory to the Association, to carry out the project components to be implemented by AIC, ADBN, DDC (conditions of effectiveness, para 45); and

(f) the Government had completed arrangements, satisfactory to the Association, for the retention of technical experts (condition of effectiveness, para 47).

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