Document of The World Bank FILE COPY

FOR OFFICIAL USE ONLY Public Disclosure Authorized

Repot Ng. P-2945-NEP

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE Public Disclosure Authorized

INTERNATIONALDEVELOPMENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

Public Disclosure Authorized KINGDOMOF

FOR AN

AGRICULTURALEXTENSION AND RESEARCH PROJECT

January 14, 1981 Public Disclosure Authorized

This doumet b1 a reotcted disbirition d maybe aed by reipiets ony lo the peorme of their eoliell do". Its ents may net otherwisebe discosed withoutWold Bak auhrlaln. 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

FINANCIALYEAR

July 16 - July 15

ABBREVIATIONSAND ACRONYMS

AADO - AssistantAgricultural Development Officer ADBN - AgriculturalDevelopment Bank of Nepal ADO - AgriculturalDevelopment Officer AIC - AgriculturalInputs Corporation CTC - Central Technical Committee DDG - Deputy Director General DG - Director General DOA - Department of Agriculture DTC - District Technical Committee FAMSD - Food and AgriculturalMarketing ServicesDepartment HMGN - His Majesty's Governmentof Nepal JT - Junior Technician JTA - Junior Technical Assistant MFA - Ministry of Food and Agriculture PLAA - PanchayatLevel AgriculturalAssistant RRC - Regional Research Coordinator RRS - Regional Research Station SMS - Subject Matter Specialist FOR OFFICIAL USE ONLY NEPAL

AGRICULTURE EXTENSION AND RESEARCH PROJECT

Credit and Project Summary

Borrower:

Amount: SDR 13.8 million (US$17.5 million equivalent).

Terms: Standard

Project Description: The objective of the proposed project is early and sus- tained improvement in agricultural production, particu- larly foodgrains, in eight of the twenty administrative districts of the Nepal . Improvements in production would be brought about by the wide adoption of low cost, labor intensive agricultural practices, improved varieties of seeds and provision of fertilizer. The project would comprise:

(a) reorganization and strengthening of agricultural extension services;

(b) strengthening and reorientation of applied and adaptive research;

(c) strengthening the coordination between research and extension services;

(d) establishment of regular monitoring and evalua- tion procedures;

(e) local and overseas training of staff, studies and provision of consultants;

(f) establishment of regional training centers, and offices and housing for field staff;

(g) facilities, equipment and vehicles to support extension and training programs; and

(h) provision of fertilizer.

The project faces no special risk.

This document has a restricted distribution and may be used by recipientsonly in the performance of their, fficial duties. Its contents may not otherwise be disclosed without World Bank authorization. Estimated Cost of Project: US$ Million Equivalent Component Local Foreign Total

Civil Works 2.07 1.71 3.78 Vehicles - 0.35 0.35 Equipment and Furniture 0.22 0.84 1.06 Farm Development 0.04 0.17 0.21 Technical Assistance - 0.65 0.65 Monitoring and Evaluation 0.17 - 0.17 Incremental Staff Costs 0.55 - 0.55 Incremental Operating Costs 0.60 0.31 0.91 Fertilizer 2.15 6.21 8.36

Base Cost 5.80 10.24 16.04 Physical Contingencies 0.53 1.01 1.54 Price Contingencies 1.18 2.09 3.27

TOTAL PROJECT COST 7.51 1/ 13.34 20.85

Financing Plan: US$ Million Equivalent Local Foreign Total

IDA 4.81 12.69 17.50 Government 2.70 - 2.70 UNDP - 0.65 0.65 7.51 13.34 20.85

Estimated US$ Million Equivalent Disbursements: IDA FY 1982 1983 1984 1985 1986 1987

Annual 4.1 4.3 2.0 3.0 3.0 1.1 Cumulative 4.1 8.4 10.4 13.4 16.4 17.5

Rate of Return: 50%

Staff Appraisal Report: No. 3104-NEP, dated January 5, 1981.

1/ includes US$70,000 of duties and taxes. INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE KINGDOM OF NEPAL FOR AN AGRICULTURAL EXTENSION AND RESEARCH PROJECT

1. I submit the following report and recommendation on a proposed development credit to the Kingdom of Nepal for Special Drawing Rights (SDR) 13.8 million (US$17.5 million equivalent) on standard IDA terms to help finance an Agricultural Extension and Research Project. UNDP has agreed in principle to provide US$650,000 equivalent to finance technical assistance and studies under the prcposed project.

PART I - THE ECONOMY 1/

2. The most recent economic report entitled "Nepal-Development Perform- ance and Prospects" (Report No. 2692-NEP) was distributed to the Executive Directors on December 14, 1979. The principal findings of the Report and recent developments are described below. Country data are shown in Annex I.

3. Nepal is one of the least developed countries in the world. Per capita income is estimated at $120 (1978), and health and education standards are well below the average of South Asia: life expectancy at birth is about 45 years, infant mortality 150 per thousand, and adult literacy 19%. The population, growing at the rate of 2.6% a year, is estimated to be 13.6 million (1978). About 95% of the population live in rural areas.

4. The economy of Nepal centers around agriculture. It accounts for more than 60% of GDP and 75% of merchandise exports, and provides a livelihood to over 90% of the population. In addition, most of the industrial sector, which comprises about 10% of GDP, processes agricultural raw materials. About 25% of total rural incomes are estimated to arise from non-agricultural activities. Cottage industries are one of the most important of these, engaging over 1 million people and comprising about 6% of GDP. They provide basic consumer goods in the many small isolated markets where such goods would otherwise not be available.

5. As a small open economy, Nepal is highly susceptible to develop- ments in . The Terai, which lies along the Indian border, has close and virtually free trading links with India, and accounts for about 60% of the country's GDP, and about 40% of the population. The , the administrative and commercial center, is closely linked with the Terai, but at significant transportation costs. The rest of the country, the Hills

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 Babai Irrigation Engi- neering Project (Report No. P-2926-NEP of December 11, 1980). and Mountains, is isolated by the nature of the terrain and consists of a large number of fragmented markets.

6. When Nepal adopted economic and social development as major gov- ernment objectives in the early 1950s, there was virtually no economic or administrative infrastructure. Initial development efforts were necessarily concentrated on establishing a foundation for future development. During these early stages, it was inevitable that growth would remain slow and that there would be little if any increase in per capita income. However, the Fifth Development Plan (1975/76-1979/80) was to be a turning point; it was believed that the country was poised for more rapid growth on the order of 4- 5% annually. The level of investment was to increase substantially and its focus to shift towards the more directly productive sectors and the social services.

7. Public investment performance has been excellent; development expenditures have grown at over 15% annually in real terms and the Government has been relatively successful in reorienting investment away from the trans- port sector towards agriculture and the social services. However, few of the other Fifth Plan objectives have been achieved. The GDP growth rate is likely to average only 2.4% per year, mainly because of poor agricultural performance. Little progress has been made in increasing agricultural productivity and agricultural production increased at an annual rate of only 0.7% during the first four years of the Fifth Plan. Growth in other sectors has been mixed, with the poor agricultural performance limiting the growth of agro-related industries. Production in several large industries including jute goods, sugar, leather goods, and cement has increased but most Fifth Plan targets will go unmet. In the services sector, tourism has been dynamic, but it still only contributes about 1% of GDP.

8. Economic developments during 1979/80 were characterized by declining output, accelerating inflation, and a weakening in the trade and payments position. Foodgrain production declined by 13% due to the poor monsoon in 1979, and to deal with this shortfall, the Government appealed for 110,000 tons of foodgrains assistance. Donors have made available about 60,000 tons and together with local procurement from less seriously affected parts of Nepal, this may be sufficient to maintain minimum food requirements. The 1980 monsoon is reported to have been satisfactory. Inflation accelerated to about 12% in 1979/80, because of the deterioration in the domestic food situation, higher import prices and the expansionary effects of the budget deficit. Government activity slowed in 1979/80; real growth in total expen- ditures was only 5% compared with 10% in 1978/79, while revenues declined by 3.5% in current terms. However, the economic prospects for 1980/81 are some- what brighter in view of the improved weather as well as the planned accelera- tion in government expenditures given in the 1980/81 Budget; GDP growth should be positive in contrast to its 1% decline in 1979/80.

9. The disappointing overall performance of the domestic economy during the Fifth Plan period has been accompanied by a widening trade deficit. Imports have grown under the impetus of the Government's development program while the trend in export earnings has been sluggish due to declining rice exports. The deterioration on the trade account has been partly covered by - 3 -

increased tourism receipts and remittances from (soldiers from Nepal serving in the British or Indian armies). Foreign assistance in the form of grants and concessionary financing have generally ensured that the overall balance remained in surplus. However, the shortfall in foodgrain production coming at a time when Nepal's oil bill was rising has resulted in payments deficit of US$8 million for the 12 months ending July 1980, and Nepal drew SDR 10.5 million (US$13.8 million equivalent) from the IMF under the Compensa- tory Financing Facility in September 1980. As of May 1980, foreign exchange reserves were equivalent to six months of imports.

10. On March 31, 1978, the authorities replaced a complex system of multiple exchange rates and exchange and trade restrictions with a dual exchange system. Transactions with India, which were virtually free from restrictions, were unaffected by these changes. New treaties on trade and transit with India were also concluded in March 1978. Under the dual exchange rate system, Nepal maintains a basic rate of NRs 12.00 per dollar, with a second, premium rate applying for all merchandise trade with third countries except for imports of certain development goods. On February 21, 1980, the premium rate was changed from NRs 16.00 per dollar to NRs 14.00 per dollar, but the exemption was restricted to only imports of petrol and petroleum products, cement and chemical fertilizers. These exchange rate adjustments involved an appreciation of about 14% for exports to third countries and an overall appreciation of about 2% for imports from them. But this was partly offset by (i) withdrawing the 12% duty on exports of raw jute; and (ii) raising import duties on a wide range of imports from third countries. How- ever, with the exception of raw jute exports, earnings in domestic currency from exports to third countries will decline, leading to a possible shift of some exports to India. The overall trade balance is likely to be adversely affected by the recent measures.

11. The poor long-run performance of the economy is chiefly due to the failure of agricultural production to keep pace with population growth. Over the period 1967-77, foodgrain production grew at an average annual rate of only 1.5%. Increases in the area under cultivation account for almost all of this, since average yields rose by only 0.1% annually. Contribution of irri- gation development has so far been limited. Only about 23% of the irrigable area is provided with irrigation, and existing facilities are still poorly utilized. In the past, insufficient attention has been paid to bringing water down to the farm level and this has been compounded by inadequate support services such as extension and research, timely supplies of improved seed and fertilizer and other inputs, credit and farm-to-market roads. However, recent major irrigation projects financed by IDA and the Asian Development Bank are addressing these problems by taking more comprehensive and integrated approaches.

12. In the Hills and Mountains, which contain only one-third of the country's agricultural land and yet have nearly two-thirds of the population, population pressures have pushed cultivation up steep hillsides and onto marginal land; average yields have actually declined. Population density on agricultural land in these areas is higher than in Bangladesh. Malnutrition is acute; food production meets only two-thirds of minimum subsistence needs. Because they have little to trade except their labor, one-third of the inhab- itants of these Hill areas migrate seasonally to the Terai plains and northern India for food and work. Since the early sixties, an estimated 400,000 have migrated permanently, and there are signs that this exodus is accelerating. J3. The seriousness of the economic and social problems confronting Nepal calls for a well focused development strategy that directly addresses the difficult choices to be made. However, economic policy making, including preparation for the Sixth Plan (1980/81-1984/85), has been delayed by the political developments of the past two years. These activities culminated in the May 1980 referendum which largely reaffirmed the existing political system, but allowed for suitable reforms, including the possibility of direct election of members of Parliament. The Sixth Plan is only now undergoing final review. However, the chrust of the Plan, outlined in an earlier docu- nient.was endorsed by members of the Nepal Aid Group at its January 31, 1980 meeting. It places highest priority on developing agriculture, including revitalization of Hill food production to meet local requirements since significant agro-climatic specialization between the Hills and Terai is feasible only in the longer run. At the same time, since land holdings in the Hills are too small to generate much more than subsistence needs, programs will be started to encourage diversification into other activities such as small-scale and cottage industries to supplement Hill incomes. For the Terai, the strategy is to continue efforts to realize the Terai's considerable poLential for increasing production of foodgrains and cash crops. The i- -adionl infrastiucture is to be more fully utilized and improvements L(. extension services and associated inputs concentrated on those areas with irrigation facilities. Reafforestation programs are given priority in order to provide fuelwood and fodder as well as to reduce soil erosion.

14. While these efforts in the directly productive sectors merit urgent attentior.,Nepal faces similar challenges in developing its human resources. Although curbing population growth requires major actions, selective programs in education and health can greatly assist population planning as well as alleviate human suffering and lay the basis for future increases in productiv- ity. The Government's strategy recognizes that the approach must be selective since programs for meeting basic needs generally have only a long-term impact on manpower development but divert resources away from activities more directly and immediately related to production. Increasing foodgrains production will meet the major need of improved nutrition. Better and more readily available supplies of drinking water and fuelwood will meet other needs, while also freeing labor currently spent in their collection. Basic health facilities are to be expanded through integrated community health posts, while in educa- tion, stress is placed on improving the quality of primary and adult vocational education. Family planning programs are to be stepped up. The other basic need to be met in rural areas is improved transport, and the Sixth Plan will include programs to improve trails, tracks, and suspension bridges.

15. For Nepal to achieve more rapid and sustained growth, the productive capacity of its economy will need to be broadened and strengthened since the present extreme dependence on agriculture limits the economy's overall growth potential to about 4% per year. Tourism offers perhaps the best near-term potential for increased foreign exchange earnings; however, efforts are needed to reduce its capital intensity, strengthen linkages with other local indus- tries and extend its benefits beyond the Kathmandu Valley. Hydropower also offers some possibilities, but neither it nor tourism will ever be substantial generators of employment. In the long run, Nepal must diversify and develop its industrial sector. Obviously, efforts in this sector must be on a highly selective basis, in view of the multiplicity and complexity of the constraints -5- to industrial development, including the lack of natural resources and a skilled labor force, as well as Nepal's small domestic market and landlocked position. Public enterprises need to operate more efficiently, village and cottage industries should be promoted. Beyond this, joint ventures with India, for example, as in cement production, may be attractive. In support of these endeavors, the preconditions for industrialization will need to be established in the near future. These include providing financial incentives and technical and marketing services, and the upgrading of manpower skills in the areas where Nepal may have a comparative advantage.

16. Nepal has made significant progress in mobilizing domestic resources to support its development efforts, considering the extreme poverty, low degree of monetization, and fragmented nature of the economy. Revenue grew at 16% a year in current terms between 1969/70 and 1978/79, increasing from 5% of GDP to about 9% during this period. Over the same period, the Government was able to maintain savings on current account in excess of 2% of GDP, a good achieve- ment for a country in Nepal's economic position. However, this excellent record is now in jeopardy. Political developments led to difficulties in collecting income and land taxes in 1978/79, but this was more than offset by increased collections from other sources. However, custom duties, which generate about one-third of total revenues, were lowered in the 1979/80 budget contributing to the 3.5% decline in overall revenues in that year. To reverse the deterioration, the 1980/81 budget raised various taxes including import duties, sales tax, income tax on private businesses, tourist taxes (hotel and airport taxes, and visa fees), and fees for extraction of forest products. These measures are expected to generate revenues equal to about 13% of total 1979/80 revenues which, together with better implementation of existing taxes, should be sufficient for overall revenues to exceed 9% of GDP in 1980/81.

17. Foreign assistance has been a decisive factor in Nepal's development. During the Fifth Plan, foreign financing equalled about 45% of development expenditures. In view of the limited prospects for increased domestic resource mobilization, foreign financing requirements may be about 60% of planned Sixth Plan development expenditures, which amount to about NRs 10 billion or over $800 million at 1979/80 prices. Aid commitments need to average about $225 million annually during 1980-82 compared with $160 million during 1977-79. However, even this level of foreign assistance would not provide the Government with sufficient resources to meet increasing consumption demands. Additional aid, either through financing a higher proportion of total project costs or in the form of commodity assistance, could provide budgetary support to meet pressing recurrent expenditure requirements, particularly in the social sectors. The Nepal Aid Group was formed in 1976 to assist in the overall coordination of financial and technical assistance efforts. The Group has met three times at plenary meetings under the Chairmanship of the Bank to discuss overall external assistance needs as well as at the local level in Kathmandu to discuss and coordinate strategy. At the latest plenary meeting, which was held in Paris on January 31, 1980, and was attended by representatives from eight countries and six international organizations, Nepal received aid indications exceeding US$200 million equivalent.

18. Although foreign aid commitments and disbursements grew by over 25% annually during the Fifth Plan period, only 40% of disbursements included in the Government's budget were from foreign borrowing, the remainder being - 6 - grants. As of December 31, 1979, official foreign debt outstanding was only $125 million, of which $106 million was due to multilateral agencies. These loans were obtained on a highly concessional basis and the grant element of total aid remains in excess of 90%. As a result, debt service payments were only US$3.1 million during 1978/79, equivalent to 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. Since then, 23 additional credits have been approved, and another for a Hill food produc- tion project, scheduled for consideration by the Executive Directors on February 3, 1981, bring total IDA assistance to Nepal to US$279.1 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. Six of these sectors account for 81% of IDA credits by amount: irrigation ($78.5 million for 6 projects); water supply and sewerage ($46.8 million for 3 projects), power ($40.8 million for 1 project); telecommunications ($21.7 million for 3 projects); highways ($19.2 million for 2 projects); and rural development ($19.0 million for 2 projects). The remaining $53.1 million of IDA assistance is for one project in each of the areas of settlement, techni- cal education, tourism, technical assistance, forestry, grain storage, indus- trial development financing and Hill food production. The proposed credit would be the fifth in FY81, bringing the total amount of IDA assistance to Nepal to US$296.6 million equivalent, net of cancellations. No Bank loans have been made to Nepal. IFC made its first investment in Nepal ($3.1 mil- lion) in a hotel project in Kathmandu in FY75. Annex II contains a summary statement of Bank Group operations as of October 31, 1980, and notes on the execution of ongoing IDA projects. It shows certain delays in the implemen- tation of these projects, particularly during the initial periods. These delays have been largely due to Nepal's limited technical and managerial capabilities. In order to assist Nepal in coping with this constraint, considerable technical assistance is being given by Bank Group staff, includ- ing our Resident Mission in Kathmandu. As a result, improvement in the rate of disbursements is being realized. During FY80, US$22.6 million equivalent were disbursed compared to US$42.8 million equivalent disbursed during the entire previous nine years.

20. Bank Group lending to Nepal has increased steadily, but still remains at a modest level compared to the country's need for external assistance. The international community has shown considerable interest in Nepal's economic development and, to date, shortage of funds has not been a bottleneck. The main constra,nt on the utilization of increased aid has been Nepal's limited absorptive capacity, affecting the pace of project preparation and implementa- tion. The Bank is assisting the Government in project preparation through the Technical Assistance Credit (Credit No. 659-NEP) and by acting as Executing Agency for a number of technical assistance projects financed by UNDP. The Bank Group has also addressed the problem of absorptive capacity through its role in organizing t.. Aid Group for Nepal (para 17). - 7 -

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 those connecting the Hills to the Terai), communications and hydroelectric power. Preparation of projects in irrigation, cottage industry, technical education and power is under way.

PART III - THE AGRICULTURAL SECTOR

22. Agriculture is the key sector for Nepal's economic development: farm production and related activities contribute more than 60% of GDP, pro- vide almost 90% of employment and about 75% of merchandise exports, mostly foodgrains2 jute and oilseed. Only about one sixth of Nepal's gross area of 141,000 km is cultivable. Foodgrains account for about 90% of cropped area, rice being the most important (50%), followed by maize, wheat, other cereals and pulses. The rest of the cropped area is under oilseeds, jute, potato, tobacco, sugarcane and horticultural crops. Growth of agricultural production (average 1.1% per year 1970-77), which is largely determined by foodgrain performance, has not kept up with population growth. Growth has primarily come from area expansion since yields have largely stagnated (para 11).

23. The Government has had to moderate its earlier approach to regional specialization according to comparative advantage (foodgrains in Terai vs. horticulture, tea and livestock in Hills) in view of the need for an adequate foodbase in the Hills. The role of the Terai will continue to be the genera- tion of domestic and exportable foodgrain surpluses as a resource for further development. Since area expansion is limited in the Terai, emphasis will be given to increasing yields, mainly by an expansion and upgrading of existing irrigation infrastructure and inputs. Initial results from the IDA-assisted Birganj Irrigation Project (Narayani Zone) indicate that substantial yield improvements can be expected from improved irrigation water supply combined with increased agricultural inputs and effective extension services.

24. Agricultural Institutions. Four major Ministries deal with agricul- ture: the Ministry of Food and Agriculture (MFA); the Ministry of Forest; the Ministry of Land Reform; and the Ministry of Water Resources. MFA includes the Department of Agriculture (DOA) which is responsible for agricultural extension, training and research. MFA also has overall responsibility for a number of public sector corporations which include the Agricultural Inputs Corporation, the Agricultural Development Bank of Nepal (ADBN) and the Nepal Food Corporation. In general, like many other government agencies, agricul- tural institutions suffer from lack of trained staff.

25. Agricultural Extension. The Director General of Agriculture (DG) is assisted by a Deputy Director General (DDG), Extension and Training. In each of the four development regions of Nepal (the Eastern, Central, Western and Far Western Regions) a Regional Director of Agriculture supervises district level development and extension programs which are directed at the district level headed by a District Agricultural Development Officer/Assistant Agricul- tural Development Officer (ADO/AADO). Each ADO/AADO is assisted by a number - 8 - of Junior Technicians (JT) and Junior Technical Assistants (JTA) each receiving two years and one year training, respectively. A recent innovation has been the employment of Agricultural Assistants (AA) at the village level, selected from among progressive farmers and retired service men. AAs receive minimal training and serve on a part-time basis.

26. The DOA has a well established Farm Information and Communication Unit at headquarters to produce pamphlets, posters, charts and training aids. The Unit has developed a systematic program of farm radio broadcasts. kn Information Officer is provided in each of the four Regional Directorates.

27. Many factors contribute to the relatively low level of effectiveness of the extension service. The JTs and JTAs are required to devote time to tasks outside their technical field, including much reporting. Production targets for various crops and for other activities, for example, fertilizer use, are often rentrally determined and bear little relation to local condi- tions, priorities or resources. Usually, work programs are more relevant to a small number of farnnrs, who are often the more advanced and with larger holdings. uipervisionand ttcthniicalbi.ckstopping are not intensive Ef.1-- tiveness of lxtension services is also constrained by undependakle -"sso poorly deveioped irrigation systems, inadequate budgetary support and stdtf training and lack of communication, transportation and housing facilities at the village level. In addition, extension work in the field is not systemat- ically carried out, and the linkage between research and extension needs to be improved.

28. As part of Bank-assisted irrigation projects in the Terai, 1/ the Training and Visit System of Extension has been introduced in Sunsari, Morang, Bara, Parsa, Rautahat, and Rupandehi districts and a part of Kanchanpur dis- trict. Encouraging results have been obtained in Bara, Parsa, and Rautahat districts, where work is advanced.

29. Agricultural Research. Agricultural research is the responsibility of a second DDG of Agriculture. The research service operates a total of 52 establishments located throughout the country. These establishments consist of (a) research stations, (b) research centers, and (c) research farms, mainlv for seed multiplication. The research service is responsible for providing information based on basic and applied agricultural research for development of all the regions and climatic zones of Nepal. Considerable progress has been made under the Integrated Cereals Project (ICP), which is assisted by USAID. The program has shown the benefits of coordinated approach to rice, wheat, and maize research and production but much more applied and adaptive research is needed for increasing crop production. Major problems preventing the research programs from operating efficiently are: (a) insufficient operat- ing funds for materials, supplies and equipment; (b) inadequate facilities at a number of research stations; and (c) shortage of research staff working in different agroclimatic zones on location specific problems. Transportation

1/ Birganj (Narayani Zone) Irrigation Project Stages I & II (Credits 373 and 856), the Bhairawa-Lumbini Groundwater Project (Credit 654), the Sunsari- Morang Irrigation and Drainage Development Project (Credit 856), and the Mahakali (Stage I) Irrigation Project (Credit 1055). - 9 - and mobility are constraints not only to conducting research but also to field testing.

30. Education and Training. The Institute of Agriculture and Animal Science, Rampur, has responsibility for training JTAs (one year course) and JTs (two year course). It also has a three year course for Diploma in Agri- cultural Science (equivalent to B.Sc. Agriculture). About 180 persons have so far been trained in the diploma course. In addition, a few selected candidates are sent abroad for post graduate training in a range of agricultural sciences.

31. Inservice training for all categories of staff is organized by the Extension and Training wing of DOA. Each year, about 400 extension staff are provided inservice training at the training centers, research stations, and farms with the help of local trainers and crop specialists, but the training program is handicapped by the shortage of suitable courses, training facili- ties and trainers.

32. Agricultural Credit. The major source of institutional credit is the Agricultural Development Bank of Nepal (ADBN), established in 1973. It is expected to provide the overall credit requirements of agriculture and agro-based industries, and ensure effective mobilization of rural savings. The Sajha (cooperative) program provides short term production credit to its members using funds made available by ADBN. More recently, commercial banks have also become involved in rural credit.

33. ADBN provides loans to individuals, companies, and institutions engaged in agricultural production. More specifically, it provides: (a) short, medium and long term credit to cooperatives and corporate bodies engaged in agriculture; (b) loans directly to farmers for the purchase of seed, fertil- izer, pesticides, farm machinery, and irrigation equipment; (c) investment in small scale industries engaged in processing farm products and manufacturing inputs required for agriculture; and (d) banking facilities in places where commercial banks are not established. ADBN's standard terms are 18 months for short term loans with a 14% interest rate per annum, 7 years for medium term loans at 11% interest rate p.a., and 20 years for long term loans with an 8% interest rate p.a. Rediscount facilities available to ADBN through the Rastra (Central) Bank provide 6% spread, which is considered sufficient to cover operating and administrative costs. Total lending operations of the ADBN have increased substantially, rising from NRs 76 million in FY1973/74 to NRs 262 million in FY1977/78. Most farmers are still reluctant to approach institu- tional agencies for credit, mainly due to lengthy and complicated procedures for borrowing, and difficulties in establishing collateral for loans. Absence of technical know-how in commercial banks is a factor restricting expansion of their lending.

34. Cooperatives. The Sajha development program was introduced in early 1976 to revitalize the cooperative movement, mobilize local savings, and to link economic development with decentralization at the local level. Sajhas provide credit, agricultural inputs, marketing facilities, and some basic consumer goods (diesel oil, kerosene, course cloth, salt, rice and sugar). Each Sajha serves on average three to four panchayats. Further, at the - 10 - village level, they also act as the local agent of the Agricultural Inputs Corporation (AIC).

35. Agricultural Inputs. AIC, established in its present form in 1975/76 is responsible for the supply of inputs to farmers. Its functions include: (a) importation and distribution of chemical fertilizers and main- tenance of stock; (b) collection, processing, storage and distribution of improved seeds and assistance to DOA in conducting seed multiplication pro- grams through contract growers; (c) procurement and distribution of pesticides; and (d) distribution of locally manufactured agricultural tools and implements as well as importation and distribution of agricultural machinery. AIC's sales of inputs in 1978 are estimated at 54,000 tons of fertilizer, 2,520 tons of improved seeds, pesticides costing NRs 1.9 million and agricultural imple- ments costing NRs 2.6 million.

36. Nepal does not manufacture chemical fertilizer and depends entirely on imports, which are either financed by bilateral aid (2/3 in 1979/80) or by direct purchase (1/3). Fertilizer imports are generally delivered through Calcutta Port (India) and transported by road and train to the Indian/Nepalese bo-rder. Internal distribution is then either by road or, in the hills and mountains, by mules and porters. The transportation costs to some of the more remote areas exceed the actual cost of fertilizer. Quantities of fertilizer supplied under bilateral aid fluctuated substantially in recent years (37,000 tons in 1977/78, 42,000 tons in 1978/79 and 25,000 tons in 1979/80). The total national consumption of fertilizers in 1977/78 was about 54,000 tons which is about 6 kgs of nutrients per cropped ha. This is one of the lowest application rates in the world and compares with levels of consumption in neighboring India of about 25-30 kgs nutrients per ha. HMGN would like to promote a substantial increase in consumption over the next five years, but is uncertain about the availability of fertilizer provided by bilateral agencies in view of the substantial decline in such supplies in 1979/80 and uncertainty about levels of future assistance.

37. In keeping with other countries in the region, HMGN subsidizes the cost of fertilizers to farmers. The amount of this subsidy depends on the prevailing retail price in India, as any price differential would result in flows of fertilizer across the border. As a matter of policy, the Government adopts a uniform price throughout the country, regardless of transportation costs. The present sale price of Urea to farmers is NRs 3,000 (US$250) per ton which corresponds to the price prevailing in India. This covers roughly 2/3 of the average total cost of fertilizer c.i.f. retail sales points, and results in an average subsidy to farmers of NRs 1,543 (US$129) per ton. This subsidy amounts to some 34% of the current retail price of Urea and is lower than subsidies in Bangladesh (40%) and Pakistan (35-40%) where transportation costs are much lower. HMGN provides AIC with either the foreign exchange to purchase the fertilizers or the fertilizer received under bilateral assistance. AIC returns the net proceeds of its fertilizer sales to the government. AIC is not usually involved in retailing except in some remote hill areas. Fertilizer is sold mostly through cooperatives (Sajha) or private dealers where cooperatives do not exist. 38. Agricultural Marketing. The main institutions involved in agricul- tural marketing are: (a) The Nepal Food Corporation (NFC), whose main respon- sibility is to distribute foodgrains to food deficit Hill districts; (b) MFA's Food and Agricultural Marketing Services Department (FAMSD), whose role is to collect socio-economic and price data, analyze trade patterns, and establish marketing systems, particularly in the Hills; and (c) The Rice Export Com- panies which are quasi' government agencies, purchasing paddy either directly from farmers or through Sajha cooperatives. The Government has recently liberalized the export of foodgrains, and plans to place control of public sector domestic and export trading in NFC and strengthen it so that it may be better able to promote Government foodgrain policies. The Grain Storage Project (Credit No. 1062-NEP) is assisting the Government in this effort.

PART IV - THE PROJECT

39. The proposed project was prepared by the Agricultural Projects Services Center (Nepal) financed under the Technical Assistance Credit (Credit No. 659-NEP). The project was appraised in May/June 1980. Negotiations were held in Washington, D.C., in December 1980. The Nepalese delegation was led by Dr. T.N. Pant, Joint Secretary, Ministry of Food and Agriculture. A report entitled "Nepal - Staff Appraisal Report - Agricultural Extension and Research Project" (Report No. 3104-NEP, dated January 5, 1981) is being circulated to the Executive Directors. A supplementary data sheet is attached as Annex III.

Project Objectives

40. The proposed project aims to achieve early and sustained improvement in agricultural production, particularly foodgrains, in eight of the twenty districts of the Nepalese Terai. The project would reorganize and strengthen the agricultural extension services along the lines of the Training and Visit system and upgrade and develop adaptive research in the districts of Jhapa (Eastern Region), Sarlahi, Dhanusha, Mahottari, Chitwan (Central Region), Nawalparasi, Kapilavastu (Western Region) and Banke (Far Western Region). These districts have been selected since they are adequately staffed in terms of JTs and JTAs and are contiguous with the six districts already provided with improved extension service (para 28 above). Improvements of production would be brought about by the wide adoption of low cost, labor intensive agri- cultural practices, improved varieties of seeds and provision of fertilizer.

Project Description

41. The main components of the project are:

(a) Reorganization and Strengthening of Agricultural Extension Services. Provision of additional staff, housing, offices, equipment, transportation and staff training designed to consolidate the reorganization;

(b) Strengthening and Reorientation of Applied and Adaptive Research. Development and upgrading of four regional research stations and one substation by farm development, - 12 -

provision of staff, machinery, equipment, laboratory facilities, and vehicles;

(c) Project Monitoring and Evaluation. Establishment of regular monitoring and evaluation procedures;

(d) Technical Assistance. Overseas training of project staff, studies and provision of consultants; and

(e) Fertilizer. Provision of fertilizer in the project districts.

Organization and Implementation

42. Project activities would be carried out over approximately five years through the Government's line agencies. Overall responsibility for project implementation would be with the DG of Agriculture. By April 30, 1981, MFA would appoint a Project Coordinator, reporting to the DG, to be responsible for ensuring implementation and coordination of all project activities (Section 3.03 of the draft Development Credit Agreement (DCA)). Since extension and research activities should be maintained after completion of the proposed proj-rt, the Government would establish permanent positions as needed to employ incremental staff in accordance with a schedul- agreed .pcn with the Association (Section 3.06(b) of the draft DCA). In all, about 32 additional professional staff, including the Project Coordinator, would be appointed over a three year period, to meet both extension and research needs. The remaining staff would be selected from DOA's existing staff. The adequacy of staff would be reviewed by December 31, 1982, and, if necessary additional staff would be employed (Section 3.06(e) of the draft DCA). The existing Coordination and Progress Review Committee would ensure coordination of all project activities at the national level. The Committee is chaired by the Secretary, MFA, and includes the DGs and DDGs of Agriculture and Livestock and Animal Husbandry and representatives of credit, input and marketing organiza- tions.

Agricultural Extension

43. Agricultural staff would be reorganized into a single line of com- mand from the DG of Agriculture to the Level Agricultural Assistant (PLAA) at the Panchayat (village) level. Under the supervision of the respec- tive Regional Director of Agriculture, an Agricultural Development Officer (ADO) and an Assistant ADO would be responsible for extension work in each district, assisted by two Subject Matter Specialists (SMSs) and an adequate number of JTs and JTAs. Full time PLAAs, with about 8 years of schooling and a farming background and residents of the villages where they have to work, would be recruited to carry out extension work at the village level. PLAAs would visit farmers regularly and systematically to give them advice on farm- ing practices best suited to their specific conditions. PLAAs would select some progressive farmers to serve as contacts within their areas of operation. Intensive pre-service and in-service training would be provided to extension staff, and training facilities would be provided, one at each of the four Regions (at Jhumka, , Bhairawa and Nepalganj). Establishment of these Regional Training Centers is already underway with assistance from IDA - 13 -

(Jhumka), Japan (Janakpur), USAID (Nepalganj) and German Volunteer Service (Bhairawa).

44. The intensive program of visits to farmers would require extension staff to live close to their areas of work, and suitably modest housing would be provided for them under the project. Forty-three training sub-centers would also be provided, each with a small office for the JT/JTA and a training hall. Additional buildings for a hostel, dormitory, and classrooms; furniture and equipment, incremental staff and training at the Regional Training Centers at Bhairawa and Nepalganj, would also be provided. By December 31, 1981, the Government would have selected the sites for offices, laboritories and houses to be constructed under the proposed project and informed the Association of progress made (Section 3.07(a) of the draft DCA). Twenty Panchayat level warehouses would be constructed to meet additional inputs storage needs. Transportation would be provided at the district and subcenter level. Loans and allowances would be made available to JTAs for the purchase and mainte- nance of bicycles, to facilitate contact at all levels with farmers (Section 3.08 of the draft DCA).

Applied and Adaptive Research

45. The project would strengthen applied and adaptive research to pro- vide practical answers to farmers' problems. Efforts would focus on princi- pal crops grown under different agroclimatic conditions in the project area, and on developing improved cultivation practices with early maturing, high yielding varieties acceptable to farmers. Special attention would be paid to dryland farming techniques, soil and water management, pest and disease control, improved farm implements, and farming systems and cropping patterns designed to increase farmers' income. Research would be conducted on a multidiciplinary team approach, with staff devoting full time to research.

46. The research effort would be decentralized and carried out in the existing Regional Research Stations (RRS), one for each of the four develop- ment regions: Nepalganj (Far Western Region), Bhairawa (Western Region), Parwanipur (Central Region), and Tarahara (Eastern Region). Each station would have a lead responsibility for research on specific crops. In addition, two substations would be developed (Sarlahi and Hardinath in Central Region) to ensure coverage of all major agroclimatic variations. Only a modest increase in professional and support staff would be required. Laboratories, offices, staff quarters and dormitories would be provided at the four RRSs and at one substation. Staff training would be provided locally and through fellowships abroad. Vehicles and motorcycles would be provided to enable research staff to spend adequate time in the field, and for the transporta- tion of seeds and other inputs.

Coordination Between Research and Extension

47. Strengthening the linkage between research and extension would ensure the widespread testing of research recommendations on farmers' fields and transfer of suitable technology to farmers. At the district level the linkage between research and extension would be the responsibility of the District Technical Committee (DTC), which would be established in each of the eight project districts. Each DTC would be chaired by the District's ADO, - 14 -

and include the Research Outreach Officer, the SMSs, research workers and farmers' representatives (Section 3.05(a) of the draft DCA). Each DTC would make recommendations on the research priorities and adaptive trial needs in the district. Each RRS would be headed by a Regional Research Coordinator (RRC). A Research Outreach Officer would be provided at each RRS to train SMSs, organize field trials, and maintain close liaison with extension wor- kers. The RRC would hold regional workshops for research workers, and extension and agricultural staff in his region, at least twice a year, to discuss the recommendations of the DTCs and develop appropriate programs for research, adaptive trials and extension (Section 3.04 of the draft DCA). A Central Technical Committee (CTC), chaired by the DG of Agriculture, would be established to review and approve or modify recommendations of DTCs and the regional workshops for future research programs and extension activities to be carried out by DTCs (Section 3.05(b) of the draft DCA). The CTC and DTCs would be established by May 31, 1981, and meet at lest twice a year (Section 3.05(c) of the draft DCA).

Strengthening Agricultural Engineering Division of DOA

48. The Agricultural Engineering Division of DOA is responsible for agricultural machinery research and development, post harvest technology, and construction and maintenance of departmental buildings. The Division under- takes its present responsibilities reasonably well. However, in order to enable the Division to carry out its increased activities under the project, the Government would provide it with an Assistant Engineer at headquarters, an Overseer for each project district, necessary equipment and consulting architects.

Fertilizer

49. Present consumption level of fertilizer in Nepal and in the proj- ect area is very low (para 36 above). Demand for fertilizer is expected to increase during the Sixth Five Year Plan period with the development of irri- gation and extension services. The present level of fertilizer consumption in the eight project districts is about 10,000 tons (gross) annually, equivalent to about 21 kgs per cropped ha, or 7 kgs of nutrient per ha. With more inten- sive extension activity, consumption is expected to reach some 35 kgs per cropped ha (12 kgs of nutrients per ha), thus increasing the annual gross level to 17,500 tons. This increased consumption would require additional foreign exchange, which is substantial in relation to Nepal's limited ability to earn foreign exchange, considering declining foodgrain exports and the increasing cost of its imports of fuel, development goods and other essential items, and would increas. AIC's operations substantially. In order to plan for these developments, ,ith assistance of a consultant acceptable to the Association, the Government would, by January 31, 1982, complete a study, with terms of reference acceptable to the Association, of the operations and technical assistance needs of AIC (Section 3.10(a) of the draft DCA). By July 31, 1982, the Government would formulate and furnish to the Association, a national fertilizer strategy for fertilizer procurement, pricing and distribution (Section 3.10(b) of the draft DCA).

50. Pending the preparation and execution of the national fertilizer program, and to avoid a situation in which the needs of the project area are - is- met at the expense of other areas in Nepal, the project would help meet the immediate fertilizer needs in the project districts by financing the foreign exchange cost of fertilizer required by farmers for the first two project years. This would amount to 22,100 tons (10,500 in first year and 11,600 in second year), at an estimated cost of US$8.37 million. The Government would ensure that the fertilizer financed under the project be utilized in the project area (Section 3.09(a)). AIC would be responsible for the purchase of the fertilizer required and its distribution to the farmers. The proposed fertilizer program would increase agricultural credit needs and make addi- tional demands on ADBN. The Government would review annually with the Asso- ciation the credit needs of farmers in the project area (Section 3.09(b) of the draft DCA), and would provide adequate funds to ADBN to meet these needs (Section 3.09(c) of the draft DCA). Technical assistance is provided under the project to review the working of ADBN and make recommendations for meet- ing its current and long term financial, managerial and technical assistance needs. Technical assistance to ADBN is also expected to be provided by the International Fund for Agricultural Development and by the Asian Development Bank under recently approved projects (Small Farmers Development Project and Fourth Agricultural Credit Project, respectively). Technical assistance under the proposed project would be coordinated with work under these two projects.

Technical Assistance

51. The Government would employ consultants to assist in strengthening research (18 man-months) and extension (24 man-months) activities, to study the working of AIC and formulate recommendations for its improvement, to carry out the study for development of a national fertilizer strategy and program (6 man-months) and to review the working of ADBN and its technical assistance needs (5 man-months). The average cost would be about US$6,500 per man-month. In addition to local training, scholarships would be provided for about 128 man-months and 258 man-months of overseas training for research workers and for extension staff, respectively.

Monitoring and Evaluation

52. The Evaluation and Program Analysis Division (EPAD) of MFA would monitor and evaluate project activities and benefits. By May 31, 1981, EPAD would complete a format satisfactory to the Association of a benchmark survey of the project districts (Section 3.11(a) of the draft DCA). EPAD would also establish a monitoring and evaluation system (Section 3.11(b) of the draft DCA) and carry out the benchmark survey (Section 3.11(c) of the draft DCA). The Government would prepare a Project Completion Report and provide it to the Association within six months of the Closing Date (Section 3.12(c) of the draft DCA).

Cost and Financing

53. The total project cost is estimated at US$20.85 million equivalent, including US$70,000 of duties and taxes. The foreign exchange component is estimated at US$13.3 million equivalent, about 64% of total project cost. The proposed credit of US$17.5 million would finance US$12.7 million of the foreign exchange cost of the project plus US$4.8 million of local cost, amounting to about 84% of total project cost net of duties and taxes. Local - 16 - cost financing is recommended in view of the country's very limited capacity to generate resources (para 17 above). UNDP has agreed in principle to provide US$650,000 to finance the technical assistance component, and the Government would contribute the balance of US$2.7 million. Execution of the project agreement between the Government and UNDP would be a condition of effectiveness of the proposed credit (Section 6.01 of the draft DCA).

Procurement and Disbursement

54. Procurement of equipment and vehicles involving contracts above US$50,000 and all procurement of fertilizer would be on the basis of inter- national competitive bidding in accordance with IDA guidelines. Orders of less than US$50,000 would be purchased through local procedures satisfactory to the Association. Civil works (US$3.8 million) would be small and scattered throughout the project area, would not attract foreign contractors and would, therefore, be let on the basis of local procedures satisfactory to the Asso- ciation.

55. Disbursements would be made against: (a) 92% of expenditures for civil works; (b) 100% of foreign expenditures for fertilizer; (c) 100% for foreign expenditures for imported equipment, furniture and vehicles, 100% local expenditures (ex-factory) for locally manufactured goods and 75% of local expenditures for other goods procured locally; (d) 36% of expenditures for project staff salaries and allowances (equivalent to 85% of incremental cost); and (e) 95% of local expenditures for other operating costs.

Benefits and Risks

56. The project would directly benefit about 360,000 farm families. Attributing a precise level of benefits to this type of project is difficult since it is not possible to determine what proportion of benefits are due to extension alone and what are due to additional purchased inputs and other factors. In practice, it is the combination of a number of factors, with extension playing the role of catalyst, that brings the desired benefits. It is also difficult to estimate acceptance rates of recommended practices. However, since the project relies primarily on reorganization and strengthen- ing of existing extension and research structure, the incremental cost is low per hectare and per family. Thus, a small and slow production increase in the project areas as a consequence of the project would generate a high rate of return. The project would be able to generate about a 50% rate of return if, by 1988, yields of foodgrains increase by only 12 kgs per ha. One significant feature of the system is that the practices initially stressed by the extension service would focus on improving cultural practices (timely operations, good land preparation, proper seed rates, and weeding) to maintain adequate and healthy plant population over the cultivated area. As these operations usually involve more work and little cash outlay, they are partic- ularly well suited to the needs of small farmers. The project faces no special risk. - 17 -

PART V - LEGAL INSTRUMENTS AND AUTHORITY

57. The draft Development Credit Agreement between the Kingdom of Nepal and the Association and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement, are being distributed to the Executive Directors separately.

58. Special conditions of the project are listed in Section III of Annex III. A special condition of effectiveness would be that the Government would have executed the Project Agreement with UNDP for the employment of consultants.

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

PART VI - RECOMMENDATION

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

Robert S. McNamara President

Attachments January 14, 1981 - 18 - ANNEX I Page 1 of 5 pages

TABLE 3A NEPAL - SOCIAL INDICATORS DATA SHEET

NEPAL REFERENCE GROUPS (WFIGHTEDAIRACES LANDIAl EA (THOUSAND SQ. KM.) - HOST RECENT ESTIMATE TOTAL 140. 8 MOST RECENT LOW INCOME MIDDLE lINCOE AGR CiTLTI'RAL 40. 1 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC

CUP PER CAPITA (USS) 50.0 70.0 130.0 212.4 1114.7

ENERGYCONUIMPTION PER CAPITA (KlLCCRAMS OF COAL EQUIVALENT) 5.0 15.0 11.0 166.0 842.4

POPULAI.ON AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 9.3 11.4 13.6 URBAN POPULATION (PERCENT OF TOTAL) 3. 1 3.9 4.8 20.8 39. 1

POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.0 STATIONARY POPULATION (MILLIONS) 46.0 YEAR STATIONARYPOPULATION IS REACHED 2160

POPUJLATIONDENSITY PER SQ. 1041. 66.0 81.0 97.0 193.2 376.1 PER SQ. RN. AGRICULTURALLAND 243.0 286.0 339.0 409.6 2350.4

POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 40.3 42.0 42.4 42.0 40.4 15-64 YRS. 57.0 55.0 54.6 55.0 56.2 65 YRS. AND ABOVE 2. 7 3.0 3.0 3.0 3.4

POPULATION GRNWTHRATE (PERCENT) TOTAL 1.1 2.0 2.2 2.2 2.4 URBAb' 6.5 4.3 5.0 3.9 4.1

CRUDE BIRTB RATE (PER THOUSAND) 46.0 45.0 45.0 37.4 28.7 CRUDE DEATH RATE (PER THOUSAND) 29.0 23.0 21.0 14.6 7.9 GROSS REPRODUCTIONRATE 3.0 3.0 3.2 2.6 1.9 FAMILY PLANNING ACCEPTORS, ANNUAL(THOUSANDS) .. 37.4 138.8 USERS (PERCENT OF MARRIED WOMEN) .. 0. 7/c 4.3/c 15.6 39.0

FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 106.0 101.0 91.0 101.4 116.9

PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRE4ENTS) 93.0 96.0 91.0 92.4 108.9 PROTEINS (GRANS PER DAY) 50.0 51.0 48.0 49.8 60.3 OF WHICH ANIMAL AND PULSE 9.0 9.0 9.0 12.0 18.8

CHILD (AGES 1-4) MORTALITYRATE 35.0 27.0 23.0 17.9 5.3

HEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 36.0 41.0 43.0 50.8 63.0 INFANT MORTALITY RATE (PER THOUSAND) .. 152.0/d .. .. 52.8

ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 2.0 9.0 30.2 42.4 URBAb .. 53.0 81.0 66.0 62.1 RURAL .. .. 5.0 20.0 29.7

ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION) TOTAL * 1.0 1. 0 17. 7 52.8 UREBAN * 14.0 14.0 71.3 71.1 RURAL ...... 42.4

POPULATION PER PHYSICIAN 72000.0 49770. Ole 35207. O/e 6322.7 4120.1 POPUIATION PER NURSING PERSON .. 68320.0/e 51222.0 9459.0 2213.6 POPULATION PER HOSPITAL BED TOTAL 8060.0 6750.0 6289.0 1758.4 819.4 URBAN .. .. RURAL .. ..

ADMISSIONS PER HOSPITAL BED ...... 28.8 liOUSING AVERAGESIZE 0F HOUSEHOLD TOTAL .. 5.5 URBA-N 5.4 .. . RURAL .. ..

AVERPAG E PRUMBER OF PERSCNS PER ROOM TOTAL .. .. TRBAN 2.0 .. ARALh ......

UC'ESS .0 ELECTRICITY (PERCENT OF TN;ELLlNG5) TO';AL ...... URBAN 30.2 .. R'JRAL .. .. - 19 - ANEX I Pave 2 of R pageg

TABLE 3A NEPAL - SOCIAL INDICATORSDATA SHCCT

NEPAL RICRECUCEC ROUFS plFICHTID AYtFS LANi AEEA (THOUSANDSQ. KIM.j - ST ItEC ESTIMATEfl TUTAL 140.8 MOSTRECT LOW ITNCOE NIDOLS 111001 AGRICULTURAL 40. 1 1960 /b 1970 /b ESTIMATElb ASIA & PACIFIC ASIA & PACIPIC

GNP PLR CAPITA tUS$) 50.0 70.0 130.0 212.4 1114.7

ENERGYCONSIMPTION PER CAPITA (KILOGRAMSOF COAL EQUIVALENT) 5.0 15.0 11.0 166.0 862.4

POPULATION AND VITAL STATISTICS PCPILATION, KID-YEAR (HILLIONS) 9.3 11.4 13.6 URBANPOPULATION (PERCENT OF TOTAL) 3.1 3.9 4.8 20.6 39.1

POPCLATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.0 STATIONARYPOPULATION (MILLIONS) 46.0 YEAR STATIONARYPOPULATION IS REACHED 2160

POPULATION DENSITY PER SQ. KM. 66.0 81.0 97.0 193.2 376.1 PER SQ. KM. AGRICULTURALLAND 243.0 286.0 339.0 409.6 2350.4

POPULATION AGE STRUCTURE (PERCENT) 0-14 Y9S. 40.3 42.0 42.4 42.0 40.4 tS-t4 YRS. 57.0 55.0 54.6 55.0 56.2 65 YRS. AND ABOVE 2.7 3.0 3.0 3.0 3.4

POPULATIONCRCIWTH RATE (PERCENT) TOTAL 1. 1 2.0 2.2 2.2 2.4 URBAN 6.5 4.3 5.0 3.9 4.1

CRUDE BIRTH RATE (PER THOUSAND) 46.0 *5.0 45.0 37.4 28.7 CRUDE DEATH RATE (PER THOUSAND) 29.0 23.0 21.0 16.6 7.9 GROSS REPRODUCTIONRATE 3.0 3.0 3.2 2.6 1.9 FAMILY PLANNING ACCEPTORS. ANNUAL (THOUSANDS) .. 37.4 13L.8 USERS (PERCENT OF MARRIED WOKEN) .. 0.7kc 4.3j 15.6 39.t

FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-lO) 106.0 101.0 91.0 101.4 116.9

PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 93.0 96.0 91.0 92.4 108.9 PROTEINS (GRANS PER DAY) 50.0 51.0 4.0 49.8 60.3 OF WHICH ANIMAL AND PULSE 9.0 9.0 9.0 12.0 1.8

CHILD (AGES 1-4) MORTALITYRATE 35.0 27.0 23.0 17.9 5.3

HEALTH LIFE EXPECTANCYAT BIRTH (YEARS) 36.0 41.0 630 50.3 63.0 INFANT MORTALITYRATE (PER THOUSAND) *- 152.0d .. .. 52.8

ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL .. 2.0 9.0 30.2 62.4 URBAN .. 53.0 81.0 66.0 62.1 RURAL .. .. 5.0 20.0 29.,7

ACCESS TO EXCRETADISPOSAL (PERCENT UF POPULATION) TOTAL .. 1.0 1.0 17. 7 52.3 URBAN .. 160 14.0 71.3 71.1 RURAL ...... 2.4

POPULATION PER PHYSICIAN 72000.0 49770.0._j 35207.0/o 6322.7 4120.1 POPULATION PER NURSING PERSON .. 68320.0O. 51222.0 9459.0 2213.6 POPULATION PER HOSPITAL BED TOTAL 8060.0 6750.0 6289.0 1758.4 3l9.4 URBAN .. RURAL ..

ADMISSIONS PER HOSPITAL BED ...... 2L8

HOUSING AVERAGESIZE OF HOUSEHOLD TOTAL *- 5.5 URBAN 5.4 RURAL ..

AVERAGENUMBER OF PERSONS PER ROCK TOTAL .. URBAN 2.0 RURAL ..

AC,CESST0 ELECTRICITY (PERCENT OF D'ELLINGS) TOTAL .. URBAN 30.2 RUtRAL .. - 20 - ANNEXI Page 3 of 5 pages LEtPEIT:105IfO~SOCIAL INDICA~TORA

hoit. Althoughthe date are dreos fro ore eeal judged the sost .utho,itati-ven. rliable, nnoaly ounpa...hilb-ocoe of the laco tndrded it should alec be noio that they ay cot he inter definition eod ..... epe usd bY diffs..ent o..oorise to cllec.ting the data. The det Iar, oe thaises, -efu1 so deso.nlb.orders 'f eagoicud. indicate cesoda, and oheroterise -erteinmajordferoa betns...oo...trla..

The refrec ,goPsare (I1 thees cuty ru-oorItry o h sub-teot aed (2) aIonr of oh eujco uos Iscp for 'CapitlSrus group.fol soewhatihigh-e arsegs iooom thanoh orr n. l foI rr"grupohr "Middle Bo... Notc At IaadMfiddls las' teobh.senbacousIo esrroc nooto-oulcrolInsheofflotima). refeenos geoopdate the vareges ae populIn weighteis iarithi,eic eans.. ror.eachidicitor cd shows-olylwhet a Isaac bolt of the coun.triesin a group bee deco forc'hatindi-etr. Sio.e tbn coeag f Ic..soelee....gohs irdicetor.dpsode on ch. ov-ilebillsto data en i not uniform,ouios, .. suet.be soescisd Ir re1atlg vsae of oIe lodl-tor to soother. Thea ssrgs arm only useful in toepselog cbho.. ofoei.diceDaI tim mn th. countrysod referesosgroups. LAND AREA (thousan.dsqik.) roeoeion Len Phvecca -Popimto ainlasohp ta-b- IS prso.--gf p,- Tonal - ToL1 surface are oprsi~ land ares ad .inlaoocesliasqmified Agri..lcur.1- tE.lue feriuralI trama medical school at ut-rL.ty level. area, ues tespotaril orprastyp .ly Posl....onper Surln Pereco - PopulatIondivided by tasher utpao for -rpa, postures,narkn cud hitchesgardens or to lie fallow;1977 data, sale and female graduate uss practical .or.eeand asoct oa AspPE CIAPITA (1119 GNTPpor .. pit. -sisan atcrrrc akst pricos. oat- ubn o ,rural di2 e yterrsenr obro opclb ouse Ly-atcvrio. tschod Ie Word bobt Atla (1970-79 Ass is); 19A0, soilabla in public and pritvan genrl n pecielieed 1970, aod 1979data. boepitcl aodi- habilitanti eosrs Hospital ar -etblhisfa tn pe.mas..nly staffed ENERGYCONSUMPTION PER CAPITA - Aonual ocsunption of bye -lann physiian,.LtE.t.bliebhemne ps-iding principally -uanadia1 ory(ca enc o toeceincloded. Ioehospitals.. -eee.iouehat n eia "rIny In kilogem o-f -oseqivuInt Par.c. pica:1981 .91,n 97 nus. dife., etc.) which offer is-patien aot bdyoI od provIde t data. liaised renos of sodlAal faoilities. rfor ItListatistical i.. P.L...Prb.'h.piporposee orbas hospi-~~f.ilii. tabs ilolde WHO. principai POPUL.ATIONVITAL. general sed sp.oilissd bhpitela, * ad rural AtOD STATISTICS hospitals 1-01 It coral opitaa Tonal Populunio.. enmdical end maternity cnes Mod-fea (ei2lios .. do of July 1; 1960, 1970, sod i97f admissions Per Hopita 1d- dat,I Toalnahn of admissions no or dis-h-ogr from hospitals dtnidsd by ohs otmber of bde. Toban PpulatIo (enecen of total) -Rtacl of urban to tonl pupolution; diffrentdefiitios o e.. asses may affect oomparobility of dens HusN usong cutrie;. 1980, 1970. end 19THdaco. Asra... Sir! of House,hold lspre... P.r h...,h,dl total, urb.. aod era1- t I PocusolnI rea 111 -Cuoren populationp-o)eotionsar ~ cnIst f a grou of imdividul de hor iigqatr based on 1980 and h.-i~~ mansas ~ ~~~~~~~~~~AIhueodore rlde a my not"hoincuedg totol Population by gs sod Sen and thal marnoi!ty and frtlinty rates..s boshnldf.. statisticl1 purposes. Poojantlon parasater for sornliyraecoPrs of thre levls- sus Aveoax number ot IerImncr ro-toal, urban, ing life eaperstmoy an birth iosio end ruca1 - A-eregs mI. with coun try's par c.pit. income her of persons per roan1,lo alluban, and rural ecoopid OralI, and f-1al life e-pecns...y stbilioieg coo.a-tiona.l an 7P0.5 psors. The pare- dwellings, respectively. Dwellings smlue c-persaet stu manors f r fertnitinpets als hove those 1-ml asuin decline in urend fertlity IccLodimg to Income leve endpuc family n uidprs plenaing prorace -uns to.iElecricty acn fdeligl-ttl rb n ua

aud frIlity trenda for projootint prposes. of total, urban, and rurL1 dwollinges-p-tci-ly. Sctiunur. ooc'ulntion -InoInantitary population theestoLcc grown since the birth role is n,u.I no the deanh rats a-d also oh,sg .cruocuer- EDUCATION maoontoo;t. hsi lvdol ater fIrtilicy ra9:.tos eoiost se oolatPto

of semen rpI.oe. itself aoeotly. The statoaypplto.csoeerimeto l gsa h rsc a sPrnnaeofreeotc Ieleted 0 the basis of ths projentd hbrannerietics of ths population primaryschool-ag puotheme poomay Incldeschtdre .gad to oh year 2000, med thean oft decIne o-f fartility t.1 runeto rePlc-year ho dote e ifeetlogbdfpimr dcain o 'fear statnnar nopulaction is menobd - The ysr when stationar y populaton sineson pupi.Ite retelo shvenb.0 offiota dschooag.,. ela heeereahed ysndrschool - netl. male and femal - Cospotad as shots; secoedury DceeqirnklvMldyoulacioo re10 ht.. fdu...etionreqoirms Pt e.t.1 -Hdya ouato e qaeblmee an leas.ttour years of spyrnoed primary itastrutio 10bcae)o provides gen.rLI, vocationl, or ne..nh.r training imetrunti.n. foe PUePi PerPso. . asriculturel land - Computed as shov for agicultarL. lood us..nllyodad1.y..fg. .. p...... t - l only. fpoclecio- Icoa~~~~~~~~~~~~~~~~~~~~~~~~~tiona esroi11et iseron o. f ...coedery) - Oncatiomal icetitution Ass Struot.re Ireroe,t) - Children (0-lAyears), worbieg-ego (15- inuetnonl eunil _Ayas,adtaird (65yersed rote_rgeswihoeaeidpe ove) as percen.tagesof aid-year ppup- dandy or asdprtet f sodaylaitto Faton 190 17,n 10 dana.t.1Pou1-tee..bhr ratio eri_en edenodorn-Tota std-st earelld in year populaim for 1 950-Hf,1960-PI, en 1971G-79. oorrsposdi4 level.dry1 .diddbyu r f - r ith Pou =tioIrwtSn leeroenl urban - A-otl geowh runes of urbo p.pO- Adult licssvrt nrsnI- ieaeaut aben,adedwie lotions for 1950-hO, 1960-70, sod 1870-OH..I e.eecnnge. .. of total adult populetion aged 15 yIc andovr Crudo Birtch Oats lpsr thonmod) - A--oI live births per thousnd of aid-year popolation; 196 0, 1970, end 1978 data. CONSetfQTIcN Crude co hotshR (ceo, thouneed)l -BAosnal deaths per tho..a.d o f mid-peer Pssnae ar p-c thoasand populatiue pouato;190, 1970, and197Hdata. - P..... gar care epis eo loose inLase less. tho- eigbn posns nludes abuls..o... heass- n hcoduon-o Sate -Average. ouber of daught.trseaosllha inilitary vehicle. her norma roprod-ociv- pcriod if sheenprien...s preset ge-pei'fi tsr gai nirc_er thousad eoeuloniorj dutyases;usualy - All typse of rciesfor mdi, fins-year aveage ending in 1980, 1970. ad100. broadcasts no Egerol faiyPoan uceous public per thouson.d of population; entludas osli- mouul (Lnuans - Anual camber of ..c.eptore cesdircies acortead ysere ehon registrenian of blrch-oneneol dentoIsundr of cf radio s ines notiona famEily.planning program. ne inefo; esfr recn- er a c e Pamly laolng- oprbesaes lses(eacet of marriad nnn -P etago of macoid coutries obu1ished licsosing. wor f child-beariag age(.15-A4 yearL. oho use birch-contrl1 devices to TVtRcias(o thoe.d. nneia)-TV rec..ivore for broadost cc all marriedagr group. women in same genarol~~.public per thoosand popnlation; anclude uniond TO recever PFWDANtD fMIOTtTTlH in countries and in years h.. r-gina cla.fti saswe oefet Iodn of Pond Productionpen HNeencerL Cirtulation (per theosen porulatien) -iSbw the avrg ircl.- C"Pic (196h9-7i-Ot - nden of percaiouna tie Iof diy genral increst pcodoctioo of allfod -cIlnities rndc nwpp",dfie ah p o Ica pub- nulude.. moo andted nd.lotinddoedpimrlyt rcrde geaa nesdni ongse isocaedr 7000 hasia. Cooditieeoavsr primary goode (e.g. eugar-am c-h diy ttiit appears an leas t foue nte fIsgar) hbichore tImaawIeb.1, edible-end .cotain nutir-et (e.g. coffee end Cmaa ona Attondeno mr Cpitna ten aeeoudod). Aggregate productIon of each country is base.d on ear Ye-g-a-d on the nuber of Ieolina evraga peoduo.sr price omighte; 1961-A5, 1970,.and 1978 data.. ndtbinsld duigteya,to.igemisosn rv-nonia Percaicecrv f alris netIt of renuicemete -Conpotd fro n mbl aie energy sqinalnnof_ s fooIopLIos availble in cetr per .a.pita. AP oc per day. Available euplsscoprisa dometic pnoduction,import sI Tosa1 Lehor Porte (thousands)- o ocly _oon,edchanges in stoob. HNI suppliesenlde cive pesn .lnludtng onimal feed,osd, amdfrsanospoydhtecuigouvve, tdns.t. qunI I ue tfodpcesn,mdlseindsrbin.GqceIe Dfiniin in alo onri es ae nt cpa-ble; setIwere e atled by PAC basd onphysiological.. neds for ara moti- 1978 dote. 19h0. 1970 end viny ed health considering evrnatltamperetuo. body weighte, age eee ocn)-Paslbrfre sodpopouf see denribucio ion, ad ofellowOH percot spretg fttllbrfre 11 for wete 5t Aninulture( -er 1as 1)-bLabor rorce pte tfrming,tr ta1ry,b rtfnen r ,hoos..hold local 1961-65,190an 177 data, fishing am par...tage of total Isbhar forte; 1960. 19700sod 199dae Pe oe uclypp cf crutei Caress pr doyl - Proteincon.tent of pef .. pit. Indamtr (cement) net supply of fond Pen daY. Net sopply of fond isdfie.d - Lahor fort in miig cnnunin aefctr so bhne Re.n-lorot,wtredgsa sretg ftnllbrfre 90 quiremete for all coontries setablisbhd by USDA pso-ide for minimt 190 andr1978 dec.l . . .pr..t9 ...... 90 allowenco o 60 gRea of tota proteio per day nd 2 grII oH animal end Parcicinatie Oats icero...) - ntl, male, and deals - Participation or pleprotin, of whioh 10 rEa shud be animal protein, These stand- annivty rates arda use 1mv tAho thos.c 75 gaso tona proteinand 23 gram of-..rpt are nosutnd as ctel., sale, and femal labor f.cro.a asto e woldsorag prposef n byPM n to Tird per tmngesof ntal., ly entealprotein mal sed femle popolationOf alm epciey d,pp .. d y A i t. hid 1960,1190, end 1975 data, Tasaeh L'..cilalc Wonld Pond na-y; 1961-65,1971 nd1977 data ae efetn Per .polt. crotaim surely from enia1 end roles - Iroosply of food de- ag-sneno_efh ppaio. a long time trend Atfo-eti riedfomatIl and polees is, gram poe day; 1961-65, 1900 and 1970 date. tnoi eaeen at a f ooainadr1 n 5adoe Child (sass1-A)Mrtlt Oas(a housand) - Annual deathspertho-e in c ths total Wmbarforo.. age gr.ap 1-4 years so children in thla ege groop; f.or-e devloping coo- tries deto d-cived from lIfe tables; 1960, 1900 end 1977 dat.r NgCOsenOuISoRBUTOs HALEdO Percentage of PrivLn Incm (both in cash sad bid) - HR.eive by rtobeen 5 pec n tba 0pcet ors tfaEn-t...c tc 1mb vth e vrg uabec of ynars fp.-to , and 4pu pretApeoIt ebith; 1990 1900 and 1978 deca.d, of life remining of t roahod.ht20pL t..o.t0 Infantg ItonnatLy Oats icopr thoond A- -Ian doatbe of infants coder -5 Year POVERTY TARGET GIROUPS of agI prthusc Iv births. Es_GtiagtdAbsolote Povety om Access to Safo Water (rercet of -ocletion) Level (US5oc e rheb) and rural- -tnl ura,ed rural - N.coepvet noelee sto inom level beoehcamiml camber of P-PI,le otetl.urben, sorra) itnhrc-s-nnabls ccs no mafe 1t:Pl .- od. l. .. water supp1y (includes trentd orfca enters Hr ustreanad i1..fd-~r t i bunucotmiae nffnntdmllyeean itpu satalosHn,stfmnsi o water such as t- fLro protected borehol, springs end eunitarysel)a peroac.tge o.f their respacltiv ppuaics.I Estimated Ralatins Povrty LI-em Lewdl (lOB s anne - ormbAmsn rural- an rbus area a pbIc eatv oet incom_ leve is oL -hrdo sespinecaita foner Indctmoaned not mars than 2c0 metres from a house may he R. .. i-p c- d:-f t coaiocds etg within rIunbI access...-at rho hous.. ln rura ara eenltcm fsh onr.Ihnlvlisdsrdf h ua roaansleecesvmId imply thatthohooi a rsnee ftohusb ee wit adutet.o.ie do not here to spod a disproprori-ts Part of the day cs fliigi1rhmaes Gf_Ily' sae nes to fething the aiotdPeuaio ao AbouePvrr eoeLvlicrat r and rural - Per to oplto Lubanadrrl woe rasLon cot.r Ac.... to noen Dianneel ioercent of a.....late -ttl.uba o dis.posal apecngsof their repective populations. Etocrta die-E- Gonsd end fonid Bets p ma-sa toclde the colstnmd disposl, Bivisine with or sithon teamet Ec...sit Analysis end ProJeotiom Dspercssn ofhua serete and waste-acer by wtrbon ystem cr the nee of pin priviesand similar lsmlno October 1980 - 21 - ANNEX I Pag- 6 of 5 pages

ECONOMICINDICATORS

GNP PER CAPITA IN 1978: US$120 a/

GROSS DOMESTIC PRODUCT IN 1978 ANNUAL RATE OF GROWTH. 1965-78 (1, constant prices) US$ Mln. 2 GDP at Market Prices 1,633 100.0 2.3 Gross Domestic Investment 147 9.0 Gross Domestic Saving 33 2.0 Current Account Balance (axc. grants) -47 -2.9 Exports of Goods, NFS 82 5.0 Imports of Goods, NFS 245 15.0

OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1977 Value Added Value Added Labor Force b/ Per Worker USS Mln. S..A USS Mln. 2 US$

Agriculture 996 68.0 5.9 93.0 169 Industry 132 9.0 0.1 2.0 1,320 Services 337 23.0 0.3 5.0 1.123

Total/Average 1.465 100.0 6.3 100.0 233

GOVERNMENTFINANCE C2JTRAL GOVERNMENT Rs. Mln. Z of CDP 1976/77 1977/78 1978/79 1979/80 1978/79

Current Receipts 1,302.2 1,559.3 1,811.9 1,747.6 8.4 Current Expenditures 784.f 815.0 1,041.7 1l195.5 4.9 Current Surplus 518.1 744.3 770.2 552.1 3.6 Capital Expenditure 1,486.4 1.792.9 1,978.8 2,346.6 9.3 izternal Assistance (Not) 538.1 830.7 989.4 1,363.8 4.6

MDNEY. CREDIT AND PRICES

1976 1977 1978 1979 1980 (aid-April) (Milliom Rs outstanding mid-July)

Money and Quasi Money 2.524 3,223 3.772 4,512 5.249 Bank Credit to Public Sector 480 750 966 1,129 1,336 Bank Credit to Public Enterprise 567 511 869 1,080 1,156 Bank Credit to Private Sector 716 864 1,072 1,332 1,849

Money and Quasi Money as Z of GDP 14.5 18.7 19.3 21.1 General Price Index (1973/74 - 100) 115.9 119.0 132.3 136.8 153.0 Annual Percentage Changes in: General Price Index -0.7 2.7 11.2 3.5 12.0 e/ Bank Credit to Government 67.8 66.3 28.9 16.9 30.7 d/ Bank Credit to Public Enterprises -0.4 -9.9 70.1 24.3 16.9 A/ Bank Credit to Private Sector -8.6 20.7 24.1 24.3 35.3 d/

Note: All conversions to US dollars in this table are at the average exchange rate prevailing during the period covered. a/ World Development Report 1980. b/ Total labor force; unemployed are allocated to sector of their normal occupation. c/ Estimate. d/ April 1980 vs. April 1979.

not available - 22 - ANNEX I Page 5 of 5 pages

TRADE PAYMENTSAND CAPITAL FLOWS

BALANCE OF PAYMENTS MERCRANDISEEXPORTS 1978/79 a/ uS$ Mln. 1976177 1977/78 1978/79 (Millions US$)

Exports, f.o.b. b/ 93.9 88.8 108.6 Agricultural products 84.3 78.0 Imports, c.i.f. b/ 166.9 209.7 242.7 Manufactures 23.8 20.0

Trade Balance -73.0 120.9 -134.1 Total 108.1 100.0

Services, net 39.4 47.6 64.9 of which: Tourism 23.0 30.2 41.4 EXTERNAL DEBT, DECEMBER 31, 1979 US$ Mln.

Transfers, net 30.8 25.1 29.9 of which:Private Remit. 21.5 18.3 25.3 Public Debt, inc. guaranteed 125.3 Indian Excise Fund 30.8 25.1 3.0 Non-Guaranteed Private Debt

Current Account Balance -2.8 -48.2 -39.3 Total Outstanding & Disbursed 125.3 (exc. grants)

Official Grants 18.5 23.9 42.6 Official Capital, net 16.3 22.7 35.7 Private Capital, net -10.3 -10.4 9.6 DEBT SERVICE RATIO for 1978/79 c/

Change in Reserves -21.7 12.0 *-48.6 Public Debt, ioc. guaranteed 1.4 (- Increase)

Grods Reserves (aid-July) i45.3 135.1 178.3 Net Reserves 137.8 126.1 149.5 IBRD/IDA LENDING, (August 1980)(Millions US$L IBRD IDA

Fuel and Related Materials Imports of which: Petroleum 17.6 17.5 16.7 Outstanding & Disbursed 55.7 Exports of which: Petroleum ------Undisbursed ---- 149.1 Outstanding, incl. undisbursed 218.4

RATE OF EXCHANGE

From October 1975 Through October 1975 through March 20. 1978 Since March 20, 1978 US$1.00 - NRs 10.56 US$1.00 - NRs 12.5 US$1.00 = NRs 12.00 NR 1.00 - US$ 0.095 NR 1.00 - US$ 0.08 NR 1.00 - US$ 0.083

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

not applicable

South Asia Programs Department November 1980 - 23 -

ANNEX II Page 1 STATUS OF BANK GROUP OPERATIONS IN NEPAL

A. STATEMENT OF IDA CREDITS (as of October 31, 1980) /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 0.4 397 1973 Kingdom of Nepal Telecommunications II 5.5 1.5 470 1974 Kingdom of Nepal Water Supply and Sewerage 11.8 2.8 505 1974 Kingdom of Nepal Settlement 6.0 4.6 600 1976 Kingdom of Nepal Hydroelectric 40.8 16.3 617 1976 Kingdom of Nepal Rural Development 8.0 5.6 654 1976 Kingdom of Nepal Groundwater 9.0 2.3 659 1976 Kingdom of Nepal Technical Assistance 3.0 1.2 704 1977 Kingdom of Nepal Second Water Supply and Sewerage 8.0 6.6 705 1977 Kingdom of Nepal Industrial Development Corporation 4.0 3.4 730 1977 Kingdom of Nepal Second Highway 17.0 10.6 772 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 28.0 856 1978 Kingdom of Nepal Irrigation 14.0 13.6 939 1979 Kingdom of Nepal Second Rural Development 11.0 11.0 1008 1980 Kingdom of Nepal Forestry 17.0 17.0 1055 1980 Kingdom of Nepal Mahakali Irrigation /b 16.0 16.0 1059 1980 Kingdom of Nepal Third Water Supply /b 27.0 27.0 1062 1980 Kingdom of Nepal Grain Storage /c 6.2 6.2 Total Outstanding /d 267.6 Total Undisbursed 194.2

B. STATEMENT OF IFC INVESTMENT (as of October 31, 1980)

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 2.27 0.43 2.70

/a No Bank loans have been made to Nepal. tb Not yet effective. 7T Approved on August 26, 1980; not yet signed. 7-7 Prior to exchange adjustments, net of cancellations. - 24 -

ANNEX II Page 2

C. Projects in Execution I/

Credit No. 373 - Birganj Irrigation Project US$6.0 million Credit of April 18, 1973; Effective Date: July 9, 1973; Closing Date: June 30, 1981

The project has nearly been completed. The main remaining item is the restoration of eight tubewells. Crop yields achieved in irrigated areas are promising. Water charges are now being levied in a limited area, and farmers' acceptance is satisfactory.

Credit No. 397 - Telecommunications Project II US$5.5 million Credit of June 20, 1973; Effective Date: September 11, 1973; Closing Date: June 30, 1982

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 the end of 1981.

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: July 31, 1981

All major contracts have been let. Project implementation is over two years behind the original schedule, primarily due to delays in letting the contracts. A management team provided by the United Kingdom is assisting the Water Supply and Sewerage Board. Work is now progressing satisfactorily. An EEC Special Action Credit was approved in July 1979, to cover some of the Governments share of the local costs of the project. During the negotiations for the EEC Special Action Credit, the implementation schedule and dated covenants were revised, and the closing date amended to July 31, 1981. All major contracts are expected to be completed by December, 1980.

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 months and 1,550 families have been settled.

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. - 25 -

ANNEX II Page 3

Forestry clearing remains a bottleneck and technical assistance is being provided to speed up the operation. Stress has also been laid on the need for employment of adequate and experienced staff and better management and planning of operations. Because of doubts about land use policy, we are discussing with the Government reduction of project area to be newly settled from 17,600 ha to 11,100 ha.

Credit No. 600 - Kulekhani Hydroelectric Project US$40.8 million Credit of January 9, 1976; Effective Date: May 18, 1976; Closing Date: December 31, 1982

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 apprec- iation 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 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. Progress is satisfactory.

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

Progress continues to be satisfactory, with almost all planned project actions being implemented ahead of schedule. Disbursements had been lagging due to delay of project authority in submitting disbursement applications. Interministerial cooperation is good, and at the district level, sound and practical development plans have been produced which are fully supported and understood by project farmers. Adequate financing to carry out project pro- posals has been made available in the budget by the Government and sites and plans for most district construction projects have been completed and construc- tion started. Training of weavers and issuance of improved looms under a credit scheme is proceeding well. Shortage of middle-level staff in the project area for construction supervision and agricultural extension may hinder project implementation. However, arrangements have been made for more efficient deploy- ment of existing staff and for special training of farmers as part-time agri- cultural assistants. Under the associated Bank-executed UNDP technical assistance project, the assistant to the Project Coordinator and the Irrigation Advisor have completed their assignments. - 26 -

ANNEX II Page 4

Credit No. 654 - Bhairawa - Lumbini Groundwater Project US$9.0 million Credit of July 9, 1976; Effective Date: November 16, 1976; Closing Date: June 30, 1981

Drilling of tubewells is in progress. Forty-one production wells have been constructed. Progress of civil works is very slow due to the weak- ness of local contractors. Project implementation is over two years behind schedule. Completion of the 11 kV transmission lines is far behind schedule. Consequently, pumps and motors cannot be installed in the completed tubewells.

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; Revised Closing Date: June 30, 1982

Studies for a national agricultural extension project (the proposed project), a silica-lime brick factory, an airborne magnetometer survey, cottage industries and the grain storage project have been completed, while studies are in progress for river control for the Sunsari-Morang Irrigation Project, an agricultural manpower survey and the upgrading of mechanical workshops for irrigation projects.

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 specialist has been recruited, and the first contract for water meters has been awarded. Evaluation of the bids for major contracts is underway. An EEC Special Action Credit was approved in July 1979 to assist in financing a portion of the Government's share of the local cost of the project.

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 completed his assignment and the accounting and information systems advisor took up his post in February 1980. To date, subprojects for about $1.7 M have been approved by IDA. Progress in implementation of the credit has deteriorated due to shortages of complementary local currency resources. Accordingly disbursement have continued to lag.

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 nearly two years 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 - 27 -

ANNEX II Page 5 technical assistance. The pre-feasibility study for the Bombasa-Kohalpur Road was completed in July 1978, and a proposal for the Mechanics' Training Program is under review by the Government and the Association. Seven of ten contracts 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 have been finalized.

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. Contracts have been signed for all civil works packages, except external works, for which the bids are being evaluated; however, equipment tendering is behind schedule. The first batch of fellowship students have completed their programs and a second batch have started their programs. A team of educational experts, financed by ODA, 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$14.5 million Credit of August 22, 1978; Effective Date: February 27, 1979 Closing Date: June 30, 1984.

ODA is financing the telex equipment and the satellite earth station. Project consultants have been appointed. Procurement actions have been initiated.

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

In July 1980, a landslide in the catchment area caused a major flood in the Kosi river, causing considerable erosion and endangering the Chatra Main Canal. Emergency flood protection works were carried out. As a result of this event it was agreed that river training works are not viable. The sediment control studies are expected to be completed by mid-1981. Rehabili- tation work on the Chatra Main Canal and procurement of construction equipment are on-going. Local consultants are completing designs for the first 13,000 ha of the irrigation system and international tenders will be invited to submit bids for construction. An EEC Special Action Credit of about US$4.0 million equivalent was approved in June 1979 to help finance a portion of the Government's share of the local cost.

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

Project implementation is proceeding steadily, although slower than anticipated. The major constraint is the weakness of local contractors. Construction is now on-going in five of the six irrigation blocks. Procure- ment of construction and O&M equipment is underway. - 28 -

ANNEX II Page 6

Credit No. 939 - Second Rural Development Project - Mahakali Hills US$11.0 million Credit of August 9, 1979; Effective Date: January 15, 1980; Closing Date: February 28, 1985

The Project Coordinator has been appointed, but project activities are approximately one year behind schedule. An earthquake hit the project area in July 1980. Efforts are being made to accelerate the infrastructure work under the project. This will contribute to reconstruction efforts.

Credit No. 1008 - Community Forestry Development and Training Project US$17.0 million of May 22, 1980; Effective Date: September 19, 1980; Closing Date: June 30, 1986

The Community Forestry and Afforestation Division has been established. Eight of the 10 division nurseries, 15 of the 20 range nurseries, and 46 of the 50 Panchayat nurseries of the first year work program have been started. Train- ing of forest assistants is underway and 31 forest officers have been sent on foreign study tours. Fourteen associate experts and volunteers, plus the sil- viculturalist and socio-economist have taken up their posts under the technical assistance component.

Credit No. 1055 - Mahakali Irrigation Project (Stage 1) US$16.0 Million Credit of September 29, 1980; Effective Date: March 31, 1981; Closing Date: December 31, 1985

Credit not yet effective.

Credit No. 1059 - Third Water Supply and Sewerage Project US$27.0 Million Credit of September 29, 1980; Effective Date: January 30, 1981; Closing Date: December 31, 1985

Credit not yet effective. - 29 -

ANNEX III Page I

NEPAL

AGRICULTURALEXTENSION AND RESEARCH PROJECT

SUPPLEMENTARYPROJECT DATA SHEET

Section I: Timetable of Key Events

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

24 months

(b) The agency which has prepared the project

Ministry of Food and Agriculture,with the assistance of the AgriculturalProjects Services Center.

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

March 1977 July 1979

(d) Date of departure of appraisalmission

May 12, 1980

(e) Date of completion of negotiations

December 5, 1980

(f) Planned date of effectiveness

April 30, 1981

Section II: Special Bank ImplementationActions

None - 30 -

ANNEX III Page 2

Section III: Special Conditions

Condition of Effectiveness

Execution of the UNDP Project Agreement for the employment of consultants (para 53).

Other Conditions

(a) Establishment of permanent positions for incremental extension and research staff (para 42);

(b) Loans and allowances would be made available to JTAs for the purchase and maintenance of bicycles (para 44);

(c) District and Central Technical Committees would be established to coordinate between research and extension activities (para 47);

(d) By January 31, 1982 a study would be completed of AIC's operations and its technical assistance needs (para 49);

(e) By July 31, 1982, the Government would formulate and furnish to the Association a national fertilizer strategy and program (para 49); and

(f) In addition to local training, scholarships would be provided for about 400 man-months for overseas training (para 51). \ e20 8.toA' 8go 8805

NEA 'Q )\ / .J <. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~NE P A L 7 'X PHASINGj |( *OF DISTRICTS: AlTd - t B31han9Mugu ,( < R . ONGOING PROJECTS PROJECT YEAR 1 |ajua - /. I. 7

-Jaitadi4¢ /\_7gX BaJura (t f t PROJECT YEAR 3 "' N jt . 9 9 T ibrik. ot>R { ES E A R CH A ND TR A IN IN G FA C IL IT IE S / Dolpa 1~~~~~~~~~~~~~~\ 'I ~ ~ ~ ~ ~ j ~ KHUMALTARRESEARCH STATION Dadeldh Doti Jumia REGIONAL RESEARCH STATIONS * < +/ ,J t Achham( 8 >2_ 4 a-/} 0 RESEARCH SUB-STATIONS ( < 5 9 G / T - s 9 Mustang REGIONALR TRAINING CENTERS 'KncU '-'7k> 4 G BOUNDARIES r; pert -. Gaine ( JaearkntaKanct <- A II _R __-_/__ DISTRICT BOUNDARIES

< sl KallallK Manang- V.- A- ZONAL BOUNDARIES

sucIs ts K a ilaliSnIp:_<^.( Manani PbatD. A K . - INTERNATIONAL BOUNDARIES /) Surkhet Rolpa~ ? adi \ RR;-P A- T I G 7 Gsrkh.aJ RasUWa .- ". B~~~~r~ } |al s~ / ~,,,,'9Ua <5 I ~k . .i/-uml- XgS

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ER NA L jj M ~~ Pulpa Katmanu \\ o Snlb >4.f);orcoss5 SPfg 0 5 l \-- 'CHINA C >7' -t khitanSbhap Taplelucg

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A N > (OkhaIht(h O '9&- K 'at ~ ~ -~gt>

INDIA S. . op r MEES0 20 40 60 BC 100 120 140 /% KILOMIETES PT] Dhankuta la

MLS0 20 40 60 &0 100 0. Udaipur

Jhapaa 5 0's~~~~~~~~~~~~T,m-p has been prepard by the World Banks staff eolstyfor the co--nenc 'ISatati c BIBIA f th-eder of the-rport to whic,h,,51 atahed. The d---,-etn used-ad the /F c 3 oun..da,esshnws on tho -np do notsp/y -0 the part ot the Wodd Bank and-t t.n~ ~~ ~ ~ ~~~~~~ iaffs_et aspypsdg-on on odelegalv-ar, of-ay trrrsrsry -rayodorseet o A K -- acceptanceo~~f suh b-ud-ne 82' B4 23