Document of

FILE CC op y The World Bank

FOR OFFICIAL USE ONLY

Report No. P-2 338-BD

REPORT AND RECOMMENDATION

OF THE

PRESIDENT

OF THE INTERNATIONAL DEVELOPNENT ASSOCIATION

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

PEOPLE'S REPUBLIC OF BANGLADESH

FOR A

SECOND SMALL-SCALE INDUSTRY PROJECT

May 26, 1978

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY EQUIVALENTS

The Bangladesh Taka is officially valued at 26.70to the Pound Sterling. The Pound now floats relative tothe US Dollar and consequently the Taka/US Dollar rate issubject to change (as of January 30, 1978, US$1 = Tk 14.5).The rate below has been used throughout this report.

US$1 = Tk 15.5Tk I = US$0.0645Tk 1 million = US$64,500

PRINCIPAL ABBREVIATIONS USED

CI - Cottage IndustryBHMC - Bangladesh Handlooms Marketing CorporationBSIC - Bangladesh Small Industries CorporationBCIC - Bangladesh Cottage Industries CorporationBSCIC - Bangladesh Small and Cottage Industries CorporationBSB - Bangladesh Shilpa BankEPSIC - East Pakistan Small Industries CorporationGOB - Government of BangladeshSCI - Small-Scale and Cottage IndustrySSI - Small-Scale Industry excluding cottage

FISCAL YEAR

GOB July 1 - June 30BSCIC July 1 - June 30Commercial Banks January 1 - December 31

FOR OFFICIAL USE ONLYBANGLADESH

SECOND SMALL-SCALE INDUSTRY PROJECT

Credit and Project Summary

Borrower: People's Republic of Bangladesh

Beneficiaries: Janata Bank, Sonali Bank and Bangladesh Small and CottageIndustries Corporation (BSCIC) and small and cottage indus-

tries receiving credit through Janata and Sonali Banks

Amount: US$7 Million

Terms: Standard

Purpose: To support the development of small and cottage industries(SCIs), including the strengthening of BSCIC for promotionand extension work and the commercial banks for lending toSCIs. The credit will finance (a) sub-loans for equipmentand permanent working capital; (b) a special capital fundfor providing supplementary financing to selected projects

for which the sponsors are unable to provide sufficientequity; (c) a pilot cottage industry component for jute andcane/bamboo handicrafts; and (d) technical assistance tostrengthen BSCIC's promotion and extension work. The riskrelates to the limited experience of commercial banks infinancing fixed investments for SCIs and of BSCIC in promo-tion and extension. Therefore, the project incorporatesclearly defined criteria for project selection and super-vision, tasks involved in promotion and extension, andtechnical assistance in aspects requiring improvement.

RelendingTerms : GOB will relend US$6.1 million of the proceeds of the

credit to the Janata Bank and Sonali Banks for 15 years,including three years of grace, with interest at 4.5% perannum. The commercial banks will make sub-loans to ulti-mate borrowers for up to 12 years, including 3 years ofgrace at not less than 11.5% per annum and will pay BSCICand the Bangladesh Bank each a service charge and guaranteefee of 1%. The proceeds of the credit allocated to thespecial capital fund (US$0.2 million) will be onlent tocommercial banks at 1%; the commercial banks will lend toultimate borrowers for up to 12 years, including 3 yearsof grace at 7.5% and will pay Bangladesh Bank a guaran-tee fee of 1%. GOB will make available the proceedsof the Credit allocated to BSCIC for technical assistanceand the pilot cottage industry component (excluding credit)as a grant.

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Credit Allocation: Items US$ Million

Sub-loans for smalland cottage industryprojects 6.1

Special Capital Fund 0.2Cottage Industry Component

(including credit of 0.2) 0.4Technical Assistance 0.3

Total Credit Allocation 7.0

Financing: The proposed $7 million credit would finance sub-loans by commercial banks up to 70% of subprojectcosts, up to 15% of subproject costs throughthe special capital fund, and the full cost oftechnical assistance.

EstimatedDisbursements: Bank FY FY79 FY80 FY81 FY82

-- US$ Million----------

Annual 0.8 2.6 2.7 0.9Cumulative 0.8 3.4 6.1 7.0

AppraisalReport: Appraisal of a Second Small-Scale Industry Project,

May 26, 1978, Report No. 1802-BD

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDITTO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR A

SECOND SMALL-SCALE INDUSTRY PROJECT

1. I submit the following report and recommendation on a proposed dev-elopment credit to the People's Republic of Bangladesh for the equivalent ofUS$7 million, on standard IDA terms, to help finance a second small-scaleindustry project. US$6.1 million of the proceeds of the credit would berelent to Janata and Sonali Banks for 15 years, including three years ofgrace, with interest at 4.5% per annum.

PART I - THE ECONOMY

2. A Basic Economic Report on Bangladesh, entitled "Bangladesh:Development in a Rural Economy" (Report No. 455-BD, of September 15, 1974)was distributed to the Executive Directors on October 1, 1974. An economicmission visited the country in November 1977 and its report entitled"Bangladesh: Current Economic Trends" (Report No. 1931-BD, of April 10,1978) was distributed on April 13, 1978. The basic conclusions of thismost recent mission are summarized below.

Background

3. When Bangladesh became independent seven years ago, the newlyformed Government inherited a shattered economy: the country had lostalmost three million of its population - including many of the academicand business elite - while much of the physical infrastructure had beendemolished. Agricultural and industrial production and trade had come toa standstill. Attempts to revive the economy and put it on a growth pathwere complicated by the necessity to fashion a national government out ofa provincial administration; to establish development institutions servingagriculture, industry, trade, and banking; and to reorient agriculture andindustry after the loss of the West Pakistan market.

4. Despite the destruction and disorientation prevailing immediatelyafter independence, some economic improvements have occurred. GDP has in-creased annually by an average of 5.7% between FY73 and FY78 and since annualpopulation growth is about 2.8%, this represents an annual growth of percapita GDP of nearly 3%. The output of foodgrains has shown an annual aver-age increase of 4.5% during this period, but has nevertheless necessitatedan average of 1.8 million tons of foodgrain imports per year. The growth ofoutput of jute - Bangladesh's major export -- has been disappointing, how-ever: this has declined by an annual average of 4%. Hence, despite arapid growth of non-traditional exports in recent years, export earnings

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have increased by only 5.6% annually, while imports have risen by an annualaverage of 7.4%, resulting in an average external resource gap amounting to8.5% of GDP during FY74-78 and 10.2% in FY78.

5. While the GDP growth rate over these five years has been relativelyhigh, a comparison of key indicators shows that what has happened is that theeconomy has recovered from its post-independence low point, but that it hasyet to reach the levels of FY70 - the year before independence. Per capitaGDP was then higher in real terms than in FY78. The ratio of savings to GDP,which stood at 7.1%, averaged 2.0% during FY74-78 and had recovered to only3.1% in FY78. The investment ratio returned in FY78 to 13.3%, slightly abovethe FY70 level, after lower figures in intervening years. The volume of out-put of jute manufactures as well as a number of industrial products show amarked fall. The volume of exports of jute and jute goods is also much lessthan before independence. The output of rice has fallen in per capita termsand yield per acre has remained low. Thus, the encouraging trends of recentyears should be viewed as having only laid the basis for development. Thedimensions of the problems remaining are clearly seen at the social level.Many Bangladeshis continue to have inadequate food, clothing, and shelter.Levels of nutrition have declined and the number of landless and unemployedhas increased. Even primary education is still the luxury of a few. Manyhave little or no access to safe drinking water and preventive or curativemedicine. The life expectancy at birth is estimated to be only 45 years.

6. As a first effort to begin to build on the foundation laid in thelast five years, the Government has clarified its priorities -- the controlof the rapid growth of population and a substantial increase in the outputof foodgrain. In 1975, the Government initiated a stabilization program inconjunction with the IMF which helped reduce drastically the rate of infla-tion, improve the competitiveness of exports, and increase revenues. Con-cern with monetary stability is a continuing -- and encouraging -- featureof government policy. In recent years, steps have been taken to improve theoperational efficiency of the jute manufacturing sector. For the first time,in FY78, steps have been taken to provide an incentive price for foodgrainsthrough appropriate procurement policies.

7. Action has been taken over the last few years to reduce the levelsof producer and consumer subsidies and to improve the working of public sectorcorporations. The beneficial results of these reforms are not always readilyapparent, and in a number of cases will take considerable time to show. How-ever, the Government has made a start on some of the issues that hamper thegrowth of savings and investment. The Government is preparing a Two YearPlan V £79-80), as a prelude to a formal Five Year Plan (FY81-85). It ex-pects to implement many of the policy reforms needed to improve growth andequity in the course of these Plans.

8. The Two Year Plan offers the Government a good starting point forintroducing economic reforms. Specifically, the Plan should focus on suchissues as pricin:g policy, improvement in levels of domestic savings, expan-sion of export earnings, and greater efficiency in project preparation andimplementation. The scope of private sector participation in the economyshould be clarified, and the management of the public sector improved.

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Current Economic Situation

9. Economic growth in Bangladesh in FY78 has been influenced to alarge extent by good performance in agriculture and industry. Aided bygood prices in the previous season, favorable weather, and the expectationof a further strengthening of demand in FY78, farmers have responded by in-creasing the acreage sown to jute and rice, and demonstrated a willingnessto invest in modern agricultural inputs. Foodgrain output reached 13.4 mil-lion tons, the highest level since independence. Jute production, althoughsomewhat less than foreseen earlier due to untimely rainfall, was 17% higherthan in FY77.

10. A strong upturn in industrial output has occurred because of arevival in consumer demand, an improvement in investment, and more liberalavailability of imported raw materials. Capacity utilization in industryis being stimulated by an increase in demand for jute goods and cotton tex-tiles, and an intensification of construction activity.

11. The volume of exports has continued to show improvement as a resultof better market conditions for raw jute and jute goods. However, becausestocks were run down to uncomfortably low levels in FY77, the quantity ofjute effectively available for domestic and export use rose less than out-put. However, since there was a concurrent world shortage of jute, due topoor crops in other producing areas, Bangladesh benefited from higher exportprices. The performance of minor and non-traditional exports has been lessbright than last year due to competition from other exporters and slowergrowth in output.

12. The Government has continued to adhere to prudent monetary and fis-cal policies. Planned monetary expansion in FY78 was linked to the prospec-tive rate of economic growth and the budget, when presented, made no provisionfor deficit financing. However, during the year, some unforeseen expenditurewas undertaken: the Government thought it was necessary to purchase 296,000tons of foodgrain in order to ensure adequate supplies early in the year, ata cost of $53 million. There were other unexpected increases, such as arise in the fertilizer subsidy caused by sales which exceeded forecasts.Thus, there will be a budget deficit of about Tk 1,250 million (10% ofcurrent revenue), even though revenue collections, which were sluggish atthe beginning of the year, are now expected to reach the level estimated inthe budget.

13. Imports rose by 50% in FY78, reflecting the increased tempo ofeconomic activity. The volume of imports of foodgrains, raw cotton, fertil-izer and cement has risen substantially. Imports of edible oil and minorconsumer products have also been expanding. The biggest single factor (about20% of the total) has been the increase in the volume of foodgrain imports.These imports were required -- despite the record foodgrain crop -- to enablethe Government to begin moving towards the official foodgrain stock target ofone million tons. This is desired both for maintaining food security and forfacilitating open market operations to sustain the market price of foodgrainwithin a desired price range.

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14. In sum, the overall rate of economic growth for FY78 is expectedto be about 8%; this derives from a projected growth rate of over 8% in agri-culture, 8% in industry and about 7% in other sectors. Although the improvedsupply position for foodgrains, combined with an increase in the volume ofimports, has helped to contain inflationary pressure, the overall budgetdeficit suggests a rate of inflation of about 12% as compared to 11% lastyear.

Major Developments and Policy Issues

15. Foodgrain. This year's record harvest was the result of a combina-tion of good weather and improved production policies. Incentives for expand-ing the output of rice consisted of a higher procurement volume and price,which for the first time were announced to the farmers well in advance ofthe planting season. To facilitate procurement, many new purchasing centers

were opened, staff cadres strengthened, the number of grain dealers expanded,quality requirements made more flexible, and the number of bank branches andpayment points enlarged. At the production level, input packages consistingof fertilizer kits and an expanded credit program of Tk 1,000 million (ofwhich about Tk 400 million was actually disbursed), were introduced as anexperiment. While these supporting measures for increasing foodgrain outputhave been generally in the right direction, attention needs to be paid to thelonger term impact of some parts of the program. Repayment of agriculturalloans under the expanded credit program has been very slow and irregular.Failure to ensure credit discipline could in the long run jeopardize theGovernment's plans for channeling credit to agriculture and fostering theapplication of inputs in the desired mix. There is evidence that the ex-panded credit program has also led to some disruption of extension activi-ties which are indispensable for providing the foundation for sustainedagricultural growth.

16. Further steps have been taken in FY78 to reform the ration systemand to achieve a reduction in ration offtakes. The prices of rationed riceand wheat were increased by 11 and 14% respectively; those enjoying a monthlyincome of Tk 1,600 a month are to be shifted from the ration shops to "Essen-tial Supply Shops" where the price would be between the ration and the marketprices; and the number of ration cards is to be reduced to a maximum of 6 perhousehold. The composition of the ration was also changed so that 2 unitsof the more nutritious but cheaper wheat are now distributed for every 1 unitof rice to some categories of consumers. The Government has indicated thatits ultimate objective is to restrict access to the ration to vulnerablegroups in urban and rural areas. As now structured, however, the ration

system still bypasses a large segment of the poor and landless and more in-tensified efforts to reach these are, therefore, in order.

17. Jute. Responding to last year's favorable jute-rice price ratioand the early announcement of a higher procurement price, the area sown tojute increased by 29% to 1.8 million acres in FY78 and, despite bad weather,output rose from 4.7 million bales in FY77 to 5.2 million bales. An impor-tant factor was the increase in the area under the Intensive Jute Cultivation

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Scheme to 500,000 acres. Meanwhile, the effect of the decrease in the areaavailable for rice production during the aus season was compensated by anincrease in productivity. Demand for raw jute -- both for export and supplyto domestic jute mills -- was buoyant. As a result of the very low levelof stocks carried over from the previous year, demand could not be met, andprices rose throughout the marketing season by over 40%. The improvementin price helped to raise farm incomes substantially, especially during themonths immediately following the harvest season, when prices traditionallyare depressed. The acreage sown to jute and output is expected to rise fur-ther in FY79. The improved supply position should also help to maintain theinternational price of jute goods at competitive levels. The Governmentintends to increase jute output over the next few years -- relying to anincreasing extent on the Intensive Jute Cultivation Scheme -- on the expec-tation of an improvement in world demand for raw jute and especially of jutegoods. Since the current world shortage is likely to persist for some time,Bangladesh should benefit from these efforts to expand output over the shortrun.

18. The jute goods sector still requires further rehabilitation. Thesector benefited from the improvement in international demand in FY78 whichled to a 35% increase in export value. A reduction in the wastage rate from11% to 8% in FY78 has been a major achievement. Despite this and the improve-ment in price, however, the industry's losses are expected to be about Tk 550million (Tk 525 million in FY77). These losses are now being financed by adifferential scale of subsidies applied to categories of jute exports, basedon the f.o.b. export value. The weighted subsidy, which amounts to 15.7% ofthe value of exports, is intended to help improve the overall liquidity ofthe industry, but not to bail out ailing jute mills whose unit losses exceedthis percentage. This new method of paying the subsidy could be of help tothe Government in separating the better performing mills from those that arenot. Even with improvements in efficiency, and investments in rehabilita-tion, some mills will continue to be a financial liability. The need is todetermine how to produce in the most efficient manner the quantity of jutegoods that the market will absorb at remunerative prices, and then torestructure the industry accordingly.

19. Public Enterprises. The general upturn in economic activity inFY78 has led to a substantial increase in capacity utilization in publicenterprises, particularly in cotton textiles, newsprint, paper, jute andsteel. The combined losses of public enterprises are expected to decline --both because of the effect of higher capacity utilization and the decisionto price cotton textiles at a level that reflects the enhanced cost of rawcotton. The basic problems which afflict the working of public enterprises,however, continue; they relate primarily to the excessive centralization andcontrol exercised by ministries over the day-to-day commercial operationsof enterprises. Some progress has been made in alleviating the most diffi-cult problems. However, any marked improvement in the performance of publicenterprises must be predicated on greater functional autonomy particularly inthe determination of input and output prices and the incentives offered topersonnel. A number of supplementary measures, including a decision to selloff any enterprises that have continually been incurring losses, may also benecessary.

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20. Resource Mobilization. Inadequate mobilization of domestic re-sources remains one of Bangladesh's key problems. As pointed out, domes-tic savings finance only a small proportion of total investment and unlesssavings, particularly those of the public sector, are raised, it will bedifficult to step up the pace of development in Bangladesh. Under presentconditions, the revenue gap tends to widen as development expenditures rise.Budget performance in FY78 provides an illustration. Preliminary estimatesof the outturn for the year indicate that both revenue and current expendi-tures have been increasing sharply leaving the current surplus roughly asbudgeted at Tk 2.6 billion (Tk 1.7 billion in FY77). Development expendi-tures, however, have been increasing by much more and despite an increasein aid disbursements, which are likely to cover 62% of development expendi-tures, an uncovered gap is now expected of about Tk 1.25 billion, the equiv-alent of 10% of current revenue and about 10% of the money supply. It shouldbe pointed out that this unfavorable financial result is expected in spiteof the increase in the foodgrain ration price and the decline in the sub-sidies extended to nationalized enterprises.

21. More stringent action than undertaken thus far is clearly neededto put public finance on a sound footing. On the revenue side, measures tolessen tax evasion, improve tax administration and reduce exemptions andloopholes offer most scope for increasing resources in the short run. Onthe expenditure side, an examination is urgently required of the cost effec-tiveness of production and consumption subsidies. Further efforts are alsoneeded to reduce the losses of public enterprises, a major cause of whichis the failure to allow input price increases to be passed on to consumers.There is no doubt that a combination of such revenue and expenditure meas-ures, in spite of Bangladesh's poverty, could lead to substantial improve-ment in domestic resource mobilization. Some modest steps have already beentaken -- improvement in the administration of the income tax, improvementsin the pricing policy of the textile industry, and the recent increase ofthe ration price for foodgrains -- and further measures are under activeconsideration by the Government. Of course it will be difficult to imple-ment these measures when the Government is at the same time successful incarrying out its development programs. Consumption levels in Bangladeshare extremely low and an increase of incomes arising from accelerated GDPgrowth is a necessary condition for the implementation of any set of poli-cies designed to raise the rate of savings.

22. Project Implementation. A number of steps to improve the Govern-ment's capacity to implement projects were taken during 1977. The ProjectImplementation Bureau's staff was strengthened, and its ability to monitorprogress improved. Project entities were assigned much greater functionalautonomy -- especially with respect to the authorization of expenditures.For FY78 the complex procedures for the allocation of funds to projectswere simplified, and the Government is trying to speed up the approval ofprojects in the pipeline, and to weed out existing projects that do notpromise early completion. These measures are welcome. At the same time,it is important to focus on other major problems which have slowed downproject implementation in the past. Greater fungibility in the use of funds

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appropriated for development should be introduced, so that fast moving proj-

ects can employ the funds of those that have stalled. Delays resulting from

breakdowns in machinery, shortages of supplies, absenteeism, and bad planning

of sequences of activity, must be avoided. Donors could help by ensuring that

project resources are supplemented by the provision of a higher proportion of

local currency cost in external assistance in order to ensure that the imple-

mentation of projects is sustained in the face of acute stringency of local

resources.

23. External Capital Requirements. Even with significant improvement

in its domestic resource mobilization, Bangladesh will continue to need sub-

stantial external assistance to support its development efforts. In the short

run, such support is even becoming more important in view of the fact that

the pace of development expenditures has begun to accelerate. Roughly it

is estimated that aid disbursements, which amounted to $750 million in FY78,should rise to $880 million in FY79. These would comprise $180 million of

food, $400 million of commodities and $300 million of project aid. Since

Bangladesh would commence the year with a pipeline of aid amounting to $1,952

million, it should be possible to disburse about $625 million from that pipe-

line. Hence, about $255 million of disbursements from new aid would be nec-

essary. To yield disbursements at this level in FY79 and to build up the

pipeline for FY80, it is estimated that commitments in FY79 will need tobe approximately $1,100 million. If these projections materialize, the aid

pipeline at the end of FY80 will be about $2,170 million. It is importantto stress the widening gap in external resources which must be met by exter-

nal assistance at least for the time being, if economic growth and execution

of the development plan are not to be slowed down for lack of financial re-

sources. At the same time, the Government must strive to increase exportsand be prudent in the use of foreign exchange, as well as make efforts to

increase domestic resource mobilization.

PART II - BANK GROUP OPERATIONS IN BANGLADESH

24. Bangladesh became a member of the Bank and IDA in August 1972. Ini-

tially, Bank Group operations in Bangladesh concentrated on the reactivation

of uncompleted projects financed under credits made originally to Pakistan,before 1971. Eleven such credits, amounting to US$148.6 million (including

US$44.1 million for the repayment of amounts disbursed under the corresponding

previous credits to Pakistan, and net of cancellations) were made to Bangladesh.

In addition, as of March 31, 1978, 24 new credits, excluding the consolidation

credit of US$31 million referred to in paragraph 25, have been made, totalling

US$720.7 million. Of these, US$425 million have been for six program credits.

The project credits have emphasized agricultural development, but also includedamounts for population, telecommunications, transport and industry. On June 18,

1976 Bangladesh became the 105th member of the IFC, but no IFC investments

have been approved as yet.

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25. Agreement has been reached between Bangladesh and most of the bi-lateral and multilateral donors concerning the assumption by Bangladesh ofportions of the debt contracted by Pakistan, before Bangladesh became inde-pendent. This will lead to some increase in debt service and, while the debtservice ratio is not expected to exceed 20% over the next ten years, it maydo so by the mid-1980s, unless careful debt management policies are pursued,and aid is provided on appropriately concessional terms. With respect to theBank Group, Bangladesh agreed to accept liability for portions of IDA creditsextended for projects visibly located in Bangladesh and completed before inde-pendence. Based on this agreement, a consolidation loan of about US$54.9 mil-lion and a consolidation credit of about US$31.0 million were signed onFebruary 14, 1975. The Bank Group's share of Bangladesh's outstanding exter-nal debt is not expected to rise significantly above the present level ofabout 22% over the next few years.

26. Annex II contains a summary statement of IDA credits and the Bankloan made to Bangladesh as of April 30, 1978, and notes on the executionof ongoing projects. While disbursement of the program credits has proceededsatisfactorily, project credit disbursements have lagged far behind expecta-tions, owing inter alia to delays in the release of local funds, clearanceof contracts, employment of consultants, and appointment of staff. The Gov-ernment has taken some steps to eliminate bottlenecks and the results arebeginning to be reflected in improvements in project implementation and dis-bursement performance. However, serious implementation constraints remainbecause of shortage of qualified staff, over-centralized bureaucratic proce-dures and organizational deficiencies. Progress is being made on these issues.For example, at the Government's request, IDA is providing assistance to im-prove organization and procedures, especially in the ministries and agenciesdealing with agriculture and water resources. Further, the Government hastaken actions including improved procedures for recruitment of civil servantsand increased emphasis on training - which are important not only as stepstowards gradually improving the quality of public administration, but also asevidence of its awareness of the problem and concern to do something about it.On the organizational side, the Government is in the process of establishingplanning cells in the main ministries and agencies and in strengthening thePlanning Ministry. In this connection, IDA is providing assistance both underspecific projects and under the Technical Assistance Credits (409-BD and 622-BD).

27. Of the 18 new project credits totalling US$295.7 million, 11 creditstotalling US$210.5 million have been directed towards agriculture and ruraldevelopment (excluding subprojects of the Technical Assistance credits devotedto this sector). Their basic objective is to support the delivery of inputs,including assured water, through quick yielding projects with low capitalintensity. While the pace of implementation has been disappointing so far,the fundamental importance of improving agricultural productivity means thatprojects geared to the rural sector should remain the cornerstone of futureIDA lending. However, in the shorter term, the rate of planned lending foragriculture will be a function of progress in improving the currently limitedabsorptive capacity of the project executing agencies. At the same time,

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greater efforts in institution building are being made through closer super-

vision and technical assistance where necessary. Some progress has already

been made in correcting problems in ongoing projects. Over the next year,

projects for drainage and flood control and fisheries are expected to beready for consideration.

28. Industry has been the major beneficiary of the six program credits

to date. For the reasons given in paragraphs 23-29 of the Report and Recom-

mendation on the Sixth Imports Program Credit (P-2155-BD, dated November 8,

1977), program lending to Bangladesh will continue to be required while efforts

are made to correct basic structural weaknesses in the economy. Nevertheless,

the share of program lending in total lending on a year to year basis isplanned to decline gradually during the next few years. The industrial sector

has also benefitted from DFC and small industry projects and a fertilizer pro-

duction project. IFC is currently in the process of identifying suitableinvestment opportunities.

29. The enormity of Bangladesh's population problem gives this sectoran extremely high priority, limited only by its absorptive capacity. The

first IDA-supported population project is now making encouraging progress,

and a second population project was appraised in April/May 1978. Improvedavailability of trained manpower is also crucial. Past lending in this fieldhas emphasized agricultural and technical training and future operations,

while maintaining a similar basic emphasis, are expected to include assist-ance for vocational and management education as well.

30. Given Bangladesh's immense needs, specific efforts to identifyprojects in agriculture, transport, industry, energy and power, and telecom-

munications are now under way. In this connection, particular emphasis will

be placed upon possible projects which provide infrastructure for the rural

sector, which process or provide outlets for its products, or which reduce thestrain on Bangladesh's foreign exchange resources. Such projects could make

a significant contribution towards supporting Bangladesh's development efforts.In view of Bangladesh's difficult foreign exchange position, IDA credits should

cover all foreign exchange costs. However, all external lenders are inhibitedfrom achieving the levels of resource transfers appropriate to Bangladesh's

economic circumstances by difficulties in the preparation and implementationof development projects. The Government's capacity to carry out projects is

constrained, inter-alia, by a low domestic savings rate. In these circum-

stances, and in order to direct IDA lending to those sectors - such as agri-cultural and rural development - where the percentage of foreign exchange

costs is relatively low, the financing of local currency expenditures isalso justified.

31. In addition to lending, economic and sector work provides the basisfor continuing dialogue between the Bank Group and the Government on develop-

ment strategy, and for the coordination of external assistance within theframework of the Bangladesh Aid Group. Recent activities in this area haveconcentrated on food policy, industrial investment strategy, and increased

domestic resource mobilization.

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32. The scope and complexity of Bangladesh's development problems willcontinue to strain the physical, human, and financial resources of an alreadyoverburdened development administration. Since substantial improvements willtake many years, external assistance agencies, including the Bank Group, willhave to tailor their requirements in terms of project design, preparationand implementation to the administrative realities. They will also have tocontemplate higher amounts of technical assistance and supervision than isthe case in many other countries. Nevertheless, there are opportunitiesfor making significant progress in improving economic conditions for thepeople of Bangladesh. While progress is bound to be slow and will requirepainstaking efforts, they are nonetheless worth making.

PART III - THE SMALL AND COTTAGE INDUSTRY SECTOR

Economic Setting

33. Industry, although accounting for only 8% of GDP, is an importantsector in the Bangladesh economy. It produces basic consumer goods, providesagriculture with key inputs, accounts for about 60% of export earnings andemploys some two million workers. Industrial performance also has a criticalbearing on resource mobilization and is potentially an important source ofrapid economic growth. Bangladesh's basic industrial structure has changedlittle since independence when the ownership and management of "abandoned"units were transferred to the Government and all jute, cotton textile andsugar mills were nationalized. Large and medium scale enterprises, concen-trated in jute, cotton textile, paper, steel, sugar refining and engineer-ing, are now mainly in the public sector and account for about 65% of thetotal value added. The small scale and cottage industry sector (SCI), whichaccounts for about 35% of total value added, consists of about 50,000 smallscale industrial units (SSIs) and about 500,000 cottage industry (CI) units.

34. The main problems faced by the industrial sector since independencehave included the loss of the Pakistan market, shortage of foreign exchangeto purchase raw materials and spares, inexperienced management and laborunrest, especially in the years immediately after independence. Followingan increase of 6% in FY77 after no significant growth in FYs75-76, largelydue to a slackening in consumer demand, industrial production has nowrecovered to the FY70 level.

Characteristics and Role of SCIs

35. In Bangladesh, SSIs are officially defined as enterprises withfixed assets, including land, of up to Tk 2.5 million. CIs are defined asactivities carried on wholly or mainly by members of a family either as afull or part-time occupation. Although the data base is weak, SCIs are esti-mated to account for about 80% of employment in the industrial sector. Arecent census of registered large and small firms and a survey of unregis-tered small and household manufacturing industries suggest that SCIs tend

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to be relatively efficient and labor intensive, compared with large firms.For example, average fixed assets per job in unregistered cottage industriesare one-seventh, and in unregistered small industries, one-half that of largefirms. Capital productivity, as measured by the ratio of value added to fixedassets, is generally higher in SCIs than in large firms, although much lowerlevels of capital per worker bring down labor productivity in small firms.Further, average profitability ratios are higher in SCIs (eg. overall profitsto sales were 17% for large industries, 20% for registered SSIs, and 29% forcottage and other unregistered industries).

36. However, it should be noted that large firms in Bangladesh do not

necessarily provide a satisfactory standard of efficiency and profitability,and that marked improvements in performance are possible in both large andsmall firms. Also, there is a higher mortality rate among SCIs and data are

available only for the more successful ones. Further, there are significantdifferences in relative efficiency and market potential by SCIs in differentsubsectors, which illustrates the need for selective promotion and technicalassistance. Available data indicate that SCI expansion possibilities include

industries which are: (a) export oriented, e.g. processed fish and fruit;jute, cane and bamboo handicrafts; and readymade garments; (b) agro-basede.g. bakery and confectionary, fruit bottling, leather and dairy industries,wood-based industries, and rice mills in certain regions; and/or (c) cater-ing to local demand e.g. tailors, repair workshops, construction materialsand other service industries.

37. Although there is need for selective promotion and technical assis-tance, the above data on relative employment and efficiency suggest that SCIscan play a key developmental role. They have relatively higher labor inten-sity and provide for better utilization of the available entrepreneurialskills and limited capital resources of the private sector. Further, giventhe country's low per capita income, SCIs cater to the limited needs forspecialized items in the small domestic market and provide for regionaldispersal of industrial activity. The proposed credit could therefore besignificant beyond its small size in dollar terms.

Policy Framework and Institutions

38. Although its industrial policies do not differentiate between SCIsand larger units, the Government recognizes the importance of SCIs in creat-ing employment and furthering urban and regional development. Industrialstrategy has focussed recently on measures to improve the climate for privateinvestment and the efficiency of the public sector. These are appropriatepriorities which should have salutary indirect effects on SCIs to the extentthat demand for outputs of ancillary and service industries will be stimulated.The main problems constraining the development of SCIs to date have been poorsubproject selection, lack of access to working capital and investment credit,cumbersome institutional arrangements, including weaknesses in the agenciesresponsible for promotion and extension, and failure to provide needed supportin areas such as marketing and technical assistance.

- 12 -

39. The main sources of long-term funds for SCIs have been the BangladeshShilpa Bank (BSB) and the Bangladesh Small and Cottage Industries Corporation(BSCIC) in consortium with six commercial banks. Commercial banks are themain institutional source of working capital for SCIs. About half of BSB'sloans by number are to SCIs but, given the nature and objectives of the in-stitution, its funds have financed relatively large SCIs with project costsranging from Tk 1 million to Tk 2.5 million. The BSCIC/commercial banksconsortium, through which the first small-scale industry credit (353-BD)was channeled, has not worked well. BSCIC was responsible for appraising thetechnical, organizational, economic, financial and market viability of proj-ects and for providing extension services and follow-up as well as projectpromotion; the commercial banks' role was limited to assessing the credit-

worthiness of clients and handling disbursements and collections. Thissplit in responsibility for functions that are inter-related resulted ininefficiencies and problems in project supervision. Further, owing to itsinvolvement in lending operations, BSCIC did not give proper attention topromotion and extension work and most of the projects financed were in theupper range of the SSI category in which, given BSB's involvement, the needwas not so great. One of the main purposes of the proposed second projecttherefore is to modify gradually the institutional framework to provide moreefficient and effective services to SCIs by: (a) strengthening the SCI proj-ect appraisal capability of two commercial banks; and (b) helping improveBSCIC's promotion and extension activities.

Past Bank Group Involvement with SCIs

40. In June 1970, IDA made a $3 million credit to Pakistan to financeimported equipment and technical assistance for small-scale industry in thecountry's east wing. The East Pakistan Small Industries Corporation (EPSIC)was responsible for the administration of the credit and a consortium ofcommercial banks also participated in the project. In January 1973, IDAreactivated the credit (353-BD) with the Bangladesh Small Industries Corpo-ration (BSIC), EPSIC's successor, responsible for administering the creditand with the participation of a consortium of commercial banks. The creditis now fully disbursed. It financed 43 sub-projects; the average fixedinvestment of enterprises was about Tk 1.2 million, with an average require-ment of imported machinery and equipment (average IDA subloan) of about$70,000 and, in a number of cases, fairly large recurring foreign exchangeneeds for raw materials and spares. The subprojects were heavily concentratedin two subsectors (food and allied industries and textiles), in the Dacca andChittagong areas and, in terms of size, in the upper end of SCIs. Employmentgeneration was modest at an average fixed cost per direct job created of about$5,000. The proposed second credit is directed towards assisting smallerenterprises, including cottage industries, with specific emphasis on promotionand extension work and better utilization of commercial bank facilities asdiscussed below.

- 13 -

PART IV - THE PROJECT

41. The project was appraised in August 1977. Negotiations for the

proposed credit were held in Washington, D.C. from April 17-25, 1978. The

Government of Bangladesh was represented by a team led by Mr. Ayubur Rahman,

Chairman, Bangladesh Small and Cottage Industries Corporation. Attached as

Annex III is a supplementary project data sheet. A report entitled "Staff

Appraisal Report on a Second Small-Scale Industry Project - Bangladesh"

dated May 26, 1978, Report No. 1802-BD, is being circulated separately

to the Executive Directors.

Project Components

42. The proposed credit of US$7.0 million would finance the following

components:

(a) sub-loans made to SCIs by two participating commercial

banks in respect of the foreign and local costs of fixed

investments, including permanent working capital, up to

70% of total subproject costs (US$6.1 million; para 44);

(b) loans made to SCIs from a special capital fund in respect

of part of the equity contribution (up to 15% of subproject

costs) in cases where the entrepreneur is unable to contri-

bute the full 30% of project cost (US$0.2 million; para 46);

(c) a cottage industry component for jute and cane/bamboo

handicrafts including credit, new product development,

and specified extension (US$0.4 million; para 47); and

(d) technical assistance to BSCIC for promotion and extension

(US$0.3 million; para 48).

43. Taking all components together, total project costs are estimated

at $10.2 million, of which $4 million or 40% is the estimated foreign ex-

change component. The proposed credit would finance 70% of total project

costs, including local currency expenditure, which will permit reaching

directly the smaller industries and serve as an incentive for utilizing local

raw materials and equipment when available.

44. Sub-loan component. The proposed credit is expected to finance about

200 small industry subprojects with project costs ranging from Tk 100,000 to

Tk 2.5 million and about 1,000 informal and cottage industry subprojects cost-

ing below Tk 100,000, which would be mainly processed at branch level. The

$6.1 million allocated to finance these subprojects was calculated taking

into account BSCIC's pipeline of subloan applications as well as potential

subprojects in nearly 40 product areas including fruit processing, fish drying

and smoking, rice milling in selective areas, and agricultural implement manu-

facture and repair. The size of the credit component also takes into account

- 14 -

the project administration capacity of the implementing institutions, bothat head office and at the branches. To ensure that the smallest entrepreneursare assisted, not less than 40% of this component of the proposed credit isallocated to subprojects/enterprises with fixed assets below Tk 1 million(Schedule 1 of the draft Project Agreements with Janata and Sonali Banks).

45. Two commercial banks (Janata and Sonali) will be responsible forsanctioning individual subloans (paras 49 and 56-59). While BSCIC willassist the Janata and Sonali Banks in appraising subprojects during thefirst 18 months of the commitment period, it is intended that the commercialbanks will assume full responsibility for project appraisal by March 31, 1980(Section 2.03 of the draft Project Agreement with BSCIC). Thereafter, BSCICwill concentrate on promotion and extension activities. However, the commer-cial banks will be responsible for project supervision, including disburse-ments and collections, from the outset. Methods and criteria for sub-projectselection and appraisal have been agreed and include: (a) that the estimatedmanufacturing cost of goods shall not be higher than the price of similargoods available in the area; (b) that at least 60% of the raw materials willbe from local sources except for export-oriented subprojects, which will berequired to earn foreign exchange sufficient to cover at least the cost ofimported raw materials; (c) that the capital cost per job created shall notexceed $3,000 equivalent (Schedule 1 of the draft Project Agreements withJanata and Sonali Banks).

46. A special capital fund will provide supplementary financing (up to15% of subproject costs) to those qualified small entrepreneurs who are unableto satisfy the normal 30% equity contribution required by the commercial banks(Schedule 2 of the draft Development Credit Agreement and Section 2.03 of thedraft Project Agreements with Janata and Sonali banks). These loans would bemade by the commercial banks, with interest at 7.5% and repayment within amaximum of 12 years, including 3 years of grace, and would be covered partlyby the credit guarantee scheme described in para. 52. The initial size ofthis special capital fund, which is in effect an experimental pilot scheme,will be US$200,000 corresponding to about 2-3% of the SCI projects estimatedto be financed. If successful, the Government would be encouraged to replen-ish and expand the fund, which would help remove an important constraint inSCI development.

47. In addition to general cottage industry financing under the proj-ect's credit component, a pilot cottage industry component is proposed forjute and cane/bamboo handicrafts, because of their potential for increasedexports and labor-intensity. About $400,000 is allocated for: credit; marketdevelopment; design consultancy; and training and extension. The BangladeshHandloom Marketing Corporations (BHMC), which has extensive experience inexporting this type of handicrafts and is a BSCIC subsidiary, will be re-sponsible for extension, quality control and marketing, and BSCIC for prod-uct development and coordination with BHMC (Schedule 1 and Schedule 2 ofthe draft Development Credit Agreement).

- 15 -

48. Finally, a technical assistance component will finance advisors

to strengthen BSCIC's promotion and extension activities. Under the proj-

ect, BSCIC will establish promotion and extension units and expand its staff

at both headquarters and district levels. Promotional activities will con-

sist of: (a) preparing subsector/area potential studies and schemes in

specified lines (e.g. fruit processing, readymade garments, leather goods);

(b) completing feasibility studies for organized SSIs and simple profiles/

checklists for smaller SCIs, for use by commercial banks; and (c) directing

promotion to small entrepreneurs in developing and organizing promising SCIs.

Extension activities will include: (a) diagnoses of common problems of major

SCI subsectors, e.g. food storage, textiles/garments, light engineering firms

and (b) training and individual technical assistance to firms in these sub-

sectors. The technical assistance component will contribute to these activ-

ities by providing: (a) 12 man-months for a promotion advisor; (b) 12 man-

months for an industrial engineer to advise on small industry technology;

and (c) 24 man-months of short term consultants for specific tasks, particu-

larly specific subsector studies (Schedule 1 and Schedule 2 of the draft

Development Credit Agreement). The technical assistance provided is expected

to benefit small-scale industries in the rural areas.

The Institutions

49. A key objective of the proposed project is to modify and strengthen

the existing institutional arrangements for SCI financing by means of a clear

division of responsibilities amongst the agencies involved and the strength-

ening of the agencies themselves. Specifically, BSCIC's activities will

gradually be re-orientated to focus on fewer responsibilities, mainly pro-

motion and extension, which it is potentially better equipped to undertake.

At the same time, the two commercial banks (Janata Bank and Sonali Bank)

will participate directly in SCI development for the first time and, over

an 18-month period, will gradually assume full responsibility for appraisal

and follow-up work. In this connection, the commercial banks, with a devel-

oped branch network, more knowledge of local conditions and better access

to local entrepreneurs, and which in any event finance SCI working capital

requirements, should be more effective in the appraisal and supervision of

loans to small enterprises. Further, small entrepreneurs will not have to

approach different agencies for investment and working capital and commercial

banks will have more leverage on collections given their day-to-day contact

with clients for working capital financing. Moreover, this division of labor

will promote clear demarcation of responsibility for success and failure,

easier management and control, and taking corrective action on a timely

basis. These institutional arrangements will also apply to other SCI fi-

nancing activities, including the Government's recently announced Tk 60

million scheme for informal and cottage industries (up to Tk 100,000) to

be administered by the commercial banks at branch level.

50. The Sonali and Janata Banks are the two largest commercial banks in

Bangladesh. Sonali was formed in 1971 from the National Bank of Pakistan and

as of December 31, 1976 had 8,566 staff (of whom 1,162 were officers) and 450

branches; its total assets were then Tk 6.4 billion. Janata came into being in

1972 when it took over the East Pakistan assets and liabilities of the United

- 16 -

Bank Limited of Pakistan. As of December 31, 1976, Janata had 6,140 staff (of

whom 1,405 were officers), 420 branches, and total assets of Tk 8.4 billion.Both banks are already participating agencies in IDA-financed agricultural

projects.

51. Commercial banks in Bangladesh have made few long-term loans forSCIs, although they have general experience in loan supervision and disburse-ment procedures. However, the Sonali and Janata Banks have adequate manage-ment, staff and procedures, and are both headed by individuals with strongexperience in development banking. The staff is well qualified, with thebusiness experience necessary to appraise SCI credits where the key require-ments are an evaluation of the management, market prospects, liquidity, andtechnical assistance needs. Both banks have established separate departmentsfor SCI lending which will be staffed with 15 officers each, transferred fromother departments of the banks or recruited from outside (Section 2.08 of thedraft Project Agreements with Janata and Sonali Banks). A training programfor 8 of these 30 officers has been arranged with two commercial banks inIndia that have extensive experience in SCI lending. This on-the-job trainingis being complemented with an internal training program for all 30 officersand selected branch office staff, conducted by BSB and BSCIC. Both the Sonaliand Janata Banks have prepared strategy statements, agreed with IDA, on theirapproach to the development of SCIs over the next two years (Section 1.01 ofthe draft Project Agreements with Janata and Sonali Banks).

52. As a condition of effectiveness, a credit guarantee scheme managedby the Bangladesh Bank (the Central Bank) will be established to cover notless than 30% of the commercial banks' risk in SCI lending for a fee of 1%per annum on amounts outstanding and disbursed by the commercial banks. Thepurpose of the scheme will be to provide an incentive to commercial banks forincreased lending to SCIs, given that this is more risky than normal commer-cial bank activities. The Bangladesh Bank has prepared, in consultation withthe Association, a draft of the Credit Guarantee Scheme which was discussedand agreed during negotiations (Sections 3.04 and 5.01 of the draft Develop-ment Credit Agreement).

53. BSCIC, formed in May 1976 by a merger of the Bangladesh Small Indus-tries Corporation (BSIC) and the Bangladesh Cottage Industries Corporation(BCIC), is the agency primarily responsible for promoting the development ofSCIs in Bangladesh. While BSCIC is formally responsible for promoting and

assisting the development of SCIs and its Charter provides for promotion andtechnical assistance, activities in this field have so far been limited.BSCIC's main activities over the last few years have been: (i) distributionof raw materials; (ii) evaluation of requests by SSIs for foreign exchangefor the purchase of imported machinery; and (iii) management of industrialestates. BSCIC's staff and work has been centered mainly in Dacca and onlyrecently has it begun to decentralize some of its activities. A principalobjective of the proposed project, therefore, is to assist BSCIC to focusbetter on promotion and technical assistance. These are key aspects giventhe low level of entrepreneurship and management skills in the country.Since BSCIC is no longer responsible for the distribution of raw materials

- 17 -

and, under the proposed project, its responsibility for project appraisalwill be transferred gradually to commercial banks, BSCIC will be better ableto focus its efforts on promotion, including project preparation and extensionwork.

54. To strengthen the institution and reorient its activities, BSCIChas been making efforts to decentralize its organization and to increase theproportion of operational staff by stationing more personnel, especially ex-tension workers, at the district level. Under the project, BSCIC and theGovernment have agreed to: (a) establish, by September 30, 1978, separatedivisions for organized small and cottage industries, in view of the distinctrequirements of these groups, and (b) increase the proportion of staff work-ing on specific promotion and extension tasks; BSCIC has already recruited tennew Promotion Officers for Dacca, ten District Promotional Officers, and 36extension workers of which 17 are posted at the Districts. The promotionadvisor will help structure and supervise work on product/area studies,schemes, and SCI profiles. For extension, BSCIC will complement outsidetraining services arranged by Technonet Asia with an engineering advisor onappropriate technology and short term specialists to assist in diagnosingproblems of major SCI subsectors and developing training programs (para. 48).BSCIC will also establish a project monitoring and evaluation unit (Section2.02 of the draft Project Agreement with BSCIC). Steps are also being takento transfer responsibility for supervision of most of BSCIC's past loan port-folio, including loans made jointly with BSB and with a consortium of commer-cial banks. Once the project by project review now underway is completed(expected by March 31, 1979), write-offs and provisions for bad loans will beestablished and the full responsibility for supervision of BSCIC/BSB loanswill be transferred to BSB, although BSCIC would continue providing extensionservices. In the case of BSCIC/commercial bank past loans, the commercialbanks are already responsible for loan supervision and recovery. With respectto BSCIC's own portfolio, BSCIC has allocated about 10 officers to carry outsupervision and recovery of loans not written off after the completion of theproject by project review. This should improve collections and allow BSCIC toconcentrate on promotion and exten sion. Finally, BSCIC has revised its PolicyStatement which reflects its new priorities for the next two years. Thisstatement has been agreed with IDA (Section 1.01 of the draft Project Agree-ment with BSCIC).

55. The main promotional activity to be undertaken by BSCIC underthe proposed project will be the preparation of specific area and subsectorstudies to identify investment opportunities, determining linkages, preparingfeasibility studies and project profiles, conducting market surveys and coor-dinating the work of the agencies involved in assisting SCIs (Section 2.04of the Project Agreement with BSCIC). The technical assistance componentwill finance an advisor to help organize promotion work, an industrial engi-neer to advise on technology, and specialized short-term consultants to helpin preparing subsector studies for project identification/preparation and/ordiagnosing problems (Section 2.05 of the draft Project Agreement with BSCIC).

- 18 -

Administration

56. Lending Arrangements. The proposed credit will be made to theGovernment, which will relend the subloans component to commercial banks at4.5%. The commercial banks will on-lend to SCI ultimate borrowers at a mini-mum of 11.5%, the current long-term lending rate for industry. Based uponestimates that the rate of inflation will be held to about 10% in the long-run,ultimate borrowers will pay a positive real rate of interest of about 1.4%. Thecommercial banks will pay the Bangladesh Bank a guarantee fee of 1% on amountsoutstanding and a service charge to BSCIC of 1% to cover the costs of itspromotional and extension activities for the subprojects financed (Section 2.06of the draft Project Agreements with Janata and Sonali Banks). This wouldallow the commercial banks a spread of 5.0% to cover administrative costs andinherent risks associated with SCIs and still give an incentive for the banksto finance this sector. The foreign exchange risk will be borne by the Gov-ernment. Under the US$200,000 special capital fund, the interest spreads willbe: Government, 1%; Bangladesh Bank, 1%; and commercial banks, 5.5%; theinterest rate to ultimate borrowers will be 7.5%. Credit proceeds for thetechnical assistance and the cottage industries components (excluding credit)would be passed on by the Government to BSCIC/BHMC as a grant.

57. Free Limits and Prior Approval. Because the number of subprojectswill be large and their individual size will be small, and as SCIs should notbe burdened with complex review system, the subproject approval procedureswill be simplified. For subprojects costing less than Tk 100,000, no priorreview by IDA will be required. Instead, the commercial banks would send toIDA for post-review a quarterly statement of approvals with key information onthe subprojects financed. For larger subprojects, each bank will send to IDAon a monthly basis its application for authorization to make withdrawals fromthe credit with a summary of each subproject, the terms and conditions of theproposed financing, and a discussion of the basis for the procurement decision(Section 2.05 of the draft Project Agreements with Janata and Sonali Banks).There would be no prior review of appraisal reports (all subloans would be"free limit" subloans) except on a sample basis and appraisal standards wouldbe discussed during supervision missions.

58. Procurement and Disbursement. Procurement of foreign equipment forprojects costing above Tk 100,000 would be based on at least three quotationsfrom different suppliers. In these cases, the basis for the procurement deci-sion will be reviewed prior to subproject authorization by IDA (Section 2.04of the draft Project Agreements with Janata and Sonali Banks). For procure-ment of smaller subprojects and locally produced components of subprojects,IDA would rely on the commercial banks' appraisal of the reasonableness ofcosts together with the local entrepreneur's incentive to keep costs low.Disbursements for subloans above $45,000, accounting for about 40% by amountof the project's credit component, will be fully documented. Disbursement forthe balance of subprojects will be made against certificates of expenditure,the documentation for which would not be submitted for review but retained bythe commercial banks and available for inspection by IDA during supervisionmissions. For the technical assistance components, IDA's normal disbursementprocedures will be followed. The credit should be fully disbursed in about4 years.

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59. Amortization of Subloans. The commitment period for the subloanswill be two years and it is unlikely that any subproject will require anamortization period exceeding 12 years including a 3 year grace period.Therefore, a fixed amortization schedule between the banks and the Governmentof 15 years, including 3 years of grace, is appropriate.

Benefits, Justification and Risks

60. Apart from improving the institutional arrangements for financingthe development of SCIs, the project will provide technical assistance toredirect the activities of BSCIC, the primary agency responsible for promotingSCIs. In addition, the involvement of commercial banks in SCI financing willmake access to credit easier and will enable small entrepreneurs to approacha single institution for investment and working capital. The technicalassistance component should generate significant improvements in SCI promotionand development work, subproject selection, appraisal and supervision and inthe provision of technical assistance to entrepreneurs. In addition, theintroduction of new programs such as the credit guarantee scheme and specialcapital fund should provide opportunities for further growth of SCIs. Thepilot cottage industry component for jute, cane and bamboo handicrafts isintended to test the efficacy of a model integrating promotional, financial,marketing and technical assistance services, which could be replicated todevelop other subsector-specific export-oriented programs for CIs.

61. It is impossible to quantify directly the benefits that would flowfrom the institutional improvements and from the technical assistance com-ponent of the project. Clearly, they should provide for more rapid growthof SCIs, and associated improvements in employment, productivity and entrepre-neurial development. Expected benefits from the jute, cane and bamboo cottageindustry component are increased employment and earnings for about 1,500participants and increased exports of about Tk 3.5 million per annum by thefourth year of the project. These cottage industries will be located inrural areas and, in the case of jute handicraft cooperatives, participantswill be women. With regard to the credit component, it is roughly estimatedthat the project would result in incremental direct employment of about 8,000and increased earnings for an additional 6,000 workers. Average subprojectcost would be about $1,500 per direct job created in organized SSIs and about$500 for CIs. About 80% of the beneficiaries would be from small towns orrural areas, reflecting the population distribution in Bangladesh.

62. The main project risks relate to the fact that BSCIC is still a weakinstitution and that the commercial banks are just starting direct involvementin SCI development. However, the project introduces a number of measures tostrengthen BSCIC and the commercial banks, as well as to improve subprojectselection and monitoring. While some of these improvements may take a longertime than now envisaged, it is likely that delays will be mainly in strength-ening promotion and extension work. However, even if the strengthening ofBSCIC's promotion and extension activities is delayed, it should be possibleto make an adequate number of suitable small industry loans without fullinitial support in promotion and extension, with the technical assistanceand training provided under the credit. Furthermore, criteria for project

- 20 -

selection and appraisal have already been clearly defined. Since the proposedcredit will help correct present institutional weaknesses and SCIs are a pri-ority sector, this risk is not sufficiently great to warrant delaying theproposed credit. The project will require close supervision and a heavierthan usual commitment of staff time is envisaged.

PART IV - LEGAL INSTRUMENTS AND AUTHORITY

63. The draft Development Credit Agreement between the People's Republicof Bangladesh and the Association, the draft Project Agreement between theAssociation and BSCIC and between the Association and the Janata and SonaliBanks, and the Recommendation of the Committee provided for in Article V,Section I (d) of the Articles of Agreement are being distributed to theExecutive Directors separately.

64. Special conditions of the project are listed in Section III ofAnnex III. Additional conditions of effectiveness of the proposed creditare: (a) that the Project Agreements on behalf of the Sonali Bank, JanataBank and BSCIC have been duly ratified; (b) that the Subsidiary Loan Agree-ments on behalf of Sonali Bank and Janata Bank have been duly ratified; and(c) the Credit Guarantee Scheme referred to Section 3.04 of the DCA has beenestablished under arrangements satisfactory to IDA.

65. I am satisfied that the proposed credit would comply with theArticles of Agreement of the Association.

PART V - RECOMMENDATION

66. I recommend that the Executive Directors approve the proposedcredit.

Robert S. McNamaraPresident

May 26, 1978

- 21 - ANNEX I

TABLE 3ABANGLADESH - SOCIAL INDICATORS DATA SHEET

LAND AREA (THOU KM2) --------------------- …_______________ BANGLADESH REFERENCE COUNTRIES (1970)

TOTAL 144.0 MOST RECENTAGRIC. 101.1 1960 1970 ESTIMATE BURMA THAILAND MALAYSIA **101.1 ~ ~ ~ ~ ~ ~___ -------__ --____ -__ _-___-__- __-___-__ __ _ _ _

GNP PER CAPITA (USS) 60.0 80.0 110.0 70.0 210.0 440.0

POPULATION AND VITAL STATISTICS

POPULATION (MID-f,4. MILLION) 53.9 70.8 80.4 27.0 36.3 10.8

POPULATION DENSITYPER SQUARE KM. 374.0 492.0 558.0 40.0 71.0 33.0PER SO. KM. AGRICULTURAL LAND 566.0 730.0 795.0 253.0 263.0 185.0

VITAL STATISTICSCRUDE BIRTH RATE (/THOU, AV) .49.S 50.3 49.5 41.3 44.3 42.2CRUDE DEATH RATE (/THOU,AV) 27.2 22.9 28.1 19.3 13.7 12.9INFANT MORTALITY RATE (/THOU) .. ,, 140.0 .. 60.0 40.I/ALIFE EXPECTANCY AT BIRTH (YRS) 38.7' 43.3 45.0 47.5 55.5 56.7GROSS REPRODUCTION RATE 3.5 3.1 . 2.7 3.2 2.6/a

POPULATION GROWTH RATE (X)TOTAL 2.7 2.B* 2.1* 2.2 3.1 2.9URBAN 6.2 7.4 3.7 4.9 3.0

URBAN POPULATION (% OF TOTAL) 4.8 6.4 8.8 19.9 15.0 26.9

AGE STRUCTURE (PERCENT)0 TO 14 YEARS 44.7 .. 48.1 40.0 45.1 44.7 /a

15 TO 64 YEARS 50.1 /a .. 48.2 57.0 51.8 52.1 /65 YEARS AND OVER 5.

2/a .. i. 3.0 3.1 3.2 /

AGE DEPENDENCY RATIO 1.0 l 3 0.8 0.9 0.9/aECONOMIC DEPENDENCY RATIO 1.e/i .. ;.4 a 1.1/a 1.1 /a 1 .6 /

FAMILY PLANNINGACCEPTORS (CUMULATIVE, THOU) .. .. 2160.0 .. 470.0 222.2 /aUSERS (% OF MARRIED WOMEN) .. 4.7/b .. 10.0 B.0/a

EMPLOYMENT

TOTAL LABOR FORCE (THOUSAND) 19400.0 24500.0 26200.0 10920.0 16700.0 /b 3600.0LABOR FORCE IN AGRICULTURE M%) 87.0 56.0 7S.0 70.0 79.0 49.5UNEMPLOYED (% OF LABOR FORCE) ,. . 15.0 /c .. .. 7.0

INCOME DISTRIBUTION

% OF PRIVATE INCOME REC'D BY-HIGHEST 5% OF HOUSEHOLDS 18.3 /C 16.7 /a . .. 22 0 IC 28.3HIGHEST 20% OF HOUSEHOLDS 44.5 /C 42.3 a .. .. 51.1 1 56.0LOWEST 20% OF HOUSEHOLDS 6.9 /C 7.9 / a* 5.6 f 3.5LOWEST 40% OF HOUSEHOLDS 17.9 /C

19.

6/- * 14.3 /C 11.2

DISTRIBUTION OF LAND OWNERSHIP__ _ _____________--_________-

% OWNED BY TOP 10% OF OWNERS .. 34.0/b ..% OWNED BY SMALLEST 10% OWNERS .. 1.

0/b .. ..

HEALTH AND NUTRITION

POPULATION PER PHYSICIAN loooo.o/d 7600.0/C 11000.0 6970.0 7970.0POPULATION PER NURSING PERSON 110000.0/772030.DfJ 56070.0

754

0 0/b 6650.0

POPULATION PER HOSPITAL BED 11000.0/ 812O.0/t 5200.0 1200.0 - 890.0 270.0/

PER CAPITA SUPPLY OF -CALORIES (% OF REQUIREMENTS) 89.0/f 89.0 93.0 101.0 103.0 112.0/bPROTEIN (GRAMS PER DAY) 42.6/f 58.5 49.0 52.0 49.0/W-OF WHICH ANIMAL AND PULSE 942/f 8.0 13.0/C 17.0/d 20.0/t

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

EDUCATION

ADJUSTED ENROLLMENT RATIOPRIMARY SCHOOL 47.0/j 61.0 73.0 87.0 81.0 91.0SECONDARY SCHOOL s.0/j 19.0 25.0 25.0 17.0 34.0

YEARS OF SCHOOLING PROVIDED(FIRST AND SECOND LEVEL) 10.0 10.0 10.0 10.0 12.0 13.0

VOCATIONAL ENROLLMENT(% OF SECONDARY) 1.0 ... 0.8 14.0/e 3.2

ADULT LITERACY RATE (%) .. .. 23.0 .. 79.0 55.0

HOUSING

PERSONS PER ROOM (URBAN) .. .. .. .. .. 2.3aOCCUPIED DWELLINGS WITHOUT

PIPED WATER (%) .. .. 82.0/d .. .. 65.o/a.cACCESS TO ELECTRICITY(% OF ALL DWELLINGS) ,. ,, 3.0/d v- .. 43.0/a

RURAL DWELLINGS CONNECTEDTO ELECTRICITY (X) .. .. .. .. .. 30.0/a

CONSUMPTION

RADIO RECEIVERS (PER THOU PoP) .. 6.0 15.0 78.0 41.0PASSENGER CARS (PER THOU POP) .. 0.4 0.4/e 1.0 5.0 27.0ELECTRICITY (KWH/YR PER CAP) 4.0 20.0 22.0 22.0 124.0 382.0NEWSPRINT (KG/YR PER CAP) .. 0.4 0.6 1.0 4.1

SEE NOTES AND DEFINITIONS ON REVERSE

-22 -

N-OTES

Unless otherolee noted, data for 1960 refer to any year between 1959 -and 1961, fot 1970 between 1969 and 1971, sod for Most Recent Estimate between1973 ed 196.

* The 1 970-75 popultion groth rate is abeormally low due to the affects of the war of independence and ease population ena,aente across the bordersdur iog that period. Presently, tha average POPulation grewth rtae is eatimated at 2.81 per unnu.

*0 Oleo tlon of Maleysfe as an objective country iq based non halaysie's enecags in eainiaining e high rate of economic growtb and adequate level ofwelfare concurrently with diversifying its economic strutureot.

OAIJLADROIi 1960 1. Age group 15-59 and 60 sod over rempactively; /b RAtio Of Population under 15 and 60 end over to total labor force;Ic 1963-64; Id Registered not all practicing 'Zn the country; /± Government hospital establisebmets only;I?F 1961-651 IjL Approeimately enrolleent ae percenangeg of population in 6-li and 11-15 age groups reapectivaly.

1970 /a 1966-67; /b 1967-68; /c Registered not all practicing in the country; /d Governmeant hospital esatblishmsente only;IsAppr..meat-a enrollment as7percentage Of population in 6-li and 11-15 ege groups reepectively.

MOST RECENT EITIMATE: /a Ratio of population under 13 and 60 and over to total. labor force -; lb Percent of feeal popoletion;__________________ _i/ Mainly unemployed workers seeking thair firt. job; /4 Urban only; Ie 1972.

BURMA 1970 Is RLatio of population under 15 end 65 and over to tstal labor forte,; lb Personnel in governmet services only; Ic 1964-6k

THAILASfD 1970 I Ratio of population under 13 end 63 endl over to eOCenemtallY active population age 11 years. end over; lb Econoicellyaciv population sag 11 years and ove r; I RUral only; /d 1964-66; L. Public schools, which Include tech.lcoleducation at tha poet-secondary level.

MALAYSIA 1970 la Peninsular ga1ayeia; 1b 1964-66; Ic Piped water inside,

Rl2, May 15, 1978

inwonm (W SOC IADRICATOF

Land Ares (thou hO) PoPuleti net nursing p-otnt - Population divided by sumber of practticigToist Total surface erea cnpr.is lanicd area. ad inlend waters, male and femal gradnare nuss-tendo "certified" nurse..e, adAgri..- Mont recent estimate of agricultural area used temporarily at perma- sasiliary personnel with trainling or experience.

-rotly for crops, pastures, market & kitchen gardens or ts lie fallow. Population net hoesital bed - Population divided by ocber of hospite1 bedsavailabl, in publin and private gnere1 end spacialined hospital end

GNP per capita (US$) - GNP' per capita eatiosates at current market prines, rehabilitatipn caentr; e..tludes eureing homes and eatablielceote forcolcolated by eusm conversion, method as World Beank Atlas (1974-76 basis); nustodia1 and preventive tare..1960; 1970 and t976 dare. Per canit soonl, of caloies ft of reurCat) -Coputod fr'mmc

equivalent of Met fend supplies available in country per -apite per day;Popolstioo and vital tetaintice available suppliee omeprise domstit preductimn, Imoports lees enpontn, endPponlhtion m.id-your million) - Ao of July firer, if not available, everege, changes in stock; net supplies seclude animal feed, sad,quaatitissooed

of two -d-y-s estimates; 1960, 1970 and 1976 data, in fond pr-oesing end losases in distribution; r-quire,nent wnroeutinntodby TAO based on physiological needs for no-ma activity and health conaid-

Pporlatian. densityv per~ eusre ho - Mid-yoar population per square kilometer ering environmeental temperature, body weights, age end see distributione of(lii hec.rare) oi toisi ares. populstmon, and e11wing lilt for waste at household level.

PonoLstion density- par ocuans ho of aric. leand - Computed as sowsa for Per cenits ul ofP1 ortein (ere- per dsp) - Protein content of par capitaagrico1t-rl 1sod only. net supply of fond per day; met supply of fond is defined as shown; raqoirs-

munte for all1 coustrise:eetabliehed by USiDA Econmic Rm,esearh sericeeVital ecailetice provide for aminimsm aIl-wsn. of 60 grwas of total protein per day, and

Crud birh rts cr thusad, aoruo - neel lion births per thousand of 20 grase of animal and Pulese Protein, of which 10 gras should be animalmtd-yesr population-; ten-yost arirosoeic owereges ending in 1960 snd 1970, protein; those standards are lowr thon those of 75 g-a of ototl proteinand five-yea average ending In 1975 for most recen.t estimate, end 23 grams of animal protein . asn sverage for the world, propoend hy PAO

Cc-do death rtet per thousand. aros- Acua-l deaths per thousand of mid-year in the Third Wfarld peed Survey.population; toc-yaa- aritlejetio svoragesaadiag in 1960 and 1970 and five- Per aeoita orotein eapsly from- anima end Pulses - Protein suPPlY of foodycr average ending is 1975 for meet recant estimate, derived from animals end pulses in grams pot day.

lefact norteiry rate, f/thou) - Annual deaths of infests under one year of age Peach rate f/thou) ages 1-4 - Annmeal deaths per thousand in age gfrop 1-4po trhoc-sd Hot birsha. years, no childone in thlis age group; euggosted as en iedc-tor of

Life .. p.ecc...y at birth (yre) - Average number of years of life remining at malnutrition.birth; usualIly five-year aeragna ending Is 1960, 1970 end 1975 for develop-ft

0rootriec Edaation

iron roop-dutioc rate - Averags ntbhr of live, daughters a women will bear Adjuste,d enrolnen raio - rioory school - Enrollment of all agen 00 per-in her normal1 reproductive period if she enperiences present age-specific cetgso pary scolage population; Inludes children aged A-Il yearsfrr,tilfty raten; usully five-year avereses ending in 1960, 1970 and 1975 but adjusted for different lengths of primary adou-tion; for coern ithfor d-onlpiog countries. univrersa edurstian, enrollmen may serssd 100. since som pupiln ore bel1n

Population croth rate (%5 - total - Compound annual growth rate of mid-year or ebow the official school ege.populatioc for 1950-if, 1960-70 and 1970-75. Adjusted enrollment ratio - secondary school - Conputed as above; secondary

Popolotin groeth rate (t) - urban - Computed like goowth rate of total edoostion requires at leest fact years of approved primary inetre-tion;population; difforo-t definitioo of urban aresa nay affect cmepstbility of provides eanara~.. octisoI or tes..h-r training ins,tructions for pcpilcdata aecetg otmt,tri-. Of 12 to 17 years of aga; correpondence -rore are generslly -1oldod.

-Urban pope1otton 12 of total) - Rfatlo of eubn to total pupulstion; differsnt Yrear of schooling provided (first end second levels) - Total y-sra ofdefinition of orbn area may affect comparability of dat.a smng contis,shooling; at secondsry level, voca.tional ietru-tian maybe pertially or

As, structure I percent) - Children (0-14 years), worbimg-ege (15-64 years), Voetonl -rlmetfofscnay-Vctialitttoaiccdan.d retired (65 years end aver) as percentages of eid-yeer population. teohefoal, induatrial or other prog-ae eblh operate lodopendeotlyorao dcoondo-y -t io - stio of population under 15 and 65 and ovr ca those dopartments of secondary institutions.of goou 15 through 64, Adult literacy rate (%5 - Literate adults (ahle to red and writs) 00 pOt-

Erononic dependency ratio - Ratio of population under 15 sod 65 and over to centage of total adult population aged 11 yearn and over,tr, lehor force in ego group of 15-64 years.

cn_ily ciuoin - acceptors ._! i -uulte thou) - t,mal.tive numnber of acce ptors H..sIngof birth-control devices undor aupi-s of natione1 fmily planning progre Persons ner roo (urban) - Aer-gs nomber of poraone per ro- it occpiod

amos inception. canven~~~~~~~~~:-.tio...l dwellings to urbao areas; deollinge secludo o-ontnp'o ly . .coie-uaer It af narried woe)-Perce..cagma of -aried women of s .trutres and unoccupied parto.

child-bearintg aoe (15-44 year) who use birth-contral devicos to all married iccupied dwellings without sired water It) - Occupied con-ti-el dwollingscmeIn tam age group. in urban and rural areas witboor molids or outeide pipe0 eater focilitica

sopretge of all onopiod dwellings..mEploymeot Acest letiiyf of all duellio) - Conventional dwo11lnge etChTotal labor forc Ithousand) - economically activo persona, including arme-d electricity In living qcsrters as portent of total dwellings in urhan and

forces sod unemployed hut excluding housewives, students, etc.; definitions rural ara..in various coutrie.arse not compara.ble. Rural dellinse connec.ted to el1otririty Ca -tmputed as ahow for coral

Labor forc In agiutueI) - Agr1culturel labor forte (in fareimo, forestry, dwellings only.hunt~ing and fishing) es percetage of total labor forc..

Loo.. ye (7 of labOr force) U- ooploy.d rera usaly defined as persona who Con.usctionare able and willing tc take job, our of a job on a given day, remamnad ont Radio rece.ivers (net thou pop) - All types of receivers far radio broadcas tsof a job, and esebing work for a specifief ninimm period not -ereading on to general public per thousand of population; occldes unicrt-e..d roce.i-ernwork; say no t h comparable betweet coustries doe to differen -t definitions in countries and in years when rsgietrstion of radio sets was in effect;of anoplayed and source of data, e.g., employetant Offica etatistiose, ample data for reoent years may nout be compereble sinco nost cutries abo1iehed

Passenger oars (Par thou POPl - Passener tare comprise notor care sea tingIncome, dIstribution - Percentage of private income (both in cab end kind) less than eight persns; excludes mahu1ances, hearsesa and military

recoi-d by richest It, richaet 20t, poorest 202, and puoreat 402 of house- vehiles.holds, Electricity fkth /vr net tee) - A1t05l -unmeption of Industrial,cm,ril

public end private electricity in kilowatt hours per capita, gsenerallyDfotributioc of land ownerehip - P'srentagea of land owned by wealthiest 102 based onm production data, withoac allowoocs for losess In grid. bet allow-

and poorest 102 of land awosra. leg for Imports and experts of electricity.

Newsprint fke/vr set cep) - Per capita annual consomption In bilogramsHealth and Nutrition estimated from domestic production plus net imepocta of newsprint.Populatic e r physician - Popolation dividsd by numer of practicing

phyeiciana qualified from a medical school at oniversity level.

- 23 - ANNEX I

19C0NOMTC DEVIDPSMpJT DATA(AmWoun-ts in m-illions of U.S. dolla-rsT

Actual Estimated 1960- 1965- 197- Av. 679L7451767AV. 1967.69 19 72/73 19 74/ 75 1975/76 1976/77 1965 1970 1977 16-917/51 67

NAIONA ACOGINSTS __lR orutant 1972- 1973 Prices & Exchange Rates A,,erage Annual Growth Rates As Percent of GDY

Grist Domiestic Prodlict 6,012 5,833 6,514 7,295 7,561- 4,7 3.3 6.7 98.5 101.8 102,Gaits from Terms of Trade (+) 89 - -117 -145 -148 1.5 -1.8 -2.0Gross Boniest>c Throme 6,1 01 35fl T,9-7 7.150 7,413 5.6 2.5 6.2 r. 1-7- 100.0

Import (tool. NFl) 879 747 703 646 500 20.6 6.8 -7.4 14.4 11.0 6.7Exports "(import capacity) 598 369 197 200 210 12.3 -14.6 -12.6 9.8 3.1 2.L&Resource Gap 281 78 6 44 29 4.6 -7.9 3

Consumption E-xpenditures 5,668 5,817 6,403 7,062 7,230 5.7 3.6 5.6 92.9 100.1 97.6Investment '. (incl. stocks) 714 394 499 534 473 13.3 8.8 6.7 12.9 7.8 7.4

-Domestic Savings 433 16 -6 88 183 4.3 10.0 81.0 6.8 -5.1 2.4National Savings 416 32 10 110 200 8.7 20.5 57.0 7.1 0.2 2.6

MERCHANDISE TRADE Arnnuel Data at Current Prices As Percent of Total

imrpor~tsCapital goods . 100 135 213 268 25.. a.7 . 16.8 28.6Intermediate goods 6m3.fuels) . 176 386 396 250... 12.8 . 30.4 26.7Fuels end related materialsB

of which: Petroleum . 23 155 126 144... 49.8 . 10.0 15.4Consum"ption goods 428Zf ....Zzk 541 275... -6.6 -~ 4.1. 2.2.Total March. Ieports (elf) 547 727 1,402 1,266 937 -,9100.0 100.0

ExportsPrimar-y prodlucts (g,ml. fuels) . 145 119 156 168 .. 2.9 40.9 42.0Fuels and related materials

of wbich: PetroleumManufactured goods. 195 239 225 24? .. 5.4 59.1 58.0

Toa ee.Exports (fob) 481 340 358 381 400i 3- loo.0 100.0Tourism and Border TradLe

merchandise Trade indices Average 1972-73 !D13Export Price lodos 61 100 133 109 i1l. . 2.4Import Price index 52 100 215 195 189 .. . 16.3Terms of Trade Ind-x 118 100 62 56 59 .. . -11.7Exports Volume index 148 100 80 106 123 .. 3.9

VALUE ADDEr BY SECTOR Annual Data at 1972- 73Prioes and Exchange Rates Average Annual Growth Rates As Percent of Total

Agriculture 3,542 3,403 3,712 4,078 4,140 594. 59, 57Industry ant Mining 420 412 466 527 567 4. .8 7 7

Service j~~~~~~~,050 1,848 2.146 2.333 2,504 8.2 34 34 35Total 6,012 5,663 6,324 6,938 7,211 6. 100 -1700 i00

PUBLTC FINANCE __A__P_rce_____f_GDP

(C-entral Government)Current Receipts 317 280 469 775 877 . 32 5.3 7.2 11.2Current Expenditures 365 364 419 600 686 34.2 6.1 6.4 8.7Budigetary Savings -4 -8 50T . 16.8 0, 0. 25Other Public Sector . . . . ...Public Sector Investment 421 239' 248 295 35 13 7.0 3.8 4.9

- ~~~~ -US $ million-~CURRENT oXcENDITmirEm DETAIiz Actual Estimated DETAIL Dli Ar Av. 1972/73 P and ERAs 7, Total Current Expend.) 1969/70 1972/73 1974/75 1975/76 1976/77 PURLIC SECTOR First Plan %1 of TotalEducation .. 14.8 15.5 13.6 13.3 IN'VESTMENT PITIGRAY (19 73 /74 -197 7/78Other Social Services .. 4.0 4.2 4.4 4.2 Sccial Sectors 758 15.3Agrisulture end Agriculture 1,302 26.4Other Eoonmic Services .. 11.2 7.2 6.6 6.7 Industry and Mining 1,024 20.7

Administration and Defense .. 67.4 68.1 68.8 68.9 Leswer 529 10.7Other 2.7 5.0 6.4 6.9 Transport ani oeeniatn 802 16.3Total Current Expeniditures 1o00-.0 -100.0 100oo .0 1500.0 Other 524 10.O6

_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ TT otal EE x pen dit rres44,9401100.

SELECTED INDICATORS 1960- 1965- 1973- FINANCING(Calculated from 7-year averaged data) 1965 1970 1976 Dmssetic Narroing 784 15.9Average ICON 3.74 0. 89 Public S-otor Savinigs 2,022 40.9

-Import Elasticity .. 1.29 1.11 Progrsim aid counterpart i,0os 20.4Marginal Domestic Savings Rate . 0.22 0.05 Foreign Pro/oct Aid 1.125 22.8Marginal National Savings Nate .. 0.35 0.05 Total Financing 4,940 100.0

LEBOR FORCE AIm Total Labor Force Value Aided Per Worker (1972 73 Prices & Fxv. Rates)OTTTPUS PER WORKER In Millions 5k of Total - 1~961 - 73 In U.S.Dollars Percent of Aver:ge 19 70 - 73

1960/61 19 72 /73 19 60/ 61 1972/73 G~rowth Rate 1969/70 1972/73 1969/70 1972/73 Growth Rate.

Agriculture 16.1 20.5 85 18 2.0 .. 166 .76Industry 1.0 1.8 5 7 5.0 -, 29 .. 105Service 3.8 3.9 10 15 6.7 . ~ 484 .. 222Total I8-.9 2-6.2 100 II 2.0-T8 248 217 100 100 -r

no.t applicable . -nil or negligiblenot available -- less than half the s~aallest unit shown

Note: Figures are on fiscAl. year basis (July 1-Jane 30), Data prior to 1972/73 pertain to erstwhile East Pakistani/1 These are original pla trgts

- 24 - ANNEX I

BALANCE OF PAYMBSTS. IXTERNAL ASSISTANCE AND DBBT(astuonte Ln million of U.S. doll-rs ot co-rret price.)

Actual Estimated P-i-tced A-...R A-os Growth Rate1969170 [972/73 1973/74 197/475 1975/76 1976/77 1977/78 t974 - 197B

SLMMARY BALAdCE yO PAYMEBTS

Etparts (incI. SFS) 515 369 339 358 381 400 425 5.8loporto (inol. NFSf -639 -747 -958 -1.402 -1.290 -937 -1.274 7.4Resource Balucco (X-M) -124 -378 -619 -1,044 -909 -537 -849 8.2

Iotereet (Cot)Direct Investeent Incore IWorkers' Romltteacce I . . 45 10 7 1 25 15Curreot Tracofeco (oot) IBMluoc on Curont Acconte .t . -333 _1 037 9 512 834 6.32

Pri-ate Direct I-vest=et .OfficJil Capitol Grutot .. 482 204 397 236 258 340 13.6

Public MALT LooasDOfbococacots .. 76 292 527 578 314 476 16.0

-Rrpaye.ects . . _ -10 -25 -78 -21 -31Not tiobutserto ts .. 76 287 502 500 293 445 17.3

DNtbursecents .. .. .1. ... .-Repaycets .. .. ..L..Not Boburomeoto .. .. ..t.

Capital Tccucactiuon n.c.i. . -205 74 334 122 33 81Change it Nc Rtesroco ( -- i.cre6Re) .. -20 40 -196 50 -72 -32 Actual Esti-atedCress Reserves (sod period) ;. 107 67 263 213 285 317 1971i72 1972/73 1974/75 1975/76 1976/77

GRANT AND LOAN COMMITMBNTSOfficisl Gracts 6 Granr-Like 514 150 368 380 DEBT AND DEBT SERVICE

Public Dcbt Out. & Disborood 36 187 998 1,899 2,245

Public M&LT Loaus Ictcrest en Public Debt - - 10 20 26IREE - - - - Rprasoonte on Public Debt - - 253 67 21IDA .. 66 74 150 187 Totul Public Debt Service - - 35 S7 47Other Multilaterul .. 11 17 87 22 Other Debt Service (not) .. ..lcoveroocts .. 204 329 678 332 Total Debt Service (net) .. .Suppliers .. 55 47 17 -Finuccial ot-tioutio-s . _ _ 9 Burdrn cn Elport Eartifgu (7.

PBpli Loots cci. Public Debt Seric. 9.9 22.8 11.9TotuL Public MOLT Louso - 338 467 932 530 TotaL Debt Service 22

TD+Di-rect Icocor. Ic.- . .. Atual D.u" icudu alss3.17tXTERNAL DEBT Diiboroed Ocly Percent A-r.get T.- f Public Dbt

World Ounk Al g r oIDA 380 21.0 Iut. as I Prier Year D04D .. .. 2.3 2.0 1.4Other Multiluterul 25 1.4 A-rt. as 2 Prior Year D04D . .. 5.7 6.7 1.2Gotooc to 1,250 69.1luppliero 90 5.0 . IBD Debt OtD. 4 DisbarordFinancial Inatitutions 9 0.5 " as 7 Publif Debt 06D - - 5.5 3.0 2.4Bonds as Public Debt Sorvfc- _ _ - 1.8 7.0Poblic Debts n.e.i.Totol Public M6LT Debt IDA9 100.0 IDA D ebt Out. & Disburoed

us 0f Poblic Debt OW - 8.6 23.5 21.0 27.7Ocher MOLT Debts. Is Poblic Doit Sevice- - 3.1 2.5 6.4Short-T_cT Debt (diob. only)

not upplicoble c . ctaff astioate. . ot avuilablo - nil or - ogligiblc

D.. cut voilblu sepacattly but -- less thus half the s alleotincluded it total unit showt

May 1977

- 25 -

ANNEX II

BANGLADESH

STATUS OF BANK GROUP OPERATIONS

As of April 30, 1978

A. IDA Credits to Bangladesh

US$ Million Net ofCredit Exchange AdjustmentNumber Year Purpose Amount Undisbursed

(net ofcancellations)

Eight Credits Fully Disbursed 329.1 -

339 1972 Cyclone Area Reconstruction (replacesCredit No. 228-PAK of 1971) 25.0 6.4

340 1972 Chandpur Irrigation II (replacesCredit No. 184-PAK of 1970) 13.0 3.3

341 1972 Tubewells (replaces Credit No.208-PAK of 1970) 14.0 2.1

343 1972 Telecommunications (replaces partof Credit No. 145-PAK of 1969) 7.3 0.5

367 1973 Chittagong Water Supply (replacesCredit No. 42-PAK of 1963) 7.0 0.7

368 1973 Dacca Water Supply and Seweragereplaces Credit No. 41-PAK of1963) 13.2 0.5

407 1973 Education (replaces Credit Nos.49-PAK and 87-PAK of 1964 and1966) 21.0 6.6

408 1973 Highways (replaces Credit No. 53-PAKof 1964) 25.0 11.3

409 1973 Technical Assistance 4.0 1.1410 1973 Cereal Seeds 7.5 5.5424 1973 Inland Water Transport Rehabilitation 8.7 1.9487 1974 Second Telecommunications 20.0 14.6527 1975 Ashuganj Fertilizer 33.0 19.3533 1975 Population 15.0 13.1542 1975 Barisal Irrigation 27.0 24.8605 1976 Karnafuli Irrigation 22.0 17.4

- 26 -

ANNEX II

BANGLADESH

STATUS OF BANK GROUP OPERATIONS

As of April 30, 1978

A. IDA Credits to Bangladesh (CON'D)

US$ Million Net ofCredit Exchange AdjustmentNumber Year Purpose Amount Undisbursed

621 1976 Agricultural and Rural Training 12.0 11.5622 1976 Technical Assistance II 7.5 6.7631 1976 Rural Development 16.0 15.8632 1976 Bangladesh Shilpa Bank 25.0 23.7676 1977 Imports Program V 75.0 27.6724 1977 Shallow Tubewells 16.0 16.0725 1977 Muhuri Irrigation 21.0 21.0729 1977 Extension and Research 10.0 10.0735 1977 Inland Water Transport II 5.0 5.0752 1977 Imports Program VI 75.0 74.4765 1978 Jute 21.0 21.0787 1978 Foodgrain Storage II 25.0 25.0*

SUBTOTAL 900.3 386.8

Principal Repayment 0.4Effective Credits held by Association 899.9

B. IBRD Loans to Bangladesh

1087 1975 Consolidation Loan 54.9 0

TOTAL 954.8 386.8

* Not yet effective

- 27 -

ANNEX II

C. PROJECTS IN EXECUTION-

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

Project performance has improved and, although still 3 yearsbehind schedule, it is no longer falling further behind. Following reevalua-tion of the design, the cyclone shelter program is now moving ahead withabout 90 shelters completed out of a total of 236. 120 shelters are currentlyunder construction and 37 to commence shortly. Construction of all sheltersshould be completed by the end of 1978. Four of the five primary roads arenow finished with the fifth road scheduled for completion in late 1978. TheIDA financed portion of the feeder road program is nearing completion. Thetelecommunications subproject is behind schedule but was to be completed byDecember 1978. The fisheries subproject, including distribution of boats togroups of local fishermen, and the inland water transport subproject havebeen completed. A request for a further one year extension of the ClosingDate is under consideration.

Cr. No. 340 Chandpur Irrigation II Project: US$13.0 Million Credit ofOctober 18, 1972; Effective Date: January 17, 1973;Closing Date: February 28, 1979

The project should be completed by December 1978, about 2 yearsbehind schedule. Delays have been due to major flooding, labor problems,shortages of materials, equipment, breakdowns, ineffective management, anddelays in provision of local funds. While problems remain, substantial pro-gress has been made recently both in physical construction and agriculturalextension. The main regulator is now operational, although utilization ofthe irrigation works will be delayed due to land acquisition problems (nowresolved) which interfered with work on irrigation channels.

Cr. No. 341 Tubewells Project; US$14.0 Million Credit ofNovember 6, 1972; Effective Date: January 13, 1973;Closing Date: March 31, 1979

Because of a slow start, project implementation is about 18 monthsbehind schedule. Completion of the Project is expected within a year. About90% of the wells under contract have now been drilled, and verticality prob-lems have largely been corrected by the contractors. BADC has decided to

1/ These notes are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report anyproblems which are being encountered, and the action being taken toremedy them. They should be read in this sense, and with the under-standing that they do not purport to present a balanced evaluation ofstrengths and weaknesses in project execution.

- 28 -

ANNEX II

recontract for 281 wells not yet drilled. Pumphouse construction and engine/pump installation is proceeding satisfactorily. The agricultural developmentcomponent of the project, also behind schedule, has been incorporated in theExtension and Research Project. Project audits are not being received in atimely fashion. Arrangements for extending consultants' services have beenagreed. The Closing Date has been extended to March 31, 1979.

Cr. No. 343 Telecommunications Project; US$7.3 Million Credit ofNovember 15, 1972; Effective Date: January 17, 1973; ClosingDate: June 30, 1979

The Project was originally financed as part of Credit No. 145-PAKof 1970, and goods valued at US$2.2 million had been received prior to sus-pension of disbursements. Two of the four microwave systems have been com-missioned and the third is expected to be brought into service by June 1978.The fourth microwave system, equipment for which was ordered together with themicrowave systems under Credit 487-BD, is expected to be commissioned byJune 1979, completing the project four years behind schedule. The ClosingDate has been extended from December 31, 1975 to June 30, 1978 and a requestfor further extension to June 30, 1979 has been approved.

Cr. No. 367 Chittagong Water Supply Project; US$7.0 Million Credit ofApril 9, 1973; Effective Date: June 7, 1973Closing Date: October 31, 1978

After very little movement during the first two years because oforganizational and procurement difficulties, the progress of work in thepast three years has been satisfactory and disbursements on the project areexpected to be completed by November 1978, some three years behind theschedule established in 1973. WASA had been in default of the financialcovenant (Section 4.03 (a) of the Credit Agreement dated April 9, 1973),which stipulates that rates are to provide sufficient revenue to: (i)cover operating expense, depreciation and interest; (ii) to meet repay-ment of long-term debt to the extent that such repayments exceed deprecia-tion charges; and (iii) finance normal extensions of the systems and pro-vide a reasonable portion of the cost of future major extensions. GOBapproval of a tariff increase was given on November 3, 1977. This willincrease annual revenue by about Tk 3.8 million and should, with othermeasures being taken, provide Chittagong WASA with sufficient revenue toenable it to meet the earnings covenant for FY78.

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

Project progress and the Dacca WASA's financial problems are similarto those of Chittagong under Credit 367-BD above.

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ANNEX II

Cr. No. 407 Education Project; US$21.0 Million Credit of June 29, 1973;Effective Date: September 27, 1973; Closing Date: June 30,_978

This project was originally financed by Credits 49-PAK and 98-PAKand by December 1971, when disbursements were suspended, US$7.7 million hadbeen disbursed. Progress on the Agricultural University portion of the proj-ect is about 60% complete but 30 months behind schedule due to initial dif-ficulties in reaching agreement with the consultant architects on a revisedcontract and shortages of building materials and delays in the preparation ofequipment lists and furniture designs. However, significant progress has beenmade beginning in late 1976. The academic buildings now under constructionare expected to be completed by June 1978 and the remaining works by December1979. About 60% of the equipment and books have been procured. The Universityhas taken steps to improve the relevance of its agricultural training and re-search programs to Bangladesh's practical problems in agricultural and ruraldevelopment but further progress in this direction is needed. The technicaleducation portion of the project is 95% complete but about 30 months behindschedule due to past delays, but is expected to be completed within the nextfew months. The graduates are facing problems of unemployment and a committeehas been established to revise the curriculum to make it more relevant to jobrequirements.

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

Several project elements are complete with others due for completionmid-1979 about 2-1/2 years behind the original schedule. The Sitalakhyabridge was opened to traffic in December 1977, the Keane bridge repairs werecompleted and the bridge opened June 1977, and the improved ferries have beencarrying loaded trucks since July 1977. Progress is now steady on the Fenibypass and provided no serious problems develop with the paving and stone-crushing equipment, the bypass should be open to traffic mid-1979. Similarly,the RHD building construction progress is steady with completion also aroundmid-1979. However, progress on improving RHD's equipment maintenance repaircapacity is slow with no new workshop construction having taken place.

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

Contracts have been signed with consultants for thirteen sub-projects amounting to about US$3.9 million. Completed studies have playeda key role in the preparation of projects for IDA financing. Due to delaysin initial commitment of credit funds, disbursements are 3 years behindinitial estimates.

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ANNEX II

Cr. No. 410 Cereal Seeds Project; US$7.5 Million Credit of June 29, 1973;Effective Date; January 30, 1974; Closing Date: December 31,1979

Although the project is about 20 months behind schedule, implemen-tation has improved considerably in recent months. Orders for farm machineryand laboratory equipment have been placed. After contract negotiations withthe lowest bidder for the seed processing plants broke down, proposals forsimplification of plant design were agreed and tenders are now being evaluated.After substantial initial delays, work is now proceeding on improvements atthe seed multiplication farms. Production of seed is increasing and qualityis improving. The seed is now finding increased acceptance among farmers andeven though the seed is being sold at 30% premium over grain prices demandoften outstrips supply. Bangladesh Rice Research Institute developmentactivities at headquarters and two substations are proceeding on schedulebut are behind in the two other substations (Rajshahi and Charchandia). Gov-ernment has promised to accelerate their development. The seed certificationagency is now fully staffed but its activities had been slowed down becauseof a budget cut. Government undertook to remedy the situation.

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

Procurement of spare parts and equipment under the original creditis almost fully committed with 90% of available funds disbursed. Under theSupplementary Credit, two used lighterage tankers have been procured and arebased in Chittagong. Pipes connecting the new pontoon berth oil mooring tothe ERL refinery have been laid, and the berth is being utilized for unloadingof crude oil. One tanker ("Banglar Kheya") which was damaged last July duringthe monsoon has been repaired. The "Banglar Alo" hull damage has yet tobe repaired, and it is unable to carry its full quota of crude oil as a result.Since January 1978 the two tankers have lightered crude oil from the Norwegian-aid mother tanker, "Banglar Noor", (93,026 dwt) moored off Kurubdia Islandto ERL in Chittagong. BSC is reviewing desirable technical assistance to im-prove tanker operation and maintenance, and firm proposals are expected fromGOB to extend the closing date to December 31, 1979 to enable this technicalassistance to be financed under the credit.

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

Procurement action has been completed or is in an advanced stageon all items except for the trunk automatic exchanges and the internationaltelephone exchange. Physical progress of the project is about two yearsbehind schedule due to earlier delays in building construction and reduced

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ANNEX II

supplies from the domestic switching factory. About 65% of the target of45,000 lines of local exchange to be installed by June 1977 have been com-missioned by December 1977. The current forecast date for completion ofphysical works under the project is December 1980, 2-1/2 years behind schedule.

The T&T Board was established in July 1976, but little progress has beenachieved in meeting project instituting building goals including transfer toT&T of responsibility for its accounts (currently maintained by Comptrollerand Accountant General) and introduction of a commercial accounting system

within T&T. The Rules and Regulations defining the Board's powers have notyet been issued leaving the Board with less autonomy than the prior Director

General of the Telephone and Telegraph Department, before the Board wascreated.

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

The project is being cofinanced by the Asian Development Bank, KfW,and the Governments of Iran, Switzerland, UK and US, providing a total of

US$109 million equivalent in addition to the IDA credit. Site preparationwork including the necessary dredging and filling was completed on schedule.However, based on the soils analyses undertaken by two specialist consultingfirms, further preparation of the site was undertaken to protect the plantagainst earthquake risks. Currently the project is about two years behindschedule due primarily to the additional site preparation and initial slowprogress in (a) placing orders for time-critical items and (b) planning forconstruction. Process engineering and procurement have progressed substan-tially and the Project is now entering the construction phase. The soil com-paction work has been completed except for final testing of some compactedzones and the site is available for construction start. Contracting arrange-ments for the critical compensatory foundation works of the Project havebeen finalized and the contractor has already begun work at the site. Revisedestimates indicate that due to the need for additional site work, the delaysand the currency fluctuations, costs will be substantially higher than lenderfunds currently available. Arrangements are being discussed among the Govern-ment and the various cofinanciers to raise the additional funds required tocomplete the Project.

Cr. No. 533 Population Project: US$15 Million Credit of February 11,1975; Effective Date: September 25, 1975; Closing Date:December 31, 1982

The project is being cofinanced by six co-lenders providing a totalof about US$25 million equivalent in addition to the IDA credit. Notwithstand-ing the delay in declaring the Credit effective, the Government has made sub-stantial progress in project implementation. The organizational structure ofthe Population Control and Family Planning Division (body responsible for thepopulation program) has been defined and its headquarters staff has been placedin position; most field staff is being recruited. Population programs in five

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ANNEX II

non-health ministries are underway. The Building, Planning and Design Unit of

the Ministry of Health, with the assistance of consultants, has completed a

master plan for the project's construction program and contracts for construc-

tion of project buildings are being awarded. Preliminary drafts of a studyon Population legislation and a management study for the Ministry of Health,

Population Control and Family Planning have been completed. Most of the

required consultants and advisors for other parts of the project have been

appointed.

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

ber 31, 1980

Construction work restarted at the end of the monsson season.

Contracts have been awarded for 6 sluice gate structures and 7 sluice gate

pump houses. Tender documents for 120 primary pumps and 1,500 low lift

pumps were prepared, approved by IDA, and are being advertised. A tenderfor 460 steel sluice gates and bricks was issued and the bids evaluated.

Some problems in bid evaluation necessitated a Water Development Board re-

examination bids before deciding whether to award a contract or re-tender.

The project authority has now been allocated sufficient Taka funds for

financing its present program.

Cr. No. 605 Karnafuli Irrigation Project; US$22 Million of January 28, 1976;

Effective Date: February 24, 1976; Closing Date: December 31,1980

The project has been behind schedule due to initial delays in

hiring project consultants. The consultants for the irrigation portion of the

project began work in September 1976, but their effectiveness was limited by

delays in procurement of vehicles and equipment and in the assignment of local

consultants to assist in the design work. Progress has improved considerably

in the last seven months. Civil work construction is now proceding well,

and if progress is maintained the project can still be completed by the

Closing Date. The fisheries component of the project, which had made little

progress previously is also showing improvement. Key staff have now been

appointed and a contract with a fisheries consulting firm has been signed.

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

Progress on preparation for construction is about five months ahead

of schedule. All sites have been selected and acquired. Progress has also

been achieved in the preparation of sketch plans for project buildings and the

Government has been working on revised, more economical plans for the Bogra

Rural Development Academy. About 75% of civil works contracts have been

awarded. Construction has commenced and is expected to be completed by mid-

1978. The in-service training program supported under project has been delayed

due to delays in allocation of local funds; delays are also being experienced

in hiring consultants for the project.

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ANNEX II

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

Ten subprojects have been approved amounting to about $6 million.Other subprojects are under consideration.

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

The physical progress of major components has been mixed and therehave been reports of some poor quality civil works which may require costlyremedial measures. Progress is not reflected by the low level of disburse-ments which is expected to improve substantially in the near future asapplications for reimbursement for past expenditure are assembled. However,the project is facing institutional and coordination problems. In particular,the cooperative model employed has not been fully effective in increasingthe flow of production inputs to farmers and interdepartmental coordinationdifficulties have hampered effective project execution. Discussions betweenthe Government and IDA on remedial measures are underway.

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

As of April 30, 1978, IDA had committed $8.3 million to financespecific subloans. It is anticipated that the Credit will be fully committedby December 1980 and that disbursements will be completed by the Closing Date.

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

As of April 30, 1978, disbursements were US$46.3 million. Inaddition about US$9.0 million of letters of credit are outstanding.

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

Bids for engines and pump sets for all 10,000 wells have been re-ceived and are being reviewed. A consultant for workshop management has beenhired and the preparation of tender documents for workshop tools and machineryis at an advanced stage. Construction of 3 out of the 5 project zonal work-shops has been completed.

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ANNEX II

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

Delays occurred initially in obtaining Government approval of theproject budget, establishing the project fund, completing arrangements forhiring the engineering consultants, and signing a contract with the Contractorwho will construct the Feni Regulator. Consequently, no construction could beundertaken this dry season. Negotiations are underway with construction man-agement consultants to assist the contractors in construction of the FeniRegulator.

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

Major staff positions in the Project Implementation Unit have beenappointed. Introduction of the "Training and Visitation" extension systembegan in April in one district with introduction in the three other districtsin the project schedule for October 1978. Contracts for supervision of theconstruction program have been agreed and plans for the buildings have beenapproved. The project is being constrained by shortage of transport andremaining staff vacancies in the Project Implementation Unit but steps havebeen taken to remedy these difficulties.

Cr. No 735 Inland Water Transport II Project; US$5.0 Million Credit ofSeptember 30, 1977; Effective Date: March 10, 1978;Closing Date June 30, 1980

Lists of spare parts for BIWTA vessels and navigation aids, andfor BIWTC cargo vessels have already been prepared and BIWTC lists for spareparts for hydrographic equipment and specifications for new mobile cranes areunder preparation. The Ministry and the two agencies (BIWTA and BIWTC)received more than 20 detailed proposals for their technical assistancecomponents of the project. Final selection is expected to be completed byMay 1978.

Cr. No. 752 Sixth Imports Program; US$75 MilLion of November 30, 1977;Effective Date: January 13, 1978; Closing Date:December 31, 1979

Cr. No. 765 Jute Project; US$21 Million of February 8, 1978; EffectiveDate: April 14, 1978; Closing Date: June 30, 1983

As of May 22, 1978, disbursements were US$604,000. In addition,about US$13.5 million of letters of credit are outstanding.

Cr. No. 787 Foodgrain Storage II Project; US$25 Million of April 12,1978; Closing Date: July 12, 1978; Credit not yet effective

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ANNEX III

BANGLADESH

SECOND SMALL-SCALE INDUSTRY PROJECT

Supplementary Project Data Sheet

Section I: Timetable of Key Events

(a) Agency that prepared the project: BSCIC, assisted by con-sultants financed by UNDP

(b) Time taken to prepare project: 22 months (October 1975/August 1977)

(c) First presentation to IDA: October 1975

(d) First mission to review project: April 1976

(e) Departure of appraisal mission: August 1977

(f) Completion of negotiations: April 1978

(g) Planned date of effectiveness: September 1978

Section II: Special IDA Implementation Actions

Arrangements have been made with two banks in India to train 8 keystaff members of the Janata and Sonali banks in procedures for appraisal of

Small-Scale Industry projects.

Section III: Special Conditions

A. Assurances have been obtained from the Government that:

(a) at least 40% of the proceeds of the credit allocated forsubloans under Part A of the project will be committedfor small enterprises with fixed assets not exceedingTk 1 million (para 44);

(b) agreed criteria for eligible subprojects would be employed

(para 45);

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ANNEX III

(c) by September 30, 1978, the Janata and Sonali Bankswill staff their respective Small Industries LoanDepartments with suitably trained personnel (para 51);

(d) by September 30, 1978, BSCIC will establish at itsheadquarters: (a) a division solely responsible for

small-scale industry sector and a division responsiblefor cottage industry sector (each consisting of a Pro-motion and an Extension Unit); and (b) a ProjectMonitoring and Evaluation Unit (para 54).

B. Conditions of Credit Effectiveness would be:

(a) the ratification of the Project Agreements by theJanata Bank, Sonali Bank and BSCIC (para 64);

(b) the ratification of the Subsidiary Loan Agreementsby the Janata Bank and Sonali Bank (para 64); and

(c) the establishment of the credit guarantee scheme underarrangements acceptable to the Association (para 52).