Documnt of

The World Bank

FoR oMciAL USE ONLY

Rkpot NO. P-4133-JO

,

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

ft ~~~~ ~ 0

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US S15.0 MT.-ION

TO THE

RASHEMITE KINGDOM OF JORDAN

FOR A

SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT

July 29, 1985

Tbb docments hu a rsiced dieribtieo and may be sed by rendiemtsonly in the performance off thofi cial dadas It. mmbmay net .thewhe be disclomi within Weld Bet satbrlxaiom.I

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RASHEMITE KINGDOM OF JORDAN

CURRENCY EQUIVALENTS

Calendar 1984 My18

Currency Unit Jordanian Dinar (JD) JD

US$1.00 D .384 JD .405JD 1.00 US$2.60 US$2.47

Exchange rate used in Appraisal Report: 3D I = US$2.50

-GOVERNMIT OF JORDAN FISCAL YEAR

January 1 to December 31

ABBREVIATIONS AND ACRONYMS

CVDB Cities and Villages Development BankEEC European Economic CommissionEIB European Investment BankHB Housing BankIDB = Industrial Development BankMMRA" = Ministry of Municipal and Rural AffairsSSC = Social Security CorporationINDP = United Nations Development ProgramUSAID = United States Agency for International Development

FOR OFFICIAL USE ONLY

HASHEMITE KINGDOM OF JORDAN

SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT

LOAN AND PROJECT SUMMARY

Borrower: The Hashemite Kingdom of Jordan.

Beneficiary: The Cities and Villages Development Bank (CVDB).

Amount: US$15.0 million equivalent.

Terms: 15 years, including 3 years of grace, at thestandard variable interest rate.

Onlending Terms: The proposed loan would be onlent to CVDB underthe same terms as the Bank loan, but with theinterest rate to CVDB fixed at the rate in effectat the time of loan signing. The Governmentwould bear the foreign exchange and the interestrate fluctuation risks.

Project Description: The objectives of the project are: (i) tosupport the Government's efforts to improveliving standards in Jordan's less developedouter regions; (ii) to continue to facilitate theexecution of municipal and village developmentplans by funding well-appraised projects;(iii) to strengthen CVDB's institutionalcapacity; and (iv) to support CVDB's role inorganizing financial training for localgovernment personnel. The project componentsinclude a line of credit to CVDB, representing75 percent of CVDB 's foreign exchange needs frommid-1985 to end-1987; equipment and technicalassistance for CVDB; and training for localgovernment and CVDB personnel. Possible projectrisks include difficulties by CVDB in attractingand retaining qualified staff. The project,however, includes features to minimize the risk.

Individual Free Limits: US$60,000 and US$125,000, depending upon the typeof subproject.

I s document has a resuicted disuibution and may be used by recipients only in the performance of |their official dudes Its contents may not otherwise be disclosed without World Bank authorization.

Estimated Prolect Costs: Foreign Local Total~~~~- -(US$ million)----

Line of Credit 14.9 18.2 33.1Equipment 1/ 0.1 0.0 * 0.1Technical Assistance 0.4 0.2 0.6Training 0.1 0.2 0.3

Total 15.5 18.6 34.1

*Estimated to be about $ 25,000

Financing Plan:

Bank 15.0 0.0 15.0Government 0.5 0.4 0.9CVDB 0.0 18.2 18.2

Total 15.5 18.6 34.1

Estimated Disbursements: Bank Fiscal Year(US$ million)

1986 1987 1988 1989 1990 1991

Annual 1.5 3.0 5.5 3.6 1.0 0.4Cumulative 1.5 4.5 10.0 13.6 14.6 15.0

Economic Rate of Return: N.A.

Appraisal Report: No. 5623-JO, dated July 19, 1985.

Map Number: IBRD 14569R.

1/ Exempt from taxes and duties.

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE IBRDTO THE EXECUTIVE DIRECTORS ON A PROPOSED LOAN

TO THE HASHEMITE KINGDOM OF JORDANFOR A SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT

1. I submit the following report and recommendation on a proposed Bankloan to the Hashemite Kingdom of Jordan of US$15.0 million equivalent to helpfinance a Second Cities and Villages Development Bank Project. The loan wouldbe for 15 years, including three years of grace, at the standard variableinterest rate. The Government would onlend the Bank loan to the Cities andVillages Development Bank (CVDB). The terms of the onlent funds would be thesame as those for the Bank loan, except that the interest rate to CVDB wouldbe fixed at the interest rate in effect at the time of loan signing. TheGovernment would bear the foreign exchange and interest rate fluctuation risks.

PART I - THE ECONOMY 11

2. A report entitled "Jordan Review of the Five-Year Plann" (No. 4129-JO,dated May 1983) was distributed to the Executive Directors in June 1983.An economic mission visited the country in May/June 1983; its findings havebeen included in the present text. 2/ Country data sheets are attached asAnnex 1.

Recent Economic Developments

3. Conscious of the country's limited natural resources, its relativelynarrow productive base and the sensitiveness of the economy to changes inits oil-rich regional environment, the Government has pursued liberal,outward-looking policies in trade, labor migration and foreign exchange.This has enabled Jordan to alleviate the effects of a very high naturalpopulation growth rate (3.4 percent) through massive emigration stimulated byhigh salaries in the neighboring countries and through rapid expansion ofdomestic production fueled by an exceptionally high investment rate andrapidly growing export demand. At present, a large part of Jordan's totalworkforce is employed abroad. In addition to sizable workers' remittances,Jordan has benefited from large inflows of grant aid from neighboringcountries as well as from a rapid increase in regional demand for itsexports. During the period 1976-82, the yearly inflow of workers' remittancesand grants reached on average close to two-thirds of Jordan's GDP. Theabundant supply of these resources and a favorable entrepreneurial climateenabled -Jordan to maintain both very high consumption and investment rates.

4. As a result, the Jordanian economy expanded rapidly with an annualaverage GDP growth rate of over 10 percent in real terms during the 1976-82period; almost full employment was reached. The overall balance of paymentsremained strong despite a large chronic deficit in merchandise trade.

1/ This section is substantially the same as Part I of the President's Reportfor the Second Urban Development Project (P-4095-JO), dated May 22, 1985.

2/ References in the text which follows are to the East Bank of Jordan.

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Although exports of goods and non-factor services (primarily agriculturalproducts, manufactured go ds, tourism and exports of the new commodities,fertilizers and potash) grew at a rapid rate of about 16 percent in real termsduring 1976-82, its small base in relation to imports led to a continuousdeterioration of the resource gap. These trade deficits, however, were almostfully covered by factor income and transfers from abroad. Governmen:-guaranteed external borrowing remained therefore within reasonable limits andborrowing on commercial terms was reduced to a modest level (para. 14).

5. Beginning in 1982, however, the economic slowdown in the neighboringcountries has affected the Jordanian ecouomy in many ways, leading to aslowdown of domestic economic activity and a reduction in the inflow ofexternal transfers. The overall economic growth rate slowed to about4.2 percent (in real terms) in 1983, still a satisfactory performanceconsidering the unfavorable economic environment. Economic activity in 1984further slowed to an estima.ed growth rate of about 3 percent, and is expectedto remain at that level throughout 1985. The slowdown in economic activitywas due to a decrease in the growth of foreign aid by another 30 percentbetween 1983 and 1985 and to slower growth in worker remittances and inexports of manufactured goods and services to neighboring countries. Theeffect of these factors was exacerbated by a marked decline in export pricesof raw and processed minerals. Imports also declined, in line with thesizable reduction in public and private investments. As a result, the currentaccount deficit for 1983 showed only a slight increase to $390 million. Itwas mainly covered by the proceeds of a $225 million Eurodollar loancontracted in early 1983. Jordan also drew on its reserves, which remained,however, equal to three months of imports. The decline in merchandiseimports, continuing in 1984, combined with an increase in exports of goods tocontribute to an improvement in the balance of trade deficit, from nearly $2.4billion in 1983 to about $2.0 billion in 1984. A slight reduction in officiiltransfers was more than offset by the decline in imports, and the currentaccount deficit improved to $229.3 million. Preliminary estimates for 1985show imports increasing, but at a slower rate than exports, leading to afurther reduction in the current account deficit to about $190 million.

6. With the decline in Government revenues from grants, publicinvestment has been reduced, and the Govern ent has further intensifiedits domestic resource mobilization efforts through cuts in subsidies andimproved collection of direct and indirect taxes (about 90 percent ofrecurrent expenditures is covered by domestic revenues).

7. The main concerns of monetary policy have been mobilizing savings andcontrolling domestic liquidity. Private savings have improved, but publicsavings have continued to be negative because of the high level of defenseexpenditures. To promote domestic savings, greater discretion is beingallowed the Central Bank in adjusting interest rates and banking commissions.As a result of increases in deposit rates in 1983, savings deposits rosefaster than the money supply. A parallel situation materialized in 1984though both savings deposits and the money supply grew at slower rates in thatyear. Together with a marked decline in inflation to 3.9 percent in 1984,these increases have resulted in interest rates becoming substantiallypositive again in real terms.

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Medium-Term Prospects

8. Given the changed situation and outlook in the neighboring oilproducing countries, continuing GDP growth in the 9-11 percent range asprojected by the 1981-85 Plan would no longer appear feasible in the mediumterm; a rate in the neighborhood of 5 percent per annum in real terms appearsmore likely during the next Plan (1986-90). This projection assumes areduction in the exceptionally high level of investments achieved during theearly 1980s, which was mainly due to implementation of a number of major newprojects such as potash, fertilizer and a refinery, now at initial stages ofproduction. While the new, major natural resource-based industries have

* provided some new employment opportunities in the short term, the economicslowdown is likely to change the manpower situation in Jordan from one ofselective shortages to one of general excess supply requiring findingemployment for a rapidly increasing domestic workforce (para. 12).

9. The industrial sector (including mining, manufacturing andconstruction) is expected to lead the growth of GDP and exports, with the newindustries contributing more than one third towards incremental GDP during1986-90. Together with an expansion of phosphate mining and cementproduction, total industrial output would grow at an annual rate of about7.5 percent per annum for the period 1986-90. Since the rapid expansion ofinfrastructure and private housing during the boom years of the 1970s andearly 1980s has slowed down substantially, the construction industry is likelyto grow at a substantially lower rate (3 percent) during 1986-90. Thus,industrial growth during the next plan period will have to rely increasinglyon development of more small and medium-scale higher technology manufacturing,largely for exports. The projected 7.5 percent for industrial growth assumesthat adjustment of the industrial sector in this direction will be achieved,inter alia through changes in protection policies and improvements in exportincentives.

10. Curtailment in growth of public expenditures and the slowdown indomestic and foreign demand for banking and transportation services areexpected to slow down growth of services to an average annual rate of a littleover 3 percent per annum for 1986-90. In particular, it is expected that thetransportation sector and the hotel industry, which at present are facinglarge surplus capacity, will undergo a period of consolidation. In the tradesector, efficiency gains from modernization would likely be offset byincreased pressure from higher unemployment to expand the i-ess efficientinformal sector of trade. In contrast to the expected slow growth performanceof traditional private services, the prospects are favorable to exploitJordan's potential in skilled labor and meet the demand for special servicesin areas such as consulting, contracting, and maintenance. Agriculture isprojected to continue to grow by about 5 percent per annum. Overall, thesectoral growth rates would enable Jordan to maintain a GDP growth rate ofabout 5 percent per annum for throughout the later 1980s-

11. On the external balance side, the projections assume that exports ofgoods and non-factor services would grow by an average rate of about 8 percentper annum in real terms for 1985-90. Exports from the output of previous and

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new industrial, natural resource-based projects to the world market would makethe largest contribution to. this growth performance. The export projection.:for the later 1980s assume that adequate measures are taken to developJordan's manufacturing exports. The external balance projections assume th-itimports would increase less rapidly because of the slow overall economicgrowth rate and the expected sizable reduction in the level of investmentsafter completion of the major industrial projects. Even though merchandiseexports are projected to approach a high rate of increase while imports wouldgrow at a significantly lower rate, the trade deficit could remain large atabout $1.9 billion in 1985. I-n relation to GDP, however, the resource gap isexpected to show a further decline from about 51 percent in 1984 to about 38percent in 1987. Unlike the past, net workers' remittances and foreigngrants, which are likely to decline, may no-t be sufficient to meet the growingtrade deficit. Jordan therefore would have to rely more on external borrowing(para. 15). In order to maintain its prudent build-up of externial debt,Jordan will need to combine external borrowiag with increased efforts tomobilize domestic resources, particularly ina the public sector.

Social Issues

12. Due to the substantial migration of Jordanian workers to neighboringcountries and the rapid economic growth, the labor market situation has beencharacterized until recently by selective manpower shortages. However,according to recent manpower projections, supply of labor in Jordan in themedium term is likely to show selective surpluses, particularly throughoutcertain categories of skilled professionals. In 1983, it is estimated that312,000 Jordaniianis were working abroad compared to a total domestic employmentof about 570.000. Domestic employment includes at present a relatively largenumber of foreign workers currently estimated at about 130,000, half of whomare uinskilled. A comprehensive manpower and training plan is needed to helpensure that the education and training system is geared to meet both domesticand external demands for manpuwer.

13. The Government has emphasized social issues in the current Five-YearPlan (1981-85). Although the social indicators are relatively favorable inmost sectors, social services are unevenly distributed across income groupsand between urban and rural areas. Housing remlains a problem despite the boomin 1978-80, mainly bec-ause housing costs have far exceeded the means of thelower income groups.

External Assistance

14. With the large, chronic trade deficit offset by inflows ofremittances and foreign transfers, the current account of the balance ofpayments was on average in equilibrium in the period 1975-81. Net workers'remittances increased from about $160 million in 1975 to about $900 million in1983 and 1984. Following the Baghdad Arab Simmit Conference in November 1978,which pledged assistance of about $1.2 billion per year over a 10-year period,net foreign grant aid rose from $400-500 million in 1977-78 to about$1.3 billion in 1980 and 1981; it declined to some $0.8 billion in 1983 and to$0.7 billion in 1984. In 1985 it is expected to fall to $0.6 billion. This

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decline was the main reason for the current account deficits of $390 millionin 1983, and $230 million in 1984, both of which were financed largely byexternal borrowing and partly by drawing on reserves. The external publicdebt outstanding and disbursed reached $2.2 billion at the end of 1984 (about52 percent of GNP). External debt service payments amounted to $319 millionin 1984 or 9.6 percent of total exports of goods and services.

15. Jordan's impressive growth, pragmatic economic and social policiesand efficient economic management have helped to attract large amounts offoreign assistance. The grant component of this foreign assistance isprojected to decline gradually in real terms over the next few years. Theprojections on that basis indicate a need for average gross external borrowingof about $0.9 billion over the 1985-1990 period, mostly in later years. Whilebilateral and multilateral sources can be expected to provide the bulk ofexternal resources, Jordan is likely to resort increasingly to the financialmarkets, and this would result in a hardening of loan terms. On theseassumptions, debt service as a percentage of exports of goods and services isprojected to reach 10.0 percent by 1990. Given this outlook and the country'srecord of prudent management, Jordan remains creditworthy for Bank lending.

PART II - BANK GROUP OPERATIONS l/

16. Jordan has received 18 Bank loans totalling $452.3 million and 15 IDAcredits totalling $86.1 million (net of cancellations), of which all thecredits and two loans have been fully disbursed. Project implementation anddisbursement performance have been generally satisfactory. In recent years,disbursements have amounted to about 50-60 percent of appraisal estimates.IFC has made investments in Jordan with total commitments of$94.2 million. Annex II contains a summary statement of Bank loans, IDAcredits and IFC investments as of March 31, 1985.

17. Under its last two development plans, Jordan has aimed atrestructuring its economy to achieve a wider manufacturing base, reduce itsdependence on external grants, and spread the benefits of development amongdifferent regions. The Bank's strategy has been tailored to support thoseobjectives and in particular is designed to help the Governmer.t: (a) todiversify tie country's economic base and promote exports; (b) to alleviatemanpower and infrastructure constraints in the productive sectors; and (c) toencourage more balanced growth and distribution of social services amongregions and income groups, with particular emphasis on low-income groups.

1/ This section is substantially the same as the corresponding part of thePresident's Report for the Second Urban Development Project (P-4095-JO),dated May 22, 1985.

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18. Within this broad framework, past lending has emphasized support forcapital infrastructure and manpower development. Since 1962, Bank Grouplending has focussed on water supply and sewerage, power and energydevelopment, education and urban and municipal development. The Bank Grouphas also lent for irrigation, agricultural and industrial credit,transpbrtation, and tourism, and recently became involved in the health sectorwith a loan for a Primary Health Care Project. In addition, the Bank Grouphas financed technical assistance for developing and implementing a plan forexpanding phosphate rock mining. An engineering credit was made in FY75 tohelp prepare a large project for potash production from the Dead Sea via solarevaporation, for which a loan was approved in September 1978. These projectshave been designed with an emphasis on institution building to assist theagencies involved to develou their capabilities to plan, prepare, andimplement projects on their own. In addition to the proposed project, futurelending would include projects for mining, transportation, manpowerdevelopment, water supply and sewerage, urban development, power and energydevelopment, and industry. IFC has provided loans and equity contributionsfor a major fertilizer project and for projects in the construction materialssubsector. It has also assisted the capital market and leasing ventures.

19. The Bank has recently helped the Government to review the energy,water supply, health, and urban sectors, and the Bank's economic and sectorwork will continue to focus on strengthening the macroeconomic and sector basefor our lending program. The Bank's economic work program aims to deepen andbroaden the well-established policy dialogue with the Government in threepriority areas: (i) development planning, with a focus on resourcemobilization and allocation; (ii) industrial and trade policies, includingtechnology transfer and export strategy/promotion and industrial subsectorstudies; and (iii) regional development and equity and efficiency ofgovernment revenues and social expenditures. These subjects are crucialbecause the substantially tighter balance of payments situation expected forthe rest of the decade calls for increased efforts to step up domesticresource mobilization, to stimulate manufactured exports and to optimizeresource allocation, while making particular efforts to reduce rural and urbanpoverty.

20. At the end of 1983, the actual Bank Group share in Jordan's totalexternal public debt was estimated at 12 percent, and its share in debtservice was 5 percent. In 1985, the Bank Group's shares in debt outstandi-,and in debt service are expected to be about 14 and 8.5 percent respectively.

PART III - THE URBAN SECTOR

Background

21. Jordan is a highly urbanized country. Following three decades ofrapid population growth and massive immigration, about 70 percent of its2.6 million population lives in urban areas of 5,000 people or more. By theyear 2000, Jordan's urban population is expected to have increased by some2 million. Unemployment is an increasing problem, since the labor force is

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rising at about 6 percent per annum while domestic and external Jdexn::d .orJordanian labor is weakening. Given Jordan's scarce natural resources,limited arable land and water and small domestic market, the country's futureeconomic growth and employment must depend upon export-based manufactures andservices. In an era of expected slower economic growth, the development andmanagement of efficient and cost-effective services and infrastructure forurban areas to support these activities, as well as to improve the welfare ofa rapidly increasing urban population, are crucial challenges facing Jordan.

22. Jordan's population is highly concentrated. Most of its urbanpopulation lives within 30 kilometers of the capital, Amman, which itselfaccounts for over 750,000 people and produces most of the country's servicesand industrial output. While the Amman region is expected to accommodate mostpopulation growth for the remainder of this century and to continue its roleas the main engine for Jordan's economic development, the Government is takingactive measures to stimulate growth in other areas. The proposed SecondCities and Villages Development Bank (CVDB) Project would assist theCovernment in achieving this goal by financial support and technicalassistance for the financial institution best situated to promote thedevelopment of cities and villages outside Amman.

Institutional Framework

23. The Ministry of Municipal and Rural Affairs (MMRA) is the majorauthority in charge of the delivery of services to villages and municipalitiesand is responsible for the preparation of their master plans, for projectdesign and execution, for budget review, and for channelling loan applicationsto CVDB. The Directorate of Works and Engineering Services in MMRA isresponsible for buildings, roads, water, sanitary engineering, and ruraldevelopment; it plays a major role in the preparation of projects for CVDBfinancing. Although this directorate is short of staff, especially ofqualified engineers, MMRA or the concerned local government engagesconsultants as necessary, with satisfactory results.

24. Several government corporations or authorities provide services orcoordinate local functions, including, most notably, CVDB, which lends tolocal governments (para. 40); the Jordan Housing Corporation, which developshousing for moderate-income and public-sector employees; the Housing Bank,which finances housing, usually for moderate and upper-income groups; theWater Authority of Jordan, which is responsible for sewerage works, waterproduction and distribution; and the Jordan Electric Power Company, which isresponsible for electricity distribution. Local governments have an essentialrole to play, especially in transport, streets and roads, solid wastemanagement, land use planning, health c.ntrols, provision of markets, schoolsand health centers and licensing functions and investments.

25. Local government management, planning, and finance need to be furtherreinforced to enable local councils to prepare and implement investmentprograms to meet the needs of a rapidly growing urban population. Better

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planning and coordination of public investments in different sectors at cheregional as well as city level will become increasingly important in avoidingwaste and encouraging efficient patterns of urban development. The proposedproject is designed to contribute to this goal.

Local and Municipal Finance

26. Municipal and village councils derive revenues from the followingsources: national revenue sharing; land and building taxes; taxes and chargesdirectly collected by local authorities; profits, rents and interest; andloans, grants and donations. The national revenue sharing allocation system(commonly referred to as the fuel tax allotment) accounts for 17-80 percent ofthe total revenue of individual municipalities. It provides local governmentswith a share of customs duties, annual registration fees for drivers andvehicles, taxes on petroleum products and fines for traffic and public healthoffenses. The shares are distributed according to a set of rules basedlargely on popalation and administrative status, which favors less developedmunicipalities. Land and building taxes are imposed only in municipalities.They are assessed and collected by the Ministry of Finance and distributed tocouncils of origin. The basis of the tax is 10 percent of rental value. As aresult of a revaluation of all propertie; currently in progress, significantincreases in yields are expected in 1985 and 1986. Sources of taxes and duescollected directly by local authorities include registration license fees forcommercial premises, garbage collection fees, building permit fees and chargesfor road and pavement construction. Loans, grants and donations, which aremade mostly to the Amman Municipality, are an ad hoc and infrequent source ofrevenue.

27. Municipal budgets are prepared by the mayors, with the approval ofcouncils, and go to MMRA for approval. Because municipal and villagecouncils, while responsible for capital development, have limitedresponsibility for provision of services, most municipal budgets show aconsiderable margin for capital and non-recurrent expenditure after meetinggeneral expenses and debt service. Inflation and rapid urban growth haveunderlined the need in recent years to maintain the buoyancy of the tax baseby frequently reviewing tariffs and assessments and improving collectionefforts. However, the underlying framework of local finance is sound andshould sustain further, additional capital development supported by theproposed loan, provided CVDB maintains a careful review of this by means ofits aew solvency test (para. 43).

Local and Municipal Government

28. Administratively, Jordan is divided into five governorates, which arefurther subdivided into districts and subdistricts. Each level is headed by apublic official responsible through his superiors to the Minister ofInterior. Governors are responsible for internal security, coordination ofcentral government departments, supervision of the village councils and, underthe aegis of MMRA, of municipa. councils. During the last five years, thenumber of local government bodies has increased rapidly. There are three

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Estypes of local government: municipal councils, village councils and commonservice councils. There are currently 136 municipalities embracing threequarters of the population, although three (Amman, Zarqa and Irbid) accountfor about 60 percent of the total. Municipal councils are presided over bymayors and comp-:se 7-12 councillors who, in general, are elected for afour-year term (some are still appointed by MMRA). There are about 300village councils, which are normally appointed by Governors, although informalnomination of members by tribal groups is customary. Executive responsibilityis vested in village heads, but virtually all decisions are subject toapproval by the Governor. Common service councils are mixtures of neighboringmunicipalities and village councils that have combined to share a particularservice, such as slaughterhouses or waste disposal. Since their establishmentin 1983, they have grown rapidly and now number 54.

29. InsufEicient qualified staff in local government is of concern to theGovernment, although the situation is improving with the slackening of thelabor market. MMRA runs an ad hoc program of short training courses for localgovernment employees. Twenty courses were held at varied locations in 1984,attended by 500 mayors, councillors and employees. These courses includedfinancial management, municipal engineering, surveying and planning control.The Ministry recognizes the need for a more systematic provision of trainingand has asked CVDB to take over the task of organizing the training effort(para. 53).

The Financial Sector in Jordan

30. The financial system of Jordan includes the Central Bank of Jordan,16 commercial banks, a number of non-bank financial institutions, and sixspecialized credit institutions. Commercial banks, which constitute a pivotalpart of the financial system, were very active in the 1979-81 period, withtotal assets and liabilities rising on average 28 percent per year; theiractivities have been slower since then, reflecting a slowdown in the overalllevel of economic activity. Non-bank financial institutions comprise thePension Fund, the Social Security Corporation (SSC), and over 30 insurancecompanies. The Pension Fund, which operates as a parastatal institutionalinvestor, has expanded rapidly; in the 1979-82 period, its assets more thanquadrupled. SSC began operations in 1980 to complement the operations of thePension Fund; at the end of 1984, its assets amounted to about JD 106 million,compared with less than JD 5 million in 1980.

31. The specialized credit institutions were established to assist in thedevelopment of certain sectors, primarily through medium or long-term loans,usually at concessional interest rates. They include the Housing Bank (HB),the Jordan Housing Corporation, the Agricultural Credit Corporation, theIndustrial Development Bank (IDB), Jordan Cooperative Organization, and CVDB.These institutions are wholly Government-owned except for IDB, which is onlyone third Government owned, and HB, which is privately owned except for asmall minority ownership by several Arab governments. The loan resources ofthese institutions consist primarily of their capital and reserves and CentralBank borrowing, although HB accepts demand, time and savings deposits. Netlending by specialized credit institutions rose by 15 percent toJD 365 million in 1984, compared to an increase of 25 percent in 1983. HBaccounted for the major part of credit extended by specialized institutions.

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Government Actions and Policies

32. The Government has long been concerned with significant disparitiesbetween regions in terms of economic activity, public services and other basicfacilities, and especially with the concentration of population and economicactivity in Amman. The current Five-Year Plan contains major electrification,water supply and health care programs that address regional disparities, andthe Government provides resources from its tax revenues to local governmentusing a highly progressive scheme (para. 26). To identify developmentstrategies and investment projects, MMRA has undertaken regional studies forAmman, Irbid, and Aqaba, and is in the process of preparing a study forKarak. In order to improve the coordination needed to implement investmentprojects resulting from such studies, the Ministry of Planning has recentlyestablished a regional planning section. It also is now undertaking, withassistance from USAID, a comprehensive survey of basic needs andincome-generating projects in each locality as an input for the next Five-YearPlan (1986-90); as a consequence, the Plan is expected to have a much strongerregional development emphasis than in the past.

33. CVDB can play a significant role in achieving regional developmentobjectives without overly burdening government finances by helpingmaunicipalities and village councils (i) to select and design cost-effectiveprojects that have a high investment priority, (ii) to provide resources forpriority projects, and (iii) to strengthen the financial management andtechnical capabilities of local staff. Because funds for capital expendituresare lent through CVDB, rather than given as grants, local governments willcontinue to be prudent in their use.

Role of the Bank Group in the Urban Sector

34. Bank Group assistance has been responsive to the problems created byrapid urbanization and to the Government's desire to promote growth in allparts of the country. Extensive economic and sector work related to urbandevelopment in Jordan has been carried out, as well as project financing.Recent studies include the Urban Sector Review, the Water Sector Report and aregional development study. The Bank also plans to carry out a study onmunicipal management, with special emphasis on resource mobilization andtaxation at the local level. Based on discussions of these reports, theBank's strategy in the sector includes assistance towards: improving mainurban service levels (water, sewerage, solid waste management, urbantransportation); increasing the supply of serviced land in locations and atcosts that reinforce sound spatial development patterns and are affordable torelevant commercial and household groups; and strengthening the capacity oflocal councils to plan, implement, and manage the functions for which they arerezponsible.

35. In support of this strategy, Bank lending follows a "three track"approach, which focusses on the water supply and sewerage, shelter, andmuicipal subsectors. Seven water and sewerage projects have been undertakenin urban areas; the most recent one, the Greater Amman Water Supply andSewerage Project (Loan 2483-JO for $30 million), was signed January 31, 1985.

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The First Urban Development Project (Loan 1983-JO, $21 million), approved inSeptember 1980, and the Second Urban Development Project (Loan 2483-0-JO,$28 million), approved on June 18, 1985, are addressing the need forcost-effective, low-cost housing in the Amman region and for appropriateeducational, health, training and community facilities for people in thelowest 40th percentile of the Amman region income distribution. The on-goingAmman Transport and Municipal Development Project (Loan 2334-JO, $30 million)is assisting the Municipality of Amman to improve traffic conditions, toupgrade the ability of municipal departments to plan and execute works(including maintenance and operation functions), to upgrade solid wastemanagement, and to initiate systematic investment programming. The projecthas experienced some initial delays, mostly caused by procurement problems.However, overall progress is accelerating and is, on the whole, satisfactory.Except for some early water supply and sewerage projects, no ProjectCompletion Reports have been undertaken in the urban sectnr, since theprojects are still under execution.

36. Experience with Past Loans to CVDB. The First CVDB Project(Loan 1826-JO, $10 million) was made in 1980 with the objective of improvingand increasing the capacity of CVDB to help local governments to provide urbanservices. Under this loan, CVDB evolved from an almost bankrupt disbursementfund, controlled by MMRA, to an independent bank that is growing inadministrative and operational ability. The loan was fully committed inJune 1984. Estimated economic rates of return for the 20 revenue-earningprojects financed under the loan ranged between 10 and 32 percent and averaged15 percent, well above the opportunity cost of capital of 10 percent. Becauseof some initial delays caused by difficulties in recruiting suitable personneland in establishing appraisal procedures acceptable to the Bank for roadprojects and to allow sufficient time to complete construction under somesubprojects, the closing date was extended to June 1986; project execution anddisbursements, however, are now proceeding satisfactorily. The proposedproject would build upon CVDB I and is designed to strengthen CVDB'scapability to help municipalities conceive and execute good projects,especially in the less developed areas of Jordan.

PART IV - THE PROJECT

Project History

37. The proposed project was identified in August 1984 and appraised inJanuary 1985. Negotiations were held in Washington, D.C. during July 15 - 18,1985. The Jordanian delegation was led by Mr. M. S. Hourani, General Manager,Cities and Villages Development Bank (CVDB). A Staff Appraisal Report (No.5623-JO), dated July 19, 1985, is being distributed separately to theExecutive Directors. The main features of the loan and project are includedin the Loan and Project Summary and in Annex III. A map of Jordan is attached.

Project Objectives and Description

38. The objectives of the Second CVDB Project are: (i) to support aninstitution that can improve the living standards of populations in the outer,

- 12 -

less developed regions without significantly burdening the CentralGovernment; (ii) to facilitate the execution of municipal and villagedevelopment plans by funding well-appraised infrastructure and revenue-earningprojects; (iii) to strengthen OVDB's instilutional capability and improvefurther its policies and proceduies, especially those relating to projectappraisal; and (iv) to support CVDB's role in organizing financial trainingfor local government personnel and CVDB staff.

39. The project includes the following components: financial assistanceto CVDB: a line of credit for $14.9 million, representing 75 percent ofCVDB's foreign exchange needs from mid-1985 to end-1987; equipment for CVDB:$100,000 to purchase microcomputers to rationalize data compilation and carsto improve CVDB's outreach and site supervision capabilities; technicalassistance to CVDB: to reinforce its ability to appraise and superviseprojects; and training for local government and CVDB personnel.

Cities and Villages Development Bank

40. The Institution. CVDB was developed in 1979 with Bank assistance(para. 36) as a public institution with semi-autonomous administrative andfinancial status. Its role is to assist villages and municipalities in theidentification, preparation, implementation and follow-up of projectsdesigned: (i) to meet the basic needs of all segments of Jordan's population,especially the less developed; (ii) to raise living standards by providingimproved infrastructure services; (iii) to create local employmentopportunities through the financing of productive projects; and (iv) toimprove income distribution by integrating the less developed areas into thenational development process. Towards this end, CVDB is empowered to grantlong-term loans to villages, municipalities and entities owned by them, suchas corporations, in the framework of regional and sectoral plans and inaccordance with Government priorities; it can also take equity participationsin their projects and guarantee loans and manage funds made available by othersources to its borrowers. Funds collected on behalf of villages andmunicipalities by the Central Gover_-aent are transferred to CVDB on a monthlybasis and serve as collateral for its loans.

41. CVDB is administered by a board of nine directors comprising theMinister of the Ministry of Municipal and Rural Affairs (MMRA) (Chairman),CVDB's General Manager (Vice-Chairman), representatives from the MMRA andMinistries of Planning, Public Works, and Finance, the Central Bank, and tworepresentatives from CVDB's borrowers. The chief executive officer, theGeneral Manager, is appointed by the Council of Ministers upon therecommendation of the MMRA. CVDB is organized along functional lines in fivedepartments: technical, financial, internal audit and organization,administration and planning and statistics.

42. CVDB staff numbers at present about 90. Because the salaries, whichare set according to Jordanian civil service regulations, have not beencompetitive with the private sector, attracting and retaining qualified staffhave been difficult. However, CVDB's Management has been able to increaseemployee compensation by remunerating overtime. The recent decline in

- 13 -

employment possibilities in the neighboring Gulf countries, the slowdown inthe Jordanian economy and the rapid growth rate of the skilled labor forcehave made salaries relatively more attractive and thus reduced the turnoverrate. This is expected to continue in the medium term and should enable CVDBto build up and consolidate its personnel strength. To enhance personnelquality and etrectiveness, CVDB has initiated measures to provide training.To better organize this effort, CVDB has established a small training division(para. 53). Since the strength of the Technical Department is essential forthe success of the proposed project, CVDB would review with the Bank thestaffing requirements of this department at the beginning of each fiscal year(Project Agreement, Sectiot 2.06 (a)).

43. In February 1985, bVDB drafted a new Policy Statement, inconsultation with the Bank, which covers the general goals of CVDB, itsmanagement, and its loan, deposit, financial and outreach policies. It alsoincorporates a new analytical solvency test to replace the old rule thatlimited local council borrowing from CVDB to about 80 percent of the estimatedfuel tax allocation (para. 26). This rule underestimated the borrowingcapacity of large municipalities, for which the fuel tax allocation is only asmall portion of total revenues, and overestimated it for smaller communities,for which it is the main source of revenue. The new solvency test requiresCVDB to scrutinize the borrowing capacity of the local authority for eachloan; it enables CVDB to produce consistent local council accounts and toadvise local councils on improvements in their financial management. The newPolicy Statement is complemented by Project Eligibility Criteria, also draftedin cooperation with the Bank, which are general guidelines for the preparationand appraisal of projects. The new Policy Statement and Eligibilicy Criteriahave now been ratified by CVDB's Board. Amendments to them would be subjectto prior Bank approval (Project Agreement, Section 2.11). Furthermore, tostreamline and rationalize CVDB's operations, Executive Regulations have beenadopted by CVDB's Board concerning the technical, financial, and the internalaudit and organization departments.

44. Operations. CVDB has an authorized share capital of aboutJD 12 million ($30 million), held by the Government, the Central Bank andlocal councils. Between 1981 and 1984, CVDB's 1-ong-term loan portfolio grewat a compounded rate of about 41 percent per year, more than three timesfaster than estimated at the time of the CVDB I appraisal. At the end of1984, total outstanding long-term loans amounted to about $90 million.Between 1980 and 1984, almost half of CVDB's projects were located invillages, and the regional distribution of its loan portfolio proportionallyfavored the less developed governorates of Ma'an, Karak and Irbid. Lendinghas been concentrated in the neediest sectors: 53 percent for infrastructureprojects such as roads, schools, electricity networks, markets, workshops,offices and waste disposal equipment. CVDB has also lent to local communitiesfor revenue-earning projects such as markets, trade centers and commercialbuildings. A small part of CVDB's lending is in the form of short-term loansand overdrafts.

- 14 -

45. Financial Performance and Resource Needs. CVDB's financialperEormance was satisfactory during 1981-84 and is p .ojected to continue to beso for the 1985-88 period. At the end of 1984, CVDB's debt-equity ratio of0.7:1 was well below the current statutory ceiling of 4.0:L stipulated in thePolicy Statement, which would be maintained under the project (ProjectAgreement, Sections 3.03 and 3.04). Interest income increased by 54 percentper year from 1981 to 1984; interest paid on term borrowings increasedslightly faster, by 55 percent per year. Administrative costs as a ratio ofaverage assets declined from 1.0 percent in 1982 to 0.7 percent in 1984, whichis satisfactory. The marginal cost of borrowing has been increasing in recentyears and was 9.8 percent in 1984. To protect CVDB against a negativemarginal spread, the Policy Statement stipulates a minimujm spread over totalresources beyond which CVDB will ask the Government permission to increaseonlending rates (para. 51). There are virtually no arrears on loanrepayments, which are deducted automatically from the deposits kept in escrowby CVDB. However, in a number of cases municipalities have been overdrawn,and CVDB has advanced them funds for debt-servicing. It is estimated that themarginal collection rate is between 85 and 90 percent. Due mainly to the old,overly strict solvency test that poorly estimated the borrowing capacity ofmunicipalities (para. 43), CVDB rescheduled loans worth JD 9.3 million at theend of 1983 for 30 municipalities that had reached their statutory borrowingceilings. By reschedul ng their debt, these municipalities were able tocontract new loans with CVDB and use more of their actual borrowing capacity.In 1984, the operation was repeated on a smaller scale, with sev:n borrowersfor loans worth JD 1.3 million. As a result of rescheduling, 69 percent ofCVDB's net worth was immobilized for about five years. The overallimprovement in local council financial management as a result of training andbetter procedures and by the new solvency test for assessing the borrowingcapacity of municipalities (para. '3) should reduce the need for suchreschedulings.

46. In 1985-1988, CVDB's loan portfolio is expected to increase fromJD 36.7 million to JD 45.1 million. Identified resources are expected tocover requirements. The main sources of financing would be collection onloans net of debt-service (44 percent), the proposed Bank loan (20 percent),an increase in short-term liabilities (16 percent), cash-flow generation(7 percent), and the balance shared between the first Bank loan, the CentralBank of Jordan and recent loans from the Euro1 )ean Investment Bank (EIB) andthe European Economic Commission (EEC). It has been agreed that CVDB wouldupdate and review annually with the Bank a financial plan to enable it toachieve agreed financial objectives (Project Agreement, Section 3.10). CVDB'sprofits are expected to be half the level of the early 1980s, but will stillbe satisfactory at above 2 percent oE average assets. To protect CVDB againstinsolvency caused by a temporary mismatch of maturities, the Policy Statementstipulates a minimum debt-service ratio in terms of principal at least equalto 1.15:1. It has been agreed that this will be maintained under the project(Project Agreement, Section 3.05).

- 15 -

Project Implementation

47. Onlending Arrangements. The proposed loan of $15 million would bemade to the Government for 15 years, including three years of grace, at thestandard variable interest rate; it would be onlent to CVDB under a subsidiaryloan agreement satisfactory to the Bank, the execution of which would be acondition of loan effectiveness (Loan Agreement, Sections 3.01 (b) and 5.01(a)). The maturity and grace period of the onlent funds would be the same asunder the Bank loan; the interest rate would be fixed at the rate in effect atthe time of loan signing. As under CVDB I, the foreign exchange risk wouldbe borne by the Government, since neither CVDB nor the ultimateborrowers-villages and municipalities-can manage the uncertainty of parityfluctuations. The Government would also bear the interest rate fluctuationrisk, as CVDB should not bear such a risk and the Government does not wantvariable rates passed on to municipalities and villages (Loan Agreement,Section 3.01 (b)). This arrangement is reasonable in view of the fact thatCVDB is lending to some of the poorest local authorities in Jordan, which inmost other countries would receive their funds as grants through budgetaryallocations.

48. Financial Assistance to CVDB. The proposed line of credit($14.9 million) would be onlent by CVDB to municipalities, villages and commoqservice councils to finance eligible subprojects, i.e. those social,infrastructure or revenue-earning subprojects described in CVDB's PolicyStatement and listed below, except land acquisition. It is estimated that theproposed loan would finance about $33 million worth of commitments and about120 subprojects during the period from mid-1985 to end-1987. In order toensure adequate Bank review and comment especially during the early stages ofloan commitment and to provide CVDB with a maximum amount of technicalassistance, CVDB would submit to the Bank for approval the first appraisalreport for each subproject category mentioned in the Policy Statement.Thereafter, some subprojects, including those dealing with civil works andsolid waste collection equipment would be subject to a $60,000 free limit; allother categories 1/ would have a $125,000 free limit (Loan Agreement,Section 1.02 (c); Project Agreement, Section 2.02). It is estimated thatabout 50 subprojects would be above the free limit.

49. CVDB would utilize the appraisal form and the Eligibility Criteria 2/agreed with the Bank in approving subprojects. CVDB's appraisal form includes

1/ Street and road segments, footpaths, sidewalks and stairs, schoolbuildings, local council buildings and public libraries, cemeteries,health centers, local electricity distribution networks and streetlighting, and revenue-earning projects such as markets, cold stores,commercial and trade centers, offices, workshops, slaughterhouses, andgarages.

2/ The Eligibility Criteria require the following information for eachsector: type of settlement which can apply for a loan, type of project,technical restrictions, standards, general and specific financialconditions, minimum size, and necessary documents to be provided by theapplicants.

- 16 -

inter alia a review of the overall finances o' the applying local councLl, thesolvency test and an economic and financial justification. Financial rates ofreturn would bo calculated for all revenu. tearning projects, anH4 CVDB'sEligibility Criteria require that these be at least 12 percent. For othersubprojects, the requirement by CVDB of least-cost solutions and appropriatecost recovery from immediate beneficiaries would ensure that subprojects areeconomically justified.

50. As under CVDB I, the proposed line of credit would finance theforeign exchange component, or 50 percent of CVDB's total disbursements, foracceptable subprojects. This is equivalent to 45 percent of the total cost;10 percent would be financed by the borrowing local authority and theremaining 45 percent by CVDB. To ensure a fair allocation of CVDB's resourcesamong its large number of potential borrowers and to avoid a disproportionateshare of its portfolio being concentrated in a few, large projects, the PolicyStatement limits CVDB's total exposure in a single project to one percent ofits paid-up capital and general reserves (about $400,000 equivalent) and in asingle borrower to 10 percenc of the same base (about $4 million equivalent).

51. Terms and interest rates of CVDB subloans would be differentiated asfollows: for infrastructure projects, 11 years, including one year of grace,at 7.5 percent interest for municipalities, and 16 years, including one yearof grace, at 6 percent interest for villages; for revenue-earning subprojects,the interest rate would be 8.5 percent for municipalities and villages, with a12 and 14-year maturity, respectively, including two years of grace (ProjectAgreement, Section 2.03 (b)). With domestic inflation currently at 5 percentand expected to be 6 percent in 1986 and 7 percent in 1987 and thereafter,CVDB's weighted interest rate should be positive in real terms over theco.,muitment period of the loan. This interest rate structure comparesfavorably with interest rates charged by other Jordanian institutio;; and isreasonable in view of the fact that: many CVDB loans are for basic needs,which in many countries are financed by government grants; the income of theultimate beneficiaries is low; the Central Government imposes statutorylimitations on the ability of local governments to tax; and, as loans to localcommunities are virtually risk free because of collateral funds kept in escrow(para. 40), CVDB's interest rate is net of the risk premium included incommercial rates. It has been agreed that, if at any time CVDB's margin overtotal resources is forecast to decrease below two percentage points, theGovernment would allow CVDB to increase the minimum interest rates or takeother measures to ensure that CVDB maintains a minimum spread of twopercentage points above the average cost oE its resources (Loan Agreement,Section 3.03).

52. Technical Assistance to CVDB. This component would reinforce theability of CVDB's Technical Department, which is responsible for appraising

- 17 -

and supervising projects, for assessing local councils' solvency, Ear loandisbursem-nts and for repayment collectiotis. It would consist of twostaff-years of a project appraisal specialis' and three staff-years of a civilengineer. At the request of the JordAnian Gcvernment, this component, whichis estimated to cost $550,000, would be financel either from external grantsor from its ow.. resources. A project appraisal specialist is already beingfinanced for one year (renewable up to three) by a grant from the EEC; acandidate for this post, recruited by the EEC, has joined CVDB. With regardto the civil engineer, UNDP has indicated an interest in financing the fullsalary or a salary supplement of a Jordanian senior engineer for CVDB possiblyin cooperation with the Arab Gulf Fund. The Government would finance thetechnical assistance from its own funds if cofinancing is not available. CVDBhas agreed to employ by December 31, [985, the project appraisal specialistfor two years and civil engineer fo three years, with qualifications,experience and terms of reference satisfactory to the Bank (Project Agreement,Section 2.06 (c)).

53. Training Municipal and Village Council and CVDB Personnel. CVDBwould be responsible for organizing training for project preparation,follow-up and financial management for local council officials, the total costof which is about $100,000. For this, and for the training of CVDB personnelin project appraisal, accounting, auditing and municipal finance, which isestimated to cost $200,000, CVDB has established a small division to organizetraining. Training would continue to be undertaken by existing Jordanianinstitutions such as Jordan and Yarmouk Universities, the training instituteof the Industrial Development Bank and the Institute for Public Administrationand would include accounting, financial manageme:t, project identification andappraisal. The MMRA would transfer to CVDB the funds that it would have spenthad it continued to organize the training of local officials. Appointment byCVDB of a qualified training specialist to head its trtining division would bea condition of effectiveness of the proposed loan. CVDB would also preparetraining programs by December 31, 1985 and would submit reports on theseprograms to the Bank at the end of each year (Project Agreement, Section 2.13;Loan Agreement, Section 5.01 (b)).

Procurement and Disbursements

54. The proposed Bank loan would be disbursed over a five-and-a-half-yearperiod, with full disbursement expected by December 31, 1990. The closingdate would be June 30, 1991. While this period is somewhat shorter than theDFC disbursement profile for the EMENA Region, a shorter period is warrantedby Jordan's generally good project execution performance, past experienceunder the first project, and the use of a revolving fund. In order to helpexpedite disbursements, a revolving fund of $750,000 would be established bythe Government at CVDB (equivalent to an average of about three months ofdisbursements) and replenished on the basis of standard documentation foreligible reimbursable expenditures. In view of the large number of smallsubloans, disbursements would be made periodically on a reimbursement basis,covering a flat 50 percent of CVDB's total disbursements for eligible projectsagainst statements of expenditure for an aggregate value of not less than$100,000 (Loan Agreement, Section 2.02 (b), Schedule 4; Project Agreement,Section 3.02 (b)). The Bank's standard disbursement procedures would be usedfor the equipment component, estimated at a total cost of $125,000, and would

- 18 -

be procured by obtaining quotations from at least three suppliers;disbursements would cover 100 percent of foreign exchange costs or 80 percentof local costs.

Accounts, Audit and Monitoring

55. As under the first project, CVDB would continue to mairntainprocedures and records adequate to monitor the progress of the project, itsoperations and financial condition. The accounts of CVDB are satisfactory.Annual audits performed by SABA and Co., a local firm associated with ToucheRoss International, have been of good quality. CVDB's accounts would continueto be audited annually by an experienced accounting firm acceptable to theBank, and audited accounts would be submitted to the Bank no later than fivemonths after the end of the year. CVDB would also send to the Bank semiannualprogress reports and financial accounts (Project Agreement, Sections 3.02).In order to enhance CVDB's internal monitoring system, the Planning andStatistics Department is being reorganized, and it has been agreed that itwould be strengthened by the appointment of two statisticians by December 31,1985 (Project Agreement, Section 2.06 (b)).

Benefits and Risks

56. The project is expected to help strengthen CVDB to enable it toidentify, prepare and appraise local council subprojects better. This wouldbe accomplished through training and implementation of the new PolicyStatement, Executive Regulations and appraisal and follow-up techniques. Withthese institutional improvements in place, CVDB should play a greater role inresource mobilization for local councils and would be an effective nationalorganization capable of reaching even the smallest communities throughoutJordan.

57. In the longer run, the project is also expected to contribute tostrengthening management at the local government level. By emphasizingselection of subprojects by local councils, the project places responsibilityfor investment planning and implementati -n at the local level. The technicalassistance program under the loan is designed to reinforce this emphasis. Theappraisal of local councils through the application of a more rigorousfinancial analysis should also contribute to more realistic investmentplanning and strengthen communities' capacity to manage resources better byhelping them to generate increased revenue and to invest it more efficiently.

58. CVDB's outreach covers the whole country. It, therefore, has thepossibility of financing projects in all regions of Jordan, outside Amman.Although it lends to municipalities and villages, the ultimate beneficiariesare the residents of the communities whose projects are financed by CVDB.Inasmuch as projects cover a large number of subsectors, they may be expectedto affect the lives of residents in many ways. The project should helpimprove the population's standard of living through better facilities andinfrastructure, which in turn should lead to greater productivity. About halfthe subloans under the proposed loan would be made to villages throughoutJordan, including some of the more neglected regions, and would have an impactnot only on the communities themselves but also on the surrounding ruralareas. The project would thus contribute to improving interregional incomedistribution by creating new income and employment in the less developed areas

- 19 -

of Jordan and help integrate remote areas into the national developmentprocess.

59. CVDB has performed satisfactorily under the first project, and thereare no major risks associated with the proposed project, which builds uponexperience gained with the first. Nonetheless, given that CVDB's salarystructure is similar to that of the Jordanian civil service, CVDB has haddifficulty in attracting and retaining qualified staff to meet the challengesimplicit in its ambitious program. This, however, is being addressed byincentives provided by CVDB inter alia in remunerating overtime work andproviding training opportunities for its staff. Assistance will also beprovided by the technical assistance included under :he project. Thus, therisk is considered manageable.

PART V - LEGAL INSTRUMENTS AND AUTHOR iTY

60. The draft Loan Agreement between the Hashemite Kingdom of Jordan andthe Bank, the draft Project Agreement between the Bank and the Cities andVillages Development Bank (CVDB), and the Report of the Committee provided forin Article III, Section 4(iii) of the Articles of Agreement of the Bank arebeing distributed separately.

61. Special conditions of the project are listed in Section III ofAnnex III. The conditions of effectiveness are: (i) the execution of thesubsidiary loan agreement between the Government and CVDB; and(ii) appointment of a training specialist (Loan Agreement, Sections 5.01 (a)and (b)).

62. I am satisfied that the proposed loan would comply with the Articlesof Agreement of the Ban'.

PART VI - RECOMMENDATION

63. I reconmend that the Executive Directors approve the proposed loan.

A. W. ClausenPresident

Attachments

Washington, D.C.July 29, 1985

-20- ANNM IPAge 1 of 6

SOAR (~~IUuC 133impM DATR fM zo ATEROS h i-

~u ~L1Lb 197711 DIU*X& 1. AFRCA A MD RUT IA. AMG CARAMM IMMRNa 2Q. 30

TOTAL 97.'7 97.7'12.0 14.0 14.6

SW Sfl CM) .. 39f.IC/ 1690.0 ac 110.6 2100.6

- uu0MZlfm- cam=(EWARA OF OIL nrJUVAM) 117.0 211.0 706.0 622.1 3s.5

7WmAm AD VnL SMMCFPMLAI.OU,ND-LTR (OfUDUM) l65.0 229.0 3127.0u1M POVULATIO (Z0O TOTAL) 42.7 50.3 5.9 4.2 6.3

POPULAZIOS nWOicPOLTIOil DAR 2000 CIUL) 6.2

POMULTIOU (KIELL) 16.2POPULATION UM 2.0

mR EQ. U. 17.3 23.5 30.9 36.3 35.7a BQ. UN. *ax. Lai 141.4 1".2 203.9 461.7 92.4

POPULATION ACE STRCTUR (3)0-14 u 44.4 43.6 46.1 43.6 39.9

13-61 IRSl 51.5 51.0 51.5 33.1 36.065 AND AO 4.1 3.1 2.6 3.3 4.1

POPUL&anam Swi mA (CZ)TOTAL 3.1 3.0 2.6 2.6 2.4Util 5.2 4.7 6.0 4.3 3.6

CRUDE 31R32 WE (PRa TOUS) 47.4 47.6 44.6 40.4 31.3aUnm DEASI RATE (PM Tmo0s) 19.9 13.5 8.1 11.3 8.1G303SS 2PODUCTIP lAE 3.5 3.3 3.2 2.8 2.0

PANXLT PLANINACCrEORS. LL o) . .. ..USERS aC or MARK= .. ) 22.0 Id 23.0 __ 22.2 *0.3

mOOD AM DInX OF moon -. ma CAmm

(1969-71-100) 220.0 79.0 70.0 97.3 114.2

PM Corn SUmPTY orCALRIES (C Or EEQUIRENTS) 93.0 93.0 102.0 1lO.8 110.6E1301 (SANS PR DAT) 61.0 35.0 64.0 70.1 67.3

or WHCH AEDIL AND PUSE 15.0 15.0 16.0 If L7.8 34.1

CHILD (CACS 1-4) DEATH RATE 26.3 12.5 6.0 16.6 5.7

LIFE EXPECT. AT DRIX (TFAS) 46.9 54.1 64.0 37.5 64.7XZAIA HOET. RAZE (PS TUOUS) 135.5 97.5 64.6 101.5 60.6

ACCESS TO SAEZ WAM (110)TOML 21.3 .. 30.0 le 59.7 65.4I2* 48.6 .. .. 64.5 78.1RURtAL 2.1 .. .. 38.4 46.2

ACCESS TO CIrA DISPOSALtE or POULAIN)

TOTAL. .. .. 78.0 c .. 52.9033*3 .. .. .. - . 67.0RDUL .. .. .. .. 24.5

POPULATION PER 5mSICXAN 30.0 3710.0 1700.0 4365.1 1917.7Por. PER ODINC PrSO 1930.0 I 1480.0 1168.0 1831.1 813.8PmP. IER S`AL NED

TOTAL 560.0 1350.0 1060.0 lb 632.9 367.2n331 .. l2O.0 6eo.o T 545.5 611.5

RUAl .. 5340.0 .. 2513.5 2636.3

AOsSIIS II nOSPM LLln .. 36.5 65.7 /f 26.2 27.3

AVERAGE SmE oF USEDOLOTOTAL 5.3 6.1 6.7 IC..UlRi 5.5 ..RURAL 5.1 ..

nvEuE NO. or PERsoNs/ROTOTAL .. .. 6.5 /c.1

. ~ ~ ~ u ., BR.''. ' '*~~~-RURAL. .. .. . ..

- ACCESS TO ELECT. (Z Or SIELflGS)TOTAL 7.0 .. 6

6.0 /c 46.2

:C-A- 39.2 .. 90.0 lET 77.7RU-R-A'L- 1.4 .. 20.0 Ic.1 16.1

:- , - - i :-~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~¾

-21- ANNEX IPage 2 of 6

: ~~~~~~~~~~~~~~~~~~~T A * L E 3A

JORDAI - SOCIAL INDICATORS DATA SE1TJORDAN URRENCE GROUPS (WICXEHTZD AVERS) /a

MOST CMOST RECENT ESTDIATE) lbRECNT NIDCLE INCOE MIDDLE rKGIE

-- 196 1 970in/ hITIMATiLb N. ARICA A MID EAST LAT. AMERICA £ CAR

ADJUSTED ENROLLMENT RATIOSPRIMARYs TOTAL 77.0 72.0 103.0 Ic 88.3 105.4

MALE 94.0 79.0 105.0 102.5 106.3FEMLE 59.0 65.0 100.0 c 73.6 104.5

SECONHAT: TOTAL 25.0 33.0 77.0 Ic 43.0 43.2- MALZ 36.0 41.0 79.D 7;ib 52.3 42.3

FEMALE 13.0 24.0 76.0 7W 33.0 44.5

VOCATIONUL CZ OF SECONDARY) 2.7 3.0 6.1 IC 10.3 33.6

PUPL-TEAOCIER RATIOPRIMAY 34.0 39.0 31.0 IC 30.3 30.1SSCONDARY 20.0 23.0 21.0 7F 23.1 16.8

ADULT LITERACY RATE (2) 32.4 .. 70.0 43.5 79.5

COEsIwTICNPASSENGER CARS/TKOUSAND POP 3.7 6.7 30.7 17.8 46.0IIDIO RECEIVERS/TUOUSAND POP 37.8 160.9 183.4 138.8 225.6TV RECEIVERS/THOUSAND POP .. 20.0 58.5 46.1 107.2NEWSPAPER (DAILY CENERAL

uITESr) CIRCULATIoNPER TUOUSAND POPULATION 13.3 24.4 31.3 /f 31.2 63.5

CINEMA ANNUAL ATTENDANCE/CAPITA 3.2 0.9 5.3 71 1.7 2.8

TOTAL LABOR FORCE (TNOUS) 432.0 569.0 754.0FMAlE (PERCENT) 5.0 5.6 6.6 10.8 23.2AGRICULTWRE (PERCENT) 44.0 34.0 20.0 42.4 31.5ENDUSTRI (PERCENT) 26.0 9.0 20.0 27.9 23.9

PARTICIPATION RATE (PERCENT)TOTAL 25.5 24.7 24.1 26.2 32.2-ALE 46.7 45.5 43.5 46.4 49.3FEMALE 2.7 2.8 3.3 5.8 15.2

ECONOMIC DEPENOENCY RATIO 1.9 2.0 2.0 1.8 1.4

ISCM MEUWWMTPERCENTor OP IVATE INCOMERECEIVED ST

HIGHEST 5S oP OUSEHDS .. ..RICST 202 OF HOUSEHO ..LDSLOWEST 20S OF HOUSEHOLDS ..LOWEST 402 OF HOUSEHOLDS ..

POVZ2 TRST Ch OM!ESTIMATED AdSOLUTE PVWERTY INCME

EVEL (USS PER CAPITA)URBAN .. .. 230.0 /f 274.8 288.2RURAL .. .. 100.0 7F 177.2 184.0

ESTIMATED RELATIVE PDVERTY :LXaLEVEL (US$ PER CAPITA)

URAN .. .. 206.0 /f 402.6 522.8RURAL .. .. 135.0 f- 284.9 372.4

ESTIMATED POP. BELOW ABSOLUTEPOVERTY IIICOE LEVEL (2)

URBAN .. .. 14.0 /IRAL .. .. 17.0.

NOT AVAILABLENOT APPLICABLE

N OT E S

/a The group averages for each iodcator are populstion-weighted arithmetic mema. Coverage of countries a_oag theindieator depends on availability of data and is -t unifoorm-

/b Unless otherwise noted, Reta for 1960 refer to any year between 1959 and 1961; flta for 1970 between 1969 and1971; sad data for -inet Recant Estiate- betwee 1980 and 1982.

Ic East BRak; /d 1972; /e 1976; /f 1977; it 1962; lb 1978; It 1979.

JUNE, 1984

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9zOEsUaE

-- - 0 ~~~~~~~~~~- 23 -

ANNEX I

Pag 4of 6-; ~~~~~~~~~~~~~~~JOIIDI I -tOlIC IllDICASOxS

Population 2.6 million (1984) A oGCNP per capita: US$ 1.710 (1983 !/,2/

--Auoujnt Annual Growth Rates

Indicator (million USt at Actual (at 1980 prices) Proiected (at 1930 prices)current prices)

- 1984 1979 1980 1981 1982 1983 31 1984 3/ 1985 1986 1987 1988 19S9NATIONAL ACCOUISCross domestic product 4,029 7.8 8.3 6.4 7.1 4.2 3.0 3.0 5.0 5.0 5.0 5.0

Agriculture 289 -29.0 39.0 11.6 9.7 7.2 7.0 5.0 5.0 5.0 5.0 5.0Induscry 1,070 19.2 11.5 13.2 0.3 4.2 2.0 2.0 8.0 7.0 7.5 7.5

- Services 2.144 10.2 7.9 4.3 8.9 5.0 3.0 3.0 3.5 3.7 3.2 3.2

ConsuWtian 4,651 17.3 -,.6 6.4 3.8 3.7 -5.0 4.0 1.6 5.4 4.3 4.3Cross Inveutunt 1,277 10.5 17.2 24.2 2.4 -5.7 -3.0 -2.3 -2.0 -1.3 2.6 2.6Exports CGFS 1.612 20.4 24.1 24.9 1.5 -9.1 10.0 8.0 9.8 7.0 7.0 7.0Inporta of GlMS 3,511 26.4 -1.7 27.4 -0.8 -6.2 -5.8 3.0 3.1 4.4 4.5 4.5Crosa National Product 4.257 7.7 6.8 o.2 7.4 1.3 f.0 4.0 4.2 4.3 4.2 4.2

PRICEScOP Deflator 82.5 100.0 116.5 123.7 131.7 136.8Exchange Race 3.33 3.35 3.07 2.84 2.76 2.47

Share of GNP at Market Prices (2) Average Annual lncrease(at current prices) (at constant prices)

1975 1980 1985 1979-84 1984-89 198-90Cross Dometic Product 96.0 100.8 98.2 5.8 4.2 5.0

Agriculture 7.8 6.6 6.9 14.4 5.4 5.0Industry 21.8 26.7 26.6 6.1 6.4 7.5Services 59.7 57.9 53.2 5.8 3.3 3.2

Consumption 123.8 109.8 106.0 0.9 3.9 4.2Cross Investment 26.5 40.8 33.5 6.4 -0_8 - 2.6Exporcs of CNFS 35.5 47.9 47.2 9.5 7.8 7.0Imports of CNFS 90.1 97.2 88.6 1.9 3.9 4.5Gross National Product 100.0 100.0 100.0 5.7 4.4 4.2

- Iget Factor Income 4.1 -0.8 1.8 - - -Gross National Savings -23.8 -9.8 -6.0 - - -

As S of CNP(at current prices)

1975 1980 1985PUBLIC FIDAW

Domestic Seventies 24.8 22.8 29.9Current Expenditurea 37.6 33.9 31.5Budgetary b-sings -12.8 -10.0 -16.6Capital Expenditures 23.6 22.9 14.2Foreign Financing 36.8 12.7 14.5

of which foreign grants 30.0 20.5 11.2

1979-84 1984-89* Urn INDICATORS

IECO 7.6 7_5Marginal Gross National

Savings Rate 0.8 -0.2Import Elasticity (goods) 0.3 0.9

I/ East Bank only.2/ Preliminary estimte bsed on the revised series of nationsI accounts to be discussed vith the Coverumnt, whicb excludes remittances

from long term resi' anus abroad chat are considered capital transfers.3/ Preliminary estimte.

EIUAL CPIICJuly 198501855

:, _~~~~~~~~~~~~~~~r

..- -. * -

. ~ ~ ~ ~ ~ - -: -.. - .*- *-

- 24 -

ANNEX IPag r of 6

JORDAN - XUKAL TRAD

-Amoaunt Annual Growth Ratemlndictror (million F t Actual [at ION0 rices) Projected (at 19B0 prices)

current price)19B4 1978 1979 1980 1981 1982 1983 1984 2/ 1985 1986 1987 19B8

WXKRNAL TLRAP

lerebendise exports 1/ 690 6.7 22.5 22.9 31.1 2.1 -8.0 9.5 B.0 9.1 6.5 8.5Primary 370 5.5 16.1 26.2 18.5 -3.2 8.0 11.0 7.6 9.2 8.7 8.7Manufactures 320 9.1 35.6 17.0 59.0 8.5 -8.1 4.0 6.5 9.0 8.3 8.3

MeIrhandise ijportc 2, E 5 -1.3 10.5 7.8 27.4 -1.0 -6.2 -6.1 1.5 4.4 4.7 4.5Food 499 25.8 8.9 7.1 31.6 6.4 -6.0 -2.0 2.0 3.2 4.8 4.5Petrolem 613 -13.2 30.3 42.3 19.3 22.0 1.1 4.0 2.0 3.2 4.3 4.0Machiney and equipmnt 575 -3.5 -11.7 13.6 56.6 -13.0 -18.0 -8.5 0.5 0.8 1.1 1.0Other 1.13B -9.8 27.5 -3.4 19.3 0.5 9.1 -8.1 1.5 2.8 4.7 4.5

PRICES (1975 - 100) (1980- 100)

Export price index - 85.8 90.2 106.9 107.5 113.2 90.3 97.5 106.1 112.4 124.3 128.5Import price index - 114.8 133.5 150.4 113.6 119.4 94.2 91.6 9B.9 105.3 110.9 117.0Terms of trade index - 74.7 67.6 71.1 94.6 94.8 95.9 106.4 107.3 106.7 112.1 109.8

Cmpoasition of Merchandise Trade (C) Averae Anual Crowth Raet.(at current prices) (at c netent prices)

1975 1962 1987 1979-84 1984-18

Exports 1/ 100.0 100.0 100.0 11.5 8.5Primry 79.8 46.8 55.3 8.9 8.5Manufactures 20.2 53.2 44.7 14.5 8.5

maports 100.0 100.0 100.0 4.4 3.9Food 22.2 16.7 18.3 7.4 3.8Petroleum 10.6 21.0 24.3. 17.7 3.5Mahinezy &no equipment 31.6 28.0 23.7 6. 1 0.9Other 35.5 34.3 33.8 3.5 3.6

Share of TotaL Exports (2 Share of tal Imports CZ)DIRECTIO OF TRADAE 1975 1963 1975 1983

Developed market economies 17.6 4.9 62.6 46.3Developing market ec a 70.2 82.0 29.2 46.5

of which Arab countries 42.4 63.3 19.8 48.6Centrally planed conamias 12.2 13.1 6.2 7.3

1I Ezcluding re-ezportsr/ preliary estciate.

ZIDAL CPfI-CJuly 19850185S

_ 25 -

-ONZI IPage 6 of 6

J0RDdU- BLANCE OF PAYINTS* ETRNAL CPITAL AND DOlT(millions US$ at currnt prices)

Indicator Actual Projected1977 1976 1979 1910 19Y1 1982 1983 1984 1 1985 1986 1987 1990

BALANCE OF PAYMENTSExports of goods & services 1203 1437 119 2491 3205 3174 3047 3330 37az 4202 4655 6341

Of which; Merchandise f.o.b. 249 297 402 574 742 749 581 756 941 1026 1110 1555Workers rmittances 470 520 b00 792 1042 1081 1112 l311 1369 1435 1477 1660

Impaorts of goods 4 serviesm 1714 2065 2B72 3452 4550 £564 4251 4271 4571 5083 5604 7480of which: Merchandise f.o. b. 1376 1497 1957 2393 3237 3229 3041 2779 2847 3012 3214 4034

Workers remittances 46 65 80 154 159 175 201 242 229 219 207 197glet transfers 2/ 504 347 1046 1335 1321 1055 814 712 600 600 600 500

Current account balsnce -7 -280 -7 374 -26 -335 -390 -229 -189 -281 -349 -639

Privste direct investment 11 56 26 31 67 91 24 50 t1O t1S 127 157MLT loans (net) 190 189 193 232 274 242 306 233 52 270 331 625

Official 86 112 143 240 263 271 164 158 92 255 278 585Private 104 77 50 8 -9 -29 142 75 -an 15 53 39

Other cspital -21 278 20 -266 -398 -290 -76 -219 -S1 - - -Chanes in reserves -173 -243 -232 -371 63 292 136 165 109 -107 -109 -143

International reserves 740 983 1215 15S6 1503 1211 1075 1061 952 1059 1168 1558Of which. Cold 81 81 82 208 196 194 200 200 200 200 200 200

Reserves as months of impurts 5.1 5.6 5.2 5.5 4.5 3.2 3.0 3.0 2.5 2.5 2.5 2.5

EXTEIMAL CAPITAL AND EBMTCross disburent 214 223 250 306 407 374 331 383

Concessional Ioans 94 119 151 133 12b 184 224 274IDA 9 6 13 9 3 4 - -Other 85 113 138 124 123 180 224 274

Non-coocessions loans 120 104 99 173 282 191 97 109Official export credits 3 8 2 97 159 94 10 12E88D - - 4 22 19 11 33 39Other _ltilateral - - 7 14 6 30 15 16Private 117 96 86 40 93 56 49 42

External debtDebt outstanding anddisbursed 623 841 1048 1266 1481 1685 1966 2152

Official 469 609 765 !93 1226 1464 1305 1429Private 154 232 283 273 254 221 661 723

Undisbursed debt 559 825 863 1221 995 831 932 574

Debt serviceTotal service payments 38 58 96 133 182 193 278 319

Interest 15 24 40 58 81 61 106 147Payments as Z exports 1/ 3.2 4.0 5.3 5.4 5.7 6.1 9.1 9.6

Average interest rateon new loans (Z) 6.0 6.3 5.3 6.8 5.3 6.0 7.0 7.0

Average maturityof mev loan (years) 14.4 18.1 21.4 14.8 17.7 20.1 17.0 12.6

Average graceof nev. loans (years) 3.5 5.6 4.7 3.8 4.3 5.0 4.1 2.7

Ac 2 oE Debt Outstandingat end of Most Recent Year (1983)

Maturity structure of debt outscandingMaturities due witbin S years 39.0Maturities due within 10 years 68.9

Interest stnruture of debt outstandingInterest due within first year b.0

-' - Data not aveilable. EmN CPII-CVj Exports of goods and servicee including remittances. JuLy 19852/ Excluding unrequited transfers by long ter resident workers abroad. 01BSS3/ Preliminary estimte.

- 26 -

ANNEX IIPage I of 2

STATUS OF BANK GROUP OPERATIONS IN JORDAN a/

A. STATEMENT OF BANK LOANS AND IDA CREDITS(As of March 31, 1985)

US$ Million-----Amount

(less cancellations)Number Year Borrower Purpose Bank IDA Undisbursed

Fifteen credits Jordanfully disbursed 86.1

Two loans fullydisbursed " 50.0

1781 1979 Education III 19.0 5.81826 1980 CVDB 10.0 3.31893 1980 Urban Development 21.0 13.51986 1981 Power IV 25.0 6.22068 1982 Education IV 25.0 19.52162 1982 Power V 35.0 21.72213 1983 Water Supply and

Sewerage 17.0 16.92246 1983 Education V 18.8 18.62334 1983 Urban Transport 30.0 28.92371 1984 Energy Devt. I 30.0 28.92378 1984 Education VI 40.0 40.02425 1984 Eight Cities

Water Supplyand Sewerage 30.0 30.0

2463 1985 Multi-ModeTransport 30.0 30.0

2483 c/ 1985 Greater AmmanWater Supplyand Sewerage 30.0 30.0

2531 cl 1985 " Primary Health Care 13.5 13.52587 c/ 1985 Urban Development II 28.0 28.0

TOTAL 452.3 86.1 304.8

of which has been repaid 5.8 3.2

Total now held by Bank/IDA b| 446.5 82.9

a/ The status of the above projects is described in a separate report on allBank/IDA-financed projects in execution, which is updated twice yearly andcirculated to the Executive Directors on April 30 and October 31.

b/ Includes exchange rate adjustments.c/ Not yet effective.

- 27 -

ANNEX IIPage 2 of 2

B. STATEMENT OF INVESTMENTS(As of March 31, 1985)

US$ Million- -Year Obligor Type of Business Loan Equity Total

1974 Jordan Ceramic Ind.Co. Ltd. Ceramic Tiles 1.6 0.2 1.8

19751 Jordan Fertilizer78/81/82 Ind. Co. Phosphatic Fertilizer 79.5 l/ 8.7 88.2 1/1979 Jordan Lime and

Silicate Building Materials 2.5 0.7 3.21979 Jordan Securities Money & Capital

Corp. Market 0.7 0.7

1980 Jordan LeasingCo. Ltd. Leasing 0.3 0.3

Total Commitments 83.6 1/ 10.6 94.2 1/

Less Commitments Repaid, Sold orCancelled 60.6 1/ 0.7 61.3 1/

Total Commitments now held by IFC 23.0 9.9 32.9

Total Undisbursed - - -

1/ Includes a $50.0 million loan managed by IFC on behalf of otherparticipants.

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ANNEX IIIPage 1 of 2

HASHEMITE KINGDOM OF JORDAN

SECOND CITIES AND VILLAGES DEVELOPMENT BANK PROJECT

SUPPLEMENTARY PROJECT DATA SHEET

Section I: Timetable of Key Events

(a) Time taken by agency to prepare the project: 5 months (August 1984to January 1985)

Cb) Agency which prepared the project: Cities and VillagesDevelopment Bank (CVDB)

Cc) Date of first presentation to the Bank: August 12, 1984

(d) Date of departure of appraisal mission: January 14, 1985

(e) Date of completion of negotiations: July 18, 1985

(f) Planned date of effectiveness: December 1985

Section II: Special Bank Implementation Actions

None

Section III: Special Conditions

1. Special Conditions of Effectiveness:

(a) Execution of subsidiary loan agreement between the Government andCVDB (para. 47).

(b) Appointment of a training specialist to head the training division(para. 53).

2. Other Special Conditions:

(a) CVDB to discuss the staffing of its Technical Department with theBank annually (para. '42).

i

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ANNEX IIIPage 2 of 2

(ti) CVDB will1 not alter its Policy Statement or Eligibility Criteriawithout Bank approval (para. 43).

¶ ~~(c) CVDB to maintain indebtedness ceiling of 4:1 and debt-service ratioof 1.15:1 (paras. 45 and 46).

(d) CVBD to maintain a varying interest rate structure for various typesof projects. If CVDB's margin over total resources is forecast toJeacrease. below two percentage points, the Government would allow CVDBto increase the minimum interest rates or take other measures toensure that CVDB maintains a minimum spread of two percentage pointsabove the average cost of its resources (para. 51).

(e) CVDB to recruit a Project Appraisal Specialist and Senior CivilEngineer and appoint two statisticians by December 31, 1985 (paras.52 and 55).

(f) CVDB to prepare detailed training programs by December 31, 1985 andsubmit reports on them (para. 53).

(g) CVDB to submit the first appraisal reports for each suibcategory ofsubproject; tbereafter, free limits of $60,000 and $125,000 wouldapply, depending upon the subproject (para. 48).

(h) CVDB to update ananually its financing plan for Bank review (para. 46).

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