FILE COPY Document ofThe World Bank

FOR OFFICIAL USE ONLY

P- 1843-BD

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A

PROPOSED CREDIT

TO THE

PEOPLE'S REPUBLIC OF BANGLADESH

FOR

BANGLADESH SHILPA BANK PROJECT

May 7, 1976

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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BANGLADESH SHILPA BANK CREDIT: BANGLADESH

CURRENCY EQUIVALENTS 1/

April 27, 1976

Currency Unit Taka (Tk)US$1.00 = Tk 8 (Prior to May 17, 1975)US$1.00 = Tk 15.34Tk 1 = US$0.0652

Tk 1 million = US$65,189US$1 million = Tk 15,340.00

ABBREVIATIONS

BSB - Bangladesh Shilpa Bank

BSRS - Bangladesh Shilpa Rin SangsthaBSIC - Bangladesh Small Industries CorporationGOB - Government of BangladeshBKB - Bangladesh Krishi BankIDBP - Industrial Development Bank of Pakistan

FISCAL YEAR

July 1 - June 30

1/ Effective April 26, 1976, the Bangladesh Taka(Tk) is floating with the Pound Sterling ata rate of Tk 28.00 = Es 1.00. All calculationsin the Report are based on the rate of Tk 30.00= E 1, prevailing before April 26, 1976.

FOR OFFICLAL USE ONLY

INTERNATIONAL DEVELOPMENT ASSOCIATION

REPORT AND RECOMMENDATION OF THE PRESIDENTTO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT

TO THE PEOPLE'S REPUBLIC OF BANGLADESH FOR RE-LENDING TOTHE BANGLADESH SHILPA BANK

1. I submit the following report and recommendation on a proposedcredit to the People's Republic of Bangladesh for the equivalent of US$25million on standard IDA terms, for re-lending to the Bangladesh Shilpa Bank(BSB) to assist in the development of industry. The proceeds of the creditwould be relent to BSB for 18 years including 3 years of grace, at 9% interest.

PART I - THE ECONOMY!/

2. A Basic Economic Report on Bangladesh, entitled "Bangladesh:Development in a Rural Economy" (Report No. 455b-BD dated September 15,1974) was distributed to the Executive Directors on October 1, 1974. Anupdating report entitled "Bangladesh: Current Economic Performance andShort-Term Prospects" (Report No. 1038-BD, dated March 22, 1976) was dis-tributed on March 29, 1976. Annex I contains country data sheets.

Background

3. The Basic Economic Report describes the obstacles to developmentin Bangladesh and outlines a course of action to maximize the country'slimited development prospects. The high ratio of population to natural re-sources, the slow development of the productive and infrastructural base andthe weaknesses of the administrative and institutional framework led the Re-port to project a growth rate of GDP of between 2% and 3.5% per year in realterms over the five years 1973-78, the variations within that range depend-ing on the appropriateness of the policy framework and on levels of aid.

4. Encouraging progress was made in the period immediately followingBangladesh's independence as an enthusiastic Government, supported by mas-sive external assistance, strove to overcome the devastation of the cycloneof 1970 and the struggle for independence in 1971. Large amounts of foodaid were distributed, refugees were resettled and vital port, road and railfacilities were brought back into operations. A new constitution was adopted,and the first national elections, held in-March 1973, brought Sheik MujiburRahman's Awami League party into power with an overwhelming parliamentarymajority.

5. Overall economic progress since independence, however, has beeninadequate. Agricultural output remains insufficient for a population growing

1/ Part I is substantially the same as in President's Report and Recommend-ation on Bangladesh - Technical Assistance Project CD 622-BD, ReportNo. P-1768-BD.

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.

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at 3% a year. Industrial output, heavily dependent on imports, has beenbadly affected by scarcity of foreign exchange. State enterprises have beenhampered by management deficiencies, excessive government controls, shortagesand price regulation. Exports have been stagnant and barely finance a quarterof import needs. Bangladesh has been severely affected by an adverse shiftin its terms of trade since 1973. Trade problems are compounded by dependenceon annual food imports of 1-2 million tons, even in years of favorable weatherand by heavy reliance on imported industrial raw materials. Governmentrevenue has been insufficient to meet current and development expenditureneeds. Bangladesh has had to depend on large flows of external assistanceto meet the wide gap between national output and expenditure.

6. On August 15, 1975 a military coup ousted the government of MujiburRahman replacing him as President with Khondaker Mushtuque Ahmed, formerlyMinister of Commerce and Foreign Trade. However, events beginning on Novem-ber 31, 1975, culminated in further political changes. President Ahmedresigned in favor of a former Chief Justice of Bangladesh, A.S.M. Sayem.Martial law is in effect countrywide, with the new President serving as ChiefMartial Law Administrator. The three chiefs of the defense services areserving as Deputy Chief Martial Law Administrators. The three Deputy MartialLaw Administrators and seven civilians have been appointed to form a President'sAdvisory Council and each of the members has a responsibility for one or moreministries. The new government has confirmed that it intends to introduceeconomic reforms such as subsidy reduction, agricultural taxation and importliberalization. Whatever its longer-term objectives and orientation mightbe, however, the fundamental problems of the country, namely over-population,weak administration, inadequate infrastructure and insufficient reservescontinue to confront Bangladesh.

Current Economic Picture

7. Given this background of fundamental weaknesses in economic struc-ture, inadequate economic progress since independence and political instabil-ity, Bangladesh's economic situation requires persistent efforts at efficienteconomic planning and implementation. On July 1, 1975, Bangladesh initiatedan economic stabilization program in conjunction with a standby arrangementwith the IMF. Its principal elements consisted of a credit restraint programand elimination of deficit financing combined with some import liberalization.This was preceded by a devaluation of 58% in May 1975. The record so far isthat the credit restraint program has been a success: after an estimated rateof inflation of about 80% in 1974, prices declined by 10% in 1975. The Gov-ernment has not merely avoided deficit financing, it has retired some of itsdebts to the banking system. The import-licensing program has been relaxedin the first half of 1975/76; besides increasing allocations to an average of95% of entitlements, licenses have been renewed on expiry and there is greaterfungibility in the use of exchange allocations for selected categories of im-ports.

8. At the beginning of 1975/76 the credit restrictions may have beentoo pervasive and insufficiently selective; jute purchases by tradingcorporations were hampered, productive credit was scarce, and import allo-cations could not be utilized, Measures have been taken to rectify this

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situation. Overall, however, the impact of the credit restraint programon the reduction of the rate of inflation has been salutary. It has beenreinforced by other factors:

(a) The recent Aman rice harvest is expected to amountto 7-7.5 million tons and output for 1975/76 may beabout 13 million tons, representing an increase ofabout 17% over 1974/75. Rice harvests in West Bengalhave also been exceptionally good and prices have beendeclining rapidly there.

(b) The border with India is being policed intensively andsmuggling has dwindled.

(c) The supply position for raw materials has improvedduring 1975/76. Larger import allocations have beenboosted by substantial declines in the prices of keyimports.

(d) Capacity utilization and output have increased in anumber of industries and inventories of finished goodsare higher.

9. The devaluation has made possible a reduction in the price of rawjute exports from the unrealistic level of E 200 per ton (late 1974 and early1975) to E 150 per ton (from July 15, 1975), f.o.b. Chittagong; they now standat a level of E 166 per ton. The reduction in price has led to an increasein sales of raw jute. However, export earnings from manufactured jute goodsare likely to fall in 1975/76 because the large decline in export prices hasnot been compensated by an increase in export volume. The problem is espe-cially acute for jute manufactures because of the international economicrecession, and because of increased competition from India which has reducedtariffs for some products and provided export subsidies for others. Bangla-desh's non-traditional exports have derived benefits from the devaluation,and as a result, these exports may be expected to pick up in the course of1975/76. The total value of merchandise exports is expected to be aboutUS$350 million in 1975/76 compared to about US$400 million in 1974/75. Onthe import side, improvements are noticeable in the licensing program, butimport procedures continue to be complicated. In spite of recent measuresto reduce the role of the Trading Corporation of Bangladesh it continuesto monopolize a substantial part of the import business. It is estimatedthat about 1.6 million tons of food valued at about US$358 million (includingshipping) will be imported in 1975/76. Sizeable imports of edible oil,cement, cotton, yarn, fertilizers and raw materials are also indicated.The total value of merchandise imports is expected to approximate US$1,286million in 1975/76, but import payments are likely to approach US$1,420 mil-lion due to retirement of outstanding letters of credit from 1974/75.

10. For the first time since independence, the availability of externalresources was not the binding constraint on the Bangladesh economy in 1975/76.

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The year began with a relatively high level of foreign exchange reserves(US$265 million). Aid bolstered by the agreement with the International Mone-tary Fund, continued to be at a high level. Excluding IMF assistance (US$106million), the commitment of foreign aid in 1975/76 was about US$945 million,about two-thirds of which was in the form of food and commodities aid. Thelevel of aid disbursement in 1975/76 (including IMF assistance) is expectedto be about US$1,011 million. In 1976/77 it is estimated that approximatelyUS$950 million of aid disbursements will be required.

11. The agricultural sector has done quite well in 1975/76 with over-all production increasing more than 10%; however problems remain. Thesmall-scale irrigation program (comprising low-lift pumps, shallow and deeptubewells) has again fallen short of its target; procedures for the alloca-tion of fertilizer, though much improved, continue to be deficient, andcredit is insufficient and inadequately distributed. Because of the steepfall in the free market price, Government procurement of rice has increaseddramatically - procurement in 1975/76 is expected to approximate 400-450thousand tons - although farmers are still hampered by the stringent moisturecontent requirements and the unfamiliar payment procedures. This has ledto farmers selling their paddy at prices below the procurement price. Thishelps alleviate the Government's budget and storage problems but underminesthe ability of the Government procurement program to provide a floor pricefor rice. Storage facilities for foodgrain have been strained and problemsarising from exposure of foodgrains to the elements are beginning to be ofsome significance. The Government is considering phasing imports of food-grains; in the meantime, efforts are being made to rehabilitate approximate-ly 200,000 tons of derelict storage capacity.

12. In the industrial sector capacity utilization has improved in anumber of industries, especially fertilizer, and the supply of raw materialand spares is more stable. But stocks remain unsold in the case of anumber of consumer products primarily due to inflexible pricing policies;production of the wrong assortment (e.g. in textiles); competition fromimports under the Wage Earners' Scheme; and a reduction in consumer demand(partly as a result of dissaving that occurred during the preceding threeyears of inflation). With a few exceptions, public enterprises are stillgenerally deficient in management and labor productivity, and lack autonomyin the matter of staffing and pricing policies.

PART II - BANK GROUP OPERATIONS IN BANGLADESH

13. After Bangladesh became a member of the Bank and IDA in August 1972,Bank Group operations in Bangladesh concentrated initially on reactivation ofIDA credits for uncompleted projects financed under credits to Pakistan beforethe independence of Bangladesh. Eleven such credits in an aggregate amount ofUS$151.35 million (including US$44.1 million for the repayment of amounts thathad been disbursed under the corresponding previous credits to Pakistan) havebeen made to Bangladesh. In addition, 14 new credits have been made totallingUS$431.7 million. Of these US$275.0 million have been for program credits.The project credits have emphasized agricultural development, but also included

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amounts for population, telecommunications and transport. In October 1975Bangladesh applied for membership in IFC. The Board of Governors have sincepassed a resolution approving this application and Bangladesh is expected tobecome a member soon.

14. The debt service ratio in 1974/75 was 15.9%. For 1975/76, the ratiois estimated at nearly 20%. Negotiations are underway between the Governmentof Bangladesh and the various bilateral and multilateral donors concerningthe assumption by Bangladesh of a portion of the debt contracted by Pakistanbefore Bangladesh became independent. Bangladesh's debt service ratio istherefore expected to increase further ini the coming years. With respectto the Bank Group, Bangladesh has agreed to accept liability for certaindebt for projects visibly located in Bangladesh and completed before inde-pendence. A consolidation loan of about US$54.9 million and a consolidationcredit of about US$31.0 million (based on January 1, 1960 exchange rate) weresigned on February 14, 1975. The Bank Group's share of Bangladesh's outstand-ing external debt is not expected to rise significantly over the next fewyears.

15. Bangladesh's severe balance or payments difficulties require thatincreased amounts of aid be given in a flexible, fast disbursing fashion.Program lending should therefore remain a feature of IDA assistance. Forthe next several years the requirements of existing productive capacity willremain high for the types of goods - spares, components and raw materials -financed by IDA program credits. However, long-term improvement in theBangladesh economy can be expected only [f sound policies, programs, anddevelopment projects are pursued. Thus, projects of the highest prioritymust also be supported. Given its low per capita income, Bangladesh's in-vestment requirements cannot be met entirely from local resources. Inview of Bangladesh's difficult foreign exchange position, IDA credits shouldcover all foreign exchange costs. Taking into account the level of financingexpected to be available from other external lenders, and in order to directIDA lending to those sectors (such as agricultural and rural development)where the percentage of foreign exchange costs is relatively low, the finan-cing of local currency expenditures is also justified.

16. Annex II contains a summary statement of IDA credits and the Bankloan made to Bangladesh as of March 31, 1976 and notes on the status ofexecution of ongoing projects. After an initial slow start, disbursementperformance under the program credits has been good, keeping pace with theestimates made during appraisal. In contrast, disbursements under projectcredits have lagged far behind expectations. Reasons for this include prob-lems associated with release of local funds, clearance of contracts, employ-ment of consultants and appointment of needed staff. The Government ofBangladesh is aware of what the bottlenecks are and recently has taken stepsaimed at eliminating the most pressing of them and speeding up the implemen-tation of projects, especially foreign aided projects. The release of localfunds for projects to semi-autonomous gcvernment agencies now requires oneapplication per year instead of the previous disruptive requirement of quar-terly applications. The approval of the President is no longer required forcontracts and the ceiling for contracts which can be approved directly by theproject implementing agencies has been raised from Taka 700,000 to Taka 10

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million. The requirements that the President approve all consultants'con-tracts has been waived. The responsibility now devolves upon the parent min-istries of project agencies to approve the appointment of consulting firmsfor projects with National Economic Comm-ittee approval, or for project prep-aration activities. Finally, in the area of appointment of staff recentchanges require the Establishment Divisicn and the Ministry of Finance toissue specific instructions making the authorization of the appointment ofstaff automatic in the case of approved projects.

17. Long-term improvement in the Bangladesh economy can be expectedonly if sound policies, programs, and development projects are pursued. IDArecognizes the prime importance of the agricultural sector and of effortsto close Bangladesh's food gap. In this connection the Population, AshuganjFertilizer, Barisal Irrigation and the Karnafuli Irrigation Projects as wellas the Agricultural and Rural Training Project which was recently approved,all fit into the strategy of increasing food production and reducing thefood gap in the future. Other priority projects are at an advanced stageof preparation - many of them in the agricultural sector. These includeirrigation works in the Muhuri area and a shallow tubewell project. In theindustrial field, action programs developed by IDA in connection with theFourth Imports Program Credit (No. 591-BD) and approved by GOB are expectedto strengtheen the efficiency of the two most important sub-sectors -- juteand cotton textiles. While development of the rural sector must have toppriority, the growth of other sectors cannot be neglected. Particularemphasis should be placed upon projects which provide infrastructure for therural sector, or which process or provide outlets for its products, orwhich reduce the strain on Bangladesh's foreign exchange resources. Severalsector studies supported by IDA - for example in industry and transportation(also assisted by the United Kingdom) - should help the Government and IDAtc develop a suitable pipeline of projects consonant with mutual assessmentsof economic priorities. Further economic studies will be or-iented to thesame goal. Finally, IDA has provided funds under the Technical AssistanceCredits to assist the Government in improving project preparation and imple-mentation capabilities.

PART III - INDUSTRY IN BANGLADESH

18. Agriculture dominates Bangladesh's economy and development pros-pects, accounting for as much as 55% of GDP and 75% of all employment.Since 1969/70 there has been no census of industry but estimates indicate themanufacturing sector accounted for some 7-8% of GDP and 6.0% of employment.The growth rate of industrial value added has been twice that of the economyas a whole, averaging about 6% per annum during the 1950s and 1960s. Manufac-tured goods account for almost two-thirds of total export earnings. Industryhas an increasingly important contribution to make to income growth, employmentcreation and foreign exchange earnings and savings.

19. After independence the Government nationalized most medium- andlarge-scale industrial units and the public sector now covers the units that

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belonged to the public sector previously under the management of the EastPakistan Industrial Development Corporation, the units that were owned byWest Pakistani entrepreneurs and abandoned by them during the war, and allthe units in the jute, cotton textile and sugar industr[es. The publicsector now comprises about 350 units with about 250,000 workers and about70% of the fixed assets of modern manufacturing, that is, excluding cottageindustries. These are organized under several industrial "corporations".The private industrial sector now consists mostly of small-scale enterprises.Private medium- and large-scale units exist to a significant extent only inthe pharmaceutical (three foreign owned units), edible oil and steel re-rolling industries.

Performance in 1974/75 and 1975/76

20. During 1974/75 several difficulties were encountered by the juteindustry, which contributes one-third of the value added in manufacturingand employs more than 200,000 workers. Largely due to a reduction in worlddemand, the export of jute manufactures wlhich stood at 380,000 toins in 1974/75was lower than the 1973/74 level by 13% and the 1969/70 level by 24%. Exportsof hessian and carpet backing were severely affected by the deterioration inprice competitiveness of jute vis-a-vis synthetic substitutes, as well as theworld recession. However, high export prLces of jute manufactures during1974/75 resulted in export earnings of US$213 million, an increase of US$19million over the 1973/74 level.

21. The jute industry has benefitted from the devaluation of the Takain May 1975 as well as recent recovery in the world market. During the10-month period of April 1975 - February 1976 the export price of jute goodshad declined by 26% for hessian, 33% for sacking and 17% for carpet backing,and for the first time in many years jute goods are priced competitivelyvis-a-vis synthetic substitutes. Export sales of jute goods during thefirst 8 months of 1975/76 have amounted to 410,000 tons, showing an increaseof 57% over the corresponding period of 1974/75. It is expected that forthe financial year 1975/76, export sales of jute goods will exceed 500,000tons and export shipments will total 450,000 tons, to reach the highest levelsince independence. However, this years projected exports may earn onlyabout US$190 million.

22. The cotton textile industry continued to show improvementin 1974/75 as shown by a 6 percent increase in overall ouput overthe previouus year. However, some decline2s in output of both cotton yarnand cloth may be expected during 1975/76 in view of the excessively highstock position of finished products.

23. Sugar production of about 98,000 tons during 1974/75, exceeded thepre-independence level. However, due to a sharp decline in sugarcane acreage,sugar production during 1975/76 is estimated at only about 86,000 tons. Teaproduction of 67 million pounds during 1974/75, the highest level sinceindependence, is expected to show further improvement in 1975/76, benefitingfrom an improved profitability position after the devaluation of the Taka.Production of fertilizer fell drast-ically from 289,300 tons in 1973/74 to

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100,000 tons in 1974/75 due to an explosion in the Ghorashal plant at thebeginning of 1974/75, which could not resume production until June 1975.Fertilizer output during 1975/76 will reach a level of about 370,000 zons.

24. The paper and pulp industry has encountered serious problems dueto a fall in demand, especially in the export market. Output of paper andnewsprint during 1975/76 will fall below the 1974/75 levels of 25,000 and29,000 tons, respectively. Cement production increased from 53,000 tons in1973/74 to 143,000 tons in 1974/75, due to the commencement of production atthe Chittagong clinker grinding plant in July, 1974. A low level of demandand continuing imports continued to restrict output in 1975/76 to about133,000 tons. Output in the fish processing industry suffered a setback in1974/75 as a result of a poor catch but has shown significant improvementduring 1975/76, benefiting from an improved catch of shrimp and higherprices in the export market. The leather industry is expected to recordan increase both in output and exports dbe to buoyant demand for semi-finished leather in export markets. Production in some import-dependentindustries such as petroleum products and steel products showed some improve-ment in 1974/75, as a result of the high priority given to these sectorsin import allocation; they will not be constrained by a shortage of foreignexchange during 1975/76.

25. The devaluation of the Taka was inter alia intended to improve thefinancial position of export industries, increase export earnings, particular-ly from jute, and help to ease import restrictions by reducing scarcitypremiums on imports resulting from the over-valued exchange rate of the Taka.Although the devaluation was welcomed by the export sector as a long overduestep, some concerns were expressed as to the possible impact on prices, thusaffecting the production costs and profitability of import-dependent indus-tries. Several general observations can be drawn from the experiences duringthe first several months after the devaluation. While the internationaldemand for raw jute increased and export sales rose substantially the exportperformance of jute manufactures in terms of foreign exchange earnings hasbeen modest, particularly due to a decline in export prices dictated inpart by the international econom-Lc recession, although the volume of exportshas increased significantly. But non-jute exports, especially tea, leatherand shrimps, have benefitted from the devaluation through improved profitabil-ity; there has been no significant decline in their export prices, as in thecase of jute. Finally, the impact of higher prices on import-dependentsectors has been mitigated to a great extent as a result of declining pricesof imported raw materials. For example, production costs for cotton yarn andcloth have only increased by about 1-2 percent after the devaluation, due to asharp decline in the C&F price of raw cotton from about 75 cents per pound in1974/75 to 48 cents per pound during the first half of 1975/76. The impact onthe steel industry has also been reduced by significant declines in the pricesof pig iron, steel scraps and other raw materials as well as higher utilizationof productive capacity due to improved availability of foreign exchange.

26. For the first time in many years the stock position of importedraw materials appears sufficient in most industries and industrial productiondoes not suffer from shortages. In certain industries there is an excessive

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accumulat[on of inventories in both raw materials and finished products. Formajor industrial raw materials such as paper, pulp, coal, pig iron, crudeedible oil and steel scrap, the stock leval ranges from four to six months'requirements. Inventories are also high in several important finished pro-ducts such as cotton yarn, cotton cloth, newsprint and billets.

27. Several factors have contributed to the accumulation of invento-ries in 1975/76. The import policy for the period January-June 1975, whichmay have influenced the actual level of imports during the second half of 1975,was quite liberal. Moreover, consumer demand seems to have fallen recentlyas a result of the demonetization of 100 Taka notes and a tight credit policy,while consumer incomes have also remained stagnant. Finally, the separation ofresponsibility between production and distribution of products, combined withthe bonus system for nationalized enterprises, which is geared to levels of pro-duction instead of sales or profits, have contributed to an excessive accumu-lation of inventories regardless of the level of demand for these products.Measures to reduce the high inventories of finished goods shouLd includeimproved coordinat-ion of production and distribution, through furtherliberalization of the distribution network, rationalization of productionplans based on realistic estimates of consumer demand, and proper restruc-turing of the bonus system.

Investment

28. Industrial investment remained at a low level during 1974/75, muchbelow the target set in the Development Plan. The actual development ex-penditures of Tk 415 million for public enterprises during 1974/75 were only60 percent of the planned level. The private investment sanctioned during1974/75 amounted to Tk 144 million, as against Tk 350 million envisaged inthe Industrial Investment Schedule.

29. There are several reasons for the low level of industrial investmentin Bangladesh since independence. Lack of adequate financing, particularlydue to shortages of foreign exchange, and low levels of consumer demand inrelation to the already existing productive capacity have been importantfactors limiting industrial investment, in both public and private sectors.Various restrictions, imposed by the Government since independence, stuch asmonetary ceilings on private investment and the reservation of key industriesfor the public sector, have also contributed their share. A deficiency inproject implementation capacity has been another important reason for theshortfall in public sector investment.

30. The Government has recently taken several important steps to pro-mote private investment in Bangladesh: (i) the ceiling on private invest-ment has been raised from Tk 30 million (US$2 million) to Tk 100 million(about US$7 million); (ii) public sector corporations have been allowed toset up enterprises in collaboration with the private sector, in sectors otherthan jute, cotton textiles and sugar, with the public corporations retainingmajority shares; (iii) the former owners of nationalized enterprises will bepaid compensation according to an announced schedule; (iv) the stock exchange

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will be reactivated; and (v) about 85 public enterprises in sectors such astanneries, food products, and pharmaceuticals will be returned to privateentrepreneurs.

31. These revisions in the Investment Policy for the private sector re-present a signif-icant departure from the earlier policy of the Government onthe role of the private sector and reflect a more realistic approach towardsindustrial development in Bangladesh. The new ceiling of Tk 100 million onprivate investment is not expected to be a serious constraint on an expansionof investment. The decision to pay compensation to the former owners of thenationalized units is expected to have favorable psychological and financialeffects in promoting private investment. Accelerated disinvestment of smalland, in many cases, financially unprofitable public enterprises, may contributeto a better financial performance by the public sector. Although the short-run effects of these new measures may turn out to be small, the private sec-tor will benefit considerably from these changes in the medium and long-run.

32. Public sector investments are certain to fall considerably behindPlan estimates due to delays in project preparation and insufficient financ-ing. The Plan does not attach adequate importance to the need to developexport industries, and the emphasis it accords to new projects rather thanbalancing and modernization seems inappropriate. One of the constraintsaffecting private investments is the length of time and large number ofagencies concerned with approval of investments. During negotiation, there-fore, GOB agreed to undertake a study of the measures that might be takento expedite Government's approval process for investment proposals. Tostimulate investment in export oriented industries GOB also agreed to initiatea feasibility study for export processing zones permitting unlimited duty freeimports. (See draft Development Credit Agreement, Section 3.04.)

33. Investment Incentives. Incentives to new private industriesinclude a five year tax holiday (provided 50% of profits are re-invested),deferred payment and partial rebates of custom duties on machinery, andrepatriation privileges for foreign investors. For export industries,incentives include income tax concessions, and additional raw materialimport licenses.

Industrial Financing

34. The industrial sector is served by a number of financial institu-tions. There are nine commercial banks (six of which are nationalized andthree are foreign owned). The Bangladesh Shilpa Bank (BSB), the beneficiaryof the proposed credit, and the Bangladesh Shilpa Rin Sangstha (BSRS) aretwo specialized industrial financing institutions which give medium andlong-term industrial loans to finance private and public sector projects.A third specialized institution, the Bangladesh Small Industries Corporation(BSIC) extends limited financing to small-scale industries while BangladeshKrishi Bank (BKB) specializes in agricultural financing.

35. Bangladesh Shilpa Bank (BSB) is an important source of institu-tional industrial finance and provides roughly half the medium and long-term debt financing for industry in Bangladesh. In addition to raising

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foreign and domestic resources for its own financing, BSB normaLly requiresproject sponsors to raise from other sources at least 60% of the totalproject cost. GOB intends to have BSB's activities overlap to some extentwith those of BSRS. There is scope for both of these institutions to con-tribute to industrial development and the competition could prove beneficial.

PART IV - THE PROJECT

36. The project was appraised in March 1975. A credit and projectsummary is given in Annex III. A report entitled "Bangladesh: Appraisal ofthe Bangladesh Shilpa Bank" has been circulated separately to the ExecutiveDirectors. Negotiations were held in Washington from March 22, 1976 toMarch 25, 1976. The borrower was represented by Mr. Syeduzzaman SecretaryMinistry of Finance and BSB was represented by Mr. A.H.M. Kamaluddin,Chairman and Managing Director.

BSB's Role

37. The Bangladesh Shilpa Bank (BSB) is the successor to the formerEast Pakistan wing of the Industrial Development Bank of Pakistan (IDBP),and is responsible for providing finance and technical assistance to indus-trial enterprises. GOB confirmed that BSB's financing role would be expectedto continue to include the financing through loans (both short and long),equity investments and guarantees of public and private sector industries,for new and expansion projects as well as modernization, balancing and re-placement projects.

Ownership and Resources

38. BSB's Tk 50 million of share capital is owned entirely by GOB.As of December 31, 1975, BSB also had Tk 167 million of subordinated Govern-ment loans, Tk 97 million of deposits (3 years and above), Tk 40 million ofoutstanding debentures (held by commercial banks), and Tk 9 million of centralbank borrowings. In addition BSB's FY75 balance sheet provides for a contingentliability of about Tk 588 million for past IDBP borrowings (primarily from for-eign creditors) for which the allocation of responsibility between Bangladeshand Pakistan is still the subject of negotiations. Foreign funds received byBSB include a US$12.6 million credit from the Asian Development Bank, a Dtf 3million loan from KfW which is not yet effective, and two tied credits fromIndia aggregating US$3.1 million.

39. At June 30, 1975 BSB's ratio of debt to equity plus subordinatedloan was only 3.4:1. However, in view of the expected rapid expansion inBSB's level of activities, additional capital will be required in order toremain within the 5:1 debt/equity limit. GOB recently converted Tk 150million of its Tk 167 million of subordinated debt to reserves. At inde-pendence, BSB informally assigned to itself the liabilities of IDBP thatcorresponded to assets in Bangladesh, though this has not been formally

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recognized by GOB. In addition, GOB agreed to increase further BSB's equitywhich may be needed to offset any additional liabilities of BSB's predecessorsin excess of the amounts set aside for this contingency in BSB's balancesheet. (Section 3.05 of the draft Development Credit Agreement and Section3.05 of the draft Project Agreement.) Finally as a condition of effectivenessGOB agreed to provide BSB with Tk 50 million of additional equity capital.

Board, Management, and Staff

40. BSB's first Board of Directors was appointed in early 1975, andconsists of a Managing Director as Chairman, three GOB officials and tworepresentatives from the private sector. GOB intends to strengthen the Boardby adding at least two more Members who have had experience implementingindustrial projects. In order to strengthen the top management, and as acondition of effectiveness of the proposed credit, BSB has agreed to-appointa Director of Operations and a Chief Accountant both with suitable qualifica-tions and experience. BSB's management and professional staff are experiencedand well-qualified. However, BSB is in urgent need of additional staff towork on appraisals, follow up, and internal accounting. Also, externaltechnical assistance to be financed by UNDP, with IDA as executing agency isneeded for economic project analysis, project promotion, accounting andmanagement information and control systems. Thus BSB will employ two experts,one in economic appraisal and a second in accounting and information systemseach with qualifications, and experience acceptable to IDA. Hitherto, BSB,like all other public sector entities, had to obtain Government approval ofits general staffing plans, recruitment and promotions. In fact, the PublicService Commission selects BSB staff. Although the BSB Managing Director sitson PSC during selections, the system causes recruitment delays and preventsselection of suitable staff. GOB confirmed that recruitment of lower gradeBSB staff will be exempt from Public Service Commission and that most highergrade staff selection would be made by a Special Selection board includingthe BSB Managing Director and other representatives. GOB would continue toappoint the Managing Director, General Manager and Deputy General Manager.

Operating Policies and Procedures

41. BSB prepared a Strategy Paper outlining its institutional objectivesand financing priorities over the next few years (see Annex 15 of AppraisalReport). The Strategy Paper gives appropriate emphasis to the improvementof BSB's follow up on existing projects, most of which are in arrears. BSBfuture financing priorities are consistent with those of GOB, although BSB'sStrategy Paper represents a further definition of its own investment prioritiesbeyond that provided in GOB investment schedules. In general, BSB will givepriority to export industries and industries based on domestic raw materials.Balancing, modernization, and replacement of existing plants will be givenpriority over new investments. BSB will avoid financing projects in sectorswhere there is significant underutilization of existing capacity. BSB hasdemonstrated an ability to perform thorough technical, financial, and eco-nomic project appraisals. Further improvements are possible, particularly indeepening management and staff understanding of economic analysis of projects,which BSB began only in 1974.

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42. BSB's procurement and disbursement procedures are satisfactory.BSB requires project sponsors to obtain alternative quotations on equipmentpurchases and large construction contracts; in some cases it seeks out quota-tions on its own to check those submitted by sponsors. BSB's follow up onprojects in operation is inadequate. The most serious organizational defi-ciency at present is the lack of a management information and control system.

Past Operations

43. From the establishment of IDBP in 1961 through June 30, 1970, thatinstitution approved about Rs 1 billion of financing to over 1,000 projectsin what is now Bangladesh. New approvals aggregated little more than Tk 100million during the following three year period due to disturbances coincidingwith independence and BSB's lack of foreign exchange. BSB then received acredit from the Asian Development Bank (ADB) and approved Tk 76 million ofloans in FY74 (ending June 30), and Tk 268 million in FY75. By early 1975,BSB's commitments and disbursements had just began to reflect its return tosubstantial approval levels.

44. BSB's lending reflects the sectoral distribution of Bangladeshindustry in general; nearly three-fourths of its loans have been for juteand cotton textiles. Other sectors include food and beverages, paper, non-metallic minerals, metal products, and services, all of which are consumer-oriented. Historically, the average size of BSB's loans has been aboutUS$200,000. BSB has provided Tk 17 million to 400 small-scale enter-prises (total fixed assets under Tk 2.5 million). About 40% (by amount)of BSB's outstanding loans are concentrated in the three cities of Dacca,Chittagong, and Khulna, but BSB's pipeline of new projects indicates awider geographical dispersion of investments. In the past, most of IDBP'sinvestments had been to private sector companies; however, many of thesehave since been nationalized (particularly jute and cotton textiles).Over 60% of BSB's future investments are expected to be in the publicsector.

Portfolio and Financial Results

45. As has been the case for Bangladesh industry in general, BSB-financed projects suffered damages and severe disruptions during the in-dependence movement. The operations of many firms have also been hamperedby the loss of markets in and supplies from Pakistan, as well as shortagesof imported inputs. Primarily as a result of these factors, but in partdue to inadequate collection efforts by BSB, over 70% of BSB's portfoliois affected by arrears.

46. About 54% of BSB's portfolio is in the jute industry. Aside fromother factors mentioned above, arrears on BSB's jute industry loans are theresult of Government pricing and exchange rate policies, and a moratorium onloan repayments imposed by the Government. in 1973. The Government intendedthat the moratorium would last for five years following which new repaymentschedules would begin. As a condition of effectiveness, BSB will sign

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rescheduling agreements for all its outstanding jute loans on terms satis-factory to IDA. GOB and IDA have reached agreement on special arrangements toprotect BSB from the dangers of future default on its jute sector loans madeprior to December 16, 1971. In the event that a default occurred on a BSBforeign currency loan to a jute enterprise in any financial year, GOB wouldreduce the amount of the next scheduled repayments by BSB on its obligationsto GOB in the subsequent financial year until the sum of reductions equalledthe default amount. In case of a local currency default on a BSB jute loan,GOB agreed to provide BSB with an interest-free loan equal to the defaultamount, convertible to a grant or contribution to BSB equity if BSB wereunable to collect the outstanding debt within two years after the default.These arrangements, however, would cease to apply to any outstanding debt froman enterprise which has received a new loan from BSB, or an enterprise whichis judged financially sound and should therefore be able to service its debtobligation. Though the above arrangements would largely absolve BSB from thecredit risks on its jute portfolio for the time being, the deferred GOBcompensation to BSB for defaults would encourage BSB to continue collectionefforts to improve its liquidity position. (See draft Development CreditAgreement, Section 3.06).

47. About 26% of BSB's portfolio is in non-jute public sector enter-prises. BSB officials have met with public sector corporations and haveagreed on target dates for repayment of outstanding arrears. As of February1976, BSB had collected 92% of its FY76 collection targets from both publicand private sector projects excluding jute. Also, BSB has visited privatesector clients which have not made payments in the last two years, as wellas a sample of its small scale industry clients, and in each case has eithermade collections, rescheduled or initiated legal proceedings against them.

48. In addition to the above, IDA discussed with BSB several generalmeasures BSB can take to improve its collection activities, and follow up ofprojects. BSB proposed to increase the number of professional staff workingon follow up, to supervise ongoing projects more closely, and strengthen in-ternal reporting and review procedures to keep management fully abreast withproblem projects.

49. Inadequate data on client operations, uncertainties regarding BSB'sresponsibility for past IDBP borrowing, lack of qualified accounting staff,and deficiencies in accounting procedures and methods resulted in unsatis-factory audit reports for BSB in FY73 and FY74. A satisfactory long-formaudit report prepared at IDA's request on BSB's FY75 accounts indicates thaton the basis of a case by case review of BSB's portfolio, Tk 178.9 million inprovisions for principal and overdue interest were required. However, thisincluded Tk 134.9 million representing provisions for jute enterprises. Thus,it is estimated that BSB required Tk 44 million in provisions of principal andoverdue interest for non-jute loans at the end of FY75 while actual provisionsamounted to Tk 70.9 million. At the same time, the auditors also recommendedthat BSB make equity provisions of Tk 3.8 million which is more than coveredby the excess provisions.

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50. BSB's net income increased from Tk 2.6 million in FY72 to Tk 13.8million in FY75, which was about 6% of equity plus subordinated loans. BSBenjoys an average spread on borrowed funds of over 4%. Its administrativeexpenses are less than one percent of average total assets. At independence,BSB informally assigned to itself liabilities and a portion of the equity ofIDBP that corresponded to assets in Bangladesh. GOB has not yet recognizedthe major portion of these liabilities relating to external credits, 1/ andBSB is therefore not currently making any repayments on them.

Objectives and Features of the Credit

51. BSB is likely to require a total of about US$44 million to coverits foreign currency financing requirements through 1977. Against thisit now has only US$3 million equivalent in tied credits from India andUS$1.25 million equivalent from KfW. A US$25 million credit to BSB isrecommended to meet part of its foreign currency commitment requirementsthrough calendar 1977. ADB is willing to consider an additional loan ofUS$15 million to BSB once the proposed credit has been substantiallycommitted to fill the balance of BSB's resource gap during this period.The above approach provides for an IDA coinmitment period of only 18 monthswhich is appropriate given BSB's present difficulties. The objectives of thecredit would include: (i) stimulating the development of industry, with aconsequent favorable impact on employment, incomes and foreign exchangeearnings and savings; (ii) helping to create a more favorable policy climatefor investment in export-oriented projects; and (iii) helping to restore BSB'screditworthiness within a reasonable time frame through an agreed program ofaction to strengthen its soundness and effectiveness as a development bank.

52. The IDA funds would be re-lent by GOB to BSB at not less than 9%and re-lent by BSB to its sub-borrowers at not less than 12%, with the lattertaking the foreign exchange risk. The free limit should be set at US$150,000and the aggregate free limit at US$6 million. These limits would allow IDAto review about 25% by number of the subprojects to be financed by BSB cover-ing at least 76% by amount of the total credit. IDA will disburse againstwithdrawal applications to finance 100% of the CIF cost of direct imports, 70%of the invoice price of previously imported goods purchased within Bangladesh,and 25% of construction costs (representing the import component). The amor-tization schedule for the GOB loan to BSB (of 18 years including 3 yearsof grace) should be the aggregate of the amortization schedules of the BSBsubprojects, with a maximum maturity of 15 years from the date of subpro-ject approval by IDA.

PART V - LEGAL INSTRUMENTS AND AUTHORITY

53. The draft Development Credit Agreement between the People's Republicof Bangladesh and the Association, the draft Project Agreement between the

1/ The part relating to a previous IDA Credit to IDBP (177-PAK) has beenrecognized by the Government.

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Association and BSB, the recommendation of the Committee provided for inArticle V, Section 1 (d) of the Articles of Agreement, and the text of adraft resolution approving the proposed credit are being distributed tothe Executive Directors separately.

54. Features of the draft Development Credit Agreement and draft Pro-ject Agreement of special interest are referred to in paragraphs 39 and 46.

55. The following would be special conditions of effectiveness ofthe proposed Credit:

(a) that BSB has appointed a Director of Operations and aChief Accountant, both with suitable qualifications andexperience;

(b) that BSB has appointed an expert in economic appraisal and projectpromotion, and an expert in accounting and information systems,each with qualifications, experience and terms and conditionsof employment satisfactory to the Association;

(c) that BSB has signed rescheduling agreements acceptable tothe Association with each jute processing enterprise havingoutstanding debt to BSB; and

(d) that GOB has provided Tk 50 million of additional equityto BSB.

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

PART VI - RECOMMENDATION

57. I recommend that the Executive Directors approve the proposedCredit.

Robert S. McNamaraPresident

May 7, 1976

ANNEX IPage I of 4 page.

TABLE %ABANGLAOESM SOCIAL INDICATORS DATA SHEET

LAND AREA (TMOU KMi)................ ........................ ~~~~~BANGLADESH REFERENCE COUNTRIES (1970)

TOTAL 302.8 MOST RECENT IONSA tDAMLYTAGAIC. 97.1 1960 0970 ESTIMATE NOEI NDAMLYI

GNP PER CAPITA CUSS) 5. 00 8. 0. 1. 0.….. . . .. . . . .

POPULATION AND VITAL STATISTICS............................... ~ ~ ~ ~ ~ 15.6 38.1 10.9POPULATION (MIn.YR. MILLION) 53.9 70.8 70.015.

POPULATION DENSITY .0 180 3 0PER SQUAQE Km. 317,0 496.0 508.0 10 180 3.PER S0. KM, AGRICULTURAL LAND... 745.0

VITAL STATISTICSCRUDE BIRTH RATE PER T4OUSAND 47.0 00.0 07,0 02.0 38.0 30.0 /aCRUDE DEATH RATE PER THOUSAND 20.0 21.0 1 7.0 20.0 06.0 To0 7-INFANT MORTALITY RATE C/YHOU) . 100.0 130.0 . 1300 00.10 7a

LIEEXPECTANCY At BIRTH (YR5) 48. 08. 4080 07.0 50.0 60.0 T.GROSS REPRODUCTION RATE 3.5 3.1 . 3.22.28

POPULATION GROWTH RATE (I)3 3.TOTAL *. 2.7 2.6 2.02.31URBAN ... .3.6 4.0

URBAN POPULATION (0 OF TOTAL) .. 7,0 17.0 20.0 29.0 Ia

AGE STRUCTURE (PERCENT)420 S0a0 To IA YEARS 47.0 *. 4009 44.1 0.0 A./15 TO 60 TEARS 49. 1 52. 2 53.0 55.0 52.0 7;65 YEARS AND O9CR 3.9 . 2.9 2.9 3.0 a __o

AGE DEPENDENCY 90112 1.0 . 0.9 0.9 0.8 0.9/aECONOMIC DEPENDENCY RATIO I0.6/-A 1. .4/a .1 .2 /a I b7ia

FAMILY PLANNINGACCEPTMRS (CUMULATIVE. THOUJ) ... 259.3 11300.0 220 .0USERS (0 OIF MARRIED WOMEN) . .. .. 8.0 /a

EMPLOYMENT

TOTAL LABOR FURCE (THOUSAND) 17100.0 22300.0 26200.0 . 2210,00.0 lb ?9 00 0Ia

LAROR FORCE IN AGRICULTURE (0 76.0 71.0 ... 1.0 707T.07JNEMPLOYED (% Of LAB,OR FORCE) t.. 5.0 /b 2.0 / 3 .0 Ic 6. o7ab

INCOME DISTRIBUTION

S Of PRIAATE INCOME REE'D BY-HIGHEST St OF HOUSEHOLDS 16.34 t 0b7/a . 25.0 /U 28.3HIGHEST 20: OF HOUSEHOLDS '40,5 02.3 7a 5. i 7- 3b.5LOET 200 OF HOUSEHOLDS 6 9b 7.9 7ia7 ' LOMEST 400 OF HOUSEHOLDS l7.97rb 19.67; . . 13.1 ~ I

DISTRIBUTION OF LAND OWNERSHIP

I OWNED BY TOP 10t OF OWNERS .. 3R.0 /b ...

I OWNED By SMALLEST 100 OIWNERS 7booh.. . ..

HEALTH AND NUTRITION

POPULATInN PEP PHYSICIAN 10000.0 4 7600. Ic 0000.0 27650.0 0800.0 3860.0/a cPOPULATION PER NURSING PERSON I1I0 0 000 I 720 30.7 77008100 51.0 08. I. U~POPULATION PER HOISPITAL 8E iiooo.o 77 8120 . 7~ 6 7 90 .0 1 720.0 1620.0 27 0 o70

PMER CAPITA SUPPLY OF CALORIES (0 OF REQUIIREMENTS) .. 80.0 89.0 93.0 93.0/aY.5PROTEIN eGRAM§ PER DAT) *.. 00 0 43:.0 53.0 49 0) -e

-OF WHICH ANIMAL. AND PULSE . .. 14. 16.0 20 07

)EATW RATE (/THOU) AGES l.4 ... . .. .5

EDJCAT ION

ADJUSTED ENROLLMENT RATIOPRIMARY SCHOOL 42 .0 I. 0.0 /e 56.0 69.0 68.0 89.0 IDSECONDARY SCHOOL S.0Z 15.0/c . 12.0 28.0 30 .07YEARS OF SCHOOLING PROVIDED(FIRST AND SECOND LEVEL) 10.0 00.0 10.0 12.0 12.0 13.O.0/8VOICATIONAL ENROLLMENT(0 OF SECONDARY) . 1.0 .. 28.0 6.0 L/e .LoAUTLITEBIACT RATE (I .. 30. . 7.0~

HOJSTNG

PE;RSN PER ROOM (AVERAGE) . .. 2.3ICCIIPIED DWELLINGS WITHOUTPIPED WATER (0) ... .. . 65.0/&ACCESS TO ELECTRICITY(0 OF ALL DWELLINGS) ... . . 3.0RURAL DWELLINGS CONNECTEDTOI ELECTRICITY (0) ... ... 30 .0

C0NSUMPTION

RArDO RECEIVERS (PER THOU POP) ,, 6.0 ,.110. 210 01..PASSENGER CARS (PER THOU POP) . 1.0 0.0 2.0 ~ 1.0' 25.0ELECTRICITY (KWH/YR PER CAP) 3.0 - 11.0 3 2. 0 20.0 11 1.0 366.0/NEWSPRINT (KG/YR PER CAP) .. 0.2 0.2 0.1 4.0

SEE NOTES AND DEFINITIONS ON REVERSE

ANNEX I

Page 2 of S pages

NOTES

Unless otherwie noted, data for 1960 refer to any year between 1959 and 1961, for 1970 between 1966 and 1970, end for Host Recent Estimate between1971 end 1973.

en Selection of Malaysia as an objection country is based on Halysia's succes. in, naintaicing a high rats of econocho growth end an adequate1enel of welf.ar wcoureotly with diveroifing its ec-onmic strcctore.

BANGIADFSH 196 Z., Ratio of population under 15 end 65 end over to total labor force; lb 1963-6h; /c Registered, sot elipracticing in the coontrY; /d Government hospital sotabliohoents o-.Iy; /e Apprraicate enrnill,olan . percentage ofpopulation in 6-10 end 11-15 age groups reapectively.

1970 /- 1966-67, /b 1967-60; /. Iio6iierard, z.t all practicing in the country; /d Governet hospit-al eabslanaonly;/a Apprxidmte enrollmet an percentage of population In, 6-10 and 11-15 ae. grops renpectively.

MOST RECENT ESflMTfE: g,Ratio of popula.tion unde~r 15 and 65 and over to Ltota labor force.; b Mainly unemployed workers seekingtheir first job.

INDONESIA 1970 L Registered applicants for work.

INDIA 1970 L RatIo of population under iS end 60 and ever to labor force age 15-59 yearn; /b AID soticate cf labor force in agegroup 15-59. IBND-report gives a figure of 180.5 million based on 1971 population cenns.. The difference in due tochanges in the definition of a worker. In the 1971 cannon, Persons were clasnified onlY on the baom of their mainactivitien. This ied -to the exclusion of several categories such as housew ives; /. Registered applicants forwork; /d 1967-.68; Ie .1965.

hAI.hYSIA 1970 ~ West Malaysia; /b Registered applicants for work; /c Registered, not all practicing is the country,; /d Governmentonly; Ie 196L-66; If 1967; /& Piped Water inside. _

R7, April 30, 1976

DEFINTTIONS OP SOCIAL INDICATORS

Land Arcs Inhoc k. PPoplation,prnrinprc - Pcpolstion divided~by stacer af practicingTocal1 Total sorfeoc area omprislog land are.aend island waters, male and femIale graduate uss "trained' or "certifisd" cormes, andAgri..- Most fenest estimate of sgricolt-rl aces ued tanpnrarily or per- asiliary persn-ei with training or coporience.massnily for cropo, psstoreo, mariet & kitchen gardens or to lie fellce. Population per hospital bed - Popoiwntom divided by stonber of hospital

beds avil able in pubic sod private g-o-rl end opecislied hospitalGNP per macit. (US$) - asP per capica eatboates at narket prices, melon- and rehabilitation centers; ecolodes nursing hons and .estbisheiets

lsted by sane ecvreice method as World Bosh Atl.a (1972-74 basis), for cas todial and preventive care.Per cacita supplv of calories 17. of requireets) - Coapoted from

Popolatios sod vital aI itiscc energ eqIva1ent of net food sopplies available is coontry poerPopulation (mid-yr. milflimo) - As. of Icly firer- if not available, averge capita pot day, available supplies cenprine done-tic productioc, importsof two ed-year enti.atem. les eporls, and changan is stork; net nupplies eaclude animal feed,

seeds, quantinls used in fend proce.ssing and looses in distribution;ropolotios dennirv - per 5000- be - Mid-year popalatims per qosre kills- rqotr_nts were eanti,and by FAO boned on pbyaielogical seeds fnrmacetr (.100 hertare-) of total area. snral activity and health cons-idering enionetltemporsture, bodyP.,cltcos density -per square beoCgic ad -fopotad as above fnr weighta, age and sea diatributicns of population, sod allowing 1I7% faragri-1ltoral land only. asote at household leve.I

Per capita supply of protein (gras per day) - Protein content of perViral scotistica capita net supply of food per day; net supply of fold is defined -eCrudc birth rate per tha.....d - Au.cool live births per thouns-d of nid-yesr shows, req,,lresot for a1ll costries entabliahed by ESDA Econoic

population, macally flee-year overages ending in 1960, 1970 and 1970 for Resea rch Services provide for a niimen a11wnce cIf 60 gras,s of totaldeveloping couctries. protein per day, and 20 grams of onial and pulse protein, of which

Crode death rote par chooses; - An...aI deaths par tho.....d of aid-year 10 grene shouid he animal protein; these stndards are tosse thanpnpclotion, uscaily five-year avcrageo endini in 1960, 197i and 1971 for chose af 75 gnoae of total protein and 23 grae of animal protein Isodevelmping countries. an overage far the word, prcpooed hy FAO in the Third World Food

Infant mmrcality race 1/thoc) - AnnualI deatho of infantc cadet one year of Survey .age Per thousand live birthn.. Par capita protein supply iron animal and pulse - Prntein supply of

Life enpemtancy at birth lyre) A-Avrage nember of pears af life remining fond derived iro n simois and pulses in gram per day.at birth, -eclly fier-year averages ending in 1960, 1970 sad 1971 for Death rote f/thou) aces 1-4 - A-..Il deaths per thousand in age group 1-4developing countries. years, to children io thin age gtroup, ncggen~tad asoindicator of

Ir..c reproduction race - Average nonher of live danghiera a wa.. w ilt asInutritin..hear in her norma reproductive period if sbe empetiencee present age-opemifie fertility rates, anca1ly five-year averages ending in 1960, 1970 Educationand 1975 for devloping coutrisa. Adjusted enrollemo rtio - DliIuN,,,ah.ol - Enroi1ment of all agen as

P,oaia rwh rate (71) - total - Conpond casual growth ratea of aid- pecoaeo rmry schcml-aga population, include.; children agedyear popolati`o for 1950-h, 1988-70, and 196i to moat recen.t year. h-il ya-ra but adjusted for different iengths of pebiary education,

Poplai-m growth tate (7.1 - urhas Conputd.Dike growth rate of total far c-ustriem with univerna1 education, esrol11ent any enced 1007.pcpulatioa; diffor-tn definitionsc orban aree may ofit conpar- since -on pcpil are below or above the offlIcIa sebme1 age.bility of data anong cauatries. Adlunted enrollment ratio - secondary aehmol - Cemputed as above,

Urban popalation 17. of total; - gatic of crbon to tmtsl popolation, diffe- secondary educa.tion tequires at leaSt f-nr years of approved primarytent definitions of rrhn areas may affeet conparability cf data -nmg ins tructim.. provides eerl vocat ioa .. mr tarbehr crainiag

rm"tries. ins troctiona for pupils of 12 to 17 yearn of age, correspondenceAce structure (pleret) - Children (0-i4 years), wmrking-age (15-hi years), coutas ore generaily e..oloded.sdrtired (ho yearssd over) as petrentages of aid-year popolation. Yeora of s.cholin poied (.first sod second levela) - Total years of

Aqe depeadeocyr ratio Rtio of populatio ncder 15 and 65 and over to ochoaIng t neccadary level vonatinna.l instruction nay be partiallythose of aes,, 15 throogh hi. or cempetey encluIded.icei dependency ra tic - Ratio of population under 15 cad h5 and ovet Po-t=Ima enrollmet (7. of aecondan - Vocetio..al inctitutloasto the iabmr force in age group f 1.5-64 yeats.. include teohnimal, induoctria1 or other programIs which operate lade-

fanily Pl-mainj,,-aoce1 tsrs Ccconlive. thou) - Cemlative asaber of pendentlp at as departments of necondary inatitutioms.acc eptors of birch-cotrol devices Under uspines of national1 family Adult literacy rate 17.) - Lticrate adults (able to red aod write)a

poigpragansic inception, percentage of total adolt popolatin aged 15 years and over.P..Ily Pla_nm g rmees 17 of mrie omn Percentages of marred

w.-e of child-bearing age (15-44 years) who con birth-eoatrsl devices pesousineg v..en-e o .. e r-ito oll married woe in sam age group. BPe;oo p rcon(vrg)-Aeae,etfproapttnei

occupied con"entional dwellings in ocban areas; dwellings eclude non-E.nplsymnt perIun,ot structre and mon...spied perts.Total labor force thousoand) - Ecosoulcally active persona, incleding Occupied dweIlini wihotpiedwter_(7. - Occopied rooventiona1.-Ied force -S and onmplyed hot emeludiog hoscewives, students, etc.; dweiling is urban and r-ral areas without ina ide or outside pipeddeinti-iom in various omotries are act conpoable. water ftacIitIeI asIpercetage of all m..copied dweiliiga.

Labo rforce in agiulue 7) - Agricultural labor force (ia faneing. Acoes to elecrcty 7 oCl deig) -Covetional dwellings withUforestry, busting and fishing) as percentage of total labor force. ectity nliving q-t-er as percent of total dwellings in urbanaUneplyd (. of labor force) - Unemloyed ate usually defined an persona and rural areas.wha are able and willing to take a Jab, met of a job on a given day, Rura1 dwellings coonnected to 1eletricity 1.), - Competed an bhave forremained sout of a Job, and oeekimg work for a opoified m.inio Period cral. dwellings only.not e..ceeding one wek; may act be cemparable between coutries doe todiffereot definitions of oneployed and source of data, e.g., empiy- Coem.Ptionnest office statistics, sasple noreyn, coops1sory onempimynet insutance. Radio ceceivero leermthIqHjogj - All typos of rcienf or radio brood-

casios to general public per thousand of population , -ncludes ulice-sedIThe,ne distribution, - Percentage of private iacrme (both in cah end hind)reivs in, cootrien and in years when ragiotration of radio setswareneived by richest 57., richent 207., poorest 207., sod poorest 407. of in effect; data for recent yearn may not be conparable lco. mosthouseoldo. romarine, bh1ibed licensing.

Pane:enger cars (pet thos poc) - Po...neger cars cmprise motor care nestingDistribution, of land o -shesik - Percen.tages of load owed by wealthiest lee than eight per.on.a; emclsdea anbulanen, hearses and ililtary

0_-I5nT`pm-ieiCt-TO- ojf lead_ ownet. vehicles.

Realth an_d Nutrition Electricity (bob/yr per cap) - Amanal monnonpti- of industrial, roamr-Iel, pcblic and private eie-tricity in kiln.,tt hoarn per capita,

Population per physicia - Population divided by nusber of practicing genrally based on prodnetion data, without al1owance for lossea inphyaicisns quaJified finm medical school at univetsity 1ove. grids but allowing for imports and eoportt of electricity.

NowoPrt 1kg/n per cam) - Per capita sansal1 rosseption Is kilogramsestimated from donIestic production plus net imports of neweprit.

ANNEX IECONOKIO DVEtDPMP~~~~~4T ~~TA Page 3 of 4 Pagea

(AmounE2ts n iinso . .M SM.3dollars)

-Actual Proected 19 60.1 19 65 - 19 73 - 19 75 - Av.Av.1967-69 1972/73 15973/74 94/5175697/77 165./ 97 19 75 197 9669 97349756

NATIONAL ACCOUNTSIn Consta nt 1972/I1973 Prices & Excha,*e Rates Averae Annual Growth Eaten As Percent of GDYGross Domestic Product 6,012 5,663 6,201 6,325. 6,800 7,100' 4.7 3. .7 5.9 98.~5 101~.8 101.6Gains from Terms of Trade (4-) 89 - -109 -83 -106 -118 1.5 -1.8 -1,6Gross Domestic Income 6101 5.3 9 60-92 6,242 -9 8 5.6 2. 5.0 5.5 t0ru tU

Import (incl. NFS) 879 747 617 687 817 777 20.6 6.8 -4.1 6.3 14.4 10.1 12.2Exports "(import capacity) 598 373 220 252 246 279 12.3 -14.6 -17.8 5.2 9.8 3.6 3.7Resource Gap 281 374 397 -T- -3r1 49 27 -r. 8.5-

Consumption Expenditures 5,668 5,800 6,226 6,424 6,870 7,158 5.7 3.6 5.2 5.6 92.9 102.2 102.6Investment 1 (incl. stocks) 714 237 263 253 395 326 13.3 8.8 3.3 13.5 12.9 4.3 5.9

Domestic Savings 433 -137 -134 -182 -176 -172 4.3 10.0 -15.3 2.9 7.1 -2.2 .12.6National Savings 416 -113 -99 -153 -148 -132 8.7 20.5 -16.4 7.7 6.8 -1.6 -2.2

MERCHANDISE TRADE Annual Data at Current Prices As Percent of Total

Imports . 100 135 135 155 210 12.9 23.2 . 16.9 12.1capital goods . 176 237 379 388 411 46.7 4.1 . 25.8 30.2Intermediate goods (a"fuels)

-F'uels and related materialsof which: Petroleum . 23 87 155 145 152 159.6 6.0 . 9.5 11.3

Con tn goods 42 3 .....U 598 577 __ _ 30.9 -8.8 .. 47.8 46.5Tota Mec.5prt df 47 727 918 1,0 7,286 73 378.9 -0.110. 100

Exportsprieasy products ~a,s2. fuels) . 146 153 113 130 166 -12.0 21.2 . 41.1 39.2F'uels and related materialsof which: Petroleum

M4anuat Regoods 193 219 246 202 239.12.9 2.6 . 58.9 60.8Toa Mrh. EKports (fob) -. 9I 33 3~72 3 3. . 2. . ~ ~ TTourism and Border, Tradie

Merchandise Trade Indices 1972/73 100Export Price Index 61 100 108 130 114 122 14.0 -3.1Import Price Index 52 100 156 191 172 189 38.2 -0.5Terms of Trade Index 118 100 69 68 66 65 -17.5 -2.2Exports Volume Index 148 100 102 84 91 103 -8.3 10.7

VAWJE ADDED BY SECTOR Anrumal Data at 19 7YZ Prices and Exchange Rates Average Annual Growth Rates As Percent of Total

Agriculture 3,542 3,402 3,788 3,713 4,100 4,200 4.5 6.4 59 61 60Industry and Mining 47281, 467 495 530 6.5 65Service 2_8_8 ____ _1_941 2.145 2,0 ,7 7__7 ____ -Z q 3Total 6,012 5,663 6,201 6,325 6,800 7,100 5.7 5.9 100 100 100

PUBL.IC FINANCE As Percent of GDP-(C'entral Government)

Current Receipts 317 280 400 471 576 615 29.7 14.3 5.3 6.5 8.5Currentxenius 365 364 450 420 534 555 7.4 15.0 6.1 7.2 7.8

Bogtr avings -48 -784 --5 0 51 4 2 g60 -0.0 -0.7 0.7Other Pablic Sector . . ... ...Public Sector Investment 421 213 23 2 8 7 . 0. 7.0 38 4.

us $ million ~LlCURRENT EXPENDITURE DETAILS Actual Est. Proj. DETIL ON At end 1972/V and ERAs % Total Crrent Expen.) 1969/70 197Z 1947 1975/76 PUTBLIC SECTOR First Plan %of Total

Education . _r 14.7 155 8. INVESTMENT PROGRAM (19 73/54 -1977 /78)Other Social Services . 4.0 3.8 4.3 4.7 Social Sectors 758 15.3Agriculture and Agriculture 1,302 26.4Other Economic Services. 11.2 8.4 7.2 7.1 Industry and Mining 1,024 20.7Administration and Defense'. 67.4 69.0 68.0 66.7 Power 529 10.7Other . 2.7 4.1 - 5.0 6.5 Transport and cosmmnications 802 16.3Total Current Expenditures 100.0 1700.0 100.0 100.0 Other 524 10.6

_________ _________ _________ _________ _________ _________ _________ _________ Total Expenditures 4,940 100.0

SELECTED) INDICATORS, 1960- i965- 1970- 1973- FINANCING(Calculated from 3-year averaged data) 1965 1970 197 1978Average ICON .. 374 . 1.88 Public SeOtor Savings 784 15.9Import Elasticity .. 1.29 . Program aid counterpart 2,022 40.9MEirginal DDmestic Savings Rate .. 0.22 .. Foreign Project Aid 1,009 20.Marginal National Savings Rate .. 0.35 .. Total FinaLncing 4,940 100.

IABOR FORCE AND Total Labor Force Value Added Per Worke (l 23 Prices a Ec. Rates)

OUTPUIT PERt WORKEN In Millions - of Total 1961 -73 In U.S.Dollars eceto Ave'rage 190-731960/61 1972/73 1960/61 1972/73 Growth Rate 1969/70 19 72/73 1969/70 1972/73 Growth Rate

Agriculture 16.1 20.5 85 78 2.0 . 166 .. 76Industry 1.0 -1.8 5 7 5.0 .. 229 .. 105Service 1.8 3.9 10 15 6.7 . 474 .. 222Total 187.9 !-2r2 I70o -i- TTH 2T5 -4.9

not applicable -nil or negligiblenot available --less than half the

smallest unit shownNotes: Figures are on fiscal year basis (July 1-June 30). Data prior to 1972/73 pertain to eartwhile East Pakistan.I/ These are original Plan targets.

g 53em -- s - 84

, g8 3ii iXs |- ifz g 03 E0ga

ANNEX IIPage 1 of 11

BANGLADESH

STATUS OF BANK GROUP OPERATIONS

As of March 31, 1976

A. IDA Credits to BangladeshUS$ Million net of

Credit Exchange AdjustmentNumber Year Purpose Amount Undisbursed

339 1972 Cyclone Area Reconstruction(replaces Credit No. 228-PAK of 1971) 25.0 12.3

340 1972 Chandpur Irrigation II (replacesCredit No. 184 of 1970) 13.0 8.4

341 1972 Tubewells (replaces Credit No. 208-PAKof 1970 14.0 5.5

343 1972 Telecommunications (replaces partof Credit No. 145-PAK of 1969) 7.3 1.7

345 1972 Reconstruction Imports 50.0 0353 1973 Small-Scale Industry (replaces

Credit No. 192-PAK of 1970) 3.0 0.4367 1973 Chittagong Water Supply (replaces

Credit No. 42-PAK of 1963) 7.0 1.9368 1973 Dacca Water Supply and Sewage (replaces

Credit No. 41-PAK of 1963) 13,2 1.8S-14 1973 Irrigation Engineering (replaces

Credit Nos. S-8-PAK and S-10-PAKof 1969 and 1970) 3.15 0

381 1973 Foodgrain Storage (replaces CreditNo. 83-PAK of 1966) 19.7 0.8

407 1973 Education (replaces Credit Nos. 49-PAKand 87-PAK of 1964 and 1966) 21.0 9.5

408 1973 Highways (replaces Credit No. 53-PAKof 1964) 25,0 16.4

409 1973 Technical Assistance 4.0 3.0410 1973 Cereal Seeds 7.5 6.7424 1973 Inland Water Transport Rehabilitation 8.7 6.6458 1974 Imports Program 50.0 0487 1974 Second Telecommunications 20.0 19.1515 1974 Third Imports Program 75.0 11.8527 1975 Ashuganj Fertilizer 33.0 31.1529 1975 Consolidation Credit 31.0 0533 1975 Population 15.0 15.0

ANNEX IIPage 2 of 11

BANGLADESH

STATUS OF BANK GROUP OPERATIONS

As of March 31, 1976

A. IDA Credits to BangladeshUS$ Million net of

Credit Exchange AdjustmentNumber Year Purpose Amount Undisbursed

542 1975 Barisal Irrigation 27.0 27.0591 1975 Fourth Imports Program 100.0 70.6605 1976 Karnafuli Irrigation 22.0 19.2621 /a 1976 Agricultural and Rural TRaining 12.0 12.0622 1976 Second Technical Assistance 7.5 7.5

SUBTOTAL 614.05 288.30Principal Repayment 0.20Credits held by Association 613.85

B. IBRD Loans to Bangladesh1087 1975 Consolidation Loan 54.9 0

TOTAL 668.75 288.30

/a Credit signed March 25, 1976, not yet effective.

ANNEX IIPage 3 of 11

C. PROJECTS IN EXECUTION l/

Cr. No. 339 Cyclone Area Reconstruction Project; US$25.0 Million Creditof October 18, 1972; Effective Date: January 17, 1973;Closing Date: June 30, 1976

Implementation of the original project, financed under Credit No.228-PAK of 1971, had not commenced prior to the suspension of disbursements.Progress on the implementation of the Inland Water Subproject under thisCredit has been slow. Only 78% of the funds have so far been disbursed,compared with an estimate of 100% by June 30, 1974 at the time of appraisal.

Repair and construction of terminals have been delayed because of lack ofmaterials and slow land acquisition; but by September 1975 all contracts oncivil works were awarded, except one minor contract which was withdrawn, andall works are now expected to be completed by late 1976. A contract forthe construction of five service-support vessels amounting to US$3.5 millionwas awarded in December 1974, and all have been received. Contracts have beensigned for all equipment component of the telecommunications system. Earthworkhas been completed for about 50% of primary roads, and 70 cyclone shelters areunder construction or complete. Activation of the cyclone warning system isexpected soon. Progress was slow initially due in part to administrativedelays and the severe shortages of construction materials in Bangladesh.Construction materials are now available, progress has improved somewhat.Project completion is expected to be about two years behind the scheduleanticipated at appraisal. In June 1974, the Government submitted to theAssociation a proposal for reducing the scope of the project in order to cope

with the sharp increase in construction costs since the Project was appraised.The proposal involved reductions in the feeder roads to be financed by theCredit (financing for these roads has been obtained from the World FoodProgram), reductions in the fisheries subproject, and minor reductions inother project items. Given the very early stage of procurement under theproject, it was decided not to formally amend the project at that stage,and it was agreed that the Government's proposals for reducing the project

provided a reasonable basis for proceeding for the time being. A revisedproposal from the Government based upon revised cost estimates, concerning

the amendments required in the project description and allocation of theamounts of the credit to each subproject has been received and is underreview.

1/ These noted are designed to inform the Executive Directors regardingthe progress of projects in execution, and in particular to report any

problems 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 not purport to present a balanced evaluation of

strengths and weaknesses in project execution.

ANNEX IIPage 4 of 11

Cr. No. 340 Chandpur Irrigation II Project: US$13.0 Million Credit ofOctober 18, 1972; Effective Date: January 17, 1973;Closing Date: December 31, 1977

The Project is far behind schedule and continues to be plagued withproblems. Major flooding, work stoppages caused by 100% increase in con-struction labor costs, shortages of cement, fuel, and operable constructionequipment, ineffective management, inadequate provision of local funds andgeneral inflation are factors which have delayed project construction. Thereis some improvement in construction recently. Outstanding contractor claimshave recently been resolved. Manufacture of the electrical and mechanicalequipment for the regulators and pumping plant has been completed, anddelivery is being made to the sites. Delays in finalizing the low-liftpump specifications by WDB retarded procurement. Tenders have now beenissued. Continuing inflation and other adverse fact-ors are expected toincrease the Project costs substantially over the'appraisal estimate.

Cr. No. 341 Tubewells Project; US$14.0 Million Credit of November 6, 1972;Effective Date: January 13, 1973; Closing Date: December 311976

This project was originally financed by IDA Credit No. 208-PAK of1970 and credits from Sweden and Canada. Although bids had been received in1971, no contracts were awarded before Bangladesh independence. The presentCredit is again in conjunction with a Credit from Sweden and a grant fromCanada. Construction on this project began during January 1974. In April1974, IDA approved award of the contract for supply of the well pumps andengines. Due to initial delays, present implementation is about 18 monthsbehind schedule. Drilling of the tubewells has progressed satisfactorilyin the past construction season. Much greater efforts are required in thedesign and construction of the water distribution systems to make maximumuse of the tubewells. The project agricultural development plan, crop trialsand development of demonstration farms are also behind schedule. A programto assist in these areas as part of an ongoing UNDP project is under considera-tion.

Cr. No. 343 Telecommunications Project: US$7.3 Million Credit of November15, 1972: Effective Date: January 17, 1973; Closing Date:

June 30, 1978

The project was originally financed as part of Credit No. 145-PAKof 1969, and goods and services valued at about US$2.2 million were receivedin Dacca prior to suspension of disbursements. Three out of the four micro-wave systems in the Project are under installation and are scheduled to becommissioned by March 1976, and about one year behind schedule. The fourthsystem is a replacement of a coaxial cable system in the original project.This change was agreed to by IDA and was caused by price increases'demandedby the original contractor which made thM choice of a microwave system moreeconomical. The bid invitation for this system has been included with thebids that have already been invited for other microwave systems underCredit 487-BD. Even so, the system is scheduled to be commissioned inlate 1977 or early 1978. The Closing Date for this Credit has been extendedfrom December 31, 1975 to June 30, 1978.

ANNEX IIPage 5 of 11

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

The Project was originally financed by IDA Credit No. 192-PAK of1970. The Credit has financed notional repayment of amounts previously dis-bursed under Credit No. 192-PAK (US$187,000) and payment of outstandingamounts for consulting services performed under Credit No. 192-PAK(US$12,000). Disbursements for new activities up to January 31, 1976amounted to approximately US$2.4 million. However, outstanding orderswhich would commit the remaining available funds were not expected to befinalized before original closing date. IDA therefore agreed to extendthe closing date by nine months to allow for disbursements under outstand-ing letters of credit. A IUNDP/UNIDO technical assistance project has madesome limited progress toward the reorganization of BSIC.

Cr. No. 367 Chittagong Water Supply Project; US$7.0 Million Credit ofApril 9, 1973; Effective Date: June 7, 1973Closing Date: June 30, 1976

The project was originally financed by IDA Credit No. 42-PAK underwhich USS3.3 million was disbursed. The work has progressed at a slow rate,but will improve now that several civil works contracts are under way. Phys-ical progress had been curtailed by laclc of cement, slow delivery of pipe,and slow preparation of designs and contract documents. While the immediaterequirements for pipe and cement are on hand, several supply and construc-tion contracts are yet to be tendered. WASA has been requested to hastenthe preparation of contract documents and the tendering for this work. Man-agement, labor and union problems are now being better addressed followingthe appointment of the new Chairman. While collection performance has im-proved, financial operations and financial management remain weak. The Gov-ernment has increased the water rates by 50 percent effective July 1, 1975.However, unless the performance in billing and collection improves and leak-age is reduced, further rate increases would be necessary to meet the finan-cial covenants of the Credit Agreement. The Association has agreed to extendthe Closing Date by one year to June 30, 1976. At that time a decision willbe made, based upon the progress over the year in meeting the financial cov-enants, as to whether or not to extend the Closing Date for the additional1 to 1-1/2 years required to complete the project.

Cr. No. 368 Dacca Water and Sewerage Project; US$13.2 Million Credit ofApril 9, 1973; Effective Date: June 7, 1973Closing Date: June 30, 1976

The project was originally financed by IDA Credit No. 41-PAK of1963. By December 1971, when disbursements were suspended, US$6.0 millionhad been disbursed. The work has progressed at a slow rate but will improvenow that several civil works contracts are under way and tubewell materialsand equipment have been delivered. Right-of-way acquisition and contractorperformance continue as major problems. Management and labor problems con-tinue, and financial operations and the financial condition of the WASA

ANNEX IIPage 6 of 11

remains weak. The Government has increased the water rates by 50 percent,effective July 1, 1975. However, unless performance in billing and collec-tion improves and leakage is reduced, further increases would be necessaryto meet the financial covenants of the Credit Agreement. The Associationhas agreed to extend the Closing Date by one year to June 30, 1976. At thattime a decision will be made, based upon the progress over the year in meet-ing the financial covenants, as to whether or not to extend the Closing Datefor the additional 1 to 1-1/2 years needed to complete the project.

Cr. No. 381 Foodgrain Storage Project; US$19.7 Million Credit of May 18,1973; Effective Date: July 17, 1973;Closing Date: December 31, 1975

The project is also financed by a credit from the Kingdom ofSweden of 25.0 million Kroner. The project was originally financed byUS$19.2 million IDA Credit No. 83 of 1966 and a 25 million Kroner creditfrom the Kingdom of Sweden. The project was almost completed at the timeof Bangladesh's independence and 95% of the present IDA and Swedish creditswere used for repaying the previous credits. The remaining funds (US$1.25million from IDA and about US$0.25 million equivalent from Sweden) are beingused to pay outstanding bills for work completed prior to the war, coinple-tion of some supporting facilities for the grain storage silos, replacementof spares and equipment damaged during the war, and a feasibility study fora second grain storage project. The designs for the jetty modifications havebeen approved and we are awaiting receipt of proposed arrangements for con-struction. The feasibility study for a second grain storage project wascompleted in October 1975. Supervision missions have reported serious deterio-ration in the silos mechanical equipment due to inadequate maintenance. Themanagement and staffing of the Directorate of the Silos is inadequate. Delaysin ordering spare parts (for which funds are available under the Credit)increase the risk of breakdown. The Government has agreed interalia (i) toemploy consultants to improve foodgrain storage management, (ii) to releaselocal funds required for ancillary civil works for the project, (iii) to fillall managerial, technical, and administrative vacancies by June 30, 1976 and(iv) to finalize the contract award for jetty construction by June 30, 1976.Based upon these assurances the Association agreed that the Closing Date forthis Credit which had originally been December 31, 1974 be extended for asecond time from December 31, 1975 to June 30, 1976. The Government wasinformed that any further extensions of the Closing Date required to completethe project would be considered only if the Government has met its commitmentsconcerning steps to be taken to improve silo maintenance and operations.Since January 1976 significant progress has been made in constructingancillary civil works, staffing the project agency, putting one silo backinto operation, issuing invitations for firms to submit proposals for con-sulting services, and offering a tender for the Chittagong silo jetty.

ANNEX IIPage 7 of 11

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

The project was originally financed by two IDA Credits 49-PAK and98-PAK. By December 1971, when disbursements were suspended, US$7.7 millionhad been disbursed out of the US$17.5 million aggregate total of the twoformer credits. The Credit 407-BD added US$3.5 million to the total of theoriginal Credits, in order to help the Government meet part of the increasesin total project cost. Progress on the Agricultural University portion ofthe project was delayed initially due to difficulties in reaching agreementwith the consultant architects on a revised contract. Construction has alsobeen delayed due to shortage of building material, delays in the preparationof equipment lists, and furniture designs. The recent devaluation of theTaka has considerably reduced the cost overruns. Without including priceand physical contingencies, the cost of the project is now estimated at 58%over the appraisal estimates in Taka terms, but only 10% when expressed inUS dollar equivalent. The Government has submitted to IDA proposals formodification of the project to meet the cost overrun. These proposals arecurrently under review. Implementation is about 24 months behind theappraisal schedule. Progress on the technical education portion of theproject is about 12 months behind the appraisal schedule. The graduates arefacing severe problems of unemployment, and the curriculum needs revision tomake it more relevant to job requirements. The Government will be makingrecommendations on the development plan of the Agricultural University shortly.

Cr. No. 408 Highways Project; US$25.0 Million of June 29, 1973;Effective Date: September 27, 1973Closing Date: December 31, 1977

The project was originally financed by IDA Credit No. 53-PAK. ByDecember 1971, when disbursements were suspended, US$3.62 million had beendisbursed, out of the original credit of US$22.5 million. The new creditadds US$2.5 million to the original credit amount, in order to help theGovernment meet part of the increase in total project cost as a result ofcurrency realignments. Four construction contracts were signed in September1973 for the Sitalakhya Bridge and the Feni Section of the Dacca/Chittagongroad worth about US$9.2 million. A fifth contract with consultants forconstruction supervision was signed in February 1974 but they were in thefield earlier. Shortage of spare parts, administrdtive delays and deficien-cies in some contractors performance have delayed certain elements of theproject. Construction of the 1300-foot bridge over the Sitalakhya Riverpreviously on schedule is now likely to be compieted two years behindschedule, in mid-1978 due to technical difficulties compounded by poorcontractor performance. However, the twenty-mile Feni bypass road construc-tion project is well on the way to completion and plans for paving the roadare now under preparation. The estimated cost of civil works has increasedby about 60%, in line with worldwide trends. However, the total overallproject cost increase is considerably less, being about 25%. Disbursements,which in the past have been slow, show signs of improvement.

ANNEX IIPage 8 of 11

Cr. No. 409 Technical Assistance Project; US$4.0 Million Credit ofJune 29, 1973; Effective Date: August 20, 1973;Closing Date: December 31, 1977

After a slow start, the Government has recently begun to takeadvantage of the funds available under this credit for preinvestment plan-ning, feasibility studies and technical assistance for agencies involved inproject planning and implementation. Contracts have been signed with con-sultants for seven projects with an allocation from this Credit of about $1.3million. These studies have played a key role in the preparation of theAshuganj Fertilizer Project and three other projects which are under con-sideration for FY76 and FY77. Another six subprojects involving $2.3 mil-lion of credit funds have been recently approved and arrangements for selec-tion of consultants are underway. Credit funds are expected to be fullycommitted by June 30, 1976, but some of the studies financed will take upto two years to complete. The Closing Date for this Credit has been extendedfrom December 31, 1975 to December 31, 1977.

Cr. No. 410 Cereal Seeds Project; US$7.5 Million Credit of June 29, 1973;Effective Date: January 30, 1974;Closing Date: December 31, 1977

The project is about 20 months behind appraisal schedule. Follow-ing a year of virtual stagnation, the Seed Certification Agency has beenestablished, seed legislation has been drafted and procurement of equipmentand construction of buildings has started. However, serious staffing, pro-curement and financial problems remain. The Government has been trying toobtain additional bilateral financing to help meet the cost overrun. However,the Government has now agreed to proceed with the full project, and to meetthe full cost overrun if other financing does not become available. Mean-while, recruitment of key personnel has been extremely slow due to thelengthy procedures required by the Government; appointments are required inparticular for the head of the Seed Certification Agency and for the generalmanager (field) of Bangladesh Agricultural Development Corporation (BADC).A full-time official in charge of coordination in the Ministry of Agriculturehas just been designated. Procurement of farm machinery has been held upbecause of the bidders' failure to comply with tender specifications and bythe Government's unsuccessful efforts thereafter to arrange for bilateralfinancing.

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

The Amending Agreement of October 17, 1975 increased the amountof the credit from US$4.1 million to US$8.7 million to finance the new oiltransfer system at Chittagong. The implementation of the original project

ANNEX IIPage 9 of 11

has been slow. Only 54% of funds have been disbursed, compared with anestimate of 100% by June 30, 1975 at the time of appraisal. Delays weredue to: (i) the initial lack of familiarity of the agencies with IDAprocedures; (ii) the difficult international situation in 1974; and (iii)slow preparation of required documentation for procurement by variousoperating agencies. Currently, 93% of funds allocated for procurement ofspare parts and equipment in the original credit have been committed, andorders are expected to be completed by mid 1976. Regarding the repair ofthe Chittagong off-shore oil terminal, detailed investigations indicated thatthe damage was more severe than previously believed. Consultants wereappointed late in 1973 to study alternative technical solutions. AnAmending Agreement modifying the project description in line with the con-sultants' recommendations, and providing a supplementary credit of USU4.6million, was approved by the Executive Directors on September 16, 1975 andsigned on October 17, 1975. The project director and project officers wereappointed by January 1976 but there were delays in approval of the projectdocuments by the National Economic Council, agreement on onlending and pro-ject documents by the National Economic Council, agreement on onlendingand project implementing arrangements between the Government and projectagencies, and appointment of consultants, which were conditions of effect-iveness of the Amending Agreement. The Amending Agreement became effectiveon March 19, 1976. The consultants are now at work. Based on their recom-mendations, contracts for procurement of used tankers would be awardedon the basis of quotations obtained for suitable vessels from internationalbrokers.

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

Credit became effective July 23, 1974. Procurement work is wellin hand with the major orders expected to be placed by March 1976. Localtelephone expansion has lagged about a year behind schedule due to slowerthan expected deliveries from the local factory (hampered by labor unrest).However, the factory production is now picking up and the shortfall inproject targets is expected to be made up by 1977. According to presentcost estimates, foreign costs are likely to be within the original estimates.The local costs will increase from Tk 470 million to-Tk 680 million due tohigher labor and construction costs and the imposition of a 20% tax on allimported goods. Under the Credit Agreement, BTT is to establish a modernaccounting system and is to be transformed into a Board with adequate auton-omy. Accounting consultants have been appointed. The Board was legallyestablished before the June 30, 1975 deadiine, but the ordinance was revokedalmost immediately thereafter. A new ordinance establishing a Telecommunica-tion board was recently promulgated. We are waiting further information onthe regulations under which the new Board will operate.

ANNEX IIPage 10 oL 1 1

Cr. No. 515 Third Imports Program; US$75 Million Credit of October 9,1974; Effective Date: October 10, 1974;Closing Date: December 31, 1976

Provision was made to reimburse the Government for up to US$10 mil-lion for eligible imports paid for after July 1, 1974, but prior to the dateof the credit. Disbursements amounted to US$63.2 million as of March 31,1976, and in addition letters of credit guaranteed by IDA amount to US$6.9million. The Credit approved on October 9, 1974 was for US$50 million, butafter the Fourth IDA Replenishment Agreement became effective, an amendmentincreasing the credit amount was approved on February 27, 1975. The Amend-ing Agreement was signed on March 10, 1975 and became effective on April 7,1975. The Government has allocated the full amount of the Credit among thevarious eligible industries, and import orders are being processed, and thecredit is expected to be fully disbursed by the Closing Date.

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

Project is being cofinanced by Asian Development Bank, KfW, andthe Governments of Iran, Switzerland, UK and US, providing a total of $109million equivalent in addition to the IDA credit. Site preparation work isproceeding on schedule, but, overall, the project is about six months behindschedule due primarily to delays in awarding the General Engineering andManagement Assistance Contracts. These contracts were signed in lateNovember/early December and the firms are expected to commence work inBangladesh early in 1976. Commencement of commercial production is nowexpected by February 1979.

Cr. No. 533 Population Project: US$15 Million Credit of February 11,1975; Effective Date: September 2 5 L_ 1 9 7 5 ;Closig Date: December 31, 1982

Project is being confinanced by six co-lenders providing a total ofabout $25 million equivalent in addition to the IDA credit. Notwithstandingthe delay in declaring the Credit effective, the Government has made substan-tial progress in project implementation. The organizational structure ofthe Population Control and Family Planning Division (body responsible for thepopulation program) has been defined and its staff is being placed in position.The Population Program Officers, who are responsible for the populationprograms of five non-health ministries, have been trained abroad and haveinitiated the schemes of their respective ministries. A contract witharchitectural consultants for the Building, Planning and Design Unit of theMinistry of Health has been signed. The Government is proceeding with theselection of required consultants and advisors for other parts of the project.However, because of institutional problems, the implementation of a few projectcomponents is some months behind schedule. In particular, the Government hasstill to formally appoint a number of key personnel.

ANNEX IIPage 11 of 11

Cr. No. 542 Barisal Irrigation Project; US$27 Million of April 29, 1975;Effective Date: September 30, 1975Closing Date: December 31, 1980

Project consultants are mobilizing staff. Procurement of localconstruction materials and construction of office and storage accommodationin Barisal is proceeding.

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

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

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

Credit not yet effective.

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

ANNEX III

BANGLADESH SHILPA BANK CREDIT

CREDIT AND PROJECT SUMMARY

Borrower: People's Republic of Bangladesh.

Beneficiary: Bangladesh Shilpa Bank.

Amount: US$25 million equivalent.

Terms: Standard.

Relending Termsto BSB and toBSB's Borrowers: GOB will relend to BSB at 9% while BSB will onlend

to sub-borrowers at 12%. Exchange risk to be borneby sub-borrowers.

ProjectDescription: To finance the foreign exchange cost of industrial

projects carried out by eligible productive enter-prises in Bangladesh.

EstimatedCommitments andDisbursements /1 1976/77 1977/78 1978/79 1979/80

---------(US$ million)---------------

Disbursements

Annual 6.8 9.2 7.0 2.0Cumulative 6.8 16.0 23.0 25.0

/1 Assuming credit will be effective by July 1976.

ProcurementArrangements: Ordinary commercial channels.

AppraisalReport: No. 1162-BD of May 6, 1976.

BANGLADESH SAfILPA BANK

Audtod Balance Sheets FY72 - 5

ASSETS Dec. 17, 1971 FY72 FY73 FY74 FY75

Cash in hand and with other banks 153.14 69.6 89.8 1714.1 220.0Government securities 1.5 .5 13.0 13.0 62.6Short t-rm loans 7.2 7.2 6.7 4:7Interest receivable 56.0° / 95.6 155.4 233.7

Total Current Assets W15.9 133.3 20.6 379. 521.0

Equity portfolio 1.5 ,.5 11.8 12.4 12.7

Gross Loan Portfolio 437.1 685.4 697.4 683.9 876.3

Less: Provisions -17.3 -26.9 -34.9 -70.9

Net Loan Portfolio 668.1 670.3 649.o 805.4

Fixed assets (net) 2.8 2.3 2.1 2.1 2.2Other assets 5.7 18.4 22.2 8.1 14.3

Total Assebs 602.0 823.6 912.2 10020.8 1,355.6

LIABILITIES

Current Liabilities 96.5 108.9 144.0 203.3 244.9

Fixed deposits 11.0 b/ 33.0 b/ 30.0 b/ 37.7 57.9Debentures - - 1 40.0 40.0Other liabilities 25.2 114.9 11.8 7.5 4.6

Total Domestic Currency Borrowings 36.2 47.9 41.8 85.2 102.5

IDBP borrowing not yet recognized by Government 287.7 489.6 458.1 455.3 588.7Post-Independence Borrowings - - 45.3 48.5 132.3

Total Foreign Currency Borrowings 287.7 489.6 503.4 503.8 721.0

War adjustment account c/ 172.5 172.5 215.5 - 47.4Subordinated Government loan - - - 166.5 166.5Paid-up capital - - - 50.0 50.0Reserves r9.1 4.7 7.5 12.0 23.3

Net Worth 9.1 4.7 7.5 62.0 73.3

Total Liabilities and Net Worth 602.0 823.6 912.2 1,020.8 1,355.6

Contingent Liabilities 26.1 46.2 1.2 9.3 7.2Assets and Liabilities assigned to IDBP - Pakistan 953.2 - - - -

a/ Combined accrued interest and principal amount overdue is given at Tk 161.4 million; the breakdown into componentsis an estimate.

b/ Total deposits (including fixed deposits) on December 17, 1971 and at the end of FY72 and FY73 were Tk 21.8 million,Tk 65.7 million and Tk 59.6 million respectively, the breakdown into deposits and fixed deposits is an estimate.

c/ Represents the difference between the domestic assets and liabilities which BSB acknowledged in seperating itsaccounts from those of IDBP's.

April 15, 1976