Sri Lanka - Mahaweli Ganga Technical Assistance Project

Document of FILE COPY The World Bank FOR OFFICIAL USE ONLY Report No. P-2686-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT AND EEC SPECIAL ACTION CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A MAHAWELI GANGA TECHNICAL ASSISTANCE PROJECT January 10, 1980 This docnt hs a restct dtbutemn sad may be med by recipints mly in the pemfonce of Itheir offca dutis. ts eutents My nO othenise be dbdosed wlhout Wold Bnk autboratien.  CURRENCY EQUIVALENTS US$1 = Rs 15.6 Rs 1 = US$0.064 Rs 1 million = US$64,102 WEIGHTS AND MEASURES 1 acre (ac) = 0.405 hectare (ha) 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq mi) 640 ac (259 ha) 1 foot (ft) = 30.5 centimeters (cm) ABBREVIATIONS AND ACRONYMS GDP - Gross Domestic Product MW - Megawatt M - Million NCRB - North Central River Basins MDA - Mahaweli Development Authority GLOSSARY aru - stream chena slash and burn or "shifting" agriculture district = the first subdivision in the country for Government administrative purposes (22 districts in Sri Lanka) dry zone = northern and eastern two-thirds of Sri Lanka ganga = major river maha = northeast monsoon season (October to January) oya = small river paddy = unhusked rice tank = reservoir for local rainwater storage wet zone = southwestern one-third of Sri Lanka, including Colombo, the Capital yala = southwest monsoon season (March to June) FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA MAHAWELI GANGA TECHNICAL ASSISTANCE PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Beneficiary: Mahaweli Development Authority (MDA). Amount: US$3.0 million equivalent (IDA); and about US$2.0 million equivalent (EEC Special Action Credit). Terms: Standard IDA and EEC Special Action Account. Project The proposed project would provide technical assistance Description: for: (i) preparation of a reconnaissance-level study of plans for conveying and utilizing surplus Mahaweli Ganga water to develop land in three alternative areas in order to select the best plan for a transbasin diversion project; (ii) ongoing review of designs and tender documents for the Right Bank Canal, and preparation of final designs and tender documents for construction of civil works and social infrastructure for part of System C in the Mahaweli Basin; and (iii) support for other studies and designs of projects in the Mahaweli Ganga Development Program. Training of local staff is included throughout the project. Estimated Cost: /a US$ Million Equivalent Local Foreign Total Consulting Services Transbasin Diversion Plan 0.25 1.15 1.40 Right Bank Canal and System C 0.20 1.05 1.25 Other Studies 0.20 1.05 1.25 Sub-Total 0.65 3.25 3.90 Vehicles, Equipment and Supplies 0.04 0.46 0.50 Training 0.01 0.09 0.10 Government Contribution (e.g., counterpart personnel, offices and houses for consultants) 1.00 - 1.00 Contingencies 0.10 0.40 0.50 TOTAL 1.80 4.20 6.00 /a The project would be exempted from all taxes and duties. This document hu a restricted distribution and may be used by recipients only in the performance of their omcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Financing Plan: US$ Million Equivalent Local Foreign Total IDA 0.50 2.50 3.00 EEC 0.30 1.70 2.00 Government 1.00 - 1.00 Total 1.80 4.20 6.00 Estimated Disbursements: US$ Million Equivalent IDA FY 1980 1981 1982 IDA Annual 0.3 1.7 1.0 cumulative 0.3 2.0 3.0 EEC Annual 0.5 1.0 0.5 Cumulative 0.5 1.5 2.0 Map: No. IBRD 13477RI  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON PROPOSED CREDITS TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A MAHAWELI GANGA TECHNICAL ASSISTANCE PROJECT 1. I submit the following report and recommendation for two proposed credits to the Democratic Socialist Republic of Sri Lanka for the equivalent of US$5.0 million on standard IDA and EEC Special Action Credit terms to help finance a technical assistance project. PART I - THE ECONOMY 1/ 2. The latest economic report, "Development in Sri Lanka: Issues and Prospects" (Report No. 1937-CE, March 22, 1978) was distributed to the Execu- tive Directors on March 23, 1978. Country Data are provided in Annex I. 3. Sri Lanka has achieved social progress far beyond that of other countries with comparably low per capita incomes. Literacy, health and life expectancy are high; nutrition is adequate; and mortality and population growth rates have been declining. These impressive gains have been achieved despite generally low output and employment growth. Per capita GDP growth averaged only 0.9% per annum in the 1948-60 period; it accelerated to an average of 2.1% in the 1960s and then declined to 1.3% per annum in the 1970s. Throughout the 1960s and much of the 1970s, these modest output gains were eroded by adverse terms of trade. This disappointing performance has been accompanied by a disturbing increase in the level of open unemployment. In the 1970-1977 period, while the labor force grew at about 125,000 per year, employment rose by about 85,000, much of it in the form of unproductive jobs. The number of unemployed, therefore, rose, and open unemployment is presently estimated at over one million, or 20% of the labor force. 4. The gains in the social field were made possible by favorable ini- tial conditions. Compulsory primary education was introduced as early as 1901. The food ration was introduced in 1942. Thus, at the time of Independence in 1948, Sri Lanka already enjoyed high levels of adult literacy and life expectancy. These initial gains were consolidated and expanded in the post- Independence period through large expenditures on social services and the food subsidy, which accounted for two-fifths to one-half of government revenues in the 1960s and 1970s. These expenditures were financed by harnessing the surpluses of Sri Lanka's three major tree crops (tea, rubber, and coconut), which provided the Government with both an easy revenue source and foreign exchange earnings. 1/ This part is substantially the same as Part I of the Report and Recom- mendation of the President to the Executive Directors on a proposed credit to the Democratic Socialist Republic of Sri Lanka for a Small and Medium Industries Project (Report No. P-2594-CE, dated June 14, 1979).  - 2 - 5. There were both measurable and non-measurable socio-economic benefits flowing from these improvements in health, nutrition and education, such as the decline in fertility and the relatively low rate of urbanization. At the same time, there were significant costs arising from the firm commitment of successive governments to maintain these social gains. The fiscal burden of these expenditures imposed a high degree of inflexibility on Sri Lanka's policymakers in their attempts to accelerate long-term growth. That inflex- ibility increased over time as growth slowed down and, in partic-ular, the ability of the tree crop subsector to provide the resources for the social programs weakened as commodity prices kept falling and productivity suffered due to inadequate incentives. Moreover, the gains in education had a nega- tive impact in the form of large numbers of educated unemployed who posed a challenge to the established political order. With political parties com- peting with each other to offer inducements to the electorate, governments have failed to focus social expenditure programs more narrowly on specific groups living in poverty, making these unnecessarily costly. 6. In the 1960-77 period, gross domestic product at constant prices rose by an average of 3.8% per annum. This performance masks a marked decel- eration in the growth of the productive sectors of the economy between the 1960s and the 1970s. Average GDP growth slowed down from 4.4% per annum in the 1960s to 3.0% in the 1970-77 period. Growth fell from an average of 3.4% to 1.9% in agriculture; from 6.2% to 2.3% in manufacturing. 7. The key to the slowdown in GDP growth lies largely in the sluggish growth of agriculture, which accounts for over one-third of GDP and four- fifths of export earnings. Tea and coconut output has been declining steadily from the mid-1960s; rubber, after showing a rapid increase in the 1960s, stagnated in the 1970s. Erratic weather conditions, declining commodity prices, a rising effective tax burden, and low producer returns combined with the uncertainties caused by a long, drawn-out land reform (1972-75) depressed producer incentives and, hence investment and production, to new lows. These problems were aggravated by a dual exchange rate, introduced in 1968, which discriminated against traditional exports and in favor of food imports. 8. Paddy production, which grew at an average of 7.4% per annum in the 1964-70 period, and at 4% during the 1960s, slowed down to 0.7% per annum in the 1970-77 period. The decline in yields and cropping intensities is attrib- utable principally to a sharp deterioration in the institutional support for production programs. The only bright spot on the agricultural scene has been the rapid increase in output of subsidiary food crops in the 1970s. This represents gains in acreage rather than yields and is in response to the improved incentives arising from a 1970 ban on imports of these crops. 9. Manufacturing output in the 1970s also decelerated due to the cumu- lative impact of declining investment levels, severe foreign exchange short- ages that necessitated import rationing (with serious consequences for a sector in which imported raw materials account for 70% of the value of raw materials used), the exhaustion of import substitution possibilities, and inefficiencies in management of the public sector, which now accounts for 66% of the gross value of production in organized industry.  - 3 - 10. In general, economic growth was constrained by a persistent foreign exchange shortage throughout the 1960s and 1970s, inadequate levels of saving and investment, and the low efficiency of resource use. Sri Lanka's terms of trade have deteriorated steadily since the early 1960s and worsened sharply in the mid-1970s following increases in the price of imported food, fertilizer, and petroleum. The share of these three items in Sri Lanka's total imports jumped from about 50% in 1972 to 70% in 1975. This sharp increase has, to some extent, offset the improvement in export prices (particularly of tea) since 1973. Trade policies that discriminated against exports and encouraged import substitution caused a slow growth in exports of 2.5% per annum between 1960 and 1976, which acted as a significant constraint on growth for an econ- omy in which exports account for nearly one-third of GDP. 11. The share of consumption in GDP has remained relatively stable and high (at 86%) over the last decade and a half. Domestic savings, when adjusted for the dual exchange rate, averaged 11.5% of GDP in 1966-70 and 10.5% in 1971-75. Public savings averaged a mere 1% of GDP in the 1960s, shrinking rapidly in the 1970s, and eventually becoming negative. This poor performance is attributable to the large and growing burden of subsidies and transfers, which worsened in the 1970s because of the increasing disparity between import costs and officially determined prices. Private savings were adversely affected in the 1970s by political uncertainties, a confiscatory tax burden, and falling real interest rates. 12. Gross investment has averaged 16% of GDP at current market prices in the 1960-76 period. In real terms, investment has been declining, and there has been persistent failure throughout this period to raise the level of public investment (around 6-7% of GDP), while private investment in produc- tive activities was, on the whole, given little encouragement. The efficiency of investment has also been rather low due to both neglect of some key sectors and a failure to exploit the full potential of past investments. Much of the investment in agriculture was directed to paddy; but the tree crop subsector was neglected, resulting in an erosion of the latter's production base. In the manufacturing sector, capital-intensive import substitution was pursued to the neglect of labor-intensive export-oriented production. Utilization of the potential already established has been uniformly low. This has been reflected in low cropping intensities and yields in the agricultural sector, and low-capacity utilization in manufacturing. 13. In the elections of July 1977, the eighth since Independence, the United National Party won a large majority. In the period that it has been in office, it has embarked on a major reform of political institutions and economic policies. A new constitution has been enacted introducing a presidential form of government. Proportional representation has replaced the first-past-the-post voting system. 14. The policy changes introduced by the new government have been designed to address the economic problems described in paras 3-12 above. The Government identified its objectives as the revival and resuscitation of the economy and increased employment through (i) increased capacity util- ization in the productive sectors, (ii) stimulation of savings and investment, and (iii) efforts to encourage exports and import substitution in foodgrains.  A program of policy reforms has been developed in close consultation with the IMF. Its principal aim is to dismantle controls over resource allocations and initiate price adjustments with a view to establishing more realistic relative prices. These reforms were supported initially by an IMF standby arrangement covering 1978 for SDR 93 million. On January 26, 1979, the Fund's Executive Board approved an SDR 260 million Extended Arrangement covering the 1979-81 period. 15. The policy reforms introduced so far include: Exchange Rate Reform: The exchange rate was unified on November 16, 1977, at a depreciated rate of Rs 16 = US$1.00, and then was allowed to float. This implied a depreciation of 46% against the official rate prevailing prior to unification, 11.2% with respect to the Foreign Exchange Entitlement Certificate rate, and 29.5% with respect to a transactions-weighted average rate of the two markets. 1/ Import Liberalization: The trade and payments regime has been liberalized. With the exception of foodgrains and petroleum products, public sector import monopolies have been terminated. Prior licensing of imports has been abol- ished for all but a handful of commodities. The tariff structure has been revised and simplified. Interest Rate Reform: To encourage financial savings and discourage speculative imports, interest rates have been raised sharply. Price Controls. These have ended for most commodities. Budgetary Policies: The unification and depreciation of the exchange rate caused tree crops export tax revenues and the cost of food, fertilizer and petroleum subsidies to rise sharply. Export tax rates on tree crops were raised further to mop up windfall profits while attempting to leave adequate producer margins. Business Turnover Tax rates have been substantially lowered and rationalized to be consistent with the new import tariff and exchange rate. To limit the growth in food subsidies, the rice and sugar rations were confined to the poorer half of the population and the subsidy on imported wheat flour was reduced through adjustments in the domestic price. On September 1, 1979 the Government introduced a system of food and kerosene stamps for families with monthly incomes less than Rs 300 to replace specific food subsidies and rationing. Initially about seven million persons were issued with food and kerosene stamps. To offset the adverse impact of these changes, public sector wages have been adjusted upwards on two occasions, and an income supplement has been introduced at Rs 50 per month to benefit the poorest households in which one or more persons has no gainful employment. Public corporations have been asked to pass on cost increases, except in the case of fertilizer, petro- leum, milk, and public transport, where price increases were initially 1/ Prior to unification, all exports other than tea, rubber and coconut products and all imports other than food, fertilizers and drugs were channelled through the certificate market. Since November 1972, the FEEC rate was maintained at a 65% premium over the official rate.  - 5 - deferred to cushion the impact on consumers. The Government has subsequently made some adjustments in bus fares, petroleum, and fertilizer prices. These changes, taken together, have enabled an increase in public savings and con- tributed, together with higher aid receipts, to a sizable step up in capital expenditures. Tax Reform: The tax structure has been rationalized and simplified with a view to increasing the elasticity of revenues. The burden of personal and company taxation has been lowered. Agricultural Pricing Policies: The domestic procurement price for rice has been increased by 21%. With the related increase in flour prices, incentives for paddy and other flour substitutes have been improved. Fresh coconut prices have recently been increased by 30% and the export duty on coconut products has been appropriately adjusted. The unification of the exchange rate also ends discrimination against tree crops; however, the increase in export taxes takes away a substantial part of these gains. To lift depressed producer margins, the export duty on tea was reduced twice during 1979. These reforms constitute only a beginning, and the Government anticipates the need for further price adjustments designed to reduce the continuing large burden of subsidies and current transfers (currently at over one-third of government revenues) and to provide adequate price incentives. 16. The economy's response to the policy reforms has been encouraging. Real gross national product in 1978 increased by 8.2%. The improved avail- abilities of inputs following import liberalization, an increased role for the private sector in distribution, and good weather helped attain a record paddy harvest. Industries, other than tree crop processing, benefited from the removal of price controls and increased access to imported raw materials and spare parts. Output of manufacturing industries rose by 8%, and electricity consumption by 13%, in 1978. After an initial slow start, private investment has also responded well to the reforms. This is partly reflected in the near threefold increase in capital goods imports from US$83 million in 1977 to an estimated US$230 million in 1978. Transport operators, in particular, have rushed to modernize their antiquated fleets, resulting in sizable imports of transport equipment. Others have taken advantage of accelerated depreciation provisions to replace worn out machinery and equipment. Applications for new investments have been encouraging. Public investment has also shown a major increase in 1978, resulting in a total investment level of 12% of GNP. 17. The removal of price controls on most manufactures, policy induced price increases, and related wage increases contributed to the 16% inflation rate in 1978. Money supply growth slackened, and the budget had a contrac- tionary effect due to under-expenditure on capital account. Interest rate reform ensured positive real interest rates, contributing to a shift in asset preferences and easing the task of managing the balance of payments. The Central Bank estimates total employment in the public sector and the formal private sector to have increased by 102,000 in 1978 as against 40,000 in 1977. Unemployment in 1978 is estimated by the Central Bank to have been 900,000 or 16% of the total labor force.  -6- 18. With import liberalization, merchandise imports in 1978 rose by 43% to US$1,024 million. Merchandise exports rose by 13% to US$844 million. Thus, the current account deficit swung from a surplus of US$78 million in 1977 to a deficit of US$151 million in 1978. However, since aid disbursements also rose sharply, net foreign exchange reserves rose by US$81 million in 1978. Gross foreign exchange reserves rose to US$398 million, or 4.5 months of imports. Thus, despite import liberalization, Sri Lanka's balance of payments remained well in control. The exchange rate averaged Rs 15.60 US$1.00 during 1978, appreciating modestly against the dollar and depreciat- ing against currencies of Sri Lanka's major trading partners. 19. While the overall performance of the economy has been good, there remain several underlying weaknesses, particularly the inadequacy of incen- tives and the poor quality of management of the tea estates, severe managerial problems in the State industrial corporations, shortages of skilled manpower and inadequate construction capability. The Government is aware of these weaknesses, and technical and financial assistance programs are in the pro- cess of being developed to address some of these problems. 20. The economic reforms have been accompanied by a major effort at stepping up public investment. In this context, the Government attaches the highest priority to three major programs: (i) Accelerated implemen- tation of the Mahaweli Ganga Development Program, by far the largest multi- purpose river basin development ever undertaken in Sri Lanka; (ii) a 200 square-mile free trade zone north of Colombo under a newly constituted Greater Colombo Economic Commission which has established the first Investment Promotion Zone near Colombo's international airport, Katunayake, and approved some 50 proposals involving a total investment of US$100 million by end- December, 1978; and (iii) a housing and urban renewal program with its main focus on the Colombo metropolitan region. 21. Recognizing the enormous financial and manpower burden of these schemes, the Government has, in consultation with the Bank, begun preparation of a medium-term public investment program which will attempt to ensure con- sistency between the multiple objectives of Government policy and the finan- cial, administrative and manpower resources available for attaining those objectives. An initial outline of the program, incorporating the capital budget for 1979, was presented to the May/June 1979 Aid Group meeting. It is seen as a rolling program, emphasizing the annual capital budget, and making such adjustments in objectives and content as are deemed necessary by short- term developments and opportunities that present themselves. 22. The Government has identified three major policy objectives in the medium term: (i) the creation of over one million new jobs between 1979 and 1983 to absorb the 630,000 expected additions to the labor force and make a significant dent in the backlog of the unemployed; (ii) acceleration of eco- nomic growth to 5.5% per annum; and (iii) structural improvement in the bal- ance of payments through reduced dependence on tree crop exports and import substitution in food. The program envisages a total public investment of Rs 46 billion over the 1979-83 period (US$2,900 million), some 60% of total (gross) investment. Investment is expected to average 24.5% of GNP in the  - 7 - 1979-83 period, as against 16% in the 1971-76 period. To enable this increase to materialize, domestic savings are expected to average about 14% of GNP, a substantial improvement over the 10.5% recorded in the 1971-75 period. The program, however, relies heavily on a substantial increase in net external inflows, which are estimated to average 11% of GNP throughout the period, as against an average of 2.3% in the 1970-76 period. These external flows will finance over two-thirds of the public investment program. 23. The underlying public investment strategy is to balance the large investment requirements of the Government's high priority program against the urgent rehabilitation and fresh investment needs in other sectors. The main thrust of the public sector program is to lay the foundation for longer term development, both by improving the efficiency of use of existing infrastruc- ture investments and by expanding the longer term growth capacity of the economy. The strategy thus implicitly relies on the private sector to respond to the economic reforms and the stimulus of the public sector investment pro- gram, and provide much of the short-term growth. 24. Success in attaining the Government's medium-term development objectives is dependent on: (i) further reforms to improve price and export incentives and management in the public sector; and (ii) additional efforts to mobilize domestic resources and address absorptive capacity constraints such as manpower shortages and planning and implementation capability. How- ever, success will ultimately be contingent on a well-designed program of external financial and technical assistance. This is particularly because the proposed increase in investment, together with the new import liberalization policy will cause imports to grow much more rapidly than in the past. More- over, Sri Lanka's terms of trade are expected to worsen over the medium term, due in the main to an expected decline in real tea unit values, and an increase in foodgrain and petroleum import costs. Thus, larger aid flows are needed to ensure that an ambitious development program, with a strong rehabilitation component, can be implemented within the framework of a liberalized import regime. Such assistance will also help finance about two-thirds of the public investment program. In this context, local cost financing will be needed to support this effort, particularly in the early years, as domestic resource mobilization efforts begin to gather momentum. 25. Aid donors have responded enthusiastically to the new policy envi- ronment in Sri Lanka. Aid commitments in 1978 from members of the Sri Lanka Aid Group totalled US$353 million, an increase of 57% over 1977. At the 15th Meeting, held in Paris on May 31 and June 1, 1979, donors also expressed firm support for the accelerated Mahaweli Program. Excluding indications for the Mahaweli Program, total aid indications at the 1979 Aid Group Meeting were US$387 million, an increase of 9.6% over 1978 commitments. Several important donors (i.e., Austria, Canada, India and the U.K.) did not provide any indi- cations at the 1979 Meeting for reasons unrelated to development in Sri Lanka, but most donors announced commitments later in the year. The grant element of aid commitments is currently around 63% and is expected to improve further. The debt service ratio in 1978 stood at 10.0%, declining from 15.0% in 1977, due to improved export earnings and the decline in outstanding short- and medium-term borrowings. The ratio dropped further to 9.0% in 1979.  - 8 - PART II - THE AGRICULTURAL AND IRRIGATION SECTORS The Agricultural Sector 26. Agriculture remains of central importance to the economic develop- ment of Sri Lanka. It contributes directly about one-third of GDP, half of total employment, 80% of export earnings and a substantial share of Govern- ment revenues. Much of the activity in the manufacturing, transport and service sectors is also dependent on agriculture, either in relation to the supply of inputs or the processing of agricultural output. It follows, there- fore, that the mixed performance of the agricultural sector in recent years has substantially affected overall economic performance. Thus, a primary aim of the economic reforms introduced by the present Government (paragraph 15) has been to restore dynamism to the agricultural sector, and, while it is too early to judge the full effects of these reforms, encouragement can be derived from the record 1978 paddy harvest. 27. There is undoubtedly considerable potential for accelerating agri- cultural growth rates. Sri Lanka's climate is suitable for year-round cul- tivation and the variations in precipitation, topography, temperature and soils make it possible to grow a wide range of crops. 28. Development has been concentrated in the wet and intermediate zones which lie in the southwest of the island. These zones account for only a third of Sri Lanka's surface area, but contain some two thirds of the popula- tion, virtually all the tea and rubber, 50% of the paddy land and a substan- tial proportion of the area under coconuts and miscellaneous field crops. Agricultural growth in these areas must depend primarily on increasing the productivity of already developed land. Low tree crop yields reflect in- adequate past investment due to poor financial returns and uncertainty over future ownership. The government is currently engaged in a major review of the tea and rubber sectors which should lead to extensive rehabilitation and diversification programs. Coconuts represent a more difficult problem, given their wide dispersal under smallholder ownership. Nevertheless, considerable potential exists both for higher yields and intercropping. Further inten- sification on paddy land (already at 170%) is closely related to improvements in water control and drainage and the removal of significant farm power and marketing constraints. 29. The dry zone--to the north and east of the island--is, with the ex- ception of the Jaffna peninsula, fairly sparsely populated and underdeveloped, despite a continuing process of migration and colonization. Permanent agricul- ture accounts for less than 30% of about 6 M ac considered suitable for agri- culture, with an additional 40% under subsistence-type chena ("slash and burn") agriculture. Cultivation in the yala season is confined to the irrigated areas, but, even in these areas, water and other constraints limit average year-round intensities to about 110-120%. Very considerable potential exists, therefore, both for increasing intensities on already developed land and for expanding cultivated area. A total of some 1.5 M ac could probably ultimately be brought under irrigation (compared to less than 0.7 M ac at present). The balance of the available land will remain under rainfed conditions, but there is scope for stabilizing chena agriculture, raising productivity and extending  - 9 - agricultural production during the maha season. Paddy will continue to be the dominant crop in irrigated areas, but the dry zone as a whole also represents the main opportunity for diversifying into a wide range of field crops. 30. The agricultural sector has, therefore, the potential for consid- erable development and will continue to absorb most of the increase in Sri Lanka's labor force. Over the last thirty years, the proportion of the total population living in rural areas has, in fact, declined only modestly. While income distribution data need to be treated with considerable caution, they suggest not only that rural-urban income differentials have narrowed, but also that there has been a significant reduction of inequality within the rural community. These effects reflect in part the depressed levels of economic activity in the urban and estate sectors. However, they are also due to such factors as a shift in the terms of trade in favor of agriculture, the impact of land reform, and the spread of education, health and food subsidy programs throughout the country. While there is considerable rural poverty in Sri Lanka, these factors--together with underutilized land resources in the dry zone--should ensure that rural inequality does not reach the extremes witnessed in neighboring South Asian countries. The challenge will be to increase rural productivity on a broad front with special emphasis on the smallholder sector. 31. The Government is attempting to improve the performance of the agri- cultural sector in order to provide for increased employment, incomes, export earnings and food self-sufficiency, while building on the social and related achievements of past decades. The Government's strategy has emphasized better utilization of the existing potential through institutional and policy im- provements as well as rehabilitation of the productive base. Among the policies and programs that have been given high priority are: (i) establish- ment of appropriate price incentives for the producer; (ii) strengthening of agricultural support services such as research, extension, credit, farm power and fertilizer distribution; (iii) improvements in water management; (iv) improvements in the management of state-controlled lands; and (v) programs to rehabilitate plantation crops and improve the living conditions of plantation labor. Given adequate attention to implementation problems, the Government's agricultural growth target for the next five years (4.5% per year) appears to be attainable. For the longer-term, and to balance this emphasis on quick- yielding programs and policies, the Government is accelerating the expansion of irrigated agriculture in the dry zone through the Mahaweli Ganga Develop- ment Program (paragraphs 39-41) and a replanting/rehabilitation program in the tree crop sector. The Irrigation Sector 32. Irrigation in Sri Lanka has a history dating back to at least the 5th century B.C. Ancient irrigation reached its zenith in the 12th cen- tury A.D. and, though a number of the systems developed were gradually aban- doned, many still form the basis for systems currently in use. At present, about 900,000 ac throughout the island are irrigated (about 35% of the area under field crops) and major efforts are being made to expand this area, principally through the Mahaweli Program.  - 10 - 33. Annual rainfall in the wet and intermediate zones ranges from about 1,600 mm to 4,000 mm and is fairly well distributed throughout the year. Paddy can, therefore, be grown under rainfed conditions (not only in the maha season, but in some areas in the yala season as well) and irrigation develop- ment has primarily been limited to run-of-the river diversion . In contrast, annual rainfall in the dry zone, ranging from 800 mm to 1,600 mm, is concen- trated in the maha season and is subject to considerable year-to-year vari- ability. Irrigation is, therefore, essential for cultivation in the yala season and supplemental irrigation is also usually necessary for the main maha crop. The dry zone accounts for almost 80% of the total irrigated area. Existing schemes are based on storage tanks designed to provide supplemental irrigation to the main crop, with residual water used for limited dry season cropping. There are a total of about 180 schemes having a storage capacity of 2,000 ac ft or more (irrigating nearly in total 400,000 ac) and large numbers of smaller schemes. Traditionally, maintenance of these schemes has been the responsibility of the farmers themselves, with only the major head- works and main canals in the hands of the Government. Water is allowed to run continuously, running from field-to-field with only limited development of field level channels. Not only have most schemes deteriorated, but the irrigation system itself is highly wasteful. With proper operation, improved water management practices and the introduction of appropriate cropping systems (in particular to diversify into crops other than paddy on the more permeable soils) substantial increases in cropped areas could be attained with existing water supplies. Therefore, under the ongoing Tank Irrigation Modern- ization Project, the Bank Group is providing support for improved water management. 34. In addition to these smaller schemes, the Government has undertaken or is implementing a number of multi-purpose water development projects, of which the Mahaweli Program is the largest. The Mahaweli Program will place substantial financial and manpower burdens on the Government, not only in undertaking the physical works, but also in ensuring the effective settlement of large numbers of farmers in the new project areas. During the late 1950s and 1960s, settlers were usually admitted to the (much smaller) schemes prior to land development and were left to do this work for themselves. The result was a slow build-up in benefits, wasteful use of water and high dropout rates, aggravated by inadequate supporting services, inappropriate settler selection, insecure tenure and poor management. Under the Mahaweli Program, appropriate settler selection procedures, suitable settlement infrastructure and improved planning of support services are being provided. This should help sustain agricultural development and at the same time help reduce regional imbalances in the Sri Lankan economy. PART III - BANK GROUP OPERATIONS IN SRI LANKA 35. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has made eight loans totalling US$73.4 million (net of cancellations) and eighteen credits totalling US$215.2 million (net of cancellations and exchange adjustments) in support of 26 projects. About 52% of Bank Group  - 11 - assistance has been for agriculture (irrigation, agricultural, and dairy development), 20% for power, and the remainder for development finance com- pany operations, highways, a program credit (mainly involving the import of raw materials for industry), water supply, and small and medium industries. Eight loans and seven credits (including cancellations) have been fully disbursed so far. During FY79, IDA credits for a total of US$68.0 million were approved for a Rural Development Project, Road Maintenance Project, National Extension and Adaptive Research Project, and a Small and Medium Industries Project. Annex II contains a summary statement of Bank Group operations as of November 30, 1979, together with notes on the execution of ongoing projects. 36. An IFC equity investment of about US$100,000 equivalent in the Development Finance Corporation of Ceylon and an IFC non-revolving line of credit of US$2.0 million to the government-owned Bank of Ceylon for on-lending to private small- and medium-scale industrial enterprises were approved in FY78. IFC also approved an investment of US$3.32 million in a synthetic textile mill, and US$986,000 in a polypropylene bag manufacturing plant in FY79. An investment of US$3.25 million to the Pearl Textile Mills, Ltd. (Ceylon) was approved by IFC's Board of Directors in 1970, but cancelled the same year because Government approval for the project was withdrawn. 37. The Bank Group's current strategy is focused on the agricultural sector to support Government efforts to increase food production and reduce its dependence on food imports, and to raise productivity, employment, in- comes and living standards of the rural population in Sri Lanka. Projects to support industry and basic infrastructure are also included. In addition to providing financing for the ongoing Mahaweli Ganga Development Project, the Bank Group is assisting the Government of Sri Lanka in accelerating the implementation of the Mahaweli Ganga Development Program principally through the coordination of external assistance for project preparation and implementation. It is expected that significant investment opportunities for IDA and other Aid Group members will flow from this effort. Projects in water supply and sewerage, rubber rehabilitation, road transport, rural development, and telecommunications also are being prepared for possible IDA financing. 38. The Bank Group presently accounts for 10.3% (IBRD, 3.3%; IDA, 7.0%) of Sri Lanka's total debt outstanding and disbursed, and 6.5% (almost totally Bank) of debt service. It is projected that the Bank Group's share in total external debt will increase to 16% by 1985 (with the Bank's share declining to 0.7%). The Bank and IDA shares in the debt service are expected to decline to about 4.4% by 1985. PART IV - THE NEED FOR TECHNICAL ASSISTANCE The Mahaweli Ganga Development Program 39. The basic concept underlying the Mahaweli Ganga Development Program stems from the need to overcome two major problems which Sri Lanka faces: (i) unemployment, and (ii) excessive imports of agricultural products,  - 12 - particularly rice. During the construction phase, the Program will provide employment for tens of thousands of people. After construction, about 225,000 farmer families will be settled, and over a million people will be gainfully employed in agricultural and allied pursuits. The output of these people will significantly reduce the need to import rice, wheat flour, sugar and other food items, for which the foreign exchange bill was about Rs 4 billion in 1978, or about 80% of the capital budget for the year. 40. The Program is based on a Master Plan prepared jointly by a UNDP/FAO team and Sri Lanka engineers in 1965-68 (see Map). The Plan envisaged develop- ment of about 900,000 ac of irrigable land in the dry zone, as well as about 500 MW of hydro-power. It was divided into three phases, each including several projects, for stepwise implementation over a 30-year period. 41. With Bank Group financial assistance, the initial construction of the Program began in 1970 (Loan No. 653 and Credit No. 174-CE) on transbasin diversion headworks at Polgolla on the Mahaweli Ganga and at Bowatenna on the Amban Ganga, including a 40 MW hydro-power plant at Polgolla. Delays early in the construction were due mainly to a change in Government, civil distur- bances, foundation problems at the Polgolla power house, tunnelling problems at Bowatenna, and slowness in awarding contracts for the Bowatenna diversion dam. After overcoming these problems, the construction progressed satisfac- torily and the project was completed in 1978. The project provides an improved water supply to about 130,000 ac of existing irrigated land and a full irriga- tion supply to about 100,000 ac of new land. Under the second IDA credit (Credit No. 701-CE), in collaboration with Canada, the Netherlands, U.K. and U.S., work is underway on the development of irrigation systems, construction of new villages and towns on about 70,000 ac of this aforementioned new land (the Government undertook development of the remaining 30,000 ac), settlement, and on improving agricultural extension and support services. Under this second project, attention has been given to agricultural extension and research, land development, settlement and social infrastructure. Good progress in these areas has been made to date. The Acceleration of the Mahaweli Program 42. Late in 1977, the Government realized that, at the current rate of construction and population growth, the Program would not have much impact on the country's economy in terms of meeting existing serious food shortage and unemployment problems. General agreement on the desirability of accelerating the Program was reached between the Government and the Association in December 1977. In response to the Government's request, the Association undertook to help mobilize international financial support for the Program and to advise on the scope of the studies and investigations required to carry it out. Follow- ing the Association's advice, an Implementation Strategy Study was carried out by Netherlands-financed consultants (NEDECO) to: (i) review and reevaluate the UNDP/FAO Master Plan and each of the separate projects; (ii) examine the implications of various alternative phasings of the feasible projects; and (iii) recommend a specific action plan taking into account technical, financial, economic, institutional and manpower constraints. The Association also agreed  - 13 - that, in light of the urgency of the Program, the study need not hold up pro- gress of the ongoing physical work and should, in fact, proceed simultaneously with the execution of readily implementable projects for which technical and economic viability had been clearly established. 43. In March 1978, as Executing Agency of the UNDP-financed Multi-Sector Program of Project Preparation, the Association engaged a French engineering consulting firm, SOGREAH, to serve as a liaison between the Government and the Association and to act as general consultants to provide technical assistance to the Government of Sri Lanka in carrying out services related to the planning and preparation of final designs, specifications, and tender docu- ments of projects included in the Program. 44. After a review of available financial resources, construction capa- bilities and trained technical personnel, the Government decided to accelerate the construction of five major projects, comprising five dams and hydropower plants with an installed capacity of about 600 MW, and development of about 290,000 ac of new lands. During the early months of 1978, the Government consulted with the Association and contacted several prospective donor coun- tries for assistance in the preparation of the five projects. Expressions of interest were received from the following: (i) Victoria Project-U.K.; (ii) Maduru Oya Project-Canada; (iii) Kotmale Project-Sweden; and (iv) Ran- denigala Project-Germany. Japan agreed to finance a feasibility study of the Moragahakanda Project. 45. Other possible external assistance included an expression of interest by the Government of Canada to finance feasibility studies of some of the other projects in the Program. The U.S. indicated interest in provid- ing financing for downstream development (the irrigation system, on-farm development and social infrastructure) of the Maduru Oya Project (System B). The U.S. also is financing an in-depth study of the impact of the accelerated Program on the environment. The Asian Development Bank recently approved a grant of US$98,000 to assist in the planning of roads in the Mahaweli area. 46. NEDECO's Final Report was completed in August 1979, several months after bilateral-financed consultants had started feasibility studies of four of the major projects. NEDECO's findings differed significantly from the UNDP/FAO Master Plan--in part due to updated information and in part due to the use of more advanced analytical techniques and assumptions, (e.g. with regard to water availability, water requirements, regulation capability of the reservoir system, and alternative water conveyance systems). Two of the significant NEDECO findings were: (a) the Victoria, Maduru Oya and Kotmale reservoirs together can supply enough water to fully irrigate existing irrigated lands and the new areas proposed for development under the accelerated Program, thus permitting the water developed by the Randenigala and Moragahakanda reservoirs (and several small reservoirs) to irrigate lands elsewhere in the North Central River Basins (NCRB) or the Northwest or Southeast Dry Zones; and  - 14 - (b) if surplus Mahaweli water is to be diverted to the NCRB area, a different plan can be developed for conveying the water northward which would substantially lower the cost as compared with the conveyance system proposed under the UNDP/FAO Master Plan. The Requirements for Technical Assistance 47. In view of (i) NEDECO's findings, and (ii) the Government's desire to construct the Randenigala and Moragahakanda Projects as soon as feasibility can be established, there is an immediate need to carry out studies of a transbasin diversion plan. The determination of the area to which the water from these two Projects is to be diverted and utilized has become an urgent priority. There is also a need to carry out pr mptly the preparation of final designs and tender documents for the developmen[ of the downstream works (irri- gation and social infrastructure) in the command area to be served by the Victoria Project (System C), since the construction of the Victoria Project is expected to begin in early 1980 and the ongoing study carried out by the Government (assisted by its consultants, Hunting Technical Services, Ltd.) is only a feasibility-grade study of the area. By end 1984, when the headworks for the Victoria Project are expected to be completed, the downstream develop- ment for the Project should be in place so as to maximize benefits from the investment. The Government does not have the capability to carry out these studies due to the full commitment of its experienced engineering and tech- nical staff to other ongoing works. 48. While the UNDP and bilateral agencies are expected to continue to provide Sri Lanka with financing for technical assistance, the level of need for the proposed technical assistance project is beyond that which can be expected from these external sources over the next two years, particularly because of the financial constraints under which these sources will be operat- ting during this period. Thus, the proposed project is intended to provide the Government with additional technical assistance funds at the amount required for an expeditious implementation of the Mahaweli Program. 49. At the Government's request, the proposed technical assistance project was identified jointly by the Government of Sri Lanka and the Associa- tion. It was prepared by the Government with IDA assistance. A mission visited Sri Lanka in November 1979 to discuss the project and the draft terms of reference of technical assistance prepared by IDA. A Staff Appraisal Report was not required. Negotiations were held in Colombo, Sri Lanka, on December 27, 1979. The Borrower's delegation was led by Mr. S. Velayutham, Director, External Resources Department, Ministry of Finance and Planning. A timetable of key events relating to the project and special conditions of the credits are given in Annex III.  - 15 - PART V - THE PROJECT Project Description 50. The proposed project would support the Government's efforts to accelerate the implementation of the Mahaweli Ganga Development Program. It would provide consultants' services (including training) and vehicles, equip- ment and supplies to the Government for: (i) preparation of a reconnaissance- level study of plans for conveying and utilizing surplus Mahaweli Ganga water to develop land in any of three alternative areas (or any combination of them) in order to select the best plan for a transbasin diversion project; (ii) on- going review of designs and tender documents for the Right Bank Canal, and the preparation of final designs and tender documents for construction of civil works and social infrastructures (e.g., village and township centers and roads) in Zones 3 to 6 of System C (Zone 1 is for the most part already developed and Zone 2 will be undertaken by Government with its own resources); and (iii) support of other studies and designs of projects in the Mahaweli Program to be undertaken by the Mahaweli Development Authority (MDA) during implementation of the Program. Training of local staff is included in all the above studies. The proposed project would be carried out over two-year period beginning in early 1980. 51. Study of Transbasin Diversion Plans. The study would investigate at reconnaissance level alternative plans for conveying and utilizing surplus water of the Mahaweli Ganga, together with local inflows, to irrigate selected areas in the North Central River Basins (NCRB) and/or the Northwest or South- east Dry Zones. The study would recommend the best plan, both technically and economically, including the determination of which subprojects should be developed under the selected plan and integrated into the Mahaweli Program. Also included in the study would be the preparation of terms of reference for feasibility studies for the selected plan and related subprojects. The period of the study would be about 15 months. 52. Right Bank Canal and System C. The Government has requested IDA to finance: (i) the construction of all but the first 3 km of the Right Bank Canal, a transbasin canal connecting the Mahaweli Ganga at Minipi with the Ulhitiya and Ratkinda reservoirs lending on to System C; and (ii) the devel- opment of Zones 3 to 6 of System C of the accelerated Mahaweli Program, comprising about 46,000 ac of net irrigable area. The Association has agreed to consider this request, and appraisal of such a project is tentatively planned for March 1980, by which time, the final feasibility report presently being prepared by U.K. consultants (Hunting Technical Services, Ltd.), financed by the Government, should be available. Prior to the appraisal, however, the Government's designs and tender documents for the Right Bank Canal should be reviewed, and the preparation of final designs of the irri- gation and drainage systems and social infrastructure in System C, together with the preparation of tender documents, should be started so that the designs and cost estimates would be well advanced before the project is presented to the Executive Directors for approval. As Hunting Technical Services, Ltd., has performed to date to the complete satisfaction of the  - 16 - it is the Government's wish and intention that the firm carry out this addi- tional work. Thus, in early December 1979, the Government engaged the firm to initiate the work (review of Right Bank Canal documents), based on proce- dures and documentation satisfactory to IDA, for which retroactive financing is recommended: (paragraph 57). Under terms and conditions satisfactory to the Association, the Government intends to further engage the firm to carry out the preparation of final designs and tender documents for System C (Zones 3 to 6). The implementation period for the work would be about 15 months. 53. Support for Other Studies and Designs. It has been the experience during the last two years that consulting services for unforeseen but important studies and designs, such as geophysical studies of dam sites and tunnel and main canal alignments, hydraulic model studies of spillways and irrigation outlets, and testing of foundation and construction materials, and other detailed planning and designs are often required to be carried out during the preparation and implementation of projects in the accelerated Mahaweli Program. Fortunately, during these two years, the UNDP-financed Multi-Sector Program of Project Preparation (paragraph 43) could make funds available to immediately carry out the required work vital to the progress of these projects. This UNDP Program, however, will be terminated in June 1980. Thus, given the limitations in UNDP resources and other outside assistance, the Government has asked IDA to provide funds (in this proposed project) in support of the Maha- weli Program until about March 1982. Terms of reference and contracts for these studies and designs would be agreed between the Government and the Association. 54. Training. It was agreed that, under their terms of reference, the consultants would give training to the local personnel engaged in the work, either counterpart personnel provided by the Government to the consul- tants or local personnel directly hired by the consultants. Under a program agreed with the Association, the training may include on-the-job training, classroom teaching, seminars or symposia, and, for the counterpart personnel provided by the Government, training on specific or specialized subjects abroad. The consultants and the Association would assist the Government in making arrangements for the training abroad. Organization and Management 55. The consultants would work directly under the MDA, created in early 1979. The Authority is the chief implementing agency for the Mahaweli Program, and all finances for the Program are funded by the Authority and allocated to the executing agencies. The Authority has the powers of direction and control of all government and semi-government institutions involved in the Program, and all policy decisions are taken by the Authority. The Authority is headed by a Director-General and is controlled by a Board consisting of three members nominated by the Minister of Mahaweli Development with concurrence by the President. The Secretary of the Ministry of Finance and Planning and the Secretary of the Ministry of Mahaweli Development function as ex-officio members of the Board. The MDA would be responsible for ensuring effective coordination of the various government ministries and executing agencies concerned. The Association staff would provide assistance to the Government in supervising the work of the consultants.  Project Cost 56. The estimated cost of the project would total about US$6.0 M, 70% of which would be foreign exchange and 30% local currency. It would include US$3.9 M for consultants' services, US$1.0 M for the Government's contribu- tion to the project (mainly for counterpart staff, offices and houses for consultants' personnel), US$0.5 M for vehicles, equipment and supplies, US$0.1 M for training of local staff, and US$0.5 M in contingencies. The project would be exempted from all taxes and duties. The consultants' cost of US$3.9 M comprises about 370 man-months of expatriate professional personnel (at an average cost of about US$9,000 per man-month), US$0.3 M for local staff directly hired by consultants, and US$0.27 M of direct reimbursable costs for items such as office expenses, operation and maintenance of vehicles and equipment, communications and printing of reports. The man-month costs of expatriate consultants estimated above include salaries, firms' overhead and fees, international and local travel, subsistence and other allowances. Financing 57. The EEC Special Action Credit of US$2.0 M would finance consultants' services for the ongoing review of the designs and tender documents for the Right Bank Canal, and the preparation of final designs and tender documents for System C (US$1.5 M), as well as vehicles, equipment and supplies for the entire proposed technical assistance project (US$0.5 M). Retroactive financing up to US$200,000 equivalent (dating back to December 1, 1979) is recommended for the ongoing review of the Right Bank Canal documents. The IDA Development Credit of US$3.0 M would finance the consultants' services for the study of a trans- basin diversion project (US$1.5 M) and the other studies and designs of projects under the Mahaweli Program (US$1.4 M), as well as the training for local staff (US$0.1 M). Procurement and Disbursement 58. The consultants for the transbasin diversion study and the other studies and designs (including training) would be appointed in accordance with the Bank Group's guidelines for selection of consultants. Further to the Government's present contract with Hunting Technical Services, Ltd., for the ongoing review of final designs and tender documents for the Right Bank Canal of System C, the Government would negotiate a contract with the firm, under terms and conditions satisfactory to IDA, to prepare the final designs and tender documents for Zones 3 to 6 of System C (including training). Since the vehicles, equipment and supplies are urgently needed to start the consultants' operations, they will be purchased by the consultants, on behalf of the Gov- ernment, through limited international tendering or direct off-the-shelf purchase, as shall be agreed by the Association. Also, since these vehicles, equipment and supplies will be financed by EEC Special Action Funds, their procurement would be limited to EEC member states and developing countries which are recipients of EEC Special Action Credits. 59. The IDA funds would be disbursed against 100% of the total cost of the consultants, whether foreign or local, and whether hired directly or as subcontractors, for the transbasin diversion study, other studies and  - 18 - designs and training. The'EEC Special Action funds would be disbursed against 100% of the total cost of the consultants for System C and all imported or locally manufactured vehicles, equipment and supplies for the entire project. For locally procured vehicles, equipment and supplies, disbursements would be made againt 70% of the cost. Disbursements would be made agai.--t documentation specified under the agreed contracts for: (i) the actual number of man-months spent by the consultants during the conduct of their work; (ii) the costs of travel and housing; (iii) the actual costs of vehicles, equipment and supplies; and (iv) the actual other direct costs incurred under the project. PART VI - LEGAL INSTRUMENTS AND AUTHORITY 60. The draft Development Credit Agreement between the Democratic Socialist Republic of Sri Lanka and the Association, the draft EEC Special Action Credit Agreement between the Democratic Socialist Republic of Sri Lanka and the Association as Administrator of the EEC Special Action Account established with funds contributed by the member states of the EEC, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. There are no special conditions of the Development Credit or the EEC Special Action Credit. 61. I am satisfied that the proposed Development Credit would comply with the Articles of Agreement of the Association and that the EEC Special Action Credit would comply with the criteria established by the Agreement of May 2, 1978, between the Association and the European Economic Community. PART VII - RECOMMENDATION 62. I recommend that the Executive Directors approve the proposed IDA Development Credit and EEC Special Action Credit. Robert S. McNamara President Attachments January 10, 1980  -19- Anr._. i Page 1 of 6 pages TAAL __SRI LA_XA - SOCIAL INDICATORS DATA SHEET mVprSjqP F (:R0tJ1PS (ADSJUSTPl) AVFRA(F LANID AREA CTS(S"~~LL . _ .'. /S TOTAL SAME NEAT ,JwdCA AGRICULTURAL 1T RECENT GEUCRAPHIC INCOME INCOME .190 / 170 t1 ESTIMTE Lb REGION /C GROUP Ld GROUP / GNP PER CAPITA (U'2 7J0 -Li'' 200.0 167.4 182.9 432.3 ENERGY CONSUMPTION PUR Lj.~FLKI' (KILOGRAMS OF COAL F;1UL;ALNI) 10'.0 .G 127.0 65.7 88.9 251.7 POPULATION AND VITAL STATISTICS TOTAL FOPULATION, MID-YEAR (MILLIONS) 9.9 12.5 14.0 URBAN POPULATION (PERCENT OF TOTAL) 17.9 22.0 25.2 12.8 15.0 24.2 POPULATION DENSITY PER SQ. KM. 151.0 191.') 213.0 85.2 46.8 42.7 PER SQ. KM. AGRICULTURAL LAND 507.0 518.0 579.0 322.6 254.1 95.0 POPULATION AGE STRUCTURIE (PERCENT) 0-14 YRS. 41.5 /f 40.0 39.0 44.0 43.6 44.9 15-64 YRS. 54.3 LE 56.0 57.0 52.9 53.3 52.8 65 YRS. AND ABOVE 4.2 /f 4.0 4.1 2.9 2.9 3.0 POPULATION GROWTH RATS (PERCENT) TOTAL 2.6 2.4 1.7 2.2 2.4 2.7 URBAN 4.8 4.5 3.7 4.2 4.0 8.8 CRUDE BIRTH RATE (PER THOUSAND) 37.6 33.1 27.4 45.1 44.3 42.2 CRUDE DEATH RATE (PER THOUSAND) 10.7 8.0 7.9 17.3 19.7 12.4 GROSS REPRODUCTION RATE 2.5 2.3 2.0 3.2 2.9 3.2 FAMILY PLANNING ACCEPTORS, ANNUAL (TNOUSANDS) .. 55.3 113.0 . * 1 USERS (PERCF.IT OF MARRIED EN) .. 8.0 9.9 13.7 14.6 14.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA 11970-100) 86.6 100.0 109.1 95.6 96.4 104.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIRENTS) 92.0 101.0 97.0 91.1 92.3 99.5 PROTEINS (GRAMS PER DAT) 45.0 50.0 48.0 49.6 50.0 56.8 OF WHICH ANIKAL AND PULSE 15.0 16.0 15.0 12.6 13.9 17.5 CHILD (AGES 1-4) MORTALITY KATE .. 16.8 .. .. 7.5 1EALTH LIFE EXPECTANCY AT BIRTH (YEAS) 60.5 65.8 67.8 43.1 45.8 53.3 INFANT MORTALITY RATE (PER THOUSAND) 52.0 50.0 51.0 99.5 102.7 82.5 ACCESS TO SAn WATER (PERCRNT OF POPULATION) TOTAL - 21.0 19.0 30.0 26.4 31.1 URBAN .- 46.0 36.0 66.3 63.5 68.5 RURAL .. 14.0 13.0 17.2 14.1 18.2 ACCESS TO EXCRETA DISPOSAL (PERCINT OF POPULATION) TOTAL .. 64.0 59.0 15.7 16.1 37.5 URBUAN .. 76.0 68.0 66.9 65.9 69.5 RURAL .. 61.0 55.0 2.5 3.4 25.4 POPUIATION PER PYSICIN 4500.0 .. 4010.0 8830.8 13432.7 9559.2 POPULATION PE NSII PER"SN 4170.0 2730.0 2280.0 8479.3 6983.3 2762.5 POPULATION PER HOSPITAL BDI TOTAL 330.0 330.0 330.0 1624.5 1157.6 786.5 URBAN *- 130.0 140.0 *- 183.3 278.4 RURAL .. 570.0 600.0 .. 1348.8 1358.4 ADMISSIONS PER HOSPITAL BED .. 54.0 51.3 *- 19.5 19.2 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.47 5 .. .. 5.2 URBAN f 6 .3 4.8 RURAL 5.271 5.5 .. .. 5.3 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.07/ 2.5 URBA 2.1 2.7 :.. 1. 2.3 RURAL 2.0 2.5 ACCESS TO ELtCTRICITY (PERCENT OF DWELLINGS) TOTAL 7.511 9.0 .. .. 25.9 28.3 URBAN 35.9 7 34.5 .. RURAL 2.3 7f 2.8 .. .. S.7 10.3  - so - Annex I TABLE JA Page 2 of 6 pages SRI IANKA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES SRI LANKA /a - MOST RECENT ESTIMATE) SAME SAME NEXT HIGHER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 /b 1970 /b ESTIMATE /b REGION /c GROUP Id GROUP Le EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 77.0 59.1 62.9 75.8 FEMALE 90.0 94.0 77.0 38.4 45.9 67.9 SECONDARY: TOTAL 27.0 51.0 54.0 19.9 14.4 17.7 FEMALE 16.0 51.0 55.0 9.9 8.8 12.9 VOCATIONAL (PERCENT OF SECONDARY) .. 1.0 1.0 1.5 6.6 7.4 PUPIL-TEACHER RATIO PRIMARY 31.0 .. 22.0 38.2 38.5 34.3 SECONDARY .. .. .. 23.5 19.8 23.5 ADULT LITERACY RATE (PERCENT) 61.0 77.6 78.1 35.6 36.7 63.7 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 7.0 6.7 2.2 3.1 7.2 RADIO RECEIVERS PER THOUSAND POPULATION 36.0 .. 37.0 14.9 31.1 71.1 TV RECEIVERS PER THOUSAND POPULATION .. .. .. .. 2.8 14.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 36.0 49.0 .. 6.4 6.0 16.3 CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 .. 3.9 .. 1.4 1.6 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 3500.0 Jt 4100.0 4707.0 PEMALE (PERCENT) 22.6 23.7 28.5 21.3 24.2 28.0 AGRICULTURE (PERCENT) 56.3 52.0 55.0 62.8 60.7 54.1 INDUSTRY (PERCENT) 13.5 14.4 .. PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.6 35.8 39.8 37.8 MALE 50.8 49.2 48.2 52.4 53.3 50.3 FEMALE 16.2 16.5 20.3 15.6 19.6 20.9 ECONOMIC DEPENDENCY RATIO 1.5 1.4 1.2 1.3 1.3 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.4 18.8 18.6 18.6 20.3 19.5 HIGHEST 20 PERCENT OF HOUSEHOLDS 52.1 45.6 42.8 42.8 45.1 48.9 LOWEST 20 PERCENT OF HOUSEHOLDS 4.5 7.4 7.3 7.3 5.7 5.9 LOWEST 40 PERCENT OF HOUSEHOLDS 13.7 17.9 19.3 19.3 16.8 15.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. 68.0 80.2 88.5 155.9 RURAL .. .. 76.0 67.2 71.9 97.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 100.8 143.7 RURAL .. 59.0 39.8 42.0 87.3 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 26.0 50.3 46.0 22.9 RURAL .. .. 22.0 44.6 48.0 36.7 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not unitorm. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970, between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c South Asia; /d Low Income ($280 or less per capita 1976); /e Lower Middle Income ($281-550 per capita, 1976); /f 1963. September, 1978  Annex I DEFINITIONS OF SOCIAL INDICATORS Page 3 of 6 pages iNU Thr ad)uuted group averages for each indicator are populationm-eightad geometric means, excluding the extreme values of the indicator and the most pauiafa'd !a aerr IS each group. Coverage of countries among the indicators depends on availability of data and is cot uniform. Due to lack of data, a ,.aaLt 2 Surplus Oil Euportera and indicators of access to water and excrete dispos-l, h-o.sis, Income distribution and poverty are . ,- ceometric means without the exclusion of extreme velcer. ' _.,, ,. Io, and rural - Population (total, - . o=prisiog laud area and inland waters. and r a ll; l by thand respective snhber of hospital beds - - 'c-t estimate of agricultural area used temporarily iveilahic it pubili' and private general and spec-alized hospital and re- -rcps, pastures, market and kitchen gardens or to habilitoti-a cectors hospitult ore establishmentn permanently staffed by at mos onet.. phynliixo. Etstblishnrnrs providing principally custodial caro arc nor includod. Rural hospitals, how.ever, include health and medi- C!PPrrR r:i"rmi (r5) - SGNP per capita estia ates at current market prices, cal centers not pernanently staffed by a physician (but by a medical as- alcacir hr bysame conversion method as World Bank Atlas (1975-77 bais); sistant, nuose, midwife, etc.) which offer in-patient accomadtian and 1960, l9'0, cd 1977 data. provide a linited range of medical facilities. Admissions per hospEtol bed - Total number of admissions to or discharges ENERGY CONSlDOPTION PER CAPITA - Anual consumption of commercial energy fros hospitals divided by the nuhber of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and geo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Average sie of household (persons per household) - total, urban, and rural- POPULATION AND VITAL STATISTICS A household consists of a group of individuals wto share living quarter. To.ta l gp- otinr. mid-year (milliosn) - As of July 1; if not available, and their main meals. A boarder or lodger may ot may not be included is average of two end-year estimates; 1960, 1970, and 1977 data, the household for statistical purposes. Statistical definitions of house- Urban I1L,4atie (Percent of total) - Ratio of urban to total popula- hold vary. ties; diffe-ee- definitions of urhas areas may affect comparability Av-rage nunber ofp_eosos er reo= - total, urban, and rural - Average mum- of drta a-rneg ceontrios ber of persona pee roo in all, urban, and rural occupied conventional Populatico density dwellings, respectively. Dwellings exclude aon-Fermanent structures and Per so. km. - Mid-year population per square kilometer (100 hectares) unoccupied parts. of total area. Access to electricity (percent of dwellings) - total, urban, and rural - Per q. k. agriculture land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters ao percentage only. of total, urban, and rural dwellings respectively. Population age structure (percent) - Children (0-14 yeart), working-age (15-64 years), ano retired (65 years and over) as percentages of mid- ERUCATION year ppoulation. Adjusted enrollrent retics Populatiro growth rare (percent) - total, and urban - Compound annual Primary school - tctal, and female - Total and female enrollment of all ages growth rates of tatal and urban mid-year populations for 1950-60, at the primary level as percentages of respectively primary schoal-age 1960-70, and 1970-75. populations; normally includes children aged 6-11 yearn but adjusted for Crude birth rate (putr thousand) - Annual live births per thousand of different lengths of primary education; for countries with universal edu- mid-year pcpulati-s; ten-year arithmetic averages ending in 1960 and cation enrollment may exceed 100 percent since same pupils are below or 1970 and five-year average ending in 1975 fsr most recent estimate. above the official schocl ag.e Crude death rate (por thousand) - Annual deaths per thousand of mid- Secondary school - total, and female - Computed as above; secondary educa- year population; tin-year arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary instructisn; pro- and five-year ave-age ending in 1975 for most recent estimate. vides ge*erol vocational, or teacher training in-tructions for pupils Gross reproduction te - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspondence courses are generally in her normal oep-oductive period if she experiences present age- excluded. specific fertilit1 rates; unually five-year averages ending in 1960, Vocational enroLlment (percent of secondary) - Vocational institutions in- 1970, and 1975. clude technical, industrial., or other programs ubich operate independently Family planning - acceptors, annual (thousands) - Annual number of or as departments of secondary institutions. aceeptors of birtt-control devices under auspices of natianal family Pupil-teacher ratio - primary, and secondary - Total students enrolled in planning program. primary and oscondary levels divided by numbers cf teachers in the carre- Family ploncioc - users (percent of married woman) - Percentage cf npoxding lvels. married women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (Percent) - Literate adults (able to read and write) as doice to all manied women in same age group, a percentage of total adult population aged 15 yearm and over. FOOD AND NUTRITION CONSUMiPTION Index of food production per capita (19705100) - Index number of per Passenger cars (per thousand population) - Passenger crs comprise motor cars capita annual production of all foed commodities, seating less than eight person.; excludes ambulances, hearses and military Per capita supply of calories (percent of requiremants) - Computed fron vehicles. energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of receivers for radio per day. Available supplies comprise domestic prsduction, imports le.s broadcasts to general public per thousand of population; excludes unlicensed esporto, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registrrtios of radio sets was in quantities used in food processing, and losses in distribution. Re- effect; dato for recent years may met be comparable since most countries qUirements werm estimated by PAO based on physiological needs for nor- abolished licensing. mel activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to general weights, age and sex distributions of population, and allowing 10 per- poblic per thousand population; excludes unlicensed TV receivers in coon- cent for waste at household level, tries and in years when registration of TV sets was in effect. Per capita supply of protein (grams per day) - Protein content of per Newspaper circulation (per thousand population) - Shows the average circula- capita net supply of food per day. Net supply of food is defined as tin of "daily general interest newspaper", defined as a periodical publi- above. Requirements far all countries established by USDA provide for cation devoted primarily to recording general news. It is considered to a minimum allowance of 60 grams of total protein per day and 20 grams be "daily" if it appearn at least four tines a week. of animal and pulse protein, of which 10 grams should be animal protein. Cinema annual attendance per capita per year - Based on the number of tickets These standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cinemas and mebile 23 frame of animal protein as an average for the world, proposed by units. PAO in the Third World Food Survey. Per capita protein supply free animal and pulse - Protein supply of food ERPLOYMENT derived froe animals and pulses in grama per day. Total labor force (thounancd) - E-coomically active persons, including armed Child (aies 1-4) mortality rate (per thousand) - Annual deaths per thous- forces and une-plo-ed but oxclaupdinF touswls, stedents, etc. Defini- and in age group 1-4 years, to children in this age group. tions in various -ountries a.e cOt insparable. PFeale (perceer) - Fe.ute lahor fr-e as pyr-entage ef total labor force. HEALTH Agriculture (percent) - Labor force io facring, forestry, hunting and fishing Life expectancy at birth (years) - Average number of years of life as percentage of total labor force. remaining at birth; usually five-year averages ending in 1960, 1970, Industry (percent) - Labor force in niming, construction, manufacturing and and 1975 electricity, water and gas as percentage of total labor force. Infant mortality rate (per thousand) - Annual deaths of infants under - Participation rate (percent) - total, male, and female - Total, male, and one year of age per thousand live birhts. female labor force as percenteges of their respective populatinos. Access to safe water (percent of popslation) - total, urban. and rural - These a- ILO's adio-ted participation rates reflecting age-sen Number of people (total, urban, and rural) with reasonable access to str-ucr of the P-plpori-zn. -nd long rime tred. safe water supply (includes treated surface waters or ustreated but icnomic dpplatio und 15 aod 61 and o t uncontaminated water such as that from protected boreholes, springs, the labor force in age group of 15-64 pyesrt and eanitary wells) as percentages of their respective populations. In an urban area a public fountain or standpost located not more INCOME DISTRIBUTION than 200 meters free a house may be considered as being within re.- Percentage of private income (both in cash and kind) received by richest 5 sonable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percent imply that the housewife or members of the household do not have to of househs1ds. spend a disproportionate part of the day in fetching the family't water needs. POVERTY TARGET GROUPS Access to .ecrata disposal (Percent of PoPulation) - total, urban, and Estimated absolute Poverty income level (US$ per capita) - urban and rural - rural - Number of people (total, urban, and rural) served by excreta Absolute poverty income level is that income level below which a minimal disposal as percentages of their respective populations. Eereta nutritionally adequate diet plus essential non-food requirements is not disposal may include the collection and disposal, with or without affordable. treatment, of human excrete and waste-water by water-borne systems Estimated relatioe poverty Income lene (00$ pee capita) - urban and rural - or the use of pit privies and similar installations. Relative poverty income level Is that income level less than one-third Population per phYsician - PFpulation divided by .sober of practicing per capita peruo.al income f the coutry. physicians qualified from a medical school at university level. ttimated population below Poverty income level (percent) - urban and rural Population per nursing person - Population divided by number of Percent of population (urbon and rural) who are either "absolute poore or practicing male and female graduate nurses, practical nurses, and "relative poor" wihever is gr raltr. ass istant nurses. Economic and Social Data Division Eccuomic Analysis and Projections Department  -22- ~~~~~~Annex i - 22 - Page 4 of 6 pages SRI LANKA E C O N O M I C D E V E L O P M E N T D A T A S H E E T S A C T U A L EST. 1965 1970 1976 1977 1978 NATIONAL ACCOUNTS (1) (MILLIONS OF US$ AT 1975 PRICES) GROSS DOMESTIC PROOUCT 1783.0 2354.0 2747.3 2811.4 3020.7 GAINS FROM TERMS OF TRADE 539.7 242.2 185.1 413.4 362.6 GROSS DOMESTIC INCOME 2322.7 2596.2 2932.4 3224-8 3383.3 IMPORTS 1189.8 1017.3 913.5 999.3 1272.8 EXPORTS - VOLUME -670.2 -662.9 -660.5 -694.5 -754.8 EXPORTS - TT. ADJUSTED -1209.9 -905.i -845.6 -1107.9 -1117.4 RESOURCE GAP - TT. ADJUSTED -20.1 112.1 67.9 -108.6 155.4 TOTAL CONSUMPTION 2055.9 2239.0 2563.6 2648.2 2891.1 INVESTMENT 246.8 469.4 436.8 468.0 647.6 NATIONAL SAVINGS 244.3 297.9 350.7 570.6 511.1 DOMESTIC SAVINGS 266.9 357.3 368.9 576.6 492.3 GOP AT CURRENT US5 1686.6 1870.6 2424.2 2821.3 2546.3 SECTOR OUTPUT (SHARE OF GDP AT 1975 PRICES) AGRICULTURE 0.444 0.422 0.376 0.387 0.384 INDUSTRY 0171 0.211 0.217 0.201 0.202 SERVICES 0.385 0.367 0.407 0.412 0.415 PRICES ( 1975 - 1001 EXPORT PRICE INDEX 65.65 56.86 95.16 119.13 125.63 IMPORT PRICE INDEX 36.37 41.64 74.33 74.67 84.86 TERMS OF TRADE INDEX 180.52 136.55 128.02 159.53 148.05 GOP DEFLATOR (US$) 94-59 79.47 88.24 100.35 84.30 ANNUAL AVERAGE EXCHAN6E RATE 4.76 6.85 10.88 11.06 Growth Rates 1976 SHARE 1965 OF 1977 GDP NATIONAL ACCOUNTS (1) (MILIIONS OF US$ AT 1975 PRICES) GROSS DOMESTIC PRODUCT 3.9 X00.0 GAINS FROM TERMS OF TRADE 6.7 GROSS DOMESTIC INCOME 2.8 106.7 IMPORTS -1.4 33.3 EXPORTS - VOLUME 0.3 24.0 EXPORTS - TT. ADJUSTED -0.7 30.8 RESOURCE GAP - TT. ADJUSTED 2.5 TOTAL CONSUMPTION 2.1 93.3 INVESTMENT 5.5 15.9 NAIIONAL SAVINGS 7.3 12.8 DOMESTIC SAVINGS 6.6 13.4 GDP AT CURRENT US$ 4.4 PRICES ( 1975 = 100) EXPORT PRICE INDEX _5. EXPORT PPICE INDEX 5.1 IMPORT PRICE INDEX 6.2 TERMS OF TRADE INDEX -1.0 GOP DEFLATOR (US$) 0.5 SELECTED INDICATORS 1965-77 ICOR 4.37 IMPORT ELASTICITY -0.39 AVERAGE NATIONAL SAVINGS RATE 0. 1i MARGINAL NATIONAL SAVINGS RATE 0.32 IMPORTS/GDP 0.44 INVESTMENT/GDP 0. 16 RESOURCE GAP/GDP 0.04 (1) COMPONENTS MAY NOT ADD UP BECAUSE OF ROUNDING  - 23 - Annex I Page 5 of 6 pages SRI LANKA BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE 1973 1974 1975 1976 1977 1978 A C T U A L E S T. SUMMARY OF BALANCE OF PAYMENTS (US$ Million) 1. EXPORTS (INCLUDING NFS) 424.3 570.4 628.2 628.5 827.3 948.2 2. IMPORTS (INCLUDING NFS) 445.3 731.7 798.8 679.0 746.2 1080.1 3. RESOURCE BALANCE -21.0 -161.3 -170.6 -50.5 81.1 -131.9 4. NET FACTOR SERVICE INCOME -17.3 -16.6 -18.4 -20.1 -15.0 -11.0 .1 NET INTEREST PAYMENTS -14.7 -14.7 -15.9 -18.6 -14.0 -10.0 OF WHICH ON PUB M&LT LOANS -15.5 -16.5 -20.6 -23.1 -22.1 -22.8 .2 DIRECT INVESTMENT INCOME -2.7 -2.0 -2.4 -1.5 -1.1 -1.2 .3 WORKERS REMITTANCES (NET) .0 .0 .0 .0 .0 .0 5. CURRENT TRANSFERS (NET) .2 -.2 2.8 6.6 10.5 27.1 6. BALANCE ON CURRENT ACCOUNT -38.1 -178.1 -186.2 -64.0 76.6 -115.8 7. PRIVATE DIRECT INVESTMENT .5 1.3 -.2 .0 -.3 2.0 8. GRANTS & GRANT-LIKE FLOWS 13.0 42.0 77.0 58.0 60.8 57.9 PUBLIC M&LT LOANS 9. DISBURSEMENTS 83.8 146.3 157.4 210.4 150.1 260.7 10. AMORTIZATION -39.1 -52.4 -117.7 -103.8 -101.9 -72.1 11. NET DISBURSEMENTS 44.7 93.8 39.7 106.7 48.2 188.6 OTHER M&LT LOANS 12. DISBURSEMENTS .0 .0 .0 .0 .0 .0 13. AMORTIZATION .0 .0 .0 .0 .0 -0 14. NET DISBURSEMENTS .0 .0 .0 .0 .0 .0 15. USE OF IMF RESOURCES -1.4 33.3 27.9 11.1 46.9 .0 16. SHORT-TERM CAPITAL TRANSACTIONS -9.8 13.2 -2.8 -22.6 6.5 -3.0 17. CAPITAL TRANSACTIONS NEI 28.2 62.3 -12.0 -31.8 -56.9 -35.8 18. CHANGE IN RESERVES (- = INCREASE) -37.1 56.8 56.6 -57.4 -183.0 -94.0 19. NET FOREIGN EXCHANGE (1) RESERVES (END OF PERIOD) -11.0 -67.8 -124.4 -67.0 116.0 210.0 GRANT AND LOANS COMMITMENTS (US$ Million) 1. OFFICIAL GRANTS 21.1 37.0 76.0 53.1 104.3 123.7 2. TOTAL PUBLIC M&LT LOANS 92.1 233.1 285.8 221.8 167.6 324.9 .1 IBRD .0 .0 .0 .0 .0 .0 .2 IDA 6.0 24.0 29.5 .0 41.2 25.5 .3 OTHER MULTILATERAL 2.8 2.5 30.0 8.1 49.7 83.2 .4 GOVERNMENTS 58.4 72.9 196.6 140.9 69.7 192.8 .5 OF WHICH CENTRALLY PLANNED ECONOMIES (2) 2.6 21.4 56.1 4.2 1.7 10.0 .6 SUPPLIERS 25.0 133.6 29.7 72.7 7.0 23.4 .7 FINANCIAL INSTITUTIONS .0 .0 .0 .0 .0 .0 .8 BONDS .0 .0 .0 .0 .0 .0 .9 PUBLIC LOANS NEI .0 .0 .0 .0 .0 .0 3. OTHER M&LT LOANS (WHERE AVAILABLE) .0 .0 .0 .0 .0 .0 MEMORANDUM ITEMS 1. GRANT ELEMENT OF TOTAL COMMITMENTS 45.000 27.100 55.700 39.800 64.400 62.686 2. AVERAGE INTEREST RATE .037 .051 .029 .040 .021 .024 7. AVERAGE MATURITY (YEARS) 23.700 13.600 28.800 20.500 35.400 29.529 1/ NEI FOREIGN ASSETS: US$ EQUIVALENT OF LINE 31. IFS. 2/ INCLUDES CMEA COUNTRIES, PEOPLES REPUBLIC OF CHINA. NORTH KOREA, NORTH VIETNAM. DATE OF LATEST UPDATE 05/04/79  - 24 - Annex I SRI LANKA Page 6 of 6 pages D E B T A N D C R E D I T W O R T H I N E S S 1973 1974 1975 1976 1977 1978 A C T U A L E S T. MEDIUM AND LONG TERM DEBT (DISBURSED ONLY) TOTAL DEBT OUTSTANDING (DOD END OF PERIOD) 484.8 587.3 598.0 702.3 787.0 974.5 INCLUDING UNDISBURSED 680.1 875.7 997,0 1103.8 1217.9 1428.1 PUBLIC DEBT SERVICE -54.6 -68.9 -138.4 -126.8 -124.0 -94.9 INTEREST -15.5 -16.5 -20.6 -23.1 -22.1 -22.8 OTHER M&LT DEBT SERVICE .0 .0 .0 .0 .0 .0 TOTAL DEBT SERVICE -54.6 -68.9 -138.4 -126.8 -124.0 -94.9 DEBT BURDEN DEBT SERVICE RATIO 12.9 12.1 22.0 20.2 15.0 10.0 DEBT SERVICE RATIO (1) 13.5 12.4 22.4 20.4 15.1 10.1 DEBT SERVICE/GDP 2.7 2.7 5.2 5.2 4.4 3.7 PUB. DEBT SERVICE/GOV. REVENUE 15.7 10.0 19.0 20.0 23.5 14.7 TERMS INT. ON TOTAL DOD/TOTAL DOD 3.2 2.8 3.4 3.3 2.8 2.3 TOTAL DEBT SERVICE/TOTAL DOD 11.3 11.7 23.1 18.1 15.8 9.7 DEPENDENCY RATIOS FOR M&LT DEBT GROSS DISB./IMPORTS (INCL.NFS) 18.8 20.0 19.7 31.0 20.1 24.1 NET TRANSFER/IMPORTS(INCL.NFS) 6.6 10.6 2.4 12.3 3.5 15.4 NET TRANSFER/GROSS DISB. 34.9 52.9 12.1 39.7 17.4 63.6 EXPOSURE IBRD DISB./GROSS TOTAL DISB. 6.5 3.4 3.6 1.6 1.3 .7 BANK GROUP DISB./GROSS TOTAL DISBURSEMENTS 12.4 10.9 12.2 4.0 8.7 5.6 IBRD DOD/TOTAL DOD 6.6 5.8 6.1 5.1 4.4 3.3 BANK GROUP DOD/TOTAL DOD 9.5 10.0 12.5 11.3 11.3 10.3 IBRD DEBT SERVICE/TOTAL DEBT SERVICE 8.0 7.4 4.0 4.7 4.9 6.1 BANK GROUP DEBT SERVICE/TOTAL DEBT SERVICE 8.1 7.5 4.2 5.0 5.2 6.5 OUTSTANDING DEC. 31. 1977 _________________________ EXTERNAL DEBT (DISBURSED ONLY) AMOUNT PERCENT IBRD 34.3 4.4 BANK GROUP 89.0 11.3 OTHER MULTILATERAL 43.8 5.6 GOVERNMENTS 574.9 73.0 OF WHICH CENTRALLY PLANNED ECONOMIES (2) 52.8 6.7 SUPPLIERS 79.2 10.1 FINANCIAL INSTITUTIONS .1 .0 BONDS .0 .0 PUBLIC DEBT NEI .0 .0 TOTAL PUBLIC M&LT DEBT 787.0 100.0 OTHER PUBLIC M&LT DEBT .0 .0 OTHER M&LT DEBT .0 0 TOTAL PUBLIC DEBT (INCLUDING UNDISBURSED) 1217.9 154.8 TOTAL M & LT DEBT (INCLUDING UNDISBURSED) 1217.9 154.8 DEBT PROFILE TOTAL DEBT SERVICE 1978-82/TOTAL DOD END OF 1977 63.5 1/INCLUDING NET DIRECT INVESTMENT INCOME 2/INCLUDES CMEA COUNTRIES. PEOPLES REPUBLIC OF CHINA. NORTH KOREA, NORTH VIETNAM.  ANNEX II - 25 - Page 1 THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of November 30, 1979) US$ Million /a Loan or Amount (net of Credit cancellations) No. Year Borrower Purpose Bank IDA Undisbursed Eight loans and seven credits fully disbursed 73.4 71.5 504 1974 Sri Lanka Dairy Development 9.0 7.1 666 1976 Sri Lanka Tank Irrigation 5.0 4.5 701 1977 Sri Lanka Mahaweli Ganga Development II 19.0 18.8 709 1977 Sri Lanka Water Supply 9.2 5.7 742 1977 Sri Lanka DFC - Industrial IV 8.0 4.5 818 1978 Sri Lanka Tree Crop Reha- bilitation (Tea) 21.0 20.5 819 1978 Sri Lanka Tree Crop Diver- sification (Tea) 4.5 3.4 891 1979 Sri Lanka Kurunegala Rural Development 20.0 20.0 900 1979 Sri Lanka Road Maintenance 16.5 16.5 931 1979 Sri Lanka National Extension and Adaptive Research 15.5 15.5 942 1979 Sri Lanka Small and Medium Industries 16.0 16.0 Total, 73.4 215.2 132.5 of which has been repaid 39.2 - Total now outstanding 34.2 215.2 Amount sold, 3.6 of which has been repaid 3.6 Total now held by Bank and IDA 34.2 215.2 Total undisbursed Nil 135.4 132.5 /a Prior to exchange adjustments. B. STATEMENT OF IFC INVESTMENT (as of November 30, 1979) Amount of US$ Million Year Obligor Type of Business Loan Equity Total 1977 The Development Finance Corporation of Ceylon Development Banking - 0.1 0.1 1978 Bank of Ceylon Development Banking 2.0 - 2.0 Total Commitment now held by IFC 2.0 0.1 2.1  - 26 - ANNEX II Page 2 C. PROJECTS IN EXECUTION 1/ Cr. No. 504 - Dairy Development Project; US$9.0 million of August 9, 1974; Effective Date: February 10, 1975; Closing Date: December 31, 1980 The original project, as appraised in 1973, was designed to increase milk production on about 2,400 dairy farms covering 42,000 acres in the Coconut Triangle and Mid Country of Sri Lanka by providing credit, technical assistance and a strengthened milk collection, transport and marketing system. Complementary objectives were to establish pilot units for commercial calf rearing and pasture management systems and to provide processing equipment to the National Milk Board. However, progress was severely constrained by the poor supply of cattle available for onlending to project borrowers. The poor supply of cattle was due to import problems and an over-estimation of the national herd at appraisal stemming from unreliable Government statistics. Moreover, unrestricted slaughter of cattle was stimulated by a rapid increase in concentrate feed prices which made milk production unattractive plus the relatively high consumer price of fish and poultry meat. It, therefore, became necessary to reformulate the project. Before proceeding with refor- mulation, the Government was requested to provide appropriate incentives to the dairy sector by raising the producer price of milk and stabilizing feed prices. Appropriate action was taken in November, 1978, and the climate for dairying has improved accordingly. The revised project would focus on what was a small component of the original project -- support to dairy co- operatives. Under this component, dairy farmers would be organized in a manner similar to the successful Anand pattern of Dairy Cooperatives in India. The National Dairy Development Board (India) helped in the prepa- ration of the reformulated project. Under this reformulation, the supply of inputs and services would become key activities which would include pro- vision of technical assistance and credit to farmers and support for milk collection, transport and marketing. The successful ongoing pilot calf/heifer rearing and pasture programs have been expanded. The number of beneficiary farm families would be substantially increased (current estimate approximately 10,000 vs. 2,400 in the original project) and the project would contribute to a considerable increase in income of existing landless and small farmer dairy producers. A review mission visited Sri Lanka in July, 1979, and reported good progress. Cr. No. 666 - Tank Irrigation Modernization Project; US$5.0 million of January 12, 1977; Effective Date: April 12, 1977; Closing Date: June 30, 1981 The project covers five tank areas, serving a total cultivated area of 31,500 acres. The project includes: (a) construction works for improving irrigation and drainage facilities; (b) improvement of farm roads, (c) provi- sion of farm equipment for land preparation and plant protection; (d) strength- ening of agricultural supporting services, particularly extension; and (e) technical assistance for improving the operation and maintenance of the irrigation systems. The construction program is behind schedule by about  - 27 - Page 3 one year due to delays in procurement of construction equipment, civil dis- turbances in 1977, and shortage of experienced staff for surveys, designs and supervision. Practically ail construction equipment has now been pro- cured and construction progress has begun to pick up significantly. However, in order to complete the project within the revised time schedule, additional equipment will be required and tendering for this equipment has just recently been started. Unfortunately, quality control has been neglected (either through lack of training and experience or through negligence) and some of the completed works are poorly constructed. The Government has agreed to take action to improve quality control and closely monitor future work and will reconstruct those facilities which do not function properly after operation commences. In this regard, a quality control training program was provided by the U.S. Bureau of Reclamation in the USA for three Irrigation Department engineers during November-December 1978 and it is hoped that construction quality will improve to the levels required. A recent supervision mission reviewed the project with the Government and agreed on steps to be undertaken to strengthen project management and improve project implementation. A well- qualified Water Management Specialist has been appointed (part-time) to set up a water management training program for Irrigation Department staff and farmers. Project completion is expected to be delayed about one year. Cr. No. 701 - Mahaweli Ganga Development II Project; US$19.0 million of June 27, 1977; Effective Date: December 29, 1977; Closing Date: June 30, 1983 The credit will help finance construction of irrigation and drain- age schemes on about 40,000 acres of new land in the Mahaweli Ganga dry zone, together with providing O&M facilities and equipment, production support in the form of necessary tilling power and implements, marketing, transport and processing facilities for about 70,000 acres and improved agricultural exten- sion services for 106,000 acres. Cofinancing arrangements have been made with Canada, the Netherlands, the United Kingdom, the United States and the EEC. The Government has undertaken development of the project on an accelerated basis and will probably complete the project by end 1980. Unfortunately, in its haste to meet unrealistic target dates, the Mahaweli Development Board (MDB) proceeded to implement the project without proper planning and coordina- tion and without regard to quality standards and acceptable work practices, resulting in poorly constructed and only partially completed project works. The MDB has since improved its quality control and planning and coordination capability and a significant improvement in project implementation has occured. The work is continuing to improve due to the greater awareness and effort on the part of MDB staff and no major problems currently affect progress other than disbursements for civil works. It is expected that the project will be completed about 1-1/2 years earlier than estimated at appraisal.  - 28 - ANNEX II Page 4 Cr. No. 709 - Water Supply Project; US$9.2 million of May 101977; Effective Date: February 9, 1978; Closing Date: March 31, 1982 This credit will help finance improvement of existing piped water supplies to Colombo and five adjacent towns south of Colombo. In addition, the project will provide piped water to five adjacent towns north of Colombo and Ambalangoda and Kalutara on the southwest coast of Sri Lanka. It also includes provision for expenditures on spare parts and equipment, technical assistance and training. An additional credit of Canadian $5.0 million from Canadian funds administered by IDA is assisting in financing this project. Recently, an EEC Special Action Credit Agreement of US$7.0 million has been signed. Actions were taken in implementing some institutional changes, introducing a new bulk water tariff, and establishing new accounting proce- dures both in the National Water Supply and Drainage Board and in local authorities. Despite initial delays, the WDB has made good progress during the past year, particularly in procurement. Thirty three contracts have been awarded, resulting in a commitment of about US$13 million out of the credit. Cr. No. 742 - Fourth Development Finance Corporation of Ceylon Project; US$8.0 million of September 30, 1977; Effective Date: December 16, 1977; Closing Date: December 31, 1981 This credit will meet a substantial portion of DFCC's estimated foreign exchange requirements for lending to private sector industrial projects and tourism. Subprojects for US$5.7 million have been authorized. DFCC remains a competent institution, with a rapidly increasing level of activity, which could increase further provided that DFCC's staffing problems are overcome as well as the constraint caused by the low equity base. Cr. No. 818 - Tree Crop Rehabilitation (Tea) Project; US$21.0 million of July 12, 1978; Effective Date: December 28, 1978; Closing Date: December 31, 1984 The credit would assist the Government in improving the economic efficiency of the tea industry by lowering production costs and improving tea quality in the project area, as well as in stemming the decline in tea output. Project progress is satisfactory. Procurement is under way; all tender documents have been issued. In the case of housing, awards have been made and construction started. Field works, replanting and infilling, are on schedule. All other project components, namely health component, training component and tea area measurement, are progressing satisfactorily. Cr. No. 819 - Tree Crop Diversification (Tea) Project; US$4.5 million of July 12, 1978; Effective Date: December 15, 1978; Closing Date: June 30, 1983. This credit would help the Government in its initial effort in a long-term program to rehabilitate, diversify and settle degraded mid-country lands, mainly nationalized tea estates. The National Agricultural Development and Settlement Authority, the project executing agency, has developed into a mature development organization which is operating efficiently under capable  ANNEX II -29 - Page 5 management. Despite some delay in procurement of equipment, progress in field work is impressive. Cluster selection and homestead and farm demarca- tion are nearly complete and soil conservation work (bench terraces, lock and spill drains, graded stone terraces) well under way and acceleratng. Founda- tions for about 500 houses have been laid and these houses are at various stages of construction. The project has now reached a stage where the more difficult social part of the project, namely transport of non-citizen labor to other estates, settler selection, and land allocation will have to be tackled. Cr. No. 891 - Kurunegala Rural Development Project; US$20.0 million of April 26, 1979; Effective Date: August 27, 1979; Closing Date: June 30, 1984. The project aims to assist the development of the District of Kurunegala in an integrated manner for purposes of raising productivity, employment, incomes and living standards and to develop a replicable model for rural development for other districts in Sri Lanka. The project will provide for rehabilitation of existing irrigation schemes accompanied by improved water management practices to fully exploit the irrigation potential, and for programs for replanting/underplanting, intercropping and fertilizing of smallholder coconut plantations. The project will also strengthen agri- cultural extension services, improve the supply of input services such as fertilizer distribution and seeds supplies, and lay the foundation for a viable agriculture credit system. These directly productive investments will be complemented by investments in transportation, health, education, water supply and rural electrification. Subsidiary loan agreements with participating banks have been signed and the project unit set up. A super- vision mission reviewed the project in August and reported good progress. Cr. No. 900 - Road Maintenance Project; US$16.5 million of June 22, 1979; Effective Date: December 19, 1979; Closing Date: June 30, 1984 The project aims to improve the highway system of Sri Lanka by a program of enhanced periodic and routine maintenance. It would assist the Government in the rehabilitation of 112 miles of road, resurfacing of 150 additional miles and strengthening, repairing or replacement of 30 bridges. The project would also provide plant and equipment workshops and strengthen the road maintenance services of the Department of Highways. Consultants have recently been appointed and are expected to start their work soon. Cr. No. 931 - Agricultural Extension and Adaptive Research Project; US$15.5 million of July 24, 1979; Effective Date: October 4, 1979; Closing Date: June 30, 1985 The project would help Sri Lanka to (a) introduce a Training and Visit (T&V) extension system throughout the entire country, (b) strengthen adaptive research, and (c) improve and expand training of extension officers. The project would establish a link between research and extension and enhance the intensity, coverage and the content of agricultural extension services.  - 30 - ANNEX II Page 6 A unified extension system would be developed, under which extension workers would receive biweekly training, visit farmers according to planned schedules, and transmit extension messages. Cr. No. 942 - Small and Medium Industries Project; US$16.0 million of July 24, 1979; Effective Date: October 24, 1979; Closing Date: June 30, 1984 The principal objectives of the project would be to encourage and assist growth and productivity improvement of SMI firms, defined as enter- prises having plant and equipment valued at less than Rs 1 million, so as to increase their contribution to efficient low cost employment creation, export expansion, regional development and economic growth. The project would have two main components - credit and technical, management and marketing services. Under the credit component, it is proposed to establish a fund in the National Development Bank (NDB) to provide refinancing of subloans made to SMI firms by commercial banks and the Development Finance Corporation. The technical services component would be implemented by the Industrial Development Board, Department of Small Industry, Department of Textile Industries, and the National Institute of Management, and directed at specific subsectors - rubber products, light engineering, subcontracting exchanges, handlooms, coir pro- ducts, and rice milling.  - 31 - ANNEX III SRI LANKA TECHNICAL ASSISTANCE PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the Country to prepare the project Project prepared by the Association over a 2-month period (August/September 1979), with Government assistance in November 1979. (b) The agency which has prepared the project The Association prepared the project with assistance from the Government's Mahaweli Development Authority. (c) Date of first presentation to the Association and date of the first mission to consider the project July 1979 - November 1979 (d) Date of departure of appraisal mission 1/ October 29, 1979 (e) Date of completion of negotiations December 27, 1979 (f) Planned date of effectiveness May 9, 1980 Section II: Special IDA Implementation Actions None Section III: Special Conditions None. 1/ No appraisal mission was required since the Association had already gathered the data and information required for the preparation of the project documents. A mission visited Sri Lanka in November 1979, to discuss the project and the draft consultants' terms of reference prepared by IDA.   IBRD13477RI 79;C0' 0o -3'300' 31-30' DECEMBER 7979 SRI LANKA MAHAWELI GANGA TECHNICAL ASSISTANCE PROJECT Existing and Proposed Irrigotion Schemes . N 4*- Protec boundaries -- - Proposed conals B A Y 0 fIrrigated areas . / 89 < FNG ' ' '"' . , .. -f .'-'-Proposed irrigotion areas cIZiiQ 4 zExisting dams and reservoirs :<-'