Sri Lanka - Year 2000 Emergency Assistance Project

Document of The World Bank Report No: 18729-CE PROJECT APPRAISAL DOCUMENT ONA PROPOSED CREDIT IN THE AMOUNT OF SDR 21.0 MILLION TO THE GOVERNMENT OF SRI LANKA FOR A YEAR 2000 EMERGENCY ASSISTANCE PROJECT December 28, 1998 Finance and Private Sector Development Unit South Asia Region  CURRENCY EQUIVALENTS (Exchange Rate Effective December 22, 1998) Currency Unit = Sri Lanka Rupees Rs 68.2 = US$ I App]icable SDR exchange rate is: US$ 1.38621 = I SDR FISCAL YEAR Government of Sri Lanka: January I to December 3 1 Central Bank of Sri Lanka: January I to December 3 1 ABBREVIATIONS AND ACRONYMS AWDR Average Weighted Deposit Rate CAS Country Assistance Strategy CBSL Central Bank of Sri Lanka CEB Ceylon Electricity Board CINTEC Council of Information Technology DCS Department of Census and Statistics DFIs Development Finance Institutes DO Development Objective EPF Employees Provident Fund ERR Economic Rate of Return ETF Employee Trust Fund FRR Fiiiancial Rate of Return GOSL Government of Sri Lanka IDA International Development Association IP Implementation Progress IRD Inland Revenue Department ITD Information Technology Development MOF Ministry of Finance PCU Project Coordinating Unit RRDB Regional Rural Development Banik SLIC Sri Lanka Insurance Company TA Technical Assistance Y2K Year 2000 Vice President: Mieko Nishimizu Country Director: Roberto Bentjerodt Sector Manager: Marilou Uy Task Leader: Shideh Hadian Team Leader: Joseph Pernia  SRI LANKA YEAR 2000 EMERGENCY ASSISTANCE PROJECT CONTENTS Page No. A. PROJECT DEVELOPMENT OBJECTIVE .................................................................. 2 A. 1. Project development objective .2 A.2. Key performance indicators .2 B. STRATEGIC CONTEXT .2 B. I. Sector-related Country Assistance Strategy (CAS) goal supported by the project. 2 B.2. Main sector issues and Government strategy . B.3. Sector issues to be addressed by the project and strategic choices .5 C. PROJECT DESCRIPTION SUMMARY .8 C. 1. Project components .8 C.2. Key policy and institutional reforms supported by the project ........................................... 10 C.3. Benefits and target population ....................................................................... 11 C.4. Institutional and implementation arrangements .................................................................. 11 Figure 1: Sri Lanka Y2K Project Management .................................................................. 12 D. PROJECT RATIONALE ....................................................................... 13 D. 1. Project alternatives considered and reasons for rejection ...................... ............................. 13 D.2. Major related projects financed by the Bank and/or other development agencies .............. 13 D.3. Lessons learned and reflected in the project design ............................................................ 14 D.4. Indications of borrower commitment and ownership ............................... .......................... 14 D.5. Value added of Bank support in this project .................................................................. .... 14 E. SUMMARY PROJECT ANALYSIS ....................................................................... 15 E. l. Economic ....................................................................... 15 E.2. Financial ....................................................................... 15 E.3. Technical ....................................................................... 15 This report is based on the findings of an appraisal mission that visited Sri Lanka in November 1998. The mission team members consisted of Mmes. Shideh Hadian (Task Leader, SASFP); Sriyani Hulugalle (Industrial Economist, SACCO); Eva Lystad (Prin. Information Tech. Specialist, EMTTI); Julitta Rasiah (Financial Analyst. SARFM); and Messrs. Jayantha De Mel (Procurement Specialist, SARFM); Bradford Adams (Information Technology Specialist, EMTTI). Other members of the project team are Mr. Jose P. Correia da Silva (Senior Counsel, LEGSA); Ms. Vimala Abraham (Sr. Disbursement Officer, LOAAS); and Ms. Mary Agnes Evidente (Team Assistant, SASFP). The peer reviewers are Messrs. Howard Amer (US Federal Reserve) and Andrew Hook (FSD).  Page No. E.4. Institutional ................................... 15 E.5. Social ................................... 15 E.6. Environmental assessment ................................... 15 E.7. Participatory approach ................................... 16 F. SUSTAINABILITY AND RISKS ................................... 16 F.1. Sustainability ................................... 16 F.2. Critical risks ................................... 1 7 F.3. Possible controversial aspects ................................... 17 G. MAIN LOAN CONDITIONS ................................... 18 G. 1. Effectiveness conditions ................................... 1 8 G.2. Other ................................... 18 H. READINESS FOR IMPLEMENTATION ................................... 18 I. COMPLIANCE WITH BANK POLICIES ................................... 18 ANNEXES Annex 1. Project Design Summary .20 Annex 2. Detailed Project Description .21 Annex 3. Estimated Project Costs .22 Annex 4. Cost-Benefit Analysis Summary .23 Annex 5. Financial Summary .23 Annex 6. Procurement and Disbursement Arrangements .24 Table A. Project Costs by Procurement Arrangements .28 Table B. Thresholds for Procurement Methods and Prior Review .29 Table C. Allocation of Loan Proceeds .30 Annex 7. Project Processing Schedule. 3 1 Annex 8. Documents in the Project File .32 Annex 9. Statement of Loans and Credits .33 Annex 10. Sri Lanka at a Glance .34 Annex 11. Social Data Sheet .36 Annex 12. Environmental Data Sheet .39 Annex 13. A Strategic Approach to the Y2K Problem in the Sri Lanka Banking Sector . 40 (Prepared by the World Bank appraisal team; based on the best practices available from reputable sources) MAP: IBRD Number 27509  SRI LANKA YEAR 2000 EMERGENCY ASSISTANCE PROJECT Project Appraisal Document SOUTH ASIA Date: December 28, 1998 Task Leader: Shideh Hadian Country Director: Roberto Bentjerodt Team Leader: Joseph Pemia Sector Manager: Marilou Uy Sector: Finance and Private Sector Development Project ID: LK-PE-63472 Theme(s): Economic and Financial Management Lending Instrument: Technical Assistance (TA) Poverty Targeted Intervention: [ I Yes [xl No Peer Reviewers: Mr. Andrew Hook, FSD, World Bank Mr. Howard Amer, US Federal Reserve Project Financing Data [ ] Loan [x] Credit ] Grant [ Guarantee [] Other [Specify] For Loans/CreditslOthers: Amount (US$ m): SDR 21.0 million / US$29.0 Million Equivalent Proposed IDA Credit terms: Grace period (years): 10 Years Years to maturity: 40 Years Commitment fee: 0.5% Service charge: 0.75% Front-end fee on Bank loan: Financing plan: Source Local Foreign Total (US$ million) Government 0.3 0.2 0.5 IBRD IDA 5.3 23.7 29.0 Other (Sponsors) 6.5 2.0 8.5 Total: 12.1 25.9 38.0 Borrower: Government of Sri Lanka Guarantor: Responsible agencies: Ministry of Finance and Planning; Central Bank of Sri Lanka Estimated disbursements (FYIUS$M): FY FY99 FY00 FY01 FY02 FY03 FY04 FY05 Annual 7.3 20.3 1.4 Cumulative 7.3 27.6 29.0 Project implementation period: February 15, 1999 - June 30, 2001 Expected effectiveness date: February 15, 1999, Expected closing date: June 30, 2001 Implementing agency: Ministry of Finance and Planning Contact person: Mr. Faiz Mohideen, Director General External Resource Department, Ministry of Finance and Planning Address: Secretariat, Colombo 1, Sri Lanka Tel: 94-1-434876 Fax: 94-1-447633 E-mail: not available OCS PAD Form: October 9, 1998  Page 2 A: Project Development Objective A.I. Project development objective: To assist the Government of Sri Lanka (GOSL), on an urgent basis, in its efforts to prevent possible business disruption in the country's economic and financial sectors as a result of the Year 2000 (Y2K) problem. The project will focus on assisting the country's banking sector and selected critical government agencies to adopt and implement a well defined contingency-based strategic plan for Y2K compliance. A.2. Key performance indicators: The key performance indicators for this project would be: (i) the number of financial institutions able to prevent disruption in their critical businesses and continue to operate without any major problem after the year 2000; (ii) the estimated amount of damages avoided or minimized in the financial and economic sectors; (iii) the number of critical government agencies to continue their normnal operations; and (iv) the readiness and ability of critical sectors to be able to quickly recover (measurable by the time period) from any possible system damage or business disruption after the year 2000. B: Strategic Context B.:. Sector-related Country Assistance Strategy (CAS) goal supported by the project: Document number: CAS No. 15633-CE (May 21, 1996). Date of latest CAS discussion: The last Country Assistance Strategy was discussed by the Board on June 13, 1996. A new CAS is scheduled to be presented to the Board in January 1999. The level of awareness of the Y2K problem was not high and certainly was not considered a priority back in 1996. Therefore, the CAS No. 15633 did not discuss this issue and the need for emergency assistance to the GOSL. However, the CAS has put great importance on the country's financial sector development and its economic stability and also on IDA's continued assistance to further promote and deepen the financial sector. The CAS also mentioned that IDA stands ready to help should the government request assistance in the areas of finance and banking and macroeconomic stability. In view of IDA's long standing sectoral policy, the South Asia Management fully supports this project which is reflected in the current CAS. The Y2K projects would also get support from the senior management Bank-wide. The July 20, 1998 memo from the Managing Directors indicates that "while the Bank's effort should focus on the diagnosis and awareness, we should also be prepared to respond promptly to borrower emergency requests for technical and financial assistance with in-depth remediation assessment and action programs". B.2. Main sector issues and government strategy: Year 2000 Issues Defined - The Y2K problem has attracted increasing attention worldwide as the passage into the new millennium approaches rapidly. The Y2K problem results from the fact that most business application software programs written over past 20-25 years use only two digits to specify the year, rather than four. The two-digit date code is automatically assigned to the 2Oe century: as "99" proceeds to "00" on January 1, 2000, the computer will incorrectly understand the date change as "1900", not "2000." These systems, unless changed or corrected, will cause failure in  Page 3 arithmetic, comparisons, sorting, and input/output to databases or files when manipulating date data. Almost all computer-based systems which represent the year as a two-digit number will be adversely affected by the arrival of the year 2000. In addition, the Y2K problem threatens to impact "embedded systems", electronic hardware systems - including everything from fax machines and elevators to telephone exchanges and power generators - that utilize date functions built into microprocessor controls. Starting in 2000, the computer systems will need to recognize the year 2000 and the beginning of the 21 st century. This requires urgent attention to correct the hardware and software to ensure that the entire information systems are compliant with the century date change on the new millennium. The bottom line is that, without proper attention, the consequences of the Y2K problem can be costly and disruptive. Areas of Vulnerability and Critical Sectors - The Y2K problem is very widespread, and could have adverse economic consequences for countries and institutions that do not deal with it properly and in time. It will impact every sort of computer system (personal computers, mainframe systems) and most software programs. Although the priority areas vary from country to country, in general, the most critical sectors in an economy are power generation, telecommunications, water, health, finance, and transport. Risk of the Y2K Problem for the Financial Sector - The financial sector is especially vulnerable to Y2K computer problems and is potentially at high risk. Information technology touches almost every aspect of the banking industry. The entire financial sector is dependent on dates for daily ledgers, reports on the accounts, asset and liability management, and interest calculation for financial statements. For many of the banking activities and financial instruments, such as loan servicing, mortgages, deposit payments, and funding, date calculations play an instrumental role. The prospect of data corruption resulting in miscalculations of the financial accounts threatens the entire banking system. Lack of Y2K compliance means that any of these systems could misfunction, taking year 1900 instead of 2000. There is an added risk in the sense that financial institutions have greater computerized interactions with other institutions (data transfers among banks, the central bank, clearing houses, regulatory agencies, financial markets, Society for Worldwide Inter-bank Financial Telecommunications (SWIFT), and others) and many heavily rely on third party transaction processing and outsourced services. Therefore, in the global financial markets noncompliance of one institution can create problems in many others. While each institution may achieve Y2K compliance for its own system, it must also make sure that it does not import corrupted or bugged data. This requires obtaining verification that all sources of imported data are Y2K compliant and building data filters and data bridges to guarantee that incoming data are bug-free. Financial service providers play a fundamental role in the national economy and their functioning is vital for the economic stability of the country. Therefore, the financial and banking communities must work together to ensure that their systems, along with those of their service providers and customers, are Y2K compliant. In the case of Sri Lanka, foreign investment plays a crucial role in the economy. The ability to maintain the desired level of foreign investment depends heavily on sound and well functioning banking and financial systems and the country's economic stability. Government's Strategy and Actions to Address the Issues - Based on a Cabinet Memorandum of May 7, 1998, a joint task force was formed to address the Y2K problems at the national level. It comprises members from various key govemment and corporate institutions such as the Central Bank, the Telecommunications Regulatory Commission, the Ceylon Electricity Board, the Treasury,  Page 4 the Airport Aviation Authority, the Ports Authority, as well as the private sector and information technology vendors. In addition, most of them have set up Y2K units in their own organizations. The services of these industries are considered most critical for the Sri Lank economy. Other areas of concem are the two main revenue-generating public agencies, namely Sri Lanka Customs and the Inland Revenue Department (IRD). These institutions have automated their operations in the past few years and are considered highly vulnerable to the Y2K problem. The Council of Information Technology (CINTEC) of Sri Lanka, the central body for all infornation technology-related activities in the country, has been given the responsibility for managing the Y2K problem in the country and chairs the national task force. The joint task force has been very successful at raising awareness of the problem. The level of awareness and commitment at the highest level is quite high in Sri Lanka. The task force was instructed by the President of Sri Lanka, to submit a report to her on the country's Y2K status by December 16, 1998, and to formulate a "National Plan" for Y2K remediation, covering all the critical sectors of the economy. In early November 1998, the task force submitted a proposal for the InfoDev' grant which is intended to be used for the preparation of a Y2K national plan. The 1999 budget proposal, whiich was announced on November 6, 1998, includes an allocation for the millennium compliance and as an incentive to ensure the economy's readiness. It proposes to allow a 100 percent write-off of import duties for information technology purchases until March 31, 1999. Central Bank's Actions - The Central Bank of Sri Lanka (CBSL) recognized the potential threat and high risk of the Y2K problem for the banking system and the national economy and has taken the initiative to ensure that the operations of the banking system will continue uninterrupted. The Central Bank created a task force to coordinate the banking sector Y2K problems. The Central Bank's Bank Supervision Department started monitoring the Y2K project in the licensed commercial and specialized banks in November 1997 and its Information Technology Department surveyed these banks in March 1998. The results of these assessments reveal that the efforts of the banks, in general, are not satisfactory and the progress of the Y2K project by individual banks is slow and not acceptable to the CBSL. The Central Bank issued in early 1998 a "Year 2000 compliance standard" that follows the compliance standards declared by the British Standard Institute. The Central Bank formulated an action plan that outlines the steps the banks should take in order to be fully Y2K compliant. In August 1998 the CBSL obtained the services of a consultant from the British Financial Services Authority to do an independent assessment of the licensed banks' Y2K plans and to advise the CBSL on the required corrective measures. The consultant's report covers the assessment of 30 financial institutions, including the two Development Finance Institutes (DFIs), foreign, domestic commercial, and investment banks. The report identifies several areas for further work. It concludes that many of the financial institutions have inadequate timeframe for dealing with the Y2K problem, because many institutions lack proper planning to be able to fully comply by year 2000. Commissioning such a consultancy substantially raised the banks' awareness level of the severity of the Y2K problem. Many banks scaled up their efforts and mobilized more resources for this task since the report was issued in August 1998. After the release of the consultant's report, CBSL had a series of meetings with the banks and decided to establish a line of credit to assist those banks that needed financial assistance for their The Information for Development (InfoDev) program invites applications from national governments for grant assistance with year 2000 problems. These grants have been made available to lnfoDev by the Department for International Development, United Kingdom. There are two types of grants: (i) planning grants of up to $100,000 to support development or improvement of national action plan for Y2K; and (ii) implementation grants of up to $500,000 to support remediation, testing, and evaluation of targeted systems as identified under Y2K national plan.  Page 5 Y2K projects. Financing assistance would motivate the banks to speed up their projects, and in addition, it would give the CBSL the ability to keep a tight control over the project implementation of the action program. This is of particular importance for the two large state-owned commercial banks, which account for about 60 percent of the banking activities in the country. Sri Lanka Financial Sector - In Sri Lanka, the financial sector comprises diverse and rather sophisticated institutions. The banking system consists of two large state-owned commercial banks, six domestic private banks, 18 foreign commercial bank branches; the National Savings Bank; 17 regional rural development banks; and a state mortgage bank. There are two Development Finance Institutions (DFIs) that specialize in term lending and 24 finance companies that provide lease financing and installment credit. There are also 5 leasing companies, 10 merchant banks and 7 venture capital companies. Contractual savings are accounted for mainly by the two government- sponsored provident funds for private sector employees, the Employees' Provident Fund and the Employees' Trust Fund, and seven insurance companies. B.3. Sector issues to be addressed by the project and strategic choices: The issues of the Y2K problem and its impact on the economic and financial activities were explained in Section B. Almost any industry or enterprise that uses computers of any sort is subject to the millennium bug and could be harmed without proper remediation action. Based on the information provided by CINTEC, the computer population consists of about 20 mainframe computers, about 400 mini-computer systems, and over 150,000 personal computers. While the level of automation in Sri Lanka is lower than that in many other countries, operations of many critical sectors, public administrations, and private sector organizations depend on the computers, many of which were purchased in the 1970s and 1980s. According to the national task force, the key sectors that are likely to be affected by this problem are banking and finance, telecommunications, power and electricity, seaports, public administration, travel and transport, healthcare, and immigration and emigration. Many of these sectors are monopoly service providers for which there are no alternatives in case of their failure. While most institutions and industries in Sri Lanka have already taken some actions to prepare for the Y2K problem, many have failed to adopt a careful contingency-based plan that would ensure their core business continuity in the event of unprecedented failures. The task force has identified four main constraints in finding solutions to the Y2K problem and taking fast remedial actions. First, institutions lack adequate financial resources. Second, they face shortages in support services by vendors. Third, they have difficulty in recruiting IT professionals for the public agencies because of low wages in the public sector. Fourth, many of the institutions have ineffective or inadequate program management. The project will address the Y2K problem for the banking sector and selected critical government entities that have computerized operations and could potentially be subject to millennium bug. As the millennium approaches, the institutions' demand for resources, programmers, equipment, and project managers will increase; it may increase even more after year 2000. The complexity of remediation, inherent uncertainty in many areas, unavailability of careful and in-depth assessments of the affected systems in several government sectors, limited local capacity in many institutions, limited resources, and the uniqueness and emergency nature of the problem indeed call for both the World Bank and the Government to allow some flexibility in the scope and design of the project and its implementation.  Page 6 The project will focus on financial sector and critical government agencies. 1. Financial sector - CBSL will take the lead to ensure the functioning of the banks and the financial health of the country. II. Selected critical government agencies: - The Ministry of Finance (MOF) will take the lead to ensure Y2K compliance of these institutions. Each institution or the regulatory body (if applicable) is responsible for planning its Y2K project and ensuring its systems compliance. However, the MOF will assist them with administrative matters and project financing, if there will be a need for financial and/or technical assistance from the proceeds of this project. The scope of the MOF's efforts will initially include the Inland Revenue Department, Sri Lanka Customs, Department of Census and Statistics, Ceylon Electricity Board, Telecommunication Regulatory Commission, and public sector insurance companies including the Sri Lanka Insurance Company(SLIC). The needs of these agencies have been identified and assessed. In the event that other agencies under other ministries should seek assistance for Y2K remediation, supervisory responsibility will fall under the coordination unit established (see section C4) in the MOF. The Y2K remediation financing, however, should be arranged from the respective ministries. Issues Addressed in the Banking Sector - There is a high degree of leadership and commitment and firm understanding of the problem on the part of the governor of CBSL and his staff in the Bank Supervision and IT departments. Also the domestic commercial banks, including the two state- owned banks, have given relatively high priority to the Y2K project for which the remediation plan was started. However, the appraisal team identified the following weaknesses which could put the banking sector at the high risk if proper and urgent actions are not taken. (a) Banks in general underestimate the resources, expertise, and most of all the time required to implement and test the systems for Y2K readiness. (b) In some banks, Y2K remediation is seen as an opportunity to upgrade entire technology systems. While it may make a business sense, this approach places even greater demands on available resources and may compromise the immediate goal of Y2K compliance. (c) The Y2K plans of the two large state owned commercial banks do not seem to be adequate. Moreover, both institutions lack well-defined and sufficient Y2K contingency plans. (d) Many banks have lost their critical IT professionals to other countries as demand for this expertise has risen in the recent past. The risk of losing staff is likely to increase in 1999 because the demand for IT staff with banking expertise will increase worldwide. (e) Generally, the banks' IT staff are overconfident about solving their Y2K problems. This overconfidence has resulted in inadequate contingency planning. In addition, some financial institutions experience lack of dialogue and low communications between the IT unit and higher level management. This situation has caused insufficient management attention on and resource allocation for Y2K issues. Halfway commitment can be expensive. In some cases even the top managers are concerned that the Y2K plans drafted by their staff do not reflect the magnitude of the required resources. (f) Many banks have not done a credit risk assessment of the Y2K readiness of their corporate clients. (g) Some banks have decided to install new systems instead of upgrading the existing systems for Y2K. Due to the time required to implement a new system and have it tested and in operation, banks may well have difficulty completing the task before 2000. The Central Bank is responsible for protecting the health and soundness of the banking system and the customers' assets. Given the magnitude and complexity of the problem, the CBSL is in an ideal  Page 7 position to provide leadership for this effort. An active and strong Y2K team in the CBSL would greatly facilitate the implementation process (see section C.4 for details on institutional arrangement). In addition, the CBSL can significantly contribute to the efforts of the banking sector by undertaking the following initiatives. * Organize a Y2K workshop for high level management and IT staff in the banks, and encourage greater commitment and involvement in this vital issue on the part of bank management. * Closely work with each bank and develop a special supervision program for the two large state- owned commercial banks. This supervision program could be in the forn of a special support program, a dedicated consultant or full-time experts from Central Bank's IT and Supervision Departments. In turn, the banks, who are responsible for their own Y2K remediation, slhould cooperate in this collective efforts by implementing the following initiatives. * Banks need to acknowledge the complexity of the Y2K issue. They should have a more realistic and well-defined remediation plan with timetables for action. They should assess the financial requirements for their plan and include a contingency provision. They slhould mobilize adequate resources and allocate these resources effectively for Y2K activities. They also need to plan for adequate time and financial resources for systems upgrading and, more importantly, for testing the systems. Testing needs to be conducted internally to assure proper functionin1g of the hardware and software, and externally to ensure proper interaction with service providers, counterparties, and customers. The degree of dependency on outside services requires that banks have a well-defined contingency plan in place by January 1999. * Banks should take advantage of the resources provided by the CBSL and ask for financial and technical assistance immediately, if needed. * While taking this opportunity to pursue a long-term IT strategy, banks should give priority to the immediate objective of Y2K compliance, to ensure continuity in their critical business functions. * Banks need to be more proactive in assessing the possible risk associated with their corporate clients, at least for their largest clients with high exposure. CBSL can ask eaclh bank to do this. Issues Addressed in the Public Sector Organizations - The Y2K issue is also significant in other sectors, many of which are monopoly service providers in the country. The risk associated with the Y2K problem cuts across all the sectors that are either partly or mostly computerized. Many of the weaknesses for the banking sector also apply to other institutions. The World Bank's Y2K appraisal team strongly recommends that other ministries or regulatory authorities for all the critical sectors take the urgent and necessary steps for Y2K compliance. The telecommunications sector includes the most critical and important service providers for the banks and the financial sector, followed by the electricity. The Telecommunications Regulatory Commission (TRC) only started to look into the Y2K problem in February 1998. The commission has completed the most basic review of operators' Y2K compliance. It has requested no materials to validate the operators' plans, and therefore does not have adequate information about the status of their compliance. TRC indicated that it does not have the expertise, adequate staff, or finances to effectively monitor the operators. It requested IDA technical assistance for Y2K planning and supervision. TRC needs to quickly scale up its activities to follow up with its survey and its supervision of the operators. It should use its regulatory power to enforce compliance and to request that operators prepare well- defined contingency plans. TRC needs to mobilize additional temporary local IT professionals to  Page 8 assist it in evaluating and closely monitoring the operators. The TRC indicated that it needs an international expert to assist with evaluating and testing the main telecommunications line providers. For these activities, the appraisal mission recommended that the commission use the proceeds of the ongoing IDA TA project (Credit 2837-CE). The project closing date is December 31. 1999, which should give the commission plenty of time for utilization. Thus, TRC need not be included under this proposed project. The Ceylon Electricity Board (CEB) is another critical agency that requires urgenit attention. It requires technical and independent expertise, early systems testing, and a well-defined contingenicy plan, in order to ensure its readiness in Year 2000. The Inland Revenue Department (IRD) is of utmost importance to the MOF because of its revenue generating role. Although it is aware of the Y2K problem, the department is entirely unprepared for Y2K remediation due to inadequate technical expertise and financial resources. IRD has approached MOF for financial and technical assistance. It has no documented plan or invelitory, and no contingency plan. Its target date for completing these tasks is June 1999, choseni arbitrarily without an assessment of needs or a projection of resources that will be required. IRD started the process for purchasing the required equipment; however, tender for hardware and system software is still pending. IRD cannot hire additional IT professionals because the government pay scale is lower than what the market pays for skilled IT labor. Urgent technical and financial assistance needs to be provided to IRD so that it can start preparing its Y2K remediation and contingency plans. This agency requires close supervision of the MOF. The Sri Lanka Customs has managed, with assistance from UNCTAD, to upgrade its declaration systems to Asycuda ++ in the areas of exports and bonding. It has not yet upgraded the imports (Long Room) and air cargo, which presently operate with the non-compliant Asycuda+. The Customs is fully confident that it will get technical support from UNCTAD for upgrading and testing. However, it has a tight implementation timetable and demand for UNCTAD's services may increase substantially in particular because those countries (over 85) whicih are using the same system will have to rely on UNCTAD for their Y2K upgrades. Despite the tight implementation plan, Customs does not seem to have a reasonable contingency plan. The Customs has allocated sufficient funds for their Y2K plan, but could benefit from close monitoring and technical assistance from MOF. The GOSL consider the Department of Census and Statistics(DCS) somewhat critical for their role and functions in producing specific quarterly and annual statistics (such as labor force quarterly data, child activity services, national accounts, etc.). The DCS does not have a thorough plan for their Y2K remediation needs. It only contacted its supplier of the mainframe for systems upgrading. DCS's concern was long delay in getting quotation from the vendor. DCS has been in a dialogue with MOF to arrange financing for its Y2K remediation. C: Project Description Summary C.1. Project components: At the request of the GOSL, the proposed IDA credit would be in the amount of US$29.0 million equivalent. The amount the MOF requires will partially finance the cost of experts and equipment  Page 9 for banking sector and some critical govemment agencies. The proceeds of this loan are considered a supplement to the 1999 budget allocated for the Y2K remediation in the country.2 Considering the size of the concerned government institutions and the level of their computerization, the cost for upgrading and remediation projects on average is approximately US$1.5 million per institution. With the MOF focusing on about five agencies, the allocated amount for the public agencies should cover the bulk of the cost. The CBSL has done a preliminary needs assessment for the banks (see Annex 3). The proposed project has two main components: the financial sector component and the government agencies component (see table 1). I. Financial Sector Component - The total allocation for this component is US$2 1.0 million equivalent which will be utilized by the CBSL as follows. I (a) - A Credit Component of US$20.0 million will be used for onlending, through the CBSL, to the public banks, some private banks, and selected finance companies for their eligible Y2K related expenditures including the cost of consultants and equipment (see Annex 8 (v) for criteria for onlending). Demand for credit is established for Bank of Ceylon and Peoples' Bank and less so for many private domestic banks, most of whom have already budgeted for their Y2K programs. Some of the private domestic banks may find that the cost of funds and the transaction cost associated with the sub-loans under the IDA project is too high. These sub-loans will be provided to the banks at a rate similar to their cost of funds, that is the Average Weighted Deposit Rate (AWDR). This is the weighted average of interest paid to depositors by all commercial banks on interest bearing deposits, as calculated and issued monthly by CBSL. The applicable interest rate will be a rolling 6 months AWDR. The maturity of the sub-loans will not be more than 10 years inclusive of a grace period of two years. The repayment period was based on the estimated average life of the computer facilities (including mainframes) and the time the banks depreciate the cost of such equipment. The sub-loans will finance up to 80 percent of the cost of the banks' Y2K remediation activities for the public banks and up to 60 percent for the private commercial banks, and finance companies. The Central Bank will borrow the proceeds allocated for the credit component from the GSOL at the rate of AWDR minus one percent, with a maturity of 10 years inclusive of 2 years grace period. The details of terms and conditions of the CBSL's loan as well as the administrative arrangements are provided in a Subsidiary Loan Agreement between the CBSL and the GOSL. I (b) - A Technical Assistance Component of US$ 1.0 million for CBSL's Project Coordinating Unit to conduct its scaled-up Y2K monitoring and supervision of the banks. It is important to mention that although some private banks may not need financing from CBSL, their Y2K activities will be closely monitored by the CBSL on a regular basis. The Central Bank will audit the private banks along with the public banks for Y2K readiness. Ensuring compliance with Y2K by all banks is part of the regulatory and supervisory role of the CBSL. The project will facilitate regulatory enforcement by providing the banks with necessary technical and financial assistance. 2 See Annex 13 for a detailed report on the "Strategic Approach to Y2K Problems in the Sri Lanka Banking Sector", prepared by the World Bank appraisal team. While this report refers to the banking sector, the recommended approaches are applicable to any institution. The report was prepared to assist the concerned institutions adopt a strategic approach and take necessary steps for their respective Y2K remediation activities; it was shared with them during the appraisal mission. The report is based on the best practices available from the reputable sources.  Page 10 II. Government Agencies Component - The TA will finance the cost of required equipment (hardware, software, embedded systems), experts (local and international) for various technical tasks, and short-term staff training in the concerned institutions. In view of the facts mentioned in section B.3, funds need to be fungible so that they can be allocated to the critical agencies as needed to ensure Y2K readiness in their core businesses. Table 1 - Project Components Indicative IDA Costs % of Financing % of IDA Components Sector (US$M) 'I/ Total (US$M) Financing Financial Sector Component Finance and 29.7 21.0 70.7% * Credit line for banking sector Banking 28.5 96.0% 20.0 70.2% and some finance companies. * Technical Assistance for CBSL 1.2 4.0% 1.0 83.3% Government Agencies Component Multi-Sector 8.3 8.0 96.4% * PCU in MOF 0.7 4.7% 0.5 71.4% * Y2K Remediation Sub-project 7.6 95.3% 7.5 98.7% Total 38.0 29.0 76.3% Total Project Costs 38.0 " The amount is approximate based on a preliminary estimate. The amount can change as the circumstances are uncertain and the GOSL may have to provide additional resources to remedy the Y2K problem. The 1999 budget has specific allocations for the Y2K remediation activities; exact allocation will be known later. 11 (a) - Project Coordination - A US$0.5 million will be allocated for setting up a Project Coordinating Unit in MOF. This unit will closely monitor the concerned agencies and provide assistance in planning and implementation of their Y2K remediation activities. The MOF is also responsible to evaluate the institutions' financial needs based on their Y2K remediation plan before allocating the funds. II (b) - Y2K Remediation Sub-projects - This component of US$7.5 million will, in part, finance the needs of Y2K activities in critical public sectors. Among those, the IRD has demonstrated its immediate need for financial and technical assistance for its Y2K project. Other potential sectors could be the Census and Statistics Department, the Sri Lanka Insurance Corporation, the Sri Lanka Customs, and other public administration agencies. C.2. Key policy and institutional reforms supported by the project: The proposed IDA credit is for an emergency project that mainly focuses on Y2K-related problems. The project does not attempt to address any long-term policy or institutional reforms in the financial sector and will not have any conditionality linked to financial sector policy. It will not have any macro-economic or public policy reform objective or conditionality. Although the project does not directly include any institutional development activities, it will have a positive impact on the systems upgrading of the banking sector, the CBSL, and the concerned public agencies. It will also have a  Page I I technical assistance component for training staff to perform the required information technology tasks during project implementation and for necessary consultancy services during the implementation and testing stages. C.3. Benefits and target population: The direct beneficiary of the project will be the CBSL, the banking sector, some finance companies, and the above-mentioned government agencies and their line ministries. The primary benefits will be remediation of possible systems crashes and preservation or restoration of their day-to-day functions. In addition, the close attention and commitment of the CBSL and MOF on this issue will have two indirect benefits. The first is the creation of more awareness in other sectors that are at higher risks. Second, the institutions that provide services to the banking and financial systems (telecommunications, electricity, and others) may be forced to take more serious actions to comply with the Y2K systems requirements. C.4. Institutional and implementation arrangements: There is no one solution that will suit every institution. Each institution must consider how best to establish its priorities and its Y2K contingency planning. However, most experts today emphasize that the only "Silver Bullet" for the Year 2000 challenge is Program Management. The Y2K project will be managed by CBSL for the banking sector and by MOF for the public agencies. There will be two Project Coordinating Units (PCUs), one in each institution (see figure 1). PCU of the CBSL - While each individual bank is responsible for its own Y2K program, the CBSL needs to take the lead in ensuring the banks' Y2K readiness. A PCU, headed by an executive director of Central Bank, will be responsible for implementation of the project and for periodic monitoring of the Y2K remediation efforts in the banking sector. The Central Bank's bank supervision and IT departments will share the responsibility of managing the Y2K activities. The PCU will consist of a team of Central Bank examiners or supervisors and information technology specialists. Two specialized committees will be established for evaluation, monitoring, and administration of the entire program for the banking sector. A Y2K Sub-Loan Evaluation Committee will be in charge of the technical evaluation of the sub-loan applications, including assessment of eligibility for the sub-loans (see Annex 8 (v)). A Supervision Committee will be responsible for close monitoring and supervision of the banks' Y2K programs. Both committees should be staffed by people from the IT and banking supervision departments. This PCU will report to the Governor of CBSL and the World Bank on the status of Y2K project on monthly basis. The PCU should coordinate with the Bankers' Association and attend its regular meetings. PCU of the MOF - Effective project management by the MOF is extremely important. While each individual institution is responsible for its own Y2K program, the MOF needs to take the lead in ensuring that the critical businesses will be Y2K ready. A PCU will be created in the MOF headed by a senior officer and staffed by IT experts. This PCU should closely and regularly liaise with the Y2K coordinators from each institution and will be responsible for reviewing, assessing, and close monitoring the Y2K projects in the concerned agencies. It will report to the Deputy Secretary of the Treasury and the World Bank on monthly basis. Both of the PCUs will report to the joint national task force regularly. This periodic reporting is essential to keep the Y2K national plan up-to-date, to inform each institution about progress in the other sectors, and to plan for contingency measures as necessary.  Page 12 Figure 1 - Sri Lanka: Y2K Project Management Ministry of Central Bank Finance & of Planning Sri Lanka l I .~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ Y2K Project Y'2K Project Coordinating Coordinating Unit (MOF-PCU) Unit (C:BSL,- PCI' ) Y2K Tender Y2K Y2K Loan Committee Supervision Evaluation Committee Committee Y2K Tender Committee - It is absolutely essential to establish a Y2K Tender Committee to review the applications for Y2K-related procurement in a speedy manner, allowing flexibility while exercising sound judgement. This Tender Committee should be empowered and independent. The tender committee needs to meet as often as necessary to attend to the procurement issues in due course. Procurement under this project will follow the World Bank "Y2K Procurement" guidelines that were issued on November 4, 1998 by the Procurement Policy and Services Group of the Operational Core Services Network (OCSPR) and the Procurement Group of the Legal Operations Front Office (LEGOP); see Annex 6. Procurement under this project will be reviewed by the Regional Procurement Specialist in the Colombo office, who will work closely with the Y2K Tender Committee. Monthly reports on the Y2K project activities in the concerned institutions will be prepared by the respective PCUs and will be reported to the World Bank. Project Financial Management Arrangements: The project will be implemented by two Project Coordinating Units. The first PCU, with staff assigned from the CBSL, will be responsible for the Financial Sector Component and for the overall coordination of the project. The second PCU, with staff assigned from the Ministry of Finance and consultants who are to be hiired, will be responsible for the Govemment Agencies Component of the project. Both PCUs will be housed at CBSL, thus, financial management of the project as a whole will be the responsibility of the CBSL-PCU. The project will have adequate financial management system as required by OP/BP 10.02 for implementing the project. Due to the short preparation time available, Project Management Report (PMR) based disbursements will not be adopted for the project, and also given the short implementation period of the project, it is recommended that the current disbursement procedures be used throughout the 2.5 year life of the project.  Page 13 D: Project Rationale D.1. Project alternatives considered and reasons for rejection: The nature of this project is unique in the sense that it focuses on the Y2K problem. The root of the problem is a technical one and the project objective is to assist the banking sector and critical government agencies to take quick and strategic actions to comply with the Century Date Change. The scope of the project and its components are chosen by the government based on the importance of the sectors, the critical roles these sectors play in the national economy, and most of all the need of these sectors for financial and technical resources. These would translate to a unique project design and an implementation plan. The plan presented here draws on best practices and recommendations from the most useful and reliable sources available. Y2K bug is a widespread problem with high severity of outcome and fixed deadline, and must be given high priority by the country and its institutions. The current situation and status of the Y2K problem in the banking sector, as assessed by independent consultants and the appraisal mission, indicate lack of effective management and control by individual institutions. Therefore, attention of the CBSL at the highest level is essential for the success of the project. Creation of a strong PCU in the MOF is also desirable for effective monitoring and administration of the Y2K remediation activities in the critical government institutions. Alternatives considered include the following: Alternative: Draw on the existing Bank-financed portfolio rather than initiating new loan. The current IDA portfolio for Sri Lanka in the financial sector is almost nonexistent. Therefore, there is no alternative source of funding and a new loan needs to be prepared. In some sectors, such as telecommunications, health, education, there are IDA projects in implementation and funding may be sought from these projects if needed. Alternative: Creation of a single PCU. Given the importance of strong program management -- and, consequently, a high degree of ownership -- it is crucial that the Central Bank and the MOF have their own respective Y2K units. Each beneficiary institution will establish its own Y2K unit to manage remediation activities. However, centralization of the Y2K administration in the MOF, rather than in individual units, allows funds to be allocated and disbursed quickly, and allows coordination of activities in critical sectors. Alternative: Use competitive market rates or concessionary rates for on-lending component. Concessionary rates threaten to reward the inefficiencies of managers who were slow to respond to the Y2K crisis. In addition, the use of concessionary rates would not be prudent for the Government, because it would not be able to cover the cost of foreign exchange losses. The use of competitive market rates would very likely preclude the use of the on-lending component, as capital at market rates can be secured elsewhere, and without the procurement and supervision conditions required under this project. AWDR is the approximate cost of funds for commercial banks and encourages the banks to secure funds for their Y2K project. This assures that Y2K remediation will not be limited by lack of capital, while requiring prudent use of funds, according to regular business practice. D.2. Major related projects financed by the Bank and/or other development agencies: The requests for Bank Group assistance on Y2K remediation have been initiated only from mid 1998. It is expected that as the new millennium approaches, more countries may ask for the Bank assistance.  Page 14 Table 2 - Related World Bank Projects Latest Supervision Ratings Sector issue Project (Bank-financed projects only) Implementation Development Progress (IP) Objective (DO) Bank-financed. Financial Argentina: Y2K Emergency At the Appraisal, To assist the and economic management. Assistance Negotiation stage. respective governments to Malaysia: Y2K Emergency At the Appraisal deal with the Assistance Stage. Y2K problem at I the national level Other development agencies InfoDev." Y2K emergency Available to eligible countries upon assistance grants for the their request. Planning grant of planning and US$100,000 and Implementation grant implementation of Y2K of US$500,000. The grant fund was problem. provided by the British Government. "See footnote 1. D.3. Lessons learned and reflected in the project design: No similar project has been financed by the World Bank Group from which lessons can be drawn. Two other Y2K projects are also at the preparation and appraisal stages (see table 2). Lessons drawn from institutions that have already started on remediation efforts and from many reliable sources on Y2K issues, indicate that effective project management and adoption of a contingency-based remediation plan are key elements for successful Y2K compliance. The management of this project is based, to the extent possible, on international best practices. The project has focused objectives and scope, is demand-driven, and is an emergency assistance program. Other such emergency operations indicate that for managing and implementation of the project, there is a need for sufficient flexibility to react to unforeseen circumstances and for centralized decision-making, planning, and monitoring by high-level authorities. D.4. Indications of borrower commitment and ownership: The government's strategy, plan, and measures taken so far (see section B) indicate the government's commitment at the highest level. In addition, the request for the loan was initiated by the Governor of the Central Bank and the Ministry of Finance, who have put significant importance and urgency on the implementation of this project. D.5. Value added of Bank support in this project: Given the project scope and objectives, IDA support would provide the required financing for this project and would bring expertise and best practices for the project management. IDA's involvement will give greater visibility to the problem nationwide.  Page 15 E: Summary Project Analysis E.1. Economic: While the root of the Y2K problem is a simple technical one, its potentially pervasive impact may put at risk the operations of financial, economic, and social systems. Therefore, noncompliance with the Y2K could have severe economic and social consequenices, the cost of which is difficult to measure. The interdependence of business activities can create some ad hoc and unforeseen costs. In addition, extraordinary demand for resources will increase the cost of remediation as the new century approaches. The economic benefit of complying with efforts to solve the Y2K problem would be the saving of avoided damages in the functioning of critical businesses in the country. E.2. Financial: The Y2K problem is widespread and could potentially affect any computer-based institution or operation. At this time, the impact is not known. Therefore, it is not possible to predict the extent to which financial and economic activities will be disrupted. Even if an institutioni is Y2K ready, it will not be fully safe if its customers and service providers are not Y2K compliant. Therefore, it is difficult to measure or estimate the financing cost of the project. Fiscal impact - The fiscal impact of this project can be measured from two angles. The first angle is avoiding or minimizing on potential damages. The GOSL is covering the two revenue generating public agencies under this project and has given high priority to their Y2K remnediation. It is expected that these agencies will continue their critical business functions after 2000 without interruptions. The second angle is covering the foreign exchange cost of the IDA credit. Over 60 percent of this credit will be onlent to the banks at the AWDR, whichi should partly cover the foreign exchange losses of the loan. E.3. Technical: All the sub-projects for the banking sector and the government agencies will be evaluated by the IT team in the PCUs. The team will review and monitor on a regular basis, the sub- projects' specifications, costs, and implementation time tables. E.4. Institutional: a. Executing agencies: Each institution is responsible for its own Y2K remediation; however, close monitoring, technical assistance, and some financing will be made available to them by CBSL and MOF. b. Project management: The MOF and CBSL are responsible for maniaginig and coordinating Y2K activities for their respective institutions. Two PCUs were established, one in each institution. (For details see section C.) E.5. Social: The project is expected to have a positive social impact. Avoiding or minimizing the Y2K risk would have a positive impact on economic activities and therefore on society in general, both at the national and international levels. E.6. Environmental assessment: Environmental Category [ A [ B [x] C  Page 16 E.7. Participatory approach: The Y2K problem is not an isolated one. The chain of dependencies and interconnections implies that each individual system is dependent on many other systems. Moreover, because the country is not isolated from the rest of the world, the network of relationships and dependencies goes beyond national borders, creating further uncertainty and risk. Therefore, solving the Y2K problem requires collective efforts among different institutionis and collaboration among the entities within their business enterprise. All the institutions should work together and provide support and assistance to one another. When a country starts late to solve the Y2K problem, it is crucial that all the public and private entities collectively work on an effective contingenicy plan. In Sri Lanka, the following steps confirm the participatory approach among the stakeholders for the Y2K remediation efforts: i. creation of the joint task force with its effective awareness program; ii. creation of a hotline in the CINTEC for public queries; iii. close collaboration among the CBSL, MOF, various business associations (bankers associations, vendors associations, and others), and the joinlt task force; and iv. establishment of two PCUs to oversee the problem and provide assistance to the critical sectors. a. Primary beneficiaries and other affected groups: The primary beneficiaries of the project are the domestic commercial banks, the banking sector in general, the critical government agencies, and their line ministries. b. Other key stakeholders: Other economic and financial institutions and the general public will benefit from this project. At both national and international levels the businesses, service providers, and customers will be potential beneficiaries. F: Sustainability and Risks F.1. Sustainability: In the context of Y2K projects, sustainability can be viewed as the business continuity of the institutions after the year 2000. In addition, the Y2K remediation and systems upgrading should be viewed as institutional development, the impact of which will lead to continued and improved business operations in the coming years.  Page 17 F.2. Critical risks: (reflecting assumptions in the fourth column of Annex 1) Risk Minimization Measure Risk Risk Rating Under Consideration From Outputs to Objective Delays in preparation of a Y2K remediation plan Moderate PCUs to actively supervise and and a well-defined and sufficient Y2K monitor. contingency plan. Losing IT staff in critical positions is likely to Substantial Consider incentives increase in 1999, due to better pay in the international market. Continued lack of dialogue and low Moderate CBSL and MOF to intervene, communications between the IT unit and the organize workshops, and meet with higher level management. Halfway commitment. management. Lack of attention by banks to credit risk Moderate CBSL to request this to be done. assessment of their corporate clients' Y2K readiness. Noncompliance by the service providers and or Substantial Promote collaboration and collective customers. efforts Increasing cost of remediation as the millennium Substantial Allocate more resources up front and rapidly approaches. early. Underestimation of the resources, expertise, and Substantial Improve remediation and contingency time required to implement and test the systems planning for Y2K readiness. From Components to Outputs l.a. availability of financial resources to banks and Negligible some finance companies for their Y2K remediation and contingency. l.b. Close and effective bank supervision for Y2K Moderate readiness ll.a. Close and effective monitoring of Y2K Moderate Establish a strong PCU in MOF activities of the government agencies. headed by a director and staffed with qualified IT professionals for effective planning and monitoring of the Y2K activities of public sector. lI.b. availability of financial resources to Negligible government agencies for their Y2K remediation and contingency. Overall Risk Rating Substantial X Risk Rating - H (High Risk), S (Substantial Risk), M (Modest Risk), N (Negligible or Low Risk) F.3. Possible controversial aspects: None.  Page 18 G: Main Loan Conditions G.1. Effectiveness Conditions: There are three loan effectiveness conditions: (i) execution of the Subsidiary Loan Agreement (SLA); (ii) legal opinion regarding the Development Credit Agreement; and (iii) legal opinion regarding the SLA. G.2. Other: Other conditions include establishment of the two PCUs and the Y2K Tender Committee. These conditions have already been met. Both implementing agencies, MOF and CBSL are fully committed and have expeditiously established a PCU in their respective organizations to deal with this issue. Both agencies have appointed high level staff to head these units, appointed full-time officers from their organizations, and hired additional qualified IT professionals to fill the technical gap for effective implementation. A Y2K Tender Board and a technical tender evaluation committee were also appointed by the Ministry of Finance. In addition, the 1999 budget has allocated funds for Y2K remediation and considers incentives (see section B) for the institutions at risk in order to expedite the activities. H: Readiness for Implementation ] I. (a) The engineering design documents for the first year's activities are complete and ready for the start of project implementation. [x ] I. (b) Not applicable. [x ] 2. The procurement documents for the first year's activities are complete and ready for the start of project implementation. [x ] 3. The Project Implementation Plan has been appraised and found to be realistic and of satisfactory quality. [ ] 4. The following items are lacking and are discussed under loan conditions (Section G): 1: Compliance with Bank Policies [ ] 1. This project complies with all applicable Bank policies. [x ] 2. The following exceptions to Bank policies are recommended for approval. The project complies with all other applicable Bank policies. The applicable procurement guideline for this project is the "Y2K Procurement" guidelines issued by OCSPR on November 4, 1998, to allow flexibility and speedy procurement for Y2K projects. In addition, due to the specific scope and particular circumstances of the Sri Lanka Y2K project, the following is strongly recommended. In the case of the Sri Lanka project, we deal with two very large banks with complex and large computer systems. They account over 60 percent of the banking activities in the country and have very wide branch networks. Having realized their importance in Sri Lanka's economy and severe impact of Y2K noncompliance, both banks started to look into this issue starting early 1998. The appraisal team had extensive meetings with the two banks on this issue and reviewed their Y2K activities. The banks identified their needs and contacted appropriate and reputable vendors and suppliers early in 1998. While they still need to procure a lot of equipment and hire international  Page 19 consultants, banks have already ordered part of their equipment for critical business areas for which the contract was signed in mid-1998. Despite rather. early efforts, the timetable for getting their system Y2K ready is still very tight. In fact, it is good that they started earlier and that is what the World Bank would have wanted to ensure the financial and economic stability of the country. These circumstances may apply to all of the other agencies covered under this project, perhaps to a lesser extent because they are much smaller organizations. In view of the above, and based on the attached "Y2K Procurement" (Annex 6), it is strongly recommended that all of the procurement contracts for Y2K readiness be eligible for financing under this project retroactively from 180 days prior to the first date of appraisal mission, November 1, 1998. Task Leader: Shideh Ha an (SASFP) Team Le r:F P) Sector Manager/Director: MarilouUy Country Manager/Director: Roberto Bentjerodt  Page 20 Annex 1: Project Design Summary Sri Lanka: Y2K Emergency Assistance Project Monitoring and Hierarchy of Objectives Key Performance Indicators Evaluation Critical Assumptions Sector-related CAS Goal: Sector Indicators: Sector / Country (fi-om Goal to Bank Mission) Financial sector development and * Sound banking system Reports: Thle Y2K project is an efficient economic management * Sound economic * CAS cimergency operation. It Avas management. * Financial Sector demilanid driven. * Continuation of business Update In view of the CAS. the Bank critical operations committed to assist the GOSL on its Y2K remediation effort in order to avoid or minimize possible financial. economic. and social disruptions. Project Development Objective: Outcome I Impact Indicators: Project Reports: (from Objective to Goal) To assist the GOSL, on an urgent (i) number of the financial * A Project appraisal Remediation efforts succeed in basis, in its efforts to prevent possible institutions able to prevent document maintaining the functionality of business disruption in the country's disruption in their businesses . Project transaction and management economic and financial sectors as a and continue to operate without Implementation inifornation systems. result of the Y2K problem. The major problems; (ii) estimated Plan C(ontidence in the government's project will focus on assisting the amount of damages in the * Credit Agreement ability to manage the Y2K country's banking sector, finance financial and economic remediation efforts and keep a companies, and selected critical activities avoided or minimized; Monthly reports from sound economic and financial govemment agencies to adopt and (iii) number of critical each PCUs will be system. implement a well-defined government agencies to prepared on the contingency-based strategic plan for continue their normal implementation and Y2K compliance. operations; and (iv) readiness results of the projects and ability of critical sectors to for each concerned quickly recover (measurable by institution. Testing of the time period) from possible the systems is another system damage or business monitoring and disruption after the Year 2000. evaluation tool. Output from each component: Output Indicators: Project Reports: (from Outputs to Objective) * Operating banking sector and Same as above. Same as above Some of the banks, in particular finance companies without any the public banks and critical major problem. govermment agencies were * Operating government agencies identified to be in urgent needs without any major problem. for financial and technical assistance. MOF and CBSL to be in the best position to administer these Y2K projects Project Components/Sub- Inputs: (budget for each Project Reports: (from Components to components: component) Financial and Outputs) L Financial Sector Component procurement reports on L.a. Needs of banks are assessed I.a. Credit component for onlending to I.a. (US$20.0 m) each institution's realistically and resource banking sector and finance companies. utilization of the loan allocation required for quick I.b. TA to PCU in CBSL proceed. remediation actions. I.b. (US$1.0 m) l.b. CBSL acquires sut'ficient 11. GovernmentAgencies Component training and exhibit sufficient II.a. TA to PCU in MOF institutional strength to co-opt II.b. Y2K remediation sub-projects. Y2K remediation. Il.a. (US$0.5 m) Ila. MOF need to obtain high- II.b. (US$7.5 m) level technical staff to perform its supervisory task. ll.b. Needs of critical government agencies are assessed and financial and technical assistance are needed urgently.  Page 21 Annex 2: Project Description Sri Lanka: Y2K Emergency Assistance Project Detailed project description is available in the text. I. Financial Sector Component - US$21.0 million equivalent which will be utilized by the CBSL as follows. I (a) - A Credit Component of US$20.0 million for onlending, through the CBSL, to the large public banks (and few private banks) for their eligible Y2K related expenditures including the cost of consultants and equipment. I (b) - A Technical Assistance Component of US$1.0 million for CBSL to conduct its scaled up Y2K monitoring and supervision of the banks. II. Government Agencies Component - The TA will finance the cost of required equipment, experts (local and international) for various technical tasks, and short term staff training of the concerned institutions. II (a) - Project Coordination - A US$0.5 million will be allocated for setting up a Project Coordinating Unit (PCU) for close monitoring of the concerned agencies and providing assistance in planning and implementing their Y2K remediation activities. 1I (b) - Y2K Remediation Sub-projects - This component of US$7.5 million will, in part, finance the needs of Y2K activities in critical sectors. Among those, the IRD has demonstrated its immediate need for financial and technical assistance for its Y2K project. Other potential sectors could be the Census and Statistics Department, Sri Lanka Insurance Corporation, Sri Lanka Customs, and other public administration agencies. Terms of reference for consultants/experts prepared based on the priority needs of the concerned institutions and also based on the best practices available from the reputable sources. A proposed format for sub-loan applications and criteria was also prepared. These documents are available in the project files.  Page 22 Annex 3: Estimated Project Costs Sri Lanka: Y2K Emergency Assistance Project Foreign of which Project Cost by Component Local (US$ million) Total IDA A. Financial Sector Component 10.4 19.3 29.7 21.0 1. Credit Line for the Banking Sector 10.0 18.5 28.5 20.0 2. Technical Assistance / Project Coordination 0.4 0.8 1.2 1.0 B. Government Agencies Component 1.7 6.6 8.3 8.0 1. Project Coordination 0.7 0.0 0.7 0.5 2. Y2K Remediation Subprojects 1.0 6.6 7.6 7.5 TOTAL PROJECT COST 12.1 25.9 38.0 29.0 Estimated Demand for Funds by Banking Sector" Total request IDA Financing Total request based on the (S m) Cost of the sub-loans of the based on the project cost (80% for state Sponsors financial sector project cost (US$ million) banks and 60% (US$ Component 1/ (Rs million) (Rs 67/US$ 1) for private million) banks) State Banks (TOTAL) 970.1 14.5 11.6 2.9 Bank of Ceylon 531.0 7.9 6.3 1.59 Peoples' Bank 339.1 5.1 4.0 1.01 National Savings Bank 100.0 1.5 1.2 0.30 Private Banks (TOTAL) 1,037.6 15.5 9.3 6.2 Union Bank 49.8 0.7 0.4 0.3 Pan Asia Bank 118.5 1.8 1.1 0.7 Seylan Bank 527.8 7.9 4.7 3.2 Commercial Bank of Ceylon 95.0 1.4 0.9 0.6 Dev. Fin. Corp. of Ceylon 76.5 1.1 0.7 0.5 National Dev. Bank 5.0 0.1 0.06 0.04 Hatton National Bank 165.0 2.5 1.5 1.0 Total Requested 2,007.7 30.0 20.9 9.1 Based on the assessments done by the Central Bank of Sri Lanka during the project appraisal.  Page 23 Annex 3: Estimated Project Costs (continued) Sri Lanka: Y2K Emergency Assistance Project Local Foreign Total Project Cost by Category (US$ million) 10.0 18.5 28.5 Subloans for Part AI Goods for Parts A2 and B 1.0 2.1 3.1 Consultants' Services & Training for Parts A2 and B 1.0 5.3 6.3 Incremental Project Coordination Expenses 0.1 0.0 0.1 TOTAL PROJECT COST 12.1 25.9 38.0 Local Foreign Total Financing Plan (US$ million) 0.3 0.2 0.5 GOSL IDA 5.3 23.7 29.0 Sponsors 6.5 2.0 8.5 TOTAL PROJECT COST 12.1 25.9 38.0 Annex 4: Cost Benefit Analysis Summary [Not Applicable] Annex 5: Financial Summary [Not Applicable]  Page 24 Annex 6: Procurement and Disbursement Arrangements Sri Lanka: Y2K Emergency Assistance Project Procurement Methods (See Annex 6 - tables A and B) 1. The procurement methods applicable to various expenditure categories are summarized in Table A. The procurement for this Y2K project is mostly based on the "Y2K Procurement" guidelines issued by the OCSPR in November 4, 1998, to accommodate the flexibility for procurement for the Y2K projects proposed for financing by World Bank loans. In addition, due to the complexity of the problem and the critical time factor, all contracts signed for procurement of goods for the purposes of the Y2K remediation 180 days prior to the first day of the appraisal mission (November 1, 1998) would be eligible for financing under the proposed loan. 2. Goods: Procurement of goods would be contracted in accordance with the provisions of the Guidelines for procurement under IBRD loans and IDA Credits, dated January 1995 (Revised September 1997). 3. Upgrades for existing computer hardware systems and software may be procured through direct contracting. Off-the-shelf computer hardware or those with standard specifications and computer software valued at less than US$1,500,000 per contract may be procured through national/international shopping. All other computer hardware/software would be procured through LIB procedures. 4. Consultant Services: Consultant Services would be contracted in accordance with the provisions of the Guidelines for the Selection and Employment of Consultants by World Bank Borrowers, dated January 1997 (revised September 1997). To accelerate the process of selection, a collective/consolidated advertisement requesting expression of interests should be published periodically in Development Business. 5. With IDA's concurrence, small contracts, estimated to cost less than US$100,000 for diagnostic studies, may be procured through Single-Source Selection or Selection Based on Consultant's Qualifications. 6. All other consultants would be selected using Quality and Cost Based Selection procedure. 7. Training: Training covering the trainees' expenses toward subsistence, travel and fees would be procured using GOSL administrative procedures acceptable to IDA. 8. Equipment: Equipment may be procured through national shopping. Prior review thresholds 9. All contracts for computer hardware and software procured through LIB would be subject to IDA's prior review of all documentation. IDA would review the consultant TORs prior to issuing Request for Proposals (RFP). With respect to consultants, estimated to cost the equivalent of US$500,000 for firms and US$100,000 for individuals, all documentation (Letter of Invitation, TORs, proposals, evaluation reports and contracts) will be subjected to IDA's prior review. All the other contracts would be subject to post review.  Page 25 Disbursement 1. Assessment of the Financial Management System (a) Internal Controls The project will adopt the existing system of internal control procedures of the CBSL and, where applicable, the Financial Regulations of the Government of Sri Lanka. These procedures, which are well established and documented, cover almost every aspect of financial admilistration and will ensure orderly and efficient conduct of the project activities. Further, the two sub-committees to be established under the CBSL-PCU, one for evaluating Y2K sub-loan applications and the other for monitoring and supervising Y2K programs of the banks, together with the MOF-PCU's committee for reviewing Y2K projects of public sector organizations, will provide the necessary control environment for the project. [Explanatory note on the procedures of the CBSL and other relevant documents are available in the project files. Information about the Financial Regulations of the GOSL is available in the Sri Lanka Country Financial Accountability Assessment study]. (b) Accounting System The CBSL-PCU will maintain separate set of accounts for recording all finanicial transactions of the project in accordance with sound accounting practices. The accounting system to be adopted will reflect the type of project, the sources and uses of project funds etc. Thie system will also facilitate timely reporting as per the agreed monthly financial management reporting formats. A simple chart of accounts to meet the needs of the project has been developed and is available in the project files. Project accounts will be maintained manually until a PC-based accounting software (using MS- Access) is developed. Cash basis of accounting will be adopted for this project. The CBSL-PCU unit will also monitor contract commitments and other information required to track procurement progress of the project. (c) Auditing The CBSL will appoint an independent external auditor by April 1, 1999. The auditor's TOR and the shortlist of audit firms were reviewed by the Bank and were found to be acceptable. CBSL-PCU will be responsible for the submission of semi-annual project audit reports (within two months after the end of the six-month period) and annual project audit reports (within six months after the end of the fiscal year) to IDA. The audit report will give separate opinions on the following: 1. Whether the project financial statements have been satisfactorily prepared to present fairly in all material respects, the financial performance of the project for the reporting period; 2. Whether adequate supporting documentation has been maintained to support claims submitted to the Bank based on the SOE procedures; 3. Whether the expenditures claimed are eligible for financing under the agreement; and 4. Whether the financial statements of the Special Account give a true and fair view of the financial position of the Special Account.  Page 26 (d) Reporting The CBSL-PCU will submit the following financial management reports to IDA on a monthly basis within two weeks after the end of each month. Summary of Sources and Uses of Funds Report I-A (both in US$ and in local currency) Uses of Funds by Project Activity Report I-B Schedule of Sub-Loans Loans Report Schedule of Sub-Projects Projects Report (e) Staffing Financial aspects of the project will be overseen by a Project Accountant, who has already been assigned by CBSL to work on the CBSL-PCU. He will be responsible for ensurinig timely recording and reliable reporting of all financial transactions of the project. He will work closely with the staff of the CBSL-PCU, MOF-PCU, GOSL officials, clients of the project, and the World Bank. He will be provided with necessary support staff. 2. Status of PCUs' compliance with audit covenants in existing Bank-financed projects CBSL is the only bank in Sri Lanka which maintains Special Accounts for donor supported projects and administers debt service payments; their performance in this regard is impeccable. CBSL is presently implementing an IDF grant which do not have audit reporting requirements. 3. Disbursement Arrangements Project disbursements will follow the current disbursement procedures and, given the short implementation period of the project, it is recommended that these procedures be used throughout the 2.5 year life of the project. Given the urgent nature of the project and the year 2000 deadline, 80 percent of the credit is expected to be disbursed within six months after credit effectiveness. (a) Special Account Project disbursements are expected to be channeled, almost exclusively, througlh the Special Account (SA). As the project's main focus is the banking sector, which already has an established network for making international payments, there will be few requests for special commitments, direct payments and reimbursements. Given this and the fact that payments out of the credit will mostly be for large contracts, the project will require a substantially high allocation as initial deposit into the SA. CBSL-PCU will be responsible for opening and operating the SA according to terms and conditions acceptable to IDA. The SA will be denominated in US Dollars with an initial authorized allocation of US$6 million. Payments out of the SA will be made exclusively for eligible expenditures of the project (for both components). Replenishment applications will be submitted on a monthly basis, or when the available balance in the SA reaches 40 percent of the advance. From the advance in the SA, CBSL-PCU will withdraw an amount, not exceeding US$15,000, and deposit it as an advance into another account to meet IDA's share of incremental monthly project  Page 27 coordination expenses of the MOF-PCU. Unlike the CBSL-PCU, the MOF-PCU is not in position to pre-finance their incremental operating expenses. (b) Allocation of Credit Proceeds The credit proceeds will be allocated amongst four categories as shown in Annex 6, table C. (c) Statement of Expenditure (SOE) Withdrawals from the credit could be made on the basis of Statement of Expenditure (SOE) for: (a) training; (b) incremental project coordinating expenses; and (c) contracts not exceeding the equivalent of (i) $500,000 for goods; (ii) $200,000 for services of consulting firms; and (iii) $100,000 for services of individual consultants. CBSL-PCU will be responsible for ensuring all records (contracts, orders, invoices, bills and other documents) evidencing SOE expenditures are retained for review by the Bank's supervision missions and by the auditors. (d) Retroactive Financing To facilitate prompt execution of GOSL's Y2K remedial efforts, the credit will retroactively finance IDA's share of eligible project expenditures that have been/will be paid before the date of Credit Agreement. Therefore, withdrawals on account of payments made for expenditures before the date of the Credit Agreement but after (within 12 months before credit signing), in respect of Categories (i) through (iv), can be made subject to an aggregate amount not exceeding the equivalent of US$ 10% of the credit amount. 4. Pending Actions Appointment of Auditors - April 1, 1999  Page 28 Annex 6, Table A: Project Costs by Procurement Arrangements3 (in US$ million equivalent) Expenditure Procurement Method Total Cost Category (including LIB Shopping Direct QCBS Other contingencies) 1. Goods 10.1 8.0 10.0 28.1 (6.1) (4.8) (6.0) (16.9) 2. Consultancy 7.8 2.0 9.8 (7.4) (1.9) (9.3) TOTAL 10.1 8.0 10.0 7.8 2.0 37.9 (6.1) (4.8) (6.0) (7.5) (1.9) (26.2) Figures in parenthesis are the amounts to be financed by the IDA credit. LIB is Limited International Bidding; QCBS is Quality and Cost Based Selection " Other Includes quality based selection (QBS), single source selection and individual consultants 3 For details on presentation of Procurement Methods refer to OD 1 1.02, "Procurement Arrangements for Investment Operations."  Page 29 Annex 6, Table B: Thresholds for Procurement Methods and Prior Review4 Expenditure Contract Value Procurement Contracts Subject to Category (Threshold) Method Prior Review US$ thousands US$ millions 1. Goods and Equipment Goods and equipment related < US$1.5 million per contract Direct Contracting i All contracts over to upgrades of existing up to an aggregate amount not US$ 500,000 each computer systems to exceed US$10.0 million All other goods and equipment < US$200,000 per contract National Shopping None (including software) > US$200,000 and < US$1.5 million per contract. International All contracts over Aggregate amount of national Shopping US$500,000 /international shopping not to exceed US$12.0 million > US$1.5 million LIB All contracts 2. Consultant Services Consultant Contracts < US$100,000 per contract for Selection based on None individuals. individual consultants > US$100,000 per contract for Selection based on All contracts individuals. individual consultants < US$100,000 per contract for Selection based on None firms. qualification or single source selection > US$100,000 per contract for QCBS or QBS cl All contracts > firrns bl US$200,000 Aggregate amount of all (Full Review) consulting services other than For contracts > $100,000 QCBS shall not exceed and < $200,000 limited US$200,000 review as per DCA. Below $100,000, no prior review is required. All contracts proposed by direct contracting method will require prior IDA clearance based on a rational and justification consistent with the circumstances described in Para. 3.7 of the Guidelines. For contracts above US$ 500,000 IDA prior review is required. b I For contracts below $200,000, short list may comprise entirely of national consultants. cl QBS method with prior concurrence of IDA. Overall Procurement Risk Assessment: High Average Low Frequency of procurement supervision missions proposed: One every six month(s) (includes special procurement supervision for post-review/audits) 4 Thresholds generally differ by country and project. Consult OD 11.04 "Review of Procurement Documentation" and contact the Regional Procurement Adviser for guidance.  Page 30 Annex 6, Table C: Allocation of Loan Proceeds ' Expenditure Category Amount in Amount in Financing Percentage SDR US$ 1. Subloans for Part AI of the 13,400,000 18,500,000 80% for public investment Project enterprises 60% for private investment enterprises 2. Goods for Parts A.2 and B 1,810,000 2,500,000 100% of foreign expenditure of the Project 1 00% of local expenditure (ex- factory cost) and 80% of local expenditure for other items procured locally 3. Consultants' Services & 3,550,000 4,900,000 100% Training for Parts A.2 and B of the Project 4. Incremental Project 110,000 150,000 80% Coordination Expenses for Parts A.2 and B.1 of the Project 5. Unallocated 2,130,000 2,950,000 TOTAL 21,000,000 29,000,000 " IDA allocation is based on the Annex 3. About 10 percent of the project cost in each category was pooled into the unallocated category for contingency.  Page 31 Annex 7: Project Processing Schedule Sri Lanka: Y2K Emergency Assistance Project Planned Project Schedule (At final PAD stage) Actual Time taken to prepare the project (months) Three weeks Three weeks First Bank mission (identification) 11/2/1998 11/2/1998 Appraisal mission departure 11/2/1998 11/2/1998 Negotiations 12/21-23/1998 12/21-23/1998 Planned Date of Effectiveness 2/12/1999 2/12/1999 Bank staff who worked on the project included: Name Specialty Shideh Hadian (Task Leader) Operations Officer/Economist Eva Lystad Principal Information Technology Specialist Sriyani Hulugalle Industrial Economist Bradford Adams Information Technology Specialist Julitta Rasiah Financial Management Analyst Jayantha De Mel Procurement Specialist Agnes Evidente Team Assistant  Page 32 Annex 8: Documents in the Project File Sri Lanka: Y2K Emergency Assistance Project A. Project Implementation Plan - Prepared and agreed with the implementing institutions, MOF and CBSL. PIP includes three attachments: TOR for the PCU in the CBSL. TOR for the PCU in the MOF. TOR for the short and long term consultants appointed in these PCUs. B. Bank Staff Assessments C. Other: i. A Report on the "Year 2000 Preparation made by the banks within Sri Lanka". This report was prepared by Ms. Rhian Roberts, Financial Services Authority of United Kingdom, prepared in August 1998. ii. A Report on the "Year 2000 Compliance of the Banking and Financial Sector" prepared by the CBSL in June-July 1998. iii. A Report on "A Strategic Approach to Y2K Problems in the Sri Lanka Banking Sector". This report was prepared by the World Bank Appraisal Team based on the best practices available from reputable sources. It was shared with the MOF, CBSL, and several other institutions during the appraisal mission. iv. Terms of Reference for experts in the areas of Y2K Supervision/Review Audit and Testing for Banking Sector; Telecommunication; Insurance; and Public Sector in General. Terms of Reference for the two established PCUs in MOF and CBAL. V. A draft application form for onlending criteria to the banking sector. vi. The Proposal (dated October 29, 1998) from the GOSL seeking planning grant for the year 2000 computer related problems from the World Bank InfoDev Program (see footnote I in the text). vii. The "Y2K Procurement" guidelines issued by the OCSPR on November 4, 1998. viii. The first "Expression of Interests" advertised in the Development Business, issue # 500 published on December 16, 1998. ix. Control and procedures systems for financial management in the Central Bank of Sri Lanka x. Terms of Reference for the Audit of project financial statements and special account. xi. Signed copy of the "Report on the Assessment of Project for Project Management Report-Based Disbursements".  Page 33 Annex 9: Statement of Loans and Credits Sri Lanka: Y2K Emergency Assistance Project Status of Bank Group Operations in Sri Lanka IBRD Loans and IDA Credits in the Operations Portfolio (as of November 30, 1998) Loan or Cancella- Disburse- Project ID Credit No. Fiscal Year Borrower Purpose IDA tions ments Undisbursed LK-PE-10363 2183 1991 GOSL 3'd Roads 42.5 37.8 5.6 LK-PE-10378 2260 1991 GOSL National Irrigation Rehabilitation 24.7 5.0 23.7 1.8 LK-PE-10409 2442 1993 GOSL Community Water Supply & 24.3 23.4 0.5 Sanitation LK-PE-10419 2484 1993 GOSL Private Finance Development 60.0 58.1 4.9 LK-PE-10420 2495 1993 GOSL Colombo Urban Transport 20.0 12.7 7.6 LK-PE-10467 2757 1995 GOSL Colombo Environmental 39.0 10.9 23.5 Improvement LK-PE-42263 2837 1996 GOSL Telecom Reg & Public Enterprises 15.0 3.5 10.9 Reform TA LK-PE-10517 2880 1996 GOSL Private Sector Infrastructure Dev 77.0 1.1 72.3 LK-PE-42266 2881 1996 GOSL Teacher Education & Teacher 64.1 7.6 53.3 Deployment LK-PE-10526 2928 1997 GOSL Health Services 18.8 1.9 16.1 LK-PE-10498 2938 1997 GOSL Energy Services Delivery 24.2 1.5 21.9 LK-PE-tO5t3 N014 1997 GOSL Environmental Action 1 14.8 2.7 12.1 LK-PE-10525 3014 1998 GOSL General Education 11 70.3 2.5 68.6 LK-PE-34212 3058 1998 GOSL Mahaweli Restructuring 57.0 17.2 40.1  Page 34 Annex 10 Sri Lanka at a glance 10{1{98 Lower- POVERTY and SOCIAL Sri South middle- Lanka Asb incoe Development dimond' 1997 Populato. mid-year (millions) 18.5 1.289 2.285 Life expectancy GNP per capita (Alas method, USS) 800 390 1.230 GNP (Adas meLthod USS billions) 14.8 502 2,818 Aveae annual growth, 1991-97 I Population (%) 1.2 1.9 1.2 Labor force X) 1.8 2.2 1.3 GNP Gross perpnnr Moat recent estimate atest year available, 1991-9) capita renroinment Poverty (% of populaton below nabonal povent line) 22 Urban population t% of tota/ population) 23 27 42 Life expectancy at birth (years) 72 62 69 Ifant mortality (per 1,000 live births) 16 71 36 Child malnutrition (% of children under 5) 38 63 Access to safe water Access to safe water (% of popuiabon) 64 77 84 1lieracy (% of populabon ape 15+) 10 51 19 Grossprimaryenrollment (%ofschool-agepopulation) 113 99 111 Sri Lanka Male 114 109 116 Lower-middle-income group Female 112 89 113 _ KEY ECONOMIC RATIOS and LONG-TERM TRENDS 1976 1986 1996 1997 Economic ratios' GDP (USS billions) 3.6 6.4 13.8 14.8 Gross domestic investment/GDP 16.2 23.7 24.2 24.4 Exports of goods and serceslGDP 29.0 23.7 35.0 36.5 Trade Gross domestic savings/GDP 13.9 12.0 15.3 17.3 Gross national savings/GDP 14.8 19.0 19.0 21.4 T Current account balance/GDP -0.2 -6.5 -4.9 -2 6 Interet payments/GDP 0.6 1.9 2.1 1 8 Domestc Investment Totl debtUGDP 25.9 63.7 67.5 6110 Savmgs Total debt servicelexports 24.4 20.9 13.6 18.2 Pesent value of debtUGDP 37.9 Present value of debtexports 89.7 Indebtedness 1976-36 1987-97 1996 1997 1998-02 (average annual growth) GDP 5.3 5.0 3.8 6.4 Sf Lanka GNP per capta 3.8 2.8 2.1 5.8 Lower-middle-income group Ewatsof goods and services 4.7 9.1 3.2 11. STRUCTURE of the ECONOMY 1976 1986 1996 1997 Growthes of output and inv-tmnt t%) i(% of GOP) s Agriculture 29.0 27.1 22.4 21.9 hdustry 27.1 26.6 25.1 25.5 10 lamtenfcturing 20.0 15.2 16.2 18.4 Services 43.9 46.3 52. 52.6 Private consumpbon 76.1 77.7 74.1 72.3 *2 c3 94 es se 07 General govemment consumption 10.0 10.3 10.5 10.4 ' GDI