Zambia - Small and Medium Scale Industry Development Project

Document of lLE COPY The World Bank FOR OFFICIAL USE ONLY RE 3 Report No.P-1811a-Z REPORTS L 1 REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED SECOND PROGRAM LOAN TO THE REPUBLIC OF ZAMBIA August 9, 1976 This document has a restricted distribution and may be used by recipients only In the performance of their official duties. Its con tents may not otherwise be disclosed without World Rank authorization.  CURRENCY EQUIVALENTS Zambian Kwacha K 1 US$1.2444 US$1 = K 0.8036 ABBREVIATIONS DBZ - Development Bank of Zambia INDECO - Industrial Development Corporation LME - London Metals Exchange SITC - Standard International Trade Classification TAZARA - Tanzania Zambia Railroad FISCAL YEAR Government: January 1 - December 31  FOR OFFICIAL USE ONLY INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED SECOND PROGRAM LOAN TO THE REPUBLIC OF ZAMBIA 1. I submit the following report and recommendation on a proposed second program loan for the equivalent of US$30.0 million to the Republic of Zambia. The loan would lhave a term of 17 years including 3 1/2 years of grace, with interest at 8.90 pe:rcent per annum, PART I: THE ECONOMIC CRISIS AND THE GOVERNMENT'S AUSTERITY PROGRAM 2. The last economic report on Zambia (Report No. 4a-ZA) was issued on December 26, 1972. A basic economic mission visited Zambia in Jul]y 1975, and its report is scheduled to be issued later this year. The information in this report was gathered by this mission and also by three subsequent missions which visited Zambia between October 1975 and April 1976 to prepare and appraise the proposed program loan. Discussions took place against the background provided by the Government's review of the Bank's Agricultural and Rural Sector Survey (Report No. 84a-ZA dated October 20, 1975)o The most recent economic data are summarized in Annex I. 3. Zambia is pass-ing through its most severe economic crisis since independence in 1964 as a result of the slump in world demand for copper -and a succession of difficulties in getting this mineral to markets. De- spite near stagnation in output and exports over the past decade, copper mining has continued to dlominate Zambia's economy. The extent of this do- minance is illustrated byr the fact that, in 1975, a relatively unfavorable year for mining, the sector still accounted for about one quarter of GDP, more than 90 percent of mlerchandise export earnings, and 13 percent (more than 50 percent in 1974) of government revenues. Such heavy reliance has had unfortunate repercussions for the country. Widely fluctuating and unpredic- table world copper prices have caused serious instability in government revenues and the balance of payments. When prices were high, windfall re- venues and foreign excharnge earnings created an aura of prosperity in which it was difficult to husband resources so as to be able to weather periods of low Drices without serious stresses. 4. After reaching an all-time high of $1.52 per lb in April 1974, copper prices declined rapidly. The average price for 1975, $0.56 per lb was, compared with international prices of manufactured exports, the lowest annual price since 1957, This difficulty was compounded by a series of developments adversely ai.fecting landlocked Zambia. Until 1973, when the border with Rhodesia was closed, the bulk of Zambia's trade was transported This document has a mtrcktd distribution nd may be used by reipients only in the perfo(ane of their official duties. Its contents may not otherwi2e be disclsed without World Dnk authorization.  - 2 - through Rhodesia to and from the Mozambican ports of Beira and Nacala. After the border's closure, the Benguela Railway and the port of Lobito in Angola became a major route, carrying more than one half of Zambia's total exports and a slightly smaller percentage of imports. With the war in Angola and closure of Lobito, Zambian trade had to be diverted to other routes, a diffi- cult and expensive undertaking. 5. Zambia's export earnings from copper in 1975 dropped by 45 per- cent compared with 1974. The balance of payments on current account turned from $68 million surplus in 1974 to an estimated $719 million deficit in 1975. The country obtained a gross capital inflow in excess of $400 million and purchased $67 million gross, $22 million net, from the IMF first credit tranche, oil and compensatory finance facilities. During the year, net foreign assets were reduced by $213 million while $156 million in arrears in payments for imports and private transfers were accumulated. At the end of the year, Zambia's international reserves (gross) stood at only $147 million, the equivalent of only slightly more than one month's imports (Annex I, page 4 and Appendix, Table 3). 6. The impact on government revenues was equally devastating. Reve- nues in 1975 declined by 30 percent, reflecting in part a $435 million fall in revenue from mining (income tax, minerals tax, withholding tax on dividends to shareholders and dividends to the Government). Meanwhile, recurrent expendi- tures climbed by more than 30 percent. Government wages went up by 25 percent; subsidy payments to enterprises and for fertilizer, maize, and other foods increased by 75 percent while substantial debt service payments were made. The result was an unprecedented $490 million budget deficit as compared to a $132 million surplus in 1974. The deficit was financed largely by increases in government borrowing from the monetary system. The money supply expanded by only 21 percent since reductions in foreign assets offset a large part of the increase in government borrowing. 7. In January 1976, the Government announced a series of austerity measures including a reduction in recurrent budget expenditures (mainly by sharply reducing subsidies), and also net capital expenditures: increases in customs duties and sales, excise and income taxes; and other measures to reduce demand and encourage savings,while it was keeping imports and foreign exchange transactions under control until the need for restrictions could be gradually reduced. On July 9, the Government announced a central rate for the kwacha to be maintained against the SDR rather than in terms of the US dollar. The central rate of Kl = SDR 1.085 represented a 20 percent devaluation compared with the previous rate of Kl = US$1.554. 8. The 20 percent realignment is an important step towards restoring Zambia's international competitiveness; it is expected to promote greater export diversification and more appropriate import substitution, and thereby assure a better utilization of labor and other domestic resources. The impact of the devaluation on the government budget receipts, particularly mineral revenues, will be minimal until the mining companies generate sufficient profits and thus enlarge the taxable basis. Basically, the need for an  - 3 - exchange rate adjustment stemmed from the rapid wage increases that took place in recent years. More recently, Zambia's position on the international markets further deteriorated; the currencies of several nearby countries - Zaire, Malawi, most of those in the East African Community and the Rand monetary area - had be!en devalued and the kwacha, being tied to the US dollar, had appreciated against the currencies of several of Zambia's major trading partners. 9. Recurrent expenditures in 1976 are now budgeted at 11 percent below the 1975 preliminary actual recurrent expenditure. This sharp reduction is a central part of the austerity program. The largest single source of savings is a 40 percent reduction in subsidies, particularly those aimed at lowering the retail prices of maize and fertilizers. In order to provide room for increasing producer prices while reducing subsidies, the Government in mid-1975 and February 1976 increased consumer prices substantially -- maize meal, the major item in the Zambian diet, by 25 percent for coarse and 120 percent for refined; wheat flour by 85 percent; bread by 33 percent; fresh milk by 18 percent (28 percent for reconstituted milk); sugar by 14 percent; and edible oils and fats by 26 and 30 percent,respectively. Prices of fertilizers (used mainly by commercial farmers) also increased by 65 percent. Further, in an effort to keep wages in line with prevailing economic conditions within the country, the Government will not increase the salaries of Government employees during 1976 and 1977 and will attempt to hold the line on wage increases in parastatal organizations. Later, as economic conditions improve, increases in wages will be linked to productivity gains. 10. On the revenue side, the 1976 budget aims to accelerate diver- sification of its revenue base through increasing the rates of both in- direct and direct taxes. Most customs duties on consumer goods have been raised by 5 to 10 percentage points, with much higher increases for luxury goods such as liquor and motor cars; the basis for the assessment of duties also has been changed from an FOB to a CIF basis. A 5 percent duty on imports of raw materials and intermediate goods has been introduced and taxation extended to cover all capital goods (those for mining and agriculture were formerly exempt). Sales tax coverage has been widened; the rate of the tax on expatriate wages has been raised from 5 to 10 percent, and various license fees have been increased. The rate schedule of income tax also has been revised upward (with a 75 percent top marginal rate) and steps have been taken to improve collection. Altogether, non-mineral revenues are expected to yield 15 percent more in 1976 than in 1975. 11. With the drastic reduction in capital expenditures in 1976, no single sector has remairLed unaffected (Appendix, Table 1). The 1976 budget estimates of total capital expenditures, including gross lending to public institutions, amounted to K156.6 million which is 45 percent less than the -1975 budget and 37 percent less than the preliminary actuals for 1975. Investments in health and education have been cut least, while the largest reductions have taken place in trade and industry (mainly for parasta- tals), local government and general services. Priority was given to projects  - 4 - supported by substantial foreign financing and to projects whose implementation was already far advanced. Portions of many ongoing projects have been curtailed or postponed. Only a few new investments will be started, such as improvements in the important road which connects Zambia with the railway to the ports in_ Mozambique. The specific sectoral allocations not only reflect government priorities, but also take account of the number and quality of projects in each ministry's program and the capacity of the administration to implement the projects effectively. Unfortunately these criteria have operated against the Ministry of Rural Development whose capacity to plan and execute sound investments has been relatively limited. 12. Close to 90 percent of the cuts in the initial budget allocations for rural development result from reductions in the allocations to government parastatals. Transfers to the National Marketing Board and the Cold Storage Board will only be KO.6 million in 1976, compared with more than K10 million in 1975. However, capital expenditure of the Ministry of Rural Development proper will be only 24 percent below that of 1975, and rural development expendi- tures channeled through the provinces only 19 percent less. In connection with the proposed loan, the Government has provided for a supplementary rural development budget allocating K2.3 million for critically affected agricultural and feeder road projects plus K0.4 million in recurrent expenditure for agri- culture (Schedule 4, Loan Agreement). Although this supplementary budget does not restore all of the amounts initially requested for rural development, it does provide finance for items of crucial importance in amounts which the implementing agencies are able to use effectively. 13. The overall government deficit would be reduced from about K315 million in 1975 to about K162 million in 1976 (Appendix, Table 2). There is a reasonable chance that the necessary additional sources of finance will materialize, but, if they do not, the Government will have to make additional, difficult reductions in public expenditure. Whereas over two thirds of government financial needs were met by the banking system in 1975, current inflationary pressures do not permit heavy reliance on such credit expansion. 14. To encourage savings and restrict credit expansion, the Govern- ment increased the discount rate and the interest rates on deposits and Treasury bills while raising the liquidity and demand deposit ratios of the commercial banks. It is expected that the net domestic assets of the banking system will increase by no more than 17 percent in 1976 compared with 59 percent in 1975; such a slowdown in credit expansion should contribute greatly to stabilizing the economy. 15. Reducing subsidies and increasing consumer prices required consider- able political courage on the part of the Government and reflects the extent of the Government's concern about the current financial crisis, as well as the need for providing adequate price incentives for agricultural production. The Government's recent performance gives a positive indication that it intends to carry out programs and policies to achieve its objectives of economic growth and social equity.  - 5 - PART II: THE DEVELOPMENT PROGRAM 16. During the decade since independence, the domestic product grew at a relatively low rate of 3.4 percent per annum. Although investment averaged 27 percent of GDP, the efficiency of the capital invested has been relatively low. This has been due in part to its concentration in both economic and social infrastructure, including the large transport invest- ment needed to reroute Zambia's trade after Rhodesia's 1965 unilateral de- claration of independence and the closure of the border in 1973. Other factors contributing to high capital output ratios have been the wide dis- persion and lack of focus in agricultural investment and difficulties in the mining sector which hindered planned expansion in production. There have, however, been important positive developments. The manufacturing sector developed rapidly and contributed significantly to diversification: more importantly, recent events suggest that the Government now is focusing its attention on the crucial problem of agricultural and rural development. Mining 17. Since 1969, when it obtained a majority interest in the two major mining companies, the Government has attempted to promote the growth of copper production. The Second National Development Plan (1972-76) projected that copper production would rise from 700,000 to 900,000 tons over the five-year period. To date,production has not increased owing to: (a) the fact that in the early years most of the substantial investments that took place in the mines had to be directed towards replacement with the only goal of maintaining productive capacity (prior to the takeover, the private companies had been reluctant to replace obsolete equipment); (b) the failure of a major mine, which was flooded in 1970, to regain its former level of production; and (c) the 1973 border closure with Rhodesia which caused a major rerouting of imports and hence delays in obtaining equipment and parts. Zambia's two mining companies have recently started to expand but their ability to continue their programs will depend in part upon copper prices. At the copper price levels prevailing over the past year, bcth companies have been running at losses. Even though they have borrowed heavily to finance their investments, several important projects have been postponed because of a shortage of funds. At copper prices for 1976 and the following years as projected by the Bank, it should be possible for the mining companies to carry out their investment program using retained earnings and borrowed funds. The recent exchange rate adjustment will also help these companies to recover from the squeeze exerted by rising costs in local currency. On this basis, it is expected that copper production will expand to 800,000 tons by 1980. Manufacturing 18. Since 1965 manufacturing output has expanded at a rate of 12 percent per annum and its share in GDP (13.2 percent in 1974) now exceeds that of agriculture (10.5 percent). The rapid development of the manufacturing sector has made a significant contribution to the Government's goal of diversification, as well as providing employment for a growing number of migrants from rural areas. Over the past decade the Government has participated in the industrial  sector mainly through the Industrial Development Corporation (INDECO). Today, INDECO holds a majority interest in virtually all major manufacturing enter- prises and is continuing to generate an overall profit, though lower than in recent years, in spite of transportation problems and the rise in raw materials' costs. Private initiative and capital, however, continue to play an important role, particularly in small- and medium-scale enterprises. At present, the private and parastatal sectors each account for about half of both manufactur- ing value added and employment. The extent of import substitution and addi- tional employment generated by the sector's rapid growth have fallen short of expectations. Many of INDECO's investments in particular have been in final assembly or in processing industries requiring substantial imports and have tended to be capital intensive (e.g., the automobile assembly plant and the oil refinery). The Government is emphasizing not only the need for further development of manufacturing as part of its diversification program, but also the need to increase import substitution, especially for food products, and to expand employment. In this connection, the Government in 1973 created the Development Bank of Zambia (DBZ), to which the Bank extended a $15.0 million loan in February 1976. DBZ, according to its Statement of Policy, will give priority to projects which help save foreign exchange, create employment and utilize local raw materials. It provides medium- and long-term loans and equity financing, not only for industrial projects, but for commercial agricultural production and agricultural processing projects as well. For projects in rural areas, DBZ has established a Special Fund for Rural Development to finance on concessionary terms rural projects otherwise eligi- ble for DBZ financing but which could not be financed on normal terms. The Government in January 1976 announced that it will provide a further incentive to locating manufacturing in rural areas in the form of a reduction in company tax rates during the first five years of operation. Education 19. At independence Zambia probably had fewer skilled citizens than virtually any other former British colony. At that time there were only about 100 Zambian university graduates and approximately 1,500 secondary school graduates. The expansion of the educational system has received high priority in every development plan and the results achieved have been truly impressive. In the past ten years the University of Zambia alone produced over 860 graduates, while the number of students finishing the final year of secondary school increased to about 6,500 per annum. Enrollment in primary schools more than doubled during the same period and now encompasses 90 percent of the relevant age group; secondary school enrollment, although currently only 15 percent (61,000 pupils) of the applicable age group, has quadrupled since 1965. The educational system has also broadened from a traditional formal schooling pattern to include technical, agricultural, teacher training and adult education programs. Despite these impressive achieve- ments, however, insufficient qualified manpower continues to be a serious con- straint to the country's development. Shortages are particularly acute among secondary school teachers and in professional, technical and managerial areas. The Government is making strong efforts to overcome these problems.  -7- Infrastructure 20. Zambia has made large investments in physical infrastructure. Transport, communication., power and works accounted for 46 percent of the 1972-74 public investmeni: program and are budgeted at about 50 percent of the 1975 and 1976 programs. Of necessity many of the investments have been large -- the cost oi1 three major power projects since independence will exceed $500 million., while that of the TAZARA railway will be more than $200 million. Most construction projects in Zambia are relatively ex- pensive, in any case, because of high transport charges for imported materials. Zambia's large area and widely dispersed population also add substantially to the costs of providing infrastructure. In its development program, the Government has emphasized building transport facilities for moving im- ports and exports to and from ports and providing electric power for the copper. industry. Recently, increasingly more attention has been given to telecommunications, electricity and roads in rural areas. With the progress that Zambia has already achieved in developing its infrastructure, it is expected that relatively less capital will be required for such invest- ment in the future. This should free funds for additional investment in the productive sectors such as agriculture. Agriculture and Rural Development 21. So far Zambia has made only limited progress in agriculture and rural development. The most pronounced characteristic of the agricultural sector is its dualism. At one extreme are about 600,000 smallholder sub- sistence farmers, widely dispersed through the countryside, using only hand tools, generally without animal or mechanical power, following traditional farming practices. These farmers produce primarily for their own require- ments, with small marketable surpluses from which they derive very meager incomes, Average family sales are estimated at only about $85 a year. Major subsistence crops are maize, groundnuts, and free-grazed beef. Transforming this traditional sector is a difficult long-term process. 22. At the other extreme are large state farms and an economically important group of. about 600 commercial farmers. The commercial farmers are located on state land., under leasehold, and occupy about 3 percent of Zambia. Their farms are Large and the land is good, Their farms are close to the line-of-rail and have good access to markets. They use modern methods to produce cereals, dairy products, beef, poultry and eggs for the urban market and tobacco for-;export. Besides experienced expatriate and Zambian commercial farmers there is a growing number of "emergent farmers" who are just entering the commercial, sector, In total, commercial farming (public and private, Zambian and non--?Zambian) accounts for 60 percent of the maize, 35 percent of the.beef and over half of the milk, pork and tobacco produced and marketed domestically.  - 8 - 23. Despite plentiful land resources for crops and livestock, the overall performance of agriculture has been disappointing. During the past ten years, output expanded only 1.7 percent per annum on the average, result- ing in greater reliance on imports of food and agricultural raw materials. In 1974, approximately 40 percent of the value of Zambia's marketed food was imported; the major imported items (e.g., beef and dairy products, wheat, edible oils and cotton) were all products in which the country possesses a significant potential. 24. For a long time, the Government's economic development strategy did not give the agriculture sector the priority it deserved. While proper incentives to increase output were not addressed to farmers, public invest- ment failed to set the stage for the longer term development of the rural areas. The prices of agricultural products, most of which are fixed by government marketing boards, were not allowed to rise as rapidly as those of manufactured goods. This resulted in discouraging production and depress- ing farm incomes and, with the rapid rise in modern sector wages, the gap between urban and rural areas widened. At the same time, investments in agriculture were insufficient in volume and, over a long period, the schemes suffered from inadequate planning and implementation, largely because of the shortage of qualified personnel and weak organization. 25. It is against this background that the Government has begun in the last two years to devote greater attention to the rural areas and to seek the means of improving its overall economic strategy. It has designed a number of programs aimed at reorienting attitudes (particularly among youth) toward rural work and living. Thus, all those who leave secondary school are supposed to serve two years in agricultural and paramilitary training in rural work camps organized by the National Service, a semi-autonomous operation in the Defense Ministry. Also, a School Production Unit Program was recently initiated under which each secondary school, both urban and rural, is to have a small farming unit to produce food. All students would work in this unit under the guidance of specially trained agriculture teachers. Third, a Village Production Unit Program which has not yet been organized is to be a vehicle for mobilizing the rural population for development. Finally, the Rural Reconstruction Program, also under the Zambia National Service, is probably the most ambitious of the four programs. 26. The Rural Reconstruction Program was launched last year mainly to provide rural employment and slow the flow of young migrants to urban areas. Plans are to ultimately establish 250 Rural Reconstruction Centers (5 in each of the country's 50 districts), where about 800 youths per center will settle, construct living quarters and other facilities, and clear the land for crop, poultry and livestock production on a communal basis. Graduates of the Zambia National Service and army personnel provide the day-to-day instruc- tion, supervision and discipline, with technical assistance from the Ministry of Rural Development extension staff. During the first year, 50 centers, each  - 9 - with about 150-200 residents, have been set up. The program, however, has not fully addressed the overall problem of rural development in Zambia, either in terms of concept or execution. It has concentrated on reducing youthful un- employment, but has neglected the urgent task of increasing the productivity of traditional subsistence farmers. Moreover, at least in its initial stages, the program has proved too costly for wide-scale replication in Zambia's present financial climate. However, it is an indication of the Government's serious concern about rural development. 27. Other favorable indications include the steady increase in Govern- ment-sponsored sugar output which enabled Zambia to reach self-suEficiency last year; a further expansion now being planned would be oriented towards exports. A Canadian-assisted project is developing rainfed wheat cultivation and a joint Chinese-Zambian project is establishing a rice research station to identify suitable varieties and farming methods as the first step in expanding output. The Government is also attempting to revive cotton produc- tion by providing inputs and marketing facilities to registered farmers (5,000 this year) and, in an effort to reduce edible oil imports, has introduced new oil-yielding groundnut varieties. In addition, INDECO is considering large- scale oilseed production to supply newly constructed milling and refining facilities. 28. Despite these relatively recent developments, a well-coordinated approach still remains to be defined. The Bank's Agricultural and Rural Sector Survey suggested a two-pronged strategy based upon (1) transforming the rural sector by focusing public investments and services in areas of high growth potential, and (2) obtaining more immediate increases in output through improved pricing policies and bet:er marketing. This report, which was discussed at the highest levels of government, including the President, has been instru- mental in the dialogue the Bank has had with Zambia. Along these lines, the Ministry of Rural Development is identifying an agricultural project which the Bank will be asked tc, finance and, in this connection, a Bank mission visited Zambia, at the Government's request, at the end of July. 29. With respect ta agricultural policies, current developments are reasonably encouraging. The Government has very recently taken politically difficult measures in direct support of the agricultural sector. Most im- portantly, it has increased prices of agricultural products (para. 9). In addition, it has decided to strengthen the institutions responsible for rural development (para. 44) and to give a greater role to price mechanisms (para. 45). The Third National Development Plan 30. The Third National Development Plan (1977-81), presently under preparation, reaffirms the Government's intention to emphasize rural devel- opment. In fact, it states that agriculture will replace copper as the main source of economic growth. Among the Plan's main objectives are raising income  - 10 - levels in the subsistence sector, reducing disparities between rural and urban incomes, and diversifying the economy to reduce dependence on mining. In line with these objectives, the Plan would specify programs, projects and policies for raising the productivity of traditional farmers and encouraging commercial farmers to expand output while reducing the country's reliance on food imports. Other measures for rural development would also be envisaged, such as improved health and educational facilities, village water supplies, transport, and communications (para. 59). PART III: THE FINANCIAL REQUIREMENTS 31. In the short-term, the implementation of Zambia's ambitious develop- ment program will be affected by the austerity measures taken in response to exceptional financial constraints. Despite the substantial reduction in current expenditures and the measures taken to increase revenues, the Govern- ment was forced to curtail the 1976 capital budget. Additional finance, however, is still needed to balance the country's external payments. After assessing the magnitude of these financial requirements, this report will review Zambia's creditworthiness in the light of its long-term economic prospects. The 1976 Balance of Payments 32. In 1976, the current account of the balance of payments is expected to improve significantly over the previous year. However, because it would be inadvisable to rely heavily on drawing down net foreign exchange reserves (as Zambia did during 1975) and because it is necessary to reduce payments in arrears, the country's capital requirements will continue to be large. 33. It is now assumed that 650,000 tons of copper will be exported during the year, an amount similar to that of 1975. There have been uncer- tainties as to whether the port of Dar-es-Salaam, in particular, will be able to handle the quantities expected to be shipped. However, recent performance indicates that the port should be able to do so and, barring new unforseen contingencies, Zambia should therefore sustain its export level. 34. With respect to copper prices, it is expected that the current recovery will bring the yearly average of the London Metals Exchange (LME) price close to the Bank's forecast of $0.67 per lb, compared with $0.56 per lb in 1975. If the Zambian Government is successful in reducing the value of merchandise imports from $950 million to about $700 million through the restrictive credit and budgetary policies outlined above, the current account deficit would be about $310 million, implying a 57 percent reduction from that of 1975 (Appendix, Table 3). Financing the smaller 1976 deficit, however, will be difficult, since more than 50 percent of the previous year's deficit was financed through a reduction in net foreign exchange reserves and an accumulation of arrears in payments. At the end of 1975, Zambia's net  - 11 - foreign exchange reserves were negative (minus $98 million). The Government has arranged for purchases from the IMF under the expanded first, second and third credit tranches, compensatory financing and oil facilities (para. 41). It is expected that Zambia's net foreign exchange reserves will be reduced by an amount equivalent to its increase in liabilities to the IMF during 1976 - SDR 47.8 million or $55 million. The country is taking steps to bring about a $76 million reduction in the amount of payments in arrears. 35. On this basis, Zambia's capital requirements for 1976 are tenta- tively estimated at about $380 million (Appendix, Table 3). This is a conser- vative estimate to the extent that it does not provide for any improvement in Zambia's reserve position nor for "errors and omissions" that amounted to more than $100 million in each of the last two years. About $270 million are expected to be disbursed from loans previously contracted before the end of 1975. In addition, Zambia recently recqived a special grant from the United Kingdom for the equivalent of $10 millidn and expects shortly to receive another special grant of about $8 million equivalent from the European Economic Community. Taking into account these resources, in 1976 Zambia would need an estimated additional $95 million in external financing. Although there is uncertainty at this time, the Government's recent exchange rate measures and adoption of an austerity piogram should materially improve Zambia's prospects for obtaining the additional finance needed. The pro- posed program loan also should assist substantially in this regard. For 1977, Zambia's capital requirements are not expected to decline sig- nificantly. While exports should increase with the projected rise in copper prices, this prospect will be countered by the need to allow imports to increase in order to ease constraints on economic growth and by the need for Zambia to build up ii:s depleted foreign'exchange reserves. Against this background, the prospects for such borrowing must be evaluated in terms of the economy's long-term prospects and the country's creditworthiness. The Longer Term Prospects 36. Zambia has relied on external capital assistance to an extent similar to that of other African countries of comparable population and income. The terms of this assistance have varied, ranging from the very concessionary terms given by the People's Republic of China to suppliers' credits and Eurodollar loans. The Bank is the country's third largest creditor after the People's Republic of China and private banks. Zambia's outstanding and disbursed external public debt amounted to $948 million at the end of 1975. In fac:, owing to the magnitude of its export earnings -- equivalent to about 50 percent of GDP -- Zambia's debt service ratio has generally been low (e.g., only 8 percent in 1975). 37. With respect to the future, Zambia's capital requirements and debt service burden will depend to a considerable extent upon the develop- ments in the copper sector. First, the investment programs of the mining companies indicate that, after a decade of stagnation, copper production and exports should expand from 650,000 to 800,000 tons between 1976 and 1980 and at about 2 percent per annum thereafter. Second, according to Bank long-term  - 12 - forecasts for copper and international prices, the improvement in Zambia's terms of trade, over 1975, should be 50 percent by 1980, (with most of the improvement occurring by 1978) and 67 percent by 1985. Third, the recovery from the present recession may take about a year, but thereafter, as mining output expands and import controls are loosened, GDP should grow for a few years at about 5 percent per annum. In the 1980's, overall income growth may slow down to 4 percent per annum,owing to the lower rate of expansion in the mining sector. On this basis, Zambia's gross capital requirements would cumulatively amount to about $1.8 billion over the next five years. Its debt service ratio would rise from 8 percent in 1975 to 15 percent in 1980 and then decline to about 12 percent in 1985 (Appendix, Table 4). 38. These projections are very sensitive to copper prices. If this price in each year is 10 percent lower than is currently forecast by the Bank, Zambia's terms of trade would still improve, but its current account deficits would increase fivefold in current terms and its capital requirements would reach $3.0 billion over the 1977-81 period. Its debt service ratio would then reach 23 percent in 1985. 39. Creditworthiness depends upon a country's ability to mobilize domestic resources to make service payments as well as upon the burden of debt service on its export earnings. The Government has made substantial efforts in recent years to broaden the tax base and increase tax rates. Nevertheless, increases in non-mineral tax revenues have generally been less rapid than the growth of non-mineral GDP and there is still need for improving the responsiveness of the tax system to economic growth. Moreover, because the presence of mineral revenues has led to the illusion of abundant resources, the Government in the past has allowed recurrent expenditures to expand rapidly, mainly for wages, subsidies and defense. Despite the recent drastic cuts, there is still room to reduce certain recurrent expenditures, especially subsidies. It is perhaps more important for the Government to maintain greater control over the future expansion of recurrent expenditures. Toward this end, the Government has adopted a policy under which recurrent expenditures will be covered by non-mineral revenues while mineral revenues would be used for capital expenditures. Mineral revenues will be placed in a special account whenever copper prices exceed a certain level and withdrawn to finance development expenditures whenever prices fall below that level (para. 47). PART IV - THE PROPOSED PROGRAM LOAN Description of the Program 40. Negotiations for the proposed program loan were part of a continuing dialogue between the Zambian Government and the Bank. This dialogue, built up progressively over the past few years, has included a previous program loan, an Agricultural and Rural Sector Survey, a Basic Economic Mission which visited Zambia in June/July 1975 and three special missions between September  - 13 - 1975 and April 1976. These missions discussed the Government's plans for agricultural and rural development in considerable depth with a wide range of officials (including the President). In addition, the last three missions reviewed economic development and government policy measures in the context of the Government's request in September 1975 for program loan assistance. Their findings constitute the background against which the proposed loan was appraised. 41. In November 1975 the International Monetary Fund agreed to purchases by the Government of Zambia under the first credit tranche, oil and compensa- tory facilities totalling SDR 56.9 million. In 1975, the net use of IMF resources amounted to SDIR 18.9 million ($22.9 million) as a result of re- purchase obligations and delayed purchases. An IMF mission visited Zambia in March 1976 to discuss requests for further purchases involving the use of the first and second credt tranches and most of the enlarged third tranche. On July 26, the IMF approved a standby arrangement for a period of one year in an amount equivalent to SDR 62.0 million ($71.3 million). This standby became effective in August 1976. During 1976, phased drawings under the standby agreement plus the use of other Fund facilities will give Zambia access to IMF resources totalling SDR 41.8 million ($55 million). 42. The austerity program on which the standby arrangement with the IMF is based has been to a large extent implemented since early 1976. As described above (Part I),, the Government has taken a number of measures which should go a long way towards restoring balance of payments equilibrium, expanding and diversifying the government revenue base and improving budget performance mainly through the reduction of subsidies. In addition to more restrictive budgetary and credit policies, the adjustment in the exchange rate system should lay the basis for sound economic development. 43. The Bank missions that visited Zambia found that the Government was taking appropriate steps to remedy the short-term impact of the current crisis and discussed with it a set of policies aimed at correcting the struc- tural imbalance of the economy. Current policies and development schemes are putting an increased emphasis on diversification of the economy, improvement of the productivity of agriculture and a better balance between the urban and rural sectors. 44. These are the special circumstances under which this program loan for the equivalent of $30 million is proposed. In connection with the proposed loan, the Bank obtained understandings from the Zambian Government on several important aspects. First, that the Government will take steps to substantially strengthen the key Ministry of Rural Development and provin- cial administrative structures. The Government has already indicated its awareness of the problem and the necessity for alleviating it. A supplementary budget has recently been passed that will increase the allocation to rural development by K2.7 million (para. 12). Besides requesting assistance from bilateral sources for the preparation of projects, the Government in- formed the Bank that it will develop a program to strengthen both the Ministry and the'provincial administrations (Supplemental Letter No. 1).  - 14 - This will accord with the Government's plans for decentralizing national administration. 45. Second, the Government agreed on the importance of ensuring that the price mechanisms would play an appropriate role in the allocation of resources and the production process in the agricultural sector. The Bank obtained understandings that the Government will review the price structure of agricultural commodities and production inputs on a periodic basis and take whatever measures might be needed to maintain adequate price incentives for production. Further, such prices will be announced well in advance of the planting season to allow farmers sufficient time to plan their production (Loan Agreement, Section 3.05 (a) and (b). 46. The above two sets of measures will assist materially in increasing the implementation capacity of the rural sector and in encouraging agricultural output. The Bank would support this development through expanded operations in the rural sector and technical assistance (Part V)0 47. Finally, Bank and IMF missions have discussed with the Government the necessity of curbing rapid growth in recurrent expenditures and providing for a more stable expansion of government development expenditures, To attain these objectives, the Government has decided that in the future recurrent expenditures will be covered by non-mineral revenues while all mineral reven- ues and any surpluses from the recurrent budget will be used to finance capital expenditures (Supplemental Letter No. 2), In addition, the Government will plan for a steady growth of development expenditures at a rate consistent with the country's long-run development needs and the availability of finan- cial resources. In years when the recurrent budget surplus and mineral revenues, after taking into account foreign and domestic borrowing, are larger than needed to finance a suitable level of development expenditures, the excess amount will be used to build up government balances, These balances will be used to finance development expenditures in years when mineral reven- tues, the recurrent surplus, and the proceeds from external borrowing are insufficient for this purpose. A special government Development Equalization Account will be established and managed, in order to provide for more steady growth in development expenditures. Description of the Loan and Disbursement and Procurement Procedures 48, The proposed loan is designed to help finance a minimum level of imports required to maintain a reasonable level of production in agri- culture, manufacturing and mining, and to support an appropriate investment program of the Government, Foreign excharge provided under the loan would be used for imports of raw materials, chenicals, intermediate goods, ma- chinery and transport equipment. Iron and steel, agricultural machinery, railway equipment, machine spares and trucks are expected to be among the major items imported. Manufactured fertilizers, consumer goods, luxury items and f el have been exciuded (Schedule I, Loan Agreement)0  - 15 - 49. The government system for allocating foreign exchange gives prior- ity to imports most needed to maintain reasonable levels of production. A ministerial committee now sets the overall foreign exchange allocation on an annual basis, after which a technical committee allocates spec- ific amounts for various end uses, based on country priorities and pre- vious levels of imports. Priority has been assigned to imports for mining, agriculture and nanufacturing. The Ministry of Commerce issues import licenses to specific public and private sector importers according to the importer's previous allocations, turnover and number of employees. The Bank of Zambia also reviews the licenses before making foreign exchange available. Imports of petroleum and goods tied to certain foreign loans, including Bank projects, are handled separately, and imports for the mining companies are made under open general licenses. 50. Disbursements under the proposed loan would be made, on a reim- bursement basis, against full documentation, including an invoice, a bill of lading and evidence of payment. All disbursement applications to the Bank would be forwarded by a special unit in the Bank of Zambia set up specifically for the processing of the proposed loan (Section 3.01 (b), Loan Agreement). In order to simplify processing, invoices for import expenditures of less than $5,000 equivalent would 'not be eligible for reimbursement; it is expected that most of the loan will be disbursed against much larger invoices, Loan proceeds would not be disbursed against any imports financed from external sources. 51. Loan proceeds would be used for imports of both the public and private sectors. The import licensing and foreign exchange allocation pro- cedures would apply to both sectors. The private sector follows normal commer- cial procurement practices, while public sector agencies follow the procurement procedures of the CentraL Tender Board. The Board requires advertisement in the Government Gazette and in trade newspapers allowing at least eight weeks' notice for the submissiona of bids. Practically all countries from which purchases are likely to be made are represented by missions in Zambia; the procedures therefore ensure full opportunity for participation by foreign suppliers. The bids would be evaluated on the basis of prescribed pro- cedures and contracts awarded by the Central Tender Board to the lowest evaluated bidder. ExperLence with Bank-financed projects indicates that the Central Tender Board's procedures are adequate to ensure economic procurement of goods. Counterpart Funds 52, The Government would establish a special project account in the Ministry of Finance to which the kwacha equivalent of the imports financed under the proposed loan would be credited. The Government would transfer funds from the project account to cover expenditures under the Capital Budget in the following categories: Rural Development, Mines and Industries, Finance, Power, Transport and Works, Education, Lands and Natural Resources, Health, Development Planning, Provincial Cabinet Allocations and Local Gov- ernment and Housing. Withdrawals from the project account would also cover expenditures under the Supplementary 1976 Capital and Recurrent Budget for  - 16 - the Ministry of Rural Development and Offices of Provincial Cabinet Minis- ters. Transfers from the project account would be made by the Government periodically for the aforementioned purposes and reported to the Bank. The use of the counterpart funds would be limited to those expenditures which are not otherwise financed by external sources. PART V - BANK GROUP OPERATIONS 53. The proposed loan would be the twenty-first to Zambia since lend- ing operations began in 1956. The loans made to date amount to a total of $470 million, of which $323 million (69 percent) financed ten physical infrastructure projects. Loans for power (three quarters of the lending for infrastructure), transportation and communications have helped landlocked Zambia develop the basic facilities essential for its mining industry and growing manufacturing sector, as well as its commercial agricultural sector. In education, three Bank loans have helped materially to expand and develop secondary schools and technical and teacher training, which Zambia must have to produce critically needed trained manpower. The Bank also made one loan in 1974 to improve the living conditions of a large squatter community in Lusaka and more recently made a loan to the Development Bank of Zambia (DBZ) to assist diversification of the economy. Because of slow disbursements and a subsequent sharp rise in copper prices, a $30 million program loan made in 1973 was not fully drawn down; the undisbursed balance ($17.1 million) was cancelled in March 1974. Ten loans are now fully disbursed, one has been cancelled and the disbursed portion prepaid (627-ZA). In 1975, the Bank's share in Zambia's total public debt (outstanding and disbursed) was 19 percent, while the Bank's share in Zambia's total debt service payments was 22 percent. Present projections indicate that these percentages would be about 32 percent and 18 percent, respectively, in the mid-1980's. 54. IFC made its first investment in Zambia in 1972, providing $1.1 million (of which $227,500 is equity) for the expansion of a shoe manu- facturing company, the Zambia Bata Shoe Company, Ltd. In 1973, the Corpora- tion invested an additional $1.2 million in the same company for a tannery based on local hides, primarily to provide a secure source of raw materials for the shoe factory. A third investment was made in May 1975, providing $1.04 million to Century Packages, Ltd. for a packaging materials factory. Finally, IFC agreed in February 1976 to invest $550,000 equivalent in the capital of the Development Bank of Zambia, in conjunction with the Bank loan to that institution. Annex II contains a summary statement of Bank loans and IFC investments as of June 30, 1976, along with notes on the execution of on-going projects. 55. The Bank's financial and technical assistance has made an impor- tant contribution to Zambia's development, particularly in education and power. While there have been a number of problems in the Bank's relationships with Zambia over the past few years, the climate fortunately has much improved and a continuing dialogue between the Bank and the Zambian Government has  - 17 - been built up progressively. Overall, the Zambian Govermment and its agencies have demonstrated satisfactory performance in the planning and execution of development projects. As indicated earlier, the proposed loan would be in support of the series of important policy measures which Zambia has initiated to remedy the short-term impact of the current crisis and to correct the longer-term structural imbalance of the economy. There is risk, however, that the pressures generated by these measures (particularly those concerning budgeting and pricing) might force the Government to reduce their impact and dilute the current emphasis on economic diversification and rural development. 56. One of the most: difficult areas has been in agricultural and rural development. Here, the Bank made four loans during 1968-73 for industrial forest plantation, livest:ock, commercial crops and integrated family farming. At the Government's request, in 1973 the Bank cancelled the livestock loan because the project was having serious troubles, due mainly to adverse pricing policies and poor implementation. In March 1975 the Government withdrew two agricultural projects which had been prepared with assistance from the Bank. Until now, the Bank has made relatively little progress in assist- ing the Government in preparing and implementing appropriate programs and projects for agricultural and rural development. This failure, however, largely reflects the Government's own weakness in making and carrying out suitable policies and in formulating and implementing effective programs for developing the rural sector. To help overcome the problem, the Bank, at the Government's request, undertook a comprehensive Agricultural and Rural Sector Survey in 1975. The report has stimulated wide discussions about agricultural and rural-development at all levels of Government and has played an important part in the Zambia-Bank dialogue. 57. Besides the agricultural and rural sector, the Bank has recently studied urbanization and water supply and sewerage. The basic economic mission which visited Zambia in June/July 1975 examined in particuLar the industrial and mining sectors, as well as manpower planning in its broadest aspects. The reports of these missions will figure prominently in the con- tinuing Bank-Zambian dialogue, especially in connection with the prepara- tions underway for the Third National Development Plan. 58. The Bank's future lending program will emphasize agricultural and rural development to help diversify the economy and improve the living con- ditions of the rural poor. Lending to industry and commercial agriculture through the Development Bank of Zambia, also important to diversification, will continue, as will support to the development of physical and social infrastructure, although with declining emphasis on power and commtnications. In all aspects of the Banlc's program, institution building also will con- tinue to occupy a central position. 59. In the field of agricultural and rural development, which commands primary importance, the Government has begun identification and preparation of the first of three agricultural projects, for which it expects to request Bank financing during the next three years. The Bank's Regional Mission in East Africa has already begun assisting iri identification and preparation work  - 18 - (para 28). For the five-year period FY77-81, the Bank's lending for agricul- ture is expected to be approximately one third of total lending. Bank assis- tance in this sector, however, is not just limited to agricultural projects as such. A Fourth Education Project, currently being appraised, has a major component for training farmers and government agricultural workers. A second Urbanization and a Rural Water Supply Project, both now under preparation, will provide assistance to smaller towns in predominantly rural environs. A Second Industrial Forestry Project is also being prepared which will help finance forest plantations, logging, sawmilling and wood processing. 60. Outside of the rural sector, a Bank mission was recently in Zambia to preappraise the next stage of the country's hydropower development for possible Bank financing in the coming year. Preparation is proceeding on a Third Road Project, which will concentrate on improving road maintenance and developing staff in the transport sector. Besides the rural components, the education project mentioned above also provides assistance for technical and vocational training, general educational services and a survey of the Zambian construction industry. The urban project, in addition to the smaller provincial towns, will include squatter upgrading and water supply development in three copperbelt towns. PART VI - LEGAL INSTRUMENTS AND AUTHORITY 61. The draft Loan Agreement between the Republic of Zambia and the Bank, along with two supplemental letters from the Zambian Government, the Report of the Committee provided for in Article III, Section 4 (iii) of the Articles of Agreement of the Bank and the text of a resolution ap- proving the proposed loan, are being distributed separately. 62. Features of particular interest are referred to in paragraphs 44, 45 and 47 of this report. 63. I am satisfied that the proposed loan would comply with the Articles of Agreement of the Bank. PART VII - RECOMNENDATION 64. I recommend that the Executive Directors approve the proposed loan. Robert S. McNamara President Attachments August 9, 1976  ANINEX T TABLE 3A ZAMBIA -0 SCIAL INDICATORS DATA SHEET LAND AREA (THOU 8H2)------------------------- --------------- ~~~~~ZAMBIA REFERENCE COUNYPIES ( 1910) TOTAL 152.b MOST RECENT AGRIC. ..1960 1 9 70 ESTIMATE GABON CHILE YUGOSLAVIA* G.NP PER CAP17A (US$) 21i0.O 1.10.0 5h0.0 AU120.0 61.0.0 820.0 POPULATION AND VITAL STATISTICS POPULATION (MID-YR. MILLION) 3 .2 4 .3 4..9 /b 0.5 9. ' 2 0. 4 POPULATION DENSITY PERA SQUARC- KM. 4..o 6. 0 7.0 A 2 .0 1 3. 0 8 0.0 PEH, SQUARE KM. AGRIC. LAND 8.C . . VI TAL STATISTICS CRtUDE AIRTH RATE PER THOUSAND 4.9.5 4.9.7 51.5 31.8 32.8 21.0 CRUDE DEATH RATE PER THOUSAND 23.1 20.9 20.3 25.7 10.9 9.1 INFANT MiORTALITY RATE (/THOU) ... .. 9.0 55.5 LIFE EXPECTANCY AT BIRTH (YRS) 38.5 1.3.5 441.. 38.5 60.6 65.8 ,,OSS REPRODU,CTION RATE . 3.3 3.3 2.0 2.2 1.3 POPULATION GRDWT4l RATE (X) T9 TAL 2 .8 2. 9 2.9 4e 1.0 2.4. 1.0 JiAlAN . 1 3. 6 LG 6.611 8.0 3. 046 URBA N POPULA T ION ( % OF TOTAL) 20.0 3 0. 0 3 4. 0 32 .0 F6. 0 38.7 AGE STRUCTURE (PERCENT) S TO 14 YEARS 45. a 466.0 .34.0 3 9.0 2 6.9 15 TO 64 YEARS 51 . 0 4a b 51.0 . 61.:0 56.3 65. 1 65 TEARS AND OVER 4.0 Ia.b 3. 0 5.0 4.7r 8.0 AGE DEPENDENCY RATIO 1.0 1.0 . 0.6 0.8 . ECOlO-MIC DEPE-NDENCY RATIO . 1 .8 . 0 . 1. 6 FAMILY PLANNING- ACCEPTORS (CUMULATIVE, THOU) ... . U5ERS Il OF MARRIED WOMEN) . .. EMPLOY MENT TOTAL LABOR FORCE (THOUSAND) .. 1200.0 274.0 1 2600.0 LA9RT FORCE IN AGRICULTURE (2) .. 54.0 58.0 21. UNEMPLOYED (X OF LABOIR FORCE) I 0. 0 Lb .. .. 7.1 INCOME- DISTRIBUTION OF PRIVATE- INCOME REC-D HY- HiIGHEST 5Z OF HCyUSEH0LDS 33. 7 . 45.3 Lb 31.0a 15.1 HIGHEST 20% OF )1O5gMLDS 58 .2 . .6 7.5 b 55.8 4 1.4 LOWSET 20% OF HMEWD 5. 4 . 3.2 lb 4. 8 6.6 LOmEST 401 OF auSMOi.DS 1 3.0 . 8.5 ; 1 3. 0 1 8.64 OISTRIWlUTION OF LAND OWNERSHIP 1 JOWNED BoY rop 10! OF OWNERS ..... ... 15. ZR I OWNED 8Y SMALLEST 10% OWNERS ... ... 84.? aj HEALTH AND NUTRITION POPULATION PER PHYSICIAN 1 2-000. 0 Id 13580.0 811 0.0 ,5800.0 2010.aLL 1010.0 POPULATION PER NJRSING PERSON 3060.0 7e 29 40. 0 243 0. 0 600.0 5320C.OL 4 ~O. O POPUJLATION PER HOSPITAL BED 350.0 I-f 31 0.0 ..100.0 250.0 180.0 PER CAPITA SUPPLY OF - CALORIES (0 OF REQUIREMENTS) 87.0 88.0 112.0 94.0 101.0 124.0 PROTEIN (GRAMS PER DAY) 63.0 64.0 68.0 56 0 71.0 92.0 -OF WHICH ANIMAL AND PULSE . 25. 0 Ic .0 30.0 32.0 2 9.0 DEATh RATE (/THOU) AGES 1-4 .. .. 3.9 2.5 EDU CA71ION ADJUSTED ENROLLMENT RATIO PRIMARY SCHOOL Ih7 0 /c 70.0/. 89.0o 168 .0 103.0/ 94. SECONDARY SCHOOL 1.0 C)7 12.07e 13.0 d' 16O 6.0/d 65.0 YEARS OF SCHOOLING PROVIDED360 4 (FIRST AND SECOND LEVEL) 12. 0 12. 0 1 2. 0 1 3.0 12. 0 1 2. 0 VOCATIONAL E-NROLLMENT (1 OF SECONDARY) 28.0 3.0 4.0 15.0 33.0 72.0 ADULT LITERACY RATE (1) 40. . . 4 3.0 30. 0 90.0 85.0 HOUSIN4G PERSO;NS PER ROOM (AVERAGE) . 2. 6 Id .. 1. 3 OCCUPIED DWELLINGS WITHOUT PIPED WATER (%) .. 88. 0 . 4 0.0 ACCESS TO ELECTRICITY (1 OF ALL DWELLINGS) 28.0 La ..... RURAL DWELLINGS CONNECTED TO ELECTRICITY (%) ... . CONSUMPI ION RADIO RECEIVERS (PER THOU POP) 9.0 18 l.c 23.0 126.0 143.0 163.0 'PASSENGER CARS (PER THOU POP) 11.0 14.0 15.0 11.0 18.0 35.0 ELECTRICITY (VWH/YR PER CAP) 6 81 .0 957.0 1062.0AL 19 4 .0 80.0 1~88.0 NEWSPRINT (KG/YR PER CAP) 0.8 a /h 0.5 0.6 . 4. 8 4. 3 .-- - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - -- - - - - - SEE NOTES AND DEFINITIONS ON REVERSE  ANNEX I Page 2 of 1 .Rpage NOTES Unless otherwise noted, data for 1960 refer to 1959-1961, for 1910 to 1968-1970, and for Most Recent Estimate to 1971-1973. *5Yugoslavia has been selected as as objective country because it lies a higher degree of development with extensive stat-e participtaUo in industr-y and comemere; also the agriculture sector, the dominant sector of employment, is deve.loping from a relatively los. level of productivity. 7AMBIA 1960 /.- 1963, Africam population osly; /b 15-59 ye-ar and 60 and over respectively; La 713 and 1-18-l years of age respec- tively; /g 1962; /a 1963, persomiel in government services only, including midisives and nursing auxiliaries; If 1963; Zg Urban only; A Data for todesia and Malawi included; a1 1962. 1970 /a 1965-69; A persons seeking work; & 196h-66, /d Total, urban and rural; A 5-12 and 13-li years ofags respectively. MOST RECENT ESTIKATE: /a 1969-73; & 1975; Iac 1970-75; /d 7-13 and lb-l8 years of age respectively; /. 197h. GABON 1970 /a Active poPulation age 15-59; A Income recipient; La 1964-66; ag 12-18 jears of age. CHILE 1970 /a Gran Santiago; A Personel in government services only; /c 6-13 and 14-17 years of age respectively. YUrOSLAVIA 1970 /a Agriculture land held by social sector "goibinate % and agriculture land held by small holders, respectively; 79 7-l1. and 15-18 years of age respectively. R7. July 30, 1.976 DEINTITIOliS OP SOCIAL INDICATORS Land Ares (thon hi2) Populatiom per nursing persmc - Population divided ky conker of precticing Tutul1 Tutal surface ares comprising land area and inlsod watera. male sod femaole graduate curses, `traiced` or '1certified" careen, add Mui. -sMot recent estimate of sericultural area used temporarily or susiliary personnel with training oreprin. pemnanestly for crops, pastures, market & kitchen gardecs or to lie Poculatio per hospitai hod - Population divided ky numcber of hospital beds fallow available In public and private general sod opecislised hospital and rehabilitation centers; esuludes moraing hmce sod estabiihaemnts for cu c a;itgjplsiJ - lo per capita estimates at current mar,ket prices, custodial and preventive care. san 3e conversion method as World Bank Atlas (1973-75 basis); per capita supply of calories a% of requirements) - Computed from esergy 1960, 1970 and 1975 data. equivalect of net food aupplies avai1ahle ic countty pot capita per day, available supplies comprise domestic production, imports less exports, P .culation and vital statisti.e and changeu in stack; set supplies seclude animal feed, seeds, quaoti- Fpopultion (mid-yr. ot1ilo) - As of July first, if sa -vilable, tics used is food pr-necing and losses is dictribution; requiresmta average of two end-year estimates; 1960, 1970 and 1975 data. were estimated by FAO hased on physiological needs for cormal activity and health considering ...vircs,sects1 tonperatror, body wdights, age sod sea discributions of popolation, sod allowing 102 far was te at house- P.uslati-s density - pler asoure so C Mid-yea population pot square kilo- hold level. ma ter (105 hectares) of total area. Per capita supply of protein (grams per day) - Protaic content of put Population density - Per square usm of a,c. land - ComPuted as shove fur capita set supply of fdod per day; mar supply of fend to defined so agricultural land only. shove;' requireoents for all couotriea establishedtby USDA Economic vitai statistics ~~~~~~~~~~~~~Research Ser-ices provide for a minimum allowane of 60 gram of total vital Statistics ~~~~~~~~~~~prorali, pee day, and 20 lys- 'of animal sod pulse Prcei, cf which Crude birth rate per thous...d - Anusul live hirtha put thousond of old- 10 grams should be animal protein; these standards are lower than thome year population; too-year arithicetic averages ending in 1960 sod 1970, of 75 grams of total protein and 23 grams of animal protein aso an sod five-year average coding to 1975 for moat rect estimate, average for the world, proposed by PAD in the Third World Pond Survey. Crude death rate sot thousaed - Annual deaths per thoussod of oid-yesr Per capita protein supply iron animal sod Pulse - Protein supply of food population , ten-year arithisetic averages endiog in 1960 and 1970, sod detived from animas so ad poises In gram pot day. five-year average eoding ic 1975 for most r-eet ectima te. Deach race f/thou) gcee 1-4 - Annual deaths per Ihouss-d in age group Infact mor,tality rate f/thou) - Amouat deaths of infants under one year of 14yas ocide nti g ru;sgetds midctro age per thousond live births,1- m ealuri,tion. ide nti g ru; ugse sa iamo Life expectaccy at birth Cy-o) - Average numker of years of life remicing antiin at birth, .usualy five-year averages ending in 1960, 1970 and 1975 fur Education developing cositrisa. Adiwsted ecrulimect ratio - primary school - Enrollment of all ages as Cross reproduction rate - Average comber of live daughters a simnsa will perceotage of primacy schenl-ge population; Includes children aged hear in her noonal reproductive period if she experiences present age- 6-11 years but adjusted for different lengths of primary education; specific fertility rates; ucually five-year averages ending in 1960, for countries with smiversal education, enrollment may esceed 1002 1970 and 1975 for developing cauntries. since som pupils are below or shon the official school age. Population growth rate (2 - total - Compound aenul growth ratec of mid-Adutdeoletrai-scodyshol-Cmtdasbv; year populat Ion for 1950-60, 1960-70, and 1970-75. secotddey educaration - rewiresat lestcfont yer C 'ofds pproed rmc P.pu1atton growth rate (2 - urban - Computed lik. growth rate- of total intrcton; provde geuieneral,evoctioa or teacherf tprovidcrng poplation; differegcutdfnitrions o sbmaesmay affect tpr-instruction for pupils of 12 to 17 years of age; correspondence Ubinitypof.data Cmof oalsris courses are generally excluded. Urba poulaion t o toal)- Ratio of urban to total population; Years of schoolinig provided (first sod second levels1) - Total years of different definitions of urban ar.so may affsect comparability of data schooling; at econdary level, vocatimesal instruction may be par- among countries. rilyorcmltyexud. Age trutur feecen) -Ckilres(0-4 yers) wokio-age (15-64 years), Vocational enrollment (2 of secondary) - Vocational institutions and retired (65 years and over) as percentages of mid-year population, include technica1, industrial or other programs which opereteL ARe dependency ratio - Ratio of population under 15 and 65 sod over to independently or as departments of secondary institution.. rhses of ages 11 through 64. Adult literacy rate 12) - Literate adults (able to read and write) as Ecoomeic depnodeny ratio - Ratio of population under 15 sod 65 and over, percentage of total adult population aged 15 ye-arn sd over. to the labor force in age group of 15-64 years. Family PIacuing - acceptors (cumsulative. thou) - Cumulative nicer ofHain acceptors of birth-contrel devices under auspices of national familypesnprrom(vag)-Arge,cbrfprosptromi F l plan ing prga sinet, o incepio.d oc)-P- tge fm-s cupied convectional dwellings in urbso areas; dwellings escluds Poil penofcild -buerij( age s1ried woman) -h s Percetages of. married non-peeanoent structures and unoccupied parts. wmeno hl-ern g 1-4yaa h s it-mto eie OccuPied dwellinos without piped water (2) - occupied conventional to all married womeo, in came age group. dwellings In urban and rural atea. without inside or outaide piped Employment ~~~~~~~~~~~~~~~~~water facilities aso percentage Of all occupied dwellings. Pasplovomot ~~~~~~~~~~~~~~~~~Aces's te eectric~ity ft of all dwellings) Conventional dwellings Total labor forue (thou-andi - Econmically active prerons, including wiheetrict in livn uresa ecn fttldelosi armd forces sod unemployed but excluding housewives, students, etc.; urbth an ruralur areas.ntoftta deligsi definitions in various countries are not comparable. Rraln dwlig once oeetiit 2 optda bv o Labor force in agriculture ()-Agricultural labor force (to farming, rua dwlig Mny forestry, hunting aod fishing) as percentages of total labor force. rr1delnsmy Unemployed C2 of labor forc) - Unemployed are aw.ally defined as persons Consumption whomarned ablsod iln otk o,ot of a job, onaeegivenday, Radio receivers (perthou pop) - All typos of receivers for radio brmad- remaned ut f a ob,sod eekng wrk or a specified ninimom period casts to general Ublic -per thousand of Population; secludes not esceeding on week; may not be comparable between counstries due to unlicensed receivers in countries sod in years when registraino different definitions of unmployed and source of data, e.g., employ- raiteswsiifet aa o eetyasmyntb ompaabl mentoffce satitics saple urvys,comPulsory unemployment ieutac-e. since most countries abolished licensing. uti- ~~~~~~~~~~~~~~~~Ps.esese care (per thou cop) - Passenger cars comptise motor cars Iocam distributon- Percentage of private income (both in cash and kind) eagng less than eight persons; sexcludes ambulances, hearses sod received by richest 52., richest 202, poepest 202 and poorect 402 of nilitaryvails households. Electricitv (wh/nr per cap) - AconaI consuption of industrial, com- mercial, public and private electricity in kilmowtt hours per capita, Dictribetion of land ownership - Percentages of land owned by weslthiect generally based on production date, without allownce for losses. in 10% and poorest 102 of land -cere. grids but allowing for imports and esports of electricity. He.lth sod Nutrition ~~~~~~~~~~~Newsprint (kg/yr per cap) - Per caPita annual consumcption to kilogram P.esith sod Nutrition - ouai iie yubro reiigestimated from domestic production plus net imports of ceusprint. physicians qualified from a medical schunl at university level.  ANNEX I Page 3 of 4 pages ECONOMIC INDICATORS GROSS NATIONAL PRODUCT IN 1925 ANNUAL RATE OF GROWTH t%. constant prices) US$ Mln. 1965 - 70 1970 -74 GNP at Market Prices 2,159 100.0 3.6 3.2 Gross Domestic Investment 811 37.6 8.4 5.0 Gross National Saving 92 4.3 13.0 14.6 Current Account Balance -719. -33.3 Exports of Goods, NFS 883 40.9 1.3 3.3 Imports of Goods, NFS 1,402 64.9 8.4 -1.0 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 197] Value Added Labor Forces/ V. A. Per Worker US$ Mln. % MEn. % HU $f Agriculture 219 15.2 o.656 54.3 334 28.0 Industry 718 49.8 0.176 14.5 4,087 342.0 Services 506 35.0 0.298 24.6 1,698 142.0 Unallocated . 0.079 6.6 . _ Total/Average 1,443 100.0 T1I2- 1-00,19 100.0 GOVERNMENT FINANCE 2/ General Government - Central Government = Nln.) % of GDP 0 (KWiEMln.) % of GDP 1975 1975 1971 - 74 Current Receipts ) 462 32 28 Current Expenditure ) 532 37 24 Current Surplus ) 4:7E -5 Capital Expenditures ) 245 17 10 External Assistance (net) ) 85 6 2 MONEY. CREDIT and PRICES 1%5 1970 1971 1972 9L73 1974 1975 (Million K outstanding end Deriod) Money and Quasi Money 113.7 355.6 318.5 341.1 410.8 440.6 493.7 Bank credit to Public Sector -84.9 -169.7 18.3 148.0 199.3 79.8 31,5. Bank Credit to Private Sector 3/ 42.5 142.9 183.1 165.4 176.8 337.3 247.2 (Percentages or Index Numbers) Money and Quasi Money as % of GDP .. 28.3 27.0 26.0 25.2 24.2 General Price Index (1963 = 100) 107.9 141.9 151.11 161.1 170.8 185.1 Annual percentage changes in: General Price Index +4.9 4.6 6.7 6.4 6.o 8.4 Bank credit to Public Sector . * * 708.7 34.7 -60.0 295.0 Bank credit to Private Sector 3/ .1 +25.1 +28. -9.7 6.9 90.8 2.9 NOTE: All conversions to dollars in this table are at the average exchange rate prevailing during the period covered. 1/Total labor force; unemployed are allocated to sector of their normal occupation. "Unallocated0I consists mainly of unemployed workers seekirg their first job. 2/ Figures do not differ significantly e not ayailable from "Central Government". . not applicable 3/ Includes parastatal organizations.  ANNEX I rage 4 ot 4 pages TRADE PAYMENTS AND CAPITAL FLOWS BALANCE OF PAYMENTS MERCHANDISE EXPORTS (AVERAGE 1970-74) 1974 1975 US $ Mln % (Millions US$) Exports of Goods, NFS 1,5Q6 883 Copper 932.0 94.5 Imports of Goods, NFS 1198 402 Lead, Zinc, Cobalt 41.4 4.2 Resource Gap (deficit = -) 308 -519 All other commodities 12.6 1.3 Total 986.0 100.0 Factor Payments (net) -113 -72 Net Transfers -127 -128 Balance on Current Account 68 -719 Direct Foreign Investment ,. *. EXTERNAL DEBT. DECEMBER 31, 1975 Net MLT Borrowing (Public) Disbursements 137 339 US$ Mln. Amortization 35- -31 Subtotal 102 308 Public Debt, incl. guaranteed 947.5 Capital Grants * * Non-Guaranteed Private Debt Other Capital (net) 12 79 Total outstanding & Disbursed Other items n.e.i -173 119 Increase in Reserves (+) 9 -213 DEBT SERVICE RATIO (%) Gross Reserves (end year) 171.6 147.1 1975 Net Reserves (end year) 114.3 -98.3 Public Debt, incl. guaranteed 8.0 Non-Guaranteed Private Debt RATE OF EXCHANGE Total outstanding & Disbursed Before February 1973 USS1.00 = Kwacha 0.714 K1.00 = US$1.40 IBRD/IDA LENDING, (June 30, 1976) (Million US$): February 1973 to July 1976 US$1.00 = Kwacha 0.643 IBRD IDA Kl.CO = US$l.554 July 1976 Outstanding & Disbursed 209,2 US$1.00 = Kwacha 0.804 Undisbursed 177.7 K1.00 = US$1.244 Outstanding incl. Undisbursed 386.9 / atio of estimated Debt Service to Exports of Goods and Non-Factor Services in 1975, not available not applicable  ANNEX II Page 1 of 6 STATUS OF BANK GROUP OPERATIONS IN ZAMBIA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as at June 30, 1976) Amount (less cancellations) US$ million Loan No. Year Borrower Purpose Bank Undisbursed 10 loans fully disbursed 149.7 592 1969 Zambia Education 17.4 3.4 645 1969 Zambia Education 5.3 1.1 685 1970 Zambia Crops Farming 5.5 .7 701-1 1974 Kariba North Power Station 42.1 13.0 Bank Company 882 1973 Zambia Integrated Family 11.5 8.6 Farming 900 1973 Zambia Education 33.0 24.5 919 1973 Zambia Electricity Hydroelectric 115.0 61.4 Supply Corp. Power 1057 1974 Zambia Urban Development 20.0 18.0 1131 1975 Posts & Tele. Telecommunications 32.0 32.0 Corps. 1210 1976 Developme,at Bank Development 15.0 15.0 of Zambia Finance Co. _ Total 446.5 177.7 of wvhich has been repaid 59.6 Total now outstanding 386.9 Amounts sold 38.6 of which has been repaid 30.0 8.6 Total now held by Bank 378.3 of which is undisbursed 177.7 177.7 (Undisbursed of participations) 6.8  ANNEX II Page 2 of 6 A. STATEMENT OF IFC INVESTMENTS (as at June 30, 1976) Investment US$ million No. Year Type of Business Loan Equity Total 216 ZA 1972 Zambia Bata Shoe Shoe manufacturing 0.85 0.23 1.08 Co. Ltd. 250 ZA 1973 Zambia Bata Shoe Shoe manufacturing 1.20 - 1.20 Co. Ltd. and tannery 307 ZA 1975 Century Packages Packaging materials 0.78 0.26 1.04 Ltd. 324 ZA 1976 Development Bank Development Finance - 0.54 0.54 of Zambia Co. Total gross commitments 2.83 1.03 3.86 Less cancellations, terminations, repayments and sales 1.41 - 1.41 Total now held by IFC 1.42 1.03 2.45 Total undisbursed 0.78 0.26 1.04  ANNEX II Page 3 of 6 C. Bank Projects in Execution 1/ Loan No. 592-ZA - First Education Project: US$17.4 million loan of April 11, 1969; Effective Date: July 15, 1969; Closing Date: March 31, 1977. As a result of prolonged negotiations with the architectural con- sultants, budget reductions in 1972 due to a decline in copper prices, poor management in the early stages of project implementation, and more recently shortages of construction materials and difficulties with several major con- tractors, the project is about three years behind schedule. Remaining dif- ficulties are being overcome but it is likely that the revised March 31, 1977 Closing Date will require a further postponement of about 9 to 12 months, Latest project cost estimates indicate an increase in cost of about 8.7 per- cent, which the Borrower can manage. Educational objectives are being met, Loan No. 645-ZA - Second Education Project: US$5.3 million loan of November 30, 1969; Effective Date: May 5, 1970; Closing Date: March 31, 1978. The project is complete apart from final accounting and submis- sion of withdrawal applications for work estimated at $100,000. A savings of about US$1.0 million in the loan proceeds is expected in the equipment category, resulting basically from equipment contributions from bilateral sources, Educational objectives are being met but at a slower pace than originally envisaged, The Bank has agreed to a request by the Borrower to include additional reLated work in the project in order to utilize the expected savings. The CLosing Date of the loan has been postponed by two years. Loan No. 685-ZA - Commercial Crops Farming Project: US$5.5 million loan of June 5, 1970; Effective Date: October 15, 1970; Closing Date: December 31, 1976. The Mukonchi and Popota training establishments continue to train Assisted Tenant Farmers. Development of Mukonchi East continues satisfac- torily and by 1980 it will comprise a settlement of some 20,000 people. However, provision has not been made for a properly planned community. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution, and in particular to report any problems which are being encountered and the action being taken to remedy them, They should be read in this sense, and with the un- derstanding that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  ANNEX II Page 4 of 6 The Tobacco Board of Zambia (TBZ), the project executing agency, still has many senior vacancies. This organizational problem is aggravated by lack of coordination at senior levels and insufficient departmental control. As a consequence, disbursements are in arrears. Loan No. 701-ZA - Kariba North Project: US$82.1 million loan of July 29, 1970, as amended on August 16, 1974; Effective Date: December 16, 1974; Closing Date: December 31, 1978 The first 150-MW generating set (out of four) went into commercial operation on May 24, 1976; the other three are expected to be commissioned at intervals of three months. The project is now in the last stage of construc- tion and no serious problems are anticipated; in spite of the seven month delay in completion, there is no change in the cost estimate. The Central African Power Corporation is now fully responsible for operation of the power station. The staffing position has improved and an adequate number of ex- perienced staff is available at site to satisfactorily operate the generating sets as they are commissioned. Loan No. 882-ZA - Integrated Family Farming Project: US$11.5 million loan of February 28, 1973; Effective Date: July 26, 1973;Closing Date: June 30, 1979 The project is not progessing well, partly due to slow farmer recruitment. A review of the project's main objectives, costs and benefits is required and will be carried out by the Tobacco Board of Zambia (TBZ) prior to the next supervision. TBZ does not give enough support to the Project Manager, who is short of capable scheme managers and has poor accounting, administrative and other internal supporting services. Loan 900-ZA - Third Education Project: US$33.0 million loan of June 6, 1973: Effective Date: August 9, 1973; Closing Date: September 30, 1979 Project implementation is generally proceeding satisfactorily. Initial delays resulting from belated appointments of certain key staff are being overcome. Recruitment of technical assistance specialists in health education is still delayed but problems are expected to be resolved shortly. Difficulty is being experienced in obtaining contractors to construct numerous small facilities located in remote areas, resulting in more than anticipated costs and delay in implementation. Alternate courses of action are under study. The Borrower has decided to split the University into three separate campuses, which may require modification of the Loan Agreement. More precise information is expected from the Government on the University component which represents about 10 percent of the total project. The project is expected to be completed by the original loan Closing Date.  ANNEX II Page 5 of 6 Loan 919-ZA - Kafue 'qydroelectric Project (Stage II): US$115.0 million loan of July 16, 1973; Effective Date: January 15 1974; Closing Date: December 31, 1979 Constrution of the main dam is proceeding on schedule; 60 percent of the rockfill has been placed and the storage target for this year has been accomplished. Current expectations are that the project will be completed on schedule and within the appraisal cost estimate. Over the past two years, the Zambia Electricity Supply Corporation has made considerable progress in improving its financial management but its financial performance has not been satisfactory. However, performance is expected to improve considerably from FY77 with the implemaentation of a new financial framework for the sector that has been substantia:Lly agreed to by all parties, including the Central African Power Corporation. The one remaining issue to be settled is the tariff for short-term Zambian electricity exports. Loan No. 1057-ZA - Lusaka Squatter Upgrading and Site and Services Project: US$20..O million loan of December 6, 1974; Effective Date: April 1, 1975; Closing Date: December 31, 1979 Project executi:on is now proceeding satisfactorily after initial delays caused by postponement of loan signing and the Implementation Unit's unfamiliarity with Bank procurement procedures. Upgrading of the first major squatter settlement: should be completed in late 1976. Some site and services plots should be ready for allocation later in 1976 with all of them being serviced by mid-1977. All squatter areas should be upgraded by mid- 1978. Loan No. 1131-ZA - Telecommunications Project: US$32 million loan of June 24, 1975; Effective Date: December 10, 1975; Closing Date: December 31, 1980 Project procurement and execution is approximately one year behind schedule but no major problems exist. An increase in telecommunication tariffs has been approved by Government, delays in billing have been eliminated and arrears substantially reduced. Implementation of the financial/management consultants report is proceeding satisfactorily. Implementation oE the initial capitalization of the newly formed Posts and Telecommunications Corporation, however, still remains to be completed. Loan No. 1210-ZA - Development Bank of Zambia: US$15.0 million loan of February 18, 1976; Effective Date: April 23, 1976; Closing Date: March 31, 1980 The loan has recently been declared effective. No projects have yet been submitted for approval.  ANNEX II Page 6 of 6 D. IFC Projects in Execution 1/ Zambia Bata Shoe Company Ltd. - 216 ZA and 250 ZA - Shoes and Tannery Both the shoe project and the tannery project financed by IFC were completed in 1974. The Company continues to perform well. Net profits after taxes for 1975 were slightly higher than projected in the 1973 Board Report. Century Packages Ltd. - 307 ZA - Packaging Materials The Company has now placed orders for the equipment and called for tenders for the civil works. Development Bank of Zambia - 324 ZA - Development Finance Company The IFC equity investment, approved in February 1976, was disbursed in June 1976. 1/ These notes are designed to inform the Board of Directors on the status of the existing projects and to report upon problems including those relating to undisbursed investments, which are being encountered and of the actions being taken to remedy such problems. These notes are not comprehensive in terms of factual content nor are they intended to present a balanced evaluation of each investment.  ANNEX III Page 1 of 2 ZAMBIA - PROGRAM LOAN Loan Summary Borrower: Republic of Zambia Amount: US$30 million, equivalent Terms: 8.90 percent interest, repayable in 17 years, including 3 1/2 years of grace. Program Description: The proposed loan would provide foreign exchange for imports of essential capital and Lntermediate goods, raw materials and spare parts for agriculture, mining and manufacturing in the public and private sectors. Procurement Arrangements: Imports by the private sector would be subject to normal commercial practices. Public sector organizations follow procurement procedures of the Central Tender Board which requires advertise- ment with at least 8 weeks' notice in the Govern- ment Gazette and in trade papers. Almost all countries containing prospective suppliers are represented by missions in Zambia. Bids are evaluated according to prescribed procedures and contracts awarded to the lowest bidder. Disbursement Arrangements: The Borrower would be reimbursed for the foreign exchange expenditure on eligible imports on the basis of evidence to be submitted to the Bank periodically. No disbursements would be made for food, fuel, fertilizers and consumer goods or for imports for which other sources of foreign financing have been secured. Individual import expenditures of less than $5,000 would not be eligible for reimbursement.  ANNEX III Page 2 of 2 Counterpart Funds: The Ministry of Finance would establish a special project account to which the kwacha equivalent of the imports financed would be credited. The Government would transfer funds from the project account periodically to cover expenditures under specified categories of the 1976 Capital Budget and under specified categories of the Supplemen- tary 1976 Recurrent and Capital Budget for the Ministry of Rural Development and provincial cabinet offices. The Government will report to the Bank periodically on the use made of project account funds. The use of counterpart funds would be limited to those expenditures which are not otherwise financed by external sources.  APP'ENDIX Table 1: (GOVERNMENT INVESTMENT PROGRAM, /1 1972-76 (K million) 1972 1973 1974 1975 1976 (Est.) (Est.) Social Services 37.5 38.1 42.6 67.5 40.0 Education 19.1 22.1 21.7 28.3 19.8 Health 6.7 3.8 4.2 9.6 7.5 Local Authorities /2 11.6 12.1 16.6 28.4 12.1 Others 0.1 0.1 0.1 1.2 0.6 Economic Services 118.2 104.7 120.4 194.0 106.5 Rural Development 42.9 26.0 18.1 34.1 16.4 (Ministry of Rural Development) (8.6) (9.4) (10.2) (14.7) (11.1) Land, Mining, Natural Resources 4.0 3.6 4.7 9..0 5.7 Transport, Communications, Power, Works 69.7 72.5 80.9 142.9 83.7 Trade and Industry 1.6 2.6 16.7 8.0 0.7 General Services 4.7 10.4 8.2 23.0 10.1 Total 160.4 153.2 171.2 284.5 /3 156.6 /1 Includes government direct capital expenditures and gross lending to local authorities and parastatals. /2 Includes investment in low-cost housing, sites and services, and municipal water and sewerage schemes. /3 Preliminary actuals are K 248 million, the sectoral breakdown of which is not available. Source: Ministry of Finance (Sector allocations are Mission estimates).  APPENDIX Table 2: GOVERNMENT FINANCE, 1974-76 (K million) 1974 1975 1976 (Act.) (Pre. Act.) (Budget) (Est.) Revenue 651 462 438 467 Mineral (339) (59) (5) (5) Others (312) (403) (433) (462) Recurrent Expenditure -404 -532 -472 -472 of which subsidies (-47) (-83) (-51) (-51) Direct Development Expenditure -113 -144 -111 -114 Net Lending -50 -101 -43 -43 Overall Balance 84 -315 -188 -162 Domestic Borrowing from the Public 5 18 14 14 Domestic Borrowing from Banking System -127 212 111 75 Foreign Borrowing 37 85 63 73 Source: Ministry of Finance, Bank of Zambia and Mission estimates.  APPENDIX Table 3: BALANCE OF PAYMENTS, 1974-76 (US$ million) 1976 1974 1975 (Mission (Act.) (Prel.) Proj.) Exports, Goods & NFS 1,506 883 950 of which: Copper (1,303) (726) (780) Imports, Goods & NFS -1,198 -1,402 1,020 Net Factor Services and Transfers -240 -200 -240 Current Account Balance +68 -719 -310 Debt Repayment -35 -31 -126 /1 Other Net Capital Flows /2 -173 119 /3 - Change in Reserves (+ = decrease) -9 213 55 of which: IMF, net (22) (55) Financial Assistance, gross 149 418 381 Disbursements from Loans Committed by end 1975 /4 137 339 269 Suppliers Credits (2) (48) (41) Financial Institutions - (153) (31) Official Assistance (135) (138) (197) of which: IBRD [50] [501 [57] Others: 12 79 18 UK Grant - - (10) EEC Grant - - (8) Remaining Gap - - 94 /1 Including repayments of arrears estimated at $76 million. /2 Including errors and omissions and other unrecorded flows. /3 Including an accumulation of payments in arrears estimated at $156 million. /4 According to Debt Reporting System. Source: Bank of Zambia, mission estimates.  APPENDIX Table 4: PROSPECTS FOR THE BALANCE OF PAYMENTS (US$ million) 1975 1976 1980 1985 (Pre.) Exports, Goods and NFS /1 883 950 2,235 3,900 Imports, Goods and NFS -1,402 -1,020 -1,965 -3,360 Net Factor Services and Transfers -200 -240 -305 -390 Current Account Balance -719 -310 35 +150 Net Capital Inflow 506 255 120 -14 Change in Reserves (+ = decrease) 213 55 -85 -136 Memo Items Debt Service Ratio 8 18 /2 15 12 Share of iBRD in: Debt Outstanding & Disbursed 19 20 25 32 Debt Service 22 10 14 18 /1 Export projections based on IBRD copper price forecast. /2 Includes payment of the $76 million in arrears outstanding at the end of 1975. Source: Mission estimates.  F-OURTH EDUCATION PROJECT ,, 34 . 9 > i; ; . . i Provin6nul boundaries- U '