Document of 01 The World Bank V FOR OFFICIAL USE ONLY Report No. P-2512-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A ROAD MAINTENANCE PROJECT April 18, 1979 This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authoriation. CURRENCY EQUIVALENTS US$1 = Rs 15.8 Rs 1 US$0.063 Rs 1 million US$63,290 PRINCIPAL ABBREVIATIONS AND ACRONYMS USED DME - Department of Machinery and Equipment DOH - Department of Highvays RTB - Regional Transport Board SDCC - State Development and Construction Corporation SLCTB - Sri Lanka Central Transport Board FISCAL YEAR January 1 - December 31 FOR OFFICIAL USE ONLY SRI LANKA ROAD MAINTENANCE PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Amount: US$16.5 million equivalent. Terms: Standard. Project Description: The project aims to improve the highway system of Sri Lanka by a program of enhanced routine and periodic maintenance, thereby reducing transport costs. The project would provide for rehabilitation and limited improvement of 112 miles of road; resealing or resur- facing of about 150 additional miles; strengthening, repair or replacement of 30 bridges and procurement of road maintenance and workshop equipment. The project would also strengthen the road maintenance services of the Department of Highways and lay the foundation for improved routine and periodic maintenance. Estimated Cost: US$ Million Equivalent Local Foreign Total Component 1. Equipment and Tools 0.35 4.69 5.04 2. Materials 0.62 1.39 2.01 3. Spares and Supplies 0.04 0.60 0.64 4. Local Staff 3.85 - 3.85 5. Technical Assistance 0.11 1.04 1.15 6. Contract (Civil) Work 3.28 3.23 6.51 Sub Total 8.25 10.95 19.20 Physical Contingency 0.81 0.87 1.68 Price Contingency 2.53 1.59 4.12 Subtotal 11.59 13.41 25.00 Taxes and Duties 3.75 - 3.75 Grand Total 15.34 13.41 28.75 1 This document has a restricted distribution and may be used by recipients only in the performance of their official dutis. Its contents may not otherwise be disclosed without World Bank authorization. Financing Plan: US$ Million Equivalent Local Foreign Total IDA 3.09 13.41 16.50 Government 12.25 - 12.25 Estimated Disbursement: US$ Million Equivalent IDA FY 1980 1981 1982 1983 1984 Annual 1.0 4.6 4.4 4.5 2.0 Cumulative 1.0 5.6 10.0 14.5 16.5 Economic Rate of Return: 36% Staff Appraisal Report: No. 2334-CE dated March 30, 1979. INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A ROAD MAINTENANCE PROJECT 1. I submit the following report and recommendation on a proposed development credit to the Democratic Socialist Republic of Sri Lanka for the equivalent of US$16.5 million on standard IDA terms to help finance a Road Maintenance Project. PART I - THE ECONOMY 1/ 2. The latest economic report, "Development in Sri Lanka: Issues and Prospects" (Report No. 1937-CE, March 22, 1978) was distributed to the Execu- tive Directors on March 23, 1978. Country Data are provided in Annex I. 3. Sri Lanka has achieved social progress far beyond that of other countries with comparably low per capita incomes. Literacy, health, and life expectancy are high; nutrition is adequate, and mortality and population growth rates have been declining. These impressive gains have been achieved despite generally low output and employment growth. Per capita GDP growth was only 0.9% per annum in the 1948-60 period; it accelerated to 2.1% in the 1960s and then declined to 1.3% per annum in the 1970s. Throughout the 1960s and through much of the 1970s, these modest output gains were eroded by adverse terms of trade trends. This disappointing performance has been accompanied by a disturbing increase in the level of open unemployment. In the 1970s, while the labor force has been growing at about 125,000 per year, employment has been rising by about 85,000, much of it in the form of unpro- ductive jobs. The number of unemployed has, therefore, been rising, and open unemployment is estimated at over one million or 20% of the labor force. 4. The gains in the social field were made possible by favorable ini- tial conditions. Compulsory primary education was introduced as early as 1901. The food ration was introduced in 1942. Thus, at the time of Independence in 1948, Sri Lanka already enjoyed high levels of adult literacy and life expectancy. These initial gains were consolidated and expanded in the post- Independence period through large expenditures on social services and the food subsidy, which accounted for two-fifths to one-half of government revenues in the 1960s and 1970s. These expenditures have been financed by harnessing the surpluses of Sri Lanka's three major tree crops (tea, rubber, and coconut), which provided the Government with both an easy revenue source and foreign exchange earnings. 1/ This part is the same as Part I under the Kurunegala Rural Development Project (Report No. P-2492-CE). - 2 - 5. There were both measurable and non-measurable socio-economic benefits flowing from these improvements in health, nutrition, and education, such as the decline in fertility and the relatively low rate of urbanization. At the same time, there were significant costs arising from the firm commitment of successive governments to maintain these social gains. The fiscal burden of these expenditures imposed a high degree of inflexibility on Sri Lanka's policymakers in their attempts to accelerate long-term growth. That inflex- ibility increased over time as growth slowed down and in particular, the ability of the tree crop subsector to provide the resources for the social programs weakened as commodity prices kept falling and productivity suffered due to inadequate incentives. Moreover, the gains in education had a nega- tive impact in the form of large numbers of educated unemployed who posed a challenge to the established political order. With political parties com- peting with each other to offer inducements to the electorate, governments have failed to focus social expenditure programs more narrowly on specific groups living in poverty, making these unnecessarily costly. 6. In the 1960-77 period, gross domestic product at constant prices rose by 3.8% per annum. This performance masks a marked deceleration in the growth of the productive sectors of the economy between the 1960s and the 1970s. GDP growth slowed down from 4.4% per annum in the 1960s to 3.0% in the 1970-77 period. Growth fell from 3.4% to 1.9% in agriculture; from 6.2% to 2.3% in manufacturing. 7. The key to the slowdown in GDP growth lies largely in the slow growth of agriculture, which accounts for over one-third of GDP and four- fifths of export earnings. Tea and coconut output has been declining steadily from the mid 1960s; rubber, after showing a rapid increase in the 1960s, stagnated in the 1970s. Erratic weather conditions, declining commodity prices, a rising effective tax burden, and low producer returns combined with the uncertainties caused by a long, drawn-out land reform (1972-75) depressed producer incentives and, hence investment and production, to new lows. These problems were aggravated by a dual exchange rate, introduced in 1968, which discriminated against traditional exports and in favor of food imports. 8. Paddy production, which grew at 7.4% per annum in the 1964-70 period, and at 4% during the 1960s as a whole slowed down to 0.7% per annum in the 1970-77 period. The decline in yields and cropping intensities is attributable principally to a sharp deterioration in the institutional sup- port for production programs. The only bright spot on the agricultural scene has been the rapid increase in output of subsidiary food crops in the 1970s. This represents gains in acreage rather than yields and is in response to the improved incentives arising from a 1970 ban on imports of these crops. 9. Manufacturing output in the 1970s also decelerated due to the cumu- lative impact of declining investment levels, severe foreign exchange short- ages that necessitated import rationing (with serious consequences for a - 3 - sector in which imported raw materials account for 70% of the value of raw materials used), the exhaustion of import substitution possibilities, and inefficiencies in management of the public sector, which now accounts for 66% of the gross value of production in organized industry. 10. In general, economic growth was constrained by a persistent foreign exchange shortage throughout the 1960s and 1970s, inadequate levels of saving and investment, and the low efficiency of resource use. Sri Lanka's terms of trade have deteriorated steadily since the early 1960s and worsened sharply in the mid 1970s following increases in the price of imported food, fertilizer, and petroleum. The share of these three items in Sri Lanka's total imports jumped from about 50% in 1972 to 70% in 1975. This sharp increase has, to some extent, offset the improvement in export prices (particularly of tea) since 1973. Trade policies that discriminated against exports and encouraged import substitution caused a slow growth in exports of 2.5% per annum between 1960 and 1976, which acted as a significant constraint on growth for an econ- omy in which exports accounted for 30% of GDP in 1960, and, at 22%, are still substantial today. 11. The share of consumption in GDP has remained relatively stable and high (at 86%) over the last decade and a half. Domestic savings, when adjusted for the dual exchange rate, fell from 11.5% of GDP in 1966-70 to 9% in 1971-76. This deterioration in savings performance is largely explained by a decline in public savings. Public savings averaged a mere 1% of GDP in the 1960s, shrinking rapidly in the 1970s, and eventually becoming negative. This poor performance is attributable to the large and growing burden of sub- sidies and transfers, which worsened in the 1970s because of the increasing disparity between import costs and officially determined prices. Private savings were adversely affected in the 1970s by political uncertainties, a confiscatory tax burden, and falling real interest rates. 12. Gross investment has averaged 16% of GDP at current market prices in the 1960-76 period. In real terms, investment has been declining, and there has been persistent failure throughout this period to raise the level of public investment (around 6-7% of GDP), while private investment in produc- tive activities was, on the whole, given little encouragement. The efficiency of investment has also been rather low due to both neglect of some key sectors and a failure to exploit the full potential of past investments. Much of the investment in agriculture was directed to paddy; but the tree crop subsector was neglected, resulting in an erosion of the latter's production base. In the manufacturing sector, capital-intensive import substitution was pursued to the neglect of labor-intensive export-oriented production. Utilization of the potential already established has been uniformly low. This has been reflected in low cropping intensities and yields in the agricultural sector, and low-capacity utilization in manufacturing. 13. In the elections of July 1977, the eighth since Independence, the United National Party won a large majority. In the relatively short period - 4 - that it has been in office, it has embarked on a major reform of political institutions and economic policies. A new constitution has been enacted introducing a presidential form of government. Proportional representation has replaced the first-past-the-post voting system. A new District Minis- terial system has been established and District Ministers have been appointed to each of the 24 districts in Sri Lanka to help increase local level partici- pation in district planning and administration, and improve implementation of development programs. District Ministers are appointed by the President from Members of the Parliament and function as ex officio Deputy Ministers to all development-oriented ministries for development programs in their respective districts. The District Minister presides over a Development Council com- prising Members of Parliament from the electorates in the district and others nominated to the Council. The Secretary to the District Minister is also the Government Agent for the District. The development councils are entrusted with the tasks of planning, coordination, implementation and evaluation of district programs and allocation of the district's share of funds from the decentralized budget. 14. The policy changes introduced by the new government are designed to address the economic problems described in paras 3-12 above. The Govern- ment identified its objectives as the revival and resuscitation of the economy and increased employment through (i) increased capacity utilization in the productive sectors, (ii) stimulation of savings and investment, and (iii) efforts to encourage exports and import substitution in foodgrains. A program of policy reforms has been developed in close consultation with the IMF. Its principal aim is to dismantle controls over resource allocations and initiate price adjustments with a view to establishing more realistic relative prices. These reforms were supported initially by an IMF standby arrangement covering 1978 for SDR 93 million. On January 26, 1979, the Fund's Executive Board approved an SDR 260 million Extended Arrangement covering the 1979-81 period. 15. The policy reforms introduced so far include: Exchange Rate Reform: The exchange rate was unified on November 16, 1977, and allowed to float at a depreciated rate of Rs 16 = US$1.00. This implied a depreciation of 46% against the official rate prevailing prior to unifica- tion, 11.2% with respect to the Foreign Exchange Entitlement Certificate rate, and 29.5% with respect to a transactions-weighted average rate of the two markets. 1/ Import Liberalization: The trade and payments regime has been liberalized. With the exception of foodgrains and petroleum products, public sector import monopolies have been terminated. Prior licensing of imports has been abol- ished for all but a handful of commodities. The tariff structure has been revised and simplified. 1/ Prior to unification, all exports other than tea, rubber and coconut products and all imports other than food, fertilizers and drugs were channelled through the certificate market. Since November 1972, the FEEC rate was maintained at a 65% premium over the official rate. Interest Rate Reform: To encourage financial savings and discourage speculative imports, interest rates have been raised sharply. Price Controls. These have ended for most commodities. Budgetary Policies: The unification and depreciation of the exchange rate caused tree crops export tax revenues and the cost of food, fertilizer and petroleum subsidies to rise sharply. Export tax rates on tree crops were raised further to mop up windfall profits while attempting to leave adequate producer margins. Business Turnover Tax rates have been substantially lowered and rationalized to be consistent with the new import tariff and exchange rate. To limit the growth in food subsidies, the rice and sugar rations were confined to the poorer half of the population and the subsidy on imported wheat flour was reduced through adjustments in the domestic price. To offset the adverse impact of these changes, public sector wages have been adjusted upwards on two occasions, and an income supplement has been introduced at Rs 50 per month to benefit the poorest households in which one or more persons has no gainful employment. Public corporations have been asked to pass on cost increases, except in the case of fertilizer, petroleum, milk, and public transport, where price increases were initially deferred to cushion the impact on consumers. The Government has subsequently made some adjustments in bus fares, petroleum, and fertilizer prices. These changes, taken together, have enabled an increase in public savings and contributed, together with higher aid receipts, to a sizable step up in capital expenditures. Tax Reform: The tax structure has been rationalized and simplified with a view to increasing the elasticity of revenues. The burden of personal and company taxation has been lowered. Agricultural Pricing Policies: The domestic procurement price for rice has been increased by 21%. With the related increase in flour prices, incentives for paddy and other flour substitutes have been improved. Fresh coconut prices have recently been increased by 30% and the export duty on coconut products has been appropriately adjusted. The unification of the exchange rate also ends discrimination against tree crops; however, the increase in export taxes takes away a substantial part of these gains. These reforms constitute only a beginning, and the Government anticipates the need for further price adjustments designed to reduce the continuing large burden of subsidies and current transfers (currently at over one-third of govern- ment revenues). 16. The economy's response to the policy reforms has been encouraging. Real gross national product in 1978 is estimated to have increased by 5.7%. The improved availabilities of inputs following import liberalization, an increased role for the private sector in distribution, and good weather helped attain a record paddy harvest. Industries, other than tree crop processing, benefited from the removal of price controls and increased access to imported raw materials and spare parts. Output of manufacturing industries is estimated to have risen by 9%, and electricity consumption by 13%, in 1978. After an initial slow start, private investment has also responded well to the reforms. This is partly reflected in the near threefold increase in capital goods - 6 - imports from US$83 million in 1977 to an estimated US$225 million in 1978. Transport operators, in particular, have rushed to modernize their antiquated fleets, resulting in sizable imports of transport equipment. Others have taken advantage of accelerated depreciation provisions to replace worn out machinery and equipment. Applications for new investments have been encourag- ing. Public investment has also shown a major increase in 1978. 17. Despite the ending of price controls, policy induced price increases, and related wage increases, inflation in 1978 is estimated at 15%. Money supply growth has slackened, and the budget has had a contractionary effect due to under-expenditure on capital account. Interest rate reform has ensured positive real interest rates, contributing to a shift in asset preferences and easing the task of managing the balance of payments. 18. With import liberalization, merchandise imports in 1978 rose by 39% to US$984 million. Merchandise exports rose by 13% to US$847 million. Thus, the current account deficit swung from a surplus of US$77 million in 1977 to a deficit of US$105 million in 1978. However, since aid disbursements also rose sharply, net foreign exchange reserves rose by US$94 million in 1978. Gross foreign exchange reserves rose to US$397 million, or 4.5 months of imports. Thus, despite import liberalization, Sri Lanka's balance of payments remained well in control. The exchange rate averaged Rs 15.60 = US$1.00 dur- ing 1978, appreciating modestly against the dollar and depreciating against the SDR. 19. While the overall performance of the economy has been good, there remained several underlying weaknesses, particularly the inadequacy of incen- tives and the poor quality of management of the tea estates, severe managerial problems in the State industrial corporations, shortages of skilled manpower and inadequate construction capability. The Government is aware of these weaknesses, and technical and financial assistance programs are in the pro- cess of being developed to address some of these problems. 20. The economic reforms have been accompanied by a major effort at stepping up public investment. In this context, the Government attaches the highest priority to three major new programs: (i) Accelerated implementation of the Mahaweli Ganga Development Program involving telescoping construction of key remaining works of the 30-year Master Plan for Sri Lanka's largest river into a 7-10 year period. (Three major reservoir projects are to be launched with international assistance in 1979 and 1980 at a cost of over US$1,000 million (in 1978 prices), to be spread over eight to ten years. When completed, these projects will irrigate 215,000 hectares of new and existing land in the dry zone and generate 390 MW of power.) (ii) A 200 square-mile free trade zone north of Colombo, under a newly constituted Greater Colombo Economic Commission. (The first Investment Promotion Zone near Colombo's international airport, Katunayake, is off to a good start, and some 50 proposals involving a total investment of US$100 million have been approved by end-December, 1978.) (iii) A housing and urban renewal program with its main focus on the Colombo metropolitan region. 21. Recognizing the enormous financial and manpower burden of these schemes, the Government has, in consultation with the Bank, begun preparation of a medium-term public investment program which will attempt to ensure - 7 - consistency between the multiple objectives of Government policy and the financial, administrative and manpower resources available for attaining those objectives. An initial outline of the program, incorporating the capital bud- get for 1979, is to be presented to the May/June 1979 Aid Group meeting. The program itself is to be completed in late 1979. It is seen as a rolling pro- gram, emphasizing the annual capital budget and making such adjustments in objectives and content as are deemed necessary by short-term developments and opportunities that present themselves. 22. The Government has identified three major policy objectives in the medium term: (i) the creation of over one million new jobs between 1979 and 1983 to absorb the 630,000 expected additions to the labor force and make a significant dent in the backlog of the unemployed; (ii) acceleration of eco- nomic growth to 5.5% per annum; and (iii) structural improvement in the bal- ance of payments through reduced dependence on tree crop exports and import substitution in food. The program envisages a total public investment of Rs 46 billion over the 1979-83 period ($2,900 million), some 60% of total (gross) investment. Investment is expected to average 24.5% of GNP in the 1979-83 period, as against 16% in the 1971-76 period. To enable this increase to materialize, domestic savings are expected to average about 14% of GNP, a substantial improvement over the 9% recorded in the 1971-76 period. The program, however, relies heavily on a substantial increase in net external inflows, which are estimated to average 11% of GNP throughout the period, as against an average of 2.3% in the 1970-76 period. These external flows will finance over two-thirds of the public investment program. 23. The underlying public investment strategy is to balance the large investment requirements of the Government's high priority program against the urgent rehabilitation and fresh investment needs in other sectors. The main thrust of the public sector program is to lay the foundation for longer term development, both by improving the efficiency of use of existing infrastruc- ture investments and by expanding the longer term growth capacity of the economy. The strategy thus implicitly relies on the private sector to respond to the economic reforms and the stimulus of the public sector investment pro- gram, and provide much of the short-term growth. 24. The success the Government enjoys in attaining its medium-term development objectives is dependent on the further reforms needed to improve price and export incentives, and management in the public sector. It is also dependent on additional efforts to mobilize domestic resources and address absorptive capacity constraints such as manpower shortages and planning and implementation capability. However, success is ultimately contingent on a well-designed program of external financial and technical assistance. This is particularly because the proposed increase in investment, together with the new import liberalization policy will cause imports to grow much more rapidly than in the past. Moreover, Sri Lanka's terms of trade are expected to worsen over the medium term, due in the main to an expected decline in real tea unit values, and an increase in foodgrain import costs. Thus larger aid flows are needed to ensure that an ambitious development program, with a strong rehabilitation component, can be implemented within the framework of - 8 - a liberalized import regime. Such assistance will also help finance about two-thirds of the public investment program. In this context, local cost financing will be needed to support this effort, particularly in the early years, as domestic resource mobilization efforts begin to gather momentum. 25. Aid donors have responded enthusiastically to the new policy envi- ronment in Sri Lanka. Aid commitments in 1978 from members of the Sri Lanka Aid Group totalled $400 million, an increase of 64% over 1977. At the 14th Meeting, donors also expressed strong support for the accelerated Mahaweli Program. The grant element of aid commitments is currently around 65% and is expected to improve further. The debt service ratio in 1978 stood at 10.3%, declining from 15.0% in 1977, due to improved export earnings and the decline in outstanding short- and medium-term borrowings. The ratio is expected to drop further to 9.4% in 1979. PART II - BANK GROUP OPERATIONS IN SRI LANKA 26. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has made eight loans totalling US$73.4 million (net of cancellations) and sixteen credits totalling US$167.2 million (net of cancellations and exchange adjustments) in support of 22 projects. About 52% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 26% for power, and the remainder for Development Finance Company operations, highways, a program credit (mainly involving the import of raw materials for industry), and water supply. Seven loans and five credits (including cancellations) have been disbursed so far. During FY78, IDA credits for a total of US$33.5 million were approved for a Tree Crop Rehabilitation (Tea) Project, a Tree Crop Diversification (Tea) Project and a credit line to DFCC. An IDA credit in the amount of US$20.0 million for a Rural Development Project has been approved in FY79. Annex II contains a summary statement of Bank Group operations as of February 28, 1979, together with notes on the execution of ongoing projects. 27. An IFC equity investment of about US$100,000 equivalent in DFCC and an IFC non-revolving line of credit of US$2.0 million to the government-owned Bank of Ceylon for on-lending to private small- and medium-scale industrial enterprises were also approved in FY78. An investment of US$3.25 million to the Pearl Textile Mills, Ltd. (Ceylon) was approved by IFC's Board of Directors in 1970, but cancelled the same year because Government approval for the project was withdrawn. IFC has also recently approved an investment of US$3.32 million in a synthetic textile mill, and US$986,000 in a polypro- pylene bag manufacturing plant. 28. The Bank Group's current strategy is focused on the agricultural sector to support Government efforts to increase food production and reduce its dependence on food imports, and to raise productivity, employment, in- comes and living standards of the rural population in Sri Lanka. Projects to support industry and basic infrastructure are also included. The Bank Group - 9 - has agreed to assist the Government of Sri Lanka to accelerate the development of the Mahaweli Ganga development areas by helping to develop an implementation strategy and to coordinate external assistance for project preparation and implementation. It is expected that significant investment opportunities for IDA and other sources of external aid will be associated with this effort. Appraisal has been largely completed for a small- and medium-scale industry project. Projects in other fields, including agricultural extension and adap- tive research, water supply and sewerage, tree crop rehabilitation (rubber), road transport, and telecommunication are also being prepared for possible IDA financing. 29. The Bank Group presently accounts for 10.2% (IBRD 3.3%; IDA, 6.9%) of Sri Lanka's total debt outstanding and disbursed, and 6.5% (almost totally Bank) of debt service. It is projected that the Bank Group's share in total external debt will increase to 16% by 1985 (with the Bank's share declining to 0.7%). The Bank and IDA shares in the debt service are expected to decline to about 4.5% by 1985. PART III - THE TRANSPORT SECTOR 30. The small size of Sri Lanka, coupled with the concentration of the population in the southwest corner of the country, generates large short- distance transport demand. This demand centers around: (a) distribution of imported agricultural inputs and other goods from Colombo port; (b) collection and transportation to Colombo of tree crop production; (c) distribution of goods from surplus areas; and (d) transportation of industrial goods. There is also extensive passenger travel throughout the island. The short distance of most transport as well as the rugged topography of the center of the island make the island well-suited to road transport. 31. Between 1972 and 1977 transport demand grew slowly. Freight traffic grew at only 3.6% while port and passenger traffic remained stagnant. However, with the recent acceleration of development efforts and the liberalization of economic controls, demand is expected to increase sharply. Road and rail transport are currently operating at full capacity. Some of the infrastruc- ture and most of the transport stock is run-down and in need of rehabilitation. There is also significant scope for increasing operating efficiency throughout the sector, especially in the road and road transport subsectors. Transport System 32. The transport system of Sri Lanka comprises about 25,000 miles of road of all types, about 950 route-miles of railways; one main and two minor ports, and seven airports of which one handles international traffic. The inland transport services are provided by the Ceylon Government Railways, the Sri Lanka Central Transport Board, and nine Regional Transport Boards, - 10 - which are public corporations having a monopoly for the operation of road passenger services, and by a number of private road freight operators. Other modes of transport--air, coastal shipping, and pipeline are relatively minor. Road transport is the most important mode in the country; it carried 85% of total passenger-miles and 79% of total freight ton-miles in 1977. 33. Road transport is favored as compared to rail transport because: (a) most traffic hauls are short; (b) the heavy gradients and sharp curves on rail result in low operating speeds; (c) nearly every section of the rail- way is paralleled by a road and, despite present poor conditions, road trans- port is generally quicker; and (d) the absence of any large volume of bulky, easily loadable traffic makes overheads per ton-mile higher by rail. 34. The freight transport industry is unregulated and consists mainly of small private operators. Because of severe import restrictions in the past, the present trucks are on average very old. However, trucks can now be imported freely and truck imports are increasing substantially as a result. 35. The Ceylon Transport Board (CTB) was established in 1958 as a public corporation for road passenger services. It was reorganized in June 1978 into the Sri Lanka Central Transport Board (SLCTB) along with nine Regional Trans- port Boards (RTB). The SLCTB has control over procurement, production of bus components, bus assembly, the fare structure and operational matters affecting more than two RTBs. The RTBs are responsible for the day-to-day operation of bus services. The SLCTB and RTBs are responsible to the Ministry of Transport. The RTBs have a fleet of about 7,300 buses as of August 1978, of which over one-third are more than ten years old. In general, operation is efficient. In 1977, about 1.5 billion passengers were carried for 9.5 billion passenger- miles. Passenger-miles increased by over 9% annually during 1963-1973. However, in 1974, following the rise in the price of fuel, a five-day work week was adopted and bus fares were raised substantially. As a result, passenger-miles dropped substantially. Since then, passenger-miles in total have been increasing at about 6% per annum. The CTB had an operating surplus in 1963, but its financial situation deteriorated in later years, and in 1970 revenues were not adequate to cover working expenses. The small fare sur- charge in 1971 and a substantial fare increase, effective February 1974, resulted in an improvement. In 1974 and 1975, there was a small operating surplus. Since 1976, the CTB has been around break-even position. Following a 12% fare increase in July 1978, there is expected to be a small surplus for that year, which will not continue unless fares are again raised or operating expenses reduced. The Government is currently preparing a road transport project to assist SLCTB to improve its operations and financial position. 36. The railways are operated by Ceylon Government Railways as a govern- ment department within the Ministry of Transport. The system comprises 866 miles of broad gauge and 87 miles of narrow gauge lines. The condition of the infrastructure is generally reasonable, although there is a substantial backlog of track renewals. The railway is mostly diesel-powered but the availability of locomotives has been poor, due particularly to the lack of - 11 - spare parts. The rolling stock is old and availability is low. The main workshops at Ratmalana suffer from low productivity due mainly to inadequate change-over from steam to diesel locomotive repairs, poor processing of work, and deficient material supply. Railway traffic in 1977 amounted to 66 million passengers and 1.8 million tons of freight. Total annual rail freight traffic has virtually stagnated and is declining in terms of ton-miles. Passenger traffic has been stagnant, particularly since 1974. More than one-third of the passenger-miles are accounted for by season ticket traffic, mostly within the Colombo area. The railways probably have a significant role to play in the Colombo area for passengers and transport of limited bulk commodities. The Government is currently reviewing the situation with technical assistance from the Canadian International Development Agency. 37. There are three ports for deep sea vessels: Colombo (on the south- west coast) which handles more than 90% of total tonnage, Galle (about 75 miles south of Colombo), and Trincomalee (on the northeast coast) which handle the balance. All the ports are administered by the Ministry of Trade and Shipping through the Colombo Port Commission, while all cargo handling is dealt with by the Port (Cargo) Corporation. Port traffic was 2.4 million tons in 1976, but increased to 3 million tons in 1977 due mainly to increased imports. The indications of the first few months of 1978 are that the tonnage is continu- ing to rise due to a higher level of economic activity. There is still ample port capacity and more traffic could be handled if necessary. However, there is a need to improve port infrastructure and the Japanese Government is now undertaking a study for the rehabilitation and improvement of the three ports. 38. The state-owned Ceylon Shipping Corporation was set up in 1971 with only one freighter (14,600 DWT). It now has eight cargo vessels with a total dead weight tonnage of about 116,000. The Corporation's major route is between Sri Lanka and the UK and other European Countries. In 1977, the Corporation carried 47% of the total export cargo, 77% of import cargo from the UK and nearly 33% from other European countries. The Government established the Central Freight Bureau in 1973 to (a) allocate all export freight space on ocean-going vessels, (b) ensure economic loads, (c) rationalize the sailing schedule of vessels, and (d) obtain favorable freight rates for export car- goes. Due to the streamlining of export cargo handling in this manner, the Government estimates that significant foreign exchange savings have been achieved. Transport Policy and Planning 39. Road planning and construction are the responsibility of the Department of Highways in the Ministry of Power and Highways. The Ministry of Transport is responsible for the railways and road transport, the Ministry of Trade and Shipping for ports and shipping, and the Ministry of Defense for civil aviation. The Ministry of Finance and Planning could coordinate transport investments and policy, but it does not have the staff for this purpose. - 12 - 40. Planning has, in practice, meant putting together the programs and proposals of different agencies with only limited coordination. Consideration of alternatives and economic analyses are rare. In particular, the problem of road-rail alternatives and definition of the future role of the railways have to be tackled. There has also been a tendency to spread limited funds thinly over various modes and various works in a particular mode of trans- port. It is desirable that the Government determines a strategy and selects investment priorities to stem further deterioration in the transport capacity and to provide sufficient transport capacity to meet increased transport demand arising from economic development. 41. The Government regulates passenger fares of both rail and bus services. Tariff changes for both railway and bus operations require minis- terial approval. In the case of freight, while road tariffs are unregulated, rail tariffs are regulated by the Government. As a result of a reluctance to adopt tariff policies which reflect costs, the Government has subsidized the operating losses of railways (passengers and freight) and buses (passengers). The Government's present policy is to reduce these subsidies. 42. The Government's current economic objectives are incorporated in the Public Sector Investment Program, 1979-83. The Program aims to expand employment, achieve a high rate of economic growth, and improve the balance- of-payments by increasing exports. Of the total public investment in the Program, 15% is allocated to transportation, and about half of this is for road and road transport investments. In view of the insufficient investment in the transport sector during the past 10 years, the allocation to the road subsector can be considered modest. The project would be an initial step to improve the road subsector performance. The Road Subsector 43. Compared to the countries in South Asia, Sri Lanka has a relatively extensive and well-developed road network. The system maintained by the Department of Highways (DOH) totals up to 15,479 miles, of which 11,200 miles are paved. In addition, there are about 10,000 miles of tea estate and irri- gation roads, which are maintained by tea estates and the Department of Irri- gation. The entire network is suffering from lack of maintenance. Many sections require extensive rehabilitation. Many bridges are old and in urgent need of repair or replacement. The motor vehicle fleet at the end of July 1978 totalled about 218,000, of which 46% were cars and taxis. The present vehicle fleet (equivalent to an average of one vehicle for 66 persons) is on average very old, with 50% of trucks over 15 years old. The import of trucks for private operators was almost nil for several years but, after the recent liberalization of imports, truck imports have been increasing at a rapid rate. There are no motor vehicle manufacturers in Sri Lanka, but several private industries assemble motor vehicles and the SLCTB assembles buses. 44. Sporadic counts carried out since 1961 indicate that average vehi- cular traffic growth was practically zero up to 1975 when counts were last taken, probably due to strict import controls on vehicles. With liberaliza- tion of imports, a projected GDP growth rate of about 5% per annum in real - 13 - terms can be expected to produce average annual vehicular traffic growth rates of 7 to 8%. Even this quite modest rate of growth will soon lead to a notice- able deterioration in road travel standards. 45. Until June 1978, DOH was under the Ministry of Irrigation, Power and Highways where it acted as an administrative and planning body. The actual execution of work relating to roads was carried out by other departments with- in the same Ministry which also dealt with irrigation and power projects. These were: (a) The State Development and Construction Corporation (SDCC) for bridge construction; (b) The Department of Machinery and Equipment (DME) which operated the central and a number of regional workshops and purchased, allocated, operated, and maintained all vehicles, plant, and equipment, for the Ministry; and (c) The Territorial Civil Engineering Organization which, through a number of regional chief engineers, maintained the highway system and built minor bridges. 46. Under the reorganization in 1978, DOH was placed under the Ministry of Power and Highways. The Territorial Civil Engineering Organization was divided between the DOH and the Department of Irrigation under a new Ministry of Lands and Land Development. The DME was also divided with eight regional and one central workshop with their existing staffs temporarily assigned to DOH. Present plans are that the SDCC would go to the Ministry of Lands and Land Development and would concentrate on irrigation works. These reorgani- zations have changed the role of DOH; together with planning responsibility, DOH will also serve as an executing agency. Given this totally new role, the DOH will require substantial technical assistance, and its workload can only be increased gradually. 47. The DOH suffers from a continuing drain of professional staff to other countries. With the help of technical assistance to be provided under the credit, the Government should prepare a timetable for strengthening DOH staff through training, systematic rotation of experienced staff, and in-house training of foremen. The Government would review staffing of the DOH, furnish a specific program by December 31, 1979, including a timetable, for its strengthening, and carry out the program, as mutually agreed with IDA [Sections 3.07(a) and 3.07(b) of the Development Credit Agreement (DCA)]. 48. The DOH has no formal arrangements for staff training. There is a need to strengthen training activities. A training specialist, to be financed under the credit, would assist DOH in identifying and implementing needed training programs. 49. In the absence of detailed traffic data and vehicle operating costs, project appraisal in DOH cannot be considered rigorous. There is no firm long- term highway development plan, and most projects originate from an expression of need or desire from the public, usually channelled through Ministers or Members of Parliament. There is a need for strengthening road planning and preparing a medium-term road investment program. The technical assistance team will assist in these areas. The Government would prepare and furnish to IDA - 14 - for comments, a five-year road investment program by December 31, 1982 (Section 3.10 of the DCA). 50. Past expenditures on road maintenance have not kept pace with requirements. At present, annual maintenance allocations are about Rs 5,500 or US$360 equivalent per annum per mile of road maintained by DOH. In addi- tion, funds for the maintenance of minor roads are provided through the Government's decentralized budget, which is distributed by District Ministers. The current allocation for routine maintenance (minor repairs, grass-cutting, drain clearing, etc.) and periodic maintenance (resealing, resurfacing, etc.) is barely sufficient to cover the costs of proper routine maintenance alone. To ensure proper road maintenance, both routine and periodic, the Government should aim to double the present allocation per mile. The DOH, with the help of a technical assistance team, should prepare a suitable highway main- tenance improvement program for five years starting from 1981. The Govern- ment would prepare a five-year road maintenance program (1981-85), submit it to IDA by June 30, 1980, and provide necessary funds to carry out the program (Section 3.09 of the DCA). 51. With poor alignment, narrow widths, and inadequate pavement thick- ness, roads are generally indequate for modern traffic flows. The average main road pavement is about 6 inches thick, consisting of a compacted stone layer with bituminous surface treatment. An extra 4 to 6 inches of compacted stone base would provide enough pavement strength for another ten or more years of life. Roadside drainage is generally incomplete or entirely absent and encroachment up to the edge of the pavement is common. Bridges are often narrow and some are structurally unsound. Piles, abutments and foundations are often sound, but cannot be reused because they are too narrow or on bad alignments. On many bridges, piled foundations and open abutments would pro- vide a more economical design. These matters will be followed up during supervision missions and through technical assistance provided in the project. 52. Sri Lanka is fortunate in having an abundance of good road-building materials in granite outcrops (except in the extreme north around Jaffna), and the natural soils are reasonably strong and stable. Traditionally, broken stone for roadbase has been produced by hand, which is satisfactory for larger sizes, but very slow and expensive for smaller size stone. Hence, mobile granulators are required to supplement hand labor. Suitable equipment for stone production would be provided in the project. 53. Present methods of road repair are unsatisfactory, due to using straight bitumen under unsuitable conditions. Bituminous emulsion, produced locally, will be used in order to improve output and standard of work. 54. The private construction industry in Sri Lanka has been moribund for the last decade, and its present abilities are uncertain. However, its revival would be beneficial, a fact which the Government recognizes. Contractors are interested in possible highway projects, but their output and work standards will be uncertain at the start. A practical method of encouraging domestic - 15 - contractors would be to encourage associations with overseas firms as a means of introducing expertise and new equipment. The DOH is circulating notices inviting contractors to prequalify, and the response to this invitation should be known by mid-1979. IDA has started discussions with the Government propos- ing a study with a view to developing the construction industry in the country. PART IV - THE PROJECT 55. The project was identified in December 1977 by the Government of Sri Lanka with IDA assistance. It was appraised in October 1978 with the help of two engineers financed by the Canadian International Development Agency. A staff appraisal report entitled "Road Maintenance Project" (No. 2334-CE dated March 30, 1979) is being distributed separately to the Executive Directors. A timetable of key events relating to the project and special conditions of the Credit are given in Annex III. Negotiations were held in Washington, D.C., in March 1979. The Borrower's delegation was led by Dr. W. M. Tilakaratna, Secretary, Ministry of Finance and Planning. Project Objectives 56. The proposed project aims to facilitate the transport of goods and passengers and to reduce road transport costs. As an initial step, the pro- ject is designed to: (a) arrest the deterioration of the road system by a pro- gram of enhanced routine and periodic maintenance, utilizing limited mechanical assistance with better quality control to give technically improved results; and (b) lay the foundation for improved planning of road maintenance and exe- cution of future works. The project would also address directly the present deficiencies in Sri Lanka's road maintenance capability, i.e., lack of a road maintenance program and a road investment plan and inadequate DOH staff and staff training. At the completion of the project, apart from road and bridge rehabilitation works completed, one demonstration district will have been organized and equipped to carry out road maintenance more efficiently, improved road maintenance methods will have been introduced island wide, and DOH will have an increased capability to plan and design roads. Project Description 57. The project consists of: (a) rehabilitation and limited improvement over about 112 miles of roads and resealing or resurfacing of about an addi- tional 150 miles; (b) improvement of routine and periodic road maintenance methods; (c) strengthening, repair or replacement of 30 bridges; (d) procure- ment of road maintenance and workshop equipment and spares; and (e) technical assistance. The road sections and bridges were selected on criteria of urgency of rehabilitation, prevention of complete failure, and highest economic returns. 58. Road Rehabilitation. Road rehabilitation is planned over 112 miles of main routes in seven locations spread over the island. The work comprises - 16 - selective widening or realignment over short distances (except in one case where general relocation is to be investigated), provision of extra stone base with new surfacing, general improvement of shoulders and roadside drainage, and repair of failed areas and single bituminous seal. The road rehabilita- tion component will be carried out partly by the DOH and partly by contractors. 59. Road Maintenance. It would not be possible to reorganize completely routine maintenance countrywide within the period of the project, but the capa- bility of DOH to repair potholes and local pavement failures can be signifi- cantly improved. Enough equipment will be provided so that all 74 executive engineers' divisions and suboffices can be equipped with mobile hand sprayers and tampers before project completion, and staff will be trained in their use. To improve periodic maintenance practice, a demonstration district would be organized and equipped in Colombo/Kalutara to carry out resealing and resurfacing. The demonstration district would train DOR staff for other districts. 60. Maintenance and Workshop Equipment. Operations of DOH are restricted due to the fact that the vehicle and equipment fleet for road maintenance and the workshop equipment are old and in constant need of repair. At present, workshops and depots operated by DOH are congested by many obsolete vehicles and plant items beyond repair. The presence of these obsolete items hinders work and restricts the covered space in workshops. All unserviceable equip- ment and vehicles beyond economic repair would be disposed of by the Govern- ment by December 31, 1980 (Section 3.08 of the DCA). Apart from equipment for routine highway maintenance, the project will equip the proposed demonstration district with enough vehicles and equipment to carry out routine and periodic maintenance. The district will then train staff from other parts of the coun- try in improved work methods of periodic maintenance. This will also release the present highway plant and equipment and vehicles for use in other districts. Neither Colombo nor Kalutara District has a regional workshop at present, and thus it is proposed to equip a workshop on a site to be provided by the Gov- ernment and to train its staff. There is also a need to establish a central workshop for DOH. At present, there is a suitable building at Angulana near Colombo with no equipment or spares, staff, or control organization. As an initial step, the project will provide equipment, a stock of spares, and will train staff under the technical assistance component. 61. Bridge Rehabilitation and Replacement. Thirty bridges have been identified where there is danger of structural failure. These will be repaired or replaced, mostly using precast, prestressed units, as produced by SDCC. For many of the structures, DOH standard designs can be used; otherwise, design modification can be done in the DOH Bridge Design Section, with the help of technical assistance. 62. Technical Assistance. The weaknesses in DOH and its executive arms described above make a substantial amount of technical assistance necessary if the project is to be successfully implemented. A total of 182 man-months - 17 - at a total cost of US$1.15 million is proposed, at an estimated average cost of US$6,300 per man-month, including all allowances and external travel. The team consists of a highway planning engineer, a highway and bridge design engineer, a mechanical engineer, a highway maintenance engineer (training specialist), a contracts engineer, a management and accounting specialist, and a mechanical superintendent. The team is designed to help DOH's transition from a planning and administrative body to a planning and executing agency by a program of direct assistance and training. Of the 182 man-months proposed, it is intended to provide about 20 man-months at a cost of about US$140,000 to be retroactively financed for expenditures incurred after March 1, 1979. The work to be completed under this arrangement consists of preparation of contract documents and specifications for construction works and equipment procurement, assistance with prequalification of contractors, and the intro- duction of improved design methods for roads and bridges. The Government would finalize general conditions of contract and specifications for civil works on construction and rehabilitation by December 31, 1979 (Section 3.11 of the DCA). The process of the selection of consultants has started. As a condition of effectiveness, the Government would retain the services of a technical assistance team, under terms and conditions satisfactory to IDA, for the successful implementation of the project (Section 5.01 of the DCA). Project Cost and Financing 63. The total cost of the project is estimated at US$25.0 million equivalent (excluding taxes and duties of US$3.75 million equivalent), with a foreign exchange cost of US$13.41 million equivalent (54%). The proposed Credit of US$16.5 million would finance the full foreign exchange costs and about 27% of local costs, or about 66% of total project costs, net of taxes and duties. The remaining local costs, amounting to about US$8.5 million equivalent (plus taxes and duties) would be met by the Government. 64. A physical contingency of 5% has been allowed on equipment with spares and 10% on all other items. Price contingencies have been estimated assuming an annual inflation rate of 6% for foreign costs, and 15% for local costs in 1979, followed by 10% thereafter. Estimates for plant and equipment are based on mid-1978 bid prices received, updated to March 1979. Unit prices for works are based on DOH schedules of rates and analysis of items revised, where appropriate, after comparison with other cost data and to allow for higher wage rates, which will become necessary in many areas. Organization and Implementation 65. The execution of the project will be the responsibility of DOH, assisted by a technical assistance team, operating through (a) district chief engineers for force account road and bridge rehabilitation and general super- vision of contract works; (b) SDCC for some bridge reconstruction; (c) DME initially for equipment administration and repair until DOH has equipped and set up its own organization; and (d) contractors for part of the road and bridge rehabilitation. About 30% of road and bridge works is proposed to be carried out through force account. As far as the domestic construction industry is concerned, private contractors have been mostly inactive and many of them - 18 - went out of business during the last decade. About half a dozen large firms and a number of smaller ones still survive with greatly depreciated equipment stock. IDA intends to assist the Government in the development of the domestic construction industry. Invitations for prequalification are being circulated by DOH, but if there is not sufficient response from contracting firms experienced in road construction, force account by DOH will have to be used for the part of the road rehabilitation now proposed for contract. The physical execution of the project is planned to commence in the last quarter of 1979 and be completed in four years. 66. Institution building is of primary importance to the project. It is planned within the project to create a capability for DOH to: (a) monitor the economic and engineering aspects of the project; (b) plan and design road.and bridge rehabilitation and improvement effectively and efficiently; (c) establish, maintain and operate its own mechanical equipment and spares organization; (d) plan and operate road maintenance according to the needs of traffic and the road; and (e) improve costing and cost control procedures as an aid to forecast expenditures more accurately. 67. The assumptions used in pavement design, cost estimates, and in the economic analysis will be monitored and confirmed with the help of technical assistance. In particular, future traffic counts will be used to continually reconfirm the economic analysis results, additional subgrade testing will be carried out to reconfirm the depth of extra base or overlay required, and updated local costs will be used to refine estimates of project costs. As there has been very little useful road construction experience in Sri Lanka over the past ten years, especially in regard to contract work, it is to be expected that bids will be subject to wide variations in price. 68. The project would be monitored through quarterly reports by the DOH. The format of these reports was agreed between the Project Executing Agency and IDA. The Government would prepare a completion report not later than six months after the closing date of the Credit (Section 3.04 (c) of the DCA). Procurement and Disbursement 69. Equipment, materials, and supplies will be procured on the basis of international competitive bidding procedures with a 15% preference allowed on locally manufactured items in accordance with IDA's "Guidelines for Procure- ment." Items costing under US$50,000 equivalent and with a total not exceed- ing US$200,000 would be procured in accordance with the Government's normal - 19 - procedures after bids have been received from at least three suppliers. Con- tracts for construction or rehabilitation work will be awarded on the basis of international competitive bidding procedures with a 7-1/2% preference allowed to local contractors in accordance with IDA's guidelines. However, contracts for civil works costing less than US$50,000 equivalent each may be awarded on the basis of local competitive bidding in accordance with proce- dures acceptable to IDA. 70. Disbursements from the proceeds of the Credit account will be made on the following basis: (a) 100% of foreign expenditure or 50% of local expen- diture for equipment, tools, spares, and supplies and construction materials; (b) 100% of expenditure for technical assistance; and (c) 100% of foreign expenditure or 75% of total expenditure for civil works done by contractors. Expenditures on the preliminary technical assistance are to be retroactively financed by IDA for expenditures incurred after March 1, 1979, and would amount to a maximum of US$140,000. Requests for disbursements will be fully docu- mented. It is expected that disbursements would be completed by June 30, 1984. Project Benefits and Risks 71. In the past, the network has steadily deteriorated due to insuffi- cient allocations for maintenance and improvements and has now reached a stage at which many sections of road require rehabilitation and improvement, and maintenance work requires improvement. Further deterioration of roads would result in serious transport constraints. The proposed project will stop and reverse the deterioration of the road network, and improve the quality of maintenance work. 72. Since the trucking industry is important for distributing industrial raw materials, collecting tree crops for export, and transporting imported food grains, benefits from the project execution would be shared by the general public. It is a characteristic of the population in Sri Lanka that all classes are highly mobile and that the dominant mode of passenger transport is by road. The Government recognizes this fact and has endeavored to keep bus fares down to a level that can be afforded by most of the population. Buses typically make up about 25% of the total traffic flow, and, to that extent, benefits in the form of reduced vehicle operating costs will accrue to the RTBs and hence to the population in general. The emphasis in the road and bridge rehabilita- tion program is on rural (rather than urban) routes. These have been selected from all parts of the island to reach as large a proportion of the population as possible. 73. Overall economic evaluation incorporating costs of workshop equip- ment and technical assistance components to which no specific benefits have been ascribed shows implementation of the project as a whole is well justified and appropriately timed. The overall project rate of return is estimated at 36%. A sensitivity analysis was carried out assuming an increase of 15% in project costs and a decrease of 25% in benefits. The results show that, even under these conservative assumptions, the project would still yield an economic return of 21%. - 20 - 74. There are no serious technical risks associated with the project. The principal risks arise out of the weaknesses in the organization and ope- rational capability of the DOH. Technical assistance has been planned to strengthen the DOH (para 62) and remove these risks as far as possible. To improve the situation, the Government would review staffing within DOH, prepare and furnish a program to IDA by December 31, 1979, and implement agreed recom- mendations to strengthen the DOH (para 47). The project also includes a pilot scheme for road maintenance in order to train DOH staff (para 60). These measures would be adequate to cover DOH weaknesses and consequent risks of the project. PART V - LEGAL INSTRUMENTS AND AUTHORITY 75. The draft Development Credit Agreement between the Democratic Socialist Republic of Sri Lanka and the Association and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agreement are being distributed to the Executive Directors separately. 76. Special conditions of the credit are listed in Section III of Annex III. An additional condition of credit effectiveness would be the retention of the services of a technical assistance team of at least five consultants by the Government under terms and conditions acceptable to IDA (para 62). 77. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART V - RECOMMENDATION 78. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President by: I.P.M. Cargill Attachments April 18, 1979 - 21- Annex I Page 1 of 6 pages TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES SRI LANKA /a LAND AREA (THOUSAND SQ. E14.) - MOST RECENT ESTIMATE) TOTAL 65.6 SAME SAME NEXT SICGER ACRICULTURAL 24.2 MOST RECENT GEOGRAPHIC INCOME INCOME 1960 L 1970 Lb ESTIMATE Lb REGION 14 GROUP 1d GROUP le CNP PER CAPITA (US$) 70.0 120.0 200.0 167.4 182.9 432.3 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 107.0 153.0 127.0 65.7 88.9 251.7 POPULATION AND VITAL STATISTICS TOTAL POPULATION, MID-YEAR (MILLIONS) 9.9 12.5 14.0 URBAN POPULATION (PERCENT OF TOTAL) 17.9 22.0 25.2 12.8 15.0 24.2 POPULATION DENSITY PER SQ. KM. 151.0 191.0 213.0 85.2 46.8 42.7 PER SQ. KM. AGRICULTURAL LAND 507.0 518.0 579.0 322.6 254.1 95.0 POPULATION AGQ STRUCTURE (PERCENT) 0-14 YRS. 41.5 /f 40.0 39.0 44.0 43.6 44.9 15-64 YRS. 54.3 /f 56.0 57.0 52.9 53.3 52.8 65 YRS. AND ABOVE 4.2 4.0 4.1 2.9 2.9 3.0 POPULATION GRUWTN RATE (PERCENT) TOTAL 2.6 2.4 1.7 2.2 2.4 2.7 URBAN 4.8 4.5 3.7 4.2 4.0 8.8 CRUDE BIRTH RUTE (PER THOUSAND) 37.6 33.1 27.4 45.1 44.3 42.2 CRUDE DEATH RAlTE (PER THOUSAND) 10.7 8.0 7.9 17.3 19.7 12.4 GROSS REPRODUCTION RATE 2.5 2.3 2.0 3.2 2.9 3.2 FAMILY PLANNIIIG ACCEPTORS, ANNUAL (THOUSANDS) .. 55.3 113.0 USERS (PERCINT OF MARRIED WOMEN) .. 8.0 9.9 13.7 14.6 14.2 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA i1970-100) 86.6 100.0 109.1 95.6 96.4 104.3 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 92.0 101.0 97.0 91.1 92.3 99.5 PROTEINS (GRAMS PER DAY) 45.0 50.0 48.0 49.6 50.0 56.8 OF WHICH JNIMAL AND PULSE 15.0 16.0 15.0 12.6 13.9 17.5 CHILD (AGES 1-4) MORTALITY RATE .. .. 16.8 .. .. 7.5 HEALTH LIFE EXPECTANCY AT BIRTH (YEARN) 60.5 65.8 67.8 43.1 45.8 53.3 INFANT MORTALITY RATE (PER THOUSAND) 52.0 50.0 51.0 99.5 102.7 82.5 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL *. 21.0 19.0 30.0 26.4 31.1 URBAN .. 46.0 36.0 66.3 63.5 68.5 RURAL .. 14.0 13.0 17.2 14.1 18.2 ACCESS TO EXCRETA DISPOSAL (PERCENT OF POPULATION' TOTAL .. 64.0 59.0 15.7 16.1 37.5 URBAN .. 76.0 68.0 66.9 65.9 69.5 RURAL .. 61.0 55.0 2.5 3.4 25.4 POPULATION PEE PHYSICIAN 4500.0 .. 4010.0 8830.8 13432.7 9559.2 POPULATION PER NURSING PERSON 4170.0 2730.0 2280.0 8479.3 6983.3 2762.5 POPULATION PEE HOSPITAL BED TOTAL 330.0 330.0 330.0 1624.5 1157.6 786.5 URBAN .. 130.0 140.0 .. 183.3 278.4 RURAL .. 570.0 600.0 .. 1348.8 1358.4 ADMISSIONS PER HOSPITAL BED .. 54.0 51.3 .. 19.5 19.2 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4 /f 5.8 .. . 5.2 URBAN 6.3 /f 6.3 .. . 4.8 RURAL 5.2 Tf 5.5 .. .. 5.3 AVERAGE NUMBEE OF PERSONS PER ROOM TOTAL 2.0 /f 2.5 .. URBAN 2.1 If 2.7 .. *- 1.8 2.3 RURAL 2.0 /f 2.5 .. ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 7.5 If 9.0 .. .. 25.9 28.3 URBAN 35.9 If 34.5 RURAL 2.3 7T 2.8 8.; 10.3 - 22 - Annex I TBU 3A Page 2 of 6 pages SRI LANKA - SOCIAL INDICATORS DATA SHEET REFERENCE GROUPS (ADJUSTED AVERAGES SRI LANK /a - MOST RECENT ESTIMATE) SAME SAME NEXT NICGER MOST RECENT GEOGRAPHIC INCOME INCOME 1960 b 1970 b ESTIATE /b REGION /c GROUP /d GROUP EDUCATION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 77.0 59.1 62.9 75.8 FEKALE 90.0 94.0 77.0 38.4 45.9 67.9 SECONDARY: TOTAL 27.0 51.0 54.0 19.9 14.4 17.7 FEMALE 16.0 51.0 55.0 9.9 8.8 12.9 VOCATIONAL (PERCENT OF SECONDARY) .. 1.0 1.0 1.5 6.6 7.4 PUPIL-TEACHER RATIO PRIMARY 31.0 .. 22.0 38.2 38.5 34.3 SECONDARY .. .. .. 23.5 19.8 23.5 ADULT LITERACY RATE (PERCENT) 61.0 77.6 78.1 35.6 36.7 63.7 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 7.0 6.7 2.2 3.1 7.2 RADIO RECEIVERS PER THOUSAND POPULATION 36.0 .. 37.0 14.9 31.1 71.1 TV RECEIVERS PER THOUSAND POPULATION .. .. .. .. 2.8 14.1 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 36.0 49.0 .. 6.4 6.0 16.3 CINENA ANNUAL ATTENDANCE PER CAPITA 3.0 .. 3.9 .. 1.4 1.6 EMPLOYMENT TOTAL LABOR FORCE (THOUSANDS) 3500.0 A 4100.0 4707.0 FEMALE (PERCENT) 22.6 23.7 28.5 21.3 24.2 28.0 AGRICULTURE (PERCENT) 56.3 52.0 55.0 62.8 60.7 54.1 INDUSTRY (PERCENT) 13.5 14.4 PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.6 35.8 39.8 37.8 MALE 50.8 49.2 48.2 52.4 53.3 50.3 FEMALE 16.2 16.5 20.3 15.6 19.6 20.9 ECONOHIC DEPENDENCY RATIO 1.5 1.4 1.2 1.3 1.3 1.3 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.4 18.8 18.6 18.6 20.3 19.5 HIGHEST 20 PERCENT OF HOUSEHOLDS 52.1 45.6 42.8 42.8 45.1 48.9 LOWEST 20 PERCENT OF HOUSEHOLDS 4.5 7.4 7.3 7.3 5.7 5.9 LOWEST 40 PERCENT OF HOUSEHOLDS 13.7 17.9 19.3 19.3 16.8 15.7 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (USs PER CAPITA) URBAN .. .. 68.0 80.2 88.5 155.9 RURAL .. .. 76.0 67.2 71.9 97.9 ESTIMATED RELATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. .. .. .. 100.8 143.7 RIJRAL .. .. 59.0 39.8 42.0 87.3 ESTIMATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) URBAN .. .. 26.0 50.3 46.0 22.9 RURAL .. .. 22.0 44.6 48.0 36.7 Not available Not applicable. NOTES /a The adjusted group averages for each indicator are population-weighted geometric means, excluding the extreme values of the indicator and the most populated country in each group. Coverage of countries among the indicators depends on availability of data and is not uniform. /b Unless otherwise noted, data for 1960 refer to any year between 1959 and 1961; for 1970. between 1969 and 1971; and for Most Recent Estimate, between 1973 and 1977. /c South Asia; /d Low Income ($280 or less per capita 1976); /e Lower Middle Income ($281-550 per capita, 1976); If 1963. September, 1978 -23- Annex I DEFINITIONS OF SOCIAL INDICATORS Page 3 of 6 pages &oig: The adjusted group averages for each indicator are popalation-weighted geometric means, excluding the extremo values of the indicatur and tho mcst populated country in each grsp. Coverage of countries among the indicators depends on availability of data and is not uniform Due to lack of data, graup averages for Capital Surplos Oil Emporters and indicators of access to water and excreta disposal, housing, income distribution and poverty are simple population-weighted geometric means without the exclusion of emtreme values. LAND AREA (thousand sq. ki) Population per hospital bed - total, arba. and rural - Pcpularicn (t-tal, Total - Total surface area comprising land area and inland waters, urb-n, and rural) divided by their respective number of hospital beds Agricultural - Most recent estimate of agricultural area used temporarily available in public and private general and specialiced hospital and re- or permanently for crops, pastures, market and kitchen gardens or to habilitation centers Hospitals are establishnents permanently staffed by lie fallow, at least one physician. Establishsents providing principally custodial care are not included. Rural hospitals, however, include health and medi- GNP PER CAPITA (DS)S - GNP per capita estimates at current market prices, cal centers not permanently staffed by a physician (but by a medical as- calculated by same conversion method as World Bank Atlas (1975-77 basis); sistanr, nu--se, midwife, etc.) which offer in-patient accommodatisn and 1960, 1970, and 1977 data. provide a limited range of medical facilities. Admissions per hospital bed - Total number of admisaioos to or discharges ENERiY CONSUlSPTION PER CAPITA - Annual consumption of coenercial energy from hospitals divided by the number of beds. (coal and lignite, petroleum, natural gas and hydro-, nuclear and gSo- thermal electricity) in kilograms of coal equivalent per capita. HOUSING Average size of household (persons per household) - total, urban, and rural- POPULATION AND VITAL STATISTICS A household consists of a group of individuals wlo share living quarters Total population, mid-year (millions) - As of July 1; if not available, and their main meals. A boarder or lodger may cc may nor be included in average of two end-year estimates; 1961, 1970, and 1977 data the household for statistical purposes. Statistccal definitions of house- Urban population (percent of total) - Ratio of urban to total popula- hold vary. tion; different definitions of urban areas may affect comparability Average number of persons per room - total, urban, and rural - Average n- of data among countries. ber of persons per room in all, urban, and rural occupied conventional Population density dwellings, respectively. Dwellings exclude nun-pereanent structures and Per sq. km. - Mid-yser population per square kilometer (100 hectares) aunoccpied parts of total area. Access to electricity (percent of dwellings) - total, urban, and rural - Per sq. km. agrico. tore land - Computed as above for agricultural land Conventional dwellings with electricity in living quarters as percentage only of total, urban, and rural dwellings respectively. Population age stru- tare (percent) - Children (0-14 years), working-age (15-h4 years), and retired (65 years and over) as percentages of mid- EDUCATION year population. Adjusted enrollment ratios Pepulation growth r,,te (percent) - total, and urban - Compound annual Primary school - total, and female - Total and f-le enroillent of all agen growth rates of tc'tai and urban mid-year populations for 1950-60, at the primary level as percentages of respectively primary school-age 1960-70, and 1970-75. populations; normally includes children aged 6-11 years but adjusted for Crude birth rate (per thousand) - Annual live births per thousand of different lengths of primary education; for cou ntries with universal edu- mid-year populatio,n; tem-year arithmetic averages ending in 1960 and cation enrollment may emceed 100 percent since some pupils are below or 1970 and five-yeac average ending in 1975 for most recent estimate. above the official school age. Crude death rate (p r thousand) - Annual deaths per thousand of mid- Secondary school - total, and fesale - Computed as above; necondary educa- year population; ten-year arithmetic averages ending in 1960 and 1970 tion requires at least four years of approved primary instruction; pro- and five-year ave-age ending in 1975 for most recent estimate. vides general vocational, or teacher training int-ructicns for pupils iross reproduction cats - Average number of daughters a woman will bear usually of 12 to 17 years of age; correspond once coa ss are generally in her normal ospioductive period if she experiences present age- encluded. spocific fertilirt rates; usually five-year averages ending in 1960, Vocational enrollment (percent of secondary) - Vcctional institstion n- 1970, and 1975. dude technical, industrial, or other programs which operate independently family planning - acceptors, annual (thousands) - Annual number of o- as departments of secondary institutions. acceptors of birtl-control devices under auspices of national family Pupil-teacher ratio - primary, and secondary - Tota] studonts en-olled in planning program. primary and secondary levels divided by numbers of teachers in the corre- Family planning -_ucers (percent of married women) - Percentage of sponding levels . m arried women of child-bearing age (15-44 years) who use birth-control Adult literacy rate (percent) - Literate adults (able to read and write) as devices to all macried women in same age group. a percentage of total adult population aged 15 y-ors and over. FOOD AND NUTRITION CONSUMPTION loden of food production per caPita (1970-100) - Index number of par Passenger cars (per thousand population) - Passenger earn comprise totor cars capita annual production of all fond commodities. seating less than eight persona; excludec anbutances, hearnen and military Per capita n"oply of calories (percent of recuirements) - Computed from vehicles. energy equivalent of net food supplies available in country per capita Radio receivers (per thousand population) - All types of roceivors fur radic per day. Available supplies comprise domestic production, imports le.a broadcasts to general public per thousnud of population; encludes unlicensed enports, and changes in stock. Net supplies exclude animal feed, seeds, receivers in countries and in years when registration uf radio sets was in quantities used in food processing, and looses in distribution. Re- effect; dart for recent years may not be comparable since most countries quirements were estimated by FAO bused on physiological needs for nor- abolished licensing. mal activity and health considering environmental temperature, body TV receivers (per thousand population) - TV receivers for broadcast to genera weights, age and sen distributions of popolation, and allowing 10 per- public per thousand population; excludes unlicensed TV receivers in coun- coot far waste an household level, tries and in years when registration of TV sets was in effect. Per capita supply of protein (grsms per dav) - Protein content of per Newspaper circulation (per thousand population) - Shaws the average circuli- capita net supply of foad per day. Net supply of food in defined as tion of "daily general interest newspaper", defined as a periodical publi- above. Requirements for all countries established by USDA provide for cation devoted primarily to recording general news. It is considered to a minimu= allowance of 60 gra.s of total protein per day and 20 grams be "daily" if it appears at leant four tines a week. Of aninal and pulse protein, of which 10 grams should be animal protein. Cinema ansual attendance per capita pee pear - fated on tho nuhbor of tickets These standards are lower than those of 75 grams of total protein and sold during the year, including admissions to drive-in cinemas and mobile 23 grams of animal protein as an average for the world, proposed by units. FAO in the Third World FPod Survey. Per capira prorain su.ply from animal and pulse - Protein supply of food EMPLOYMENT derived from animals and pulses in graes per day. Total labor force (thousands) - Economically active persons, including armed Child (ages 1-4) mortality rate (pee thousand) - Annual deaths per thous- forces and unemployed but excluding housewives, studennt, etc. Defini- and in age group 1-4 years, no children in this age group. tions in various countries are not homparable. Penale (percent) - Female labor force as percentage cf total labor force. HEALTH Agriculture (percent) - Labor force in farming, forestry, hunting and fishing Life espectrncy at birth (years) - Average nueber of years of life as percentage of total labor force. remaining at birth; usually five-year averages ending in 1960, 1970, Industrv (percent) - Labor force in mining, construction, manufacturing and and 1975. electricity, water and gas as percentage of total labor force. Infant mortality rate (per thousand) - Annual deaths of infants under Participation rate (percent) - total, male, and female - Total, main, and one year of age per thousand live birhts. female labor Force as perceeCages of their respecrive poputaticns. Accos- to safe water (percent of population) - total, urban, and rural - These are ILO's adjueted participation raten reflecting age-nec Number of people (total, urban, and rural) with reasonable access to stincture of the population, end long tine trend. safe water supply (includes treated surface waters or untreated but Econo=ic dependency ratio - Ratiu of populatioe under 15 sod 65 and oven to uncontaminated water such as that from protected boreholes, springs, the labor force in age group of 15-64 years. and sanitary wells) as percentages of thetr respective populations. In an urban area a public fountain or standpost located nut more INCOME DISTRIBUTION than 200 meters from a house may be considered as being within rea- Percentage of private income (both in cash and kind) received by richest 5 sonable access of that house. In rural areas reasonable access would percent, richest 20 percent, poorest 20 percent, and poorest 40 percent imply that the housewife or menbers of the household do not have to of households. spend a disproportionate part of the day in fetching the family's water needs. POVERTY TARGET GROUPS Access to encrara disposal (percent of population) - total, urban, and Estimated absnlute poverty income level (..t pee capita) - urban and rural - rural - Nunber of people (total, urban, and rural) served by excreta Absolute poverty income level is that income level below which a minimal disposal as percentages of their respective populatioas. Encreta nutritionally adequate diet plus essential non-food requirements is not dispocal may include the collection and disposal, with or without affordable. treatment, of human excreta and waste-water by water-borne systems Estimated relative poverty income level (US$ per capita) - urban and rural - or the use of pit privies and similar installations. Relative poverty income level is that income level lens than one-third Population per physician - Population divided by number of prac-ticig per capita personal income of the coUntry. physicians qualified from a medical school at university level. Estimated population below overty tncome level (percent) - urban and rural - Population per nursinR PePopulatiopulation divided by number of Percent of population (urban and rural) who are either "absolute poor" or practicing male and female graduate nurses, prectical nurses, and "relative poor" whichever is greater. assistant nursos. Economic and So-ial Data Division Ecoonoic Analysis and Projections Department -24- Annex I Page 4 of 6 pages SRI LANKA E C o N o M I C D E V E L O P M E N T D A T A S H E E T S A C T U A L EST. 1965 1970 1976 1977 1978 _ -- --- --__-- ___ - _---- NATIONAL ACCOUNTS (1) (MILLIONS OF USS AT 1975 PRICES) GROSS DOME,TIC PRODUCT 1783.0 2354.0 2747.3 2811.4 2983.8 GAINS FROM TERMS OF TRADE 539.7 242.2 185.1 495.1 424.8 GROSS DOME.TIC INCOME 2322.7 2596.2 2932.4 3306.5 3408.6 IMPORTS 1189.8 1017.3 913.5 1098.6 1363.7 EXPORTS - VOLUME -670.2 -662.9 -660.5 -722.9 -790.1 EXPORTS - TT. ADJUSTED -1209.9 -905.1 -845.6 -1218.0 -1214.9 RESOURCE GAP - TT. ADUUSTED -20.1 112.1 67.9 -119.4 148.9 TOTAL CONSUMPTION 2055.9 2239.0 2563.6 2719.1 2900.9 INVESTMENT 246.8 469.4 436.8 468.0 656.5 NATIONAL S,VINGS 244.3 297.9 350.7 580.8 519.7 DOMESTIC SAVINGS 266.9 357.3 368.9 587.4 507.6 GDP AT CURRENT USS 1686.6 1870.6 2424.2 2821.3 2515.2 SECTOR OUTPUT (SHARE OF IDP AT 1975 PRICES) AGRICULTURE 0.444 0.422 o.376 0.387 0.387 INDUSTRY 0.171 0.211 0.217 0.201 0.201 SERVICES 0.385 0.367 0.407 0.412 0.412 PRICES ( i975 = 100) EXPORT PRI:E INDEX 65.65 56.86 95.16 114.45 117.17 IMPORT PRICE INDEX 36.37 41.64 74.33 67.92 76.20 TERMS OF TRADE INDEX 180.52 136.55 128.02 168.49 153.77 GDP DEFLATJR (USS) 94.59 79.47 80.24 100.35 84.30 ANNUAL AVERAGE EXCHANGE RATE 4.76 6.85 10.68 11.06 Growfh Rates 1 976 SHARE 1965 OF 1977 GOP NATIONAL ACCOUNTS (1) (MILLIONS OF US$ AT 1975 PRICES) --------------------------_------- GROSS DOMESTIC PRODUCT 3.9 100.0 GAINS FROM TERMS OF TRADE 6.7 GROSS DOMESTIC INCOME 3.0 106.7 IMPORTS -0.7 33.3 EXPORTS - VOLUME 0.6 24.0 EXPORTS - IT. ADoUSTED 0.1 30.8 RESOURCE GAP - TT. ADJUSTED 2.5 TOTAL CONSUMPTION 2.4 93.3 INVESTMENT 5.5 15.9 NATIONAL SAVINGS 7.5 12.8 DOMESTIC SAVINGS 6.8 13.4 GDP AT CURFENT USS 4.4 PRICES ( 1975
Groupe de la Banque mondiale · Memorandum & Recommendation of the President
Sri Lanka - Road Maintenance Project
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