Sri Lanka - Second Rural Development Project

Document of The World Bank FOR OFFICIAL USE ONLY FILE CBOPY Rlt N. P-2902-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 SECOND RURAL DEVELOPMENT PROJECT November 18, 1980 This de0emet hsu a resite distibpnd m amy be used by reipints oyse i erforman of thir .MlW dual. lb Cotmts -Y no othrwse be disolsed wihot Wod &ak aut.rmtlo.  CURRENCY EQUIVALENTS US$1 = Rs 15.6 1/ Rs 1 = US$0.064 Rs 1 million = US$64,103 WEIGHTS AND MEASURES 1 acre (ac) = 0.405 hectare (ha) 1 bushel (bu) of paddy = 45 lb 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq. mi) = 640 ac (259 ha) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED DCC - District Coordination Committee GA - Government Agent ICB - International Competitive Bidding D - Million MT - Metric ton MPI - Ministry of Plan Implementation O&M - Operation and Maintenance PSC - Project Steering Committee RDD - Rural Development Department, MPI GLOSSARY chena - slash and burn or "shifting" agriculture district - the principal administrative unit in the country: there are 24 districts in Sri Lanka. paddy - unhusked rice tank - reservoir for local rainwater storage FISCAL YEAR January 1 - December 31 1/ At the time of appraisal. The present exchange rate is: US$1 = Rs 17.66 (October 23, 1980).  FOR OFFICIAL USE ONLY SRI LANKA SECOND RURAL DEVELOPMENT PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Amount: Special Drawing Rights 25.6 M (US$33.5 M equivalent at the time of negotiations). Terms: Standard. Project Description: The project aims to assist in developing the districts of Matale and Puttalam by raising productivity, employ- ment, incomes and living standards. The project would: (i) improve the provision of inputs and services required for the directly productive sectors; (ii) increase plantings of coconut and minor export crops; (iii) rehabilitate and improve economic infrastructure; and (iv) improve social infrastructure. The project would benefit about 130,000 farm families, about two- thirds of these families being in the poverty target groups. The project design closely follows the model developed for the Kurunegala Rural Development Project (Credit No. 891). The project suffers from inherent risks associated with such a multi-component project and faces difficulties associated with actions in politically sensitive and institutionally demanding areas. However, such risks are reduced by the success- ful experience with decentralized system in the above- mentioned Kurunegala project. This document has a restricted distribution and may be used by recipients only in the performance of their oMcial duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: 1/ US$ Million Equivalent Component Local Foreign Total A. Directly Productive Components Irrigation and Water Management 5.46 2.85 8.31 Agriculture Credit 2.85 3.06 5.91 Minor Export Crop Development 1.33 0.50 1.83 Coconut Development 0.91 0.34 1.25 Forestry 1.69 0.31 2.00 Fisheries 0.31 0.19 0.50 Agriculture Inputs 0.31 0.26 0.57 Seri-culture 0.26 0.05 0.31 Livestock 0.20 0.08 0.28 Groundwater Investigation 0.16 0.18 0.34 Subtotal 13.48 7.82 21.30 B. Economic and Social Infrastructure Rural Roads 2.27 1.50 3.77 Rural Water Supply 0.19 0.25 0.44 Rural Electrification 0.53 0.27 0.80 Health 0.53 0.50 1.03 Education 0.78 0.46 1.24 Subtotal 4.30 2.98 7.28 C. Project Coordination and Investigations 1.10 0.23 1.33 Base Cost 18.88 11.03 29.91 D. Contingencies Physical 1.49 0.80 2.29 Price 12.63 5.18 17.81 Subtotal 14.12 5.98 20.10 TOTAL COST 33.00 17.01 50.01 1/ Includes taxes and import duties (US$1.5 million equivalent)  - 1Il1 - Financing Plan: US$ Million Equivalent Local Foreign Total IDA 16.49 17.01 33.50 Government 14.41 - 14.41 People's Bank and Bank of Ceylon 1.34 - 1.34 Beneficiaries 0.76 - 0.76 Total 33.00 17.01 50.01 Estimated Disbursement: US$ Million Equivalent IDA FY 1981 1982 1983 1984 1985 1986 Annual 3.0 6.0 6.5 7.0 7.5 3.5 Cumulative 3.0 9.0 15.5 22.5 30.0 33.5 Rate of Return: 17% Staff Appraisal Report: No. 2942-CE, dated October 31, 1980   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 SECOND RURAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation for a proposed development credit to the Democratic Socialist Republic of Sri Lanka for Special Drawing Rights 25.6 M (US$33.5 M equivalent at the time of negotia- tions) on standard terms to help finance a Second Rural Development Project. PART I - THE ECONOMY 2. The most recent economic report, "Sri Lanka: Key Development Issues in the 1980s" (Report No. 2955-CE, May 20, 1980) was distributed to the Executive Directors on May 27, 1980. Country Data are provided in Annex I. 3. After several years of relative stagnation, Sri Lanka's economy is experiencing sustained growth. This growth has been the direct result of the economic liberalization of 1977, and the development push associated with it. Until 1977, Sri Lanka's growth performance had been below both need and potential. Although GDP growth in the 1960s, at 4.4% per annum, was above the average for low income countries, growth slackened sharply in the 1970-77 period to 2.9% per annum, just below the average for low income countries. Through much of this period, the terms of trade deteriorated steadily, eroding even these modest gains; as a consequence, per capita gross national income rose by a mere 0.9% per annum during the 1960-76 period. The slowdown in economic growth in the 1970-77 period is attributable to a combination of fac- tors, including inadequate investment, poor management of the economy, and a policy environment unconducive to growth and investment, which were com- pounded by bad weather and a sharp rise in the cost of imported food and petroleum. 4. The three tree crops--tea, rubber and coconuts--which are still the mainstay of the economy, suffered from low replanting and inadequate incen- tives. These problems were exacerbated by a dual exchange rate, introduced in 1968, that discriminated against these crops, and by the uncertainties surrounding a protracted nationalization (1972-75) of the larger estates. After the exceptional output growth of the 1960s, rice yields and cropping intensities declined in the 1970s due to poor institutional support. Invest- ment in manufacturing was low, and the inefficiency of most public and private sector firms nurtured in a highly protected environment resulted in industrial growth of less than 2% per annum. The only bright spots were subsidiary food crops and industrial exports which benefited from good incentives. 5. An inadequate public savings effort, caused by inelastic revenues and an uncontrolled increase in recurrent expenditures, inhibited public investment. Private savings and investment were constrained by an unfavor- able policy environment. The high incremental capital output ratio in the 1970s (5.5 as against 3.5 in the 1960s), reflected the fact that the invest- ment that did take place was both inefficient and highly capital intensive.  -2- 6. The low growth rates and the slow changes in the structure of output matched neither the jobs nor the changes in employment structure that the labor force required. Slow output growth, the excessive capital intensity of investment, the mismatch between the job aspirations of those with post- primary education and the jobs available to them, the post war demographic bulge, and rising female participation rates contributed to a massive increase in open unemployment, estimated at over 1 million, or some 18% of the labor force in 1977. 7. In sharp contrast to this poor economic performance, Sri Lanka's social achievements in relation to per capita income have been outstanding. Sri Lanka has about one and one-half times the life expectancy, almost thrice the literacy, one-quarter the infant mortality and half the birth rate that would be expected for a country at its per capita income level. Nutrition levels have been ade7uFte, and in the 1960s there were parallel gains in income distribution. 8. Improvements in the quality of life, in particular the rise in health standards, the spread of education and the availability of subsidized food, have been important factors in the decline in mortality. The increasing age of marriage, the spread of female education and employment, and a vigorous family planning program, have also contributed to a sharp decline in fertility. As a consequence, the growth rate of population has dropped from 2.6% per annum in the 1953-63 intercensal period to 2.0% per annum in the 1963-73 period. Allowing for net migration, population is currently increasing at only 1.7% per annum. 9. The gains in the social field were made possible by favorable initial 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 early 1970s. These expenditures were traditionally financed by harnessing the surpluses of the three major tree crops, which provided the Government with easy sources of revenue and foreign exchange. These surpluses began to disappear in the late 1960s as government policies discriminated against these crops and the terms of trade deteriorated. With growth in other productive sectors in the economy also decelerating in the 1970-77 period, the budgetary resources available for social programs were squeezed by inelastic revenues and rapid inflation. As a consequence, expenditures on social services other than the food subsidy began to decline as a proportion of total current expenditures and of GDP, threatening the hard-won gains in health and educa- tion. In sum, the economy was no longer generating the resources needed to sustain a large program of welfare expenditures. Moreover, the very size of those programs reduced the scope for policy makers to shift resources to development. 10. The policy changes introduced in 1977, following the election of the United National Party, were intended to break this vicious circle. The  - 3 - new Government identified its objectives as the sustained revival and resus- citation of the economy and increased employment through (i) increased capa- city 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 was developed in close consultation with the IMF. Its principal aim was to dismantle controls over resource allocation 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. 11. The following broad policy reforms have been introduced: Exchange Rate Reform: The exchange rate was unified on November 16, 1977 at a depreciated rate of Rs 16 = US$1.00 and allowed to float. This implied a depreciation of 46% against the official rate prevail- ing prior to unification, 11.2% with respect to the Foreign Exchange Entitlement Certificate rate, and 29.5% with respect to a transactions- weighted average rate of the two markets. 1/ Between 1977 and 1979 the rupee appreciated by about 5% against the dollar; however, it began depreciating in early 1980 and exceeded Rs 17 per US dollar by September 1980. Import Liberalization: The trade and payments regime has been liberalized. With the exception of petroleum products, public sector import monopolies have been terminated. Prior licensing of imports has been abolished for all but a handful of commodities. The tariff structure was revised and simplified. Interest Rate Reform: To encourage financial savings and discourage speculative imports, interest rates were raised sharply. However, inflation eroded these rates, and in 1980 further upward adjustments were made. Price Controls: These 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. Business Turn- over Tax rates were also substantially lowered and rationalized to be consistent with the new import tariff and exchange rate. To limit the increase in cost of food subsidies, rice and sugar rations were initially confined to the poorer half of the population, and the subsidy on imported wheat flour was reduced through a series of 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.  adjustments in the domestic price. On September 1, 1979 the Government introduced a system of food and kerosene stamps for families with monthly incomes less than Rs 300 to replace spe- cific subsidies and food rationing, and to target benefits to the poorest. This was accompanied by a move to full cost pricing for rice and flour. Initially about seven million persons were issued with food and kerosene stamps. To help offset the adverse impact of these changes on real incomes, public sector wages have been adjusted upwards on three occasions, and in February 1978 an income supplement was introduced at Rs 50 per month to benefit the poorest households in which one or more persons had no gainful employment. (This supplement was eliminated in 1980.) Public corporations were asked to pass on cost increases, except in the cases of fertilizer, petroleum, milk, and public transport, where price increases were initially deferred to cushion +h, impact on consumers. The Government has subsequently eliminated the subsidy on petroleum products and made sizable adjustments in bus fares and electricity prices. The burden of subsidies and transfers has, as a consequence, fallen from around 9% of GDP in 1978 to around 5% in 1980. These changes, taken together with higher aid receipts, have permitted a sizable increase in capital expendi- tures. 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. However, taxes on slowly growing treecrop exports account for over 40% of total revenues; as a result, the overall elasticity of revenues to eco- nomic growth and domestic inflation remains low. Agricultural Pricing Policies: The domestic procurement price for rice was increased by 21%. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. Fresh coconut prices have also been increased by 30% and the export duty on coconut products has been appropriately adjusted. While the uni- fication of the exchange rate ended formal discrimination against tree crops, the export duty on tea was initially set at a level which effectively siphoned off most of the benefits to the Government. As tea prices fell and production costs rose in 1978-79, the Government responded to the reduced producer margins by a lowering of taxes on tea. Further adjustments in both the structure and level of tea taxation will be needed to maintain and improve incentives. Simi- larly, the support price for paddy will need to be increased to maintain strong producer incentives. 12. The economic reforms have been accompanied by a major effort at stepping up public investment. The Government's capital expenditures jumped from 6% of GDP in 1977 to an average of 13% in 1978 and 1979, as government departments responded to an improved budgetary resource position by embarking on long overdue replacement investments and new projects that had been shelved earlier for lack of resources. The Government has also embarked on four major new programs which are to be the lead projects in a five-year rolling public  investment program. These are: (i) Accelerated implementation of the Mahaweli Ganga Development Program, by far the largest multi-purpose river basin development program ever undertaken in Sri Lanka; (ii) a 200 square-mile free trade zone north of Colombo under a newly constituted Greater Colombo Economic Commission which has established the first of several Investment Promotion Zones near Colombo's international airport and has signed agreements with some 54 foreign investors involving US$60 million of foreign investment by mid-1980; (iii) a massive housing and urban renewal program with its main focus on the Colombo metropolitan region; and (iv) the construction of a new capital complex at Kotte, a suburb of Colombo. 13. These four programs will together cost an estimated Rs 26 billion, or 42% of the projected Rs 63 billion public investment program over the 1980-84 period. The Government's tentative macro-economic scenario envisages public investment taking one-half of total investment which is expected to average an ambitious 29% of GNP in 1980-84, as against 16% in the early 1970s. To enable this increase to materialize, gross national savings are expected to average a high 16.5% of GNP, and net external capital inflows, nearly 13%. This implies a substantial increase in external capital inflows which averaged 2.3% of GDP in the 1970-76 period. Official development assistance is expec- ted to finance 67% of public investment. Experience through 1980 (paras 17-19) has shown that these financing targets may be over optimistic, and that meeting them could imply excessive amounts of expansionary domestic finance and foreign commercial borrowings. The Government is aware of this and is currently reviewing the public investment program with a view to reducing the level and capital intensity of investment. 14. The underlying public investment strategy is to balance the large investment requirements of the Government's high priority programs 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 infrastructure 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 program, and provide much of the short-term growth. 15. The initial response of the economy to the policy reforms and the accompanying acceleration in public investment has been encouraging. Economic growth in 1978 and 1979 averaged an impressive 7.3% per annum. This growth was shared by almost all sectors of the economy, with the most dynamic sectors being construction; mining and quarrying; electricity, gas and water; trans- port; and manufacturing. The only major exception has been the tree crop sector. This impressive performance is due to a number of factors including the improved availability of inputs following import liberalization, an increased role for the private sector in distribution, and the removal of price controls. Although there is little data available on employment, Central Bank estimates suggest that unemployment dropped from 18% of the labor force to 15% between 1977 and 1979. 16. Investment has risen to record levels since 1977, rising from 14% of GDP in 1977 to 20% in 1978 and 25% in 1979. A further increase to almost  -6- 29% of GDP is projected for 1980. This has been reflected in the more than six-fold increase in capital goods imports from US$83 million in 1977 to a projected US$530 million in 1980. Much of the investment in 1978 and 1979 represented pent-up demand for replacement equipment in industry and trans- port. Investment would now, however, appear to be shifting towards instal- lation of new productive capacity. The public investment program, especially the lead projects, have begun to gather momentum, and private investment approvals in 1978 and 1979 reached record levels. Those involving foreign collaboration totalled US$240 million; of these, over one-half were in the new free-trade zone. 17. The rapid rise in investment has not, however, been accompanied by a concomitant rise in the national savings effort. Gross national savings have declined steadily from 15.8% of GDP in 1978 to a projected 10.5% of GDP in 1980, while the use of foreign savings has increased from 4.6% of GDP in 1978 to 20.1% in 1980. The declining domestic savings effort is reflected most clearly in the budget. Although the Government has succeeded in containing the costly consumer subsidy and transfer programs, which has led to their falling as a percent of GDP (para 11), relatively inelastic revenues combined with steadily rising other recurrent expenditures and declining terms of trade have resulted in practically no public savings over the 1978-1980 period. As a result, the Government has financed its rapidly rising capital expenditures through foreign aid, and by increasing its level of domestic borrowings. initially the Government was able to meet its domestic financing requirements through non-expansionary borrowings from captive financial institutions, which had been able to mobilize increased private savings under the interest rate reform. However, resources mobilized through these channels have not grown as rapidly as the budgetary deficit, and the Government has been forced to increasingly undertake expansionary borrowings from the Central Bank. Between 1978 and 1979, these rose from 0.4% to 1.2% of GDP; a further sharp rise to over 4% of GDP is projected for 1980. 18. The exchange rate adjustment, other policy-induced price increases and related wage increases, the removal of price controls, and the build-up of external assets contributed significantly to inflationary pressures in 1978 and 1979. However, they were moderated in 1978 and 1979 by bumper paddy har- vests, increased capacity utilization in the economy, increased availability of imports, and the beneficial effects of competition from imports and in domestic distribution. Thus, annual inflation, as measured by the official Colombo consumer price index, averaged 11% in 1978 and 1979. However, the growth in money supply expansion, on account of the sustained build-up of gross external assets and the rapid expansion in domestic credit continued, and by late 1979 inflation had begun to accelerate; between June 1979 and June 1980, the inflation rate rose to 30%. The Central Bank estimates that over half of the inflation in January-June 1980 has been due to policy-induced price changes. However, most of those adjustments were made early in the year, indicating that the underlying rate of inflation is now increasing and that the economy is overheating. The overheating has been felt particularly severely in the construction industry, where average costs rose by over 35% annually between 1977 and 1979.  -7 - 19. The rapid growth of the economy since 1977 has also been reflected in the balance of payments. As a result of the import liberalization, the acceleration in economic growth in the domestic economy, and the decline in the terms of trade, imports grew at over 42% annually between 1977 and 1979; on the other hand, exports (of which sluggishly growing treecrop exports still account for about 60%) grew at only 15% annually. Tourism receipts and pri- vate transfers from abroad both grew rapidly, partially offsetting the rapid growth in the trade deficit; nevertheless, the current account deficit rose to 4.6% of GDP in 1978 and .11.0% of GDP in 1979. In both years, however, the current account deficits were more than offset by non-monetary capital inflows, and Sri Lanka continued to add to its net international reserves, albeit at a declining rate. At the end of 1979, Sri Lanka's net international reserves stood at US$258 million; its gross international reserves at US$517 million, equivalent to more than four months of imports of goods and non- factor services. In 1980, however, the balance of payments has deteriorated rapidly and net reserves are projected to decline by about US$240 million. The principal cause of the deterioration has been the sharp increase in the trade deficit, which is running at more than twice the 1979 level. While all categories of imports, but particularly capital goods imports, have been growing rapidly, exports are running only slightly above 1979 levels. Although the recent price increases will almost double Sri Lanka's petroleum import bill between 1979 and 1980, the oil import burden is not yet unmanageable. Gross petroleum imports still account for less than one-fourth of total imports; net petroleum imports, for less than 30% of non-oil exports. Other elements of the current account are continuing to perform well; nevertheless, they will not offset the sharp deterioration of the trade account, and as a result the current account deficit is expected to more than double to over US$800 million and rise to over 20% of GDP. Even though net aid disbursements are expected to increase by over 40% to about US$400 million, together with net direct foreign investment, they will cover only about 58% of the current account deficit. With the consequent rapid drawdown in international reserves, the public sector, especially the public corporations, have begun to make significant use of commercial financing arrangements. 20. Developments in 1980 have shown that the Government's development program, while justifiable in terms of past neglect of productive investment, is proving over-ambitious in terms of available domestic and concessional external resources, and in terms of real resources available to the economy. If Sri Lanka were to attempt to fill the foreign financing gap with commercial borrowings, its presently relatively comfortable debt service position would deteriorate rapidly. As for domestic resources, there is only limited scope for further reducing subsidy and transfer payments without affecting the genuinely needy, and little scope for improving upon Sri Lanka's already very good revenue effort (18% of GDP in 1980). If Sri Lanka attempted to cover domestic costs through expansionary borrowings from the banking system, the already high level of inflation would be exacerbated. The only signifi- cant route open to Government to preclude these developments appears to be to cut back on the public investment program, including the large amount of additional investment proposed to take place outside the budget. Aid donors have responded enthusiastically to the Government's development initiatives - aid commitments in 1979 totalled US$607 million, and aid indications at the July  - 8 - 1980 sixteenth meeting of the Sri Lanka Aid Group were an even higher US$877 million. Continued high levels of aid will, however, depend upon the Govern- ment maintaining donor confidence in its economic policies and management. 21. External public debt outstanding and disbursed stood at US$1,086 million at the end of 1979, amounting to about 32% of GDP. However, it is almost all long-term concessional debt. As a result, the debt service burden is relatively low--the debt service ratio in 1979 excluding IMF repurchases stood at 9.8% of exports of goods and non-factor services, declining from 16.6% in 1977 and 11.5% in 1978. In 1980, the debt service ratio is projected to decline further to 7%. While this sustained decline is due in part to improved export earnings, the main cause has been a decline in outstanding short and medium term borrowings. However, unless the current account deficit begins to decline in 1981, Sri Lanka will again have to begin undertaking significant shorter maturity commercial borrowings to fill the gap between the current account deficit and likely concessional aid flows. In that case, the debt service ratio could deteriorate quickly. PART II - BANK GROUP OPERATIONS IN SRI LANKA 22. Since the beginning of its operations in Sri Lanka in 1954, the Bank Group has approved eight loans totalling US$72.9 million (net of cancellations) and 25 credits totalling US$362.0 million (net of cancellations and exchange adjustments) in support of 31 projects. About 39% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 18% for power, 16% for transport, and the remainder for development finance company operations, a program credit (mainly involving the import of raw mate- rials for industry), water supply, telecommunications, and small and medium industries. Eight loans and eight credits have been fully disbursed so far. Annex II contains a summary statement of Bank Group operations as of September 30, 1980, together with notes on the execution of ongoing projects. 23. An IFC equity investment of about US$100,000 equivalent in the Development Finance Corporation of Ceylon (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 approved in FY78. IFC also approved an investment of US$2.32 million in a synthetic textile mill, and US$986,000 in a polypropylene bag manufacturing plant in FY79. During FY80, IFC approved an increase in equity investment of about US$51,000 equivalent in DFCC and an investment of US$280,000 in an equipment leasing company. 24. 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, incomes and living standards of the rural population in Sri Lanka. Projects to support basic infrastructure are also included. A Mahaweli Ganga Develop- ment III project, a village tank rehabilitation project, and a construction industry project are being appraised.  - 9 - 25. The Bank Group presently accounts for 10.2% (IBRD, 3.0%; IDA, 7.2%) of Sri Lanka's total debt outstanding and disbursed, and 8.5% (over 90% IBRD) of debt service. It is projected that the Bank Group's share in total exter- nal debt will increase to 15% by 1985 (with the IBRD's share declining to 2%). The Bank and IDA shares in the debt service are expected to decline to about 5% by 1985. PART III - THE RURAL SECTOR 26. Approximately four-fifths of Sri Lanka's population lives in rural areas; the proportion varies from roughly 50% in the Western Province in which Colombo District is located to about 93% rural in the North Western Province in which Puttalam and Matale Districts are located. The proportion of Sri Lanka's population living in rural areas has declined only modestly, around 7 percentage points between 1946 and 1971. This is attributable to low and narrowing rural-urban income differentials, an island-wide food-subsidy program, and the spread of education and health services throughout the country. 27. The rural sector is dominated by agriculture, with 95% of the rural population involved directly or indirectly in that activity. About one-quarter of the gross domestic product, over one-half of total employment, three-fourths of export earnings and about 40% of Government revenues are on account of agriculture. Much of the activity in manufacturing, transport and the services sector also relates to either supply of inputs to agricul- ture or processing of agricultural produce. Traditional and modern economic activity exists side by side in the rural sector. Tea, rubber and coconut production for export, dominated by plantations, have in the past constituted the modern sector in agriculture. With land reform, the bulk of the area under rubber and coconut and a third of the area under tea are now cultivated by smallholders. Paddy is primarily in the traditional sector, though a number of cultivators have adopted modern practices. Although cash crops are beginning to be included in slash and burn type chena cultivation, this remains a subsistence-type activity with farmers using traditional cultivation practices. Rural industries diminished in importance as a result of competi- tion from the import of industrial goods in the 1950s and the late 1960s. Major rural industries today include rice mills (which have replaced more traditional forms of processing), power looms (which supplement handlooms) and traditional handicrafts. Performance and Problems 28. Agricultural performance over the past two decades has been rather mixed. There have been modest increases in production and employment and some progress has been made towards food self-sufficiency. The sector has not, however, been able to provide a major stimulus to the rest of the economy or to make any significant dent in the chronic unemployment problem faced by Sri Lanka.  - 10 - Objectives and Strategy for the Future 29. The present Government recognizes the pivotal role of agriculture in stimulating economic growth and rural development in Sri Lanka. It is also aware of the constraints imposed on growth by past policies and programs. The major objectives of the Government's medium-term plans and programs for agriculture are to (i) increase agricultural employment and incomes; (ii) achieve self-sufficiency in basic food items; and (iii) expand export earnings. 30. The Government's strategy for achieving these objectives emphasizes better utilization of the existing potential through institutional and policy improvements as well as rehabilitation of the production base. Among the policies and programs being given high priority are: (i) establishment of appropriate price incentives for producers; (ii) strengthening of agricultural support services such as research and extension, credit, farm power supply, and fertilizer distribution; (iii) improved irrigation water management; (iv) improved management of state controlled lands; (v) stepped up programs for rehabilitation of plantation crops; and (vi) improvements in living con- ditions of plantation labor. Through these measures, the Government hopes to step up the agricultural growth rate to 5% per annum over the next five years. Given adequate attention to implementation problems, the target is attainable. Integrated District Development Programs 31. To encourage grassroot participation in development and to reduce implementation problems at the field level, the Government is encouraging decentralization of planning, monitoring and coordination responsibilities. Overall national priorities and policy guidelines will be established at the central level and technical guidance and supervision for field staff will continue to be directed from the respective headquarters. District Ministers will oversee and coordinate the planning and implementation of all develop- mental programs 1/ in their respective districts. 32. The Government is undertaking a number of integrated district devel- opment projects through the decentralization program. Under these district projects, districts have been surveyed and studied, and a development plan prepared taking into consideration the leading sectors and activities that need investment support to promote balanced and accelerated growth. These district projects emphasize low-cost, quick-yielding, labor-intensive invest- ments aimed at better utilization of the existing potential. The main features of this approach are: (i) coverage of a wide range of crops and infrastructure needs; (ii) promotion of balanced interregional development; and (iii) production increases in the near term. 33. The IDA assisted Kurunegala Rural Development Project (Cr. 891-CE, US$20.0) was the first district level rural development project undertaken. 1/ Projects and programs which are of national importance (e.g., the accel- erated Mahaweli Ganga Development Program) will, however, continue to be handled at the central level.  - 11 - The proposed project for Puttalam and Matale districts would be based on the Kurunegala model. To date, the implementation of the Kurunegala project has been proceeding quite well, although cost overruns arising from inflation, particularly in the construction sector, may require a reduction in physical targets and/or the IDA reimbursement percentage. Civil works construction for most components (irrigation, roads, rural water supply, health and rural electrification) is being carried out according to the implementation targets and specifications established at appraisal. Construction of school buildings will be carried out by private contractors in the future, since work to date undertaken by the Parent Teachers' Association has proven to be of poor qual- ity. The programs for coconut rehabilitation and intercropping are making good progress despite two consecutive years of drought during the yala season. Institutional arrangements established under the project have been satisfac- tory in providing for effective coordination among the twelve project compo- nents. The only difficulties are with the components for agricultural credit and for irrigation and water management, where the targets set at appraisal for providing short-term production loans on 30,000 ac and for rehabilitating 500 minor tanks now appear optimistic. In order to increase the level and rate of agricultural lending and repayment the two banks providing credit under the project (i.e, People's Bank and Bank of Ceylon) are reviewing their manpower capabilities and training programs, with the view to strengthening the number and quality of staff and making more staff time available for field visits and other direct contacts with farmers. Also, a consultant to the Irrigation Department has been provided recently to help in the prepara- tion of detailed plans, designs and cost estimates for new schemes, especially for water management facilities. Thus, both of these components under this ongoing project have been re-evaluated, and improved institutional arrange- ments have been developed which will be included in the proposed project (paras 48 and 50). Bank Group Support to Agriculture 34. During the last several years, Bank Group lending to Sri Lanka has heavily emphasized agriculture and rural development. Since 1968, a total of twelve projects with loans and credits of US$168.5 M have been financed in this sector including: Lift Irrigation (Cr. 121-CE, US$2.0 M); Drainage and Reclamation (Cr. 168-CE, US$2.5 M); Mahaweli Ganga Development I (Ln. 653-CE, US$14.5 M and Cr. 174-CE, US$14.5 M); Dairy Development (Cr. 504-CE, US$9.0 M); Agricultural Development (Cr. 595-CE, US$25.0 M); Tank Irrigation Moderniza- tion (Cr. 666-CE, US$5.0 M); Mahaweli Ganga Development II (Cr. 701-CE, US$19.0 M); Tree Crop Rehabilitation (Tea) (Cr. 818-CE, US$21.0 M); Tree Crop Diversification (Cr. 819-CE, US$4.5 M); Kurunegala Rural Development Project referred to above; Agricultural Extension and Adaptive Research (Cr. 931-CE, US$15.5 M); and Smallholder Rubber Rehabilitation (Cr. 1010-CE, US$16.0 M). The first two of these projects have been completed, and project performance audit reports have been prepared. The audit reports found that both projects suffered from design inadequacies, in particular overoptimism concerning the response of beneficiaries to opportunities offered under the projects, but also from inadequate attention to research and extension services and, in the case of the Drainage and Reclamation Project, to unusual soil conditions. As a consequence, the net project benefits have been lower than envisaged at project appraisal although the estimated revised rates of return remain  - 12 - satisfactory. Over the course of the last several years, project preparation activities have been directed towards obtaining a fuller understanding of the systems and institutions expected to have significant impact on expected proj- ect results, such as inputs supply, marketing, extension, operations and maintenance, cultural practices, and pricing. The abovementioned Agricultural Extension and Adaptive Research Project would strengthen extension and research in the proposed project area. The Mahaweli Ganga Development I and Agricultural Development Projects have been recently completed. The other on-going projects are progressing satisfactorily. PART IV - THE PROJECT 35. The proposed project was prepared by several deDartments and agencies of the Government of Sri Lanka, coordinated by Ltue M4inistry of Plan Implementation with assistance from IDA missions. The project was appraised in November/December 1979. Negotiations were held in Washington, D.C. in October 1980. The Borrower's delegation was led by Dr. Wickrema Weerasooria, Secretary, Ministry of Plan Implementation. A Staff Appraisal Report entitled "Sri Lanka - Second Rural Development Project" (Report No. 2942-CE dated October 31, 1980) 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. 36. The proposed project aims to assist in developing the districts of Puttalam and Matale by raising productivity, employment, incomes and living standards. These districts were chosen because of their high percentage of rural population and low per capita income and because they would receive few direct benefits from the Mahaweli Ganga Development Program. The main assump- tion underlying the project approach is that the existing economic and social infrastructure in Sri Lanka is substantially underutilized and that rapid and significant improvement in utilization is possible through strengthening of development-oriented institutional services and complementary investments in physical infrastructure. 37. The proposed project emphasizes: (a) directly productive invest- ments; (b) local level participation in identification of project investments; (c) financial, technical and institutional replicability; and (d) labor-inten- sive, quick-yielding rehabilitation works, rather than new construction. 38. The proposed project would cover the entire administrative districts of Puttalam and Matale. Both districts are predominantly rural and agricul- ture is the mainstay of their economies. Puttalam is located on the West Central Coast and Matale is located on the northern edge of the highland core (see Maps IBRD 14949 and 14952); both adjoin Kurunegala district. Population is estimated at 440,000 and 352,000 for Puttalam and Matale respectively. The climate in the project area is tropical with minor variations in tempera- ture but wide variation in rainfall. Out of a total land area of about 1.2 M acres, over one-third is under permanent cultivation and less than one-third under chena cultivation. The largest land use category is forests, which are largely scrub jungle. Coconut and paddy are the two most important crops in  - 13 - Puttalam, covering 160,000 ac and 46,000 ac respectively. Land use in Matale is quite varied, with paddy the largest category at 39,000 ac; there are also large concentrations of coconut, minor export crops, tea and rubber amounting to over 90,000 ac. Project Description 39. Because of the significant position of paddy in both districts' economies, of coconut in Puttalam and minor export crops in Matale, and the scope for large production increases in these crops, the principal project thrust would be to rehabilitate their production bases and to improve support services essential for increased production. The directly productive compon- ents would be complemented by investments in transportation, health, educa- tion, drinking water supply and rural electrification to improve utilization and effectiveness of existing facilities. These investments in social and economic infrastructure are designed to improve living standards and to develop the infrastructure for growth in the long run. 40. The main components of the proposed project are: (a) Irrigation and Water Management in Both Districts: (i) rehabilitation of 15 major tanks (with command area of 200,000 ac each or more) and about 240 minor irrigation schemes amounting to over 28,500 ac of irrigated area; (ii) introduction of improved water management practices. (b) Coconut Development in Puttalam: rehabilitation and improvement of coconut lands through stepped up programs for replanting/underplanting and intercropping on about 19,200 ac of privately owned land. (c) Minor Export Crops Development in Matale: upgrading of stands of cocoa, cardamom, coffee, pepper, clove and nutmeg through stepped up programs for planting and replanting on about 7,900 ac of privately owned land. (d) Agriculture Credit in Both Districts: supporting and strengthening existing schemes for production credit and credit for purchases of machinery and equipment, for a total of about US$5.9 million equivalent. (e) Agricultural Input Supplies in Both Districts: improvement of availability of agricultural supplies and services and their coordination. (f) Forestry in Both Districts: acceleration of ongoing pro- gram on about 16,500 ac for (i) reforestation of degraded and overexploited chena lands; and (ii) afforestation on steep and high elevation grasslands, degraded tea planta- tions, and catchment areas of the Mahaweli Ganga.  - 14 - (g) Fisheries in Puttalam: improving landing and shore facilities at three sites, a fisheries service center, and provision of navigation lights. (h) Sericulture in Matale: conversion of a former rubber plan- tation to sericulture, including a small nucleus estate and a small settlement scheme on about 400 ac, with 125 settlers. (i) Livestock in Both Districts: strengthening of animal disease control and veterinary and insemination services. (j) Groundwater Exploration in Puttalam: exploration of ground- water resources and startup exploitation of most promising areas. (k) Rural Roads in Both Districts: (i) rehabilitation of about 145 miles of feeder roads, (ii) construction of 7 miles of new feeder roads, and (iii) upgrading of about 175 miles of cart and foot paths. (1) Rural Water Supply in Both Districts: installation of about 250 dugwells in areas with drinking water deficiency. (m) Rural Electrification in Both Districts: electrification of ten rural areas. (n) Health in Both Districts: (i) construction of additional facilities and staff quarters at about 30 sites; (ii) provision of vehicles and basic equipment; and (iii) electrification of five outlying hospitals. (o) Education and Vocational Training in Both Districts: pro- vision of workshop and science equipment and construction of buildings and teachers quarters at existing schools. (p) Project Coordination and Investigations in Both Districts: (i) provision of vehicles, office equipment, additional staffing, and construction of office buildings; (ii) tech- nical assistance in supervision and monitoring; and (iii) surveys for evaluating the impact of the project. Organization and Implementation 41. The project components would be implemented by existing Government agencies and departments using existing procedures and practices. A total of 26 implementing agencies in 14 ministries would be involved. All agencies and departments are generally well experienced in the type of work to be carried out. With additional staffing, technical assistance, and infrastruc- ture support, all agencies are expected to be fully capable of implementing assigned components or subcomponents. Given the large number of agencies involved in implementation, successful project implementation would depend  - 15 - upon the capacity for a quick resolution of policy issues as they may arise, and for close monitoring, supervision and coordination of the work programs of various agencies. Therefore, the project was designed with three levels of coordination for project implementation. 42. A Project Steering Committee (PSC) would be established (Section 3.02(a) of the draft Development Credit Agreement (DCA)) at the national level with the Secretary, Ministry of Plan Implementation (MPI) as Chairman and the Director of Regional Development of MPI as member secretary. In addition to coordinating and trouble-shooting at the national level, the PSC would be responsible for (i) ensuring consistency of district development schemes with national policy and procedures; (ii) reviewing quarterly and annual progress reports; (iii) reviewing and approving annual and five year work programs and budgets; and (iv) liaising with IDA on project related matters. The PSC would be serviced by the project cell in Rural Development Department (RDD) and accounting unit in MPI. 43. At the district level, a District Coordination Committee (DCC) would be established (Section 3.02(a) of the draft DCA) comprising district heads of the key project agencies to discuss and resolve interdepartmental coordination problems. DCC would be chaired by the respective District Minister, with the Government Agent (GA), the senior administrative officer for the district, as Vice Chairman and the Project Director as the member-secretary. DCC would meet at least bimonthly to (i) coordinate interdepartmental activities; (ii) monitor progress; (iii) review the annual and five-year work plan and budget prior to its submittal to the PSC; and (iv) ensure consistency of project activities to the other district development activities. Project- related policy issues as well as implementation bottlenecks and coordination problems which cannot be resolved at the district level will be referred to the PSC. 44. A full time Project Director, with experience, qualification, func- tions and responsibilities acceptable to IDA, would be appointed for each district (Section 3.02(b) of the draft DCA). The Project Director would be at rank of Additional Government Agent and would coordinate the project activities, serving under the general supervision of the GA and the District Minister. The Project Director's responsibilities would include: (i) prepar- ation of annual and five-year work programs and budgets in collaboration with the implementing agencies; (ii) release of funds for project expenditures; (iii) maintenance of consolidated project accounts and assembly of annual audited accounts of each implementing agency; (iv) preparation of withdrawal claims from IDA credit account; (v) monthly review of project progress and preparation of quarterly progress report; (vi) resolution of implementation bottlenecks and liaison with the DCC; and (vii) assistance to the project cell in RDD in preparing the project completion report. Each Project Director would be assisted by an accounting unit and a planning and coordinating unit, supplemented by supervisory consultants (see para 50 below). The annual consolidated project accounts and audit reports will be submitted to the Association within six months after the end of each fiscal year. 45. Overall project implementation would take five years. Site surveys for most buildings under the project are underway, and construction would be  - 16 - completed by the end of the third year. Plans and designs for all facilities would be in accordance with specifications and guidelines satisfactory to the Association (Section 3.07(a) of the draft DCA). This would include criteria for the selection and design of minor irrigation schemes for rehabilitation, the plans for the development of the tubewell schemes, the project evaluation plan, and the siting of the rural wells. 46. The Project Director, in collaboration with the various implementing agencies, would annually prepare a detailed work program and update the five year work plan together with associated budgetary requirements. The program would be supported by appropriate maps, charts and diagrams and include esti- mated manpower and material requirements. Following a review by the DCC and the PSC, the annual and five year work programs would be submitted to IDA not later than November 15 of each year for comments. 47. The Irrigation Department would be responsible for the operation and maintenance (O&M) of the major irrigation schemes down to the distribu- tary level. Responsibility for O&M of field channels (in major schemes) as well as the minor irrigation and groundwater schemes would rest with the benefitting farmers who would be supervised and advised by the Agrarian Services Department. The maintenance and repairs of the rehabilitated rural roads would be done by the Highways Department. The carts and footpaths and drinking water wells would be maintained by the Department of Local Govern- ment Services in cooperation with local authorities. The Ceylon Electricity Board would be responsible for O&M of rural electrification schemes. Health buildings will be maintained by the Buildings Departments of the Ministry of Local Government. Adequate repair facilities and workshops exist in the private sector to provide maintenance services for farm equipment to be sold to farmers under the project. After project completion, incremental recur- rent expenditures for minor export crop programs and the coconut development programs would be financed through annual budgetary appropriations to the Agriculture Department, the Coconut Cultivation Board and the Department of Minor Export Crops. All facilities, including major irrigation works, roads and buildings constructed and/or rehabilitated under the project, would be maintained in accordance with sound engineering practices and adequate staff and funds would be provided for this purpose. 48. The Government would ensure that agricultural credit under the proj- ect would be provided in accordance with rules and procedures satisfactory to the Association, and, to this end, would enter into subsidiary agreements, satisfactory to the Association, with the People's Bank and the Bank of Ceylon (Section 3.06 of the draft DCA). The People's Bank and the Bank of Ceylon would make loans to project beneficiaries on the prevailing terms for agri- cultural credit in Sri Lanka, which range from 9% per annum for cultivation loans to 14% per annum for tractor and vehicle loans. The Central Bank would provide 100% refinance for cultivation loans and 70% refinance for loans for machinery and equipment. Refinancing would be on terms and conditions consis- tent with the ongoing countrywide programs and would provide a spread to the lending banks of about 7% for cultivation loans, 5% for tractor and vehicle loans and 4.5% for all others, with no guarantee against default. It would be a condition of effectiveness that the Government has entered into subsidiary agreements, satisfactory to the Association, with the Peoples' Bank and  - 17 - Bank of Ceylon for the provision of agricultural credit under the proposed project (Sections 6.01(a) and (b) of the draft DCA). As part of the drive launched to recover or otherwise settle the large proportion of accounts overdue, the banks have begun analyzing and classifying their portfolios. Under the subsidiary agreements, the banks would be required to furnish to the Government: (i) an inventory of defaulters; (ii) an analysis of the classification of their portfolios; and (iii) the program of bank action against willful defaulters. 49. The average annual rate of inflation as measured on the official Colombo consumer price index has risen sharply since 1977 to about 11% in 1978 and 1979, and is expected to reach 30% in 1980. The current inflation is largely a result of policy-induced adjustments in administered prices, short-term demand-supply imbalance and a steady increase in import prices. The Sri Lankan authorities are currently actively considering measures to slow down inflation. Assuming that a determined effort is made to contain the growth of government expenditures in 1981, inflation should begin to budgetary deficits and credit expansion, to cause a slowdown in the rate of inflation by 1981. Subsequently, domestic inflation is expected to come more closely in line with international inflation. Technical Assistance 50. To strengthen the implementation capacity of various project agencies, the Government would employ consultants having qualifications and experience and upon terms and conditions satisfactory to the Association. The Irrigation Department would employ consultants in water resources (about 49 manyears of senior and 42 manyears of assistant level) to plan and design much of the irrigation work to be undertaken in the proposed project. This would allow the Irrigation Department to focus on quality control and main- tenance operations. A team of supervisory consultants (about 25 manyears would be employed by the RDD to assist the RDD project cell and accounting unit as well as the Project Directors for Puttalam, Matale, and for Kurunegala to: (i) review plans and designs for civil works to determine compliance with agreed specifications and guidelines; (ii) inspect completed civil and field works; (iii) assist in preparing applications for withdrawals from the IDA Credit Account; (iv) monitor progress and centralize budget control; and (v) assist in preparing quarterly and annual progress reports, annual and five- year programs and budgets, and the project completion report. It would be a condition of effectiveness that these supervisory consultants have been appointed on terms and conditions satisfactory to the Association (Section 6.01(c) of the draft DCA). About 12 manmonths of short-term expatriate specialists would be employed by the Department of Minor Export Crops to advise on home garden development programs. About 6 manmonths of short-term expatriate specialists would be employed by the RDD to advise on the monitor- ing and evaluation process. Monitoring and Evaluation 51. The progress of the project would be monitored through quarterly reports submitted to the respective Project Director by each implementing agency. Each department or agency would maintain separate records adequate  - 18 - to reflect the operations and financial conditions of the part or parts of the proposed project for which the department or agency is responsible. Formats for the quarterly and annual input monitoring would be based on those developed for the Kurunegala Project, and those for annual output monitoring are now under o'reparation. The quarterly progress reports would be submitted to the Association within eight weeks of end of each quarter and annual pro- gress reports would be furnished for review and comment by March 31 of the following year. 52. High priority would be given to evaluation of the direct and indi- rect impact of the project. For overall evaluation, the RDD would contract with local universities and research institutes for a series of small, in- depth studies of the development of minor export crops, coconut development, agriculture credit and irrigation and water management. The Government would furnish a detailed rl. i for evaluation to the Association by December 31, 1980 for review and comment. Costs and Financing 53. The total project cost is estimated at US$50.01 M equivalent. The foreign exchange component is estimated at US$17.01 M equivalent or about 34% of total project cost. Cost estimates are based on unit prices adjusted to January 1980 price levels and include about US$1.5 M equivalent for taxes and duties. Physical contingencies of 8% of base costs have been included. Price contingencies have been estimated assuming inflation rates as follows: (i) equipment and vehicles - 10.5% during 1980, 9% during 1981, 8% during 1982, and 7% during 1983 and thereafter; and (ii) civil works and other local costs 30% and 21% respectively during 1980, and 15% during 1981, 12% during 1982 and 10% during 1983 and thereafter. The total cost of consultants ser- vices, mainly local consultants, is estimated at about US$1.7 M equivalent, or about US$700 per manmonth. The proposed IDA credit of US$33.5 M equivalent would finance the full foreign exchange costs and about US$16.49 M equivalent of local costs or about 69% of total project cost net of taxes and duties. The local cost financing would be in support of the Government's continued strong efforts to increase public savings by reducing the burden of subsidy and transfer payments (para 11), despite the drop in tax revenues due to weak export prices. Subsequent to the elimination of all food subsidies in early 1980, the Government has increased Business Turnover Tax, raised sugar and petroleum prices, and increased electricity tariffs. Local cost financing would also help provide much-needed foreign exchange for balance of payments support, while the Government adjusts its investment program (para 20). The cost of that program has increased sharply, in large part due to deterioration in the terms of trade. Benefitting farmers would pro- vide US$0.76 M equivalent as contributions to field works for coconut and minor export crop development and downpayments and installment payments on private agricultural investments financed through institutional credit. Participating commercial banks would contribute US$1.34 M equivalent from their own resources for financing part of the agricultural credit requirements under the project. The Government would contribute the remaining US$14.41 M equivalent.  - 19 - Procurement 54. Equipment and Vehicles. Equipment, vehicles and spares with an estimated cif cost of about US$2.5 M equivalent (net of contingencies) would be procured after international competitive bidding (ICB) in accordance with IDA guidelines. A preference limited to 15% of the cif price of imported goods or the import duty, whichever is lower, would be extended to local manufacturers in the evaluation of bids. Because of the relatively small quantities under the project and the need for standardization, it would be impractical and costly to have separate tenders for much of the educational and medical equipment; accordingly, the project requirements for these items (cif cost US$0.4 M, net of contingencies) would be procured together with national requirements following Government's normal procurement procedures. Due to strong consumer preferences, ICB would also be impractical for pro- curement of vehicles which are to be purchased by departmental staff under the existing system whereby the Government makes medium-term loans available to staff, who in turn repay the loans from travel allowances for official business; these (total cost: US$0.16 M) would be procured through normal commercial channels. Small off-the-shelf items costing less than US$10,000 each, which cannot be bulked into packages suitable for international tender- ing or items needed urgently for expeditious project implementation, would be procured through prudent shopping in accordance with procedures satis- factory to IDA. The total of all non-ICB equipment purchases would be limited to an aggregate of US$1.4 M. IDA would review the procurement documentation, procedures, and processing of all contracts the equivalent of US$100,000 or more. 55. Civil Works. Because most civil works (base cost US$10.5 M) would be labor-intensive, relatively small, seasonal and scattered over a wide area, it would not be practical to group them into contracts of suitable size for ICB. Accordingly, the civil works under the project would mostly be done through small unit-cost contracts with local labor groups or on force account. Field development works for coconut lands and minor export crop would be under- taken by beneficiaries on force account using family and/or hired labor and inputs purchased through normal commercial channels. Forestry development and part of the sericulture work would be undertaken by force account or small unit cost contracts. 56. Agricultural Credit. Farm inputs, equipment and vehicles (base cost US$5.91 M) under the agricultural credit component would be purchased by sub-borrowers through normal commercial channels. A sufficient number of local dealerships and agencies are available to ensure competitive prices and wide ranging choice. Disbursements 57. Disbursements would be made for: (i) 100% of foreign expenditure, or 100% of local expenditure ex-factory, or 80% of other local expenditure for equipment, vehicles, and spares; (ii) 100% of the cost of technical assistance; (iii) 80% of the cost of civil works; (iv) 50% of the financial assistance by the Government for coconut and minor export crop development field works; (v) 100% of labor costs in sericulture and forestry field works  - 20 - components; (vi) 100% of salaries for additional staff for road maintenance and rehabilitation in 1981, 1982 and 1983 and 50% of such salaries in 1984 and thereafter; (vii) 50% of the disbursements in excess of Sri Lanka Rs 4.6 M (current annual level in the project area) per calendar year for cultivation loans by the Peoples' Bank and Bank of Ceylon; and (viii) 80% c6 the amount disbursed by the Peoples' Bank and the Bank of Ceylon for loans for agricul- tural equipment and vehicles. Disbursement for items (iii)-(viii) would be made against statements of expenditures. Supporting documentation would not be submitted for review, but would be retained by the implementation agencies and available for inspection by IDA during the course of project supervision missions. The Government would make arrangements satisfactory to the Asso- ciation for all implementing agencies claiming disbursement under statement of expenditure to maintain proper accounting records and, where necessary, to build up their institutional capacity for procurement and internal audit. The disbursement mechanism for cultivation loans is designed tr provide financing for those additional activities to be undertaken above tne current level of activities; the level of activities estimated to be achieved in 1980 would be established as the base for calculating eligible expenditures. All other disbursements would be made against full documentation. The Project Director would be responsible for preparing claims for disbursements from IDA. It is expected that the disbursements would be completed by June 30, 1986, about six months after the end of project implementation. Since preliminary works for establishing the project organization and for initiating project activity (e.g, construction of buildings and facilities, procurement of vehicles, establishment of nurseries, site surveys, technical assistance, etc.) is critical to efficient program implementation, it is proposed that eligible project expenditures incurred after June 30, 1980 be retroactively financed up to a total value of US$1.0 M. Farm Incomes and Cost Recovery 58. The impact of the project on farm incomes would vary greatly with farm location, cropping pattern, size and financing arrangements. Incremental income would increase by 7% to 140%; annual financial returns from directly productive investment activities range from 17% to 100%. 59. The Government's budgetary contribution to the project during the total project life is estimated at Rs 198 M in present value (PV) terms or equivalent to 47% of total project costs. The balance of Rs 220 M (PV) or 53% of total project costs would be recovered from beneficiaries through different means and from Government commercial activities. Taking into account that about 30% of project investment cost would be directed to improve eco- nomic and social infrastructural facilities, such level of direct recovery is satisfactory and higher than for the average rural development project. The major part of this recovery will be contributed by the forestry component through the sale of wood (Rs 101 in PV terms). An amount of Rs 50 M (PV) is expected to be recovered through implicit and/or explicit taxation on exports of coconut and sericulture. The cost of agricultural credit would be reco- vered through sub-loan repayments (Rs 61 M in PV terms). However, cost recovery from irrigation facilities would be very small. Irrigation charges are collected from major irrigation schemes and, at present water charge levels, only about 23% of O&M costs of such schemes would be recovered.  - 21 - Benefitting farmers would contribute labor to the O&M costs of minor irriga- tion schemes. Under the project, the Government would undertake about 25% of the earthwork for rehabilitating irrigation schemes through voluntary farm labor. The low level of recovery on the irrigation works is considered acceptable in view of the low income base of most farmers who would benefit from improvements in irrigation facilities (para 64). Benefits and Justification 60. The proposed project would assist the Government in raising incomes, employment and living standards of some 130,000 farm families in Puttalam and Matale Districts. At full development, annual paddy production would increase by about 27,000 MT, or by 133% over present levels and about 104% above the future level expected without the project. Increases in paddy are expected to be somewhat larger in Matale due to the very low current level of cropping intensity, a result of the poor condition of the existing irrigation schemes. Annual coconut production is expected to increase by 26.0 M nuts, with yields increasing from about 1,500 nuts per acre to 2,300 nuts per acre, compared to an optimistic yield of 1,800 nuts per acre in the future without the project. 61. Successful project implementation would lead to additional exports of coconut products, minor export crops and silk, leading to incremental foreign exchange earnings of about US$8.9 M per annum. Import substitution of rice due to the project would save an additional US$6.6 M per annum. Allowing for the foreign exchange cost of needed inputs, the project is expected to generate net annual foreign exchange savings of about US$13.0 M. 62. More intensive land use and improved crop husbandry practices under the project would result in additional annual farm employment of about 2 M man-days. Increased agricultural production would stimulate substantial new employment in activities such as marketing, processing, transportation, input supplies and consumer services. All this would help to relieve the large unemployment and underemployment situation prevailing in the project area, particularly during the slack periods of the agricultural cycle. 63. Economic and social infrastructure financed under the project would improve transport and health care facilities in remote areas; improve drink- ing water supplies to some 6,250 rural families in water deficit areas; supply electrical service to about 1,650 rural households; improve instructional facilities at about 290 schools; and strengthen vocational education facili- ties in the districts. 64. Over two-thirds of the direct project beneficiaries would be small farmers with operational holdings of 2 ac or less, with present per capita income levels considerably below the poverty level of about US$75. Improved land productivity and increased on-farm and off-farm employment under the project would enable most of these farm families to move above the poverty level. However, since most of the direct benefits would come from increased farm productivity, the distribution of benefits would largely follow the exist- ing land ownership pattern with two-thirds of total beneficiaries receiving only about one-third of the total benefits.  - 22 - 65. The economic rate of return is estimated at about 15% for Puttalam and 18% for Matale, or 17% overall. Excluding the cost of the economic and social infrastructure, the economic rates of return of the directly productive components are estimated to be 22% and 24% respectively. The economic rate of return for components range from 17% for minor irrigation in Puttalam (9% of total project cost) to 43% for sericulture (1% of total project cost) in Matale. Sensitivity tests indicate that the project remains viable under a variety of adverse assumptions about costs, benefits and timing of realization of benefits. With a 10% increase in costs and a 20% decrease in paddy yields and benefits from coconut, sericulture and minor export crops, the overall economic rate of return is estimated to be about 14%. If full realization of benefits from increased paddy production is delayed by two years, the overall economic rate of return is estimated to be about 16%. Project Risks 66. The proposed project includes many components and faces the diffi- culties associated with actions in politically sensitive and institutionally demanding areas, such as irrigation water management and rural credit disci- pline. An inherent risk in such a multi-sectoral project concerns the ability to achieve necessary coordination in implementing the various interrelated components. These risks are not expected to be significant given the decen- tralized system of district government, which has been working successfully in the Kurunegala project. 67. On the technical side., the risks related to the engineering and agronomic proposals are considered within the acceptable range. The executing agencies have experience in carrying out the types of works proposed, while projected yields, intensities and production techniques have been adequately tested and are currently observable on progressive farms in neighboring areas. 68. Poor quality control of irrigation works has been a common problem in recent times in Sri Lanka, and has adversely affected the Kurunegala project. To minimize such risk, planning and supervisory consultants would be employed to assist the Department of Irrigation and the Project Director. The intro- duction of improved water management practices is also taking longer to be adopted than was previously envisioned. To overcome this problem, the project would provide for strong institutional support for the design and introduction of improved water management in the two districts; to reflect a more realistic rate of adoption under the project, full development of improved water manage- ment practices is estimated to require eight years after completion of project works. PART V - LEGAL INSTRUMENTS AND AUTHORITY 69. 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 1(d) of the Articles of Agreement are being distributed to the Executive Directors separately.  - 23 - 70. Special conditions of the credit are listed in Section III of Annex III. Additional conditions of effectiveness for the IDA Credit would be: (i) the execution of subsidiary agreements satisfactory to the Associa- tion between the Democratic Socialist Republic of Sri Lanka and the Peoples' Bank and the Bank of Ceylon respectively (para 48) and (ii) appointment of supervisory consultants on terms and conditions satisfactory to the Asso- ciation (para 50). 71. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 72. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments November 18, 1980  - 24- ANNEX I Page 1. SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROUPs (WEIGHTED AVRAGES LAND AREA (THOUSAND S2 KM.) - MDST RECENT ESTIMATE)- TOTAL 65.6 HOST RECENT LDW INiCOME MIDDLE INCOME ACRICULTURAL 25.7 1960 /b 1970 jb ESTIMATE Lb ASIA 6 PACIFIC ASIA & PACIFIC GNP PER CAPITA (USS) 60.0 100.0 190.0 197.9 894.8 ENERGY UONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 107.0 13S.0L 109.0 166.0 842.4 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 9.9 12.5 14.3 UEHAN P)PULATION (PERCENT OF TOTAL) 17.9 21.9 25.6 20.8 39.1 POPULAIION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.0 STATIONARY POPULATION (MILLIONS) 31.0 YEAR STATIONARY POPULATION IS REACHED 2070 POPULATION DENSITY PER SQ. KM. 151.0 191.0 218.0 193.2 376.1 PER SQ. EM. AGRICULTURAL LAND 507.0 518.0 556.0 409.6 2350.4 POPULATION AGE STRUCTURE (PERCENT) 0-14 YRS. 42.1 41.9 37.6 42.0 40.4 15-64 YRS. 54.3 54.5 58.3 55.0 56.2 65 YRS. AND ABOVE 3.6 3.6 4.1 3.0 3.4 POPULATIUN GROWTH KATE (PERCENT) TOTAL 2.5 2.4 1.7 2.2 2.4 URBAN 4.6 4.3 3.7 3.9 4.1 CRUDE BIRTH RATE (PER THOUSAND) 36.0 30.0 26.0 37.4 28.7 CRUDE DEATH RATE (PER THOUSAND) 9.0 7.0 6.0 14.6 7.9 GROSS REPRODUCTION RATE 2.5 2.3 1.8 2.6 1.9 PAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 55.3 113.0 USERS (PERCENT OF MARRIED WOMEN) .. 8.0 41.0 13.6 39.0 FOOD AND NUTRITION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 93.0 103.0 119.0 101.4 116.9 PER CAPITA SUPPLY OF CALORIES (PERCENT OF REQUIREMENTS) 97.0 108.0 96.0 92.4 108.9 PROTEINS (GRAMS PER DAY) 44.0 47.0 43.0 49.8 60.3 OF WHICH ANIMAL AND PULSE 13.0 13.0 7.0 12.0 18.8 CHILD (AGES 1-4) MORTALITY BATE 7.0 3.0 2.0 17.9 5.3 HEALTH LIFE EXPECTANCY AT BIRTH (YEARS) 62.0 67.0 69.0 50.8 63.0 INFANT MiORTALITY RATE (PER THOUSAND) 63.0 51.0 .. .. 52.8 ACCESS TO SAFE WATER (PERCENT OF POPULATION) TOTAL *- 21.0 20.0 30.2 42.4 URBAN .. 46.0 45.0 66.0 62.1 RURAL *- 14.0 13.0 20.0 29.7 ACCESS TO EXCRETA DISPOSAL (PERCENT OP POPULATION) TOTAL .. 64.0 59.0 17.7 52.8 URBAN *- 76.0 68.0 71.3 71.1 RURAL .. 61.0 55.0 .. 42.4 POPULATION PER PHYSICIAN 4500.0 .. 6274.0 6322.7 4120.1 POPULATION PER NURSING PERSON 4150.0 2730.0 2259.0 9459.0 2213.6 POPULATION PER HOSPITAL BED TOTAL 319.0 331.0 331.0 1758.4 819.4 URBAN .. 130.0 140.0 502.9 RURAL *- 570.0 600.0 10524.1 ADMISSIONS PER HOSPITAL BED .. 54.0 51.3 *- 28.8 HOUSING AVERAGE SIZE OF HOUSEHOLD TOTAL 5.4/c 5.8 URBAN 6.3/c 6.3 RURAL 5.2/c 5.5 AVERAGE NUMBER OF PERSONS PER ROOM TOTAL 2.0/C 2.5 URBAN 2.l/c 2.7 7 RURAL 2.0oT 2.5 ACCESS TO ELECTRICITY (PERCENT OF DWELLINGS) TOTAL 7.5/c 9.0 URBAN 35.9/c 34.5 RURAL 2.3T7 2.8  - 25 - AIRZEX I Page 2 TABLE 3A SRI LNKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROUPS (WEICMTED AVE GES - MOST RECENT ES MOST RUCtNT LOW INCG(E MIDDLE INCOME 1960 Lb 1970 Lb ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMENT RATIOS PhIMAiYs TOTAL 95.0 99.0 86.01d 80.9 98.6 MALE 100.0 104.0 89.00d 94.3 99.2 FENALE 90.0 94.0 82.0/d 66.7 97.7 SECONDARY: TOTAL 27.0 47.0 47.01d 26.6 55.5 MALE 38.0 46.0 47.0/d 34.8 60.7 FENALE 16.0 48.0 48.01d 18.2 49.9 VCATIONAL ENROL. (2 OF SECONDARY) .. 1.0 1.0 9.9 13.7 PUPIL-TEACHER RATIO PR7IARY 31.0 .. 29.0 41.1 34.6 SECONDARY .. .. .. 20.5 28.5 ADULT LITERACY RATE (PERCENT) 75.0 / 77.6 78.1 40.9 85.8 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 7.0 6.8 1.8 9.0 RADIO RECEIVERS PER THOUSAND POPULATION 36.0 .. 38.0 25.8 118.9 TV RECEIVERS PER THOUSAND POPULATION .. .. ,. 2.4 39.4 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 36.0 49.0 .. 13.4 CINEiA ANNUAL ATTENDANCE PER CAPITA 3.0 .. 4.0 .. 4.9 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3390.9 4186.9 4930.6 FIKALE (PERCEhT) 22.6 23.7 24.0 29.4 36.8 AGRICULTURE (PERCENT) 56.3 55.1 54.0 70.5 51.9 INDUSTRY (PERCENT) 13.5 14.4 15.0 11.6 21.9 PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.6 37.9 39.1 MALE 50.8 49.2 48.2 51.3 48.5 FEfALE 16.2 16.5 20.3 23.7 29.6 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.2 1.2 1.1 INCOIE DISTRIBUTION PERCENT OF PRIVATE INCOME RECEIVED BY HIGHEST 5 PERCENT OF HOUSEHOLDS 26.4 .. 18.6 HIGHEST 20 PERCENT OF HOUSEHOLDS 52.1 43.4 42.8 LOWEST 20 PERCENT OF HOUSEHOLDS 4.5 7.5 7.3 LOWEST 40 PERCENT OF HOUSEHOLDS 13.7 19.2 19.3 POVERTY TARGET GROUPS ESTIMATED ABSOLUTE POVERTY INCOME LEVEL (US$ PER CAPITA,) URBAN .. .. .. 107.8 RURAL .. .. .. 86.5 192.1 ESTIMATED REIATIVE POVERTY INCOME LEVEL (US$ PER CAPITA) URBAN .. RURAL ., .. .. ,, 182.5 ESTIMATED POPULATION BELOW POVERTY ICOME LEVEL (PERCENT) URBAN .. .. .. 46.2 RURAL .. .. .. 51.7 33.2 Not available Not applicable. NOTES /a The group averages for each indicator are population-weighted arithmetic means. 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 1974 and 1978. /c 1963; /d Due to changes in duration of levels in education, the ratios are not strictly comparable aver time; /e 1962; /f 1972. April, 1980  - 26 - M~~~~ANEX I - ~~~~~~Page 3 DEFINITIONS IF SOCIAL. INDIICATORS Nose- Alth-ug, nice date are dawn free souce genral judged the most authoritative and reliable, it should ela be notd tht they nay not be inter- notluullocoopeatOrhatnus oftee lckh o stnal.dde encsad atoecpes osed by diirn eoo nclec1.ting ths deto. The data era, none- tholou-, ..o .lt descib, tdor fnec d., iZa., recde,and ebhoawt-i-s -tein mJor diflros betwee noceie.. Therefreoa goup se III oh 0 sane truerry grouy, otthe subject oe ..try end (2) a oounnny group nith aemechen higher -osege isro.e thee th. enuntry group of the nafoct oeunry Isatet Icr "CPlilfrle01lpetr"gopoeeMiddle Ineome INorth hAres sd Middle teen" Is chosen b.eosue. of stronger ..est hell ohnl 0;c'leOegophoe data for that iedten,to. finee' thtneaso oeee mn he SEdlaosdpndt ntetaOeiipo data e eet antles courte suet bee..e..leed .to e tlattg -c-gso of nin indloaton tc anonher. Thseeoge n only seet,t enepatgthe nelse of ou .i-dscre ata cone sene toe -toutY -ud otfc...ts -aroPe.. LuSt unto -ceoeiqd..cuate e c::e-ouetc ttO ny ...mnen at prttitin~g phy- Ogeloolnral -Berlnue of agioul rua area seedtePorrl rpoesee..tly Poculati.te crNangPero cplro ieo ynme fpete -c ocy., yasturo.. sachok u,d kitchen. gBdent on o lie rul11n; i977 dana~. neeadtml rdaenre,PrPo1ttilea nirasd.d adeseea u s tLTIT -t ...... -,k't PPorlanton. - per .esina1 Bed - stal,1 untbe. e- rrl-Pplro enl isr roeCAPIIO It)) -my per oy Itoesrnsoo corec soke pr.iose, 6a0- ubee, end tuna) divided by thoi rape i numbe of boepita1 bode cufurd hby sewcr Io nthd as ond lock AtlasI hll-7dbss) O ceeilable to peblie and pri-ers gen.n. co d epooeiond beepine1 end re- I9 0, sod 1979 data. hobilitarlon cetes e.npitai ar este-blismenbte permanetly ent.ffd by a boa onephyscio. terbliebh.e.e. prneiding potncipslly cotatdie1 OSEtIl dSSOcc2ldS P15CAPITA donsa c.nnepet.. o t omoc nre.(oe Are ore not ineloded. loca hopitele,thwvr iselude bhal andh mdiosi and ) klson . Ecclt. nasa. u ndhde,nule n enhre.1c- rneeno emnnly erefe.d by ephysirten (hot by a sedica1.. asetetet. trtettol Onktlogrest o eec1 equirlent per rapita; 1960, 1970, and 1918 nurse mdm if, etc.) which offer tnpaient a-edetio and provide data, ~~~~~~~~~~~~~~limited range of edirel facilite.Pssntietinel por,posee o-b- hospi- POPULATION AND VITAL STATISTICS ~~~~~~~tale include WHlOn yel,ibpol ganerc1 and spoialised bospitele, and ruralI rcPfl.ITIIM dIllOITAL pTtIlSTIC Todtal Porlrop i-la silet -. nof July 1; 1960, 1970, anh9f u.stnsprMsie e -1-nte,neate ofdt. edmstne ror discarge data,, P1122q 911~b from hospitels divided by thena beofbds dlnsedeiniclon of1c7nboeranAy lo ce"rshrilnty of den tTIf aegeeserrl i1t96 910 ad 1979 data. A-ersos Sloe of nEsb..ohld I-.ersess per ..sehall) - total. arbos. asdransi- Poculatirn Prolsettens ~~~~~~A bo..e.hold coriene of egniP of isdinidoel who share lininggoetr Pouoio nror2101 E- Co'lttn pesate orsisirol t eont see based o190 Andthoir main ol.cbA re rldger may or ye on ho tslsd"din. tona opoluew y g cdsnne hIrmralt ndfri Styrei. tnthoseo' dfo stat eticl puP.se... one lif0 csycte-c or birch -nore.sLag with"county's per e pita nEo..s bar ofprsn pe 001. .al rbs an rrl-wupsdcnnina "ent, andtslrIlnpeanytetog n 7~7..5.y_sr. The pera- derIliegs, rsp-otiosly. Dnellings ranlude o-amsn srrse n coesi lrillyroeaa haeneeecloemigdetline in etutdpre frrLillyt.ac .ecdlcg to immmc lo-e sod yant tatyponngprnmoe .o..s e.ic Ileritto een fdelie)-itl ubn e ue Eachf cosnsrp1 tshewee-igerd ... ci thesewin i conhinatlo" t o-f steity C.neninltdeisge Iniom lrocr nlnn qurtrsa ur noliy trends fc prej_cine purpon._ of ttel, unbar, and itel. dwellings re-p-eti-ly. Itatcrac "nuelo r etln ywApuPliutlw tharo in no gr-th sines tehoc>es saeln b etrt,od ala the ag stutuer- EDSOCATION noltcnsat Tbis in -chieed enly after f-yiley tera declin e t dstdfroiet ro cb rplacsmat la_s of -ut-we -eprod-ti-n rts.t ohe. eah genentt- Prmr cho Ea,ml end f_nba-_ons tonal, sale end femal ne.ttoted entehseo.t rjro broeint fthe Popolnte primary abolenPopalnee mPmll as hide age f11 in the you 2000, and oh orte of detee of ferilt .es no .ePlao- Years but adjuend f-r diffsrs- 1s-gths of prtimlysIdaa ins fo con lec..l. cstrres nlhoioeel edction eenlmes masesnd 115 psnc.st hear stnlocachcrulstoi It rsthed -Tie .. ynrhen sttienany population sic 'nsppi'e er b- o oran he officialsoen Pae nice hue been esue bed. ~~~~~~~Secon.dary scbonl - nntl. male end fme1s- Camputed ocebevale...ondary PcsltweInet Ideaorqrs nlea onpasa ppoa rmr ntutins; Ps so. ha.- Mid-.cas pue nPer eq.er. bilome.e t-1101 heteree) of predegnrl oeIenal. or--y.- f-p t..brtrinn tisatretrn i at papi total erca. usne~~~...lly of 12 no 17 years ofag:wreptndensrars n gemerlly PeIa., ha outiclt-rel lend - Cepon u oec tr groutoallad aocred -Olhy.Veain enrolmen Ireeetnf..e..nderyl - oeiea rnetitari..s hi. feera),nod retired(65 years ed -ce) en p-rcenngee efmd-peer popu- d-nlc rs deperes-t of t-eed-r iretitsntsi lurOor iNtl 1970,eta lft Ost. PChi-lrecher0re14 -yri-er. andkscueero - orel tudent enroled e 64yea-opoacn fo 195-f,Ih-,an190 . orsedinglevls laten 1960 197061 oh-, d17 ad.. P9if.sapal etaeofee.d..poueto aged 15T year and.t oe.t1 di popolanion; 1960, 197, en 9fdae iSlATS popuueln; 960 197, ad 176 ata caa-dso leesd she' eigh persons; sol bdee embtanr.. hearaseI an t.PIity cre; usually0,.. fleyetarrg8 edn id96,190ted197 bedrCONogeealpblrpe bosedo ppPTiI;scldsNnt tanll b.Planct p-Ocon, Asuo d-hueay P- loose ...bcd 0r itopyo- Pe...d A", veaOneanr sod in yesru when ... regi tra go o endi se c-I bleb 196l enrs 7 cder asdcst oioa aoyrenitpor ese. in.i I..e.t done -icreht years- may men. -be om..r.b. stew moa h.,r of child-btarniae- 1-1 ere7shfecbrr-.nr..e.eete 17 ei-ea er hsne pclsin)-TO ecier-urhjeistS oil nuer ted women te tune ego droop. geesrel pab6lic9 pend 1 7thousand pupolatioln;.lnuel-deh seliossePed TOO reo-1 iners F..i -...I a-b- f -.Pt.t. e d t-1 t-t.~~~i ru.s.r... end-c yeas h y noieraoo or. giN netsass di ,if 00 bilth-cIItt d-te.d t..If.iyp..i% tt.et Le ..t et-Y.tb .p bl i. at teaor eeci. ..ded. a - g Ogeg t - eweeio fouh o..y.ebuede-tckr soldidaPcn ..ehe year toeuing edm -in ie drieo oletee acerao medNtD prIRITeighte; l,h.-SO. 1970. and 1970 deta.fand neltre seine Foe cemita nO7PlP or celcelee I ceecent ci reculemantel - C~~emysce fees q_n_ tOr oe In foo preten le, ad Iosne In dOntbsin eoe- ttntasn ato e re n cothmprel 16 , 197 end orItt nte ostluned h PdE baed.owApyalelo teal.neds fornormalcml- 199 dane wInycdhalh.ni erlng onedAleectheencatl iorru r. bod weghs agIeel (oes - Femaleld labor force antldi. periei.ge of renallabo forc. -i-uer-boid leel tIhIh, 197,.haed 1- 19 197 0 dana.H fisd bllepeonn f oall.n.oceit.,190ed.9f oa Per matn seiro peotei (aoapeAx foen cntent of pe sio Ider (ece)-Lbrfte wmnn,cntucin aaetnn allease o_0 crane ora total rNetc per lay. a_rd20gram feel eislad, Pa attce nRt nbeeceet) note.., mle,edreasrutergioo hoi 1-e Sre; 1961-65, 91 197 1977 dana. ahe-eeosrraco ge of theppulaion, andt long tine ' med. A97 fe eti letcareer rsy so re.tly frogesso an nis a r tS supl of fod e mns r from nationl osee betr,,,d -eo etee ed pul nges e d ay;P19h1-tSd 197 -an 1977 due1960c eednvRai ai o oaai ue 5ed 5edrs Chld(ce 1u Metait fete. (Se-blieaed( -y UDeeA p-deafth pe husn n ectetoa efre tries dana dented Icon lile tables; 1960, 1971 and 1977 data. INElOf SIsTeloclIct~~~~~~~~~~~~~~~~~~f 070ad 179 .t. " eontg ofPiat noe bt i ahan td - RPsne yntbe ilulThf~~~~~~~~~~~~~~~~P :b"'ttI. T. d . If__ _ __ _ __d__ _ __ _foIou e ol s at bomb; Ofif. ll'( end 1979 data.~~~~Ld1.- .' IcEotOoncloonot (oeth oseOf- un,ua deth of.~ leYceuneInfyaIOIROTRRTIl of.a ..fee.efoccthed llne bletb.. . eniatedAbAOutE.otttyeItoneierd (II ret oiptito) - urba and etorO t.nrrw pol (ttl.uba,edrro.cn..soaiuretoee on tonall adift dirt pplus.- es dni-o noniced rutnemeAtf us otE pocwi gn fthi ropoin cslno Ieo bu,IaeoacpiebDic du... reatv prerty income lee Osre-thir. d- oP aneeg per cepita Ciculd i or4 MnodpctL Peaed ctnelen20mte rs te atwee sat e prosibnso b:onr.ihtlas sdne fo h aa reses nacon ecd miyte the hosso190 wi970e ne e1ber dt. thIoseod NCOM tEDISRIUTONlno eo bouePvryIes ee nree r h0.