Sri Lanka - Construction Industry Project

Document of The World Bank FILE COPY FOR OFFICIAL USE ONLY Report No. P-2996-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 CONSTRUCTION INDUSTRY PROJECT March 17, 1981 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 authorization.  CURRENCY EQUIVALENTS US$1 = Rs 18.0 Rs1 = US$0.056 Rs 1 million = US$55,556 WEIGHTS AND MEASURES 1 foot (ft) = 0.305 meters 1 mile (mi) = 1.609 kilometers (km) 1 square mile (sq. mi) = 640 ac (259 ha) PRINCIPAL ABBREVIATIONS AND ACRONYMS USED CHPB - Center for Housing Planning and Building M - Million MLGHC - Ministry of Local Government, Housing and Construction NAB - National Apprenticeship Board NTCCI - National Training Committee for the Construction Industry SCCI - Secretaries' Committee for the Construction Industry FISCAL YEAR January 1 - December 31  -FOR OFFICIAL USE ONLY SRI LANKA CONSTRUCTION INDUSTRY PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Amount: Special Drawing Rights 10.9 M (US$13.5 M equivalent at thie time of negotiations). Terms: Standard. Project Description: The project aims to increase the supply of trained manpower and improve the level of technical management expertise in the construction industry. To achieve this objective, the project will establish a unified modular training system for construction-related trades and improve the use and maintenance of plant and equipment. The project consists of the following components: (i) training of about 45,000 unskilled workers upto a "basic skill" level; (ii) upgrading of skills of about 9,600 skilled workers; (iii) train- ing of about 1,800 mechanical equipment operators and mechanics; (iv) training of about 900 junior work supervisors; (v) training of about 80 senior work managers; (vi) provision of equipment and training materials; and (vii) technical assistance. The project does not involve any unusual risk associated with similar type projects. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Estimated Cost: US$ Million Equivalent Component Local Foreign Total A. Technical Assistance on Policy .1 .3 .4 B. Management and Super- visor Training .4 .9 1.3 C. Equipment Training .9 3.4 4.3 D. Basic and Advanced 5.3 2.9 8.2 Craft Training Base Cost 6.7 7.5 14.2 E. Contingencies Physical .7 .6 1.3 Price 4.2 2.7 6.9 Subtotal 11.6 10.8 22.4 Taxes and Duties 2.6 - 2.6 TOTAL COST 14.2 10.8 25.0 Financing Plan: US$ Million Equivalent Local Foreign Total IDA 2.7 10.8 13.5 Government 11.5 - 11.5 Total 14.2 10.8 25.0 Estimated Disbursement: US$ Million Equivalent IDA FY 1982 1983 1984 1985 Annual 3.0 4.5 3.9 2.1 Cumulative 3.0 7.5 11.4 13.5 Staff Appraisal Report: No. 3219-CE, dated March 3, 1981  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 CONSTRUCTION INDUSTRY 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 10.9 M (US$13.5 M equivalent at the time of negotia- tions) on standard terms to help finance a Construction Industry 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 Exe- cutive 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 poten- tial. 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 factors, including inadequate investment, poor management of the economy, and a policy environment unconducive to growth and investment, which were compounded 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 adequate, 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 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  - 3 - 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 were 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 reached a level of Rs 18 per US dollar by December 1980. Import Liberalization: The trade and payments regime was liberalized. With the exception of petroleum products, public sector import mono- polies were terminated. Prior licensing of imports was 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 April 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 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 subsid.ies and food rationing, and to target benefits to 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.  -4- 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 were adjusted upwards on four occasions. 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 the impact on consumers. The Govern- ment subsequently eliminated the subsidy on petroleum products and made sizable adjustments in bus and train fares and electricity prices. The burden of subsidies and transfers, as a consequence, fell 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 expenditures. Tax Reform: The tax structure was rationalized and simplified with a view to increasing the elasticity of revenues. The burden of personal and company taxation was lowered. However, taxes on slowly growing treecrop exports accounted for over 45% of 1978 revenues; as a result, the overall elasticity of revenues to economic growth and domestic inflation has been low. Agricultural Pricing Policies: The domestic support price for paddy was increased by 21% in November 1977, by 25% in November 1980 and by a further 5% in February 1981. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. Fresh coconut prices were also increased and the export duty on coconut products was appropriately adjusted. While the unification of the exchange rate ended formal discrimina- tion 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 and coconut taxation will be needed to maintain and improve incentives. Similarly, the support price for paddy will need to be increased further to maintain strong producer incentives, especially since the substantial increase in fertilizer prices announced in February could have an adverse effect on fertilizer consumption. 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 15% in 1979 and 19% in 1980, as government departments responded to the initial improvement in the budgetary resource position by embarking on long overdue replacement investments and new projects that had been shelved earlier for lack of resources. At the same time, the Government 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  - 5 - 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 64 foreign investors involving a total investment of US$117 million by end-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. These four programs will together cost an estimated Rs 32 billion, or 43% of the projected public investment program over the 1981-85 period. By 1980, their share in the investment program had already risen to 33%. 13. 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. 14. A difficulty with the 1981-85 investment program, as currently proposed, is that identified investment activities, which in most cases, have already gathered substantial momentum, will result in government capital expenditures far in excess of available financial resources in the earlier years (1981-1983) of the program. The experience during 1980 (paras 16-19), when government capital expenditures rose to nearly 19% of GNP at market prices, and contributed to the severe pressures on prices and the balance of payments, underscores the dangers arising from this "front-loading" of the investment program. The government is aware of this, and is reviewing its public investment program with a view to reducing the level of investment in the current year and the following two years. 15. The initial response of the economy to the policy reforms and the accompanying acceleration in investment has been encouraging. Economic growth in 1978-1980 averaged an impressive 6.7% 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. The rapid rise in investment has not, however, been accompanied by a concomitant rise in the national savings effort. Gross national savings fluctuated around 15% of GDP during the 1978-80 period, while the use of foreign savings increased from 4.6% of GDP in 1978 to 20.0% in 1980. Although the Government has succeeded in containing the costly consumer subsidy and transfer programs, which has led to their decline as a percent of GDP (para 11), relatively inelastic revenues combined with steadily rising other recur- rent expenditures and declining terms of trade have resulted in practically no  - 6 - 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 Gov ernment 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 following the interest rate reform. However, resources mobilized through these channels have not grown as rapidly as the budgetary deficit, and the Government has been increasingly forced to 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 10% of GDP is estimated for 1980. 17. 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, with broad money increasing by 38% in 1979 and 27% in 1980, compared to a 6% growth in GDP, there has been a sizable "built-in" price increase. This, together with the corrective price increases designed to reduce budgetary subsidies, and the rapid increases in the price of petroleum, wheat and sugar imports have led to an overall inflation rate of 26% for 1980. 18. 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 deteriorated rapidly and net reserves declined by about US$230 million. The principal cause of the deterioration has been the sharp increase in the trade deficit. While all categories of imports, but particularly capital goods imports, grew rapidly, exports rose 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 one-third of non-oil exports. Other elements of the current account continued to perform well; nevertheless, they could not offset the deterioration of the trade account, and as a result the current account  - 7 - deficit is expected to more than double to over US$800 million and rise to 20% of GDP. Net aid disbursements, together with net direct foreign investment, will cover only about one-half 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. 19. Aid donors have responded enthusiastically to the Government's development initiatives - aid commitments totalled US$617 million in 1979 and $615 million in 1980. Continued high levels of aid will, however, depend upon the Government maintaining donor confidence in its economic policies and management. 20. 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 1980 excluding IMF repurchases stood at 7.3% of exports of goods and non-factor services, declining from 16.6% in 1977. 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 commercial borrowings. Unless the ratio of the current account deficit to GDP improves, 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 21. 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 26 credits totalling US$395.5 million (net of cancellations and exchange adjustments) in support of 32 projects. About 43% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 17% for power, 15% 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 January 31, 1981, together with notes on the execution of ongoing projects. 22. 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$3.68 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$260,000 in an equipment leasing company.  -8- 23. The Bank Group's current strategy is focused on the agricultural sector to support Government efforts to increase food prdduction 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 sup- port basic infrastructure are also included. A Mahaweli Ganga Development III project, a village tank rehabilitation project, a second tea rehabilitation project, and a second small and medium industries project are being appraised. 24. In 1979, the Bank Group accounted 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 external 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 CONSTRUCTION INDUSTRY Current Constraints in the Construction Industry 25. Sri Lanka's construction industry has gone through various phases over the past twenty years, reflecting phases in the development of the economy as a whole. Rapid growth in 1966-70 was followed by a sharp decline during the period 1971-77, when the economy was generally depressed. The latter period was characterized by a reduction in the output of the construction industry, from 5.6% of GDP in 1971 to 3.8% in 1977, and by a dramatic shift of work from the private to the public sector, reflecting the constraints placed during this period on the development of the private sector. 26. Following the liberalization of the economy, begun in 1977, the con- struction industry had to face a significantly enlarged demand stemming mainly from the Government's investment program. The industry, however, was poorly prepared to meet such increased demand, as a result of supply constraints in the areas of materials, equipment, manpower and management. Despite these constraints, the industry grew in real terms at 28% in 1978 and 21% in 1979. It is doubtful, however, that such performance can be maintained, as evidenced by the rapid increase in the price index within the sector, which rose 45% in 1978 and 50% in 1979. 27. Current shortages of construction materials have prompted the Government to allow the importation of timber, cement and steel. However, more difficult to overcome are the shortages of several domestically produced materials such as sand, bricks and stone aggregates. There are signs, however, that production is increasing, and IDA's Small and Medium Industries (SMI) Project (Credit 942-CE, US$16 million) includes assistance to building mate- rials industries. 28. Past import controls and the generally depressed state of the economy during 1971-1977, have resulted in a largely antiquated fleet of equipment available to the construction industry, particularly to the private sector.  - 9 - The recently created Lanka Orient Leasing Company, with IFC equity participa- tion, is expected to help increase the availability of capital equipment to construction companies. SMI project includes financial and technical assistance for small scale construction contractors in equipment and materials. Addi- tional equipment is expected to be provided in the proposed IDA-financed NDB/SMI project. 29. There is an absolute shortage of skilled labor in the industry, and the scarce skills arc being dilun- tD meet the Pxisting and increasing demands. The reasons are manifold. First, the labor force in the construction incustry remained at around 100,000, or 2% of the total labor force during most of the seventies and grew towards the end of the decade to 140,000 in 1979. Secondly, about half of the estimated 30,000 Sri Lankans who migrated to the Middle East in the late seventies were construction workers. Finally, the traditional training system, consisting of long apprenticeship periods under skilled craftsmen, may be in the process of breaking down because there are fewer skilled workers in the country to provide training, and because those remaining in Sri Lanka would rather work productively and benefit from higher rates than train others. The present situation is, therefore, characterized by a scarcity of skilled workers; by unskilled workers carrying out tasks unsuited to their ability; and, as a consequence, by a general decrease in the productivity of labor. Training Institutions 30. There are several institutions in Sri Lanka that impart training in skills relevant to the construction industry. The National Apprenticeship Board (NAB) administers training provided by contractors at work sites; its 8,000 trainees include about 1,400 in building and allied trades. The Depart- ment of Labor imparts construction-related training through two permanent and 130 mobile centers to about 2,700 trainees a year, mainly in masonry and carpentry. The Department of Rural Industries operates 75 centers where 1,500 trainees receive carpentry skills. The Department of Higher Education has 20 technical institutes where technical courses are offered as part of a two-year general high school education with about 4,000 students taking construction- related courses at any one time. The Center for Housing Planning and Building (CHPB) trains about 40 engineers annually in planning and management. These institutions do not generally have adequate financial resources nor do they have adequate supplies of training materials at their disposal. In all, the annual output of the existing training facilities is about 6,000 skilled construction workers. Construction Companies 31. There are no large domestic private contractors in Sri Lanka. About six contractors have an annual capacity of up to Rs 100 million each, and about twenty more have a capacity of about Rs 30 million each per year. They con- centrate on buildings, water supply and small sewage projects, and have so far responded well to the rising demand for their services. The revitalization of the economy in recent years and the new attitude of the Government towards the private sector have resulted in the latter carrying out increasing amounts of public works. After 1977, the private construction industry organized itself  - 10 - into a Sri Lanka Construction Consortium that now includes about 350 contractors and about 30 consulting firms. Under existing arrangements with the Govern- ment, the Consortium carries out contracts for government work at negotiated rates, and with substantial advances to help the contractors' precarious liquidity position. The Government reintroduced competitive bidding as the normal procedure in the construction sector with effect from February 1, 1981. The Consortium fulfills a useful function as an intermediary between a rundown construction industry and a government that wishes to proceed quickly with its investment program without having to revise bidding and contract procedures. The Consortium has an interest in training to make up for the exodus of skills to the Middle East, and encourages its member firms to carry out on-the-job training under NAB-administered programs. PART IV - THE PROJECT 32. During the preparation of the 1979-83 Public Investment, the Govern- ment became aware that the capacity of the domestic construction industry would have to be increased to carry out the work called for in the Plan. In recognition of the constraint, IDA discussed with the Government, in December 1978, a program of assistance leading to a possible project designed to increase the output of the construction industry. During this and subse- quent discussions, it was agreed that a possible project should concentrate on specific aspects where significant improvement would be possible with the resources available. It was later decided that measures to increase the supply of skilled manpower and management expertise available to the industry were likely to be the most effective. In early 1980, the Government decided to retain the services of the British Council to provide technical assistance to be financed under the project. The project was appraised in June/July 1980. An advance of US$280,000 from the Project Preparation Facility (P0128) was approved by IDA in October 1980 mainly to finance about 25 man-months of consultancy services required to ensure timely project implementation. Negotiations were held in Washington, D.C. in February 1981. The Government delegation was led by Mr. R. Paskaralingam, Secretary, Ministry of Local Government, Housing and Construction. A Staff Appraisal Report entitled "Sri Lanka - Construction Industry Project" (Report No. 3219-CE, dated March 3, 1981) 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. Project Objectives 33. The project aims to increase the supply of trained manpower and improve the level of technical management so that the construction industry can better meet the demands of Sri Lanka's development program. To achieve this objective, the project will: (i) establish a unified modular training system for construction-related trades, which will supply the industry with significant numbers of skilled workers in the shortest possible time; (ii) improve the use and maintenance of plant and equipment by training operators and mechanics; (iii) increase the effectiveness of work planning and supervi- sion by training middle and upper management personnel in contract procedures, site management and quality control; and (iv) improve government policies and procedures relating to the industry.  - 11 - Project Description 34. The project consists of the following components: (i) training of about 45,000 unskilled workers up to a "basic skills" level in areas such as masonry, carpentry, by means of 8-week long training courses; (ii) upgrading of skills of about 9,600 skilled workers in the abovementioned areas; (iii) training of about 1,800 mechanical equipment operators and mechanics, by means of 12-week long courses for heavy equipment operators, 4-week long courses for operators of small plant, truck and tractor drivers, and 24-week long courses for equipment mechanics; (iv) training of about 900 junior work super- visors in procedures of supervision and quality control, by means of off-site 8-week long courses imparted in cooperation with the CHPB; (v) training of about 80 senior works managers in improved work planning and management, entirely under CHPB's responsibility, involving both on-site and off-site training; (vi) technical assistance to establish and run the training system under the project and advise on technical and policy issues concerning the construction industry; and (vii) supply of equipment and materials necessary to carry out the training program. 35. The numbers estimated for training are indicative targets that take into account the requirements of the revised public investment program. It is estimated that a 15% annual growth of the workforce in the construction industry over the period 1980-84 is realistically attainable under the project. The proposed project would train about 57,000 persons, or about 60% of the expected cumulative increase in the workforce up to mid-1984. Training Principles 36. The project will set up a training organization supported by increased equipment and materials and technical assistance. Training will be on the modular system, whereby trainees can progress from one level to a higher level, via a series of short courses interspersed with periods of job experience. In setting up the training system, job specifications will be drawn up, from which a list of required end-of-course objectives will be obtained. On the basis of these training objectives, trainee selection criteria will be determined, and course curricula and training standards will be developed. Other features of the project include: a unified stan- dard for entry to and for passing courses; uniform course content throughout the country, irrespective of which organization carries out training; and a unified system of trade testing and certification. The Government will, by June 30, 1982, standardize selection criteria, training curricula and methods, testing, certification, and registration of construction workers, supervisors and specialists (draft DCA, Section 3.07(a)). The proposed system will help build up a recognized career pattern in the industry, where certificates will come to have a recognized value in denoting what standard of performance may be expected from the holder. Trainees in basic skills, advanced skills, equipment operation and site supervision will be paid an allowance while undergoing full time training (draft DCA, Section 3.09). The level of the allowances will be revised, if necessary, in accordance with the average wage level that the trainee could otherwise expect to receive. Trainee selection will aim at including women in proportions at least similar to those existing in the industry as a whole. Concerning geographic and ethnic background of trainees, an appropriate mix will be obtained through the use of training centers spread throughout Sri Lanka.  - 12 - Organization and Implementation 37. The overall implementation of the project will be the responsibility of the Ministry of Local Government, Housing and Construction (MLGHC). In 1979, the Government established a Secretaries' Committee for the Construction Industry (SCCI) under the chairmanship of Secretary, MLGHC to coordinate policies and use of available resources in the construction industry and to improve contract documents, specifications and procedures. The SCCI assisted by the technical assistance team, will act as a steering committee for the project. 38. The day to day administration of the project will be carried out by a Project Cell which has been set up within MLGHC, under a Project Director. The Project Cell will be responsible for: (i) the preparation of budgets in collaboration with the various implementing agencies; (ii) the release of funds and payment of project expenditures; (iii) the maintenance of consolidated project accounts; (iv) the preparation of applications to IDA for reimburse- ments; (v) the preparation of monthly progress reviews; and (vi) liaison with the technical assistance team on all project matters. The annual consolidated project accounts and audit reports will be submitted to the Association within nine months after the end of each fiscal year. 39. In order to obtain maximum benefits from the training program, it must be allied with a recognized trade testing procedure with certification for those who pass qualifying standards and central registration of skills. The entire training program will be supervised by a National Training Committee -for Construction Industry (NTCCI) which has already been established. NTCCI will be responsible for the overall planning of training in the construction industry, and for setting up standards for selection, curricula, testing and other aspects of construction industry training (draft DCA, Section 3.06(b)). NTCCI will be assisted by the senior training specialist of the technical assistance team. 40. Six Ministries will be concerned with the implementation of the project. These are: Ministry of Local Government, Housing and Construction: Secretaries' Committee for the - act as a steering com- Construction Industry mittee for the project. Project Cell - day to day administration of the project. National Training Committee - overall planning of for the Construction training for the con- Industry struction industry and establishment of standards for admission, curricula and trade testing for the industry. Center for Housing Planning - recruit and train technical and Building managers and supervisors.  - 13 - Ministry of Youth Affairs and Employment: National Apprenticeship Board - administer training at work sites. - administer agreed aptitude and trade tests and intro- duce registration of skilled construction workers. Ministry of Labor: Department of Labor (Training - train masons, carpenters, Centers) electricians and agricul- tural tractor drivers/ mechanics. Ministry of Higher Education: Department of Higher Education - train masons, carpenters, (Polytechnic and Junior Technical plumbers and possibly institutes) electricians. Ministry of Rural Development: Department of Rural Industries - train carpenters (Training Centers) Ministry of Lands and Land Development: River Valleys Development Board - allow the use of suitable construction sites for equipment operators' training. Department of Machinery - provide facilities for and Equipment mechanics' training at Ratmalana workshops. 41. The physical implementation of the project is planned to commence in the third quarter 1981 and be completed in three years. Initial technical assistance is being financed under the Project Preparation Facility (PPF) so that, by the time of credit effectiveness, the Project Cell will be in opera- tion; adequate liaison between the various ministries involved will have been established; course curricula will have been drafted and discussed; recruit- ment and training of local instructors will have begun; and procurement of mechanical equipment and materials will have commenced. During the first year, recruitment and training of local staff will be completed and training will commence in all specialities except technical planning and management, which will begin in the second year. By the third year, training will have built up to its maximum level.  - 14 - 42. The project will be implemented through both on-site and off-site training. On-site training will be carried out at ongoing work sites, mainly as production training, i.e., involving the production of useful output, while training takes place. To this end, several sites have been identified and arrangements have been made to take over portions of suitable contracts for on-site training. The project will use existing training institutions as much as possible for off-site training. Many of these institutions are now under- utilized and the dropout rate is high. By introducing shorter courses and providing adequate supply of training materials under the project, their util- ization will increase. The Government will make available the facilities of existing training institutes for construction industry and adjust the ongoing courses as necessary for implementation of the project (draft DCA, Section 3.08). 43. Project monitoring will be the responsibility of the NAB, which by June 30, 1982, will set up a monitoring and evaluation system satisfactory to IDA, able to assess the qualitative and quantitative impacts of the project (draft DCA, Section 3.10). Reporting requirements during the course of project implementation will be in the shape of quarterly progress reports prepared by the Project Cell and annual reports to review project performance and recommend changes as needed during implementation. 44. To set up the systems, train local staff and supervise the project, a significant amount of technical assistance is necessary. The Government rlquested, and IDA agreed, that the British Council shall undertake this work. A total of about 430 man-months of technical assistance is proposed at an average cost of US$9,500 per man-month. The technical assistance component has been estimated mainly on the basis of the number of instructors required to carry out the training at all levels during project implementation. It also includes the services of a construction industry specialist who will assist SCCI on technical and policy matters, and a senior training specialist who will manage the training program. Cost and Financing 45. The total project cost is estimated at US$25.0 million (including taxes, and duties of US$2.6 million equivalent) with a foreign exchange cost of US$10.8 million. The estimates are based on prices of mid-1980. The pro- posed credit of US$13.5 million would finance the full foreign exchange cost and contribute US$2.7 million to local costs, or about 60% of total project costs, net of taxes and duties. The remaining local costs, amounting to US$11.5 million (including taxes and duties) would be met by the Government. The local cost financing would be in support of the Government's continued strong efforts to increase savings by reducing the burden of subsidies and transfer payments (para 11), despite the drop in tax revenues and weak export prices. Physical contingencies are calculated at 5% for equipment and 10% for all other items. Price contingencies have been estimated for plant and equipment at 10.5% in 1980 and 9% in 1981; for technical assistance, at 13.5% in 1980/81, 8.5% in 1981/82 and 7.5% thereafter; and for other items, at 25% in 1980, 25% in 1981, 15% in 1982, 12% in 1983 and 10% in 1984.  Procurement and Disbursement 46. Since plant, vehicles and equipment to be used for training have to be representative of what is currently available in Sri Lanka, these items will be procured from suppliers of specified models and types in accordance with procedures satisfactory to IDA. Such equipment and tools are estimated to cost $2.5 million. In the event that no models or types can be specified for a particular tool or piece of equipment, ICB will be used with a preference amounting to 15% or the import duty, whichever is less, allowed to domestic manufacturers. Training materials will be procured according to the Govern- ment's established local procurement methods, which are acceptable to IDA. For purchases of items with an individual value of US$5,000 or less, and up to an aggregate amount not exceeding US$125,000, local prudent shopping procedures may be used. The Association will review all contracts and related documenta- tion for procurement of goods and services estimated to cost US$100,000 or more before an award is made. The Association will review the proposal and rates of the technical assistance to be provided by the British Council before their services are retained. 47. Disbursements from the credit will be made as follows: (i) 100% of foreign expenditures for directly imported, 100% of local expenditures (ex-factory) for locally manufactured, and 80% of expenditures for locally procured equipment; (ii) 50% of expenditures for training materials; and (iii) 100% of expenditures for technical assistance. Advances made from the PPF with service charge accrued thereon, will be repaid out of the proceeds of the proposed credit as soon as it is declared effective. Project Benefits and Risks 48. The proposed project will increase the capacity of Sri Lanka's construction industry so that it can better meet the needs of the country's investment program in the public and private sectors. Benefits will accrue from the project by: (i) increasing the number of skilled and semi-skilled workers; (ii) reducing wage inflation at present caused by the shortage of skilled workers; (iii) increasing employment among unskilled labor; (iv) improving income levels of individual workers by providing them with extra skills; (v) increasing returns on invested capital through better use of equipment and better management; (vi) improving the quality of finished work; and (vii) improving the effectiveness and productivity of existing training facilities. Emigration of skilled workers after they have acquired some experience will probably continue at present levels or more, but it will increase rather than decrease benefits, due to increased remittances from abroad. 49. The largest number of direct beneficiaries of the project will be workers trained in basic skills, who are mostly from poor backgrounds and tend at present to be unemployed or underemployed. Others who have some skills at present and who will undergo advanced training will receive increased earnings. Organizations carrying out construction work will benefit from better returns on invested capital, due to better utilization of equipment and a better supply of skilled labor. Indirectly, the project will benefit all those who stand to benefit from public and private investment in construction, due to faster and less expensive completion of works.  - 16 - 50. The technical and organizational risks of the project are no higher than normal risks associated with such a project. Shortages or irregular supplies of training materials, or shortage of recruits for training, may endanger the success of the project. A degree of flexibility has been built in the project through short-course format and periodic project performance reviews, so that training targets and contents may be readjusted, if necessary, during implementation. This will avoid any possible overproduction of skilled workers under the project. As materials required for training form only a small percentage of the total requirements for the industry, advance purchases will help to reduce the risks of shortages impeding training. Finally, given the high rate of unemployment among school leavers, the fairly sure prospect of employment following a few weeks of training, and the allowances to be paid during the training period, it is expected that there will be no significant shortage of recruits for training. PART V - LEGAL INSTRUMENTS AND AUTHORITY 51. 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. Special conditions of the credit are listed in Section III of Annex III. 52. I am satisfied that the proposed credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 53. I recommend that the Executive Directors approve the proposed credit. Robert S. McNamara President Attachments March 17,1981  - 17 - ANNEX I Page 1 SRI LANKA - SOCIAL INDICATORS DATA SHEET - SRI LANKA REEERENCE GROUPS (WEIGHTED AVERAGES LAND AREA (THOUSAND SQ. KM.) - MOST RECENT ESTIMATE)- TOTAL 65.6 MOST RECENT LOW INCCME MIDDLE INCOVE AGRICULTURAL 25.7 1960 /b 1970 /b ESTIMATE /b ASIA & PACIFIC ASIA & PACIFIC GNP PER CAPITA (US$) 60.0 100.0 230.0 212.4 1114.7 ENERGY CONSUMPTION PER CAPITA (KILOGRAMS OF COAL EQUIVALENT) 107.0 138.Ojf 109.0 166.0 842.4 POPULATION AND VITAL STATISTICS POPULATION, MID-YEAR (MILLIONS) 9.9 12.5 14.3 URBAN POPULATION (PERCENT OF TOTAL) 17.9 21.9 25. 6 20.5 39.1 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.0 STATIONARY POPULATION (MILLIONS) 31.0 Y EAR 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 POPULATION GROWTH RATE (PERCENT) TOTAL 2.5 2.4 1.7 2.2 2.4 URBAN 4.8 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 FAMILY PLANNING ACCEPTORS, ANNUAL (THOUSANDS) .. 55.3 113.0 USERS (PERCENT OF MARRIED WOMEN) .. 8.0 41.0 15.6 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 REQUIREtMENTS) 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 RATE 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 MORTALITY NATE (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 OF POPULATION) TOTAL .. 64.0 59.0 17.7 52.e 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 RURAL .. 570.0 600.0 ADMISSIONS PER HOSPITAL BED .. 54.0 51.3 .. 28.8 HOUSING AVERAGE SIZE OP HOUSEHOLD TOTAL 5. 4/c 5.8 URBAN 6.3/c 6.3 RURAL 5. 2/C 5.5 AVERAGE NUMBER Or PERSONS PER ROOM TOTAL 2.0/c 2.5 URBAN 2. 1IZ 2.7 RURAL 2.0/C 2.5 .. ACCESS TO ELECTRICITY (PERCEST OF DWELLINCS) TOTAL 7.5/c 9.0 .. URBRAN 35. 9/C 34.5 .. RURAL 2. 3jC 2.8 ...  - 18 - ANNEX I SRI LANYiA - SOCIAL INDICATORS DATA SHEET Page 2 SRI LANKA REFEREZRE GROUPS (WEIGHTED AVES - MOST RECENT ESTIMATE) MOST RECENT LOW INCCfE MIDDLE INCOME 1960 / 1970 J ESTIMATE lb ASIA & PACIFIC ASIA & PACIFIC EDUCATION ADJUSTED ENROLLMEZT RATIOS PRIMARY: TOTAL 95.0 99. 0 86. 0_d 80.9 98. 6 MALE 100.0 104.0 89. O/d 94.3 99.2 FEMALE 90.0 94.0 82. 0d 66.7 97.7 SECONDARY: TOTAL 27.0 47.0 47. 0d 26.6 55.5 MALE 38.0 46.0 47.0jd 34.8 60.7 FEMALE 16.0 48.0 48. 0jd 18.2 49.9 VOCATIONAL ENROL. (X OF SECONDARY) .. 1.0 1.0 9.9 13.7 PUPIL-TEACHER RATIO PRIMARY 31.0 . 29.0 41.1 34.6 SECONDARY .. .. .. 20.5 28.5 ADULT LITERACY RATE (PERCENT) 75.0 /e 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 NEW'SPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 36.0 49.0 .. 13.4 CINEMA ANNUAL ATTENDANCE PER CAPITA 3.0 .. 4.0 .. 4.9 LABOR FORCE TOTAL LABOR FORCE (THOUSANDS) 3390.9 4186.9 4930.6 FEMALE (PERCENT) 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 FEMALE 16.2 16.5 20.3 23.7 29.6 ECONONIC DEPENDENCY RATIO 1. 3 1. 4 1.2 1.2 1. 1 INCOME DISTRIBUTION PERCENT OF PRIVATE INCOllE 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 (USs PER CAPITA) URBAN .. .. .. 107.8 RURAL .. .. .. 86.5 192.1 ESTIMATED RELATIVE POVERTY INCOME LEVEL (USS PER CAPITA) URBAN .. RURAL .. .. .. .. 192.5 ESTI1ATED POPULATION BELOW POVERTY INCOCE 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; L4 Due to changes in duration of levels in education, the ratios are not strictly comparable over time; /e 1962; /f 1972. Most recent estimate of GNP per capita is for 1979, all other data are as of April, 1980. October, 1980  - 19 - ANNEX I Page 3 DEFINITIONS liP SOCIA INDICATORS Notes: Although she dat ar dcsee froe sou-e -eerlly judged the mast auhorItativ and reIible, it shouto also he -.d sht they maY so he inne- eslsll cpaol becaseo the lack of sno-dordi-od defisitioss sod .o.eeP.e oaed by differen eu- re tis. I onto the dats. The d-t or, theless, usful -c descibe orders ci esgoode, ledicose treeds, sed char-esrte cer-in eaJo differences he ..teeet conr,is. The refer.sce E_p%ysoc I) th, -ae -ucsrc groc of the sub) ens ...so an d (2) annuesy gccp wish sua-etathighbee. stecog i-ne shoeIth z-ncty geonp efthe ujet_coury leec_ for" "CaIta - -pls fenret -ccphe_eMiddle I-sot North Afelos e,d eddlo East" ts ob..e. heceuse _ of den andinceufo, ...so ..o h o auronod Io relatingaeoe uf ins dicanraohc Tegaeae aeol sfl nooal~hslt of on... cso ataci-e scug the c--try sodrefe.etne groups. LAD nAREA (thousand sqik..) i'elSc o hvf c-tpuletiot avden. by nunoe o prcfcn hy- Tonol- -calourfIc araoacslasdorsa - ssis1sd oses htreolifiodree _ed_nal_nh_ arnoclnnnl harteultur.l - Esueof sr iculnralse sdtmuaiyor peemasetly EPseultics ge -urisa Perac-Pcnsrc divided by number feparcs for croy. ps-e-re, earkes ad hItcher gardens or no lie fsbiew; 1977 data, sale sad fesal geadnenuss prannical --eei and ...aio.r-nrss Paeiai Ieec aeta Ned - -Is. eau adre -d Populati-t (.totl. IMP PtCA ITO I) S e aiaasltsa arSeea prices. cal- o~ba ..sd ruesi:)Tdivided by the it respect'ivesue fhn t'bd tu9s0e by, sam co9 erd c soRdu n ld tan Atlas. (1977-79 bests); 196f, soilable Ie public asd prisse p-sealad apaiblieed hnepitl. bnd c MtERCY CONSUH5PTIOO PERh CAPITA - dt-a1couatitof coeosltrylna tr retot. teoladad.toe hospials,hoerec, eloo helsh saffdmeIa sad llgtitrposce.nsasgssobyr, eolarsdge..tel ls--etes etpemaeelyesffdy 7 - a hscts(u by sldi ord.inal asitat friciry) ir kilograms nf noal equieslenr yet ca pits; lObI, 1971, ard loft aaron, mideSfe, em.) ablob offer in-pstiett scootssudeviot sad peeside a~~~~~~~~~~~~~~~~~~~~~~~~r9y 1 V da~~~~~~ta~)i i.- o . .Eros baejssledi9tde ho th enober of beds. dir asoenontrie; lll, 970 se 197 des. Aerse Sat o aosmhed (ersss rr70ossbld)- 1ta78nebo. ad rral toalpnultin Tsesdse sd her ncaltysd erilS tte, h Iostebld fa Wstalsia iptp or..ses. i PrjcinprMeteYrs rmraiyrnscmrs of treeIecla aeam AcessePbelfrrs~ eecr la - draI urbsi- and rora -necg rone- fsrnilityacoedlrg no nonar leve oed pass o fail p,laspogperftjoeee hoesn miensicis (rreT.o d ofldttes) - tonl,urue disP rucul E_snho...etryIs Ies1a96 ee fsfof bea ste otbilitioy of mortlit - oevsnna delssoihlntciyi il uretayeeng "P"rlu"ar rirleYtio90 - Cur-a stnosslytpopulation these is- noldgramsbaltne tsncsnat.hs aahsadol feefrslSyrtsh-ls t Mse tealeet ttatlee- d - in J-ibe yea -tr. s od sherateiof delo ffetlthat orpat-yasba dohd i l eca sg of pomrrdh no o saint level.t. ..Pt. y liity oldI Yersa Poaycelte ""Y"Is ere th The y -se ywhe staiaat popoatio sibno tos .opt. se e rshv h fiia nolae mis a he castf bed dcoear sca - total , saeadfml orbo,urd oa-1veA-ccdar Pu .us..o .dltbeesity7. -- .ro educatIon peqire at les1 nu er o pree.tmaylatuto Oh h yous) s Id rere .. N ear and over).as perootaets ol-ea aa- d ly s ors.t.eet of serd-r wlusos l'ena ftIeiroweb tansd (rercetp-nt al-j oua eo rts fsom sd - primeyad s.-todaY lvl(iiePb shr ftecesI b year populatloes for 1951-Of, E9AfyI,sd1f-t.l h,ig..-hit ftt1 coesaosoe lewl.dr.1-1 ...P- Y cooltlr 191 1970 and 1970 dsthe.t. boelawonhotogsI thA-mos _ - oefounin-at-ieeg osrhe ftr of d ilaugh teoasos sill bear Is sA leaoyveInd rilfyviae osal leya ergatie s10.17,ad1y. bednsmt gerera publi pse ~ . thnses ofpo laror;ncldsfoll- PanilyPhasasa-Annrsohs amsl(huads.t.alnmeeo cstr nse eevr oo re tsthls a rIty yese -he reisretiwo of _elo e _of bis_nocI deicslietaupie of fann tlitfa rily lsttn prga. e.sefe_ dt o rnw,yassY i-t hr noearil_ elms sassti co-et-o hl-ern te(5A er)wo s ls-cte deost nantoe,Y.rs leerjtdfo shssdiff_nl tsios enlg c o broanes for al eredtos It- sameh. 5J55, pp~.t. t.s.. esral - publcpe thuad peynlatln; eelds loeoa-d .7rcevr t, Pop'" -~~~~~~~~~~saeee iruate (wee s oara corb aio) th oaf~jltnheaoeagroru Fsdtof fod rdogi- PeCais(997-1)-Idofprcpiaaua eS ofdy-o 'dil g tte1a leeens ppe"1rne.sa eidclpb Is or eetdr yearbasis C1 caitiesoavee primary ga1dm (e.g.t. )o sagsta..t he . 'daly'i I ppar asles four fsCinsedaoes-ld. 1sf nd f sgor ohlobarcedile ad oosiseeriess e.g cofeesod Cleaa aaal Asssas t err. Cefts ea.r fear- rs-d on .thenmbry wanleou averag -redocrdp.iceeic1is;o9t1-25t1970, ed 1t7Adata. ad fobIp opiss pe dy Aalal splis Chmes damestleY- preo kios import lest Toa.Lbr.on huses -f Enowe dtlnly sno esrs ld quatires sed1w food -eoeslg sod beset 1 lsteihatofsY.. tq a P. ilutdow' It . va Iou(nosisar.e n ..aahis 190,97 and esee or rtImts b PO ese w pyselgisl etinfa .noDaci 97-aa an o lnioio fppite,an loigi eeetfretea as97n8tr-(_e1cin) laor f oro In l f Pao,fooyhuinad boseal ls t;1911 90 aed 1977 _ date f.IshIn aorneesagp-e oftoa labodry fore;t900_ 190 d 1P d dana. Per coelta srely of eresie (geame re doe) - Pro Eleneto f ptr1 tipd- Padu1sty (herns -lbrfrt a I .. s dtg cntuci srfntyn Y..roPentie for all 0-6Ontrle 6Doeibllohd byUIAp97d0 frslium171ad89O aa pustoet,oebe10gassudhenil rootele.Three_rasd- stlely raesse opad as1 dietdl, sae,an emlelaobfen ards ore lower then those of 75 gesme ~~~~~~of otl eoe aredtt. 23 grams ofP. perottae ftta,ml eAfml opl f lansrepciey anolpon..sw.seaePe h eld.rpsd yPlI the- Third19760,819-d, so -197 sa hs ate- 11'-patnla horons~thslnt Aolh too tur'y 191-5 .. 97d-1 and . 1977 h data-. age-se en tonur of the ''l pop Pultow, iae long nin rod tomes Peru coitocotl sel foot aneladple-Patle--- enpl f fod-y '.eese re aiaarount 1i9dfre 70al and 197ar Isgasprdyd9105 91aa17 aa EotoDroen ain-lneo euelnude1 n 5ados Child (nes1-A (por thlvtte(ettoesd) - annualt rth..deah per theossr It ONo ,theotaN aorfre tresdredrtio fetlfetblt 1901. 1970 aud 197 et.IsOo bStlnTo hEdiTi Pernetisar---ro dgh. -11br . .. ..t of rIvte. Oso ht (h --b -I s ad-tad - toeve b oba If h.P hicl::. I 10 hlilf housholds oslbYirth;il 190 1970 asd 197070 data.Z (- ~-ldAl tP. f ..i.. orr.l leaItotf svlt (pe twuatd -_ A(touoal etso satdeer- owe yearf t.p.t p bnro. T..... I rtO biPt t ofieg por thclusd Iltl udrbs utetloofated t Abselot Pova _t - lt da leeI C)ern ia ra o us AcF st(sP sed(ens frrlrot roa.aba ndrrl-1' AsltepvryIcs eeli htIcm eelblnhcaila Numbr o peole tota, abam,aedrura) is Wo en senabl arta Osfe srlioa deut Ie ltfsote roe-foodYrtqice ofnt.is.u eater suply (lenluet oret4e su .rface h -ase frust-eatad but -Ys-obtassioaEeblafferdelt edatofnFood aces ol ipyshtte os'af o eieso tehsshl Etmne dPruaior Felon Absouns-Ei.treti sofnTe tona -ceonts)-urba dnolaenapanr adlpot rsonr pe of tePdy Itfse969othesod ura - Peros-et of populatIon" (sbnad ua)ee r asluepo" Icily'i soarer2 adsads.ob rur l- Suhe of papttoal rba,sderl ed by etoresm tl-:Irl dieposal at. py-etgeofs trsate pepolattoan.fferestY die- t ooee P., so olllae_vso tr i. ( 9. r -d ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~ctbe 19 ofbuoaeaoesasdesst-e preby-ter..boof s.te... sboa o pie pmiones end mimilar iwatallawlens. ~ ~ ~ ~ ~ 't pp':  Annex I - 2 0 Page 4 of 6 pages SRI LANKA ECONOMIC DEVELOPMENT DATA SHEETS ACTUAL 1965 1970 1976 1977 1978 1979 NATIONAL ACCOUNTS 1/ (MILLIONS OF US$ AT 1975 PRICES) Gross Domestic Product 1783.0 2354.0 2747.3 2811.4 3020.7 3294.7 Gains from Terms of Trade 539.7 242.2 185.1 413.4 362.6 324.7 Gross Domestic Income 2322.7 2596.2 2932.4 3224.8 3383.3 3619.4 Imports 1189.8 1017.3 913.5 999.3 1272.8 1550.8 Exports - Volume -670.2 -662.9 -660.5 -694.5 -754.8 -819.0 Exports - TT. Adjusted -1209.9 -905.1 -845.6 -1107.9 -1117.4 -1143.7 Resource Gap - TT. Adjusted -20.1 112.1 67.9 -108.6 155.4 407.1 Total Consumption 2055.9 2239.0 2563.6 2648.2 2891.1 3219.0 Investment 246.8 469.4 436.8 468.0 647.6 807.5 National Savings 244.3 297.9 350.7 570.6 511.1 434.6 Domestic Savings 266.9 357.3 368.9 576.6 492.3 400.4 GDP at Current us$ 1686.6 1870.6 2424.2 2821.3 2546.3 3370.4 SECTOR OUTPUT (SHARE OF GDP AT 1975 PRICES) Agriculture 0.444 0.422 0.376 0.387 0.322 0.306 Industry 0.171 0.211 0.217 0.201 0.260 0.269 Services 0.385 0.367 0.407 0.412 0.418 0.425 PRICES (1975 = 100) Export Price Index 65.65 56.86 95.16 119.13 125.63 138.59 Import Price Index 36.37 41.64 74.33 74.67 84.86 99.24 Terms of Trade Index 180.52 136.55 128.02 159.53 148.05 139.65 GDP Deflator (US$) 94.59 79.47 88.24 100.35 84.30 102.30 Annual Average Exchange Rate 4.76 6.85 10.88 11.06 15.61 15.57 Growth Rates 1978 Share 1965-77 of GDP NATIONAL ACCOUNTS 1/ (MILLIONS OF US$ AT 1975 PRICES) Gross Domestic Product 3.9 100.0 Gains from Terms of Trade 12.0 Gross Domestic Income 2.8 112.0 Imports -1.4 42.1 Exports - Volume 0.3 25.0 Exports - TT. Adjusted -0.7 37.0 Resource Gap - TT. Adjusted 5.1 Total Consumption 2.1 95.7 Investment 5.5 21.4 National Savings 7.3 16.9 Domestic Savings 6.6 16.3 GDP at Current us$ 4.4 PRICES (1975 = 100) Export Price Index 5.1 Import Price Index 6.2 Terms of Trade Index -1.0 GDP Deflator (US$) 0.5 SELECTED INDICATORS 1965-77 ICOR 4.37 Import Elasticity -0.39 Average National Savings Rate 0.11 Marginal National Savings Rate 0.32 Imports/GDP 0.44 Investment GDP 0.16 Resource Gap/GDP 0.04 1/ Components may not add up because of rounding.  21 - SRI LANMA ANNEX I Page- 5-- BALANCE OF PAYMENTS AND EXTERNAL ASSISTANCE 1973 1974 3975 1976 1977 1978 1979 1980 EST. A C T U A L SUMMARY OF BALANCE OF PAYMENTS (US$ Million) 1. Exports (incl. NFS) 424.3 570.4 628.2 628.5 827.3 950.0 1135.0 1250.0 2. Imports (incl. NFS) 445.3 731.7 798.8 679.0 746.2 1081.0 154.-, 2145.0 3. Resource Balance --21.0 -161.3 -170.6 -50.5 81.1 -131.0 -405.0 -895.0 4. Net Factor Service Income -17.3 -16.6 -18.4 -20.1 -15.0 -15.0 -15.0 -35.0 .1 Net Interest Payments -14.7 -14.7 -15.9 -18.6 -14.0 -11.0 -9.0 of which on PUB M&LT Loans-15.5 -16.5 -20.6 -23.1 -22.1 .2 Direct Investment Income -2.7 -2.0 -2.4 -1.5 -1.1 -4.0 -6.0 v .3 Workers Remittances (net) .0 .0 .0 .0 .0 5. Current Transfers (net) .2 -.2 2.8 6.6 10.5 22.0 48.0 117.0 6. Balance on current account -38.1 -178.1 -186.2 -64.0 76.6 -124.0 -372.0 -813.0 7. Private Direct Investment .5 1.3 -.2 .0 -.3 2.0 47.0 50.0 8. Grants & Grant-like Flows 13.0 42.0 77.0 58.0 60.8 58.0 144.0 151.0 PUBLIC M&LT LOANS 9. Disbursements 83.8 146.3 157.4 210.4 150.1 236.0 186.0 276.0 lO.Amortization -39.1 -52.4 -117.7 -103.8 -101.9 43.0 -44.0 37.0 11.Net Disbursements 44.7 93.8 39.7 106.7 48.2 193.0 142.0 239.0 OTHER M&LT LOANS 12.Disbursements .0 .0 .0 .0 .0 .0 .0 32.0 13.Amortization .0 .0 .0 .0 .0 .0 .0 .0 14.Net Disbursements .0 .0 .0 .0 .0 .0 .0 32.0 15.Use of IMF Resources -1.4 33.3 27.9 11.1 46.9 36.0 67.0 -40.0 16.Short-term Capital Transactions -9.8 13.2 -2.8 -22.6 6.5 .0 .0 156.0 17.Capital Transactions NEI 28.2 62.3 -12.0 -31.8 -56.9 -35.0 87.0 -54.0 18.Change in Reserves (- = Increase) 1/ -37.1 56.8 56.6 -57.4 -183.0 -94.0 -48.0 239.0 19.Net Foreign Exchange- Reserves (end of period) -11.0 -67.8 -124.4 -67.0 116.0 210.0 258.0 19.0 GRANT AND LOANS COMMITMENTS (US$ Million) 1. Official Grants 21.1 37.0 76.0 53.1 104.3 123.7 ) 319.0 108.0 2. Total Public M&LT Loans 92.1 233.1 285.8 221.8 167.6 324.9 ) 338.0 491.5 .1 IBRD .0 .0 .0 .0 .0 .0 .0 .0 .2 IDA 6.0 24.0 29.5 .0 41.2 25.5 68.0 151.5 .3 Other Multilateral 2.8 2.5 30.0 8.1 49.7 83.2 40.9 63.0 .4 Governments 58.4 72.9 196.6 140.9 69.7 192.8 .79.1 277.0 .5 of which Centrally Planned Economies 2/ 2.6 21.4 56.1 4.2 1.7 10.0 .6 Suppliers 25.0 133.6 29.7 72.7 7.0 23.4 .7 Financial Institutions .0 .0 .0 .0 .0 .0 50.0 .0 .8 Bonds .0 .0 .0 .0 .0 .0 .0 .0 .9 Public Loans NEI .0 .0 .0 .0 .0 .0 .0 .0 3. Other M&LT Loans (where available) .0 .0 .0 .0 .0 .0 .0 .0 MEMORANDUM ITEMS 1. Grant Element of Total Commitments 45.000 27.100 55.700 39.800 64.400 62.686 67.521 2. Average Interest Rate .037 .051 .029 .040 .021 ,024 .020 3. Average Maturity (years) 23.700 13.600 28.800 20.500 35.400 29.529 39.715 1/ Net Foreign Assets: US$ Equivalent of Line 31, IFS. 2/ Includes CMEA Countries, Peoples Republic of China, North Korea, North Vietnam. figures not available March 3, 1981  - 22 - ANNEX I Page 6 SRI LANKA DEBT AND CREDIT WORTHINESS (US$ Million) 1973 1974 1975 1976 1977 1978 1979 MfEDIUM AND LONG-TERM (M&LT) DEBT (DISBURSED ONLY) -otal Debt Outstanding (DOD End of Period) 484.8 587.3 598.0 695.0 779.5 1,012.7 1,086.1 Including Undisbursed 680.1 875.7 997.0 1,095.6 1,197.5 1,528.8 1,765.2 Public Debt Service -54.6 -68.9 -138.4 -126.9 -123.3 -89.1 -75.8 .nterest -15.5 -16.5 - 20.6 - 23.1 - 21.6 -24.8 -28.2 Other M&LT Debt Service .0 .0 .0 .0 .0 .0 .0 -otal Debt Service -54.6 -68.9 -138.4 -126.9 -123.3 -89.1 -75.8 DEBT BURDEN Debt Service Ratio 12.8 12.0 22.0 20.2 14.7 9.4 6.7 Debt Service/GDP 3.1 3.2 6.1 5.9 4.4 3.3 2.3 -ublic Debt Service/Government Revenue 8.7 9.6 19.2 18.7 16.9 11.9 9.8 TERMS interest on Total DOD/Total DOD 3.2 2.8 3.4 3.3 2.8 2.4 2.6 --otal Debt Service/Total DOD 11.3 11.7 23.1 18.3 15.8 8.8 7.0 DEPENDENCY RATIOS FOR M&LT DEBT ~-ross Disbursements/Imports (including NFS) 18.8 19.9 19.7 29.9 19.8 22.2 12.1 'et Transfer/Imports (including NFS) 6.5 10.5 2.4 11.2 3.5 14.0 7.2 let Transfer/Gross Disbursements 34.8 52.9 12.1 37.5 17.6 62.9 59.4 EXPOSURE BRD Disbursements/Gross Total Disbursements 6.5 3.4 3.6 1.7 1.3 1.0 1.3 Bank Group Disbursements/Gross Total Disbursements 12.5 10.9 12.2 4.1 8.7 5.7 8.0 rBRD DOD/Total DOD 6.6 5.8 6.1 5.2 4.4 3.3 3.0 Bank Group DOD/Total DOD 9.5 10.0 12.5 11.5 11.4 9.8 10.2 1BRD Debt Service/Total Debt Service 8.0 7.4 4.0 4.7 4.9 6.9 7.7 3ank Group Debt Service/Total Debt Service 8.1 7.5 4.2 5.0 5.2 7.4 8.5 EXTERNAL DEBT (DISBURSED ONLY) OUTSTANDING (DECEMBER 31, 1979) Amount Percent ZBRD 32.6 3.0 Bank Group 110.8 10.2 Other Multilateral 169.8 15.6 Governments 763.5 70.3 of which: Centrally Planned Economies a/ 41.4 3.8 Suppliers 41.7 3.8 Financial Institutions 0.3 .0 Bonds .0 .0 Public Debt NEI .0 .0 Total Public M&LT Debt 1,086.1 100.0 Other Public M&LT Debt .0 .0 Other M&LT Debt .0 .0 Total Public Debt (including undisbursed) 1,765.2 162.5 Total M&LT Debt (including undisbursed) DEBT PROFILE Total Debt Service, 1980-84/Total DOD Ending 1979 48.9 a/ Includes CMEA countries, People's Republic of China, North Korea, Vietnam. March 4, 1981  - 23 - ANNEX II Page 1 THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of January 31, 1981) US$ Million Loan or Amount (net of Credit cancellations) No. Year Borrower Purpose Bank IDA Undisbursed Eight loans and eight credits fully disbursed 72.9 66.8 504 1974 Sri Lanka Dairy Development 9.0 5.8 666 1976 Sri Lanka Tank Irrigation Modernization 5.0 3.5 701 1977 Sri Lanka Mahaweli Ganga Development II 19.0 14.8 709 1977 Sri Lanka Water Supply 9.2 .7 742 1977 Sri Lanka DFC - Industrial IV 8.0 2.1 818 1978 Sri Lanka Tree Crop Rehabilitation (Tea) 21.0 17.5 819 1978 Sri Lanka Tree Crop Diversification (Tea) 4.5 1.2 891 1979 Sri Lanka Kurunegala Rural Development 20.0 17.8 900 1979 Sri Lanka Road Maintenance 16.5 16.0 931 1979 Sri Lanka Agricultural Extension and Adaptive Research 15.5 14.9 942 1979 Sri Lanka Small and Medium Industries 16.0 13.8 979 1980 Sri Lanka Mahaweli Ganga Technical Assistance 3.0 3.0 994 1980 Sri Lanka Road Passenger Transport 53.0 52.7 1017 1980 Sri Lanka Rubber Rehabilitation 16.0 15.9 1020 1980 Sri Lanka Telecommunications 30.0 30.0 1041 1980 Sri Lanka Second Water Supply 30.0 30.0 1048 1980 Sri Lanka Sixth Power 19.5 19.5 1079 1981 Sri Lanka Second Rural Development 33.5 33.5 Total, 72.9 395.5 292.7 of which has been repaid 42.3 0.3 Total now outstanding 30.6 395.2 Amount sold, 3.6 of which has been repaid 3.6 Total now held by Bank and IDA /a 30.6 312.2 /a Prior to exchange adjustments. B. STATEMENT OF IFC INVESTMENT (as of January 31, 1981) Amount of US$ Million Year Obligor Type of Business Loan Equity Total 1970 Pearl Textile Textiles 2.50 .75 3.25 1977 The Development Finance Development Banking Corporation of Ceylon - 0.10 0.10 1978 Bank of Ceylon Development Banking 2.00 - 2.00 1979 Cyntex Textiles 3.15 0.53 3.68 1979 Mikechris Industries Polypropylene Bag 0.90 0.10 1.00 1980 Development Finance Corporation of Ceylon Development Banking - 0.05 0.05 1980 LOLC Leasing - 0.26 0.26 Total Gross Commitments 8.55 1.79 10.34 Less: Cancellations, Terminations, Repayments and Sales 3.78 .74 4.52 Total Commitments now held by IFC 4.77 1.05 5.82  - 24 - ANNEX II Page 2 C. PROJECTS IN EXECUTION 1/ Cr. No. 504 - Dairy Development Project; US$9.0 million of August 9, 1974; Effective Date: February 10, 1975; Closing Date: December 31, 1981 Progress on project implementation was severely constrained by the poor supply of cattle available for supplying to project borrowers and disparities in the pricing structure for milk, meat and cattle feed. The Government has acted to provide appropriate incentives to the dairy sector by raising the producer price of milk and stabilizing feed prices. We are considering shifting the project focus from credit to supporting dairy cooperatives, in a manner similar to the Anand pattern of dairy cooperatives in India. The successful ongoing pilot calf/heifer rearing and pasture programs have been expanded. The closing date was extended by one year to allow time for reorientation of project activities. Cr. No. 666 - Tank Irrigation Modernization Project; US$5.0 million of January 12, 1977; Effective Date: April 12, 1977; Closing Date: June 30, 1981 Significant improvement in project implementation progress and construction quality has been made during the last one year. A new manage- ment team has been posted, which is planning, scheduling and coordinating work actions much more capably than the previous project manager. Equipment maintenance and downtime is still a problem, but a new maintenance workshop is scheduled for completion by March 1981 and new construction equipment has been procured. A water management program was planned for the whole of the Mahakandarawa subproject area during maha 1980/81, utilizing rainfall to the maximum extent possible so that tank water can be conserved for the yala crop. Farmers have been organized within each turnout for rotational water issues and all fields were ploughed early (by the onset of the rains) enabling planting. Considerable enthusiasm has been generated for this trial program and it appears to be successful. Project completion is now anticipated by December 1982. Cr. No. 701 - Mahaweli Ganga Development II Project; US$19.0 million of June 27, 1977; Effective Date: December 29, 1977; Closing Date: June 30, 1983 Considerable progress has been achieved in the construction of the irrigation system and the outlook for completing the project about one year ahead of schedule remains good. Settlement of project farms is well advanced. 1/ These notes are designed to inform the Executive Directors regarding the progress of projects in execution and, in particular, to report any problems which are being encountered and the action being taken to remedy them. They should be read in this sense and with the under- standing that they do not purport to present a balanced evaluation of strengths and weaknesses in project execution.  - 25 - ANNEX II Page 3 About half of the total of about 13,500 farms had been settled by late 1980 and settlement of all areas is scheduled for completion by late 1981. However, on-farm development work is not keeping pace with settlement and only about 40% of the lands settled are cultivable. The completion of social infrastruc- ture is lagging considerably behind other project components but steps have been taken to accelerate this work. Water issues have started in some of the recently settled project areas and water charges have been initiated in adjoining areas of System H completed previously (a total of about Rs 180,000 had been collected up to June 1980). Quality control measures and the quality of completed works have improved considerably. The full complement of agri- cultural extension staff has been posted and extension activities are improving. Disbursements are still behind schedule but are expected to increase signifi- cantly in 1981 with the submission of claims for works already completed or under execution. Cr. No. 709 - Water Supply Project; US$9.2 million of June 30, 1977; Effective Date: February 8, 1978; Closing Date: June 30, 1983 The Project has made good progress in the procurement of equipment and materials and construction of works. Disbursements out of the IDA Credit and the IDA-administered CIDA Credit have moved fast in recent months but disbursements out of EEC Special Action Credit continue to be slow. Financial management of the National Water Supply and Drainage Board (WDB) has improved and WDB now produces financial information required for management. WDB's progress in implementing the consumer metering program is unsatisfactory. It has recently taken measures to accelerate the program. Cr. No. 742 - Fourth Development Finance Corporation of Ceylon Project; US$8.0 million of September 30, 1977; Effective Date: December 16, 1977; Closing Date: December 31, 1981 Subprojects for US$7.8 million have been authorized. DFCC remains a competent institution, with a rapidly increasing level of activity, which could increase further now that DFCC's staffing problems are being addressed, and possibilities for expanding DFCC's low equity base are being pursued. Cr. No. 818 - Tree Crop Rehabilitation (Tea) Project; US$21.0 million of July 12, 1978; Effective Date: December 28, 1978; Closing Date: December 31, 1984 Project progress is satisfactory. Procurement is under way; all tender documents have been issued. Due to sharp cost increases, both housing and field rehabilitation programs are being revised. For the former, more emphasis will be placed on renovation rather than building new cottages. For the latter, more emphasis will be given to infilling as opposed to replanting. All other project components, namely health component, training component and tea area measurement, are progressing satisfactorily.  - 26 - ANNEX II Page 4 Cr. No. 819 - Tree Crop Diversification (Tea) Project; US$4.5 million of July 12, 1978; Effective Date: December 15, 1978; Closing Date: June 30, 1983 The National Agricultural Development and Settlement Authority, the project executing agency, has developed into a mature development organization which is operating efficiently under capable management. Despite some delay in procurement of equipment, progress in field work is impressive. Cluster selection and homestead and farm demarcation, and soil conservation work have been completed. About 2,000 settlers have occupied their houses. Farm planting schedule was disrupted by the severe and prolonged drought last year. With normal conditions this year, all plantings are expected to be completed by end-1981. Cr. No. 891 - Kurunegala Rural Development Project; US$20.0 million of April 26, 1979; Effective Date: August 27, 1979; Closing Date: June 30, 1984 The project is generally on schedule; rural electrification works have already been completed; and rural roads and education works should be completed by the end of the year. Problems on quality of construction of irrigation and education works were identified at early stage of project implementation. Supervisory consultants, soon to be appointed for the Second Rural Development Project, will help improve construction activities. Improvements on the institutional arrangements for agricultural credit and agricultural extension are somewhat slower than expected. High cost overruns was noted in nearly all project components. Efforts are being made to cut down cost by introducing farmers' donated labor for some of the activities. Cr. No. 900 - Road Maintenance Project; US$16.5 million of June 22, 1979; Effective Date: December 19, 1979; Closing Date: June 30, 1984 The project is progressing reasonably well, but continuing steep increases in construction costs make constant review of the project scope and costs essential. For the same reason, some financial limits in the Develop- ment Credit Agreement have been revised upwards in order that implementation of urgent bridge and road rehabilitation shall not be delayed. Consultants have been appointed, contract documents revised and improved, equipment has been ordered and a pilot road maintenance district set up. Cr. No. 931 - Agricultural Extension and Adaptive Research Project; US$15.5 million of July 24, 1979; Effective Date: October 4, 1979; Closing Date: June 30, 1985 Implementation during the first year has been slower than anticipated due to delays in procurement and staffing. Recently, however, most full time staff have been recruited and procurement of vehicles and equipment are underway. With these, implementation is likely to improve. Civil works are progressing satisfactorily. Some questions have been raised as to the feasibility of operating the T&V method of extension in the wet zones dominated by tree crops, absentee landlord and inadequate infrastructure. These and other implementa- tion issues would be reviewed by IDA and the Government in June/July, 1981.  - 27 - ANNEX II Page 5 Cr. No. 942 - Small and Medium Industries Project; US$16.0 million of July 24, 1979; Effective Date: October 23, 1979; Closing Date: June 30, 1984 The principal objectives of the project would be to encourage and assist growth and productivity improvement of small and medium firms, defined as enterprises having plant and equipment valued at less than Rs 1 million, so as to increase their contribution to efficiernt low cost employment creation, export expansion, regional development and economic growth. About 55% of the total subloan amount has already been committed, but disbursements through the refinancing facility and IDA credit are lagging due to delays in claiming reimbursement and implementation of the subprojects. Most technical assistance activities have either been completed or are well underway. Cr. No. 979 - Mahaweli Ganga Technical Assistance Project; US3.0 million; Effective Date: July 7, 1980; Closing Date: September 30, 1982. A consultancy contract was awarded in July, 1980 for the preparation of specifications and tender documents for the Minipe Right Bank Transbasin Canal and for the preparation of final designs and tender documents for irrigation and social infrastructure in System C. The consultant is assisting MDB in the designs for System C and the designs have been essentially completed for Zones 3 and 4. A consultancy contract was awarded during August, 1980 for studies to determine the most economically viable and technically feasible plan for conveying surplus flows of the Mahaweli Ganga to the North Central River Basin and/or Northwest or Southeast Dry Zones and utilizing the water for irrigated agriculture. Cr. No. 994 - Road Passenger Transport Project; US$53 million; Effective Date: October 27, 1980; Closing Date: June 30, 1983. Consultants have been appointed in the fields of procurement, industrial engineering and accounting. Bid documents for procurement of bus chassis and materials have been issued. Bus fares were increased twice during 1980, the last increase becoming effective in November. Weak and inefficient management continues to plague the Transport Boards whose com- bined operating losses are a matter of serious concern. IDA is discussing with the Government suitable measures to improve the situation. Cr. No. 1017 - Smallholder Rubber Rehabilitation Project; US$16.0 million; Effective Date: September 10, 1980; Closing Date: June 30, 1986. The project is making satisfactory progress. A suitable part-time Project Coordinator and a full-time Project Officer have been appointed. Recruitment of additional extension staff has started. Orders have been placed for planting materials for the first planting season (1981).  - 28 - ANNEX II Page 6 Cr. No. 1020 - Telecommunications Project; US$30.0 million; Effective Date: September 10, 1980; Closing Date: June 30, 1985. The Government has already established a separate Telecommunications Department as part of organizational improvements under the project. The Government has also increased overseas telephone and telex rates. Bid docu- ments for procurement are under preparation. Cr. No. 1041 - Water Supply and Sewerage II Project; US$30.0 million; Effective Date: February 26, 1981; Closing Date: September 30, 1985. Engineering consultants to supervise the construction of sewerage works under the Project, and financial consultants have already been appointed. An agreement for cofinancing in the amount of US$30.0 million from Saudi Fund for Development was signed on January 8, 1981. Cr. No. 1048 - Sixth Power Project; US$19.5 million; Not Yet Effective. Closing Date: March 31, 1985. Procurement is now proceeding satisfactorily after initial delays: final tender documents for four of the five contracts have been cleared and will be advertised shortly. An agreement for cofinancing in the amount of US$20.0 million was signed between the Government and Saudi Fund for Develop- ment on January 8, 1981. The average tariff for power supplied by the Ceylon Electricity Board was increased from about Rs 0.30 to Rs 0.58/kWh. Cr. No. 1079 - Second Rural Development Project; US$33.5 million; Not Yet Effective; Closing Date: June 30, 1986. The project was signed on February 2, 1981. Supervisory consul- tants have been selected and procurement of essential vehicles and equipment initiated.  - 29 - ANNEX III Page I SRI LANKA CONSTRUCTION INDUSTRY PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the Country to prepare the project Eleven months (b) The agency which has prepared the project Ministry of Local Government, Housing and Construction, with the assistance of IDA preparation missions (c) Date of first presentation to the Association and date of the first mission to consider the project December 1978 - July 1979 (d) Date of departure of appraisal mission June 8, 1980 (e) Date of completion of negotiations February 25, 1981 (f) Planned date of effectiveness July 31, 1981 Section II: Special IDA Implementation Actions None.  - 30 - ANNEX III Page 2 Section III: Special Conditions (a) standardization of selection, training, testing, certification and registration of construction workers by June 30, 1982 (para 36); (b) provision of adequate trainee allowances (para 36); (c) use of existing training facilities and adjustment of ongoing courses, as necessary (para 42); and (d) establishment of a monitoring and evaluation system by June 30, 1982 (para 43).  IBRD 15286 ~~~~ ~~~~~~~ ~~810 - OCTOBER 1980 MR onrn. 6-f tO. -d-*.of botooOtw/.. ShOwn tORt/S M~Ko k t ~d 8~~ -d{7 ' SRI LANKA ~~ZO. G ~$WJoffn~~jJ CONSTRUCTION INDUSTRY PROJECT PRPSDWOKHP '2 ~~~~~~~~~~~~~~~~~PROPOSED ON-SITE LOCATION FOR TRAINING EQUIPMENT OPERATORS * EXIST'ING DEPARITMENT OF HIGHER EDUCATION TEXCHNICAL INSTITUTES / 0 ~~~~~~~~~~SELECTED TOWNS DISTRICT SOUNDARlES K-no,o,o T~~~ k '>~~ PROVINCIAL BOUNDARIES L I K7\ ~~~~~~~~~~~~~~RIVERS T.ai-morttto M.nkoI. 1 06 ~~~~--0--'. ~~~~~~~~~~~~~~~~KILOMETERS 0/ M.8 ...chchiyo . ootto NncTfo.ao1Rot 0 '2 A ....dh.pu,o.-- : ~~ //K'7 T-,, 0~~~~~~~~~~~~/ KlnIyt idy r '- K..dy 6-WK-dy~~~~~f ' 'K * 0 KK ~~~~~~Wo..okpo! 4 '62. -7- ~ ~ ~ ~ ~ ~ ~ R.(g.110~\on plo' Ao*tlo-o - -- d - PoI_OI A Vu. G Patop/t-i/i R- %QRotnPum g RfRRIO7 Pomdum 'Q~ ~ ~ ~~~ WeIooo K~~~~~~~~~ - T.. ot q- -I,ool . ~~-? L~~~~~~,</ K~~~~~~~~~~~~I'llDIOYAe,- -C.- ~~t ~ ~ L K r 2/OIA'AIA,/ ~~~~ ~~ GaS~~0oflt. H2lombooltol J`~~~~~~~~~~~~~~~~~10