Sri Lanka - Tea Rehabilitation and Diversification Project

Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-3267-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 TEA REHABILITATION AND DIVERSIFICATION PROJECT April 12, 1982 This document has a restricted distribution and may be used by recipients only in the performanceo I their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  .1 SRI LANKA TEA REHABILITATION AND DIVERSIFICATION PROJECT CURRENCY EQUIVALENTS US$1.00 = SL Rs 21 SL Rs 1.00 = US$0.048 MEASURES AND EQUIVALENT 1 kilometer (km) = 0.62 mile 1 meter (m) = 1.09 yards 1 kilogram (kg) = 2.2 pounds 1 hectare (ha) = 2.47 acres ABBREVIATIONS AND ACRONYMS BOC - Bank of Ceylon JEDB - Janatha Estates Development Board M - Million MPI - Ministry of Plantation Industries NIPM - National Institute of Plantation Management SPC - State Plantations Corporation TSHDA - Tea Smallholders Development Authority SRI LANKA FISCAL YEAR January 1 - December 31  FOR OFFICIAL USE ONLY SRI LANKA TEA REHABILITATION AND DIVERSIFICATION PROJECT Credit and Project Summary Borrower: The Democratic Socialist Republic of Sri Lanka. Beneficiaries: State Plantations Corporation (SPC) Janatha Estates Development Board (JEDB) Private factory owners Smallholders Amount: SDR 17.8 million (US$20.0 million equivalent at the time of negotiations). Terms: Standard. Relending Terms: The Government will relend up to US$17.5 million of the IDA Credit to SPC and JEDB at an interest rate of initially 16% per annum and US$1.0 million to the Bank of Ceylon (BOC) at an interest rate initially of 13% per annum. The latter amount would be onlent by BOC to private factory owners and smallholders at an interest rate initially of 16% per annum. All subloans would be repaid over a period of 15 years with 5 years of grace. The Government would bear the foreign exchange risk. Project Description: The project aims to reduce tea production costs and improve tea quality from high potential tea areas, and to diversify unprofitable low yielding tea lands out of tea into spices and fuelwood. The project would help improve management systems and also strengthen financial control and information systems in major tea producing public corporations, stablize eroding lands, and improve welfare of tea estate workers. The project comprises: tea replanting, and factory rehabilitation infilling prograns in high country and low country areas; greenleaf and made tea transport; rehabilitation of labor housing and improvement of water supply and medical facilities; provision of processing and storage facilities for spices and field and nursery equipment; and technical assistance and training. The project faces no major risks. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  - ii - US$ Million Equivalent Estimated Cost: a/ Foreign Local Total Field Works 1.0 6.5 7.5 Field and Nursery Equipment .2 .4 0.6 Vehicles 1.6 .4 2.0 Factory Equipment 3.0 4.7 7.7 Housing .6 1.5 2.1 Medical Facilities .3 .2 .5 Training and Technical Assistance .6 .4 1.0 Administrative Support .4 .4 .8 Total Base Costs 7.7 14.5 22.2 Physical Contingencies .4 .9 1.3 Price Contingencies 2.8 6.8 9.6 Total Costs 10.9 22.2 33.1 Financing Plan: US$ Million Equivalent Foreign Local Total IDA 10.9 9.1 20.0 Government of Sri Lanka - 3.6 3.6 JEDB - 3.8 3.8 SPC - 3.9 3.9 Smallholders - .1 .1 Tea Board and Department of Minor Export Crops - 1.7 1.7 Total 10.9 22.2 33.1 Estimated US$ Million Equivalent Disbursement: IDA FY FY83 FY84 FY85 FY86 FY87 Annual 1.0 2.1 5.0 9.9 2.0 Cumulative 1.0 3.1 8.1 18.0 20.0 Economic Rate of Return: 29X Staff Appraisal Report: No. 3531a-CE dated April 9, 1982 Map: IBRD 15659R a/ Includes taxes and duties of US$1.9 M equivalent.  INTERNATIONAL T)EVELOPMENT ASSOCIATION REPORT AND RECOMMFNDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A TEA REHABILITATION AND DIVERSIFICATION PROJECT 1. T submit the following report and recommendation for a proposed Development Credit to the Democratic Socialist Republic of Sri Lanka in an amount of SDRs 17.8 million (US$20.0 million equivalent) on standard IDA terms to help finance a Tea Rehabilitation and Diversification Project. Up to US$17.5 million of the Credit would be initially relent to SPC and JEDB at * an interest rate of 16% per annum and US$1.0 million to the Bank of Ceylon (BOC) at 13% interest rate per annum. BOC would onlend the proceeds to smallholders and private factory owners for project purposes initially at 16% per annumn. All subloans would be repayable over a term of 15 years, includ- ing five years' grace, with Government bearing the foreign exchange risk. PART I - THE ECONOMY 1/ 2. The most recent economic report, "Sri Lanka: Policies and Prospects for Economic Adjustment" (Report No. 3466-CE, May 15, 1981), was distribtuted to the Executive Directors on May 26, 1981. Country data are provided in Annex I. 3. After several years of relative stagnation, Sri Lanka's economy has experienced sustained growth. This growth has been the direct result of the economic liberalization of 1977, and the development push associated with it. U!ntil 1977, Sri Lanka's growth performance had been below both need and potential. Although CDP growth in the 1960s, at 4.4% per annum, was above the average for low income countries, it 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 1970-76 period. The slowdown in economic growth in the 1970-77 period was attributable to a combination of factors, including inadequate investment, poor management of the economy, and a policy environment not conducive to growth and investment; these factors were compounded by poor weather in some years and a sharp rise in the cost of imported food and petroleum. 1/ This part is substantially the same as Part I of the President-s Report on Seventh Power (Mahaweli Transmission) Project for Sri Lanka (Report No. P3195-CE, dated February 3,1982) which was approved by the Executive Directors on February 23, 1982.  4. The three tree crops--tea, rubber, and coconuts--which are still the mainstay of the economy, suffered from low replanting and inadequate incentives. These problems were exacerbated by a dual exchange rate system, introduced in 1968, that discriminated against these crops, and by the uncer- tainties 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 1970-77 period due to poor institutional support. Investment in manufacturing was also low, and the inefficiency of most public and private sector firms, nurtured in a highly protected environ- ment, resulted in growth of manufacturing of 1% 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 uncontrolled growth in recurrent expenditures, inhibited public invest- ment. Unfavorable policies further constrained private savings. The slow growth rates and changes in the structure of output provided neither the jobs nor the employment structure for a growing labor force. The low output growth, the excessive capital intensity of investment, the mismatch between the job aspirations of those with post-primary education and the jobs avaiL- able to them, the post-war demographic bulge, and the rising female par- ticipation rates contributed to a massive increase in unemployment, estimated at over 1 million, or some 18% of the labor force in 1977. 6. 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 which would be expected for a country at its per capita income level. Nutrition levels have been adequate, and in the 1960s paralleled gains in income dis- tribution. These improvements in the quality of life, in particular the rise in health standards, the spread of education and the availability of sub- sidized 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, population growth, net of migration, has dropped steadily, from 2.7% per annum in the 1953-63 period to 2.2% per annum in the 1963-71 period, and 1.7% per annum during 1971-81. 7. Favorable initial conditions induced these social gains. Compul- sory 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, expenditures which accounted for two-fifths to one-half of government revenues in the 1960s and early 1970s. These expenditures were traditionally  - 3 -- financed bv capturing the surpluses of the three major tree crops, which provided the Government with easy sources of revenue and foreign exchange. These surpluses began to decline in the late 1960s as government policies discriminated against tree crops and export unit prices weakened. As growth in other productive sectors also decelerated in the 1970-77 period, the budgetary resources available for social programs were squeezed between inelastic revenues and rapid inflation. As a consequence, expenditures for 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 education. In short, the economy could no longer generate the resources needed to sustain the large program of welfare expenditures. Moreover, the very size of those programs reduced the scope for policy makers to shift resources to development. 8. 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 capacity utilization in the productive sectors, (ii) stimulation of savings and investment, and (iii) efforts to encourage exports, and import substitu- tion in foodgrains. A program of policy reforms was developed in close consultation with the IMF. 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 to cover the 1979-81 period. The principal aim of the reform program was to dismantle controls over resource allocation and initiate price adjustments with a view to establishing more realistic relative prices. By 1980, these goals had largely been achieved. 9. The program of reforms comprised a number of major policy initia- tives. The exchange rate was unified 1/ 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 prevailing prior to unifica- tion, and 11.2% with respect to the Foreign Exchange Entitlement Certificate (FEEC) rate. The trade and payment regime was liberalized. Public sector import monopolies were almost entirely terminated. Prior licensing of imports was abolished for all but a handful of commodities. The tariff structure was revised and simplified. Other budgetary taxes and subsidies were adjusted to reflect the change in trade and exchange rate policies. In particular, rice and sugar rations were confined to the poorer half of the 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 - population, and the food subsidy was eliminated through a series of adjust- ments in administered prices. On September 1, 1979, the Government intro- duced a system of food and kerosene stamps for families with monthly incomes of less than Rs 300 to replace specific subsidies and food rationing, and to target benefits to the poor. To help offset the adverse impact of these changes on real incomes, public sector wages were periodically adjusted upwards. Public corporations were asked to pass on cost increases, except for fertilizer, petroleum, milk, and public transport, for which price increases were initially deferred to cushion the impact on consumers. The Government subsequently eliminated the overall subsidy on petroleum products and made sizable adjustments in bus and train fares, electricity and fer- tilizer prices. The burden of selected subsidies and transfers, as a conse- quence, fell from around 9% of GDP in 1978 to around 4% bv 1981. These changes, and higher aid receipts, have helped permit a sizable increase in capital expenditures. 10. Agricultural pricing policies have changed dramatically. The domestic support price for paddy was increased by 21% in November 1977, by 25% in November 1980, and by a further 15% in the course of 1981 following substantial increases in fertilizer prices. With the related increase in flour prices, incentives for paddy and other flour substitutes benefited. At the same time, there occurred a large policy-induced decline in the role of the state in domestic rice trade. Fresh coconut prices were also increased, and in November 1981, the system of fixed and variable duties which had effectively insulated the large domestic coconut market from the world market was replaced by a sliding scale export system that allowed some linkage between the two markets. While the unification of the exchange rate ended formal discrimination against tree crops, high export duties, par- ticularly on tea, continued to siphon off most of the operating surplus for the Government. As tea prices fell and production costs rose in 1978-79, the Government responded to the reduced producer margins by lowering taxes on tea. The Government also ended most price controls, and reformed the inter- est rate and tax systems. The burden of company and personal taxation was lowered, and the taxation svstem was rationalized to increase revenue elas- ticity; nevertheless, the overall revenue elasticity to economic growth and domestic inflation remains low as taxes on slowly growing tree crop exports have averaged over 30% of current revenues. Interest rates were also raised sharply to encourage savings and discourage speculative imports. However, inflation eroded these rates and in April 1980 further upward adjustments were made. 11. These economic reforms were accompanied by a major effort to step up public investment. The Government's capital expenditures jumped from 6% of GDP in 1977 to an average of 13% in 1978 and 1979, and 19% in 1980, as government departments responded to the initial improvement in the budgetary resource position and embarked on long overdue replacement investments and new projects that had been shelved earlier for lack of resources. At the same time, the Government undertook three 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 multipurpose 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 Promotions Zones near Colombo's international airport and by end-1980 had signed agreements with 64 investors involving a total investment of US$130 million; and (iii) a massive housing and urban renewal program with its main focus on the Colombo metropolitan region, including the construction of a new capital complex at Kotte, a suburb of Colombo. Budgetary expenditures on these three programs will amount to Rs 34 billion, or 52% of projected budgetary resources over the 1981-85 period. The underlying public investment strategy seeks to balance the large investment requirements of the Government's high priority programs with the urgent rehabilitation and fresh investment needs in other sectors. The main thrust of the public sector program is to lay the founda- tion for longer-term development, both by encouraging efficient use of exist- ing infrastructure investments and by expanding the longer-term 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. Private fixed investment has so far responded well, increasing from about 7% of GDP in 1977 to 15% by 1980, and helping overall fixed investment to exceed 33% of GDP in 1980. 12. In response to the policy reforms and the accompanying acceleration in investment, economic growth in 1978-80 averaged an impressive 6.8% per annum. This growth was shared by almost all sectors of the economy, par- ticularly construction and services. The only major exception has been the tree crop sector. The otherwise 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 information avail- able on employment, Central Bank estimates suggest that unemployment dropped from 18% of the labor force to 15% between 1977 and 1979. 13. Despite this strong performance, major weaknesses in economic performance emerged in 1980. In particular, the national savings effort has not matched the rapid rise in investment. Gross national savings fluctuated around 15% of GDP during the 1978-80 period, while recourse to foreign savings to finance the hi-her investment rose from 4.5% of GDP in 1978 to 19.5% in 1980. The Government succeeded in containing the costly consumer suosidy and transfer programs, expenditures on which have declined as a percent of GDP (para 9). However, relatively inelastic revenues combined with steadily rising other recurrent expenditures and declining terms of trade resulted in hardly any public savings. As a result, the Government has financed its rapidly rising capital expendi- tures through foreign aid, and increased its domestic borrowings. Initially  -6- the Government met its domestic financing requirements through non-expansionary borrowings from captive financial institutions, which could 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 and in 1980 increased sharply to 10.5% of GDP. It has also resorted to the use of foreign commercial loans to help finance the deficit, borrowing US$50 million in 1980, and US$75 million in 1981. 14. Inflation has also increased sharply since 1977. The exchange rate adjustment, the other policy-induced price increases and related wage increases, the removal of price controls, and the build-up of external assets, which added to the money supply, contributed significantly to infla- tionary pressures in 1978 and 1979. However, these were moderated by bumper paddy harvests, increased capacity utilization in the economy, increased availability of imports, and the beneficial effects of competition from imports and in domestic distribution. Since then, rapid growth in the broad money supply--38% in 1979 and 32% in 1980-has added a sizable "built-in" increase to the system. Together with the corrective price increases designed to reduce budgetary subsidies and keep pace with rapid increases in international petroleum, wheat and sugar prices, these pressures have caused inflation (as measured by the Colombo Consumer Price Index) to accelerate from an average of 11% in 1978 and 1979, to 26% in 1980. 15. Rapid expansion in economic activity has been reflected most vividly in the balance of payments. Import volume growth since 1978 has averaged 15%. Between 1978 and 1980, the net petroleum import bill more than tripled and increased from 11% to 36% of non-petroleum exports, while capital goods imports more than doubled in response to the acceleration in invest- ment. However, exports have shown barely any volume growth as declining tree crop export volumes offset the strong growth in garments exports. These adverse trade volume trends were compounded by a 20% terms of trade deterioration over the same period. The rapid growth in tourism receipts and private remittances from abroad in this period failed to offset the deterioration on the trade account and the current account deficit rose from S124 million (4.5% of GDP) to $805 million in 1980 (19.5% of GDP). In 1978 and 1979, rapidly rising non-monetary capital inflows due mainly to increased net aid disbursements more than offset the current account deficit, and Sri Lanka continued to add to its net international reserves, albeit at a declin- ing rate. In 1980, however, net international reserves fell by $220 million, and by end-1980 gross international reserves stood at $377 million, or equiv- alent to less than nine weeks of imports of goods and non-factor services. With the rapid drawdown in reserves, the public sector has begun to make significant use of commercial financing.  16. The Government, realizing in early 1981 that continuation of the 1980 trends would risk continued high inflation and unsustainable pressures on the balance of payments, took corrective steps. Budgetary expenditures were held below their 1980 level in real terms. Capital expenditures declined significantly from 19% in 1980, to about 14% of GDP, and were held to below their 1980 level in nominal terms. As a result, the overall deficit declined from 22% to 15% of GDP; bank borrowings, from 10.3 to 4.6% of GDP. Similar improvement was achieved in the balance of payments, where the cur- rent account deficit declined from 19% to 14% of GDP, and net international reserves declined by only an additional $33 million over 1980. Due mainly to large disbursements under the IMF Extended Arrangement and Compensatory Finance Facility, Sri Lanka's gross international reserves increased to $451 million, equivalent to about 11 weeks' imports coverage. The stabilization measures also resulted in a significant decline in inflation--the Colombo Consumer Price Index averaged 18% growth during 1981, compared to 26% in 1980. Despite the significant achievements in 1981, continued strong measures will be needed throughout the medium term to ensure that budgetary expenditures are consistent with overall economic stability, as many of the large development schemes the Government has initiated are only now beginning to peak. Sri Lanka will also have to carefully monitor balance of payments developments, commercial borrowings in particular, and accelerate exports growth to ensure longer-run stability in the external sector. 17. Aid donors have responded enthusiastically to the Government's development initiatives, the average level of aid commitments in 1978-80 was almost 120% higher in nominal terms and almost 40% higher in real terms than in 1975-77. Commitments in 1981 rose to a record US$814 million. Most of the growth has come in project aid, reflecting the Government's efforts to increase investment, particularly in the Accelerated Mahaweli Program. Since public investment is already overprogrammed, continued high levels of aid will depend upon donors' abilities to shift from project to non-project aid and to finance a sizable portion of local costs; the Government will need to maintain donor confidence in its economic policies and management through a vigorous domestic resource mobilization program and continued restraint on government expenditures. Despite recent measures to support its investment program, Sri Lanka's budgetary situation remains tight. The adverse impact on revenues of slowly rising export prices and volumes, and rapidly rising import prices, has increased budgetary pressures. Local cost financing, in support of Sri Lanka's own resource mobilization efforts will not only provide valuable relief to these budgetary pressures but also supplement foreign exchange resources needed in support of balance of payments. 18. External public debt outstanding and disbursed stood at US$1,335 million at the end of 1980, amounting to about 35% of GDP. However, this is almost all long-term concessional debt. As a result, the debt service burden is relatively low; debt service ratio in 1981 excluding IMF repur- chases stood at 8.2% of exports of goods and non-factor services, declining from 13.3% in 1977. While this sustained decline is due in part to improved  - B - 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 continues the improvement begun 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 increase quickly. PART II - BANK GROUP OPERATIONS IN SRI LANKA 19. Since the beginning of its operations in Sri Lanka in 1954, the Bank A Group has approved eight loans totalling US$72.9 million (net of cancella- tions) and 25 credits denominated in US dollars totalling US$362.0 million and 6 credits denominated in Special Drawing Rights totalling SDR 192.3 million (net of cancellations and exchange adjustments) in support of 37 projects. About 47% of Bank Group assistance has been for agriculture (irrigation, agricultural, and dairy development), 18% for power, 11% for transport, 10% for development finance company operations, and the remainder for a progran credit (mainlv involving the import of raw materials for industry), water supnly, construction industrv, and telecommunications. 'ight loans and eight credits have beer fully disbursed so far. Annex II contains a summa-v statement of Bank Group operations as of March 31, 1982, together with notes on the execution of ongoing projects. 20. IFC has an equity investment of about 1JS15O,000 equivalent in the Development Finance Corporation of Ceylon (DFCC). Two IFC lines of credit totalling uS$7.0 million have been made to the Government-owned Bank of Ceylon (BOC) for term loans to medium industries. IFC has also an investment of US$250,000 in an equipment leasing company. In FY81, IFC approved an investment of about US$0.7 million in equity and about U$19.0 million in loans for a new hotel project in Colombo. 21. The Bank Group's current strategy focusses on production-oriented activities together with complementary infrastructure. It aims to support Government efforts to increase food production and reduce dependence on food imports, and to raise productivity, employment, incomes and living standards of the rural population in Sri Lanka. This strategy includes projects to support basic infrastructure. In addition, in line with the Government's strategy, private sector activities in the industrial sector are also being supported. The Executive Directors approved the Second Small and Medium Industries Project on October 13, 1981 and Seventh Power (Mahaweli Transmis- sion) Project on February 23, 1982. Currently under appraisal are a thermal (diesel) power generation project, industrial development project, and a forestry project. 22. The Bank Group as of end-1980 accounted for 9.7% (IBRD, 2.3%; IDA, 7.4%) of Sri Lanka's total debt outstanding and disbursed, and 6.5% (over 80%  - 9 - IBRD) of debt service on medium and long-term debt. The projected Bank Group's share in total existing external debt outstanding and disbursed will increase to 17% by 1985 (with the IBRD-s share declining to 1.3%). The Bank and IDA portions of this debt service are expected to decline to about 4% by 1985. PART III - THE TREE CROP SECTOR 23. Sri Lankas tree crop sector consists mainly of tea, rubber and coconut, which together occupy about 48% of crop land and about 95% of land under tree crops. The sector has a dominant role in Sri Lanka's economy. It continues to be the main source of foreign exchange earnings and in 1980 provided about 58% of export revenue. The sector also employed about one-fifth of the labor force and accounted for ?1% of the CT)P in 1980. In spite of its importance, the sector has suffered from continuing neglect. Production of the three main crops grew by only about 1% per annum during the 1960s and stagnated during the 1970s. The disappointing performance was due to uncertainties associated with a protracted nationalization, declining profitability due to low prices and high export taxes, and inadequate availability of inputs. 24. The Tea Sub-Sector. Tea retains a major role in the Sri Lankan economy and in the tree crop sector, although its dominance recently has diminished. Value added, including both growing and processing, accounted for 10% of GUP in 1980, compared to 13.5% in 1977. Tea is still Sri Lanka-s main export although its share in total export revenue fell from 50% in 1977 to 36% in 1980. Even then tea accounted for about 60% of the export revenue from the tree crop sector. Taxes on tea, particularly the export levy, provided 17% of the Government's revenue in 1980. About 18% of Sri Lanka's labor force is employed in the tea sector. Tea is cultivated in the South WJest wet zone on about 244,000 ha classified into three elevational categories: high-country (1,200-2,000 m), mid-country (600-1,200 m) and low-country (0-600 m). The high country (37%) produces the renowned flavor teas which established Sri Lanka's tea reputation. The low-country (25%) produces the heaviest yields of strong black teas demande(d by Middle East countries. The mid-country (39%) produces neither high quality nor high yields and its lower tea prices are not compensated by greater production. The Government strategy is therefore to invest in tea rehabilitation in the high and low country whilst diversifying out of tea in the mid-country. The IDA-supported Tree Crops Rehabilitation (Tea) Project (Cr. 818-CE) in the high country and the Tree Crops Diversification (Tea) Project (Cr. 819-CE) in the mid-country are assisting in this process. The proposed project combines both rehabilitation and diversification components and is consistent with the aforementioned strategy.  - 10 - 25. Sri Lanka-s share in total world tea production has declined from 20% in 1960 to about 10% at present and its share in world trade has declined to around 21% from about 33% in the 1960s. The poor production performance in the 1970s was due partly to frequent drought, falling world tea prices, and the uncertainties associated with land reform and the Government's tax and foreign exchange policies which discriminated against the tea sector. As a result fertilizer use stagnated, stand maintenance was poor and field investment activities were inadequate. Replanting has increased recently to about 2,000 ha annually, although the level is still below the Government's goal of 3,000 ha per year. In total, only 14% of the country's tea land has been replanted with higher yielding clonal teas, an important reason for the lack of sustained improvement in tea yields. Although yields rose from an average of 1,000 kg per ha in the 1960s to 1,200 kg per ha in 1974-76, the figure was slightly less than 1,000 kg per ha in 1977-79. At least half of the tea bushes in Sri Lanka will be over 70 years old by 1985, beyond their maximum productive period; most are seedling varieties of uncertain yield and quality and most fields have high vacancy rates. The past neglect of stand maintenance and replanting will continue to affect production adversely over the next decade. The proposed project has a substantial field rehabilitation program to reverse that trend. 26. Most Sri Lankan tea is manufactured by the traditiona. "orthodox" rolling process which produces high quality loose black tea demanded by Europe, the Middle-2ast, Asia and Australia. Processing and manufacturing is done in about 720 scattered tea factories, most of which were constructed before World War II and contain machinery which is old and inefficient. The proposed project would rehabilitate and modernize some of these factorites. 27. In 1979, tea export taxes accounted for 47% of tea export value but were reduced by about a third on July 4, 1979, to account for about 35% in 1980. Still, the Sri Lankan tea industry continues to be the most highly taxed tea industry in the world. The specific export tax which forms about 95% of tea tax revenues maintains incentive for price improvement through more careful tea plucking and manufacture, gives greater incentives for growing tea in the higher priority areas of low-country and high-country, and discourages tea growing in the mid-country. However, in periods when local cost inflation outstrips increases in tea export prices, both the specific and the gross revenue based ad valorem taxes erode tea margins. Under these circumstances, incentives are squeezed which reduces production and exports, as happened in 1978 and 1979. In response to falling margins, the Government reduced taxes on tea on two occasions (para 42). However, the adjustment process has been slow. 28. The 'Ministry of Plantation Industries (MPI) was established in 1970 and given overall responsibility for the major crops in the tree crop sector. The tea estates in the public sector are managed and operated by two corpora- tions: State Plantations Corporation (SPC) and Janatha Estates Development  - 11 - Board (JEDB). However, the Government felt that MPI was too large for effec- tive management and in February 1980 created two new ministries--Ministry of State Plantations and Ministry of Janatha Estates Development--with respon- sibilities for SPC and JEDB respectively. The President is currently the Minister-in-charge of these two ministries. MPI was left with primary responsibility for tea smallholders and subsidy administration through the Tea Smallholders Development Authority (TSHDA), tea research, promotion policy and control through the Tea Board, and training through the National Institute of Plantation Management (NIPM). The TSHDA has the responsibility for the smallholder tea sector and for assisting private tea plantations up to 20 ha without their own factories. The Authority has faced many problems which have impaired its effectiveness; overall management is weak, par- ticularly in the areas of finance and planning, there are insufficient staff, and training is inadequate. As a result extension suffers. The Government wishes to strengthen TSHDA and has started implementing an Asian Development Bank assisted project which would provide staff, training, and tea processing facilities for TSP-DA in the low country. Consequentlv, the proposed project would limit itself to strengthening TSHDA extension services in a small area so as not to strain the limited implementation capacity of TSHDA. 29. The Tea Board was established in 1976 for tea promotion and research, collection of statistics and market information and the administra- tion of subsidies. The Tea Board also gives advice on tea policy. These functions are performed through three agencies under the Tea Board--the Tea Promotion Board, the Tea Commissioner's Department and the Tea Research Institute (TRI). The Tea Promotion Board carries out some marketing activities. The Tea Commissioner-s Department administers subsidies and collects statistics. The Tea Research Institute carries out research into all aspects of tea production and has produced recommendations which can produce tea of the highest standard. Provision for training in the tree crop sector is the responsiblity of the NIPM. The Institute works closely with the Advisory and Extension Service of TRI but the training program has been almost exclusively of a technical nature with ad hoc courses designed solely to improve tea production methods. No attention has been given to the need for systematic staff development. The proposed project addresses these problems and includes assistance to NIPM. 30. The two public sector corporations, SPC and JEDB, control 60% of tea lands and 70% of tea production. Smallholders with less than 4 ha account for 20%, while the remainder comprises private holdings above 4 ha. In February 1980, the corporations, which had previously been highly central- ized, were given a regional structure with four boards each, to improve manageability. However, decision making is still centralized which has on occasion caused uncertainty and confusion at the regional level. Reporting procedures are cumbersome and financial management is weak. Furthermore, performance incentives for both staff and management are non-existent. Improvement in organization and management of SPC and JEDR is an important objective of the proposed project.  - 12 - 31. World trade in tea is estimated at about 940 M kg and is expected to grow at about 2.7% per annum, slightly above the historic trend of about 2.2% during 1961-80. THowever, Sri Lankan tea exports of about 187 M kg in 1950 have declined from a peak of 224 M kg reached in 1965. Consequently, Sri Lanka's market share has declined from about 33% in the 1960s to about 217 in 1980. The decline in exports is due to decline in production which averaged ahout-0.3% per annum during 1961-80. The major markets for Sri Lankan tea in 1979 were the United Kingdom, Pakistan, the UJnited States, Iraq, Egypt and Saudi Arabia. The major growth market for Sri Lankan tea comprises the Middle East and Persian Gulf countries which now account for 50% of Sri Lankan exports, compared with only 25% in 1975. These markets favor leafy black tea grown in Sri Lanka's low-country. Consequently, the average price of low country tea is now higher than that for other regions, whereas it was the lowest in Sri Lanka before 1970. Most of the proposed project investment is directed towards rehabilitating low-country tea areas and factories. 32. Over 90% of Sri Lankan tea is marketed through intermediaries who buy at the Colombo tea auction, now the world's largest. Only about 10% is locally consumed. The market is competitive and functions well, although in some market segments a few major international tea paclcaging and merchan- dizing firms dominate. The price of Sri Lankan tea at London auction rela- tive to world averages has declined from a 6% premium in 1969/70 to a 4% disadvantage in 1980. Both buyers and brokers complain about a general deterioration in tea quality. The proposed project would help raise quality through factory rehabilitation and through improvements in green leaf tran- sport and handling. The Minor Crops Sub Sector 33. Sri Lanka's minor export crops, which consist of cocoa, coffee, cinnamon, cardamom, pepper, cloves, nutmeg, mace, cashew, ginger, citronella, papain and sesame, are important to the economy. The export of minor crops has proved to be a significant foreign exchange earner and above all offers the opportunity of broadening the export base. Sri Lanka is the world's largest exporter of cinnamon (33% of the market) and exports a significant proportion of cloves (6.7%), sesame seed (5.9%), cardamom (3.2%) and nutmeg and mace (2.8%). Exports of the other minor crops constitute less than 1% of the world market. Sri Lanka pepper is admired for its high quality and commands a premium price on world markets. The share of the market is small (0.6%) so that even large proportional expansion in pepper exports would have no repercussions on market prices. Cardamom is a high-value spice and the quality of Sri Lanka's export is considered good; it could, however, be easily improved further by expanding better processing facilities. Sri Lanka's small share of the world's clove production is of high quality and occupies a selective and secure position in the market. In contrast to tea, rubber and coconuts the minor crops are mostly grown by smallholders on  - 13 - homestead plots and have received little formal attention from Government extension, research and marketing programs. Recently, however, in response to worsening world prices for the major crops and the country's rapidly deteriorating foreign reserve position, Sri Lanka has made minor export crops a high priority agricultural activity, established institutions devoted to these crops, and developed promotional and incentive schemes to improve production and quality. The area under minor export crops is currently estimated at 50,000 hectares and Government policy is to increase this to 80,000 hectares by lq9n. 34. The Department of Minor Export Crops (DMEC) within the Ministry of Agricultural Development and Research has prime responsibility for the promo- tion of minor export crops. A Minor Export Crops Research Station is main- tained by DM`EC and supported by a TTNDP/FAO program. Work has begun on a substation at Delpitiya in Vandv district under the IDA-assisted Tree Crops Diversification (Tea) Project (Cr. 819-CE). Impressive crop growth and early yields are in evidence on trials established in 1170 on old tea lands typical of the proposed project area. Extension of new technology to smallholders is weak because of staff shortages and lack of extension transport to ensure good coverage of the widely dispersed smallholdings. Resuonsibility for export promotion of minor crops is held by the Export nevelopment Board which offers incentives to produtcers to gear production to export demand through attention to type and nuality standards. It also operates special export credit schemes and export expansion grants. The existing domestic marketing system for minor export crops is adequate. The produce from small farmers passes through several middlemen who then auction it away to exporters. There are a considerable number of exporters, both large and small, which ensures adequate competition. These exporters are generally well informed about daily fluctuations in world markets, and have adequate communication with potential markets. IDA Involvement in the Tree Crops Sector 35. IDA credits are supporting five projects in Sri Lanka's tree crops sector. A Tree Crop Rehabilitation (Tea) I Project (Cr. 818-CE) is promoting rehabilitation of high country tea areas whilst a Tree Crops Diversification (Tea) I Project (Cr. 819-CE) supports the replacement of unprofitable mid-country tea with a diversity of crops including pepper, cardamom, cloves, fuelwood and a range of local fruit trees by smallholder settlers. The proposed project will support a similar approach to rehabilitation and diver- sification of tea lands by estates. The replanting, infilling and soil conservation programs in the tea rehabilitation project are going well but the civil works programs are behind schedule and disburserents slower than anticipated. The training program has focused on technical training and, through visits to other tea producing countries, has exposed the estate staff to new ideas; this has had a marked effect in stimulating changes in tea production technology. Roth projects have suffered from high local cost inflation which has also necessitated modification of the civil works  - 14 - programs, particularly housing. Housing design modifications have reduced per unit cost. Procedural problems have slowed disbursement of credit to smallholders but procedures are being modified to accelerate disbursements. Lessons learned from the tea rehabilitation and diversification projects have been incorporated into the proposed project. The Second Rural Development Project (Cr. 1079-CE) includes strengthening of research facilities and extension services for minor export crops. This project and Kurunegala Rural Development Project (Cr. Q91-CE) also support coconut rehabilitation programs. The fifth project, Smallholder Rubber Rehabilitation (Cr. 1017-CE), supports a rubber rehabilitation program in the low country. Management of all these projects is good and physical achievements on field programs are close to targets. PART IV - THE PROJECT 36. The proposed project was prepared by SPC and JEDB, with Ministry of Finance and Planning coordinating the preparation work. The rehabilita- tion component of the project was appraised first during January-February 1981. At the request of the Government, it was decided to include a diver- sification component which was appraised in September-October 1981. Nego- tiations were held in Washington, D.C. in March 1982. The Government delega- tion was led by Mr. Ackiel Mohamed, Additional 1Diector, External Resources Department. A staff appraisal report (No. 3531a-CE dated April 9, 1982) is being distributed separately. A timetable of key events relating to the project and special conditions are given in Annex III. Project Objectives and Description 37. The project aims to reduce tea production costs and improve tea quality from high potential tea areas in high- and low-coulntry, and to diver- sify unprofitable low-yielding tea lands in mid-country out of tea into spices and fuelwood. The project would support a rehabilitation program designed to prevent further decline in output. In addition, it would strengthen management systems and financial control in the major tea produc- ing corporations, stabilize eroding lands and improve the welfare of tea estate workers. The Project includes the following components: (i) Tea replanting (1760 ha) and infilling programs (3900 ha) in high country and low country areas; renovating soil conservation works (5350 ha); diversifying non-viable and abandoned tea areas (8000 ha) in the mid-country into spices and fuelwood. (ii) Renovating 84 tea factories, providing processing and storage facilities for spices, and providing field and nursery equipment for tea, spices and fuelwood.  - 15 - (iii) Providing v,ehicles for transport of spices and for transporting green leaf from field to factory in order to improve plucking efficiency and ensure that leaf arrives in top condition at factories. (iv) Constructing about 400 new twin cottages, rehabilitating about 3750 line rooms for labor housing, and improving water supplies and medical facilities for estate labor. (v) Providing staff development and training facilities and organiz- ing local and overseas training courses. (vi) Providing extension support for smallholder tea producers. (vii) Providing technical assistance to improve management and finan- cial control systems, to supervise the civil wiorks program and to develop detailed specifications for factory and medical services rehabilitation. Project Implementation and Organization 38. The proposed project would be implemented over 4 years mainly by the two Covernment owned corporations--JEDB and SPC. Three of the four regional boards within JEDB--Boards I, II and IV-- would implement the proposed project in the high and mid-country (42% of total project invest- ments); while two of the four SPC regional boards--Boards I and IV--would implement the proposed project in the low-country (50% of total investments). Smallholders through TSHDA would be responsible for the remaining investments (8%). As a condition of effectiveness, the Government would transfer owner- ship of all Project area lands to SPC and JEDB (Section 6.01(e), draft Development Credit Agreement (DCA)). 39. Both JEDB and SPC would continue to operate within the framework of the existing decentralized organizational structure and to be headed by separate chairmen, each assisted by the following: a. sub-regional directors supervising groups of estates, with each estate headed by an Estate Superin- tendent, and b. an office manager supervising accounting, personnel and other support staff at board headquarters. Each of the five regional Boards (para 38) has appointed a Project Director for the project area under it. Similarly, MPI has appointed a Project Director for components to be imple- mented through TSITDA and NIPM. SPC and JEDB central offices would coordinate project implementation by their respective regional Boards. At the apex, a Project Coordination Committee (PCC) has been set up with the Secretary, Mlinistry of Janatha Estates Development as the Chairman. The PCC-s respon- sibilitv would include: coordinating and monitoring the progress of the project and removing implementation bottlenecks. A Project Coordinator, located in the Ministry of Janatha Fstates Development, would service the PCC.  - 16 - 40. In order to achieve the project's objective of improved management and reduced costs of tea production, some changes in the management system and financial control will be necessary. To help with effective decentralization of management, without loss of control over corporate per- formance, a financial control and information system would be developed and management accounting and internal audit procedures strengthened and tied to an effective incentive system. A management manual would be drawn up to help establish operating procedures for effective decentralization. As a condi- tion of effectiveness of the Credit, management consultants would be hired to make recommendations and subsequentlv impart training to establish and imple- ment the accepted systems and procedures. SPC and JEDB would review with the recommendations of management consultants with IDA by August 31, 1983, and begin to implement the agreed recommendations by December 1, 1983 (Section 3.04, draft Project Agreement (PA)). 41. The Project Directors would prepare progress reports using formats established for the ongoing rehabilitation project. The reports would be collated by the central offices of each corporation and furnished to IDA through the PCC. 42. In the past JEDB and SPC incurred losses on their operations because of high export taxes, weak tea markets, inefficient management, and high local inflation. Recognizing the inadequacy of tea margins and in response to an agreement with IDA (under Cr. 818-CE), which requires tea industry profitability to be maintained at November 1977 level, the Govern- ment reduced the specific export duty in 1979 from Rs 14.50 per kg by about a third to Rs 10.50 per kg. Since then, margins again suffered due to falling world tea prices and in response the Government announced a further 24% reduction in export duty (to Rs 8.00 per kg) in November 1981. The Govern- ment would review, by May 31 each year, actual and projected tea profit levels and agree with IDA on a plan of action to ensure satisfactory returns to tea producers (Section 4.02, draft DCA). In view of the importance of tea taxes as a source of revenue for the Government, in the longer term more reliance will have to be put on reducing tea production costs and increasing productivity of tea lands. The proposed project aims to achieve this through rehabilitation of tea lands and factories and diversification of poorer tea areas into other crops. Project Costs and Financing 43. The estimated total cost of the 4-year project, including contin- gencies, is about IJS$33.1 M, with a foreign exchange cost of about IJSS10.9 M. The total cost includes taxes and duties of approximately ITSSJ.9 M. The project includes 120 man-months of technical assistance for a total cost of US$.22 M. Physical contingencies are calculated at 5% for field activities, equipment and vehicles; and 10% for factory civil works, housing and medical  - 17 - facilities, reflecting site-specific design variations. Local price contin- gencies have been calculated at 17% for 1Q82, 12% for 1983, 10% for 1984 and 8% for 1985. Foreign price contingencies have been calculated at 8.5% for 198? and 7.5% thereafter. 44. The proposed TDA credit of uSS2o.n million woull finance 100% of foreign costs and contrihute ITSS9.1 M equivalent to local costs and thus would finance about 64% of the total project cost, net of duties and taxes. The remaining local costs would be met by the Government, SPC, JEDB and smallholders. Despite a number of measures to raise additional resources in support of its investment program, Sri Lanka-s resource situation remains extremely tight. A major reason for this is the adverse impact on revenues of the relatively slow increase in export volumes and prices, and the pres- sure on expenditure arising partly from the rapid increase in import prices. This tight budgetary situation will take time to resolve. Local cost financ- ing in support of Sri Lanka's own resource mobilization efforts will not only provide valuable relief to these budgetary pressures but also supplement foreign exchange resources in support of the balance of payments. 45. The Covernment would relend an amount of US$17.5 M to SPC and JEDB at an interest rate initially of 16% per annum, and IJS$1.O M to BOC initially at 13% per annum. The latter amount would be onlent to private factory owners and smallholders at an interest rate initially of 16% per annum. Repayment period of all subloans would extend to 15 years including five years of grace period (Section 3.01(c) and (d), and Schedule 4, draft DCA). As a result of stabilization measures undertaken by the Government, inflation during 1981, using the GDP deflator, is estimated to have declined to about 20% from 24% in 1980. Provided stabilization measures are continued and strengthened, inflation during the next three years could decline to an average of 15-167 and to around 10% beyond 1985. The initial onlending rate of 16% would represent a positive real rate over the term of the loan. The initial rate would be reviewed and revised annually to keep it positive in real terms over the medium term. Any modifications in the onlending rates would affect only new subloans. The Government would bear the foreign exchange risk. Procurement and Disbursement 46. All factory equipment, tractors and vehicles ($9.1 M) would be procured following international competitive bidding (TCB), in accordance with IDA procurement guidelines. Bids from domestic manufacturers would receive a margin of preference of 15% or the prevailing customs duty, whichever is lower. Nion-factory equipment, tanker-trucks and trailers ($0.8 M) would be purchased in small lots, not suitable for ICB, and would, there- fore be procured after competitive bidding advertised locally, following procedures acceptable to IDA. Civil works construction would be scattered and would consist mainly of small housing construction and renovation and as such would not interest foreign bidders. Contracts for building of new  - 18 - cottages, processing and storage facilities and for construction materials ($2.0 M) would, therefore, be awarded through local competitive bidding. Following existing practices, field rehabilitation and diversification work ($7.5 M) and housing renovation ($0.3 M) would be undertaken by estate labor on force account. Consultants for technical assistance ($0.2 M) would be appointed following Bank guidelines. 47. Disbursements out of the proposed credit will be made as follows: a. 100% of foreign expenditure on directly imported, or 100% of local expenditures (ex-factory) on locally manufactured, or 85% of expenditures on imported but locally procured vehicles and equipment; b. 100% of expenditure on training, technical assistance and project preparation; and c. 85% of expenditure on civil works for the construction of new labor housing, factory, processing and storage facilities, and construction material for renovation. Credit withdrawal applications for expenditure on all categories would be fully documented. Project implementation has already started. Retroactive financing up to USS.5 M is provided for eligible project expenditure incurred after January 1, 1982, so that project implementation is not slowed down. 48. Separate project accounts would be maintained by the implementing agencies, in a format similar to what has been agreed upon in the ongoing tea rehabilitation project. Accounting and internal audit functions are weak and would be strengthened through technical assistance to be provided under the proposed project. The implementing agencies have been slow in preparing financial statements, but the performance is improving. All project execut- ing agencies would submit their unaudited accounts to IDA within four months of the end of the fiscal year, and audited accounts within eight months. Project Benefits and Risks 49. The project would not increase the total tea production of Sri Lanka. All production increases in the high country and low country tea areas would he offset by production loss due to diversification out of mid-country tea areas. Increases in revenues from tea would be small, about TTSS1.R M per year by 1990, due to improvements in quality which would improve prices by 5% in the high-country and 3% in the low-country. Financial benefits from spices and. fuielwood would he about USS4 M per annum. The project's main benefit would come from reduction in tea production and processing costs and improvement in the quality of tea through replacement of old machiney and equipment. The financial benefits from reductions in tea operating costs would amount to about US$6.0 M per year which even when  - 19 - offset by operating cost increases due to spice and fuelwood operations, would still result in annual savings of about TUS$5.0 M. 50. The project would also produce non quantified benefits by improving the health and welfare of estate labor through improvements in labor housing, water supply, sanitation and medical facilities. Through the training and technical assistance components, the project would improve corporate manage- ment and control, which would also benefit tea areas outside the project. 51. The project's economic rate of return would be about 29% with rates for components varving between 15% and 75%. While replanting has the lowest ERR, averaging only 15%, the ERR for infilling component, at 75% is the highest. ERRs for other major components are as follows: soil conservation, 72%; factory, 347; and spices, 35%. The range of ERRs for the replanting component shows that for some portions of the project area, returns may be low. A field by field evaluation of current and potential yields will be done for each field proposed to be replanted in high-country project area. SPC and JEDB will select fields for tea replanting in accordance with criteria satisfactory to the Association (Section 4.04, draft PA). The project's economic rate of return is relatively insensitive to changes in costs and benefits. Even if either revenue increases due to spice production and tea quality improvements do not materialize or if operating cost savings in tea production and processing are not realized, the project would still be viable. Similarly, the project remains viable even if projects costs double. 52. The technical risks of the project with respect to tea production are low because of the long experience which the SPC and JEDR have in tea cultivation and processing. The two corporations have gained considerable experience in implementing a similar rehabilitation project. As the corpora- tions have less experience with minor export crops these risks would be somewhat higher for the diversification activities. However, technical assistance and training are provided under the project to minimize these risks. Management risks would be greater, because of the current organiza- tional and management problems. Management technical assistance has, there- fore, been included in the project. The organizational structure, as strengthened under the proposed project is considered adequate for project implementation. PART V - LECAL INSTRUMENTS AND AUTHORITY 53. The draft Development Credit Agreement between the Democratic Socialist Republic of Sri Lanka and the Association, the draft Project Agree- ment between the Association and SPC and JEDB, and the Recommendation of the Committee provided for in Article V, Section l(d) of the Articles of Agree- ment are being distributed to the Executive Directors separately.  - 20 - 54. Special Conditions of the project are listed in Section III of Annex III. Additional conditions of effectiveness include: (i) transfer of ownership of Project area lands to SPC and JEDB (Section 6.01(e), draft DCA); (ii) execution of the subsidiary loan agreements between the Government of Sri Lanka and SPC, JEDB, and BOC (Section 6.01(b) and (c), draft DCA); and (iii) appointment of management consultants (Section 6.01(d), draft DCA). 55. I am satisfied that the proposed Credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 56. I recommend that the Executive Directors approve the proposed Credit. A. N. Clauisen President Attachments April 12, 1982  -21- ANNEX I Page 1 TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROUPS (WEIGHTED AV5.HAOES LAND AREA (ThOUSAND SQ. KM.) - MOST RECENT ESrIMATE)- TOTAL 65.6 MOST RECENT LOW INCOME MIDDLE INCOME AGRICULTLRAL 25.8 1960 /b 1970 /b ESTIMATE /b ASIA 6 PACIFIC ASIA & PACIFIC GNP PEE CAPITA (US$) 60.0 100.0 230.0 232.3 1136.1 ENERGY CONSLMPTI0A PEA CAPITA (KILOGRAMS OF COAL EQUIVALENT) 114.4 143.3 140.2 499.4 1150.6 POPULATION AND VITAL STATISTICS POPULATION, MPID-YEAR (THOUSANDS) 9889.2 12514.0 14542.0 URBAN POPULATION (PERCENT Ot TOTAL) 17.9 21.9 26.1 17.3 40.8 POPULATION PROJECTIONS POPULATION IN YEAR 2000 (MILLIONS) 21.3 STATIONARY POPULATION (MILLIONS) 31.0 YEAR STATIONARY POPULATION IS REACHED 2065 FPOPJLATIUL DENSITY PER SQ. KUM. 150.8 190.8 221.7 153.6 373.1 PER SQ. KM. AGRICULTLRAL LAND 507.0 518.0 552.9 360.3 2382.8 POPULATION AGE STRUCTURE (PERCENT) U-I4 YRS. 42.1 41.9 36.9 37.4 39.8 15-64 YRS. 54.3 54.5 59.0 59.2 56.7 65 YRS. AND ABOVE 3.6 3.6 4.1 3.5 3.5 POPFL_ATION GROwF. RSATE (PERCENT) TOTAL 2.5 2.4 1.7 2.1 2.3 URBAN 4.7 4.4 3.6 3.4 3.8 CiLDE BIRTh RATE (PER THOUSAND) 35.5 29.7 27.6 27.7 29.7 LRUDE DEATH RATE (PER ThOUSAND) 9.1 6.8 7.4 10.2 7.5 GROSS REPRODUCTION RATE 2.5 2.3 1.8 2.5 1.9 FAMILY PLANNING AACCEPTORS, ANNUAL (THOUSANDS) .. 55.3 113.0 USERS (PERCENT OF MARRIED WOMEN) .. 8.2 41.0 20.4 44.1 LofuD ANL NUSIlTION INDEX OF FOOD PRODUCTION PER CAPITA (1969-71-100) 93.0 103.0 140.0 107.1 123.7 PEk .APITA SUPPLY OF CALORIES (PERCENT OF REQCIREMENTS) 97.0 108.0 96.0 9F.6 112.6 PROTEINS (GRAMS PER DAY) 44.0 47.0 43.0 56.9 62.5 OF wHICH ANINLAL AND PULSE 13.0 13.0 7.0 14.2 19.7 LHILD (AGES 1-4) MORTALITY SATE 5.8 4.8 3.4 14.6 4.8 HEALTh LIFE EXPECTANCY AT dIRTH (YEARS) 62.0 63.5 65.6 57.7 64.0 INFANRT MORTALITY RATE (PEE THOUSANL) 55.0 51.0 49.0 89.1 50.2 ALLESS IO SAFE WATER (PERCENT OF POPULATION) TUTAL .. 21.0 20.0 30.1 45.9 1RSAN . . 46.4 45.0 65.8 68.0 RURAL .. 14.0 13.0 20.1 34.4 NAUDE6 TU EXDJETA DISPOSAL (PERCENT 2F' POPULATION) lrOAL .. 64.0 59.0 17.6 53.4 URBAN .. 76.0 68.0 71.0 71.0 RURAL .. 61.0 55.0 4.8 42.4 PUFLLAlOlN FEE,R PHYSiCIAN 4493.1 6610.7 6751.2 3857.7 4428.7 POPULADluN PEA NURSING PERSOh 4150.0 2238.0 2055.0 6411.8 2229.7 POPULANloh PEU HOSPITAL SED IOTAL 319.0 322.0 342.0 1132.8 588.5 UHEAN .. 217.6 241.1 322.3 579.6 a RkU.AL . 569.6 584.2 5600.5 1138.5 ;SIoM.SuSNS PER HJSB'TAL BED .. 56.5 531.3 HOUB N U ADVERAGE SIZE UF -OUSEHOLI ToTAL 5.4/c 5.8 .. URSAN 6. 3c 6.3 .. KURAL S.27T 5.5 AVEEALE NUMBER OF PERSONS PER ROOM TOTAL 2.0/c 2.5 5SAN 2.17T 2.7 RURAL 2.0N/c 2. 5 AE-SES TO ELELThlUITY (PERCENT ot WtELLIGSL) .OIAL 7.5/c 9.0 UKRSAN 35.49/c 34.5 RURAL 2. 3/c 3.0  -22- ANNEX I Page 2 TABLE 3A SRI LANKA - SOCIAL INDICATORS DATA SHEET SRI LANKA REFERENCE GROIPS (WEIGHTED AVERAGES - MOST RECENT ESTIMATE)- MOST RECENT LOW INCOME MIDDLE INCOME 1960 /b 1970 /b EST1MATE /b ASIA & PACIFIC ASIA & PACIFIC EDUCAT ION ADJUSTED ENROLLMENT RATIOS PRIMARY: TOTAL 95.0 99.0 94.0/d 85.9 99.8 MALE 100.0 104.0 98.0/d 94.4 100.6 FEMALE 90.0 94.0 90.0_/ 64.5 98.8 SECONDARY: TOTAL 27.0 47.0 52.0 38.0/aa 53.5 MALE 38.0 46.0 63.0 34.6/aa 58.4 FEMALE 16.0 48.0 40.0 18.0/as 48.6 VOCATIONAL ENROL. (X OF SECONDARY) .. 1.0 1.0 3.8 21.1 PUPIL-TEAChER RAT1O PRKAAkY 31.0 .. 32.0 32.8 34.2 SECONDARY .. .. .. 19.9 31.7 ADULT LlTERACY RATE (PERCENT) 75.0 /e 77.6 85.0 52.8 86.5 CONSUMPTION PASSENGER CARS PER THOUSAND POPULATION 8.0 7.0 6.8 1.7 12.7 RADIO RECEIVERS PER THOUSAND POPULATION 35.8 40.0 71.2 35.3 174.1 TV RECEIVERS PER THOUSAND POPULATION .. .. .. 3.7 50.6 NEWSPAPER ("DAILY GENERAL INTEREST") CIRCULATION PER THOUSAND POPULATION 36.0 48.9 .. 14.6 106.8 CINEMA ANNIUAL ATTENIANCE PER CAPITA 3.0 .. 4.7 3.4 4.3 LAbOR EORCE TOTAL IAbOR FORCE (THOUSANDS) 3390.9 4186.9 5011.4 FEMALE (PERCENT) 22.6 23.7 24.4 29.3 37.4 AGkICULTURE (PERCENT) 56.3 55.1 54.3 69.8 50.2 INDUSTRY (PERCENT) 13.5 14.4 14.1 14.1 21.9 PARTICIPATION RATE (PERCENT) TOTAL 34.3 33.5 34.5 39.7 40.2 MALE 50.8 49.1 50.7 51.5 49.8 FENALE 16.2 16.5 17.3 23.3 31.1 ECONOMIC DEPENDENCY RATIO 1.3 1.4 1.2 1.1 1.1 1hCOME DISTRIEUTION PERCENT OP PRIVATE INCOME RECEIVED BY HIGhEST 5 PERCENT OF HOUSEHOLDS 26.4 18.2 18.6 HRGHEST 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) URBAh .. ., .. 134.1 248.6 RURAL .. .. .. 111.6 193.7 ESTIMATED RELATIVE POVERTY ENCOME LEVEL (USD PER CAPITA) URBAN .. .. .. .. 249.8 RURAL .. .. .. .. 234.3 EST1MATED POPULATION BELOW POVERTY INCOME LEVEL (PERCENT) e URBAN .. .. .. 41.7 21.2 RURAL .. .. .. 51.7 32.2 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. /aa China Included in total only. /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 1976 and 1979. /c 1963; /d Due to changes in duration of levels in education, the ratios are not strictly comparable over time; /e 1962. May, 1981  -23-- ANNEX I Page 3 LtIN.IGIONI 00 $00CI0 fhflCXldk Rtotos Adtoooghth o~aoa...eo.doro. to.e.... donorally ~dga thooooatoo ittveooloot hroli -th tn atte]oaproo-th. inter- The rsftoroono gr apese rh sbassoor o a f rho .bfornoooaadd (2) scan-Or gr-,p,o -hvrersoo --rooogoroottarr thooaotygr sro-o frlftoitses). lthe rrfte--r gtoap dal.taherano-ges a-aplroasgsn ro-- n_ ona f-tr ondo aoyott _omo..t_ ajoItly or too ee-ortosi ragI'oa? oat data fry star tr.oto-- . Io- Ohs -c-r , of C r -oogtb,o"ilatnrseped -o ohs oa-flabifliy of data sod.- i- __. fsooohbae Io ae_too_tedor..a_.-stgo-sroaoro-ot fojeon-- t.r.lbao"f n. -y.t-fil -pantt -na. tor fIfTh AlEAC . a-Ia. 1thodasd s.Io.f 2f-.ot,O o,n r-alioo ar- - to tol- .b, - arct or..b - l'nlafon(toal tota - ots. rofan ara no-Iot- lo a-eo ... d ofoosaor ...tobso, afand rota a nl.o-d pri-t'roarne otohor a-,- o _hpatolbd AgLcItra-Ot~toIgtost6atosnsdesoaolyo roonolyoby fhfht oblIhir..pot- ' grerlr-diroslr ldysr ...ado. COtN OPIoI 7IFtErRttstfasITnnonrorttrors--dlf tano-odo. of.sft." roni"'todhall oal1-d by -asooor-t eotodl or rd honk Atlat 119-9 bol l, 1990 soIs o resnra-as.hosatdr hs.n ht0 197d, sod 9197 dana. od Ito asoo n,` nr,o -Jan,o-.)ooh-be.fsrh -p-t..o tao-In ONORC Chlhoo r npO asrel aoaop Ia nnosooal oorn oaef- n700 - roar~ lrooahsi roI ad Cltotr7f feaffspta Itrhnnny' I thfngaot of -oita afo Pan tonfra; fI6h, 1970.adI909 _otton. Spantae-t nnspi-.' jot toldod Fonl Cor ota.1 deta. yAsloosrfsha dod-oo-nors- oodbt-ttt odist--rot ft00 -ap ita dn'-dod by tho r-bor of toOt. 4 total yoat..athToo. ffdY (tho.-sadn, Cs A. Illy a. 16061 1970, ond 1197d9nO 6tat. anroto.-otir.. 7h 0 on nrd otl -tttd ra l-1 Coototaoo1..oretf otttal -- -y.fo..or ... atnltor~ prdartot,_ a tsr ""Id-anttan at.0 r.. - alia - tarslfa,g qdonrIs daff _oe rdsfhr196otsofooh-n or9at eCat-otnoorttttndoa o -hnnnn osC raolJ vI.o,-thsoxd-t toto1atro" toor,ntloos Atoae000 o otn a-l. -b- f Pyjj- ,_ruranl A- anreoCe totofartan to 9000 ff10 - orr yo7lati., prolonoito aot hb-od no 19ff her of 0000000 P- root n f.obo n mo pe ornt-o ttloaato Slyats aod to ond thotr -oto a-s- ald tortiiliy o-oa.dsloo 5i~0l'.ftfo toldonnraotto oetd toion'Olif ysoor-t-y sa, sborth lh-da-hr,lhn-tttt yaGtho- a.s';tl oo- oratoroed-otho bogflfoopoesarnyoshorth -tnoo iralrh aao7ry y-,,~a oshyt nrse dotoatt tlnrt-ononondtlra-tos .n ...odarol loosl.sdfaaioI'frotonao.tr_ sra- h,..lfa,agaro -.l ara. . looor- aoottol adtrb toftlt- oso- reon...l. .... rtoIF fortlilty a-ord hot tn -00-0 lo and Patt favohy plaorlogtroros lah -otryfor hor anoigoodooafrts-ofni orhoo-on-torfo-alitt roUcA_OcIN otdfor-ffftprrerdot-.tnro1otttaay..rtassa. hdfotron.-.7.nrtlhvortt.... .. .ataltot thI o _oooo of_ tnnfosfl rootsdeof oo_0 olsto onh,"aola popolorono; rorally Jrnlodoo hlndr-o aged r-11 oftoso 1-or atrseI ositanto OhotdnstdnosryarI~a, e alotooofoeo tonn..rsoI a "i Ifro ..d.otfoeI'lls, osI estedll pInI e---otd 0rh tsoatthe rr- , orrod ntaraot--sot- or tht ooalooseso a,. - p,Fa. are 1hotn or .a.oteho offletaf tarhoo ago. Ij tho ys-IIG 2000 dr,lrh rane f d-olo-of ftn-lonons,etarno Soooedarntobaol t-tnttf.f a-Id ft e- o7asdsaat1ettdr test sttthoaoh Onto tint atorsned - he ysar -t- ..satta-ty .poto-a-I podat getrl nooat-o, or roanhar noato.o ItI tat os orpo shot hat.. heroa-hnd. ....oIlyaohln2 .7 yor areftgo,oor--t-oo -s-o nnroare eserafl'yi toal- ra 1960. 1117 ald 1979 da. aorlCde tsnhoti.aI. iofn-rial, 00 other- or oh-th op-tat ldotod- Prrso.ha.atooo-nrA. -a d - asyato oeob... fos,arn laainstloy, det-aot -eoffs--odat toltrtoo tt. oty; OO 90ad.7 data tCh-eorteao orlaoeasayttfsothtroleald it royJosias ho fororars (yrrt-t - Ih,tho- .0-10 year, oloo-g 1-peay o oodory itois dhoided by -oehor of _oaher to f. It years), sod retinod 765 neor o-d otrr as prernn-gee of -tao-yt root-rrrs dglols lorlo; ltI,197I9, ota- 1:909 OsaAdol liternrrt Orth Lica.-st sto1ma fobl ftn teed asd atIre) tfolso.ti Cas rSShat roroo -taro - amora grooth tarte at toa tooI - St 0 torro age nO total od-.. paoalo od lb Feat and ...er year totlalost.n -t flat-hI, 1967-77, sod 1979-79. toroarlo froet,h hat (Pernont -otbo - a-oo goo-1, raleo D otrbaa tort- CftSlMThIhN tattoos foo 1950-ho, t960lhI, -od 1970-79. Paaoo astoohtr ootlr t.ae..e naegotioIao Eroos ltShas(rthoso - Aor-tS lInt bitrts 'ao toeoof sft-yo.r11 oar tolag lots that eight retes..ta; -oaldea -eh1-ato , hostess ead O tolt-o 19hI, 1971, -o 1979 Oa.- oaa .nar nah_la Go-dea ean fats (roroth-oandl - A-oaa deaths pro tnoooodsat fotd-yoa at esnr nrtoso oootod-Alrtso,oonr o ai rotoataio 19hG .1970, Sod 1979 .tar. broahose,teto g....s yobllo is-thoso..deaf ypoott shds0 CtasttraottoaoaooSot.:rtoohereoI__lhornItes d rs_ooe 'loonoota adl Isosoegeotalrotet Rareo-oAoalrsyrodont loootdfhotreos oso g-7afIfo ese 00er;dtloettpoaoyodrrpoholr ttIh,y tts na-aly ffoe-year ,aerag do It169 970, sod 19:9 rosIo'thsahlss toao ofbrr-Sorldoor-e tador soetass f ooaao...l faehhypl ..soist ,.trort goooo.al tblia pro th-attd 001tto o loots aa_l_otso TVIrestoe tettitlatPlng.~i,- U-r (t-e-on ofsa-ttdoott- trotodlgealftS rrd Iroosnrhoardotyarsrb h t, rtoo f TVs sotag Itoeffo.- allsathd hono. io saoo ago Irtay. nStaoo 'daIly geosraf Iltr....o.soapaor'. detlo rs 9tdtisl pnhblooetto denotel PrI r _.y so _nodlog general toot. It ia ososdeted tOldOff OfUTI_ThII no he "doily" lIsta o...ar. an loast foo totes a -ksl _rooo loot.lfondooerotoao. tnaaitsooa.essea sod' fsonr.delekts ..ddot.. bya,oldhsdlsatndtooese on--tdalfssgoohat orhsh sdlblesiadao-tooooaeistos (e.g oea.d tioro_ avrgo -rdo-oPo -otoighta, l96l-6a, 1970, aed 1979 dat. sTol lobor f-oeOnoode - Oooogoll artlo- ertoo-s osolofta tsr foatt softly O ralooto (rernen tO otooterneottl-CGooaatd Ioa sto arsaod aoooyayd hDr00 a ldg oaol oe sndoe eta,, snrtgy eooae Itr ts foadsopaa or-ilablei oota -o-p-~o toplts notrog t`taIstOor of all afo. Dfifatltoo to -orb-s h -tooteto Ptotday. A Ctlable sorolto_ Isyr d-assti fr-dotos, asyrtP lee oa roapatable; lh60, 197f ood 1979Oas eatoIIs , ad nhasgsor ejana Nat sopylies eonlode ootoal teed, asdsmasle (toao Fa-teals labor fareo ra toteo- so ofI 1 ttS .oh. fo.. qootoesed vfodII oosog odtstshodsdiasno eqte-atlotoe(r-oa) Oo ore--frsoL'ots'y -rig o -et sr eooa-d ho tFA b-aod 00 phystol.. totoosfrooaithifslgo err.t 0ntol =aban ftt l9hf 1970 o 99dt oioy asd hrolth Ir.o.inoriog tnrir-..c.sl Pee...aIo. body aislghs,age Lnaoy tro ;-bOor frare it nI-tog, notnto,~taotatto * so~~~~~~~~~~~~~.deoo di.tItbor-.orfpoth -ooadsf11-ioglf taratr.nfrosa ardehtn-rtaoy, -trertodgo a -rr-oag ftt allshoofotro;lI '. 9h0. hon....' lee;lIOo lG ad 1970 doo 0979I ard 1979da. Pet _atItos -t1l of oratolo (troe ro dar - tr-otio t no Io of too -arhos tftrrna se ttet .tto,ol,adt le - tarotootatto or ott e_sryt at food 700 day. Nto eotply offood Is dofiood as b-o. to- oottteiI _etrstor tod as tots, tab, sod feroa labor Farsa qai-o ntoos Ioral entrts ososIhliohod by tSDA pt-oodo for tato erttgtfnt-,tl o I-laa pptlatloi o elI ags .re .s ..loly; e11ooaor; o 7 rotoftoa oroso" Pot dsy aed 20 groo.I-fololSd 1960, 197f', Sd I197 dots.I bes r baean l' peoiot patos aOte prals rroois o ohlo 10 gota hoold be a..'-I pronir - Tbhe- ssad- reflenoong geg-too -ato rnr ad th rpla -tn ad sg reod A * ~~~~~~~~~~~~~~~ard.aarloosrthar.tbh-efl75oooo. tlttal proteoooodba2 rastol tsee- oat tar froroati-oal - aiaf rnt st a -og a rho osld, roorosed by FAO toro , o tooarolthonoio,t-,o o ttoslo tdt ~Ia5 aod t65 aod doer Otold toad Sotoey;-1961-65 ..197 aod 9r7 daa,t the .tta labor foras.I t"IarI t tro ilr....rlr loot ovloa sod aolse . .... otot sotly of foal de- thoedifrot.' solal od polses - gra.e tot day; 1961-65 , 1970 ond 1977 data. INCOME DISTRhIrL tfN ChilI(.yern4oon,v(Patne..ttd -ffA- deoonoonth- d i tooorffersonaotorodl trrrsh- rosdosdele iro hlof alo- ; 1961.i '97 sod 1979 dato ata.p, hoaetha_11lts.~l2'p .1 0p- ,- .. l4 a- lttley d.Of rIlGd -ihft9 ff0177 s ,broh; 1960.17 oo t99a-t andool sttrondoo osdshoon.a lsao_rotoliL09t rIhb... ldl - - dosoldatbs of ioa-taotd-rr roo yothoahd Ch- atot totoyOooh oel (OtTbl -tt 5rtl ra adrsa at age ret ohoasood hot htttlrt. ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ -il) -rb. a~ ah,seata late Oater (rerenoa oroahn-ttsl.. obo, and ratol -dt-A looynvp ,inndone levl t tbo .. eo.. i leo... ho ond obtoha ... oI he t ete (ta-si orbav, od rtal)ob Oosvboassaeafo ffrsl eSe o stht_o trot-onted .osas .torog ...sd aI.sr sells. I.iasa taos. lsls oriy-oro oods o-tiddf vtooyo ept .erreotagh of toi rete. r.tlv bPtoaton _oaorSo are .. itory-ltn .- footoloortrndtetheanrootorsbaolfasottfrooboosoooe tvtoai.troroofh.tat.ot5- illrboriovthhodrt.o.h..t..oP"r",ih oaosdert so ato tnoroaoobl aeeeo tha tbo. torsoebliota boot o P-dIoot 0 thro: fIo o ohtast hotet fensa ltror otoCit1--rtl,rto,odeol. peoetee othitsorIr_ totobsotoos. thtoadepslsy nld aodiooaoe-a_e breane-oo rtesaPh.so,h tot sd5Ot eooh o rtl oafoes rto qsife to o ' sero sooo or" aoioledIo level. .... tstl -ortr roso tl tsoo ppto atia.d-ts ytorteof Iasct. -alsstsal-grodt--to -rs y.pst-iealhvorse ,eo aestepossootrota.  -24- ANNEX I Page 4 SRI LANKA: ECONOMIC INDICATORS OUTPUT IN 1980 BY SECTOR ANNUAL RATE OF GROWTH (%, constant prices) Value Added $ Million % 1970-77 1977-80 1970-.30 Agriculture 1,038 27.6 2.0 3.5 2.5 Industry a/ 1,116 29.6 2.1 8.6 4.0 Services 1,612 42.8 3.7 7.6 4.9 Total b/ 3,766 100.0 2.9 6.8 4.0 GROSS DOMESTIC PRODUCT IN 1980 US$ Million % GDP at Market Prices 4,130 100.0 Investment 1,480 35.8 Gross National Savings 675 16.3 Current Account Balance 805 19.5 Exports of Goods and NFS 1,295 31.3 Imports of Goods and NFS 2,211 53.5 GOVERNMENT FINANCE Central Government (Rs Million) % of GDP at Market Prices 1980 1975 1979 1980 Current Receipts c/ 12,927 17.2 23.1 18.9 Current Expenditures d/ 14,594 18.3 22.8 21.4 Current Surplus -1,667 -1.1 0.2 -2.4 Capital Expenditures e/ 12,772 7.3 14.1 18.7 External Assistance 5,717 3.2 7.2 8.4 a/ Manufacturing, mining, construction, and utilities. b/ GDP at factor cost. c/ Includes capital revenue. d/ Includes advance accounts. e/ Includes net lending. March 31, 1982  -25- ANNEX I Page 5 COUNTRY DATA - SRI LANKA MONEY, CREDIT, AND PRICES 1970 1975 1976 1977 1978 1979 1980 (end of period) (Rs Million) Money and Quasi Money 3,061 4,712 6,251 8,636 10,803 14,957 19,709 Bank Credit to Public Sector 2,680 2,460 3,725 4,834 4,518 6,703 13,075 Bank Credit to Private Sector 1,446 3,363 3,919 5,714 8,666 11,953 16,343 (Percentages or Index Numbers) Money and Quasi Money as 4 of ODP 22.4 17.8 20.9 24.0 25.3 28.7 28.9 Ceneral Price Index (1970 = 100) 100.0 143.3 145.2 147.0 164.6 182.6 230.3 Annual Perceetage Changes in: General Price Index +5.9 +6.7 +1.3 +1.2 +12.1 +10.8 +26.1 Bank Credit to Public Sector +15.9 +9.4 +51.4 +35.0 -6.5 +48.4 +95.1 Bank Credit to Private Sector +0.7 +5.5 +16.5 +45.8 +51.7 +36.8 +37.9 RALANCE OF PAYMENTS MERC1hANDISE EXPORTS (1980) 1979 1980 (11s5 Million) S Million % Exports of Goods, NFS 1,135 1,295 Tea 373 35.7 Imports of Goods, 'NFS 1,539 2,211 Rubber 156 14.9 Resource Gap (deficit -) -404 -916 Coconut Products 45 4.3 Interest Payments (net) -9 -12 All Other Commodities 471 45.1 Workers' Remittances Other Factor Payments (ret) -7 -14 Total 1,045 a/ 100.0 Net Transfers 4h 137 Balance on Current Account -372 -805 Direct FPreign Investment 47 43 EXTERNAL DEBT (5 Million) b! Net MLT Borrowing 162 247 Disbursements 225 309 December December Amortization 63 62 1979 1980 Capital Grants 144 138 Other Capital (net) +67 +157 Total Outstanding 1,773.3 2,264.9 Chaoge in Reserves (+ increase) +48 -220 Total Outstanding Gross Reserves (end-year) 62b 377 and Disbursed 1,091.1 1,327.6 Net Reserves (end-year) 258 38 DEBT SERV1CE RATIO - (Z) 9.8 9.3 RATE OF EXCHANGE IBRD/IDA LENDING, March 31. 1982 (5Million) 13RD IDA 1967-71 End 1976 US$1.00 = Rs 5.93 US$1.00 = Rs 8.83 Outstanding and Disbursed 28.6 149.1 RN 1.00 = US509.17 Rs 1.00 = L'S$0.11 Undisbursed - 427.0 Outstanding, including Undisbursed 28.6 576.1 End 1972 End 1977 US$1.00 = Rs 6.70 US$1.00 = Rs 15.56 Rs 1.00 = US50.15 Rs 1.00 = US$0.06 End 1973 End 1978 Foreign Exchange Entitlement Certificate (FEEC) lates d/ USS1.O0 = Rs 6.75 US$1.00 = Rs 15.51 Rs 1.00 = US$0.15 Rs 1.00 = US$0.06 1968 US$1.00 = Rs 8.54 (441 REEC) 1969 ro 1971 US$1.00 = Rs 9.19 (554 EEEC) End 1974 End 1979 1972 (end) US$1.00 = Rs 10.38 (55% FEEC) LS$1.00 =s 6.69 US$1.00 = Rs 15.45 1973 (end) USS1.00 = Rs 11.13 (65% FEEC) Rs 1.00 = US$0.15 Rs 1.00 = US$0.06 1974 (end) US$1.00 Rs 11.04 (65% FEEC) 1975 (end) US$1.00 = Rs 12.72 (65% FEEC) End 1975 End 1980 1976 (end) U5$1.00 = Rs 14.57 (65% FEEC) US$1.00 = Rs 7.71 US$1.00 = Rs 18.00 1977 (until Nov. 15) US51.00 = Rs 13.02 (65% FEEC) Rs 1.00 2 9S50.13 Rs 1.00 = US50.06 End 1981 US$1.00 = Rs 18.00 Rs 1.00 = US$ 0.49 a/ Customs data. b/ Repayable in foreign currencies and with a maturity over one year. c/ Ratio of debt service, excluding short-term capital repayments and IMF repurchases to exports of goods and non-factor services. d! The certificates were abolished on November 15, 1977. South Asia Programs Department March 31, 1982  ANNEX II Page 1 - 26 - THE STATUS OF BANK GROUP OPERATIONS IN SRI LANKA A. STATEMENT OF BANK LOANS AND IDA CREDITS (as of March 31, 1982) USS Million Loan or Amount (net of Credit cancellations) No. Year Borrower Purpos Bank IDA Undisbursed Eight loans and eight credits fully disbursed 72.9 66.8 504 1974 Sri Lanka Dairy Development 9.0 5.1 666 1976 Sri Lanka Taink Irrigation Modernization 5.0 2.1 701 1977 Sri Lanka Mahaweli Ganga Development II 19.0 13.0 709 1977 Sri Lanka Water Supply 9.2 .4 742 1977 Sri Lanka DFC - Industrial IV 8.0 .5 818 1978 Sri Lanka Tree Crop Rehab. (Tea) 21.0 15.3 819 1978 Sri Lanka Tree Crop Diver. (Tea) 4.5 .3 891 1979 Sri Lanka Kurunegala Rural Development 20.0 15.5 900 1979 Sri Lanka Road Maintenance 16.5 13.7 931 1979 Sri Lanka Agricultural Extension and Adaptive Research 15.5 13.8 942 1979 Sri Lanka Small and Medium Industries 16.0 7.4 979 1980 Sri Lanka Mahaweli Ganga Technical Asst. 3.0 l.Q 994 1980 Sri Lanka Road Passenger Transport 53.0 45.2 1017 1980 Sri Lanka Rubber Rehabilitation 16.0 15.7 1020 1980 Sri Lanka Telecommunications 30.0 30.0 1041 1980 Sri Lanka Second Water Supply 30.0 29.8 1048 1980 Sri Lanka Sixth Power 19.5 19.4 Total, 72.9 362.0 229.1 of which has been repaid 44.3 0.4 lTotal now outstanding 28.6 361.6 Amount sold, 3.6 of which has been repaid 3.6 Total now held by Bank and IDA a/ 28.6 361.6 a/ Prior to exchange adjustments.  ANNEX II - 27 - ANXT Page 2 B. STATEMENT OF IDA CREDITS EXPRESSED IN SDR (As of March 31, 1982) Amount in SDR Million Credit (less cancellations) Number Year Borrower Purpose Original Undisbursed 1079 1981 Sri Lanka Second Ruiral Development 25.6 24.6 1130 19Pi Sri Lanka Construction Industry 10.9 9.7 1160 1981 Sri Lanka Village Irrigation Rehab. 24.5 24.0 1166 1981 Sri Lanka Mahaweli Ganga Development 73.3 61.5 1182 1982 Sri Lanka Second Small & Medium Indtustries 26.7 26.7 1210 1982 Sri Lanka Seventh Power 31.3 31.3 192.3 177.8 Total of which has been repaid 0.0 Total now outstanding 192.3 Total now held by IDA 192.3 Undisbursed 177.8 C. STATEMENT OF IFC INVESTMENT (as of March 31, 1982) Amount (US$Million) Year Obligor Type of Business Loan Equity Total 1970 Pearl Textile Textiles 2.50 0.75 3.25 1977/80 The Development Finance Corporation of Ceylon Development Banking - 0.15 0.15 1978/81 Bank of Ceylon Development Banking 7.00 - 7.00 1979 Cyntex Textiles 3.15 0.54 3.69 1974 Mikechris Indulstries Polypropylene Bag 0.89 0.10 .99 1q80 LOLC Leasing - 0.25 0.25 1481 Taj Lanka Hotels 19.30 .70 20.00 * Total rross Commitments 32.84 2.49 35.33 Less: Cancellations, Terminations, Repayments, and Sales 15.17 .75 15.92 Total Commitments now Held by IFC 17.67 1.74 19.41  - 28 - ANNEX II Page 3 D. STATITS OF PROJECTS IN EXECUTION AS OF MARCHI 31, 1982 1/ Cr. No. 504 - Dairy Development Project; UIS$9 .O million of August 9, 1974; Effective Date: February 10, 1975; Closing Date: December 31, 1981 Project focus has been shifted from the provision of credit for cattle purchase and on-farm development to the establishment of Dairy Producer Associations along the lines of the successful Anan(d pattern in India. The Closing Date was extended by one year to permit Credit proceeds to be used to finance the feasibility study for a proposed milk processing plant near Kandy. The extension was also intended to provide IDA with the opportunity to continue its dialogue with the Government on the milk price/ subsidy issue. The consultant-s report recommended a plant costing about US$16.0 million, which the Government considers too large. Tn view of this, the overall poor performance of the project, and lack of progress on milk price/subsidy issue, it has been decided not to extend the present closing date. However, the books are being kept open till June 1982 to allow disbursement against committed expenditures. Cr. No. 666 - Tank Irrigation Modernization Project; US$5.0 million of January 12, 1q77; Effective Date: April 12, 1977; Closing Date: June 30, 1983 Given the local budget constraints, good progress was made in project implementation during 1981. Staff positions and equipment provided are sufficient to complete the project by end 1983, excluding some drainage works and farm roads which have been deleted by the Government for budgetary reasons. The water management program introduced in one tanl area during Maha 1QO/5l went very well, hut its envisaged extension to all five tanks has not yet taken place. Severe drought in Anuradhapura district during Maha 1081/82 caused a total failure of the paddy crop at the Mahakandarawa Tank, where the water management program had been initiated the year before, and a partial failure was experienced at Pavatkulam. . 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 understanding that they do not purport to present a balance evaluation of strengths and weaknesses in project execution.  - 29 - ANNEX II Page 4 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 With the exception of irrigation system infrastructure in one block of the command area (about 1200 ac) and various buildings (about 580) throughout System H, the construction of irrigation and social infrastruture in the project area is essentially completed. Work remaining to be done is scheduled for completion by early 1983. IDA has recommended that a massive and concerted effort be made to make the irrigation system responsive and operational. The Government agreed to establish a special construction unit to undertake the needed modification and completion work, staffed by experienced and capable technical staff. Cr. No. 709 - Water Supply Project; USA9.2 million of June 3n, 1977; Effective Date: February 8, 1978; Closing Date: June 3n, 1983 The Project has made good progress in completing the procurement of equipment and materials and in advancing the construction of civil works. The InA Credit and the IDA-administered CIDA Credit are almost entirely lisbursed. vinancial Management of the National Water Supply and Drainage Board (WIThB) has improved with WDB now producing the financial information required for management. WDB's progress in implementing consumer metering is now satisfactory as a result of steps taken to accelerate the program; WIDB is now experiencing the difficulties expected to accompany the introduction of consumer billing and collection. Cr. U7o. 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 DFCC's management problems have improved under the new General Manager, although problems at the Board of Directors level still persist. DFCC's capitalization and hence its exposure limits are to be expanded by means of an increase in its issued share capital from Rs 24 nillion to Rs 60 million. Credit 742-CE has been fully committed and all disbursements are a expected to be completed by May 1982.  - 30 - ANNEX II Page 5 Cr. No. 818 - Tree Crop Rehabilitation (Tea) Project; U$21.0 million of July 12, 1978; Effective Date: December 28, 1978; Closing Date: December 31, 184 Project progress is close to target for field work and the standard of field operations is high. New factory equipment is improving tea quality and reducing cost of production. Housing has fallen behind schedule because of escalating costs but the introduction of new designs and riaterials has increased building momentum. The smallholder component has lagged behind estate development because of weak smallholder extension; this position is slowly improving. Cr. No. 819 - Tree Crop Diversification (Tea) Project; US84.5 million of July 12, 1978; Effective Date: December 15, 1978; Closing Date: June 30, 1983 Project activities have been seriously affected by political and social opposition to the breakup of mid-country estates into settlements. Despite impressive activity in diversification and housing construction the project has only been able to allocate a small number of settlements. Continued unanticipated responsibility for tea lands and for settlement maintenance has drained project finances. The Credit is more than 90% disbursed. rovernment has handed back to Land Reform Commission some project areas including project financed houses and diversified crops. IDA is undertaking a detailed review of the project. 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, health, livestock and education works should be completed by June/July 1992. Problems on quality of construction of irrigation and education works were identified at early stage of project implementation. Supervisory consultants, appointed for the Second Rural Development Project (Cr. No. 1079), are helping to improve construction activities. Improvements on the institutional arrangements for agricultural credit, water management, and agricultural extension are somewhat slower than expected. High cost overruns were noted in nearly all project components. Efforts are being made to cut down cost by introducing farmers- a donated labor for some of the activities.  - 31 - ANNEX II Page 6 Cr. No. 900 - Road Maintenance Project; US$16.5 million of June 22, 1979; Effective Date: December 19, 1979; Closing Date: June 30, 1984 A general 25% reduction in budget allocations 1981, followed by a further 10%, has meant a rescheduling of proposed expenditures for the project. This has been possible without sacrificing principal project objectives but at the cost of deferring major rehabilitation work until towards the end of the project. The allocation for 1982 has been increased to the original estimate and it is expected that the project would be completed by mid-1984, almost nine months later than estimated at appraisal. 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 The basic infrastructure and programs for providing agricultural extension services in line with the T&V system have been established and the Department of Agriculture is making steady progress in implenenting the system. Effective linkages have been established between research, training and extension activities. Revised technical assistance and overseas training programs have been agreed with Government and are being implemented. Civil works started during the past two years have been completed while vehicles and equipment for current requirements have been procured. Disbursements have been slow due to delays in recruitment, civil works, staffing, procurement and technical assistance program. Cr. No. 942 - Small and Medium Industries Project; TJS$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 efficient low cost employment creation, export expansion, regional development and economic growth. The subloan amount has been fully committed, and disbursements hlicb ha Te accelerated during the last six 2onths, are expected to be completed one year ahead of schedule. Most technical and marketing service assistance activities have been launched.  - 32 - ANNEX II Page 7 Cr. No. 979 - Mahaweli Ganga Technical Assistance Project; USS3.0 million of April 16, 1980; EffectiveDate: July 7, 1980; Closing Date: September 30, 1982 A review of the final draft report for the Transbasin Diversion Study was held in Colombo during March 1982 and the consultant was asked to prepare cost and time estimates for completion of some additional studies. It is expected that an extension of the credit will be required to complete these studies. Cr. N7o. 994 - Poad Passenger Transport Project; USS53.0 million of April 16, 1980; Effective Date: October 27, 1980; Closing Date: June 30, 1q83 After a long delay by the beneficiary (SLCTB) in preparing bidding documents for the procurement of the first batch of 660 bus chassis a tender was awarded in August 1981 and the first deliveries began in January 1982. A second invitation to bid was issued in February 1982, and an award for 400 chassis is expected in September 1982. The SLCTB is preparing a third tender for complete buses. Orders for workshop machinery, critical units and spares have been delivered but disbursements are lagging. Cr. No. 1017 - Smallholder Rubber Rehabilitation Project; US$16.0 million of June 24, 1980; Effective Date: September 10, 1980; Closing Date: June 30, 1986 The project continues to progress well. The replanting program in particular is proceeding at above target levels. Distribution of fertilizer is also taking place properly. Response by farmers to participate in replanting under the project has been highly satisfactory. The institution building aspects of the project have been progressing slowly. This is not having serious repercussions on the physcial implementation of the project. However, measures are underway to speed up the institutional aspects of the project. Consultants for training, processing, and replanting scheme administration have submitted their draft reports. Construction of Training Center is complete.  - 33 - ANNEX II Page 8 Cr. No. 1020 - Telecommunicatons Project; US$30.0 million of June 24, 1980; Effective Date: September 10, 1980; Closing Date: June 30. 1985 The Government has already established a separate Telecommunications Department as part of orgaizational improvements under the project. The Goverment has also increased overseas telephone and telex rates. Procurement is about two to three months behind schedule but otherwise proceeding well in accordance with the revised schedule. Cr. No. 1041 - Water Supply and Sewerage II Project; US$30.0 million of September 24, 1980; Effective Date: February 26, 1981; Closing Date: September 30, 1983 WDB has appointed engineering consultants to supervise the construction of the sewerage works under the Project and the financial consultants for completion of WDB-s organization management and financial study. The project expenditures have been rephased to reflect the reduction in local resource allocation during 198l. Procurement of materials and equipment, and civil works for the major component of the water supply project are proceeding according to the new agreed schedule. Cr. No. 1048 - Sixth Power Project; US$19.5 million of Septenber 24, 1980; Eff-ective Date: March 30, 1981; Closing Date: March 31, 1985 The IDA financed components are now proceeding satisfactorily. The average tariff for power supplied by the Ceylon Electricity Board was increased from about Rs 0.o0 to Ps 0.58/kWh on October 1, 1O80. The LRMC tariff study was recently completed and structural improvements are proposed as part of the tariff increase scheduled prior to effectiveness of the Credit for the Seventh Power Project. CEE has appointed consultants for a program of "restoration" of systems and training: a comprehensive training program has been prepared and implementation has started. Engineering consultants have been appointed to design the project components to be financed by the Saudi Fund.  - 34 - ANNEX II Page 9 Cr. No. 1079 - Second Rural Development Project; SDRs 25.6 million of February 2, 1981; Effective Date: June 2, 1981; Closing Date: June 30, 1986 The project is making satisfactory progress. Supervisory and planning consultants have been appointed. Project equipment, with the exception of a few items, have been procured and handed out to the respective agencies. Construction programs for all components are generally on schedule. Cr. No. 1130 - Construction Industry Project; SDRs 25.6 million of June 1, 1981; Effective Date: August 19, 1981; Closing Date: June 30, 1984 Overall project progress is satisfactory and on schedule. Pilot training programs for basic artisans in carpentry and masonry, and technical site supervision started in August. The on-site- phase of these programs have just began and are being monitored closely to determine whether the downturn in the construction sector would seriously jeopardize this aspect of the project. Programs in Plant Mechanics started in early October 1981, and a Plant Operator course began in early November 1981. Cr. No. 1160 - Village Irrigation Rehabilitation Project; SDRs 24.5 million of July 15, 181; Not Yet Effective; Closing Date: December 31, 1986 Construction activities during 1981 fell slightly below appraisal estimates manily due to budgetary constraints. The investigation program has also lagged slightly behind schedule although this is not expected to affect the 1982 program significantly. The institutional changes in the Department of Agrarian Services in support of a systematic water management program have been made, an adviser has been recruited and training programs initiated. Procurement of equipment has proceeded on schedule and orders for the bulk of equipment to be supplied under the project have been placed. Cr. No. 1166 - Mahaweli Canga Development Project III; SDRs 73.3 million of November 5, 1981; Effectiveness Date: February 5, 1982; Closing Date: December 31, 1986 The credit became effective on February 8, 1982. The Japanese OECF loan agreement was signed on October 16, 1981, and the Kuwait Fund A.E.D. loan agreement has been initialed in draft form and Bsoard approval is imminent. Construction of the Right Bank Transbasin Canal is somewhat behind schedule but the quality of completed work is good. The contractor requested a contract extension of seven months (from December 1981 to Julv l982), but later reduced the extension request to four months and is importing additional equipment.  - 35 - ANNEX II Page 10 Cr. No. 1182 - Second Small and Medium Industries Project; SDRs 26.7 million of February 5, 1982; Closing Date: December 31, 1985 This Credit is not yet effective. Cr. No. 1210 - Seventh (Mahaweli Transmission) Power Project; SDRs 33.1 million of April 8, 1982; Closing Date: May 31, 1985 The project is not yet effective.  ANNEX III Page 1 - 36 - SRI LANKA TEA REHABILITATION AND DIVERSIFICATION PROJECT Supplementary Project Data Sheet Section I: Timetable of Key Events (a) Time taken by the Country to prepare the project 12 months (b) The agency which has prepared the project SPC and JEDB coordinated by the Ministry of Finance and Planning (c) Date of first presentation to the Association and date of the first mission to consider the project November 1980 and July 1981 - January 1981 and September 1981 (Two project reports were presented and two separate missions considered the two components.) (d) Date of departure of appraisal mission January 21, 1981 and September 12, 1981 (Two field appraisal missions because of inclusion of a diversification component subsequent to the first appraisal mission.) (e) Date of completion of negotiations March 31, 1982 (f) Planned date of effectiveness September 15, lq82 Section II: Special IDA implementation Action None  - 37 - ANNEX III Page 2 Section IIT: Special Conditons Conditions of Effectiveness (a) transfer of Project area lands to SPC and JET)1 (para 38); (b) appointment of management consultants (para 40); and (c) execution of the subsidiary loan agreements between the Government, and SPC, .JEDB, and BOC (paras 45 and 54). Other Conditions (a) the Government to maintain returns to tea producers at a satisfactory level (para 42); (b) SPC and JEDB to select fields for tea replanting in accordance with criteria satisfactory to the Association (para 51). f-  I  IBRD 15659R r 3l * z2>NOVEMPER 1t81 SRI LANKA Kankesrntug - TEA REHABILITATION AND DIVERSIFICATION PROJECT PROJECT LOCATIONS ! ~~~~~~~~~~~~~~~~~~~~~~~~~ProDosed lec oehoboliotion oreos (High country ond low country) N _K. gW . - <;<rooosed tea o5r5iThc]tBoo orea j cd-cOouritry) K fo- < \ Areos of ongoing tea rehabilitfoOoo projects K ctS | -< Areo of ongoing tec diversificotion projects N .: 0 t - S. Elevotions (feetl; K> ~ - . t ......... > 0-99 100-499 500 - 2999 3oorooonnr / \\Morkum NA ! 5r3000-5000 K K ! '.3' G Over 5000 Moon-9 Maojor roads 0 Towns 'K -.-- ~~~~Rodlrays (J Airoort K1 . , < . avinly. . - - oDistrict boundaries Rivers ff < > {~~~~~Mezamcichchlya l rm e O c e 0 0 00 ~; 00000 00 ,00 -0 0 00 : Xt< .) ~~~K.runega a iMIatW P ' / f COLOMBO, PAKISTAN'- CiA|h:,- ...........: ' Ooo, oZ --g atoota 0 000000 I N DIA 4 * // . 7 a i? - :l C . 7 : O SRI LANKA