Sri Lanka - Second Industrial Development Project

Dowse .Of The World Bank FOR OFFICILU USE ONLY Ck8 /C?2- CC Report No. P-4284-CE REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT OF SDRs 17.4 MILLION TO THE DEMOCRATIC SOCIALIST REPUBLIC OF SRI LANKA FOR A SECOND INDUSTRIAL DEVELOPMENT PROJECT April 21, 1986 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 authorizaLion.  CURRENCY EQUIVALENTS Currency Unit - Sri Lanka Rupee US$1.00 - SL Rs 27.4 SL Re 1.00 - US$0.036 ABBREVIATIONS AND ACRONYMNS BMEE - Balancing, Modernizing, Rehabilitation and Expan.sion Investments CBC - Central Bank of Ceylon DFCC - Development Finance Corporation of Ceylon DFIs - Development Finance Institutions EDB - Export Development Bank IDB - Industrial Development Board IDP I - Industrial Development Project I IDP II - Industrial Development Project II IPC - Industrial Policy Committee ITC - Interim Tariff Commission HISA - Ministry of Industries and Scientific Affairs !DFP - Ministry of Finance and Planning NDB - National Development Bank of Sri Lanka NSB - National Savings Bank PEs - Public Enterprises SKI - Small and Medium Industries FISCAL YEAR January 1 - December 31  FOR OMCIAL USE ONLY SRI LANKA SECOND INDUSTRIAL DEVELOPMENT PROJECT Credit and Proiect Summary Borrower: Democratic Socialist Republic of Sri Lanka Beneficiaries: Development Finance Corporation of Ceylon (DFCC) and the National Development Bank of Sri Lanka (NDO)-the Development Finance Institutions (DFIs). Amount: SDRs 17.4 million (US$20.0 million equivalent). Terms: Standard RelendinD Terms: The Government would relend the credit proceeds to DFCC and NDB for 18 years including a five-year grace period at an initial rate of 9 percent and 10 percent per annum, respectively. The DFIs would onlend the proceeds at 14 percent per annum. The foreign exchange risk would be borne by the Government. Proiect The proposed project would finance the foreign exchange Description: cost of new and balancing, modernizing, rehabilitation and expansion investments (BNRE) by private sector firms. Funds also would be provided for the BMR of public enterprise units needing to restructure their facilities to improve efficiency. The project is designed to assist the Borrower to implenent reforms in the areas of trade policy, industrial incentives, export promotion, public enterprise efficiency and industrial finance and financial policy. The project vould also provide technical assistance to (a) the DFIs to assist then in improving their operating efficiency and diversifying the range of their activities and funding sources; (b) Government to develop a comprehen- sive performance signalling system covering all major state industrial corporations (SICs) and rehabilitate individual public sector enterprises; and (c) consolidate existing studies and to develop a comprehensive industrial strategy. The benefits arising from the project would be more effi- cient investment in the industrial sector; improved perfor- mance of public enterprises; and increased employment opportunities. Although a risk exists that an adequate number of eligible subprojects would not materialize, the project pipeline and projections indicate a credit demand well in excess of the amount to be provided by the proposed credit. There is also a risk that collection rates could deteriorate, but the project provides for strengthening the appraisal and supervision capabilities of the DFIs and for This document has a restric distribution and may be used by recipientS only in the performance of their official dutie hts contents may not otherwise be disclosed without World Bank authorization.  portfolio restructuring to help minimize this risk. The risk that the Govern-eut would not proceed with policy reform as rapidly as expected is minimal, because (a) the Goverment has already begun to take a nmber of important steps to improve industrial policy, and (b) the Association vould continue to closely monitor developments through its econaaic and sector work and project supervision. Estimated Costs: Local Foreian Total -----(US$ Million)---- Subproject Investment 40.0 50.0 90.0 Technical Assistance 2.0 24.0 42.0 52.0 94.0 Financing Plan: Local Foreign Total (US$ Million)---- IDA - 20.0 20.0 ADB - 20.0 20.0 GOSL 1.0 - 1.0 DFIs 20.5 - 20.5 Suppliers' Credits/ Other Agencies - 12.0 12.0 Sponsors 20.5- 20.5 42.0 52.0 94.0 Disbursements: Bank Group Fiscal Year FY87 ms ZY89 FY90 FY91 FY92 FY93 FY94 -( 3 S$ Million)--