Announcement of World Bank Assistance to Support Economic Reform in Andhra Pradesh in India on February 10, 2004

India: World Bank Assistance To Support Economic Reform In Andhra Pradesh Contacts: In Delhi: Geetanjali Chopra (91 11) 2461-7241 E-mail: gchopra@worldbank.org In Washington: Karina Manasseh (202) 473-1729 E-mail: kmanasseh@worldbank.org WASHINGTON, February 10, 2004 — The World Bank today approved the Second Andhra Pradesh Economic Reform Loan/Credit, to back the state’s efforts to achieve better socioeconomic outcomes and reduce poverty. The US$220 million package supports the ongoing reform program in Andhra Pradesh, India’s fifth largest state with a population of 76 million. The loan cum credit is the second in a series of budget support operations designed to help the state restore fiscal sustainability, improve service delivery to the poor, and accelerate growth. The first operation, amounting to US$250 million, supported reforms in fiscal policy, public expenditure management, and governance, and was co-financed by the United Kingdom Department for International Development (DfID) for a further $US100 million. The new operation has been in the pipeline for some time and recognizes progress made to date. It supports both a deepening of ongoing reforms, and an extension of the reform initiative to other areas like public enterprises and the power sector. It will again be co-financed by DfID. “Andhra Pradesh has shown a consistent commitment to poverty reduction and is one of India’s leading reforming states. It has made encouraging progress, but a major effort is still needed in order to accelerate poverty reduction and reach the Millennium Development Goals. The Second Andhra Pradesh Economic Reform Loan/Credit is an important part of the Bank’s contribution to this effort,” says Michael Carter, the World Bank’s Country Director for India. “Andhra Pradesh has made remarkable progress in improving socioeconomic indicators over the past decade,” adds Vinaya Swaroop, lead economist with the World Bank. “For instance, the share of the population living in poverty declined from 30.4 percent in 1990 to 21.6 percent in 2000. Over the same period, the literacy rate (among 15 to 24 year olds) rose by 31.5 percent, access to safe water expanded by over 40 percent, and the proportion of births attended by a health professional increased by nearly 60 percent. Overall economic performance has also been robust. Real gross state domestic product growth averaged 5.9 percent in Andhra Pradesh over the last five years, compared to the national average of 5.4 percent for India as a whole. Although this progress is encouraging, much remains to be done.” The new operation supports the state in the implementation of reforms in the following six areas: (i) Improving poverty monitoring and pro-poor policy formulation and implementation: Key poverty indicators are being identified and a mechanism will be implemented for their regular updating and monitoring. The indicators will then be published on a regular basis, leading to better information on the efficiency and effectiveness of service delivery to the poor. These actions are likely to lead to better mainstreaming of poverty across government policies. (ii) Implementing structural measures to foster economic growth: These include facilitating greater competition in agriculture according to standards, specifications, formalities and procedures laid down by government; and labor market reform with necessary safeguards. (iii) Restructuring and privatizing public enterprises: Andhra Pradesh’s public enterprise reform program has matured. Phase I of the program, which started in 1999, is drawing to a close. Phase II covers 68 enterprises, and will be implemented over a four-year period. (iv) Improving fiscal discipline, the composition of spending, public expenditure management, and financial accountability: Government of Andhra Pradesh’s budgetary and financial management reforms are critical in underpinning fiscal discipline and strengthening the link between public spending and outcomes. With the objective of deepening the fiscal reform process, the state government will institutionalize the Medium Term Fiscal Framework process, and confirm policies on managing debt stock, guarantees and contingent liabilities in accordance with central bank regulations. (v) Strengthening governance: Government of Andhra Pradesh has a broad agenda of governance reforms, encompassing the machinery of government, pay and employment issues, human resource management and development, transparency and citizen-orientation, and anti- corruption. These will continue to be implemented. (vi) Facilitating sectoral reforms in education, health and power: These will support efforts to achieve universal enrollment in primary school, including retention and completion; developing a strategy emphasizing an enabling and oversight role for the state to ensure that the private sector, on which the AP health system is heavily reliant, contributes strongly to the achievements of health goals; and, making progress on a second generation of reforms in the power sector. The US$220 million loan/credit is comprised of a US$110 million loan from the International Bank for Reconstruction and Development that is payable in 20 years, with 5 years of grace, and a US$110 million interest-free credit from the International Development Association, the World Bank’s concessionary arm, with a 35 year maturity and 10 years of grace. The Government of India will borrow the funds and pass on the proceeds to the state as budgetary support following standard terms of central resource transfers for state development budgets. For more information on the World Bank’s activities in India, visit: http://www.worldbank.org.in/