Afghanistan - Second Livestock Development and Project

IILE COPY Document of The World Bank FOR OFFICIAL USE ONLY Report No. P-187 1-AF REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT TO THE REPUBLIC OF AFGHANISTAN FOR A SECOND LIVESTOCK DEVLEOPMENT PROJECT June 11, 1976 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. I  CURRENCY EQUIVALENTS Currency Unit Afghani (Af ) us $1 = Afghanis (Afs ) 55.0 Af. 1 = us $o.o1818 Af. 1,000 - us $18.18 Af. 1 million = US $18,182 FISCAL YEAR March 21 to March 20 GLOSSARY OF ABBREVIATIONS ADCCs - Animal Disease Control Centers AgBank - The Agricultural Development Bank of Afghanistan ERIC - Experimental Range Improvement Center HLDC - Herat Livestock Development Company IDBA -~ Industrial Development Bank of Afahanistan SICs - SheeD ImDrovement Centers TSU - Technical Services Unit of HLDC WAPA - Water and Power Authority  FOR OFFICIAL USE ONLY INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE REPUBLIC OF AFGHANISTAN FOR A SECOND LIVESTOCK DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a proposed de- velopment credit to the Republic of Afghanistan for the equivalent of US$15 million on standard IDA terms to help finance a second livestock development project. The equivalent of US$4.0 million of the proposed development credit would be onlent to the Agricultural Development Bank of Afghanistan at 4-1/2 percent for 15 years, including 5 years grace, to be relent for the purposes of the project. PART I - THE ECONOMY General 2. A report entitled "Current Economic Position and Prospects of Afghanistan" (684a-AF) dated July 7, 1975, has been distributed to the Exe- cutive Directors. An updating economic mission visited Afghanistan in November 1975. The following analysis reflects the findings of this mission; its final report is to be distributed to the Executive Directors shortly. Country data sheets are attached as Annex I. 3. The Republic of Afghanistan was established in July 1973, following a military coup in which King Mohammed Zahir Shah was deposed by his cousin and brother-in-law, Sardar Mohammed Daud Khan, who had served as Prime Minister from 1953 to 1963. Daud serves as both President and Prime Minister; he also retains the portfolios of Foreign Affairs and Defense. The Government abrogated the 1964 Constitution and dissolved Parliament and the Supreme Court. The focus of power is now in the office of the President and in a Central Committee. Government Objectives 4. The Republican Government's major objectives were stated in Presi- dent Daud's speech of August 23, 1973. The President indicated that the state sector would be strengthened, and importance would be given to the development of heavy industries based on the country's mineral resources. He also committed the Government to basic economic and social reforms including reforms of the systems of taxation, land tenure and public administration. 5. After an initial period of political consolidation, the Government has made good progress in the field of economic development policy. Several laws have been passed, including a land reform law, a money and banking law, a revised customs law, and a new foreign and domestic private investment law. Organizational changes aimed at more effective development and policy plan- ning have been initiated (e.g. reorganization of Ministry of Planning and a new Secretariat for the High Economic Council in the Prime Minister's office). An active policy of mobilizing and diversifying foreign assistance flows has been adopted. 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.  - 2 - 6. Strong Government efforts to improve tax collection have resulted in an increase in revenues. The Government has also committed itself to keeping the prices of certain essential products stable (e.g. sugar, edible oils, fertilizers and some kinds of textiles) with, as a result, increased claims for subsidies from the budget. More recently, steps have been taken to implement the land reform law and Bank technical assistance has been solicited for that purpose. Other major elements of the Republican Govern- ment's program, including improvement in taxation and public administration, are still to be undertaken. Economic Structure 7. Afghanistan is an extremely poor, landlocked country with severe structural, fiscal, and debt service problems. With a population variously estimated at between 13 and 18 million and a per capita income of below US$100, it is one of the largest of the countries designated as "least devel- oped" by the United Nations. The country's prospects for development are limited by a rugged physical terrain, arid conditions, and a paucity of physical and skilled human resources. Agriculture accounts for over half of GDP and engages perhaps 60 percent of the non-nomadic population. Nomads constitute an estimated 16 percent of the population, and an estimated 18 percent of the total population live in the cities. Other structural features of the economy are: the low degree of monetization, a low share of government revenues in national income, heavy budgetary dependence on foreign assistance and central bank financing, the relatively heavy burden of servicing foreign debts and weaknesses in the country's balance-of-payments position. Recent Developments 8. Afghanistan's economy suffered a major setback when severe droughts in 1970 and 1971 followed by the severe winter of 1971/72, caused declines in wheat, fruit and livestock production, and especially heavy losses in the live- stock population. The recovery of agricultural output since then has been at a sustained pace due to improved weather conditions, and increased use of farm inputs. Agricultural output during the fiscal year 1975/76, particularly wheat and cotton, will be at a record level with an estimated increase of 7 percent over 1974/75, which in itself was already a very good crop year. The high level of agricultural production has also stimulated domestic manu- facturing which depends on the former for raw materials and is also a major supplier of inputs to it. Large-scale manufacturing, though contributing only about 5 percent of GDP, has been performing quite well. The coun- try's sole fertilizer plant (urea) is estimated to have produced during the last fiscal year, the second year of operation, about 72,000 tons, about 70 percent of its installed capacity. Since the expected production volume is above the country's current consumption requirement, exports of around 15,000 tons have already been programmed. Other major manufactures, cotton textiles, and cement, are also performing well, the expected growth rates for the current fiscal year being around 10 percent and 7 percent respectively.  -3- 9. By end 1975/76, the average rate of the Afghani had appreciated by 45 percent against the US dollar as compared to the average rate during 1972/73. The continued appreciation of the exchange rate has tended to discourage traditional exports (carpets and karakul pelts) while, on the other hand, cushioning the impact of the international inflation on domestic prices in Afghanistan. The Government is intervening in the market in an effort to bring down the Afghani/ dollar rate to promote exports. 10. Since the latter half of 1975, Afghanistan has had to contend with a difficult balance-of-payments situation, largely because of deteriorating terms-of-trade. The international recession has had negative effects on Afghanistan's exports (except natural gas) while prices of imports, partic- ularly petroleum products, have increased substantially. Although exports during 1975/76 are estimated to have increased by about 6 percent over 1974/75, imports are estimated to have increased by about 8 percent. Con- sequently, the current account deficit has been higher. However, aid dis- bursements including cash grants have improved significantly and a consider- able reduction in amortization payments has been achieved following reschedul- ing of USSR debt. The gross foreign aid inflow during 1975/76 is estimated to have been about $94 million, compared to $62 million in the preceding year. There have also been significant purchases of foreign exchange by the central bank from the "bazaar" (i.e. free foreign exchange market) in response to the demand pressures on money supply and the continued appreciation of the Afghani. Consequently, official reserves are estimated to have increased by about $62 million during 1975/76. Development Prospects and Constraints 11. The large undeveloped human, agricultural and mineral resources of Afghanistan provide the basis for a favorable assessment of the country's long-term development potential. Although economic performance in the last two decades, characterized by an average growth rate of GDP not much above the rate of population growth and by a low level of mobilization of domestic resources for development, discourages optimism about the pace of growth prospects, the commitment of the Government to development and economic and social reforms gives rise to hope that the potential could be realized. Also, the recent offers of aid, notably from the Islamic oil producing coun- tries, are likely to further increase the external capital flow into the country in the near future. 12. The realization of the development potential of the country, how- ever, requires timely and vigorous action to remove a number of obstacles that have severely inhibited the country's economic and social development in the past. Included among these are: (a) inadequacies in project preparation and the resulting shortage of projects to be financed relative to offers of external economic assistance; (b) inadequacies in public administration and manpower development which have led to inefficiencies in the imple- mentation of policies and projects;  - 4 - (c) shortfalls in domestic resource mobilization and the need for new policy measures (improvement of public enterprises, tax reform, mobilization of private savings); and (d) absence of a well-defined framework for the examination and coordination of policies. The Government is well aware of these problems and has already taken some actions aimed at eventual solutions. Particular attention is being given to the improvement of the taxation system and the efficiency of public enter- prises since, in the past, Afghanistan heavily depended on external assistance for the execution of its development plan. 13. Despite a narrow revenue base and consistent pressure on current expenditures, some improvement in the financing capability of the Government has taken place in the most recent fiscal year. In 1974/75, the estimated tax revenue was about $180 million as against $115 million in 1973/74, while the estimated budgetary surplus in the current account was $70.0 million compared to about $20.0 million in 1973/74. In 1974/75 the surplus in the current account (net of amortization and repayment of debt to the central bank) financed about 45 percent of development expenditure as against only 36 percent in the previous year. Because of the necessity to increase capital expenditures, however, the country would continue to depend on foreign aid to finance the expanding development programs. If adequate foreign aid could not be mobilized, a greater recourse to deficit financing would exert pressure on money supply, already increasing at about 13 percent per annum since 1972/73. External Debt 14. As of March 20, 1975 (the end of the Afghan fiscal year), Afghanistan's external debt amounted to $1,596.3 million of which $771.6 million was disbursed. The major creditors are the USSR (73.7 percent of outstanding debt), the USA (12.3 percent) and the Federal Republic of Germany (8.9 percent). The People's Republic of China, a relatively new creditor, holds 2.5 percent of the loans. Loans from governments account for about 97.9 percent of all disbursed external public debt. Afghanistan concluded, in July 1972, an agreement with the USSR to reschedule $30.2 million of some $152.4 million in debt service obligations coming due during 1972/73-1976/77. In addition, in early 1973, the USSR agreed to convert some $16.5 million of loan commitments into grants. In February 1975, an agreement was concluded on the rescheduling of another $136 million of debt obligation due during 1975-1980. Meanwhile Afghanistan has also received substantial aid offers from a number of oil-producing countries, notably Iran and Saubi Arabia. No precise figures can be given at this time for the commitment for project aid that may eventually result from these offers. Debt service payments in 1974/75 amounted to around $40 million or the equivalent of about 17 percent of the country's export earnings. 15. During the period between 1972/73 and 1974/75, over 65 percent of public investment in Afghanistan has been externally financed with gross aid inflows ranging from about $60 to $95 million annually. Even though most of  the borrowing over the past 20 years was on quite soft terms, the impact of debt service has become heavy because of the emphasis on long-gestation infrastructure projects with little export-generating or import-saving impact. Thus, the growth of the debt-servicing capacity has not been commensurate with that of the debt-servicing obligations which in the recent past had to be mitigated by large-scale rescheduling. Given the country's debt burden, its poverty and its development stage, Afghanistan does not have the capacity for sustaining external borrowing on conventional terms and needs substantial capital inflow on concessionary terms. It also requires special consideration from external lenders including IDA in financing the local costs of development projects, in view of its relatively low tax-base and low domestic savings capacity. PART II - BANK GROUP OPERATIONS IN AFGHANISTAN 16. IDA has provided eleven development credits totalling US$82 mil- lion (net of cancellations) to Afghanistan. IFC invested $0.3 million in the Industrial Development Bank of Afghanistan in July 1973. Annex II contains a summary statement of IDA credits and IFC investments as of May 31, 1976, and notes on the execution of the ongoing projects. 17. Bank Group lending in Afghanistan began in 1964 with an education project, but by agreement between the Government and the Association a major portion of the credit was cancelled in 1970. A resident mission was estab- lished in Kabul in 1969 and since that time, with a considerable input of staff time and effort on project preparation, the Bank Group has provided financial assistance to Afghanistan at an average level of about $11 million annually. The proposed credit would be the second for livestock development and the fifth in the agricultural sector; the four previous agricultural credits totalled $42 million. IDA has also made three credits totalling $19 million in the transportation sector, one credit of $2 million for an indus- trial development bank project, one credit of $9 million for a water supply project, and one credit of $10 million credit for a thermal power project. With the proposed credit, the Association's total commitments to Afghanistan for FY76 would amount to $35 million. 18. Difficulties were experienced in making disbursements under the IDA credits made since 1971. The main reasons have been substantial delays in fulfilling effectiveness conditions, slow progress with the selection of con- sultants, minor project changes and, in the case of the Industrial Development Bank Project, a lack of subprojects. In most cases these problems have now been corrected satisfactorily, with the assistance of our resident mission in Afghanistan, but the delays incurred aggravated the effect of very heavy inflation on project costs, particularly in the case of the irrigation and livestock projects. Disbursements under the aviation and highway credits should now proceed on a normal schedule, since the cohstruction works for the aviation project (Cr. 374-AF) have started and are making good progress, and  since orders for road maintenance equipment have been placed and about $7.5 million have been committed under the highway credit (Cr. 449-AF). There has been some progress in identifying projects in the public sector suit- able for financing under the credit for the Industrial Development Bank of Afghanistan (IDBA) Project, and recently IDBA and the Government have re- quested IDA to approve a $1.8 million sub-loan by IDBA for the Badghis Cotton Ginning Project which would use up most of the $2 million IDA credit. In view of the relative size of this proposed sub-project, it is being re- viewed especially carefully. In general, it can now be expected that future IDA financed projects would be started without undue delays and would proceed at a more normal pace. In close cooperation with IDA staff, the Government is trying to remove potential obstacles to satisfactory project implementation for those projects currently being prepared. The Government has also gained useful experience during the implementation of earlier projects, and continues its efforts both to increase the administrative capabilities of the project authorities concerned and to streamline its own procedures. 19. The Bank Group's lending strategy recognizes that special efforts are required to help Afghanistan. Its landlocked position, its extreme poverty and difficult economic problems, the structure of its political and economic system, and the shortages of physical resources and trained manpower impose severe limitations on the country's absorptive capacity and thus in- hibit its development. Considerable staff time is required, therefore, to help identify, prepare and implement future projects. We expect to establish a basis for financing two or three projects each year, which would help to improve the institutions, expand production, increase the foreign exchange earning capacity, enlarge government resources for development and improve absorptive capacity. To that end, technical assistance will continue to be an important feature of most future projects. 20. A feasibility study is in an advanced stage of preparation for the second phase of the Khanabad Irrigation Project, which is expected to be ready for consideration by the Executive Directors in FY77. Other credits likely to be proposed for lending in FY77 are a second education project, which would include establishing four agricultural vocational schools and im- proving three existing agricultural vocational schools, and a further credit to the Agricultural Development Bank of Afghanistan. Also under considera- tion is an agroindustries project to promote fruit and vegetable exports. Other projects are less advanced in preparation. Consultants to complete a feasibility study have been selected for a third road maintenance and im- provement project. Preparation of a second Industrial Development Bank (IDBA) project will depend on progress under the first IDBA Credit (see para 18 above) while satisfactory financing arrangements with other donors are being sought for the construction costs of a new airport near Kabul. PART III - THE AGRICULTURE SECTOR IN AFGHANISTAN 21. Agriculture is by far the most important sector in the economy of Afghanistan. Over 85 percent of the population obtain their earnings from it  -7- in one way or another, and some 50 percent of GDP and about 75 percent of ex- ports are contributed by the sector. It meets the staple food requirements of the country in years of normal precipitation, and supplies much of the raw material for the industrial sector, which is still small and closely related to agriculture (e.g. cotton ginning, sugar refining, wool carpets and edible oil production from seeds). Despite the importance of the sector, agricul- tural taxes are limited in Afghanistan, partly because of poor adminisrative and institutional arrangements and partly because of the low tax rates; Government revenues from agricultural sources were only about 10 percent of the total in 1974/75. 22. Development of the agricultural sector is very difficult because of Afghanistan's rugged topography, harsh continental climate and poor natural resource endowment. Rugged mountains and deserts account for about 85 percent of the country's 635,000 square kilometers, and of the remaining 15 percent or 95,000 square kilometers, only about 25 percent or about 24,000 square kilometers are irrigated. Although annual precipitation ranges from 100 mm to 1,000 mm, most of the country is arid or semi-arid with a precipitation range of 100 mm to 400 mm. During summer, temperatures are generally in the range of 35oC - 450C and humidity is extremely low, whereas winter temperatures are generally well below zero. Heavy snowfalls in the mountain areas cause torrential river flows and flooding in the spring, necessitating heavy investments in storage and control structures. 23. The agricultural sector is affected by the country's severe shortage of trained manpower which limits the Government's ability to formulate short- and medium-term policies and plans and to provide effective public sector ser- vices, particularly to remote rural areas. For example, although the Govern- ment has been able to increase the number of extension agents rapidly over the last few years, the quality of the agents still needs to be greatly im- proved if they are to be of effective help to farmers. The Government has recently requested the Bank's assistance in establishing and improving agri- cultural vocational schools in the key areas of the country. The request was made on the basis of the Government's recently formulated education sector policies and targets, which took into account a UNESCO report on priority education projects in Afghanistan. 24. Other institutional constraints which the Government has been steadily attempting to relieve include insufficient but improving credit fa- cilities, and the limited supply and distribution of improved seeds, fertil- izers and other essential farm inputs. Progress has been made in these areas over the past few years. Since its reorganization and strengthening in 1969, assisted by IDA and UNDP, the Agricultural Development Bank (AgBank) has established itself as an essential credit source for farmers. Through its loans for fertilizers and farm machinery, it has contributed to the recovery from the two-year drought in 1970 and 1971. It has also assured a steady supply of tractors and implements; except for some water pumps and animal drawn implements, Afghanistan has to import most of its farm machinery. In  - 8 - 1973, the Government established the Afghan Fertilizer Company, and its import and distribution operations have greatly increased fertilizer use among farm- ers. In April 1975, the Water and Power Authority (WAPA) was established to plan and implement irrigation schemes. These activities were formerly handled by various departments in the Ministry of Agriculture and Irrigation, which has been reorganized and renamed the Ministry of Agriculture. This organiza- tional change is expected to facilitate the implementation of the existing irrigation projects, as well as the preparation of new medium- and small-scale quick yielding irrigation projects. 25. Livestock production is the most important agricultural activity in Afghanistan (see paras 26-30). Among the grain crops, wheat is the most important and is grown on about 60 percent of the cultivated area and most of the rainfed area, entirely for domestic consumption. The country produces about 2.9 million tons of wheat annually if precipitation is normal, and has attained self-sufficiency in this crop during the past 2 years. Afghanistan's average production of maize reaches more than 700,000 tons per annum, while that of rice and barley is estimated at 420,000 tons and 370,000 tons per annum, respectively. These four grains account for about 90 percent of the total area under cultivation. Cotton, sugar beets and other industrial crops occupy less than 5 percent of the cultivated area and their produc- tion is therefore limited. However, both cotton and sugar are likely to emerge as increasingly important crops in future. Although fruits and vege- tables occupy only about 6 percent of the cultivated area, there has been satisfactory improvement in their production during the past decade and in 1974/75 they provided about 43 percent of total exports. Livestock Sub-sector 26. The livestock sub-sector is of major importance in the agricultural sector and thus the economic activity of the country. It contributes about 10 percent of GDP (i.e. about one-fifth of value-added in agriculture) and about 20 to 30 percent of export revenues, and provides the major means of transport in rural areas and most of agricultural draught power. About two-thirds of the population are engaged in some form of livestock raising. 27. Sheep products such as karakul (Persian lamb) pelts, wool, skins, and casings make up more than 90 percent of the revenues from livestock exports. There are about 14 million sheep in Afghanistan, as compared to 4 million goats and 3.5 million cattle. There are also 2.1 million donkeys, horses and camels which are mainly used for transport. Mutton sheep, which number about 10 million, predominate in the regions south of the Hindu Khush mountains, and karakul sheep, which number about 4 million, are raised in the north. 28. In addition to the problems of the severe environment and clima- tic fluctuations, the livestock sub-sector faces a number of problems of which limited feed resources and a lack of animal disease control services are the most conspicuous. Others include a lack of extension services and limited market outlets. Serious support to the livestock industry by the Government commenced in 1973 with the First Livestock Development Project financed by a $9.0 million IDA Credit (No. 375) and would be expanded through this second project.  -9- 29. Inadequate feed resources, especially during winter and spring months, have hampered livestock production and caused serious overgrazing. The traditional practice of retaining sheep as a store of wealth, the poorly developed market for livestock and the difficult access to markets which are long distances from the rangelands, have contributed to the present situation in which the number of animals is in excess of the carrying capacity of the available rangeland. On the other hand, sheep owners have little incentive to attempt to improve or efficiently manage natural rangelands in order to increase their productivity, because of uncertainty of land tenure and the common ownership of these lands. 30. The severity of diseases and the number of deaths resulting from them tend to increase during periods when animals are undernourished because of relatively high livestock numbers, and to decline when nutrition is above average because of relatively low stock numbers. The introduction of effective animal disease control services is seriously hampered by the lack of trained manpower. There are only 14 qualified Afghan veterinarians, 12 of whom are stationed in Kabul, and 250 veterinary technicians to cover the whole country. The provision of training for veterinarians and supporting technicians locally is not yet adequately established. Training, where available, tends to be theory oriented and is inadequate in practical aspects. PART IV - THE PROJECT Project History 31. Afghanistan has requested IDA to assist in financing a Second Livestock Development Project to supplement the First Livestock Development Project. The project was prepared by the consulting firm of C.M. Chisholm and Associates Ltd. (United Kingdom), assisted by the Herat Livestock Development Company (HLDC), and the consultant's report was submitted to IDA and the Government in October 1975. The project was appraised in late October and November 1975, and negotiations were held in Washington from April 19, 1976 to May 6, 1976. The Afghan delegation was led by His Excellency, M.E. Abdullah Malikyar, Ambassador to the USA, and included representatives of the Ministry of Planning and HLDC. The Project 32. The project would consist of the following components: (a) establishment of about 14 sheep improvement centers (SICs); (b) provision of improved veterinary health services; (c) provision of credit for on-farm development; (d) establishment of a heavy equipment and water supply division within HLDC;  - 10 - (e) establishment of two additional range improvement field stations; (f) provision of technical assistance and training; and (g) wool scouring plant study. The project would help to continue development of the agricultural sector of Afghanistan and benefit a significant portion of the country's rural poor. 66 percent of the project beneficiaries are below the absolute poverty income level of $44 per capita. The project, together with the on-going First Live- stock Development Project, attempts to achieve economic, institutional and technical improvements in the livestock subsector in Herat, Farah, Ghor and Baghis provinces which cover roughly one-sixth of the country and contain about 2 million adult sheep and goats. The First Livestock Development Project is contributing to the improvement of livestock production in the Herat Province on about 1,200 km2 through institution building, the provision of technical services and credit to livestock producers, and construction of a slaughterhouse, which is scheduled to become operational in April 1978. The project made a slow start partly because of the change of the Government in July 1973 which delayed the effectiveness of the Credit resulting in cost overrun problems. However, progress in recent months has been very encour- aging; there has been a sharp increase in commitments under the Credit which should be reflected in accelerated disbursement in the near future. The second project would build on the base already provided by adding animal health services for all sheep and goats in the project area of about 100,000 km2, as well as further technical services and credit for increased fodder production and improved husbandry to over 1,000 families. Through these operations, the project aims at raising export earnings, increasing the supply of meat on the local market, and improving the sheep flocks and incomes of nomadic and semi-nomadic flock owners. The Credit and Project Summary in Annex III describes the major features of the project. The Appraisal Report (Report No. 1043-AF) entitled "Appraisal of a Second Livestock Development Project", is being distributed separately to the Executive Directors. 33. The most important part of the project would be the 14 Sheep Improve- ment Centers (SICs) to be established both in summer and winter grazing areas to provide livestock producers with essential field services, such as animal health and extension services and provision of water supply points for live- stock watering. Each SIC would consist of a central unit and about six out- stations, and each would have a small service unit to service the central and the outstation water supply points. SICs located in the winter grazing areas would each have a demonstration farm of about 40 ha for the production of cereal grains and fodder crops, which would be used to fatten autumn-purchased lambs. The HLDC slaughterhouse would purchase these animals in late winter, enabling it to maintain its operation at a high level when the supply of animals from traditional production is at its lowest. 34. Two Animal Disease Control Centers (ADCCs) would be established, one in the summer grazing area and the other in the winter grazing area, each with 6 sub-centers. The ADCCs and sub-centers would be located at the same  - 11 - sites selected for the SICs and each would operate 6 field vaccination points. Simple field laboratory facilities and vehicles would be provided at all centers, and in addition, each ADCC would be supplied with a mobile veteri- nary unit for use during any epidemic and for field disease investigations. Staffing of these centers would be flexible according to the seasonal migra- tion of animals, and only a skeleton staff would be maintained during the slack season. These facilities would make overall animal health coverage available to all sheep and goats within the project area, thus eliminating sources of re-infestation of treated animals. In order to secure timely and adequate supplies of viable vaccines, the Government owned Kabul vaccine pro- duction laboratory would be expanded under the project. Provision of these health services would bring about a general increase in livestock production within the project area, although the project would directly involve only 1,050 families through a lending program for on-farm development (see para. 35). 35. Altogether 825 loans would be made by AgBank for on-farm develop- ment under the project; 25 for settlement of nomadic groups, 50 for establish- ment of cooperative central water supplies, 700 for development of coopera- tive member small holdings, and 50 for development of individual farms. Each investment plan for these loans would be prepared by HLDC, based on farmers' applications, and would cover a period of one to two years leading to full development by about year nine. Major investment items would include the installation of a well and pump set, construction of new or improvement of existing irrigation works, fodder establishment, construction of simple stock housing, and the purchase of breeding sheep and work oxen. Twenty-five loans, involving 300 families, would be made to induce nomadic settlement in the traditional wintering areas. The Government is committed to encourage such settlement and would make available about 5.5 ha of suitable land per family, or not less than 1,650 ha in total, for this purpose (Section 3.02(c) Development Credit Agreement). It is expected that this action will be completed within three years of the start of project implementation. Since the small livestock owners in the project area cannot provide enough security to obtain loans for livestock improvement, the project would help them to form about 50 cooperative groups, and thus enable them to provide collective secur- ity. Funds for the establishment of a communal irrigation system by each group would also be provided. In parallel with the cooperative water supply, the project would also support the development of about 700 cooperative member small holdings, each about 3 ha in size. In addition, some 50 loans would be made to individual farmers with an average farm size of 10 ha to finance fodder crop production through irrigation improvements and modern farm inputs. 36. To ensure the effective implementation of components of the project requiring the use of heavy equipment, a Heavy Equipment and Water Supply Divi- sion would be established within HLDC in Herat to specialize in such services as the construction of wells and farm access roads (Section 2.10 Project Agreement). The cost of equipment, personnel and other expenses required to establish the Division is included in the project costs.  - 12 - 37. The project would also help establish two small field stations to strengthen the Experimental Range Improvement Center program initiated under the First Livestock Development Project. The stations would be used to collect more detailed information on nomadic and semi-nomadic flocks, and to study various range improvement techniques. 38. HLDC would continue to be assisted by four senior experts, or their replacements, employed under the First Livestock Development Project. In order to ensure the timely and efficient implementation of the second project, HLDC would employ seven additional experts under terms and conditions satis- factory to IDA. These additional management and technical experts are neces- sary because under the First Livestock Development Project it was very dif- ficult to recruit suitable Afghan staff, owing to the extremely limited avail- ability of qualified local personnel and their preferences for being stationed in Kabul. Short-term consultants, about 12 man-months in total, would also be employed for specific assignments to be decided between HLDC and IDA. In view of the shortage of trained local manpower, these experts would place high emphasis on the training of local staff to ensure the availability of permanent Afghan staff for the project. To supplement the training to be given by the consultants, overseas training fellowships, each of about six months duration, and about 300 man-months in total, would be provided for HLDC's local staff and the staff of the Ministry of Agriculture working on the project. 39. HLDC would, with the assistance of a short-term consultant if re- quired, carry out a study of the need for a wool scouring plant to be attached to the slaughterhouse at Herat. Project Costs and Financing 40. The estimated total cost of the project is $18.0 million, net of customs duties and taxes, of which the foreign exchange component is about $8.5 million, or about 47 percent. Details of the costs are given in Annex III. The proposed IDA Credit of $15 million would finance the full foreign exchange costs and $6.5 million of the local costs, and would be equivalent to about 83 percent of the total cost. The Government would be the borrower and would bear the exchange risk. The remaining funds needed to finance the project would come from the Government ($1.4 million), AgBank ($0.8 million) and from sub-borrowers ($0.8 million). Organization and Execution 41. HLDC, which was established as a joint stock company in 1973 with Bank Group assistance, would be the main executing agency for the project as in the case of the First Livestock Development Project. Three divisions in HLDC would carry out its increased responsibilities arising from the project. The Technical Services Unit Division would expand its responsibility to in- clude the establishment and operation of the SICs and the enlarged animal health services. Two new divisions, Heavy Equipment and Water Supply, and Finance, would be established to ensure timely execution and orderly phasing of the project.  - 13 - 42. Within 6 months of the effectiveness of the proposed credit, the Ministry of Agriculture would establish a project cooperative field organiza- tion in Herat to organize and assist in the operation of primary cooperatives for livestock producers in the project area (Section 3.01(e) Development Credit Agreement). 43. The Government would onlend $4.0 million of the proposed Credit to AgBank at 4-1/2 percent interest with a repayment period of 15 years, includ- ing 5 years of grace. AgBank would in turn onlend $2.9 million of these funds, plus $0.8 million of its resources, to farmers at 8 percent interest with re- payment periods up to 7 years, including grace periods up to 2 years, for on- farm development. AgBank would onlend the remaining $1.1 million of the funds to HLDC at 8 percent interest with a repayment period of 15 years, including 5 years of grace, for the establishment of the Heavy Equipment and Water Supply Division, an income generating entity of HLDC. The 3-1/2 percentage point spread to AgBank is considered adequate to cover its administrative costs and provisions for bad debts and would allow for some slippage in sub-loan repay- ments. In addition to these lending activities, AgBank would be the channel for a Government grant of $11.98 million to HLDC to cover the investment costs of the Technical Services Unit Division, Experimental Range Improvement Center and consultants and training. About $10.6 million of this grant would come from the proposed Credit and $1.37 million from the Government's own resources. AgBank would charge no commission or fees on this-grant. The Government grant of $11.98 million to HLDC is justified on the grounds that HLDC is a wholly government owned entity, and that the operations with regard to SICs, Experimental Range Improvement Center and animal health services should be the responsibility of the Government. However, because of the lack of proper administrative structure, the Government is using HLDC to carry out these operations. The Government would also make available $0.42 million directly to its Ministry of Agriculture for the establishment of the project cooperative field organization and for the expansion of the vaccine production laboratory in Kabul. Of this amount, $0.39 million would come from the proceeds of the credit and the remainder from the Government's own resources. 44. AgBank was established in 1954 and reorganized in 1969 when IDA Credit 202 for the First Agricultural Credit Project was made. With efficient management assistance provided under the First and Second Agricultural Credit Projects, AgBank's operations have been expanding rapidly and it has estab- lished itself as the main agricultural lending institution in Afghanistan. Following HLDC's technical and economic appraisal of sub-loan applications, AgBank would evaluate the financial and legal aspects of the applications and on-lend funds for farm development to farmers participating in the project. Procurement 45. Heavy equipment, farm machinery and vehicles costing about US$1.5 million (excluding contingencies), would be procured under international com- petitive bidding in accordance with IDA's Guidelines for Procurement. As far as possible, contracts would be grouped to ensure effective competition for procurement. The scattered nature of the operations under the project, and the necessity to procure small items, including vaccines, gradually over an  - 14 - extended period of time, make the items other than those noted above unsuit- able for international competitive bidding. Pumpsets would either be imported by local dealers or assembled from locally made pumps and imported engines. Competition among dealers is considered satisfactory. Veterinary laboratory equipment comprises many small items tp be obtained from different manufac- turers. It would be procured through competitive bidding locally advertised, under conditions satisfactory to IDA, or, where applicable, through interna- tional shopping with at least 3 quotations. Medicaments and vaccines would be purchased in small quantities over the life of the project. The medicaments would be procured under the same procedures as the veterinary laboratory equip- ment, and, to the extent that the required quantities of vaccine could not be supplied by the vaccine laboratory of the Ministry of Agriculture, they would be obtained by international shopping on the basis of 3 quotations. Breeding animals and draught oxen would be purchased from local farmers and construction of dug wells, water systems, protection walls and buildings would be carried out by farm labor or force account, or under negotiated contracts awarded under arrangements satisfactory to IDA. Any management and technical experts financed by the proceeds of the proposed credit would be employed in accordance with terms of reference satisfactory to IDA. Disbursements 46. The proposed credit would be disbursed against 85 percent of civil works and operating expenses, against 80 percent of AgBank sub-loans, and 100 percent of foreign expenditures for consultant services, overseas training, vehicles and equipment. For vehicles and equipment procured locally, 85 per- cent of the cost would be financed. For all the above items, except AgBank sub-loans, disbursement would be made against standard documentation. Disburse- ment for AgBank sub-loans would be made against statements of expenditure. The documentation for such expenditures would not be submitted to IDA for review but would be retained by AgBank and be available for inspection by IDA super- vision missions. An estimated disbursement schedule is given in Annex III. Benefits and Risks 47. The financial rates of return for the on-farm development component of the project range from 11 percent for the nomadic group settlement to 31 percent for the development of cooperative member smallholdings. 48. The economic rate of return on the proposed investment is estimated to be 16 percent. Production benefits directly attributable to the project would add to annual production some 730 tons of meat, 1,300 tons of milk, 120 tons of wool and 5 tons of hair, with incremental gross sales of $1.4 million per annum. In addition, at full development in 1986, some 7,500 breeding female sheep and 1,200 breeding female goats would be available for sale annually, as against none before development. The farm development program would also enable participating farmers to produce each year an additional 3,500 tons of wheat, 800 tons of seed cotton, and 2,400 tons of summer catch crops, valued at $0.75 million. There would also be about 1,100 tons of surplus hay available for sale annually. The following benefits which may be of significance have not been quantified:  - 15 - (a) improved production of the flocks not directly benefitted by the on-farm development lending program, as a result of pro- viding animal health services to all sheep and goats in the project area; (b) the successful operation of livestock cooperatives and SICs would enhance the Government's efforts to effectively extend development credit and technical assistance to the country's smaller livestock producers. 49. Through the provision of credit and technical services, the project as a whole would directly benefit about 1,050 families (smallholders and semi-nomads), or approximately 10,000 individuals whose average per capita income of $34 is 29 percent below the absolute poverty income level of $44. The average on-farm development investment per family under the project would reach about $2,700. In addition, at full development, the project would pro- vide about 700 new jobs in HLDC and on traditional sector farms. Indirectly, through the extended animal health program, the project would exert a major impact on the estimated 144,000 sheep and goat owners and their families (about 1.4 million persons) within the project area, the great majority of whom are in the target group in the vicinity of the absolute poverty level. 50. The Government would recover about $6.5 million through debt service payments by sub-borrowers. Incremental export tax revenues to the Government as a result of the project would amount to about $1.3 million. Incremental fuel tax revenues from irrigation and vehicle operations would amount to about $0.2 million. Thus about $8 million, or about 45 percent of total project costs, would be recovered by the Government through the debt service payments and incremental tax revenues. In addition, the Government would from year 6 onwards fully recover the cost of vaccines and medicaments dispensed in the project area, as well as the operating cost incurred in dispensing them. It is not intended to recover more than about half the total project costs, because of the early stage of development of the project area. 51. A steady supply of viable vaccines for the animal health program is essential for the success of the project, and it would face special risks only if the Government's ability to supply vaccines as and when re- quired by HLDC proves less adequate than expected. To safeguard against this risk, an assurance has been obtained from Government that it would provide in a timely manner adequate supplies of viable vaccines to HLDC (Section 3.04(a) Development Credit Agreement). Moreover, the project provides financing for the procurement of the necessary vaccines whether secured from internal or external sources (Schedule 1, Development Credit Agreement). Under the project, a vaccine viability testing unit would be established and additional laboratory equipment for the Kabul vaccine laboratory would be purchased (Section 3.01(f) and Schedule 2, Part F, Development Credit Agreement).  - 16 - PART V - LEGAL INSTRUMENTS AND AUTHORITY 52. The draft Development Credit Agreement between the Republic of Afghanistan and the Association, the draft Project Agreement between the Association, the Herat Livestock Development Company and the Agricultural Development Bank of Afghanistan, the Recommendation of the Committee provided for in Article V, Secton I (d) of the Articles of Agreement, and the text of a Resolution approving the proposed Development Credit are being distributed to the Executive Directors separately. 53. Features of the Development Credit and Project Agreements of special interest are described in paragraphs 35, 36, 42 and 51 above. 54. I am satisfied that the proposed development credit would comply with the Articles of Agreement of the Association. PART VI - RECOMMENDATION 55. I recommend that the Executive Directors approve the proposed development credit. Robert S. McNamara President Attachments June 11, 1976  TAsLE 3A page 1 of 4 paps AFGHANISTAN - 801AL INDICITORS DATA SHEOT LAND AREA (TROU NN2I ................................................. r__- -------- I;7. AFGHANISTAN REFEFENCE CcUNTIlES (1970) TOTAL 64T.s NOST RECENT AGRIC. .. 1960 1870 ESTIMATE NEPAL SUDAN SYhIA AR1B REP *4 . .............. . ..... ...... ..... ........ .. .. ------- ---------- GNP PER CAPITA (US&) 50.0 70.0 90.0 80.0 110.0 320.0 ...... ... ..... POPULATION ANO VITAL STATISTICS POPULATION (N10YR. MILLION) 12.5 15.6 16.6 1 .1 1.T 6.3 POPULATION DENS1TY PER SOUARE RM. 19.0 24.0 26.0 80.t 6.0 34.0 PER Sg. KM. AGRICULTURAL LAND .. .. .. .. VITAL STATISTICS 4. 894. CRUDE B1RTH RATE PtR THOUSAND Ji9.0 48.7 48.1 44.7 B.9 47.6 CRUDE OEATH RATE POR THOUSAND 34.1 27.6 21.4 24.6 20.2 16.2 INFANT MORTALITY tATE (/IHOU) .. 102.0 .. .. .. 93.0 LIFE ExPECTANCY AT BIRTH (YRS) 35.3 AO. 3 A 2.7 43.6 AB. 6 54.0 GROSS REFRODUCTION RATE .. 3.4 3.4 3.0 3.4 s.5 POPULArION IROWTH RATE (I) TOTAL 2.0 2.2 2 2.2 1.8 2.9 3-3 URBAN 5.0 S.2t S.1 3.9 6.2 4.8 URBAN POPULATION (2 OF TOTAL) 8.0 10.T 12.3 4.1 11.8 42.9 AGE STRUCTURE (PERCENT) o TO 14 TEIRS 41.9 43.2 44.? 42.0 A5.0 49.0 15 TO 64 TEARS 54.8 54.2 53.2 55.0 52.0 41.0 65 YEARS AND OVER 3.3 2.6 2.6 3.0 3.0 4.0 AGE OEPENOENCY RATIO o.0 0.e 0.9 0.6 0.9 1.1 ECGNOMIC DEPENDENCY RATIO .. .. 1.7 , 1.0 .0 1.S5 2.5 FAMILY PLANNING ACCEPTORS (CUMULATIVE. THOU) .. .8. .. B6.5 USERS (C OF MARRIED WOMEN) .. .. .. FMPLOY RENT TOTAL LABOR FORCE (THOUSAND) .. .. 4600.0 4800.0 5100.0 15oo.0 a LABOR FORCE IN AGRICULIURE (%) .. .. 67.0 94.0 B0.0 49.0t UNEMPLOYEO (% OF LABOR FORCE) .. .. 8.0 ' '' 6.0 a INCONE DISTRIBUTION 2 OF PRIVATE INCONE REC*D OY- HIGHEST S% OF HOUSEHOLDS .. .. .. . . HIGHEST 200 OF HOUSEHOLDS .. .. . .. LOREST 201 OF HCLSEHOLOS . .. .. .. LOHEST 400 OF HOUSEHOLDS .. .. .. . . DTSTRIsUTION OF LAND ONNERSHIP T OWNED EY TOP iOt Of OWNERS .. .. .. .. I OWNED BY SMALLEST IO OWNERS .. .. .. .. . HEALTH ANO NUTRITION . .. ..... . . . . . . POPULATION PER PHYSICIAN 32000C./ 20450.0 .. 49770.0 h 15940.0 3850.0 POPULATICN RER NURSING PERSON 22760.0/ b 22120.0 /b .. 356c0 0E 1950.0 4460.0 POPULATICN PER HOSPITAL BED s4oo.o j 6090.0 7 . * 6750.0 1040. o/b 1010.0 PER CAPITA SJPPLY OF - CALORIES (0 OF REQUIREMENTS) 86.0 tC.C 01.0 93.0 91.0 102.0 PROTEIN (GRANS PER COY) 63.0 -e.c 58.0 52.0 63.0 7C.O -OF WHICH ANIHAL AND PULSE . I. 1.0 .. 11.0 24.C0 c 10.0 b DEATH RATE (/THOU) AGES 1-4 EDUCATION ADJUSTEo ENROLL4ENT RATIO PR1M9RY SCHCOL S.049. 22 .Ld Z3.0 31.0 33.C0 08.0 / SECONDARY SCHOOL 1.c0/ 6.0Z O.070 7.0 6.0 39.0 L YEARS OF SCHOOLING PfOVIOrO (FIRST AND SECONC LEVEL) 12.0 12.0 12.0 10. 12.0 12.0 VOCATIONAL ENROLLMENT (5 OF SECONOARY I1.0 4.0 3.0 6.0 1.0 3.0 oa. ADULT LITERACY RATE (D) 8.0 10.0 *- 11.0 19.0 40.0 HOUSIHN PERSONS PER ROOM (AVERAGE) .. .. .. .. Z.5 La . OCCUPIED OWELLINGS WITHOUT PIPEO HATER ( .. . .. .. 3b6.LC .. ACCESS TO ELECTRICITY (< OF ALL OWELLINDSI 2. .. .. .. 2t.0 .. RURAL OHELLINGS CONNECTED TO ELECTRICITY (S) .. .. .. .. . CONSUMPTTCH RA4IO RECEIVERS (PER THOU POP) 2.0 16.0 .. 5.0 . 2. 24.0 PASSENGER CARS (PER THOU POP) 1.0 2.0 2.0 0.1 2.0 5.0 ELECTRICITY (AN/HYR PER CAP) 9.0 23.0 26.0 L 6. 25.0 1 51. NEWSPRINT (MG/TR PER CAP) .. O.oh 0.06 .. 0.2 0.2 SEE NOTES AND CEFINITIONS O4 REVERSE  PAge 2 Of 4 pegee NOTS Unless otherwise noted, date for 1960 refer to any year between 1959 and 1961, for 1970 betwoee 1968 and 1970, and for Most Recent Estimate between 1971 and 1973. as Syri.'s siilerity in totel population, Its arid clinate with its hs,ay reliance 'a rainfall foragiutr production, the importance of cotta as major ecport crop, ad finally the deminant role of the goverisenct in the acomy, eli provide useful points Of ocparison with Afghanistan. Its higher literary rate and better health fecilittee an objectivee to be clad at by Afghanietan in dhe next deca de. APGONLSTAN 1960 1962; fb Including assistant nurse", midwie and assistant midwives; /c Public education only. 1970 1966-70; lb Including eeeietant noes idwives and assistant midwives; c Including maternity ad orerl hospitele, /i public education only. MM1S RECENT ESTINAXE Ia/ Ratio of population under 15 and 65 and over to total labor force, lb Public edocation only; Ic 1974. NEPAL 1970 Ratio of population under 15 aod 65 sod over to total labor force; lb Personnel in govrimont orvices only. S1!PAN 1970 Ratio of popuLation under 15 and 65 and over to total labor force; Ab Govermet hoepitel estsbihllleets only; jj1964-66; /d Urban only. SYRIAN ARMB REP 1970 Ia Syrian population onlp; Ab 1964-66; /c Including USA schools. R6, May 26, 1976 DEtafIlTIUKS OP SOCIAL INDICATORS Land Ares f thou be2) Population per nurIng person) - Ppuletion divided by nuabor of prscti- Total- Total surface orea remprising land area and Island water. ing male and female graduate mornes * "trained" or "certified" Astric. M-ostr recent estimate of agricultural ares need temporarily or ..orees, end sunillary personnl with training or ceperiesce. Permanently for crops, pastures, market & kitcebn gardens or to lie Poulation par hospital bed - Population divided by comber of hospital falloc. beds avtailble is public sod private general ocd spclslied bhspits1 and rehabilitation centers; excludes morning bee and entablishmets GNP Pec caPita CUSS) - GINP per aspit.a etimates at market prices, calcu- for cutodial end preventive csre. lated by san conersion method as World Sank Atlss (1972-74 basis). Per ..Pit. supply Of oslormes ft of requirements) - Computed fron energy equivalent of net food supplies svsilable in coutry per capita Population and vital statistics par day; availla's supplies remprise donestic prodoction, imports less Peculation (mid-yr. million) - As of July first: if not availebl, exports, and chenges in stock; net supplies exclude animal feed, seeds, aversge of own, end-year estimates. quantities need in food Processing end looses to distribution, require- mants use etimated by PiO based on phynisigical needs for ..-Is Ppoplation denity - per square he - Mid-yesr population per aqoare kilo- sctivlc and health conidering eovircmetal tmpnerctre, body nights. mater (100 hsctsres) of total areas, age and see distributions of population, and s11inig 10% for waste Population density - per square ke of sane,c land - Computed as sovwe for at household level. sgricultrura land only, Per cspits supply of nrotein fAers oner day) - Protein content of Per caPita net supply Of food per day; net supply of food is defined as Vital statistics above; reqsixemtnc for oil countries established by tieSD EcoonoiC Crude birth rate per thousand - Annual lIve birth. per thoussdofm- Research Services provide for a nimim Ilowsnco of 60 groo Of year population, ternyear artiibstic aversges ending inIi and IWO*, total protein per day, and 20 grams of animal end pulse protein, of and five-year averag eding in 1975 for moet resent estimate. which 10 grew should be animal protein, these standard. sre loner Crude desth rate per thousad - Annual deaths per thousand of mid-year than th.ss of 75 grans of total protein and 23 gras of animal protein popu.iscin; ten-yesr aritrestic aversge. seding in 1960 an 1970, and as en average for the world, proposed by, PAO In the Third World Food five-year average ending is 1975 for mat recent estimate. Survey. Wenst nertality rate flthouj - Annual deaths Of infants under one yesr Per cpiaforstei .spply from animal and pulse - Protoic supply of rood of age per thoussod live births, dervdfrma Imas and pulses in gra, per day. Life epee...ncy at.birthf lyre ) - Average number of yearn of life remin- Desth rate f/thou) ages. 1-4 - Annul deaths Per thouasd in age group tog ti b Irth; esualy fve-year -vergs ending in 1960, 1970 and 1-4 years, to children in thin age group; suggested as so indicator of 197) for developing routcries. malnutrition. Cres reeroductio rate - Aversge somber of live daughter.a - ea will bea:r in her norml reproduc tive period if she experiences presen.t age- Eduction speific fertility rsten; usually five-yesr aversges ending in 1960, Adbowted enrelomoc rstio - prinary school - Enrollmet Of all agess 1970 and 197) for developing countries, perrentsge of primary school-age populstion; includes children aged populstion growth race (1)- tota - Compound annua grouch rates of mid- 6-11 yeses but adjoorted for different lengths Of primary du...tiou; yer opltion for 1950-60t 96-70, and 1970 to moot recent year. for countries with universel eduction, enrollment nay exceed 1001 Populatioarmjrth rate (1) - urban - Conputed like growth rste Of total sine. song pupils are helm. Or above the official school oge. populstion; different defimitions of urban areas esy affect moupsr- Adjusted enroll1et rstio - secondary school - Conputd so bhev; bility of data among ocuntries, secondary educa.tion requires at leas.t four yesrs of approved primary Urban population CZ of total) - Ratio of srhcn to total population; inscrustion; provides gemersl, voctiona or te..cher teem.ing differet definitions Of urban areas may sffect conpersility Of data instructions for pupilo Of 12 to 17 years of age; -ror-pondence nogucountries, courcee are generally escluded. s,etrucure roe - Children (0-14 years), working-age (15-64 yesrs), Yesrs of schooling nprvided (firt and second levels) - Total years of snd retired Hyeses and over) as percentages of mid-year population, schooling; at secondar lee, Otmnl instcrution may be Par- Age daenedency ratio - RAstio Of population under 15 and 65 sod over to tially or completely secluded. those Of sges 1) through 64, Vocational enrollment ft of secondary) - Vostatonel Jootitutlon E.conoir depedency csti - RAstio of populetion under iS and 65 and over include techeica1, Industris1 or other programs which operate to the labor force in age group of 15-64 years. independently or en departoosta of secondary instituti-ons F.,i,, PlannIng - acceptors (cumult ive,. thou) - Cusulsti-e n,aer of Adult literacy rate (t) - Liteeret adults (able to read and write) an scceptor of birth-control devices under auspices of ntional fatty percentage of total adult populetion aced 19 yers and over, PlnIng- Program since Ince ption, Faniy panng - users fofmrried wean) - Percentages of married Noin wome o,fchiIld-beaing sge (11-44 years) who usa birth-control devices Persons Pee room (average) - Average number of persona Poe, roon in to all marrie d woc in same age group. occpied couventbonel dwllings In urban are,u, dwelligs occlude Paseloyment non-peonanent s~~~~~~~~~~~tructurns end unoccupied psets. EuPI,Ymant ~~~ ~~~~~~~~~~~Occpid dwellingsitot Ppied warte C1) - Occupied conventional To,tal labor force thounand) - Emcnmically ective persons, including dwligsi rbnad Jus sts ihu nieo usd ie amd focsadwapoe u eldnghueie,suet,ec; vter facilities en percentage of all Occupied dwellings. definition in various countries see not cesparable. Access toelcritftooIdw lng)-C vninadelns Laborforc in ericuture t) -Agriclturl labr foce (i faring,with elcrctyI iing quarters as; percent of total dwellings in forestry utn n ihn)s percentage of tota labor force, urban and "rurs aress, UnemPloe ft Of labor force) - Unemployed see uesolly defined as Rua dwellIngs connected to electricity Ct) - Computed as above for porsons who are able and willing to take a job, out of a Job on rural dwellings only. given dey, remained out Of s Job, and seeking work for a specified .niotosc period nor.. eneding one week; mey not he omperable hetween Consumption cousctricogdue to differouc definitions of unemployed and source of RadiRo rece.Ivers( e thou co)-Altpsopeeiesfrrdoh d data, ye.g. employmentofc tcais a sres oploy rsst general Pubi. e thousand Of Population, eacludee unemployment insurance. un~~~~~~~~~~~licensed receivers in coutries and in years when registration Of Incone distribution - Percemetge of Private income (both in cash and sainc netst" Ionara oise lirrencing. e-My.t ecmaal kind) received by richest It, richest 20t, Psorest 20t, end poorest ssincee ones t pee thifbou oe) - Plssensigercr. opiemtrcr 40% of bousehulde. seating less disc ~~~~eight persons; esoludes sobu1-ene, heasesa and 1iurihcind po.r. 0f land ownesi-Percetgsofln wndb eatis lectricity fkh/yr our cse) - Annusi1 consuption Of industrial, cm- lOt and pesrest 101 of land owners ~~martial, Public antd private electricity in kilowtt hours pee capita; Health -d Ntrition go~~~~~~~~~~aners lly based on production dgta, without allowsoce for lossIn PgPalcandm NutrPyition Pouain iie b ube fpaciiggrids hut allowing for imports and exports of electricity. Popuatio nerphyscian-Poulaton dvide by umbe of ractcing Newsvprint (kg/yr on cp) - per capita annul consuption in kilograms phyoicians qualified frem a medical school at university level, estimated fe ogtic pruducion Plus net imports of newsprint.  ANNEX I Page 3 of 4 pages ECONOMIC INDICATORS /1 GNP per capita (1973): $90 Rate of Growth: 0.9 % (1965-73) LABOR FORCE (1974/75): Millions % of Total Agriculture 3.29 62 Handicrafts 0.31 6 Manufacturing 0.09 2 Services 0.41 8 Construction and Mining 0.13 2 Others 0.70 13 Unemployed 0.38 7 5.31 100 GOVERNMENT FINANCE (in million Afs.) 1972/73 1973/74 1974/75 (Estimate) Current Receipts 6110 7017 10,250 Current Expenditure 5283 5799 6,244 Current Surplus 827 1218 4,066 Capital Expenditure /2 4326 3672 4,648 External Assistance (gross) 3189 2308 2,958 /3 /3 MONEY , CREDIT AND PRICES 1972/73 1973/74 1974/75 (million Afs. outstanding end fiscal year) Money and Quasi Money 12,309 13,901 15,219 Bank Credit to Public Sector 11,106 12,057 12,568 Bank Credit to Private Sector 4,253 4,259 5,253 Annual percentage change in domestic prices -14.5 -5.9 +13.6 /1 World Bank Atlas, 1974 /2 Portion of Development Expenditure financed by external aid. To find its US dollar equivalence an official exchange rate of 45 Afghani to 1 SDR and the respective annual average SDR/US $ ratio should be used on a number of Government transactions. /3 Year ending March 20.  ANNEX I Page4F of 4 pages BALANCE OF PAYMENTS (in US $ million) 1972/73 *1973/74 1974/75 Merchandise Exports (f.o.b.) 121.4 159.4 216.7 Merchandise Imports (c.i.f.) -158.0 171.9 242.4 Balance of Trade - 36.6 - 12.5 - 25.7 Other Current Account (net) - 5.8 - 9.0 - 11.5 Current Account Balance _ 42. - 21.5 - 37.8 Net Loans and Grants 59.0 46.8 32.7 (Disbursements) (74.6) (69.6) (61.6) (Amortization) (15.6) (22.8) (28.9) Other Items n.e.i. - 13.2 - 11.4 17.3 Increase in Reserves - 3.4 13.9 12.1 MERCHANDISE EXPORTS (1974/75) US $ Million % Dry Fruits and Nuts 56.8 26.2 Fresh Fruits 31.8 14.7 Karakul 14.8 6.8 Cotton 31.0 14.3 Carpets and Rugs 21.7 10.0 Natural Gas 27.4 12.6 Others 33.2 15.4 Total 216.7 100.0 RATE OF EXCHANGE (Annual Average of Free Market Rate) 1972/73 1973/74 1974/75 US $ 1.00 = 80.00 Afs US $ 1.00 = 60.98 Afs US $ 1.00 = 56.86 Afs Af 1.00 = US $ 0.0125 Af 1.00 = US $ 0.0164 Af 1.00 = US $ 0.0176 EXTERNAL DEBT, March 20, 1975 US $ Million Total External Public Debt 1596.3 Disbursed 771.6 Undisbursed 824.7 Debt Service Ratio (1974/75) 17.1 % May 26, 1976  ThE STATUS OF BANK GROUP OPERATIONS IN AFGHANISTAN ANNEX II Page 1 of 4 pages A. STATEMENT OF IDA CREDITF (as of May 31 , 1976) US $ million Credit Amount Number Year Borrower Purpose IDA Undisbursed One credit has been fully disbursed 5.0 68/1 Afghanistan Education 3.5 158 1969 Afghanistan Highway Maint. 5.0 o.6 248.o 1971 Afghanistan Irrigation 5.0 4.3 248.1 1976 Afghanistan Irrigation 10.0 10.0 374 1973 Afghansitan Aviation Comm. 2.5 2.0 375 1973 Afghanistan Livestock 9.0 6.7 380 1973 Afghanistan IDBA 2.0 2.0 449 1973 Afghanistan Highway Maint. 11.5 11.3 539 1975 Afghanistan Agricult.Cr. 13.0 7.3 563 1975 Afghanistan Kabul Water 9.C 9.0 Sup. and San. ,C27 1976 Afghanistan Thermal Power 10,0 10.0 Total 85.5 Of which has been cancelled 3.5 Total now outstanding and held by IDA 82.0 Total undisbursed 63.2 B. STATEMENT OF IFC INVESTMENTS (as of May 31, 1976) Investment Number Year Institution Loan Equity Total 243 1973 Industrial Development Bank of Afghanistan - 0.3 0.3 Total gross commitments, less cancellations, terminations, repayments and sales - _ - Total commitments now held by IFC /2 - 0.3 0.3 Total undisbursed - - Ll Credit No. 68 for an Education Project in 1964 was cancelled at the Government's request in 1969. $0.3 million which had been disbursed for the project was consolidated under Credit 248. /2 A $1.3 million loan for the Kabul Spinning Mills, inc. approved in December 1974, however, has been cancelled because one of the major potential shareholders has withdrawn from the project. Note: Exchange adjustment not included.  ANNEX II Page 2 of 4 pages C. PROJECTS IN EXECUTION Credit No. 158 - Highway Maintenance Project: US$5.0 million Credit of June 26, 1969; Effectiveness Date: June 10, 1970; Closing Date: December 31, 1976. This credit was approved by the Executive Directors on June 10, 1969. It was signed on June 26, 1969 and became effective on June 10, 1970. The project is nearing completion and has phased now into the Second Road Improvement and Maintenance Project (Credit 449-AF). Some procurement of bitumen for about 8 percent of the Credit free amount is still in progress. The Project was successful in the setting up of the road maintenance organization. Credit No. 202 - Agricultural Development Bank Project: US$5.0 million Credit of June 24, 1970; Effectiveness Date: December 29, 1970; Closing Date: December 31, 1975. This credit was approved by the Executive Directors on June 11, 1970. It was signed on June 24 and became effective on December 29, 1970. The implementation of this project has generally been satisfactory and the objectives of the project have been achieved. The closing date of the Credit was December 31, 1975, and after a six month postponement, the Agricultural Development Bank submitted the final withdrawal application on November 19, 1975 and the Credit has been completely disbursed. Credit No. 248 - Khanabad Irrigation Project: US$5.0 million Credit of June 11, 1971; Effectiveness Date: December 22, 1972; and $10 mil- lion Supplementary Credit of January 12, 1976; Effectiveness Date: April 19, 1976; Closing Date: June 30, 1976. This credit was approved by the Executive Directors on May 25, 1971. It was signed on June 11, 1971 and became effective on December 22, 1972. This project was to have been completed in 1975 but is now expected to be finished in 1977 mainly because of about 18 months delay in the ratification process by the parliament and delays caused by the Government's reconsideration of the project scope. The project experienced considerable cost increases resulting in the Supplementary Credit of $10 million. The contract for the major civil works component has been awarded and the works have started. Credit No. 374 - Aviation Project: US$2.5 million: Credit of May 2, 1973; Effectiveness Date: November 26,' 1973; Closing Date: June 30, 1979. This credit was approved by the Executive Directors on April 26, 1973. It was signed on May 2 and became effective on November 26, 1973. It was originally anticipated that the engineering consultants would have been in the field in early 1973, but difficulties encountered in the selection  ANNEX II Page 3 of 4 pages process and the change in Government delayed the inception of the project. Although, through doing the work concurrently, the Master Plan was completed more or less on schedule and the contractor is trying hard to accelerate the progress, construction of the Flight Information Center (FIC) is about one and one half years late. Construction of the Flight Information Center began in July 1975. The engineering consultants presented in May 1975 the Master Plan for a new airport at Logar which was accepted by the Cabinet in principle. Credit No. 375 - Livestock Development Project: US$9.0 million Credit of May 2, 1973; Effectiveness Date: March 21, 1974; Closing Date: September 30, 1978. This credit was approved by the Executive Directors on March 20, 1973. It was signed on May 2, 1973 and became effective on March 21, 1974. The contract for the slaughterhouse construction, the main component of the project, was awarded in Novemer 1975. This component encountered about $4 million cost overrun, but the Government has provided enough funds to cover the cost overruns. The main problem facing this project has been the un- satisfactory development in making credits to farmers because of the diffi- culty in obtaining the necessary security. However, recent top level discus- sions between the project executing agency and the Agricultural Development Bank have apparently solved the security problem, and new security arrange- ments, which became effective in early December 1975, are expected to result in an increase of credits to a satisfactory level. Interest among local farmers obtaining credits has been revived, and about 310 credits had been approved by the end of May 1976. Credit NO. 380 - Industrial Development Bank of Afghanistan IDBA Project: US$2.0 million, Credit of May 15, 1973; Effectiveness Date: November 20, 1973; Closing Date: December 31, 1977. This credit was approved by the Executive Directors on April 26, 1973. It was signed on May 15 and became effective on November 20, 1973. The major problem facing IDBA has been the lack of projects. Private in- dustrial investment has suffered from Government's neglect of the private sector and the absence of a clear policy regarding its role. Private in- vestment also suffered a psychological setback from the nationalization of all banks under a new banking law that came into force in July 1975. The take-over of IDBA by the Government is to be completed by July 1976. There has been some progress in identifying some projects in the public sector suitable for financing under the credit for the Industrial Development Bank Project, and recently IDBA and the Government have requested IDA to approve a $1.8 million sub-loan by IDBA for the Badghis Cotton Ginning Project which would use up most of the $2 million IDA credit. In view of the relative size of this proposed sub-project, it is being reviewed especially carefully.  ANNEX II Page 4 of 4 pages Credit No. 449 - Second Road Improvement and Maintenance Project: US$lS.5 million, Credit of December 21, 1973; Effectiveness Date: June 10, 1974; Closing Date: June 30, 1978. This credit was approved by the Executive Directors on December 18, 1973. It was signed on December 21 and became effective on June 10, 1974. Project's technical assistance consultants mobilized in October 1975. The Asscciation approved recently the proposed awards of contracts for road equipment and materials for about US$7.5 million. The project progress is improving. Credit No. 539 - Second Agricultural Development Bank Credit: US$13.0 mil- lion, Credit of April 25, 1975; Effectiveness Date: July 24, 1975; Closing Date: December 31, 1979. This credit was approved by the Executive Directors on April 15, 1975. It was signed on April 25 and became effective on July 24, 1975 on schedule. The credit is proceeding in a generally satisfactory way with disbursements and commitments now ahead of schedule. Staffing of senior and medium management positions is still lagging behind appraisal report estimates especially the appointment of Vice President of Finance. AgBank is experiencing liquidity problems due to a shortfall between the demand for short-term loans for fertilizers and funds available for financing these loans. Implementation of the Afghan Machine and Service Company (AMSCO) technical assistance UNDP finance project to be executed by FAO for tractor after-sales service is pending Government's approval. The Afghan Fertilizer Company has now acquired legal title to all but 2 of 69 sites for warehouses and expect to evaluate bids for their construction before the end of June 1976. Credit No. 563 - Kabul Water Supply and Sanitation Project; US$9.0 million, Credit of June 23, 1975; Effectiveness Date: December 23, 1975; Closing Date: December 31, 1980. This credit was approved by the Executive Directors on June 5, 1975. It was signed on June 23 and became effective on December 23, 1975. The new water supply authority has filled major management positions, first boreholes are being drilled and the project consultants are in the field. The project seems to have a good start. Credit No. 627 - Thermal Power Project; US$10.0 million, Credit of May 17, 1976; Effectiveness Date: August 16, 1976; Closing Date: June 30, 1979. This credit was approved by the Executive Directors on May 4, 1976. It was signed on May 17, 1976. Bids for the gas turbines have been called to be received by June 30, 1976. Contract award is expected in early August.  ANNEX III Page 1 of 5 pages SECOND LIVESTOCK DEVELOPMENT PROJECT AFGHANISTAN CREDIT AND PROJECT SUMMARY Borrower: Republic of Afghanistan. Beneficiaries: The direct beneficiaries would be about 1,050 smallholder and nomadic families (about 10,000 individuals). Indi- rectly, the project would also benefit an estimated 144,000 sheep and goat producers (about 1.4 million per- sons) in the project area. Amount: US$15 million equivalent in various currencies. Terms: Standard IDA terms. Relending Terms: The Government would onlend US$4 million to AgBank at 4.5 percent interest with a repayment period of 15 years, including 5 years grace. AgBank would onlend US$2.9 mil- lion of these funds to farmers at 8 percent for 7 years, including a grace period of 2 years. The remaining US$1.1 million would be onlent by AgBank to HLDC's Heavy Equip- ment and Water Supply Division at 8 percent interest for a period of 15 years, including 5 years grace. Project The project aims at raising export earnings from meat and Description: livestock by-products through utilizing the facilities of the livestock slaughterhouse built under the first project and by providing additional market outlets to producers through the development of Sheep Improvement Centers. The project would also increase the supply of meat on the local market and improve the sheep flocks and incomes of nomadic and semi-nomadic flock owners through increased forage production and the creation of an effective animal health service to all producers in the project area, in- cluding those in the first project. The project also aims at creating pilot primary cooperatives for small livestock producers who, because of their smallness, are unable to take advantage of institutional credit facil- ities. It would consist of the following components:  ANNEX III Page 2 of 5 pages (a) establishment of about 14 Sheep Improvement Centers; (b) provision of improved veterinary health services; (c) provision of credit for on-farm development; (d) establishment of a Heavy Equipment and Water Supply Division for the construction of wells and farm access roads; (e) establishment of 2 additional range improvement field stations; (f) provision of technical assistance and training; and (g) wool scouring plant study.  AMEX III Page 3 of 5 pages Cost Estimates Foreign Item Af. Million US $ Million Exchange Loc. For. Total Loc. For. Total Component Tnuc (%) 1. Sheep Improvement Centers 42 48 90 0.76 0.88 1.64 52 2. Heavy Equipment - Water Supp. Div. Ul 46 57 0.20 0.83 1.03 81 3. Veterinary Serv. 152 62 214 2.76 1.12 3.88 29 4. Experimental Range Improv. Center 6 4 10 0.11 o.o6 0.18 35 5. Administration 17 10 27 0.31 0.18 0.49 37 Subtotal 22i 170 398 4.15 3.07 7.22 4 Traditional Sector - AgBank 1. Individual Farmers 16 3 19 0.29 0.05 0.34 14 2. Cooperatives 85 51 136 1.54 0.93 2.47 37 3. Nomadic Settlement 37 21 58 o.68 0.38 1.06 35 Subtotal 138 75 213 2.51 3.87 35 Ministry of Agriculture 1. Cooperative Dev. 6 1 7 0.10 0.03 0.13 26 2. Vaccine Laboratory 5 4 9 0.10 0.07 0.17 144 Subtotal 11 5 1 0.20 0.10 0.30 33 Training 1. HLDC - 13 13 - 0.23 0.23 100 2. Dept. of Cooper- atives - 1 1 - 0.02 0.02 100 Subtotal - i i - 0.25 0.25 100 Consultant Services 1. HLDC 14 58 72 0.26 1.o6 1.32 80 2. Dept. of Cooper- atives 2 8 10 0.03 0.15 0.18 80 3. Short-term Consultants - 4 4 - 0.07 0.07 100 Subtotal 1W 70 86 0.29 1.28 1.57 81 Base Costs 392 335 726 7.13 6-.o8 13.21 47 Contingencies 1. Physical 26 35 61 o.46 0.65 1.11 58 2. Price 107 95 203 1.95 1.73 3.68 47 Total Project Costs 525 465 990 9.54 8.46 18.00 47  ANNEX III Page 4 of 5 pages Financing Plan: Producers AgBank Government IDA Total ----------------- US$ million ------------