Rwanda - Gitarama Agricultural Production Project and MINAGRI Institutional Development Project

Documt of The World Bank FOR OFMCIAL USE ONLY Rkpol No. P-4242-RW REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION TO THE EXECUTIVE DIRECTORS ON A PROPOSED DEVELOPMENT CREDIT IN AN AMOUNT EQUIVALENT TO SDR 11.7 MILLION TO THE RWANDESE REPUBLIC FOR THE GITARAMA AGRICULTURAL PRODUCTION AND MINAGRI INSTITUTIONAL DEVELOPMENT PROJECT February 19, 1986 Thi S dmmi bhs a restricted ditsnbuim and may be id by recipients only in the perfonmwe dof tbeio ficia didi. Iets oeteuts may not otbwrise be disdosed withou Word Bank asuthodrin. |  CURRENCY EQUIVALENTS Currency Unit = Franc Rwandese (RF) US $1.00 = RF 103 RF 100 = $.97 WEIGHT AND HEASURES Metric British/US Equivalents 1 meter = 3.3 feet 1 hectare = 2.47 acres 1 are (100 m2) = 0.02 acres 1 kilometer (km) = 0.62 mile 1 square kilometer (km2) = 0.39 square miles (sq. m.) 1 kilogram (kg) = 2.2 pounds (lb.) 1 liter (1) = 0.26 US gallons (gal.) 1 metric ton (m ton) = 2,204 (lb.) GLOSSARY OF ABBREVIATIONS BNR - National Bank of Rwanda/Banque Nationale du Rwanda IWACU - Cooperative Research and Training Center/Centre de Formation et de Recherches Cooperatifs COOPIBO - Belgian Non-Governmental Association for Support to Cooperatives/Compagnons batisseurs DEP - Department of Studies and Planning/Direction Etudes et Planification TSAR - Institut des Sciences Agronomiques du Rwanda MINAGRI - Ministry of Agriculture, Livestock and Forestry/Hinistere de 1'Agriculture, de 1'Elevage et des Forets OCIR - Office des Cultures Industrielles du Rwanda FISCAL YEAR Government - January 1 to December 31  (i) FOR OMCIA4L USE ONLY GITARAMA AGRICULTURAL PRODUCTION AND MINAGRI INSTITUTIONAL DEVELOPMENT PROJECT Credit and Project Summary Borrower: Rwandese Republic Beneficiary: Ministry of Agriculture, Livestock and Forestry (MINAGRI) Amount: SDR 11.7 million (US$12.7 million equivalent) Terms: Standard !DA terms. Project The proposed Credit would finance a set of activities de- Objectives signed to support Government's agricultural sector strategy and with the twin objectives of stimulating agricultural produc- Description: tion, employment and income, and improving management of the sector. It comprises two distinct components. The Gitarana Agricultural Production component would be the pilot phase of a national agricultural extension and agriculture service organization, and of a national program for promoting private and cooperative investment in agriculture, agro-processing and marketing. The service systems developed on a pilot basis under this component are intended as a model which would be replicable at the national level and institutionally and financially sustainable. The component would include: (a) identification and introduction to farmers of specific recommendations to increase productivity and income; (b) introduction of a new extension management system; and (c) support to the development of other selected services (e.g. provision of plant material, forestry and veterinary ser- vices). In addition, it would provide support and assistance to credit institutions, cooperatives, farmers' groups, arti- sans and private enterprises to develop agro-processing, marketing and input supply activities. The Credit would also finance a study for the development of the Nyabarongo Valley, a marsh area of considerable potential for agricultural intensification. The MINAGRI Institutional Development com- ponent would strengthen the institution-building process to improve agricultural sector planning and management. The component would provide support, mainly in the form of tech- nical assistance, equipment and training, for: planning, project preparation, monitoring and evaluation of agricultural services and projects, accounting and financial management, documentation and general administration. Benefits: The Gitarama Agricultural Production component would benefit directly a large number of farm families (about 50,000 small This docmt ha a eticted distribution and may be used by recpients only in the performance of their official duties. Its contents may not oherwise be disclosed without World Bank authorization.  (ii) holders, all in the poverty target group) in the Gitarama prefecture. In time, the entire population of Rwanda is expected to benefit from project interventions when these are replicated throughout the country. Farmers would benefit from sustained and systematic support services designed to address their specific needs. Production, especially that of food crops, and farm income would be increased. The com- ponent would also train a large number of artisans and small private entrepreneurs in the prefecture. The country would generally benefit from a more efficient and cost-effective administration of key services to the rural population. The MINAGRI Institutional Development component would have sectorwide benefits through better planning, organization and management of the Ministry. The project would sharpen the technical skills of Ministry staff and improve the design, management and cost effectiveness of services to the sector. Risks: The most important Project risk relates to budget allocations from MINAGRI. Measures have been foreseen to assure adequate funding to minimize project costs and to limit the financial burden on Government to acceptable levels. Another important risk relates to the innovativeness of the Project proposals and the resulting changes required in the institutional be- havior of the Ministry of Agriculture, especially in terms of management. This risk is greatly reduced by the strong com- mitment of the Government to the Project. A specific risk of the Gitaram Agricultural Production Component is that of running out of improved technical recommendations, but this will be greatly reduced as the Agricultural Research Project (Credit 1546 RW) begins to produce results. A specific risk of the MINAGRI Institutional Development Component relates to the need for qualified personnel. This risk would be addressed through the training component. Local Foreign Total Estimated Project Costs: US$ million I. Gitarama Agricultural Production Component Technical assistance 1.2 1.2 2.4 Civil works 1.4 0.9 2.3 Training & research 0.6 1.3 1.9 Vehicles & equipment 0.6 1.2 1.8 Operating costs 2.9 0.9 3.8 Base cost 6.7 5.5 12.2 Physical contingencies 0.3 0.5 0.8 Price contingencies 1.5 0.9 2.4 Total component cost 8.5 6.9 15.4  (iii) II. MINAGRI Institutional Development Component Technical assistance 0.5 1.9 2.4 Training 0.3 0.8 1.1 Vehicles & equipment 0.2 0.5 0.7 Operating costs 1.2 0.4 1.6 Base cost 2.2 3.6 5.8 Physical contingencies 0.1 0.2 0.3 Price contingencies 0.5 0.6 1.1 Total component cost 2.8 4.4 7.2 TOTAL PROJECT COSTS 11.3 11.3 22.6 (of which taxes) (1.1) (-) (1.1) US$ Million Equiv. Financing Plan: Local Foreign Total IDA 3.8 8.9 12.7 UNDP 0.6 2.4 3.0 Government 5.8 - 5.8 TOTAL (without taxes) 10.2 11.3 21.5 Taxes 1.1 - 1.1 Total (with taxes) 11.3 11.3 22.6 Estimated Disbursements: IDA FY 1986 1987 1988 1989 1990 1991 1992 US.$ million Annual 0.5 1.3 2.4 3.2 3.2 1.9 0.2 Cumulative 0.5 1.8 4.2 7.4 10.6 12.5 12.7 Economic Rate of Return: 27% on the directly productive components of the Gitarama Agricultural Production component Appraisal Report: No. 5895-RW of February 19, 1986 Mbp: IBRD 19380  INTERNATIONAL DEVELOPMENT ASSOCIATION REPORT AND RECOMMENDATION OF THE PRESIDENT TO THE EXECUTIVE DIRECTORS ON A PROPOSED CREDIT TO THE RWANDESE REPUBLIC FOR THE GITARAMA AGRICULTURAL PRODUCTION AND MINAGRI INSTITUTIONAL DEVELOPMENT PROJECT 1. I submit the following report and recommendation on a pro- posed development credit to the Rwandese Republic in a total amount of SDR 11.7 million (US$12.7 million equivalent) on standard IDA terms to finance the Gitarama Agricultural Production and MINAGRI Institutional Development Project. The UNDP will provide US$3.0 million in co-financing on a joint basis. PART I: THE ECONOMY 2. A Country Economic Memorandum (Report No. 4059-RW) was dis- tributed to the Executive Directors on May 20, 1983 which discussed economic developments in Rwanda until that date. These developments, updated where possible, are summarized below. Country data are pro- vided in Annex I. 3. Rwanda's salient characteristics include its small size, an anuual population growth rate of 3.7 percent (ranking among the highest in Africa), a population density (in terms of agricultural land) of about 390 per square km (slightly higher than that of India but about four times that of Zaire and about eight times that of Tanzania), hilly terrain and high average altitude, a landlocked position, lack of natural resources (including shortage of arable land), underdeveloped physical and institutional infrastructure, and a very low level of development as measured by a variety of social as well as economic indicators. These indicators include a per capita income of about US$270 (1983), among the lowest in ihe world; an average life expect- ancy of 44 years; and an adult literacy rate of 40 percent. 4. The country is heavily dependent on agricultural exports (coffee, tea, pyrethrum, cinchona) which provide 75 percent of its foreign exchange earnings. Rwanda's manufacturing base is narrow, and the growth of modern manufacturing is limited by the small size of the market and the lack of raw materials, marketing facilities, entrepre- neurial skills, and skilled manpower. The country, consequently, imports capital goods, steel, petroleum products, cement and other con- struction materials, and virtually every modern consumer product. Its merchandise trade is hampered by high transportation costs and depend- ence on neighboring countries for access to the sea ports of Mombasa and Dar-es-Salaam.  - 2 - 5. Despite these constraints, Rwanda has made a creditable effort toward economic and social development. During the 1976-80 period, the country managed to satisfy its subsistence needs and to make important advances not only in agriculture but in other fields such as education, health, water supply, and small-scale industry. It succeeded in building basic transport and communication infrastructure and set in place a state administrative apparatus serious about deve- lopment. These achievements reflect the Government's commitment to economic and social progress, as well as its prudent fiscal, balance of payments and debt management policies. At the same time, Rwanda has been able to attract substantial volumes of external aid from a great diversity of sources, confirming donor perceptions that Government is indeed development-oriented and is pursuing generally appropriate objectives. The Government's efforts during this period were signi- ficantly helped by favorable weather conditions and the coffee boom of the late 1970's. 6. Achievement and good fortune notwithstanding, development efforts in Rwanda have not alleviated the fundamental problem which continue to compromise development prospects: population growth, in- creasingly at odds with land availability, an undiversified economic structure, Government's limited capacity to provide social services, and the economy's inability to generate jobs either outside or within the rural sector. Though foodcrop output has increased sufficiently to feed the growing population, it has apparently done Bo at a cost to the land's long-term fertility. Agricultural land use in Rwanda has reached a point where there is little fallow or grazing area left. The rapidly growing population has resulted in serious deforestation, accompanying erosion, and has required the cultivation of marginal lands with a fragile ecology. Concomitant with these adverse trends has been a deterioration of nutritional standards induced by the shift to traditional high-yield, high-calorie, but low-protein crops. The limited success of Government's efforts has been largely due to the country's structural constraints (among them the critical population problem), institutional weaknesses (stemming largely from shortage of skilled personnel), and insufficiency of domestic financial resources. At the same time, the shortage of skilled personnel, fragmentation of institutional responsibilities, and poor interagency coordination have limited the country's capacity to absorb external resources. 7. The Rwandese authorities have taken steps to address these problems. Of particular importance have been actions concerned with the extremely rapid population growth, and the lack of education and training. In 1981, the Government established the National Population Office (ONAPO) to plan, coordinate, and monitor all population activi- ties. ONAPO has started to sensitize the population about the implica- tions of excessive demographic pressure on the country's limited re- sources; a few pilot family planning programs have been set up; and a nationwide fertility survey, now completed, is expected to provide valuable information on the potential demand for family planning. Obviously, the impact of these measures will be felt only in the long run. To address the problem of lack of education and training, the Government introduced an education reform in 1979 which - after  - 3 - I subsequent adjustment - was responsive to the country's needs, but whose implementation has been hampered by financial constraints and the lack of teachers. 8. A quantitative assessment of Rwanda's recent economic per- formance can only be tentative, as the national account estimates have serious shortcomings. These estimates suggest that, compared to the period of 1978-1980, during which the GDP grew by about 6 percent annu- ally, economic growth in Rwanda slowed down during 1983-1984 - GDP grew on average by 3.3 percent p.a. - mainly on account of a downswing in tertiary sector activities. Balance of payments and budgetary con- straints impinged heavily upon trade and transport activities whose rapid growth in the past had been facilitated by greatly enlarged avaiplabilities of foreign exchange and budgetary revenues. Budgetary austerity measures introduced since 1983 resulted in stagnation of Government's expenditures in real terms during the past two years. Notwithstanding this domestic recession, the manufacturing sector ex- panded its productive capacity and improved its capacity utilization due, in part, to the import restrictions which limited foreign competi- tion. Mining continued the decline that started in 1980 due to per- sistent financial and management problems of the major mixed-ownership company (SOMIRWA) which i8 now being liquidated. In agriculture, the sluggish performance of the food crop production has been partially offset by the rise in the production of export crops. 9. Rwanda's external position came under strong pressure, as the volume of imports continued to expand at a time when export earnings were declining. Since 1981, the total value of exports has been con- sistently below their 1977-80 levels, reflecting the decline in world coffee prices rather than a shortfall in export volune. The terms of trade deteriorated by about 24 percent between 1979 and 1984. In an attempt to arrest the deterioration of the balance of payments, the Government adopted - beginning in 1983 - what they expected would be temporary measures, including licensing, prior deposit requirements and increased import tariffs. The restrictions aimed mainly at curtailing imports of non-essential consumption goods as well as those of locally produced commodities. The Rwandese authorities also shifted the peg of the Rwandese franc (in September 1983) from the US dollar to the SDR, entailing a 5.2 percent depreciation vis-a-vis the US dollar. These measures, coupled with some improvement in the terms of trade in 1984 (with respect to the 1981-1983 period) helped to reduce the current account deficit to about 9 percent of GDP in 1984 as compared to 12 and 11 percent, respectively, in 1982 and 1983. 10. On the budgetary side, the authorities failed to realize that the high level of tax revenues recorded in 1979 and 1980 was a tempo- rary phenomenon not justifying a permanent increase in expenditures. This failure reflected a major weakness in the assessment of resource availability and prospects. As a result, the sharp decline in revenues from coffee export taxes beginning in 1981; together with increases in current outlays (in order to achieve the social objectives of the Plan), resulted in an overall budgetary deficit equivalent to about 2 percent of GDP in both 1982 and 1983 (as compared to a surplus of 0.9  -4- percent in 1980.) Concern over the worsening budgetary situation led Government to introduce corrective fiscal measures. In 1984, the growth of current expenditures (in nominal terms) was limited to 2.3 percent (compared to 36 and 10 percent in 1981 and 1982, respecti- vely). The growth of public sector employment was held under 0.5 per- cent - the education sector was exempted in order to achieve the revised targets of the 1979 Education Reform. This represented a major break from Government's past policy of practically "guaranteeing' employment to every secondary-school graduate. Large reductions were also decided in net transfers to parastatals. Henceforth, state enter- prises of a commercial or industrial nature will not be granted budg- etary subsidies and will have to resort to commercial bank financing. On the revenue side, despite an upward revision of import duties on luxury goods and a more progressive tax structure on wages, the tax ratio to GDP remained relatively low at 9 percent. The same austerity measures have been included in the 1985 budget. 11. Government has been traditionally conservative in its mone- tary and credit policies. Inflationary pressures have arisen mainly from supply shortages caused by frequent disruptions of supply routes through neighboring countries, high international transport costs, and Increased prices of imports and seasonal fluctuations in the price of domestic foodstuffs. Inflation averaged 10.6 percent per annum during 1977-82, it peaked at 12.6 percent in 1982, reflecting mainly the sub- stantial increases in electricity and water tariffs and educational fees. In 1983 and 1984 inflation was down to 6.6 and 5.4 percent, respectively. 12. Rwanda has been one of the most favored beneficiaries of foreign aid in recent years. Per capita disbursements of net official development assistance (ODA) have been above US$30, much larger than the average for Africa. During the period 1981-84, grants comprised about 80 percent of total external aid flows, and were provided mainly by Belgium, the Federal Republic of Germany, and France. In view of its level of development, Rwanda will need external assistance for a long time to come. Even maintaining per capita income at the current low level - a very modest objective indeed - will require a continua- tion of assistance at least at the current level, given population growth and export constraints. The donor community should make efforts to increase its assistance, provided Rwanda continues to pursue sound macro-economic, sectoral (particularly in agriculture), and population policies. 13. Rwanda's medium- and long-term external public debt is rela- tively small, amounting to US$220 million at end-1983, equivalent to about 15 percent of GDP. Most of Rwanda's external debt was contracted on highly concessionary terms; the grant element was over 70 percent on average during the 1972-84 period. Due to the concessionary nature of these loans, the debt service payments on mediumr- and long-term debt are relatively low: 7.0 percent of exports of goods and nonfactor ser- vices in 1984. Hence, there remains scope for further borrowing. How- ever, given the poverty of the country, its overwhelming constraints and vulnerability, and its unfavorable terms of trade prospects, exter-  -5- nal funds should continue to be provided in the form of grants or loans at highly concessionary terms, and include a high proportion of local cost financing and non-project assistance. PART II: THE BANK GROUP ASSISTANCE 14. The Bank Group assistance, started in 1970, was initially focused on the improvement of the road network and the strengthening of agricultural production. As of January 31, 1986, Rwanda has received twenty-four IDA credits totalling US$267.2 million: eight for agricul- ture (34 percent); six for roads (30 percent); four for DFC's (10 per- cent); two for power (9 percent); two for education (6 percent); one for telecommunications (3 percent); two for technical assistance (4 percent); and one for water supply (5 percent). In addition, Rwanda has received a Special African Facility Credit of US$15.0 million for the Sixth Highway Project. There have been no Bank loans. Three IFC investments (one of US$535,000 for a tea factory; a second of US$226,000 with contingent equity commitment of up to US$60,000 to expand the tea factory; a third of US$249,000 also to expand the tea factory) were signed in 1976, 1980 and 1985, respectively. Annex II contains a summary statement of IDA credits and IFC investments. 15. In fiscal years 1982-84, disbursements for Rwanda totalled US$49.1 million, compared to new commitments of US$86.2 million. The annual disbursement rate increased steadily over this period, to reach about 25 percent in FY85 which is above the average for countries of the Eastern and Southern Africa Region. 16. The Bank Group lending has been based on a country strategy which has emphasized: (i) agriculture and rural development, the main objective being to increase food production as well as export crops, while maintaining soil fertility and considering the environment; (ii) human resources development, focusing on support to basic education and skills training to improve agricultural productivity, provide skilled manpower, and influence attitudes on the population issue, and, more recently, on family planning programs per se; (iii) infrastructure development, particularly roads, to reduce the country's isolation and to provide incentives to further intensification of agriculture as well as increased specialization and diversification through better market- ing; (iv) energy, to lessen the country's demand for fuel imports; and (v) development of small and mediur-size enterprises in manufacturing and other sectors. 17. One of the major constraints to Rwanda's development is the shortage of technical/managerial capacity. This affects all sectors and inhibits project preparation and implementation. Intensive tech- nical assistance and on-the-job training of Rwandese staff have, there- fore, been a salient feature of the Bank Group program for Rwanda, both under individual projects in various sectors, and through a free- standing technical assistance project (Credit 1217-RW which became effective in November 1982). This project has helped strengthen inter- ministerial coordination, provided training to staff in the studies  -6- units of concerned agencies, and contributed to improve the preparation of the next five-year plan. 18. The Bank Group program has been pursued in a climate of good relations with the Government. In all sectors in which we are active, there exist a general receptivity to our advice and willingness to take action where required. In agriculture, improved sector management as well as more rigorous project planning and financial controls have been attained, with a shift away from integrated rural development schemes towards more directly productive and sustainable projects. In the highway sector, our active dialogue with the Ministry of Public Works and Energy is now focusing on the ways to reduce reliance upon expatri- ate expertise. In industrial development, we have gained Government's commitment to promote small-scale enterprises. A positive dialogue with the Ministry of Primary and Secondary Education (MIKIPRISEC) has emerged in the past three years; the Ministry has revised its overly ambitious education reform proposal and adopted a less costly and lengthy primary cycle. On population, our initially cautious approach to Government has developed into cooperative efforts to promote suitable family health and planning programs. 19. The Bank Group strategy continues to center on the five sectors mentioned above (para. 16), with special emphasis on agricul- ture and population. For the former, we give priority to: (i) promote intensification by developing and strengthening Rwanda's agricultural research and extension capabilities; and (ii) reinforce the key sector institutions - the Rwandese Research Institute and the Ministry of Agriculture. In the population sector, our program involves close collaboration with the National Population Office (the agency respon- sible for designing and promoting educational programs and service delivery systems for family planning), support to maternal/child health initiatives thro.gh the Ministry of Health, recently reorganized, and to participate more effectively in other efforts to deal with Rwanda's bourgeoning population problem. 20. our dialogue with the Government continues to carry a macro- economic dimension. Rwandese authorities have recently indicated readiness to proceed with the preparation of an economic recovery pro- gram ("Prograime de Relance"), and asked the Bank's assistance in its formulation. A Bank economic mission recently visited Rwanda in res- ponse to this request. The missionts work, which extended in particu- lar over agriculture and mining sectors and public enterprises, will help further strengthen the cooperation between Rwanda and the Bank at the macroeconomic level. PART III: THE AGRICULTURAL SECTOR The Agricultural Setting 21. The topography of Rwanda is hilly to mountainous with elevation and rainfall increasing from east to west. The country covers an area of approximately 26,000 km2. Smallholder and rainfed agriculture is the predominant feature of the economy. Population  pressure has resulted in diminishing farm size with more than half of the farm families occupying less than 1 ha and another 30 percent between 1 and 2 ha. Average annual rural family income is about US$550 (US$70 per capita). About half of Rwanda's land area can be used for agriculture. Of this, 50 percent is planted in food crops: beans, sweet potatoes, cassava, beer banana and sorghum (and more recently, potatoes, maize and peas). About 5 percent is under export or industrial crop cultivation, mainly coffee, but also tea and approximately 40 percent is used as pasture land, wood lots and fallow. Due to rapidly increasing population pressure, land availability has declined and led to an intensification of agriculture through double cropping. 22. Up to the present, food production seems to have kept pace with population growth, roughly maintaining national food self-suffi- ciency. However, national statistics indicate that the growth of agri- cultural output may be slowing down after a period of relatively strong growth, 5.8 percent per annum in the period 1974-81. During the period 1981-84, the average annual growth rate of the sector was about 3.5 percent, less than the population growth rate. Commercial food imports (mainly wheat, rice, oils, salt and sugar) accounted for about 8 per- cent of total value of merchandise imports in 1984 (US$11 million). Normal food aid flows in recent years have been in the order of 10,000 to 15,000 tons of cereals, beans, powdered milk and vegetable oils. 23. Rwanda experienced substantial crop failures in 1984 due to poor rain early in the year. The Government responded quickly to a potential food crisis by assisting farmers to plant dry swamp lands and river valleys. Donors provided an additional 27,000 tons of food aid, the arrival of which was delayed due to transportation bottlenecks in Kenya. The rainy season in late 1984 and 1985 has been good and general recovery is proceeding well. Sector Strategy 24. The Third Development Plan (1982-86) reaffirms the predomi- nant importance of the agricultural sector to the Rwandese economy and stresses the need to focus greater resources on the critical con- straints to increasing production at the farm level. The strategy alms to: (a) reorient agricultural research to the needs and con- straints of the traditional farm system and strengthen links between research and extension; and (b) improve organization of field exten- sion services. The Plan also described the need to expand agricultural credit; develop food crop marketing, input services and storage; deve- lop the cooperative movement; and strengthen technical manpower capa- city through expansion of technical schools. 25. The major constraints to implementing the sectoral strategy include the Government's difficult budgetary situation, limited sector planning and management capacity and the shortage of trained staff in technical and management fields. Government has made important efforts  - 8 - to improve its general planning capacity, especially with the UNDP/IDA Technical Assistance Project (Cr. 1217-RW) chiefly designed to strengthen the Ministry of Planning. Parallel efforts are also under- way to improve the public finance management capability of the Ministry of Finance (Cr. 1565-RW). In addition, the Government has recognized that reinforcement of the programming, monitoring and evaluation, and budgeting and financial control functions of MINAGRI is a prerequisite to improving the effectiveness of Government policies and interventions in the sector. 26. A highly decentralized approach to development featuring numerous integrated rural development (IRD) projects has added complex- ity in coordinating interventions in the agricultural sector and in- creased the Government's difficulty in formulating and implementing new policies and national actions. Each IRD project has tended to intro- duce a separate extension service, input supply mechanism, credit system, etc., contributing to the fragmentation of such services throughout Rwanda. External agencies have often contributed to this situation because of insufficiently coordinated actions. 27. There is an increasing concern in the Government that past development efforts have generally not led to significant increases in agricultural productivity or to viable and sustainable enterprises and field services. This has prompted a closer scrutiny of proposed in- vestments, a review of the organization of agricultural field services and of policies toward agricultural subsidies. In addition, there is an increasing awareness of the need for better policy analysis, project preparation and for more effective monitoring, evaluation and control of projects and services. Government Financing of Agriculture 28. Agricultural investments and services are financed from five sources: the Government, external aid agencies, non-governmental orga- nizations, the local communes, and the general population's collective and compulsory contribution through public works projects (umuganda). Government allocations to the sector in recent years have averaged about RF 1,400 million (US$14 million). About 60 percent of this has gone to operating costs of ongoing activities and 40 percent to the Development Budget. Agriculture accounts for about 5 percent of the total Operating Budget and about 15 percent of the Development Budget. Allocations to the sector have remained largely unchanged in nominal prices over the last three years and its share of the total has also remained constant. The Government has been very successful in attracting foreign assistance for the sector. The level of foreign aid (mainly on ccncessional terms) has grown steadily in recent years; expenditures in 1983 from multilateral and bilateral aid sources amounted to approximately US$32 million. Non-governmental organiza- tions were estimated to contribute about US$700,000 in 1983.  - 9 - 29. Cost Recovery. Direct cost recovery on agricultural services is low, although it should be noted that the umuganda system can be considered as a payment in kind, a sort of cost recovery. Under the current Government policy, most inputs are subsidized to some extent. In principle, farmers pay indirectly for extension services through local taxes although the communal taxation system remains poorly orga- nized and most communes cannot afford to pay more than a few agricul- tural employees. The impact of subsidies on Government's budget has not been large to date because most subsidies are financed by external- ly financed projects (seed multiplication, insemination services, pro- duction of tree seedlings and fertilizers imported on a grant basis, etc.). The problem will increase as donor financing phases out. 30. There is an increasing awareness in Government of the poten- tial future impact of subsidies on the Government's budget. Improved cost recovery for Government input distribution and services is now a Government objective. Recent initiatives have been taken in some pro- jects to provide vehicles (motorcycle and bicycles) to staff on a credit basis, to rent underutilized transport or storage capacity to the private or cooperative sectors at cost and to provide equipment services at a fee to the local community. Some projects have intro- duced greater cost recovery on project staff housing. Any future pro- ject should incorporate cost recovery measures on inputs and services provided to farmers, minimize the need for operating cost outlays by Government and be carefully designed to ensure that such Government outlays, which are required, can be supported. The proposed project would address these questions (para 64). Previous Bank Group Involvement in the Sector 31. IDA lending for the rural sector has amounted to US$92.4 million for eight operations. Through these projects, IDA has been involved in development efforts in several ecological zones covering a broad spectrum of regional development activities in all of the major sub-sectors, food crops, export crops (coffee and cinchona), forestry and livestock. Most projects have been of an integrated development nature, involving substantial investments in agricultural extension services, construction of roads and various economic and social infra- structure, and project related research. The most recently-approved operation in the sector, the Agricultural Research Project, represents the first of a series of new types of projects aimed at addressing cri- tical sectoral constraints. 32. Performance Evaluation. To date, there is only one project (Hutara Agricultural Development Project - Phase I, Credit 439-RW) for which both a completion report and a PPAR (Sec. M 81-570, 1981) have been prepared. A Project Completion Report was recently issued for the Bugesera Gisaka-Migongo - Phase I Project (Credit 668-RW) and a Project Completion Report for the Cinchona Project (Cred